-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PlcB+YGpAyDdobEy1kRfxPUBKlFvdKZb1ru7VqWc+ZKABbZPCRZ3FdOSSsguD35h 08KnOMu7Kj0oH8qxxE3hyg== 0000931763-01-502439.txt : 20020413 0000931763-01-502439.hdr.sgml : 20020413 ACCESSION NUMBER: 0000931763-01-502439 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 15 REFERENCES 429: gov.sec.edgar.dataobjects.object.PDSubFN429Data@1dd914f0 FILED AS OF DATE: 20011213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIATION SALES PROPERTY MANAGEMENT CORP CENTRAL INDEX KEY: 0001084390 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 650885418 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-12 FILM NUMBER: 1813087 BUSINESS ADDRESS: STREET 1: C/O AVIATION SALES CO STREET 2: 6905 N.W., 25TH STREET CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055924055 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HYDROSCIENCE INC CENTRAL INDEX KEY: 0001084395 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 751456297 STATE OF INCORPORATION: TX FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-05 FILM NUMBER: 1813102 BUSINESS ADDRESS: STREET 1: C/O AVIATION SALES CO STREET 2: 6905 N.W., 25TH STREET CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055924055 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIAD INTERNATIONAL MAINTENANCE CORP CENTRAL INDEX KEY: 0001084394 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541510639 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-02 FILM NUMBER: 1813103 BUSINESS ADDRESS: STREET 1: C/O AVIATION SALES CO STREET 2: 6905 N.W., 25TH STREET CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055924055 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AERO HUSHKIT CORP CENTRAL INDEX KEY: 0001084393 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 593220181 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-19 FILM NUMBER: 1813104 BUSINESS ADDRESS: STREET 1: C/O AVIATION SALES CO STREET 2: 6905 N.W., 25TH STREET CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055924055 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIATION SALES MAINTENANCE REPAIR & OVERHAUL CO CENTRAL INDEX KEY: 0001084392 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 650871343 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-13 FILM NUMBER: 1813105 BUSINESS ADDRESS: STREET 1: C/O AVIATION SALES CO STREET 2: 6905 N.W., 25TH STREET CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055924055 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVSRE LP CENTRAL INDEX KEY: 0001084391 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 650885420 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-06 FILM NUMBER: 1813106 BUSINESS ADDRESS: STREET 1: C/O AVIATION SALES CO STREET 2: 6905 N.W., 25TH STREET CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055924055 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WHITEHALL CORP CENTRAL INDEX KEY: 0000106827 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT [3721] IRS NUMBER: 410838460 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-01 FILM NUMBER: 1813088 BUSINESS ADDRESS: STREET 1: C/O AVIATION SALES CO STREET 2: 6905 N.W., 25TH STREET CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055924055 MAIL ADDRESS: STREET 1: 2659 NOVA DRIVE STREET 2: PO BOX 29709 CITY: DALLAS STATE: TX ZIP: 75229 FORMER COMPANY: FORMER CONFORMED NAME: WHITEHALL ELECTRONICS CORP DATE OF NAME CHANGE: 19730522 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVS M 1 INC CENTRAL INDEX KEY: 0001063284 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 650791491 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-09 FILM NUMBER: 1813089 BUSINESS ADDRESS: STREET 1: 6905 NW 25TH ST CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055924055 MAIL ADDRESS: STREET 1: 6905 NW 25TH ST STREET 2: 6905 N W 25TH STREET CITY: MIAMI STATE: FL ZIP: 33122 FORMER COMPANY: FORMER CONFORMED NAME: AVIATION SALES MANUFACTURING & REPAIR CO DATE OF NAME CHANGE: 19980603 FORMER COMPANY: FORMER CONFORMED NAME: AVIATION SALES MANUFACTURING CO DATE OF NAME CHANGE: 19990614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIATION SALES FINANCE CO CENTRAL INDEX KEY: 0001063283 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 510375317 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-15 FILM NUMBER: 1813090 BUSINESS ADDRESS: STREET 1: 6905 NW 25TH ST CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055924055 MAIL ADDRESS: STREET 1: 6905 NW 25TH ST STREET 2: 6905 N W 25TH STREET CITY: MIAMI STATE: FL ZIP: 33122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIATION SALES LEASING CO CENTRAL INDEX KEY: 0001063282 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 650674397 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-14 FILM NUMBER: 1813091 BUSINESS ADDRESS: STREET 1: 6905 NW 25TH ST CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055924055 MAIL ADDRESS: STREET 1: 6905 NW 25TH ST STREET 2: 6905 N W 25TH STREET CITY: MIAMI STATE: FL ZIP: 33122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVS M 2 INC CENTRAL INDEX KEY: 0001063281 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 311575338 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-08 FILM NUMBER: 1813092 BUSINESS ADDRESS: STREET 1: 623 RADAR ROAD CITY: GREENSBORO STATE: NC ZIP: 27410 BUSINESS PHONE: 336-668-4410 MAIL ADDRESS: STREET 1: 623 RADAR ROAD STREET 2: 623 CITY: GREENSBORO STATE: NC ZIP: 27410 FORMER COMPANY: FORMER CONFORMED NAME: AVS/KRATZ-WILDE MACHINE CO DATE OF NAME CHANGE: 19980603 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEROCELL STRUCTURES INC CENTRAL INDEX KEY: 0001063280 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 710704240 STATE OF INCORPORATION: AK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-18 FILM NUMBER: 1813093 BUSINESS ADDRESS: STREET 1: 6905 NW 25TH ST CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055924055 MAIL ADDRESS: STREET 1: 6905 NW 25TH ST STREET 2: 6905 N W 25TH STREET CITY: MIAMI STATE: FL ZIP: 33122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVS M 3 INC CENTRAL INDEX KEY: 0001063279 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 650801884 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-07 FILM NUMBER: 1813094 BUSINESS ADDRESS: STREET 1: 623 RADAR ROAD CITY: GREENSBORO STATE: NC ZIP: 27410 BUSINESS PHONE: 336-668-4410 MAIL ADDRESS: STREET 1: 623 RADAR ROAD STREET 2: 623 RADAR ROAD CITY: GREENSBORO STATE: NC ZIP: 27410 FORMER COMPANY: FORMER CONFORMED NAME: APEX MANUFACTURING INC DATE OF NAME CHANGE: 19980603 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVS CAI INC CENTRAL INDEX KEY: 0001063278 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 591710967 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-10 FILM NUMBER: 1813095 BUSINESS ADDRESS: STREET 1: 6905 NW 25TH ST CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055924055 MAIL ADDRESS: STREET 1: 6905 NW 25TH ST STREET 2: 6905 N W 25TH STREET CITY: MIAMI STATE: FL ZIP: 33122 FORMER COMPANY: FORMER CONFORMED NAME: CARIBE AVIATION INC DATE OF NAME CHANGE: 19980624 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIRCRAFT INTERIOR DESIGN INC CENTRAL INDEX KEY: 0001063277 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 592449132 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-17 FILM NUMBER: 1813096 BUSINESS ADDRESS: STREET 1: 6905 NW 25TH ST CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055924055 MAIL ADDRESS: STREET 1: 6905 NW 25TH ST STREET 2: 6905 N W 25TH STREET CITY: MIAMI STATE: FL ZIP: 33122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIATION SALES SPS I INC CENTRAL INDEX KEY: 0001063275 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 650774065 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-11 FILM NUMBER: 1813097 BUSINESS ADDRESS: STREET 1: 6905 NW 25TH ST CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055924055 MAIL ADDRESS: STREET 1: 6905 NW 25TH ST STREET 2: 6905 N W 25TH STREET CITY: MIAMI STATE: FL ZIP: 33122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIATION SALES DISTRIBUTION SERVICES CO CENTRAL INDEX KEY: 0001063274 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 650673002 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-16 FILM NUMBER: 1813098 BUSINESS ADDRESS: STREET 1: 6905 NW 25TH ST CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055924055 MAIL ADDRESS: STREET 1: 6905 NW 25TH ST STREET 2: 6905 N W 25TH STREET CITY: MIAMI STATE: FL ZIP: 33122 FORMER COMPANY: FORMER CONFORMED NAME: AVIATION SALES OPERATING CO DATE OF NAME CHANGE: 19980603 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIATION SALES CO CENTRAL INDEX KEY: 0001012159 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 650665658 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464 FILM NUMBER: 1813099 BUSINESS ADDRESS: STREET 1: 3701 FLAMINGO DR CITY: MIRAMAR STATE: FL ZIP: 33027 BUSINESS PHONE: 3055924055 MAIL ADDRESS: STREET 1: 3701 FLAMINGO DR CITY: MIRAMAR STATE: FL ZIP: 33027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIMCO ENGINEERED SYSTEMS INC CENTRAL INDEX KEY: 0001159047 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 571095954 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-03 FILM NUMBER: 1813100 BUSINESS ADDRESS: STREET 1: AVIARION SALES CO STREET 2: 623 RADAR RD CITY: GREENSBORO STATE: NC ZIP: 27410 BUSINESS PHONE: 3366684410X3004 MAIL ADDRESS: STREET 1: AVIARION SALES CO STREET 2: 623 RADAR RD CITY: GREENSBORO STATE: NC ZIP: 27410 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIMCO ENGINE CENTER INC CENTRAL INDEX KEY: 0001159046 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 582485688 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69464-04 FILM NUMBER: 1813101 BUSINESS ADDRESS: STREET 1: AVIARION SALES CO STREET 2: 623 RADAR RD CITY: GREENSBORO STATE: NC ZIP: 27410 BUSINESS PHONE: 3366684410X3004 MAIL ADDRESS: STREET 1: AVIARION SALES CO STREET 2: 623 RADAR RD CITY: GREENSBORO STATE: NC ZIP: 27410 S-4/A 1 ds4a.txt REGISTRATION STATEMENT AMENDMENT # 1 As filed with the Securities and Exchange Commission on December 13, 2001. Registration No. 333-69464 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- PRE-EFFECTIVE AMENDMENT NO. 2 TO FORM S-4 REGISTRATION STATEMENT Under The Securities Act of 1933 --------------- AVIATION SALES COMPANY (Exact name of registrant as specified in its charter) Delaware 5084 65-0665658 (State or other (Primary Standard Industrial (I.R.S. Employer jurisdiction Classification Code No.) Identification No.) of Incorporation or organization) 623 Radar Road Greensboro, North Carolina 27410 (336) 668-4410 (x3004) (Address, including Zip Code, and telephone number, including area code, of registrant's principal executive offices) --------------- Roy T. Rimmer, Jr., President and Chief Executive Officer Aviation Sales Company 623 Radar Road Greensboro, North Carolina 27410 (336) 668-4410 (Ext 3004) (Name, address, including Zip Code, and telephone number, including area code, of agent for service) --------------- Copies to: Philip B. Schwartz, Esq. Akerman, Senterfitt & Eidson, P.A. One Southeast Third Avenue Miami, Florida 33131-1704 (305) 982-5604 --------------- Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective in connection with the exchange offer described in the prospectus contained in this Registration Statement. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] --------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CO-REGISTRANTS
Primary Standard Industrial IRS Employee State of Classification Identification Name of Additional Registrant Incorporation Code Number - ----------------------------- ------------- ---------------- -------------- Aero Hushkit Corporation........ Delaware 811210 59-3220181 Aerocell Structures, Inc. ...... Arkansas 336410 71-0704240 Aircraft Interior Design, Inc. .......................... Florida 336410 59-2449132 Aviation Sales Distribution Services Company............... Delaware 336410 65-0673002 Aviation Sales Finance Company.. Delaware 551112 51-0375317 Aviation Sales Leasing Company.. Delaware 336410 65-0674397 Aviation Sales Maintenance, Repair & Overhaul Company...... Delaware 551112 65-0871343 Aviation Sales Property Management Corp. .............. Delaware 551112 65-0885418 Aviation Sales SPS I, Inc. ..... Delaware 7359 65-0774065 AVS/CAI, Inc.................... Florida 811210 59-1710967 AVS/M-1, Inc.................... Delaware 336410 65-0791491 AVS/M-2, Inc.................... Delaware 336410 31-1575338 AVS/M-3, Inc.................... Arizona 336410 65-0801884 AVSRE, L.P...................... Delaware 531120 65-0885420 Hydroscience, Inc............... Texas 811210 75-1456297 Timco Engine Center, Inc........ Delaware 811210 58-2485688 Timco Engineered Systems, Inc... Delaware 811210 57-1095954 Triad International Maintenance Corporation.................... Delaware 811210 54-1510639 Whitehall Corporation........... Delaware 811210 41-0838460
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus and consent solicitation is not complete + +and may be changed. We may not complete this exchange offer and consent + +solicitation and issue these securities until the registration statement + +filed with the Securities and Exchange Commission is effective. This + +prospectus and consent solicitation is not an offer to sell these securities + +and is not soliciting an offer to buy these securities in any jurisdiction + +where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED DECEMBER 13, 2001 PROSPECTUS AND CONSENT SOLICITATION AVIATION SALES COMPANY ----------- Exchange Offer for and Consent Solicitation with Respect to All Outstanding 8 1/8% Senior Subordinated Notes due 2008 ----------- We are offering to exchange a combination of up to $10.0 million in cash and up to $100,000,000 of our 8% senior subordinated convertible PIK notes due 2006, our common stock and our warrants to purchase our common stock for any and all of our outstanding $165,000,000 aggregate principal amount of 8 1/8% senior subordinated notes due 2008. We are also soliciting consents to amend the indenture under which the 8 1/8% senior subordinated notes due 2008 were issued and to waive the currently outstanding default arising as a result of our failure to pay the interest payment due on August 15, 2001 and any other defaults. In this prospectus and consent solicitation we sometimes refer to the 8 1/8% senior subordinated notes due 2008 as the "old notes" and the 8% senior subordinated convertible PIK notes due 2006 as the "new notes." In August 2001, we entered into an agreement with the holders of 73.02%, or $120,479,000 in aggregate principal amount, of the old notes to restructure those notes. Under the agreement, the note holders will exchange their old notes in this exchange offer and consent solicitation. In connection with the restructuring, we intend to conduct an offering of rights to purchase 24,024,507 post-reverse split shares (defined below) of our common stock to all existing stockholders to raise $20 million. Lacy Harber, who is a beneficial owner of approximately 29.4% of our outstanding common stock and one of our principal stockholders, has agreed to purchase any unsold allotments in the rights offering. Investors who purchase the $20 million of shares in our reorganized company in the rights offering will own 80% of the outstanding common stock of the reorganized company. Our existing stockholders will own 5% of the reorganized company and will also be granted five-year warrants to purchase an additional 3,003,363 post-reverse split shares of our common stock at exercise price $5.16 per share. Additionally, the new note holders will own 15% of the reorganized company and will be granted five year warrants to purchase an additional 3,003,363 post-reverse split shares of our common stock at exercise price $5.16 per share. Further, the new note holders may receive additional shares of our post-reverse split common stock upon redemption of the new notes and upon maturity, if not previously redeemed, the new notes (inclusive of all accrued but unpaid interest) will automatically convert into an aggregate of 270,275,706 shares of our post-reverse split common stock. The rights offering, including the potential sale of up to 80% of our to-be- outstanding common stock to one of our principal stockholders if he is called upon to purchase unsold allotments in the rights offering, the exchange offer and consent solicitation, and the recapitalization and reverse split (both as defined below) will require approval of a majority of our stockholders. Completion of the rights offering will be subject to the requirement that the exchange offer and consent solicitation be consummated at the same time and to obtaining the consent to the exchange offer and consent solicitation and the rights offering from our senior lenders and the parties to our tax retention operating lease. Although there can be no assurances, the rights offering and restructuring contemplated by this prospectus and consent solicitation are expected to close by March 31, 2002. ----------- Both acceptance and rejection of this exchange offer and consent solicitation involve a high degree of risk. You should consider carefully the risk factors discussed beginning on page 22 of this prospectus and consent solicitation in evaluating the exchange offer and consent solicitation. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined that this prospectus and consent solicitation is truthful or complete. Any representation to the contrary is a criminal offense. The exclusive dealer manager for this exchange offer and consent solicitation is Houlihan Lokey Howard & Zukin Capital The date of this prospectus and consent solicitation is , 2001. (Continued on next page) (Continued from previous page) In connection with the note restructuring, we also intend to change our capitalization (the "recapitalization") by increasing the number of our authorized shares of common stock from 30 million shares to 500 million shares, followed by a reduction in the number of our issued and outstanding shares of common stock. We expect to accomplish this reduction in our issued and outstanding common stock through a reverse-split of our issued and outstanding common stock on a ten-share-for-one-share basis (the "reverse split"). The reverse split will become effective immediately prior to the closing of the exchange offer and consent solicitation and the rights offering, all of which must occur if any of it occurs. Exchange offer and consent solicitation . The exchange offer and consent solicitation will expire at 5:00 p.m., New York City time, on , 2002. . For each $1,000 principal amount of old notes tendered and accepted for exchange, you will receive, at your election, (1) $303 in cash, up to an aggregate maximum of $10 million in cash for $33 million in principal amount of old notes or (2) $757.58 principal amount of our new notes, 34.12 post- reverse split shares of our common stock and warrants to purchase 22.75 post-reverse split shares of our common stock (at an exercise price of $5.16 per share). . Up to $10 million in cash will be exchanged for $33 million principal amount of old notes. If less than all of our outstanding old notes are exchanged, then the $10 million in cash available will be reduced $303 for every $1,000 principal amount of old notes not exchanged. . If more than $33 million principal amount of old notes are tendered under the cash option, every additional $1,000 principal amount of old notes tendered will be exchanged for the combination of $757.58 principal amount of new notes, 34.12 post-reverse split shares of our common stock and warrants to purchase 22.75 post-reverse split shares of our common stock (at an exercise price of $5.16 per share). We will distribute up to $10 million in cash so that everyone who tenders old notes under this option will receive cash, new notes, common stock and warrants in the same proportion as everyone else who tenders old notes under this option. . In the aggregate, up to $100 million principal amount of new notes, up to 4,504,595 post-reverse split shares of our common stock and up to 3,003,063 warrants to purchase post-reverse split shares of our common stock (at an exercise price of $5.16 per share) will be exchanged for $132 million in principal amount of our old notes. . If more than $132 million principal amount of old notes are tendered under the non-cash option, every additional $1,000 principal amount tendered will be exchanged for $303 in cash. We will distribute the new notes, common stock and warrants so that everyone who tenders under this option will receive new notes, common stock, warrants and cash in the same proportion as everyone else who tenders old notes under this option. . The new notes will be our general unsecured obligations, will be subordinated in right of payment to all of our current and future senior debt and senior to any old notes not exchanged, and will be fully and unconditionally guaranteed on a senior subordinated basis by our wholly owned U.S. subsidiaries. . If you tender your old notes, you will automatically consent to amendments to the indenture governing the old notes and to the waiver of the currently outstanding default arising from our failure to make the August 15, 2001 interest payment on our old notes and any other defaults arising under the indenture. These amendments remove all of the material covenants contained in the indenture, except the obligation to pay principal and interest, including the covenants restricting increasing the amount of senior debt we and our subsidiaries may incur. The amendments will apply to the old notes not tendered for exchange, except that (Continued on next page) (ii) (Continued from previous page) the amendment extending the grace period to pay interest and the waiver of the default in payment of interest will not be effective against any note holder not consenting to that amendment or waiver. . This exchange offer and consent solicitation is subject to the following conditions: . Holders of old notes must tender a minimum of $132 million in aggregate principal amount of old notes along with consents to amendments to the indenture governing the old notes; . We must receive consent to the exchange offer and consent solicitation from our senior lenders and the parties to our tax retention operating lease, which consent has been obtained; . We must receive $20 million in cash in our rights offering in exchange for 80% of the to-be-outstanding common stock of the reorganized company; . We must increase the number of authorized shares of our common stock to 500 million shares by means of an amendment to our certificate of incorporation and reduce the number of our issued and outstanding shares by reducing every ten shares into one share through the reverse split; and . We must receive the approval from the holders of a majority of our outstanding common shares of: . the issuance of the new notes, shares of our common stock and warrants to purchase common stock in the exchange offer and consent solicitation; . the issuance to existing stockholders of warrants to purchase an aggregate of 3,003,363 post reverse split shares of our common stock (at an exercise price of $5.16 per share); . the sale of 80% of the to-be-outstanding common stock of the reorganized company for $20 million in the rights offering; . the sale of post-reverse split common stock to Lacy Harber in accordance with his agreement to purchase unsold allotments in the rights offering; and . the increase in the number of our authorized shares to 500 million shares and the reduction of our issued and outstanding shares on a one- for-ten basis in the reverse split. If we are unable to consummate this exchange offer and consent solicitation, we may have to seek bankruptcy protection or commence liquidation or administration proceedings. In that case, holders of old notes may only receive repayment of little or none of the principal amount of their old notes. If the conditions are not satisfied or waived or if we otherwise terminate the exchange offer and consent solicitation, we will return tendered old notes to you, without expense to you. If the conditions of the exchange offer and consent solicitation are satisfied or waived by us, we will accept for exchange any and all old notes that are validly tendered and not withdrawn before 5:00 p.m., New York City time, on , 2001, the expiration date of the exchange offer and consent solicitation. Our common stock is quoted on the OTC Bulletin Board maintained by the NASD under the symbol "AVIO." On December 10, 2001, our common stock closed at $.37 per share. The new notes will not be traded on an exchange or quoted on any automated quotation system. (iii) TABLE OF CONTENTS
Page ---- QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER AND CONSENT SOLICITATION.............................................................. 1 SUMMARY.................................................................... 4 RISK FACTORS............................................................... 22 FORWARD-LOOKING STATEMENTS................................................. 36 MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK.............................. 38 CAPITALIZATION............................................................. 39 RATIO OF EARNINGS TO FIXED CHARGES......................................... 41 USE OF PROCEEDS............................................................ 41 SELECTED FINANCIAL DATA ................................................... 42 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................................... 44 QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK.................... 59 BUSINESS................................................................... 60 OUR MANAGEMENT............................................................. 70 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 75 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 77 THE EXCHANGE OFFER AND CONSENT SOLICITATION................................ 78 DESCRIPTION OF NEW NOTES................................................... 99 DESCRIPTION OF OLD NOTES................................................... 124 DESCRIPTION OF OTHER INDEBTEDNESS.......................................... 146 DESCRIPTION OF OUR CAPITAL STOCK........................................... 148 MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES..................... 151 BOOK-ENTRY SYSTEM--THE DEPOSITORY TRUST COMPANY............................ 159 LEGAL MATTERS.............................................................. 160 EXPERTS.................................................................... 160 WHERE YOU CAN FIND MORE INFORMATION........................................ 160 CONSOLIDATED FINANCIAL STATEMENTS OF AVIATION SALES COMPANY................ F-1 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............ P-1
(iv) QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER AND CONSENT SOLICITATION Q: What is the proposed transaction? A: We are offering to exchange either (a) up to $10 million of cash or (b) a combination of our new notes, common stock and warrants for any and all of our outstanding 8 1/8% senior subordinated notes due 2008, which we refer to as the old notes. As a part of the exchange offer and consent solicitation, we are soliciting consents to amend the indenture under which the old notes were issued. We will not complete the exchange offer and consent solicitation if fewer than $132 million in aggregate principal amount of the old notes are tendered. Q: Why are we proposing this transaction? A: We are making the exchange offer and consent solicitation as part of a strategic plan to reduce and refinance our old notes and provide working capital to our business and to restructure the capital stock of our company. The other parts of our strategic plan are a rights offering and a recapitalization, which we describe later in this prospectus and consent solicitation. Q: What will I receive in the exchange offer if I tender my old notes? A: If you tender your old notes prior to the expiration of the exchange offer, you will receive, at your election, for each $1,000 principal amount of old notes (1) $303 in cash or (2) $757.58 principal amount of our new notes, 34.12 shares of our post-reverse split common stock and warrants to purchase 22.75 shares of our post-reverse split common stock (at an exercise price of $5.16 per share). Q: Is there a maximum amount of cash or new notes, common stock and warrants that may be exchanged for old notes? A: Yes, the cash option is limited to a maximum of $10 million. We will purchase no more than $33 million principal amount of old notes for cash. If more than $33 million of old notes are tendered for the cash option, every additional $1,000 of old notes tendered will be exchanged for the combination of new notes, common stock and warrants. We will distribute the $10 million in cash so that everyone who tenders old notes under the cash option will receive cash, new notes, common stock and warrants in the same proportion as everyone else who tenders old notes under this limited cash option. If less than all the outstanding old notes are exchanged, then the $10 million in cash available for the cash option will be reduced $303 for every $1000 principal amount of old notes not exchanged. In the aggregate, up to $100 million principal amount of new notes, up to 4,504,595 shares of our post-reverse stock split common stock and warrants to purchase up to 3,003,063 shares of our post-reverse stock split common stock (at an exercise price of $5.16 per share) will be exchanged for $132 million in principal amount of old notes. If more than $132 million principal amount of old notes are tendered under this option, every additional $1,000 principal amount tendered will be exchanged for $303 in cash. We will distribute the new notes, common stock and warrants so that everyone who tenders under this option will receive new notes, common stock, warrants and cash in the same proportion as everyone else who tenders old notes under this option. Q: May I tender a portion of my old notes? A: You do not have to tender all of your old notes to participate in the exchange offer and consent solicitation. You do not have to choose the same option for all of the old notes that you tender. Q: May I tender my old notes without consenting to the proposed amendments? A: No. If you tender your old notes in the exchange offer and consent solicitation, you will automatically consent to the proposed amendments to the indenture governing those old notes. Similarly, if you wish to consent to the proposed amendments, you must tender your old notes. 1 Q: Will my rights as a holder of old notes change if I tender my old notes in the exchange offer? A: Yes. Currently, your rights as a holder of old notes are governed by the indenture under which the old notes were issued. If you exchange your old notes for a combination of new notes, common stock, and warrants, your rights as a noteholder with respect to the new notes will be governed by the indenture under which the new notes will be issued, your rights as a stockholder will be governed by Delaware law and our certificate of incorporation and bylaws and your rights as a warrant holder will be governed by Delaware law and the warrant agreement. Q: How would the proposed amendments to the indenture and the waiver of the currently outstanding default affect my rights as a holder of old notes if I fail to tender? A: If the indenture is amended, old notes that you do not tender will have a significantly less restrictive covenant package. We intend to eliminate all of the material covenants in the indenture, except the obligation to pay principal and interest. Those covenants, among other things, generally limit our ability to incur debt, pay certain dividends or similar distributions, enter into transactions with affiliates, permit a change of control without offering to repurchase the old notes, and incur liens to secure indebtedness. In addition, the new notes will be senior to the old notes in priority of payment. We are also asking you to waive the currently outstanding default arising as a result of our failure to pay the interest payment due on August 15, 2001 and any other default. This waiver will mean that you can not sue us for these defaults. The amendment extending the grace period to pay interest and the waiver of the default in payment of interest will not be effective against any note holder not consenting to that amendment or waiver. Q: When will accrued but unpaid interest on my old notes be paid? A: There will be no separate payment of accrued interest, including the August 15, 2001 payment, on the old notes in this exchange offer and consent solicitation and no assurance can be given that we will be able to make past due and/or future interest payments on any outstanding old notes. Q: If I tender my old notes and consent to the proposed amendments, will I be able to revoke this decision if I later change my mind? A: Yes. You may revoke your consent to the proposed amendments and withdraw your notes at any time on or before the expiration of the exchange offer. By withdrawing your old notes, you lose your right to receive the exchange offer consideration. Q: When does the exchange offer expire? A: Unless we extend the exchange offer, it will expire at 5:00 p.m., New York City time, on , 2002. Q: What are the terms of the new notes? A: The principal amount of the new notes is $100 million (valued at $114.7 million on our financial statements). The new notes bear interest at 8% per annum. We may pay the interest due on the new notes in cash or in additional paid-in-kind new notes, at our option. The new notes rank in right of payment after our senior debt and before the old notes that remain outstanding after the completion of this exchange offer and consent solicitation. We may redeem the new notes by paying, in cash, the following percentage of the sum of the principal, interest previously paid in kind through the issuance of new notes and accrued but unpaid interest due through the date of redemption:
If the new notes are redeemed at any time during: The redemption percentage will be: ------------------------------------------------- ---------------------------------- 2002 70% 2003 72.5% 2004 73% 2005 75.625% 2006 77.5%
2 Additionally, if we redeem the new notes, in addition to making the cash payment described above, we will issue to the holders of the new notes additional shares of our post-reverse split common stock as follows: (i) if we redeem the new notes in 2002 and 2003, we will issue an aggregate of 4,504,545 post-reverse split shares, and (ii) if we redeem the new notes in 2004, 2005 or 2006, we will issue an aggregate of 3,003,063 post-reverse split shares. If we do not redeem the new notes prior to maturity, the new notes, plus any accrued but unpaid interest thereon, will automatically convert at maturity into an aggregate of 270,275,706 post-reverse split shares of our common stock. Q: Who can help answer my questions? A: If you have any questions about the exchange offer or consent solicitation or if you need additional copies of this prospectus and consent solicitation, you should either contact us at: You may contact the Company at: or you may contact the Dealer Manager at: Aviation Sales Company Houlihan Lokey Howard & Zukin Capital 1623 Radar Road 685 Third Avenue, 15th Floor Greensboro, North Carolina 27410 New York, New York 10017-4024 Attention: Chief Financial Officer Attention: Saul Burian Telephone: (336) 668-4410 (Ext 3004) Telephone: (212) 497-4100 or you may contact the Exchange Agent at: HSBC Bank USA Issuer Services 425 Fifth Avenue New York, NY 10018-2706 Attention: Telephone: (212) 525-1300
3 SUMMARY The following summary highlights some information from this prospectus and consent solicitation. It may not contain all of the information that may be important to you. To understand this exchange offer and consent solicitation fully and for a more complete description of the legal terms of this exchange offer and consent solicitation, you should read carefully this entire prospectus and the other documents to which we have referred you, including the consent and letter of transmittal accompanying this prospectus and consent solicitation. Unless otherwise indicated, "Aviation Sales," "we," "us," and "our" refer to Aviation Sales Company and its subsidiaries. Also, in this prospectus we sometimes refer to the guarantees of the new notes as the "guarantees" and to our subsidiaries that guarantee the new notes as the "subsidiary guarantors." About Aviation Sales Company General We are a leading provider of aviation maintenance, repair and overhaul ("MR&O") services. We believe we are the largest independent provider of heavy maintenance services for aircraft in North America. We sell and provide aircraft maintenance, repair and overhaul services to commercial passenger airlines and air cargo carriers throughout the world. We offer maintenance and repair services through our eight repair stations licensed by the Federal Aviation Administration. These services include maintenance, repair and modification services for aircraft, and repair and overhaul services on flight control surfaces, aircraft interiors and Pratt & Whitney JT8D engines. In addition, we also provide modification services for the conversion of passenger aircraft to freighter configuration as well as aircraft engineering services. Our strategy is to be the vendor of choice to our customers, providing total aircraft maintenance solutions to meet our customers' MR&O requirements. The services we offer allow our customers to reduce their costs by outsourcing some or all of their MR&O functions. Our principal executive offices are at 623 Radar Road, Greensboro, North Carolina 27410, and our telephone number is (336) 668-4410 (Ext. 3004). Recent developments In May 2001, we completed the sale of the assets of Caribe Aviation, one of our component repair operations. The gross purchase price was $22.5 million, of which $21.8 million was received in cash at the closing and the balance will be received within one year, subject to post closing adjustments. We used $10.0 million of the proceeds from the sale to repay our revolving credit facility and $5.5 million to repay borrowings under our senior term loans. The balance, net of expenses, was used for working capital. In addition, the purchaser acquired the real estate and facility on which the Caribe operation is located for an aggregate purchase price of $8.5 million. The proceeds from the sale of the real estate and facility were used to reduce our outstanding tax retention operating lease financing. In August 2001, we entered into an agreement with the holders of 73.02%, or $120,479,000 in aggregate principal amount, of our old notes to restructure those notes. Under the agreement, the holders of more than a majority of the outstanding old notes have agreed to exchange their old notes in an exchange offer and consent solicitation and to waive the default arising as a result of the failure to pay the interest payment due August 15, 2001. Also, our senior lenders have agreed to forbear until March 31, 2002, subject to certain conditions, on the default in the senior loan agreements resulting from the failure to make the old note interest payment. We currently have $165.0 million in aggregate principal amount of old notes outstanding. 4 Rights offering and future issuance of common stock As part of the restructuring, we intend to conduct an offering of rights to purchase 24,024,507 post-reverse split shares of our common stock to all existing stockholders to raise $20 million. Lacy Harber, who is a beneficial holder of approximately 29.4% of our common stock and our largest stockholder, has agreed to purchase any unsold allotments in the rights offering. Investors who purchase the $20 million of shares in the reorganized company will receive 80% of our to-be-outstanding common stock. Our existing stockholders will own 5% of our reorganized company and will also be granted five-year warrants to purchase an additional 3,003,063 post-reverse split shares of our common stock an exercise price of $5.16 per share. Additionally, the new note holders will own 15% of the reorganized company and will be granted five-year warrants to purchase an additional 3,003,063 post-reverse split shares of our common stock an exercise price of $5.16 per share. Further, new note holders may in the future receive additional shares of our post-reverse split common stock upon redemption of the new notes and upon maturity if not previously redeemed, the new notes (inclusive of all accrued but unpaid interest) will automatically convert into 270,275,706 shares of our post-reverse split common stock. The rights offering, including the potential sale of up to 80% of our to-be- outstanding common stock to one of our principal stockholders if he is called upon to purchase unsold allotments in the rights offering, the exchange offer and consent solicitation, the recapitalization and the reverse split, will require approval of a majority of our stockholders. Completion of the rights offering will be subject to the requirement that the exchange offer and consent solicitation be consummated at the same time and to obtaining the consent to the exchange offer and consent solicitation and the rights offering from our senior lenders and the parties to our tax retention operating lease, which consents have been obtained. Although there can be no assurance, the rights offering and restructuring are expected to close by March 31, 2002. We have filed a registration statement relating to the rights offering. Recapitalization We intend to change our capitalization (the "recapitalization") by increasing the number of our authorized shares of common stock from 30 million shares to 500 million shares and by reducing the number of our issued and outstanding shares of common stock by converting every ten shares of our issued and outstanding common stock into one share. The recapitalization is expected to become effective upon the closing of the exchange offer and consent solicitation. Purpose of this exchange offer and consent solicitation We are making this exchange offer and consent solicitation as part of a strategic plan to reduce and refinance our existing indebtedness and to provide working capital for our business. The other parts of our plan are the rights offering and the recapitalization, including the reverse split. Background of the exchange offer and the consent solicitation We are currently operating with a very high level of indebtedness. Our obligation to make regular payments of interest, fees and principal to service our indebtedness has had, and continues to have, a significant impact on our financial results and our available working capital. The effect of these obligations on our financial performance has been exacerbated in recent periods by a decline in our cash flow from operations resulting from the difficult business conditions in the aviation services industry that we, and our competitors, are currently experiencing. Our goal is to provide for the financing of our business through this exchange offer and consent solicitation and through the rights offering. We intend to close the exchange offer and consent solicitation and the rights offering by March 31, 2002, but we cannot assure you that we will do so. 5 The five major items of our current indebtedness are our senior revolving credit facility, our $12.0 million senior term loan (originally $15.5 million), our $10 million senior term loan, our tax retention operating lease financing ("TROL Financing") currently aggregating $25.2 million, which is now treated as a capital lease (collectively the "senior debt"), and our old notes. Amounts due under our senior revolving credit facility, the $12.0 million senior term loan, and the TROL Financing are due for repayment in July 2002, and the $10 million senior term loan is due for repayment on August 14, 2002. The principal balance of the old notes is due for repayment on February 15, 2008. As of December 7, 2001, $10.3 million was outstanding under the senior revolving credit facility, $6.2 million was available for borrowing under the senior revolving credit facility (based on the applicable borrowing base formula) and outstanding letters of credit aggregated $12.1 million. In addition, we are obligated to make monthly lease payments under our TROL Financing, which has a currently outstanding balance of $25.2 million, and our monthly lease payments thereunder to date in 2001 have ranged between $325,000 to $420,000. The old notes rank behind our senior revolving credit facility, senior term loans and TROL Financing in right of payment. As of September 30, 2001, we had $226.5 million (excluding then outstanding letters of credit of $29.6 million) in aggregate indebtedness, of which $58.0 million was senior debt (including $22.0 million of senior term loans and the TROL Financing). We do not currently have, nor do we expect to have, sufficient liquidity to repay in full our senior revolving credit facility, senior term loans, TROL Financing obligations and the old notes. We were also without sufficient working capital to pay the interest payment on the old notes that was due on August 15, 2001. Based on our recent history, expectations and the problems facing our industry generally, we do not anticipate that we will generate sufficient cash flow from operations to continue to make principal and interest payments on our senior debt and the old notes. If we are unable to consummate this exchange offer and consent solicitation, we may have to seek bankruptcy protection or commence liquidation or administration proceedings. In that case, owners of old notes may only receive repayment of little or none of the principal amount of their old notes. Interests of our officers, directors and principal stockholders in the exchange offer None of our officers, directors or principal stockholders hold old notes except for Lacy Harber, who beneficially owns approximately 29.4% of our currently outstanding pre-reverse split common stock and approximately 7.1%, or $11,750,000 aggregate principal amount, of our old notes. Pursuant to the agreement with our old note holders to restructure the old notes, Mr. Harber has agreed to exchange all of his old notes in the exchange offer and consent solicitation. In addition, Mr. Harber has agreed to purchase unsold allotments in the rights offering. Mr. Harber will beneficially own approximately 82.6% of our outstanding common stock if he purchases all of the shares available in our rights offering and elects the non-cash option in the exchange offer and consent solicitation with respect to all of his old notes and as a result exchanges all of his old notes for new notes, shares and warrants. Roy T. Rimmer, Jr., our Chairman and Chief Executive Officer, holds a proxy to vote the shares of common stock owned by Mr. Harber and serves on our board as a representative of Mr. Harber. Pursuant to the agreement with our old note holders to restructure the old notes, we may issue options or warrants to purchase up to 8% of our reorganized company to our officers, directors and employees. Our board of directors has adopted, subject to stockholder approval, a stock option plan to allow us to issue such options. We will submit the stock option plan for stockholder approval at the special meeting we intend to call for approval of the transactions in connection with the exchange offer and consent solicitation, the rights offering and the recapitalization. 6 Summary Historical and Unaudited Pro Forma Condensed Consolidated Financial Data The following summary historical financial data for each of the fiscal years 1998 through 2000 has been derived from our Consolidated Financial Statements, which have been audited by Arthur Andersen LLP, independent certified public accountants, and are included elsewhere herein. The following summary historical unaudited financial data for the nine months ended September 30, 2000 and 2001 and as of September 30, 2001, has been derived from our unaudited historical financial statements included elsewhere herein which, in the opinion of management, include all adjustments (consisting of only normal recurring adjustments) necessary for a fair and consistent presentation of such data. The following unaudited condensed consolidated pro forma financial data present: our pro forma results of operations for the year ended December 31, 2000 and the nine months ended September 30, 2001 and our pro forma financial position as of September 30, 2001, as if the exchange offer, rights offering and recapitalization including the reverse split, had been consummated as of the beginning of the periods for results of operations data and as of September 30, 2001 for financial position data. Neither the summary historical consolidated financial data nor the summary pro forma condensed consolidated financial data are necessarily indicative of either the future results of operations or the results of operations that would have occurred if the events described had been consummated on the indicated dates. The following summary historical and pro forma condensed consolidated financial data should be read in conjunction with "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Condensed Consolidated Financial Statements," and the audited and unaudited historical financial statements of Aviation Sales, which are included elsewhere in this prospectus.
Nine Months Ended Years Ended December 31, September 30, ---------------------------- ------------------ 1998 1999 2000 2000 2001 HISTORICAL DATA: -------- -------- --------- -------- -------- (Unaudited) Statements of Operations Data: (In thousands, except per share data) Operating revenues.......... $184,448 $371,753 $ 338,077 $278,287 $213,736 Gross profit (loss)......... 42,879 63,809 (15,254) 19,990 (625) Operating expenses.......... 17,721 41,774 74,580 39,207 37,653 Income (loss) from operations................. 25,158 22,035 (89,834) (19,207) (38,278) Income (loss) from continuing operations...... 8,534 2,998 (115,873) (39,778) (103,052) Discontinued operations, net of taxes................... 16,959 (24,721) (23,432) (23,432) -- Loss on disposal of discontinued operations, net of taxes............... -- -- (72,325) (51,940) (6,645) Net income (loss)........... 25,493 (21,723) (211,630) (115,150) (109,697) Diluted Per Share Data: Income (loss) from continuing operations...... $ 0.68 $ 0.21 $ (7.72) $ (2.65) $ (6.86) Income (loss) from discontinued operations.... 1.34 (1.77) (6.37) (5.02) (0.45) Net income (loss)........... 2.02 (1.56) (14.09) (7.67) (7.31) Other Data: Ratio of earnings to fixed charges.................... 1.8 0.1 (5.0) (2.3) (4.9)
7 PRO FORMA DATA:
Nine Months Year Ended Ended September 30, December 31, 2000 2001 ----------------- ------------------- Statements of operations data: (In thousands, except per share data) Operating revenues...... $338,077 $ 213,736 Gross profit (loss)..... (15,254) (625) Operating expenses...... 74,580 37,653 Loss from operations.... (89,834) (38,278) Loss from continuing operations............. (101,123) (A) (92,090) (A) Diluted per share data: Loss from continuing operations............. $ (3.37) $ (3.06) Weighted Average Shares Outstanding............ 30,031 (B) 30,031 (B) Other data: Ratio of earnings to fixed charges.......... (12.2) (9.3) September 30, September 30, 2001 December 31, 2000 2001 Pro Forma ----------------- ------------- ------------- (Unaudited) (Unaudited) Balance sheet data: (In thousands, except per share data) Working capital......... $ 24,673 $(215,855) $ (37,062) Current assets.......... 131,457 93,029 93,029 Total assets............ 300,611 213,719 210,482 Senior term and revolving debt......... 52,486 23,768 17,768 (C) Old notes............... 164,345 164,414 -- (D) New notes............... -- -- 114,700 (D) Total debt.............. 261,861 234,954 170,740 (C)(D) Stockholders' equity (deficit).............. 6,892 (99,829) (38,973) (E)
- -------- (footnotes on next page) 8 (footnotes from prior page) (In thousands, except share data) (A) Adjustment consists primarily of: (i) a reduction in interest expense of $840 and $529, respectively, for the year ended December 31, 2000 and the nine months ended September 30, 2001, resulting from the utilization of excess working capital to reduce outstanding debt, discussed in (B) below, and (ii) a reduction in interest expense resulting from the exchange of the old notes, as discussed in (C) below. (B) Represents the weighted average common shares outstanding of 30,031,583 post-reverse split shares, consisting of 24,024,507 post-reverse split shares of common stock to be issued in the rights offering, 1,501,531 post-reverse split shares of common stock to be owned by existing stockholders after the restructuring and 4,505,545 post-reverse split shares of common stock to be issued in the exchange offer, as discussed in (D) below. (C) Represents the utilization of excess working capital resulting from the restructuring to pay down the outstanding revolver balance with any excess amounts being utilized to pay down the outstanding senior term debt. (D) Represents the exchange of $165,000 (face value) in old notes for $10,000 in cash, $114,700 in new notes, warrants to purchase 3,003,063 post- reverse split shares of common stock (at an exercise price of $5.16 per share) and 4,505,545 post-reverse split shares of common stock. Under SFAS 15, the new notes are recorded at an amount equal to the maximum amount of cash (assuming all interest is paid in kind through the issuance of additional new notes and including all accrued but unpaid interest) which we would be obligated to pay if we redeemed the new notes immediately prior to their maturity. In accordance with their terms, if the new notes are not redeemed prior to their maturity date (December 31, 2006), they will automatically convert at maturity into 270,275,706 shares of post-reverse split common stock. During the term of the new notes, we will have the right to redeem the new notes by paying, in cash, the following percentage of the sum of the principal, interest previously paid in kind and accrued but unpaid interest through the date of redemption: 2002--70%; 2003--72.5%; 2004--73%; 2005--75.625%; 2006 (prior to maturity)--77.5%. Additionally, if we redeem the new notes, we will issue to the holders of the new notes an additional 4,505,545 post-reverse split shares common stock if we redeem the new notes in 2002 or 2003 and an additional 3,003,063 post-reverse split shares of common stock if we redeem the notes in 2004, 2005 or 2006. The cash component of the redemption price will range from $70,000 if the new notes are redeemed on the date they are issued, to $114,700, if the new notes are redeemed immediately prior to their maturity. (E) Represents an extraordinary gain of $36,321, net of tax and restructuring transaction expenses (estimated to be $4,000) relating to the early extinguishment of the old notes, partially offset by the value of the warrants to be issued to the existing stockholders as part of the restructuring, as described in (A) above. The computation of gain includes the impact of the note exchange described in (D) above and the impact of the write off of unamortized discounts associated with the old notes. While we have the right, but not the obligation, to redeem the new notes, other than in connection with a change of control we will never be obligated to make any cash payments to the holders of the new notes. As such, had the notes been converted into common stock as of September 30, 2001, our stockholders' equity would have been $75,727. 9 The Exchange Offer and Consent Solicitation The Old Notes............... We are making the exchange offer with respect to the entire $165 million aggregate principal amount of our old 8 1/8% senior subordinated notes due 2008. The Exchange Offer.......... We are offering (1) $303 in cash for each $1,000 principal amount of outstanding old notes, up to an aggregate maximum of $10 million in cash for $33 million in principal amount of old notes or (2) $757.58 principal amount of 8% senior subordinated convertible PIK notes due 2006, 34.12 post-reverse split shares of our common stock and warrants to purchase 22.75 post-reverse split shares of our common stock (at an exercise price of $5.16 per share) for each $1,000 principal amount of outstanding old notes. If less than all of the outstanding old notes are exchanged, then the $10 million in cash available will be reduced $303 for every $1,000 principal amount of old notes not exchanged. The terms of the new notes are described below. Our board of directors makes no recommendation to holders of the old notes whether to tender their old notes in the exchange offer and consent solicitation or which election each holder should make. Our board of directors is not making a recommendation regarding the exchange offer and consent solicitation because holders of the old notes must make their own decision whether to tender their old notes in the exchange offer and consent solicitation and as to which election to make. We have not authorized anyone to make a recommendation on our behalf regarding the exchange offer and consent solicitation. Oversubscription and Up to $10 million in cash will be exchanged for Proration.................. $33 million principal amount of old notes. If more than $33 million principal amount of old notes is tendered for cash, each additional $1,000 principal amount of old notes tendered will be exchanged for the combination of $757.58 of principal amount of new notes, 34.12 post- reverse split shares of our common stock and warrants to purchase 22.75 post-reverse split shares of our common stock (at an exercise price of $5.16 per share). We will distribute the $10 million in cash so that everyone who tenders old notes under this option will receive cash, new notes, common stock and warrants in the same proportion as everyone else who tenders old notes under this option. In the aggregate, up to $100 million principal amount of new notes, up to 4,504,595 shares of our post-reverse split common stock and warrants to purchase up to 3,003,063 shares of our post- reverse split common stock (at an exercise price of $5.16 per share) will be exchanged for $132 million in principal amount of old notes. If more than $132 million in principal amount are tendered for new notes, common stock and warrants, every additional $1,000 principal amount tendered will be exchanged for $303 in cash. We will distribute the new notes, common stock and warrants so that everyone who tenders under this option will receive new notes, 10 common stock, warrants and cash in the same proportion as everyone else who tenders old notes under this option. The Solicitation............ We are also soliciting consents to proposed amendments to and a waiver of all defaults under the indenture under which the old notes were issued. If you tender old notes in the exchange offer on or before the expiration of the exchange offer, you will automatically consent to the proposed amendments to, and waiver of defaults under that indenture. The Amendments to the Old Notes Indenture............ If we receive the requisite tenders of old notes, all of the material restrictive covenants in the indenture relating to the old notes will be eliminated from the indenture. These covenants, among other things, generally limit our ability to: . consolidate with or merge with or into any other person or convey, transfer or lease substantially all of our assets; . incur debt; . issue debt junior to our senior indebtedness but senior to the old notes; . make, declare or pay certain dividends or similar distributions, or permit our subsidiaries to do the same; . enter into transactions with affiliates, or permit our subsidiaries to do the same; . permit our subsidiaries to issue preferred stock; . permit a change of control without offering to repurchase the old notes; . sell assets without distributing the proceeds to holders of the old notes; . restrict our subsidiaries from making distributions to us; . transfer assets to a subsidiary without obtaining a guarantee from such subsidiary; . incur liens to secure indebtedness or permit subsidiaries to do the same; and . engage in new lines of business or permit subsidiaries to do the same. In addition, we are seeking to amend the indenture to extend the grace period for payment of interest from 30 to 90 days and to waive all defaults under the indenture. Requisite Consents.......... The aggregate outstanding principal amount of old notes is $165 million. Under the indenture governing the old notes, approval of the proposed amendments to the indenture notes requires the consent of the holders of a majority in aggregate principal amount 11 of old notes outstanding, except that the amendment extending the grace period to pay interest and the waiver of any default in the payment of interest will not be effective against any note holder not consenting to that amendment or waiver. As a condition of the exchange offer and consent solicitation, we are requiring that holders of the old notes tender a minimum of $132 million in aggregate principal amount of old notes along with consents. Accordingly, we will require the consent of the holders of the old notes in an aggregate principal amount of at least $132 million to amend the indenture governing the old notes. Effectiveness of Proposed Amendments................. We and the trustee for the old notes will execute the supplemental indenture providing for the proposed amendments to the indenture governing the old notes promptly following the expiration of the exchange offer and consent solicitation if at least $132 million in aggregate principal amount of the old notes has been tendered and the requisite consents received. The proposed amendments, however, will not become operative until we have accepted for exchange all notes validly tendered and not withdrawn in the exchange offer and consent solicitation. If the proposed amendments become operative, all persons who continue to hold old notes thereafter will be subject to the provisions of the indenture as amended by the proposed amendments (except that the extension of the grace period to pay interest and the waiver of any default to pay interest will not be effective against those holders of notes not consenting to that amendment or waiver). Accrued Interest............ The last payment of interest on the old notes was made February 15, 2001. This payment covered accrued interest at the rate of 8 1/8% from August 15, 2000 through February 14, 2001. There will be no separate payment of accrued interest, including the August 15, 2001 payment, on the old notes in this exchange offer and consent solicitation. Source of Funds............. We anticipate that we will obtain the cash portion of this exchange offer and consent solicitation from the proceeds of the rights offering. Expiration of the Exchange Offer and Consent Solicitation............... 5:00 p.m., New York City time, on , 2002, unless extended. The supplemental indenture will be executed promptly following the expiration of the exchange offer, assuming that a minimum of $132 million in aggregate principal amount of the old notes have been tendered for exchange and, therefore, the requisite consents have been received. If the terms of the exchange offer are changed, the exchange offer will remain open for an additional 5-10 business days, depending on the nature of the change. Exchange Date............... The exchange of old notes for cash or a combination of new notes, common stock and warrants will be made promptly following the expiration of the exchange offer. 12 Conditions to the Exchange Offer and Consent This exchange offer and consent solicitation is Solicitation............... subject to the following conditions: . holders of old notes must tender a minimum of $132 million in aggregate principal amount of old notes along with consents to amendments to the indenture governing the old notes; . our senior bank lenders and the parties to our TROL Financing must consent to this exchange offer and consent solicitation, which consents have now been received; . we must receive $20 million in cash in the rights offering in exchange for 80% of the to- be-outstanding common stock of the reorganized company; . we must increase the number of authorized shares to 500 million shares of our common stock by means of an amendment to our certificate of incorporation and reduce the number of our issued and outstanding shares by reducing every ten shares into one share through the reverse stock split; . we must receive the approval of the holders of a majority of our outstanding common stock for: . the issuance of the new notes, shares of our common stock and warrants to purchase common stock in the exchange offer and consent solicitation; . the issuance to existing stockholders of warrants to purchase an aggregate of 3,003,363 post-reverse split shares of our common stock (at an exercise price of $5.16 per share); . the sale of 80% of the to-be-outstanding common stock of the reorganized company in the rights offering for $20 million; . the sale of post-reverse split common stock to Lacy Harber in accordance with his agreement to purchase unsold allotments in the rights offering; and . the increase in the number of our authorized shares to 500 million shares and the reduction of our issued and outstanding shares on a ten-for-one basis in a reverse split; . this exchange offer and consent solicitation must comply with applicable laws and applicable interpretations of the staff of the SEC; . this exchange offer and consent solicitation must comply with all applicable state securities or "blue sky" laws; . no litigation may have been instituted or threatened or law enacted that could prohibit this exchange offer and consent solicitation, materially adversely affect our business, or materially impair the benefits to us of this exchange offer and consent solicitation; 13 . no event may have occurred affecting our business that would reasonably be expected to prohibit, prevent or significantly delay this exchange offer and consent solicitation or materially impair the benefits of this exchange offer and consent solicitation; . the trustee of the old notes may not have objected to this exchange offer and consent solicitation; and . no tender or exchange offer for our equity securities or any business combination involving us may have been proposed or announced or have occurred. Subject to satisfaction or waiver of the conditions, we will accept for exchange any and all old notes that are validly tendered and not withdrawn before 5:00 p.m., New York City time, on , 2002, the expiration date of this exchange offer and consent solicitation. However, we reserve the right to: . delay the acceptance of the old notes for exchange; . terminate this exchange offer and consent solicitation; . extend the expiration date and retain all old notes that have been tendered, subject to the right of owners of old notes to withdraw their tendered old notes; . refuse to accept the old notes and return all old notes that have been tendered to us; or . waive any condition or otherwise amend the terms of this exchange offer and consent solicitation in any respect. We will not waive or amend any condition after the expiration date of this exchange offer and consent solicitation. Procedures for Tendering Old Notes and Delivering If you want to tender your old notes in the Consents................... exchange offer and deliver consents pursuant to the consent solicitation, you should either: . If you hold physical certificates evidencing your old notes, complete and sign the enclosed consent and letter of transmittal (or a manually signed facsimile thereof) in accordance with the instructions in that document, have your signature guaranteed if required by Instruction 1 of the consent and letter of transmittal, and send or deliver your manually signed consent and letter of transmittal, together with the certificates evidencing the notes being tendered and any other required documents, to the exchange agent; or . If you hold your old notes in book-entry form, request your broker, dealer, commercial bank, trust company or other nominee to effect the transaction for you. 14 If you own old notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you must contact that broker, dealer, commercial bank, trust company or other nominee if you desire to tender your notes and deliver consents. If you are tendering your notes by book-entry transfer to the exchange agent's account at The Depository Trust Company, you can execute the tender through DTC's Automated Tender Offer Program, for which the transaction will be eligible. DTC participants that are accepting the exchange offer must transmit their acceptance to DTC, which will verify the acceptance and execute a book-entry delivery to the exchange agent's account at DTC. DTC will then send an agent's message to the exchange agent for its acceptance. Delivery of the agent's message by DTC will satisfy the terms of the exchange offer and consent solicitation as to the tender of notes and the delivery of consents. If you desire to tender old notes in the exchange offer and consent solicitation and cannot comply with the procedures for tender or delivery on a timely basis or if your notes are not immediately available, you may tender your notes using the procedures for guaranteed delivery described in this prospectus and consent solicitation. Revocation of Consents...... You may revoke your consents at any time prior to the expiration of the consent solicitation, but not thereafter. If you validly revoke your consent, it will render your tender of notes defective, and, you will not be eligible to receive the exchange offer consideration for your old notes. Withdrawal Rights........... You may withdraw your tender of old notes at any time before the expiration of the exchange offer and consent solicitation but the exchange offer consideration will not be payable for any notes so withdrawn. If you withdraw your tendered notes, it will be deemed a revocation of the related consent. Untendered Old Notes........ If you do not tender your old notes and they are not exchanged in the exchange offer, they will remain outstanding. If the requisite tenders and the related consents to amend the indenture are received and the proposed amendments become operative under the supplemental indenture, untendered notes will no longer have the benefits of the restrictive covenants that will be eliminated from the indenture by the proposed amendments, except that the amendment extending the grace period to pay interest and the waiver of the default in the payment of interest will not be effective against any note holder not consenting to that amendment or waiver. In addition, as a result of the consummation of the exchange offer, the 15 aggregate principal amount of the old notes that are outstanding will be significantly reduced, which may adversely affect the liquidity of and, consequently, the market price for the old notes, if any, that remain outstanding after the completion of the exchange offer. Acceptance of Tendered Old Notes and Exchange; Acceptance of Consents..... Upon the terms of the exchange offer and consent solicitation and upon satisfaction or our waiver of the conditions to the exchange offer and consent solicitation, we will accept for exchange old notes validly tendered on or before the expiration of the exchange offer. Only if you validly tender your notes, and thereby consent to the proposed amendments and waiver of defaults, on or before the expiration of the exchange offer will you receive the exchange consideration. We will make payment of the exchange consideration for notes validly tendered and accepted for payment, by deposit of the appropriate amount of cash or number of shares of our common stock, warrants, and appropriate amounts of new notes, as applicable, with the exchange agent who will act as agent for the tendering and consenting holders of old notes for the purpose of the exchange. We expect the exchange to be made on the exchange date described in this prospectus and consent solicitation promptly following our acceptance of the old notes in the exchange offer. Use of Proceeds............. Our new notes, common stock and warrants are being issued in exchange for your old notes. All old notes accepted by us in the exchange offer will be cancelled. We will not receive any cash proceeds from the issuance of the new notes, common stock and warrants offered in this exchange offer and consent solicitation. We will receive $20 million from the proceeds of the rights offering which will be used to pay the cash portion of this exchange offer and consent solicitation (up to $10.0 million), expenses relating to this exchange offer and consent solicitation and the rights offering, (estimated to be $4.0 million) and for working capital purposes. Federal Income Tax Considerations............. You are referred to the discussion about the federal income tax consequences of the exchange offer commencing on page 151. Tax matters are very complicated and the tax consequences of the exchange offer to you will depend on the facts of your own situation. You should consult your own tax advisor for a full understanding of the tax consequences to you of the exchange offer. Risk Factors................ Holders of the old notes should consider the risk factors relevant to the exchange offer and consent solicitation. See "Risk Factors." "Blue Sky" Compliance....... We are not making this offer to, and we will not accept tenders from, holders of old notes in any jurisdiction in which this exchange offer and consent solicitation or the acceptance of notes would not comply with applicable securities or "blue sky" laws of that jurisdiction. 16 No Appraisal Rights......... You will not have any right to dissent and receive an appraisal of your old notes, under either the indenture or applicable law, in connection with the exchange offer and consent solicitation. Dealer Manager.............. Houlihan Lokey Howard & Zukin Capital is the dealer manager for this exchange offer and consent solicitation. Its address and telephone numbers are located in the section "Questions and Answers About The Exchange Offer and Consent Solicitation." Exchange Agent.............. HSBC Bank USA is the exchange agent for this exchange offer and consent solicitation. Its address and telephone numbers are located in the section "Questions and Answers About The Exchange Offer and Consent Solicitation." Fees and Expenses........... We will bear the expenses of soliciting tenders for the exchange offer and consents for the consent solicitation. 17 Terms of the New Notes New Notes Offered........... Up to $100 million in aggregate principal amount of 8% senior subordinated convertible PIK notes due 2006. Issuer...................... Aviation Sales Company Trustee..................... HSBC Bank USA Maturity.................... December 31, 2006 Guarantees.................. Triad International Maintenance Corporation and our other wholly owned United States subsidiaries will fully and unconditionally and jointly and severally guarantee, on a senior subordinated basis, the new notes. Ranking..................... The new notes will rank in right of payment behind our senior revolving credit facility, our $10 million and $12.0 million senior term loans, our TROL Financing obligations and all of our other existing and future senior debt. The new notes will rank in right of payment ahead of any remaining old notes. If we issue additional subordinated debt in the future, the new notes will rank in right of payment ahead of, or equal to, that debt. The new notes will be unsecured. Because the new notes are subordinated, in the event of our bankruptcy, liquidation or dissolution, owners of the new notes will not be entitled to receive any payment until the holders of our senior debt and the lessor of our TROL Financing have been paid in full. Assuming we completed our overall restructuring plan, including the exchange of all outstanding old notes in the exchange offer, on September 30, 2001, upon the closing of this exchange offer and consent solicitation, the new notes would have been subordinated to approximately $78.7 million of senior debt prior to any assumed pay down of senior debt using proceeds from the rights offering as described in the proforma financial statements contained on Pages P-1 to P-5. The terms of the new notes impose limitations on the amount of additional new indebtedness that we can incur. The terms of the new notes also prevent us from assuming any new indebtedness which results in right of payment behind our senior debt but ahead of the new notes. The guarantees of the new notes will rank junior in right of payment to all of the existing and future senior debt of the subsidiary guarantors and their obligations under the TROL Financing. The guarantees will rank senior or equal to any of the existing and future senior subordinated indebtedness of the subsidiary guarantors and rank senior in right of payment to all other of the existing and future subordinated obligations of the subsidiary guarantors. 18 Interest Payments........... Interest on the new notes will accrue at a rate of 8% per annum and will be paid on each and , beginning , to holders of record on each and . Interest on the new notes will be paid either in cash or will be paid-in-kind through the issuance of additional new notes, at our option. We anticipate that interest will be paid-in-kind for the foreseeable future. Interest not paid in cash will be automatically deemed paid-in-kind. Optional Redemption......... We may redeem the new notes at any time, and from time to time, after issuance. We may redeem all or part of the new notes at the redemption prices, which are based upon percentages of the sum of (a) principal amount and (b) accrued and unpaid interest thereon (including interest previously paid-in-kind through the issuance of additional new notes) to the applicable redemption date, through the payment of cash and the issuance of additional shares of post-reverse split common stock. The cash redemption percentages are 70% in 2002, 72.5% in 2003, 73% in 2004, 75.625% in 2005 and 77.5% in 2006. Additionally, if the new notes are redeemed in 2002 and 2003, we will issue an aggregate of 4,504,595 shares of our post-reverse split common stock (ratably) to the holders of the new notes as part of the redemption price, and if the new notes are redeemed in 2004, 2005 or 2006 (prior to maturity), we will issue an aggregate of 3,003,063 shares of our post-reverse split common stock (ratably) to the holders of the new notes as part of the redemption price. For example, the redemption prices are expressed below as the amount of cash payable (ratably) to the holders of the new notes if the new notes are redeemed (assuming all interest has previously been paid-in-kind and including interest accrued to the stated redemption date) and the number of shares of our post-reverse split common stock issuable (ratably) to the holders of our new notes if the redemption had occurred on the date indicated:
Post-Reverse Split Aggregate Number of Shares Redemption Date Cash of Common Stock December 31, Redemption Price to be Issued ------------------------ ---------------- ------------------ 2002.................... $ 75,700,000 4,504,595 2003.................... $ 84,800,000 4,504,595 2004.................... $ 92,400,000 3,003,063 2005.................... $103,525,000 3,003,063 2006 immediately prior to maturity............ $114,700,000 3,003,063
Automatic Conversion at At maturity, the new notes, (including new notes Maturity................. previously issued as paid-in-kind interest and accrued but unpaid interest), will automatically convert into an aggregate of 270,275,706 post- reverse split shares of our common stock. Upon a change of control, owners of the new notes Put Right on Change of may require us to purchase their new notes at a Control.................... price equal to the redemption price which we would be obligated to pay if we redeemed the new notes on the date of such change of control. 19 Put Right on Asset Sale..... Upon the occurrence of an applicable asset sale, owners of the new notes may, under certain circumstances, require us to purchase their new notes at a price equal to the redemption price which we would be obligated to pay if we redeemed the new notes on the date of such applicable asset sale. Such repurchase, if required, would only be with the excess proceeds of such asset sale that we do not use to repay indebtedness senior to the new notes or to acquire replacement assets. Covenants................... The new notes will include limitations on our ability, and certain of our subsidiaries' ability, to: . incur additional senior indebtedness or issue preferred stock; . provide guarantees; . create liens; . pay dividends on stock or repurchase stock; . make investments; . engage in transactions with our affiliates; . merge or consolidate; and . transfer or sell substantially all of our assets. Events of Default........... The following are events of default under the indenture governing the new notes: . our failure to pay principal when due; . our failure to pay interest when due if the failure continues for 30 days; . if interest is paid in kind, the failure to issue and deliver additional notes representing the PIK interest within thirty days from the date of deemed issuance; . our failure to pay the purchase price of the new notes on the exercise of the rights which apply following a change of control or an asset sale; . our failure to perform any other covenant for 60 days after written notice; . our failure to comply with limitations on mergers, consolidations and sales of assets; . if we or our subsidiaries default on any indebtedness which in the aggregate exceeds $10 million; . the rendering of a final judgment against us or any of our subsidiaries in excess of $10 million and such judgment remains unpaid for over 60 days; . some events of bankruptcy, insolvency or reorganization; or . any subsidiary guarantee becomes unenforceable or invalid or any subsidiary guarantor denies its obligations under its guarantee. 20 Accounting Treatment... The new notes will be recorded at the highest cash amount which we would have to pay upon redemption (including interest paid-in-kind and all accrued but unpaid interest) if we redeemed the new notes immediately prior to their maturity. This exchange offer and consent solicitation will be treated as a troubled debt restructuring in accordance with Statement of Financial Accounting Standards No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings," or SFAS 15. SFAS 15 applies to debt restructurings where a creditor, for reasons related to the debtor's financial difficulties, grants a concession to the debtor that it would not otherwise consider. Warrants.................... Each warrant entitles the holder thereof to purchase one share of our post-reverse split common stock at an exercise price of $5.16 per share during the five year period commencing on the date of the exchange. We may redeem all, but not less than all, of the warrants at a redemption price of $0.001 per warrant if our post-reverse split common stock trades at more than $6.71 per share for 20 consecutive trading days at any time during the five-year exercise period. The warrants will not be issued and will not be exercisable until the completion of the exchange offer and consent solicitation, the rights offering and the recapitalization. The warrants will trade with the new notes until December 31, 2003, at which time the warrants will trade separately. 21 RISK FACTORS By exchanging your old notes, you will be choosing to invest in the new notes and in our common stock. If you do not participate in the exchange offer and consent solicitation, you will continue to hold old notes. An investment in the new notes or your continued holding of the old notes involves a high degree of risk. In addition to the other information contained in this prospectus and consent solicitation, you should carefully consider the following risk factors in deciding whether to tender your old notes in the exchange offer and consent solicitation. Risks relating to Aviation Sales Company Risks associated with our business and financial condition We have substantial debt that we may be unable to service. We currently have significant outstanding indebtedness, and subsequent to the exchange offer, we will continue to be significantly leveraged. As of September 30, 2001, we had outstanding indebtedness of $226.5 million, of which $58.0 million was senior indebtedness including amounts due under the TROL Financing, which is now characterized as a capital lease, and $168.5 million was other indebtedness. In addition, we had $29.6 million of letters of credit outstanding. Upon the completion of the exchange offer (assuming full participation), we will have outstanding our senior indebtedness and up to $100 million in aggregate principal amount of new notes (valued on our financial statements at $114.7 million). The degree to which we are leveraged could have important consequences to the holders of the new notes or holders of common stock obtained upon the exercise of the warrants, including: . our vulnerability to adverse general economic and industry conditions; . our ability to obtain additional financing for future working capital expenditures, general corporate or other purposes; . the dedication of a portion of our cash flow from operations to the payment of principal and interest on indebtedness, thereby reducing the funds available for operations. In addition, subject to the limitations set forth in the indenture for the new notes, we and our subsidiaries may incur substantial amounts of additional indebtedness, much of which is expected to be senior indebtedness. As of December 7, 2001, we had availability under our senior revolving credit facility of $6.2 million. Our senior credit facilities are secured by substantially all of our assets. Our auditors have included a going concern modification in their audit report regarding our 2000 financial statements. Our independent auditors' report regarding our 2000 financial statements contains an explanatory paragraph stating that there is a substantial doubt about our ability to continue as a going concern because we incurred net losses for the years ended December 31, 1999 and 2000 and we required cash to fund our operating activities for each of the three years ended December 31, 2000. We were not able to make the August 2001 interest payment due on the old notes and we may not be able to repay or refinance the principal amount of our old notes at their maturity date. We did not have sufficient available liquid resources to pay the August 2001 interest payment due on the old notes. As a result of our failure to make the August 2001 interest payment, we are in breach of the terms of the indenture. We do not currently have sufficient available liquid resources to repay the principal balance of 22 the old notes at maturity and we believe that there is uncertainty regarding our ability to refinance or repay the old notes at that time. We are in default under our senior debt and our TROL Financing and under the terms of our indenture for the old notes, which may result in a future acceleration of the obligation to pay these debt obligations. As a result of our inability to make the August 2001 interest payment, we are in default under our senior revolving credit facility, senior term loans and the TROL Financing and the lenders under our senior revolving credit facility and senior term loans, and the lessor under our TROL Financing have the right to declare due and require immediate payment of the indebtedness that ranks senior in right of payment to the old notes, which as of September 30, 2001 aggregated $78.7 million, before any payment could be made on the old notes. Our lenders under our senior credit facility and senior term loans and the lessor under our TROL Financing have agreed to not require immediate payment of such obligations until March 31, 2002 (the "forbearance"), subject to the condition that (i) the registration statements with respect to the note exchange and consent solicitation and the rights offering have become effective before February 15, 2002, (ii) no other events of default occur under such agreements, and (iii) no remedies for default are exercised under the indenture for the old notes. Upon the occurrence of an event of default under the senior debt and our TROL Financing and without the forbearance, or upon the expiration of the forbearance, the respective lenders could elect to declare all amounts outstanding, together with accrued interest, to be immediately due and payable. Substantially all of our assets are pledged as collateral security for the senior credit facility and senior term loans and the TROL Financing. If we were unable to repay all outstanding amounts under our senior debt and TROL Financing, the lenders and parties could proceed against the collateral granted to them to secure that indebtedness and other obligations, and any proceeds realized upon the sale of this collateral would be used first to satisfy all amounts outstanding under our senior credit facility, senior term loans and TROL Financing, before the old notes and any of our other liabilities. In addition, we may be prevented from making new borrowings or drawing down further on our senior credit facility. As a result of our inability to make the August 2001 interest payment due on the old notes, we are in default under the indenture for the old notes. The trustee or the holders of at least 25% of the outstanding principal of the old notes could declare such indebtedness due and immediately payable (the "acceleration"). Under our agreement with the holders of 73.02% of the aggregate principal amount of the old notes, these holders have agreed to vote pursuant to the indenture to rescind any acceleration. If these holders fail to timely rescind the acceleration, then the lenders under our senior credit facility and senior term loans or the parties under our TROL Financing could declare their respective credit facilities and financings due and require immediate payment of the indebtedness owed them. We may not receive all of the anticipated purchase price in connection with a prior sale of inventory. In December 2000, we acquired a 50% interest in a limited liability company, KAV Inventory, LLC. KAV was organized by us and by a second company, Kellstrom Industries, Inc., which purchased our redistribution operation in December 2000. We sold to KAV aircraft and engine spare parts inventory and engine inventory. Compensation for the sale of inventory was comprised of cash and two senior subordinated notes, each in the principal amount of $13.7 million (one of which was immediately sold to Kellstrom), and one junior subordinated note in the principal amount of $15.7 million. The notes bear interest at 14% per annum and are subordinated in all respects to KAV's institutional financing. In addition, we posted an $8.5 million letter of credit to secure, in part, KAV's institutional financing. As of July 31, 2001, the financial institution providing the financing has informed KAV that it is in default under the loan agreement and, on October 5, 2001, the lender exercised its rights to call the outstanding financing. Additionally, on October 18, 2001, the lender drew against our $8.5 million letter of credit. KAV's sole business is the liquidation of the inventory it acquired from us. Our agreement regarding this transaction specifies that all of the proceeds from sales of the inventory, less a consignment commission of 20% (which is payable to Kellstrom in connection with their sale of such inventory), will be used to pay interest and principal on KAV's institutional debt. After the institutional debt is paid in full, proceeds from the sale of inventory will be used to reimburse us and Kellstrom for advances made to KAV to allow it to pay fees and 23 costs relating to its institutional financing and thereafter to pay interest and principal on the two $13.7 million senior notes. Interest and principal on the $15.7 million junior note will be paid from the remaining proceeds from the sale of inventory, less a 35% consignment commission. Effective on October 5, 2001, KAV's lender, pursuant to its rights under the agreements between KAV and its lenders, terminated the Consignment Agreement between KAV and Kellstrom. During the nine months ended September 30, 2001, as a result of the default of KAV under its credit agreement with the financial institution that provided the funding for the purchase of the inventory and the weakened economic conditions in the aviation industry being experienced by Kellstrom as reported in its SEC filings, we recorded non-cash reserves totaling $45.6 million relating to these matters, including a full reserve on the notes receivable due from KAV. In addition, as described above, Kellstrom leased from us a facility and certain furniture, fixtures and equipment used in the redistribution operation for a one-year period. Kellstrom has an option to acquire these assets during the term of the lease and after one year we have an option to require Kellstrom to acquire the assets, which can be extended by Kellstrom for six months under certain circumstances. We have also entered into a sublease agreement relating to the redistribution operation's warehouse and corporate headquarters facility for a five-year period, with the right to renew for five consecutive five-year periods at a market rental rate. Further, in the event that the weakened economic conditions being experienced by Kellstrom, as reported in its SEC filings, adversely impact its ability to make payments under its lease obligations and/or its obligation to purchase certain property and equipment, additional write downs and accruals may be necessary. Finally, the weakened economic conditions being experienced by Kellstrom, as reported in its SEC filings, may adversely impact its ability to satisfy its obligations under the above-described ancillary agreements. We depend on financing transactions to support our growth. During 1998, 1999 and 2000, we relied primarily upon significant borrowings under our senior revolving credit facility, and sales of our securities, including our previously issued subordinated notes, to satisfy our funding requirements relating to our acquisitions of several businesses and to finance the growth of our business. We cannot assure you that financing alternatives will be available to us in the future to support continued growth. Our lenders impose significant restrictions on us. Our senior credit facilities impose and the new notes will 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. We have incurred losses in the past and we may incur losses in the future. If we incur losses in the future, our ability to obtain sufficient working capital for our operations and our ability to service our indebtedness may be impaired. We incurred losses from continuing operations of approximately $115.9 million during our 2000 fiscal year and approximately $103.1 million during the nine months ended September 30, 2001. If we continue to incur losses in the future, we may limit our ability to obtain sufficient working capital for our operations and our ability to execute our business strategy. In addition, our ability to service our indebtedness may be harmed because we may not generate sufficient cash flow from operations to pay principal or interest when due. A large portion of our operating expenses are relatively fixed and 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. 24 The sale of our common stock in the rights offering and the election of the non-cash option in the exchange offer and consent solicitation may vest control of our company with one of our principal stockholders. As of December 10, 2001, two of our stockholders beneficially owned approximately 29.4% and 21.0% of our outstanding common stock. Our directors and executive officers, as a group, beneficially own an aggregate of approximately 34.7% (including the 29.4% referred to above) of our outstanding common stock. Lacy Harber, one of our principal stockholders who beneficially owns 7.1%, or $11,750,000 aggregate principal amount, of our old notes, has agreed to purchase unsold allotments of our rights offering. He would own approximately 82.6% of our outstanding common stock if he were to purchase all of the shares available in our rights offering and elect the non-cash option to convert all of the old notes which he owns in the exchange offer into new notes, shares and warrants. If, through his purchase of the unsold allotments of our rights offering or otherwise, Mr. Harber gains beneficial ownership of more than 50% of our outstanding common stock, he will be able to control the vote on all matters submitted to the vote of our stockholders and therefore, will be able to direct our management and policies, including, but not limited to, the election of our entire board of directors and the appointment of our officers. In addition, under such circumstances, we will not, without Mr. Harber's approval, be able to consummate transactions involving an actual or potential change of control, including transactions in which holders of our common stock might otherwise receive a premium for their shares over the then current market prices. The loss of one or two of our major customers could materially hurt our business because we depend on only a small number of customers. Our four largest continuing customers accounted for approximately 32% of our total revenue for the year ended December 31, 2000 and approximately 59% of our total revenues for the nine months ended September 30, 2001 and our largest continuing customer accounted for approximately 14% of total revenues for the year ended December 31, 2000 and approximately 31% of our total revenues for the nine months ended September 30, 2001. While the relative significance of customers varies from period to period, the loss of, or significant curtailments of purchase of our services by, one or more of our significant customers at any time could adversely affect our revenue and cash flow. We depend on our executive officers and our employees. Our continued success depends significantly upon the services of our executive officers and upon our ability to attract and retain qualified personnel in all of our operations. While we have employment agreements with several of our executive officers, most of our employees are employed on an at- will basis. The loss of one or more of our executive officers and of a significant number of our other employees without capable successors could materially adversely affect our business, financial condition or results of operations. Risks associated with the aviation services industry Problems in the airline industry could adversely affect our business. Since our customers consist of airlines, maintenance and repair facilities that service airlines and 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 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. 25 On September 11, 2001, four commercial aircraft were hijacked and destroyed in terrorist attacks on the World Trade Center in New York City and the Pentagon in Washington, D.C. These terrorist attacks, have had a negative impact on the airline industry in general, and thereby indirectly on us. Factors which have affected or may affect our business include: (i) the impact of these terrorist attacks and the impact of declines in air travel as a result of these terrorist attacks on the financial condition of one or more of our airline customers, (ii) possible increases in jet fuel prices as a result of events relating to these terrorist attacks, (iii) potential reductions in the need for aircraft maintenance due to declines in airline travel and (iv) the adverse effect of these terrorist attacks, or future events arising as a result of these terrorist attacks, on the economy in general. Our business is subject to heavy government regulation. The aviation industry is highly regulated by the Federal Aviation Administration 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. The aircraft spare parts which we sell to our customers in connection with our services must be accompanied by documentation that enables our customers to substantiate their compliance with applicable regulatory requirements. Before parts may be installed in an aircraft, they must meet standards of condition established by the FAA and/or the equivalent regulatory agencies in other countries. Specific regulations vary from country to country, although regulatory requirements in other countries generally coincide with FAA requirements. Our parts may not meet applicable standards or standards may change in the future, requiring parts already in our inventory to be scrapped or modified. Aircraft manufacturers may also develop new parts to be used in lieu of parts already in our inventory. To the extent that we have any of these parts in our inventory, their value may be reduced. We cannot assure you that new and more stringent government regulations will not be adopted in the future or that any such new regulations, if enacted, would not materially adversely affect our business, financial condition or results of operations. Our 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. Certain of our competitors are currently experiencing financial difficulties similar to our own. Some or all of these competitors may respond to their financial difficulties by reducing prices on their services to increase or retain market share. Any material deterioration in our financial condition is likely to affect our ability to compete with price-cutting by our competitors. 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 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. 26 Risks associated with the exchange offer and consent solicitation If we do not receive an extension of the forbearances previously granted us and consents to the exchange offer and consent solicitation from our lenders under our senior revolving credit facility and the parties to our TROL Financing, we will not be able to complete the exchange offer and consent solicitation. Our lenders under our senior indebtedness and the parties to our TROL Financing have given us a forbearance which postpones until March 31, 2002, subject to certain conditions, the exercise of their remedies for our default under such agreements. We may need to receive extensions of these forbearances to allow the consummation of the exchange offer and consent solicitation and the restructuring transactions. In addition, we need to receive the consents to the exchange offer and consent solicitation from our lenders under our senior revolving credit facility and senior term loans and the parties under our TROL Financing are required in order for us to consummate the exchange offer and consent solicitation, and we have recently received such consent. A court may void the issuance of the old notes or the new notes in circumstances of a fraudulent transfer under federal or state fraudulent transfer laws. If a court determines the issuance of the old notes or the new notes constituted a fraudulent transfer, the holders of the old notes or the new notes may not receive payment on those notes. Under federal or state fraudulent transfer laws, if a court were to find that, at the time the old notes or the new notes were issued we: . issued the old notes or the new notes with the intent of hindering, delaying or defrauding current or future creditors, or . received less than fair consideration or reasonably equivalent value for incurring the indebtedness represented by the old notes or the new notes, and we were insolvent or were rendered insolvent by reason of the issuance of the old notes or the new notes; or we were engaged, or about to engage, in a business or transaction for which our assets were unreasonably small; or we intended to incur, or believed, or should have believed, we would incur, debts beyond our ability to pay as such debts mature; or we were a defendant in an action for money damages, or had a judgment for money damages docketed against it (if, in either case, after final judgment the judgment is unsatisfied), then a court could: . avoid all or a portion of our obligations to the holders of the old notes or the new notes, . subordinate our obligations to the holders of those notes to other existing and future indebtedness of us, as the case may be, the effect of which would be to entitle the other creditors to be paid in full before any payment could be made on those notes, or . take other action harmful to the holders of the old notes or the new notes, including in certain circumstances, invalidating those notes. In any of these events, we could not assure you that the holders of the old notes or the new notes would ever receive payment on those notes. The measures of insolvency for the purposes of the above will be as described in the risk factor "A court may void the guarantees of the new notes or subordinate the guarantees to other obligations of the guarantor." We cannot assure you as to what standard a court would apply in order to determine whether we were "insolvent" as of the date the old notes or the new notes were issued, or that, regardless of the method of valuation, a court would not determine that we were insolvent on that date. Nor can we assure you that a court would not determine, regardless of whether we were insolvent on the date the old notes or the new notes were issued, that the issuance of the notes constituted fraudulent transfers on another ground. 27 Separate and apart from any fraudulent transfer attack, any payment made to holders in consideration for their old notes, including the cash payment election, may also be subject to challenge as a preference if such payment: (i) is made within ninety days prior to a bankruptcy filing by us; (ii) is made when we are insolvent; and (iii) permits the holders to receive more than they otherwise might receive in a liquidation of Aviation Sales pursuant to Chapter 7 of the United States Bankruptcy Code. If such payment were deemed to be a preference, such payment could be recovered by the Aviation Sales' trustee in bankruptcy and holders would be restored to their previous positions as unsecured creditors of Aviation Sales. A court may treat the new notes as equity. Although the new notes will be issued as debt securities for non-tax and financial accounting purposes, the new notes should be treated as equity securities for federal income tax purposes. This classification is required pursuant to applicable Internal Revenue Service (IRS) regulations primarily because of automatic conversion feature of the new notes and the fact that, at our election, we can ultimately satisfy all obligations under the new notes through the automatic conversion of the new notes into shares of our common stock. The new notes which are issued in connection with any interest which is paid in kind will be treated as equity securities also, for the same reasons as the new notes issued pursuant to the exchange offer and consent solicitation. We will classify the new notes as debt securities. While the indenture for the new notes provides that in a bankruptcy proceeding the holders of the new notes will have a claim for the face amount of the new notes, plus accrued but unpaid interest, a bankruptcy court could treat the holders of the new notes as our equity holders, due to the similarities of the new notes to equity securities, and, accordingly, the holders of the new notes may not receive any payment on the new notes. This exchange offer and consent solicitation will not be consummated unless we receive tenders of and consents from at least $132 million in aggregate principal amount of outstanding old notes and we satisfy the restructuring conditions. This exchange offer and consent solicitation is conditioned on us receiving tenders of and consents from at least $132 million in aggregate principal amount of the outstanding old notes. We cannot assure you that we will receive tenders of and consents from at least $132 million in aggregate principal amount of the outstanding old notes. If we are unable to consummate this exchange offer and consent solicitation, we may have to seek bankruptcy protection or commence liquidation or administration proceedings. In that case, owners of old notes may only receive repayment of little or none of the principal amount of their old notes. This exchange offer and consent solicitation is subject to the conditions that: . we must receive $20 million in cash in exchange for 80% of the common stock of the reorganized company in the rights offering; . we must receive consent to the exchange offer and consent solicitation from our senior lenders and the parties to our TROL Financing, which consent has been received; . we must increase the number of authorized shares of our common stock to 500 million shares by means of an amendment to our certificate of incorporation and reduce the number of our issued and outstanding shares by reducing every ten shares into one share in a reverse split; and . we must receive the approval of a majority of our stockholders to: . the issuance of the new notes, shares of our common stock and warrants to purchase common stock in the exchange offer and consent solicitation; . the issuance to existing stockholders of warrants to purchase 10% of the common stock of the reorganized company; . the sale of 80% of the common stock of the reorganized company for $20 million in the rights offering; . the sale of post-reverse split common stock to Lacy Harber in accordance with his agreement to purchase unsold allotments in the rights offering; and . the increase in the number of our authorized shares to 500 million shares and the reduction of our issued and outstanding shares on a ten-for-one basis in a reverse split. 28 Our agreement with our noteholders and largest stockholder regarding the restructuring is subject to certain termination events. We have entered into an agreement with holders of 73.02% of our old notes and our largest stockholder to restructure the old notes pursuant to this exchange offer and consent solicitation and to conduct the rights offering. The noteholder and stockholder parties to the agreement have agreed to vote their respective notes and shares in favor of the restructuring. In addition, the noteholder parties to the agreement have agreed to tender their old notes in the exchange offer and to waive the default arising as a result of the failure to pay the interest payment on the old notes due August 15, 2001. Also, our largest stockholder has agreed to provide a standby commitment to purchase any unsold allotments of our proposed rights offering subject to entering into definitive documentation. However, the agreement is subject to several termination events and we cannot assure you that these events will not occur. The agreement provides that it can be terminated if any of the following termination events occur: . the restructuring is not completed by March 31, 2002; . we withdraw from or materially alter the restructuring; . we breach any material provisions of the agreement, including failure to use our best efforts to obtain approval of the restructuring; or . we file a chapter 11 bankruptcy proceeding that is dismissed or converted to a chapter 7 bankruptcy proceeding or we file a chapter 11 proceeding with a plan of reorganization that does not incorporate the terms of the restructuring provided in the agreement or an involuntary bankruptcy proceeding is filed against us which is not dismissed or converted to a voluntary chapter 11 proceeding within 120 days. The exchange ratios for this exchange offer and consent solicitation do not reflect any valuation of the old notes or the new notes. Our board of directors has made no determination that the exchange ratios represent a fair valuation of either the old notes or the new notes. We have not obtained a fairness opinion from any financial advisor about the fairness of the exchange ratios to you or to us. We cannot assure you that if you tender your old notes you will receive more value than if you choose to keep them. If you choose the limited cash option and it is oversubscribed, you will have to accept a combination of new notes, common stock and warrants as part of your exchange consideration. If you choose the limited cash option under this exchange offer and consent solicitation, and the limited cash option is oversubscribed, you will receive a combination of new notes, common stock and warrants as a portion of your consideration. We will not determine whether the limited cash option is oversubscribed until after this exchange offer and consent solicitation closes. You will not be able to withdraw your tender of old notes at the time that we make this determination, even though it may affect the type of exchange consideration that you will receive in this exchange offer and consent solicitation. Up to $10 million in cash will be exchanged for $33 million principal amount of old notes. If less than all of our outstanding old notes are exchanged, then the $10 million in cash available will be reduced $303 for every $1,000 principal amount of old notes not exchanged. The restructuring will cause immediate and substantial dilution to our existing stockholders. The proposed issuances of new notes, warrants and common stock in the exchange offer and consent solicitation and the proposed issuance of common stock in the rights offering and upon exercise of the warrants will result in immediate and substantial dilution to our existing stockholders. After the restructuring, our existing stockholders will own 5% of the outstanding common stock of our reorganized company. In addition, we will be obligated to issue additional shares of our post-reverse split common stock when we redeem the new notes (4,504,595 post-reverse split shares if the new notes are redeemed in 2002 or 2003 and 3,003,063 post-reverse split shares if the new notes are redeemed in 2004, 2005 or 2006). Additionally, pursuant to the 29 agreement with our old note holders, we may grant options or warrants to purchase up to 8% of the post-reverse split common stock of the reorganized company to our directors, officers and employees. In that regard, we have adopted the 2001 Stock Option Plan (which shall become effective upon the completion of the restructuring) under which we can issue options to purchase up to 2.4 million post-reverse split shares of our common stock to our officers, directors and employees. Finally, if the new notes have not been redeemed prior to their maturity, they will automatically convert into 270,275,706 post-reverse split shares of our common stock, at which time the percentage ownership of our existing common stockholders will be further substantially diluted. Risks associated with our new notes We are not obligated to make any cash payments of interest on the new notes and we are not obligated to make any cash payment of principal of the new notes at maturity. Under the indenture for the new notes, we are only obligated to pay interest on the notes in either additional new notes or, at our option, in cash, although if we do not pay interest in cash by any interest payment date, we will automatically be deemed to have paid the interest due on the interest payment date in-kind. Upon the maturity of the new notes, including any new notes previously issued for paid-in-kind interest, unless earlier redeemed, the new notes (including all accrued but unpaid interest) will automatically convert into an aggregate of 270,275,706 post-reverse split shares of our common stock. There may be no active market for our new notes. The new notes will not be traded on an exchange or quoted on any automated quotation system. We cannot assure you that a liquid market will develop for the new notes, that you will be able to sell your new notes at a particular time or that the prices that you receive when you sell will be favorable. Moreover, we do not intend to apply for the new notes to be listed on any securities exchange or to arrange for quotation on any automated dealer quotation system. In addition, the liquidity of the trading market in the new notes, and the market price quoted for the new 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 new notes. Your right to receive payments on the new notes is junior to senior debt. The new notes and the subsidiary guarantees rank behind all of our and the subsidiary guarantors' existing senior indebtedness, including our TROL Financing obligations, 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 new 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 the new notes or the subsidiary guarantees. The new notes will be subordinated to our senior debt. If we default on our senior debt, we may not be able to pay you the redemption price for the new notes. The new notes will rank in right of payment behind all of our existing and future senior debt, including our indebtedness under the new credit facility and under our TROL Financing. We may not redeem or otherwise pay any amounts on the new notes if principal or interest on our senior debt is not paid when due. In addition, if we are in default on any of our other obligations under our senior debt, we may be prohibited from making payments to the owners of the new notes. The owners of our senior debt will be entitled to receive payment of all amounts due to them before the owners of the new notes upon any payment or distribution of our assets to our creditors upon our bankruptcy or liquidation or other insolvency or reorganization proceedings. 30 A court may void the guarantees of the new notes or subordinate the guarantees to other obligations of the guarantors. A court could void the guarantee of the new notes, or claims by holders of the new notes under those guarantees could be subordinated to all other debts of a guarantor. In addition, any payment by that guarantor under its guarantee could be required to be returned to that guarantor, or to a fund for the benefit of the creditors of that guarantor. Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a court could void the guarantees of the new notes or subordinate the guarantees to other obligations if the court were to find that, at the time any guarantor of the new notes incurred the debt evidenced by its guarantee, the guarantor: . was insolvent or rendered insolvent by reason of such incurrence; was engaged in a business or a transaction for which that guarantor's remaining assets constituted unreasonably small capital; or intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured; and . received less than reasonably equivalent value or fair consideration for the incurrence of such debt. The measures of insolvency for purposes of the above will vary depending upon the law applied in any proceeding. Generally, however, a guarantor would be considered insolvent if: . the sums of its debts, including contingent liabilities, was greater than the saleable value of all of its assets at a fair valuation; or . the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or . it could not pay its debts as they become due. We may not be able to repurchase the new notes upon a change of control in accordance with the terms of the indenture. Holders of the new notes may not have their new notes repurchased following a change of control because: . we may have insufficient funds to repurchase the new notes; or . we may be prohibited from repurchasing the new notes by the terms of our senior indebtedness. Under the terms of the indenture for the new notes, we may be required to repurchase all or a portion of the new notes then outstanding on a change of control at a purchase price equal to the redemption price which we would be obligated to pay if we redeemed the notes on the date of such change of control. Before we can repurchase the new notes, we may be required to: . repay in full all of our indebtedness that is senior to the new notes; or . obtain the consent of our senior lenders to make the repurchase. The terms of our senior indebtedness may prevent us from repurchasing the new notes without the consent of our senior lenders, unless we also repay our senior indebtedness in full. In those circumstances, we would be required to obtain the consent of our senior lenders, or otherwise repay our senior indebtedness in full, before we could repurchase the new notes following a change of control. If we were unable to obtain the required consents or otherwise repay our senior indebtedness, the put right on a change of control will be ineffective. Assuming we had completed all parts of our overall refinancing and restructuring plan on September 30, 2001, based on the assumptions for the pro forma financial information described on pages P-1 to P-5 we would have been required to repay approximately $78.7 million of senior debt before we could repurchase any of the new notes. Therefore, if we have insufficient funds to repay our senior indebtedness in full prior to repurchasing the new notes or if we are unable to obtain any required consents, the put right will be ineffective. 31 The subordination provisions of the indenture for the new notes may prevent payments under a change of control offer. The put right may also be limited or unavailable in the event of a highly leveraged transaction or other transaction which may be prejudicial to the interests of the holders of the new notes but which does not result in a change of control or otherwise violate the indenture for the new notes. The acquisition of a controlling interest in us or our affiliates is not a change of control event under the terms of the indenture for the new notes. Therefore, the put right would not be available to holders of the new notes in those circumstances. The indenture for the new notes provides that a sale, lease, exchange or transfer of "all or substantially all" of our assets is a change of control event. However, there is no precise definition of the phrase "all or substantially all" under applicable law. Accordingly, the ability of holders of the new notes to require us to repurchase their notes upon the sale, lease, exchange or transfer of "all or substantially all" of our assets is uncertain. We may not be required, or we may not be able, to repurchase the new notes upon an asset sale. Holders of new notes may not have all or any of their notes repurchased following an asset sale because: . we are only required to repurchase the new notes if there are excess proceeds of the asset sale; or . we may be prohibited from repurchasing the new notes by the terms of our senior indebtedness. Under the terms of the indenture for the new notes, we may be required to repurchase all or a portion of the new notes following an asset sale at a purchase price equal to the redemption price which we would be obligated to pay if we redeemed the notes on the date of such asset sale. However, we are only required to repurchase notes from the excess proceeds of the asset sale that we do not use to repay indebtedness senior to the new notes or to acquire replacement assets. We can also defer the offer to you until there are excess proceeds in an amount greater than $5 million. It is likely that the terms of our senior indebtedness will require us to apply most, if not all, of the proceeds of an asset sale to repay that indebtedness, in which case there may be no excess proceeds of the asset sale for the repurchase of new notes. In addition, the terms of our senior indebtedness may prevent us from repurchasing the new notes without the consent of our senior lenders. In those circumstances, we would be required to obtain the consent of our senior lenders before we could repurchase the new notes with the excess proceeds of an asset sale. If we were unable to obtain any required consents, the requirement that we purchase the new notes from the excess proceeds of an asset sale will be ineffective. Assuming that we had completed all parts of our overall refinancing and restructuring plan on September 30, 2001, based on the assumptions for the pro forma financial information described on pages P-1 to P-5 we would have been required to repay approximately $78.7 million of senior debt before we could repurchase any of the new notes. If we make a sale, lease, exchange or transfer of "all or substantially all" of our assets as permitted under the limitations contained in the indenture for the new notes regarding mergers, consolidations and sales of assets, then we will not be required to repurchase the new notes from the excess proceeds of that transaction. However, there is no precise definition of the phrase "all or substantially all" under applicable law. Accordingly, the ability of holders of the new notes to require us to repurchase their notes upon the sale, lease, exchange or transfer of "all or substantially all" of our assets is uncertain. If we default on our obligation to pay the redemption price and go into bankruptcy, the redemption price could become a partial debt and equity claim. We may elect to redeem the new notes or an asset sale or change of control could occur that requires us to pay the redemption price under the indenture for the new notes. If we default in payment of the redemption price and we go into a bankruptcy proceeding, the redemption price claim of the holders of the new notes could possibly convert to a debt claim, to the amount of the cash portion of the redemption price, and an equity claim for the balance. 32 Risks associated with our old notes Failure of this exchange offer and consent solicitation may lead to our bankruptcy, liquidation or administration. In the event that this exchange offer and consent solicitation fails to close, we are unlikely to be able to refinance our senior bank debt. If we fail to refinance our senior bank debt, we may have to seek bankruptcy protection and/or commence liquidation or administration proceedings. In that case, we expect that it is highly unlikely that owners of the old notes will receive repayment in full of the principal amount of their notes. In that case, owners of the old notes may only receive repayment of little or none of the principal amount of their notes. In the event of our bankruptcy, liquidation or administration, we may not be able to pay principal or interest on the old notes when due. We may also be prohibited from making those payments if we are in default on our indebtedness that is senior to the old notes. The holders of our senior debt, our other subordinated debt, and lessors under our TROL Financing will be entitled to receive payment of all amounts due to them before the owners of the old notes upon any payment or distribution of our assets to our creditors upon our bankruptcy, liquidation or other insolvency or reorganization proceedings. The old notes will rank in right of payment behind all of our existing and future senior debt, other secured liabilities and other subordinated debt. This includes our senior bank debt and, upon the completion of the exchange offer, up to $100 million in aggregate principal amount of the new notes. We may not pay any principal or interest on, or any amounts owing on, or purchase, redeem or otherwise retire the old notes if our senior debt or other subordinated debt is not paid when due. In addition, if we are in default of any of our other obligations under our senior debt or other subordinated debt, we may be prohibited from making payments to the owners of the old notes for specified periods of time. The proposed amendments to the indenture for the old notes will remove restrictions on us which previously benefited holders of the old notes. If the proposed amendments to the indenture for our old notes became operative, old notes that are not tendered and exchanged pursuant to the exchange offer will remain outstanding and will be subject to the terms of the indenture as modified by the supplemental indenture, except that the amendment extending the grace period to pay interest and the waiver of the default in payment of interest will not be effective against any note holder not consenting to that amendment or waiver. As a result of the adoption of the proposed amendments, all material restrictive covenants contained in the indenture, except the obligation to pay principal and interest, will be eliminated and holders of the old notes not tendered will no longer be entitled to the benefits of such covenants. The elimination of these covenants and other provisions will permit us to take certain actions previously prohibited that could increase the credit risks with respect to us, adversely affect the market price and credit rating of the remaining old notes or otherwise be materially adverse to the interest of such holders, which would otherwise not have been permitted pursuant to the indenture. We expect that such terms will include operating and financial restrictions, such as limits on our ability to incur indebtedness, create liens, sell assets, engage in mergers or consolidations, make investments and pay dividends. If you do not exchange your old notes in this exchange offer and consent solicitation, it is likely you will not be able to sell them in the secondary market. Any old notes tendered and exchanged in this exchange offer and consent solicitation will reduce the aggregate principal amount of the old notes outstanding. Because it is a condition of this exchange offer and consent solicitation that at least $132 million in aggregate principal amount of the old notes are tendered, we anticipate that the liquidity of the market for any old notes remaining outstanding after this exchange offer and consent solicitation will be extremely limited. 33 To the extent that the old notes are tendered and accepted in the exchange offer for the new notes, any existing trading market for the remaining old notes may become more limited. A debt security with a smaller outstanding principal amount available for trading (a smaller "float") may command a lower price than would a comparable debt security with a greater float. The reduced float may also make the trading price of the old notes that are not tendered and accepted for exchange more volatile. Consequently, the liquidity, market value and price volatility of old notes which remain outstanding may be adversely affected. Holders of unexchanged old notes may attempt to obtain quotations for the old notes from their brokers; however, there can be no assurance that any trading market will exist for the old notes following consummation of the exchange offer. The extent of the public market for the old notes following consummation of the exchange offer will depend upon the number of holders remaining at such time, the interest in maintaining a market in the old notes on the part of securities firms and other factors. Risks associated with our common stock and our warrants The New York Stock Exchange suspended the trading of our common stock on the NYSE effective December 6, 2001, which may negatively affect the price and liquidity of our common stock. Due to the fact that we were no longer in compliance with the NYSE continued listing criteria, which required, among other things, that we have a market capitalization of not less than $50 million and total shareholders' equity of not less than $50 million, and due to the fact that the average closing price of our common stock had fallen below $1.00 for more than 30 consecutive trading days, the NYSE suspended the trading of our common stock on the NYSE effective immediately prior to the opening of the market on Thursday, December 6, 2001 and is in the process of delisting our common stock from the NYSE. Commencing December 6, 2001, our common stock became quoted on the OTC Bulletin Board maintained by the NASD. We cannot assure you that the market for our common stock will be as liquid as it has historically been on the NYSE. As a result, the market price for our common stock may become more volatile than it has been historically. If our common stock is deemed a "penny stock," its liquidity will be adversely affected. The price of our common stock fell below $1.00 per share in September 2001. If the market price for our common stock remains below $1.00 per share, our common stock may be deemed to be penny stock. If our common stock is considered penny stock, it would be subject to rules that impose additional sales practices on broker-dealers who sell our securities. For example, broker-dealers must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. Also, a disclosure schedule must be prepared before any transaction involving a penny stock, and disclosure is required about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Monthly statements are also required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock. Because of these additional obligations, some brokers may not effect transactions in penny stocks. This could have an adverse effect on the liquidity of our common stock. Our common stock is thinly traded. Our stock price may fluctuate more than the stock market as a whole. As a result of the thin trading market for our stock, its market price may fluctuate significantly more than the stock market as a whole or the stock prices of similar companies. Of the 15,015,317 pre-reverse split shares of our currently outstanding common stock, approximately 70% are beneficially owned by persons other than Lacy Harber, our principal stockholder. Without a larger float, our common stock will be less liquid than the stock of companies with broader public ownership, and, as a result, the trading prices for our common stock may be more volatile. Among other things, trading of a relatively small volume of our common stock may have a greater impact on the trading price for our stock than would be the case if our public float were larger. 34 In addition, sales of a substantial amount of common stock in the public market, or the perception that these sales may occur, could adversely affect the market price of our common stock. Possible or actual sale of any of these shares, particularly by Mr. Harber, may decrease the market price of our common stock. We are subject to significant anti-takeover provisions. Our certificate of incorporation and bylaws contain provisions that may have the effect of discouraging transactions involving an actual or threatened change of control. In addition, our board of directors has the authority to issue up to 1,000,000 shares of preferred stock in one or more series and to fix the preferences, rights and limitations of any of these series without stockholder approval. Also, we have adopted a stockholders rights plan which provides for share purchase rights to become exercisable if a person or group acquires more than a certain percentage of our common stock or announces a tender offer for more than a certain percentage of our common stock. Our ability to issue preferred stock and/or the existence of our stockholders rights plan could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of us, which could adversely affect the market price of our common stock. The holders of our common stock will be subject to substantial dilution upon the maturity of the new notes. Unless earlier redeemed by us, the new notes will automatically convert into an aggregate of 270,275,706 shares of our post-reverse split common stock upon the maturity of these notes on December 31, 2006. Holders of our common stock at that time, as a result of such conversion, will face immediate and substantial dilution in their percentage ownership of the total outstanding shares of our common stock and a reduction in their voting power. In addition, as a result of this conversion, there could be a material adverse effect on the then prevailing market price of our common stock. The market price of our common stock could be depressed by future sales. Future sales of our common stock, or the perception that these sales could occur, could adversely affect the market price of our common stock. We cannot assure you as to when, and how many of, the shares of our common stock will be sold and the effect these sales may have on the market price of our common stock. In addition, we may issue additional shares of common stock in connection with possible future acquisitions, in connection with future offerings to raise capital, or in other transactions. Although these securities may be subject to regulatory or contractual resale restrictions, as these restrictions lapse or its these shares are registered for sale to the public, they may be sold to the public. In the event we issue a substantial number of shares of our common stock, which subsequently become available for unrestricted resale, there could be a material adverse effect on the prevailing market price of our common stock. Adjustments to warrant exercise price and exercise date; the warrants will not trade separately from the new notes until a later date. We may, in our sole discretion, and in accordance with the terms of the warrant agreement with the warrant agent, reduce the exercise price of the warrants and/or extend the time within which the warrants may be exercised, depending on such things as the current market conditions, the price of the common stock and the need for additional capital. Further, in the event that we issue certain securities or make certain distributions to the holders of our common stock, the exercise price of the warrants may be reduced. Any such price reductions (assuming exercise of the warrants) will provide less money for us and possibly adversely affect the market price of our securities. The warrants issued in this exchange offer and consent solicitation will not trade separately from the new notes until December 31, 2003. Impact of warrant exercise on market. In the event of the exercise of a substantial number of warrants within a reasonably short period of time after the right to exercise commences, the resulting increase in the amount of our common stock in the trading market could substantially affect the market price of our common stock. 35 Risks related to federal tax consequences We may incur taxable income from discharge of indebtedness which is not offset by available exemptions and deductions. We expect to realize cancellation of indebtedness income for federal income tax purposes. We believe that available tax deductions and exclusions should substantially mitigate the amount of any tax liability we might otherwise incur as a result of such income. If these deductions and exclusions are not available in the amounts which we expect, however, we may incur substantial income tax liabilities. See "Tax consequences to us." If the IRS does not respect the allocation of the consideration received in the exchange by holders of the old notes, exchanging old note holders may incur additional interest income or be unable to claim losses with respect to accrued but unpaid interest. The exchanging holders of old notes are foregoing accrued and unpaid interest payments and are exchanging the principal amount of the old notes for consideration of cash, new notes, common stock and warrants. We will allocate the entire amount of the consideration we issue to the holders of the old notes to their principal amount and no portion of that consideration to accrued and unpaid interest. If the IRS does not respect this allocation, holders of the old notes could be treated as receiving a payment of all or a portion of the accrued and unpaid interest, thereby resulting in income for a holder to the extent that interest was not previously included in income and the denial or reduction of a loss for a holder that previously included that interest in the holder's income. See "Tax consequences to United States holders--Tax consequences of the exchange--Accrued interest." Holders of the new notes might be treated as receiving taxable distributions with respect to interest paid in kind, redemption premiums and increases in their proportionate interest in the assets or earnings and profits. We will treat the new notes as equity securities for federal income tax purposes. The fair market value of distributions with respect to the new notes could be taxed as dividends to the holders of the new notes but only to the extent of the greater of (i) our current earnings and profits for the year in which the distribution is made, or (ii) our current and previously accumulated earnings and profits. Interest paid in kind on the new notes, along with interest paid in kind on the notes issued to pay interest (the "PIK notes"), might be treated as such a distribution. In addition, if the new notes (or PIK notes) are treated as preferred stock and issued with a redemption premium, holders of the new notes (or PIK notes) could be required to treat the redemption premium as being distributed over the term of the new notes (or PIK notes). Finally, if the new notes (or PIK notes) are treated as preferred stock, holders of the notes could be treated as receiving distributions of our common stock on such preferred stock over the term of such new notes (or PIK notes). Any or all of the foregoing distributions could be taxed as a dividend. See "Tax consequences to United States holders--Tax consequences of the new notes--Interest payments," "--Redemption premium," and "Redemption and conversion of the new notes." FORWARD-LOOKING STATEMENTS We have made forward-looking statements with respect to our financial condition, results of operations and business. Forward-looking statements are statements other than historical information or statements of current condition. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates" and similar expressions identify forward- looking statements. These forward-looking statements relate to our plans, objectives and expectations for future operations and are subject to risks and uncertainties, that could cause actual results to differ materially from the results contemplated by the forward-looking statements. These risks and uncertainties include those described under "Risk Factors" in this prospectus and consent solicitation and the following: . our ability to successfully complete the contemplated exchange offer and consent solicitation and the rights offering, 36 . our ability to service our indebtedness, . our ability to continue to generate sufficient working capital to meet our operating requirements, . our maintaining good working relationships with our vendors and customers, . competitive pricing for our products and services, . our ability to achieve gross profit margins at which we can be profitable, including margins on services we perform on a fixed price basis, . competition in the aircraft MR&O market, . our ability to attract and retain qualified personnel in our businesses, . utilization rates for our MR&O facilities, . our ability to effectively manage our business, . economic factors which affect the airline industry, including the impact on the industry and us of the September 11, 2001 terrorist attacks, and . changes in government regulations. In light of the risks and uncertainties inherent in all projected operational matters, you should not regard the inclusion of forward-looking statements in this prospectus and consent solicitation as a representation by us or any other person that our objectives or plans will be achieved or that any of our operating expectations will be realized. We do not undertake any obligation to revise or update these forward-looking statements to reflect future events or circumstances. 37 MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK The following information relates to the trading of our common stock, par value $.001 per share. At June 29, 2001, we believe that there were approximately 7,000 beneficial holders of our common stock. The high and low last sales prices of our pre-reverse split common stock for each quarter during our two most recent fiscal years as well as for the first, second, third and fourth quarters to date of 2001, as reported by the New York Stock Exchange through December 5, 2001 and as reported by the OTC Bulletin Board from December 6, 2001 to date, are set forth below:
High Low ------ ------ 1999 First Quarter............................................... $47.31 $37.00 Second Quarter.............................................. $44.69 $35.94 Third Quarter............................................... $43.94 $18.25 Fourth Quarter.............................................. $18.56 $13.75 2000 First Quarter............................................... $19.36 $ 6.44 Second Quarter.............................................. $ 8.13 $ 3.75 Third Quarter............................................... $ 6.63 $ 4.69 Fourth Quarter.............................................. $ 5.63 $ 2.13 2001 First Quarter............................................... $ 4.75 $ 2.63 Second Quarter.............................................. $ 4.07 $ 1.18 Third Quarter............................................... $ 1.95 $ 0.33 Fourth Quarter (through December 10, 2001).................. $ $
Our common stock was traded on the NYSE until December 6, 2001. Our common stock is now quoted on the OTC Bulletin Board maintained by the NASD. 38 CAPITALIZATION The following table sets forth (1) our actual capitalization as of September 30, 2001 and (2) our pro forma capitalization as of September 30, 2001. The pro forma adjustments are based on available information and certain adjustments that our management believes are reasonable, and reference is made to the Unaudited Pro Forma Condensed Consolidated Financial Statements appearing elsewhere herein. In the opinion of our management, all adjustments have been made that are necessary to present fairly the unaudited pro forma data. The pro forma adjustments have been prepared on the following assumptions: . $33 million in principal amount of old notes are tendered under the limited cash option and are exchanged for $10 million in cash, which will be funded from the proceeds of the rights offering; . $132 million in principal amount of old notes are exchanged for $100 million of new notes, 4,504,595 post-reverse split shares of common stock and warrants to purchase 3,003,063 post-reverse split shares of common stock (at an exercise price of $5.16 per share); . We complete the rights offering and receive the $20 million cash investment; . We issue warrants to purchase 3,003,063 shares of post-reverse split common stock (at an exercise price of $5.16 per share) to our existing stockholders; . Our authorized common stock is increased to 500 million shares and we complete a one-for-ten reverse split of our issued and outstanding common stock; and . Fees and expenses associated with this exchange offer and consent solicitation and the rights offering are $4.0 million. Our capitalization follows:
As of September 30, 2001 ------------------------------------ Actual Adjustments Pro Forma --------- ----------- --------- (in thousands, except share data) Senior revolving loan..................... $ 1,740 $ (1,740) (A) $ -- Senior term loans......................... 22,028 (4,260) (A) 17,768 Capital lease obligation.................. 34,418 -- 34,418 Committed letter of credit advances....... 8,500 -- 8,500 Other indebtedness........................ 3,854 -- 3,854 Senior subordinated notes due 2008........ 164,414 (164,414) (B) -- Senior subordinated convertible PIK notes due 2006................................. -- 114,700 (B) 114,700 --------- --------- -------- Total debt.............................. 234,954 (55,714) 179,240 --------- --------- -------- Stockholders' equity (deficit): Preferred stock, $0.01 par value, 1,000,000 shares authorized, none outstanding, 15,000 shares designated series A junior participating........... $ -- -- -- Common Stock, $0.001 par value, 500 million shares authorized, 15,015,317 pre-reverse split shares issued and outstanding on September 30, 2001 (1,501,531 shares after completion of the reverse split); 30,030,634 post- reverse split shares issued and outstanding pro-forma as adjusted....... 15 15 (C) 30 Additional paid in capital............... 153,264 25,304 (C) 178,568 Accumulated deficit...................... (253,108) 35,537 (D) (217,571) --------- --------- -------- Total stockholders' equity (deficit)...... (99,829) 60,856 (38,973) --------- --------- -------- Total capitalization...................... $ 135,125 $ 5,142 $140,267 ========= ========= ========
- -------- (footnotes on next page) 39 (footnotes from prior page) (Dollars in thousands) (A) Represents the utilization of excess working capital resulting from the restructuring being utilized to pay down the outstanding revolver balance and a portion of the outstanding senior term loans payable. (B) Represents the exchange of $165,000 (face value) of old notes for $10,000 in cash, $114,700 of new notes, warrants to purchase 3,003,063 post- reverse split shares of common stock (at an exercise price of $5.16 per share) and 4,504,595 post-reverse split shares of common stock. Under FAS 15, the new notes are recorded at an amount equal to the maximum amount of cash (assuming all interest is paid in kind through the issuance of additional new notes and including all accrued but unpaid interest) which we would be obligated to pay if we redeemed the new notes immediately prior to their maturity. In accordance with their terms, if the new notes are not redeemed prior to their maturity, they will automatically convert on their maturity date (December 31, 2006) into 270,275,706 post-reverse split shares of common stock. The unaudited pro forma data contained herein does not take into account any potential conversion of the new notes upon maturity into an additional 270,275,706 post-reverse split shares of our common stock . (C) Reflects: (i) the issuance of 24,024,507 post-reverse split shares of common stock in the rights offering for $20,000 in cash, (ii) the issuance of 4,504,595 post-reverse split shares of common stock to the holders of the old notes in the note exchange described in (B) above, valued at $3,750, and (iii) the issuance of warrants to purchase 3,003,063 post-reverse split shares of common stock (at an exercise price of $5.16 per share) in the note exchange described in (B) above, valued at $784., (D) Represents an extraordinary gain of $36,321, net of tax and restructuring transaction expenses (estimated to be $4,000), relating to the early extinguishment of the old notes, partially offset by the value of the warrants to be issued to the existing stockholders as part of the restructuring, as described in (C) above. The computation of gain includes the impact of the note exchange described in (B) above and the impact of the write off of unamortized deferred financing costs and unamortized discounts associated with the old notes. 40 RATIO OF EARNINGS TO FIXED CHARGES The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, "earnings" includes pretax income from continuing operations plus fixed charges. "Fixed charges" include interest, whether expensed or capitalized, amortization of debt expense and the portion of rental expense that represents the interest factor in these rentals. The following table presents (1) the ratio of earnings to fixed charges of Aviation Sales for each of the fiscal years 1996 through 2000 and for the first nine months of fiscal years 2000 and 2001; and (2) the pro forma ratio of earnings to fixed charges for fiscal 2000 and for the first nine months of fiscal 2001. The pro forma ratio of earnings to fixed charges, giving effect to this exchange offer and consent solicitation and assuming that the old notes are exchanged for $10 million in cash, $100 million principal amount of new notes, 4,504,595 post-reverse split shares of common stock and warrants to purchase 3,003,063 post-reverse split of common stock, is as follows:
September 30, December 31, ---------- --------------------------- 2001 2000 2000 1999 1998 1997 1996 ---- ---- ----- ---- ---- ---- ---- Ratio of earnings to fixed charges.... (4.9) (2.3) (5.0) 0.1 1.8 (3.9) 40.7 Pro forma ratio of earnings to fixed charges.............................. (9.3) -- (12.2) -- -- -- --
Earnings were inadequate to cover fixed charges by $3.8 million and $138.9 million, respectively, for the 1997 and 2000 fiscal years and by $57.0 million and $124.0 million, respectively, for the nine months of fiscal years 2000 and 2001. Further, earnings were inadequate to cover fixed charges by $109.4 million and $102.0 million, respectively, on a pro forma basis, for fiscal 2000 and for the nine months of fiscal 2001. USE OF PROCEEDS The new notes, common stock and warrants issued in connection with the exchange offer are being issued in exchange for your old notes. We will not receive any cash proceeds from the issuance of the new notes, common stock and warrants in the exchange offer. We will receive $20 million from the proceeds of the rights offering which will be used to pay the cash portion of this exchange offer and consent solicitation (up to $10.0 million), expenses relating this exchange offer and consent solicitation and the rights offering (estimated to be $4.0 million) and for working capital purposes. We will cancel all old notes tendered by you and accepted by us in the exchange offer. 41 SELECTED FINANCIAL DATA The following table represents our selected consolidated financial information. The selected financial data set forth below should be read in conjunction with the Consolidated Financial Statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations which contains a description of the factors that materially affect the comparability from period to period of the information presented herein. Operating results from continuing operations reflect the results of operations from our MR&O and leasing operations, including the preacquisition operations for all periods presented of Whitehall Corporation and the pre-acquisition operations of Aerocell Structures for 1997.
Year Ended December 31, ------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- --------- (In thousands, except per share data) STATEMENT OF INCOME DATA: Operating revenues.......... $ 76,047 $ 98,327 $184,448 $371,753 $ 338,077 Cost of sales............... 60,215 79,572 141,569 307,944 353,331 -------- -------- -------- -------- --------- Gross profit (loss)....... 15,832 18,755 42,879 63,809 (15,254) Operating expenses.......... 6,052 20,179 17,721 41,774 74,580 -------- -------- -------- -------- --------- Income (loss) from operations............... 9,780 (1,424) 25,158 22,035 (89,834) Interest expense and other.. (400) 5,623 13,699 17,322 21,272 -------- -------- -------- -------- --------- Income (loss) before income taxes, equity income of affiliate and discontinued operations.. 10,180 (7,047) 11,459 4,713 (111,106) Income tax expense.......... 3,817 (4,179) 4,281 3,004 4,810 -------- -------- -------- -------- --------- Income (loss) before equity income of affiliate and discontinued operations.. 6,363 (2,868) 7,178 1,709 (115,916) Equity income of affiliate.. 255 (139) 1,356 1,289 43 -------- -------- -------- -------- --------- Income (loss) from continuing operations.... 6,618 (3,007) 8,534 2,998 (115,873) Discontinued operations: Operations, net of income taxes.................... 6,166 7,850 16,959 (24,721) (23,432) Loss on disposal, net of income tax............... -- -- -- -- (72,325) -------- -------- -------- -------- --------- Net income (loss)......... $ 12,784 $ 4,843 $ 25,493 $(21,723) $(211,630) ======== ======== ======== ======== ========= Basic Earnings (Loss) Per Share: Income (loss) from continuing operations.... $ 0.62 $ (0.25) $ 0.70 $ 0.22 $ (7.72) Income (loss) from discontinued operations.. 0.58 0.64 1.38 (1.78) (6.37) -------- -------- -------- -------- --------- Net income (loss)......... $ 1.20 $ 0.39 $ 2.08 $ (1.56) $ (14.09) ======== ======== ======== ======== ========= Diluted Earnings (Loss) Per Share: Income (loss) from continuing operations.... $ 0.61 $ (0.25) $ 0.68 $ 0.21 $ (7.72) Income (loss) from discontinued operations.. 0.57 0.64 1.34 (1.77) (6.37) -------- -------- -------- -------- --------- Net income (loss)......... $ 1.18 $ 0.39 $ 2.02 $ (1.56) $ (14.09) ======== ======== ======== ======== ========= As of December 31, ------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- --------- (In Thousands) BALANCE SHEET DATA: Accounts receivable......... $ 18,461 $ 20,672 $ 50,027 $ 91,926 $ 67,558 Inventories................. 6,440 9,101 61,462 90,145 53,115 Working capital............. 18,822 (78,531) (82,465) (72,846) 24,673 Total assets................ 118,502 303,110 560,331 710,875 300,611 Total debt.................. 34,651 165,802 366,176 442,964 220,861 Stockholders' equity........ 115,896 121,280 154,298 218,522 6,892
42
Nine Months Ended September 30, ------------------------ 2000 2001 --------- ------------- STATEMENT OF INCOME DATA: Operating revenues.................................... $ 278,287 $ 213,736 Cost of sales......................................... 258,297 214,361 --------- --------- Gross profit (loss)................................... 19,990 (625) Operating expenses.................................... 39,207 37,653 --------- --------- Loss from operations................................ (19,217) (38,278) Interest expense...................................... 15,236 18,876 Charge to reserve notes receivable from KAV Inventory, LLC.................................................. -- 37,900 Other expense, net.................................... 1,545 1,566 --------- --------- Loss before income taxes, equity income of affiliate and discontinued operations........................ (35,998) (96,620) Income tax expense.................................... 3,823 (141) --------- --------- Loss before equity income of affiliate and discontinued operations............................ (39,821) (96,479) Equity income (loss) of affiliate..................... 43 (6,573) --------- --------- Loss from continuing operations..................... (39,778) (103,052) Discontinued operations: Operations, net of income taxes..................... (23,432) -- Loss on disposal, net of income taxes............... (51,940) (6,645) --------- --------- Net loss.............................................. $(115,150) $(109,697) ========= ========= Basic loss per share: Loss from continuing operations..................... $ (2.65) $ (6.86) Loss from discontinued operations................... (5.02) (0.45) --------- --------- Net loss............................................ $ (7.67) $ (7.31) ========= ========= Diluted loss per share: Loss from continuing operations..................... $ (2.65) $ (6.86) Loss from discontinued operations................... (5.02) (0.45) --------- --------- Net loss............................................ $ (7.67) $ (7.31) ========= ========= As of September 30, 2001 ------------- BALANCE SHEET DATA: Accounts receivable................................... $ 36,023 Inventories........................................... 48,705 Working capital....................................... (215,855) Total assets.......................................... 213,719 Total debt............................................ 234,954 Stockholders' equity.................................. (99,829)
43 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Contemplated exchange offer and rights offering On August 14, 2001, we entered into an agreement with the holders of 73.02% of our old notes to restructure those notes. Under the agreement, the note holders will exchange their existing $165.0 million in old notes for up to $10.0 million in cash or $100.0 million of new five-year senior subordinated notes with paid-in-kind interest of 8% per annum and 15% of the equity of the reorganized company. The new notes will be redeemable at our option at the following percentages of par plus accrued interest on the par value through the date of redemption: 2002 - 70.0%, 2003 - 72.5%, 2004 - 73.0%, 2005 - 75.625% and 2006 - 77.5%. The new notes will also provide that the holders will receive an aggregate of 4,504,595 post-reverse split shares of common stock if the new notes are redeemed in 2002 or 2003 and an aggregate of 3,003,063 post-reverse split shares of common stock if the new notes are redeemed in 2004, 2005 or 2006. If the new notes are not redeemed prior to their maturity, they will convert into an additional 270,275,706 post-reverse split shares of common stock. Under the agreement, the holders of more than a majority of the outstanding old notes have also agreed to waive the default arising as a result of the failure to pay the interest payment due August 15, 2001. Also, the senior lenders have agreed to forbear in regard to the default in the senior loan agreements resulting from the failure to make the August 15, 2001 note interest payment until March 31, 2002, subject to certain conditions. In connection with the restructuring, we are conducting an offering of rights to purchase shares of our common stock to all existing stockholders to raise $20.0 million. One of our principal stockholders has agreed to provide us with a standby commitment to purchase any unsold allotments in the rights offering. Investors who purchase the $20.0 million of shares in the reorganized company will receive 80% of the outstanding common stock of the reorganized company. Under the terms of the agreement, our existing stockholders will own 5% of the reorganized company and the holders of the new notes will own 15% of the common stock of the reorganized company. Additionally, the new note holders and our existing stockholders will each as a group be granted warrants at a fixed price to purchase an additional 10% of the reorganized company. We have previously filed a registration statement relating to the rights offering. The note restructuring and the sale of common stock in the rights offering will require approval of a majority of our stockholders. Completion of the note restructuring will be subject to the requirement that holders of $132 million aggregate principal amount of our existing old notes tender their old notes in the exchange offer and consent to the removal of all covenants contained in the indenture relating to the existing old notes (other than the obligation to pay principal and interest) and approval by our senior lenders and other customary conditions. Although there can be no assurances, we believe that we will be able to complete the restructuring by March 31, 2002. In the event that the note exchange offer and rights offering fail to close, such failure is likely to have a material adverse effect on us and may force us to seek bankruptcy protection or commence liquidation or administrative proceedings. If we are unable to close the note exchange offer and rights offering, we will seek alternate financing to meet our working capital obligations. However, there can be no assurance such funding will be available. Recent Developments Concerning Our Operations The September 11, 2001 terrorist attacks against the United States of America have had a severe impact on the aviation industry. As a result of these attacks and its related aftermath, many commercial passenger airlines and air cargo carriers have reported significant reductions in their capacity and have taken out of service upwards of 20% of their aircraft. This reduction in capacity caused by the September 11, 2001 events is likely 44 to cause the aerospace industry to incur significant losses in 2001. In an effort to conserve cash, many of our customers have decided to defer non- essential aircraft maintenance and overhaul services. The effect of the terrorist acts and the state of the economy in general have had a negative impact on our business. We have taken actions, including further head count reductions, to reduce costs as a result of the anticipated level of current business opportunities. We believe that we will meet our working capital requirements during 2001 from funds available under our revolving credit agreement, from our operations, from sales of individual assets or our equity securities, and from debt infusions and other sources. However, there can be no assurance that we will have sufficient working capital to meet our requirements. Because of our current financial situation, our auditors have included a going concern modification in their audit report regarding our 2000 financial statements. In December 2000, we completed the sale of our Dixie Aerospace Bearings new parts distribution operation and our redistribution operation and in September 2000 we completed the sale of our manufacturing operation and three of the A- 300 aircraft which we owned. For the terms of these transactions, see Note 2 to Condensed Consolidated Financial Statements. In May 2001, we completed the sale of the assets of Caribe Aviation, one of our component repair operations. The gross purchase price was $22.5 million, of which $21.8 million was received in cash at the closing and the balance will be received within one year, subject to post closing adjustments. We used $10.0 million of the proceeds from the sale to repay our revolving credit facility and $5.5 million to repay borrowings under our term loans. The balance, net of expenses, was used for working capital. In addition, the purchaser acquired the real estate and facility on which the Caribe business is operated for an aggregate purchase price of $8.5 million. The proceeds from the sale of the real estate and facility were used to reduce our outstanding tax retention operating lease financing. As a result, in part, of the anticipated reduced volume of services to be provided to a customer which filed for bankruptcy and in an effort to reduce operating expenses, in March 2001 we temporarily closed our Oscoda, Michigan heavy airframe maintenance facility and reduced headcount at certain of our other MR&O facilities. We also consolidated our Aircraft Interior Design operation into a single facility in Dallas, Texas and consolidated our Winston Salem, North Carolina heavy airframe maintenance operation into our Greensboro, North Carolina facility. In addition, in April 2001, we implemented salary and benefit reductions that affected virtually all employees. These initiatives, which reduced our total headcount by approximately 940, are expected to reduce our operating expenses by approximately $22.0 million to $25.0 million on an annual basis. During the second quarter of 2001, we implemented further headcount reductions. In total, the employee headcount for our MR&O operations has been reduced by approximately 28% since the beginning of 2001 to approximately 2,400 employees as of September 30, 2001. We currently hold $37.9 million of notes receivable from KAV Inventory, LLC ("KAV"), the joint venture formed as part of the sale of our redistribution operation (see Note 2 to the Condensed Consolidated Financial Statements). In addition, we currently have recorded assets including inventory on consignment with the purchaser of that operation, potential additional notes receivable from KAV and accounts receivable sold as part of the transaction which we may be required to repurchase, which are included in net assets of discontinued operations. The realizability of these assets is highly dependent upon the timing of sales from the inventory of KAV and prices obtained by the purchaser pursuant to its consignment agreement with KAV as well as the financial condition of the purchaser and general economic and industry conditions. As a result of the default of KAV under its credit agreement with the financial institution that provided funding for the purchase of the inventory and the weakened economic conditions being experienced by the purchaser of that business (as reported in its filings with the SEC) and in the aviation industry, we recorded non-cash reserves totaling $11.1 million and $45.6 million, during the three and nine months ended September 30, 2001, respectively, including a full reserve on all of the notes receivable due from KAV. 45 Results of Operations Operating revenues consist primarily of service revenues and sales of materials consumed while providing services, net of allowances for returns. Cost of sales consists primarily of labor, materials, freight charges and commissions to outside sales representatives. Our operating results have fluctuated in the past and may fluctuate significantly in the future. Many factors affect our operating results, including: . decisions made regarding sales of our assets to reduce our debt, . timing of repair orders and payments from large customers, . the general state of the economy, . competition from other third party MR&O service providers, . the number of airline customers seeking repair services at any time, . the impact of fixed pricing on gross margins and our ability to accurately project our costs in a dynamic environment, . our ability to fully utilize our hangar space dedicated to maintenance and repair services, . the volume and timing for 727 cargo conversions and the impact during future periods on airline use of both the 727 fleet type and JT8D engines (both of which are older models) as a result of increased fuel costs and other factors, . our ability to attract and retain a sufficient number of mechanics to perform the maintenance, overhaul and repair services requested by our customers, and . the timeliness of customer aircraft arriving for scheduled maintenance. Large portions of our operating expenses are relatively fixed. Since we typically do not obtain long-term commitments from our customers, we must anticipate the future volume of orders based upon the historic patterns of our customers and upon discussions with our customers as to their future requirements. Cancellations, reductions or delays in orders by a customer or group of customers could have a material adverse effect on our business, financial condition and results of operations. 46 Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30, 2001 The following tables set forth certain information relating to our operations for the periods indicated:
Nine Months Ended September 30, ------------------------------------ 2000 2001 ----------------- ----------------- $ % $ % --------- ------ --------- ------ (Dollars in Thousands) Operating revenues: Sales.................................. $ 274,668 98.7% $ 207,316 97.0% Other.................................. 3,619 1.3% 6,420 3.0% --------- ------ --------- ------ Total operating revenues............. 278,287 100% 213,736 100% Cost of sales............................ 258,297 92.8% 214,361 100.3% --------- ------ --------- ------ Gross profit (loss).................... 19,990 7.2% (625) (0.3%) September Operating expenses............. 39,207 14.1% 37,653 17.6% --------- ------ --------- ------ Loss from operations................... (19,217) (6.9%) (38,278) (17.9%) Interest expense......................... 15,236 5.5% 18,876 8.8% Charge to reserve notes receivable from KAV Inventory, LLC...................... -- -- 37,900 17.7% Other expense (income)................... 1,545 0.5% 1,566 0.8% --------- ------ --------- ------ Loss before income taxes, equity income of affiliate and discontinued operations............................ (35,998) (12.9%) (96,620) (45.2%) Income tax expense (benefit)............. 3,823 1.4% (141) (0.1%) --------- ------ --------- ------ Loss before equity income of affiliate and discontinued operations .......... (39,821) (14.3%) (96,479) (45.1%) Equity income of affiliate............... 43 -- (6,573) (3.1%) --------- ------ --------- ------ Loss from continuing operations........ (39,778) (14.3%) (103,052) (48.2%) Discontinued operations, net of income taxes................................... (75,372) (27.1%) (6,645) (3.1%) --------- ------ --------- ------ Net loss............................. $(115,150) (41.4%) $(109,697) (51.3%) ========= ====== ========= ======
Operating revenues for the nine months ended September 30, 2001 decreased $64.6 million or 23.2% to $213.7 million, from $278.3 million for the nine months ended September 30, 2000. The decrease in revenues is primarily attributable to decreased revenues from our heavy airframe maintenance operations. This decrease was generally caused by a reduction in market opportunities due to adverse market conditions, which have caused many of our customers to delay maintenance on their aircraft or park older aircraft maintained by us due to rising fuel prices and general economic conditions. Our market has also been adversely impacted during 2001 by increased competition that has spread outsourced available heavy airframe maintenance among a larger group of providers. In addition, revenues decreased due to the temporary closure of our Oscoda, Michigan heavy airframe maintenance facility and the consolidation of our Winston Salem, North Carolina heavy aircraft maintenance facility into our Greensboro, North Carolina operations, impacts of fixed pricing and a change in the timing of revenue recognition in relation to the design and construction of specialized parts effective December 31, 2000. Also, revenues for Caribe Aviation declined $9.4 million due to the sale of that business in May 2001. Gross profit decreased $20.6 million, or 103.0% to ($0.6) million for the nine months ended September 30, 2001, compared with $20.0 million for the nine months ended September 30, 2000. Gross profit for the nine months ended September 30, 2000 was also negatively impacted by a charge recorded of $11.5 million relating to the disposition of three A-300 aircraft that were sold during August and September 2000 and the reduction of the carrying value of certain equipment on lease. We incurred losses of $1.3 million during the beginning of the first quarter of 2001 associated with the start-up of operations at one of our heavy airframe maintenance facilities for a new program that began at the end of 2000. Additionally, due to adverse 47 economic conditions as described above, we provided for an additional $2.4 million in inventory and other reserves included in cost of sales during the nine months ended September 30, 2001. The remaining decrease in gross profit during these periods is primarily attributable to the reduction in revenue described above relative to our primarily fixed cost structure and the impact of price competition and fixed pricing on certain of our heavy airframe maintenance operations. As a result of reduced revenues and market opportunities, as described above, during the first nine months of 2001 we closed and consolidated certain facilities and reduced headcount at each of our operations, resulting in an aggregate reduction of approximately 28% of our workforce. In addition, in April 2001 we implemented salary and benefit reductions that affected virtually all employees. These initiatives are expected to reduce our operating expenses by approximately $22.0 million to $25.0 million on an annual basis. Gross profit as a percentage of operating revenues decreased to (0.3%) for the nine months ended September 30, 2001, from 7.2% for the nine months ended September 30, 2000. Operating expenses decreased $1.5 million or 3.8% to $37.7 million for the nine months ended September 30, 2001, compared with $39.2 million for the nine months ended September 30, 2000. Operating expenses as a percentage of operating revenues were 17.6% for the nine months ended September 30, 2001, compared to 14.1% for the nine months ended September 30, 2000. Operating expenses in 2000 were affected by a $3.6 million increase in professional fees relating primarily to the completion of our 1999 audit and the refinancing and amendments to our Credit Facility, and a charge of $4.4 million relating to reserves recorded against certain accounts receivable of a major customer which filed for bankruptcy protection in 2000. Operating expenses were also negatively impacted by the costs associated with the move to new facilities during the third quarter of 2000 of two of our MR&O operations. Included in operating expenses for the nine months ended September 30, 2001 are an aggregate of $14.9 million in non-cash charges including the write off of goodwill and certain leasehold improvements associated with the closure of the Oscoda, Michigan heavy airframe maintenance facility and an impairment relating to the Oscoda, Michigan engine overhaul operation and Winston heavy airframe maintenance facility, an allowance relating to a receivable from one airframe customer which has experienced significant financial difficulty and moving costs associated with the consolidation of the operations of Aircraft Interior Design into a single facility in Dallas, Texas. These costs were partially offset by a reduction in operating expenses resulting from the temporary closure of two heavy airframe maintenance facilities during 2001 and the savings associated with the consolidation of the operations of Aircraft Interior Design. Interest expense for the nine months ended September 30, 2001 increased by $3.7 million or 24.3% to $18.9 million, from $15.2 million for the nine months ended September 30, 2000. This increase was primarily attributable to increased amortization of bank fees due to the significant bank fees paid during 2000 and the beginning of 2001 and amortization relating to the sale of Caribe during the second quarter. As described above, during the nine months ended September 30, 2001, we recorded a charge to fully reserve against the notes receivable due from KAV Inventory, LLC in the amount of $37.9 million. See further discussion above. Other expense, net increased $0.1 million from $1.5 million for the nine months ended September 30, 2000 to $1.6 million for the nine months ended September 30, 2001. Other expense, net for the three and nine months ended September 30, 2000 includes our recording a loss of $0.9 million in connection with the disposition of the AvAero joint venture. Included in other expense for the nine months ended September 30, 2001 is the gain on the sale of Caribe and the recognition of income on a lease deposit taken during the second quarter of 2001 totaling $7.9 million in the aggregate offset by a charge taken during the third quarter of 2001 of $9.0 million relating to our purchase obligation on property in which the obligation price exceeds the fair market value of the property. As a result of the above factors, loss before income taxes, equity income (loss) of affiliate and discontinued operations for the nine months ended September 30, 2001 was a loss of $96.6 million, compared to a loss of $36.0 million for the nine months ended September 30, 2000. 48 Equity income (loss) of affiliate, net of income taxes, increased $6.6 million for the nine months ended September 30, 2001 to a loss of $6.6 million from zero for the same period in 2000. The increase is attributable to our recording a charge of $6.3 million in the third quarter of 2001 to fully reserve our investment in a limited liability corporation that designs, manufactures and installs FAA approved Boeing 727 conversion kits. For the reasons set forth above, loss from continuing operations for the nine months ended September 30, 2001 was $103.1 million or $6.86 per diluted share, compared to $39.8 million, or $2.65 per diluted share for the nine months ended September 30, 2000. Weighted average common and common equivalent shares outstanding (diluted) were 15.0 million during the nine months ended September 30, 2001 and 2000. Loss from discontinued operations for the nine months ended September 30, 2001 was $6.6 million, or $0.45 per diluted share, compared to $75.4 million or $5.02 per diluted share for the nine months ended September 30, 2000. Loss from discontinued operations for the nine months ended September 30, 2001 is primarily comprised of collections on receivables retained from the sale of the redistribution operation that had been fully reserved offset by the reserving of certain other assets including $7.7 million of reserves relating to assets whose realization is impacted by KAV and the financial condition of the purchaser of the redistribution operation. Year Ended December 31, 1999 Compared to Year Ended December 31, 2000 The following tables set forth certain information relating to our operations for the periods indicated:
1999 2000 ---------------- ----------------- $ % $ % -------- ------ --------- ------ (In Thousands) Operating revenues: Sales, net.............................. $359,956 96.8% $ 333,289 98.6% Other................................... 11,797 3.2% 4,788 1.4% -------- ------ --------- ------ Total operating revenues.............. 371,753 100.0% 338,077 100.0% Cost of sales and services................ 307,944 82.8% 353,331 104.5% -------- ------ --------- ------ Gross profit (loss)..................... 63,809 17.2% (15,254) (4.5%) Operating expenses........................ 41,774 11.2% 74,580 22.1% -------- ------ --------- ------ Income (loss) from operations........... 22,035 6.0% (89,834) (26.6%) Interest expense and other................ 17,322 4.7% 21,272 6.3% -------- ------ --------- ------ Income (loss) before income taxes, equity income of affiliates and discontinued operations............................... 4,713 1.3% (111,106) (32.9%) Income tax expense........................ 3,004 0.8% 4,810 1.4% -------- ------ --------- ------ Income (loss) before equity income of affiliates and discontinued operations............................. 1,709 0.5% (115,916) (34.3%) Equity income of affiliates............... 1,289 0.3% 43 -- -------- ------ --------- ------ Income (loss) from continuing operations............................. 2,998 0.8% (115,873) (34.3%) Discontinued operations, net of income taxes.................................... (24,721) (6.6%) (95,757) (28.3%) -------- ------ --------- ------ Net loss.............................. $(21,723) (5.8%) $(211,630) (62.6%) ======== ====== ========= ======
Operating results from continuing operations reflect the results of operations of our MR&O and leasing operations. Operating revenues for the year ended December 31, 2000, decreased $33.7 million, or 9.1%, to $338.1 million, from $371.8 million for the same period in 1999. As discussed herein, operating revenues in 2000 were negatively impacted by a reduced volume of orders received from existing customers due to concerns over the status of our credit facility and our financial stability, and a reduction in market opportunities caused by several airline customers delaying or deferring maintenance in an effort to reduce costs. Revenues 49 were also affected by increased competition that spread outsourced aircraft maintenance among a larger group of providers, which caused us to give various price concessions and fixed pricing in order to retain customers. In addition, revenues from our leasing operation decreased $13.0 million from period to period, due to a significant reduction in leased assets and sales of leased assets in 1999, which did not recur in 2000. Gross profit decreased $79.1 million, or 123.9%, to a loss of $15.3 million for the year ended December 31, 2000, compared with a profit of $63.8 million for the year ended December 31, 1999. As discussed below, gross profit for the year ended December 31, 1999 included charges related to the carrying value of our inventory and aircraft that we owned totaling $12.7 million. Gross profit for the year ended December 31, 2000 was negatively impacted by a charge recorded in the second quarter of 2000 of $6.6 million relating to the disposition of the three A-300 aircraft which were sold during August and September 2000. Additionally, due to our continuing efforts to reduce our debt through sales of our assets, we recorded a charge of $4.9 million in the year ended December 31, 2000 to reduce the carrying value of certain equipment on lease and inventory (including the A-300 aircraft we continue to own) to an amount estimated to be recoverable through the sale of such assets. We further recorded a charge of $3.0 million relating to inventory which was scrapped in connection with the move of one of our MR&O operations, Aircraft Interior Design, from Florida to Texas. We also experienced a decrease in gross profit from our leasing operations, due to a reduction in our investment in leased assets and sales of leased assets in 1999, which did not recur in 2000. Gross profit as a percentage of operating revenues decreased to (4.5)% for the year ended December 31, 2000, from 17.2% for the year ended December 31, 1999. In addition to the items discussed above, gross profit for the year ended December 31, 2000 was also negatively impacted by inefficiencies and reductions in gross profits realized as a result of delays in the timing of orders being placed into service, a reduced volume of orders received from existing and potential customers due to concerns which existed over the status of our credit facility and our financial stability, and a reduction in market opportunities caused by several airline customers' decision to defer aircraft or aircraft component maintenance in an effort to reduce costs due to higher fuel prices and interest rates. Also, due to our primarily fixed cost structure, excess capacity in our airframe maintenance facilities resulted in reduced realization and gross profit. Lastly, gross profit was negatively impacted by the effects of price concessions and fixed pricing in the dynamic competitive environment that we experienced in 2000. Our operating results for the year ended December 31, 2000 were significantly adversely affected by these factors. While there can be no assurances, we believe these concerns have been reduced as a result of the execution of an amended credit facility, the closing of our Oscoda, Michigan heavy airframe maintenance facility, our recent headcount reductions and the previously announced transactions involving sales of our assets to reduce our debt, all as described above. Operating expenses increased $32.8 million or 78.5% to $74.6 million for the year ended December 31, 2000, compared with $41.8 million for the year ended December 31, 1999. Operating expenses as a percentage of operating revenues were 22.1% for the year ended December 31, 2000, compared to 11.2% for the year ended December 31, 1999. As discussed below, operating expenses for the year ended December 31, 1999 included non-recurring charges of $5.3 million. Operating expenses in 2000 were affected by increased costs associated with the operation of new facilities opened during 1999. They were also affected by a $2.0 million increase in professional fees during 2000 compared to 1999, relating primarily to the completion of our 1999 audit and the refinancing and amendments to our credit facility, and a charge of $22.3 million relating to bad debt reserves recorded against certain major customers, including accounts receivable relating to a customer which filed for bankruptcy protection in 2000 and maintenance performed on an aircraft for a customer that recently ceased operation. In addition, during 2000 we recorded a non-cash charge of $7.8 million relating to the write-off of goodwill and contract costs associated with the temporary closure of one of our MR&O facilities, as described above. Operating expenses were also negatively impacted by costs associated with the move to new facilities during the third quarter of 2000 of two of our MR&O operations, Caribe Aviation and Aircraft Interior Design. 50 Interest expense and other from continuing operations for the year ended December 31, 2000 increased by $4.0 million or 22.8% to $21.3 million, from $17.3 million for the year ended December 31, 1999. The increase was due, in part, to our recording a loss of $0.9 million in connection with the disposition of the AvAero joint venture. Additionally, we paid bank fees of $10.6 million during the year ended December 31, 2000. Total amortization of bank fees, including bank fees attributable to discontinued operations, for the year ended December 31, 2000 was $13.7 million. Interest expense relating to continuing operations for the year ended December 31, 2000 was $20.3 million, compared to $18.6 million for the year ended December 31, 1999. Cash interest due in 2001 includes an aggregate of $13.4 million in interest due on our outstanding old notes, and annualized current interest on amounts due under our senior credit facilities of approximately $5.5 million. In addition, we were not in compliance with the financial covenants under our credit facility as of December 31, 1999 and March 31, 2000. As a result, during the first quarter of 2000, we entered into a standstill agreement with our lenders under which they agreed to forbear in regards to these covenant violations and other matters. Under the terms of the standstill agreements, our interest rate was increased by 2%. We were also required to pay substantial financing fees ($1.5 million) that were expensed over the term of the original standstill agreement, which expired on March 31, 2000 and an additional $1.5 million that related to a further extension of the standstill agreement through May 31, 2000 which were expensed during the second quarter of 2000. In connection with the May 31, 2000 amendment of the credit facility, we paid additional bank fees of $3.8 million, which are being amortized over the term of the facility which expires in July 2002, and we committed to pay an additional $2.0 million in fees in 2001 if the credit agreement has not been refinanced by that date. In connection with the amendment to the credit facility which became effective June 25, 2000, we paid fees of $2.2 million, which are being amortized between July 1, 2000 and June 30, 2002. As a result of the above factors, income (loss) before income taxes, equity income of affiliate and discontinued operations for the year ended December 31, 2000 was a loss of $111.1 million, compared to income of $4.7 million for the year ended December 31, 1999. Income tax expense increased $1.8 million to $4.8 million for the year ended December 31, 2000, from $3.0 million for the year ended December 31, 1999. Income tax expense for the year ended December 31, 2000 is primarily comprised of state income tax accrual and a provision for a full valuation allowance on our deferred tax assets. These charges are primarily non-cash charges. Equity income of affiliate, net of income taxes, decreased $1.2 million for the year ended December 31, 2000 to $0.1 million, from $1.3 million for the same period in 1999. The decrease was attributable to the winding down in the operations of the AvAero joint venture. During the second quarter of 2000, our remaining investment in the joint venture was liquidated resulting in a $0.9 million charge, which is included in interest expense and other. For the reasons set forth above, income (loss) from continuing operations for the year ended December 31, 2000 was a loss of $115.9 million ($7.72 per diluted share), compared to income of $3.0 million ($0.21 per diluted share) for the year ended December 31, 1999. Weighted average common and common equivalent shares outstanding (diluted) were 15.0 million during the year ended December 31, 2000, compared to 14.2 million for the year ended December 31, 1999. Discontinued operations include the results of operations of our redistribution operation, new parts distribution operation and manufacturing operations, all of which were sold during 2000. Income (loss) from discontinued operations for the year ended December 31, 2000 was a loss of $23.4 million, or $1.55 per diluted share, compared to a loss of $24.7 million, or $1.77 per diluted share, for the year ended December 31, 1999. Revenues and gross margin in our redistribution operations decreased during 2000 as a result of our decision to limit purchases of spare aircraft parts commencing at the end of the first quarter of 51 2000 and our initiative to reduce inventory in our redistribution operations (and use the proceeds from such inventory reductions to repay senior debt). Operating revenues were also negatively impacted during 2000 by customer concerns regarding the status of our credit agreement and financial stability. Operating expenses relating to our redistribution operations also increased as a result of our strategy during 1999 and the beginning of 2000 to continue to grow these operations. During the latter portion of the first quarter of 2000, we restructured our redistribution operations and reduced headcount in that business. Additionally, our redistribution operation experienced an increase in interest expense primarily attributable to the increased debt required to support its operations. Results from discontinued operations also include losses on the disposal of the discontinued operations of $72.3 million (or $4.82 per diluted share) for the year ended December 31, 2000. Please read "Recent Developments" above. Year Ended December 31, 1998 Compared to Year Ended December 31, 1999 The following tables set forth certain information relating to our operations for the periods indicated:
1998 1999 --------------- ---------------- $ % $ % -------- ------ -------- ------ (In Thousands) Operating revenues: Sales, net................................. $177,279 96.1% $359,956 96.8% Other...................................... 7,169 3.9% 11,797 3.2% -------- ------ -------- ------ Total operating revenues................. 184,448 100.0% 371,753 100.0% Cost of sales and services................... 141,569 76.8% 307,944 82.8% -------- ------ -------- ------ Gross profit............................... 42,879 23.2% 63,809 17.2% Operating expenses........................... 17,721 9.6% 41,774 11.2% -------- ------ -------- ------ Income from operations..................... 25,158 13.6% 22,035 6.0% Interest expense and other................... 13,699 7.5% 17,322 4.7% -------- ------ -------- ------ Income before income taxes, equity income of affiliates and discontinued operations...... 11,459 6.1% 4,713 1.3% Income tax expense........................... 4,281 2.2% 3,004 0.8% -------- ------ -------- ------ Income before equity income of affiliates and discontinued operations affiliates and discontinued operations................... 7,178 3.9% 1,709 0.5% Equity income of affiliates.................. 1,356 0.7% 1,289 0.3% -------- ------ -------- ------ Income from continuing operations.......... 8,534 4.6% 2,998 0.8% Discontinued operations, net of income taxes....................................... 16,959 9.2% (24,721) (6.6%) -------- ------ -------- ------ Net income (loss)........................ $ 25,493 13.8% $(21,723) (5.8%) ======== ====== ======== ======
Revenues for the year ended December 31, 1999 increased $187.4 million or 101.5% to $371.8 million, from $184.4 million for the year ended December 31, 1998. This increase is due primarily to the acquisition of TIMCO in September 1998 which has been accounted for under the purchase method of accounting and therefore is only included in the results of operations from the date of acquisition. Gross profit increased $20.9 million or 48.8%, from $42.9 million for the year ended December 31, 1998 to $63.8 million for the year ended December 31, 1999 primarily due to the TIMCO acquisition. Gross profit margin for the year ended December 31, 1999 was 17.2%, a decrease of 6.0% from a gross profit margin of 23.2% for the year ended December 31, 1998. During the fourth quarter of 1999, we recorded a non-recurring reduction in the carrying value of our inventory at December 31, 1999 including a reduction in the carrying 52 value of the four A-300 aircraft which we owned, totaling $12.7 million. Excluding these charges, the gross profit margin for 1999 was 21.5%, compared to 23.2% for 1998. The gross profit margin for our MR&O operations decreased slightly in 1999 due to an increase in labor expenses coupled with increased competition and pressure to maintain level pricing for services. In addition, MR&O gross profit margin decreased slightly due to the increased relative significance of TIMCO, which realizes lower gross profit margins than our other MR&O operations, to our total MR&O operations. Operating expenses increased $24.1 million to $41.8 million for the year ended December 31, 1999, compared with $17.7 million for the year ended December 31, 1998. Operating expenses as a percentage of operating revenues were 11.2% for the 1999 fiscal year, compared to 9.6% for 1998. During the fourth quarter of 1999, we recorded a non-recurring primarily non-cash charge of $5.3 million related to an addition to the allowance for doubtful accounts receivable and the write-off of miscellaneous deposits and other assets which have been determined to not be collectible. The remaining increase was primarily attributable to professional fees aggregating approximately $2.0 million relating to several large transactions that were not completed and start up costs associated with the opening of five new facilities during the fiscal year. As a result of all of these factors, income from operations was $22.0 million for 1999, compared to $25.2 million for 1998. Interest expense and other from continuing operations for the year ended December 31, 1999 increased $3.6 million compared to interest expense for 1998. The increase in interest expense was due to increased interest rates on variable rate debt, coupled with increased net borrowings during 1999 to finance the growth in our MR&O operations, including the acquisition of the assets of Kitty Hawk, Inc.'s maintenance operations and additional substantial investments in facilities, equipment and computer systems to support our operations. During 1999, we opened four new MR&O facilities in addition to the MR&O facilities that we acquired from Kitty Hawk, Inc. We also installed new computer systems in our MR&O operations. Interest expense and other includes a profit of $1.4 million realized in 1999 relating to the sale of real estate. Discontinued operations incurred a loss of $24.7 million for the year ended December 31, 1999 compared to a profit of $17.0 million for the year ended December 31, 1998. The variance is primarily attributable to adjustments recorded as of December 31, 1999 to the carrying value of certain assets and other charges totaling approximately $44.4 million. These charges were comprised primarily of an adjustment to the carrying value of redistribution inventory and a write-down of capitalized costs previously expended relating to the development of a new software system which has not been implemented and will not be completed. The net loss for the year ended December 31, 1999 was $21.7 million ($1.56 per diluted share), compared to net income of $25.5 million ($2.02 per diluted share) for the year ended December 31, 1998. Weighted average common and common equivalent shares outstanding (diluted) were 14.2 million for the year ended December 31, 1999, compared to 12.6 million for the year ended December 31, 1998. This increase is primarily the result of the public offering of additional common shares that we completed in June 1999 and which resulted in the issuance of 2.3 million additional shares of our common stock. Liquidity and capital resources Liquidity As of September 30, 2001, we had outstanding indebtedness of approximately $226.5 million (excluding then outstanding letters of credit of $29.6 million), of which $58.0 million was senior debt, including amounts due under the TROL Financing, which is now characterized as a capital lease, and $168.5 million was other indebtedness. As of September 30, 2000, we had $405.0 million of outstanding indebtedness, including amounts due under current capital leases. Our ability to make payments of principal and interest on outstanding debt will 53 depend upon our future operating performance, which will be subject to economic, financial, competitive and other factors beyond our control. The level of our indebtedness is also important due to: . our vulnerability to adverse general economic and industry conditions, . our ability to obtain additional financing for future working capital expenditures, general corporate and other purposes, and . the dedication of a substantial portion of our future cash flow from operations to the payment of principal and interest on indebtedness, thereby reducing the funds available for operations and future business opportunities. In prior years, we relied primarily upon significant borrowings under our credit facility, and sales of our securities, including our senior subordinated notes, to satisfy our funding requirements relating to acquisitions of several businesses and to finance the growth of our business. During 2000 and 2001 to date, we have relied upon borrowings under our credit facility and the proceeds of term loans obtained, along with the proceeds from our asset sales, to meet our working capital requirements. We cannot assure you that financing alternatives will be available to us in the future to support our existing operations' working capital requirements. Cash Net cash provided by continuing operating activities during the nine months ended September 30, 2001 and 2000 was $14.2 million and $16.4 million, respectively. Cash provided by operating activities for the nine months ended September 30, 2001 was primarily the result of increased collections which reduced receivables levels by $24.3 million and increased accrued expenses of $14.5 million partially offset by a reduction in trade payables of $5.0 million and cash used to fund our net loss. Cash provided by investing activities during the nine months ended September 30, 2001 and 2000 was $21.7 million and $30.3 million, respectively. The cash provided by investing activities for the nine months ended September 30, 2001 primarily related to the sale of a note receivable to an affiliate and the sale of a subsidiary coupled with an initiative to reduce capital expenditures associated with tooling investments in our MR&O operations and equipment purchases. Cash used in financing activities for the nine months ended September 30, 2001 and 2000 was $31.5 million and $89.1 million, respectively. Cash used in financing activity was primarily comprised of continued reductions in our revolving loan made possible by the sale of Caribe Aviation, which was partially offset by the proceeds of a $12.0 million term loan executed in February 2001. Cash and cash equivalents decreased from $21.4 million as of December 31, 1999 to zero as of December 31, 2000. Net cash used in operating activities during the year ended December 31, 2000 and 1999 was $2.7 million and $99.0 million, respectively. The reduction in cash used in operating activities was primarily the result of a reduction in inventory which, as discussed above, relates to our initiative to reduce inventory including the sales of the A-300 aircraft. Inventory decreased $35.5 million during the year ended December 31, 2000, compared to an increase in inventory of $38.0 million during the year ended December 31, 1999. Also contributing to the reduction in cash used in operating activities were reductions in accounts receivables and other current assets due to our efforts to manage our working capital. Cash provided by (used in) investing during the year ended December 31, 2000 and 1999 was $163.3 million and $(49.3) million, respectively. Cash provided by investing activities for the year ended December 31, 2000 resulted primarily from the sale of the discontinued operations discussed above and was partially offset by cash used in investing activities primarily related to capital expenditures associated with tooling investments, equipment purchases and leasehold improvements relating to the moves into new facilities of Caribe Aviation and Aircraft Interior Design. Cash provided by (used in) financing activities for the year ended December 31, 2000 $(232.7) million and $174.8 million, respectively. Cash used in financing activities for the year ended December 31, 2000 is primarily comprised of repayments of outstanding notes payable and outstanding indebtedness and deferred financing fees under our credit facility, net of the proceeds of a $15.5 million term loan executed in February 2000. 54 Senior Credit Facilities Prior to May 31, 2000, we had a revolving loan and letter of credit facility of $300.0 million with a group of financial institutions. Effective May 31, 2000, the credit facility was amended and restated and the commitment was reduced to $285.0 million. Following the asset sales described above, the commitment was reduced to $57.7 million. The credit facility has been amended on several occasions since May 31, 2000. Pursuant to an amendment executed on November 27, 2001, the commitment was reduced to $47.5 million. The credit facility, as amended to date (the "Credit Facility") expires in July 2002. Interest under the Credit Facility is, at our option, (a) prime plus 3.0%, or (b) LIBOR plus 4.5%. As of September 30, 2000 and September 30, 2001, the outstanding balance on the Credit Facility was $177.4 million and $1.7 million, respectively. Additionally, as of September 30, 2001 outstanding letters of credit aggregated $29.6 million. Since September 30, 2001, $17.5 million of letters of credit have been drawn. See Notes 2 and 5 of the condensed consolidated financial statements and discussions above and below relating to KAV and the lease for the Miramar facility. Borrowings under the Credit Facility are secured by a lien on substantially all of our assets and the borrowing base primarily consists of certain of our receivables and inventory. The Credit Facility contains certain financial covenants regarding our 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 the Credit Facility and repayment of all debt in the event of a material adverse change in the business or a change in control. In addition, the Credit Facility requires mandatory repayments from the proceeds of a sale of assets or an issuance of equity or debt securities or as a result of insufficient collateral to meet the borrowing base requirements there under. As of September 30, 2001 we were not in compliance with a certain financial covenant. The lenders have agreed to waive such event of non- compliance. To the extent the Credit Facility remains outstanding as of certain dates, we are committed to pay incremental financing fees as follows: November 14, 2001--2% of outstanding commitment and February 14, 2002--2% of outstanding commitment. The November 14, 2001 fee of $950,000 is being paid in three equal installments on November 27, 2001, December 14, 2001 and January 14, 2002. In February 2000, we obtained a $15.5 million senior term loan from the financial institution that is agent for the Credit Facility. The proceeds from the term loan were used to repay debt outstanding under the Credit Facility. The term loan, as amended, bears interest at 12%, contains financial covenants that are consistent with the Credit Facility and matures in July 2002. We repaid $3.5 million of the term loan from the proceeds of the sale of Caribe. The remaining principal balance is due in July 2002. Under the term loan agreement, we also granted warrants to the lender to purchase 129,000 shares of our common stock exercisable for nominal consideration at any time until December 31, 2005. The warrants entitle the holder to require us to repurchase the warrants or common shares issued upon prior exercise of the warrants at $8.50 per share. Our senior revolving credit lenders, our senior term loan lender and the lender under the TROL Financing have agreed, subject to certain conditions, to forbear until March 31, 2002 in regard to the default which existed in the senior credit facilities resulting from our failure to make the August 15, 2001 subordinated note interest payment. Subsequent to the end of the forbearance period (if the restructuring is not completed by that date or if the forbearance period is not otherwise extended) the senior lenders and the senior term loan lender will have the ability to accelerate payment of the outstanding balances under the Credit Facility and senior term loan, respectively. In February 2001, we obtained a $10.0 million senior term loan from a financial institution. The term loan bears interest at LIBOR plus 2% and matures in August 2002. The proceeds of the term loan were used to pay the semi-annual interest payment on the senior subordinated notes in February 2001 of $6.7 million and for working capital purposes. In connection with the term loan, we issued warrants to purchase 250,000 shares of our unissued common stock at an exercise price of $4.00 per share to each of four individuals. Of these individuals, one of them is one of our officers and directors and a second is one of our principal stockholders. Each of these four individuals provided credit support to the financial institution which advanced the term loan proceeds. In May 2001, we obtained a short-term increase of up to $3.0 million in the term loan. We borrowed $2.0 million under the increased term loan in May 2001 and thereafter repaid the additional borrowing from the 55 proceeds of the Caribe sale. One of our principal stockholders provided credit support for the increased amount of the term loan. In return for providing credit support, the stockholder received a cash fee of $0.1 million and warrants to purchase 333,334 shares of our common stock at an exercise price of $1.40 per share. The credit support provided by each of the related parties was in the form of a full and unconditional guaranty to the financial institution, up to a percentage amount, of any amounts required to be repaid to the financial institution. As a result of our inability to make the August 2001 interest payment on the senior subordinated notes, we are in default under our senior revolving credit facility, senior term loans and the TROL Financing and the lenders under our senior revolving credit facility and senior term loans, and the lessor under our TROL Financing have the right to declare due and require immediate payment of the indebtedness that ranks senior in right of payment to the old notes, which as of September 30, 2001 aggregated $78.7 million, before any payment could be made on the old notes. Our lenders under our senior credit facility and senior term loans and the lessor under our TROL Financing have agreed to not require immediate payment of such obligations until March 31, 2002 (the "forbearance"), subject to the condition that no other events of default occur under such agreements and no remedies for default are exercised under the indenture for the old notes. Upon the occurrence of an event of default under the senior debt and our TROL Financing and without the forbearance, or upon the expiration of the forbearance, the respective lenders could elect to declare all amounts outstanding, together with accrued interest, to be immediately due and payable. Substantially all of our assets are pledged as collateral security for the senior credit facility and senior term loans and the TROL Financing . If we were unable to repay all outstanding amounts under our senior debt and tax retention operating lease, the lenders and parties could proceed against the collateral granted to them to secure that indebtedness and other obligations, and any proceeds realized upon the sale of this collateral would be used first to satisfy all amounts outstanding under our senior credit facility, senior term loans and TROL Financing , before the old notes, and thereafter, any of our other liabilities. In addition, we may be prevented from making new borrowings or drawing down further on our senior credit facility. Senior Subordinated Notes In February 1998, we sold $165.0 million in senior subordinated notes due in 2008 with a coupon rate of 8.125% at a price of 99.395%. The old notes mature on February 15, 2008. Interest is payable on February 15 and August 15 of each year. The old notes are general unsecured obligations, 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 old 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 old notes have been issued (the "Indenture") permits us and our subsidiaries to incur substantial additional indebtedness, including senior debt. Under the Indenture, we may borrow unlimited additional amounts so long as after incurring such debt we meet a fixed charge coverage ratio for the most recent four fiscal quarters. Additionally, the Indenture allows us to borrow and have outstanding additional amounts of indebtedness (even if we do not meet the required fixed charge coverage ratios), up to enumerated limits. We did not meet the fixed charge coverage ratio for the one-year period ended September 30, 2001. Accordingly, our ability to incur additional debt is currently limited under the Indenture. The old notes are also effectively subordinated in right of payment to all existing and future liabilities of any of our subsidiaries that do not guarantee the old notes. The old notes are unconditionally guaranteed, on a senior subordinated basis, by substantially all of our existing subsidiaries and each subsidiary that we organize in the future, unless such subsidiary is designated as an unrestricted subsidiary (the "Subsidiary Guarantors"). 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 56 extent of the assets securing such obligations, including the Credit Facility. Furthermore, the Indenture permits Subsidiary Guarantors to incur additional indebtedness, including senior debt, subject to certain limitations. The old notes are redeemable, at our option, in whole or in part, at any time after February 15, 2003, at the following redemption prices, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date: (i) 2003--104.063%; (ii) 2004--102.708%; (iii) 2005--101.354%; and (iv) 2006 and thereafter--100%. Upon the occurrence of a change of control, we will be required to make an offer to repurchase all or any part of holder's old 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 we will have the financial resources necessary to purchase the old notes upon a change of control or that such repurchase will be permitted under the Credit Facility. Under the Indenture, if we sell assets (other than inventory in the ordinary course of business or leases or assets subject to leases in the ordinary course of business) with a fair market value in excess of $2.0 million or for net proceeds in excess of $2.0 million, we must comply with certain requirements. First, the sales price must be at least equal to the fair market value of the assets and at least 80% of the sales price must be paid in cash. Second, we must use the proceeds from such asset sales, within 270 days after completion of the sales, to either permanently repay senior debt or acquire other businesses or assets (or, if the proceeds are not used for these purposes, then such proceeds must be used to repurchase senior subordinated notes). Proceeds from the asset sales described above have been used to permanently repay senior debt. Further, if the value of the assets sold exceeds $15.0 million, our Board of Directors must determine that we are receiving fair market value for the assets sold. The Indenture contains certain other covenants that, among other things, limit (as described above) our ability and the ability of our subsidiaries to incur additional indebtedness and issue preferred stock, pay dividends or make other distributions, make investments, 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 our assets. As described above, we were unable to make the August 2001 interest payment on the old notes and have entered into an agreement to restructure these notes. See "Contemplated Senior Subordinated Note Restructuring" above. Other Notes In connection with the acquisition of Kratz-Wilde Machine Company, one of our subsidiaries delivered a non-interest-bearing promissory note (guaranteed by us) to the sellers in the original principal amount of $2.5 million (discounted to $2.2 million). A payment of $1.2 million was made during January 1999 and the remaining principal balance of $1.3 million was paid in January 2000. Interest on this note has been imputed at 8%. In connection with the acquisition of Caribe and AIDI, one of our subsidiaries delivered to the sellers a promissory note in the original principal amount of $5.0 million, which was guaranteed by us. The note was payable over a two-year period with an interest rate of 8% per annum. The first payment of $2.5 million was made during March 1999 and the final payment was paid in March 2000. Lease For Miramar Facilities During 1998, we decided to move our redistribution operation and one of our MR&O operations to new facilities in Miramar, Florida. On December 17, 1998, we entered into an operating lease for the new facility 57 with First Security Bank, National Association, as trustee of a newly created trust, as lessor. The lease had an initial term of five years and is a triple net lease. Pursuant to an amendment to the lease agreement executed November 27, 2001, the lease maturity was changed to July 2002. 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 and, if we do not purchase the new facility at the end of the lease, we will be obligated to pay a fee. We moved our corporate headquarters and redistribution operations into one of the new facilities in April 2000 and one of our MR&O operations, Caribe Aviation, into another building adjacent to the redistribution operations facility during October 2000. In conjunction with the sale of our redistribution operation (see "Recent Developments Concerning Our Operations" above), we subleased the corporate headquarters and redistribution operation facility to the purchaser of our redistribution operation for a period of five years with the right to renew for five consecutive five-year periods at a market rental rate. Further, in May 2001 the purchaser of the Caribe business acquired the land and building on which that business operates. The lessor has financed the development of the new facility through a $43.0 million loan from a financial institution. In conjunction with the sale of Caribe, the purchaser of that business also acquired the real estate and facility in which Caribe operates for $8.5 million. These proceeds were used to repay a portion of the financing provided to develop the facility. We and substantially all of our subsidiaries have guaranteed the repayment of $25.2 million of the lessor's obligations under its loan agreement. The lessor's obligations under the agreement are secured by a lien on the real property and on the new facility. Further, under a September 10, 2001 agreement, we agreed that the lender may draw down in full, at any time, the $9.0 million letter of credit which we have posted as security for this loan and apply the proceeds from such letter of credit draw against balances outstanding under the loan agreement. On November 7, 2001 the lender drew the entire $9.0 million letter of credit. As a result of the draw on the letter of credit and modifications made to the required lease payments under a November 27, 2001 amendment to the lease, we have determined that the lease now qualifies as a capital lease. We intend to sell this property. Accordingly, we have recorded property held for sale and a related capital lease liability of $34.2 million. We estimate that our purchase option price for the property exceeds the fair market of the property by approximately $9.0 million. Accordingly, we have recorded a reserve for this amount against the property held for sale in the three months ended September 30, 2001. The lease agreement has been amended on several occasions. Under the terms of an April 19, 2001 amendment, two shareholders of the Company provided a guarantee in an amount up to $1.0 million. Such guarantee was released in conjunction with the sale of Caribe and repayment of proceeds relating to the sale of the real estate and facility as discussed above. As part of the April 19, 2001 amendment, the lessor has agreed to waive non-compliance with financial covenants, if any, through the period ended December 31, 2001. As of November 9, 2001, we were not in compliance with certain non-financial covenants within the lease agreement. The lessor has agreed to waive such events of non-compliance. 58 QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK The table below provides information about our market sensitive financial instruments and constitutes a "forward-looking statement." Our major market risk exposure is changing interest rates in the United States and fluctuations in the London Interbank Offered Rate. Our policy is to manage interest rates through use of a combination of fixed and floating rate debt. All items described are non-trading. The table below assumes the December 31, 2000 interest rates remain constant (dollars in thousands).
Fair Value December 31, 2001 2002 2003 2004 2005 Thereafter Total 2000 ------- ------- ---- ---- ---- ---------- -------- ------------ Long term debt: Fixed rate debt........ $ 29 $16,498 -- -- -- $164,345 $180,872 $82,527 Average interest rate.. 12.00% 12.00% -- -- -- 8.13% Variable interest rate debt.................. $35,959 -- -- -- -- -- $ 35,959 $35,959 Average interest rates................. 11.31% -- -- -- -- --
59 BUSINESS General We are a leading provider of aviation maintenance, repair and overhaul ("MR&O") services. We believe that we are the largest independent provider of heavy maintenance services for aircraft in North America. We sell and provide aircraft maintenance, repair and overhaul services to commercial passenger airlines and air cargo carriers throughout the world. We offer maintenance and repair services through our eight repair stations licensed by the Federal Aviation Authority (FAA). These services include maintenance, repair and modification services for aircraft, and repair and overhaul services on a wide range of aircraft components, flight control surfaces, aircraft interiors and Pratt & Whitney JT8D engines. In addition, we also provide modification services for the conversion of passenger aircraft to freighter configuration as well as aircraft engineering services. Our strategy is to be the vendor of choice to our customers, providing total aircraft maintenance solutions to meet our customers' maintenance, repair and overhaul requirements. The services we offer allow our customers to reduce their costs by outsourcing some or all of their maintenance, repair and overhaul functions. We were incorporated as a Delaware corporation in 1996. Recent developments in our continuing operations During 2000 and through the third quarter of 2001, competition in the market for airframe maintenance and repair services increased as certain competitors expanded capacity. Additionally, during this same period, some airlines, in response to rising costs primarily related to fuel prices, reduced or deferred their levels of maintenance, resulting in some cases in less outsourcing of aircraft maintenance. In addition, during 2000 concern existed with some of our customers and potential customers regarding the status of our credit facility and regarding our financial stability. We believe that these factors adversely affected the amount and timing of work that we received from our customers. Additionally, because of our financial situation and the competition in our industry, our facilities (and the facilities of most other third-party maintenance service providers) had excess capacity during 2000. During 2000 and through the third quarter of 2001, in an attempt to fill our excess capacity and to meet competitive pressures, we offered pricing discounts and performed services for a greater volume of single aircraft customers, which had a significant negative impact on our overall efficiency. In March 2001, in an effort to reduce our operating expenses, we temporarily closed our Oscoda, Michigan heavy airframe maintenance facility and reduced headcount at certain of our other MR&O facilities. We also consolidated our Winston-Salem, North Carolina airframe maintenance facility into our Greensboro, North Carolina Facility, our Aircraft Interior Design operation into a single facility in Dallas, Texas and entered into a three-year agreement with a customer to dedicate our Macon, Georgia heavy airframe maintenance facility to servicing that customer's airframe maintenance requirements. These initiatives, which reduced our total headcount by approximately 400, are expected to reduce our operating expenses by approximately $12.0 million on an annual basis. As of November 2001, our customer base is primarily comprised of a small number of large commercial airlines and cargo carriers and other smaller airlines, cargo carriers and leasing companies for whom we provide a lesser volume of services. During 2000, our four largest continuing customers in the aggregate represented approximately 31.7% of our total revenues and our largest customer represented 14.0% of our total revenues. We consider our relationship with each of these customers to be good and, although there can be no assurance, we expect that these customers will continue to represent a significant portion of our total revenues in the future. However, the loss of one or more of our large customers would likely have a material adverse effect on our future results of operations. 60 Recent sales of businesses to reduce senior debt and to focus our continuing operations on our MR&O businesses During 2000 and the first six months of 2001, we engaged in a restructuring of our business and operations intended to focus our business on our maintenance, repair and overhaul operations and to reduce our senior debt. In May 2001, we completed the sale of the assets of our Caribe Aviation, Inc. component repair subsidiary for $22.5 million, of which we received $21.75 million at closing with the balance to be paid within one year, subject to post-closing adjustments. We used $13.5 million of the proceeds from the sale to repay senior debt and the remainder for working capital. In September 2000, our board of directors made the decision to dispose of our Dixie Aerospace Bearings new parts distribution operation. On December 26, 2000, we completed the sale of our Dixie Aerospace new parts distribution operation to Wencor West, Inc. for $17.7 million, including debt assumed by Wencor West. We used the net cash proceeds of the sale, which approximated $13.5 million, to repay senior debt. In addition, we retained certain accounts receivable and inventory of Dixie's new parts distribution operation which are being liquidated pursuant to collection and consignment agreements executed with the purchaser. On December 1, 2000, we completed the sale of substantially all of the assets and business of our redistribution operation in a series of transactions which were intended to constitute a single transaction (the "Transaction"). The Transaction was entered into with Kellstrom Industries, Inc. ("Kellstrom") and KAV Inventory, LLC ("KAV"). KAV is a 50/50 limited liability company organized by Kellstrom and us. The aggregate purchase price received by us in the Transaction was $156.4 million, approximately $127.0 million of which was paid in cash ($122.0 million after payment of transaction expenses). The net proceeds of the Transaction were used by us to repay senior debt. The first component of the Transaction consisted of KAV's acquisition of substantially all of the aircraft and engine spare parts inventory and the engine inventory of our redistribution operation, as well as certain rotable parts inventories from two of our MR&O operations. The purchase price paid for this inventory was 89% of the closing date adjusted book value of such inventory ($148.6 million), subject to post-closing adjustment as set forth in the agreement relating to the inventory sale. As part of the Transaction, KAV consigned the inventory to Kellstrom. The cash portion of the purchase price paid for the inventory ($105.5 million) was obtained by KAV from a syndicate of financial institutions led by Bank of America, N.A., with the balance paid in the form of three subordinated promissory notes. The KAV institutional financing is secured by a lien on all of the assets of KAV. The first two subordinated notes, each in the principal amount of $13.7 million, are five-year senior subordinated notes bearing interest at the rate of 14% per annum (see below for a description of Kellstrom's purchase of one of these notes). The first two notes are subordinated in all respects to the KAV institutional financing. The third subordinated note is a five-year junior subordinated note in the principal amount of $15.7 million bearing interest at the rate of 14% per annum. The junior subordinated note is subordinated in all respects to both the KAV institutional financing and to repayment of the two senior subordinated notes. These amounts will be paid with funds available after repayment of the KAV institutional financing and before repayment of the $13.7 million senior subordinated notes. We have agreed with Kellstrom to equally share the operational expenses of KAV beyond amounts permitted under the loan agreement relating to KAV's institutional financing. Additionally, we posted an $8.5 million letter of credit and Kellstrom posted a $6.5 million letter of credit with Bank of America to secure (in part) KAV's institutional financing. The letters of credit will only be drawn upon a default by KAV of its loan obligations and if drawn, such amounts will be treated as loans to KAV and will be repaid prior to repayment of the senior subordinated notes. Additionally, we and Kellstrom will each be repaid the approximately $2.3 million which we each advanced to KAV for use in paying bank fees and expenses relating to obtaining their institutional financing. We and Kellstrom will be repaid these amounts prior to repayment of the senior subordinated notes. 61 The second component of the Transaction consisted of a sale to Kellstrom of certain non-inventory assets of our redistribution operation and the assumption by Kellstrom of a portion of the redistribution operation's accounts payable. Kellstrom also acquired one of the $13.7 million senior subordinated notes described above. The net purchase price for these assets (including the $13.7 million senior subordinated note), after adjustment for assumed debt, was $21.5 million, all of which was paid in cash. The purchase price of the non-inventory assets purchased by Kellstrom is subject to post-closing adjustment as set forth in the agreement relating to the asset sale. Additionally, as part of the Transaction: (1) Kellstrom leased certain furniture, fixtures and equipment (the "FF&E") used in the redistribution operation and the redistribution operation's warehouse facility in Pearland, Texas for a one-year term (the Pearland lease and related option (described below) has been cancelled); (2) Kellstrom leased the redistribution operation's 545,000 square foot headquarters and warehouse facility located in Miramar, Florida. Pursuant to a sublease agreement, Kellstrom will pay us the lesser of $384,000 or the actual lease payment due under our lease for this facility for each year during the initial five year lease term. We also granted Kellstrom the right to renew the sublease for five consecutive five year periods, at a fair market rental rate; (3) Kellstrom has an option to acquire the FF&E and/or the Pearland, Texas property during the term of the above-described leases, and for a period of 60 days thereafter, for a purchase price equal to the net book value of such assets (approximately $9.4 million in the aggregate). We have an option after one year to require Kellstrom to purchase the FF&E and/or the Pearland, Texas property for the same purchase prices; provided, however, that if we exercise either or both of our options, Kellstrom may defer its purchases of and continue to lease the FF&E and/or the Pearland, Texas property for up to an additional six months under certain circumstances; (4) We entered into a cooperation agreement under which we agreed to provide repair services for the KAV parts inventory as well as repair services to Kellstrom with respect to Kellstrom's parts inventory, and Kellstrom agreed to supply parts to our MR&O operations, on an ongoing basis; (5) We entered into a non-competition agreement with Kellstrom whereby we are restricted for a period of up to five years from engaging in the redistribution business; and (6) We granted Kellstrom a limited license to use the name "Aviation Sales" (if combined with the Kellstrom name) in connection with Kellstrom's redistribution business. On September 7, 2000, we completed the sale to Barnes Group Inc. of substantially all of the assets of our Kratz-Wilde Machine Company and Apex Manufacturing manufacturing operations for $41.0 million, excluding transaction expenses and possible post-closing adjustments as set forth in the agreement relating to the sale. The net proceeds of the sale were used to repay senior debt. In addition, as part of the sale, Barnes assumed the closing date ordinary course liabilities of these businesses. In July 2000, we executed agreements to sell three of the A-300 aircraft which we owned for $12.0 million each. The sales closed on August 15, 2000 (with respect to the first aircraft), September 15, 2000 (with respect to the second aircraft) and September 30, 2000 (with respect to the third aircraft). The net proceeds of this sale were used by us to repay senior debt. These transactions, along with cash flow generated from other asset sales in the ordinary course of our business, allowed us to reduce our senior revolving debt from $269.6 million as of December 31, 1999 to $1.4 million as of September 30, 2001. 62 Industry overview We believe that the total worldwide market for maintenance, repair and overhaul services is approximately $44.6 billion annually and that $5.3 billion of that amount represents maintenance, repair and modification services being provided in North America. We believe airlines perform approximately 75% of the North American services, outsourcing the balance to independent providers like Aviation Sales. The September 11, 2001 terrorist attacks against the United States of America have had a severe impact on the aviation industry. As a result of these attacks and its related aftermath, many commercial passenger airlines and air cargo carriers have reported significant reductions in their capacity and have taken out of service upwards of 20% of their aircraft. This reduction in capacity caused by the September 11, 2001 events is likely to cause the aerospace industry to incur significant losses in 2001. In an effort to conserve cash, many of our customers have decided to defer non-essential aircraft maintenance and overhaul services. The effect of the terrorist acts and the state of the economy in general have had a negative impact on our business. The Company has taken actions, including further head count reductions, to reduce its costs as a result of the anticipated level of current business opportunities. Due to the trends currently affecting our industry, we believe that in the long-term the demand for maintenance and repair services from large independent service providers such as Aviation Sales will continue to increase. Some of the trends currently affecting our industry include: Growth in the market for aircraft maintenance and repair services The Boeing 2001 Current Market Outlook report projects that: . the worldwide fleet of commercial aircrafts will more than double by 2020; . the worldwide freighter airplane fleet will more than double by 2020; and . the aircraft fleet will continue to age. We believe that a combination of these factors will in the long term increase the demand for maintenance and repair services. Increased outsourcing of 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 outsourcing maintenance and repair functions are areas in which airlines can reduce their operating costs. Outsourcing of maintenance and repair functions by airlines allows an integrated service provider 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. Diversified services and competitive strengths We believe that the breadth of our services, including a wide range of aircraft maintenance and repair services, allows us to be a vendor of choice to our customers in a highly fragmented industry. In addition to our heavy airframe maintenance and modification services, by providing engineering services, repair and overhaul services on flight surfaces, aircraft components and interiors, we believe that we maintain a competitive advantage in the MR&O market through our ability to ensure that each of the individual parts that need repair or overhaul are completed on a timely basis and to our quality standards. Our customers include commercial passenger airlines, air cargo carriers, aircraft leasing companies and maintenance and repair facilities. 63 Emphasis on quality All of our MR&O facilities are licensed by the FAA. We emphasize quality and on-time delivery to our customers. We are focused on meeting and exceeding FAA requirements. As industry, regulatory and public awareness have focused on safety, our ability to meet and exceed these requirements on a consistent basis has become important to customers. Airline consolidation During 2000 and 2001, the trend toward consolidation in the airline industry continued, as many of the major commercial airlines and cargo carriers moved toward execution of mergers, acquisitions and enhancement of affiliations with other carriers. We believe that these events could have a positive impact on the maintenance and repair market as additional maintenance services related to integration of fleet types may be outsourced to third parties such as Aviation Sales. We also believe that fleet integration will likely create opportunities for aircraft modification and engineering services. Operations Our core business is the providing of maintenance, repair and overhaul services for aircraft and aircraft components. Since our customers consist of airlines, aircraft leasing companies, and maintenance and repair facilities that service airlines and redistributors of aircraft parts, economic factors affecting the airline industry tend to impact our business. When economic factors adversely affect the airline industry, they tend to reduce the overall demand for aircraft maintenance and repair services, causing downward pressure on pricing and increasing the credit risks associated with doing business within the industry. Additionally, the price of fuel affects the aircraft maintenance and repair markets, since older aircraft, which consume more fuel and which account for most of our aircraft maintenance and repair business, become less viable as the price of fuel increases. We cannot assure you that economic and other factors which have affected the airline market in the past and may affect the airline industry in the future will not adversely impact our business, financial condition or results of operations. During 2000 and 2001, the market for maintenance and repair services was impacted by rising fuel cost, increased capacity of competitors, changes in fleet mix by some airlines, interest rates and other factors. These factors caused certain airlines and other carriers to reduce the volume of services to be outsourced to third party providers such as Aviation Sales. This has resulted in excess capacity among many of the maintenance and repair service providers, which has caused pricing pressures to maintain market share. We have been able to substantially maintain our relative market share by continuing to focus on quality service, turn time and by expanding its array of services including increased opportunities in aircraft modification and engineering services and by, where necessary, offering price concessions and fixed prices for certain services. Aircraft heavy maintenance We perform maintenance, repair and modification services on aircraft at TIMCO's five repair stations in Greensboro, North Carolina, Lake City, Florida, Winston Salem, North Carolina, Macon, Georgia, and Oscoda, Michigan (the Oscoda, Michigan airframe facility was temporarily closed in March 2001). The services we offer principally consist of "C" and "D" level maintenance checks and the modification of passenger aircrafts 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-approved maintenance program. "C" and "D" level checks are comprehensive checks and usually take a minimum of several weeks to complete, depending upon the scope of the work to be performed. 64 The "C" level check is an intermediate level service inspection that typically includes testing and servicing of the aircraft's operational systems, external and internal cleaning and refurbishing, and servicing of the interior. Trained mechanics visually inspect the external and internal structure of the aircraft, repair defects and remove corrosion found, all in a manner as required by the manufacturer's maintenance and structural repair manuals. 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 structure. In the "D" level check, the aircraft is disassembled to the point where the entire structure can be inspected and evaluated. Once the inspection, evaluation and repairs have been completed, the aircraft is reassembled and its systems reinstalled 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 12 to 18 months and 1,000 to 5,000 flight hours, and intervals between "D" level checks can range from four to eight years and 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 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 modify the aircraft from its original type design requires the review and approval of the FAA. These modifications are authorized by the issuance of a Supplemental Type Certificate (STC) or an engineering order issued by the airline's engineering department. Typical modification services include reconfiguring of passenger interiors, installing passenger amenities such as telephones and installing crew rest areas. We also convert passenger aircraft to freighter configuration. When we convert a passenger plane to freighter configuration we: . completely strip the interior; . strengthen the load-bearing capacity of the flooring; . install the bulkhead or cargo net; . cut into the fuselage for the installation of a cargo door; . reinforce the surrounding door structures; . replace windows with metal plugs; . fabricate and install the cargo doors; and . install fire detection and suppression systems. We also need to line the aircraft interior to protect the fuselage structure from pallet damage and modify the air conditioning system. Conversion contracts also typically require "C" or "D" level maintenance checks as these conversion aircraft have usually been out of service for some time and maintenance is required for the aircraft to comply with current FAA standards. Additional modification services performed may include cockpit reconfiguration to upgrade the avionic systems to current technology and the integration of traffic control and avoidance systems, windshear detection systems and navigational aids. Component repair and overhaul services We provide repair and overhaul services at our three FAA-licensed repair stations. Aerocell specializes in the maintenance, repair and overhaul of airframe components, including flight surfaces, doors, fairing panels, nacelle systems and exhaust systems. Aircraft Interior Design refurbishes aircraft interior components, including passenger and crew seats. Timco Engine Center refurbishes JT8D engines. 65 Engineering services Our engineering services group provides integrated aircraft engineering, including aircraft certification, design and approval of modifications to aircraft systems and structures, for customers of our heavy aircraft maintenance operations, and for airlines, leasing companies and aerospace original equipment manufacturers. Joint venture to convert 727 aircraft We own a 50% interest in a joint venture which has an STC for conversion of Boeing 727 aircraft which is fully compliant with FAA regulations and requirements for aftermarket aircraft cargo conversions. We manufacture the kits required to complete conversions of the aircraft based upon the STC, and we operate one of the aircraft maintenance facilities which has been licensed by the joint venture to install the kits on passenger aircraft being converted to cargo configuration. Management information systems During 1999, we implemented new management information systems in several of our maintenance, repair and overhaul operations. These systems provide access to and improved timeliness of information which can be used in the management of these operations. Currently, we operate our business using two decentralized, network based systems. Each system is fully integrated in regards to the respective business unit. One system is utilized in the operation of our heavy airframe maintenance and modification business. The other system is used at each of our component MR&O businesses. Due to the investments which were made in 1999 in developing and maintaining these systems, we do not currently anticipate that any significant systems related capital expenditures will be required during 2001. Competition 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 airline and aircraft service companies, and other companies providing maintenance, repair and overhaul services. 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. In the maintenance and repair market, our major competitors are B.F. Goodrich, Dee Howard Company and ST Mobile Aerospace Engineering, Inc. 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, and in some cases authorized by the original equipment manufacturers, in order to 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 equipment 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. We closely monitor the FAA and industry trade groups in an attempt to understand how possible future regulations might impact us. 66 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, will not materially adversely affect our business, financial condition or results of operations. Further, our operations are also subject to a variety of worker and community safety laws. In the United States, 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 under 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 or aircraft part repaired or maintained by us or from our negligence in the repair or maintenance of an aircraft or an aircraft part. 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 business financial condition or results of operations. Employees As of September 30, 2001, we employed approximately 2,400 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 Greensboro, North Carolina at the headquarters of our TIMCO heavy airframe maintenance operations. Our interest in both our owned and leased facilities are pledged to our senior lenders as collateral for amounts borrowed under our credit agreements. See Note 7 to our Consolidated Financial Statements included in this prospectus and consent solicitation. The following table identifies, as of September 30, 2001, our principal properties:
Owned or Facility Description Location Square Footage Leased - -------------------- ----------------- -------------- ------------ Office and Warehouse.... Miramar, FL 545,000 Leased(1) Office and Aircraft Maintenance............ Greensboro, NC 910,000 Leased(2) Office and Aircraft Maintenance............ Lake City, FL 650,000 Leased Office and Aircraft Maintenance............ Oscoda, MI 396,000 Leased(3) Office and Maintenance.. Hot Springs, AK 260,000 Owned Office and Aircraft Maintenance............ Winston-Salem, NC 250,000 Leased Office and Aircraft Maintenance............ Macon, GA 140,000 Leased Office and Maintenance.. Dallas, TX 80,000 Owned Office and Maintenance.. Miami, FL 55,000 Leased(4)(5) Office and Maintenance.. Minneapolis, MN 34,000 Leased(4) Office and Maintenance.. Miami, FL 30,000 Leased(4)(5) Warehouse............... Pearland, TX 100,000 Owned Warehouse............... Covington, KY 38,200 Owned
- -------- (1) Currently subleased to Kellstrom Industries, Inc. (2) Our corporate headquarters is currently located at this facility. (3) Airframe maintenance facility has been closed on a temporary basis; engine repair facility is currently operating. 67 (4) These facilities have either been closed or are in the process of being closed. (5) These facilities are leased from a related party. Legal proceedings Several lawsuits have been filed against us and certain of our current and former officers and directors, and our auditors, in the United States District Court for the Southern District of Florida, which have now been consolidated into a single lawsuit. The consolidated complaint, as amended in March 2000 and in September 2000, alleges violations of Sections 11 and 15 of the Securities Act of 1933 in connection with our June 1999 public offering, and alleges violations of Sections 10(b) and 20(a) of, and Rule 10b-5 under, the Securities Exchange Act of 1934 (the "Exchange Act"). Among other matters, the amended consolidated complaint alleges that our reported financial results were materially misleading and violated generally accepted accounting principles. The amended consolidated complaint seeks damages and certification of two classes, one consisting of purchasers of our common stock in the June 1999 public offering and one consisting of purchasers of our common stock during the period between April 30, 1997 and April 14, 2000. On August 22, 2001, the District Court granted our motion to dismiss the pending claims under the Exchange Act, with leave to amend, but denied our motion to dismiss the pending claims under the Securities Act. On September 22, 2001, the plaintiffs filed a third amended consolidated complaint and we have filed a motion to dismiss the Exchange Act claims contained therein. We believe that the allegations contained in the third amended consolidated complaint are without merit and we intend to vigorously defend this and any related actions. Nevertheless, unfavorable resolution of this lawsuit could have a material adverse effect on our financial position and results of operations. The U.S. Securities and Exchange Commission is conducting an inquiry into our accounting for certain transactions. We are cooperating with the SEC in its inquiry. We are 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 our business financial position or results of operations. Environmental matters We are taking remedial action pursuant to Environmental Protection Agency and Florida Department of Environmental Protection ("FDEP") regulations at TIMCO-Lake City. Ongoing testing is being performed and new information is being gathered to continually assess the impact upon us and the magnitude of required remediation efforts. 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 $1.4 million. Testing and evaluation for all known sites on TIMCO-Lake City's property is substantially complete and we have commenced a remediation program at several sites. We are currently monitoring the remediation, which will extend into the future. Subsequently, our accounts 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, we believe that we have established an accrual for our best estimate of the probable liabilities associated with our current remediation strategies. To comply with the financial assurances required by the FDEP, we have issued a $1.4 million standby letter of credit in favor of the FDEP. Additionally, there are other areas adjacent to TIMCO-Lake City's facility 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 these properties. No estimate of any such costs is available at this time. 68 We own a parcel of real estate on which Whitehall previously operated an electronics business. We are currently assessing environmental issues with respect to this property. When we acquired Whitehall, our environmental consultants estimated that remediation costs relating to this property could be up to $1.0 million. Accrued expenses in our financial statements at December 31, 2000 and September 30, 2001 include $1.7 million relating to obligations to remediate all of 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 to be incurred in future periods may vary from the estimates, given the inherent uncertainties in evaluating environmental exposures. These uncertainties include the extent of required remediation based on future testing and evaluation and the varying costs and effectiveness of remediation methods. 69 OUR MANAGEMENT Board of Directors Our certificate of incorporation and Bylaws presently 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 current members of the board and the expiration of their terms as directors were as follows:
Term Name Age Positions Expires - ---- --- --------- ------- Roy T. Rimmer, Jr. .... 60 Chairman of the Board and Chief Executive 2004 Officer Ben Quevedo............ 47 Director, President and Chief Operating 2002 Officer Sam Humphreys.......... 41 Director 2002 Steven L. Gerard....... 56 Director 2003 Stephen E. Gorman...... 46 Director 2002 Philip B. Schwartz..... 47 Director and Corporate Secretary 2003
Business experience of the Board Roy T. Rimmer, Jr. has been our Chairman and Chief Executive Officer since June 2001. Prior to becoming our Chairman and Chief Executive Officer, for more than the last five years Mr. Rimmer was a private investor and the operator of a private company in the business of transporting crude oil and natural gas. Mr. Rimmer has been a director since January 2000. Mr. Rimmer serves on our board as a representative of Lacy Harber, who is one of our principal stockholders. Ben Quevedo has been our President and a director since September 2000. Mr. Quevedo was, from July 1998 until September 2000, our Senior Vice President, President of our maintenance and repair operations and, from April 2000, President of our distribution operations. Prior to joining us, Mr. Quevedo was the principal stockholder and President of Caribe Aviation and Aircraft Interior Design. Sam Humphreys is a Co-Chief Executive Officer of Syntek Capital, A.G., which invests in and operates businesses in the wireless, broadband and advanced technologies fields. Mr. Humphreys is also a director of IFCO Systems. Mr. Humphreys has been a director since June 1996. Steven L. Gerard has been the Chief Executive Officer and a director of Century Business Services, Inc., a diversified services company providing professional outsourced business services, since October 2000. Prior thereto, from 1997 to October 2000 Mr. Gerard was the Chairman and Chief Executive Officer of Great Point Capital, Inc., a provider of operational and advisory services, and from 1991 to 1997, Mr. Gerard was Chairman and Chief Executive Officer of Triangle Wire and Cable, Inc. and its successor, Ocean View Capital, Inc., a manufacturer of insulated wire and cable. Mr. Gerard's prior experience includes 16 years in various senior corporate finance and banking positions with Citibank, N.A. and seven years with the American Stock Exchange. Mr. Gerard has been a director since September 2000 and also serves on the boards of directors of Fairchild Company, Inc., Lennar Corporation and Joy Global, Inc. Stephen E. Gorman, has been the President, North America for Krispy Kreme Doughnuts, Inc. responsible for all store operations in North America, including both company-owned and franchise stores since August 2001. Prior to joining Krispy Kreme, Mr. Gorman spent five years with Northwest Airlines, Inc. at which he most recently held the position of Executive Vice President of Technical Operations and Flight Operations, with responsibility for all aircraft maintenance operations, pilot operations, operations planning and control, dispatch and flight simulator operations. Prior to joining Northwest Airlines in 1996, Mr. Gorman held a variety of senior executive positions over nine years with Aviall, Inc., a major provider of third party aviation services. Mr. Gorman is also on the Board of Directors of Rohn Industries, Inc., an infrastructure provider in the telecommunications industry. Philip B. Schwartz is a shareholder in the Florida law firm of Akerman, Senterfitt & Eidson, P.A. Prior to joining Akerman Senterfitt in September 1995, Mr. Schwartz was a partner in the law firm of Broad and Cassel. Mr. Schwartz is a member of The Florida Bar and the American Bar Association and a former Chair of the 70 Business Law Section of The Florida Bar. Akerman Senterfitt performs legal services for Aviation Sales. Mr. Schwartz has been a director since June 1998 and Corporate Secretary since March 1999. Nominee to the Board Under our agreement with the holders of 73.02% of our old notes, we have agreed that a representative of the holders of the new notes will be appointed to the board upon the completion of the exchange offer and consent solicitation. Thereafter, a representative of the holders of the new notes will be elected to serve on the board during future periods by a vote of a majority of the holders of the new notes. The initial representative will be Jack Hersch. Mr. Hersch, age 43, has been a partner at Cypress Management, LP, a hedge fund specializing in troubled companies since 2000. Prior thereto, from 1996 to 2000, Mr. Hersch was the managing general partner of Python Capital, a fund that invests in bankrupt and distressed companies. From 1994 to 1996, Mr. Hersch was a Senior Vice President at Donaldson, Lufkin & Jennette where he managed the firm's research and sales efforts in the securities of distressed and bankrupt companies. Executive officers The following list reflects our executive officers, as of this date, the capacity in which they serve us, and when they assumed office:
Executive Name Positions Age Officer Since - ---- --------- --- -------------- Roy T. Rimmer, Jr. ...... Chairman and Chief Executive 60 June 2001 Officer Ben Quevedo.............. President 47 July 1998 Gil West................. Executive Vice President and Chief 40 September 2001 Operating Officer Michael C. Brant......... Vice President and Chief Financial 38 November 1999 Officer
Executive officers' business experience The business experience of Roy T. Rimmer, Jr. and Ben Quevedo is included above under "Business experience of the Board." Gil West joined us in September 2001. Prior to joining us, he served as an executive at Northwest Airlines since 1996. In his most recent position as Northwest's Vice President of Engine and Component Technical Operations, Mr. West managed over 2,000 Northwest maintenance employees in Northwest's Minneapolis and Atlanta maintenance facilities, as well as managing outside vendor maintenance operations. Prior to joining Northwest, Mr. West served in various managerial positions with United Airlines, Rohr Industries, Sundstrand Corporation and Boeing Commercial Aircraft. Michael C. Brant has been Vice President and Chief Financial Officer of Aviation Sales since November 1999. Prior to joining us, from April 1999 to October 1999, Mr. Brant was a Vice President of Becker Financial Services. Prior thereto, for more than five years, Mr. Brant held senior financial positions at John Alden Life Insurance Company, the principal subsidiary of John Alden Financial Corporation. Prior to joining John Alden, Mr. Brant also held various positions, including senior manager, for a period of nine years, with Price Waterhouse. Family relationships There are no family relationships between or among any of the directors and/or executive officers. Executive compensation The following table sets forth information about the compensation paid or accrued during 2000, 1999 and 1998 to our Chief Executive Officer and to each of the four other most highly compensated executive officers whose aggregate direct compensation exceeded $100,000. 71
Annual Compensation -------------------- Salary Bonus Other Annual All Other Name and Principal Position Year ($) ($) Compensation Compensation - --------------------------- ---- ------- ------- ------------ ------------ Dale S. Baker(1)............... 1998 263,797 197,848 (2) -- Chief Executive Officer 1999 550,000 -- (2) 2000 550,000 -- (2) Harold M. Woody................ 1998 236,029 177,021 -- -- Executive Vice President 1999 249,164 -- 2000 252,915 -- Ben Quevedo.................... 1998 149,760 122,511 -- -- President and Chief Operating Officer 1999 350,000 -- 2000 350,000 -- Michael C. Brant............... 1999 11,538 -- -- -- Chief Financial Officer 2000 232,667 120,000
- -------- (1) Mr. Baker resigned as Chief Executive Officer in June 2001. (2) Mr. Baker also received $5,000 per year for life insurance premiums pursuant to his employment agreement with us. No long-term compensation awards were made to management during the three years ended December 31, 2000. In April 2001, in connection with various cost cutting initiatives being undertaken by Aviation Sales, each of our senior management took a voluntary pay cut in an amount equal to between 15% and 20% of their base salary. Option grants during last fiscal year The following table sets forth information concerning options to purchase shares of common stock granted during the fiscal year ended December 31, 2000 to those persons named in the Summary Compensation Table.
Potential Realizable Value At Assumed Annual Rates Of Stock Price % Of Total Appreciation Options For Option Number Of Granted To Term(1) Shares Underlying Employees Exercise Price Expiration --------------- Name Options Granted In Fiscal Year ($/Share) Date 5% ($) 10% ($) ---- ----------------- -------------- -------------- ---------- ------- ------- Dale S. Baker(2)........ 150,000 24.6% 3.31 11/10/10 581,748 884,230 Harold M. Woody......... 25,000 4.1% 5.00 9/13/10 96,958 147,372 Ben Quevedo............. 125,000 20.5% 3.31 11/10/10 485,178 737,448 Michael C. Brant........ 100,000 16.4% 3.31 9/13/10 387,832 589,487
- -------- (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. (2) Mr. Baker resigned as Chief Executive Officer in June 2001. Aggregated option exercises in 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 2000 fiscal year and the value of unexercised stock options to purchase common stock at the end of the 2000 fiscal year for the persons named in the Summary Compensation Table. 72
Number of Share Underlying Number of Unexercised Options Value of Unexercised In-the- Shares at Fiscal Money Options at Fiscal Acquired on Value Year-End Exercisable/ Year-End($) Name Exercise Realized ($) Unexercisable Exercisable/Unexercisable(1) - ---- ----------- ------------ --------------------- ---------------------------- Dale S. Baker(2)........ -- -- 348,333/216,667 0/0 Harold M. Woody......... -- -- 70,000/50,000 0/0 Ben Quevedo............. -- -- 183,333/141,666 0/0 Michael C. Brant........ -- -- 50,000/75,000 0/0
- -------- (1) Computed based upon the difference between the closing price of common stock at December 31, 2000 and the exercise price. All options were out- of-the-money on December 31, 2000, and no value has been assigned to options which are not in-the-money. (2) Mr. Baker resigned as Chief Executive Officer in June 2001. Employment agreements We have employment agreements with Ben Quevedo and Gil West. Each provides for the payment of a base salary and for bonus compensation based on performance. Each employment agreement also contains a "change of control" severance arrangement if the employee does not continue in our employment after a change of control. Stock option plans Our board of directors and stockholders adopted two stock option plans (the "stock option plans"). Pursuant to the 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 the 1996 stock option plan, options to acquire a maximum of the greater of 2,250,000 shares of common stock or 15% 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. At the date of this prospectus, options to purchase 1,367,500 pre- reverse split shares of common stock at exercise prices ranging from $1.70 per share to $39.50 per share were outstanding under the stock option plans. The compensation committee administers both stock option plans. The compensation committee determines which persons will receive options and the number of options to be granted to such persons. The director plan also provides for annual mandatory grants of options to directors. The compensation committee also interprets the provisions of the stock option plans and makes all other determinations that it deems necessary or advisable for the administration of the stock option plans. Pursuant to the stock option plans, we may grant incentive stock options as defined in Section 422(b) ("NQSOs") of the Internal Revenue Code of 1986, as amended, (the "Code"), and non-qualified stock options, not intended to qualify under Section 422(b) of the Code. The price at which our common stock may be purchased upon the exercise of options granted under the stock option 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 stock option plans may have maximum terms of not more than 10 years and are not transferable, except by will or the laws of descent and distribution. None of the incentive stock options under the 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 us unless the purchase price of the common stock under such option is at least 110% of the fair market value of the shares issuable on exercise of the option determined as of the date the option is granted, and such option is not exercisable more than five years after the grant date. Generally, options granted under the 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 of directors. 73 Pursuant to the 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 the stock option plans shall become immediately exercisable if the holder of such options is terminated by us or is no longer a director of Aviation Sales, as the case may be, subsequent to certain events that are deemed to be a "change in control" of Aviation Sales. A "change in control" of Aviation Sales generally is deemed to occur when (a) any person becomes the beneficial owner of or acquires voting control with respect to more than 20% of the common stock (or 35% if such person was a holder of common stock on July 2, 1996, the effective date of our initial public offering); (b) a change occurs in the composition of a majority of our board of directors during a two-year period, provided that a change with respect to a member of our board of directors shall be deemed not to have occurred if the appointment of a member of our board of directors is approved by a vote of at least 75% of the individuals who constitute the then existing board of directors; or (c) our stockholders approve the sale of all or substantially all of our assets. Incentive stock options granted under the 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. The stock option plans provide for appropriate adjustments in the number and type of shares covered by the stock option plans and options granted thereunder in the event of any reorganization, merger, recapitalization or certain other transactions involving us. We have also granted options to certain of our executive officers outside of our stock option plan. Options to purchase 375,000 pre-reverse split shares at an exercise price of $3.31 were granted outside of the stock option plans in November 2000, and options to purchase 700,000 pre-reverse split shares at an exercise price of $40.63 were granted outside of the stock option plans in January 1999. 74 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT At the date of this prospectus and consent solicitation, we had 15,015,317 pre-reverse split shares of common stock outstanding. The following table sets forth, as of the date of this prospectus and consent solicitation, certain information regarding the shares of pre-reverse split common stock, owned of record or beneficially by (i) each person who owns beneficially more than 5% of the outstanding common stock; (ii) each of our directors and named executive officers; and (iii) all directors and executive officers as a group.
Shares Beneficially Owned(1) --------------------------------- Name Number Percentage - ---- ---------------- ---------------- Lacy J. Harber(2)............................. 4,601,734 29.4% Roy T. Rimmer, Jr.(3)......................... 4,784,234 30.3% Robert Alpert(4).............................. 3,254,400 21.0% Dimensional Fund Advisors, Inc.(5)............ 910,257 6.1% George F. Baker and Richard Nye(6)............ 973,774 6.5% Sam Humphreys(7).............................. 85,000 * Steven L. Gerard(8)........................... 15,000 * Stephen E. Gorman(9).......................... 10,000 * Philip B. Schwartz(10)........................ 83,900 * Ben Quevedo(11)............................... 629,472 4.05% Michael C. Brant(12).......................... 93,666 * All directors and executive officers as a Group--8 persons(13)......................... 5,801,272 34.7%
- -------- * Less than one percent (1) Unless otherwise indicated, each person named in the table has the sole voting and investment power with respect to the shares beneficially owned. Further, unless otherwise noted, the address for each person named in this table is c/o Aviation Sales. (2) Shares are owned of record by LJH Corporation, which is wholly-owned by Mr. Harber. LJH has granted a proxy with respect to the voting of these shares to Roy T. Rimmer, Jr., and as a result Mr. Rimmer is also deemed to beneficially own these shares for U.S. securities law purposes. Also includes warrants to purchase: (i) 250,000 shares at an exercise price of $4.00 per share, (ii) 25,000 shares at an exercise price of $3.63 per share, (iii) 50,000 shares at an exercise price of $1.75 per share, and (iv) 333,334 shares at an exercise price of $1.40 per share. See "Certain Relationships and Related Transactions". (3) Mr. Rimmer shares the power to vote the securities owned by LJH Corporation. See Note 2 above. Also includes 62,500 shares owned by an entity controlled by Mr. Rimmer and vested options to purchase an aggregate of 120,000 shares (110,000 shares at exercise prices ranging from $1.70 per share to $6.06 per share and 10,000 at an exercise price of $15.31 per share). (4) Shares are primarily owned of record by entities controlled by Mr. Alpert. Also includes (i) vested options to purchase 135,000 shares (110,000 at exercise prices ranging from $1.70 per share to $6.06 per share and 25,000 at exercise prices ranging from $19.00 per share to $39.50 per share), (ii) a warrant to purchase 250,000 shares at an exercise price of $4.00 per share, and (iii) a warrant to purchase 50,000 shares at an exercise price of $1.75 per share. See "Certain Relationships and Related Transactions". Mr. Alpert's last known address is 5301 Hollister, Suite 300, Houston, Texas 77040. (5) As of December 31, 2000, based upon a Schedule 13G filed with the Securities and Exchange Commission on February 2, 2001. The address shown in the Schedule 13G is 1299 Ocean Avenue, 11th Floor, Santa Monica, California. (6) Information to our knowledge based upon the reporting persons last filings with the SEC with regard to their interest in us. Includes shares owned by Baker Nye, L.P. and Cambridge Capital Fund, L.P. The reporting persons' last known address is 767 Fifth Avenue, Suite 2800, New York, New York. (7) Includes vested options to purchase: (i) 60,000 shares at exercise prices ranging from $1.70 per share to $6.06 per share, and (ii) 25,000 shares at exercise prices ranging from $19.00 per share to $39.50 per share. 75 (8) Represents vested options to purchase 15,000 shares at exercise prices ranging from $1.70 per share to $5.00 per share. (9) Represents vested options to purchase 10,000 shares at an exercise price of $.55 per share. (10) Includes vested options to purchase: (i) 60,000 shares at exercise prices ranging from $1.70 per share to $6.06 per share, and (ii) 20,000 shares at exercise prices ranging from $37.00 per share to $39.50 per share. (11) Includes: (i) vested options to purchase 88,333 shares at exercise prices ranging from $1.70 to $3.31 per share, (ii) vested options to purchase 200,000 shares at exercise prices ranging from $35.25 per share to $40.63 per share, and (iii) a warrant to purchase 250,000 shares at an exercise price of $4.00 per share. See "Certain Relationships and Related Transactions." Excludes unvested options to purchase 41,667 shares at an exercise price of $3.31 per share. (12) Includes vested options to purchase (i) 66,666 shares at an exercise price of $3.31 per share, and (ii) 25,000 shares at an exercise price of $18.00 per share. Excludes unvested options to purchase 33,334 shares at an exercise price of $3.31 per share. (13) Includes vested options and warrants to purchase an aggregate of 1,693,333 shares. 76 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS As of December 2, 1994, we entered into a 20-year lease with Aviation Properties, a Delaware general partnership ("Aviation Properties"), pursuant to which we leased our corporate headquarters and warehouse in Miami, Florida (the "Miami Property"). We were obligated to make annual payments under such lease in the amount of approximately $893,000. Aviation Properties was an entity controlled by Robert Alpert, a principal stockholder and a former director of Aviation Sales. In connection with the purchase of the Miami Property, we loaned Aviation Properties $2.5 million and the loan was being repaid with interest at the rate of 8% per annum. In January 2001, we sold the loan to Lacy Harber, one of our principal stockholders, for 90% of the then outstanding balance of $2.0 million. In connection with this purchase of the loan, Mr. Harber received a warrant to purchase 25,000 pre-reverse split shares at an exercise price of $3.63 per share. In March 2001, the Miami Property was sold and we were relieved of our remaining obligation under the lease agreement. During 1999, 2000 and 2001, we leased certain real property from entities controlled by Ben Quevedo, an Aviation Sales officer and director. These facilities were utilized as the headquarters of two of our maintenance, repair and overhaul operations. We have subsequently moved out of these facilities, although we remain liable on the leases. We recently subleased one of these facilities and are currently taking actions to defray our obligations under the second lease. During 1999 and 2000, we also utilized aircraft owned by an entity controlled by Mr. Quevedo. Payments for all of these items were $1.4 million in 1999 and $2.7 million in 2000. In February 2001, we obtained a term loan from a financial institution. In connection with obtaining the term loan, four individuals provided credit support to the financial institution that advanced the loan. In return for providing credit support, each of these individuals (or entities under their control) were granted warrants to purchase 250,000 pre-reverse split shares of our common stock at an exercise price of $4.00 per share. Those providing credit support to the financial institution included Ben Quevedo, an executive officer and director of Aviation Sales, Robert Alpert, a former director and principal stockholder of Aviation Sales and Lacy Harber, a principal stockholder of Aviation Sales. In April and May 2001, Messrs. Harber and Alpert provided credit support to us relating to our TROL Financing and with respect to a short-term increase in our term loan with Bank of America. In return for providing credit support, Mr. Alpert received a warrant to purchase 50,000 pre-reverse split shares at an exercise price of $1.75 per share and Mr. Harber received warrants to purchase 50,000 pre-reverse split shares and 333,334 pre-reverse split shares at exercise prices of $1.75 and $1.40 per share, respectively. Mr. Schwartz is a stockholder in Akerman, Senterfitt & Eidson, P.A., which has in the past and continues to perform significant legal services for us. The fees paid by us to Akerman, Senterfitt & Eidson, P.A. for legal services rendered are no greater than those that would be charged to us by an unrelated third party law firm. We believe that the terms of the above-described related party transactions were no less favorable than could be obtained from unaffiliated third parties. 77 THE EXCHANGE OFFER AND CONSENT SOLICITATION This section of the prospectus and consent solicitation describes material aspects of the proposed exchange offer and consent solicitation. While we believe that the description covers the material terms of the exchange offer and consent solicitation, this summary may not contain all of the information that is important to you. You should read this entire document and the other documents we refer to carefully for a more complete understanding of the exchange offer and consent solicitation. Purpose of this exchange offer and consent solicitation We are making this exchange offer and consent solicitation as part of a strategic plan to reduce and refinance our indebtedness and to provide working capital for our business. During the past few months, our management, board of directors and advisers have studied our needs, the requirements of our investors and the overall capital markets. Based upon this assessment, our objectives in this transaction are as follows: . Establish a capital structure that provides support for our operating strategy for the next three to five years. The establishment of ample long-term liquidity is expected to be favorable for both note holders and stockholders. . Improve cash flow by immediate execution of our restructuring plan. Achieving this goal will provide our business with needed working capital and will protect our debt holders and enhance equity values. . Manage financial risk by holding total interest costs at present levels and reducing public debt. The exchange offer, which reduces our public debt through the use of the new notes and equity in exchange for a portion of the old notes, is expected to achieve this goal. We believe this exchange offer and consent solicitation, if successful, will assist us in achieving these objectives. We believe we are providing old noteholders with an incentive to approve the required amendments to the old indenture, as well as protecting the rights of the new noteholders through a carefully designed financial plan. In August 2001, we entered into an agreement with the holders of 73.02% of our old notes to restructure those notes. Under the agreement, the note holders will exchange their old notes in the exchange offer. Under the agreement, the holders of more than a majority of the outstanding old notes have agreed to waive the default arising as a result of the failure to pay the interest payment due August 15, 2001. Also, our senior lenders have agreed to forbear on the default in the senior loan agreements resulting from the failure to make the note interest payment until March 31, 2002, subject to conditions. Interests of our officers, directors and principal stockholders in the exchange offer None of our officers, directors or principal stockholders hold old notes except for Lacy Harber, who beneficially owns approximately 29.4% of our currently outstanding pre-reverse split common stock and approximately 7.1%, or $11,750,000 aggregate principal amount, of our old notes. Pursuant to the agreement with our old note holders, Mr. Harber has agreed to exchange all of his old notes in the exchange offer and consent solicitation. In addition, Mr. Harber has agreed to purchase unsold allotments in the rights offering. Mr. Harber will beneficially own approximately 82.6% of our outstanding common stock if he purchases all of the shares available in our rights offering and elects the non-cash option in the exchange offer consent solicitation with respect to all of the old notes and, as a result, exchanges all of his old notes for new notes, shares and warrants. Roy T. Rimmer, Jr., our Chairman and Chief Executive Officer, holds a proxy to vote the shares of common stock owned by Mr. Harber and serves on our board as a representative of Mr. Harber. Pursuant to the agreement with our old note holders to restructure the old notes, we may issue options or warrants to purchase up to 8% of our reorganized company to our officers, directors and employees. Our board 78 of directors has adopted, subject to stockholder approval, a stock option plan to allow us to issue options to purchase up to 2.4 million post-reverse split shares of our common stock to employees, officers and directors. We will submit the stock option plan for stockholder approval at the special meeting we intend to call for approval of the transactions in connection with the exchange offer and consent solicitation, the rights offering, the recapitalization and the reverse split. Background of the exchange offer and consent solicitation In August 2001 we entered into an agreement with the holders of 73.02%, or $120,480,000 in aggregate principal amount of our old notes to restructure those notes. Additional parties to the agreement include Lacy Harber, who beneficially owns approximately 29.4% of our currently outstanding pre-reverse split common stock and approximately 7.1%, or $11,750,000 aggregate principal amount of our old notes. Under the agreement, these holders have agreed to exchange their old notes in the exchange offer and to waive the default arising as a result of the failure to pay the interest payment due on August 15, 2001. Under the agreement, the holders are not required to elect a particular exchange option and they have agreed not to transfer their notes except under limited circumstances and not to participate in or support any other restructuring proposal. The agreement can be terminated if the restructuring is not completed by March 30, 2002, if we file for Chapter 7 bankruptcy proceeding or such a proceeding is filed against us and the proceeding is not dismissed or converted to a Chapter 11 proceeding within a certain time period, or if we materially modify the restructuring. In addition, the agreement sets forth the agreed upon terms of the exchange offer and consent solicitation, rights offering and the recapitalization. In June 2001, we retained the services of Houlihan Lokey Howard & Zukin to assist us in the development and negotiation of the restructuring, including the exchange offer for our old notes. Houlihan Lokey met with our board of directors to discuss and propose a restructuring proposal which our board authorized. Houlihan Lokey contacted, on our behalf, several holders of significant principal amounts of old notes to suggest negotiations regarding a consensual restructuring transaction. Following such contacts, three of our old noteholders formed an ad hoc committee of noteholders to conduct negotiations with us regarding the restructuring and retained counsel to represent the committee. On July 12, following due diligence and discussions among Houlihan Lokey, our board and our management, we met with members of the ad hoc committee and made an initial proposal for the restructuring. Our initial restructuring proposal was that the old notes would be exchanged for a combination of up to $16,500,000 in cash, $77,000,000 in principal amount of proposed 8% PIK notes that would convert to cash interest payments in 2003, and 5% of the common stock of the restructured company. Also, under the initial proposal our existing stockholders would receive 15% of the common stock of the restructured entity. The ad hoc committee made a subsequent proposal which involved a reduced cash component of $10,000,000, a larger note component with a higher interest rate consisting of $115,000,000 in principal amount of 10% PIK notes with mandatory conversion to stock at the end of three years, 15% of the common stock, two board seats for designees of the ad hoc committee and 5% of the common stock of the restructured entity for existing stockholders. Subsequent negotiations continued through early August and involved the terms and amounts of the proposed new notes, including redemption and conversion features, the amount of equity in the restructured company for noteholders and existing stockholders and the amount of permitted senior debt. In August we reached the present agreement with the committee, at which time the holders of 73.02% of our old notes entered into the agreement described above. Terms of the exchange offer and consent solicitation Upon the terms and subject to the conditions of the exchange offer and consent solicitation set forth in this prospectus and consent solicitation and in the accompanying consent and letter of transmittal, we are offering to exchange all of the outstanding old notes for cash or a combination of new notes, shares of common stock and warrants. 79 You can select the form of consideration that you will receive for your old notes from the following two options: . Limited Cash Option $303 in cash for every $1,000 in principal amount of old notes tendered under this option, up to an aggregate maximum of $10 million in cash for $33 million in principal amount of old notes. If less than all of the outstanding old notes are exchanged, then the $10 million in cash available will be reduced $303 for every $1,000 principal amount of old notes not exchanged. If more than $33 million in principal amount of old notes are tendered under this option, we will exchange $757.58 in principal amount of new notes, 34.12 post-reverse split shares of our common stock and warrants to purchase 22.75 post-reverse split shares of our common stock (at an exercise price of $5.16 per share) for each additional $1,000 in principal amount of old notes tendered. We will distribute the $10 million in cash so that everyone who tenders old notes under this option will receive cash, new notes, common stock and warrants in the same proportion as everyone else who tenders old notes under this option. We may issue new notes in denominations of less than $1,000. . New Note, Common Stock and Warrants Option $757.58 in principal amount of new notes, 34.12 post-reverse split shares of our common stock and warrants to purchase 22.75 post-reverse split shares of our common stock (at an exercise price of $5.16 per share) for every $1,000 in principal amount of old notes tendered under this option. We may issue new notes in denominations of less than $1,000. Up to $100 million principal amount of new notes, up to 4,504,595 shares of our post-reverse split common stock and warrants to purchase up to 3,003,063 shares of our post-reverse split common stock (at an exercise price of $5.16 per share) will be exchanged for $132 million in principal amount of old notes. If more than $132 million in principal amount are tendered for new notes, common stock and warrants, each additional $1,000 principal amount tendered will be exchanged for $303 in cash. We will distribute the new notes, common stock and warrants so that everyone who tenders under this option will receive new notes, common stock, warrants and cash in the same proportion as everyone else who tenders old notes under this option. You do not have to choose the same option for all of the old notes that you tender. You do not have to tender all of your old notes to participate in this exchange offer and consent solicitation. However, this exchange offer and consent solicitation is conditioned on our receiving valid tenders of at least $132 million of the aggregate principal amount of the old notes. You may withdraw your tender of old notes or change your choice of consideration options at any time before the expiration of this exchange offer and consent solicitation. The limited cash option may be over-subscribed. In such case, if you choose the limited cash option you should expect to receive a combination of cash, new notes, shares of common stock and warrants to purchase common stock for a significant portion of the old notes that you tender for cash. We will not determine whether the limited cash option is over-subscribed until after this exchange offer and consent solicitation closes. You will not be able to withdraw your tender of old notes once we make this determination even though it may affect the type of exchange consideration that you will receive in this exchange offer and consent solicitation. We will make a press announcement regarding the extent to which the limited cash option is over- subscribed and the amount of cash, new notes, common stock and warrants that persons who choose the limited cash option can expect to receive as soon as practicable following the expiration date of this exchange offer and consent solicitation. Upon the terms and subject to the conditions of the solicitation, we are also soliciting consents to the proposed amendments to the indenture governing the old notes. . If you desire to tender your old notes in the exchange offer and consent solicitation and receive the exchange consideration, you are required to tender validly your old notes, and thereby consent to the proposed amendments, on or before the expiration of the exchange offer and consent solicitation. 80 . Your completion, execution and delivery of the consent and letter of transmittal in connection with your tender of old notes will constitute your consent to the proposed amendments with respect to the old notes. Our obligation to accept and exchange old notes validly tendered in the exchange offer and consent solicitation is conditioned upon the valid tender, and nonwithdrawal, of at least $132 million in aggregate principal amount of the old notes, along with consents to amendments to the indenture governing the old notes, and to the general conditions described in this prospectus and consent solicitation. See "--Conditions to the Exchange Offer and Consent Solicitation." Subject to applicable securities laws and the terms and conditions in this prospectus and consent solicitation, we reserve the right, on or before the expiration of the exchange offer, to: . waive any and all conditions to the exchange offer; . extend or terminate the exchange offer; or . otherwise amend the exchange offer in any respect. These reserved rights are in addition to our right to terminate the exchange offer and consent solicitation described under "--Conditions to the Exchange Offer and Consent Solicitation." Our board of directors makes no recommendation to holders of the old notes whether or not to tender their old notes in the exchange offer or which election each holder should make. Our board of directors is not making a recommendation regarding the exchange offer because holders of the old notes must make their own decision whether to tender their old notes in the exchange offer and as to which type of election to make. We have not authorized anyone to make a recommendation on our behalf regarding the exchange offer. Period for tendering your old notes Subject to applicable securities laws and the terms and conditions in this prospectus and consent solicitation, we will accept for exchange any and all old notes that are validly tendered and not withdrawn before 5:00 p.m., New York City time, on the expiration date of the exchange offer. The expiration date of the exchange offer is , 2002. If we make a material change in the terms of the exchange offer and consent solicitation or the information concerning the exchange offer and consent solicitation or waive a material condition to the exchange offer and consent solicitation, we will disseminate additional exchange offer materials and extend the exchange offer and consent solicitation to the extent required by law. In addition, we may, if we deem appropriate, extend the exchange offer and consent solicitation for any other reason. If the consideration to be paid in the exchange offer and consent solicitation is increased or decreased or the principal amount of old notes subject to the exchange offer is decreased, the exchange offer and consent solicitation will remain open at least 10 business days from the date we first give notice to you, by public announcement or otherwise, of that increase or decrease. In the case of an extension of the exchange offer and consent solicitation, the announcements will be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration of the exchange offer and consent solicitation. Without limiting the manner in which any public announcement may be made, we will have no obligation to publish, advertise or otherwise communicate any public announcement other than by issuing a release to the Dow Jones News Service. Rights offering and issuance of new common stock As part of the restructuring, we intend to conduct an offering of rights to purchase up to 24,024,507 post-reverse split shares of our common stock to all existing stockholders to raise $20 million. Lacy Harber, who beneficially owns approximately 29.4% of our pre-reverse split common stock and is our largest stockholder, has agreed to purchase any unsold allotments in the rights offering. Investors who purchase the $20 million of 81 shares in our reorganized company will receive 80% of our to-be-outstanding common stock. Our existing stockholders will own 5% of the reorganized company, and the holders of our new notes will own 15% of the reorganized company. Additionally, the new note holders and existing stockholders will each as a group be granted warrants at a fixed price to purchase additional shares of our post-reverse split common stock. Approval of the sale of equity in the rights offering, including the potential sale of our common stock to our largest stockholder if he purchases unsold allotments in the rights offering, will require approval of a majority of our stockholders. Completion of the rights offering and will be subject to the requirement that the exchange offering be consummated at the same time. Although there can be no assurances, the rights offering and restructuring are expected to close by March 31, 2002. We have filed a registration statement relating to the rights offering, which has not yet become effective. Proposed amendments to the indenture for the old notes and proposed waiver of defaults This section sets forth a brief description of the proposed amendments to the indenture for the old notes and proposed waiver of defaults under the indenture for the old notes for which we are seeking consents in the exchange offer and consent solicitation. The proposed amendments and proposed waiver constitute a single proposal, and if you tender, you must consent to the proposed amendments and the proposed waiver as an entirety and may not consent selectively to the proposed waiver or to specific proposed amendments. The valid tender by you of your old notes in the exchange offer and consent solicitation will be deemed to constitute your consent to all proposed amendments to the old indenture and to the waiver of all existing defaults under the old indenture. The proposed amendments and the proposed waiver will be set forth in an amendment to the indenture in the form set forth in the supplemental indenture. The supplemental indenture will become effective after it is approved by the holders of the required amount of old notes, as described below, and is signed by us and the trustee on the expiration of the exchange offer and consent solicitation. The proposed amendments, however, will not become operative until we accept the old notes for exchange in the exchange offer and consent solicitation. Thereafter, the proposed amendments will be binding on all nontendering holders of old notes. Under the terms of the indenture, to be effective against any holder of any old note, the proposed waiver of the default resulting from the failure to make the August, 2001 interest payment on the old notes must be agreed to by that holder, and the proposed extension of the grace period upon which to make payments of interest on the old notes must be agreed to by that holder. The indenture will remain in effect, without giving effect to the proposed amendments, until the proposed amendments become operative. If the exchange offer and consent solicitation is terminated or withdrawn, or the old notes are never accepted for exchange, the supplemental indenture will never become effective. Under the terms of the indenture, the proposed amendments require the consent of the holders of at least a majority in aggregate principal amount of the old notes outstanding and not owned or held by us or any person or entity controlling, controlled by or under common control with us. Deletion of covenants in the indenture. The proposed amendments would delete in their entirety the following covenants and references thereto from the indenture for the old notes, as well as the events of default related to such covenants: SECTION 3.09 Offer to Purchase by Application of Excess Proceeds. This provision requires us, within 270 days of an asset sale by us, to use the excess proceeds of such sale to either repay senior debt, acquire other businesses or assets or purchase old notes. Compliance Certificate. This provision requires us SECTION 4.04 to deliver to the trustee certificates regarding our compliance with certain provisions of the indenture. 82 SECTION 4.05 Taxes. This provision requires us and our restricted subsidiaries to pay uncontested taxes, assessments and other governmental levies. SECTION 4.06 Stay, Extension and Usury Laws. This provision requires us and our restricted governmental subsidiaries to not use, plead, make a claim under or take the benefit or advantage of any stay, extension or usury laws that may affect the covenants in the indenture for the old notes. SECTION 4.07 Limitation on Restricted Payments. This provision currently restricts our ability or the ability of any restricted subsidiary to make certain restricted payments, including (i) dividends or distributions on any of our equity interests or the equity interests of our restricted subsidiaries, (ii) purchases, redemptions or acquisitions of any of our equity interests or the equity interests of any direct or indirect parent, (iii) purchases, redemptions or other acquisitions of subordinated or pari passu obligations and (iv) investments in any person (other than permitted investments). SECTION 4.08 Limitations on Dividends and Other Payments Affecting Subsidiaries. This provision currently restricts us and our restricted subsidiaries from creating or permitting to exist certain encumbrances or restrictions on any restricted subsidiary's ability, among other things, to (i) pay dividends, make distributions on its capital stock or pay indebtedness owed to us or any of our restricted subsidiaries, (ii) make any loans or advances to us or any of our restricted subsidiaries or (iii) transfer any of its property to us or any of our restricted subsidiaries. SECTION 4.09 Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock. This provision currently restricts our ability and the ability of our restricted subsidiaries to incur certain indebtedness or issue any disqualified stock and restricts the ability of any restricted subsidiary to issue preferred stock. SECTION 4.10 Limitation on Asset Sales. This provision restricts our ability, and the ability of our restricted subsidiaries under certain circumstances, to sell or otherwise transfer any of their assets or property unless such sales are used to either repay senior debt, acquire other businesses or assets or repurchase old notes. SECTION 4.11 Limitation on Transactions with Affiliates. This provision currently restricts our ability and the ability of our restricted subsidiaries to engage in certain transactions with our affiliates. SECTION 4.12 Limitation on Liens. This provision limits our ability and the ability of our restricted subsidiaries to place liens on assets which secure debt junior to the old notes. SECTION 4.13 Limitation on Lines of Business. This provision restricts us and our restricted subsidiaries from engaging in any lines of business other than a permitted business. SECTION 4.14 Corporate Existence. This provision requires us to preserve our corporate existence and the corporate or other existence of each of our restricted subsidiaries in accordance with their respective organizational documents. 83 SECTION 4.15 Offer to Repurchase Upon Change of Control. This provision requires that we make an offer to purchase the old notes at a price equal to 101% of their principal amount after a change in control event. SECTION 4.16 Limitation on Senior Subordinated Debt. This provision currently restricts our ability to issue debt junior to our senior indebtedness but senior to the old notes. SECTION 4.17 Additional Subsidiary Guarantees. This provision currently requires that when we create or acquire a wholly-owned subsidiary, the wholly-owned subsidiary must execute a supplemental indenture containing a guarantee of the old notes. SECTION 4.18 Payments for Consents. This provision restricts our ability and the ability of our restricted subsidiaries to pay any consideration for any consent, waiver or amendment to terms of the indenture or the old notes unless such consideration is offered to be paid and is paid to all holders of the old notes that so consent, waive or agree to consent. Limitation on Merger Consolidation and Sales of ARTICLE 5 Assets. These provisions currently restrict our ability to consolidate with, merge with or into any other person or convey, transfer or lease its assets substantially as an entirety to any person. SECTION 6.01(c)-(i) Events of Default. These provisions define as events of default under the indenture: Our failure to comply with Sections 4.07, 4.09, 4.10 and 4.15, our failure to comply with other provisions of the indenture, our default under any mortgage or loan agreement due to failure to make payment or which causes the lender to accelerate payment of the indebtedness, our failure to pay substantial final judgments rendered against us, our filing of a bankruptcy proceeding or any subsidiary guarantee of the old notes is found to be unenforceable. SECTION 6.03 Other Remedies. This provision allows the trustee to pursue any available remedy to collect the payment of principal, premium, if any, and interest on the old notes or to enforce the provisions of the old notes or the indenture for the old notes. Deletion of Definitions. The proposed amendments would delete certain definitions from the indenture made irrelevant as a result of the foregoing. Amendment of Indenture. The proposed amendments would also amend the following provisions of the Indenture. SECTION 4.02 Maintenance of Office or Agency. The proposed amendments will delete the requirement that our office or agency where the old notes may be presented for registration of transfer or for exchange and where notices and demands for or upon the Company must be maintained in Manhattan, New York, New York. SECTION 6.01(a) Events of default. The proposed amendments extend the grace period for the payment of interest on the old notes from 30 days to 90 days. 84 Amendment of Definitions. The proposed amendments would amend the definition of "Senior Debt", "Designated Senior Debt" and "Obligations" to expressly include all obligations under the documents evidencing our TROL Financing (whether or not such obligations are deemed indebtedness as defined in the indenture). Waiver of Defaults. The proposed waiver would result in the waiver of any and all existing defaults under the old notes and the indenture evidencing the old notes, including, the default arising from the failure to make the August, 2001 interest payment and any defaults resulting from consummation of the exchange offer described herein, Acceptance for exchange of old notes; acceptance of consents Upon the terms and subject to the conditions of the exchange offer and consent solicitation and applicable law, we will exchange all old notes validly tendered and not withdrawn under the exchange offer that are accompanied by consents validly delivered and not revoked under the consent solicitation, all on or before the expiration of the exchange offer. This exchange will be made by the deposit by us of the exchange consideration, consisting of cash, new notes, shares of common stock and warrants, with the exchange agent as soon as practicable after the expiration of the exchange offer so that the exchange consideration may be paid to you on the exchange date. The exchange agent will act as agent for you for the purpose of issuing the exchange consideration for the old notes and consents. Under no circumstances will interest on the exchange consideration be paid by us due to any delay on behalf of the exchange agent in making the exchange. We expressly reserve the right, in our sole discretion and subject to Rule 14e-1(c) under the Securities Exchange Act of 1934, to delay acceptance for exchange of, or the exchange of, old notes to comply, in whole or in part, with any applicable law. See "--Conditions to the Exchange Offer and Consent Solicitation." In all cases, exchange by the exchange agent of cash, new notes, shares of common stock and warrants for old notes accepted for exchange under the exchange offer will be made only after timely receipt by the exchange agent of: . certificates representing your old notes or timely confirmation of a book-entry transfer of your old notes into the exchange agent's account at DTC; . a properly completed and duly executed consent and letter of transmittal, or a manually signed facsimile thereof or, in the case of a book-entry transfer, a properly transmitted "agent's message" (as described below); and . any other documents required by the letter of transmittal. For purposes of the exchange offer and consent solicitation, validly tendered old notes, or defectively tendered old notes for which we have waived that defect, will be deemed to have been accepted for exchange by us if, as and when we give written notice thereof to the exchange agent. Consents to the proposed amendments will be deemed to have been accepted by us if, as and when the supplemental indenture is executed. If the exchange offer and consent solicitation is terminated or withdrawn, or the old notes are not accepted for exchange, no exchange offer consideration will be paid or payable. If any tendered old notes are not exchanged under the exchange offer and consent solicitation for any reason, or certificates are submitted evidencing more old notes than are tendered, those old notes not exchanged will be returned without expense, to you, or, in the case of old notes tendered by book-entry transfer, those old notes will be credited to the account maintained at DTC from which those old notes were delivered, unless otherwise requested by you under the "Special Delivery Instructions" heading in the letter of transmittal, promptly after the expiration of the exchange offer and consent solicitation. 85 Procedures for exchanging old notes and delivering consents To receive the exchange consideration you must tender your old notes under the exchange offer and consent solicitation on or before its expiration. By tendering your old notes, you will automatically be delivering your consent to the proposed amendments with respect to those old notes. The method of delivery of old notes and consents and letters of transmittal, any required signature guarantees and all other required documents, including delivery through DTC and any acceptance of any agent's message transmitted through ATOP, is at your election and risk. Except as otherwise provided in the consent and letter of transmittal, delivery will be deemed made only when actually received by the exchange agent. If delivery is by mail, we suggest that you use properly insured registered mail with return receipt requested, and that the mailing be made sufficiently in advance of the expiration of the exchange offer. It is contemplated that our new notes, shares and warrants will be delivered only in book-entry form through DTC. Accordingly, if you anticipate tendering other than through DTC, you are urged to contact promptly a bank, broker or other intermediary that has the capability to hold securities custodially through the DTC, to arrange for the receipt of any new notes, shares and warrants to be delivered as the exchange offer consideration and to obtain the information necessary in the consent and letter of transmittal. If you have any questions or need help in tendering your old notes, please call the information agent whose address and phone number are on the back cover of this prospectus and consent solicitation. Tenders of old notes and delivery of consents Your tender of old notes, and subsequent acceptance by us, by one of the procedures set out below will constitute a binding agreement between us in accordance with the terms and subject to the conditions set forth in this prospectus and consent solicitation, in the consent and letter of transmittal and, if applicable, in the notice of guaranteed delivery. Tenders of old notes held in physical form and consents To tender effectively old notes held in physical form and deliver the related consents: . you must complete and duly execute a consent and letter of transmittal and any other documents required by the consent and letter of transmittal, and the consent and letter of transmittal and other required documents must be received by the exchange agent at its address set out on the back cover of this prospectus and consent solicitation on or before the expiration of the exchange offer and consent solicitation; and . you must ensure that certificates representing those old notes are received by the exchange agent at that address on or before the expiration of the exchange offer and consent solicitation. Consents and letters of transmittal and old notes should be sent only to the exchange agent and should not be sent to us or the trustee. If your old notes are registered in the name of a person other than the signatory to the consent and letter of transmittal, then, to tender those old notes under the exchange offer and consent solicitation, the old notes must be endorsed or accompanied by an appropriate written instrument or instruments of transfer signed exactly as that name appears on the old notes, with the signature on the old notes or instruments of transfer guaranteed as provided below. If these procedures are followed by a beneficial owner tendering old notes on or before the expiration of the exchange offer and consent solicitation, the registered holder of these old notes must sign a valid proxy because only registered holders may deliver consents. 86 Tender of old notes held through a custodian If your old notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and if you wish to tender old notes and deliver a consent and letter of transmittal, you should contact that registered holder promptly and instruct him, her or it to tender old notes and deliver a consent and letter of transmittal on your behalf. A letter of instructions is enclosed in the solicitation materials provided along with this prospectus and consent solicitation which may be used by you in this process to instruct the registered holder to tender old notes and deliver consents. If you wish to tender those old notes and deliver consents yourself, you must, prior to completing and executing the consent and letter of transmittal and delivering those old notes, either make appropriate arrangements to register ownership of the old notes in your name or follow the procedures described in the immediately preceding paragraph. The transfer of record ownership may take considerable time. Tender of old notes held through DTC To tender effectively old notes that are held through DTC, if you are a DTC participant, you must electronically transmit your acceptance through DTC's Automated Tender Offer Program, for which the transaction will be eligible. By transmitting your acceptance, you will also be giving your consent to the proposed amendments to the indenture for the old notes. Upon receipt of your acceptance through ATOP, DTC will edit and verify the acceptance and send an agent's message, as described below, to the exchange agent for its acceptance. The exchange agent will establish accounts with respect to the old notes at DTC for purposes of the exchange offer within two business days after the date of this prospectus and consent solicitation. Any financial institution that is a participant in DTC may make book-entry delivery of the old notes by causing DTC to transfer those old notes into the exchange agent's account in accordance with DTC's procedures for that transfer. Although delivery of old notes may be effected through book-entry transfer into the exchange agent's account at DTC, the consent, letter of transmittal, or a manually signed facsimile thereof, with any required signature guarantees, or an agent's message, as described below, in connection with a book-entry transfer, and any other required documents, must, in any case, be transmitted to and received by the exchange agent at the address set out on the back cover of this prospectus and consent solicitation on or before the expiration of the exchange offer and consent solicitation in connection with the tender of the old notes. Delivery of documents to DTC does not constitute delivery to the exchange agent. The confirmation of a book-entry transfer into the exchange agent's account at DTC as described above is referred to in this prospectus and consent solicitation as a "book-entry confirmation." The term "agent's message" means a message transmitted by DTC to, and received by, the exchange agent and forming a part of the book-entry confirmation, which states that DTC has received an express acknowledgment from a DTC participant that the participant has received and agrees to be bound by the terms of the consent and letter of transmittal, including the consent to the proposed amendments, and that we may enforce that agreement against the participant. Signature guarantees Signatures on all consents and letters of transmittal must be guaranteed by a recognized participant in the Securities Transfer Agents Medallion Program, unless your tender of old notes tendered and delivery of consents delivered are tendered and delivered: . by a registered holder of old notes, or by a participant in DTC whose name appears on a security position listing as the owner of those old notes, who has not completed any of the boxes entitled "Special Payment Instructions" or "Special Delivery Instructions" on the consent and letter of transmittal; or 87 . for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States. We refer to these entities as "eligible institutions." If your old notes are registered in the name of a person other than the signatory to the consent and letter of transmittal or if old notes not accepted for exchange or not tendered are to be returned to a person other than the registered holder, then the signature on the consent and letter of transmittal accompanying the tendered old notes must be guaranteed. See Instruction 4 of the consent and letter of transmittal. Mutilated, lost, stolen or destroyed certificates If you desire to tender old notes, but the certificates evidencing those old notes have been mutilated, lost, stolen or destroyed, you should contact the trustee to receive information about the procedures for obtaining replacement certificates for old notes at the following address or telephone number: , , , , , Attention: , telephone ( ) - . Defective tenders Except as provided below, unless the old notes being tendered are deposited with the exchange agent on or before the expiration of the exchange offer and consent solicitation, accompanied by a properly completed and duly executed consent and letter of transmittal or a properly transmitted agent's message, we may at our option treat that tender as defective for purposes of the right to receive the exchange offer consideration. Exchange for the old notes will be made only against deposit of the tendered old notes and delivery of any other required documents. Guaranteed delivery If you want to tender old notes under the exchange offer and consent solicitation and . your certificates representing those old notes are not immediately available, . time will not permit your consent and letter of transmittal, the certificates representing your old notes and all other required documents to reach the exchange agent on or before the expiration of the exchange offer and consent solicitation, or . the procedures for book-entry transfer, including delivery of an agent's message, cannot be completed on or before the expiration of the exchange offer and consent solicitation, you may nevertheless tender your old notes with the effect that tender will be deemed to have been received on or before the expiration of the exchange offer and consent solicitation if all the following conditions are satisfied: . the tender is made by or through an eligible institution; . a properly completed and duly executed notice of guaranteed delivery or an agent's message with respect to guaranteed delivery that is accepted by us is received by the exchange agent on before the expiration of the exchange offer and consent solicitation as provided below; and . the certificates for the tendered old notes, in proper form for transfer, or a book-entry confirmation of the transfer of those old notes into the exchange agent's account at DTC as described above, together with a consent and letter of transmittal that is properly completed and duly executed, with any signature guarantees and any other documents required by the consent and letter of transmittal, or a properly transmitted agent's message, are received by the exchange agent within two business days after the date of execution of the notice of guaranteed delivery. 88 The notice of guaranteed delivery may be sent by hand delivery, facsimile transmission or mail to the exchange agent and must include a guarantee by an eligible institution in the form set out in the notice of guaranteed delivery. Under no circumstances will interest be paid by us by reason of any delay in exchanging old notes for the exchange offer consideration to any person using the guaranteed delivery procedures that results from this guaranteed delivery. The exchange offer consideration for old notes tendered under the guaranteed delivery procedures will be the same as for old notes delivered to the exchange agent after the expiration of the consent solicitation and on or prior to the expiration of the exchange offer and consent solicitation, even if the old notes to be delivered subject to the guaranteed delivery procedures are not so delivered to the exchange agent, and therefore exchange by the exchange agent on account of those old notes is not made, until after the exchange date. Backup United States federal income tax withholding To prevent backup federal income tax withholding you must provide the exchange agent with your current taxpayer identification number and certify that you are not subject to backup federal income tax withholding by completing the Substitute Form W-9 included in the consent and letter of transmittal. Determination of validity All questions as to the validity, form, eligibility, including time of receipt, and acceptance of any tendered old notes subject to any of the procedures described above will be determined by us, in our sole discretion, and our determination will be final and binding. We reserve the right to reject any or all tenders of any old notes that we determine not to be in proper form or, in the case of old notes, if the acceptance for tender of those old notes may, in the opinion of our counsel, be unlawful. We also reserve the right to waive any of the conditions of the exchange offer and consent solicitation or any defect or irregularity in any tender of your old notes, whether or not similar defects or irregularities are waived in the case of other holders of old notes. Our interpretation of the terms and conditions of the exchange offer and consent solicitation, including the consent and letter of transmittal and the instructions thereto, will be final and binding. Neither we, the exchange agent, the trustee nor any other person will be under any duty to give notification of any defects or irregularities in tenders or will incur any liability for failure to give any such notification. If we waive our right to reject a defective tender of old notes, you will be entitled to the exchange offer consideration. Withdrawal of tendered old notes and revocation of consents You may withdraw tenders of old notes at any time on or before the expiration of the exchange offer and consent solicitation, but the exchange offer consideration will not be payable in respect of old notes so withdrawn. A valid withdrawal of tendered old notes effected on or before the expiration of the exchange offer and consent solicitation will constitute the concurrent valid revocation of your related consent. A valid revocation of a consent on or before the expiration date of the exchange offer will constitute a concurrent valid withdrawal of your tendered old notes. Tenders of old notes may be validly withdrawn if the exchange offer and consent solicitation is terminated without any old notes being exchanged. In this case, the old notes tendered under the exchange offer and consent solicitation will be promptly returned to you, the supplemental indenture will not become operative and the consents will be deemed revoked. If the consent solicitation is amended on or before the expiration of the exchange offer and consent solicitation in a manner determined by us, in our sole discretion, to constitute a material adverse change to you, we promptly will disclose that amendment and, if necessary, extend the exchange offer for a period deemed by us to be adequate to permit you to withdraw your old notes and revoke your consents. 89 For a withdrawal of tendered old notes and the revocation of consents to be effective, a written or facsimile transmission notice of withdrawal and revocation must be received by the exchange agent on or before the expiration of the exchange offer at its address set out on the back cover of this prospectus and consent solicitation. Any such notice of withdrawal must: . specify the name of the person who tendered the old notes to be withdrawn; . contain the description of the old notes to be withdrawn and identify the aggregate principal amount represented by those old notes as well as the certificate number or numbers shown on the particular certificates evidencing those old notes unless those old notes were tendered by book- entry transfer; and . be signed in the same manner as the original signature on the consent and letter of transmittal by which those old notes were tendered, including any required signature guarantees, and the related consent was given, or be accompanied by evidence sufficient to us that the person withdrawing the tender and revoking the consent has succeeded to the beneficial ownership of the old notes. If the old notes to be withdrawn have been delivered or otherwise identified to the exchange agent, a signed notice of withdrawal is effective immediately upon written or facsimile notice of that withdrawal even if physical release is not yet effected. Any permitted withdrawal of old notes and revocation of consents may not be rescinded, and any old notes properly withdrawn will thereafter be deemed not validly tendered for purposes of the exchange offer and consent solicitation. Any consents revoked will be deemed not validly delivered for purposes of the exchange offer and consent solicitation. Withdrawn old notes may, however, be re-tendered again following one of the appropriate procedures described in this prospectus and consent solicitation at any time on or before the expiration of the exchange offer and consent solicitation. If we extend the exchange offer and consent solicitation or if for any reason the acceptance for tender of old notes is delayed or if we are unable to accept the tender of old notes under the exchange offer and consent solicitation, then, without prejudice to our rights under the exchange offer and consent solicitation, tendered old notes may be retained by the exchange agent on our behalf and may not be withdrawn except as otherwise provided in this section. This is subject, however, to Rule 14e-l(c) under the Exchange Act, which requires that an offeror pay the consideration offered or return the securities deposited by or on behalf of the investor promptly after the termination or withdrawal of a tender offer. All questions as to the validity, form and eligibility, including time of receipt, of notices of withdrawal will be determined by us, in our sole discretion, and our determination will be final and binding. Neither we, the exchange agent, the trustee nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal, or incur any liability for failure to give any such notification. Market and trading information regarding the old notes The old notes currently are traded over-the-counter. However, there is no established reporting system and there are no publicly available quotations for the old notes. Accordingly, Houlihan Lokey Howard & Zukin Capital has advised us that there is no practical way to determine the trading history of the old notes. We believe that trading in the old notes has been limited and sporadic. We believe that opportunities to trade old notes that remain outstanding after this exchange offer and consent solicitation will be extremely limited. Conditions to the exchange offer and consent solicitation This exchange offer and consent solicitation is subject to the following conditions: . we must receive valid tenders under this exchange offer and consent solicitation of at least $132 million of the aggregate principal amount of the outstanding old notes, along with consents to amendments to the indenture governing the old notes and those tenders and consents must not be withdrawn or revoked; 90 . our senior bank lenders and the parties to our tax retention operating lease must consent to this exchange offer and consent solicitation, which consent has been obtained; . we must receive $20 million in cash in our rights offering in exchange for 80% of the to-be-outstanding common stock of our reorganized company in the rights offering; . we must increase the number of authorized shares of our common stock to 500 million shares by means of an amendment to our certificate of incorporation and reduce the number of our issued and outstanding shares of common stock by converting every ten shares into one share in a reverse split; . we must receive the approval of a majority of our stockholders for: . the issuance of the new notes, shares of our common stock and warrants to purchase common stock in the exchange offer and consent solicitation; . the issuance to existing stockholders of warrants to purchase 3,003,363 shares of our post-reverse split common stock (at an exercise price of $5.16 per share); . the sale of 80% of the to-be-outstanding common stock of the reorganized company for $20 million in the rights offering; . the sale of post-reverse split common stock to Lacy Harber in accordance with his agreement to purchase unsold allotments in the rights offering; and . the change in the number of our authorized shares to 500 million shares and the reduction of our issued and outstanding shares on a ten-for-one basis in the reverse split. . this exchange offer and consent solicitation must comply with applicable laws and applicable interpretations of the staff of the SEC; . this exchange offer and consent solicitation must comply with all applicable state securities or "blue sky" laws; . no action or proceeding may have been instituted or threatened in any court or before any governmental agency and no law, rule, regulation, judgment, order or injunction may have been proposed, including any proposal which is in existence as of the date of this prospectus and consent solicitation, enacted, entered or enforced by any court or government agency that would reasonably be expected to: . prohibit, prevent or materially impair our ability to proceed with this exchange offer and consent solicitation; . materially adversely affect our business; or . materially impair the benefits to us of this exchange offer and consent solicitation. . no event may have occurred or be reasonably likely to occur affecting our business that would reasonably be expected to: . prohibit, prevent or significantly delay consummation of this exchange offer and consent solicitation; or . materially impair our contemplated benefits of this exchange offer and consent solicitation. . the trustee of the old notes may not have objected or taken any action that would reasonably be expected to prevent, prohibit or materially adversely affect the consummation of this exchange offer and consent solicitation; and . no tender or exchange offer for any class of our equity securities and no merger, acquisition, business continuation or similar transaction involving us may have occurred, been proposed or announced. 91 All conditions to this exchange offer and consent solicitation must be satisfied or waived on or before the expiration date for this exchange offer and consent solicitation. Subject to the satisfaction or waiver of the conditions, we will accept for exchange any and all old notes that are validly tendered and not withdrawn at any time prior to acceptance for payment. Failure by us to enforce any conditions will not be considered a waiver of that condition. Subject to satisfaction or waiver of the conditions, we will accept for exchange any and all old notes that are validly tendered and not withdrawn before , New York City time, on , 2001, the expiration date of this exchange offer and consent solicitation. However, we reserve the right to: . delay the acceptance of the old notes for exchange; . terminate this exchange offer and consent solicitation; . extend the expiration date and retain all old notes that have been tendered, subject to the right of owners of old notes to withdraw their tendered old notes; . refuse to accept the old notes and return all old notes that have been tendered to us; or . waive any condition or otherwise amend the terms of this exchange offer and consent solicitation in any respect. We will not waive or amend any condition after the expiration date of this exchange offer and consent solicitation. United States federal income tax consequences You are referred to the discussion about federal income tax consequences of the exchange offer and consent solicitation under "Material United States Federal Income Tax Consequences." Tax matters are very complicated and the tax consequences of the exchange offer and consent solicitation to you will depend on your own situation. You should consult with your own tax advisor for a full understanding of the consequences of the exchange and consent solicitation to you. Advisor, Exchange Agent and Dealer Manager Advisor Houlihan Lokey Howard & Zukin Capital has acted as an advisor to us in connection with the exchange offer and consent solicitation. As advisor, Houlihan Lokey participated with us in determining the terms and conditions of the exchange offer and consent solicitation and has provided information to us regarding comparable transactions in the marketplace. Houlihan Lokey was not asked to and will not render an opinion regarding the fairness of the exchange offer and consent solicitation to the holders of our old notes. We have agreed to indemnify the advisor against liabilities incurred in connection with any actions taken or omitted to be taken by us, or by the advisor with our consent, under the terms of the engagement, except to the extent any such liability is the result of the advisor's gross negligence or willful misconduct. The advisor will receive compensation for its services in connection with, and upon the completion of, the exchange offer and consent solicitation of $2.0 million. The advisor is also receiving certain monthly service fees and is being reimbursed for its reasonable out-of-pocket expenses in connection with the exchange offer and consent solicitation. Exchange agent We have appointed HSBC Bank USA as exchange agent for the exchange offer and consent solicitation. We have agreed to pay HSBC Bank USA reasonable and customary fees for its services and will reimburse it for its reasonable out- of-pocket expenses. All executed consents and letters of transmittal and any other 92 required documents in connection with the exchange offer should be sent or delivered by you or your broker, dealer, commercial bank, trust company or other nominee to the exchange agent at the addresses and telephone numbers set forth on the back cover page of this prospectus and consent solicitation. Questions and requests for assistance, requests for additional copies of this prospectus and consent solicitation or of the consent and letter of transmittal and requests for notices of guaranteed delivery should be directed to the exchange agent at such address. Dealer manager We have retained Houlihan Lokey Howard & Zukin Capital as our exclusive dealer manager in connection with the exchange offer and consent solicitation. We will pay Houlihan Lokey Howard & Zukin Capital a customary fee for its services. We have also agreed to reimburse Houlihan Lokey Howard & Zukin Capital for its reasonable out-of-pocket expenses and to indemnify it against certain expenses and liabilities, including liabilities under federal securities laws. These expenses are not included in the fees set forth below. Fees and expenses We will bear the expenses of soliciting tenders for the exchange offer and consent solicitation. We are making the principal solicitation by mail. However, we may make additional solicitations by telephone, facsimile, e-mail or in person by officers and regular employees of ours and those of our affiliates. In addition, we may make payments to brokers, dealers or others soliciting acceptance of the exchange offer and consent solicitation. We will pay the cash expenses to be incurred in connection with the exchange offer and consent solicitation and the rights offering, which are estimated in the aggregate to be approximately $4.0 million. Such expenses include fees and expenses of our advisor, the dealer manager, the exchange agent and trustee, expenses of soliciting dealers, accounting and legal fees and printing costs, among others. In addition to the solicitation of consents by mail, our directors, officers or employees may solicit consents by telephone, facsimile or in person without receiving additional compensation. Restrictions on sales of securities by affiliates of Aviation Sales The shares of our common stock and new notes to be issued in connection with the exchange offer and consent solicitation will be registered under the Securities Act of 1933 and will be freely transferable under the Securities Act, except for those securities issued to any person in the exchange who is deemed to be an "affiliate" of Aviation Sales under the Securities Act at the time of the exchange offer and consent solicitation. Persons who may be deemed to be affiliates include individuals or entities that control, are controlled by, or are under common control with Aviation Sales and may include some officers and directors, as well as principal stockholders. Affiliates may not sell their shares of our common stock or new notes acquired in connection with the exchange except by means of: . an effective registration statement under the Securities Act covering the resale of those securities; . any other applicable exemption under the Securities Act. No appraisal rights You will not have any right to dissent and receive an appraisal of your old notes in connection with the exchange offer and consent solicitation. Transfer taxes Owners who tender their old notes for exchange will not be obligated to pay any transfer taxes. If, however, . new notes, shares and warrants are to be delivered to, or issued in the name of, any person other than the registered owner of the old notes; or 93 . old notes are registered in the name of any person other than the person signing the consent and letter of transmittal; or . a transfer tax is imposed for any reason other than the exchange of new notes, shares and warrants for old notes in connection with the exchange offer and consent solicitation, then the amount of any transfer taxes, whether imposed on the registered owner or any other persons, will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption from them is not submitted with the consent and letter of transmittal, the amount of such transfer taxes will be billed directly to the tendering holder. Quotation of our common stock Our common stock has historically been listed on the New York Stock Exchange. However, the NYSE has recently suspended the trading of our common stock on the NYSE because we no longer meet their continued listing standards. Effective December 6, 2001 our common stock became quoted on the OTC Bulletin Board maintained by the NASD. "Blue Sky" compliance We are making this exchange offer and consent solicitation to all holders of old notes. We are not aware of any jurisdiction in which the making of the exchange offer and consent solicitation is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the exchange offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. If, after such good faith effort, we cannot comply with any such law, the exchange offer will not be made to, and tenders of old notes and consents will not be accepted from, the holders of old notes residing in that jurisdiction. No person has been authorized to give any information or make any representation on behalf of us not contained in this prospectus and consent solicitation or in the consent and letter of transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. 94 COMPARISON OF THE OLD NOTES AND THE NEW NOTES
Old Notes (the following description of the old notes does not give effect to the proposed amendments or waivers) New Notes ------------------------------- --------- Aggregate principal $165 million Up to $100 million amount outstanding on initial issuance Maturity date February 15, 2008 December 31, 2006 Interest rate 8 1/8% annual rate, payable in 8.0% annual rate, payable at cash on February 15 and August our option either in cash or in 15 of each year. additional new notes, on and of each year, commencing . If we do not pay cash interest on an interest payment date, we will be deemed to have paid interest-in-kind on that date. Guarantees Our obligations under the old Our obligations under the new notes are fully and notes will be fully and unconditionally guaranteed by unconditionally guaranteed by certain of our wholly owned certain of our wholly owned subsidiaries. United States subsidiaries. Redemption at our option We can redeem the old notes at We can redeem the new notes at any time after February 15, any time after issuance in 2003 in whole or part for their whole or part for a combination principal amount plus accrued of cash and post-reverse split and unpaid interest, if any, to shares of common stock. The the date of redemption. The terms of redemption are initial redemption price is described in "Description of 104.063% of principal amount. New Notes--Redemption." See "Description of Old Notes-- Redemption." Repurchase at option of Upon a change of control, Upon a change of control, holders upon a change of holders of the old notes can holders of the new notes can control require us to purchase their require us to purchase their old notes at a price equal to new notes at a price equal to 101% of their principal amount, the redemption price which we plus accrued and unpaid would be obligated to pay if we interest, if any, to the date redeemed the notes on the date of repurchase, so long as we of such change of control. have satisfied other of our payment obligations. Repurchase at option of Holders of the old notes can Upon an applicable asset sale, holders upon asset sale require us to purchase their holders of the new notes can old notes at 100% of the require us to purchase their principal amount thereof with new notes at a price equal to the excess proceeds of an the redemption price which we applicable asset sale that we would be obligated to pay if we do not use to repay redeemed the new notes on the indebtedness senior to the old date of the applicable asset notes or to acquire replacement sale, with the excess proceeds assets. of the applicable asset sale that we do not use to repay indebtedness senior to the new notes or to acquire replacement assets.
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Old Notes New Notes --------- --------- Conversion The old notes are not The new notes (inclusive of all convertible. accrued but unpaid interest thereon) will automatically convert on December 31, 2006 into an aggregate of 270,275,706 post-reverse split shares of our common stock. Ranking and security The old notes rank in right of The new notes will rank in payment behind our senior debt right of payment behind our and all of our other existing senior debt and all of our and future senior debt other existing and future (including all of our senior debt (including all of obligations under our tax our obligations under our TROL retention operating lease Financing). The new notes will financing). The old notes will rank senior in right of payment rank in right of payment behind to any remaining old notes. If the new notes. If we issue we issue additional additional subordinated debt in subordinated debt in the the future, the old notes will future, the new notes will rank rank in right of payment in right of payment ahead of, behind, or equal to, that debt. or equal to, that debt. The new The old notes are unsecured. notes will be unsecured. Affirmative Covenants The old notes include the The new notes include the following required actions: following required actions: . maintenance of an office for . maintenance of an office for notices in New York, New notices in New York, New York; York; . a compliance certificate . a compliance certificate delivered by an officer at delivered by an officer at least once yearly; least once yearly; . maintenance of corporate . maintenance of corporate existence; existence; . timely payment of principal . timely payment of principal and interest on the old and interest on the new notes; notes; . addition of subsidiary . addition of subsidiary guarantees in specified guarantees in specified circumstances; and circumstances; and . filing of public reports. . filing of public reports. Negative Covenants The old notes include The new notes include limitations on our and our limitations on our and our subsidiaries' ability to, among subsidiaries' ability to, among other things: other things: . incur additional . incur additional indebtedness indebtedness or issue or issue capital or preferred preferred stock; stock; however, the indenture governing the new notes permits us to incur more indebtedness than the indenture governing the old notes and does not decrease our ability to incur additional senior debt when we repay senior debt with the proceeds of asset sales;
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Old Notes New Notes --------- --------- . pay dividends on our shares, . pay dividends on our shares, purchase or redeem our purchase or redeem our shares, make investments or shares, make investments or make payments on debt which make payments on debt which is pari passu with or is pari passu with or subordinated to the old subordinated to the new notes; notes; . create or permit any . create or permit any encumbrance or restriction encumbrance or restriction on on the ability of our the ability of our subsidiaries to pay money to subsidiaries to pay money to us; us; . create liens; . create liens; . engage in transactions with . engage in transactions with our affiliates; our affiliates; . merge or consolidate; and . merge or consolidate; and . transfer or sell . transfer or sell substantially all of our substantially all of our assets. assets. Events of default The following are events of The following are events of default under the terms of the default under the terms of the old notes: new notes: . our failure to pay principal . our failure to pay principal when due; when due; . our failure to pay interest . our failure to pay interest when due, if such failure when due, if such failure continues for 30 days; continues for 30 days; in the event interest is deemed to have been paid in additional new notes, the failure to issue and deliver such additional new notes within 30 days after such interest is deemed paid; . our failure to comply with . our failure to comply with the covenants regarding the covenants regarding change of control, asset change of control, asset sales, restricted payments sales, restricted payments or or incurrence of incurrence of indebtedness indebtedness and issuance of and issuance of preferred preferred stock; stock; . our failure to perform any . our failure to perform any other covenant for 60 days other covenant for 60 days after written notice; after written notice; . if we or our subsidiaries . default by us or our default on any indebtedness subsidiaries on any which in aggregate exceeds indebtedness which in the $10 million; aggregate exceeds $10 million; . the rendering of a final . the rendering of a final judgment against us or any judgment against us or any of our subsidiaries in of our subsidiaries in excess of $10 million excess of $10 million which remains unpaid for over 60 remains unpaid for over 60 days; days; . some events of bankruptcy, . some events of bankruptcy, insolvency or insolvency or reorganization; or reorganization; or
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Old Notes New Notes --------- --------- . any subsidiary guarantee is . any subsidiary guarantee is held unenforceable or held unenforceable or invalid or any subsidiary invalid or any subsidiary guarantor denies its guarantor denies its obligations under its obligations under its subsidiary guarantee. subsidiary guarantee. Remedies upon default If an event of default occurs, If an event of default occurs, either the trustee or holders either the trustee or holders of at least 25% in aggregate of at least 25% in aggregate principal amount of the old principal amount of the notes may accelerate the outstanding new notes may maturity of all of the old accelerate the maturity of the notes. new notes, provided that if the event of default is not related to certain events of bankruptcy, insolvency or reorganization, we may pay the amount due in cash and shares of our common stock in accordance with the provisions of the indenture governing redemption.
98 DESCRIPTION OF NEW NOTES The new notes will be issued under an indenture dated as of , 2001 among Aviation Sales, the subsidiary guarantors named therein and HSBC Bank USA, as Trustee. The terms of the new notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939. The new notes will be Aviation Sales' general, unsecured obligations and will be guaranteed by the subsidiary guarantors named in the indenture. The new notes will be subordinated to certain of Aviation Sales' Senior Debt on the terms set forth in the indenture and described below under the caption "--Subordination" and will be senior to any remaining old notes. The following descriptions are summaries of the material provisions of the indenture. They do not restate the indenture in its entirety. We urge you to read the indenture because it, and not the summary descriptions below, defines your rights. A copy of the indenture is filed as an exhibit to the registration statement of which this prospectus and consent solicitation forms a part and is also available for inspection at the office of the trustee. The definitions of some terms used in the following summary of the new notes are set forth below under "--Definitions." For purposes of this summary, the terms "Aviation Sales," we, our and us refer to Aviation Sales Company and not to any of its subsidiaries. General terms of new notes The general terms of the new notes are substantially identical to those of the old notes, except that: . the new notes (including interest previously paid in kind through the issuance of additional new notes and all accrued but unpaid interest) will automatically convert on December 31, 2006 into an aggregate of 270,275,706 post-reverse split shares of our common stock (subject to adjustment as described below), if the new notes are not earlier redeemed or otherwise repurchased; . interest on the new notes may be payable either in cash or in additional new notes, at our option (if interest is not paid on an interest payment date, it will automatically be deemed to have been paid-in-kind); and . the new notes are redeemable by us for a combination of cash and common stock. The new notes will mature on December 31, 2006. They will bear interest from , 2001, at the rate of 8.0% per annum. Interest will be payable at Aviation Sales' option either in cash or paid-in-kind through the issuance of additional new notes, semiannually on and of each year, commencing , to the persons in whose names the new notes are registered at the close of business on the and , as the case may be, immediately preceding the interest payment date. We expect to elect to pay interest in-kind, although if we make cash payments they will be made to the depositary as described below under "--Book-Entry System." If we do not pay interest in cash as of an interest payment date, we will automatically be deemed to have paid such interest in-kind and additional new notes in the amount of such interest payment will automatically be deemed to be outstanding from such date forward. The new notes will be our general unsecured obligations and will be subordinated in right of payment to all current and future Senior Debt (as defined below under "--Definitions") and will be senior in right of payment to any remaining old notes. The new notes will be fully and unconditionally guaranteed by our subsidiary guarantors. As of the date of this prospectus and consent solicitation, substantially all of our subsidiaries are "restricted subsidiaries" as defined below. The indenture provides that under certain circumstances, we may be able to designate current or future subsidiaries as unrestricted subsidiaries. Unrestricted subsidiaries will not be subject to many of the restrictive covenants set forth in the indenture. Indenture The indenture for the new notes is substantially identical to the existing indenture for the old notes except that (i) the indenture governing the new notes permits us to incur Indebtedness equal to the greater of $95 million or an amount that satisfies a fixed charge coverage ratio of 2.25 to 1, whereas the indenture for the old 99 notes permits in addition to previously existing senior debt, the incurrence of Indebtedness equal to the greater of $30 million or an amount that satisfies a fixed charge coverage ratio of 2.25 to 1; (ii) the new indenture requires us, upon a change of control or certain asset sales, to repurchase the new notes at a price equal to the redemption price which we would be obligated to pay if we redeemed the notes on the date of the change of control or asset sale, whereas the old indenture requires us to pay 101% and 100% of the principal amount of the old notes upon a change of control or asset sale, respectively; and (iii) the new indenture does not contain a provision requiring acceleration of any premium due upon acceleration of the new notes upon an Event of Default by reason of any willful action (or inaction) taken (or not taken) by Aviation Sales with the intention of avoiding the prohibition on the redemption of new notes. Except for provisions described in the preceding paragraph and the provisions relating to redemption, conversion, and payment of interest in additional new notes, all other provisions of the indenture for the new notes are substantively identical to the provisions of the existing indenture for the old notes and are as described below. The indenture limits the aggregate principal amount of new notes that may be issued to $100,000,000. Please read the section entitled "--Covenants" for a description of provisions in the indenture governing the new notes that limit other Indebtedness or securities that may be incurred or issued by Aviation Sales or any of Aviation Sales' subsidiaries and contain financial or similar restrictions on Aviation Sales and any of its subsidiaries. Redemption The new notes are redeemable from issuance at any time at our option, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices set forth below, which are based upon percentages of the sum of (a) principal amount (including paid-in-kind interest previously paid through the issuance of additional new notes), plus (b) accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on January 1 of the years indicated below. The applicable cash redemption percentages are as follows: (i) 70% in 2002, (ii) 72.5% in 2003, (iii) 73% in 2004, (iv) 75.625% in 2005 and 77.5% in 2006. Further, in addition to the cash redemption price, we will issue the following shares of our post-reverse split common stock ratably to the new noteholders upon redemption of the new notes:
Aggregate Number of Shares Year of Redemption to be Issued ------------------ ---------------- 2002 and 2003............... 4,504,595 2004, 2005 and 2006......... 3,003,063
For example the redemption prices set forth below are expressed as (i) the amount of cash payable ratably to the holders of the new notes (assuming all interest previously paid has been paid in kind and including all accrued but unpaid interest to the redemption date) and (ii) the number of shares of Aviation Sales' post-reverse split common stock issuable ratably to the holders of the new notes if the new notes were redeemed on December 31 of the applicable year:
Aggregate Post-Reverse Split Redemption Date Amount of Number of Shares December 31, Cash of Common Stock --------------- --------- ------------------ 2002............ $ 75,700,000 4,504,595 2003............ $ 84,800,000 4,504,595 2004............ $ 92,400,000 3,003,063 2005............ $103,500,000 3,003,063 2006 prior to maturity....... $114,700,000 3,003,063
The number of shares of common stock issuable will be adjusted if we: . declare a dividend in common stock on any class of our capital stock; 100 . issue generally to our stockholders rights, options or warrants to purchase common stock at less than the then current market price for our common stock; . subdivide, combine or reclassify our outstanding common stock; or . distribute to our stockholders evidences of debt, shares of capital stock other than common stock, cash or other assets, excluding distributions in connection with our liquidation and excluding dividends that we pay exclusively in cash. Automatic conversion upon maturity If the new notes have not already been redeemed or repurchased, the new notes, including those new notes previously issued as paid-in-kind interest and all accrued but unpaid interest, will automatically convert on December 31, 2006 into an aggregate of 270,275,706 post-reverse split shares of Aviation Sales' common stock. Holders of new notes will not receive any cash payment representing principal or accrued and unpaid interest upon conversion; instead, holders will receive a fixed number of shares of common stock and a cash payment to account for fractional shares, if any. The cash payment for fractional shares will be based on the closing price of the common stock on the last trading day immediately preceding December 31, 2006. Delivery of shares of Aviation Sales' common stock will be deemed to satisfy Aviation Sales' obligation to pay the principal amount of the new notes, including new notes previously issued to pay interest in kind and all accrued and unpaid interest. Accrued and unpaid interest will be deemed paid in full, rather than canceled, extinguished or forfeited. Aviation Sales will not adjust the conversion rates to account for any accrued and unpaid interest. The conversion rate will be adjusted if we: . declare a dividend in common stock on any class of our capital stock; . issue generally to our stockholders rights, options or warrants to purchase common stock at less than the then current market price for our common stock; . subdivide, combine or reclassify our outstanding common stock; and . distribute to our stockholders evidences of debt, shares of capital stock other than common stock, cash or other assets, excluding distributions in connection with our liquidation and excluding dividends and distributions that we pay exclusively in cash. If we distribute generally to our stockholders any other rights, warrants or options to purchase securities, we will either adjust the conversion rate of the new notes or, when you convert your new notes, under certain conditions, we will issue you shares of common stock, plus the appropriate number of those rights, warrants or options. If we: . reclassify or change our outstanding shares of common stock issuable upon conversion of the new notes; . consolidate or merge with another entity, with certain exceptions; or . sell or transfer most of our assets, then: 101 . we will issue to you, when you convert your new notes, the kind and amount of securities, cash and other property from that event that you would have received had you converted your new notes into common stock immediately prior to that event. Subordination The payment of principal of premium, if any, and interest on the new notes is subordinated in right of payment to the prior payment in full of all Senior Debt, whether outstanding on the date of the indenture or thereafter incurred. Upon any distribution to Aviation Sales' creditors in a liquidation or dissolution 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 (as defined below) will be entitled to receive payment in full in cash of all Obligations (as defined below) 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 new notes will be entitled to receive any payment with respect to the new notes, and until all Obligations with respect to Senior Debt are paid in full, any distribution to which the holders of new notes would be entitled shall be made to the holders of Senior Debt (except that holders of new notes may receive and retain Permitted Junior Securities (as defined below) and payments made from the trust described under "--Discharge, defeasance and covenant defeasance"). Aviation Sales also may not make any payment upon or in respect of the new notes (except in Permitted Junior Securities or from the trust described under "--Discharge, defeasance and covenant defeasance") if (i) a default in the payment of principal of premium, if any, or interest on Designated Senior Debt occurs and is continuing beyond any applicable period of grace or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from Aviation Sales or the holders of any Designated Senior Debt. Payments on the new notes may and shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived and (b) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated. No new Payment Blockage Notice shall be effective unless and until (i) 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments on the new notes that have come due have been paid in full in cash, in additional new notes or in Common Stock as required by the Indenture. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived for a period of not less than 90 days. The indenture requires that Aviation Sales promptly notify holders of Senior Debt if payment of the new 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 new notes may recover less ratably than creditors of Aviation Sales who are holders of Senior Debt. On a pro forma basis, after giving effect to the exchange offer, the principal amount of Senior Debt of Aviation Sales and the Subsidiary Guarantors outstanding at September 30, 2001 would have been approximately $78.7 million. The indenture governing the new notes limits, subject to certain financial tests, the amount of additional Indebtedness, including Senior Debt, that Aviation Sales and its subsidiaries can incur. See "--Covenants--Incurrence of indebtedness and issuance of preferred stock." Subsidiary guarantees Aviation Sales' payment obligations under the new notes are jointly and severally guaranteed by the subsidiary guarantors named in the indenture. The subsidiary guarantee of each subsidiary guarantor is 102 unsecured and is subordinated to the prior payment in full in cash of all Senior Debt of such subsidiary guarantor. The obligations of each subsidiary guarantor under its subsidiary guarantee are limited so as not to constitute a fraudulent conveyance under applicable law. See, however, "Risk Factors." A court may void the guarantees of the new notes or subordinate the guarantees to other obligations of the guarantors. The indenture provides that no subsidiary guarantor may consolidate with or merge with or into (whether or not such subsidiary guarantor is the surviving Person), another Person or entity whether or not affiliated with such subsidiary guarantor unless (i) except in the case of a merger of a subsidiary guarantor with or into Aviation Sales or another subsidiary guarantor but subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such subsidiary guarantor) assumes all the obligations of such subsidiary guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the new notes, and the indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; (iii) except in the case of a merger of a subsidiary guarantor, with or into Aviation Sales or another subsidiary guarantor such subsidiary guarantor, or any Person formed by or surviving any such consolidation or merger, would have Consolidated Net Worth (immediately after giving effect to such transaction), equal to or greater than the Consolidated Net Worth of such subsidiary guarantor immediately preceding the transaction; and (iv) except in the case of a merger of a subsidiary guarantor with or into Aviation Sales or another subsidiary guarantor, 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 "--Covenants--Incurrence of indebtedness and issuance of preferred stock." The indenture provides that in the event of (i) a sale or other disposition of all of the assets of any subsidiary guarantor, by way of merger, consolidation or otherwise; (ii) a sale or other disposition of all of the capital stock of any subsidiary guarantor; or (iii) such subsidiary guarantor is designated as an Unrestricted Subsidiary in accordance with the indenture, then such subsidiary guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such subsidiary guarantor or designation as a Unrestricted Subsidiary) or the corporation acquiring the property (in the event of a sale or other disposition of all of the assets of such subsidiary guarantor) will be released and relieved of any obligations under its subsidiary guarantee; provided that, in the case of a sale or other disposition, the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the indenture. See "--Asset Sales." Selection and notice If less than all of the new notes are to be redeemed at any time, selection of new notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the new notes are listed, or, if the new notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no new notes of $1,000 or less shall be redeemed in part (excluding new notes issued as paid in kind interest). 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 new notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any new note is to be redeemed in part only, the notice of redemption that relates to such new note shall state the portion of the principal amount thereof to be redeemed. A new note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original new note. New notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on new notes or portions of them called for redemption. Mandatory redemption Aviation Sales is not required to make mandatory redemption or sinking fund payments with respect to the new notes, except that Aviation Sales may be required to redeem the new notes upon the occurrence of an Event of Default. 103 Repurchase at the option of the holders upon a change of control Upon the occurrence of a Change of Control, each holder of new notes will have the right to require Aviation Sales to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such holder's new notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to the amount in cash and common stock payable by Aviation Sales if we redeemed the new notes on the date of the Change of Control (the "Change of Control Payment"). Within ten days following any Change of Control, Aviation Sales will mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase new 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. Aviation Sales 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 new notes as a result of a Change of Control. On the Change of Control Payment Date, Aviation Sales will, to the extent lawful, (1) accept for payment all new notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount of cash and shares of common stock equal to the Change of Control Payment in respect of all new notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the new notes so accepted together with an Officers' Certificate stating the aggregate principal amount of new notes or portions thereof being purchased by Aviation Sales. The Paying Agent will promptly mail or deliver to each Holder of notes so tendered the Change of Control Payment for such new 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 new notes surrendered, if any. The indenture will provide that, prior to complying with the provisions of this covenant, but in any event within 90 days following a Change of Control, Aviation Sales 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 new notes required by this covenant. Aviation Sales 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 new notes to require that Aviation Sales repurchase or redeem the new notes in the event of a takeover, recapitalization or similar transaction. The Credit Facility currently prohibits Aviation Sales from purchasing any new notes prior to maturity, and also provides that certain change of control events with respect to Aviation Sales would constitute a default thereunder. Any future credit agreements or other agreements relating to Senior Debt to which Aviation Sales becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when Aviation Sales is prohibited from purchasing new notes, Aviation Sales could seek the consent of its lenders to the purchase of new notes or could attempt to refinance the borrowings that contain such prohibition. If Aviation Sales does not obtain such a consent or repay such borrowings, Aviation Sales will remain prohibited from purchasing new notes upon a Change of Control. In such case, Aviation Sales' failure to purchase tendered new notes would constitute an Event of Default under the indenture which would, in turn, constitute a default under the Credit Facility. In such circumstances, the subordination provisions in the indenture would likely restrict payments to the holders of new notes. Aviation Sales 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 Aviation Sales and purchases all new notes validly tendered and not withdrawn under such Change of Control Offer. 104 "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of Aviation Sales and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act), (ii) the adoption of a plan relating to the liquidation or dissolution of Aviation Sales, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 50% of the Voting Stock of Aviation Sales (measured by voting power rather than number of shares); provided, however, that the beneficial ownership by Lacy J. Harber (or any group in which Lacy J. Harber is a member ) of more than 50% of the Voting Stock of Aviation Sales shall not constitute a "Change of Control," or (iv) the first day on which a majority of the members of the Board of Directors of Aviation Sales are not Continuing Directors. The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of Aviation Sales and its Restricted Subsidiaries taken as a whole. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of new notes to require Aviation Sales to repurchase such new notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of Aviation Sales and its Restricted Subsidiaries taken as a whole to another Person or group may be uncertain. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of Aviation Sales who (i) was a member of such Board of Directors on the date of the indenture or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. Asset sales The indenture provides that Aviation Sales will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) Aviation Sales (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 80% of the consideration therefor received by Aviation Sales or such Restricted Subsidiary is in the form of cash; provided that the amount of (x) any liabilities (as shown on Aviation Sales' or such Restricted Subsidiary's most recent balance sheet), of Aviation Sales or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the new notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases Aviation Sales or such Restricted Subsidiary from further liability and (y) any securities, notes or other obligations received by Aviation Sales or any such Restricted Subsidiary from such transferee that are contemporaneously (subject to ordinary settlement periods) converted by Aviation Sales 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, Aviation Sales may apply such Net Proceeds, at its option, (a) to repay or cause to be repaid Senior Debt, or (b) to the acquisition of a majority of the assets of, or a majority of the Voting Stock of, another Permitted Business, the making of a capital expenditure or the acquisition of other long-term assets that are used or useful in a Permitted Business. Pending the final application of any such Net Proceeds, Aviation Sales 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 105 exceeds $10.0 million, Aviation Sales will be required to make an offer to all holders of new 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 a principal amount of new notes and such other Indebtedness equal to the amount of such Excess Proceeds, at a purchase price in an amount equal to the amount in cash and common stock payable by us if we redeemed the new notes on the date of the applicable Asset Sale 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 (including that part of the excess proceeds corresponding to the portion of the purchase price payable in our common stock under such Asset Sale Offer), Aviation Sales may use such Excess Proceeds for any purpose not otherwise prohibited by the indenture. If the aggregate principal amount of new notes and such other Indebtedness tendered into such Asset Sale Offer surrendered by holders thereof exceeds the amount of Excess Proceeds allocable to the repurchase of the new notes (in relation to any other pari passu Indebtedness containing provisions similar to those regarding the Asset Sale Offer), the Trustee shall select the new 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. Covenants Restricted Payments The indenture provides that Aviation Sales will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of Aviation Sales' or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving Aviation Sales or any of its Restricted Subsidiaries) or to the direct or indirect holders of Aviation Sales' or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of Aviation Sales or to Aviation Sales or a Restricted Subsidiary of Aviation Sales); (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving Aviation Sales) any Equity Interests of Aviation Sales or any direct or indirect parent of Aviation Sales; (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is pari passu with or subordinated to the new notes, except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments") unless, at the time of and after giving effect to such Restricted Payment: . no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; . Aviation Sales 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 . such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by Aviation Sales and its Restricted Subsidiaries after the date of the indenture (excluding Restricted Payments permitted by clauses (ii), (iii), (iv) and (vi) of the next succeeding paragraph), is less than the sum, without duplication, of (i) 50% of the Consolidated Net Income of Aviation Sales 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 Aviation Sales' most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash 106 proceeds received by Aviation Sales since the date of the indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of Aviation Sales (other than Disqualified Stock) or from the issue or sale of Disqualified Stock or debt securities of Aviation Sales that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of Aviation Sales), plus (iii) to the extent that any Restricted Investment that was made after the date of the indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment, plus (iv) 50% of any dividends received by Aviation Sales or a Subsidiary Guarantor after the date of the indenture from an Unrestricted Subsidiary of Aviation Sales, to the extent that such dividends were not otherwise included in Consolidated Net Income of Aviation Sales for such period, plus (v) to the extent that any Unrestricted Subsidiary is redesignated as a Restricted Subsidiary after the date of the indenture, the lesser of (A) the fair market value of Aviation Sales' Investment in such Subsidiary as of the date of such redesignation or (B) such fair market value as of the date on which such Subsidiary was originally designated as an Unrestricted Subsidiary. The foregoing provisions will not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any pari passu or subordinated Indebtedness or Equity Interests of Aviation Sales in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of Aviation Sales) of, other Equity Interests of Aviation Sales (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 (ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of pari passu or subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a Subsidiary of Aviation Sales to the holders of its common Equity Interests on a pro rata basis; (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of Aviation Sales or any Subsidiary of Aviation Sales held by any member of Aviation Sales' (or any of its Subsidiaries') management pursuant to any management equity subscription agreement or stock option agreement in effect as of the date of the indenture; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $3.0 million in any twelve-month period and no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (vi) the making and consummation of (A) an Asset Sale Offer to holders of Indebtedness pari passu with or subordinate to the new 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 new notes in accordance with provisions similar to those described above under "Repurchase at the option of the holders upon a change of control"; provided, that prior to consummation of a Change of Control Offer with respect to subordinated Indebtedness and concurrently with consummation of a Change of Control Offer with respect to pari passu Indebtedness, Aviation Sales shall have consummated the Change of Control Offer with respect to the new notes; and (vii) the making of additional Restricted Payments in an amount not to exceed $10.0 million. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by Aviation Sales and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so 107 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 Aviation Sales 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, Aviation Sales 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 The indenture provides that Aviation Sales will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that Aviation Sales will not issue any Disqualified Stock and will not permit any of its Subsidiaries to issue any shares of preferred stock, provided, however, that Aviation Sales 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 Aviation Sales' 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 2.25 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom) as if the additional Indebtedness had been incurred, or the Disqualified Stock or preferred stock had been issued, as the case may be, at the beginning of such four-quarter period. The provisions of the first paragraph of this covenant will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): . the incurrence by Aviation Sales 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 Aviation Sales and the Subsidiary Guarantors thereunder) outstanding under the Credit Facility after giving effect to such incurrence does not exceed an amount equal to $95.0 million; . the incurrence by Aviation Sales and its Restricted Subsidiaries of the Existing Indebtedness; . the incurrence by Aviation Sales and the Subsidiary Guarantors of Indebtedness represented by the new notes and the Subsidiary Guarantees; . the incurrence by Aviation Sales or any of the Subsidiary Guarantors of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of Aviation Sales or such Subsidiary Guarantor, in an aggregate principal amount not to exceed $10.0 million at any time outstanding; . the incurrence by Aviation Sales or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace (A) Indebtedness (other than intercompany Indebtedness) that was permitted by the indenture to be incurred under the first paragraph hereof or the first two bullet points above or the last bullet point below; or (B) the TROL Financing; 108 . the incurrence by Aviation Sales or any of the Subsidiary Guarantors of intercompany Indebtedness or preferred stock between or among Aviation Sales 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 Aviation Sales 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 Aviation Sales 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 Aviation Sales or such Subsidiary Guarantor, as the case may be, that was not permitted by this clause; . the incurrence by Aviation Sales or any of the Subsidiary Guarantors of Hedging Obligations; . the guarantee by Aviation Sales or any of the Subsidiary Guarantors of Indebtedness of Aviation Sales or a Subsidiary Guarantor that was permitted to be incurred by another provision of this covenant; . the incurrence by Aviation Sales' 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 Aviation Sales that was not permitted by this clause; . the incurrence by Aviation Sales 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, not to exceed $30.0 million; and . the incurrence of up to $34.5 million of Indebtedness relating to the TROL Financing, to the extent such financing is considered Indebtedness; For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in the clauses above or is entitled to be incurred pursuant to the first paragraph of this covenant, Aviation Sales shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, in each such case, that the amount thereof is included in Fixed Charges of Aviation Sales as accrued. Indebtedness meeting the criteria of the fifth bullet point above and classified as Permitted Refinancing Indebtedness may be included as part of any refinancing of the Credit Facility irrespective of the limitations of the first bullet point above and without effect upon the limitations of the first bullet point above with respect to the balance of the principal amount of the Credit Facility. Liens The indenture provides that Aviation Sales will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien securing Indebtedness or trade payables on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens. Dividend and other payment restrictions affecting subsidiaries The indenture provides that Aviation Sales will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i) (a) pay dividends or make any other distributions to Aviation Sales or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any indebtedness owed to Aviation Sales or 109 any of its Restricted Subsidiaries, (ii) make loans or advances to Aviation Sales or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to Aviation Sales or any of its Restricted Subsidiaries. However, the foregoing restrictions will not apply to encumbrances or restrictions existing under or by reason of: (a) Existing Indebtedness as in effect on the date of the indenture; (b) the Credit Facility as in effect as of the date of the indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the Credit Facility as in effect on the date of the indenture; (c) the TROL Financing; (d) the indenture and the new notes; (e) applicable law; (f) any instrument governing Indebtedness or Capital Stock of a Person acquired by Aviation Sales or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the indenture to be incurred; (g) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices; (h) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (c) above on the property so acquired; (i) any agreement for the sale of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale; (j) 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; (k) 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; (l) 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 (m) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. Additional subsidiary guarantees The indenture provides that if 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 shall become a Subsidiary Guarantor and execute a supplemental indenture and deliver an opinion of counsel, in accordance with the terms of the indenture. 110 Definitions Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than sales or leases of inventory in the ordinary course of business or sales of leases or of assets subject to leases in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of Aviation Sales and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the indenture described above under the caption "--Repurchase at the option of the holder upon a change of control" and/or the provisions described below under the caption "--Merger, consolidation, or sale, lease or conveyance" and not by the provisions of the Asset Sale covenant), and (ii) 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 (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $2.0 million or (b) for net proceeds in excess of $2.0 million. Notwithstanding the foregoing, the following items shall not be deemed to be Asset Sales: (i) a transfer of assets by 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, (ii) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to Aviation Sales or to another Wholly Owned Restricted Subsidiary, and (iii) a Restricted Payment that is permitted by the covenant described above under the caption "--Covenants--Restricted Payments." "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of 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 111 excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition and (vi) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (i)-(v) of this definition. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, plus (v) an amount equal to 1/3 of the Consolidated Lease Expense of such Person and its Restricted Subsidiaries for such period, to the extent that any such expense was deducted in computing such Consolidated Net Income, minus (vi) non-cash items increasing such Consolidated Net Income for such period, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and other non-cash expenses of, a Restricted Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in the same proportion) that the Net Income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be distributed 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. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Restricted 112 Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write- ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of the indenture in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Credit Facility" means that certain Fourth Amended and Restated Credit Agreement dated as of May 31, 2000, by and among Aviation Sales, Aviation Sales Distribution Services Company, Aviation Sales Leasing Company, Aviation Sales Finance Company, AVSRE, L.P., AVS/M-3, Inc., AVS/CAI, Inc., AVS/M-2, Inc., Aircraft Interior Design, Inc., Triad International Maintenance Corporation, Timco Engine Center, Inc., Aviation Sales Maintenance, Repair and Overhaul Company, Timco Engineered Systems, Inc., Aviation Sales, Whitehall Corporation, AVS/M-I, Inc., Aero Hushkit Corporation, Aviation Sales Property Management Corp., Aerocell Structures, Inc. and Hydroscience, Inc., the Institutions from time to time party thereto as Lenders, the Institutions from time to time party thereto as Issuing Banks, Citicorp USA., Inc as Agent, and Citicorp Securities, Inc., as Arranger, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith. and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "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 as defined below. "Designated Senior Debt" means (i) any Indebtedness outstanding under the Credit Facility (ii) any amounts due under the TROL Financing (whether or not deemed Indebtedness), and (iii) any other Senior Debt the principal amount of which is $25.0 million or more permitted under the indenture 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 mandated to be 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 new 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 "--Covenants--Restricted Payments." 113 "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 $22.0 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 (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon), (iv) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of Aviation Sales (other than Disqualified 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 and (v) an amount equal to 1/3 of the Consolidated Lease Expense of such Person and its Restricted Subsidiaries for such period whether paid or accrued. "Fixed Charge Coverage Ratio" means with respect to any Person and its Restricted Subsidiaries for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Fixed Charges of such Person for such period. In the event that the referent Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by 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 (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of the indenture. 114 "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness issued with original issue discount, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. The TROL Financing shall be deemed Indebtedness unless and until it no longer appears as a liability on the balance sheet of Aviation Sales prepared in accordance with GAAP. "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 Restricted Subsidiary of Aviation Sales sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of Aviation Sales such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted 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 Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "--Covenants--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, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by Aviation Sales or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or 115 other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax audits or deductions and any tax sharing arrangements), any business or activities conducted by 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 (i) 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 (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than the new 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 (iii) 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 or governing the TROL Financing (whether or not the deemed 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 (a) any Investment in Aviation Sales or in a Subsidiary Guarantor; (b) any Investment in Cash Equivalents; (c) any Investment by Aviation Sales or any Restricted Subsidiary of Aviation Sales in a Person, if as a result of such Investment (i) such Person becomes a Guarantor or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, Aviation Sales or Guarantor (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "--Repurchase at the option of the holders upon an Asset Sale"; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of Aviation Sales; and (f) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (f) that are at the time outstanding, not to exceed $10.0 million. "Permitted Junior Securities" means Equity Interests in Aviation Sales or any Subsidiary Guarantor or debt securities that are subordinated to all Senior Debt (and any debt-securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the new notes are subordinated to Senior Debt pursuant to Article 10 of the indenture. "Permitted Liens" means (i) 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; (ii) Liens in favor of Aviation Sales or a Subsidiary Guarantor; (iii) 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; (iv) 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; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance 116 bonds or other obligations of a like nature incurred in the ordinary course of business; (v) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of the second paragraph of the covenant entitled "Incurrence of indebtedness and issuance of preferred stock" covering only the assets acquired with such Indebtedness; (vi) Liens existing on the date of the indenture; (vii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (viii) Liens incurred in the ordinary course of business of 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; (ix) Liens to secure the new notes or the Subsidiary Guarantees; and (x) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries. "Permitted Refinancing Indebtedness" means any Indebtedness of 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 or the TROL Financing (other than intercompany Indebtedness); provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on (plus holder yield, in the case of the TROL Financing), the Indebtedness or the TROL Financing so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness or the TROL Financing being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness or the TROL Financing being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the new 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 new notes on terms at least as favorable to the Holders of new notes as those contained in the documentation governing the Indebtedness or the TROL Financing being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred by (whether as borrower or guarantor), the Person or Persons which is or are the obligor or obligors on the Indebtedness or TROL Financing being extended, refinanced, renewed, replaced, defeased or refunded. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Senior Debt" means (i) all Indebtedness outstanding under the Credit Facility, the Existing Indebtedness, the TROL Financing (whether or not deemed Indebtedness), 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, (ii) 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 new notes and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (v) the old notes (w) any liability for federal, state, local or other taxes owed or owing by Aviation Sales or a Subsidiary Guarantor, (x) 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 (i) above, (y) any trade payables or (z) any Indebtedness that is incurred in violation of the indenture. 117 "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means, when used with respect to any new note or any installment of interest thereon, the date specified in such new note as the fixed date on which the principal of such new note or such installment of interest is due and payable. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantors" means each of (i) Aero Hushkit Corporation, Aerocell Structures, Inc., Aircraft Interior Design, Inc., Aviation Sales Distribution Services Company, Aviation Sales Finance Company, Aviation Sales Leasing Company, Aviation Sales Maintenance Repair & Overhaul Company, Aviation Sales Property Management Corp., Aviation Sales SPS I, Inc., AVS/CAI, Inc., AVS/M-1, Inc., AVS/M-2, Inc., AVS/M-3, Inc., AVSRE L.P., Hydroscience, Inc., Timco Engine Center, Inc., Timco Engineered Systems, Inc., Triad International Maintenance Corporation and Whitehall Corporation, and (ii) any other subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of the indenture, and their respective successors and assigns. "TROL Financing" means the obligations evidenced by that certain Lease Agreement between Aviation Sales and Wells Fargo Bank Northwest, National Association, f/k/a First Security Bank, National Association, as Owner Trustee, dated December 17, 1998, the guarantees thereof by the subsidiaries of Aviation Sales and related operative agreements, each as amended and modified from time to time. "Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but only to the extent that such Subsidiary: (a) has no indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with 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; (c) is a Person with respect to which neither Aviation Sales nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of Aviation Sales or any of its Restricted Subsidiaries; and (e) has at least one director on its board of directors that is not a director or executive officer of 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 such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified 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 "--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 "-- Covenants--incurrence of indebtedness and issuance of preferred stock", Aviation Sales shall be in default of such 118 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 (i) such Indebtedness is permitted under the covenant described under the caption "--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, (ii) no Default or Event of Default would be in existence following such designation, and (iii) such Subsidiary becomes a Subsidiary Guarantor and executes a Supplemental indenture and delivers an Opinion of Counsel, in accordance with the terms of the indenture. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person or such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. Merger, consolidation, sale, lease or conveyance The indenture provides that Aviation Sales may not consolidate or merge with or into (whether or not Aviation Sales is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) Aviation Sales is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than Aviation Sales) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation, limited liability company, partnership or trust organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than Aviation Sales) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of Aviation Sales, under the new notes and the indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) except in the case of a merger of Aviation Sales with or into a Subsidiary Guarantor, Aviation Sales or the entity or Person formed by or surviving any such consolidation or merger (if other than Aviation Sales), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of Aviation Sales 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 "--Covenants--Incurrence of indebtedness and issuance of preferred stock." Transactions with affiliates The indenture provides that Aviation Sales will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or 119 purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to Aviation Sales or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by Aviation Sales or such Restricted Subsidiary with an unrelated Person and (ii) Aviation Sales delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $15.0 million an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. Notwithstanding the foregoing, the following items shall not be deemed to be Affiliate Transactions: (i) any employment agreement entered into by Aviation Sales or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of Aviation Sales or such Restricted Subsidiary, (ii) transactions between or among Aviation Sales and/or the Guarantors, (iii) payment of reasonable directors fees to Persons who are not otherwise Affiliates of Aviation Sales, (iv) Restricted Payments that are permitted by the provisions of the indenture described above under the caption "--Covenants--Restricted Payments," and (v) 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." Events of default The indenture provides that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest on the new notes (whether or not prohibited by the subordination provisions of the Indenture) or in the event interest on the new notes is deemed to be paid in kind, failure by Aviation Sales to issue and deliver additional notes representing such interest within 30 days of the date the interest is deemed paid; (ii) default in the payment of principal on the new notes (whether or not prohibited by the subordination provisions of the Indentures); (iii) failure by Aviation Sales or any of its Subsidiaries to comply with the provisions described under the captions "--Change of Control," "--Asset Sales," "-- Covenants--Restricted Payments" or "--Covenants--Incurrence of indebtedness and issuance of preferred stock"; (iv) failure by Aviation Sales or any of its Subsidiaries for 60 days after notice to comply with any of its other agreements in the indenture or the new notes; (v) default due to any failure by Aviation Sales or any of its Subsidiaries to pay when due the principal of, or premium, if any, or interest on (prior to the expiration of any applicable grace period), or acceleration of, any debt for money borrowed by Aviation Sales or any of its Subsidiaries that aggregates $10 million or more; (vi) failure by Aviation Sales or any of its Subsidiaries to pay final judgments (including foreign judgments only to the extent enforcement thereof is sought in the United States or in any foreign jurisdiction where Aviation Sales owns assets of $10.0 million or more) aggregating in excess of $10.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to Aviation Sales or any of its Significant Subsidiaries; and (viii) except as permitted by the indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Subsidiary Guarantor, or any Person acting on behalf of any Subsidiary Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding new notes may declare all of the new notes due and payable; provided that if the Event of Default is not related to certain events of bankruptcy or insolvency, Aviation Sales may pay the amount due in cash and common stock in accordance with the provisions of the indenture governing redemption of the new notes. In the case of an Event of Default arising from certain events of bankruptcy or 120 insolvency, all outstanding new notes shall become due and payable without further action or notice. Holders of new notes may not enforce the indenture or the new notes except as provided in the indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding new notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the new notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the new notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the new 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 principal of, or interest on the new notes (including in connection with an offer to purchase as required by the terms of the indenture); provided however, that the Holders of a majority in aggregate principal amount of the then outstanding new notes may rescind any acceleration of the new notes and its consequences, including any related payment default that resulted from such acceleration. Aviation Sales is required to deliver to the Trustee annually a statement regarding compliance with the indenture, and Aviation Sales is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. Discharge, defeasance and covenant defeasance Aviation Sales may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding new notes ("Legal Defeasance") except for (i) the rights of Holders of outstanding new notes to receive payments in respect of the principal of, or interest on such new notes, or shares of our common stock upon conversion of the new notes, when such payments are due from the trust referred to below, (ii) Aviation Sales' obligations with respect to the new notes concerning issuing temporary new notes, registration of new notes, mutilated, destroyed, lost or stolen new notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and Aviation Sales' and the Guarantors' obligations in connection therewith, and (iv) the Legal Defeasance provisions of the indenture. In addition, Aviation Sales may, at its option and at any time, elect to have the obligations of Aviation Sales 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 new 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 new notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) Aviation Sales must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the new notes, cash in U.S. dollars, non-callable government securities, or a combination thereof, and shares of Common Stock, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal and interest and securities due on the outstanding new notes, on the stated maturity or on the applicable redemption date, as the case may be, and Aviation Sales must specify whether the new notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, Aviation Sales shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) Aviation Sales has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of the outstanding new notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, Aviation Sales shall have delivered to the Trustee an 121 opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding new notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the indenture) to which Aviation Sales or any of its Subsidiaries is a party or by which Aviation Sales or any of its Subsidiaries is bound; (vi) Aviation Sales must have delivered to the Trustee an opinion of counsel to the effect that on the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) Aviation Sales must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by Aviation Sales with the intent of preferring the Holders of new notes over the other creditors of Aviation Sales with the intent of defeating, hindering, delaying or defrauding creditors of Aviation Sales or others; and (viii) Aviation Sales must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Modification of the indenture Except as provided in the next two succeeding paragraphs, the indenture, the subsidiary guarantees or the new notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the new notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, new notes), and any existing default or compliance with any provision of the indenture or the new notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding new notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, new notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any new notes held by a non-consenting Holder): (i) reduce the principal amount of new notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the new notes (other than provisions relating to the covenants described above under the captions "--Repurchase at the option of the holders upon a change of control" and "Asset Sales"), or adjust the conversion rate as described under the caption "Automatic Conversion upon maturity", (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the new notes (except a rescission of the acceleration of new notes by the Holders of at least a majority in aggregate principal amount of the new notes then outstanding (including new notes issued as payable in kind interest, if any) and a waiver of any payment default that resulted from such acceleration), (v) make any new note payable in money other than that stated in the new notes, (vi) make any change in. the provisions of the indenture relating to waivers of past Defaults or the rights of Holders of new notes to receive payments of principal of, or interest on the new notes, (vii) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption "--Repurchase at the option of the holders upon a change of control" and "Asset Sales") or (viii) make any change in the foregoing amendment and waiver provisions under its Subsidiary Guarantee or the indenture, except in accordance with the terms of the indenture. In addition, any amendment to the provisions of Article 10 or Article 12 of the indenture (which relate to subordination) will require the consent of the Holders of at least 75% in aggregate principal amount of the new notes then outstanding if such amendment would adversely affect the rights of Holders of new notes. Notwithstanding the foregoing, without the consent of any Holder of new notes, Aviation Sales, the Subsidiary Guarantors and the Trustee may amend or supplement the indenture or the new notes to cure any ambiguity, defect, mistake, or inconsistency, to provide for uncertificated new notes in addition to or in place of 122 certificated new notes or to alter the provisions of Article 2 of the indenture (including the related definitions) in a manner that does not materially adversely affect any Holder of new notes, to provide for the assumption of Aviation Sales' or Guarantors' obligations to Holders of new notes in the case of a merger or consolidation, (or, in the case of Aviation Sales only, a sale of all or substantially all of the assets of Aviation Sales) to make any change that would provide any additional rights or benefits to the Holders of new notes or that does not adversely affect the legal rights under the indenture of any such Holder, to comply with requirements of the Commission in order to effect or maintain the qualification of the indenture under the Trust Indenture Act or to provide for additional Subsidiary Guarantors in accordance with the terms of the indenture. Meetings The indenture contains provisions describing how meetings of the Holders of new notes may be convened. A meeting may be called at any time by the Trustee, and also, upon request, by us or the Holders of at least 25% in principal amount of the outstanding new notes. A notice of the meeting must always be given in the manner described under "--Notices" below. Generally speaking, except for any consent that must be given by all Holders of notes as described under "--Modifications of indenture" above, any resolution presented at a meeting of the Holders of a series of new notes may be adopted by the affirmative vote of the Holders of a majority in principal amount of the outstanding new notes, unless the indenture allows the action to be voted upon to be taken with the approval of the Holders of a different specific percentage of principal amount of the new notes. In that case, the Holders of outstanding new notes of at least the specified percentage must vote in favor of the action. Any resolution passed or decision taken at any meeting of Holders of new notes in accordance with the indenture will be binding on all Holders of notes unless, as discussed in "--Modification of indenture" above the action is only effective against Holders that have approved it. The quorum at any meeting called to adopt a resolution, and at any reconvened meeting, will be Holders holding or representing a majority in principal amount of the outstanding new notes. Governing Law The Indenture and the new notes will be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of laws principles. Notices Notices to Holders of new notes will be given by mail to the addresses of such Holders as they appear in the security register. 123 DESCRIPTION OF OLD NOTES The old notes were issued pursuant to an indenture dated February 17, 1998 among Aviation Sales governing the old notes, the subsidiary guarantors named in the indenture and SunTrust Bank Central Florida, National Association, as trustee. If at least $132 million of the outstanding old notes with related consents are tendered for exchange, the indenture will be amended by a supplemental indenture among Aviation Sales, the subsidiary guarantors and the trustee. The indenture governing the old notes and the form of supplement to the indenture is filed as an exhibit to the Registration Statement of which this prospectus and consent solicitation is a part. The descriptions set forth below contain a summary of the material provisions of the indenture governing the old notes without giving effect to the proposed amendments. We do not restate the indenture as supplemented in its entirety. We urge you to read the indenture and indenture supplement because they, and not the descriptions below, define your rights as a holder of old notes. The terms of the old notes include those stated in the indenture, as amended, and those made part of the indenture by reference to the Trust Indenture Act of 1939. The definitions of some terms used in the following summary of the old notes are set forth below under "--Definitions." For purposes of this summary, the terms "Aviation Sales," "we," "our" and "us" refer to Aviation Sales Company and not to any of its subsidiaries. General terms of old notes The old notes are presently limited to $250,000,000 in aggregate principal amount. The old notes will mature on February 15, 2008. They bear interest at the rate of 8 1/8% per annum. Interest is payable semiannually in arrears on February 15 and August 15 of each year to the persons in whose names the old notes are registered at the close of business on February 1 and August 1, as the case may be, immediately preceding the interest payment date. Payments of interest will be made in immediately available funds to the depositary. The old notes are our general unsecured obligations, are subordinated in right of payment to all current and future Senior Debt (as defined below under "--Definitions") and will rank in right of payment behind the new notes. The old notes are fully and unconditionally guaranteed by the subsidiary guarantors named in the indenture governing the old notes (the "Subsidiary Guarantors"). Redemption The old notes are not redeemable at our option prior to February 15, 2003. After that time, the old notes will be subject to redemption at any time at our option, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on February 15 of the years indicated below:
Year Percentage ---- ---------- 2003.............................. 104.063% 2004.............................. 102.708% 2005.............................. 101.354% 2006 and thereafter............... 100.000%
Subordination The payment of principal of, or premium, if any, and interest on the old notes is subordinated in right of payment to the prior payment in full of all Senior Debt, whether outstanding on the date of the indenture or thereafter incurred. 124 Upon any distribution to our creditors in a liquidation or dissolution 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 the our assets and liabilities, the holders of Senior Debt will be entitled to receive payment in full in cash of all Obligations (as defined below) 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 old notes will be entitled to receive any payment with respect to the old notes, and until all old notes would be entitled, shall be made to the holders of Senior Debt (except that holders of old notes may receive and retain Permitted Junior Securities (as defined below) and payments made from the trust described under "--Legal Defeasance and Covenant Defeasance"). Aviation Sales also may not make any payment upon or in respect of the old notes (except in Permitted Junior Securities or from the trust described under "--Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of the principal of, premium, if any, or interest on Designated Senior Debt occurs and is continuing beyond any applicable period of grace or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from Aviation Sales or the holders of any Designated Senior Debt. Payments on the old notes may and shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived and (b) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated. No new Payment Blockage Notice shall be effective unless and until (i) 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal, premium, if any, and interest on the old notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived for a period of not less than 90 days. The indenture requires that Aviation Sales promptly notify holders of Senior Debt if payment of the old notes is accelerated because of an Event of Default. Subsidiary guarantees Aviation Sales' payment obligations under the old notes are jointly and severally guaranteed (the "Subsidiary Guarantees") by the Subsidiary Guarantors. The Subsidiary Guarantee of each Subsidiary Guarantor is unsecured and is subordinated to the prior payment in full in cash of all Senior Debt of such Subsidiary Guarantor. The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee are limited so as not to constitute a fraudulent conveyance under applicable law. See, however, "Risk Factors--Fraudulent Conveyances and Preferential Transfers." The indenture provides that no Subsidiary Guarantor may consolidate with or merge with or into (whether or not such Subsidiary Guarantor is the surviving Person), another corporation, Person or entity whether or not affiliated with such Subsidiary Guarantor unless (i) except in the case of a merger of a Subsidiary Guarantor with or into Aviation Sales or another Subsidiary Guarantor but subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Subsidiary Guarantor) assumes all the obligations of such Subsidiary Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the old notes, the indenture and the Registration Rights Agreement; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; (iii) except in the case of a merger of a Subsidiary Guarantor, with or into Aviation Sales or another Subsidiary Guarantor such Subsidiary Guarantor, or any Person formed by or surviving any such consolidation or merger, would have Consolidated Net Worth (immediately after giving effect to such transaction), equal to or greater than the Consolidated Net Worth of such Subsidiary Guarantor immediately preceding the transaction; and (iv) except in the case of a merger of a Subsidiary Guarantor with or into 125 Aviation Sales or another Subsidiary Guarantor, 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 "Covenants--Incurrence of indebtedness and issuance of preferred stock." The indenture provides that in the event of (i) a sale or other disposition of all of the assets of any Subsidiary Guarantor, by way of merger, consolidation or otherwise; (ii) a sale or other disposition of all of the capital stock of any Subsidiary Guarantor; or (iii) such Subsidiary Guarantor is designated as an Unrestricted Subsidiary in accordance with the indenture, then such Subsidiary Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Subsidiary Guarantor or designation as a Unrestricted Subsidiary) or the corporation acquiring the property (in the event of a sale or other disposition of all of the assets of such Subsidiary Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee; provided that, in the case of a sale or other disposition, the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the indenture. See "Repurchase at the option of the holders upon a change of control." Selection and notice If less than all of the old notes are to be redeemed at any time, selection of old notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the old notes are listed, or, if the old notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no old 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 old note is to be redeemed in part only, the notice of redemption that relates to such old note shall state the portion of the principal amount thereof to be redeemed. A new old note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original old note. Old notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on old 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 old notes. Repurchase at the option of the holders upon a change of control Upon the occurrence of a Change of Control, each Holder of notes will have the right to require Aviation Sales to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's old notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within ten days following any Change of Control, we will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase old 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 old notes as a result of a Change of Control. On the Change of Control Payment Date, we will, to the extent lawful, (1) accept for payment all old notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying 126 Agent an amount equal to the Change of Control Payment in respect of all old notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the old notes so accepted together with an Officers' Certificate stating the aggregate principal amount of old notes or portions thereof being purchased by us. The Paying Agent will promptly mail to each Holder of notes so tendered the Change of Control Payment for such old notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new old note equal in principal amount to any unpurchased portion of the old notes surrendered, if any; provided that each such new old note will be in a principal amount of $1,000 or an integral multiple thereof. The indenture will provide that, prior to complying with the provisions of this covenant, but in any event within 90 days following a Change of Control, Aviation Sales 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 old notes required by this covenant. Aviation Sales 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 old notes to require that Aviation Sales repurchase or redeem the old notes in the event of a takeover, recapitalization or similar transaction. The Credit Facility currently prohibits Aviation Sales from purchasing any old notes prior to maturity, and also provides that certain change of control events with respect to Aviation Sales would constitute a default thereunder. Any future credit agreements or other agreements relating to Senior Debt to which Aviation Sales becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when Aviation Sales is prohibited from purchasing old notes, Aviation Sales could seek the consent of its lenders to the purchase of old notes or could attempt to refinance the borrowings that contain such prohibition. If Aviation Sales does not obtain such a consent or repay such borrowings, Aviation Sales will remain prohibited from purchasing old notes. In such case, Aviation Sales' failure to purchase tendered old notes would constitute an Event of Default under the indenture which would, in turn, constitute a default under the Credit Facility. In such circumstances, the subordination provisions in the indenture would likely restrict payments to the Holders of old notes. Aviation Sales 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 Aviation Sales and purchases all old notes validly tendered and not withdrawn under such Change of Control Offer. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of Aviation Sales and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act), (ii) the adoption of a plan relating to the liquidation or dissolution of Aviation Sales, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 50% of the Voting Stock of Aviation Sales (measured by voting power rather than number of shares), or (iv) the first day on which a majority of the members of the Board of Directors of Aviation Sales are not Continuing Directors. The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of Aviation Sales and its Restricted Subsidiaries 127 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 Aviation Sales to repurchase such old notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of Aviation Sales and its Restricted Subsidiaries taken as a whole to another Person or group may be uncertain. "Continuing Directors" means, as of-any date of determination, any member of the Board of Directors of Aviation Sales who (i) was a member of such Board of Directors on the date of the indenture or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. Asset sales The indenture provides that Aviation Sales will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) Aviation Sales (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 80% of the consideration therefor received by Aviation Sales or such Restricted Subsidiary is in the form of cash; provided that the amount of (x) any liabilities (as shown on Aviation Sales' or such Restricted Subsidiary's most recent balance sheet), of Aviation Sales or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the old notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases Aviation Sales or such Restricted Subsidiary from further liability and (y) any securities, notes or other obligations received by Aviation Sales or any such Restricted Subsidiary from such transferee that are contemporaneously (subject to ordinary settlement periods) converted by Aviation Sales 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, Aviation Sales may apply such Net Proceeds, at its option, (a) to repay or cause to be repaid Senior Debt, or (b) to the acquisition of a majority of the assets of, or a majority of the Voting Stock of, another Permitted Business, the making of a capital expenditure or the acquisition of other long-term assets that are used or useful in a Permitted Business. Pending the final application of any such Net Proceeds, Aviation Sales 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, Aviation Sales will be required to make an offer to all Holders of old 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 old notes and such other Indebtedness that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in the indenture and such other Indebtedness. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, Aviation Sales may use such Excess Proceeds for any purpose not otherwise prohibited by the indenture. If the aggregate principal amount of old 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 old 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. 128 Covenants Restricted payments The indenture provides that Aviation Sales will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of Aviation Sales' or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving Aviation Sales or any of its Restricted Subsidiaries) or to the direct or indirect holders of Aviation Sales' or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of Aviation Sales or to Aviation Sales or a Restricted Subsidiary of Aviation Sales); (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving Aviation Sales) any Equity Interests of Aviation Sales or any direct or indirect parent of Aviation Sales; (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is pari passu with or subordinated to the old notes, except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments") unless, at the time of and after giving effect to such Restricted Payment: . no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; . Aviation Sales 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 . such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by Aviation Sales and its Restricted Subsidiaries after the date of the indenture (excluding Restricted Payments permitted by clauses (ii), (iii), (iv) and (vi) of the next succeeding paragraph), is less than the sum, without duplication, of (i) 50% of the Consolidated Net Income of Aviation Sales 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 Aviation Sales' most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by Aviation Sales since the date of the indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of Aviation Sales (other than Disqualified Stock) or from the issue or sale of Disqualified Stock or debt securities of Aviation Sales that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of Aviation Sales), plus (iii) to the extent that any Restricted Investment that was made after the date of the indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment, plus (iv) 50% of any dividends received by Aviation Sales or a Subsidiary Guarantor after the date of the indenture from an Unrestricted Subsidiary of Aviation Sales, to the extent that such dividends were not otherwise included in Consolidated Net Income of Aviation Sales for such period, plus (v) to the extent that any Unrestricted Subsidiary is redesignated as a Restricted Subsidiary after the date of the indenture, the lesser of (A) the fair market value of Aviation Sales' Investment in such Subsidiary as of the date of such redesignation or (B) such fair market value as of the date on which such Subsidiary was originally designated as an Unrestricted Subsidiary. The foregoing provisions will not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the indenture; 129 (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any pari passu or subordinated Indebtedness or Equity Interests of Aviation Sales in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of Aviation Sales) of, other Equity Interests of Aviation Sales (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of pari passu or subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a Subsidiary of Aviation Sales to the holders of its common Equity Interests on a pro rata basis; (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of Aviation Sales or any Subsidiary of Aviation Sales held by any member of Aviation Sales' (or any of its Subsidiaries') management pursuant to any management equity subscription agreement or stock option agreement in effect as of the date of the indenture; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $3.0 million in any twelve-month period and no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (vi) the making and consummation of (A) an Asset Sale Offer to holders of Indebtedness pari passu with or subordinate to the old 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 old 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 "Repurchase at the option of the holders upon a change of control"; provided, that prior to consummation of a Change of Control Offer with respect to subordinated Indebtedness and concurrently with consummation of a Change of Control Offer with respect to pari passu Indebtedness, Aviation Sales shall have consummated the Change of Control Offer with respect to the old notes; or (vii) the making of additional Restricted Payments in an amount not to exceed $10.0 million. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by Aviation Sales and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments (to the extent they otherwise fall within the definition thereof) at the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of this covenant. All such outstanding Investments will be deemed to constitute Investments in an amount equal to the fair market value of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by Aviation Sales 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, Aviation Sales 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. 130 Incurrence of indebtedness and issuance of preferred stock The indenture provides that Aviation Sales will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that Aviation Sales will not issue any Disqualified Stock and will nor permit any of its Subsidiaries to issue any shares of preferred stock, provided, however, that Aviation Sales 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 Aviation Sales' most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or preferred stock is issued would have been at least 2.0 to 1 if such Indebtedness is incurred or such Disqualified Stock or preferred stock is issued on or prior to February 15, 2000, or would have been at least 2.25 to 1 if such Indebtedness is incurred or such Disqualified Stock or preferred stock is issued thereafter, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom) as if the additional Indebtedness had been incurred, or the Disqualified Stock or preferred stock had been issued, as the case may be, at the beginning of such four-quarter period. The provisions of the first paragraph of this covenant will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): . the incurrence by Aviation Sales 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 Aviation Sales 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; . the incurrence by Aviation Sales and its Restricted Subsidiaries of the Existing Indebtedness; . the incurrence by Aviation Sales and the Subsidiary Guarantors of Indebtedness represented by the old notes and the Subsidiary Guarantees; . the incurrence by Aviation Sales or any of the Subsidiary Guarantors of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of Aviation Sales or such Subsidiary Guarantor, in an aggregate principal amount not to exceed $10.0 million at any time outstanding; . the incurrence by Aviation Sales or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the indenture to be incurred under the first paragraph hereof or the second clause of this paragraph; . the incurrence by Aviation Sales or any of the Subsidiary Guarantors of intercompany Indebtedness or preferred stock between or among Aviation Sales 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 Aviation Sales 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 Aviation Sales 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 Aviation Sales or such Subsidiary Guarantor, as the case may be, that was not permitted by this clause; . the incurrence by Aviation Sales or any of the Subsidiary Guarantors of Hedging Obligations; . the guarantee by Aviation Sales or any of the Subsidiary Guarantors of Indebtedness of Aviation Sales or a Subsidiary Guarantor that was permitted to be incurred by another provision of this covenant; 131 . the incurrence by Aviation Sales' 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 Aviation Sales that was not permitted by this clause; and . the incurrence by Aviation Sales 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, not to exceed $30.0 million. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses above or is entitled to be incurred pursuant to the first paragraph of this covenant, Aviation Sales shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, in each such case, that the amount thereof is included in Fixed Charges of Aviation Sales as accrued. Liens The indenture provides that Aviation Sales will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien securing Indebtedness or trade payables on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens. Dividend and other payment restrictions affecting subsidiaries The indenture provides that Aviation Sales will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to Aviation Sales or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any indebtedness owed to Aviation Sales or any of its Restricted Subsidiaries, (ii) make loans or advances to Aviation Sales or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to Aviation Sales or any of its Restricted Subsidiaries. However, the foregoing restrictions will not apply to encumbrances or restrictions existing under or by reason of: (a) Existing Indebtedness as in effect on the date of the indenture; (b) the Credit Facility as in effect as of the date of the indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the Credit Facility as in effect on the date of the indenture; (c) the indenture and the old notes; (d) applicable law; (e) any instrument governing Indebtedness or Capital Stock of a Person acquired by Aviation Sales or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which 132 encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the indenture to be incurred; (f) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices; (g) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (c) above on the property so acquired; (h) any agreement for the sale of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale; (i) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (j) secured Indebtedness otherwise permitted to be incurred pursuant to the provisions of the covenant described above under the caption "--Liens" that limits the right of the debtor to dispose of the assets securing such Indebtedness; (k) provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business; and (1) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. Additional subsidiary guaranties The indenture provides that if Aviation Sales or any of its Restricted Subsidiaries shall acquire or create another Subsidiary after the date of the indenture (other than an Unrestricted Subsidiary properly designated as such), then such newly acquired or created Subsidiary shall become a Subsidiary Guarantor and execute a supplemental indenture and deliver an Opinion of Counsel, in accordance with the terms of the indenture. Definitions Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the 133 power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than sales or leases of inventory in the ordinary course of business or sales of leases or of assets subject to leases in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of Aviation Sales and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the indenture described above under the caption "--Repurchase at the option of holders upon a change of control" and/or the provisions described below under the caption "--Merger, consolidation or sale, lease or conveyance" and not by the provisions of the Asset Sate covenant), and (ii) 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 (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $2.0 million or (b) for net proceeds in excess of $2.0 million. Notwithstanding the foregoing, the following items shall not be deemed to be Asset Sales: (i) a transfer of assets by 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, (ii) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to Aviation Sales or to another Wholly Owned Restricted Subsidiary, and (iii) a Restricted Payment that is permitted by the covenant described above under the caption "--Covenants--Restricted Payments." "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition and (vi) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (i)--(v) of this definition. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the 134 interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, plus (v) an amount equal to 1/3 of the Consolidated Lease Expense of such Person and its Restricted Subsidiaries for such period, to the extent that any such expense was deducted in computing such Consolidated Net Income, minus (vi) non-cash items increasing such Consolidated Net Income for such period, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and other non-cash expenses of, a Restricted Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in the same proportion) that the Net Income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to 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. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of 135 such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of the indenture in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Credit Facility" means that certain Fourth Amended and Restated Credit Agreement dated as of May 31, 2000, by and among Aviation Sales, Aviation Sales Distribution Services Company, Aviation Sales Leasing Company, Aviation Sales Finance Company, AVSRE, L.P., AVS/M-3, Inc., AVS/CAI, Inc., AVS/M-2, Inc., Aircraft Interior Design, Inc., Triad International Maintenance Corporation, Timco Engine Center, Inc., Aviation Sales Maintenance, Repair and Overhaul Company, Timco Engineered Systems, Inc., Aviation Sales, SPS I, Inc., Whitehall Corporation, AVS/M-I, Inc., Aero Hushkit Corporation, Aviation Sales Property Management Corp., Aerocell Structures. Inc. and Hydroscience, Inc. the Institutions from time to time party thereto as Lenders, the Institutions from time to time party thereto as Issuing Banks, Citicorp USA. Inc. as Agent, and Citicorp Securities, Inc., as Arranger, and the related term loans, 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 as described below. "Designated Senior Debt" means (i) any Indebtedness outstanding under the Credit Facility and (ii) any other Senior Debt permitted under the indenture the principal amount of which is $25.0 million or more and that has been designated by 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 old 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 "--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 $95 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 (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, and (iii) any interest expense on 136 Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon), (iv) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of Aviation Sales (other than Disqualified 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 and (v) an amount equal to 1/3 of the Consolidated Lease Expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued. "Fixed Charge Coverage Ratio" means with respect to any Person and its Restricted Subsidiaries for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Fixed Charges of such Person for such period. In the event that the referent Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by 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 (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade 137 payable, if and to the extent any of the foregoing (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness issued with original issue discount, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If 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 "-- Covenants--Restricted Payments." "Liens" 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, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by 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 audits 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 (i) 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 138 would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than the old 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 (iii) 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 (a) any Investment in Aviation Sales or in a Subsidiary Guarantor; (b) any Investment in Cash Equivalents; (c) any Investment by Aviation Sales or any Subsidiary of Aviation Sales in a Person, if as a result of such Investment (i) such Person becomes a Wholly Owned Restricted Subsidiary of Aviation Sales or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, Aviation Sales or a Wholly Owned Restricted Subsidiary of Aviation Sales; (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Repurchase at the option of the holders upon a change of control"; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of Aviation Sales; and (f) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (f) that are at the time outstanding, not to exceed $10.0 million. "Permitted Junior Securities" means Equity Interests in Aviation Sales or any Subsidiary Guarantor or debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the old notes are subordinated to Senior Debt pursuant to Article 10 of the indenture. "Permitted Liens" means (i) 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; (ii) Liens in favor of Aviation Sales or a Subsidiary Guarantor; (iii) 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; (iv) 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; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (v) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of the second paragraph of the covenant entitled "Incurrence of indebtedness and issuance of preferred stock" covering only the assets acquired with such Indebtedness; (vi) Liens existing on the date of the indenture; (vii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (viii) Liens incurred in the ordinary course of business of 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 139 the property or materially impair the use thereof in the operation of business by Aviation Sales or such Subsidiary; (ix) Liens to secure the old notes or the Subsidiary Guarantees; and (x) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries. "Permitted Refinancing Indebtedness" means any Indebtedness of 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: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses. incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded: (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the old 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 old notes on terms at least as favorable to the Holders of old notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by 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 (i) all Indebtedness outstanding under the Credit Facility, all Hedging Obligations with respect thereto and, after a default has occurred and is continuing under the Credit Facility, all other Indebtedness arising from intercompany loans and advances and owing by 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, (ii) 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 old notes and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (w) any liability for federal, state, local or other taxes owed or owing by Aviation Sales or a Subsidiary Guarantor, (x) 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 (i) above, (y) any trade payables or (z) any Indebtedness that is incurred in violation of the indenture. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time 140 owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantors" means each of (i) Aero Hushkit Corporation, Aerocell Structures, Inc., Aircraft Interior Design, Inc., Aviation Sales Distribution Services Company, Aviation Sales Finance Company, Aviation Sales Leasing Company, Aviation Sales Maintenance Repair & Overhaul Company, Aviation Sales Property Management Corp., Aviation Sales SPS I, Inc., AVS/CAI, Inc., AVS/M-1, Inc., AVS/M-2, Inc., AVS/M-3, Inc., AVSRE L.P., Hydroscience, Inc., Timco Engine Center, Inc., Timco Engineered Systems, Inc., Triad International Maintenance Corporation and Whitehall Corporation, and (ii) any other subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of the indenture, and their respective successors and assigns. "Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but only to the extent that such Subsidiary: (a) has no indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with 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; (c) is a Person with respect to which neither Aviation Sales nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of Aviation Sales or any of its Restricted Subsidiaries; and (e) has at least one director on its board of directors that is not a director or executive officer of 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 such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by the covenant described above under the caption "--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 "-- Covenants--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 (i) such Indebtedness is permitted under the covenant described under the caption "--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, (ii) no Default or Event of Default would be in existence following such designation, and (iii) such Subsidiary becomes a Subsidiary Guarantor and executes a Supplemental indenture and delivers an Opinion of Counsel, in accordance with the terms of the indenture. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will 141 elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person or such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. Merger, consolidation, sale, lease or conveyance The indenture provides that Aviation Sales may not consolidate or merge with or into (whether or not Aviation Sales is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) Aviation Sales is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than Aviation Sales) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than Aviation Sales) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of Aviation Sales under the Registration Rights Agreement, the old notes and the indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) except in the case of a merger of Aviation Sales with or into a Subsidiary Guarantor, Aviation Sales or the entity or Person formed by or surviving any such consolidation or merger (if other than Aviation Sales), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of Aviation Sales 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 "--Covenants--Incurrence of indebtedness and issuance of preferred stock." Transactions with affiliates The indenture provides that Aviation Sales will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to Aviation Sales or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by Aviation Sales or such Restricted Subsidiary with an unrelated Person and (ii) Aviation Sales delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million (or, in the case of a purchase of inventory from JFSS in the ordinary course of business, $15.0 million) an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. Notwithstanding the foregoing, the following items shall not be deemed to be Affiliate Transactions: (i) any employment agreement entered into by Aviation Sales or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of Aviation Sales or such Restricted 142 Subsidiary, (ii) transactions between or among Aviation Sales and/or its Restricted Subsidiaries, (iii) payment of reasonable directors fees to Persons who are not otherwise Affiliates of Aviation Sales, (iv) Restricted Payments that are permitted by the provisions of the indenture described above under the caption "--Restricted Payments," and (v) any transactions undertaken pursuant 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." Events of default The indenture provides that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest on the old notes (whether or not prohibited by the subordination provisions of the indenture); (ii) default in payment when due of the principal of or premium, if any, on the old notes (whether or not prohibited by the subordination provisions of the indenture); (iii) failure by Aviation Sales or any of its Subsidiaries to comply with the provisions described under the captions "-- Change of Control," "--Asset Sales," "--Covenants--Restricted Payments" or "-- Covenants--Incurrence of indebtedness and issuance of preferred stock"; (iv) failure by Aviation Sales or any of its Subsidiaries for 60 days after notice to comply with any of its other agreements in the indenture or the old notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by Aviation Sales or any of its Restricted Subsidiaries (or the payment of which is guaranteed by Aviation Sales or any of its Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the indenture, which default (a) is caused by a failure to pay principal of, or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10.0 million or more; (vi) failure by Aviation Sales or any of its Subsidiaries to pay final judgments (including foreign judgments only to the extent enforcement thereof is sought in the United States or in any foreign jurisdiction where Aviation Sales owns assets of $10.0 million or more) aggregating in excess of $10.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to Aviation Sales or any of its Significant Subsidiaries; and (viii) except as permitted by the indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Subsidiary Guarantor, or any Person acting on behalf of any Subsidiary Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding old notes may declare all the old 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 Aviation Sales, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding old notes will become due and payable without further action or notice. Holders of the old notes may not enforce the indenture or the old notes except as provided in the indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding old notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the old 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 Aviation Sales with the intention of avoiding payment of the premium that Aviation Sales would have had to pay if Aviation Sales then had elected to redeem the old 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 old notes. If an Event of Default occurs 143 prior to February 15, 2003 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of Aviation Sales with the intention of avoiding the prohibition on redemption of the old 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 old notes. The Holders of a majority in aggregate principal amount of the old notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the old 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 old notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the indenture, and Aviation Sales is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. Discharge, defeasance and covenant defeasance The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding old notes ("Legal Defeasance") except for (i) the rights of Holders of outstanding old notes to receive payments in respect of the principal of, premium, if any, and interest and Liquidated Damages on such old notes when such payments are due from the trust referred to below, (ii) Aviation Sales' obligations with respect to the old notes concerning issuing temporary old notes, registration of old notes, mutilated, destroyed, lost or stolen old notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and Aviation Sales' obligations in connection therewith and (iv) the Legal Defeasance provisions of the indenture. In addition, Aviation Sales may, at its option and at any time, elect to have the obligations of Aviation Sales 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 old 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 old notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) Aviation Sales must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the old notes, cash U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest and Liquidated Damages on the outstanding old notes on the stated maturity or on the applicable redemption date, as the case may be, and Aviation Sales must specify whether the old notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, Aviation Sales shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) Aviation Sales has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of the outstanding old notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, Aviation Sales shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding old notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the 144 date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the indenture) to which Aviation Sales or any of its Subsidiaries is a party or by which Aviation Sales or any of its Subsidiaries is bound; (vi) Aviation Sales must have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) Aviation Sales must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by Aviation Sales with the intent of preferring the Holders of old notes over the other creditors of Aviation Sales with the intent of defeating, hindering, delaying or defrauding creditors of Aviation Sales or others; and (viii) Aviation Sales must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Modification of the indenture Except as provided in the next two succeeding paragraphs, the indenture or the old notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the old notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, old notes), and any existing default or compliance with any provision of the indenture or the old notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding old notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, old notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any old notes held by a non-consenting Holder): (i) reduce the principal amount of old notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any old note or alter the provisions with respect to the redemption of the old notes (other than provisions relating to the covenants described above under the caption "--Repurchase at the option of the holders upon a change of control"), (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the old notes (except a rescission of acceleration of the old notes by the Holders of at least a majority in aggregate principal amount of the old notes and a waiver of the payment default that resulted from such acceleration), (v) make any old note payable in money other than that stated in the old notes, (vi) make any change in the provisions of the indenture relating to waivers of past Defaults or the rights of Holders of old notes to receive payments of principal of or premium, if any, or interest on the old notes, (vii) waive a redemption payment with respect to any old note (other than a payment required by one of the covenants described above under the caption "--Repurchase at the option of the holders upon a change of control") (viii) make any change in the foregoing amendment and waiver provisions or (ix) release any Subsidiary Guarantor from any of its obligations under its Subsidiary Guarantee or the indenture, except in accordance with the terms of the indenture. In addition, any amendment to the provisions of Article 10 or Article 12 of the indenture (which relate to subordination) will require the consent of the Holders of at least 75% in aggregate principal amount of the old notes then outstanding if such amendment would adversely affect the rights of Holders of old notes. Notwithstanding the foregoing, without the consent of any Holder of old notes, Aviation Sales, the Subsidiary Guarantors and the Trustee may amend or supplement the indenture or the old notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated old notes in addition to or in place of certificated old notes, to provide for the assumption of Aviation Sales' obligations to Holders of old notes in the case of a merger or consolidation or sale of all or substantially all of Aviation Sales' assets, to make any change that would provide any additional rights or benefits to the Holders of old notes or that does not adversely affect the legal rights under the indenture of any such Holder, to comply with requirements of the Commission in order to effect or maintain the qualification of the indenture under the Trust Indenture Act to provide for the issuance of additional old 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. 145 DESCRIPTION OF OTHER INDEBTEDNESS We and our subsidiaries have entered into a senior credit facility with certain financial institutions. At present, the senior credit facility consists of a $47.5 million revolving loan and letter of credit facility, generally subject to an availability calculation based on the eligible borrowing base. The eligible borrowing base includes certain of our receivables and inventories. The letter of credit portion of the senior credit facility is subject to a $31.0 million sublimit, with the imposition of certain borrowing criteria based on the satisfaction of certain debt ratios. The interest rate on the senior credit facility is, at our option, (a) prime plus 3.0% or (b) LIBOR plus 4.5%. The senior credit facility contains certain financial covenants regarding our 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 the senior credit facility and repayment of all debt in the event of a material adverse change in our business or a change in control. A default under the senior credit facility could potentially result in a default under other agreements to which we are a party, including our tax retention operation lease. In addition, the senior credit faculty requires mandatory repayments from the proceeds of a sale of assets or an issuance of equity or debt securities or as a result of insufficient collateral to meet the borrowing base requirements thereunder. Substantially all of our assets are pledged as collateral for amounts borrowed. The senior credit facility will terminate on July 31, 2002. We were committed to pay a $1 million financing fee on June 30, 2001, which we paid on July 2, 2001, and we paid an additional $154,000 in financing fees in August 2001 and an additional $950,000 in financing fees on November 27, 2001. Payment of the fee due on November 27, 2001 is being made in three installments on November 27, 2001, December 14, 2001 and January 14, 2002. To the extent the senior credit facility remains outstanding as of February 14, 2002 we are committed to pay an additional financing fee equal to 2% of the outstanding commitment. At September 30, 2001, $1.7 million was outstanding under the senior credit facility and outstanding letters of credit aggregated $29.6 million. As of December 7, 2001, $6.2 million was available for borrowing under the senior credit facility. The indenture which governs our old notes permits us and our subsidiaries to incur substantial additional indebtedness, including senior indebtedness. Under the indenture, we may borrow unlimited additional amounts so long as after incurring such debt we satisfy a fixed charge coverage ratio for the four most recent fiscal quarters. Additionally, the indenture allows us to borrow and have outstanding additional amounts of indebtedness (even if it does not meet the required fixed coverage ratios) up to enumerated limits. We did not meet the fixed charge coverage ratio for the one year period ended June 30, 2001. The old notes are also effectively subordinated in right of payment to all existing and future liabilities of any of our subsidiaries which do not guarantee the old notes. Assuming the consummation of the exchange offer and consent solicitation, the provision restricting our ability to incur additional indebtedness in this indenture will be removed. In February 2000, we executed a $15.5 million term loan with the financial institution that is the agent under our senior credit facility. The proceeds from this term loan were used to pay debt outstanding under the senior credit facility. The $15.5 million term loan, as amended, is senior secured debt, bears interest at 12% per annum, contains financial covenants that are consistent with the senior credit facility, and matures in July 2002. We repaid $3.5 million of the term loan from the proceeds of the sale of Caribe. The term loan is due in July 2002. Under the $15.5 million term loan agreement, we also granted the lender common stock purchase warrants to purchase 129,000 shares of our common stock exercisable for nominal consideration at any time until December 31, 2005. If the term loan is not repaid in full, the warrants entitle the holder to require us to repurchase the warrants or common shares issued upon prior exercise of the warrants at $8.50 per share. The lender has not required us to repurchase any warrants through September 25, 2001. In February 2001, we obtained a $10 million term loan from a financial institution. The term loan is senior secured debt, bears interest at LIBOR plus 2% and matures in August 2002. The proceeds of the $10 million term loan were used to pay the semi-annual interest payment on the senior subordinated notes in February 2001 of $6.7 million and for working capital purposes. In connection with the $10 million term loan, we issued warrants to purchase 250,000 shares of our common stock at an exercise price of $4.00 per share to each of 146 four individuals, two of whom are our officers and/or directors and one of whom is one of our principal stockholders. Each of these individuals provided credit support to the financial institution which advanced the $10 million term loan proceeds. In May 2001, we obtained a short-term increase of up to $3.0 million in this term loan. We borrowed $2.0 million under the increased term loan in May 2001 and thereafter repaid the additional borrowing from the proceeds of the Caribe sale. One of our principal stockholders provided credit support for the increased amount of the term loan. As a result of our inability to make the August 2001 interest payment due under the old notes, we are in default under our senior credit facility, our senior term loans and the TROL Financing and the lenders under our senior credit facility, our senior term loans and the lessor under our TROL Financing have the right to declare due and require immediate payment of the indebtedness that ranks senior in right of payment to the old notes, which as of September 30, 2001 aggregated $78.7 million, before any payment could be made on the old notes. Our lenders under our senior credit facility, our senior term loans and the lessor under our TROL Financing have agreed, under certain conditions, to not declare due and to not require immediate payment of such indebtedness until March 31, 2002, subject to certain conditions (the "forbearance"). Upon the occurrence of an event of default under the senior debt and TROL Financing and without the forbearance, or upon the expiration of the forbearance, the respective lenders could elect to increase the interest rate due and declare all amounts outstanding, together with accrued interest, to be immediately due and payable. Substantially all of our assets are pledged as collateral security for the senior credit facility, our senior term loans and the TROL Financing. If we were unable to repay all outstanding amounts under our senior debt, and TROL Financing the lenders and other parties could proceed against the collateral granted to them to secure that indebtedness, and any proceeds realized upon the sale of this collateral would be used first to satisfy all amounts outstanding under our senior credit facility, our senior term loans and TROL Financing and thereafter, any of our other liabilities. In addition, we may be prevented from making new borrowings or drawing down further on our senior credit facility. The holders of more than a majority of our old notes have agreed to waive the default arising as a result of the failure to pay the interest payment due August 15, 2001 under the old notes. 147 DESCRIPTION OF OUR CAPITAL STOCK Our authorized capital currently consists of 30,000,000 shares of common stock, par value $.001 per share, and 1,000,000 shares of preferred stock, par value $.01 per share. As of the date of this prospectus and consent solicitation, we had 15,015,317 shares of pre-reverse split common stock outstanding and no shares of preferred stock were outstanding. As part of our restructuring, our stockholders will be asked to increase our authorized shares of common stock to 500 million shares. The number of authorized preferred shares will remain at 1,000,000. Further, our stockholders will be asked to approve a one-share-for-ten shares reverse split of our outstanding common stock, reducing the common stock owned by our current holders to 1,501,532 shares. Common stock Each holder of common stock is entitled to one vote for each share held of record on all matters presented to stockholders, including the election of directors. In the event of a liquidation, dissolution or winding up of Aviation Sales, the holders of common stock are entitled to share equally and ratably in the assets of Aviation Sales, if any, remaining after paying all debts and liabilities of Aviation Sales and the liquidation preferences of any outstanding preferred stock. The common stock has no preemptive rights or cumulative voting rights and no redemption, sinking fund or conversion provisions. Holders of common stock are entitled to receive dividends if, as and when, declared by the board of directors out of funds legally available therefore, subject to the dividend and liquidation rights of any preferred stock that may be issued and outstanding and subject to any dividend restrictions in our credit facilities. No dividend or other distribution (including redemptions and repurchases of shares of capital stock) may be made, if after giving effect to such distribution, we would not be able to pay our debts as they become due in the usual course of business, or if our total assets would be less than the sum of our total liabilities plus the amount that would be needed at the time of a liquidation to satisfy the preferential rights of any holders of preferred stock. Preferred stock Our board of directors is authorized, without further stockholder action, to divide any or all shares of the authorized preferred stock into series and fix and determine the designations, preferences and relative rights and qualifications, limitations or restrictions thereon of any series so established, including voting powers, dividend rights, liquidation preferences, redemption rights and conversion privileges. As of the date of this prospectus and consent solicitation, other than the Series A Junior Participating Preferred stock which was authorized in November 1999 in connection with the adoption of our Stockholders' Rights Plan, our board of directors has not authorized any series of preferred stock, and there are no plans, agreements or understandings for the authorization or issuance of any shares of preferred stock. The issuance of preferred stock with voting rights or conversion rights may adversely affect the voting power of common stock, including the loss of voting control to others. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of Aviation Sales. Common stock purchase warrants Each common stock purchase warrant will entitle the holder thereof to purchase one post-reverse split share of common stock at a price equal to $5.16 per post reverse-split share for a period of five years commencing on the date they are issued. The warrants are redeemable by us, at a redemption price of $0.001 per warrant, at any time upon thirty days' prior written notice to the holders thereof, if the average closing price of the common stock, as reported on the principal exchange on which the common stock is traded, equals or exceeds $6.71 per share for twenty consecutive trading days ending three days prior to the date of the notice of redemption. The warrants will not be issued and will not be exercisable until the completion of the exchange offer and consent solicitation, the rights offering, the recapitalization and the reverse split. The warrants to be issued in the exchange offer will not trade separately from the new notes until December 31, 2003. Pursuant to 148 applicable federal and state securities laws, in the event a current prospectus is not available, the common stock purchase warrants may not be exercised by the holders thereof and we will be precluded from redeeming the common stock purchase warrants. There can be no assurances that we will not be prevented by financial or other considerations from maintaining a current prospectus. Any warrant holder who does not exercise prior to the redemption date, as set forth in our notice of redemption, will forfeit the right to purchase the common stock underlying the warrants, and after the redemption date or upon conclusion of the exercise period, any outstanding warrants will become void and be of no further force or effect, unless extended by our board of directors. The number of shares of common stock that may be purchased is subject to adjustment upon the occurrence of certain events including a share dividend distribution to our stockholders, or a subdivision, combination or reclassification of the outstanding shares of our commons stock. We may at any time, and from time to time, extend the exercise period of the warrants, provided that written notice of such extension is given to the warrant holders prior to the expiration of the date then in effect. Also, we may reduce the exercise price of the warrants for limited periods or through the end of the exercise period in accordance with the terms of our warrant agreement with the warrant agent if deemed appropriate by our board of directors. Any extension of the term and/or reduction of the exercise price of the warrants may be subject to compliance with Rule 13e-4 under the Exchange Act including the filing of a Schedule TO. Notice of any extension of the exercise period and/or reduction of the exercise price will be given to the warrant holders. We do not presently contemplate any extension of the exercise period nor do we contemplate any reduction in the exercise price of the warrants. Factors which our board of directors may consider in taking such action include the current market conditions, the price of the common stock and our need for additional capital. Presently outstanding options and warrants As of the date of this prospectus and consent solicitation, there were issued and outstanding (i) warrants to purchase an aggregate 129,000 pre- reverse split shares of our common stock held by the lender under our senior credit facility, (ii) warrants to purchase 1,508,334 pre-reverse split shares of our common stock, and (iii) options to purchase 2,742,500 pre-reverse split shares of our common stock. We are contractually obligated to file a registration statement to register the resale of the shares of common stock underlying our currently outstanding options and warrants and we intend to file a registration statement to register these shares in the near future. Provisions of the certificate and bylaws A number of provisions of our certificate of incorporation and bylaws concern matters of corporate governance and the rights of stockholders. Certain of these provisions, as well as the ability of our board of directors to issue shares of preferred stock and to set the voting rights, preferences and other terms thereof, may be deemed to have an anti-takeover effect and may discourage takeover attempts not first approved by the board of directors (including takeovers which certain stockholders may deem to be in their best interests). To the extent takeover attempts are discouraged, temporary fluctuations in the market price of the common stock, which may result from actual or rumored takeover attempts, may be inhibited. These provisions, together with the classified board of directors and the ability of the board to issue preferred stock without further stockholder action, also could delay or frustrate the removal of incumbent directors or the assumption of control by stockholders, even if such removal or assumption would be beneficial to our stockholders. These provisions also could discourage or make more difficult a merger, tender offer or proxy contests, even if they could be favorable to the interests of stockholders, and could potentially depress the market price of the common stock. The board of directors believes that these provisions are appropriate to protect the interest of us and all of our stockholders. Issuance of Rights. The certificate authorized the board of directors to create and issue rights (the "rights") entitling the holders thereof to purchase from us shares of capital stock or other securities. The times at which, and the terms upon which, the rights are to be issued may be determined by the board of directors and set forth in the contracts or instruments that evidence the rights. The authority of the board of directors 149 with respect to the rights includes, but is not limited to, the determination of (1) the initial purchase price per share of the capital stock or other securities of Aviation Sales to be purchased upon exercise of the rights, (2) provisions relating to the times at which and the circumstances under which the rights may be exercised or sold or otherwise transferred, either together with or separately from, any other securities of Aviation Sales, (3) antidilutive provisions which adjust the number or exercise price of the rights or amount or nature of the securities or other property receivable upon exercise of the rights, (4) provisions which deny the holder of a specified percentage of the outstanding securities of Aviation Sales the right to exercise the rights and/or cause the rights held by such holder to become void, (5) provisions which permit Aviation Sales to redeem the rights and (6) the appointment of a rights agent with respect to the Rights. Meetings of Stockholders. The bylaws provide that a special meeting of stockholders may be called only by the board of directors unless otherwise required by law. The bylaws provide that only those matters set forth in the notice of the special meeting may be considered or acted upon at that special meeting, unless otherwise provided by law. In addition, the bylaws set forth certain advance notice and informational requirements and time limitations on any director nomination or any new business which a stockholder wishes to propose for consideration at an annual meeting of stockholders. No Stockholder Action By Written Consent. The certificate provides that any action required or permitted to be taken by our stockholders at an annual or special meeting of stockholders must be effected at a duly called meeting and may not be taken or effected by a written consent of stockholders in lieu thereof. Amendment of the Certificate. The certificate provides that an amendment thereof must first be approved by a majority of the board of directors and (with certain exceptions) thereafter approved by the holders of a majority of the total votes eligible to be cast by holders of voting stock with respect to such amendment or repeal; provided, however, that the affirmative vote of 80% of the total votes eligible to be cast by holders of voting stock, voting together as a single class, is required to amend provisions relating to the establishment of the board of directors and amendments to the certificate. Amendments of Bylaws. The certificate provides that the board of directors or the stockholders may amend or repeal the bylaws. Such action by the board of directors requires the affirmative vote of a majority of the directors then in office. Such action by the stockholders requires the affirmative vote of the holders of at least two-thirds of the total votes eligible to be cast by holders of voting stock with respect to such amendment or repeal at an annual meeting of stockholders or a special meeting called for such purposes, unless the board of directors recommends that the stockholders approve such amendment or repeal at such meeting, in which case such amendment or repeal shall only require the affirmative vote of a majority of the total votes eligible to be cast by holders of voting stock with respect to such amendment or repeal. OTC Bulletin Board Our common stock was historically traded on the NYSE under the symbol "AVS." Effective December 6, 2001, our common stock became quoted on the OTC Bulletin Board maintained by the NASD under the symbol "AVIO." Transfer agent and warrant agent The transfer agent for the common stock and the warrant agent for our common stock purchase warrants is Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York 10004. 150 MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES The following discussion summarizes the material United States federal income tax consequences to us and to United States holders and Non-U.S. holders of the old notes of the exchange offer and of the acquisition, ownership and disposition of the new notes. A United States holder is (1) an individual citizen or resident of the United States; (2) a corporation created or organized in or under the laws of the United States, a state or the District of Columbia; (3) a trust where one or more United States persons have the authority to control all substantial decisions of the trust and a court within the United States can exercise primary supervision over the administration of the trust; and (4) an estate subject to federal income taxation on its worldwide income. A Non-U.S. holder is an individual, corporation, trust or estate not described in (1), (2), (3) or (4). A partnership, whether organized in or outside the laws of the United States, a state or the District of Columbia, is not subject to federal income taxation and, instead, the United States taxes the income of the partnership to the partners as if the partners realized the income actually realized by the partnership. In addition, beneficiaries of a trust or estate are generally taxed on the income of trusts or estates to the extent that income is currently distributed to the beneficiaries. The discussion below generally applies to such partners or beneficiaries depending on their status as a United States holder or a Non-U.S. holder. This discussion does not purport to describe all of the tax considerations that may be relevant to a holder of old notes. The following summary deals only with old notes that are, and new notes that will be, held as capital assets by United States holders, and does not deal with persons that are subject to special tax rules, such as: . dealers or traders in securities or currencies; . financial institutions or other United States holders that treat income in respect of the old notes or new notes as financial services income; . insurance companies; . tax-exempt entities; . persons holding old notes or new notes as a part of a straddles, conversion transaction or other arrangement involving more than one position; or . persons whose "functional currency" is not the U.S. dollar. The discussion below is based upon the provisions of the United States Internal Revenue Code of 1986, as amended, and regulations, rulings and judicial decisions thereunder as of the date of this prospectus and consent solicitation; any of these authorities may be repealed, revoked or modified, perhaps with retroactive effect, so as to result in United States federal income tax consequences different from those discussed below. Because United States tax consequences may differ from one holder to the next, the discussion set out below does not purport to describe all of the tax considerations that may be relevant to you and your particular situation. Accordingly, you are advised to consult your own tax advisor as to the United States federal, state, local and other tax consequences of the exchange offer and of the acquisition, ownership and disposition of new notes. The statements of United States tax law set out below are based on the laws and interpretations in force as of the date of this prospectus and consent solicitation, and are subject to changes, if any, which could occur after that date. Classification of the new notes as equity Although the new notes will be issued in the form of debt securities, the new notes should be treated as equity securities (capital stock) for federal income tax purposes. This classification is likely under the applicable legal authority primarily because we do not have an unconditional obligation to pay any money to the holders of the new notes and, at our election, we can satisfy all obligations under the new notes through the 151 issuance of our common stock. The PIK notes which are issued in connection with any interest which is paid in kind will likely be treated as equity securities also, for the same reasons as the new notes issued pursuant to the exchange offer. We will classify the new notes as equity securities and this classification will be binding on a holder of the new notes unless the holder discloses on his tax returns that it is treating the new notes inconsistently with the foregoing classification. We anticipate that we will classify the PIK notes as equity securities. The classification of the new notes by us and the holders is not necessarily binding on the IRS. The discussion below assumes that the new notes (and PIK notes) will be treated as equity securities for federal income tax purposes. You are encouraged to consult your own tax advisor as to whether the new notes (and PIK notes) will be classified as equity securities for tax purposes. Tax consequences to us If the exchange offer is consummated, we expect to realize cancellation of indebtedness income for federal income tax purposes. We believe that available federal tax deductions and exclusions should substantially mitigate the amount of any federal tax liability we might otherwise incur as a result of such income. If these deductions and exclusions are not available in the amounts which we expect, however, we may incur substantial federal income tax liabilities. To the extent there are any net operating losses available after offsetting the cancellation of indebtedness income, the utilization of such remaining net operating losses will be limited under Section 382.To the extent that we use net operating loss carryforwards to offset cancellation of indebtedness income, ten percent of the amount of the carryforwards so used are included in the alternative minimum tax base, which is assessed at the rate of twenty percent. The net operating loss carryforwards so used may therefore be subject to a tax of two percent of the total amount. The cancellation of indebtedness income will also give rise to taxable income for state income tax purposes. Such cancellation of indebtedness income may result in substantial state income tax liabilities. Interest payments on the new notes (and PIK notes) will not be deductible by us for federal income tax purposes. The redemption or conversion of the new notes in the future and the exercise of warrants will not result in the company's incurring taxable income for federal income tax purposes. Tax consequences to United States holders Tax consequences of the exchange Qualification for recapitalization treatment. The exchange of new notes for old notes pursuant to the exchange offer should be treated as a non-taxable recapitalization, which is a type of reorganization within the meaning of Section 368(a)(1)(E) of the Internal Revenue Code. An exchange of new notes for old notes will be treated as a recapitalization only if both the old notes are treated as "securities" and the new notes are treated as "stock" or "securities" for purposes of the reorganization provisions of the Internal Revenue Code. The term "securities" is not defined in the Internal Revenue Code or in the regulations promulgated thereunder. If either the old notes or new notes are not treated as stock or securities, then the exchange would be treated as a taxable transaction. We believe that the old notes will be treated as securities and the new notes will be treated as stock or securities and that the exchange will be treated as a recapitalization, but you are encouraged to consult your own tax advisor as to whether an exchange of new notes for old notes will be treated as a recapitalization. The tax consequences of the exchange described below assumes that the exchange will be treated as a recapitalization. Nonrecognition of gain or loss. The exchanging United States holders generally will not be required or permitted to recognize or report any taxable gain or loss on the exchange, but if "boot" is received by a United States holder in a recapitalization such as the exchange, the United States holder will be required to recognize and report taxable gain to the extent of the lower of the gain realized in the exchange, if any, or the boot received in the exchange. 152 For purposes of the exchange, boot includes the receipt of cash or property other than the new notes, the common stock and warrants. The gain realized is the amount by which the fair market value of the new notes, the common stock, boot, and the warrants received in the exchange exceeds the tax basis of the old notes. Amounts received by the exchanging United States holders which could be attributable to accrued interest do not constitute boot. Accrued interest. For purposes of the information reporting and backup withholding rules, we intend to allocate the cash, new notes, common stock and warrants issued in exchange for the old notes entirely to the principal of the old notes for which they are exchanged to the extent that the fair market value of those items does not exceed the principal amount of the old notes. To the extent that the fair market value of those items exceeds the principal amount of the old notes, the excess will be allocated to interest accrued on the old notes, but we do not expect that the value of these items will be such that it will result in the allocation of any amounts to said accrued interest. If this allocation is respected, accrual-basis holders might be able to recognize a loss to the extent of any interest income on the old notes previously accrued by the holder but which is not treated as paid in the exchange. We cannot assure you, however, that the IRS will respect this allocation for federal income tax purposes. If the items received in exchange for the old notes are treated as received in whole or in part in satisfaction of accrued but unpaid interest on the old notes, then the amount so treated would be taxable to the holder as interest income if it has not been previously included in the holder's gross income. Tax basis, holding period and carryover of market discount. The aggregate tax basis of the new notes, common stock and warrants received in the hands of a United States holder will be equal to the adjusted tax basis of the old notes transferred in the exchange, increased by the amount of gain recognized, if any, by the United States holder in the exchange, and decreased by the amount of any cash received by the United States holder in the exchange. This aggregate basis is then allocated among the new notes, common stock and warrants received in proportion to the relative fair market values of each of these items. The holding period of the new notes, common stock and warrants received will include the holding period of the old notes surrendered in the exchange. Any accrued market discount on the old notes at the time of the exchange will carry over to the new notes, common stock and warrants, will be allocated among these items in proportion to the relative fair market values of each of these items and will be subject to recognition as ordinary income upon the disposition of these items unless the holder of the old notes included the accrued market discount in income in accordance with an election to do so under the Internal Revenue Code. An old note generally will be considered to have been acquired with market discount if the issue price of the old note at the time of acquisition exceeded the initial tax basis of the old note in the hands of the United States holder by more than a specified de minimis amount. Market discount accrues in equal amounts during each complete accrual period, unless the United States holder elects to accrue the market discount using a constant- yield method. Tax consequences of the common stock Rules generally relating to distributions with respect to stock. When a corporation makes a distribution with respect to its capital stock, the amount of the distribution received by the stockholder will be treated as a dividend which will be taxable to the stockholder as ordinary income, to the extent it is paid from the current or accumulated earnings and profits of the corporation. The amount of a distribution made in property other than cash is the fair market value of that property at the time of the distribution. United States holders that are corporations are entitled to a dividends-received deduction subject to certain limitations. Earnings and profits for this purpose consists of an amount based on the taxable income of the corporation as adjusted by the application of detailed rules set forth in tax regulations. A distribution will be treated as a dividend even though we have an overall deficit in our earnings and profits to the extent we have positive earnings and profits in the year in which we make the distribution (i.e., current earnings and profits). If the amount of a distribution exceeds the current and accumulated earnings and profits 153 of the corporation, the excess will be treated first as a tax-free return of investment up to the basis of the stock, and this amount will reduce the stockholder's tax basis in the stock. If the distribution exceeds the current and accumulated earnings and profits, and the stockholder's tax basis in the stock, this excess amount will be treated as capital gain to the stockholder. If the stockholder is a U.S. corporation, the stockholder would generally be able to claim a deduction equal to a portion of the amount of the distribution treated as a dividend under the foregoing rules. The foregoing rules will apply to any distributions made with respect to the common stock of the company. These rules will also apply to distributions made or treated as made with respect to the new notes and PIK notes. See "Tax consequences of the new notes"--"Interest payments in cash"--"PIK notes"-- "Redemption premium." Sale of common stock. United States holders will generally recognize capital gain or loss on a sale or exchange of common stock. The gain or loss will equal the difference between the proceeds received and the adjusted tax basis in the stock. The gain or loss recognized by a United States holder on a sale or exchange of stock will be long-term capital gain or loss if the holding period for the stock is more than one year. However, any accrued market discount which carries over to the common stock as a result of the exchange of the old notes will be recognized as ordinary income upon sale. See "Tax consequences of the exchange--Tax basis, holding period and carryover of market discount." Tax consequences of the warrants Sale of warrants. United States holders will generally recognize capital gain or loss on a sale or exchange of warrants. The gain or loss will equal the difference between the proceeds received and the adjusted tax basis in the warrants. The gain or loss recognized by a United States holder on a sale or exchange of warrants will be long-term capital gain or loss if the holding period for the warrants is more than one year. However, any accrued market discount which carries over to the warrants as a result of the exchange of the old notes will be recognized as ordinary income upon sale. See "Tax consequences of the exchange--Tax basis, holding period and carryover of market discount." Exercise of the warrants. United States holders will not recognize any taxable income upon exercise of the warrants. Upon exercise of the warrants, the tax basis of the common stock received upon exercise shall be equal to the sum of the adjusted tax basis of the warrants plus the price paid for purchase of the common stock upon exercise. The holding period of the common stock will not begin until the warrants are exercised. Tax consequences of the new notes Interest payments in cash. Since the new notes will be treated as capital stock for federal income tax purposes, interest on a new note that is paid in cash will be treated as a distribution by us with respect to our capital stock. These payments will be treated as taxable dividends to the extent of our current and accumulated earnings and profits and, to the extent they exceed said earnings and profits, the payments will reduce the tax basis of the new notes and after said basis is reduced to zero, result in capital gain to the holders. The general rules relating to earnings and profits and distributions are described above under "Tax consequences of the common stock--Rules generally relating to distributions with respect to stock." We do not currently expect to pay interest in cash. PIK notes. If the new notes are deemed to be treated as preferred stock for federal income tax purposes at the time PIK notes are issued with respect to the new notes, a United States holder could be treated as receiving a 154 distribution equal to the fair market value of the PIK notes, and such a distribution could be taxed as a dividend under the rules discussed above. Since the PIK notes are likely to be treated as equity securities for federal income tax purposes, then the above rules would also apply to PIK notes as if the PIK notes were new notes. Thus, for example, the issuance of PIK notes to United States holders of PIK notes could be treated as distributions subject to tax as dividends. For purposes of these rules, preferred stock is generally stock that enjoys certain limited rights and privileges as compared to other classes of stock of a corporation, but which does not participate in corporate growth to any significant extent. IRS regulations indicate that whether stock is preferred stock is made without regard to any right to convert such stock into another class of stock of the corporation. Whether the new notes or PIK notes are preferred stock or stock other than preferred stock will be determined for this purpose at the time PIK notes are issued. If the PIK notes are not treated as a taxable distribution under the foregoing rules but instead as a non-taxable distribution of stock (i.e., PIK notes) with respect to stock (i.e., the new notes or PIK notes), a United States holder's tax basis in the new notes or PIK notes with respect to which the distribution is made shall be allocated between that property and the non- taxable distribution (i.e., PIK notes) in proportion to their fair market values on the date of the distribution. Redemption premium. In addition to the foregoing tax consequences, the classification of the new notes or PIK notes as equity might subject the new notes or PIK notes to special tax rules relating to the accrual of redemption premiums relating to preferred stock. If these rules apply, the excess of the total amounts payable with respect to the new notes or PIK notes over the fair market value of the new notes or PIK notes on the date of their issuance could be treated as distributions to the holders over the term of the new notes, with the amount of such distributions attributable to each tax period during the term of the new notes or PIK notes being equal to an amount accrued at a constant rate of interest which causes the present value of the total amounts payable with respect to the new notes on their maturity date to equal the fair market value of the new notes on the date of their issuance (this is referred to as a constant-yield basis). For purposes of calculating these accruals, the applicable interest rate and term of the notes are determined by assuming that the Company will redeem the notes at the time and for the amount which will minimize the overall yield relating to the new notes. If actual events are inconsistent with these assumptions, then, solely for purposes of recalculating accruals going forward, the new notes or PIK notes will be deemed to be retired and exchanged for new notes or PIK notes with a revised set of assumptions that would similarly minimize the yield of the notes thereafter, with subsequent inconsistencies being treated in a similar manner. Other special rules might apply with respect to any amounts payable under the notes which are deemed to be contingent, such as the value of the common stock which would be issued by the Company with respect to the new notes. The amounts of any deemed distributions under the foregoing rules would be subject to the rules described under "Tax consequences of the common stock--Rules generally relating to distributions with respect to stock." These rules could result in recognition of dividend income or capital gains income to the holders. We have the right to redeem the new notes and PIK notes for cash. Applicable regulations indicate that these redemption premium rules apply to the new notes or PIK notes based upon a determination under all of the facts and circumstances at the time either the new notes or PIK notes are issued whether the redemption right is more likely than not to occur. The Company will make this determination at the time the new notes or PIK notes are issued. Our determination whether the new notes or PIK notes are subject to the redemption premium rules will be binding on a holder of the new notes or PIK notes unless the holder discloses on his tax return that it is treating the new notes or PIK notes inconsistently with the foregoing determination. This determination of 155 whether these rules are applicable with respect to the new notes by us and the holders is not necessarily binding on the IRS. The treatment of the issuance of the PIK notes or the amount of any redemption premium as a taxable or non-taxable distribution is not clear. In addition, it is not clear whether or how these rules would apply to a United States holder's increasing interest in our common stock during the holding period of the new notes or PIK notes by reason of the fact the notes are mandatorily exchangeable or convertible into common stock at maturity. You are encouraged to consult your own tax advisor regarding these rules. Changes in conversion ratio. The terms of the new notes allow for changes in the conversion price under certain circumstances and for the retirement of the notes. A change in conversion price that allows a United States holder to receive more shares of common stock on conversion may increase the United States holder's proportionate interests in our earnings and profits or assets. In that case, the United States holder would be treated as having received a distribution in the form of our stock in an amount equal to the value of the increase in the proportionate interest. Such a constructive stock distribution could be taxable to the United States holder, although cash or other property is not actually received. A taxable constructive stock distribution would result, for example, if the conversion price is adjusted to compensate a United States holder for distributions of cash or property to our stockholders. Not all changes in conversion price that allow United States holders to receive more stock on conversion, however, will increase a United States holder's proportionate interest in the company. For instance, a change in conversion price could simply prevent the dilution of a United States holder's interest upon a stock split or other change in capital structure. Changes of this type, if made by a bona fide, reasonable adjustment formula, are not treated as constructive stock distributions. Conversely, if an event occurs that dilutes a United States holder's interests and the conversion price is not adjusted, the resulting increase in the proportionate interests of our stockholders holding common stock could be treated as a stock distribution to them. Any constructive stock distributions resulting from a change to, or failure to change, the conversion price would be treated in the same manner as distributions paid in cash or other property, such as those described in the section entitled "Tax consequences of the common stock--Rules generally relating to distributions with respect to stock." These rules could result in recognition of dividend income or capital gains income to the holders. Sale of the new notes or PIK notes. A United States holder generally will recognize gain or loss on the sale of a new note or PIK note in an amount equal to the difference between the amount realized on the sale and the tax basis of the new note. Any gain or loss will be capital gain or loss and will be long-term capital gain or loss if the holding period of the new note or PIK note is more than one year. However, any accrued market discount which carries over to the new notes as a result of the exchange of the old notes will be recognized as ordinary income upon sale. See "Tax consequences of the exchange--Tax basis, holding period and carryover of market discount." Redemption and conversion of the new notes or PIK notes. The redemption of the new notes and PIK notes in exchange for cash and our common stock should be treated as a recapitalization, which is a type of reorganization within the meaning of Section 368(a)(1)(E) of the Internal Revenue Code. The exchanging United States holders generally will recognize taxable gain on the redemption to the extent of the lower of the gain realized in the exchange, if any, or any "boot" received in the exchange. No loss can be recognized on the exchange. For purposes of the exchange, boot includes the receipt of cash paid in redemption of the new notes. The gain realized is the amount by which the fair market value of the common stock and cash received in the exchange exceeds the tax basis of the new notes. However, any accrued market discount which carries over to the new notes as a result of the exchange of the old notes will be recognized as ordinary income upon redemption for cash and common stock. See "Tax consequences of the exchange--Tax basis, holding period and carryover of market discount." 156 The conversion of the new notes and PIK notes into common stock at the maturity date should also be treated as a recapitalization, and no gain or loss should be recognized by the holders of the new notes upon conversion. See "Tax consequences of the new notes--Interest payments." The tax basis of the common stock received in a redemption or conversion of the new notes and PIK notes will be equal to the adjusted tax basis of the new notes and PIK notes transferred in the exchange, and, in the case of a redemption as opposed to the mandatory conversion at the maturity date, this amount will be increased by gain recognized in the redemption and decreased by cash received in the redemption. The holding period of the common stock received upon a redemption or conversion will include the holding period of the new notes or PIK notes surrendered in the exchange. Any accrued market discount on the new notes at the time of the redemption or conversion should carry over to the common stock and be subject to recognition as ordinary income upon the disposition of the common stock to the extent not previously recognized. The tax consequences of holding or selling common stock received in connection with a conversion or redemption of the new notes and PIK notes will be the same as in the case of the common stock originally received upon exchange of the old notes. See "Tax consequences of the common stock" above. Information reporting and backup withholding. In general, information reporting requirements will apply: . to payments of principal and interest made on a new note; . to payments of the proceeds of a sale or exchange of a new note before maturity, . to payments of dividends on common stock; and . to payments of the proceeds of a sale or exchange of common stock that are made to a non-corporate United States holder. A "backup withholding" tax will apply to such payments if the holder fails to provide a correct taxpayer identification number or otherwise comply with applicable requirements of the backup withholding rules. The backup withholding tax is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a United States holder will be allowed as a credit against the holder's U.S. federal income tax liability and may entitle such holder to a refund of such withheld amounts, provided the required information is furnished to the Internal Revenue Service. The rate of any backup withholding is 30.5% in 2001, but the rate will be reduced gradually in years thereafter until it is reduced to 28% in 2006. Nonparticipation in the exchange offer A United States holder that does not participate in the exchange offer and instead retains its old notes will not recognize any gain or loss as a result of the consummation of the exchange offer. Tax treatment of the exchange offer to non-U.S. holders The following discussion is a summary of the principal United States federal income and estate tax consequences resulting from the exchange of the old notes and ownership of the new notes and common stock by Non-U.S. holders. All of the following may be subject to different rules in the case of Non-U.S. holders that are residents of countries with which the United States has a tax treaty, depending on the provisions of the particular treaty. Gain or loss on exchange, disposition of the new notes, common stock or warrants, or redemption or conversion of the new notes. A Non-U.S. holder generally will not be subject to United States federal income tax on gain or income realized on the exchange of the old notes or on the sale, exchange, redemption or conversion of the new notes 157 or PIK notes, or on the sale or exchange of common stock or warrants, unless gain or income is effectively connected with the conduct of a trade or business in the United States by the Non-U.S. holder, or in the case of an individual Non-U.S. holder such holder is present in the United States for 183 days or more in the year a sale, exchange or redemption. Withholding tax on distributions made with respect to the new notes or the common stock. Payments on the new notes, PIK notes and common stock which are treated as dividends in accordance with the discussion above under Tax consequences to U.S. holders--Tax consequences of the common stock and Tax consequences of the new notes will be subject to gross withholding at the rate of 30%. This rate may be reduced if the Non-U.S. holder is a resident of a country with which the United States has a tax treaty which provides for reduced withholding taxes. Estate taxes. An individual Non-U.S. holder who is not considered to be domiciled in the United States under the rules which apply to estate tax provisions of the Internal Revenue Code generally will be subject to United States estate tax upon his or her death with respect to the value of the new notes because they are treated as equity securities, and also with respect to the common stock. It is not clear whether United States estate tax would apply with respect to the value of the warrants. Information reporting and backup withholding. In general, backup withholding and information reporting will not apply to payments made by us or our paying agents, in their capacities as such, to a non-U.S. holder if the holder has provided the required certification that it is not a United States person as described above, provided that neither we nor our paying agent has actual knowledge that the holder is a United States person. Payments of the proceeds from a disposition by a Non-U.S. holder of a new note or common stock made to or through a foreign office of a broker will generally not be subject to information reporting or backup withholding. However, information reporting will apply to those payments, if the broker is: . a United States person; . a controlled foreign corporation for U.S. federal income tax purposes; . a foreign person 50% or more of whose gross income from all sources is effectively connected with a U.S. trade or business for a specified three-year period; or . a foreign partnership, if at any time during its tax year, one or more of its partners are U.S. persons, as defined in Treasury regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership or if, at any time during its tax year, the foreign partnership is engaged in a U.S. trade or business; unless (1) such broker has documentary evidence in its records that the beneficial owner is not a United States person and certain other conditions are met or (2) the beneficial owner otherwise establishes an exemption. Payments of the proceeds from a disposition by a non-U.S. holder of a new note or common stock made to or through the U.S. office of a broker is subject to information reporting and backup withholding unless the statement that the payee is not a United States person described above has been received (and the payor does not have actual knowledge that the beneficial owner is a United States person) or the holder or beneficial owner otherwise establishes an exemption from information reporting and backup withholding. 158 BOOK-ENTRY SYSTEM--THE DEPOSITORY TRUST COMPANY The new notes will be evidenced by a global security initially deposited with DTC and registered in the name of Cede & Co., as DTC's nominee. Except as set forth below, the global security may be transferred only to another nominee of DTC or to a successor of DTC or its nominee. Holders of the new notes may hold their interests in the global security directly through DTC or indirectly through organizations which are participants in DTC, called "participants." Transfers between participants will be affected in accordance with DTC rules and will be settled in clearinghouse funds. The laws of some states require that some persons take physical delivery of securities in definitive form. As a result, holders may be unable to transfer beneficial interests in the global security to those persons. Holders that are not participants in the DTC system may beneficially own interests in the global security held by DTC only through participants or indirect participants, including banks, brokers, dealers, trust companies and other parties that clear through or maintain a custodial relationship with a participant. So long as Cede & Co., as the nominee of DTC, is the registered owner of the global security, Cede & Co. will be considered the sole holder of the global security for all purposes. Except as provided below, owners of beneficial interests in the global security will not: . be entitled to have certificates registered in their names; . be entitled to receive physical delivery of certificates in definitive form; and . be considered registered holders of the new notes. We will make payments of interest on and principal of and the redemption or repurchase price of the global security to Cede & Co., the nominee for DTC, as the registered holder of the global security. We will make these payments by wire transfer of immediately available funds. Neither we, the trustee nor any paying agent will have any responsibility or liability for: . records or payments on beneficial ownership interests in the global security; or . maintaining, supervising or reviewing any records relating to those beneficial ownership interests. We have been informed that DTC's practice is to credit participants' accounts on the payment date. These payments will be made in amounts proportionate to participants' beneficial interests in the new notes. Payments by participants to owners of beneficial interests in the new notes represented by the global security held through participants will be the responsibility of those participants. We will send any redemption notices with respect to the new notes to Cede & Co. We understand that if less than all of the new notes are being redeemed, DTC's practice is to determine by lot the amount of the holdings of each participant to be redeemed. We also understand that neither DTC nor Cede & Co. will consent or vote with respect to the new notes. We have been advised that under its usual procedures, DTC will mail an "omnibus proxy" to us as soon as possible after the record date. The omnibus proxy assigns Cede & Co.'s consenting or voting rights to those participants to whose accounts the exchange notes are credited on the record date identified in a listing attached to the omnibus proxy. A person having a beneficial interest in new notes represented by the global security may be unable to pledge that interest to persons or entities that do not participate in the DTC system, or to take other actions in respect of that interest, because that interest is not represented by a physical certificate. DTC has advised us that it is: . a limited purpose trust company organized under the laws of the State of New York; . a member of the Federal Reserve System; 159 . a "clearing corporation" within the meaning of the Uniform Commercial Code; and . a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes to accounts of its participants. Some of the participants, together with other entities, own DTC. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through, or maintain a custodial relationship with a participant, either directly or indirectly. DTC is under no obligation to perform or continue to perform the above procedures. DTC may discontinue these at any time. If DTC is at any time unwilling or unable to continue as depository and a successor depository is not appointed by us within 90 days, we will cause new 8% senior subordinated convertible PIK notes to be issued in definitive form in exchange for the global security. LEGAL MATTERS The validity of the shares of our common stock, new notes, common stock purchase warrants and subsidiary guarantees offered by this prospectus and consent solicitation has been passed upon for us by Akerman, Senterfitt & Eidson, P.A. The federal income tax consequences of the exchange offer have also been passed upon for us by Akerman, Senterfitt & Eidson, P.A. EXPERTS The consolidated balance sheets of Aviation Sales Company as of December 31, 1999 and 2000 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000, have been audited by Arthur Andersen LLP, independent certified public accountants, as indicated in their report with respect thereto and are included herein in reliance upon the authority of said firm as experts in accounting and auditing. Reference is made to said report which contains an explanatory fourth paragraph with respect to our ability to continue as a going concern. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports and other information with the Securities and Exchange Commission. You may read and copy any reports, statements or other information that we file with the SEC at the SEC's public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may also read and copy these reports, statements or other information at the SEC's regional office located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such information can also be obtained by mail from the public reference room of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information about the public reference rooms. Our filings with the SEC are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at "http://www.sec.gov." We filed a registration statement on Form S-4 to register with the SEC the new notes, subsidiary guarantees, the common stock and the common stock purchase warrants to be issued in the exchange offer and consent solicitation. This prospectus and consent solicitation is a part of that registration statement. As allowed by SEC rules, this prospectus and consent solicitation does not contain all of the information you can find in the registration statement or the exhibits to the registration statement. 160 We have not authorized anyone to give any information or make any representation about the exchange offer and consent solicitation that is different from, or in addition to, that contained in this prospectus and consent solicitation. Therefore, if anyone gives you information of this sort, you should not rely on it. The information contained in this document speaks only as of the date of this document unless the information specifically indicates that another date applies. 161 CONSOLIDATED FINANCIAL STATEMENTS OF AVIATION SALES COMPANY AVIATION SALES COMPANY AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
Page ---- Years Ended December 31, 1998, 1999 and 2000: Report of Independent Certified Public Accountants....................... F-2 Consolidated Balance Sheets at December 31, 1999 and 2000................ F-3 Consolidated Statements of Operations for the three years ended December 31, 2000................................................................ F-4 Consolidated Statements of Stockholders' Equity for the three years ended December 31, 2000....................................................... F-5 Consolidated Statements of Cash Flows for the three years ended December 31, 2000 ............................................................... F-6 Notes to Consolidated Financial Statements............................... F-8 Financial Statement Schedule: Schedule II--Valuation and Qualifying Accounts for the three years ended December 31, 2000....................................................... F-34 Nine Months Ended September 30, 2001 and 2000 (unaudited): Condensed Consolidated Balance Sheets at September 30, 2001 and December 31, 2000................................................................ F-35 Condensed Consolidated Statements of Operations for the nine months ended September 30, 2000 and 2001................................................................ F-36 Condensed Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2001 ........................................ F-37 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 2001 ............................................................... F-38 Notes to Condensed Consolidated Financial Statements..................... F-39 Unaudited Pro Forma Condensed Consolidated Financial Statements: Introduction to Unaudited Pro Forma Condensed Consolidated Financial Statements.............................................................. P-1 Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2000................................................. P-2 Pro Forma Condensed Consolidated Statement of Operations for the nine months ended September 30, 2001......................................... P-3 Pro Forma Condensed Consolidated Balance Sheet at September 30, 2001..... P-4 Notes to Pro Forma Condensed Consolidated Financial Statements........... P-5
F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To Aviation Sales Company: We have audited the accompanying consolidated balance sheets of Aviation Sales Company (a Delaware corporation) and subsidiaries as of December 31, 1999 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States. 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, 1999 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company incurred net losses for the years ended December 31, 1999 and 2000 and required cash to fund its operating activities for each of the three years in the period ended December 31, 2000. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans are also discussed in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Miami, Florida, March 30, 2001, (except for the matters discussed in the fourth paragraph in Note 1 and Note 7 as to which the date is April 17, 2001 and for the matter discussed in Note 11, as to which the date is April 19, 2001). F-2 AVIATION SALES COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, ------------------ 1999 2000 -------- --------- (In thousands, except share data) ASSETS CURRENT ASSETS: Cash and cash equivalents.................................. $ 21,431 $ -- Accounts receivable, net of allowances of $9,593 and $7,454 in 1999 and 2000, respectively............................ 91,926 67,558 Inventories, net of reserves of $16,348 and $8,614 in 1999 and 2000, respectively ................................... 90,145 53,115 Deferred income taxes...................................... 2,292 -- Other current assets....................................... 37,032 10,784 -------- --------- Total current assets....................................... 242,826 131,457 -------- --------- EQUIPMENT ON LEASE, net of accumulated amortization........ 17,393 5,749 FIXED ASSETS, net.......................................... 64,309 65,770 AMOUNTS DUE FROM RELATED PARTIES........................... 2,099 1,792 OTHER ASSETS: Goodwill, net.............................................. 51,241 41,390 Deferred financing costs, net.............................. 7,953 5,928 Notes receivable from KAV Inventory, LLC................... -- 29,400 Net assets of discontinued operations...................... 314,397 3,479 Other...................................................... 10,657 15,646 -------- --------- Total other assets......................................... 384,248 95,843 -------- --------- Total assets............................................... $710,875 $ 300,611 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable........................................... $ 13,948 $ 30,214 Accrued expenses........................................... 27,587 27,725 Current maturities of notes payable........................ 3,887 29 Current maturities of capital lease obligations............ 84 178 Revolving loan............................................. 269,580 35,959 Customer deposits.......................................... 586 7,559 Other...................................................... -- 5,120 -------- --------- Total current liabilities.................................. 315,672 106,784 -------- --------- LONG-TERM LIABILITIES: Senior subordinated notes.................................. 164,254 164,345 Notes payable, net of current portion...................... 1,066 16,498 Capital lease obligations, net of current portion.......... 4,093 3,852 Deferred income............................................ 1,113 36 Other long-term liabilities................................ 6,155 2,204 -------- --------- Total long-term liabilities................................ 176,681 186,935 -------- --------- Commitments and Contingencies.............................. STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 1,000,000 shares authorized, none outstanding, 15,000 shares designated Series A Junior participating............................. -- -- Common stock, $.001 par value, 30,000,000 shares authorized, 15,015,317 issued and outstanding at December 31, 1999 and 2000, respectively........................... 15 15 Additional paid-in capital................................. 150,288 150,288 Retained earnings (accumulated deficit).................... 68,219 (143,411) -------- --------- Total stockholders' equity................................. 218,522 6,892 -------- --------- Total liabilities and stockholders' equity................. $710,875 $ 300,611 ======== =========
The accompanying notes are an integral part of these consolidated balance sheets. F-3 AVIATION SALES COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, ---------------------------------- 1998 1999 2000 ---------- ---------- ---------- (In thousands, except share data) Operating Revenues: Sales, net............................... $ 177,279 $ 359,956 $ 333,289 Other.................................... 7,169 11,797 4,788 ---------- ---------- ---------- Total operating revenues............... 184,448 371,753 338,077 Cost of sales.............................. 141,569 307,944 353,331 ---------- ---------- ---------- Gross profit (loss)...................... 42,879 63,809 (15,254) Operating expenses......................... 17,721 41,774 74,580 ---------- ---------- ---------- Income (loss) from operations............ 25,158 22,035 (89,834) Interest expense........................... 13,895 18,649 20,347 Other (income) expense..................... (196) (1,327) 925 ---------- ---------- ---------- Income (loss) before income taxes, equity income of affiliates and discontinued operations.............................. 11,459 4,713 (111,106) Income tax expense......................... 4,281 3,004 4,810 ---------- ---------- ---------- Income (loss) before equity income of affiliates and discontinued operations.. 7,178 1,709 (115,916) Equity income of affiliates, net of income tax....................................... 1,356 1,289 43 ---------- ---------- ---------- Income (loss) from continuing operations.............................. 8,534 2,998 (115,873) Discontinued Operations: Operations, net of income taxes.......... 16,959 (24,721) (23,432) Loss on disposal, net of income taxes.... -- -- (72,325) ---------- ---------- ---------- Net income (loss)...................... $ 25,493 $ (21,723) $ (211,630) ========== ========== ========== Basic Earnings (Loss) Per Share: Income (loss) from continuing operations.............................. $ 0.70 $ 0.22 $ (7.72) Income (loss) from discontinued operations.............................. 1.38 (1.78) (6.37) ---------- ---------- ---------- Net income (loss)...................... $ 2.08 $ (1.56) $ (14.09) ========== ========== ========== Diluted Earnings (Loss) Per Share: Income (loss) from continuing operations.............................. $ 0.68 $ 0.21 $ (7.72) Income (loss) from discontinued operations.............................. 1.34 (1.77) (6.37) ---------- ---------- ---------- Net income (loss)...................... $ 2.02 $ (1.56) $ (14.09) ========== ========== ========== Weighted average shares outstanding: Basic.................................... 12,277,020 13,906,000 15,015,317 ========== ========== ========== Diluted.................................. 12,626,394 14,168,442 15,015,317 ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-4 AVIATION SALES COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Retained Common Stock Additional Earnings Treasury Stock Total ------------------ Paid-in (Accumulated -------------------- Stockholders' Shares Amount Capital Deficit) Shares Amount Equity ---------- ------ ---------- ------------ ---------- -------- ------------- (In thousands, except share data) Balance as of December 31, 1997............... 13,362,568 $13 $ 72,962 $ 64,449 (1,111,562) $(16,145) $ 121,279 Net income............. -- -- -- 25,493 -- -- 25,493 Stock issued in acquisition........... 182,143 -- 5,720 -- -- -- 5,720 Rescinded stock grants................ (18,000) -- -- -- -- -- -- Stock options exercised............. 100,660 -- 1,806 -- -- -- 1,806 Retirement of treasury stock................. (1,111,562) (1) (16,144) -- 1,111,562 16,145 -- ---------- --- -------- --------- ---------- -------- --------- Balance as of December 31, 1998............... 12,515,809 12 64,344 89,942 -- -- 154,298 Net loss............... -- -- -- (21,723) -- -- (21,723) Secondary stock offering.............. 2,300,000 3 79,859 -- -- -- 79,862 Stock options exercised............. 199,508 -- 6,085 -- -- -- 6,085 ---------- --- -------- --------- ---------- -------- --------- Balance as of December 31, 1999............... 15,015,317 15 150,288 68,219 -- -- 218,522 Net loss............... -- -- -- (211,630) -- -- (211,630) ---------- --- -------- --------- ---------- -------- --------- Balance as of December 31, 2000............... 15,015,317 $15 $150,288 $(143,411) -- $ -- $ 6,892 ========== === ======== ========= ========== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. F-5 AVIATION SALES COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, ------------------------------ 1998 1999 2000 --------- -------- --------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)............................. $ 25,493 $(21,723) $(211,630) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Loss on disposal of discontinued operations.. -- -- 72,325 Depreciation and amortization................ 5,687 10,132 21,941 Write-off of fixed assets.................... -- 297 -- Proceeds from sale of equipment on lease, net of gain..................................... 1,290 2,960 3,188 Gain on sale of fixed assets................. (72) (1,432) -- Equity (income) loss of affiliate, net of income taxes................................ (1,356) (1,289) (43) Provision for inventory obsolescence......... -- 12,814 3,525 Provision for doubtful accounts.............. 670 4,995 20,343 Write down of shareholder note............... -- -- 200 Loss on sale of joint venture................ -- -- 859 Deferred income taxes........................ (1,107) 3,174 1,492 (Increase) decrease in accounts receivable... 1,849 (46,894) 4,025 (Increase) decrease in inventories........... (37,304) (37,962) 35,472 (Increase) decrease in other current assets.. 180 (29,470) 26,248 (Increase) decrease in other non-current assets...................................... (2,870) 289 (4,078) Increase (decrease) in accounts payable...... 894 (3,369) 16,266 Increase (decrease) in accrued expenses...... (2,569) 7,289 11,696 Increase (decrease) in deferred income....... 409 (257) (1,077) Increase (decrease) in other liabilities..... (72) 1,405 (3,457) --------- -------- --------- Net cash used in continuing operating activities.................................. (8,878) (99,041) (2,705) --------- -------- --------- Net cash provided by (used in) discontinued operations.................................. (73,312) (15,598) 50,678 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash used in acquisitions, net of cash acquired.................................... (75,703) (18,080) -- Purchases of fixed assets.................... (5,381) (17,635) (9,802) Purchases of equipment on lease.............. (23,411) (9,087) -- Proceeds from sale of fixed assets........... 751 -- -- Purchase of facility......................... -- (3,500) -- Proceeds from sale of land held for investment.................................. -- 11,556 -- Purchase of land held for investment......... -- (10,124) -- Payments from related parties................ 687 105 106 Investment in joint venture.................. -- (2,500) (3,734) Proceeds from sale of joint venture.......... -- -- 1,455 Net proceeds from the sale of discontinued operations.................................. -- -- 175,315 --------- -------- --------- Net cash provided by (used in) investing activities.................................. (103,057) (49,265) 163,340 --------- -------- ---------
The accompanying notes are an integral part of these consolidated financial statements. F-6 AVIATION SALES COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
For the Years Ended December 31, ------------------------------ 1998 1999 2000 -------- --------- --------- (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings of amounts under senior debt facility..................................... 77,880 567,815 460,593 Proceeds from sale of common stock............ -- 79,862 -- Proceeds from issuance of senior subordinated notes........................................ 164,002 -- -- Repayment of amounts under senior debt facility..................................... (56,190) (472,242) (694,214) Proceeds of term loan......................... -- -- 15,500 Proceeds from equipment loans................. 10,488 -- -- Payments on equipment loans................... (921) (627) (201) Payments on capital leases.................... (41) (184) (147) Stock options exercised....................... 1,806 5,220 -- Payment of deferred financing costs........... (7,478) (1,573) (10,525) Payments on notes payable..................... -- (3,472) (3,750) -------- --------- --------- Net cash provided by (used in) financing activities................................... 189,546 174,799 (232,744) -------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................... 4,299 10,895 (21,431) -------- --------- --------- CASH AND CASH EQUIVALENTS, beginning of period........................................ 6,237 10,536 21,431 -------- --------- --------- CASH AND CASH EQUIVALENTS, end of period....... $ 10,536 $ 21,431 $ -- ======== ========= ========= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Notes received from sale of inventory to joint venture...................................... $ -- $ -- $ 29,401 ======== ========= ========= Value of warrants issued in connection with origination of $15,500 term loan recorded as deferred financing costs..................... $ -- $ -- $ 1,079 ======== ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid................................. $ 15,684 $ 32,817 $ 39,705 ======== ========= ========= Income taxes paid............................. $ 18,669 $ 18,673 $ 1,028 ======== ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-7 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" or the "Company") is a Delaware corporation which through its subsidiaries provides aircraft maintenance, repair and overhaul services to commercial passenger airlines, air cargo carriers, aircraft leasing companies, maintenance and repair facilities and aircraft parts redistributors throughout the world. During 2000, the Company sold substantially all of the assets of its parts redistribution operation, its new parts distribution operation and its manufacturing operations. See Note 4 for further discussion. The results of operations for these businesses are included in the accompanying consolidated statements of operations as discontinued operations. 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 its other subsidiaries and Whitehall retroactively consolidated are referred to herein as the operations of the Company. SECONDARY OFFERING On June 16, 1999, ASC closed a public offering of 2,000 shares of common stock and on June 24, 1999, the underwriters of the public offering exercised their option to purchase an additional 300 shares of common stock. The net proceeds of the offering, $79,862, were used to repay senior indebtedness. LIQUIDITY The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Notes 7 and 11, the Company was not in compliance at December 31, 1999 and March 31, 2000 with certain of the financial covenants contained in the Company's credit agreement with its senior lenders and certain of the lease agreements to which the Company is a party. On May 31, 2000, the Company amended and restated its senior credit facility and amended certain of its lease agreements. These agreements were further amended on June 25, 2000, September 30, 2000, November 28, 2000, February 14, 2001 and April 17, 2001. As discussed in Note 4, during 2000, the Company sold substantially all of the assets of its parts redistribution operation, new parts distribution operation and manufacturing operations. The proceeds from these sales were used to repay senior indebtedness. In addition, in February 2000, the Company borrowed $15,500 under a supplemental term loan with the financial institution that is the agent for the revolving credit facility. In February 2001, the Company borrowed $10,000 under a term loan from a second financial institution. The proceeds from these loans were used to repay senior indebtedness and for working capital purposes. The revolving credit facility and the $15,500 term loan mature in July 2002 and the $10,000 term loan matures in August 2002. As a result of the above transactions, the outstanding balance on the revolving credit facility was reduced from $269,580 as of December 31, 1999 to $35,959 as of December 31, 2000. As of March 31, 2001, the Company has $2,200 of availability for borrowing under its revolving credit facility. The Company has also recently closed (on a temporary basis) one of its maintenance, repair and overhaul ("MR&O") facilities, consolidated the operations of one of its component overhaul businesses from two facilities to one, and reduced its headcount at certain of its other MR&O facilities in order to lower its F-8 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) operating expenses. The Company is also actively considering selling one or more additional operations, or the sale of additional securities, in order to repay additional debt and to fund the working capital requirements of its operations. While the Company expects to be able to meet its working capital requirements from its available resources, there can be no assurance that the Company will have sufficient working capital to meet its obligations. The Company incurred net losses for the years ended December 31, 1999 and 2000 and required cash to fund its operating activities for the years ended December 31, 1998, 1999 and 2000. As a result of these matters the Company's auditors have issued their opinion with a going concern qualification. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Principal estimates made by the Company include the estimated losses on disposal of discontinued operations, the allowance to reduce inventory to the lower of cost or net realizable value, the estimated profit recognized as aircraft maintenance, design and construction services are performed, the allowance for doubtful accounts and notes receivable, medical benefit accruals, the estimated fair value of the facilities under operating lease discussed in Note 11, and the allowances for litigation and environmental costs. A principal assumption made by the Company is that inventory will be utilized and realized in the normal course of business and may be held for a number of years. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries (collectively the "Company"). Investments in joint ventures are accounted for under the equity method of accounting. All significant intercompany transactions and balances have been eliminated. RECLASSIFICATIONS Assets, liabilities, revenues and expenses of discontinued operations have been separately reclassified in the 1999 and 1998 consolidated financial statements. Certain other prior year amounts included in the accompanying consolidated financial statements have been reclassified to conform with the 2000 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, 1999 include cash held by the Company in demand deposit accounts. REVENUE RECOGNITION Revenues from aircraft maintenance service are generally recognized when services are performed and unbilled receivables are recorded based upon the percentage of completion method. Unbilled receivables are billed on the basis of contract terms (which are generally on completion of an aircraft) and deliveries. 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 other revenue in the accompanying consolidated statements of operations. F-9 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 sales at the time the unit is shipped. With respect to discontinued business, repairs and sales of aircraft parts are recognized as revenue when a unit is shipped and title has passed to the customer or when a repaired unit is returned to the customer. Transfers of inventory to customers which include a related acquisition of inventory from the same third party for a similar amount are not recognized as revenue at the time of transfer. Certain of the Company's discontinued operations also warehoused and sold inventories on behalf of others under consignment arrangements. Sales of aircraft parts from consignment inventories were recorded as revenue upon shipment of the unit. Pursuant to the terms of these consignment arrangements, the Company acquired title to the consigned inventory immediately prior to sale. As such, these sales had historically been reflected on a gross basis in the accompanying consolidated statements of operations prior to the sale of the related business as discussed in Note 4 and the resulting presentation as discontinued operations. The Company also performs inventory repair management and warehouse management services for customers on a contractual basis. INVENTORIES Inventories, which consist primarily of new, overhauled, serviceable and repairable 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. Cost of inventory includes raw materials, labor and overhead. The Company maintains raw materials, work in progress and finished goods inventories in support of its operations. At December 31, 1999 and 2000, inventories consisted of the following:
1999 2000 ------- ------- Finished goods............................................... $35,862 $34,112 A-300 aircraft............................................... 45,709 3,150 Work in progress............................................. 3,848 15,415 Raw materials................................................ 4,726 438 ------- ------- $90,145 $53,115 ======= =======
The Company provides an allowance to reduce the inventory carrying value to the lower of cost or net realizable value. In determining net realizable value, the Company assumes the inventory will be utilized in the normal course of business and not on a liquidation basis. Such inventory may be held for a number of years. EQUIPMENT ON LEASE The Company leases engines and spare parts inventories to customers in 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 and is included in other operating revenue in the accompanying consolidated statement of operations. The cost of equipment on lease is amortized, principally on a straight-line basis, to the estimated remaining net realizable value over the shorter of the lease term or the economic life of the equipment. F-10 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) FIXED ASSETS, NET Fixed assets are stated at cost, and at December 31, 1999 and 2000, consisted of the following:
Depreciable Life 1999 2000 ------------------- -------- -------- Land.................................. $ 71 $ 114 Buildings............................. 29 years 5,553 5,709 Machinery and equipment............... 3 to 7 years 39,981 36,967 Furniture and fixtures................ 3 to 5 years 3,179 11,715 Leasehold improvements................ Shorter of lease term or useful life 35,918 40,473 -------- -------- 84,702 94,978 Accumulated depreciation and amortization......................... (20,393) (29,208) -------- -------- $ 64,309 $ 65,770 ======== ========
For financial reporting purposes, the Company provides for depreciation and amortization 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. 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 and amortization expense amounted to $2,707, $5,061 and $8,815, for the years ended December 31, 1998, 1999 and 2000, respectively. 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. The adoption of SOP 98-1 did not have a material effect on the Company's financial position or results of operations. Impairment of long-lived assets is recognized when events or changes in circumstances indicate that the carrying amount of the asset, or related groups of assets, may not be recoverable and the Company's estimate of undiscounted cash flows over the assets' remaining estimated useful life are less than the assets' carrying value. Measurement of the amount of impairment may be based upon appraisals, market values of similar assets or estimated discounted future cash flows resulting from the use and ultimate disposition of the asset. INVESTMENTS 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. During February 2000, management elected to convert the then outstanding note and accrued interest balance into a capital contribution. During May 2000, the Company liquidated its investment in the joint venture. In connection with the disposition of the joint venture, the Company recorded a charge of $859, which is included in other (income) expense in the accompanying consolidated statement of operations. F-11 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In August 1999, the Company obtained a 50% interest in a limited liability corporation that designs, manufactures and installs an FAA approved conversion kit that converts certain Boeing 727 aircraft from passenger configuration to cargo configuration. The initial investment was $2,500. During 2000, the Company invested an additional $3,734 in the form of cash, advances and services. The Company accounts for this investment under the equity method. The total carrying value of the equity investments, including Whitehall notes receivable and accrued interest, at December 31, 1999 and 2000 was $7,647 and $6,234, respectively, and is included in other assets in the accompanying consolidated balance sheets. Summarized balance sheet information for the equity investments as of December 31, 1999 and 2000 is as follows:
1999 2000 ------- ------- Current assets.............................................. $14,741 $ -- Noncurrent assets........................................... 3,150 13,234 Current liabilities......................................... 3,622 1,234 Noncurrent liabilities...................................... 2,000 --
Summarized results of operations for the equity investments for the years ended December 31, 1998, 1999 and 2000 are as follows:
1998 1999 2000 ------- ------- ---- Net sales............................................... $45,483 $38,338 $725 Gross profit............................................ 7,754 7,341 -- Net income.............................................. 5,557 5,298 --
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 terms of the loans to which such costs relate. Amortization of deferred financing costs included in continuing operations for the years ended December 31, 1998, 1999 and 2000 was $460, $510 and $2,622, respectively, and is included in interest expense in the accompanying consolidated statements of operations. Amortization of deferred financing costs included in discontinued operations for the years ended December 31, 1998, 1999 and 2000 was $489, $1,214 and $11,039, respectively. During 2000, the Company completed the sales of certain of its operations and assets and the liquidation of a joint venture, and used the proceeds to repay senior indebtedness outstanding under the credit facility. See Notes 4 and 7. As a result of these dispositions, the Company's commitment under its credit facility was reduced and the Company wrote off the deferred financing costs of $5,407 that related to that reduction in the quarter ended December 31, 2000, of which $1,074 is included in amortization of deferred financing costs in continuing operations and $4,333 is included in amortization of deferred financing costs in discontinued operations. See Note 7. The cost and accumulated amortization of deferred financing costs as of December 31, 1999 and 2000 is as follows:
1999 2000 ------- ------- Original basis............................................. $10,951 $22,587 Accumulated amortization................................... (2,998) (16,659) ------- ------- $ 7,953 $ 5,928 ======= =======
The excess of the purchase price over the fair values of the net assets acquired from acquisitions of businesses has been recorded as goodwill and is being amortized on a straight-line basis over 20 years. F-12 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Effective January 1, 1999, the Company revised the estimated fair market values allocated to goodwill and inventories relating to an acquisition accounted for under the purchase method. This revision resulted in a reduction in goodwill and increase in inventories of $1,410. Amortization expense for the years ended December 31, 1998, 1999 and 2000 was $784, $2,360 and $9,852, respectively. Goodwill and accumulated amortization at December 31, 1999 and 2000 are as follows:
1999 2000 ------- ------- Original basis............................................. $54,216 $46,855 Accumulated amortization................................... (2,975) (5,465) ------- ------- $51,241 $41,390 ======= =======
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 whether there is an impairment. Measurement of the amount of impairment may be based upon appraisals, market values of similar assets or estimated discounted cash flow resulting from the use and ultimate disposition of the asset. In April 2000, a customer which represented a significant portion of the operations at one of the Company's heavy airframe maintenance facilities filed for protection under the U.S. bankruptcy code. As a result of this event, the Company has temporarily closed this facility and has determined that the goodwill relating to this facility and certain capitalized contract costs associated with the customer are impaired. Accordingly, during the quarter ended December 31, 2000, the Company recorded a charge of $7,808 to write off the carrying value of the goodwill and contract costs, which is included in operating expenses in the accompanying consolidated statement of operations for the year ended December 31, 2000. The Company has determined that no other impairments have occurred. RECENTLY ISSUED ACCOUNTING STANDARDS Notes receivable is comprised of notes due from KAV Inventory, LLC ("KAV"), a 50% owned limited liability company which acquired all of the aircraft and engine spare parts inventory and the engine inventory of the Company's redistribution operation as discussed in Note 4. These notes bear interest at 14% and are subordinated in all respects to certain institutional financing of KAV. Management does not expect to receive any payments under the notes during 2001. Because of the contingencies discussed in Note 4, recognition of interest income under the notes will be deferred and recognized as collected following collection of all outstanding principal amounts. 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 as incurred. Remediation costs that relate to existing conditions caused by past operations are accrued when it is probable that these costs will be incurred and can be reasonably estimated. Environmental costs are included in operating expenses in the accompanying consolidated statements of operations. F-13 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). 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 the revolving loan approximates the carrying amount of the revolving loan in the accompanying consolidated balance sheets because management believes the interest rate to be the fair market interest rate. The fair value of the senior subordinated notes is $66,000 based on the market value of the notes as of December 31, 2000. Management believes the fair value of notes receivable approximates the carrying amount of the notes because the interest rates on the notes represent fair market interest rates. START UP ACTIVITIES In April 1998, the ACSEC issued Statement of Position ("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. The adoption of SOP 98-5 did not have a material effect on the Company's financial position or results of operations. The Company expenses start-up costs as incurred. COMPREHENSIVE INCOME For all periods presented, comprehensive income is equal to historical net income or loss. SEGMENT REPORTING 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. F-14 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) SFAS No. 131, which supersedes SFAS No. 14 "Financial Reporting for Segments of a Business Enterprise", retains the requirement to report information about major customers and 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. The Company operates its businesses as a single segment: airline services. RECENTLY ISSUED ACCOUNTING STANDARDS In January 2000, Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 101 regarding revenue recognition was issued. SAB No. 101 clarifies issues relating to revenue recognition in financial statements including income statement presentation and disclosure. SAB No. 101 became effective in 2000 and did not have a material effect on the Company's financial position or the results of operations. In May 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus on Issue No. 00-14, "Accounting for Certain Sales Incentives", ("EITF Issue No. 00-14") which addresses the recognition, measurement and income statement classification for sales incentives offered by vendors to customers. EITF Issue No. 00-14 became effective for the Company during the quarter ended September 30, 2000. Sales incentives within the scope of this issue include offers that can be used by a customer to receive a reduction in the price of a product or service at the point of sale. The consensus states that the cost of the sales incentive should be recognized at the latter of the date at which the related revenue is recorded or the date at which the sales incentive is offered. The consensus also states that when recognized, the reduction in or refund of the selling price should be classified as a reduction of revenue, and that if the sales incentive is a free product or service delivered at the time of sale, the cost should be classified as an expense. The adoption of EITF Issue No. 00-14 did not have a material effect on the Company's financial position or results of operations. In March 2000, the FASB issued FASB Interpretation ("FIN") 44, "Accounting for Certain Transactions involving Stock Compensation," which clarifies the application of APB Opinion No. 25 for certain issues. The interpretation was effective July 1, 2000, except for the provisions that relate to modifications that directly or indirectly reduce the exercise price of an award and the definition of an employee, which were effective after December 15, 1998. The adoption of FIN 44 did not have a material effect on the Company's financial position or results of operations. In July 2000, the Emerging Issues Task Force ("EITF") issued 00-10, "Accounting for Shipping and Handling Fees and Costs." EITF 00-10 became effective in the fourth quarter of 2000. EITF 00-10 prohibits the netting of shipping and handling costs against shipping and handling revenues. EITF 00-10 permits companies to adopt a policy of including shipping and handling costs in cost of sales or other income statement line items. The adoption of EITF 00-10 did not have a material effect on the Company's financial position or results of operations. NOTE 2--BUSINESS COMBINATIONS ACQUISITIONS ACCOUNTED FOR UNDER THE PURCHASE METHOD OF ACCOUNTING In 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 F-15 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) $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. See Note 8. In September 1998, the Company completed the acquisition of Triad International Maintenance Corporation ("TIMCO") for $63,300 in cash. 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. In August 1999, the Company completed the acquisition of the assets of Kitty Hawk, Inc.'s airframe and JT8D engine maintenance operations ("TIMCO Oscoda") located in Oscoda, Michigan and entered into agreements to provide heavy airframe and engine maintenance services to Kitty Hawk for a three-year period. Under the terms of the acquisition agreement, the Company paid $18,080 in cash and was to deliver $3,500 in purchase credits to Kitty Hawk during future periods. The pre-acquisition operations of Kitty Hawk, Inc.'s airframe and JT8D engine maintenance operations were not material to the operations of the Company for 1998 or 1999. During 2000, Kitty Hawk filed bankruptcy and recently the Company closed its airframe maintenance facility in Oscoda, Michigan on a temporary basis. See Note 1. The Company's acquisitions of Caribe, AIDI, TIMCO and TIMCO Oscoda have been accounted for under the purchase method of accounting and accordingly, the purchase price has been allocated to the assets purchased and liabilities assumed based upon the fair values at the date of acquisition, and their results of operations have been included in the accompanying consolidated financial statements from the date of acquisition. Unaudited pro forma consolidated results of operations assuming Caribe, AIDI and TIMCO acquisitions had occurred at the beginning of the period presented are as follows:
December 31, 1998 ------------ Revenue......................................................... $298,532 Income from continuing operations............................... 10,142 Net income...................................................... 27,100 Diluted earnings per share...................................... 2.13
The unaudited pro forma results of operations are presented for informational purposes only and may not necessarily reflect the future results of operations of the Company or what the results of operations would have been had the Company owned and operated these businesses as of January 1, 1998. F-16 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) PURCHASE PRICE ALLOCATIONS The purchase price allocations for business combinations accounted for under the purchase method of accounting (including historical accounts of immaterial acquisitions accounted for under the pooling of interests method of accounting) were as follows:
Year Ended December 31, ---------------- 1998 1999 ------- ------- Accounts receivable........................................ $31,874 $ -- Inventories................................................ 15,057 3,535 Other current assets....................................... 1,127 -- Other non-current assets................................... 483 1,000 Fixed assets............................................... 22,245 2,322 Goodwill................................................... 40,903 14,723 Accounts payable........................................... (8,842) -- Accrued expenses........................................... (16,424) (3,500) Notes payable.............................................. (5,000) -- Common stock issued........................................ (5,720) -- ------- ------- Cash used in acquisitions, net of cash acquired............ $75,703 $18,080 ======= =======
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 consolidated financial statements. In July 1998, the Company acquired Whitehall for consideration of 2,844 shares of AVS'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. Operating revenues and net income of Whitehall in 1998 for the period prior to the pooling were $86,498 and $6,115, respectively. NOTE 3--ADJUSTMENTS TO CARRYING VALUE OF CERTAIN ASSETS AND OTHER CHARGES During the quarter ended December 31, 1999, the Company recorded adjustments to the carrying value of certain assets and other charges totaling approximately $60,858. These charges include a reduction in the carrying value of the Company's inventory at December 31, 1999 of $23,351 primarily relating to inventory held for sale by the Company's redistribution operations, a $9,830 write-down in the carrying value of the four A-300 aircraft owned by the Company and included in inventory, and a $7,700 write-down of previously capitalized costs expended relating to the development of a new software system which has not been implemented and will not be completed. Also included in these charges is a $7,747 addition to the allowance for doubtful accounts receivable, $4,800 of accrued expenses relating to the runoff of one of the Company's health insurance plans, $2,000 of Year 2000 remediation costs, accrued severance and increased professional fees of $1,163, and the write-off of financing fees relating to a new credit facility which did not close and miscellaneous deposits and other assets which have been determined not to be collectible of $4,267. These charges are substantially non-cash items. Of the total 1999 charges and adjustments, approximately $16,545 relate to the Company's continuing operations and $44,313 relate to discontinued operations. In regard to the charges incurred in relation to F-17 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) continuing operations, $12,673 and $5,304, respectively, are included in cost of sales and operating expenses, in the accompanying consolidated statement of operations for the year ended December 31, 1999. In addition, other expense (income) included a gain on sale of land of $1,432 for the year ended December 31, 1999. During the year ended December 31, 2000, the Company recorded charges totaling $6,638 relating to the disposal of three A-300 aircraft that it owned and an adjustment of $4,871 to the carrying value of leased assets. These charges are included in cost of sales in the accompanying consolidated statement of operations for the year ended December 31, 2000. In addition, during 2000, the Company recorded charges totaling $30,016 relating to the temporary closure of one of its heavy airframe maintenance facilities and bad debt allowances relating primarily to a customer who filed for bankruptcy in 2000 and a customer who recently ceased operations. These charges are included in operating expenses in the accompanying consolidated statement of operations for the year ended December 31, 2000. NOTE 4--DISCONTINUED OPERATIONS In September 2000, the Company completed the sale of substantially all of the assets of its manufacturing operations for $41,000, excluding transaction expenses and possible post-closing adjustments. The cash proceeds of the sale were used to repay senior indebtedness. In December 2000, the Company completed the sale to another redistributor Kellstrom Industries, Inc. (the "Purchaser") of substantially all of the assets and business of its redistribution operation in a series of transactions intended to constitute a single transaction (the "Transaction"). The aggregate purchase price received in the Transaction was $156,400, approximately $127,000 of which was paid in cash ($122,000 after payment of transaction expenses). The net proceeds of the Transaction were used to repay senior indebtedness. As part of the Transaction, the Company acquired a 50% interest in a limited liability company, KAV Inventory, LLC ("KAV") organized by the Purchaser and the Company. Substantially all of the aircraft and engine spare parts inventory and the engine inventory of the Company's redistribution operation, as well as certain rotable parts inventories from two of the Company's MR&O operations, were sold to KAV for 89% of the closing date book value of such inventory ($148,600, subject to post-closing adjustments). Compensation for the sale of inventory was comprised of cash of approximately $105,000 and two subordinated notes, each in the principal amount of $13,700, and one subordinated note in the principal amount of $15,701. The notes bear interest at 14% per annum and are subordinated in all respects to the KAV institutional financing. In addition, the Company posted an $8,500 letter of credit to secure, in part, KAV's institutional financing. Further, the Company and the Purchaser each advanced $2,300 to KAV to allow it to pay fees and costs relating to its institutional financing. The Company and the Purchaser will receive reimbursement of these advances after payment of the institutional financing and prior to repayment of the senior subordinated notes. KAV's sole business is the liquidation of the inventory it acquired from the Company. KAV entered into an agreement to consign all of its inventories to the Purchaser. The Transaction agreement specifies that all of the proceeds from sales of the inventory, less a consignment commission to the Purchaser of 20%, will be used to pay interest and principal on KAV's institutional debt. After the institutional debt is paid in full, proceeds from the sale of inventory will be used to reimburse the Company and the Purchaser for advances made to KAV to allow it to pay fees and costs relating to its institutional financing and thereafter to pay interest and principal on the two $13,700 notes. Interest and principal on the $15,701 note will be paid from the remaining proceeds from the sale of inventory, less a 35% consignment commission to the Purchaser. Under the Transaction agreement, the Company has approval rights relating to the sale price of certain inventory. After considering a third-party appraisal of the inventory and projections of cash distributions in accordance with the Transaction agreement, management believes the total amount of the notes of $29,401 will be fully realized. Interest income on the notes will be deferred and recognized as collected following collection of all outstanding principal amounts. The projections of cash distributions to the Company are highly dependent upon the timing of the sales and the sale prices obtained by the Purchaser for KAV's inventory. F-18 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The second component of the Transaction consisted of a sale of certain non- inventory assets of the redistribution operation, including one of the $13,700 subordinated notes described above, net of certain payables assumed by the Purchaser, for approximately $21,500, all of which was paid in cash. Under the terms of the Transaction, the Purchaser has the right after one year from the date of the Transaction to require the Company to repurchase receivables sold in accordance with the Transaction to the extent they remain uncollected. As of March 31, 2001, $8,515 of receivables sold pursuant to the Transaction had not been collected by the Purchaser. In addition, the purchase price for the sale of inventory and non-inventory assets is subject to post-closing adjustments as set forth in the agreements. The Purchaser has indicated that post-closing adjustments would result in a reduction in the aggregate consideration received pursuant to the Transaction of approximately $4,500. The Company has notified the Purchaser of its intention to dispute their calculation of post-closing adjustments and the proposed reduction in consideration. While there can be no assurance, the Company does not believe that the resolution of this dispute or the amount of receivables which the Company may ultimately be obligated to repurchase will have a material impact on the Company's financial position or results of operations. During the year ended December 31, 2000, the Company recorded a charge of $56,700, including $20,400 in the quarter ended December 31, 2000, to reduce the carrying value of its investment in the redistribution operation to its estimated net realizable value. In addition, as part of the sale of the redistribution operations described above, the Purchaser leased a facility and certain furniture, fixtures and equipment used in the redistribution operations for a one-year period. The Purchaser has an option to acquire these assets during the term of the lease and after one year the Company has an option to require the Purchaser to acquire the assets, which can be extended by the Purchaser for six months under certain circumstances. The Company also entered into a sublease agreement relating to the redistribution operation's warehouse and corporate headquarters facility for a five-year period with the right to renew for five consecutive five-year periods at a market rental rate. The Company also entered into a non- competition agreement whereby the Company is restricted from engaging in the redistribution business for a period of up to five years. In addition, the Company entered into a cooperation agreement under which it agreed to provide repair services for the KAV parts inventory and the Purchaser's parts inventory and the Purchaser agreed to supply parts to the Company's MR&O operations. In December 2000, the Company completed the sale of the stock of its subsidiary, Aviation Sales Bearings Company, which operates the Company's Dixie Aerospace Bearings new parts distribution operation. In the transaction, the Company received net aggregate consideration of $17,700 inclusive of debt assumed by the purchaser. The net cash proceeds from the sale, which approximated $13,500, were used to reduce outstanding senior indebtedness. Also, as part of the transaction, the Company retained certain accounts receivable and inventories. Such retained assets are being sold and collected pursuant to consignment and collection agreements executed with the purchaser. The Company anticipates that the liquidation of these assets will provide additional consideration as these receivables are collected and inventory is sold. The net income (loss) of these operations prior to their respective disposal dates net of income taxes, is included in the accompanying consolidated statements of operations under "discontinued operations". Previously issued financial statements have been changed to reflect those operations as discontinued operations. Revenues from such operations through the disposal dates were $316,367, $317,326 and $222,299 for the years ended December 31, 1998, 1999 and 2000, respectively. The aggregate results of operations of the discontinued operations through the disposal dates, net of income tax provision (benefit) of $11,865, ($16,758) and $624, were $16,959, ($24,721) and ($23,432) for the years ended December 31, 1998, 1999 and 2000, respectively. The provision for loss on disposal of discontinued operations reflected in the accompanying consolidated statement of operations for 2000 of $73,325 includes the write-down of the assets of the operations to estimated net realizable values, subject to post-closing adjustments. No expected tax benefit has been recorded relating to F-19 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) the provision for loss on disposition as all loss carrybacks relating to the discontinued operations have been utilized and the Company has provided a full valuation allowance on its deferred tax assets (see Note 13). A summary of the net assets of the discontinued operations as of December 31, 1999 and 2000 is as follows:
1999 2000 -------- -------- Accounts receivable, net................................. $ 71,392 $ 8,492 Inventories.............................................. 260,464 6,565 Other current assets..................................... 3,829 137 Fixed assets, net........................................ 26,771 9,356 Other assets............................................. 19,858 2,081 Accounts payable and accrued expenses.................... (67,917) (19,077) Notes payable............................................ -- (4,075) -------- -------- Net assets of discontinued operations.................... $314,397 $ 3,479 ======== ========
The above amounts are net of reserves of $28,185 and $28,048 as of December 31, 1999 and 2000, respectively. NOTE 5--ACCOUNTS RECEIVABLE The Company distributes products and services to commercial airlines, air cargo carriers, distributors, maintenance facilities, corporate aircraft operators and other companies. The Company performs periodic credit evaluations of its customers' financial conditions and provides allowances for doubtful accounts as required. 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 $45,074 and $28,733 at December 31, 1999 and 2000, respectively, and are included in accounts receivable in the accompanying consolidated balance sheets. The Company's top ten customers combined accounted for approximately 49.6% and 56.2% of operating revenues, for the years ended December 31, 1999 and 2000, respectively. One customer accounted for 22.6% and 14.0% of operating revenues for the years ended December 31, 1999 and 2000, respectively. No other customer accounted for more than 10% of operating revenues in 1999 and 2000. No customer accounted for more than 10% of accounts receivable as of December 31, 1999 and 2000. There was no concentration of credit risk associated with any specific customer in 1998. NOTE 6--EQUIPMENT ON LEASE In the normal course of business, the Company leases engines and spare parts to third parties pursuant to noncancelable operating leases ranging from one to ten years. The cost and accumulated amortization of equipment on lease are as follows:
December 31, --------------- 1999 2000 ------- ------ Equipment on lease, at cost................................. $19,755 $7,156 Accumulated amortization.................................... (2,362) (1,407) ------- ------ $17,393 $5,749 ======= ======
F-20 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Deposits of $1,113 and $36 as of December 31, 1999 and 2000, 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 $2,018, $2,151 and $1,035 for the years ended December 31, 1998, 1999 and 2000, respectively. Future minimum lease payments receivable under outstanding leases are as follows:
Year Ending December 31, ------------------------ 2001............................................................. $1,162 2002............................................................. 753 2003............................................................. 226 2004............................................................. 104 ------ $2,245 ======
NOTE 7--NOTES PAYABLE AND REVOLVING LOAN Prior to May 31, 2000, the Company had a revolving loan and letter of credit facility (the "Credit Facility") of $300,000 with a group of financial institutions. Effective May 31, 2000, the Credit Facility was amended and the commitment was reduced to $285,000. Following the liquidation of the AvAero joint venture, and the sales of the A-300 aircraft, manufacturing operations and redistribution operations described above, the commitment was reduced to $88,000. As of April 17, 2001, the commitment is effectively $75,000. The Credit Facility expires in July 2002. The Credit Facility was further amended on June 25, 2000, September 30, 2000, November 28, 2000, February 14, 2001 and April 17, 2001. Interest under the Credit Facility is, at the option of the Company, (a) prime plus 3.0%, or (b) LIBOR plus 4.5%. During the year ended December 31, 1999 and 2000, the weighted average interest rate on the Credit Facility was 7.21% and 10.94%, respectively. As of December 31, 1999 and December 31, 2000, the outstanding balance on the Credit Facility was $269,580 and $35,959, respectively. Borrowings under the Credit Facility are secured by a lien on substantially all of the Company's assets and the borrowing base consists primarily of certain of the Company's receivables and inventory. The Credit Facility contains certain financial covenants regarding the Company's financial performance and certain other covenants, including limitations on the amount of annual capital expenditures and the 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 as defined. A default under the Credit Facility could potentially result in a default under other agreements to which the Company is a party, including its lease agreements. In addition, the Credit Facility requires mandatory repayments and a reduction in the total commitment under the Credit Facility 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, 1999 and March 31, 2000, the Company was not in compliance with certain of the financial covenants contained in the Credit Facility. The financial institutions which are party to the Credit Facility agreed to forbear in regards to these covenant violations and other matters until May 31, 2000 at which point in time the Credit Facility was amended. The Credit Agreement was further modified effective June 25, 2000, September 30, 2000, November 28, 2000, February 14, 2001 and April 17, 2001. The Company was required to pay fees of $3,000 in relation to the standstill agreement associated with the early 2000 forbearance, which were amortized over the period from February 1, 2000 through May 31, 2000. In connection with the June 25, 2000 amendment, the Company paid fees of $2,154, which are being amortized between July 1, 2000 and June 30, 2002. To the extent the Credit Facility remains outstanding as of certain dates, the Company is committed to pay incremental financing fees as follows: June 30, 2001--$1,000, August 14, 2001--2% of outstanding commitment less $1,000, November 14, 2001--2% of outstanding commitment and February 14, F-21 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2002--2% of outstanding commitment. At December 31, 2000, $2,441 was available for borrowing under the Credit Facility and outstanding letters of credit aggregated $30,233. In February 2000, the Company executed a $15,500 term loan with the financial institution that is the agent under the Credit Facility. The term loan is senior secured debt, bears interest at 12% per annum, contains financial covenants which are consistent with the Credit Facility and matures in July 2002. Principal payments of $500 per month are due beginning in January 2002 with a final principal payment of $12,000 due in July 2002. Under the term loan agreement, the Company also granted the lender common stock purchase warrants to purchase 129 shares of the Company's common stock exercisable for nominal consideration at any time until December 31, 2005. If the term loan is not repaid in full, the warrants entitle the holder to require the Company, subsequent to July 31, 2000 and subject to a vesting schedule, to repurchase the warrants or common shares issued upon prior exercise of the warrants at $8.50 per share. The lender has not required the Company to repurchase any warrants through December 31, 2000. The Company has recorded the value of these warrants ($1,079) as additional deferred financing costs and is amortizing this amount to interest expense over the term of the loan. In February 2001, the Company obtained a $10,000 term loan from a financial institution. The term loan is senior secured debt, bears interest at LIBOR plus 2% and matures in August 2002. The proceeds of the term loan were used to pay the semi-annual interest payment on the senior subordinated notes in February 2001 of $6,704 and for working capital purposes. In connection with the term loan, the Company issued warrants to purchase 250 shares of its unissued common stock at an exercise price of $4.00 per share to each of four individuals, two of whom are officers and/or directors of the Company and one of whom is a principal stockholder of the Company. Each of these individuals provided credit support to the financial institution which advanced the loan proceeds. SENIOR SUBORDINATED NOTES In February 1998, the Company sold $165,000 of senior subordinated notes 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 Credit Facility and to fund the cash requirements related to certain acquisitions. The senior subordinated notes mature on February 15, 2008. Interest is payable on February 15 and August 15 of each year. 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 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. 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 Company did not meet the fixed charge coverage ratio for the one-year period ended December 31, 2000. Accordingly, its ability to incur additional debt is currently limited under its indenture. 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 F-22 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) by the Company unless such subsidiary is designated as an unrestricted subsidiary. Subsidiary guarantees are joint and several, full and unconditional, general unsecured obligations of the subsidiary guarantors. Subsidiary guarantees are subordinated in right of payment to all existing and future senior debt of subsidiary guarantors, including the Credit Facility, and are also effectively subordinated to all secured obligations of subsidiary guarantors to the extent of the assets securing their obligations, including the Credit Facility. Furthermore, the indenture permits subsidiary guarantors to incur additional indebtedness, including senior debt, subject to certain limitations. The Company has not presented separate financial statements and other disclosures concerning each of the subsidiary guarantors because management has determined that such information is not material to investors. The senior subordinated notes are redeemable, at the Company's option, in whole or in part, at any time after February 15, 2003, at the following redemption prices, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date: (i) 2003--104.063%; (ii) 2004--102.708%; (iii) 2005--101.354%; and (iv) 2006 and thereafter--100%. Upon the occurrence of a change in 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 in control or that such repurchase will then be permitted under the Credit Facility. Under the indenture, if the Company sells assets (other than inventory in the ordinary course of business or leases or assets subject to leases in the ordinary course of business) with a fair market value in excess of $2,000 or for net proceeds in excess of $2,000, the Company must comply with certain requirements. Additionally, the Company must use the proceeds from such asset sales, within 270 days after completion of the sales, to either permanently repay senior debt or to acquire other businesses or assets (or, if such proceeds are not used for these purposes, then such proceeds must be used to repurchase senior subordinated notes). Further, if the value of the assets sold exceeds $15,000, the Board of Directors must determine that the Company is receiving fair market value for the assets sold. The indenture contains certain other covenants that, among other things, limit the Company's ability and that of its subsidiaries to incur additional indebtedness and issue preferred stock, pay dividends or make other distributions, make investments, 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 In connection with the Company's acquisition of Kratz-Wilde Machine Company in October 1997, 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 $2,500 (discounted to $2,200). A payment of $1,250 was made during January 1999 and the final payment of $1,250 was made during January 2000. Interest on this note was imputed at 8%. In connection with the acquisition of Caribe and AIDI, 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 was payable over a two year period with an interest rate of 8% per annum. The first payment of $2,500 was made during March 1999 and the second payment of $2,500 was made during March 2000. See Note 8. F-23 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 8--RELATED PARTY TRANSACTIONS The Company leased its former corporate headquarters and warehouse in Miami, Florida (the "Miami Property") from an entity controlled by certain stockholders of the Company. The lease on the Miami Property called 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 bears interest at 8% per annum. The loan was being repaid in monthly installments with any remaining outstanding principal and interest due on December 2, 2004. In January 2001, the loan was sold to a principal shareholder of the Company for 90% of the then outstanding principal balance of $2,006. In March 2001, the Miami Property was sold and the Company was relieved of its remaining obligations under the lease agreement. The Company also leases two facilities and periodically utilizes aircraft owned by an officer/director of the Company. Total expense incurred in relation to these items was $1,370 and $2,707 in 1999 and 2000, respectively. This same officer/director sold Caribe and AIDI to the Company in 1998. See Note 2. Certain shareholders of the Company provided letters of credit in the aggregate amount of $8.0 million for the benefit of Bank of America, as agent under the Kellstrom Industries, Inc. senior credit facility, in connection with the Transaction. See Note 7 for a description of debt guarantees by certain officers, directors and principal stockholders in connection with a term loan to the Company. See Note 11 for a description of credit support provided by certain stockholders in connection with an amendment to an operating lease of the Company. 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. 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. NOTE 9--PREFERRED SHARE PURCHASE RIGHTS On November 2, 1999, the Company declared a dividend distribution of one Preferred Share Purchase Right (a "Right") on each outstanding share of its common stock. Each Right will entitle shareholders to buy one one-thousandth of a share of newly created Series A Junior Participating Preferred Stock of the Company at an initial exercise price of $90.00. In general, the Rights become exercisable if a person or group hereafter acquires 15% or more of the outstanding common stock of the Company or announces a tender offer for 15% or more of the common stock. The Board of Directors will in general be entitled to redeem the Rights at one percent per Right at any time before any such person hereafter acquires 15% or more of the outstanding common stock. In March 2000, the Company amended the rights agreement to allow one of its stockholders to acquire beneficial ownership of up to 25% of the outstanding shares of the Company. Simultaneously, the stockholder agreed not to engage in certain activities without the prior approval of a majority of the Company's disinterested board members. In December 2000, the rights agreement was further amended to allow the same stockholder to increase its beneficial ownership to up to 30% of the outstanding shares of the Company. F-24 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 10--COMMITMENTS AND CONTINGENCIES LITIGATION AND CLAIMS Several lawsuits have been filed against the Company and certain of its officers and directors, and its auditors, in the United States District Court for the Southern District of Florida, which have now been consolidated into a single lawsuit. The consolidated complaint, as amended in March 2000 and in September 2000, alleges violations of Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of, and Rule 10b-5 under, the Securities Exchange Act of 1934. Among other matters, the amended consolidated complaint alleges that the Company's reported financial results were materially misleading and violated generally accepted accounting principles. The amended consolidated complaint seeks damages and certification of two classes, one consisting of purchasers of the Company's common stock in the June 1999 public offering and one consisting of purchasers of the Company's common stock during the period between April 30, 1997 and April 14, 2000. The Company has filed a motion to dismiss the claims in the amended consolidated complaint. The Company believes that the allegations contained in the amended consolidated complaint are without merit and intends to vigorously defend these and any related actions. Nevertheless, unfavorable resolution of these lawsuits could have a material adverse effect on the Company in one or more future periods. The U.S. Securities and Exchange Commission is conducting an inquiry into the Company's accounting for certain transactions. The Company is cooperating with the SEC in its inquiry. On January 8, 1999, Paine Webber Incorporated filed in the Supreme Court of the State of New York a complaint against the Company and its subsidiary, Whitehall, alleging breach of contract claims and related claims against the Company and Whitehall and a tortious interference with a contract claim against the Company. This suit was settled in November 2000 for a non material amount. 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 was for 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 involved a contractual dispute relative to certain purchase price adjustments and inventory purchases. The Company settled the suit for a non material amount during July 2000. The Company is also involved in various lawsuits and other contingencies arising out of its 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 or results of operations 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 TIMCO-Lake City. Ongoing testing is being performed and new information is being gathered to continually assess the impact and magnitude of the required remediation efforts on the Company. Based upon the most recent cost estimates provided by environmental consultants, the Company believes that the total testing, remediation and compliance costs for this facility will be approximately $1,400. Testing and evaluation for all known sites on TIMCO-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 F-25 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 $1,400 standby letter of credit in favor of the FDEP. Additionally, there are other areas adjacent to TIMCO-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. The Company owns a parcel of real estate on which Whitehall previously operated an electronics business. The Company is currently assessing environmental issues with respect to this property. When the Company acquired Whitehall, its environmental consultants estimated that remediation costs relating to this property could be up to $1,000. Accrued expenses in the accompanying December 31, 1999 and 2000 consolidated balance sheets includes $3,148 and $1,702, 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 estimates, 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. 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. The Company has a commitment with a vendor to convert one Airbus aircraft from passenger configuration to cargo configuration. The terms of the agreement specify that the Company has the right to terminate the agreement; however, the Company could be subject to a termination fee. The termination fee would be calculated as the unused costs incurred by the vendor plus a fee equal to 10% of such unused costs. NOTE 11--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 the Company's 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. Management estimates that the current fair value of the facilities exceeds the Company's purchase option. Accordingly, no accrual for the obligation has been recorded by the Company. F-26 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Lease payments are currently at a rate of LIBOR plus 4.50% and the Company is responsible for all property taxes, insurance and maintenance of the property. The Company has subleased a portion of the facility to the purchaser of the Company's redistribution business (see Note 4). The sublease is for an initial term of five years with an additional option to renew for five consecutive five-year terms at market rates. Payments during the initial term are the lesser of $384 per month or the actual amount paid by the Company relating to the premises subleased. See Note 4. The development of the new facility was financed by the trust through a $43,000 loan facility provided by a financial institution. Pursuant to the agreements entered into in connection with this financing, the Company was obligated to develop the new facility on behalf of the trust and was responsible for the timely completion thereof within an established construction budget. The Company and substantially all of its subsidiaries have guaranteed the repayment of $37,840 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 facilities and on the fixtures therein. Further, the Company has posted an irrevocable letter of credit in favor of the trust in the amount of $9,000 to secure both its obligations under the lease and the trust's obligations under these agreements. The Company was not in compliance at December 31, 1999 and March 31, 2000 with certain of the financial covenants contained in the lease agreement. The lessor agreed to forbear in regards to these covenant violations and other matters until May 31, 2000 at which point in time the lease agreement was amended. The lease agreement was further modified effective June 25, 2000, September 30, 2000, November 28, 2000, December 31, 2000, February 14, 2001 and April 19, 2001. Under the terms of the April 19, 2001 amendment, two shareholders of the Company provided a guarantee in relation to the proceeds to be received from the sale of one of the leased buildings in an amount up to $1.0 million. Such guarantee expires January 2, 2002. As part of the amendment, the lessor has agreed to waive non-compliance with financial covenants, if any, through the period ended December 31, 2001. The Company will assess the accounting impact, if any, including the classification of the lease, as a result of this amendment during 2001. 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 8). For the years ended December 31, 1998, 1999 and 2000, rent expense under all leases amounted to $2,423, $8,112 and $8,090, respectively. Minimum rental commitments under all leases are as follows:
Operating Leases Capital Leases ----------------------------------- -------------- Years Ending December 31, To related parties To third parties ------------------------- ------------------ ---------------- 2001 $181 $ 10,808 $ 432 2002 -- 10,644 432 2003 -- 10,571 432 2004 -- 10,126 432 2005 -- 9,864 432 Thereafter -- 78,293 5,649 To Interest -- -- (3,779) ---- -------- ------ $181 $130,306 $4,030 ==== ======== ======
F-27 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 12--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 and warrants. In computing diluted earnings per share, the Company has utilized the treasury stock method. The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted earnings per share is as follows:
Year Ended December 31, -------------------- 1998 1999 2000 ------ ------ ------ Weighted average shares outstanding used in calculating basic earnings per share.............................. 12,277 13,906 15,015 Effect of dilutive options and warrants................ 419 262 -- ------ ------ ------ Weighted average common and common equivalent shares... 12,696 14,168 15,015 ====== ====== ====== Options and warrants outstanding which are not included in the calculation of diluted earnings per share because their impact is antidilutive.................. 55 1,680 2,247 ====== ====== ======
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. NOTE 13--INCOME TAXES Income tax expense (benefit) relating to continuing operations for the years ended December 31, 1998, 1999 and 2000 consists of the following:
Year Ended December 31, ------------------------ 1998 1999 2000 ------ -------- ------ Current.......................................... Federal........................................ $2,483 $(13,430) $2,328 State.......................................... 1,174 (2,182) 1,020 ------ -------- ------ 3,657 (15,612) 3,348 ------ -------- ------ Deferred......................................... Federal........................................ 703 14,395 1,515 State.......................................... (79) 4,221 (53) ------ -------- ------ 624 18,616 1,462 ------ -------- ------ Income tax expense related to continuing operations...................................... $4,281 $ 3,004 $4,810 ====== ======== ======
F-28 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Year Ended December 31, ------------------------- 1998 1999 2000 ------- -------- ------ Current.......................................... Federal........................................ $13,751 $(15,285) $2,370 State.......................................... 2,899 (1,643) 1,260 ------- -------- ------ 16,650 (16,928) 3,630 ------- -------- ------ Deferred......................................... Federal........................................ (447) 3,964 1,804 State.......................................... (57) (790) -- ------- -------- ------ (504) 3,174 1,804 ------- -------- ------ Income tax expense (benefit) related to continuing and discontinued operations.......... $16,146 $(13,754) $5,434 ======= ======== ======
The tax effects of temporary differences that give rise to significant portions of net deferred tax assets as of December 31, 1999 and 2000 are as follows:
December 31, ----------------- 1999 2000 ------- -------- Deferred tax assets, net: Allowance for doubtful accounts......................... $ 1,570 $ 12,523 Accruals................................................ 1,310 8,951 Writedown of investment................................. 1,800 1,800 Inventories............................................. 12,808 2,354 Property and equipment.................................. (4,804) 552 Spare parts on lease.................................... (1,161) (211) NOL/Credit carryforwards................................ 1,642 62,070 Other................................................... (9,298) (3,925) ------- -------- 3,867 84,114 Less valuation allowance.................................. (2,405) (84,114) ------- -------- Net deferred tax assets................................... $ 1,462 $ -- ======= ========
As of December 31, 2000, the Company has net operating loss carry forwards of approximately $156,000 which begin to expire in 2020. The Company has established a valuation allowance to offset the net 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 net deferred tax assets will be realized. F-29 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The reconciliation of the federal statutory rate and the Company's effective tax rate is as follows for the years ended December 31, 1998, 1999 and 2000:
1998 1999 2000 ---- ---- ----- Federal income tax (benefit) at the statutory rate.......... 35.0% 35.0% (35.0%) Increase (reductions) in tax rate resulting from: Losses not currently utilized............................. 33.5 Change in net deferred tax asset.......................... (5.4) -- 1.3 State income taxes, net of federal tax benefit............ 6.3 28.1 0.6 Other..................................................... 1.5 .7 3.9 ---- ---- ----- Effective income tax (benefit) rate......................... 37.4% 63.8% 4.3% ==== ==== =====
NOTE 14--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, as amended (the "1996 Plan"), under which options to acquire a maximum of the greater of 2,250 shares of Common Stock or 15% of the number of shares of Common Stock then outstanding may be granted to executive officers, employees (including employees who are directors), independent contractors and consultants of the Company. The price at which the Company's common stock may be purchased upon the exercise of options granted under the Plans will be required to be at least equal to the per share fair market value of the Common Stock on the date the particular options are granted. Options granted under the Plans may have maximum terms of not more than ten years. Generally, options granted under the Plans may 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. On January 1, 1999, the Company entered into employment agreements with certain executive officers. The employment agreements provided for option grants to purchase 700 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. On November 11, 2000, the Company granted certain executive officers the option to purchase 375 shares of common stock (granted outside of any plan) at $3.3125 per share, with one third of the options vesting upon grant, one third of the options granted vesting on November 11, 2001 and one third of the options granted vesting on November 11, 2002. F-30 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following summarizes outstanding stock options:
Weighted Average Total Exercise Price ----- -------------- 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 Granted................................................ 1,127 35.70 Cancelled.............................................. (70) 24.95 Exercised.............................................. (200) 25.87 ----- ------ Outstanding at December 31, 1999......................... 1,942 30.65 Granted................................................ 611 4.20 Cancelled.............................................. (435) 32.58 ----- ------ Outstanding at December 31, 2000......................... 2,118 $22.63 ===== ====== Options exercisable: At December 31, 2000..................................... 1,222 $24.11 Available to grant under Plans at December 31, 2000...... 1,335
The following table summarizes information about outstanding and exercisable stock options at December 31, 2000:
Outstanding Weighted Exercisable Average Weighted Average ---------------------------------- --------------------------- Remaining Range of Contractual Exercise Exercise Prices Shares Life (in years) Shares Price --------------- ------ --------------- ------ -------- $ 3.00 - $13.00 718 9.4 331 $ 6.73 13.01 - 23.00 265 6.1 109 17.92 23.01 - 33.00 386 7.3 384 26.10 33.01 - 42.00 749 8.5 398 38.37 ----- --- ----- ------ $ 3.00 - $42.00 2,118 8.3 1,222 $24.11 ===== === ===== ======
F-31 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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 (loss). 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 (loss) per share would have decreased (increased) accordingly. Using the Black-Scholes option pricing model, the Company's pro forma net income (loss), pro forma earnings (loss) per share and pro forma weighted average fair value of options granted, with related assumptions, are as follows:
Year Ended December 31, ------------------------------------------- 1998 1999 2000 ------------- ------------- ------------- Pro forma net income (loss)...... $19,887 $(26,934) $(212,685) Pro forma basic earnings (loss) per share....................... 1.62 (1.94) (14.16) Pro forma diluted earnings (loss) per share....................... 1.57 (1.94) (14.16) Risk free interest rates......... 5% 6% 6% Expected lives................... 7 - 10 years 7 - 10 years 7 - 10 years Expected volatility.............. 40% 62% 117% Weighted average grant date fair value........................... $ 16.43 $ 26.80 $ 4.00 Expected dividend yield.......... 0% 0% 0%
NOTE 15--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 $810, $3,629 and $3,662 to the Plan in 1998, 1999, and 2000, respectively. The Company does not provide retired employees with health or life insurance benefits. NOTE 16--QUARTERLY FINANCIAL DATA (UNAUDITED) In connection with the preparation of its consolidated financial statements for the year ended December 31, 1999, the Company identified several transactions which, after review, should not have been recorded as revenues in its books and records. Based upon these findings, in early February 2000, the Company's Board of Directors organized a special committee to review certain matters relating to the Company's accounting and sales practices. The committee retained outside professionals to conduct an in-depth review and investigation of these matters, which was concluded in April 2000. The Company concluded that seven 1999 transactions arising in its redistribution operation should have been accounted for as exchange transactions rather than as sales. The Company has also concluded that seven additional 1999 transactions arising in its redistribution operation should not have been recorded as sales due to certain contingencies associated with the transactions that had not been resolved at the date of the sales. In the aggregate, these 1999 transactions represented $32,719 of revenues of discontinued operations and $7,269 of gross margin of discontinued operations, representing approximately 4.8% and 6.5% of the revenues and gross margin for the 1999 fiscal year, respectively (including that of discontinued operations). During 2000, the Company recognized revenue related to the design and construction of specialized parts when services were performed. Effective December 31, 2000, such revenues are recognized when the manufactured units are delivered. Including the effects of this change, revenues of $22,000 previously F-32 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) recognized in the first three quarters of 2000 were reversed in the fourth quarter of 2000. Income (loss) from operations for each of the quarterly periods in the year ended December 31, 2000 was not affected by this change as no gross margin had been recognized in relation to these revenues. Results for the quarterly periods in the years ended December 31, 1999 (as reported and as reported, with adjustments) and 2000 are as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- (In thousands, except earnings per share) 1999, as reported: Operating revenues.................... $ 85,388 $ 92,493 $ 79,980 $113,892 Gross profit (loss)................... 20,989 22,731 21,167 (1,078) Income (loss) from operations......... 5,077 7,294 4,759 (14,132) Income (loss) from discontinued operations........................... 2,840 2,209 2,586 (32,356) Net Income (loss)..................... 7,917 9,503 7,345 (46,488) Diluted income (loss) per share from continuing operations................ 0.39 0.55 0.31 (1.04) Diluted income (loss) per share from discontinued operations.............. 0.22 0.16 0.17 (2.32) Diluted net income (loss) per share... 0.61 0.71 0.48 (3.36) First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- (In thousands, except earnings per share) 1999, as reported with adjustments: Operating revenues.................... $ 85,388 $ 92,493 $ 79,980 $113,892 Gross profit (loss)................... 20,989 22,731 21,167 (1,078) Income (loss) from operations......... 5,077 7,294 4,759 (14,132) Income (loss) from discontinued operations........................... 1,820 886 1,940 (29,367) Net Income (loss)..................... 6,897 8,180 6,699 (43,499) Diluted income (loss) per share from continuing operations................ 0.39 0.55 0.31 (1.04) Diluted income (loss) per share from discontinued operations.............. 0.14 0.06 0.13 (2.10) Diluted net income (loss) per share... 0.53 0.61 0.44 (3.14) First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- (In thousands, except earnings per share) 2000: Operating revenues.................... $101,876 $ 95,159 $ 81,252 $ 59,790 Gross profit (loss)................... 18,338 2,031 (462) (35,161) Income (loss) from operations......... 1,141 (17,883) (27,720) (71,411) Income (loss) from discontinued operations........................... (2,847) (13,392) (54,548) (24,970) Net Income (loss)..................... (1,606) (31,275) (82,268) (96,481) Diluted income (loss) per share from continuing operations................ 0.08 (1.19) (1.85) (4.76) Diluted income (loss) per share from discontinued operations.............. (0.18) (0.89) (3.63) (1.67) Diluted net income (loss) per share... (0.10) (2.08) (5.48) (6.43)
See Note 3 for a discussion of the charges recorded in the fourth quarter of 1999 and 2000. F-33 SCHEDULE II AVIATION SALES COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS Three Years Ended December 31, 2000 (In thousands)
Additions Balance at charged to Balance at Beginning cost and end of Description of Year expenses Other Deductions year ----------- ---------- ---------- ------ ---------- ---------- Allowances for doubtful accounts receivable: Year ended December 31, 1998.................. $ 3,847 $ 670 $5,304(A) $ 2,011(B) $ 7,810 1999.................. 7,810 4,995 -- 3,212(B) 9,593 2000.................. 9,593 20,343 -- 22,482(B) 7,454 Reserve relating to discontinued operations: 1998.................. $ 4,742 $ 2,283 $ -- $ -- $ 7,025 1999.................. 7,025 24,833 -- 3,673 28,185 2000.................. 28,185 18,868 -- 19,005(C) 28,048
- -------- (A) Represents allowance for doubtful accounts acquired in purchase accounting. (B) Represents accounts receivable written-off. (C) Utilization of reserve upon disposition of business. F-34 AVIATION SALES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data)
December 31, September 30, 2000 2001 ------------ ------------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents.......................... $ -- $ 2,623 Accounts receivable, net........................... 67,558 36,023 Inventories........................................ 53,115 48,705 Other current assets............................... 10,784 5,678 --------- --------- Total current assets............................... 131,457 93,029 --------- --------- Equipment on lease, net............................. 5,749 384 Fixed assets, net................................... 65,770 51,704 Amounts due from related parties.................... 1,792 -- Other Assets: Goodwill, net...................................... 41,390 26,513 Deferred financing costs, net...................... 5,928 7,249 Notes receivable from KAV Inventory, LLC........... 29,400 -- Net assets of discontinued operations.............. 3,479 -- Property held for sale............................. -- 25,240 Other.............................................. 15,646 9,600 --------- --------- Total other assets................................. 95,843 68,602 --------- --------- Total assets....................................... $ 300,611 $ 213,719 ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable................................... $ 30,214 $ 23,000 Accrued expenses................................... 27,725 31,176 Current maturities of notes payable................ 29 22,028 Current maturities of capital lease obligations.... 178 34,418 Senior subordinated notes.......................... -- 164,414 Revolving loan..................................... 35,959 1,740 Customer deposits.................................. 7,559 13,686 Committed letter of credit advances................ -- 8,500 Other.............................................. 5,120 9,922 --------- --------- Total current liabilities.......................... 106,784 308,884 --------- --------- Senior subordinated notes.......................... 164,345 -- Notes payable, net of current portion.............. 16,498 -- Capital lease obligations, net of current portion.. 3,852 3,854 Net liabilities of discontinued operations......... -- 774 Other long-term liabilities........................ 2,240 36 --------- --------- Total long-term liabilities........................ 186,935 4,664 --------- --------- Commitments and Contingencies (Note 5) Stockholders' Equity (Deficit): Preferred stock, $.01 par value, 1,000,000 shares authorized, none outstanding, 15,000 shares designated Series A Junior Participating.......... -- -- Common stock, $.001 par value, 30,000,000 shares authorized, 15,015,317 shares issued and outstanding at December 31, 2000 and September 30, 2001, respectively................................ 15 15 Additional paid-in capital......................... 150,288 153,264 Accumulated deficit................................ (143,411) (253,108) --------- --------- Total stockholders' equity (deficit)............... 6,892 (99,829) --------- --------- Total liabilities and stockholders' equity (deficit)......................................... $ 300,611 $ 213,719 ========= =========
The accompanying notes are an integral part of these condensed consolidated balance sheets. F-35 AVIATION SALES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data) (Unaudited)
For the Nine Months Ended September 30, -------------------- 2000 2001 --------- --------- Operating revenues: Sales.................................................. $ 274,668 $ 207,316 Other.................................................. 3,619 6,420 --------- --------- Total operating revenues............................. 278,287 213,736 Cost of sales............................................ 258,297 214,361 --------- --------- Gross profit (loss)...................................... 19,990 (625) Operating expenses....................................... 39,207 37,653 --------- --------- Loss from operations................................... (19,217) (38,278) Interest expense......................................... 15,236 18,876 Charge to reserve notes receivable from KAV Inventory, LLC..................................................... -- 37,900 Other expense, net....................................... 1,545 1,566 --------- --------- Loss before income taxes, equity income (loss) of affiliate and discontinued operations................. (35,998) (96,620) Income tax expense (benefit)............................. 3,823 (141) --------- --------- Loss before equity income (loss) of affiliate and discontinued operations............................... (39,821) (96,479) Equity income (loss) of affiliate........................ 43 (6,573) --------- --------- Loss from continuing operations........................ (39,778) (103,052) Discontinued operations: Operations, net of income taxes........................ (23,432) -- Loss on disposal, net of income taxes.................. (51,940) (6,645) --------- --------- Total discontinued operations.......................... (75,372) (6,645) --------- --------- Net loss............................................... $(115,150) $(109,697) ========= ========= Basic loss per share: Loss from continuing operations........................ $ (2.65) $ (6.86) Loss from discontinued operations...................... (5.02) (0.45) --------- --------- Net loss............................................... $ (7.67) $ (7.31) ========= ========= Diluted loss per share: Loss from continuing operations........................ $ (2.65) $ (6.86) Loss from discontinued operations...................... (5.02) (0.45) --------- --------- Net loss............................................... $ (7.67) $ (7.31) ========= ========= Weighted average shares of common stock and common stock equivalents used to calculate earnings per share, basic and diluted............................................. 15,015 15,015 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-36 AVIATION SALES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (In Thousands, Except Share Data) (Unaudited)
Common Stock Additional ----------------- Paid-in Accumulated Total Shares Amount Capital Deficit Equity (Deficit) ---------- ------ ---------- ----------- ---------------- Balance as of December 31, 2000............... 15,015,317 $15 $150,288 $(143,411) $ 6,892 Net loss.............. -- -- -- (109,697) (109,697) Warrants issued to shareholders for credit support....... -- -- 2,892 -- 2,892 Warrants issued to shareholder in connection with the sale of a property... -- -- 46 -- 46 Warrants issued to third party ......... -- -- 38 -- 38 ---------- --- -------- --------- --------- Balance as of September 30, 2001............... 15,015,317 $15 $153,264 $(253,108) $ (99,829) ========== === ======== ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-37 AVIATION SALES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
For the Nine Months Ended September 30, -------------------- 2000 2001 --------- --------- CASH FLOW FROM OPERATING ACTIVITIES: Net loss................................................ $(115,150) $(109,697) Adjustments to reconcile net loss to cash provided by (used in) activities: Loss from discontinued operations....................... 51,940 6,645 Charge to reserve notes receivable from KAV Inventory, LLC.................................................... -- 37,900 Depreciation and amortization........................... 10,789 12,108 Write down of assets.................................... 4,871 21,738 Proceeds from sale of equipment on lease, net of gain... 885 3,282 Provision for doubtful accounts......................... 1,593 4,804 Loss on sale of affiliate............................... 859 -- Equity in (income) loss of affiliate, net of taxes...... (43) 6,573 Gain on sale of subsidiary.............................. -- (5,664) Income on non-refundable lease deposit.................. -- (2,204) Expense from warrants issued to third parties........... -- 440 Deferred income taxes................................... 2,475 -- (Increase) decrease in accounts receivable.............. (14,722) 24,291 (Increase) decrease in inventories...................... 51,123 (759) Decrease in other current assets........................ 9,117 5,838 (Increase) decrease in other assets..................... 10,361 (526) Increase (decrease) in accounts payable................. 1,544 (5,016) Increase in accrued expenses............................ 4,892 14,471 Decrease in other liabilities........................... (4,137) -- --------- --------- Net cash provided by operating activities.............. 16,397 14,224 --------- --------- CASH FLOW FROM INVESTING ACTIVITIES: Purchases of fixed assets............................... (8,645) (1,393) Payments from related parties........................... 67 1,793 Investment in limited liability company................. (2,000) -- Proceeds from sale of affiliate......................... 1,455 21,290 Net proceeds from the sale of discontinued operations... 39,409 -- --------- --------- Net cash provided by investing activities.............. 30,286 21,690 --------- --------- CASH FLOW FROM FINANCING ACTIVITIES: Borrowing under senior debt facilities.................. 322,836 255,456 Payments under senior debt facilities................... (415,057) (289,675) Proceeds of term loan................................... 15,500 12,000 Payments on equipment loans............................. (145) (998) Payments on notes payable............................... (2,411) (5,500) Payments on capital leases.............................. (197) (99) Payments of deferred financing costs.................... (9,588) (2,662) --------- --------- Net cash used in financing activities.................. (89,062) (31,478) --------- --------- Net cash provided by (used in) discontinued operations... 36,000 (1,813) --------- --------- Net increase (decrease) in cash and cash equivalents..... (6,379) 2,623 Cash and cash equivalents, beginning of period........... 19,439 -- --------- --------- Cash and cash equivalents, end of period................. $ 13,060 $ 2,623 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid........................................... $ 33,458 $ 11,330 ========= ========= Income taxes paid....................................... $ 1,028 $ 60 ========= ========= SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES: Acquisition of property through capital lease (See Note 5)..................................................... $ -- $ 34,240 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-38 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2001 (In Thousands, Except Share Data) (Unaudited) 1. BASIS OF PRESENTATION Interim Condensed Consolidated Financial Statements Aviation Sales Company ("ASC" or the "Company") is a Delaware corporation, which through its subsidiaries provides aircraft maintenance, repair and overhaul services to commercial passenger airlines, air cargo carriers, aircraft leasing companies, maintenance and repair facilities and aircraft parts redistributors throughout the world. During 2000, the Company sold substantially all of the assets of its parts redistribution operation, its new parts distribution operation and its manufacturing operations. The results of operations for these businesses are included in the accompanying condensed consolidated statements of operations as discontinued operations. See Note 2 for further discussion. The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company's December 31, 2000 consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the 2000 fiscal year (File No. 001- 11775). In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 2001 and the results of its operations for the three and nine month periods ended September 30, 2000 and 2001 and cash flows for the nine month periods ended September 30, 2000 and 2001. The results of operations and cash flows for the nine month period ended September 30, 2001 are not necessarily indicative of the results of operations or cash flows which may be reported for the year ending December 31, 2001. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Principal estimates made by the Company include the estimated losses on disposal of discontinued operations, the allowance to reduce inventory to the lower of cost or net realizable value, the estimated profit recognized as aircraft maintenance, design and construction services are performed, the allowance for doubtful accounts and notes receivable, the realizability of its investment in affiliates, future cash flows in support of its long lived assets, medical benefit accruals, the estimated fair value of the facilities under capital lease, and the allowances for litigation and environmental costs. A principal assumption made by the Company is that inventory will be utilized and realized in the normal course of business and may be held for a number of years. Recently Issued Accounting Standards In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and modifies the application of the F-39 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) purchase accounting method. The elimination of the pooling-of-interest method is effective for transactions initiated after June 30, 2001. The remaining provision of SFAS No. 141 will be effective for transactions accounted for using the purchase method that are completed after June 30, 2001. The Company does not believe that the adoption of SFAS No. 141 will have a significant impact on its financial statements. In July 2001, the FASB also issued SFAS No. 142, "Goodwill and Intangible Assets." SFAS No. 142 eliminates the current requirement to amortize goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with defined lives and addresses the impairment testing and recognition for goodwill and intangible assets. SFAS No. 142 will apply to goodwill and intangible assets arising from transactions completed before and after the Statement's effective date of January 1, 2002. At September 30, 2001, the Company has net goodwill of $26,513 which will be subject to the new impairment tests prescribed under the statement. These new requirements will impact future period net income equal to the amount of discontinued goodwill amortization offset by goodwill impairment charges, if any, and adjusted for any differences between the old and new rules for defining goodwill and intangible assets on future business combinations. An initial impairment test must be performed as of January 1, 2002. Any resulting impairment charge from this initial test will be reported as a change in accounting principle, net of tax. The Company is currently reviewing the provisions of these Standards to determine any impact that might result from adoption, and has not yet made a determination of the impact that adoption of SFAS No. 142 will have on the consolidated financial statements. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and the accounting and reporting provisions of Accounting Principles Board Opinion (APB) No. 30, "Reporting the Results Of Operations-- Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 also amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. SFAS No. 144 establishes a single accounting model for assets to be disposed of by sale whether previously held and used or newly acquired. SFAS No. 144 retains the provisions of APB No. 30 for presentation of discontinued operations in the income statement, but broadens the presentation to include a component of an entity. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and the interim period within. The Company does not believe that the adoption of SFAS No. 144 will have a material impact on its consolidated financial statements. Comprehensive Income For all periods presented comprehensive loss is equal to net loss. Revenue Recognition During the three months ended June 30, 2001, the Company changed its method of accounting for revenue recognition at its engine overhaul facility. Revenues related to engine overhaul services are recognized upon shipment of the overhauled engine. Prior to this change, revenue was recognized as services were performed. The change in the method of accounting for revenue recognition at the Company's engine overhaul facility did not have a material impact on the Company's financial position or current or prior periods consolidated results of operations. Liquidity The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. Since March 31, 2000, the Company has been out of compliance F-40 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) with certain of the financial covenants contained in the Company's credit agreement with its senior lenders and one of the lease agreements to which the Company is a party on several occasions. Since May 31, 2000, the Company has amended and restated its senior credit facility and amended one of its lease agreements on several occasions. The Company was not in compliance at September 30, 2001 with certain covenants contained in the credit agreement and one of its lease agreements and the Company's senior lenders and the lessor have waived the covenant violations. As discussed in Note 2, during 2000 and 2001 the Company sold substantially all of the assets of its parts redistribution operation, new parts distribution operation, manufacturing operations and one of its component overhaul operations. The proceeds from these sales were used to repay senior indebtedness and, with respect to the sale of the component overhaul operations, to repay senior indebtedness and for working capital. In addition: (i) in February 2000 the Company borrowed $15,500 under a supplemental term loan with the financial institution that is the agent for the revolving credit facility, and (ii) in February 2001 the Company borrowed $10,000 under a term loan from a second financial institution. The proceeds from these loans were used to repay senior indebtedness and for working capital. The revolving credit facility and the remaining balance on the $15,500 term loan ($12,000) mature in July 2002 and the $10,000 term loan matures in August 2002. As a result of the above transactions, the outstanding balance on the revolving credit facility was reduced from $268,013 as of March 31, 2000 to $1,740 as of September 30, 2001. As of November 16, 2001, the Company has $4,496 of availability for borrowing under its revolving credit facility. The Company has also recently closed (one of which has been closed on a temporary basis) two of its maintenance, repair and overhaul ("MR&O") facilities, consolidated the operations of one of its component overhaul businesses from two facilities to one, reduced its headcount at certain of its other MR&O facilities and implemented salary and benefit reductions that affected virtually all employees in order to lower its operating expenses. Further, the Company was obligated to make $6,704 in interest payments on its 8/1///8/% senior subordinated notes on August 15, 2001, however, the Company did not make the payments because of its agreement with the holders of 73.02% of its outstanding senior notes. See Note 7. Although the Company expects to be able to meet its working capital requirements from its available resources and from other sources, including sales of assets and further equity and/or debt infusions, there can be no assurance that the Company will have sufficient working capital to meet its obligations. The Company incurred net losses for the years ended December 31, 1999 and 2000 and for the nine months ended September 30, 2001 and required cash to fund its operating activities for the years ended December 31, 1998, 1999 and 2000. As a result of these matters, the Company's auditors have issued their opinion on the December 31, 2000 consolidated financial statements with a going concern modification. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 2. DISCONTINUED OPERATIONS In September 2000, the Company completed the sale of substantially all of the assets of its manufacturing operations for $40,299, after post-closing adjustments and excluding transaction expenses. The cash proceeds of the sale were used to repay senior indebtedness. In December 2000, the Company completed the sale to Kellstrom Industries, Inc. (the "Purchaser") of substantially all of the assets and business of its redistribution operation in a series of transactions intended to constitute a single transaction (the "Transaction"). The aggregate purchase price received in the Transaction was $156,400, approximately $127,000 of which was paid in cash ($122,000 after payment of transaction expenses). The net proceeds of the Transaction were used to repay senior indebtedness. As part of the Transaction, the Company acquired a 50% interest in a limited liability company, KAV Inventory, LLC ("KAV") organized by the Purchaser and the Company. Substantially all of the aircraft and engine spare parts F-41 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) inventory and the engine inventory of the Company's redistribution operation, as well as certain rotable parts inventories from two of the Company's MR&O operations, were sold to KAV for 89% of the closing date book value of such inventory ($148,600, subject to post-closing adjustments). Consideration for the sale of inventory was comprised of cash of approximately $105,500, two senior subordinated notes, each in the principal amount of $13,700 (one of which was sold to Kellstrom in the second component of the transaction for $13,700 in cash), and one junior subordinated note in the principal amount of $15,700. The notes bear interest at 14% per annum and are subordinated in all respects to KAV's institutional financing. In addition, the Company issued an $8,500 letter of credit to secure, in part, KAV's institutional financing (see discussion below). Further, the Company and the Purchaser each advanced $2,300 to KAV to allow it to pay fees and costs relating to its institutional financing. The Company and the Purchaser are entitled to receive reimbursement of these advances after payment of the institutional financing and prior to repayment of the senior subordinated notes. KAV's sole business is the liquidation of the inventory it acquired from the Company. KAV entered into an agreement to consign all of its inventories to the Purchaser. The Transaction agreement specifies that all of the proceeds from sales of the inventory, less a consignment commission to the Purchaser of 20%, will be used to pay interest and principal on KAV's institutional debt. After the institutional debt is paid in full, proceeds from the sale of inventory would be used to reimburse the Company and the Purchaser for advances made to KAV to allow it to pay fees and costs relating to its institutional financing, to pay adjustment notes, if any, resulting from post closing adjustments to the closing date book value of the inventory and thereafter to pay interest and principal on the two $13,700 senior notes. Interest and principal on the $15,700 junior note would be paid from the remaining proceeds from the sale of inventory, less a 35% consignment commission to the Purchaser. Under the Transaction agreement, the Company has approval rights relating to the sale price of certain inventory. Because of the uncertainty regarding the collection of the notes, interest income on the notes is not being recognized. The projections of cash distributions to the Company are highly dependent upon the timing of the sales and the sale prices obtained by the Purchaser for KAV's inventory. The second component of the Transaction consisted of a sale of certain non- inventory assets of the redistribution operation, including one of the $13,700 senior subordinated notes described above, net of certain payables assumed by the Purchaser, for approximately $21,500, all of which was paid in cash. Under the terms of the Transaction, the Purchaser has the right after one year from the date of the Transaction to require the Company to repurchase receivables sold in accordance with the Transaction to the extent they remain uncollected. As of September 30, 2001, $5,605 receivables sold pursuant to the Transaction had not been collected by the Purchaser. In addition, the purchase price for the sale of inventory and non-inventory assets is subject to post-closing adjustments as set forth in the agreements. The Purchaser has indicated that post-closing adjustments would result in a reduction in the aggregate consideration received pursuant to the Transaction of approximately $681. However, no final agreement has been reached with the Purchaser regarding this issue. In addition, as part of the sale of the redistribution operation as described above, the Purchaser leased from the Company a facility and certain furniture, fixtures and equipment used in the redistribution operations for a one-year period. The Purchaser has an option to acquire these assets during the term of the lease and after one year the Company has an option to require the Purchaser to acquire the assets, which can be extended by the Purchaser for six months under certain circumstances. The Purchaser has also entered into a sublease agreement relating to the redistribution operation's warehouse and corporate headquarters facility for a five-year period, with the right to renew for five consecutive five-year periods at a market rental rate. The Company also entered into a non-competition agreement whereby the Company is restricted from engaging in the redistribution business for a period of up to five years. In addition, the Company entered into a cooperation agreement under F-42 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) which it agreed to provide repair services for the KAV parts inventory and the Purchaser's parts inventory and the Purchaser agreed to supply parts to the Company's MR&O operations. In July 2001, KAV's institutional lender advised KAV that it was in default under its loan agreement and on October 5, 2001, the lender exercised its rights to call the outstanding institutional financing. Accordingly, the Purchaser is now prohibited from selling inventory of KAV except in certain circumstances and KAV has terminated the consignment agreement with the Purchaser. Additionally, on October 18, 2001, the lender drew against the Company's $8,500 letter of credit which immediately reduced KAV's institutional financing by $8,500 and increased the Company's notes receivable from KAV by $8,500. Further, during the last few months, the Purchaser has reported in its filings with the SEC that it is having substantial financial difficulties. As a result of these matters, and due to current poor economic conditions in the redistribution industry and the aviation industry as a whole and lower than projected sales levels by KAV, during the quarter ended June 30, 2001 the Company recorded a full reserve against both the $13,700 senior note and the $15,700 junior note due from KAV which it holds. Additionally, the Company reserved $8,500 during the quarter ended September 30, 2001 for the additional note receivable from KAV that arose on October 18, 2001 when the Company's letter of credit was drawn against. For the same reasons, during the 2001 second and third quarters, the Company recorded reserves totaling $5,081 and $2,600, respectively, relating to net assets of discontinued operations whose realizability is impacted by the operations and financial conditions of the Purchaser and KAV. In total, aggregate charges relating to these matters were $11,100 and $45,581 for the three and nine months ended September 30, 2001. Further, in the event that the Purchaser's financial difficulties as discussed above adversely impact its ability to make payments under its lease obligations and/or its obligation to purchase certain property and equipment, additional write downs and accruals may be necessary. Finally, the Purchaser's financial condition may adversely impact its ability to satisfy its obligations under the above-described ancillary agreements. In December 2000, the Company completed the sale of the stock of its subsidiary, Aviation Sales Bearings Company. In the transaction, the Company received net aggregate consideration of $17,700 inclusive of debt assumed by the purchaser. The net cash proceeds from the sale, which approximated $13,500, were used to reduce outstanding senior indebtedness. Also, as part of the transaction, the Company retained certain accounts receivable and inventories. Such retained assets are being sold and collected pursuant to consignment and collection agreements executed with the purchaser. The Company anticipates that the liquidation of these assets will provide additional consideration as these receivables are collected and inventory is sold. The net income (loss) of these operations prior to their respective disposal dates net of income taxes is included in the accompanying condensed consolidated statements of operations under "discontinued operations." Previously issued financial statements have been changed to reflect those operations as discontinued operations. Revenues from such operations were $52,654 and $217,828 for the three and nine months ended September 30, 2000, respectively. 3. INVESTMENTS IN AFFILIATES During 1994, Whitehall obtained a 40% ownership in a joint venture involved in the development of aircraft-related technology for an initial investment of $1. The Company accounted for its investment in the joint venture under the equity method. In 1994, Whitehall loaned $2,000 to the joint venture, which was evidenced by a promissory note, which accrued interest at a maximum rate of 5% per annum. Principal and accrued interest became due on January 5, 1999. During February 2000, the Company converted the then outstanding note and accrued interest payable balance into a capital contribution. During May 2000, the Company liquidated its investment in the joint venture and recorded a charge of $859 to other expense. In August 1999, the Company obtained a 50% interest in a limited liability corporation that designs, manufactures and installs an FAA approved conversion kit that converts certain Boeing 727 aircraft from passenger configuration to cargo configuration. The initial investment was $2,500. During 2000 and 2001, the Company has invested an additional $3,734 and $339, respectively, in the form of cash advances and services. F-43 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company accounts for this investment under the equity method. The limited liability corporation is in the early development of the conversion kit and sales to date have been minimal and the Company has incurred losses to date in fulfilling these sales. Realizability of this investment is dependent on the ability of the limited liability corporation to attract new business during future periods at rates sufficient to cover its costs including the investment made by the Company. As a result of current economic and industry factors, the Company has recorded a charge of $6,417 during the three months ended September 30, 2001 to reserve in full the unamortized carrying value of this investment. 4. NOTES PAYABLE AND REVOLVING LOAN Prior to May 31, 2000, the Company had a revolving loan and letter of credit facility (the "Credit Facility") of $300,000 with a group of financial institutions. Effective May 31, 2000, the Credit Facility was amended and restated and the commitment was reduced to $285,000. Following the sales of businesses described in Note 2, the commitment was reduced to $57,737, which was also the commitment amount as of September 30, 2001. Pursuant to an amendment executed on November 27, 2001, the commitment was reduced to $47,500. The Credit Facility has been amended on several occasions since May 31, 2000. The Credit Facility, as amended to date expires in July 2002. Interest under the Credit Facility is, at the option of the Company, (a) prime plus 3.0%, or (b) LIBOR plus 4.5%. Borrowings under the Credit Facility are secured by a lien on substantially all of the Company's assets and the borrowing base consists primarily of certain of the Company's account receivables and inventory. The Credit Facility contains certain financial covenants regarding the Company's financial performance and certain other covenants, including limitations on the amount of annual capital expenditures and the 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 as defined. A default under the Credit Facility could potentially result in a default under other agreements to which the Company is a party, including its lease agreements. In addition, the Credit Facility requires mandatory repayments and a reduction in the total commitment under the Credit Facility 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. As of September 30, 2001 the Company was not in compliance with certain covenants. The financial institutions which are party to the Credit Facility have agreed to waive such event of non-compliance. To the extent the Credit Facility remains outstanding as of certain dates, the Company is committed to pay incremental financing fees as follows: November 14, 2001--2% of outstanding commitment and February 14, 2002--2% of outstanding commitment. The November 14, 2001 fee of $950 is being paid in three equal installments on November 27, 2001, December 14, 2001 and January 14, 2002. As of September 30, 2001, $3,109 was available for borrowing under the Credit Facility and outstanding letters of credit aggregated $29,606. Since September 30, 2001, $17,500 of letters of credit have been drawn (see Notes 2 and 5). In February 2000, the Company obtained a $15,500 term loan from the financial institution that is the agent under the Credit Facility. The term loan is senior secured debt; bears interest at 12% per annum, contains financial and other covenants that are consistent with the Credit Facility, and matures in July 2002. As discussed in Note 8, the Company repaid $3,500 of the term loan from the proceeds of the sale of Caribe Aviation. The remaining principal balance is due in July 2002. Under the term loan agreement, the Company also granted the lender common stock purchase warrants to purchase 129,000 shares of the Company's common stock exercisable for nominal consideration at any time until December 31, 2005. If the term loan is not repaid in full, the warrants entitle the holder to require the Company to repurchase the warrants or common shares issued upon prior exercise of the warrants at $8.50 per share. The lender has not required the Company to repurchase any warrants through November 16, 2001. The Company has recorded the value of these warrants ($1,079) as additional deferred financing costs and accrued expenses and is amortizing this amount to interest expense over the term of this loan. F-44 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) As discussed in Note 7, the Company's senior lenders have agreed, subject to certain conditions, to forbear until March 31, 2001 in regard to the default which existed in the senior credit facilities resulting from the failure to make the August 15, 2001 subordinated note interest payment. This forbearance effectively cures the cross-default under this term loan through the end of the forbearance period. Subsequent to the end of the forbearance period (if the restructuring is not completed by that date or if the forbearance period is not otherwise extended) the holder of the term loan will have the ability to accelerate payment of the outstanding term loan balance. In February 2001, the Company obtained a $10,000 term loan from a financial institution. The term loan is senior secured debt, bears interest at LIBOR plus 2% and matures in August 2002. The proceeds of the term loan were used to pay the semi-annual interest payment on the senior subordinated notes in February 2001 of $6,704 and for working capital purposes. In connection with the term loan, the Company issued warrants to purchase 250,000 shares of its unissued common stock at an exercise price of $4.00 per share to each of four individuals, one of whom is an officer and director of the Company and two of whom are principal stockholders of the Company. Each of these individuals provided credit support to the financial institution which advanced the loan proceeds. The Company has recorded the value of these warrants ($2,536) as additional deferred financing costs and is amortizing this amount to expense over the term of the loan. In May 2001, the Company obtained a short-term increase of up to $3,000 in the term loan. The Company borrowed $2,000 under the increased term loan in May 2001, and thereafter repaid the additional borrowing from the proceeds of the Caribe sale. One of the Company's principal stockholders provided credit support for the increased amount of the term loan. In return for providing credit support for the additional borrowing, the stockholder received a cash fee of $67 and warrants to purchase 333,334 shares of the Company's common stock at an exercise price of $1.40 per share. The value of these warrants ($356) and the cash fee of $67 were charged to results of operations during the quarter ended June 30, 2001. The Credit Support provided by each of the related parties was in the form of a full and unconditional guaranty to the financial institution, up to a percentage amount, of any amounts required to be repaid to the financial institution. Senior Subordinated Notes In February 1998, the Company sold $165,000 of senior subordinated notes with a coupon rate of 8.125% at a price of 99.395%. The senior subordinated notes mature on February 15, 2008. Interest is payable on February 15 and August 15 of each year. 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 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. 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 Company did not meet the fixed charge coverage ratio for the one-year period ended September 30, 2001. Accordingly, its ability to incur additional debt is currently limited under its indenture. The senior subordinated notes are also effectively subordinated in right of payment to all existing and future liabilities of any of the Company's subsidiaries that do not guarantee the senior subordinated notes. F-45 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The senior subordinated notes are fully and unconditionally guaranteed, on a senior subordinated basis, by substantially all of the Company's existing subsidiaries and each subsidiary that will be organized in the future by the Company unless such subsidiary is designated as an unrestricted subsidiary. Subsidiary guarantees are joint and several, full and unconditional, general unsecured obligations of the subsidiary guarantors. Subsidiary guarantees are subordinated in right of payment to all existing and future senior debt of subsidiary guarantors, including the Credit Facility, and are also effectively subordinated to all secured obligations of subsidiary guarantors to the extent of the assets securing their obligations, including the Credit Facility. Furthermore, the indenture permits subsidiary guarantors to incur additional indebtedness, including senior debt, subject to certain limitations. The Company has not presented separate financial statements and other disclosures concerning each of the subsidiary guarantors because management has determined that such information is not material to investors. The senior subordinated notes are redeemable, at the Company's option, in whole or in part, at any time after February 15, 2003, at the following redemption prices, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date: (i) 2003--104.063%; (ii) 2004--102.708%; (iii) 2005--101.354%; and (iv) 2006 and thereafter--100%. Upon the occurrence of a change in 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 in control or that such repurchase will then be permitted under the Credit Facility. Under the indenture, if the Company sells assets (other than inventory in the ordinary course of business or leases or assets subject to leases in the ordinary course of business) with a fair market value in excess of $2,000 or for net proceeds in excess of $2,000, the Company must comply with certain requirements. Additionally, the Company must use the proceeds from such asset sales, within 270 days after completion of the sales, to either permanently repay senior debt or to acquire other businesses or assets (or, if such proceeds are not used for these purposes, then such proceeds must be used to repurchase senior subordinated notes). Further, if the value of the assets sold exceeds $15,000, the Board of Directors must determine that the Company is receiving fair market value for the assets sold. The indenture contains certain other covenants that, among other things, limit the Company's ability and that of its subsidiaries to incur additional indebtedness and issue preferred stock, pay dividends or make other distributions, make investments, 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. On August 14, 2001, the Company entered into an agreement with the holders of 73.02% of its outstanding 8/1///8/% senior subordinated notes to restructure these notes. See Note 7. Other Loans In connection with the Company's acquisition of Kratz-Wilde Machine Company in October 1997, 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 $2,500 (discounted to $2,200). A payment of $1,250 was made during January 1999 and the final payment of $1,250 was made during January 2000. Interest on this note was imputed at 8%. In connection with the acquisition of Caribe and AIDI, 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. F-46 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The note was payable over a two year period with an interest rate of 8% per annum. The first payment of $2,500 was made during March 1999 and the second payment of $2,500 was made during March 2000. 5. COMMITMENTS AND CONTINGENCIES Litigation And Claims Several lawsuits have been filed against the Company and certain of its officers and directors, and its auditors, in the United States District Court for the Southern District of Florida, which have now been consolidated into a single lawsuit. The consolidated complaint, as amended in March 2000, September 2000 and September 2001, alleges violations of Sections 11 and 15 of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 20(a) of, and Rule 10b-5 under, the Securities Exchange Act of 1934 ("Exchange Act"). Among other matters, the complaint alleges that the Company's reported financial results were materially misleading and violated generally accepted accounting principles. The amended consolidated complaint seeks damages and certification of two classes, one consisting of purchasers of the Company's common stock in the June 1999 public offering and one consisting of purchasers of the Company's common stock during the period between April 30, 1997 and April 14, 2000. On August 22, 2001, the District Court granted the Company's motion to dismiss the pending claims under the Exchange Act, with leave to amend, but denied the Company's motion to dismiss the pending claims under the Securities Act. A third amended consolidated complaint was filed on September 22, 2001 and the Company has filed a motion to dismiss the Exchange Act claims contained in the third amended consolidated complaint. The Company believes that the allegations contained in the third amended consolidated complaint are without merit and intends to vigorously defend these and any related actions. Nevertheless, unfavorable resolution of these lawsuits could have a material adverse effect on the Company's financial position and results of operations. The U.S. Securities and Exchange Commission is conducting an inquiry into the Company's accounting for certain prior year transactions. The Company is cooperating with the SEC in its inquiry. The Company is also involved in various lawsuits and other contingencies arising out of its 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 or results of operations 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 TIMCO-Lake City. Ongoing testing is being performed and new information is being gathered to continually assess the impact and magnitude of the required remediation efforts on the Company. Based upon the most recent cost estimates provided by environmental consultants, the Company believes that the total testing, remediation and compliance costs for this facility will be approximately $1,400. Testing and evaluation for all known sites on TIMCO-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 $1,400 standby letter of credit in favor of the FDEP. F-47 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Additionally, there are other areas adjacent to TIMCO-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 the Company 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. The Company owns a parcel of real estate on which the Company previously operated an electronics business. The Company is currently assessing environmental issues with respect to this property. When the Company acquired Whitehall, its environmental consultants estimated that remediation costs relating to this property could be up to $1,000. Accrued expenses in the accompanying December 31, 2000 and September 30, 2001 condensed consolidated balance sheets includes $1,702 and $1,663, 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 estimates, 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. Tax Retention Operating Lease Financing On December 17, 1998, the Company entered into an operating lease for its build-to-suit corporate headquarters and warehouse facility with Wells Fargo, as successor to First Security Bank, National Association, as trustee of a newly created trust, as lessor. The lease had an initial term of five years and is a triple net lease with annual rent as provided in the lease. Pursuant to an amendment to the lease agreement executed November 27, 2001, the lease maturity was changed to July 2002. 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 the Company's 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. Lease payments are currently at a rate of Prime plus 3.25% to 4.0% and the Company is responsible for all property taxes, insurance and maintenance of the property. The Company has subleased a portion of the facility to the purchaser of the Company's redistribution operation (see Note 2). The sublease is for an initial term of five years with an additional option to renew for five consecutive five-year terms at market rates. Payments during the initial term are the lesser of $384 per month or the actual amount paid by the Company relating to the premises subleased, less $26 per month relating to certain space which the Company occupies in the building. The development of the new facility was financed by the trust through a $43,000 loan facility provided by a financial institution. Pursuant to the agreements entered into in connection with this financing, the Company was obligated to develop the new facility on behalf of the trust and was responsible for the timely completion thereof within an established construction budget. As discussed in Note 8, in conjunction with the sale of Caribe, the purchaser of this business also acquired the real estate and facility used by the Caribe business for $8,500. These proceeds were used to repay a portion of the financing utilized to develop this facility. Further, under a September 10, 2001 agreement, the Company has agreed that the lender may draw down in full, at any time, the $9,000 letter of credit which the Company has posted as security for this loan and to apply the proceeds from such letter of credit draw against balances outstanding under this loan agreement. On November 7, 2001, the lender drew the entire $9,000 letter of credit. As a result of the draw on the letter of credit and modifications made to the required lease payments under a November 27, 2001 amendment to the F-48 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) lease, the Company has determined that the lease now qualifies as a capital lease. Since the Company intends to sell this property, the Company has recorded an asset, property held for sale, and a related capital lease liability in the amount of $34,240 in the accompanying condensed consolidated balance sheet as of September 30, 2001. The capital lease liability was reduced on November 7, 2001 by the application of the proceeds of the $9,000 letter of credit. Management estimates that the recorded value of the property held for sale currently exceeds its fair market value by approximately $9,000. Accordingly, the Company has recorded an impairment charge (included in other expense, net) of $9,000 during the three months ended September 30, 2001. The Company and substantially all of its subsidiaries have guaranteed the repayment of $25,240, after the November 7, 2001 draw on the line of credit, of the trust's obligations under these agreements. The trust's obligations under these agreements are secured by a lien on the real property and improvements comprising the facilities and on the fixtures therein. The lease agreement has been amended on several occasions. Under the terms of the April 19, 2001 amendment, two shareholders of the Company provided a guarantee in an amount up to $1.0 million. In exchange for providing their guarantee, the shareholders each received warrants to purchase 50,000 shares of the Company's common stock at an exercise price of $1.75 per share the value of which was charged to results of operations during the period. Such guarantee has been released in conjunction with the sale of Caribe and repayment of proceeds relating to the sale of the real estate and facility as discussed above. As part of the April 19, 2001 amendment, the lessor also agreed to waive non-compliance with financial covenants, if any, through the period ended December 31, 2001. As of November 9, 2001 the Company was not in compliance with certain covenants contained in the lease agreement. The lessor has agreed to waive such events of non-compliance. Other Matters The Company has employment agreements with certain of its officers and key employees. 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. In January 2001, the Company sold a loan relating to its former corporate headquarters to a principal stockholder of the Company for 90% of the then outstanding principal balance of $2,006. In conjunction with the transaction, the Company granted to the stockholder warrants to purchase 25,000 shares of common stock at an exercise price of $3.63 per share. The value of the warrants of $46 was charged to operating results and credited to additional paid-in capital. The Company has a commitment with a vendor to convert one Airbus aircraft from passenger configuration to cargo configuration. The terms of the agreement specify that the Company has the right to terminate the agreement; however, the Company could be subject to a termination fee. The termination fee would be calculated as the unused costs incurred by the vendor plus a fee equal to 10% of such unused costs. 6. EARNINGS PER SHARE
For the Three For the Nine Months Ended Months Ended September 30, September 30, ------------- ------------- 2000 2001 2000 2001 ------ ------ ------ ------ Weighted average common and common equivalent shares outstanding used in calculating diluted and basic earnings per share.......................... 15,015 15,015 15,015 15,015 ====== ====== ====== ====== Options and warrants outstanding which are not included in the calculation of diluted earnings per share because their impact is antidilutive.... 1,773 4,335 1,773 4,335 ====== ====== ====== ======
F-49 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 7. CONTEMPLATED SENIOR SUBORDINATED NOTE RESTRUCTURING AND RIGHTS OFFERING In August 2001, the Company entered into an agreement with the holders of 73.02% of its outstanding senior subordinated notes to restructure those notes. Under the agreement, the note holders will exchange their existing notes for up to $10,000 in cash, $100,000 par value of new five-year notes with paid-in-kind interest of 8% per annum and 15% of the equity of the reorganized company. The new notes will be redeemable at the Company's option at the following percentages of par plus accrued interest on the par value through the date of redemption: 2002--70.0%, 2003--72.5%, 2004 --73.0%, 2005--75.625% and 2006-- 77.5%. If the new notes are not redeemed prior to their maturity, they will convert into common stock representing 90% ownership of the reorganized company. The new notes will also provide that the holders will receive additional shares of common stock representing 15% of the reorganized company if the notes are redeemed in 2002 or 2003 and 10% of the reorganized company if the notes are redeemed in 2004, 2005 or 2006. As a result of the contemplated note restructuring and agreement entered into with holders of the existing notes, the Company has classified the existing senior subordinated notes as a current liability in the accompanying condensed consolidated balance sheet as of September 30, 2001. In connection with the restructuring, the Company intends to conduct a rights offering of shares of its common stock to all existing stockholders to raise $20,000. A principal stockholder of the Company has agreed to provide the Company with a standby commitment to purchase any unsold allotments. Investors who purchase the $20,000 of shares in the restructured company will receive 80% of the outstanding common stock of the reorganized company. Under the terms of the agreement, the Company's existing stockholders will own 5% of the reorganized company. Additionally, the Company's new note holders and existing stockholders will each as a group be granted warrants at a fixed price to purchase an additional 10% of the reorganized company. Approval of the note restructuring and the sale of common shares in the rights offering will require approval of a majority of the Company's stockholders. Completion of the note restructuring will also be subject to the requirements that 80% of the holders of the Company's existing notes tender their notes in the exchange and consent to the removal of all covenants contained in the indenture relating to the existing notes (other than the obligation to pay principal and interest), approval by the Company's senior lenders (which has recently been obtained) and other customary conditions. Although there can be no assurances, the restructuring is expected to be completed during the first quarter of 2002. Under the agreement, the holders of more than a majority of the Company's outstanding notes have agreed to waive the default arising as a result of the failure to pay the interest payment on its notes due on August 15, 2001. Also, the Company's senior lenders have agreed to forbear on the default in the senior loan agreements resulting from the failure to make the August 15, 2001 note interest payment until March 31, 2001, so long as the registration statements relating to the note exchange and rights offering have become effective by February 15, 2002. The Company has recently filed registration statements relating to the note exchange offer and rights offering; however these registration statements are not yet effective. In the event that the note exchange offer and rights offering fails to close, such failure is likely to have a material adverse effect on the Company and may force the Company to seek bankruptcy protection or commence liquidation or administrative proceedings. If the Company is unable to close the note exchange offer and rights offering, it will seek alternate financing to meet its working capital obligations. However, there can be no assurance such funding will be available. F-50 AVIATION SALES COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 8. OTHER EVENTS Due to the current economic environment and the depressed status of the aviation industry including the market for overhaul services relating to JT8D engines, and the results of operations relating to the Company's engine overhaul operation, during the quarters ended June 30, 2001 and September 30, 2001 the Company recognized non-cash charges totaling $10,886 and $2,853, respectively, relating to an impairment of goodwill, leasehold improvements and fixed assets and inventory reserves relating to this operation. Of this amount, $12,739 and $1,000 are recorded in operating expenses and cost of sales, respectively, in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2001. In May 2001, the Company completed the sale of the assets of its Caribe Aviation component repair operation. The purchase price was $22,500, of which $21,750 was received in cash at the closing and the balance will be received within one year, subject to post closing adjustments. The Company used $10,000 of the proceeds from the sale to repay the Credit Facility and $5,500 to repay borrowings under its term loans (see Note 4). The balance, net of expenses, was used for working capital. In addition, the purchaser acquired the real estate and facility on which the Caribe operation was located for an aggregate purchase price of $8,500. The proceeds from the sale of the real estate and facility were used to reduce the Company's outstanding tax retention operating lease financing (see Note 5). During the quarter ended June 30, 2001, the Company recognized a gain on the sale of Caribe Aviation and income on a non-refundable lease deposit that had previously been recorded as a long-term liability totaling $7,868 in the aggregate. These amounts are recorded in other expense, net in the accompanying condensed consolidated statements of operations. In addition, during the quarter ended June 30, 2001 the Company received settlements on accounts receivable of the former redistribution operation that had been previously fully reserved. These collections, totaling $2,645, are recorded as an offset to the loss from discontinued operations in the accompanying condensed consolidated statements of operations. F-51 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma condensed consolidated financial statements are based on the historical financial statements of the Company adjusted to give effect to the proposed common stock rights offering and restructuring of the old notes, as follows: . $33 million in principal amount of old notes are tendered under the limited cash option and are exchanged for $10 million in cash, which will be funded from the proceeds of the rights offering; . $132 million in principal amount of old notes are exchanged for $100 million of new notes, 4,504,595 post-reverse split shares of common stock and warrants to purchase 3,003,063 post-reverse split shares of common stock (at an exercise price of $5.16 per share); . We complete the rights offering and receive the $20 million cash investment; . We issue warrants to purchase 3,003,063 shares of post-reverse split common stock (at an exercise price of $5.16 per share) to our existing stockholders; . Our authorized common stock is increased to 500 million shares and we complete a ten-for-one reverse split of our issued and outstanding common stock; and . Fees and expenses associated with this exchange offer and consent solicitation and the rights offering are $4.0 million. The following unaudited pro forma condensed combined financial statements present: (i) the pro forma financial position of the Company at September 30, 2001 as if the proposed restructuring had been consummated on that date, and (ii) the pro forma results of operations of the Company for the nine months ended September 30, 2001 and the year ended December 31, 2000 as if the restructuring had been consummated as of the beginning of the periods. The unaudited pro forma condensed combined financial statements do not account for any potential conversion of the new notes upon maturity into an additional 270,275,706 post-reverse split shares of the Company's common stock. The information presented is derived from, should be read in conjunction with, and is qualified in its entirety by reference to, the separate historical financial statements and the notes thereto appearing elsewhere in this Prospectus or incorporated elsewhere in this Prospectus by reference. The unaudited pro forma condensed combined financial data have been included for comparative purposes only and do not purport to be indicative of the results of operations or financial position which actually would have been obtained if the restructuring had been effected at the beginning of the periods or as of the date indicated or of the financial position or results of operations which may be obtained in the future. As a result of the note exchange and the rights offering, the Company's statement of operations at the date of the consummation of the note exchange and the rights offering will reflect an extraordinary gain of $36.3 million. P-1 AVIATION SALES COMPANY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 (in thousands, except per share data)
Pro forma Pro forma Historical Adjustments 2000 ---------- ----------- --------- Operating revenues: Sales............................. $ 333,289 $ -- $ 333,289 Other............................. 4,788 -- 4,788 --------- ------- --------- Total operating revenues........ 338,077 -- 338,077 Cost of sales....................... 353,331 -- 353,331 --------- ------- --------- Gross profit (loss)................. (15,254) -- (15,254) Operating expenses.................. 74,580 -- 74,580 --------- ------- --------- Loss from operations................ (89,834) -- (89,834) Interest expense.................... 20,347 (14,750)(I) 5,597 Other expense....................... 925 -- 925 --------- ------- --------- Loss before income taxes and equity income of affiliates .............. (111,106) 14,750 (96,356) Income tax expense.................. 4,810 -- 4,810 --------- ------- --------- Loss before equity income of affiliates......................... (115,916) 14,750 (101,166) Equity income of affiliates, net of income tax......................... 43 -- 43 --------- ------- --------- Loss from continuing operations..... $(115,873) $14,750 $(101,123) ========= ======= ========= Basic and diluted loss per share from continuing operations......... $ (7.72) $ (3.37) ========= ========= Weighted average shares of common stock and common stock equivalents used to calculate earnings per share, basic and diluted........... 15,015 30,030 (J) ========= =========
P-2 AVIATION SALES COMPANY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (in thousands, except per share data)
Pro Forma Pro Forma Historical Adjustments 2001 ---------- ----------- --------- Operating revenues: Sales.................................. $ 207,316 $ -- $207,316 Other.................................. 6,420 -- 6,420 --------- ------- -------- Total operating revenues............. 213,736 -- 213,736 Cost of sales............................ 214,361 -- 214,361 --------- ------- -------- Gross profit (loss)...................... (625) -- (625) Operating expenses....................... 37,653 -- 37,653 --------- ------- -------- Loss from operations..................... (38,278) -- (38,278) Interest expense......................... 18,876 (10,962)(I) 7,914 Charge to reserve notes receivable from KAV Inventory, LLC...................... 37,900 -- 37,900 Other expense (income)................... 1,566 -- 1,566 --------- ------- -------- Loss before income taxes and equity loss of affiliate............................ (96,620) 10,962 (85,658) Income tax benefit....................... (141) -- (141) --------- ------- -------- Loss before equity income of affiliate... (96,479) 10,962 (85,517) Equity loss of affiliate................. (6,573) -- (6,573) --------- ------- -------- Loss from continuing operations.......... $(103,052) $10,962 $(92,090) ========= ======= ======== Basic and diluted loss per share from continuing operations................... $ (6.86) $ (3.06) ========= ======== Weighted average shares of common stock and common stock equivalents used to calculate earnings per share, basic and diluted............ 15,015 30,030 (J) ========= ========
P-3 AVIATION SALES COMPANY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 2001
Pro Forma September 30, Pro Forma September 30, 2001 Adjustments 2001 ------------- ----------- ------------- (In thousands, except share and per share data) ASSETS Current Assets: Cash and cash equivalents......... $ 2,623 $ 20,000 (A) (10,000)(C) (6,000)(H) (4,000)(G) $ 2,623 Accounts receivable, net.......... 36,023 -- 36,023 Inventories....................... 48,705 -- 48,705 Other current assets.............. 5,678 -- 5,678 --------- -------- --------- Total current assets.............. 93,029 -- 93,029 --------- -------- --------- Equipment on lease, net............ 384 -- 384 Fixed assets, net.................. 51,704 -- 51,704 Other Assets: Goodwill, net..................... 26,513 -- 26,513 Deferred financing costs, net..... 7,249 (3,237)(F) 4,012 Property held for sale............ 25,240 -- 25,240 Other............................. 9,600 -- 9,600 --------- -------- --------- Total other assets................ 68,602 (3,237) 65,365 --------- -------- --------- Total assets...................... $ 213,719 $ (3,237) $ 210,482 ========= ======== ========= LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable.................. $ 23,000 $ -- $ 23,000 Accrued expenses.................. 31,176 (8,379)(E) 22,797 Current maturities of notes payable.......................... 22,028 (4,260)(H) 17,768 Current maturities of capital lease obligations................ 34,418 -- 34,418 Senior subordinated notes......... 164,414 (131,531)(B) (32,883)(C) Revolving loan.................... 1,740 (1,740)(H) -- Customer deposits................. 13,686 -- 13,686 Committed letter of credit advances......................... 8,500 -- 8,500 Other............................. 9,922 -- 9,922 --------- -------- --------- Total current liabilities......... 308,884 (178,793) 130,091 --------- -------- --------- Senior subordinated convertible PIK notes............................. -- 114,700 (B) 114,700 Capital lease obligations, net of current portion................... 3,854 -- 3,854 Net liabilities of discontinued operations........................ 774 -- 774 Other long-term liabilities........ 36 -- 36 --------- -------- --------- Total long-term liabilities....... 4,664 114,700 119,364 --------- -------- --------- Commitments and Contingencies Stockholders' Equity (Deficit): Preferred stock, $.01 par value, 1,000,000 shares authorized, none outstanding, 15,000 shares designated Series A Junior Participating.................... -- -- -- Common stock, $.001 par value, 30,000,000 shares authorized (500,000,000 pro forma) 15,015,317 pre-reverse split shares issued and outstanding at December 31, 2000 and September 30, 2001, respectively (1,501,531 shares after completion of the reverse split); 30,030,634 post reverse split shares outstanding pro forma as adjusted......................... 15 24 (A) (12)(K) 3 (B) 30 (J) Additional paid-in capital........ 153,264 19,976 (A) 3,748 (B) 784 (B) -- (D) 12 (K) 177,784 Accumulated deficit............... (253,108) 22,883 (C) 12,296 (B) 8,379 (E) (3,237)(F) (4,000)(G) (216,787) --------- -------- --------- Total stockholders' equity (deficit)........................ (99,829) 60,856 (38,973) --------- -------- --------- Total liabilities and stockholders' equity (deficit)... $ 213,719 $ (3,237) $ 210,482 ========= ======== =========
P-4 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) The following adjustments have been made to give pro forma effect to the restructuring: (A) Reflects the issuance of 24,024,507 shares of post-reverse split common stock for $20,000 in the rights offering. (B) Represents the exchange of $132,000 of face value ($131,531 net of unamortized discount) in old notes for $114,700 in new notes, warrants to purchase 3,003,063 post-reverse split shares of common stock (at an exercise price of $5.16 per share) valued at $784, and 4,505,545 post- reverse split shares of common stock valued at $3,750. Under FAS 15, the new notes have been recorded at an amount equal to the maximum amount of cash (assuming all interest is paid in kind through the issuance of additional new notes and including all accrued but unpaid interest) which the Company would be obligated to pay if it redeemed the new notes immediately prior to their maturity. In accordance with their terms, if the new notes are not redeemed prior to their maturity, they will automatically convert upon on the maturity date (December 31, 2006) into 270,276 shares of post-reverse split common stock. (C) Represents the exchange of $33,000 of face value ($32,883 net of unamortized discount) in old notes for $10,000 in cash. (D) Reflects the issuance of warrants to purchase 3,003 post-reverse split shares of common stock (at an exercise price of $5.16 per share) to existing stockholders. (E) Represents the cancellation of accrued interest on the old notes as of the pro forma date of the restructuring. (F) Represents the writeoff of unamortized deferred financing costs on the old notes as of the pro forma date of the restructuring. (G) Represents the payment of estimated transaction expenses relating to the restructuring from the proceeds of the rights offering. (H) Represents the utilization of excess working capital resulting from the restructuring to pay down the outstanding revolver balance with any excess amounts being utilized to pay down the outstanding notes payable. (I) Adjustment consists primarily of a reduction in interest expense of $840 and $529 for the year ended December 31, 2000 and the nine months ended September 30, 2001 respectively, resulting from the utilization of excess working capital to reduce outstanding debt, as discussed in (E) above, of a reduction in interest expense resulting from the exchange of the old notes, as discussed in (B) above, of $13,406 and $10,055, respectively, and a reduction in amortization of deferred financing costs resulting from the exchange of the old notes of $504 and $378, respectively, as discussed in (B) above. (J) Represents the weighed average of 24,024,507 post-reverse split shares of common stock issued in the right offering, 1,501,531 post-reverse split shares of common stock owned by existing stockholders and 4,505,545 post- reverse split shares of common stock issued in the exchange offer, as discussed in (B) above. (K) Represents reverse-split of issued and outstanding common stock on a ten- share-for-one-share basis. P-5 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AVIATION SALES COMPANY Exchange Offer and Consent Solicitation Outstanding 8 1/8% Senior Subordinated Notes due 2008 ---------------- Prospectus and Consent Solicitation ---------------- , 2001 In order to tender, a holder must send or deliver a properly completed and signed Consent and Letter of Transmittal, certificates for old notes and any other required documents to the exchange agent at its address set forth below or tender pursuant to DTC's Automated Tender Offer Program. The exchange agent for the exchange offer is: HSBC Bank USA Issuer Services 452 Fifth Avenue New York, NY 10018 ---------------- By facsimile (for For information or eligible institutions only): confirmation by: ( ) - ( ) - ---------------- Any questions or requests for assistance or for additional copies of this prospectus and consent solicitation, the Consent and Letter of Transmittal or related documents may be directed to the exchange agent at its telephone number set forth above. A holder may also contact the dealer manager at its telephone number set forth below or such holder's broker, dealer, commercial bank, trust company or other nominee for assistance concerning this exchange offer and consent solicitation. The exclusive dealer manager for the exchange offer is: Houlihan Lokey Howard & Zukin Capital - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. Indemnification of directors and officers Subsection (a) of section 145 of the General Corporation Law of the State of Delaware empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Subsection (b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been made to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine 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 which the Court of Chancery or such other court shall deem proper. Section 145 further provides that to the extent a director or officer of a corporation has been successful on the merits or otherwise in the defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145 in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; that indemnification provided for by Section 145 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of such person's heirs, executors and administrators; and empowers the corporation to purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liabilities under Section 145. Section 102(b)(7) of the General Corporation Law of the State of Delaware provides that a certificate of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. Article VII of Aviation Sales Company's Second Amended and Restated Certificate of Incorporation states that: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (i) for any breach of the II-1 Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware (the DGCL), or (iv) for any transaction from which the Director derived an improper personal benefit. If the DGCL is amended after the effective date of this Second Amended and Restated Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of Directors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. Any repeal or modification of this Article VII by (i) the stockholders of the Corporation or (ii) an amendment to the DGCL, shall not adversely affect any right or protection existing at the time of such repeal or modification with respect to any acts or omissions occurring before such repeal or modification of a person serving as Director at the time of such repeal or modification. In addition, Article V of Aviation Sales Company's Bylaws further provides that the Corporation shall indemnify its present and former officers, directors and employees to the fullest extent permitted by law. Aviation Sales Company has entered into indemnification agreements with certain executive officers and directors. These limitations on liability would apply to violations of the federal securities laws. However, the registrant has been advised that in the opinion of the SEC, indemnification for liabilities under the Securities Act of 1933 is against public policy and therefore unenforceable. ITEM 21. Exhibits and financial statement schedules (a) Exhibits
Exhibit Number Description ------- ----------- 1.1 Form of Dealer Manager Agreement dated , 2001 by and between Aviation Sales and Houlihan Lokey Howard & Zukin Capital(1) 3.1 Certificate of Incorporation of Aviation Sales and amendment thereto(3) 3.2 Second Amendment to Certificate of Incorporation(5) 3.3 Bylaws of Aviation Sales(3) 4.1 Indenture, dated as of February 17, 1998, among Aviation Sales, the Subsidiary Guarantors named therein and SunTrust Bank, Central Florida, National Association, Trustee(2) 4.2 Form of Supplemental Indenture among Aviation Sales, the Subsidiary Guarantors named therein and the Trustee(1) 4.3 Common Stock Purchase Warrant Certificate issued on February 18, 2000 to Citicorp USA, Inc.(11) 4.4 Form of Common Stock Purchase Warrants issued in February, 2001 to four individuals(17) 4.5 Form of Indenture among Aviation Sales Company, the Subsidiary Guarantors named therein and Trustee with respect to the 8% Senior Subordinated Convertible PIK Notes due 2006(1) 4.6 Form of Warrant Agreement(1) 5.1 Opinion of Akerman, Senterfitt & Eidson, P.A.(1) 8.1 Opinion of Akerman, Senterfitt & Eidson, P.A.(1)
II-2
Exhibit Number Description ------- ----------- 10.1 Fourth Amended and Restated Credit Agreement dated May 31, 2000 by and among Aviation Sales, certain of our Subsidiaries and Citicorp USA, Inc., as Agent(12) 10.2 Reserved 10.3 Lease dated July 22, 1998 by and between Ben Quevedo, Ltd. and Caribe(8) 10.4 Reserved 10.5 Reserved 10.6 Form of Employment Agreement, dated January 1, 1999, by and between Ben Quevedo and Aviation Sales(8) 10.7 1996 Director Stock Option Plan(5) 10.8 1996 Stock Option Plan(5) 10.9 1997 EBITDA Incentive Compensation Plan(6) 10.10 Form of Aviation Sales Company 1999 EBITDA Plan(8) 10.11 Form of Stock Option Agreement (Non-Plan) by and between Aviation Sales and Ben Quevedo(8) 10.12 Special Incentive Compensation Plan(9) 10.13 Credit Agreement dated as of December 17, 1998 among First Security Bank, National Association, as Owner Trustee for the Aviation Sales Trust 1998-1, as Lessor, NationsBank, National Association, as Administrative Agent, and the several Lenders thereto(7) 10.14 Lease Agreement dated as of December 17, 1998 between First Security Bank, National Association, as Owner Trustee under Aviation Sales Trust 1998-1, as Lessor, and Aviation Sales, as Lessee(7) 10.15 Guaranty Agreement (Series A Obligations) between Aviation Sales, substantially all of our subsidiaries and NationsBank, National Association, as Agent for the Series A Lenders, dated as of December 17, 1998(7) 10.16 Guaranty Agreement (Lease Obligations) between substantially all of the subsidiaries of Aviation Sales and First Security Bank, National Association, as Owner Trustee for the Aviation Sales Trust 1998-1, dated as of December 17, 1998(7) 10.17 Participation Agreement between Aviation Sales as Construction Agent and Leases, First Security Bank, National Association, as Owner Trustee, the Various Banks and other lending institutions as the Holders and Lenders, and NationsBank, National Association, as Administrative Agent, dated as of December 17, 1998(7) 10.18 Stockholders' Rights Plan(10) 10.19 Term Loan Note, dated February 18, 2000(11) 10.20 Amendment No. 1 to Participation Agreement between Aviation Sales as Construction Agent and Leases, First Security Bank, National Association, as Owner Trustee, the Various Banks and other lending institutions as the Holders and Lenders, and NationsBank, National Association, as Administrative Agent, dated as of February 18, 2000(11) 10.21 Standstill Agreement between Aviation Sales, LJH Corporation and Lacy J. Harber(11) 10.22 Amendment No. 1 to Stockholders' Rights Plan(11)
II-3
Exhibit Number Description ------- ----------- 10.23 Amended and Restated Term Loan Note, dated May 31, 2000(12) 10.24 Amendment Agreement No. 2 for Lease Agreement and Certain Other Operative Agreements, dated May 31, 2000(12) 10.25 Amendment No. 1, dated as of August 14, 2000, to the Fourth Amended and Restated Credit Agreement(13) 10.26 Amendment Agreement No. 3 for Lease Agreement and Certain Other Operative Agreements(13) 10.27 Asset Purchase Agreement by and among Barnes Group Inc., Aviation Sales, Aviation Sales Manufacturing Company, AVS/Kratz-Wilde Machine Company and Apex Manufacturing, Inc. dated as of August 3, 2000(14) 10.28 Amendment No. 1 dated September 7, 2000 to the Asset Purchase Agreement by and among Barnes Group Inc., Aviation Sales, Aviation Sales Manufacturing Company, AVS/Kratz-Wilde Machine Company and Apex Manufacturing, Inc. dated as of August 3, 2000(14) 10.29 Amendment No. 2 dated as of November 14, 2000 to Fourth Amended and Restated Credit Agreement(15) 10.30 Amendment Agreement No. 4 for Lease Agreement and Certain Other Operative Agreements(15) 10.31 Asset Purchase Agreement among Aviation Sales, Aviation Sales Distribution Services Company ("ASDC") and Kellstrom, dated September 20, 2000(16) 10.32 Letter Agreement to Asset Purchase Agreement, dated November 28, 2000(16) 10.33 Inventory Purchase Agreement among KAV, Aviation Sales and ASDC, dated September 30, 2000(16) 10.34 Letter Amendment to Inventory Purchase Agreement, dated November 28, 2000(16) 10.35 Form of KAV Senior Subordinated Note(16) 10.36 Form of KAV Junior Subordinated Note(16) 10.37 Operating Agreement of KAV, dated September 20, 2000, between Aviation Sales and Kellstrom(16) 10.38 Letter Agreement between Kellstrom, KAV and Aviation Sales, dated December 1, 2000, with respect to the payment of KAV Operating Expenses(16) 10.39 Consignment Agreement between KAV and Kellstrom, dated December 1, 2000(16) 10.40 Equipment Lease Agreement, dated December 1, 2000, among Aviation Sales, ASDC and Kellstrom(16) 10.41 Lease Agreement, dated December 1, 2000, among ASDC and Kellstrom (Pearland)(16) 10.42 Lease Agreement, dated December 1, 2000, between Kellstrom and Aviation Sales (Miramar)(16) 10.43 Non-Competition Agreement, dated December 1, 2000, among ASDC, Aviation Sales and Kellstrom(16) 10.44 License Agreement, dated December 1, 2000, among Aviation Sales, ASDC and Kellstrom(16) 10.45 Cooperation Agreement, dated December 1, 2000, between Kellstrom and Aviation Sales(16) 10.46 Letter Agreement, dated December 1, 2000, between Kellstrom and Aviation Sales (Equipment)(16) 10.47 Letter Agreement, dated December 1, 2000, between Kellstrom and Aviation Sales (Pearland)(16) 10.48 Consent and Amendment No. 3, dated November 28, 2000, to the Fourth Amended and Restated Credit Agreement dated as of May 31, 2000, as amended(16)
II-4
Exhibit Number Description ------- ----------- 10.49 Amendment and Consent Agreement No. 5 for Participation Agreement and Certain Other Operative Agreements, dated as of December 1, 2000(16) 10.50 Amendment No. 1 to Standstill Agreement, dated December 4, 2000(16) 10.51 Amendment No. 2 to Rights Agreement, dated December 4, 2000(16) 10.52 Agreement, dated February 14, 2001, between various subsidiaries of Aviation Sales and Bank of America, N.A.(17) 10.53 $10.0 million Term Loan Note, dated February 14, 2001(17) 10.54 Form of Limited Guaranty in favor of Bank of America, N.A.(17) 10.55 Amendment No. 4, Consent and Waiver, dated February 14, 2001, to the Fourth Amended and Restated Credit Agreement dated as of May 31, 2000, as amended(17) 10.56 Amendment and Consent Agreement No. 7 for Lease Agreement and Certain Other Operative Agreements, dated as of February 14, 2001(17) 10.57 Note Modification Agreement, dated as of February 14, 2001(17) 10.58 Stock Purchase Agreement, dated December 15, 2000, among Wencor West, Inc. Aviation Sales and ASDC(16) 10.59 Amendment No. 5 and Waiver, dated as of April 17, 2001 to Fourth Amended and Restated Credit Agreement dated as of May 31, 2000, amended(18) 10.60 Letter Agreement dated April 17, 2001, regarding $15.5 million Term Loan(18) 10.61 Amendment and Consent Agreement No. 8 for Lease Agreement and Certain Other Operative Agreements(18) 10.62 Asset Purchase Agreement dated May 25, 2001 among Aviation Sales, Caribe Aviation, Inc. and Hamilton Sundstrand Service Corporation(19) 10.63 $13 million Replacement Term Loan Note, dated May 24, 2001(19) 10.64 Amendment No. 6 and Consent, dated May 21, 2001, to the Fourth Amended and Restated Credit Agreement dated as of May 31, 2000, as amended(19) 10.65 Amendment No. 7, Consent and Waiver, dated May 23, 2001, to the Fourth Amended and Restated Credit Agreement dated as of May 31, 2000, as amended(19) 10.66 Amendment and Consent Agreement No. 9 for Lease Agreement and Certain Other Operative Agreements, dated as of May 21, 2001(19) 10.67 Amendment and Consent Agreement No. 10 for Lease Agreement and Certain Other Operative Agreements, dated as of May 24, 2001(19) 10.68 Amendment No. 2 to Standstill Agreement between Aviation Sales, LJH Corporation and Lacy J. Harber(19) 10.69 Amendment No. 3 to Stockholders' Rights Plan(19) 10.70 Lockup Agreement dated as of August 14, 2001 by and among Aviation Sales, Consenting Stockholders and Consenting Noteholders(20) 10.71 Forbearance Letter dated August 16, 2001 of lenders under Credit Agreement(20) 10.72 Forbearance Letter dated August 16, 2001 of parties to the Tax Retention Operating Lease(20) 10.73 Consent Letter dated August 13, 2001 regarding the Fourth Amended and Restated Credit Agreement dated as of May 31, as amended(20)
II-5
Exhibit Number Description ------- ----------- 10.74 Amendment No. 8, Consent and Waiver, dated August 30, 2001 to Fourth Amended and Restated Credit Agreement(20) 10.75 Consent, Waiver and Forbearance Agreement No. 11 for Lease Agreement and Certain Operative Agreements, dated as of September 11, 2001(20) 10.76 Amendment No. 8, Consent and Waiver, dated as of November 27, 2001, to Fourth Amended and Restated Credit Agreement(22) 10.77 Note Modification Agreement to Citicorp Term Loan(22) 10.78 Consent, Waiver and Forbearance Agreement No. 12 for Lease Agreement and certain other Operation Agreements dated as of November 27, 2001(22) 10.79 Employment Agreement between Aviation Sales and Gil West(1) 12.1 Computation of Ratio of Earnings to Fixed Charges(1) 21.1 Subsidiaries of Aviation Sales(18) 23.1 Consent of Arthur Andersen LLP(1) 23.2 Consent of Akerman, Senterfitt & Eidson, P.A.(Included in Exhibit 5.1) 25.1 Statement of Eligibility of Trustee on Form T-1(1) 99.1 Form of Consent and Letter of Transmittal(1) 99.2 Form of Letter to Clients(1) 99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees(1) 99.4 Form of Notice of Guaranteed Delivery(1) 99.5 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9(21) 99.6 Certificate of Foreign Status on Substitute Form W-8(21) 99.7 Power of attorney (Included in signature page)(21)
Notes to Exhibits (1) Filed herewith (2) To be filed by amendment (3) Incorporated by reference to Aviation Sales' Registration Statement on Form S-1 dated April 15, 1996 (File No. 333-3650) (4) Incorporated by referenced to Aviation Sales' Registration Statement on Form S-4 dated March 26, 1998 (File No. 333-48669) (5) Incorporated by reference to Amendment No. 1 to Aviation Sales' Registration Statement on Form S-1 dated June 6, 1996 (File No. 333-3650) (6) Incorporated by reference to Aviation Sales' Annual Report on Form 10-K for the year ended December 31, 1996 (7) Incorporated by reference to Aviation Sales' Current Report on Form 8-K dated December 17, 1998 (8) Incorporated by reference to Aviation Sales' Annual Report on Form 10-K for the year ended December 31, 1998 (9) Incorporated by reference to Aviation Sales' Quarterly Report on Form 10-Q for the quarter and six months ended June 30, 1999 (10) Incorporated by reference to Aviation Sales' Current Report on Form 8-A filed November 15, 1999 (11) Incorporated by reference to Aviation Sales' Current Report on Form 8-K filed on March 27, 2000 (12) Incorporated by reference to Aviation Sales' Current Report on Form 8-K filed on June 13, 2000 (13) Incorporated by reference to Aviation Sales' Quarterly Report on Form 10-Q for the quarter and six months ended June 30, 2000 II-6 (14) Incorporated by reference to Aviation Sales' Current Report on Form 8-K filed on September 22, 2000 (15) Incorporated by reference to Aviation Sales' Quarterly Report on Form 10-Q for the quarter and nine months dated September 30, 2000 (16) Incorporated by reference to Aviation Sales' Current Report on Form 8-K filed on December 18, 2000 (17) Incorporated by reference to Aviation Sales' Current Report on Form 8-K filed on March 1, 2001 (18) Incorporated by reference to Aviation Sales' Annual Report on Form 10-K for the year ended December 31, 2000 (19) Incorporated by reference to Aviation Sales' Current Report on Form 8-K filed May 25, 2001 (20) Incorporated by reference to Aviation Sales' Quarterly Report on Form 10-Q for the quarter and six months ended June 30, 2001. (21) Previously filed with Aviation Sales's Registration Statement on Form S-4 filed September 14, 2001. (22) Incorporated by reference from Aviation Sales' Quarterly Report on Form 10-Q for the quarter and nine months ended September 30, 2001. ITEM 22. Undertakings Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (b) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-7 (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (d) 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. (e) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (f) That every prospectus (i) that is filed pursuant to paragraph (5) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (g) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (h) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Greensboro, North Carolina, Florida, on December 11, 2001. Aviation Sales Company By: /s/ Roy T. Rimmer, Jr. --------------------------------- Roy T. Rimmer, Jr. Chairman and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Act of 1933, this Pre- Effective Amendment No. 2 to the Registrant's Registration Statement has been signed by the following persons in the capacities indicated on December 11, 2001.
Signature Title --------- ----- /s/ Roy T. Rimmer, Jr. Chairman and Chief Executive Officer ______________________________________ (Principal Executive Officer) Roy T. Rimmer, Jr. Michael C. Brant* Vice President and Chief Financial ______________________________________ Officer (Principal Financial and Michael C. Brant Accounting Officer) Ben Quevedo* President and Director ______________________________________ Ben Quevedo Sam Humphreys* Director ______________________________________ Sam Humphreys /s/ Philip B. Schwartz Director and Corporate Secretary ______________________________________ Philip B. Schwartz Steven L. Gerard* Director ______________________________________ Steven L. Gerard /s/ Stephen E. Gorman Director ______________________________________ Stephen E. Gorman
* /s/ Philip B. Schwartz - --------------------------------- as Power of Attorney II-9 EXHIBIT INDEX
Exhibit Number Description ------- ----------- 1.1 Form of Dealer Manager Agreement dated , 2001 by and between Aviation Sales Company and Houlihan Lokey Howard & Zukin Capital 4.2 Form of Supplemental Indenture among Aviation Sales Company, the Subsidiary Guarantors named therein and the Trustee 4.5 Form of Indenture among Aviation Sales Company, the Subsidiary Guarantors named therein and the Trustee with respect to the 8% Senior Subordinated Convertible PIK Notes due 2006 4.6 Form of Warrant Agreement 5.1 Opinion of Akerman, Senterfitt & Eidson, P.A. 8.1 Opinion of Akerman, Senterfitt & Eidson, P.A. 10.79 Employment Agreement between Aviation Sales and Gil West. 12.1 Computation of Ratio of Earnings to Fixed Charges. 23.1 Consent of Arthur Andersen LLP 25.1 Statement of Eligibility of Trustee on Form T-1 99.1 Form of Consent and Letter of Transmittal 99.2 Form of Letter to Clients 99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees 99.4 Form of Notice of Guaranteed Delivery
II-10 EX-1.1 3 dex11.txt FORM OF DEALER MANAGER AGREEMENT Exhibit 1.1 FORM OF DEALER MANAGER AGREEMENT FOR REGISTERED DEBT EXCHANGE OFFER AVIATION SALES COMPANY AND HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL as Dealer Manager ____________________ Dealer Manager Agreement Exchange Offer Dated as of ________, 2001 DEALER MANAGER AGREEMENT Exchange Offer for and Consent Solicitation With Respect to All Outstanding 8-1/8% Senior Subordinated Notes due 2008 __________, 2001 Houlihan Lokey Howard & Zukin Capital 685 Third Avenue Fifteenth Floor New York, New York 10017 Ladies and Gentlemen: 1. Exchange Offer and Consent Solicitation. Aviation Sales Company, a --------------------------------------- Delaware corporation (the "Company"), plans to make an exchange offer (such exchange offer, together with any extensions, supplements and amendments thereof and thereto, the "Exchange Offer") for all of its 8-1/8% Senior Subordinated Notes due 2008 (the "Old Securities"). The debt securities and equity securities of the Company to be issued in connection with the Exchange Offer are hereinafter referred to as the "New Securities." Simultaneous with the Exchange Offer, the Company will solicit (the "Consent Solicitation") consents (the "Consents") from holders of the Old - -------- ------------ -------- Securities to certain amendments (the "Proposed Amendments") to the indenture ------------------- dated as of February 17, 1998, between the Company and SunTrust Bank Central Florida, N.A., as trustee (the "Old Trustee"), pursuant to which the Old ----------- Securities were issued (as amended, modified and supplemented to the date hereof, the "Old Indenture"). ------------- Holders of Old Securities who tender for exchange such Old Securities pursuant to the Exchange Offer will be required, as a condition to a valid exchange, to have delivered their Consent to the Proposed Amendments. That portion of the New Securities constituting Debt Securities will be issued under an indenture dated as of ____________ (the "New Indenture") between the Company ------------- and _____________, as trustee (the "New Trustee"). ----------- The Exchange Offer and the Consent Solicitation are sometimes hereafter referred to collectively as the Exchange offer. The Exchange Offer will be made upon the terms and subject to the conditions set forth in the Exchange Offer and Consent Solicitation material (collectively, as amended or supplemented from time to time, the "Exchange Offer -------------- Documents") described below. - --------- All references in this Agreement to any amendments or supplements to the Exchange Offer Documents shall be deemed to include, without limitation, the filing of any documents with the Securities and Exchange Commission (the "Commission") which are incorporated or deemed incorporated by reference in such - ----------- Exchange Offer Documents. The documents constituting the Exchange Offer documents are as follows: (a) The Registration Statement of the Company on Form S-4 (No. 333-69464) prepared by the Company and filed with Commission in accordance with the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Securities Act") for the New Securities. As used in this Agreement, the term "Registration Statement" means such registration statement, including exhibits, financial statements and schedules, as amended when it becomes effective. (b) The Prospectus and Consent Solicitation Statement. As used in this Agreement, the term "Prospectus" means the Prospectus and Consent Solicitation ---------- Statement in the form it was first filed with the Commission pursuant to Rule 424(b) under the Securities Act; provided, however, that until such filing (if -------- ------- any) it shall mean the Prospectus and Consent Solicitation Statement included in the Registration Statement; and provided further, that if no prospectus is filed on behalf of the Company pursuant to Rule 424(b) or if any other prospectus is used to solicit exchanges of the Old Securities prior to the date of the exchange of the New Securities for the Old Securities pursuant to the Exchange Offer (the "Exchange Date"), the term "Prospectus" shall mean any prospectus ------------- ---------- used for such solicitation prior to the Acceptance Date (as defined below). Any reference herein to the Registration Statement or the Prospectus shall be deemed to refer to and include all documents incorporated or deemed incorporated by reference therein pursuant to Form S-4 under the Securities Act, as of the date of the Registration Statement or Prospectus, as the case may be, and any reference to any amendment or supplement to the Registration Statement or the Prospectus shall be deemed to refer to and include any documents filed after such date under the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Exchange Act") ------------ and incorporated or deemed incorporated by reference (such documents, financial statements and schedules being herein called the "Incorporated Documents"). ---------------------- (c) The Letter of Consent/Transmittal (the "Letter of Transmittal") to be --------------------- used by holders tendering Old Securities for exchange pursuant to the Exchange Offer and delivering Consents pursuant to the Consent Solicitation. (d) The Guidelines for Certification of Taxpayer Identification Number. (e) The Letter to Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees and the Letter to Clients. (f) Notice of Guaranteed Delivery. (g) Certificate of Foreign Status. 2. Engagement as Dealer Manager. The Company hereby appoints Houlihan ---------------------------- Lokey & Co. Incorporated as Dealer Manager (the "Dealer Manager") in connection -------------- with the Exchange Offer and Consent Solicitation. As Dealer Manager, you shall, in accordance with your customary practice, perform in connection with the Exchange Offer and Consent Solicitation those services that are customarily performed by investment banking concerns in connection with similar exchange offers and consent solicitations, including without limitation the 2 solicitation of the exchanges and consents pursuant to the Exchange Offer and Consent Solicitation and the mailing of the Exchange Offer Documents and communicating generally regarding the Exchange Offer and Consent Solicitation with brokers, dealers, commercial banks and trust companies and other holders of the Old Securities. The Company further authorizes you to communicate with, in its capacity as depositary the (the "Depositary"), with respect to matters relating to the Exchange Offer and Consent Solicitation. 3. No Liability for Acts of Dealers, Banks and Trust Companies. You shall ----------------------------------------------------------- have no liability (in tort, contract or otherwise) to the Company or any other person for any act or omission on the part of any broker or dealer in securities ("Dealer") (other than yourselves) or any bank or trust company or any other ------ person, and you shall have no liability (in tort, contract or otherwise) to the Company or any other person for any losses, claims, damages or liabilities arising from your own acts or omissions in performing your obligations as Dealer Manager hereunder or otherwise in connection with the Exchange Offer, except for any such losses, claims, damages or liabilities finally judicially determined to be attributable to your bad faith or gross negligence. In soliciting or obtaining exchanges, no Dealer, bank or trust company is to be deemed to be acting as your agent or the agent of the Company, and you, as Dealer Manager, are not to be deemed the agent of the Company or any Dealer, bank or trust company or any other person. The Company acknowledges and agrees that, in your capacity as Dealer Manager, you shall act as an independent contractor, not an agent, and any of your duties arising out of your engagement pursuant to this Agreement shall be owed solely to the Company. The Company shall have sole authority for the acceptance or rejection of any and all tenders of Old Securities and Consents. 4. Exchange Offer Documents. ------------------------ (a) The Company agrees to furnish you, at its own expense, as many copies as you may reasonably request of the Exchange Offer Documents, the New Indenture and the supplemental indenture to be entered into to effectuate the Proposed Amendments (the "Supplemental Indenture"). ---------------------- (b) The Company agrees that, a reasonable time prior to using or filing with the Commission or with any other governmental or regulatory agency (each, an "Other Agency") any Exchange Offer Document, furnish to you a reasonable ------------ number of copies of such material and will give reasonable consideration to your and your counsel's comments, if any, thereon. (c) Prior to and during the period of the Exchange Offer, the Company shall inform you promptly after it receives notice or becomes aware of the happening of any event, or the discovery of any fact, that it believes would require the making of any change in any Exchange Offer Document then being used or would affect the truth or completeness of any representation or warranty contained in this Agreement if such representation or warranty were being made immediately after the happening of such event or the discovery of such fact. 3 5. Withdrawal. In the event that: ---------- (a) the Company uses or permits the use of, or files with the Commission or any Other Agency, any Exchange Offer Document and such document (i) has not been submitted to you previously for your and your counsel's comments or (ii) has been so submitted, and you or your counsel has made comments which have not been reflected in a manner reasonably satisfactory to you and your counsel; (b) the Company shall have breached, in any material respect, and shall have failed to cure within thirty (30) days thereafter any of its representations, warranties, agreements or covenants herein; (c) the Exchange Offer is terminated or withdrawn for any reason or any stop order, restraining order, injunction or denial of an application for approval has been issued and not thereafter stayed or vacated with respect to, or any proceeding, litigation or investigation has been initiated that is reasonably likely to have a material adverse effect on the Company's ability to carry out the Exchange Offer, the exchange of the Old Securities thereto, the performance of this Agreement, or the execution, delivery and performance of the Supplemental Indenture or the New Indenture; or (d) you shall not have received, on a timely basis, the opinions, letters or certificates called for by Section 10 of this Agreement, (e) then, in each case, you shall be entitled to withdraw as Dealer Manager in connection with the Exchange Offer without any liability or penalty to you or any other Indemnified Person (as defined in Section 12 below) for such withdrawal and without loss of any right to indemnification or contribution provided in Section 12 or to the payment of all fees and expenses payable under Section 6 and 7 below that have accrued to the date of such withdrawal (it being agreed that in the event of any such withdrawal, for the purpose of determining the fees payable to you pursuant to Section 6, (i) the number of Old Securities tendered for exchange (and not subsequently withdrawn) pursuant to the Exchange Offer as of the close of business on the date of such withdrawal that are thereafter acquired by the Company or any of its subsidiaries or affiliates pursuant to the Exchange Offer shall be deemed to have been acquired as of the date of such withdrawal. If you withdraw as Dealer Manager for any of the reasons set forth in the preceding sentence, the fees accrued through the date of such withdrawal shall be paid to you promptly upon the expiration of the Exchange Offer and the expenses accrued through the date of such withdrawal shall be paid to you promptly after the date of such withdrawal. 6. Fees. Fees and expenses hereunder are payable under that certain ---- engagement letter dated June 12, 2001. 7. Reimbursement of Expenses, Etc. In addition to your compensation for your ------------------------------ services as Dealer Manager, the Company shall: (a) reimburse brokers and dealers (including yourself), commercial banks, trust companies and other nominees for their customary mailing and handling expenses incurred in forwarding the Exchange Offer Documents to their customers; (b) pay all expenses relating to the preparation, filing, printing, mailing and publishing of the 4 Exchange Offer Documents, the New Indenture, the Supplemental Indenture, the preliminary and final forms of Blue Sky Survey and any other material prepared in connection with the Exchange Offer; (c) pay all costs of the preparation, issuance and delivery of the New Securities (other than transfer taxes) and the execution and delivery of the New Indenture and the Supplemental Indenture; (d) pay all costs of furnishing such copies of the Registration Statement, the Prospectus and all amendments and supplements thereto and each of the other Exchange Offer Documents as may reasonably be requested in connection with the Exchange Offer; (e) the advertising expenses relating to the Exchange Offer; (f) the fees and expenses of the Exchange Agent relating to the Exchange Offer (as each is defined in Section 8); (g) pay all fees payable to the National Association of Securities Dealers, Inc. relating to the Exchange Offer; (h) pay all fees and expenses (including reasonable fees and expenses of counsel) relating to the qualification of the New Securities under securities or Blue Sky laws and in connection with the determination of the eligibility of the New Securities for investment under the laws of such jurisdictions as required for consummation of the Exchange Offer, including the reasonable expenses of obtaining any opinion of local counsel required by any state securities or Blue Sky authorities; (i) pay all reasonable out-of-pocket expenses incurred by you in connection with your services as Dealer Manager, including the reasonable fees and expenses of your counsel _________________ (which will be paid directly to such counsel); and (j) pay all other fees and expenses reasonably incurred by you in connection with the Exchange Offer. All payments to be made by the Company pursuant to this Section 7 shall be made promptly as such expenses are incurred. The Company shall perform its obligations as set forth in this Section 7 of this Agreement whether or not the Exchange Offer is commenced or the Company acquires any Old Securities pursuant to the Exchange Offer or otherwise. 8. Securityholder Lists; The Depositary and Information Agent. The Company ---------------------------------------------------------- shall provide you or cause you to be provided with copies of the Company's records showing the names of, and principal amounts of Old Securities held by, the holders of Old Securities as of a recent date, and to the extent reasonably available, their addresses and shall, from and after such date, use its reasonable efforts to cause you to be advised from day to day during the pendency of the Exchange Offer of all transfers of Old Securities, such notification consisting of the name and, to the extent reasonably available, address of the transferor and transferee of any Old Securities and the date of such transfer and as to such matters relating to the Exchange Offer as you may reasonably request. The Company has appointed, and authorizes you to communicate with HSBC Bank USA, in its capacity as exchange agent (the "Exchange Agent"), in connection -------------- with the Exchange Offer. 9. Representations, Warranties and Certain Agreements of the Company. The ----------------------------------------------------------------- Company represents and warrants to you, and agrees with you, (i) on and as of the date on which the Exchange Offer is first commenced (the "Commencement ------------ Date"), (ii) on and as of the effective date of the Registration Statement (the "Effective Date"), and (iii) as of the date that the Old Securities are accepted -------------- for exchange (the "Acceptance Date"), that: --------------- 5 (a) (i) The Registration Statement and the Prospectus, and any supplements or amendments thereto, complied and will comply in all material respects with the provisions of the Securities Act and of the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Trust Indenture Act"), (ii) and the Exchange Offer Documents, and any amendments or supplements, when mailed or furnished to holders of Old Securities, complied and will comply in all material respects with the provisions of the Securities Act and the Exchange Act. (b) The Exchange Offer Documents at all such times do not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (c) No restraining order has been issued or, proceedings or litigation initiated, or to the Company's knowledge, threatened, and no investigation has been initiated or, to the Company's knowledge, threatened, with respect to the Exchange Offer, the issuance of the New Securities in exchange for the Old Securities pursuant to the provisions of the Exchange Offer or the execution, delivery and performance of this Agreement, the New Indenture or the Supplemental Indenture, in any case, by or before the Commission or any Other Agency. No stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose are pending or, to the Company's knowledge, contemplated by the Commission. No stop order suspending the issuance or exchange of the New Securities pursuant to the Exchange Offer has been issued and no proceedings for that purpose are pending or, to the Company's knowledge, are contemplated, and any request of the Commission for additional information (to be included in the Registration Statement or in the Prospectus or otherwise) has been (or will be) complied with or otherwise satisfied. (d) Each of the Company and its subsidiaries (as such term is defined in Rule 1-02 of Regulation S-X promulgated pursuant to the Securities Act) (each, a "subsidiary") is a company duly organized, validly existing and in good standing ---------- under the laws of its jurisdiction of formation with full power and authority (corporate or other) to own its properties and conduct its business as presently conducted as described in the Prospectus, except where the failure to be in good standing, either singly or in the aggregate, would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. (e) Subject to obtaining Company stockholder approval, the Company has all necessary corporate power and authority (i) to enter into and perform its obligations under this Agreement and the New Indenture, and (ii) to deliver the New Securities in exchange for the Old Securities pursuant to the terms of the Exchange Offer. (f) Subject to obtaining Consents to the Proposed Amendments from holders of at least the required amount of Old Securities outstanding as described in the Prospectus, the Company has all necessary corporate power and authority to enter into and perform its obligations under the Supplemental Indenture. 6 (g) Assuming, as of the Commencement Date only, Consents to the Proposed Amendments are received from holders of at least the required amount of Old Securities outstanding as described in the Prospectus (the "Requisite Holders"), ----------------- and assuming, as of the Commencement Date only, satisfaction of the other conditions to the execution of the Supplemental Indenture described in the Prospectus, including obtaining the consents of the Company's lenders described therein, and upon obtaining stockholder approval as set forth in the Prospectus, the execution, performance and delivery of this Agreement, the New Indenture and the Supplemental Indenture, the issuance of the New Securities pursuant to the provisions of the Exchange Offer, and the consummation of the Exchange Offer do not and will not: (i) conflict with or constitute a breach of, or a default (with the passage of time or otherwise) under, or (ii) result in the imposition of a lien on any properties of the Company or any of its subsidiaries or (iii) an acceleration of indebtedness pursuant to, the charter or bylaws of the Company or any of its subsidiaries, or any material bond, debenture, note or any other evidence of material indebtedness or any material indenture, (including the Old Indenture) mortgage, deed of any of its subsidiaries is a party or by which any of them is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject. No consent, approval, authorization or other order of any governmental or regulatory agency, including the Commission and any Other Agency, is legally required for the issuance of New Securities pursuant to the Exchange Offer and the execution of the New Indenture and the Supplemental Indenture other than (i) consents, approval, authorizations or other orders that have been received or will be received on or prior to the consummation of the Exchange Offer, and (ii) Consents to the Proposed Amendments from the Requisite Holders. (h) The accountants who have certified or shall certify the financial statements of the Company filed or to be filed with the Commission as part of the Registration Statement and the Prospectus or incorporated by reference therein are independent accountants as required by the Securities Act and the Exchange Act. (i) This Agreement has been duly authorized and this Agreement has been validly executed and delivered by the Company and constitutes the legal, valid and binding agreement of the Company, enforceable against it in accordance with its terms except to the extent that (i) the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws now or hereafter in effect relating to creditors' rights generally or other similar laws affecting creditors rights generally or by general principles of equity whether asserted in an action at law or in equity and (ii) rights to indemnity and contribution hereunder may be limited by state or federal securities laws, including the public policies underlying such laws. (j) The consolidated historical financial statements of the Company, and the related notes and schedules, included in the Registration Statement and Prospectus complied and will comply in all material respects with the requirements of the Securities Act and the Exchange Act and presented and will present fairly the consolidated financial position of the Company and its consolidated subsidiaries, as of the dates indicated, and the results of its operations and the changes in its financial position for the periods therein specified. Such historical consolidated financial statements (including the related notes and schedules), have been prepared in accordance with generally accepted accounting principles consistently applied throughout the 7 periods therein specified except, in each case, as disclosed in information included in the Prospectus. The other historical financial information and statistical data set forth in the Prospectus, in each case including the accompanying notes, are prepared on a basis consistent with the relevant historical consolidated financial statements of the Company. (k) The pro forma financial statements set forth in the Prospectus have been prepared to give effect to assumptions made on a reasonable basis, historical transactions and proposed transactions such as are fully and accurately described in the Prospectus, and the pro forma adjustments have been properly applied on the bases described therein. (l) In connection with the Exchange Offer, the Company has complied, and will continue to comply at all times prior to the expiration of the Exchange Offer, with the applicable requirements of the Securities Act, the Exchange Act and the Trust Indenture Act. (m) (i) The Supplemental Indenture will have been duly authorized by the Company on the Acceptance Date and may be entered into upon the consent of the Requisite Holders, and (ii) assuming satisfaction of the conditions to the execution of the Supplemental Indenture as described in the Prospectus and assuming the due authorization, execution and delivery of the Supplemental Indenture by the Old Trustee, upon execution and delivery of the Supplemental Indenture (A) the Supplemental Indenture will have effected the Proposed Amendments to the Old Indenture, (B) the Old Indenture as modified by the Supplemental Indenture will be the legal, valid and binding obligation of the Company, (C) the Old Securities not exchanged will remain legal, valid and binding obligations of the Company entitled to the benefits of the Old Indenture as so modified, and (D) the Old Indenture as so modified will be, and the Old Securities outstanding thereunder will remain, enforceable in accordance with their respective terms, except to the extent limited by bankruptcy, insolvency, reorganization, moratorium or other laws now or hereafter in effect relating to creditors' rights generally or by general principles of equity whether asserted in an action at law or in equity. (n) Upon obtaining stockholder approval, the New Indenture will be duly authorized and, when executed and delivered by the Company, will be a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms except to the extent that the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws now or hereafter in effect relating to creditors' rights generally or by general principles of equity, whether asserted in an action at law or in equity. The New Indenture conforms in all material respects to the requirements of, and is qualified under, the Trust Indenture Act. (o) Upon obtaining stockholder approval, the New Securities will be duly authorized and, when executed, authenticated and delivered in accordance with the terms of the New Indenture, will be the legal, valid and binding obligations of the Company entitled to the benefits of the New Indenture and enforceable against the Company in accordance with their terms except to the extent that the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws now or hereafter in effect relating to creditors' rights generally or by general principles of equity, whether asserted in an action at law or in equity. 8 (p) Subsequent to the dates as of which information is given in the Registration Statement and the Prospectus and through the Exchange Date, none of the Company nor any of its subsidiaries has incurred or will have incurred any material liabilities or obligations direct or contingent, or has entered into or will enter into any material transactions, not in the ordinary course of business, except transactions disclosed in or contemplated by the Registration Statement or the Prospectus, and, except as disclosed in or contemplated by the Registration Statement or the Prospectus, there has not been and will not have been any material change in the capital stock or long-term indebtedness of the Company or any of its subsidiaries or any payment of or declaration to pay any dividends or any other distribution with respect to the Company's capital stock, or any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business, or operations or business prospects of the Company and its subsidiaries, taken as a whole. (q) The Exchange Offer, the Proposed Amendments, the New Securities, the New Indenture, the Old Securities, the Old Indenture and the Supplemental Indenture conform, in all material respects to the descriptions thereof in the Exchange Offer Documents. (r) The Company is not and will not be as a result of the consummation of the Exchange Offer, an "investment company" under the Investment Company Act of 1940, as amended, and the rules and regulations promulgated by the Commission thereunder. (s) Upon completion of the rights offering, the Company has or will have sufficient funds available, and has or will have sufficient authority to use such funds under applicable law, to enable it to pay any amounts payable by the Company in cash pursuant to (i) the terms of the Exchange Offer and (ii) Sections 6 and 7. (t) On or prior to the Commencement Date, the Company will have made appropriate arrangement, to the extent applicable, with DTC or any other qualified securities depositary to allow for the book-entry movement of the tendered Old Securities between depositary participants and the Exchange Agent. (u) The Company has complied with all provisions of Section 517.075, Florida Statutes relating to doing business with the Government of Cuba or any person or affiliate located in Cuba. (v) The Company and its subsidiaries (i) are 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 all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole. 9 10. Opinions of Counsel; Comfort Letter; Officers' Certificate. The Company ---------------------------------------------------------- shall furnish to you: (a) the opinions of counsel to the Company, dated as of the Commencement Date and as of each of the Acceptance Date and reasonably satisfactory to your counsel, substantially to the effect that: (i) this Agreement has been duly authorized and validly executed and delivered by the Company and constitutes a legal, valid and binding agreement of the Company, enforceable in accordance with its terms, except to the extent that (A) the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws now or hereafter in effect relating to creditors' rights generally or by general principles of equity whether asserted in an action at law or in equity and (B) rights to indemnity and contribution hereunder may be limited by federal or state securities laws, including the public policies underlying such laws; (ii) Upon obtaining stockholder approval as set forth in the Prospectus, the New Indenture has been duly authorized by the Company and, assuming it has been duly authorized, executed and delivered by the New Trustee, will be the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws now or hereafter in effect relating to creditors' rights generally or by general principles of equity whether asserted in an action at law or in equity; (iii) Upon obtaining stockholder approval as set forth in the Prospectus, the New Securities have been duly authorized and, when executed and authenticated in accordance with the terms of the New Indenture and delivered to the holders of the Old Securities in exchange for such Old Securities pursuant to the Exchange Offer, will be the legal, valid and binding obligations of the Company entitled to the benefits of the New Indenture, enforceable in accordance with their terms, except to the extent that the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws now or hereafter in effect relating to creditors' rights generally or by general principles of equity whether asserted in an action at law or in equity; (iv) in connection with the Exchange Offer, the Company has complied at all times with the applicable requirements of the Securities Act, the Exchange Act and the Trust Indenture Act; (v) except for permits and similar authorizations required under the securities or Blue Sky laws of the jurisdictions in which the New Securities are to be offered in exchange for Old Securities, for Consents to the Proposed Amendments from the Requisite Holders and the consents and approvals disclosed in the Prospectus, no consent, approval, authorization or order of any Other Agency or any other person or entity, is legally required in respect of the valid issuance and exchange of the New Securities for the Old Securities in accordance with the provisions of the Exchange Offer 10 except such Consents which have been obtained or will be obtained prior to the Exchange Date; (vi) the New Indenture has been duly qualified under the Trust Indenture Act; (vii) the Proposed Amendments, the New Securities and the New Indenture conform in all material respects to the descriptions thereof in the Prospectus, and the statements contained therein, insofar as they constitute a summary of the documents and instruments referred to therein, present fairly the summary information called for with respect thereto; (viii) each of the Consents and the Supplemental Indenture complies in all material respects with the requirements of the Old Indenture; (ix) the Registration Statement has become effective under the Securities Act based solely on verbal advice of the Commission, and, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending; (x) (A) the Registration Statement and the Prospectus (but excluding the financial statements, schedules and other financial and statistical data and the Form T-1 included therein or omitted therefrom, as to which such counsel need express no opinion) and each amendment or supplement thereto comply as to form in all material respects with the Securities Act, the Exchange Act and the Trust Indenture Act, and (B) the Exchange Offer complies in all material respects with the applicable requirements of the Exchange Act; (xi) the Section of the Prospectus entitled "Material U.S. Federal Income Tax Consequences" sets forth the material United States federal income tax consequences of the Exchange Offer and the solicitation of Consents; (xii) each of the Company and its Subsidiaries has been duly organized and is validly existing in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to own and operate its properties and conduct its business as presently conducted and as described in the Prospectus except where the failure to be in good standing, either singly or in the aggregate, would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; (xiii) Upon obtaining the stockholder approval as set forth in the Prospectus, the Company has full corporate power and authority (a) to enter into and perform its obligations under the New Indenture, and (b) to deliver the New Securities in exchange for the Old Securities pursuant to the terms of the Exchange Offer; (xiv) Upon obtaining the Consents to the Proposed Amendments from the Requisite Holders and the consents and approvals as set forth in the Prospectus, the 11 Company will have full corporate power and authority to enter into and perform its obligations under the Supplemental Indenture; (xv) assuming, as of the Commencement Date only, Consents to the Proposed Amendments are received from the Requisite Holders, and assuming satisfaction, as of the Commencement Date only, of the other conditions to the execution of the Supplemental Indenture described in the Prospectus, including obtaining the consents of the Company's lenders, and upon obtaining stockholder approval as set forth in the Prospectus, to the knowledge of such counsel, the execution, delivery and performance of this Agreement, the New Indenture and the Supplemental Indenture, the issuance of the New Securities in exchange for the Old Securities pursuant to the provisions of the Exchange Offer and the consummation of the Exchange Offer, will not conflict with or constitute a breach of, or a default (with the passage of time or otherwise) under, or result in the imposition of a lien on any properties or assets of the Company or any of its Subsidiaries or an acceleration of indebtedness pursuant to, the charter or bylaws of the Company or any of its Subsidiaries, or any bond, debenture, note or any other evidence of indebtedness or any indenture, mortgage, deed of trust, or any other agreement or instrument known to such counsel to which the Company or any of its Subsidiaries is a party by which any of them is bound, or to which any of the property or assets of the Company or any of its Subsidiaries is subject and will not conflict with or violate any law, administrative regulation or order of any court or governmental agency or authority known to such counsel to be applicable to the Company or any of its Subsidiaries or any of its respective properties or assets, where, in any such instance, such breach, default, lien, acceleration of indebtedness or conflict would result in a material adverse effect on the financial condition, earnings, business or operations of the Company and its subsidiaries, taken as a whole; (xvi) No restraining order has been issued or, proceedings or litigation initiated or, to the knowledge of such counsel, threatened, and no investigation has been initiated or, to the knowledge of such counsel, threatened, with respect to the Exchange Offer, the issuance of the New Securities in exchange for the Old Securities pursuant to the provisions of the Exchange Offer or the execution, delivery and performance of this Agreement, the New Indenture or the Supplemental Indenture, in any case, by or before the Commission or any Other Agency. No stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose are pending or, to the knowledge of such counsel, contemplated by the Commission. No stop order suspending the issuance or exchange of the New Securities pursuant to the Exchange Offer has been issued and no proceedings for that purpose are pending or are contemplated, and any request of the Commission for additional information (to be included in the Registration Statement or in the Prospectus or otherwise) has been (or will be) complied with or otherwise satisfied. Such counsel shall also advise you that it has participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants for the Company and you at which the contents of the Registration Statement and Prospectus and related matters were discussed and, although such counsel is not passing upon and 12 does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus, on the basis of the foregoing, no information has come to the attention of such counsel that leads it to believe that the Registration Statement and Prospectus as of their respective dates, the Commencement Date, the Acceptance Date contained an untrue statement of a material fact or omitted 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 (it being understood that such counsel is not commenting as to the financial statements, schedules and other statistical and financial data and Form T-I included therein or omitted therefrom); (b) A reliance letter addressed to you dated the Acceptance Date from Akerman, Senterfitt & Eidson, P.A. and ______________, substantially in the form heretofore provided to you and to be delivered to the Old Trustee and the New Trustee under the Old Indenture and the New Indenture in connection with the Exchange Offer, the New Indenture and the Supplemental Indenture, which reliance letter permits you to rely on the opinion of such counsel; (c) Comfort letters addressed to you and dated the Commencement Date and the Exchange Date from Arthur Andersen, LLC, independent public accountants for the Company substantially in the form heretofore approved by you; and (d) Certificates, dated the Commencement Date and the Exchange Date, signed by (i) the Chairman of the Board or the President of the Company and (ii) the principal financial or accounting officer of the Company, confirming as of the Commencement Date or the Exchange Date, as applicable, that (A) all of the representations and warranties of the Company, as the case may be, contained in this Agreement are true and correct with the same force and effect as if made on and as of such date and (B) the Company has complied with all of the agreements contained in this Agreement and required to be performed or complied with by it at or prior to such date pursuant to the provisions of this Agreement or the Exchange Offer Documents. 11. Covenants of the Company. ------------------------ (a) The Company will notify you promptly upon becoming aware of, and (if requested by you) will confirm in writing, (i) when the Registration Statement has become effective (if such Registration Statement has not become effective prior to the execution of this Agreement), if and when any Prospectus is mailed (or otherwise sent) for filing pursuant to Rule 424 under the Securities Act, and when any post-effective amendment to the Registration Statement becomes effective; (ii) any comment of or request by the Commission or any other federal or state agency for amendments or supplements to the Registration Statement or the Prospectus or for additional information; (iii) the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose or prohibiting or restraining the use of any Offer Document as a "proxy" statement or "soliciting material" under the Exchange Act; (iv) the issuance by any state securities commission or other regulatory authority of any order suspending the qualification or the exemption from the qualification of the New Securities under state securities or Blue Sky 13 laws or the initiation of any proceeding for that purpose; (v) the happening of any event which in the judgment of the Company makes any statement made in the Registration Statement or the Prospectus untrue or which requires the making of any change in the Registration Statement or the Prospectus in order to make the statements therein in the light of the circumstances under which they were made not misleading; (vi) the occurrence of any event which would cause the Company to withdraw or terminate the Exchange Offer or would permit the Company to exercise any right not to accept Old Securities tendered for exchange; (vii) any other information reasonably available to the Company relating to the Exchange Offer which you may from time to time reasonably request. If at any time the Commission shall issue any order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the New Securities under state securities or Blue Sky laws, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest practicable time. (b) The Company will use reasonable efforts to cause the Registration Statement and any post-effective amendments thereto to become effective as promptly as practicable. The Company will file no such amendments and supplements or make no such changes to which you shall object in writing or which are not in compliance in all material respects with the Securities Act or the Exchange Act. The Company will prepare and file with the Commission, promptly upon your request, any amendment to the Registration Statement or amendments or supplements to the Prospectus which may be necessary or advisable in connection with the Exchange Offer so long as each such amendment or supplement complies with all applicable laws, and will use reasonable efforts to cause the Registration Statement to become effective as promptly as practicable. (c) Prior to the issuance of New Securities, the Company will use reasonable efforts to obtain the registration or qualification of the New Securities under the securities or Blue Sky laws of such jurisdictions as may be required for the consummation of the Exchange Offer. (d) The Company will not voluntarily claim, and will actively resist any attempts to claim, the benefit of any usury laws against the holders of the New Securities. (e) The Company will fully comply with the applicable provisions of Rules 424 and 430A under the Securities Act in a timely manner. 12. Indemnification and Contribution; Settlement of Litigation; Release. (a) ------------------------------------------------------------------- The Company hereby agrees to indemnify, defend and hold harmless you and your affiliates and your and their respective officers, directors, employees and agents, and each other person, if any, controlling you or any of your affiliates (you and each such affiliate, officer, director, employee, agent and other person being an "Indemnified Person"), from and against any losses, claims, ------------------ damages, liabilities and expenses whatsoever (each a "Loss" and collectively the ---- "Losses"), and will reimburse each Indemnified Person for all expenses ------ reasonably incurred (including fees and expenses of counsel) as they are incurred in connection with investigating, preparing, pursuing or defending any Loss, action, claim, suit, investigation or proceeding (whether or not pending or 14 threatened and whether or not any Indemnified Person is a party), in each case related to, arising out of or in connection with (i) any untrue statement or alleged untrue statement of a material fact in any Offer Document or any omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, (ii) the Exchange Offer, (iii) exchange of Old Securities pursuant to the Exchange Offer, (iv) the execution of the Supplemental Indenture and the New Indenture, (v) all other actions contemplated in any Offer Document with respect to the Exchange Offer, (vi) any breach by the Company of any representation or warranty or failure to comply with any of the agreements contained herein, (vii) any advice or services rendered or to be rendered by an Indemnified Person pursuant to or in connection with this Agreement or (viii) any withdrawal or termination by the Company of, or failure by the Company to commence or consummate, the Exchange Offer. The Company shall not, however, be required so to indemnify any Indemnified Person for any Losses (or expenses relating thereto) to the extent that such Losses (or expenses relating thereto) are finally judicially determined to have resulted from the gross negligence, bad faith or willful misconduct of such Indemnified Person or in the case of clause (i) or (ii) if such untrue statement or alleged untrue statement or omission or alleged omission was based upon information relating to you and provided in writing to the Company by you expressly for inclusion therein The Company also acknowledges and agrees that no Indemnified Person shall have any liability (whether direct or indirect, in contract, tort or otherwise) to the Company or any other person for any act or omission on the part of any broker or dealer in securities or any commercial bank, trust company or other nominee and that no Indemnified Person shall have any liability (whether direct or indirect, in contract, tort or otherwise) to the Company or any other person for any losses, claims, damages, liabilities or expenses arising from or in connection with any act or omission in performing your obligations hereunder or otherwise in connection with the Exchange Offer, the exchange of Old Securities pursuant to the Exchange Offer, the execution, delivery and performance of the Supplemental Indenture, the New Indenture or any other action contemplated in the exchange of Old Securities, except to the extent that any such losses, claims, damages, liabilities or expenses are finally judicially determined to have resulted from the gross negligence, bad faith or willful misconduct of such Indemnified Person. (b) If a claim is made against any Indemnified Person as to which such Indemnified Person may seek indemnity under this Section 12, such Indemnified Person shall notify the Company promptly after any written assertion of such claim threatening to institute an action or proceeding with respect thereto and shall notify the Company promptly of any action commenced against such Indemnified Person within a reasonable time after such Indemnified Person shall have been served with a summons or other first legal process giving information as to the nature and basis of the claim. Failure so to notify the Company shall not, however, relieve the Company from any liability that it may have on account of the indemnity under this Section 12 if it has not been prejudiced in any material respect by such failure. The Company, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Company may designate in such proceeding and shall pay the reasonable fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Company and the Indemnified Person shall have mutually 15 agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Company and the Indemnified Person and representation of either party by the same counsel, in the reasonable judgment of the Dealer Manager, would be inappropriate because of actual or potential differing interests between them. It is understood that the Company shall not, in connection with any litigation or proceeding or related litigation or proceeding in the same jurisdiction, be liable under clause (ii) of the preceding sentence for the reasonable fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons that do not have actual or potential differing interests as among themselves, and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by the Dealer Manager. (c) The Company shall not, without your prior written consent, settle, compromise, consent to the entry of any judgment in or otherwise seek to terminate any action, claim, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not any Indemnified Person is an actual or potential party thereto) unless such settlement, compromise, consent or termination (i) includes an unconditional release of each Indemnified Person from any liabilities arising out of such action, claim, suit or proceeding and (ii) does not include a statement as to, or an admission of fault, culpability or a failure to act by or on behalf of, an Indemnified Person. No Indemnified Person seeking indemnification, reimbursement or contribution under this Agreement will, without the prior written consent of the Company, settle, compromise, consent to the entry of any judgment in or otherwise seek to terminate any action, claim, suit, investigation or proceeding referred to in the preceding paragraph. (d) If the indemnification provided for in the foregoing paragraphs of this Section 12 is judicially determined to be unavailable (other than in accordance with the terms hereof) to an Indemnified Person or insufficient in respect of any Losses referred to therein, then, in lieu of indemnifying such Indemnified Person hereunder, the Company shall contribute to the amount paid or payable by such Indemnified Person as a result of such Losses (and expenses relating thereto) (i) in such proportion as is appropriate to reflect the relative benefits to the Company, on the one hand, and to the Dealer Manager, on the other hand, of the Exchange Offer or (ii) if the allocation provided by the preceding clause (i) is not available, in such proportion as is appropriate to reflect not only the relative benefits referred to in such clause (i) but also the relative fault of the Company, on the one hand, and of the Dealer Manger, on the other hand, in connection with any matter that has resulted in such Losses, as well as any other relevant equitable considerations; provided, however, in no -------- ------- event shall your aggregate portion of the amount paid or payable exceed the aggregate amount of fees actually received by you under this Agreement. The relative benefits received by the Company on the one hand and by you on the other shall be deemed to be in same proportion as (i) the maximum aggregate value of Old Securities outstanding at the Commencement Date to (ii) the maximum aggregate fees proposed to be paid to you pursuant to Section 6. The relative fault of the Company on the one hand and of you on the other (i) in the case of an untrue or alleged untrue statement of a material fact or an omission or alleged omission to state a material fact, shall be determined by reference to, among other things, whether such statement or omission relates to information supplied by the Company or by you and the other parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission and (ii) in the case of any other action or omission, shall be determined by reference to, among other things, whether such action or 16 omission was taken or omitted to be taken by the Company or by you and the parties' relative intent, knowledge, access to information and opportunity to prevent such action or omission. (e) The Company and the Dealer Manager agree that it would not be just and equitable if contribution pursuant to this Section 12 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an Indemnified Person as a result of the Losses referred to in this Section 12 shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Agreement, no person guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) The remedies provided for in this Agreement are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity. (g) The reimbursement, indemnity and contribution obligations of the Company provided for in this Agreement shall be in addition to any liability which the Company may otherwise have and shall be binding upon and shall enure to the benefit of any successors, assigns, heirs and personal representatives of the Company and the Dealer Manager and any other Indemnified Persons. 13. Full Force and Effect. The indemnification and contribution --------------------- agreements contained in Section 12, the fee and expense reimbursement agreements contained in Sections 6 and 7 and the representations, warranties and other agreements of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any failure to commence, or the withdrawal, termination, expiration or consummation of, the Exchange Offer or the termination or assignment of this Agreement, (ii) any investigation made by or on behalf of any Indemnified Person, (iii) any withdrawal by you pursuant to Section 5 or otherwise and (iv) the completion of your services hereunder. 14. Severability. If any term or other provision of this Agreement is ------------ invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the agreements contained herein is not affected in any manner adverse to any party. 15. Counterparts. This Agreement may be executed by the different parties ------------ hereto in one or more separate counterparts, each of which when executed shall be deemed an original, but all of which together shall constitute one and the same agreement. 16. Binding Effect. This Agreement shall be binding upon and inure solely to -------------- the benefit of each party hereto and the Indemnified Persons, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy. 17 17. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ------------- ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED IN AND TO BE PERFORMED IN THAT STATE. 18. Consent to Jurisdiction. The Company each hereby (a) submits to the ----------------------- nonexclusive jurisdiction of any New York State or Federal court sitting in New York City with respect to any actions and proceedings arising out of or relating to this Agreement; (b) agrees that all claims with respect to such actions or proceedings may be heard and determined in such New York State or Federal court; (c) waives the defense of an inconvenient forum; and (d) agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. 19. Entire Agreement. This Agreement constitutes the entire agreement among ---------------- the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and undertakings both written and oral, among the parties, or any of them, with respect to the subject matter hereof. 20. Amendment. This Agreement may not be amended except in writing signed by --------- each party to be bound thereby. 21. Notices. All notices and other communications required or permitted to be ------- given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered in person, by cable, telecopy, telegram or telex or by registered or certified mail (postage prepaid, return receipt requested) to the parties hereto as follows (or, as to each party, at such other address as shall be designated by such party in a written notice complying as to delivery with the terms of this paragraph): (a) If to you: Houlihan Lokey Howard & Zukin Capital 685 Third Avenue Fifteenth Floor New York, New York 10017 Telecopy: (212) 661-3070 Attention: Saul E. Burian with a copy to: (b) if to the Company: Aviation Sales Company 623 Radar Road Greensboro, North Carolina 27410 Telecopy: Attention: Roy T. Rimmer, Jr. 18 with a copy to: Akerman, Senterfitt & Eidson One Southeast Third Avenue Miami, Florida 33131-1704 Telecopy: (305) 374-5095 Attention: Philip B. Schwartz, Esq. 22. Subheadings. The descriptive headings contained in this Agreement are ----------- included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. 23. Third Party Beneficiaries. Except as provided in Section 12 hereof, this ------------------------- Agreement is solely for the benefit of the parties hereto and should not be deemed to confer upon third parties any remedy, claim, liability, right of reimbursement, claim of action or other right. Please indicate your willingness to act as Dealer Manager on the terms set forth herein and your acceptance of the foregoing provisions by signing in the space provided below for that purpose and returning to us a copy of this letter, whereupon this letter and your acceptance shall constitute a binding agreement among us. Very truly yours Aviation Sales Company By: ------------------- Name: Title: Accepted and agreed as of the date first above written: HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL By: --------------------- Name: Title: 19 EX-4.2 4 dex42.txt SUPPLEMENTAL INDENTURE Exhibit 4.2 AVIATION SALES COMPANY, Issuer, THE SUBSIDIARY GUARANTORS NAMED HEREIN and SUNTRUST BANK (FORMERLY, SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION), Trustee SUPPLEMENTAL INDENTURE Dated as of [_______,] 2001 Up to $250,000,000 8-1/8% SENIOR SUBORDINATED NOTES DUE 2008 Supplementing the Indenture dated as of February 17, 1998 among AVIATION SALES COMPANY and AVIATION SALES DISTRIBUTION SERVICES COMPANY f/k/a AVIATION SALES OPERATING COMPANY, AVIATION SALES LEASING COMPANY, AVIATION SALES FINANCE COMPANY, AVS/M-1, INC. f/k/a AVIATION SALES MANUFACTURING COMPANY, AVS/M-2, INC. f/k/a AVS/KRATZ-WILDE MACHINE COMPANY, AEROCELL STRUCTURES, INC., AVS/M-3, INC. f/k/a APEX MANUFACTURING, INC., AVIATION SALES MAINTENANCE, REPAIR & OVERHAUL COMPANY, AVIATION SALES PROPERTY MANAGEMENT COMPANY, TIMCO ENGINE CENTER, INC., WHITEHALL CORPORATION, TRIAD INTERNATIONAL MAINTENANCE CORPORATION, AVS/CAI, INC. f/k/a CARIBE AVIATION, INC., AIRCRAFT INTERIOR DESIGN, INC., AERO HUSHKIT CORPORATION, HYDOSCIENCE, INC., TIMCO ENGINEERED SYSTEMS, INC., AVSRE, L.P., and AVIATION SALES SPS I, INC., as Guarantors, and SunTrust Bank (formerly, SunTrust Bank, Central Florida, National Association), as Trustee, as such Indenture was supplemented before the date hereof. THIS SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of ---------------------- [__________], 2001, among Aviation Sales Company, a Delaware corporation (the "Company"), Aviation Sales Distribution Services Company f/k/a/Aviation Sales ------- Operating Company, Aviation Sales Leasing Company, Aviation Sales Finance Company, AVS/M-1, Inc. f/k/a Aviation Sales Manufacturing Company, AVS/M-2, Inc. f/k/a/ AVS/Kratz Wilde Machine Company, Aerocell Structures, Inc., AVS/M-3, Inc. f/k/a Apex Manufacturing, Inc., Aviation Sales Maintenance, Repair & Overhaul Company, Aviation Sales Property Management Company, TIMCO Engine Center, Inc., Whitehall Corporation, Triad International Maintenance Corporation, AVS/CAI, Inc. f/k/a Caribe Aviation, Inc., Aircraft Interior Design, Inc., Aero Hushkit Corporation, Hydoscience, Inc., TIMCO Engineered Systems, Inc., AVSRE, L.P., and Aviation Sales SPS I, Inc. (collectively, the "Subsidiary Guarantors") and --------------------- SunTrust Bank (formerly, SunTrust Bank, Central Florida, National Association), a Georgia banking corporation, as Trustee (the "Trustee"), under the Indenture ------- dated as of February 17, 1998, among the Company, certain of the Subsidiary Guarantors and the Trustee, as such Indenture was supplemented by Supplemental Indentures dated as of March 6, 1998, August 3, 1998, September 11, 1998, March 10, 1999, November 22, 1999, and June 5, 1998 (as supplemented before the date hereof, the "Indenture"). Capitalized terms used herein and not otherwise --------- defined herein shall have the respective meanings assigned to them in the Indenture. W I T N E S S E T H: ------------------- WHEREAS, the Company has issued its 8-1/8% Senior Subordinated Notes due 2008 (the "Notes") pursuant to the Indenture; ----- WHEREAS, the Company has made an offer to Holders of the Notes (the "Exchange Offer") to exchange the Notes for certain cash and securities, as more -------------- particularly described in the Company's Registration Statement on Form S-4 (File No. 333-69464); WHEREAS, in connection with the Exchange Offer, the Company has requested that Holders of the Notes deliver their consents with respect to amendments of certain provisions of the Indenture; WHEREAS, Section 9.02 of the Indenture provides that, subject to certain restrictions, with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding voting as a single class, the Company, when authorized by a resolution of its Board of Directors, the Subsidiary Guarantors and the Trustee may, from time to time and at any time, enter into an indenture or indentures supplemental to the Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders of the Notes; WHEREAS, the Holders of not less than a majority in principal amount of the Notes outstanding have duly consented to the proposed modifications set forth in this Supplemental Indenture in accordance with Section 9.02 of the Indenture; WHEREAS, in accordance with Section 9.02 of the Indenture, the Company has heretofore delivered or is delivering contemporaneously herewith to the Trustee (i) a copy of resolutions of the Board of Directors of the Company, certified by the Secretary or an Assistant Secretary of the Company, authorizing the execution, delivery and performance of this Supplemental Indenture, and (ii) evidence of the written consent of the Holders referenced in the immediately preceding paragraph; WHEREAS, all conditions necessary to authorize the execution and delivery of this Supplemental Indenture and to make this Supplemental Indenture valid and binding have been complied with or have been done or performed; and NOW, THEREFORE, in consideration of the foregoing and notwithstanding any provision of the Indenture which, absent this Supplemental Indenture, might operate to limit such action, the parties hereto, intending to be legally bound hereby, agree as follows. ARTICLE ONE AMENDMENTS SECTION 1.01. (a) Deleted Sections and Article. Subject to Section 3.01 hereof, the Indenture is hereby amended by deleting in their entireties the current texts of the provisions of Sections 3.09, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 6.01 (c), (d), (e), (f), (g), (h) and (i), 6.03 and Article 5, and substituting for the texts of each of those provisions the words "This provision is intentionally omitted." Effective as of the date hereof, none of the Company, the Subsidiary Guarantors, the Trustee or other parties to or beneficiaries of the Indenture shall have any rights, obligations or liabilities under such deleted Sections or Article and such Sections and Article shall not be considered in determining whether a Default or Event of Default has occurred or whether the Company or any of the Subsidiary Guarantors has observed, performed or complied with the provisions of the Indenture. (b) Amended Definitions and Sections. Subject to Section 3.01 hereof, the following provisions of the Indenture are hereby amended as follows: (i) The following definitions in Section 1.01 of the Indenture are hereby amended to read in their entirety, respectively, as follows: a. "Designated Senior Debt" means (i) any Indebtedness outstanding under the Credit Facility; (ii) any amounts due under the TROL Financing (whether or not deemed Indebtedness) and (iii) any other Senior Debt permitted under this Indenture the principal amount of which is $25 million or more and that has been designated by the Company as "Designated Senior Debt." 2 b. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness or under the TROL Financing (whether or not deemed Indebtedness). c. "Senior Debt" means (i) all Indebtedness outstanding under the Credit Facility, the Existing Indebtedness, the TROL Financing (whether or not deemed Indebtedness), all Hedging Obligations with respect to any of the foregoing, and, after a default has occurred and is continuing under the Credit Facility, all other Indebtedness arising from intercompany loans and advances owing by the Company or any of the Guarantors which constitutes part of the collateral security for the Credit Facility and such Hedging Obligations, including, without limitation, indebtedness evidenced by intercompany notes pledged or assigned in connection with the Credit Facility, (ii) any other Indebtedness permitted to be incurred by the Company or a Guarantor under the terms of this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes and (iii) all Indebtedness outstanding under the 8% Senior Subordinated Convertible PIK Notes due 2006 of the Company and (iv) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (v) the 8 1/8% Senior Subordinated Notes due 2008 of the Company, (w) any liability for federal, state, local or other taxes owed or owing by the Company or a Guarantor, (x) any Indebtedness between or among the Company, any of its Subsidiaries or any of its other Affiliates, except to the extent such Indebtedness is within the scope of clause (i) above, (y) any trade payables or (z) any Indebtedness that is incurred in violation of this Indenture. (ii) The following definition is hereby added to Section 1.01, between the definitions therein of "Trading Day" and Trustee": "TROL Financing" means that certain Lease Agreement between the Company and First Security Bank, N.A., as Owner Trustee, dated December 17, 1998, the guarantees thereof by its Subsidiaries and related operative agreements, each as amended and modified from time to time. (iii) Section 4.02 is amended to delete the first paragraph thereof, and to change the first sentence of the second paragraph thereof to read in its entirety as follows: "The Company shall from time to time designate, and may from time to time change its designation of, one or more offices or agencies where the Notes may be presented or surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of each such office or agency." (iv) Section 6.01(a) is amended to change "30 days" to "90 days." 3 SECTION 1.02. Deleted Definitions. Subject to Section 3.01 hereof, the Indenture is hereby amended by deleting any definitions from the Indenture with respect to which references would be eliminated as a result of the amendment of the Indenture pursuant to Section 1.01 hereof. ARTICLE TWO WAIVERS SECTION 2.01. Waiver of Defaults. Subject to Section 6.04 of the Indenture, effective as of the date hereof, any and all existing defaults, including but not limited to any resulting from the consummation of the Exchange Offer, are hereby waived. ARTICLE THREE MISCELLANEOUS SECTION 3.01. Terms to Remain in Effect. Except as waived or amended hereby, all of the terms of the Indenture shall remain and continue in full force and effect and are hereby confirmed in all respects. From and after the date of this Supplemental Indenture, all references to the Indenture (whether in the Indenture or in any other agreements, documents or instruments) shall be deemed to be references to the Indenture as amended and supplemented by this Supplemental Indenture. On the date the tenders of Notes pursuant to the Exchange Offer are accepted for payment this Supplemental Indenture will become operative as of the date hereof. SECTION 3.02. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. SECTION 3.03. Execution in Counterparts. This Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall constitute but one and the same instrument. SECTION 3.04. Trustee Not Liable. The recitals contained herein shall be taken as the statement of the Company, and the Trustee assumes no responsibility whatsoever for their correctness nor for the validity or sufficiency of this Supplemental Indenture or for the due execution hereof by the Company. SECTION 3.05. Trustee Entitled to Benefits. Subject to Article One hereof, in entering into this Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee, whether or not elsewhere herein so provided. 4 (signature pages follow) 5 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed all as of the date first written above. AVIATION SALES COMPANY By:____________________________________ Name:__________________________________ Title:_________________________________ AVIATION SALES DISTRIBUTION SERVICES COMPANY f/k/a AVIATION SALES OPERATING COMPANY By:____________________________________ Name:__________________________________ Title:_________________________________ AVIATION SALES LEASING COMPANY By:____________________________________ Name:__________________________________ Title:_________________________________ AVIATION SALES FINANCE COMPANY By:____________________________________ Name:__________________________________ Title:_________________________________ AVS/M-1, INC. f/k/a AVIATION SALES MANUFACTURING COMPANY By:____________________________________ Name:__________________________________ Title:_________________________________ AVS/M-2, INC. f/k/a AVS/KRATZ-WILDE MACHINE COMPANY By:____________________________________ Name:__________________________________ Title:_________________________________ 6 AEROCELL STRUCTURES, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ AVS/M-3, INC. f/k/a APEX MANUFACTURING, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ AVIATION SALES MAINTENANCE, REPAIR & OVERHAUL COMPANY By:____________________________________ Name:__________________________________ Title:_________________________________ AVIATION SALES PROPERTY MANAGEMENT COMPANY By:____________________________________ Name:__________________________________ Title:_________________________________ TIMCO ENGINE CENTER, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ WHITEHALL CORPORATION By:____________________________________ Name:__________________________________ Title:_________________________________ TRIAD INTERNATIONAL MAINTENANCE CORPORATION By:____________________________________ Name:__________________________________ Title:_________________________________ 7 AVS/CAI, INC. f/k/a CARIBE AVIATION, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ AIRCRAFT INTERIOR DESIGN, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ AERO HUSHKIT CORPORATION By:____________________________________ Name:__________________________________ Title:_________________________________ HYDROSCIENCE, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ TIMCO ENGINEERED SYSTEMS, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ AVSRE, L.P. By:____________________________________ Name:__________________________________ Title:_________________________________ AVIATION SALES SPS I, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ 8 SUNTRUST BANK, as Trustee By:______________________________ Name:____________________________ Title:___________________________ Attest: _________________________________ Authorized Signatory 9 EX-4.5 5 dex45.txt INDENTURE AMONG AVS Exhibit 4.5 AVIATION SALES COMPANY THE GUARANTORS LISTED ON SCHEDULE I HERETO 8.00% SENIOR SUBORDINATED CONVERTIBLE PIK NOTES DUE 2006 INDENTURE [____________] [___], 2001 HSBC BANK USA, TRUSTEE TABLE OF CONTENTS ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE.......................................................... 1 Section 1.01. Definitions.............................................................................. 1 Section 1.02. Other Definitions........................................................................ 16 Section 1.03. Incorporation by Reference of Trust Indenture Act........................................ 16 Section 1.04. Rules of Construction.................................................................... 17 ARTICLE 2. THE NOTES........................................................................................... 17 Section 2.01. Form and Dating.......................................................................... 17 Section 2.02. Execution and Authentication............................................................. 19 Section 2.03. Registrar, Paying Agent and Conversion Agent............................................. 19 Section 2.04. Paying Agent to Hold Money in Trust...................................................... 19 Section 2.05. Holder Lists............................................................................. 20 Section 2.06. Transfer and Exchange.................................................................... 21 Section 2.07. Replacement Notes........................................................................ 24 Section 2.08. Outstanding Notes........................................................................ 25 Section 2.09. Treasury Notes........................................................................... 25 Section 2.10. Temporary Notes.......................................................................... 25 Section 2.11. Cancellation............................................................................. 25 Section 2.12. Defaulted Interest....................................................................... 26 ARTICLE 3. REDEMPTION AND PREPAYMENT........................................................................... 26 Section 3.01. Notice to Trustee........................................................................ 26 Section 3.02. Selection of Notes to Be Redeemed........................................................ 26 Section 3.03. Notice of Redemption..................................................................... 27 Section 3.04. Effect of Notice of Redemption........................................................... 28 Section 3.05. Deposit of Redemption Price.............................................................. 28 Section 3.06. Notes Redeemed in Part................................................................... 28 Section 3.07. Optional Redemption...................................................................... 29 Section 3.08. Mandatory Redemption..................................................................... 29 Section 3.09. Offer to Purchase by Application of Excess Proceeds...................................... 30 ARTICLE 4. COVENANTS........................................................................................... 31 Section 4.01. Payment of Notes......................................................................... 31 Section 4.02. Maintenance of Office or Agency.......................................................... 32 Section 4.03. Reports.................................................................................. 32 Section 4.04. Compliance Certificate................................................................... 33 Section 4.05. Taxes.................................................................................... 34 Section 4.06. Stay, Extension and Usury Laws........................................................... 34 Section 4.07. Restricted Payments...................................................................... 34 Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries........................... 36 Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock............................... 37 Section 4.10. Asset Sales.............................................................................. 39 Section 4.11. Transactions with Affiliates............................................................. 40 Section 4.12. Liens.................................................................................... 41 Section 4.13. Business Activities...................................................................... 41
-i- Section 4.14. Corporate Existence...................................................................... 41 Section 4.15. Offer to Repurchase Upon a Change of Control............................................. 41 Section 4.16. No Senior Subordinated Debt.............................................................. 43 Section 4.17. Additional Subsidiary Guarantees......................................................... 43 Section 4.18. Payments for Consent..................................................................... 43 Section 4.19. Board of Directors....................................................................... 44 ARTICLE 5. SUCCESSORS.......................................................................................... 44 Section 5.01. Merger, Consolidation, or Sale of Assets................................................. 44 Section 5.02. Successor Person Substituted............................................................. 44 ARTICLE 6. DEFAULTS AND REMEDIES............................................................................... 45 Section 6.01. Events of Default........................................................................ 45 Section 6.02. Acceleration............................................................................. 46 Section 6.03. Remedies................................................................................. 47 Section 6.04. Waiver of Past Defaults.................................................................. 47 Section 6.05. Control by Majority...................................................................... 47 Section 6.06. Limitation on Suits...................................................................... 47 Section 6.07. Rights of Holders to Receive Payment..................................................... 48 Section 6.08. Collection Suit by Trustee............................................................... 48 Section 6.09. Trustee May File Proofs of Claim......................................................... 48 Section 6.10. Priorities............................................................................... 49 Section 6.11. Undertaking for Costs.................................................................... 49 ARTICLE 7. TRUSTEE............................................................................................. 50 Section 7.01. Duties of Trustee........................................................................ 50 Section 7.02. Rights of Trustee........................................................................ 51 Section 7.03. Individual Rights of Trustee............................................................. 52 Section 7.04. Trustee's Disclaimer..................................................................... 52 Section 7.05. Notice of Defaults....................................................................... 52 Section 7.06. Reports by Trustee to Holders............................................................ 52 Section 7.07. Compensation and Indemnity............................................................... 53 Section 7.08. Replacement of Trustee................................................................... 54 Section 7.09. Successor Trustee by Merger, etc......................................................... 55 Section 7.10. Eligibility; Disqualification............................................................ 55 Section 7.11. Preferential Collection of Claims Against Company........................................ 55 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE............................................................ 55 Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance................................. 55 Section 8.02. Legal Defeasance and Discharge........................................................... 55 Section 8.03. Covenant Defeasance...................................................................... 56 Section 8.04. Conditions to Legal or Covenant Defeasance............................................... 56 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions........................................................... 58 Section 8.06. Repayment to Company..................................................................... 58 Section 8.07. Reinstatement............................................................................ 59
-ii- ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER.................................................................... 59 Section 9.01. Without Consent of Holders............................................................... 59 Section 9.02. With Consent of Holders.................................................................. 60 Section 9.03. Compliance with Trust Indenture Act...................................................... 61 Section 9.04. Revocation and Effect of Consents........................................................ 61 Section 9.05. Notation on or Exchange of Notes......................................................... 62 Section 9.06. Trustee to Sign Amendments, etc.......................................................... 62 ARTICLE 10. SUBORDINATION...................................................................................... 62 Section 10.01. Agreement to Subordinate................................................................. 62 Section 10.02. Liquidation; Dissolution; Bankruptcy..................................................... 63 Section 10.03. Default on Designated Senior Debt........................................................ 63 Section 10.04. Acceleration of Notes.................................................................... 64 Section 10.05. When Distribution Must be Paid Over...................................................... 64 Section 10.06. Notice by Company........................................................................ 64 Section 10.07. Subrogation.............................................................................. 64 Section 10.08. Relative Rights.......................................................................... 65 Section 10.09. Subordination May Not be Impaired by Company............................................. 65 Section 10.10. Distribution or Notice to Representative................................................. 65 Section 10.11. Rights of Trustee and Paying Agent....................................................... 65 Section 10.12. Authorization to Effect Subordination.................................................... 66 Section 10.13. Amendments............................................................................... 66 ARTICLE 11. SUBSIDIARY GUARANTEES.............................................................................. 66 Section 11.01. Guarantee................................................................................ 66 Section 11.02. Limitation on Guarantor Liability........................................................ 67 Section 11.03. Execution and Delivery of Subsidiary Guarantee........................................... 68 Section 11.04. Guarantors May Consolidate, etc., on Certain Terms....................................... 68 Section 11.05. Release.................................................................................. 69 ARTICLE 12. SUBORDINATION OF SUBSIDIARY GUARANTEE.............................................................. 70 Section 12.01. Agreement to Subordinate................................................................. 70 Section 12.02. Liquidation; Dissolution; Bankruptcy..................................................... 70 Section 12.03. Default on Designated Senior Debt........................................................ 70 Section 12.04. Acceleration of Subsidiary Guarantees.................................................... 71 Section 12.05. When Distribution Must be Paid Over...................................................... 71 Section 12.06. Notice by Guarantor...................................................................... 71 Section 12.07. Subrogation.............................................................................. 72 Section 12.08. Relative Rights.......................................................................... 72 Section 12.09. Subordination May Not be Impaired by Guarantor........................................... 72 Section 12.10. Distribution or Notice to Representative................................................. 73 Section 12.11. Rights of Trustee and Paying Agent....................................................... 73 Section 12.12. Authorization to Effect Subordination.................................................... 74 Section 12.13. Amendments............................................................................... 74 ARTICLE 13. SATISFACTION AND DISCHARGE......................................................................... 74 Section 13.01. Satisfaction and Discharge............................................................... 74
-iii- Section 13.02. Application of Trust Money............................................................... 75 ARTICLE 14. CONVERSION......................................................................................... 76 Section 14.01. Mandatory Conversion..................................................................... 76 Section 14.02. Conversion Procedure; Conversion Rate; Fractional Shares................................. 76 Section 14.03. Reserved................................................................................. 77 Section 14.04. Reserved................................................................................. 77 Section 14.05. Reserved................................................................................. 77 Section 14.06. Reserved................................................................................. 77 Section 14.07. Company To Reserve Stock: Registration; Listing.......................................... 77 Section 14.08. Taxes on Conversion...................................................................... 77 Section 14.09. Covenant as to Common Stock.............................................................. 78 Section 14.10. Company Determination Final.............................................................. 78 Section 14.11. Trustee's Disclaimer..................................................................... 78 Section 14.12. Cancellation of Converted Notes.......................................................... 78 ARTICLE 15. MEETINGS OF HOLDERS OF NOTES....................................................................... 78 Section 15.01. Purposes for Which Meetings May Be Called................................................ 78 Section 15.02. Manner of Calling Meetings............................................................... 78 Section 15.03. Call of Meeting by the Company or the Holders............................................ 79 Section 15.04. Who May Attend and Vote at Meetings...................................................... 79 Section 15.05. Quorum; Action........................................................................... 79 Section 15.06. Regulations May Be Made by Trustee; Conduct of the Meeting; Voting Rights - Adjournment..................................................................... 80 Section 15.07. Manner of Voting at Meetings and Record to Be Kept....................................... 81 Section 15.08. Exercise of Rights of Trustee and Holders Not to Be Hindered or Delayed.................. 81 ARTICLE 16. MISCELLANEOUS...................................................................................... 81 Section 16.01. Trust Indenture Act Controls............................................................. 81 Section 16.02. Notices.................................................................................. 82 Section 16.03. Communication by Holders with Other Holders.............................................. 83 Section 16.04. Acts of Holders.......................................................................... 83 Section 16.05. Certificate and Opinion as to Conditions Precedent....................................... 84 Section 16.06. Statements Required in Certificate or Opinion............................................ 84 Section 16.07. Rules by Trustee and Agents.............................................................. 85 Section 16.08. Anti-Dilution............................................................................ 85 Section 16.09. No Personal Liability of Directors, Officers, Employees and Stockholders................. 86 Section 16.10. Governing Law............................................................................ 86 Section 16.11. No Adverse Interpretation of Other Agreements............................................ 87 Section 16.12. Successors............................................................................... 87 Section 16.13. Severability............................................................................. 87 Section 16.14. Counterpart Originals.................................................................... 87 Section 16.15. Table of Contents, Headings, etc......................................................... 87
-iv- EXHIBITS AND SCHEDULES Exhibit A FORM OF NOTE (Global Note and Definitive Note) Exhibit B FORM OF SUPPLEMENTAL INDENTURE SCHEDULE I SCHEDULE OF GUARANTORS -v- INDENTURE --------- INDENTURE dated as of [____________] [___], 2001 by and among Aviation Sales Company, a Delaware corporation (the "Company"), the Guarantors listed on Schedule I hereto, as amended from time to time, and HSBC Bank USA, as Trustee. The Company, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 8.00% Senior Subordinated Convertible PIK Notes due 2006: ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Additional Notes" means 8.00% Senior Subordinated Convertible PIK Notes due 2006 issued as interest, substantially in the form of Exhibit A hereto. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means 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 Stock, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. "Agent" means any Registrar, Paying Agent or Conversion Agent. "Agent Members" means members of, or Participants in, the Depositary. "Applicable Procedures" means the applicable procedures of the Depositary. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than sales or leases of inventory in the ordinary course of business or sales of leases or of assets subject to leases in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by Section 4.15 and/or Article 5 hereof and not by Section 4.10 hereof) and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $2.0 million or (b) for net proceeds in excess of $2.0 million. Notwithstanding the foregoing, the following items shall not be deemed to be Asset Sales: (i) transfer of assets by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, and (iii) a Restricted Payment that is permitted by Section 4.07 hereof. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "beneficial owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "beneficially owns," "beneficially owned" and "beneficial ownership" have a corresponding meaning. "Board of Directors" means: (1) with respect to a corporation, the board of directors (or duly authorized committee thereof) of the corporation; (2) with respect to a partnership, the board of directors or similar governing body of the general partner of the partnership; and (3) with respect to any other Person, the board, committee, managers or trustees of such Person serving a similar function. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any -2- other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition and (vi) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (i) - (v) of this definition. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act), (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above) becomes the beneficial owner, directly or indirectly, of more than 50% of the Voting Stock of the Company (measured by voting power rather than number of shares), provided, however, that the beneficial ownership by Lacy J. Harber (or any group in which Lacy J. Harber is a member) of more than 50% of the Voting Stock of the Company shall not constitute a Change of Control, or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Closing Price Per Share" means with respect to the Common Stock, for any day, (i) the last reported sale price regular way (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and average ask prices) on such date as reported in the composite transactions for the principal United States securities exchange on which the Common Stock is traded or, if the Common Stock is not listed on a United States national or regional stock exchange, as reported by the Nasdaq National Market, or (ii) if the Common Stock is not listed or admitted to trading on any United States securities exchange or quoted on the Nasdaq National Market, the average of the closing bid and ask prices in the over-the-counter market as furnished by any Nasdaq National Market member firm selected from time to time by the Company for that purpose. "Common Stock" means the common stock, par value $.001 per share, of the Company authorized at the date of this Indenture. Subject to the provisions of Section 13.04, shares issuable on conversion or repurchase of Notes shall include only shares of Common Stock or -3- shares of any class or classes of common stock resulting from any reclassification or reclassifications thereof; provided, however, that if at any time there shall be more than one such resulting class, the shares so issuable upon conversion of Notes shall include shares of all such classes, and the shares of each class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "Company" means the Person named as the "Company" in the first paragraph of this Indenture until a successor entity shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor entity. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, plus (v) an amount equal to 1/3 of the Consolidated Lease Expense of such Person and its Restricted Subsidiaries for such period, to the extent that any such expense was deducted in computing such Consolidated Net Income, minus (vi) non-cash items increasing such Consolidated Net Income for such period, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and other non-cash expenses of, a Restricted Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in the same proportion) that the Net Income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be distributed to the Company by such Restricted Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Restricted Subsidiary or its stockholders. -4- "Consolidated Lease Expense" means, with respect to any Person for any period, the aggregate rental obligations of such Person and its consolidated Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP payable in respect of such period under leases of real and/or personal property (net of income from subleases thereof, but including taxes, insurance, maintenance and similar expenses that the lessee is obligated to pay under the terms of such leases), whether or not such obligations are reflected as liabilities or commitments on a consolidated balance sheet of such Person and its Restricted Subsidiaries or in the notes thereto. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of this Indenture in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of this Indenture or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. -5- "Conversion Agent" means any Person authorized by the Company to convert Notes in accordance with Section 2.03 and Article 14. "Conversion Date" means December 31, 2006. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 16.02; provided, however, for the purpose of presentation of Notes for payment, registration of transfer or exchange and maintenance of the registration books, such term shall mean the office at which the Trustee conducts its corporate agency business, or such other address as to which the Trustee may give notice to the Company. "Covenant Defeasance" has the meaning specified in Section 8.03. "Credit Facility" means that certain Fourth Amended and Restated Credit Agreement dated as of May 31, 2000, by and among the Company, certain subsidiaries of the Company, Citicorp USA, Inc., as Agent, and the institutions party thereto from time to time as Lenders and as Issuing Banks, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Custodian" means any receiver, trustee, assignee, liquidator or similar official under Bankruptcy Law. "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. "Definitive Notes" means Notes that are in the form of the Note attached hereto as Exhibit A, that do not include the Global Note Legend or the Schedule of Exchanges of Interests in the Global Note. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 as the Depositary with respect to the Notes, until a successor shall have been appointed and become such pursuant to the applicable provision of this Indenture, and, thereafter, "Depositary" shall mean or include such successor. "Designated Senior Debt" means (i) any Indebtedness outstanding under the Credit Facility; (ii) any amounts due under the TROL Financing (whether or not deemed Indebtedness) and (iii) any other Senior Debt the principal amount of which is $25 million or more permitted under this Indenture and that has been designated by the Company as "Designated Senior Debt." "Direct Participant" means a participant which may deposit in the Depositary. "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 mandated to be 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 -6- because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 4.07 hereof. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Indebtedness" means up to $22.0 million in aggregate principal amount of Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Credit Facility) in existence on the date of this Indenture, until such amounts are repaid. "Fixed Charges" means, with respect to any Person and its Restricted Subsidiaries for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon), (iv) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP and (v) an amount equal to 1/3 of the Consolidated Lease Expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued. "Fixed Charge Coverage Ratio" means with respect to any Person and its Restricted Subsidiaries for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Fixed Charges of such Person for such period. In the event that the referent Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of -7- preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "Fully Diluted Outstanding Common Stock" means, with respect to any date, the number of shares of Common Stock actually issued and outstanding on such date, plus the number of shares of Common Stock which may be issued upon exercise, conversion (exclusive of the shares of Common Stock issuable upon conversion of the Notes) or exchange of any and all outstanding options, stock, rights, warrants or other securities of the Company. "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 on the date of this Indenture. "Global Note" means a global note that contains the Schedule of Exchanges of Interests in the Global Note contained in the form of the Note attached hereto as Exhibit A, and that is deposited with the Depositary or the Trustee as custodian for the Depositary and registered in the name of the Depositary (or its nominee), representing Notes. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "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. "Guarantors" means any Subsidiary of the Company that executes a Subsidiary Guarantee in accordance with the provisions of this Indenture and its respective successors and assigns. -8- "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Holder" means a holder of any of the Notes. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness issued with original issue discount, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. The TROL Financing shall be deemed Indebtedness unless and until it no longer appears as a liability upon the balance sheet of the Company prepared in accordance with GAAP. "Indenture" means this Indenture, as amended or supplemented from time to time. "Indirect Participant" means securities brokers and dealers, banks and trust companies that clear or maintain a custodial relationship with a Direct Participant, directly or indirectly. "Interest Payment Date," when used with respect to any Note, means the Stated Maturity of an installment of interest on such Note. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in Section 4.07 hereof. -9- "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York, New York, or at a place of payment or a Place of Conversion are authorized by law, regulation or executive order to remain closed. If a payment date (including any Redemption Date or repurchase date) is a Legal Holiday at a place of payment or a Place of Conversion, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "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, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), any business or activities conducted by the Company on the date of this Indenture and any business or activities reasonably related, ancillary or complementary to such business or activities amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing -10- that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Notes" means, collectively, the 8.00% Senior Subordinated Convertible PIK Notes due 2006 and any Additional Notes issued hereunder, substantially in the form of Exhibit "A" hereto. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness or under the TROL Financing (whether or not deemed Indebtedness). "Offer Amount" has the meaning specified in Section 3.09. "Offer Period" has the meaning specified in Section 3.09. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary, any Assistant Secretary or any Vice-President of such Person. "Officer's Certificate" means a certificate signed on behalf of the Company by the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements set forth in Section 16.06. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 16.06. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Participant" means a Direct Participant and/or an Indirect Participant. "Paying Agent" means any Person authorized by the Company to pay the principal of, or interest on the Notes on behalf of the Company. "Permitted Business" means any business or activities conducted by the Company on the date of this Indenture and any business or activities related, ancillary or complementary to such business or activities. "Permitted Debt" has the meaning specified in Section 4.09. "Permitted Investments" means (a) any Investment in the Company or in a Guarantor; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Guarantor or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Guarantor; (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; and (f) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent -11- changes in value), when taken together with all other Investments made pursuant to this clause (f) that are at the time outstanding, not to exceed $10.0 million. "Permitted Junior Securities" means Equity Interests in the Company or any Guarantor or debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to Article 10 hereof. "Permitted Liens" means: (i) Liens on assets of the Company or any Guarantor to secure Senior Debt of the Company or such Guarantor that was permitted by the terms of this Indenture to be incurred; (ii) Liens in favor of the Company or a Guarantor; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (v) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (d) of the second paragraph of Section 4.09 covering only the assets acquired with such Indebtedness; (vi) Liens existing on the date of this Indenture; (vii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (viii) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $10.0 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Subsidiary; (ix) Liens to secure the Notes or the Subsidiary Guarantees; and (x) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries or the TROL Financing (other than intercompany Indebtedness); provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on (plus holder yield, in the case of the TROL Financing), the Indebtedness or the TROL Financing so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness or the TROL Financing being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness or the TROL Financing being extended, -12- 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 or the TROL Financing being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred by (whether as borrower or guarantor) the Person or Persons which is or are the obligor or obligors on the Indebtedness or TROL Financing being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Prospectus" means the Prospectus and Consent Solicitation of the Company dated ____________, 2001. "Redemption Date," when used with respect to any Notes to be redeemed, means the date fixed for such redemption pursuant to this Indenture. "registrar" means the Person appointed by the Company to keep the register which shall be kept for the registration of Notes and of registrations of transfers of Notes. "Representative" means the agent or representative for any holder or holders of any Senior Debt. "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee with direct responsibility for Administration of this Indenture) or any other officer of the Trustee assigned to perform the duties of Trustee hereunder and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted 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. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Debt" means (i) all Indebtedness outstanding under the Credit Facility, the Existing Indebtedness, the TROL Financing (whether or not deemed Indebtedness), all Hedging Obligations with respect thereto and, after a default has occurred and is continuing under the Credit Facility, all other Indebtedness arising from intercompany loans and advances owing by the Company or any of the 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, -13- (ii) any other Indebtedness permitted to be incurred by the Company or a Guarantor under the terms of this Indenture (including Permitted Refinancing Indebtedness), unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (v) the 8?% Senior Subordinated Notes due 2008 of the Company, (w) any liability for federal, state, local or other taxes owed or owing by the Company or a Guarantor, (x) any Indebtedness between or among the Company, any of its Subsidiaries or any of its other Affiliates, except to the extent such Indebtedness is within the scope of clause (i) above, (y) any trade payables or (z) any Indebtedness that is incurred in violation of this Indenture. "Significant Subsidiary" means any Subsidiary of the Company that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Stated Maturity," when used with respect to any Note or any installment of interest thereon, means the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable. "Subsidiary" means, with respect to any specified 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 of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that 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 that Person or one or more Subsidiaries of that Person (or any combination thereof). "Subsidiary Guarantee" means a guarantee by a Subsidiary of the Company's Obligations under this Indenture and pursuant to the Notes. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa- 77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, provided, however, that, in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" or "TIA" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trading Day" means (i) if the Common Stock is listed or admitted for trading on any national or regional securities exchange, days on which such national or regional securities exchange is open for business, (ii) if the Common Stock is quoted on the Nasdaq National Market or any other system of automated dissemination of quotations of security prices, days on which trades may be effected through such system, or (iii) if the Common Stock is not listed on a national or regional securities exchange or quoted on the National Nasdaq Market or any other -14- system of automated dissemination of quotations of security prices, days on which the Common Stock is traded in the over-the-counter market and for which a closing bid and a closing asked price for the Common Stock are available. "TROL Financing" means the obligations evidenced by that certain Lease Agreement between the Company and First Security Bank, N.A., as Owner Trustee, dated December 17, 1998, the guarantees thereof by its Subsidiaries and related operative agreements, each as amended and modified from time to time. "Trustee" means the party named as such in the preamble hereto until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has at least one director on its board of directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09 hereof, the Company shall be in default of such covenant). The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted under Section 4.09 hereof, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period, (ii) no Default or Event of Default would be in existence following such designation, and (iii) such Subsidiary becomes a Guarantor and executes a Supplemental Indenture and delivers an Opinion of Counsel, in accordance with the terms of this Indenture. -15- "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person or such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. Section 1.02. Other Definitions. Term Defined in Section "Act" 16.04(a) "Affected Provisions" 16.08(a) "Affiliate Transaction" 4.11 "Aggregate Cash Distribution Amount 14.03(4) "Asset Sale Offer" 3.09 "Authentication Order" 2.02 "Change of Control Offer" 4.15(a) "Change of Control Payment" 4.15(a) "Change of Control Payment Date" 4.15(a) "Company Notice" 4.08(c) "Defaulted Interest" 2.12 "DTC" 2.03 "Event of Default" 6.01 "Excess Proceeds" 4.10 "incur" 4.09 "Legal Defeasance" 8.02 "Place of Conversion" 14.02(c) "Purchase Date" 3.09 "Redemption Consideration" 3.07 "Restricted Payments" 4.07 Section 1.03. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. -16- The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes and the Subsidiary Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Subsidiary Guarantees, respectively. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. Section 1.04. Rules of Construction. Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) "or" is not exclusive; (d) words in the singular include the plural, and in the plural include the singular; (e) provisions apply to successive events and transactions; and (f) references to sections of or rules under the Exchange Act, the Securities Act or the TIA shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2. THE NOTES Section 2.01. Form and Dating. (a) General. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A attached hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof, except that Additional Notes may be in other denominations. -17- The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes issued in global form shall be substantially in the form of Exhibit A attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges, redemptions, repurchases and conversions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the custodian for the Depositary, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06. (c) Book-Entry Provisions. The Company shall execute and the Trustee shall, in accordance with this Section 2.01(c), authenticate and deliver the Global Notes that (i) shall be registered in the name of the Depositary or the nominee of the Depositary and (ii) shall be delivered by the Trustee to the Depositary or pursuant to the Depositary's instructions or held by the Trustee as custodian for the Depositary. Agent Members shall have no rights either under this Indenture with respect to any Global Note held on their behalf by the Depositary or by the Trustee as custodian for the Depositary or under such Global Note, and the Depositary may be treated by the Company, the Trustee and any Agent as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any Agent from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of an owner of a beneficial interest in any Global Note. (d) Definitive Notes. Notes issued in certificated form shall be substantially in the form of Exhibit A attached hereto (but without including the Global Note Legend or the Schedule of Exchanges of Interests in the Global Note). (e) Transfers of Global Notes. Except as set forth in Section 2.06, the Global Notes may be transferred, in whole and not in part, only to another nominee of the Depositary or to a successor of the Depositary or its nominee. -18- Section 2.02. Execution and Authentication. An Officer shall sign the Notes for the Company by manual or facsimile signature. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by any two of the following officers: the Chairman, the President or the Chief Financial officer (an "Authentication Order"), authenticate (i) Notes for original issue up to the aggregate principal amount of $100,000,000 (except as provided in Section 2.07) and (ii) Additional Notes issued from time to time to represent interest automatically deemed interest paid pursuant to paragraph 1 of the Notes. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. Section 2.03. Registrar, Paying Agent and Conversion Agent. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange, an office or agency where Notes may be presented for payment if redeemed and a Place of Conversion where Notes may be converted. The Registrar shall keep a register of the Notes and of their registration of transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the terms "Paying Agent" and "Conversion Agent" include any additional paying agent or conversion agent. The Company may change any Paying Agent, Conversion Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar, Paying Agent or Conversion Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent, Conversion Agent or Registrar. The Company initially appoints the Trustee to act as the Registrar, Paying Agent and Conversion Agent and to act as custodian with respect to the Global Notes. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. Section 2.04. Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money, -19- shares of Common Stock and Additional Notes held by the Paying Agent for the payment of principal, or interest on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money, shares of Common Stock and Additional Notes held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money, shares of Common Stock and Additional Notes held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money, shares of Common Stock and Additional Notes. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. Section 2.05. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each Interest Payment Date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA Section 312(a). -20- Section 2.06. Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act or announces an intention to permanently cease business or does in fact do so, and, in any case, a successor Depositary is not appointed by the Company within 90 days after the date of such notice from the Depositary, (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee or (iii) there has occurred and is continuing for a period of 120 days a Default or Event of Default with respect to the Notes. Upon the occurrence of either of the preceding events in (i), (ii) or (iii) above, Definitive Notes shall be issued in fully registered form in such names and in such authorized denominations as the Depositary shall instruct the Trustee, and such Definitive Notes shall bear any legends required hereunder. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to Section 2.07, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b) or (c). In the event of the occurrence of any of the preceding events in (i), (ii) or (iii) above, the Corporation shall promptly make available to the Trustee a reasonable supply of certificated Securities in definitive form. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable: (i) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in a Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i). (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(i), the transferor of such beneficial interest must deliver to the Registrar either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the -21- Participant account to be credited with such increase or (B) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (B)(1) above. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(g). (c) Transfer or Exchange of Beneficial Interests for Definitive Notes. If any holder of a beneficial interest in a Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(ii), if the Trustee is acting as custodian for the Depositary or its nominee with respect to the Notes, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(g), or if the Trustee is not acting as custodian for the Depositary or its nominee with respect to the Notes, such Global Note shall be surrendered for exchange, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. (d) Transfer and Exchange of Definitive Notes for Beneficial Interests. A Holder of a Definitive Note may exchange such Note for a beneficial interest in a Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Definitive Note and increase or cause to be increased the aggregate principal amount of a Global Note. (e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. (f) Legend. The following legend shall appear in substantially the following form on the face of all Global Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture: -22- "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO ARTICLE 2 OR SECTION 9.05 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE ONLY PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, AND MAY BE EXCHANGED OR REPLACED IN WHOLE OR IN PART, AS PROVIDED IN SECTIONS 2.07 AND 2.10 OF THE INDENTURE (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF AVIATION SALES COMPANY. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.06 OF THE INDENTURE." (g) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (h) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon the Company's order or at the Registrar's request. (ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.15, and 14.08, except to the extent permitted by the provisions of those Sections). -23- (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02. (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. Section 2.07. Replacement Notes. If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. -24- Section 2.08. Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser (as that term is defined in the Article 8 of the Uniform Commercial Code as in effect in the State of New York). A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.07. If the principal amount of any Note is considered paid under Section 4.01, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a Redemption Date, repurchase date or maturity date, money and Common Stock sufficient to pay Notes payable on that date in accordance with the terms of this Indenture, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.09. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Affiliate of the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. Section 2.10. Temporary Notes. Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. Section 2.11. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar, Paying Agent and Conversion Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange, payment or conversion. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, -25- conversion, payment, replacement or cancellation and shall destroy canceled Notes (subject to the record retention requirement of the Exchange Act). Upon receipt of instructions from the Company, the Trustee shall deliver certifications of the destruction of all canceled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Notes ("Defaulted Interest"), it shall pay the Defaulted Interest in any lawful manner plus, to the extent lawful, interest payable on the Defaulted Interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such Defaulted Interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01. Notice to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07, or is required to redeem the Notes pursuant to Section 3.07 as a result of a Redemption Acceleration Notice, it shall furnish to the Trustee, at least 45 days (unless a shorter notice period shall be satisfactory to the Trustee) but not more than 60 days before a Redemption Date, an Officer's Certificate setting forth, (i) the Redemption Date, (ii) the principal amount of Notes to be redeemed and (iii) the redemption price. Section 3.02. Selection of Notes to Be Redeemed. If less than all of the Notes are to be redeemed at any time, the Trustee will select Notes for redemption as follows: (a) if the Notes are listed on any national or regional securities exchange or quoted on the Nasdaq National Market, in compliance with the requirements of the principal national or regional securities exchange on which the Notes are listed on the Nasdaq National Market, as applicable; or (b) if the Notes are not listed on any national or regional securities exchange or quoted on the Nasdaq National Market, on a pro rata basis by lot or by such method as the Trustee shall deem fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor -26- more than 60 days prior to the Redemption Date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note (including Additional Notes) selected for partial redemption, the principal amount thereof to be redeemed. The principal amount of Notes (excluding Additional Notes) and portions of Notes (excluding Additional Notes) selected shall be in denominations of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed, and except that any portion of any Additional Note may be redeemed in whole or in part. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Section 3.03. Notice of Redemption. Notices of redemption shall be given to Holders in accordance with Section 16.02 at least 30 but not more than 60 days before the Redemption Date, except that redemption notices may be given more than 60 days prior to a Redemption Date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of this Indenture. The notice, which shall be irrevocable, shall identify the Notes to be redeemed and shall state: (a) the Redemption Date; (b) the Redemption Consideration, including the cash components, to the Redemption Date and the shares of Common Stock to be issued as part of the Redemption Consideration; (c) if less than all outstanding Notes are to be redeemed, the aggregate principal amount of Notes to be redeemed and the aggregate principal amount of Notes which will be outstanding after such partial redemption; (d) if any Note is to be redeemed in part only, the portion of the principal amount of that Note that is to be redeemed and that, after the Redemption Date, upon surrender of that Note, a new Note in principal amount equal to the unredeemed portion of that Note will be issued; (e) the name and address of the Paying Agent; (f) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price and the amount of accrued interest, if any; (g) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date; (h) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and -27- (i) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall, and acting pursuant to Section 6.02 the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may, give the notice of redemption in the Company's name and at the Company's expense; provided, that, if at the Company's request, the Company shall have delivered to the Trustee, at least 45 days prior to the Redemption Date, an Officer's Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.04. Effect of Notice of Redemption. Notes called for redemption become due on the Redemption Date. Subject to Section 3.05, on and after the Redemption Date, interest ceases to accrue on Notes or portions of them called for redemption. Notices of redemption may not be conditional. Section 3.05. Deposit of Redemption Price. At or prior to 10:00 a.m., New York City, New York time on the Redemption Date, the Company shall deposit with the Trustee or with the Paying Agent cash and Common Stock sufficient to pay the Redemption Consideration (as determined pursuant to Section 3.07 hereof) in respect of all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any cash and Common Stock deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the Redemption Consideration (as determined pursuant to Section 3.07 hereof) in respect of all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the Redemption Date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related Interest Payment Date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal amount of the Notes to be redeemed, from the Redemption Date until such Redemption Consideration is paid, and to the extent lawful on any interest not paid on such unpaid principal amount of Notes to be redeemed, in each case at the rate provided in the Notes and in Section 4.01. Section 3.06. Notes Redeemed in Part. If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount of that Note that is to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the Holder of that Note upon cancellation of the Note redeemed in part. -28- Section 3.07. Optional Redemption. The Notes may be redeemed from issuance, at the Company's option, in whole or in part, upon not less than 30 nor more than 60 days' notice, at any time and from time to time on and after January 1, 2002, for an amount of redemption consideration (the "Redemption Consideration") which shall be equal to (a) a cash component expressed as the percentage (set forth below) of (i) the principal amount of the Notes (including Additional Notes) being redeemed plus (ii) the accrued and unpaid interest thereon (through the Redemption Date) and (b) a Common Stock component comprised of a number of shares of Common Stock expressed as the product of (x) the quotient obtained by dividing (1) the principal amount of Notes (including Additional Notes) to be redeemed plus accrued and unpaid interest thereon as of the Redemption Date by (2) the total aggregate principal amount of all outstanding Notes (including Additional Notes) issued by the Company plus all accrued and unpaid interest thereon, times (y) the number of shares of Common Stock set forth below minus the number of shares of Common Stock previously issued pursuant to Sections 3.07, 3.09, 4.10 and 4.15 hereof.
Amount of Cash as Percentage of Initial Number of Shares Principal Amount of Notes of Common Stock (including Additional Notes) Available to be Issued If Redeemed At Any Time During and accrued and unpaid interest Ratably to all Holders the Following Years to the Redemption Date of Notes -------------------------------- --------------------------------- -------------------------- 2002 70.000% 4,504,595 2003 72.500% 4,504,595 2004 73.000% 3,003,063 2005 75.625% 3,003,063 2006 prior to maturity 77.500% 3,003,063
Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of this Article 3. Section 3.08. Mandatory Redemption. Subject to the provisions of Section 6.02 hereof, the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. -29- Section 3.09. Offer to Purchase by Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders to purchase Notes (an "Asset Sale ---------- Offer"), it shall follow the procedures specified below. - ----- The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five ------------ Business Days after the termination of the Offer Period (the "Purchase Date"), ------------- the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 and Section 3.07 hereof (the "Offer Amount") ------------ and in the manner required by Section 3.07 and Section 4.10 hereof, or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made using the same payment mechanics as cash interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Purchase Date; -30- (g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing the election thereof to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis; and (i) that Holders whose Notes are being purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof properly tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price (as determined pursuant to Section 4.10 and 3.07 hereof) of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Notes surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4. COVENANTS Section 4.01. Payment of Notes. The Company shall pay or cause to be paid the principal of, and interest on the Notes on the dates and in the manner provided in the Notes. Principal and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and Common Stock, each designated for and sufficient to pay all principal and interest then due in amounts calculated in accordance with this Indenture. If the Company does not deposit cash to pay the regularly scheduled installments of interest due under the Notes by 10:00 a.m. Eastern Time on the due date, then the Company shall automatically be deemed to have paid such unpaid interest in Additional Notes, which Additional Notes shall automatically be deemed to be outstanding as of such date, and the Company shall -31- thereafter promptly cause to be executed and authenticated such Additional Notes as set forth in Section 2.02 hereof and deliver such Additional Notes to the Person entitled thereto (or to the Trustee or the authenticating agent in custody for such Person). To the extent any Redemption Consideration is not paid when due in accordance with the provisions of this Indenture, the Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law), from time to time on demand at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes, to the extent lawful, on the principal amount of Notes in respect of which the Redemption Consideration has not been paid. Section 4.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange or for presentation for payment or for conversion, redemption or repurchase and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company (including a Place of Conversion) in accordance with Section 2.03. Section 4.03. Reports. Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company shall furnish to the Holders of Notes, within the time periods specified in the SEC's rules and regulations: (a) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K (including all exhibits) if the Company 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 on the annual financial statements by the Company's certified independent accountants; and -32- (b) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports. In addition, whether or not required by the rules and regulations of the SEC, the Company shall file a copy of all of the information and reports referred to in clauses (a) and (b) above with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. The Company shall at all times comply with TIA Section 314(a). Section 4.04. Compliance Certificate. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officer's Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officer with a view to determining whether each of the Company and the Guarantors has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of such Officer's knowledge each of the Company and the Guarantors has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which such Officer may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of such Officer's knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officer's Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. -33- Section 4.05. Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders. Section 4.06. Stay, Extension and Usury Laws. The Company and each of the Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.07. Restricted Payments. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is pari passu with or subordinated to the Notes, except a payment of interest or principal at the date such payment is due in accordance with the terms of the instrument, indenture or agreement evidencing such Indebtedness; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and ------------------- after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a); and -34- (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of this Indenture (excluding Restricted Payments permitted by clauses (ii), (iii), (iv) and (vi) of the next succeeding paragraph), is less than the sum, without duplication, of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of this Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company since the date of this Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of the Company), plus (iii) to the extent that any Restricted Investment that was made after the date of this Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment, plus (iv) 50% of any dividends received by the Company or a Guarantor after the date of this Indenture from an Unrestricted Subsidiary of the Company, to the extent that such dividends were not otherwise included in Consolidated Net Income of the Company for such period, plus (v) to the extent that any Unrestricted Subsidiary is redesignated as a Restricted Subsidiary after the date of this Indenture, the lesser of (A) the fair market value of the Company's Investment in such Subsidiary as of the date of such redesignation or (B) such fair market value as of the date on which such Subsidiary was originally designated as an Unrestricted Subsidiary. The foregoing provisions shall not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any pari passu or subordinated Indebtedness or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (ii) of the preceding paragraph (c); (iii) the defeasance, redemption, repurchase or other acquisition of pari passu or subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') management pursuant to any management equity subscription agreement or stock option agreement in effect as of the date of this Indenture; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $3.0 million in any twelve-month period and no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (vi) the making and consummation of (A) an Asset Sale Offer to holders of Indebtedness pari passu with or subordinate to the Notes in accordance with Section 4.10 hereof, or (B) a Change -35- of Control Offer to holders of Indebtedness pari passu with or subordinate to the Notes at a price not greater than 101% of the principal amount of such Indebtedness in accordance with provisions similar to those in Section 4.15 hereof; provided, that prior to consummation of a Change of Control Offer with respect to subordinated Indebtedness and concurrently with consummation of a Change of Control Offer with respect to pari passu Indebtedness, the Company shall have consummated the Change of Control Offer with respect to the Notes; and (vii) the making of additional Restricted Payments in an amount not to exceed $10.0 million. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments (to the extent they otherwise fall within the definition thereof) at the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of this Section 4.07. All such outstanding Investments will be deemed to constitute Investments in an amount equal to the fair market value of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment in excess of $10.0 million shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $15.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.07 were computed, together with a copy of any fairness opinion or appraisal required hereunder. Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (a)(i) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits or (ii) pay any indebtedness owed to the Company or any of its Restricted Subsidiaries, (b) make loans or advances to the Company or any of its Restricted Subsidiaries or (c) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. However, the foregoing restrictions shall not apply to encumbrances or restrictions existing under or by reasons of (i) Existing Indebtedness as in effect on the date hereof, (ii) the Credit Facility as in effect on the date hereof and any amendments, modifications, -36- restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the Credit Facility as in effect on the date hereof, (iii) this Indenture and the Notes, (iv) applicable law, (v) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in anticipation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred, (vi) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (vii) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (c) above on the property so acquired, (viii) any agreement for the sale of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale, (ix) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced, (x) secured Indebtedness otherwise permitted to be incurred pursuant to the provisions of Section 4.12 hereof that limits the right of the debtor to dispose of the assets securing such Indebtedness, (xi) provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business and (xii) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and the ----- Company shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock and the Guarantors may incur Indebtedness or issue preferred stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or preferred stock is issued would have been at least 2.25 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom) as if the additional Indebtedness had been incurred, or the Disqualified Stock or preferred stock had been issued, as the case may be, at the beginning of such four-quarter period. The provisions of the preceding paragraph will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): -------------- (a) the incurrence by the Company and the 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 -37- liability of the Company and the Guarantors thereunder) outstanding under the Credit Facility after giving effect to such incurrence does not exceed an amount equal to $95.0 million; (b) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (c) the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes (including Additional Notes) and the Subsidiary Guarantees; (d) the incurrence by the Company or any of the Guarantors of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Guarantor, in an aggregate principal amount not to exceed $10.0 million at any time outstanding; (e) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace (x) Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred under the first paragraph of this Section 4.09 or clause (a) or (b) above or clause (k) below or (y) the TROL Financing; (f) the incurrence by the Company or any of the Guarantors of intercompany Indebtedness or preferred stock between or among the Company and any of the Guarantors; provided, however, that (A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness or preferred stock being held by a Person other than the Company or a Guarantor and (B) any sale or other transfer of any such Indebtedness or preferred stock to a Person that is not either the Company or a Guarantor shall be deemed, in each case, to constitute an incurrence of such Indebtedness or an issuance of such preferred stock by the Company or such Guarantor, as the case may be, that was not permitted by this clause (f); (g) the incurrence by the Company or any of the Guarantors of Hedging Obligations; (h) the guarantee by the Company or any of the Guarantors of Indebtedness of the Company or a Guarantor that was permitted to be incurred by another provision of this Section 4.09; (i) the incurrence by the Company's Unrestricted Subsidiaries of Non- Recourse Debt, provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (i); (j) the incurrence by the Company or any of the Guarantors of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (j), not to exceed $30.0 million; and -38- (k) the incurrence by the Company or any of the Guarantors of up to $34.5 million of Indebtedness resulting from any future recharacterization of the TROL Financing as a liability on the balance sheet of the Company. For purposes of determining compliance with this Section 4.09, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (a) through (k) above or is entitled to be incurred pursuant to the first paragraph of this Section 4.09, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this Section 4.09. Accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock shall not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this Section 4.09; provided, in each case, that the amount thereof is included in Fixed Charges of the Company as accrued. Indebtedness meeting the criteria of clause (e) above and classified as Permitted Refinancing Indebtedness may be included as part of any refinancing of the Credit Facility irrespective of the limitations of clause (a) above and without effect upon the limitations of clause (a) above with respect to the balance of the principal amount of the Credit Facility. Section 4.10. Asset Sales. The Company shall not, and shall not permit any of its Restricted Subsidiaries to consummate an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 80% of the consideration received therefor by the Company or such Restricted Subsidiary is in the form of cash; provided, that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet), of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are contemporaneously (subject to ordinary settlement periods) converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision. Within 270 days after receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at its option, (a) to repay or cause to be repaid Senior Debt, or (b) to the acquisition of a majority of the assets of, or a majority of the Voting Stock of, another Permitted Business, the making of a capital expenditure or the acquisition of other long-term assets that are used or useful in a Permitted Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from such Asset Sale that are not finally applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds --------------- exceeds $10.0 million, the Company shall be required to make an offer to all Holders of Notes (including Additional Notes) and all holders of pari passu -39- Indebtedness containing provisions similar to those set forth in Section 3.09 hereof with respect to offers to purchase or redeem with the proceeds of sales of assets (an "Asset Sale Offer") to purchase a principal amount of Notes and ---------------- such other Indebtedness equal to the amount of such Excess Proceeds, at a purchase price equal to the amount in cash and Common Stock payable by the Company pursuant to Section 3.07 as if such Notes were being redeemed by the Company on the date of the applicable Asset Sale, in accordance with the procedures set forth in Section 3.09 hereof and in the documentation with respect to such other Indebtedness, respectively. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer (including that part of the Excess Proceeds corresponding to the portion of the purchase price payable in Common Stock under such Asset Sale Offer), the Company may use such Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of Notes and such other Indebtedness tendered into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of Excess Proceeds allocable to the repurchase of the Notes (in relation to any other pari passu Indebtedness containing provisions similar to the provisions of Section 3.09 hereof), the Trustee shall select the Notes and such other Indebtedness to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. In determining the fair market value of any assets or Equity Interests issued, sold or otherwise disposed of, such determination shall be evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee if such fair market value exceeds $15.0 million. Section 4.11. Transactions with Affiliates. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless --------------------- (a) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (b) the Company delivers to the Trustee (i) with respect to any Affiliate Transaction or series of related Affiliated Transactions involving aggregate consideration in excess of $10.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (a) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (ii) with respect to any Affiliate Transaction or series of related Affiliated Transactions involving aggregate consideration in excess of $15.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. Notwithstanding the foregoing, the following items shall not be deemed to be Affiliate Transactions: (i) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary, (ii) transactions between or among the Company and/or the Guarantors, (iii) payment of reasonable directors fees to Persons who are not otherwise Affiliates of the Company, (iv) Restricted Payments that are permitted by Section 4.07, and (v) any transactions undertaken pursuant to any contractual obligations in existence on -40- the date of this Indenture (as in effect on such date) as described in the Prospectus under the caption "Certain Relationships and Related Transactions." Section 4.12. Liens. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any Lien securing Indebtedness or trade payables on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens. Section 4.13. Business Activities. The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Subsidiaries taken as a whole. Section 4.14. Corporate Existence. Subject to Article 5 and Section 11.05, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Restricted Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Guarantor, and (ii) the rights (charter and statutory), licenses and franchises of the Company and each Guarantor; provided, however, that the Company and any Guarantor shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence, if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders. Section 4.15. Offer to Repurchase Upon a Change of Control. (a) Upon the occurrence of a Change of Control, the Company shall make an offer (a "Change of Control Offer") to each Holder to repurchase, at ----------------------- each Holder's option, all or any part of each Holder's Notes at a purchase price equal to the amount in cash and Common Stock payable by the Company pursuant to Section 3.07 as if such Notes were being redeemed by the Company on the date of the Change of Control (the "Change of Control Payment"). Within 10 days ------------------------- following any Change of Control, the Company shall mail a notice to each Holder stating: (i) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes tendered will be accepted for payment; (ii) the purchase price and the purchase date, which shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); ------------------------------ (iii) that any Note not tendered or accepted in full for payment will continue to accrue interest to the extent that such Note is not accepted in full for payment; -41- (iv) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes, to the extent accepted for payment pursuant to the Change of Control Offer, shall cease to accrue interest after the Change of Control Payment Date; (v) that Holders electing to have any Note purchased pursuant to a Change of Control Offer will be required to surrender all of such Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date, and may not elect to have only a portion of any Note purchased; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Note the Holder delivered for purchase and a statement that such Holder is withdrawing the election thereof to have such Note purchased; and (vii) that Holders whose Notes are being purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes in connection with a Change of Control. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail or deliver to each Holder of Notes so tendered payment in an amount equal to the purchase price for the Notes tendered by such Holder, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each such Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any. (c) Prior to complying with the provisions of this Section 4.15, but in any event within 90 days following a Change of Control, the Company shall either repay or cause to be repaid all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this Section 4.15. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (d) The Change of Control provisions described above shall be applicable whether or not any other provisions of this Indenture are applicable. Notwithstanding anything to the -42- contrary in this Section 4.15, the Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.15 and Section 3.09 hereof and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. Section 4.16. No Senior Subordinated Debt. Notwithstanding the provisions of Section 4.09 hereof, (i) the Company shall not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes, and (ii) no Guarantor shall incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinated or junior in right of payment to the Senior Debt of such Guarantor and senior in any respect in right of payment to the Subsidiary Guarantees. Section 4.17. Additional Subsidiary Guarantees. (a) If the Company or any of its Restricted Subsidiaries shall acquire or create another Subsidiary after the date of this Indenture (other than an Unrestricted Subsidiary properly designated as such), then such newly acquired or created Subsidiary shall become a Guarantor by executing a supplemental indenture and shall deliver an Opinion of Counsel to the Trustee within 10 Business Days of the date when such event occurs to the effect that such supplemental indenture has been duly authorized, executed and delivered by such Subsidiary and constitutes a valid and binding obligation of such Subsidiary, enforceable against such Subsidiary in accordance with its terms (subject to customary exceptions). (b) The Subsidiary Guarantees shall be joint and several obligations of the Guarantors; provided, however, that the obligations of each Guarantor under its Subsidiary Guarantee shall be limited as necessary to prevent that Subsidiary Guarantee from constituting a fraudulent conveyance under applicable law. (c) The Subsidiary Guarantee of a Guarantor shall be automatically released (without the taking of any action by the Company, such Guarantor, the Trustee or any Holder) at such time as the Guarantor is no longer a Subsidiary of the Company. Section 4.18. Payments for Consent. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or 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. -43- Section 4.19. Board of Directors. For so long as $10 million of Notes shall be outstanding, the Holders of a majority in aggregate principal amount of the Notes then outstanding shall be entitled to designate one person to be nominated for election to the Board of Directors of the Company. Jack Hersch shall be the designee for an initial term ending at the 2002 Annual Meeting of Stockholders. Thereafter, the Holders of a majority in aggregate principal amount of the Notes then outstanding shall designate the representative for nomination for successive three-year terms. ARTICLE 5. SUCCESSORS Section 5.01. Merger, Consolidation, or Sale of Assets. The Company shall not: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving entity); or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of the Company, in one or more related transactions, to another Person, unless: (a) either (i) the Company is the surviving entity; or (ii) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition has been made is a corporation, limited liability company, partnership or trust organized and existing under the laws of the United States, any state of the United States or the District of Columbia; (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, lease conveyance or other disposition has been made assumes all the obligations of the Company under the Notes and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (c) immediately after such transaction no Default or Event of Default shall have occurred and be continuing; and (d) except in the case of a merger of the Company with or into a Guarantor, the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof. Section 5.02. Successor Person Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with -44- Section 5.01, the successor entity formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor entity and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor entity had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale, assignment, transfer, lease, conveyance or other disposition of all of the Company's assets that meets the requirements of Section 5.01. ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01. Events of Default. Each of the following is an Event of Default: (a) failure to pay principal of when due (whether nor not prohibited by Article 10 or Article 12); (b) failure to pay interest on the Notes when due, if such failure continues for a period of 30 days (whether or not prohibited by Article 10 or Article 12), or, to the extent interest is deemed paid in Additional Notes, failure to issue and deliver such Additional Notes within 30 days after such interest is deemed paid; (c) failure by the Company or any of its Subsidiaries to comply with Sections 4.07, 4.09, 4.10 and 4.15; (d) failure by the Company or any of its Subsidiaries for 60 days after written notice from the Trustee or the Holders of at least 25% in aggregate principal amount of outstanding Notes to comply with any of the other agreements in this Indenture or the Notes; (e) failure by the Company or any of its Subsidiaries to pay when due the principal of, or interest on (prior to the expiration of any applicable grace period), or acceleration of, any debt for money borrowed by the Company or any of its Subsidiaries that is, in the aggregate, equal to or greater than $10 million; (f) failure by the Company or any of its Subsidiaries to pay final judgments (including foreign judgments only to the extent enforcement thereof is sought in the United States or in any foreign jurisdiction where the Company owns assets of $10.0 million or more) aggregating in excess of $10.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (g) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: -45- (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; (h) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; (ii) appoints a Custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (iii) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days; and (i) except as permitted by this Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee. Section 6.02. Acceleration. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from any event described in Section 6.01(g) or (h), all outstanding Notes shall become due and payable immediately without further action or notice. Holders of the Notes may not enforce this Indenture or the Notes except as provided herein. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of -46- 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. Section 6.03. Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture; provided that for so long as there shall not occur an Event of Default pursuant to Section 6.01(g) or (h), the Company may pay all principal and interest due hereunder in the form of Redemption Consideration, which shall be calculated and paid in accordance with the provisions of Section 3.07. Notwithstanding the previous sentence and subject to the provisions of Chapter 11 of the United States Code, in connection with any Event of Default under Sections 6.01(g) or (h), any claim by the Trustee hereunder shall be for the full unpaid principal amount of the Notes, all accrued and unpaid interest thereon, and all other amounts due and payable hereunder. The Trustee may maintain a proceeding with respect to the Notes or this Indenture even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04. Waiver of Past Defaults. 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 this Indenture, except a continuing Default or Event of Default in the payment of principal of, or interest on the Notes (including in connection with an offer to purchase as required by the terms of this Indenture); provided however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration. Upon any such waiver or rescission, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05. Control by Majority. The Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the Holders or that may involve the Trustee in personal liability. Section 6.06. Limitation on Suits. A Holder may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder gives to the Trustee written notice of a continuing Event of Default; -47- (b) the Holders of at least 25% in aggregate principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the written request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in aggregate principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. Section 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal and interest on any Note, on or after the respective due dates expressed in the Note (or, in the case of redemption or repurchase, on the Redemption Date or the repurchase date, as the case may be), or to convert such Holder's Note into Common Stock on the Conversion Date, or to bring suit for the enforcement of any such payment on or after such respective dates or the right to convert, shall not be impaired or affected without the consent of such Holder. Section 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as Trustee of an express trust against the Company for the Redemption Consideration payable in respect of the whole amount of principal of, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any amounts due to the Trustee under Section 7.07. Section 6.09. Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to -48- it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders for amounts due and unpaid on the Notes for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest, respectively; and Third: to the Company, the Guarantors or to such other party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. -49- ARTICLE 7. TRUSTEE Section 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default actually known to the Trustee: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. -50- (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.02. Rights of Trustee. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officer's Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officer's Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent (other than an agent who is an employee of the Trustee) appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company or any Guarantor shall be sufficient if signed by an Officer of the Company or Guarantor, as applicable. (f) If an Event of Default occurs and is continuing, the Trustee shall, in the exercise of its power, use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provision, the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee security or indemnity satisfactory to it against any loss, liability or expense. (g) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or willful misconduct. (h) The Trustee shall not be charged with knowledge of any Default or Event of Default with respect to the Notes unless either (1) a Responsible Officer shall have actual knowledge of such Default or Event of Default or (2) written notice of such Default or Event of Default shall have been given to the Trustee by the Company. -51- Section 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in accordance with the requirements of the TIA, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as Trustee (in the event such conflict arises after a Shelf Registration Statement has been filed and has been declared effective by the SEC) or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11. Section 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, the Notes or of the Common Stock issuable upon conversion of the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.05. Notice of Defaults. If a Default or Event of Default occurs, and if it is known to the Trustee, the Trustee shall mail to Holders a notice of the Default or Event of Default within 90 days after it occurs, unless such Default or Event of Default is no longer continuing. The Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders. Section 7.06. Reports by Trustee to Holders. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders shall be mailed to the Company and if such report is prepared after the Shelf Registration Statement has been declared effective by the SEC, filed with the SEC and each securities exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any securities exchange. -52- Section 7.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company and the Guarantors, if any, shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services except any disbursements, expenses and advances as may be attributable to the Trustee's negligence or willful misconduct. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company and the Guarantors, if any, shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company, the Guarantors or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company and the Guarantors promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company and the Guarantors shall not relieve the Company or the Guarantors of their obligations hereunder. The Company and the Guarantors shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company and the Guarantors shall pay the reasonable fees and expenses of such counsel. The Company and the Guarantors need not pay for any settlement made without their consent, which consent shall not be unreasonably withheld. The obligations of the Company and the Guarantors to the Trustee under this Section 7.07 shall survive the resignation or removal of the Trustee and the termination, satisfaction and discharge of this Indenture. To secure the Company's and the Guarantors' payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the resignation or removal of the Trustee and the termination, satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(g) or (h) occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. As to notice of Liens or charges, the Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. -53- Section 7.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in aggregate principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in aggregate principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. -54- Section 7.09. Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). Section 7.11. Preferential Collection of Claims Against Company. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance. The Company may at the option of its Board of Directors evidenced by a resolution set forth in an Officer's Certificate, at any time, elect to have either Section 8.02 or 8.03 be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. Section 8.02. Legal Defeasance and Discharge. The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Notes and all obligations of the Guarantors discharged with respect to their Subsidiary Guarantees ("Legal Defeasance") except for: (a) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest on such Notes, or shares of the Company's Common Stock upon conversion of the Notes, when such payments are due from the trust referred to in Section 8.04(a) below; (b) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust; -55- (c) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's and the Guarantor's obligations in connection therewith; and (d) the Legal Defeasance provisions of this Indenture. For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 and the other Sections of this Indenture described in (a), (b) and (d) above, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the above provisions. Subject to compliance with this Article 8, the Company may exercise its option under Section 8.02 notwithstanding the prior exercise of its option under Section 8.03. Section 8.03. Covenant Defeasance. Upon the Company's exercise under Section 8.01 of the option applicable to this Section 8.03, the Company and the Guarantors, if any, shall, subject to the satisfaction of the conditions set forth in Section 8.04, be released from their obligations under the covenants contained in Sections 3.09, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19, Article 5, Section 6.01(c), (d), (e), (f), (g), (h), and (i), Section 6.03 and Section 11.03 with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed ------------------- not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(c) through 6.01(i) hereof shall not constitute Events of Default. Section 8.04. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.02 or 8.03 to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination of cash in United States dollars and non-callable Government Securities, and shares of Common -56- Stock, in amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to either, as applicable: (i) pay, as of a designated Redemption Date, the Redemption Consideration in respect of the principal of, and accrued but unpaid interest on the outstanding Notes on the designated Redemption Date, or (ii) deliver the shares of Common Stock as required by Section 14.02(a) hereof, and the Company must specify whether the Notes are being defeased to a particular Redemption Date or to the Stated Maturity; (b) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel will confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Section 6.01(g) or 6.01(h) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that on the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officer's Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (h) the Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. -57- Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.06, all money and non-callable Government Securities (including the proceeds thereof) and shares of Common Stock deposited with the Trustee (or other qualifying Trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all cash and Common Stock due and to become due thereon in respect of principal and interest or otherwise, but such money and securities need not be segregated from other funds or securities except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities or Common Stock deposited pursuant to Section 8.04 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities or Common Stock held by it as provided in Section 8.04 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a)), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06. Repayment to Company. Any money, non-callable Government Securities or Common Stock deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, or interest on or Redemption Consideration or conversion payment with respect to any Note and remaining unclaimed for two years after such principal or interest or Redemption Consideration or conversion payment has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money and securities, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in The New York Times and The Wall Street Journal (national edition), notice that such money or securities remain unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money or securities then remaining will be repaid or returned to the Company. -58- Section 8.07. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities or Common Stock in accordance with Section 8.02 or 8.03, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 until such time as the Trustee or Paying Agent is permitted to apply all such money, non-callable Government Securities or Common Stock in accordance with Section 8.02 or 8.03, as the case may be; provided, however, that, if the Company makes any payment of principal of, or interest on, or Redemption Consideration with respect to any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money and securities held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. Without Consent of Holders. Notwithstanding Section 9.02, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Subsidiary Guarantees or the Notes without the consent of any Holder: (a) to cure any ambiguity, defect, mistake or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; (c) to provide for the assumption of the Company's or Guarantors' obligations to Holders in the case of a merger or consolidation or sale of all or substantially all of the Company's assets; (d) to make any change that would provide any additional rights or benefits to the Holders or that does not adversely affect the legal rights hereunder of any Holder; (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; or (f) to allow any Guarantor to execute a supplemental indenture in respect of a Subsidiary Guarantee. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02, the Trustee shall join with the Company and Guarantors in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and -59- stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.02. With Consent of Holders. Except as provided below in this Section 9.02, this Indenture (including Sections 3.09, 4.10 and 4.15 hereof), the Subsidiary Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and, subject to Sections 6.02, 6.04 and 6.07, any existing Default or Event of Default (other than a Default or Event of Default in the payment of principal of, or interest on the Notes including in connection with an offer to purchase but excluding a payment default resulting from an acceleration that has been rescinded), or compliance with any provision of this Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes). Section 2.08 hereof shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02, the Trustee shall join with the Company and each Guarantor in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders under this Section 9.02 or pursuant to Article 13 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.02, 6.04 and 6.07, the Holders of a majority in aggregate principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; -60- (b) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes, except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof, or adjust the Conversion Rate otherwise than in accordance with Section 16.08; (c) reduce the rate of or change the time for payment of interest on any Note; (d) waive a Default or Event of Default in the payment of principal of, or interest on the Notes (except a rescission of an acceleration by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes (including Additional Notes, if any) and a waiver of any payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, or interest on the Notes; (g) waive a redemption payment with respect to any Note (other than a payment required pursuant to Sections 3.09, 4.10 and 4.15 hereof); (h) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions; or (i) release any Guarantor from its obligations under its Subsidiary Guarantee or this Indenture, except in accordance with the terms of this Indenture. Section 9.03. Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. Section 9.04. Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver. If a record date is fixed, then notwithstanding the provisions of the second sentence of the preceding paragraph, those Holders who were Holders on such record date (or their duly designated -61- proxies), and only those Holders, shall be entitled to revoke any consent previously given, whether or not such Holder continues to be a Holder after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless such amendment, supplement or waiver makes a change described in clauses (a) through (g) of Section 9.02, in which case, the amendment, supplement or waiver shall bind only each Holder who has consented to it; provided that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on the Notes, on or after the respective due dates expressed in such Notes, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. Section 9.05. Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. If an amendment, supplement or waiver changes the terms of the Notes, the Company may require the Holders to deliver the Notes to the Trustee. The Company may place an appropriate notation on the Notes and return them to the Holders. Alternatively, the Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. Section 9.06. Trustee to Sign Amendments, etc. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01) shall be fully protected in relying upon, in addition to the documents required by Section 16.05 hereof, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. ARTICLE 10. SUBORDINATION Section 10.01. Agreement to Subordinate. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full of all Senior Debt of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of such Senior Debt. -62- Section 10.02. Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities: (a) holders of Senior Debt of the Company shall be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before Holders of the Notes shall be entitled to receive any payment with respect to the Notes (except that Holders may receive and retain (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof); and (b) until all Obligations with respect to Senior Debt of the Company (as provided in subsection (a) above) are paid in full, any distribution to which Holders would be entitled but for this Article 10 shall be made to holders of such Senior Debt (except that Holders of Notes may receive (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof), as their interests may appear. Section 10.03. Default on Designated Senior Debt. The Company shall not make any payment upon or in respect of the Notes (except in Permitted Junior Securities or from any defeasance trust created pursuant to Section 8.01 hereof) if: (a) a default in the payment of any principal of, or interest on Designated Senior Debt of the Company occurs and is continuing beyond any applicable period of grace; or (b) any other default occurs and is continuing with respect to Designated Senior Debt of the Company that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of the default from the Company or the holders of any Designated Senior Debt. Payments on the Notes may and shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived and (b) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt of the Company has been accelerated. No new Payment Blockage Notice shall be effective for purposes of this Section unless and until (i) at least 360 days shall have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal and interest on the Notes that have come due have been paid in full in cash, Additional Notes or Common Stock, as required by the terms of this Indenture. 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. -63- Section 10.04. Acceleration of Notes. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify the Representatives of Senior Debt of the Company of the acceleration. Section 10.05. When Distribution Must be Paid Over. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.03 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt of the Company as their interests may appear or their Representative under this Indenture or other agreement (if any) pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt of the Company remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt of the Company. With respect to the holders of Senior Debt of the Company, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of such Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt of the Company, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt of the Company shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. Section 10.06. Notice by Company. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt of the Company as provided in this Article 10. Section 10.07. Subrogation. After all Senior Debt of the Company is paid in full and until the Notes are paid in full, Holders of Notes shall be subrogated to the rights of holders of Senior Debt of the Company to receive distributions applicable to Senior Debt of the Company to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt of the Company. A distribution made under this Article 10 to holders of Senior Debt of the Company that otherwise would have been made to Holders of Notes is not, as between the Company and Holders, a payment by the Company on the Notes. -64- Section 10.08. Relative Rights. This Article 10 defines the relative rights of Holders of Notes and holders of Senior Debt of the Company. Nothing in this Indenture shall: (a) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (b) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relating to holders of Senior Debt of the Company; or (c) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt of the Company to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article 10 to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default. Section 10.09. Subordination May Not be Impaired by Company. No right of any holder of Senior Debt of the Company to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. Section 10.10. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Debt of the Company, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt of the Company and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. Section 10.11. Rights of Trustee and Paying Agent. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to -65- violate this Article 10. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. The Trustee in its individual or any other capacity may hold Senior Debt of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. Section 10.12. Authorization to Effect Subordination. Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the Representatives of the Designated Senior Debt, including debt under the Credit Facility, are hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. Section 10.13. Amendments. (a) The provisions of this Article 10 shall not be amended or modified without the written consent of the holders of all Senior Debt of the Company. (b) Any amendment to the provisions of this Article 10 shall require the consent of the Holders of at least 75% in aggregate amount of Notes then outstanding if such amendment would adversely affect the legal rights of Holders. ARTICLE 11. SUBSIDIARY GUARANTEES Section 11.01. Guarantee. Subject to this Article 11, each of the Guarantors hereby agrees, jointly and severally, to unconditionally guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the Obligations of the Company hereunder or thereunder, that: (a) the principal of, and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption, repurchase or otherwise, and interest on the overdue principal of and interest on the Notes, if lawful, and all other Obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other Obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise subject, however, to the limitations set forth in Section 11.02. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally -66- obligated to pay or perform the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. The Guarantors hereby agree that their Obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors or any Custodian acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any Obligations guaranteed hereby until payment in full of all Obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such Obligations as provided in Article 6, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Subsidiary Guarantee (subject to any subsequent rescission or cancellation of any acceleration in accordance with Section 6.02). The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Subsidiary Guarantee. Section 11.02. Limitation on Guarantor Liability. Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Subsidiary Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Subsidiary Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the Obligations of such Guarantor under its Subsidiary Guarantee and this Article 11 shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the Obligations of such other Guarantor under this Article 11, result in the Obligations -67- of such Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer or conveyance. Section 11.03. Execution and Delivery of Subsidiary Guarantee. To evidence its Subsidiary Guarantee set forth in Section 11.01, each Guarantor hereby agrees that a notation of such Subsidiary Guarantee substantially in the form included in Exhibit E attached hereto shall be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee after such Guarantor becomes a Guarantor and that this Indenture shall be executed on behalf of such Guarantor by an Officer of such Guarantor. Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee. If an Officer whose signature is on this Indenture or on the Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth in this Indenture on behalf of the Guarantors. In the event that the Company creates or acquires any new Subsidiaries subsequent to the date of this Indenture, if required by Section 4.17, the Company shall cause such Subsidiaries to execute supplemental indentures to this Indenture and Subsidiary Guarantees in accordance with Section 4.17 and this Article 11, to the extent applicable. Section 11.04. Guarantors May Consolidate, etc., on Certain Terms. No Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person, whether or not affiliated with such Guarantor, unless: (a) Except in the case of a merger of a Guarantor with or into the Company or another Guarantor but subject to Section 11.05 hereof, the Person formed by or surviving any such consolidation or merger (if other than a Guarantor or the Company) unconditionally assumes all the Obligations of such Guarantor under the Notes, this Indenture and the Subsidiary Guarantee, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, on the terms set forth herein or therein; (b) immediately after giving effect to such transaction, no Default or Event of Default exists; (c) except in the case of a merger of a Guarantor with or into the Company or another Guarantor, such 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 Guarantor immediately preceding the transaction; and -68- (d) except in the case of a merger of a Guarantor with or into the Company or another Guarantor, the Company would be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof. In case of any such consolidation, merger, sale, assignment, transfer, lease or conveyance or other disposition and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor Person shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. Except as set forth in Article 5, and notwithstanding clauses (a) and (b) above, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or shall prevent any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all the assets of a Guarantor to the Company or another Guarantor. Section 11.05. Release. In the event of (i) a sale or other disposition of all or substantially all of the assets of any Guarantor, by way of merger, consolidation or otherwise, (ii) a sale or other disposition of all the Capital Stock of any Guarantor or (iii) any Subsidiary Guarantor being designated as an Unrestricted Subsidiary in accordance with this Indenture, then such Guarantor will be released and relieved of any obligations under its Subsidiary Guarantee, and in the case of clause (i), the acquiror shall not have any liability under this Indenture; provided that, in the case of a sale or other disposition, the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation Section 4.10 hereof. Upon delivery by the Company to the Trustee of an Officer's Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made in accordance with the provisions of this Indenture, including without limitation Section 4.10 hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantee. Any Guarantor not released from its obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of, and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 11. -69- ARTICLE 12. SUBORDINATION OF SUBSIDIARY GUARANTEE Section 12.01. Agreement to Subordinate. Each Guarantor agrees, and each Holder by accepting a Note agrees, that all Obligations under the Subsidiary Guarantees shall be subordinated in right of payment, to the extent and in the manner provided in this Article 12, to the prior payment in full of all Senior Debt of such Guarantor, whether outstanding on the date hereof or thereafter incurred, that the subordination is for the benefit of, and shall be enforceable directly by, the holders of the Senior Debt of such Guarantor (whether outstanding on the date hereof or hereafter created, incurred assumed or guaranteed). Section 12.02. Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of any Guarantor in a liquidation or dissolution of such Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to such Guarantor or its property, an assignment for the benefit of creditors or any marshalling of such Guarantor's assets and liabilities: (a) the holders of Senior Debt of such Guarantor will be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before the Holders will be entitled to receive any payment with respect to the respective Subsidiary Guarantees (except that Holders may receive and retain (i) Permitted Junior Securities and (ii) payment and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof); and (b) and until all Obligations with respect to Senior Debt of any Guarantor (as provided in subsection (a) above) are paid in full, any distribution to which the Holders would be entitled but for this Article 12 shall be made to the holders of Senior Debt of such Guarantor (except that Holders may receive and retain Permitted Junior Securities and payments made from the defeasance trust created pursuant to Section 8.01 hereof). Section 12.03. Default on Designated Senior Debt. No Guarantor shall make any payment upon or in respect of the Subsidiary Guarantees (except in Permitted Junior Securities or from any defeasance trust created pursuant to Section 8.01 hereof) if: (a) a default in the payment of the principal of, or interest on Designated Senior Debt of such Guarantor occurs and is continuing beyond any applicable period of grace; or (b) any other default occurs and is continuing with respect to Designated Senior Debt of such Guarantor that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a Payment Blockage Notice from such Guarantor or the holders of any Designated Senior Debt. Payments on the Subsidiary Guarantees may and shall be resumed (a) in the case of a payment default, upon the date on which such -70- default is cured or waived and (b) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt of such Guarantor has been accelerated. No new Payment Blockage Notice shall be effective for purposes of this Section unless and until (i) 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal and interest on the Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 90 consecutive days. Section 12.04. Acceleration of Subsidiary Guarantees. If payment of any Subsidiary Guarantee is accelerated because of an Event of Default, such Guarantor shall promptly notify the Representatives of Senior Debt of such Guarantor of the acceleration. Section 12.05. When Distribution Must be Paid Over. In the event that the Trustee or any Holder of a Subsidiary Guarantee receives any payment of any Obligations with respect to a Subsidiary Guarantee at a time when such payment is prohibited by Section 12.03 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt of such Guarantor as their interests may appear or their Representative under this Indenture or other agreement (if any) pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt of such Guarantor remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt of such Guarantor. With respect to the holders of Senior Debt of any Guarantor, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 12, and no implied covenants or obligations with respect to the holders of Senior Debt of such Guarantor shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt of any Guarantor. Section 12.06. Notice by Guarantor. Each Guarantor shall promptly notify the Trustee and the Paying Agent of any facts known to such Guarantor that would cause a payment of any Obligations with respect to its Subsidiary Guarantee to violate this Article 12, which notice shall specifically refer to this Article 12, but failure to give such notice shall not affect the subordination of any Subsidiary Guarantee to the Senior Debt of such Guarantor as provided in this Article 12. -71- Section 12.07. Subrogation. After all Senior Debt of the Guarantors is paid in full and until the Notes are paid in full, Holders of the Subsidiary Guarantees shall be subrogated to the rights of holders of Senior Debt of the Guarantors to receive distributions applicable to Senior Debt of the Guarantors to the extent that distributions otherwise payable to the Holders of the Subsidiary Guarantees have been applied to the payment of Senior Debt of the Guarantors. A distribution made under this Article to holders of Senior Debt of the Guarantors that otherwise would have been made to Holders of the Subsidiary Guarantees is not, as between the Guarantors and Holders of the Subsidiary Guarantees, a payment by the Guarantors on the Subsidiary Guarantees. Section 12.08. Relative Rights. This Article defines the relative rights of Holders of the Subsidiary Guarantees and holders of Senior Debt of the Guarantors. Nothing in this Indenture shall: (a) impair, as between the Guarantors and Holders of the Subsidiary Guarantees, the obligations of the Guarantors, which are absolute and unconditional, to pay principal of and interest on the Notes in accordance with the terms of the Subsidiary Guarantees; (b) affect the relative rights of Holders of the Subsidiary Guarantees and creditors of any Guarantor other than their rights in relation to holders of Senior Debt; or (c) prevent the Trustee or any Holder of the Subsidiary Guarantees from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of the Subsidiary Guarantees. If any Guarantor fails because of this Article to pay principal of or interest on a Note on the due date in accordance with the terms of the Subsidiary Guarantees, the failure is still a Default or Event of Default. Section 12.09. Subordination May Not be Impaired by Guarantor. No right of any holder of Senior Debt of any Guarantor to enforce the subordination of the Indebtedness evidenced by the Subsidiary Guarantees shall be impaired by any act or failure to act by such Guarantor or any Holder or by the failure of such Guarantor or any Holder to comply with this Indenture. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt of any Guarantor, or any of them, may, at any time and from time to time, without the consent of or notice to the Holders of the Subsidiary Guarantees, without incurring any liabilities to any Holder of any Subsidiary Guarantees and without impairing or releasing the subordination and other benefits provided in this Indenture or the obligations of the Holders of the Subsidiary Guarantees to the holders of the Senior Debt of such Guarantor, even if any right of reimbursement or subrogation or other right or remedy of any Holder of Subsidiary Guarantees is affected, impaired or extinguished thereby, do any one or more of the following: -72- (a) change the manner, place or terms of payment or change or extend the time of payment of, or renew, exchange, amend, increase or alter, the terms of any Senior Debt, any security therefor or guaranty thereof or any liability of any obligor thereon (including any guarantor) to such holder, or any liability incurred directly or indirectly in respect thereof or otherwise amend, renew, exchange, extend, modify, increase or supplement in any manner any Senior Debt or any instrument evidencing or guaranteeing or securing the same or any agreement under which Senior Debt is outstanding; (b) sell, exchange, release, surrender, realize upon, enforce or otherwise deal with in any manner and in any order any property pledged, mortgaged or otherwise securing Senior Debt or any liability of any obligor thereon, to such holder, or any liability incurred directly or indirectly in respect thereof; (c) settle or compromise any Senior Debt or any other liability of any obligor of the Senior Debt to such holder or any security therefor or any liability incurred directly or indirectly in respect thereof and apply any sums by whomsoever paid and however realized to any liability (including, without limitation, Senior Debt) in any manner or order; and (d) fail to take or to record or to otherwise perfect, for any reason or for no reason, any lien or security interest securing Senior Debt by whomsoever granted, exercise or delay in or refrain from exercising any right or remedy against any obligor or any guarantor or any other person, elect any remedy and otherwise deal freely with any obligor and any security for the Senior Debt or any liability of any obligor to such holder or any liability incurred directly or indirectly in respect thereof. Section 12.10. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Debt of any Guarantor, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of any Guarantor referred to in this Article 12, the Trustee and the Holders of the Subsidiary Guarantees shall be entitled to rely upon any order or decree made by any court of competent jurisdiction so long as such order or decree recognizes the provisions of this Article 12 or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of the Subsidiary Guarantees for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt of any Guarantor and other Indebtedness of the Company or any Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 12. Section 12.11. Rights of Trustee and Paying Agent. Notwithstanding the provisions of this Article 12 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes or the Subsidiary Guarantees, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of -73- such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes or the Subsidiary Guarantees to violate this Article 12. Only the Company, the Guarantors or a Representative may give the notice. Nothing in this Article 12 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. The Trustee in its individual or any other capacity may hold Senior Debt of any Guarantor with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. Section 12.12. Authorization to Effect Subordination. Each Holder of a Note by the Holder's acceptance thereof authorizes and directs the Trustee on the Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 12, and appoints the Trustee to act as the Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time of such claim, the Representatives of the Designated Senior Debt, including debt under the Credit Facility, are hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. Section 12.13. Amendments. (a) The provisions of this Article 12 shall not be amended or modified without the written consent of the holders of all Senior Debt of the Guarantors. (b) Any amendment to the provisions of this Article 12 shall require the consent of the Holders of at least 75% in aggregate amount of Notes then outstanding if such amendment would adversely affect the rights of the Holders of Subsidiary Guarantees. ARTICLE 13. SATISFACTION AND DISCHARGE Section 13.01. Satisfaction and Discharge. This Indenture will be discharged and will cease to be of further effect as to all Notes issued hereunder, when: (1) either: (a) all Notes that have been authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or (b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee sufficient shares of Common Stock and, if applicable, cash in trust solely for the benefit of the Holders, in amounts as will be sufficient to discharge the -74- entire redemption or conversion obligations, as applicable, of the Company in respect of the Notes not delivered to the Trustee for cancellation; (2) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound; (3) the Company or any Guarantor has paid or caused to be paid all sums payable by it under this Indenture; and (4) the Company has delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited Common Stock, and if applicable, cash towards the conversion or redemption obligations of the Company at the Stated Maturity or the Redemption Date, as the case may be. In addition, the Company must deliver an Officer's Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. Notwithstanding the satisfaction and discharge of this Indenture, if shares of Common Stock and, if applicable, cash shall have been deposited with the Trustee pursuant to subclass (b) of clause (1) of this Section, the provisions of Section 8.06 shall survive. Section 13.02. Application of Trust Money. Subject to the provisions of Section 8.06, all money, Government Securities and Common Stock deposited with the Trustee pursuant to Section 13.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (including a conversion payment) and interest for whose payment such money, Government Securities and Common Stock has been deposited with the Trustee; but such money, Government Securities and Common Stock need not be segregated from other funds except to the extent required by law. If the Trustee or Paying Agent is unable to apply any money, Government Securities or Common Stock in accordance with Section 13.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's and any Guarantor's Obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 13.01; provided that if the Company has made any payment of principal of or interest on any Notes because of the reinstatement of its Obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money, Government Securities or Common Stock held by the Trustee or Paying Agent. -75- ARTICLE 14. CONVERSION Section 14.01. Mandatory Conversion. On the Conversion Date, all Notes then outstanding shall be converted into shares of Common Stock pursuant to the provisions of this Article 14. Section 14.02. Conversion Procedure; Conversion Rate; Fractional Shares. (a) Each Note shall be convertible at the office of the Conversion Agent into fully paid and nonassessable shares (calculated to the nearest 1/100th of a share) of Common Stock. The number of shares of Common Stock which shall be delivered upon conversion of each $1.00 in principal amount of Notes shall be equal to (a) 270,275,706 shares of Common Stock, divided by (b) the aggregate principal amount of such Notes (including Additional Notes) plus all accrued and unpaid interest thereon. (b) No fractional shares of Common Stock shall be issued upon conversion of any Note or Notes. If more than one Note shall be surrendered for conversion by the same Holder, the number of full shares of Common Stock which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Notes (or specified portions thereof) so surrendered. Instead of any fractional shares of Common Stock, which would otherwise be issuable upon conversion of any Note or Notes (or specified portions thereof), the Company shall calculate and pay a cash adjustment in respect of such fraction (calculated to the nearest 1/100th of a share) or such shares of Common Stock in an amount equal to the number of shares of Common Stock (and any fraction thereof) that would have been deliverable but for the provisions of this clause (b), multiplied by the Closing Price Per Share of the Common Stock on the last Trading Day prior to the Conversion Date. (c) Each Holder shall, within five Business Days after the Conversion Date, surrender such Holder's Note(s) duly endorsed or assigned to the Company or in blank, at the office of the Conversion Agent (each, a "Place of -------- Conversion"), and shall deliver to the Company a written notice substantially in - ---------- the form set forth in the form of Note attached hereto as part of Exhibit A (or such other notice as is acceptable to the Company) stating the principal amount of Notes to be converted and the name or names (with addresses), if different from that of the Holder, in which such Holder wishes the certificate or certificates for Common Stock to be issued. If more than one Note shall be surrendered for conversion at one time by the same Holder, the number of full shares of Common Stock which shall be deliverable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Notes (or specified portions thereof to the extent permitted hereby) so surrendered. Subject to the next succeeding sentence, the Company will, as soon as practicable thereafter, issue and deliver at such office or place to such Holder, or to such Holder's nominee or nominees hereunder, a certificate or certificates for the number of full shares of Common Stock to which such Holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share to which such Holder would otherwise be entitled. The Company shall not be required to deliver certificates for shares of Common Stock while the stock transfer books for such stock or the register kept by the Registrar are duly closed for any purpose, but certificates for shares of Common Stock shall be issued and delivered as -76- soon as practicable after the opening of such books or the register kept by the Registrar. A Note shall be deemed to have been converted immediately prior to the close of business on the Conversion Date, and, at such time, the rights of the Holder of such Note as Holder shall cease and the Person or Persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock. Section 14.03. Reserved. Section 14.04. Reserved. Section 14.05. Reserved. Section 14.06. Reserved. Section 14.07. Company To Reserve Stock: Registration; Listing. (a) The Company shall prior to the Conversion Date reserve and make available, free from preemptive rights, out of its authorized but unissued shares of Common Stock (and/or treasury shares), for the purpose of effecting the conversion of the Notes, such number of its duly authorized shares of Common Stock as shall be sufficient to effect the conversion of all outstanding Notes into such Common Stock at the Conversion Date (assuming that, at the time of the computation of such number of shares or securities, all the Notes would be held by a single Holder); provided, however, that nothing contained herein shall preclude the Company from satisfying its obligations in respect of the conversion of the Notes by delivery of purchased shares of Common Stock which are held in the treasury of the Company. The Company shall prior to the Conversion Date, in accordance with the laws of the State of Delaware, use its best efforts to cause the authorized amount of the Common Stock to be increased if the aggregate of the authorized amount of the Common Stock remaining unissued and the issued shares of such Common Stock in its treasury (other than any such shares reserved for issuance in any other connection) shall not be sufficient to permit the conversion of all Notes. (b) If any shares of Common Stock which would be issuable upon conversion of Notes hereunder require registration with or approval of any governmental authority before such shares or securities may be issued upon such conversion, the Company will in good faith and as expeditiously as possible endeavor to cause such shares or securities to be duly registered or approved, as the case may be. The Company will endeavor to list the shares of Common Stock required to be delivered upon conversion of the Notes prior to such delivery upon the principal national or regional securities exchange, if any, upon which the outstanding Common Stock is listed on the Nasdaq National Market, if applicable, at the time of such delivery. Section 14.08. Taxes on Conversion. Except as provided in the next sentence, the Company shall pay any and all documentary, stamp or similar issue or transfer taxes and duties that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Notes pursuant hereto. The Company shall not, however, be required to pay any such tax or duty which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that in which the Notes so converted were registered, and no such issue or delivery shall be made -77- unless and until the Person requesting such issue has paid to the Company the amount of such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid. Section 14.09. Covenant as to Common Stock. The Company agrees that all shares of Common Stock which may be issued and delivered upon conversion of the Notes will, upon issuance, have been duly authorized and validly issued and will be fully paid and nonassessable and, except as provided in Section 14.08, the Company will pay all taxes, liens and charges with respect to the issue thereof. Section 14.10. Company Determination Final. Any determination that the Company or the Board of Directors of the Company must make pursuant to this Article is conclusive. Section 14.11. Trustee's Disclaimer. The Trustee has no duty to determine when an adjustment under this Article should be made, how it should be made or what it should be. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Notes. The Trustee shall not be responsible for the Company's failure to comply with this Article. Each Conversion Agent other than the Company shall have the same protection under this Section as the Trustee. Section 14.12. Cancellation of Converted Notes. All Notes delivered for conversion shall be delivered to the Trustee or its agent to be cancelled by or at the direction of the Trustee, which shall dispose of the same in accordance with Section 2.11. ARTICLE 15. MEETINGS OF HOLDERS OF NOTES Section 15.01. Purposes for Which Meetings May Be Called. A meeting of Holders may be called at any time and from time to time pursuant to the provisions of this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders. Section 15.02. Manner of Calling Meetings. The Trustee may at any time call a meeting of Holders to take any action specified in Section 15.01, to be held at such time and at such place in the City of New York, New York as the Trustee shall determine. Notice of every meeting of Holders, setting forth the time and place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given in the manner provided for in Section 16.02 not less than 20 nor more than 60 days prior to the date fixed for the meeting. -78- Section 15.03. Call of Meeting by the Company or the Holders. In case at any time the Company pursuant to a Board Resolution or the Holders of not less than 25% in aggregate principal amount of the outstanding Notes shall have requested the Trustee to call a meeting of Holders to take any action authorized in Section 15.01 by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed notice of such meeting within 20 days after receipt of such request, or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or such Holders in the amount above specified, as the case may be, may determine the time and place in the City of New York, New York for such meeting and may call such meeting to take any action authorized in Section 15.01, by mailing (and publishing, if required) notice thereof as provided in Section 15.02. Section 15.04. Who May Attend and Vote at Meetings. To be entitled to vote at any meeting of Holders, a Person shall be: (a) a Holder of one or more Notes, or (b) a Person appointed by an instrument in writing as proxy by the Holder or Holders of one or more Notes. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. Section 15.05. Quorum; Action. The Persons entitled to vote a majority in principal amount of the outstanding Securities shall constitute a quorum for a meeting of Holders; provided, however, that, if any action is to be taken at such meeting with respect to a consent or waiver which this Indenture expressly provides may be given by the Holders of not less than a specified percentage in principal amount of the outstanding Securities, the Persons entitled to vote such specified percentage in principal amount of the outstanding Securities shall constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of the Holders, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 15.02, except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of any adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the outstanding Securities which shall constitute a quorum. -79- Except as limited by the proviso to Section 9.02, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the Holders of not less than a majority in principal amount of the outstanding Securities; provided, however, that, except as limited by the proviso to Section 9.02, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of the outstanding Securities of a series may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of not less than such specified percentage in principal amount of the outstanding Securities. Any resolution passed or decision taken at any meeting of Holders duly held in accordance with this Section shall be binding on all the Holders and the related coupons, whether or not such Holders were present or represented at the meeting. Notwithstanding the foregoing provisions of this Section 15.05, if any action is to be taken at a meeting of Holders with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage in principal amount of all outstanding Securities affected thereby: (i) there shall be no minimum quorum requirement for such meeting; and (ii) the principal amount of the outstanding Securities that vote in favor of such request, demand, authorization, direction, notice, consent, waiver or other action shall be taken into account in determining whether such request, demand, authorization, direction, notice, consent, waiver or other action has been made, given or taken under this Indenture. Section 15.06. Regulations May Be Made by Trustee; Conduct of the Meeting; Voting Rights - Adjournment. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders, in regard to proof of the holding of Notes and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Notes shall be proved by the register kept by the Registrar and the appointment of any proxy shall be proved in the manner specified in Section 16.04; provided, however, that such regulations may provide that written instruments appointing proxies regular on their face, may be presumed valid and genuine without the proof herein above or in said Section 16.04 specified. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders as provided in Section 15.03, in which case the Company or the Holders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by majority vote of the meeting. -80- At any meeting each Holder or proxy shall be entitled to one vote for each $1,000 principal amount of Notes held or represented by such Holder; provided, however, that no vote shall be cast or counted at any meeting in respect of any Note challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote, except as a Holder or proxy. Any meeting of Holders duly called pursuant to the provisions of Section 15.02 or 15.03 may be adjourned from time to time, and the meeting may be held so adjourned without further notice. At any meeting of Holders, the presence of Persons holding or representing Notes in principal amount sufficient to take action on the business for the transaction of which such meeting was called shall constitute a quorum, but, if less than a quorum is present, the Persons holding or representing a majority in principal amount of the Notes represented at the meeting may adjourn such meeting with the same effect for all intents and purposes, as though a quorum had been present. Section 15.07. Manner of Voting at Meetings and Record to Be Kept. The vote upon any resolution submitted to any meeting of Holders shall be by written ballots on which shall be subscribed the signatures of the Holders or of their representatives by proxy and the principal amount or amounts of the Notes held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Holders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 15.02. The record shall show the principal amount or principal amounts of the Notes voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one copy thereof shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee. Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 15.08. Exercise of Rights of Trustee and Holders Not to Be Hindered or Delayed. Nothing contained in this Article 15 shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Holders or any rights expressly or impliedly conferred hereunder to make such call, any hindrances or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Holders under any of the provisions of this Indenture or of the Notes. ARTICLE 16. MISCELLANEOUS Section 16.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. -81- Section 16.02. Notices. Any notice or communication by the Company, any Guarantor or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company and/or any Guarantor: Aviation Sales Company 623 Radar Road Greensboro, NC 27410 Telecopier No.: (336) 664-0339 Attention: Roy T. Rimmer, Jr., Chairman With a copy to: Akerman, Senterfitt & Edison, P.A. SunTrust International Center, 28th Floor One Southeast Third Avenue Miami, FL 33131 Telecopier No.: (305) 374-5095 Attention: Philip B. Schwartz If to the Trustee: HSBC Bank USA 452 Fifth Avenue, New York, New York 10018 Telecopier No.: (212) 525-1300 Attention: Issuer Services With a copy to: Pryor Cashman Sherman & Flynn LLP 410 Park Avenue, New York, New York 10022 Telecopier No. (212) 326-0806 Attention: Ronald T. Sarubbi, Esq. The Company, any Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. -82- Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 16.03. Communication by Holders with Other Holders. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). Section 16.04. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 7.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary pubic or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The ownership, principal amount and serial numbers of Notes, and the dates of commencement and termination of holding of same, shall be proved by the register kept by the Registrar. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Note shall bind every future Holder of the same Note and the Holder of -83- every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Note. (e) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of outstanding Notes have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the outstanding Notes shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall be effective pursuant to the provisions of this Indenture not later than nine months after the record date. Section 16.05. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officer's Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 16.06) stating that, in the opinion of the signer, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 16.06) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. Section 16.06. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, that Person has made such examination or investigation as is necessary to such Person him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and -84- (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. Section 16.07. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 16.08. Anti-Dilution (a) In case the Company shall at any time after the date of this Agreement (i) declare a dividend on the outstanding Common Stock in shares of its capital stock, (ii) subdivide the outstanding Common Stock, (iii) combine the outstanding Common Stock into a smaller number of shares, (iv) issue any shares of its capital stock by reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), (v) issue rights, options, or warrants to all holders of its Common Stock generally entitling them to subscribe for or purchase Common Stock (or securities convertible into or exchangeable for Common Stock) at a price per share (or having a conversion price per share, if a security convertible into or exchangeable for Common Stock) less than the "current market price" (as defined in Section 16.08(b) hereof) per share of Common Stock on the record date established for the issuance of such rights, options or warrants, or (vi) distribute to all holders of Common Stock generally (including any such distribution made to the stockholders of the Company in connection with a consolidation or merger in which the Company is the continuing corporation) evidences of its indebtedness or assets (other than cash dividends distributions and dividends payable in shares of Common Stock), subscription rights, options, or warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock, then, in each case, the number and kind of shares of Common Stock receivable pursuant to Sections 3.07, 3.09, 4.10, 4.15 and 14.02 hereof ("Affected Provisions"), in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination, or reclassification shall be proportionately adjusted. Such adjustment shall be made successively whenever any event listed above shall occur. (b) For the purpose of any computation under Sections 16.08(a) hereof, the "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices for the 20 consecutive trading days ending three (3) days prior to such date. The closing price for each day shall be the last reported sales price regular way or, in case no such reported sale takes place on such day, the closing bid price regular way, in either case on the principal national or regional securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national or regional securities exchange, the highest reported bid price as furnished by the Nasdaq National Market. If on any such date the Common Stock is not quoted on the Nasdaq National Market or any such organization, the closing price shall be deemed to be the average of the closing bid and asked prices in the over-the-counter market as reported on the Bulletin Board maintained by the National Association of Securities Dealers, Inc., or if no such quotation is available as reported by the National Quotation Bureau, or if no such quotation is available, the -85- fair value of the Common Stock on such date, as determined in good faith by the board of directors of the Company, whose determination shall be conclusive absent manifest error. (c) All calculations under this Section 16.08 shall be made to the nearest one-thousandth of a share, as the case may be. The Trustee shall not be obligated to recalculate, recompute or reconfirm any such calculations. (d) In case of any capital reorganization of the Company, or of any reclassification of the Common Stock, or, subject to the provisions of Section 4.15 and Article 5 hereof, in the case of the consolidation of the Company with or the merger of the Company into any other corporation or of the sale, transfer, or lease of the properties and assets of the Company as, or substantially as, an entirety to any other corporation or other entity, each Affected Provision shall, after such capital reorganization, reclassification of Common Stock, consolidation, merger, sale, transfer, or lease, operate to entitle each Holder to receive, on the same terms and conditions specified therein, the number of shares of stock or other securities, assets, or cash to which a holder of the number of shares receivable (at the time of such capital reorganization, reclassification of Common Stock, consolidation, merger, sale, transfer, or lease) upon operation of such Affected Provision would have been entitled upon such capital reorganization, reclassification of Common Stock, consolidation, merger, sale, transfer, or lease; and in any such case, if necessary, the provisions set forth in this Section 16.08 with respect to the rights and interests thereafter of the holders of the Notes shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares of stock, other securities, assets or cash thereafter deliverable pursuant to the Affected Provisions. The subdivision or combination of shares of Common Stock at any time outstanding into a greater or lesser number of shares shall not be deemed to be a reclassification of the Common Stock for the purposes of this subsection. The Company shall not effect any such consolidation, merger, transfer, or lease, unless prior to or simultaneously with the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger or the Corporation purchasing, receiving, or leasing such assets or other appropriate corporation or entity shall expressly assume, by written instrument, the obligation to deliver to the holder of each Note such shares of stock, other securities, assets or cash as, in accordance with the foregoing provisions, such Noteholders may be entitled to receive and to perform the other obligations of the Company under this Agreement. Section 16.09. No Personal Liability of Directors, Officers, Employees and Stockholders. No past, present or future director, officer, employee, incorporator or shareholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or the Guarantors under the Notes, this Indenture, the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Section 16.10. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF -86- CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 16.11. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 16.12. Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. All agreements of each Guarantor in this Indenture shall bind its successors, except as otherwise provided in Section 11.05. Section 16.13. Severability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 16.14. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 16.15. Table of Contents, Headings, etc. The Table of Contents and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [SIGNATURES ON FOLLOWING PAGE] -87- IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the day and year first above written. AVIATION SALES COMPANY By: ______________________________ Name: Title: HSBC BANK USA, as Trustee By: ______________________________ Name: Title: -88- EXHIBIT A 8.00% Senior Subordinated Convertible PIK Notes due , 2006 CUSIP ___________ No. _________ $_________ AVIATION SALES COMPANY promises to pay to ____________________ or registered assigns, the principal sum of __________________________________ Dollars on _____________, 2006. Interest Payment Dates: [ ] and [ ] Record Dates: [ ] and [ ] Dated: _________ AVIATION SALES COMPANY By: ________________________________________ Name: Title: This is one of the Notes referred to in the within-mentioned Indenture: HSBC BANK USA, as Trustee By: ___________________________ Authorized Officer Exhibit A-1 AVIATION SALES COMPANY 8.00% Senior Subordinated Convertible PIK Notes due [____________], 2006 [If this is a Global Note, include the following legend pursuant to the provisions of the Indenture: THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 9.05 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED ARTICLE 2 OR IN WHOLE ONLY PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, AND MAY BE EXCHANGED OR REPLACED IN WHOLE OR IN PART AS PROVIDED IN SECTIONS 2.07 AND 2.10 OF THE INDENTURE (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF AVIATION SALES COMPANY. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.06 OF THE INDENTURE. Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Aviation Sales Company, a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 8.00% per annum, payable in cash or Additional Notes from the date hereof until maturity. The Company will pay interest semi-annually in arrears on [__________] and [__________] of each year, or if any such day is not Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if this Note is authenticated between a record date referred to in Paragraph 2 and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be [_________], 2002. Notwithstanding the foregoing, with respect to any installment of interest on this Note, if the Company does not pay any portion of such installment of interest in cash, the Company shall automatically have been deemed to have paid the balance of such installment in kind, and Additional Notes shall automatically be deemed to have been issued to each such Holder of record in an aggregate principal amount equal to the amount of interest due to such Holder on the applicable Interest Payment Date and not paid in cash. The Company shall thereafter promptly cause to be executed and authenticated such Additional Notes and as set forth in Section 2.02 of the Indenture and deliver such Additional Notes to the Persons entitled thereto (or to the Trustee or the authenticating agent in custody for such Persons). To the extent any Redemption Consideration is not paid subsequent to demand therefore subsequent to the existence and continuance of an Event of Default hereunder, the Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on the past due Redemption Consideration from time to time on demand at a rate that is 1% per annum in excess of the Exhibit A-2 interest rate stated in the first sentence of this paragraph, to the extent lawful. Additional Notes issued in accordance with the terms hereof shall not constitute unpaid amounts hereunder. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes to the Persons who are registered Holders at the close of business on the [_________] or [_________] next preceding the Interest Payment Date (each, a "record date"), even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to Defaulted Interest. The Notes will be payable as to principal and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check and/or Additional Notes mailed to the Holders at their addresses set forth in the register of Holders, and provided that to the extent payment is made in cash, it shall be made by wire transfer of immediately available funds with respect to all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. To the extent payment is made in cash, such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT, CONVERSION AGENT AND REGISTRAR. Initially HSBC Bank USA, the Trustee under the Indenture, will act as Paying Agent, Conversion Agent and Registrar. The Company may change any Paying Agent, Conversion Agent or Registrar without notice to any Holders. The Company or any of its Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated [_________], 2001 ("Indenture") between the Company, the Guarantors listed on Schedule I thereto and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and the TIA for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are unsecured obligations of the Company limited to $100,000,000 aggregate principal amount plus the aggregate principal amount of any Additional Notes issued in accordance with Section 1 hereof in lieu of cash interest payments. 5. OPTIONAL REDEMPTION. Subject to the provisions of the Indenture, the Note may be redeemed, at the Company's option, in whole or in part, upon not less than 30 nor more than 60 days' notice, at any time and from time to time on and after January 1, 2002, for an amount of redemption consideration which shall be equal to (a) a cash component expressed as the percentage (set forth below) of (i) the principal amount of all of the Notes (including Additional Notes) being redeemed plus (ii) the accrued and unpaid interest thereon (through the Redemption Date) and (b) a Common Stock component comprised of a number of shares of Common Stock expressed as the product of (x) the quotient obtained by dividing (1) the principal amount of Notes (including Additional Notes) to be redeemed plus accrued and unpaid interest thereon as of the Redemption Date by (2) the total aggregate principal amount of all outstanding Notes (including Additional Notes) issued by the Company plus all accrued and unpaid interest thereon, times (y) the number of shares of Common Stock set forth below minus Exhibit A-3 the number of shares of Common Stock previously issued pursuant to Sections 3.07, 3.09, 4.10 and 4.15 of the Indenture.
Amount of Cash as Percentage of Initial Number of Shares Principal Amount of Notes of Common Stock (including Additional Notes) Available to be Issued If Redeemed At Any Time During and accrued and unpaid interest Ratably to all Holders the Following Years to the Redemption Date of Notes -------------------------------- --------------------------------- -------------------------- 2002 70.000% 4,504,595 2003 72.500% 4,504,595 2004 73.000% 3,003,063 2005 75.625% 3,003,063 2006 prior to maturity 77.500% 3,003,063
Payments due with respect to the Notes on or prior to the Redemption Date will be payable to the Holders of record at the close of business on the relevant record date specified in Paragraph 2, all as provided in the Indenture. Except pursuant to the preceding paragraphs, the Notes will not be redeemable at the Company's option prior to maturity. 6. MANDATORY REDEMPTION. Except as set forth in Paragraphs 8 and 14 below, the Company shall not be required to make mandatory redemption payments, sinking fund payments or repurchase payments with respect to the Notes. 7. CONVERSION. Subject to the provisions of the Indenture, this Note will convert on the Conversion Date into fully paid and nonassessable shares (calculated to the nearest 1/100th of a share) of Common Stock. Subject to the provisions of the Indenture, the number of shares of Common Stock which shall be delivered upon conversion of each $1.00 in principal amount of Notes shall be equal to (a) 270,275,706 shares of Common Stock, divided by (b) the aggregate principal amount of all outstanding Notes (including Additional Notes) plus all accrued and unpaid interest thereon. Within five Business Days after the Conversion Date, the Holder hereof shall surrender this Note, duly endorsed or assigned to the Company or in blank at the Place of Conversion, and accompanied a written notice substantially in the form set forth herein duly executed, to the Company. The Company shall, as soon as practicable thereafter, issue and deliver at the Place of Conversion to the Holder the a certificate or certificates for the full number of shares of Common Stock (together with any cash adjustment, as provided in the Indenture) into which this Note is convertible and such delivery will be deemed to satisfy the Exhibit A-4 Company's obligation to pay the principal amount of this Note. No fractional shares of Common Stock will be issued on conversion, but instead of any fractional interest (calculated to the nearest 1/100th of a share) the Company will pay a cash adjustment as provided in the Indenture. 8. REPURCHASE AT OPTION OF HOLDER. (a)Upon the occurrence of a Change of Control, the Company shall make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part of each Holder's Notes at a purchase price equal to the amount of cash and Common Stock payable by the Company pursuant to Section 3.07 of the Indenture as if such Notes were being redeemed by the Company on the date of the Change of Control (the "Change of Control Payment"). Within 10 days following any Change of Control, the Company shall mail a notice to each Holder as required by the Indenture. (b) When the aggregate amount of Excess Proceeds from an Asset Sale exceeds $10.0 million, the Company shall be required to make an offer to all Holders of Notes and all holders of pari passu Indebtedness containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an "Asset Sale Offer") to purchase a principal amount of Notes and such other Indebtedness equal to the amount of such Excess Proceeds, at a purchase price equal to the amount in cash and Common Stock payable by the Company pursuant to Section 3.07 of the Indenture as if such Notes were being redeemed by the Company on the date of the applicable Asset Sale in accordance with the procedures set forth in the Indenture and in the documentation with respect to such other Indebtedness. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer (including that part of the Excess Proceeds corresponding to the portion of the purchase price payable in Common Stock under such Asset Sale Offer), the Company may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and such other Indebtedness tendered into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of Excess Proceeds allocable to the repurchase of the Notes (in relation to any other pari passu Indebtedness containing provisions similar to the provisions of Section 3.09 hereof), the Trustee shall select the Notes and such other Indebtedness to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. Holders of Notes that receive an Asset Sale Offer may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 9. NOTICE OF REDEMPTION. Notice of redemption will be given in accordance with the Indenture at least 30 days but not more than 60 days before the Redemption Date to each Holder whose Notes are to be redeemed in accordance with the Indenture. Notes (excluding Additional Notes) in denominations of $1,000 or whole multiples of $1,000 may be redeemed in part but only in whole multiple of $1,000, unless all of the Notes held by a Holder are to be redeemed. Any portion of any Additional Note may be redeemed in whole or in part. On and after the Redemption Date (assuming the Company has made the payment due upon redemption), interest ceases to accrue on Notes or portions thereof called for redemption. 10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000, except that Additional Notes may be issued in other denominations. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may Exhibit A-5 require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any transfer taxes or similar governmental charges required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not (a) issue, exchange or register the transfer of any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes to be redeemed and ending at the close of business on the day of selection or (b) exchange or register the transfer of any Notes during the period between a record date and the next succeeding Interest Payment Date. 11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the then outstanding Notes, and any existing Default or Event of Default in compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes. Without the consent of any Holder, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented to (i) cure any ambiguity, defect, mistake or inconsistency, (ii) provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 of the Indenture (including the related definitions) in a manner that does not materially adversely affect any Holder, (iii) provide for the assumption of the Company's or Guarantors' obligations to Holders in the case of a merger or consolidation, or a sale of all or substantially all of the Company's assets, (iv) make any change that would provide any additional rights or benefits to the Holders or that does not adversely affect the legal rights hereunder of any such Holder, (v) comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA, or (vi) allow any Guarantor to execute a supplemental indenture to the Indenture in respect of a Subsidiary Guarantee. 13. DISCHARGE, LEGAL DEFEASANCE AND COVENANT DEFEASANCE. This Note is subject to legal defeasance and covenant defeasance, and the Indenture is subject to discharge, all as described in the Indenture. 14. EVENTS OF DEFAULT. Events of Default include: (i) failure to pay principal of, on the Notes when due (whether nor not prohibited by Article 10 or Article 12) of the Indenture; (ii) failure to pay interest on the Notes when due, if such failure continues for a period of 30 days (whether or not prohibited by Article 10 or Article 12 of the Indenture); or to the extent interest is deemed paid in Additional Notes, failure to issue and deliver such Additional Notes within 30 days after such interest is deemed paid; (iii) failure by the Company or any of its Subsidiaries to comply with Sections 4.07, 4.09, 4.10 and 4.15 of the Indenture; (iv) failure by the Company or any of its Subsidiaries for 60 days after written notice from the Trustee or the Holders of at least 25% in aggregate principal amount of outstanding Notes to comply with any of the other agreements in the Indenture or the Notes; (v) failure by the Company or any of its Subsidiaries to pay when due the principal of, or interest on (prior to the expiration of any applicable grace period), or acceleration of, any debt for money borrowed by the Company or any of its Subsidiaries that is, Exhibit A-6 in the aggregate, equal to or greater than $10 million; (vi) failure by the Company or any of its Subsidiaries to pay final judgments (including foreign judgments only to the extent enforcement thereof is sought in the United States or in any foreign jurisdiction where the Company owns assets of $10.0 million or more) aggregating in excess of $10.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries described in the Indenture; and (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any 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 outstanding 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 described in the Indenture, an acceleration shall automatically be deemed to occur as to all outstanding Notes 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. 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 principal of, or interest on the Notes (including in connection with an offer to purchase as required by the terms of the Indenture); provided however, that Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of the Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 15. PARTIAL REDEMPTION, REPURCHASE OR CONVERSION. In the event of a redemption, repurchase or conversion of this Note in part only, a new Note or Notes in the principal amount equal to the unredeemed, unrepurchased or unconverted portion hereof will be issued in the name of the Holder hereof upon cancellation hereof. 16. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company Exhibit A-7 or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 17. NO RECOURSE AGAINST OTHERS. A past, present or future director, officer, employee, incorporator or shareholder of the Company or any Guarantor, as such, shall not have any liability for any obligations of the Company or the Guarantors under the Notes, the Indenture or the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. 18. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent appointed in accordance with the Indenture. 19. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices relating to redemption and repurchase as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice relating to redemption or repurchase and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Aviation Sales Company 623 Radar Road Greensboro, N.C. 27410 Telecopier No.: (336) 664-0339 Attention: Chairman Exhibit A-8 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to: ____________________________ (Insert assignee's legal name) ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: ____________________ Your Signature:________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee*: _____________________ * Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. Exhibit A-9 CONVERSION NOTICE The undersigned Holder of this Note hereby delivers this Note for conversion into shares of Common Stock in accordance with the terms of the Indenture referred to in this Note, and directs that such shares, together with a check in payment for any fractional share and any Notes representing any unconverted principal amount hereof, be delivered to and be registered in the name of the undersigned unless a different name has been indicated below. If shares of Common Stock or Notes are to be registered in the name of a Person other than the undersigned, (a) the undersigned will pay all applicable transfer taxes payable with respect thereto and (b) signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. Dated: _________________ ______________________________________________ Signature(s)* Signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. ______________________________________________ Signature Guaranteed If shares or Notes are to be registered in the name of a Person other than the Holder, please print such Person's name and address: Name: ________________________________________ Address: ________________________________________ ________________________________________ ________________________________________ Social Security or other Identification Number, if any:________________ *NOTICE: The signature to the foregoing Election must correspond to the name as written upon the face of this Note in every particular, without alteration or any change whatsoever. Exhibit A-10 OPTION OF HOLDER TO ELECT REPURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.15 The undersigned hereby directs the Trustee or the Company to pay to the undersigned an amount in cash and Common Stock in respect of the principal amount of this Note to be repurchased (as set forth below), plus interest, if any, accrued to the repurchase date, as provided in the Indenture, at a purchase price specified in the applicable Section of the Indenture that is (checked above). Dated: _____________________ ______________________________________________ Signature(s)* Signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. ______________________________________________ Signature Guaranteed Principal amount of this Note to be repurchased: ___________________ If less than all of the principal amount of this Note is to be repurchased: Remaining principal amount following such repurchase: ____________________________________ Serial number of Note to be repurchased in part: ____________________________________ Name (and address) of the Person in which the portion of this Note to remain outstanding is to be registered: Name: ____________________________________ Address: ____________________________________ ____________________________________ ____________________________________ Social Security or other Identification Number, if any: _______________ *NOTICE: The signature to the foregoing Election must correspond to the name as written upon the face of this Note in every particular, without alteration or any change whatsoever. Exhibit A-11 [SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:]*
Principal Amount of Signature of Amount of decrease Amount of increase in this Global Note authorized officer in Principal Amount Principal Amount following such of Trustee Date of Exchange of this Global Note of this Global Note decrease (or increase) or Note Custodian ---------------- ------------------- ------------------- ---------------------- -----------------
* To be inserted only in Global Notes. Exhibit A-12 EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of ________________, among __________________ (the "Guaranteeing Subsidiary"), a subsidiary of Aviation Sales Company (or its permitted successor), a Delaware corporation (the "Company"), the Company, the other Guarantors (as defined in the Indenture referred to herein) and HSBC Bank USA, as Trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of [ ], 2001, providing for the issuance of an aggregate principal amount of up to $100,000,000 of 8.00% Senior Subordinated Convertible PIK Notes due 2006 (the "Notes"); WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Subsidiary Guarantee"); and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees as follows: (a) Along with all Guarantors named in the Indenture, to jointly and severally Guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (i) the principal of and interest on the Notes will be promptly paid in full when due, whether by acceleration, redemption, repurchase or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other Obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and Exhibit B-1 (ii) in case of any extension of time of payment or renewal of any Notes or any of such other Obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise, subject to the limitations set forth in the Indenture. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. (b) The Obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. (c) The following is hereby waived: diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever. (d) This Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture, and the Guaranteeing Subsidiary accepts all Obligations of a Guarantor under the Indenture. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any Custodian acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (f) The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any Obligations guaranteed hereby until payment in full of all Obligations guaranteed hereby. (g) As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such Obligations as provided in Article 6 of the Indenture, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Subsidiary Guarantee (subject to any subsequent rescission or cancellation of any acceleration in accordance with Section 6.02 of the Indenture). Exhibit B-2 (h) The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Subsidiary Guarantee. (i) Pursuant to Section 11.02 of the Indenture, after giving effect to any maximum amount and any other contingent and fixed liabilities that are relevant under any applicable Bankruptcy Law or fraudulent conveyance laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the Obligations of such other Guarantor under Article 11 of the Indenture, this new Subsidiary Guarantee shall be limited to the maximum amount permissible such that the Obligations of such Guarantor under this Subsidiary Guarantee will not constitute a fraudulent transfer or conveyance. 3. EXECUTION AND DELIVERY. Each Guaranteeing Subsidiary agrees that its Subsidiary Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee. 4. TERMS TO REMAIN IN EFFECT. Except as waived or amended hereby, all of the terms of the Indenture shall remain and continue in full force and effect and are hereby confirmed in all respects. From and after the date of this Supplemental Indenture, all references to the Indenture (whether in the Indenture or in any other agreements, documents or instruments) shall be deemed to be references to the Indenture, as amended and supplemented by this Supplemental Indenture. This Supplemental Indenture will become operative upon its execution and delivery by the parties hereto. 5. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. (a) The Guaranteeing Subsidiary may not consolidate with or merge with or into (whether or not the Guaranteeing Subsidiary is the surviving Person) another Person, whether or not affiliated with the Guaranteeing Subsidiary, unless: (i) Except in the case of a merger of the Guaranteeing Subsidiary with or into the Company or another Guarantor but subject to Section __________ hereof, the Person formed by or surviving any such consolidation or merger (if other than the Guaranteeing Subsidiary or the Company) unconditionally assumes all the Obligations of the Guaranteeing Subsidiary under the Notes, the Indenture and the Subsidiary Guarantee, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, on the terms set forth herein or therein; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; (iii) except in the case of a merger of the Guaranteeing Subsidiary with or into the Company or another Guarantor, the Guaranteeing Subsidiary, 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 Exhibit B-3 Consolidated Net Worth of the Guaranteeing Subsidiary immediately preceding the transaction; and (iv) except in the case of a merger of the Guaranteeing Subsidiary with or into the Company or another Guarantor, the Company would be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof. (b) In case of any such consolidation or merger and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor Person shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as the Guaranteeing Subsidiary. Such successor Person thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. (c) Except as set forth in Article 5, and notwithstanding clauses (a) and (b) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of the Guaranteeing Subsidiary with or into the Company or another Guarantor, or shall prevent any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all the assets of the Guaranteeing Subsidiary to the Company or another Guarantor. 6. RELEASES. In the event of (i) a sale or other disposition of all or substantially all of the assets of any Guarantor, by way of merger, consolidation or otherwise, (ii) a sale or other disposition of all the Capital Stock of any Guarantor or (iii) any Subsidiary Guarantor being designated as an Unrestricted Subsidiary in accordance with this Indenture, then such Guarantor will be released and relieved of any obligations under its Subsidiary Guarantee, and in the case of clause (i), the acquiror shall not have any liability under this Indenture; provided that, in the case of a sale or other disposition, the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation Section 4.10 hereof. Upon delivery by the Company to the Trustee of an Officer's Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made in accordance with the provisions of this Indenture, including without limitation Section 4.10 hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantee. Any Guarantor not released from its obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of, and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 11. Exhibit B-4 7. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, shareholder or other agent of the Guaranteeing Subsidiary, as such, shall have any liability for any Obligations of the Company or any Guarantor under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such Obligations or their creation. Each Holder of the 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. 8. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE AND THE SUBSIDIARY GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 9. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 10. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. 11. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written. [GUARANTEEING SUBSIDIARY] By: ____________________________________ Name: Title: AVIATION SALES COMPANY By: ____________________________________ Name: Title: [EXISTING GUARANTORS] By: ____________________________________ Exhibit B-5 Name: Title: HSBC BANK USA as Trustee By: ____________________________________ Name: Title: Exhibit B-6 SCHEDULE I SCHEDULE OF GUARANTORS The following schedule lists each Guarantor under the Indenture as of the original issue date: Aero Hushkit Corporation Aerocell Structures, Inc. Aircraft Interior Design, Inc. Aviation Sales Distribution Services Company Aviation Sales Finance Company Aviation Sales Leasing Company Aviation Sales Property Management Corp. Aviation Sales SPSI, Inc. AVS/CAI, Inc. AVS/M-1, Inc. AVS/M-2, Inc. AVS/M-3, Inc. AVSRE, L.P. Hydroscience, Inc. Timco Engine Center, Inc. Timco Engineered Systems, Inc. Triad International Maintenance Corporation Whitehall Corporation Schedule I-1 EX-4.6 6 dex46.txt WARRANT AGREEMENT Exhibit 4.6 WARRANT AGREEMENT ----------------- WARRANT AGREEMENT dated as of ___________, 2001 between Aviation Sales Company, a Delaware corporation, having its principal place of business at 623 Radar Road, Greensboro, North Carolina 27410 (the "Company"), and Continental Stock Transfer & Trust Company, a New York corporation, having its principal place of business at 2 Broadway, New York, New York 10004 (the "Warrant Agent"). W I T N E S S E T H : WHEREAS, the Company proposes to issue common stock purchase warrants (the "Warrants") to purchase up to 6,006,127 shares of the Company's post-reverse split Common Stock (as that term is defined in Section 1.05); WHEREAS, the issuance of the Warrants and the future issuance of the shares of Common Stock upon the future exercise of the Warrants has been registered in two registration statements: (i) a Registration Statement on Form S-4 (File No. 333-69464), and (ii) a Registration Statement on Form S-1 (File No. 333- 70494)(collectively, the "Registration Statements"), which Registration Statements also, among other matters, describe the terms of the reverse split of the Company's issued and outstanding common stock which has been or will be effected immediately prior to the issuance of the Warrants, as well as the note exchange and rights offering which the Company is currently conducting (all such activities as more fully described in the Registration Statements being collectively referred to herein as the "Restructuring"); WHEREAS, the Warrants shall be exercisable at an exercise price of $5.16 per share (the "Warrant Exercise Price") and shall be evidenced by certificates substantially in the form of Exhibit A annexed hereto (the "Warrant Certificate"), each Warrant entitling the holder thereof to purchase one share of Common Stock (as that term is defined in Section 1.05), subject to the adjustment provisions of Article III hereof; WHEREAS, the Warrants will be exercisable commencing on the date of issuance ("First Exercise Date") until a date which is the fifth anniversary of the date of issuance ("Last Exercise Date"), unless extended by the Company, and, will be exercisable during any period of time fixed for that Warrant's redemption in a Redemption Notice (hereinafter defined in Section 2.03), which period of time will terminate on a stated Redemption Date (hereinafter defined in Section 2.03); WHEREAS, the Warrants issued under the Exchange Offer Registration Statement will not trade separately from the notes registered thereunder until December 31, 2003; WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to so act in connection with the issuance, registration, transfer, exchange and replacement of the Warrant Certificates and exercise of the Warrants; and WHEREAS, the Company and the Warrant Agent desire to set forth in this Agreement the terms and conditions upon which the Warrant Certificates shall be issued, transferred, exchanged and placed and the Warrants exercised, and to provide for the rights of the holders of the Warrants; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and the respective undertakings herein below set forth, the Company and the Warrant Agent agree as follows: ARTICLE I ISSUANCE AND EXECUTION OF WARRANTS SECTION 1.01 The Company hereby appoints the Warrant Agent to act on behalf of the Company in accordance with the terms and conditions herein set forth, and the Warrant Agent hereby accepts such appointment and agrees to perform the same in accordance with such provisions. SECTION 1.02 The Warrant Certificates for the Warrants shall be issued in registered form only. The text of the Warrant Certificate, including the form of assignment and subscription printed on the reverse side thereof, shall be substantially in the form of Exhibit A annexed hereto, which text is hereby incorporated in this Agreement by reference as though fully set forth herein and to whose terms and conditions the Company and the Warrant Agent hereby agree. Each Warrant Certificate shall evidence the right, subject to the provisions of this Agreement and of such Warrant Certificate, to purchase the number of validly issued, fully paid and non-assessable shares of Common Stock, as that term is defined in Section 1.05 of this Agreement, stated therein, free of preemptive rights, subject to adjustment as provided in Article III of this Agreement. SECTION 1.03 Upon the written order of the Company, signed by the Chairman, President, Chief Executive Officer or any Vice President, and the Secretary, Assistant Secretary or other duly appointed officer of the Company, the Warrant Agent shall issue and register Warrants in the names and denominations specified in that order, and will countersign and deliver Warrant Certificates evidencing the same in accordance with that order. Each Warrant Certificate shall be dated the date of its countersignature. Each Warrant Certificate shall be executed on behalf of the Company by the manual or facsimile signature of the Chairman, President or Chief Executive Officer of the Company, under its corporate seal, affixed or facsimile, attested by the manual or facsimile signature of the Secretary of the Company and shall be countersigned manually by the Warrant Agent. The Warrant Certificates shall not be valid for any purpose unless so countersigned. In case any officer whose facsimile signature has been placed upon any Warrant Certificate shall have ceased to be such before such Warrant Certificate is issued, it may be issued with the same effect as if such officer had not ceased to be such on the date of issuance. SECTION 1.04 Except as otherwise expressly stated herein, all terms used in the Warrant Certificate have the meanings provided in this Agreement. SECTION 1.05 As used herein, the term "Common Stock" shall mean the Company's post-reverse split common stock, par value $.001 per share and any other shares of common stock that the Company, by its Certificate of Incorporation, as from time to time amended, is authorized to issue which are not limited by the Company's -2- Certificate of Incorporation to a fixed sum or percentage of the book value in respect of the rights of the holders thereof to participate in dividends or in distribution of assets upon the voluntary or involuntary liquidation, dissolution, or winding up of the Company. ARTICLE II WARRANT EXERCISE PRICE, DURATION AND EXERCISE OF WARRANTS AND CALL OF WARRANTS SECTION 2.01 (a) Each Warrant shall entitle the person in whose name at the time the Warrant shall be registered upon the books to be maintained by the Warrant Agent for that purpose (the "Warrant Holder"), subject to the provisions of the Warrant Certificates and of this Agreement, to purchase from the Company any time on or after the First Exercise Date but at or before the Last Exercise Date, up to the number of shares of Common Stock stated in the Warrant Certificate, as adjusted from time to time pursuant to Article III at the Warrant Exercise Price in effect at such date, payable in full at the time of purchase in the manner provided in Section 2.02 of this Agreement. (b) Each Warrant shall be exercisable in accordance with the terms herein and in the Warrant Certificate. SECTION 2.02 (a) The Warrant Holder may exercise a Warrant, in whole or in part, by surrender of the Warrant Certificate, with the form of subscription thereon duly executed by the Warrant Agent at its corporate office, together with the Warrant Exercise Price for each share of Common Stock to be purchased in lawful money of the United States, or by certified check, bank draft, or postal or express money order payable in United States Dollars to the order of the Company. (b) Upon receipt of a Warrant Certificate with the form of subscription thereon duly executed and accompanied by payment of the aggregate Warrant Exercise Price for the shares of Common Stock for which the Warrant is then being exercised, the Warrant Agent shall promptly (i) requisition from the Company's transfer agent certificates for the total number of the shares of Common Stock for which the Warrant is being exercised in such names and denominations as are required for delivery to the Warrant Holder, (ii) when appropriate, requisition from the Company the amount of cash paid in lieu of issuance of fractional shares and (iii) after receipt, promptly deliver such certificates and when appropriate, after receipt, promptly deliver such cash to or in accordance with the instructions of the Warrant Holder. The Company covenants and agrees that it has duly authorized and directed its transfer agent (and will authorize and direct all its future transfer agents) to comply with all such requests of the Warrant Agent. (c) In case any Warrant Holder shall exercise such Holder's Warrant with respect to less than all of the shares of Common Stock that may be purchased under the Warrant, a new Warrant -3- Certificate for the balance shall be countersigned and delivered to or upon the order of the Warrant Holder. (d) The Company covenants and agrees that it will pay when due and payable any and all taxes which may be payable in respect to the issuance of Warrants, or the issuance of any shares of Common Stock upon the exercise of Warrants. However, neither the Company nor the Warrant Agent shall be required to issue or deliver any Warrant Certificate or shares of Common Stock in a name other than that of the Warrant Holder at the time of surrender if any tax is payable in respect of such transfer until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's satisfaction that such tax has been paid or shall not be due and payable. In the event that any transfer tax is due and payable, the Warrant Agent shall be under no obligation to issue or deliver any Warrant Certificate or shares of Common Stock in a name other than that of the Warrant Holder until the Company has notified the Warrant Agent that the transfer tax, if any, has been paid, or in the alternative, that no transfer tax is due and payable by reason of an exemption. (e) The Warrant Agent shall account promptly to the Company with respect to Warrants exercised and concurrently account to the Company for all moneys received by the Warrant Agent for the purchase of shares of Common Stock upon the exercise of Warrants. (f) The Warrant Agent covenants and agrees that upon the exercise of any of the Warrants, the Warrant Agent shall provide written notice to the Company at the addresses set forth in Section 6.09 hereof, the expense of which notice shall be borne by the Company. Each notice shall contain the name of the exercising Warrant Holder, the number of shares of Common Stock that the Warrant Holder has elected to purchase, the purchase price paid on a per share basis and the cumulative number of Warrants exercised by all of the Warrant Holders as of the date of the transaction which is the subject of the aforesaid notice. Such notice shall be made no later than two (2) business days following the date of the exercise of the Warrant. Nothing contained herein shall be construed so as to prevent the Warrant Agent from providing the information required in this Section 2.02 (f) in a consolidated or tabular form, provided that all other provisions of this Section are complied with. (g) The Warrant Agent covenants and agrees that it shall provide a list of each and every Warrant Holder to the Company at such time or from time to time as shall be required by the Company, but in no event shall such a list be provided less frequently than once per annum at a date as shall be determined by the Company. SECTION 2.03 (a) The Company may, at any time, subject to the conditions set forth herein, redeem all, but not less than all, the Warrants then outstanding upon not less than thirty (30) days prior written notice (the "Redemption Notice") to the holders thereof provided that the average closing price of the Common Stock for the 20 consecutive trading days ending three (3) days prior to the date of the Redemption Notice is at least $6.71 per share, subject to adjustment for stock dividends, stock splits and other anti-dilution provisions as provided for under Article III -4- herein. For purposes of this Section 2.03, "closing price" at any date shall be deemed to be: (i) the last sale price regular way as reported on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or (ii) if the Common Stock is not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices regular way for the Common Stock as reported by the Nasdaq National Market or Nasdaq Small Cap Market of the Nasdaq Stock Market, Inc. ("NASDAQ") or (iii) if the Common Stock is not listed or admitted for trading on any national securities exchange, and is not reported by NASDAQ, the average of the closing bid and asked prices in the over-the-counter market as furnished by the Bulletin Board maintained by the NASD or, if no such quotation is available, from the National Quotation Bureau, Inc. or if no such quotation is available, the fair market value of the Common Stock as determined in good faith by the Board of Directors of the Company. The Redemption Notice shall be deemed effective upon mailing and the time of mailing is the "Effective Date of the Notice". The Redemption Notice shall state a redemption date not less than thirty (30) days from the Effective Date of the Notice (the "Redemption Date"). No Redemption Notice shall be mailed unless all funds necessary to pay for redemption of all Warrants then outstanding shall have first been set aside by the Company in trust with the Warrant Agent for the benefit of all Warrant Holders so as to be and continue to be available therefor. The redemption price to be paid to the Warrant Holders will be $.001 for each share of the Common Stock of the Company to which the Warrant Holder would then be entitled upon exercise of the Warrant being redeemed, as adjusted from time to time as provided in the following sentence (the "Redemption Price"). In the event the number of shares of Common Stock issuable upon exercise of the Warrant being redeemed are adjusted pursuant to Article III hereof, then upon each such adjustment the Redemption Price will be adjusted by multiplying the Redemption Price in effect immediately prior to such adjustment by a fraction, the numerator of which is the number of shares of Common Stock issuable upon exercise of the Warrant being redeemed immediately prior to such adjustment and the denominator of which is the number of shares of Common Stock issuable upon exercise of such Warrant being redeemed immediately after such adjustment. The Warrants may only be redeemed if the Company has in effect a current registration statement or post-effective amendment covering all of the shares of Common Stock underlying the Warrants. The Warrant Holders may exercise their Warrants between the Effective Date of the Notice and the Redemption Date, such exercise being effective if done in accordance with Section 2.02(a), and if the Warrant Certificate, with the form of subscription duly executed and the Warrant Exercise Price, as applicable for such Warrant subject to redemption for each share of Common Stock to be purchased is actually received by the Warrant Agent at its office located at 2 Broadway, New York, New York 10004, no later than 5:00 P.M. New York time on the Redemption Date; provided, that in the event the Warrant Certificate of such Warrant Holder has - -------- been lost, stolen, mutilated or destroyed, in lieu of the requirement to deliver the Warrant Certificate under this Section 2.03(a), such Warrant Holder may deliver an affidavit of loss attesting to such event and such affidavit of loss shall constitute an effective delivery of the Warrant Certificate for purposes of exercise under this Section 2.03(a). (b) If any Warrant Holder does not wish to exercise any Warrant being redeemed, the Warrant Holder should mail such Warrant to the Warrant Agent at its office located at 2 Broadway, New York, New York 10004, after receiving the Redemption Notice required by this Section. If such Redemption Notice shall have been so mailed, and if on or before the Effective Date of the Notice all funds necessary to pay for redemption of all Warrants then outstanding shall have been set aside by the Company in trust with the Warrant Agent for the benefit of all Warrant Holders so as to be and continue to be available therefor, then, on and after said Redemption Date, notwithstanding that any Warrant subject to redemption shall not -5- have been surrendered for redemption, the obligation evidenced by all Warrants not surrendered for redemption or effectively exercised shall be deemed no longer outstanding, and all rights with respect thereto shall forthwith cease and terminate, except only the right of the holder of each Warrant subject to redemption to receive the Redemption Price for each share of Common Stock to which he would be entitled if such holder exercised the Warrant upon receiving the Redemption Notice of the Warrant subject to redemption held by the Holder hereof. ARTICLE III ADJUSTMENT OF SHARES OF COMMON STOCK PURCHASABLE AND OF WARRANT EXERCISE PRICE SECTION 3.01 In case the Company shall at any time after the date of this Agreement (i) declare a dividend on the outstanding Common Stock in shares of its capital stock, (ii) subdivide the outstanding Common Stock into a larger number of shares, (iii) combine the outstanding Common Stock into a smaller number of shares, or (iv) issue any shares of its capital stock by reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then, in each case, the Warrant Exercise Price, and the number and kind of shares of Common Stock or other securities of the Company receivable upon exercise, in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination, or reclassification shall be proportionately adjusted so that the holder of any Warrant exercised after such time shall be entitled to receive the aggregate number and kind of shares or other securities of the Company which if such Warrant had been exercised immediately prior to such time, such holder would have owned upon such exercise or been entitled to receive by virtue of such dividend, subdivision, combination, or reclassification at the same aggregate Warrant Exercise Price. Such adjustment shall be made successively whenever any event listed above shall occur and shall become effective on the record date of such dividend or the date such subdivision, combination or reclassification becomes effective, as applicable. SECTION 3.02 In case the Company after the date hereof shall issue rights, options, or warrants to all holders of its Common Stock generally entitling them to subscribe for or purchase Common Stock (or any "Convertible Securities", as defined below) at a price per share (or having an initial conversion price per share, if a security Convertible into Common Stock) less than the "current market price" (as defined in Section 3.04 hereof) per share of Common Stock on the record date established for the issuance of such rights, options or warrants, then, in such case, the Warrant Exercise Price shall be adjusted by multiplying the Warrant Exercise Price in effect on the record date of such issuance by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so to be issued (or the aggregate initial Conversion price of the Convertible Securities to be offered for subscription or purchase) would purchase at such "current market price" and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the Convertible Securities are initially Convertible). Such adjustment shall become effective at the close of business on such record date; provided, however, that, to the extent the shares of Common Stock (or securities Convertible into shares of -6- Common Stock) are not issued or sold by the Company, the Warrant Exercise Price shall be readjusted after the expiration of such rights, options, or warrants (but only with respect to Warrants exercised after such expiration), to the Warrant Exercise Price which would then be in effect had the adjustments made upon the issuance of such rights, options or warrants been made upon the basis of the issuance or sale of only the number of shares of Common Stock or securities Convertible into shares of Common Stock actually issued or sold. In case any subscription or purchase price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the board of directors of the Company, whose determination shall be conclusive absent manifest error. Shares of Common Stock owned by or held for the account of the Company or any majority-owned subsidiary shall not be deemed outstanding for the purpose of any such computation. Any adjustment under this Section 3.02 shall be made successively whenever such an issuance referred to above occurs. Notwithstanding the foregoing, no adjustment in the Warrant Exercise Price or the number of shares of Common Stock issuable upon exercise of the Warrants shall be made upon the issuance of subscription rights, options and/or warrants in connection with or related to the Restructuring described in the Registration Statements, including the related rights offering contemplated thereby. As used in this Section 3.02, the term "Convertible Securities" shall mean securities convertible into or exchangeable or exercisable for Common Stock, the term "Convertible" shall mean convertible, exchangeable or exerciseable, as applicable, and the term "Conversion" shall mean conversion, exchange or exercise, as applicable. SECTION 3.03 In case the Company shall distribute to all holders of Common Stock generally (including any such distribution made to the stockholders of the Company in connection with a consolidation or merger in which the Company is the continuing corporation) evidences of its indebtedness or assets (other than cash dividends payable out of earnings and dividends payable in shares of Common Stock referred to in Section 3.01 hereof), or subscription rights, options, or warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock (excluding those referred to in Section 3.02 hereof and the Restructuring, including the related rights offering, described in the Registration Statements), then, in each case, the Warrant Exercise Price shall be adjusted by multiplying the Warrant Exercise Price in effect immediately prior to the record date for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the "current market price" per share of Common Stock on such record date, less the fair market value (as determined in good faith by the board of directors of the Company, whose determination shall be conclusive absent manifest error) of the portion of the evidences of indebtedness or assets so to be distributed, or of such subscription rights, options, or warrants, convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock, applicable to one share of Common Stock, and of which the denominator shall be such "current market price" per share of Common Stock. Such adjustment shall be made successively whenever any such distribution is made, and shall become effective on the date of such distribution retroactive to the record date for the determination of stockholders entitled to receive such distribution. SECTION 3.04 For the purpose of any computation under Sections 3.02 and 3.03 hereof, the "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices for the 20 consecutive trading days ending three (3) days prior to such date. The closing price for each day shall be the last reported sales price regular way or, in case no such reported sale takes place on such day, the closing bid price regular way, in either case on the principal national securities exchange on which the Common Stock is listed -7- or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the highest reported bid price as furnished by NASDAQ. If on any such date the Common Stock is not quoted on NASDAQ, the closing price shall be deemed to be the average of the closing bid and asked prices in the over-the-counter market as reported on the Bulletin Board maintained by the NASD, or if no such quotation is available, as reported by the National Quotation Bureau, or if no such quotation is available, the fair value of the Common Stock on such date, as determined in good faith by the board of directors of the Company, whose determination shall be conclusive absent manifest error. SECTION 3.05 No adjustment in the Warrant Exercise Price shall be required if such adjustment is less than 1% of the Warrant Exercise Price then in effect; provided, however, that any adjustments which by reason of this Section 3.05 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article III shall be made to the nearest cent or to the nearest one-thousandth of a share, as the case may be. SECTION 3.06 In any case in which this Article III shall require that an adjustment in the Warrant Exercise Price be made effective as of a record date for a specified event, the Company may elect to defer, until the occurrence of such event, issuing to the holder of any Warrant exercised after such record date, the shares, if any, issuable upon such exercise over and above the shares, if any, issuable upon such exercise on the basis of the Warrant Exercise Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. SECTION 3.07 Upon each adjustment of the Warrant Exercise Price as a result of the calculations made in Section 3.01, 3.02, or 3.03 hereof, each Warrant outstanding prior to the making of the adjustment in the Warrant Exercise Price shall thereafter evidence the right to purchase, at the adjusted Warrant Exercise Price, that number of shares (calculated to the nearest thousandth) obtained by dividing (A) the product obtained by multiplying the number of shares purchasable upon exercise of a Warrant prior to adjustment of the number of shares by the Warrant Exercise Price in effect prior to adjustment of the Warrant Exercise Price by (B) the Warrant Exercise Price in effect after such adjustment of the Warrant Exercise Price. SECTION 3.08 In case of any capital reorganization of the Company, or of any reclassification of the Common Stock (other than a reclassification of the Common Stock referred to in Section 3.01 hereof), or in the case of the consolidation of the Company with or the merger of the Company into any other corporation or of the sale, transfer, or lease of the properties and assets of the Company as, or substantially as, an entirety to any other corporation or other entity, each Warrant shall after such capital reorganization, reclassification of Common Stock, consolidation, merger, sale, transfer, or lease, be exercisable, on the same terms and conditions specified in this Agreement, for the number of shares of stock or other securities, assets, or cash to which a holder of the number of shares purchasable (at the time of such capital reorganization, reclassification of Common Stock, consolidation, merger, sale, transfer, or lease) upon exercise of such Warrant would have been entitled upon such capital reorganization, -8- reclassification of Common Stock, consolidation, merger, sale, transfer, or lease; and in any such case, if necessary, the provisions set forth in this Article III with respect to the rights and interests thereafter of the holders of the Warrants shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares of stock, other securities, assets, or cash thereafter deliverable on the exercise of the Warrants. The subdivision or combination of shares of Common Stock at any time outstanding into a greater or lesser number of shares shall not be deemed to be a reclassification of the Common Stock for the purposes of this subsection. The Company shall not effect any such consolidation, merger, transfer, or lease, unless prior to or simultaneously with the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger or the Corporation purchasing, receiving, or leasing such assets or other appropriate corporation or entity shall expressly assume, by written instrument, the obligation to deliver to the holder of each Warrant such shares of stock, securities, or assets as, in accordance with the foregoing provisions, such holders may be entitled to purchase and to perform the other obligations of the Company under this Agreement. SECTION 3.09 The Company may make such reductions in the Warrant Exercise Price, in addition to those required by this Article III, as it shall, in it sole discretion, determine to be advisable. ARTICLE IV OTHER PROVISIONS RELATING TO RIGHTS OF WARRANT HOLDERS SECTION 4.01 No Warrant Holder, as such, shall be entitled to vote or receive dividends or be deemed the holder of shares of Common Stock for any purposes, nor shall anything contained in any Warrant Certificate be construed to confer upon any Warrant Holder, as such, any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any action by the Company, whether upon any recapitalization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise, receive dividends or subscription rights, or otherwise, until in connection with the exercise of any Warrant, such Warrant shall have been surrendered and the purchase price or the shares of Common Stock for which such Warrant is being exercised shall have been received by the Warrant Agent; provided, however, that any such surrender and payment on any date when the stock transfer books of the Company shall be closed shall constitute the person or persons in whose name or names the certificate or certificates for those shares of Common Stock are to be issued as the record holder or holders thereof for all purposes at the opening of business on the next succeeding day on which such stock transfer books are open and the Warrant surrendered shall not be deemed to have been exercised, in whole or in part, as the case maybe, until such next succeeding day on which stock transfer books are open. SECTION 4.02 The Company covenants and agrees that it shall contemporaneously provide to all Warrant Holders of record any publication, mailing or notice of an event which it shall provide to all of its shareholders of record and which event shall result in the adjustment to the Warrant Exercise Price as provided in Article III hereof. For purposes of -9- this Section 4.02, the Warrant Holders of record shall be those Warrant Holders who are of record on a date even with the date chosen by the Company for the purpose of determining the shareholders of record who shall be entitled to receive such publication, mailing or notice. SECTION 4.03 If any Warrant Certificate is lost, stolen, mutilated or destroyed, the Company and the Warrant Agent may, on such terms as to indemnity or otherwise as they may in their discretion reasonably impose, which shall, in the case of a mutilated Warrant Certificate, include the surrender thereof, issue a new Warrant Certificate of like denomination and tenor as, and in substitution for, the Warrant Certificate so lost, stolen mutilated or destroyed. SECTION 4.04 (a) The Company covenants and agrees that at all times it shall reserve and keep available for the exercise of outstanding Warrants such number of authorized shares of Common Stock and the aggregate number and kind of any other securities which the Warrants are exercisable for, pursuant to the provisions of Article III hereof, as are sufficient to permit the exercise in full of such Warrants and that it will make available to the Warrant Agent from time to time a number of duly executed certificates representing shares of Common Stock and other securities sufficient therefor. (b) The Company shall use its best efforts to secure the listing, upon official notice of issuance, of the shares of Common Stock issuable upon exercise of Warrants upon any securities exchange upon which the Common Stock becomes listed. (c) The Company covenants that all shares of Common Stock or other securities of the Company issued on exercise of Warrants shall be validly issued, fully paid, non-assessable and free of preemptive rights. (d) The Company has filed the Registration Statements for the registration of, among other matters, the sale of the Warrants and the shares of Common Stock issuable upon exercise thereof under the Securities Act of 1933, as amended (the "Act"). The Company shall use its reasonable efforts to secure the effectiveness of the Registration Statements under the Act, and to register or qualify such Warrants and shares of Common Stock under the laws of any states in which the sale of the Warrants and shares of Common Stock was registered or qualified at the time of the Restructuring and shall use its reasonable good faith efforts to register and qualify such Warrants and shares of Common Stock in such additional states and jurisdictions as may be appropriate. The Company further agrees to use its reasonable efforts to maintain the effectiveness of such Registration Statements and such state qualifications, as aforesaid, by the filing of any and all amendments to the Registration Statements and such state qualifications as may be required from time to time under the Act or the laws of the various states until the expiration or termination of all the Warrants in accordance herewith. (e) The Company will furnish to the Warrant Agent, upon request, an opinion of counsel satisfactory to the Warrant Agent to the effect that (i) one or more registration statements under the Act is then in effect with respect to the Warrants and shares of Common -10- Stock issuable upon the exercise of the Warrants and that the prospectus included therein complies as to form in all material respects, (except as to financial statements, including schedules, and other accounting and financial data, as to which such counsel need express no opinion), with the requirements of the Act and the rules and regulations of the Commission thereunder; or a registration statement under the Act with respect to said shares of Common Stock is not required. In the event that said opinion states that such a registration statement is in effect, the Company will from time to time furnish the Warrant Agent with current prospectuses meeting the requirements of the Act and such rules and regulations in sufficient quantity to permit the Warrant Agent to deliver a prospectus ("Prospectus") to each Warrant Holder upon exercise thereof. The Company further agrees to pay all fees, costs and expenses in connection with the preparation and delivery to the Warrant Agent of the foregoing opinions and Prospectuses and the above mentioned registrations and other actions, and to immediately notify the Warrant Agent in the event that (i) the Commission shall have issued or threatened to issue any order preventing or suspending the use of any Prospectus; (ii) at any time any Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading; or (iii) for any reason it shall be necessary to amend or supplement any Prospectus in order to comply with the Act. SECTION 4.05 If the number of shares purchasable upon the exercise of each Warrant is adjusted pursuant to Section 3.07 hereof, the Company shall not be required to issue fractions of shares upon exercise of the Warrants or to distribute share certificates which evidence fractional shares. In lieu of fractional shares, the Company, in its sole discretion, may pay to the registered holders of Warrant Certificates at the time such Warrants are exercised as herein provided an amount in cash equal to the same fraction of the current market value of a share. For purposes of this Section 4.05, the current market value of a share issuable upon the exercise of a Warrant shall be the closing price of a share of Common Stock, as determined pursuant to the second and third sentences of Section 3.04, for the trading day immediately prior to the date of such exercise. ARTICLE V TREATMENT OF WARRANT HOLDERS SECTION 5.01 Prior to due presentment for registration of transfer of any Warrant, the Company and the Warrant Agent may deem and treat the Warrant Holder as the absolute owner of such Warrant, notwithstanding any notation of ownership or other writing thereon, for the purpose of any exercise thereof and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. -11- ARTICLE VI CONCERNING THE WARRANT AGENT AND OTHER MATTERS SECTION 6.01 The Company will from time to time promptly pay, subject to the provisions of Section 2.02 (d) of this Agreement, all taxes and charges that may be imposed upon the Company or the Warrant Agent in respect of the issuance or delivery of shares of Common Stock upon the exercise of Warrants. SECTION 6.02 (a) The Warrant Agent may resign and be discharged from its duties under this Agreement upon sixty (60) days notice in writing, mailed to the Company by registered or certified mail, and to each Warrant Holder. The Company may remove the Warrant Agent or any successor warrant agent upon sixty (60) days notice in writing, mailed to the Warrant Agent or successor Warrant Agent, as the case may be, by registered or certified mail, and to each Warrant Holder; provided, however, the Company shall appoint a new Warrant Agent as hereinafter provided and such removal shall not become effective until a successor Warrant Agent has been appointed and has accepted such appointment. If the Warrant Agent shall resign or shall otherwise become capable of acting, the Company shall appoint a successor to the Warrant Agent. If the Company shall fail to make such appointment within a period of sixty (60) days after it has been notified in writing of such resignation or incapability by the Warrant Agent by a Warrant Holder, who shall, with such notice, submit his Warrant Certificate for inspection by the Company, then any Warrant Holder may apply to any court of competent jurisdiction or the appointment of a successor to the Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or by such a court shall be a registered transfer agent, bank or trust company, subject to the terms and conditions of this Section 6.02, in good standing and incorporated under the laws of any State of the United States, having its principal office in the United States of America. After appointment, the successor Warrant Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant Agent without further act or deed. The former Warrant Agent shall deliver and transfer to the successor Warrant Agent any property at the time held by it hereunder and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Failure to give any notice provided for in this Section, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent, as the case may be. (b) Any corporation into which the Warrant Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Warrant Agent shall be a party, or any corporation succeeding to the corporate trust business of the Warrant Agent, shall be the successor to the Warrant Agent hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto. In -12- case at the time such successor to the Warrant Agent shall succeed to the agency created by this Agreement, any of the Warrant Certificates shall have been countersigned but not delivered, any such successor to the Warrant Agent may adopt the countersignature of the original Warrant Agent and deliver such Warrant Certificates so countersigned, and in case at that time any of the Warrant Certificates shall not have been countersigned, any successor to the Warrant Agent may countersign such Warrant Certificate in its own name or in the name of the successor Warrant Agent; and in all such cases such Warrant Certificates shall have the full force provided in the Warrant Certificates and this Agreement. In case at any time the name of the Warrant Agent shall be changed and at such time any of the Warrant Certificates shall have been countersigned but not delivered, the Warrant Agent may adopt the countersignature under this prior name and deliver Warrant Certificates so countersigned; and in case at that time any of the Warrant Certificates shall not have been countersigned, the Warrant Agent may countersign such Warrant Certificates either in its prior name or in its changed name; and in all such cases such Warrant Certificates shall have the full force provided in the Warrant Certificates and in this Agreement. SECTION 6.03 The Company agrees to pay the Warrant Agent a reasonable fee for all services rendered by it hereunder. The Company also agrees to indemnify the Warrant Agent for, and to hold it harmless against, any loss, liability or expense, incurred without gross negligence, willful misconduct or bad faith on the part of the Warrant Agent, arising out of or in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. SECTION 6.04 The Company covenants and agrees that it shall, at the Company's expense, provide to the Warrant Agent copies of its current prospectus, if any, in such quantity as to enable the Warrant Agent to deliver one copy of such current prospectus to such Warrant Holder who shall exercise his rights under a Warrant. Notwithstanding anything else contained in this Section 6.04, the Company shall not be obligated to provide copies of its current prospectus for the purpose of allowing the Warrant Agent to deliver such copies to any Warrant Holder who delivers all of his Warrants for redemption pursuant to Section 2.03 or who shall notify the Company of such Holder's intent to permit redemption of all of such Holder's Warrants pursuant to Section 2.03 herein or to any person who shall hold any Warrant subject to the terms of this Agreement after the earlier of the Redemption Date or the Last Exercise Date of the Warrants. SECTION 6.05 The Warrant Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Warrant Certificates, by their acceptance thereof, shall be bound: (a) Whenever in the performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, that fact or matter, unless other evidence in respect thereof be herein specifically prescribed, may be deemed to be conclusively proved and established by a certificate signed by the President or the Secretary of the Company and delivered to the Warrant Agent. That certificate shall be full authorization to -13- the Warrant Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon that certificate. (b) The Warrant Agent shall be liable hereunder only for its own gross negligence, willful misconduct or bad faith. (c) The Warrant Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Warrant Certificates, except its countersignature thereof, or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (d) The Warrant Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof, except the due execution hereof by the Warrant Agent, or in respect of the validity or execution of any Warrant Certificate, except its countersignature thereof; nor shall it be responsible for any Warrant Certificate; nor shall it be responsible for the adjustment of the Warrant Exercise Price or the making of any change in the number of shares of Common Stock required under the provisions of Article III of this Agreement or responsible for the manner, method or amount of any such change or the ascertaining of the existence of facts that would require any such adjustment or change except with respect to the exercise of Warrant Certificates after actual notice of any adjustment of the Warrant Exercise Price; nor shall it by any act under this Agreement be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock to be issued pursuant to this Agreement or any Warrant Certificate or as to whether any share of Common Stock will when issued be validly issued, fully paid, non-assessable and free of preemptive rights. (e) The Warrant Agent and any shareholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrant Certificates or other securities of the Company to retain a pecuniary interest in any transaction in which the Company may be interested or contract with or lend money to or otherwise act as fully and freely as though it was not the Warrant Agent or subject to this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. (f) The Warrant Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any officer or assistant officer of the Company, and to apply to any such officer or assistant officer for advice or instructions in connection with its duties, and shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer or assistant officer. (g) The Warrant Agent may consult with its counsel or other counsel satisfactory to it, including counsel for the Company, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, offered, or omitted by it hereunder in good faith and in accordance with the opinion of such counsel. -14- (h) The Warrant Agent shall incur no liability to the Company or to any holder of any Warrant for any action taken by it in reliance upon any Warrant Certificate or certificate for Common Stock, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed, and where necessary, certified or acknowledged, by the proper person or persons. SECTION 6.06 The Warrant Agent may, without the consent or concurrence of the Warrant Holders, by supplemental agreement or otherwise, concur with the Company in making any changes or corrections in this Agreement that (i) it shall have been advised by counsel, who may be counsel for the Company, are required to cure any ambiguity or to correct any defective or inconsistent provision or clerical omission or mistake or manifest error herein contained, or (ii) as provided in Section 3.09, the Company deems necessary of advisable and which shall not be inconsistent with the provisions of the Warrant Certificates, provided such changes or corrections do not adversely affect the privileges or immunities of the Warrant Holders. SECTION 6.07 All the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. SECTION 6.08 Forthwith upon the appointment after the date thereof of any transfer agent for the Common Stock, or of any subsequent transfer agent for the Common Stock, the Company will file with the Warrant Agent a statement setting forth the name and address of such transfer agent. SECTION 6.09 Notice or demand pursuant to this Agreement to be given or made by the Warrant Agent or by any Warrant Holder to or on the Company shall be sufficiently given or made and effective on the third business day after posting thereof, unless otherwise provided in this Agreement, if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing by the Company with the Warrant Agent) as follows: Aviation Sales Company 623 Radar Road Greensboro, North Carolina 27410 Attn: Mr. Roy T. Rimmer, Jr., Chairman With a copy to: Akerman Senterfitt & Eidson, PA One S.E. 3rd Avenue, 28th Floor Miami, FL 33131-1704 Attn: Mr. Philip B. Schwartz, Esq. notice or demand pursuant to this Agreement to be given or made by the Company or any Warrant Holder to or on the Warrant Agent shall be sufficiently given or made and effective on the third business day after posting thereof, unless otherwise provided in this Agreement, if sent -15- by first-class mail, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with the Company) as follows: Continental Stock Transfer & Trust Company 2 Broadway, 19th Floor New York, New York 10004 Attn: Compliance Department notice or demand pursuant to this Agreement to be given or made by the Company or the Warrant Agent to or on any Warrant Holder shall be sufficiently given or made and effective on the third business day after posting thereof, unless otherwise provided in this Agreement, if sent by first-class mail, postage prepaid, addressed to such Warrant Holder at his last known address as it shall appear in the records of the Company, if such notice shall be given by the Company, or, if such notice shall be given by the Warrant Agent, as it shall appear on the register maintained by the Warrant Agent. A copy of any Notice or demand given or made pursuant to this Agreement on the Warrant Agent, Company shall be promptly forwarded by the recipient thereof to each of the Company, Warrant Agent who shall not have received or made such demand or Notice. SECTION 6.10 The validity, interpretation and performance of this Agreement and the Warrants shall be governed by the law of the State of Florida. SECTION 6.11 Nothing in this Agreement shall be construed to give to any person or corporation other than the parties hereto and the Warrant Holders any right, remedy or claim under promise or agreement hereof. All covenants, conditions, stipulations, promises and agreements contained in this Agreement shall be for the sole and exclusive benefit of the Company and the Warrant Agent and their successors and of the Warrant Holders, and their heirs, representatives, successors, assigns and transferees. SECTION 6.12 A copy of this Agreement shall be available for inspection by any Warrant Holder during the regular business hours and at the corporate office of the Warrant Agent in New York, New York, at which time the Warrant Agent may require any Warrant Holder to submit his Warrant Certificate for inspection by it. SECTION 6.13 This Agreement shall terminate on the Last Exercise Date, or such earlier date upon which all Warrants have been exercised or redeemed, except that the Warrant Agent shall account to the Company pursuant to Section 2.02 (e) of this Agreement for all cash held by it. The provisions of Section 6.03 and 6.04 of this Agreement shall survive such termination. SECTION 6.14 The Article headings in this Agreement are for convenience only and are not part of this Agreement and shall not affect the interpretation thereof. [Signatures on Next Page] -16- SECTION 6.15 This Agreement may be executed in any number counterparts, each of which is so executed shall be deemed to be an original, and all such counterparts shall together constitute but one and the same agreement. ATTEST: AVIATION SALES COMPANY By: ____________________________________ ____________________________________ Name: ____________________________________ Title: _________________________________ ATTEST: CONTINENTAL STOCK TRANSFER & TRUST COMPANY By: ____________________________________ ____________________________________ Name: ____________________________________ Title: _________________________________ -17- EX-5.1 7 dex51.txt OPINION OF AKERMAN EXHIBIT 5.1 Akerman, Senterfitt & Eidson, P.A. SunTrust International Center One S.E. Third Avenue Miami, Florida 33131-1714 December 12, 2001 Aviation Sales Company 623 Radar Road Greensboro, North Carolina 27410 Re: Registration Statement on Form S-4 ---------------------------------- 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-4, registration number 333-69464, including amendments thereto (the "Registration Statement") for the proposed exchange (the "Exchange") by the Company of (A) a combination of (i) up to $100,000,000 in principal amount of new 8% senior subordinated convertible PIK notes due 2006 ("New Notes"), (ii) up to 4,504,595 shares (the "Shares") of Company common stock, par value $0.001 per share (the "Common Stock"), and (iii) warrants (the "Warrants") to purchase up to 3,003,063 shares of Common Stock for up to $132,000,000 in principal amount of its outstanding 8 1/8% senior subordinated notes due 2008 ("Old Notes") and (B) up to $10,000,000 in cash for up to $33,000,000 in principal amount of the Old Notes. In connection with the proposed Exchange, we have examined the Company's Certificate of Incorporation and By-laws, as amended and as presently in effect, the Company's relevant corporate proceedings, the Registration Statement, including the Prospectus filed as a part of the Registration Statement, the Indenture for the New Notes (the "Indenture"), 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. We understand that the New Notes, Shares and Warrants are to be issued to the holders of the Old Notes in the Exchange and are to be available for resale by such holders, all in the manner Aviation Sales Company. December 12, 2001 Page 2 described in the Prospectus, which is a part of the Registration Statement, and for the New Notes, in the Indenture. Based on the foregoing and upon the representations made to us by the officers and directors of the Company and assuming that the Company has obtained stockholder approval of the proposals set forth in its proxy statement relating to the foregoing transactions, we are of the opinion that: 1. The issuance of the New Notes to the holders of the Old Notes pursuant to the terms of the Exchange and the Indenture have been duly authorized by all necessary corporate action of the Company. 2. When the Registration Statement is declared effective by order of the Securities and Exchange Commission and the New Notes are duly issued, executed, authenticated, delivered in exchange for the Old Notes, all in accordance with the terms of the Exchange, the Indenture and the Registration Statement, such New Notes will be validly issued and will constitute binding obligations of the Company, entitled to the benefits of the Indenture. 3. The issuance of the Shares and the Warrants pursuant to the terms of the Exchange have been duly authorized by all necessary corporate action of the Company. 4. When the shares of Common Stock have been issued upon (i) the exercise of the Warrants and payment of the warrant exercise price in the manner described in the Registration Statement and (ii) the conversion of the New Notes at maturity in the manner described in the Indenture and the Registration Statement, the Common Stock will be validly issued, fully- paid and non-assessable. Our opinion that any document is legal, valid and binding is qualified as to: (i) limitations imposed under 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 and the possible unavailability of specific performance or injunctive relief and limitation of rights of acceleration, regardless of whether such enforceability is considered a proceeding in equity or at law; and (iii) rights to indemnification and contribution which may be limited by applicable law or equitable principles. This opinion is limited to the Federal laws of the United States of America and the Delaware General Corporation Law and we neither express nor imply any opinion as to any other laws. 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 Aviation Sales Company. December 12, 2001 Page 3 Registration Statement. In giving such consent, we do not thereby admit that we are included within the category of persons whose consent is required under Section 7 of the Securities Act and the rules and regulations promulgated thereunder. Sincerely, AKERMAN, SENTERFITT & EIDSON, P.A. /s/ Akerman, Senterfitt & Eidson, P.A. EX-8.1 8 dex81.txt TAX OPINION Exhibit 8.1 AKERMAN SENTERFITT ATTORNEYS AT LAW SUNTRUST INTERNATIONAL CENTER ONE SOUTHEAST THIRD AVENUE, 28TH FLOOR MIAMI, FL 33131-1714 PHONE (305) 374-5600 O FAX (305) 374-5095 December 11, 2001 Aviation Sales Company 623 Radar Road Grennsboro, North Carolina 27410 Re Registration Statement on Form S-4 (File Number 333-69464) Ladies and Gentlemen: 1. You have requested our opinion as to material federal income tax consequences expected to result to holders of various securities of Aviation Sales Company (the "Company") pursuant to the transactions and issuance of securities described in and relating to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission (the "Commission) on September 14, 2001 (File No. 333-69464), as amended (the "Registration Statement"). 2. Capitalized terms used herein and not otherwise defined herein have the respective meanings assigned to them in the Registration Statement. 3. We have examined and relied on copies of such corporate records of the Company and other documents, including the Registration Statement on Form S-4 filed by the Company, and reviewed such matters of law as we have deemed necessary or appropriate for the purpose of this opinion. We have not made any independent investigation in rendering these opinions other than as described herein. 4. Our opinion is based upon existing United States federal income tax laws, regulations, United States Internal Revenue Service administrative pronouncements and judicial decisions. All such authorities are subject to change, either prospectively or retroactively. No assurance can be provided as to the effect of any such change upon our opinion. 5. We have not sought and will not seek any rulings from the United States Internal Revenue Service with respect to any consequences discussed in our opinion. Our opinion has no binding effect on the United States Internal Revenue Service or the courts of the United States. There can be no assurance that the United States Internal Revenue Service or a United States court would agree with our opinion if the matter were contested. Aviation Sales Company December 11, 2001 Page 2 6. We have advised the Company in connection with the material United States federal income tax consequences described in the Registration Statement. We confirm that the statements of law and legal conclusions contained in the Registration Statement under the caption "Material United States Federal Income Tax Consequences" are our opinion. While our opinion discusses the material anticipated United States federal income tax consequences, it does not purport to discuss all United States tax consequences and is limited to those United States tax consequences specifically discussed therein. 7. In giving our opinion, we express no opinion other than as to the federal income tax law of the United States of America. 8. This opinion is expressed as of the date hereof and we assume no responsibility to update this opinion. 9. We are furnishing this letter in our capacity as counsel to the Company. This letter is not to be used, circulated, quoted or otherwise referred to for any other purposes, except as set forth in the Registration Statement. 10. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Prospectus that is a part of the Registration Statement. In giving such consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act. Very truly yours, AKERMAN, SENTERFITT & EIDSON, P.A. /s/ Akerman, Senterfitt & Edison, P.A. EX-10.79 9 dex1079.txt EMPLOYMENT AGREEMENT EXHIBIT 10.79 EMPLOYMENT AGREEMENT -------------------- This EMPLOYMENT AGREEMENT ("Agreement"), dated this 23rd day of August, 2001, by and between AVIATION SALES COMPANY, a Delaware corporation (the "Company"), and GIL WEST (the "Employee"). In consideration of the mutual representations, warranties, covenants and agreements contained in this Agreement and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Employment. (a) Retention. The Company agrees to employ Employee as its Executive Vice President and Chief Operating Officer, and the Employee agrees to accept such employment, subject to the terms and conditions of this Agreement. (b) Employment Period. This Agreement shall commence on August 24, 2001 (the "Effective Date") and, unless terminated in accordance with the terms of this Agreement, shall continue in effect until December 31, 2004 (the "Employment Period"). (c) Duties and Responsibilities. During the Employment Period, the Employee shall serve as Executive Vice President (or, at the discretion of the Board of Directors of the Company, as President) and as Chief Operating Officer of the Company and its subsidiaries. In such role, Employee shall have such authority and responsibility and perform such duties as may be assigned to him from time to time by the Chief Executive Officer of the Company, and in the absence of such assignment, such duties as are customary to Employee's office and as are necessary or appropriate to the business and operations of the Company and its subsidiaries. During the Employment Period, the Employee's employment shall be full time, Employee shall perform his duties honestly, diligently, in good faith and in the best interests of the Company and its subsidiaries, and Employee shall use his best efforts to promote the interests of the Company and its subsidiaries. (d) Other Activities. Except upon the prior written consent of the Company, the Employee, during the Employment Period, will not accept any other employment. The Employee shall be permitted to serve in ventures such as passive real estate investments, serving on charitable and civic boards and organizations, and similar activities, so long as such activities do not materially interfere with or detract from the performance of Employee's duties or constitute a breach of any of the provisions contained in this Agreement. 2. Compensation. (a) Base Salary. In consideration for the Employee's services hereunder and the restrictive covenants contained herein, the Employee shall be paid an annual base salary of $300,000 (the "Salary"), payable in accordance with the Company's customary payroll practices. Notwithstanding the foregoing, Employee's annual Salary may be increased at anytime and from time to time to levels greater than the level set forth in the preceding sentence at the discretion of the Board of Directors of the Company to reflect merit or other increases. (b) Bonus. In addition to the Salary, the Employee shall be eligible to receive an annual bonus ("Bonus") equal to 100% of the Employee's Base Salary. The Bonus shall be based on the achievement of corporate goals and objectives as established by the Compensation Committee of the Board of Directors. The achievement of said goals and objectives shall be determined by the Compensation Committee of the Board of Directors. With respect to any Fiscal Year during which the Employee is employed by the Company for less than the entire Fiscal Year, the Bonus shall be prorated for the period during which the Employee was so employed. The Bonus shall be payable within thirty (30) days after the end of the Company's Fiscal Year. The term "Fiscal Year" as used herein shall mean each period of twelve (12) calendar months commencing on January 1st of each calendar year during the Employment Period and expiring on December 31st of such year. (c) Merit and Other Bonuses. Employee shall be entitled to such other bonuses, payments and benefits may be determined by the Board of Directors of the Company or by a committee of the Board of Directors as determined by the Board of Directors, in its sole discretion. (d) Signing Bonus. Employee shall be entitled to a signing bonus (the "Signing Bonus") in the amount of $200,000 which shall be grossed-up for all taxes imposed on Employer with respect to the Signing Bonus, including income taxes and the Employee's share of FICA and all other payroll taxes. For purposes of determining the amount of the gross-up, the Employee shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation in the calendar year in which the Signing Bonus (or any portion of the Signing Bonus) is paid, and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Employee's residence in the calendar year in which the Signing Bonus (or any portion of the Signing Bonus) is paid, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. The Signing Bonus shall be payable in three monthly installments, with the first installment due 30 days after the Effective Date and each month thereafter on the same date. Employee shall repay a pro-rata portion of the Signing Bonus to Employer if he resigns from his employment prior to the second anniversary of the Effective Date. (e) Stock Options. On the Effective Date, the Company shall issue to the Employee a five-year option to purchase 300,000 shares of the Company's authorized but unissued common stock at an exercise price equal to the last closing price of the common stock on the date on which this Agreement was approved by the Compensation Committee of the Board of Directors of the Company ($1.20 per share). The options shall vest 1/3 on date of grant, 1/3 on the first anniversary of the Effective Date and 1/3 on the second anniversary of the Effective Date. The Employee shall be entitled to participate and receive option grants in the future, as may be determined by the Compensation Committee of the Board of Directors of the Company. Notwithstanding the foregoing, Employee has been advised by Company that it is currently negotiating with the holders of the Company's outstanding senior subordinated notes to restructure the Company's currently outstanding debt and equity and to recapitalize the Company. The Company hereby agrees to adjust Employee's option grant hereunder after the completion of the restructuring/recapitalization to provide an equivalent benefit to Employee such that Employee is not prejudiced by the restructuring/recapitalization. -2- (f) Other Compensation Programs. The Employee shall be entitled to participate in the Company's incentive and deferred compensation programs and such other programs as are established and maintained generally for the benefit of the Company's employees or executive officers, subject to the provisions of such plans or programs. (g) Vacations. The Employee shall be entitled to three weeks of vacation on an annual basis. Employee shall be entitled to be reimbursed for any accrued and unused vacation time as of the date he is no longer an employee of the Company. (h) Annual Executive Physical. The Company shall pay all direct costs of Employee's annual executive physical at the Mayo Clinic in Rochester, Minnesota. (i) Other Benefits. During the term of this Agreement, the Employee shall also be entitled to participate in any other health insurance programs, life insurance programs, disability programs, stock option plans, bonus plans, pension plans and other fringe benefit plans and programs as are from time to time established and maintained for the benefit of the Company's employees or executive officers, subject to the provisions of such plans and programs. (j) Expenses. The Employee shall be reimbursed for all out-of-pocket expenses reasonably incurred by him on behalf of or in connection with the business of the Company, pursuant to the normal standards and guidelines followed from time to time by the Company. (k) Relocation Expenses. Upon submission of appropriate documentation, the Company shall reimburse Employee for the full and total cost of (i) transporting all household goods currently residing at 4291 Dartmouth Court, Eagan, MN, by a company widely recognized as an expert in relocation matters, to the permanent residence the Employee shall establish in Greensboro, North Carolina, (ii) flying the Employee and his immediate family to and from Eagan, MN to Greensboro, North Carolina and (iii) direct costs of temporary housing in Greensboro for a period of up to 180 days from the date Employee begins his residence in Greensboro. (l) Real Estate Fees. Upon submission of appropriate documentation, the Company shall reimburse the Employee for full and total costs of any and all reasonable real estate fees or costs normally involved in the sale and purchase of residential real estate. These costs may include or all of the following; loan origination fees, appraisal fees, credit reports, mortgage broker fees, real estate broker fees, title insurance and recording fees resulting from the sale of Employee's current residence at 4291 Dartmouth Court, Eagan, MN. 3. Termination. (a) For Cause. The Company shall have the right to terminate this Agreement and to discharge the Employee for Cause (as defined below), at any time during the term of this Agreement. Termination for Cause shall mean, during the term of this Agreement, (i) Employee's conduct that would constitute under federal or state law either a felony or a misdemeanor involving moral turpitude, or a determination by the Company's Board of -3- Directors, after consideration of all available information and following the procedures set forth below, that Employee has willfully violated Company policies or procedures involving discrimination, harassment, alcohol or substance abuse, or work place violence causing material injury to the Company, (ii) Employee's actions or omissions that constitute fraud, dishonesty or gross misconduct, (iii) Employee's knowing and intentional breach of any fiduciary duty that causes material injury to the Company, and (iv) Employee's inability to perform his material duties, after reasonable notice and an opportunity to resolve the issues, due to alcohol or other substance abuse. Any termination for Cause pursuant to this Section shall be given to the Employee in writing and shall set forth in detail all acts or omissions upon which the Company is relying to terminate the Employee for Cause. Upon any determination by the Company that Cause exists to terminate the Employee, the Company shall cause a special meeting of the Board of Directors to be called and held at a time mutually convenient to the Board of Directors and Employee, but in no event later than ten (10) business days after Employee's receipt of the notice that the Company intends to terminate the Employee for Cause. Employee shall have the right to appear before such special meeting of the Board of Directors with legal counsel of his choosing to refute such allegations and shall have a reasonable period of time to cure any actions or omissions which provide the Company with a basis to terminate the Employee for Cause (provided that such cure period shall not exceed 30 days). A majority of the members of the Board of Directors must affirm that Cause exists to terminate the Employee. No finding by the Board of Directors will prevent the Employee from contesting such determination through appropriate legal proceedings provided that the Employee's sole remedy shall be to sue for damages, not reinstatement, and damages shall be limited to those that would be paid to the Employee if he had been terminated without Cause. In the event the Company terminates the Employee for Cause, the Company shall only be obligated to continue to pay in the ordinary and normal course of its business to the Employee his Salary plus accrued but unused vacation time through the termination date and the Company shall have no further obligations to Employee from and after the date of termination. (b) Resignation by Employee. If the Employee shall resign or otherwise terminate his employment with the Company at anytime during the term of this Agreement, the Employee shall only be entitled to receive his accrued and unpaid Salary through the termination date, and the Company shall have no further obligations under this Agreement from and after the date of resignation. (c) Termination by Company Without Cause. At any time during the term of this Agreement the Company shall have the right to terminate this Agreement and to discharge the Employee without Cause effective upon delivery of written notice to the Employee. Upon any such termination by the Company without Cause, the Company shall pay to the Employee all of the Employee's accrued but unpaid Salary through the date of termination, and continue to pay to or provide for the Employee (a) his Salary payable in accordance with Section 2(a) for two (2) years from the date of termination, when and as the same would have been due and payable hereunder but for such termination, (b) all health benefits in which Employee was entitled to participate at any time during the 12-month period prior to the date of termination, until the earliest to occur of the second anniversary of the date of termination, the Employee's death, or the date on which the Employee becomes covered by a comparable health benefit plan by a subsequent employer; provided, however, that in the event that Employee's continued -4- participation in any health benefit plan of the Company is prohibited, the Company will arrange to provide Employee with benefits substantially similar to those which Employee would have been entitled to receive under such plan for such period on a basis which provides Employee with no additional after tax cost, (c) all stock option grants, or other stock grants issued during the term of this Agreement, will immediately vest and such options will remain exercisable for the lesser of the unexpired term of the option without regard to the termination of Employee's employment or two (2) years from the date of termination of employment and (d) all long term incentive cash grants and bonuses provided to the Employee shall immediately vest as if all targets and conditions had been met and shall be paid by the Company to the Employee at such times as the Company would have been required to make such payments if this Agreement had remained in effect, provided, however, that in the case of incentives partially or completely contingent on the providing of service for a specific period of time, the total amount to be paid by the Company shall be equal to the maximum amount payable if all conditions were met, multiplied by a fraction, the numerator of which is the period of service that would have been served if the Employee's employment had terminated as of the last day of the fiscal year in which his employment was terminated, and the denominator of which is the total period of time specified as a condition to the incentive (collectively, the foregoing consideration payable to the Employee shall be referred to herein as the "Severance Payment"). Other than the Severance Payment, the Company shall have no further obligation to the Employee except for the obligations set forth in Section 12 of this Agreement after the date of such termination; provided, however, that the Employee shall only be entitled to continuation of the Severance Payments as long as he is in compliance with the provisions of Sections 6 and 7 of this Agreement. (d) Disability of the Employee. This Agreement may be terminated by the Company upon the Disability of the Employee. "Disability" shall mean any mental or physical illness, condition, disability or incapacity which prevents the Employee from reasonably discharging his duties and responsibilities under this Agreement for a period of 180 consecutive days. In the event that any disagreement or dispute shall arise between the Company and the Employee as to whether the Employee suffers from any Disability, then, in such event, the Employee shall submit to the physical or mental examination of a physician licensed under the laws of the State of Florida, who is mutually agreeable to the Company and the Employee, and such physician shall determine whether the Employee suffers from any Disability. In the absence of fraud or bad faith, the determination of such physician shall be final and binding upon the Company and the Employee. The entire cost of such examination shall be paid for solely by the Company. In the event the Company has purchased Disability insurance for Employee, the Employee shall be deemed disabled if he is completely (fully) disabled as defined by the terms of the Disability policy. In the event that at any time during the term of this Agreement the Employee shall suffer a Disability and the Company terminates the Employee's employment for such Disability, such Disability shall be considered to be a termination by the Company without Cause and the Severance Payments shall be paid to the Employee to the same extent and in the same manner as provided for in paragraph (c) above, except that payment of the Salary in accordance with said paragraph shall be mitigated to the extent payments are made to the Employee pursuant to disability insurance programs maintained by the Company. (e) Death of the Employee. During the term of this Agreement, the Company shall maintain term life insurance on the life of the Employee in the face amount of $2.5 million payable to a beneficiary designated by the Employee, assuming Employee is -5- insurable. In the event of the death of Employee, the employment of the Employee by the Company shall automatically terminate on the date of the Employee's death and the Company shall only be obligated to pay Employee's estate Employee's accrued and unpaid Salary through the termination date plus accrued but unused vacation time through the termination date and the Company shall have no further obligations to Employee from and after the date of termination. 4. Termination of Employment by Employee for Change of Control. (a) Termination Rights. Notwithstanding the provisions of Section 2 and Section 3 of this Agreement, in the event that there shall occur a Change of Control (as defined below) of the Company and within two years after such Change of Control the Employee's employment hereunder is terminated by the Company without Cause, then the Company shall be required to pay to the Employee (i) the Severance Payment provided in Section 3(c), except that such Severance Payment shall be paid in a single lump sum in full, and (ii) the product of three multiplied by the maximum Bonus that Employee received in the Fiscal Year prior to the Fiscal Year in which such termination occurs, assuming that all performance objectives are met, in a single lump sum. The foregoing payments shall be made no later than 10 days after the Employee's termination pursuant to this Section 4. To the extent that payments are owed by the Company to the Employee pursuant to this Section 4, they shall be made in lieu of payments pursuant to Section 3, and in no event shall the Company be required to make payments or provide benefits to the Employee under both Section 3 and Section 4. (b) Change of Control of the Company Defined. For purposes of this Section 4, a "Change of Control of the Company" shall be deemed to have occurred if: (i) Any "person" (as such term is defined in Sections 13(d)(3) and Section 14(d)(3) of the Exchange Act), other than the Company, any majority-owned subsidiary of the Company, any compensation plan of the Company, any majority- owned subsidiary of the Company or Lacy J. Harber and his affiliates, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company; or (ii) The shareholders of the Company approve (1) a reorganization, merger, or consolidation with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger, or consolidation do not immediately thereafter own more than 50% of the combined voting power entitled to vote generally in the election of the directors of the reorganized, merged or consolidated entity; (2) a liquidation or dissolution of the Company; or (3) the sale of all or substantially all of the assets of the Company or of a subsidiary of the Company that accounts for more than 66 2/3% of the consolidated revenues of the Company, but not including a reorganization, merger or consolidation of the Company. 5. Successor To Company. The Company shall require any successor, whether direct or indirect, to all or substantially all of the business, properties and assets of the Company whether by purchase, merger, consolidation or otherwise, prior to or simultaneously with such purchase, merger, consolidation or other acquisition to execute and to deliver to the Employee a written instrument in form and in substance reasonably satisfactory to the Employee pursuant to -6- which any such successor shall agree to assume and to timely perform or to cause to be timely performed all of the Company's covenants, agreements and obligations set forth in this Agreement (a "Successor Agreement"). The failure of the Company to cause any such successor to execute and deliver a Successor Agreement to the Employee shall constitute a material breach of the provisions of this Agreement by the Company. 6. Restrictive Covenants. In consideration of his employment and the other benefits arising under this Agreement, the Employee agrees that during the term of this Agreement, and for a period of three (3) years following the termination of this Agreement, the Employee shall not directly or indirectly: (a) alone or as a partner, joint venturer, officer, director, member, employee, consultant, agent, independent contractor or stockholder of, or lender to, any company or business, engage in any business which competes, directly or indirectly, with any business of the Company; provided, however, that the beneficial ownership of less than one percent (1%) of the shares of stock of any corporation having a class of equity securities actively traded on a national securities exchange or over-the-counter market shall not be deemed, in and of itself, to violate the prohibitions of this Section; or (b) for any reason, (i) induce any customer of the Company or any of its subsidiaries or affiliates to patronize any business directly or indirectly in competition with the businesses conducted by the Company or any of its subsidiaries or affiliates in any market in which the Company or any of its subsidiaries or affiliates does business; (ii) canvass, solicit or accept from any customer of the Company or any of its subsidiaries or affiliates any such competitive business; or (iii) request or advise any customer or vendor of the Company or any of its subsidiaries or affiliates to withdraw, curtail or cancel any such customer's or vendor's business with the Company or any of its subsidiaries or affiliates; or (c) for any reason, employ, or knowingly permit any company or business directly or indirectly controlled by him, to employ, any person who was employed by the Company or any of its subsidiaries or affiliates at or within the prior six months, or in any manner seek to induce any such person to leave his or her employment. 7. Confidentiality. The Employee agrees that at all times during the term of this Agreement and after the termination of employment for as long as such information remains non-public information, the Employee shall (i) hold in confidence and refrain from disclosing to any other party all information, whether written or oral, tangible or intangible, of a private, secret, proprietary or confidential nature, of or concerning the Company or any of its subsidiaries or affiliates and their business and operations, and all files, letters, memoranda, reports, records, computer disks or other computer storage medium, data, models or any photographic or other tangible materials containing such information ("Confidential Information"), including without limitation, any sales, promotional or marketing plans, programs, techniques, practices or strategies, any expansion plans (including existing and entry into new geographic and/or product markets), and any customer lists, (ii) use the Confidential Information solely in connection with his employment with the Company or any of its subsidiaries or affiliates and for no other purpose, (iii) take all precautions necessary to ensure that the Confidential Information shall not be, or be permitted to be, shown, copied or disclosed to third parties, without the prior written -7- consent of the Company or any of its subsidiaries or affiliates, and (iv) observe all security policies implemented by the Company or any of its subsidiaries or affiliates from time to time with respect to the Confidential Information. In the event that the Employee is ordered to disclose any Confidential Information, whether in a legal or regulatory proceeding or otherwise, the Employee shall provide the Company or any of its subsidiaries or affiliates with prompt notice of such request or order so that the Company or any of its subsidiaries or affiliates may seek to prevent disclosure. In addition to the foregoing the Employee shall not at any time libel, defame, ridicule or otherwise disparage the Company. 8. Specific Performance; Injunction. The parties agree and acknowledge that the restrictions contained in Sections 6 and 7 are reasonable in scope and duration and are necessary to protect the Company or any of its subsidiaries or affiliates. If any provision of Section 6 or 7 as applied to any party or to any circumstance is adjudged by a court to be invalid or unenforceable, the same shall in no way affect any other circumstance or the validity or enforceability of any other provision of this Agreement. If any such provision, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration and/or area of such provision, and/or to delete specific words or phrases, and in its reduced form, such provision shall then be enforceable and shall be enforced. The Employee agrees and acknowledges that the breach of Section 6 or 7 will cause irreparable injury to the Company or any of its subsidiaries or affiliates and upon breach of any provision of such Sections, the Company or any of its subsidiaries or affiliates shall be entitled to injunctive relief, specific performance or other equitable relief, without being required to post a bond; provided, however, that, this shall in no way limit any other remedies which the Company or any of its subsidiaries or affiliates may have (including, without limitation, the right to seek monetary damages). 9. Notices. All notices, requests, demands, claims and other communications hereunder shall be in writing and shall be deemed given if delivered by hand delivery, by certified or registered mail (first class postage pre-paid), guaranteed overnight delivery or facsimile transmission if such transmission is confirmed by delivery by certified or registered mail (first class postage pre- paid) or guaranteed overnight delivery to, the following addresses and telecopy numbers (or to such other addresses or telecopy numbers which such party shall designate in writing to the other parties): (a) if to the Company, at its principal executive offices, addressed to the Chief Executive Officer, with a copy to Philip B. Schwartz, Esq., Akerman, Senterfitt & Eidson, P.A., One Southeast Third Avenue, Miami, Florida 33156; and (b) if to the Employee, at the address listed on the signature page hereto. 10. Amendment; Waiver. This Agreement may not be modified, amended, or supplemented, except by written instrument executed by all parties. No failure to exercise, and no delay in exercising, any right, power or privilege under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege hereunder preclude the exercise of any other right, power or privilege. No waiver of any breach of any provision shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision, nor shall any waiver be implied from any course of dealing between the parties. No extension of time for performance of any obligations or other acts hereunder or under any other agreement shall be deemed to be an extension of the time for performance of any -8- other obligations or any other acts. The rights and remedies of the parties under this Agreement are in addition to all other rights and remedies, at law or equity, that they may have against each other. 11. Assignment; Third Party Beneficiary. This Agreement, and the Employee's rights and obligations hereunder, may not be assigned or delegated by him. The Company may assign its rights, and delegate its obligations, hereunder to any affiliate of the Company, or any successor to the Company or its Aviation Services Business, specifically including the restrictive covenants set forth in Section 6 hereof. The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon its respective successors and assigns. 12. Severability; Survival. In the event that any provision of this Agreement is found to be void and unenforceable by a court of competent jurisdiction, then such unenforceable provision shall be deemed modified so as to be enforceable (or if not subject to modification then eliminated herefrom) to the extent necessary to permit the remaining provisions to be enforced in accordance with the parties intention. The provisions of Sections 6 and 7 will survive the termination for any reason of the Employee's relationship with the Company. 13. Indemnification. The Company agrees to indemnify the Employee during the term and after termination of this Agreement in accordance with the provisions of the Company's certificate of incorporation and bylaws and the Delaware General Corporation Law. 14. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. 15. Governing Law. This Agreement shall be construed in accordance with and governed for all purposes by the laws of the State of Florida applicable to contracts executed and to be wholly performed within such State. 16. Entire Agreement. This Agreement contains the entire understanding of the parties in respect of its subject matter and supersedes all prior agreements and understandings (oral or written) between or among the parties with respect to such subject matter. 17. Headings. The headings of Paragraphs and Sections are for convenience of reference and are not part of this Agreement and shall not affect the interpretation of any of its terms. 18. Construction. This Agreement shall be construed as a whole according to its fair meaning and not strictly for or against any party. The parties acknowledge that each of them has reviewed this Agreement and has had the opportunity to have it reviewed by their respective attorneys and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of this Agreement. 19. Resolution of Disputes. Any disputes arising under or in connection with this Agreement shall be resolved by third party mediation of the dispute and, failing that, by binding arbitration to be held in Miami, Florida in accordance with the rules and procedures of the -9- American Arbitration Association. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. 20. Attorney's Fees. If at any time during the term of this Agreement or afterwards there should arise any dispute as to the validity, interpretation or application of any term or condition of this agreement, the Company agrees, upon written demand by the Employee (and Employee shall be entitled upon application to any court of competent jurisdiction, to the entry of a mandatory injunction, without the necessity of posting any bond with respect thereto, compelling the Company) to promptly provide sums sufficient to pay on a current basis (either directly or by reimbursing Employee) Employee's costs and reasonable attorneys' fees (including expenses of investigation and disbursements for the fees and expenses of experts, etc.) incurred by the Employee in connection with any such dispute or any litigation, provided that Employee shall repay any such amounts paid or advanced if Employee is not the prevailing party with respect to at least one material claim or issue in such dispute or litigation. The provisions of this Section 19, without implication as to any other section hereof, shall survive the expiration or termination of this Agreement and Employee's employment hereunder. 21. Withholding. All payments made to the Employee shall be made net of any applicable withholding for income taxes and the Employee's share of FICA, FUTA or other taxes. The Company shall withhold such amounts from such payments to the extent required by applicable law and remit such amounts to the applicable governmental authorities in accordance with applicable law. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written. AVIATION SALES COMPANY, a Delaware corporation By: /s/ Roy T. Rimmer, Jr. --------------------------------------- Roy T. Rimmer, Jr., Chairman and CEO EMPLOYEE: /s/ Gil West ------------------------------------------ GIL WEST Address for Notices: -10- EX-12.1 10 dex121.txt COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12.1
Aviation Sales Company Ratio to Earnings to Fixed Charges September 30, December 31, ----------------------------- --------------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ------------- ------------ ------------- ----------- ----------- ----------- ---------- Earnings from Continuing Operations $(103,052,000) $(39,778,000) $(115,873,000) $ 2,998,000 $ 8,534,000 $(3,007,000) $6,618,000 Pro Forma Earnings from Continuing Operations (92,090,000) (101,123,000) Interest and Debt Amortization: Interest Expense 18,876,000 15,236,000 20,347,000 18,649,000 3,895,000 677,000** 61,000** ------------- ------------ ------------- ----------- ----------- ----------- ---------- Total Interest and Debt Amortization 18,876,000 15,236,000 20,347,000 18,649,000 3,895,000 677,000 61,000 ------------- ------------ ------------- ----------- ----------- ----------- ---------- Pro Forma Interest and Debt Amortization 7,914,000 5,597,000 Rent Expense 6,067,500 6,067,500*** 8,090,000 8,112,000 2,423,000 281,000* 305,000* Percent of Rent Deemed Interest 33% 33% 33% 33% 33% 33% 33% ------------- ------------ ------------- ----------- ----------- ----------- ---------- Interest Component of Rent $ 2,022,500 $ 2,022,500 $ 2,696,667 $ 2,704,000 $ 807,667 $ 93,667 $ 101,667 Fixed Coverage Ratio (4.9) (2.3) (5.0) 0.1 1.8 (3.9) 40.7 Pro Forma Fixed Coverage Ratio (9.3) (12.2)
* 1997 and 1996 rent expense represents rent expense of Whitehall Corp. as disclosed in their audited financial statements. During 1997 and 1996, all other subsidiaries of Aviation Sales with rent expense are now considered discontinued operations. ** 1997 and 1996 interest expense represents rent expense of Whitehall Corp. as disclosed in their audited financial statements. During 1997 and 1996, all other subsidiaries of Aviation Sales with interest expense are now considered discontinued operations (i.e., Aviation Sales' revolver utilized to fund inventory and receivables of the Aviation Sales Distribution Company business). *** September 2000 rent is calculated as 3/4 rent for the year ended December 2000 as there were no significant changes in facilities during the year. EX-23.1 11 dex231.txt CONSENT OF INDEPENDENT CERTIFIED ACCOUNTANTS CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the use of our auditors' report (and to all references to our Firm) included in or made a part of this Pre-Effective Amendment No. 2 to Form S-4 registration statement/prospectus. ARTHUR ANDERSEN LLP Miami, Florida, December 11, 2001. EX-25.1 12 dex251.txt FORM T-1 Exhibit 25.1 CONFORMED COPY SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 - -------------------------------------------------------------------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) HSBC Bank USA (Exact name of trustee as specified in its charter) New York 13-2774727 (Jurisdiction of incorporation (I.R.S. Employer or organization if not a U.S. Identification No.) national bank) 452 Fifth Avenue, New York, NY 10018-2706 (212) 525-5600 (Zip Code) (Address of principal executive offices) Warren L. Tischler Senior Vice President HSBC Bank USA 452 Fifth Avenue New York, New York 10018-2706 Tel: (212) 525-1311 (Name, address and telephone number of agent for service) AVIATION SALES COMPANY* (Exact name of obligor as specified in its charter) Delaware 65-0665658 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 623 Radar Road Greensboro, North Carolina 27410 (336) 668-4410 (x3004) (Zip Code) (Address of principal executive offices) 8% Senior Subordinated Convertible PIK Notes due 2006 (Title of Indenture Securities) *TABLE OF CO-REGISTRANTS
State or Other Jurisdiction of I.R.S. Employer Incorporation or Identification Name of Additional Registrant Organization Number - -------------------------------------------------------- ---------------- --------------- Aero Hushkit Corporation Delaware 59-3220181 Aerocell Structures, Inc. Arkansas 71-0704240 Aircraft Interior Design, Inc. Florida 59-2449132 Aviation Sales Distribution Services Company Delaware 65-0673002 Aviation Sales Finance Company Delaware 51-0375317 Aviation Sales Leasing Company Delaware 65-0674397 Aviation Sales Maintenance, Repair & Overhaul Company Delaware 65-0871343 Aviation Sales Property Management Corp. Delaware 65-0885418 Aviation Sales SPS I, Inc. Delaware 65-0774065 AVS/CAI, Inc. Florida 59-1710967 AVS/M-1, Inc. Delaware 65-0791491 AVS/M-2, Inc. Delaware 31-1575338 AVS/M-3, Inc. Arizona 65-0801884 AVSRE, L.P. Delaware 65-0885420 Hydroscience, Inc. Texas 75-1456297 Timco Engine Center, Inc. Delaware 58-2485688 Timco Engineered Systems, Inc. Delaware 57-1095954 Triad International Maintenance Corporation Delaware 54-1510639 Whitehall Corporation Delaware 41-0838460
General Item 1. General Information. -------------------- Furnish the following information as to the trustee: (a) Name and address of each examining or supervisory authority to which it is subject. State of New York Banking Department. Federal Deposit Insurance Corporation, Washington, D.C. Board of Governors of the Federal Reserve System, Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with Obligor. -------------------------- If the obligor is an affiliate of the trustee, describe each such affiliation. None Item 16. List of Exhibits ---------------- Exhibit - ------- T1A(i) (1) Copy of the Organization Certificate of HSBC Bank USA. T1A(ii) (1) Certificate of the State of New York Banking Department dated December 31, 1993 as to the authority of HSBC Bank USA to commence business as amended effective on March 29, 1999. T1A(iii) Not applicable. T1A(iv) (1) Copy of the existing By-Laws of HSBC Bank USA as adopted on January 20, 1994 as amended on October 23, 1997. T1A(v) Not applicable. T1A(vi) (2) Consent of HSBC Bank USA required by Section 321(b) of the Trust Indenture Act of 1939. T1A(vii) Copy of the latest report of condition of the trustee (June 30, 2001), published pursuant to law or the requirement of its supervisory or examining authority. T1A(viii) Not applicable. T1A(ix) Not applicable. (1) Exhibits previously filed with the Securities and Exchange Commission with registration No. 022-22429 and incorporated herein by reference thereto. (2) Exhibit previously filed with the Securities and Exchange Commission with Registration No. 33-53693 and incorporated herein by reference thereto. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, HSBC Bank USA, a banking corporation and trust company organized under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York and State of New York on the 5th day of December, 2001. HSBC BANK USA By: /s/ Frank J. Godino -------------------------------------- Frank J. Godino Vice President Exhibit T1A (vii) Board of Governors of the Federal Reserve System OMB Number: 7100-0036 Federal Deposit Insurance Corporation OMB Number: 3064-0052 Office of the Comptroller of the Currency OMB Number: 1557-0081 Federal Financial Institutions Examination Council Expires March 31, 2002 - -------------------------------------------------------------------------------- Please refer to page i, Table of Contents, for the required disclosure of estimated burden. [1] - -------------------------------------------------------------------------------- Consolidated Reports of Condition and Income for A Bank With Domestic and Foreign Offices--FFIEC 031 Report at the close of business June 30, 2001 (19980930) ---------- (RCRI 9999) This report is required by law; 12 U.S.C. (S)324 (State member This report form is to be filed by banks with branches and banks); 12 U.S.C. (S) 1817 (State nonmember banks); and 12 U.S.C. consolidated subsidiaries in U.S. territories and possessions, (S)161 (National banks). Edge or Agreement subsidiaries, foreign branches, consolidated foreign subsidiaries, or International Banking Facilities. NOTE: The Reports of Condition and Income must be signed by an The Reports of Condition and Income are to be prepared in authorized officer and the Report of Condition must be attested accordance with Federal regulatory authority instructions. to by not less than two directors (trustees) for State nonmember banks and three directors for State member and National Banks. We, the undersigned directors (trustees), attest to the correctness of this Report of Condition (including the I, Gerald A. Ronning, Executive VP & Controller supporting schedules) and declare that it has been examined ---------------------------------------------------- by us and to the best of our knowledge and belief has been Name and Title of Officer Authorized to Sign Report prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. Of the named bank do hereby declare that these Reports of Condition and Income (including the supporting schedules) have been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and are true to the best of my knowledge and believe. /s/ Youssef Nasr --------------------------------------------------------------- /s/ Gerald A. Ronning Director (Trustee) - ------------------------------------------------------------- /s/ Bernard J. Kennedy Signature of Officer Authorized to Sign Report --------------------------------------------------------------- Director (Trustee) 05/14/01 /s/ Sal H. Alfieri - ------------------------------------------------------------- --------------------------------------------------------------- Date of Signature Director (Trustee) - ------------------------------------------------------------------------------------------------------------------------------------ Submission of Reports Each Bank must prepare its Reports of Condition and Income For electronic filing assistance, contact EDS Call report either: Services, 2150 N. Prospect Ave., Milwaukee, WI 53202, telephone (800) 255-1571. (a) in electronic form and then file the computer data file directly with the banking agencies' collection agent, To fulfill the signature and attestation requirement for the Electronic Data System Corporation (EDS), by modem or Reports of Condition and Income for this report date, attach computer diskette; or this signature page to the hard-copy the completed report that the bank places in its files. b) in hard-copy (paper) form and arrange for another party to convert the paper report to automated for. That party (if other than EDS) must transmit the bank's computer data file to EDS. - ------------------------------------------------------------------------------------------------------------------------------------ FDIC Certificate Number 0 0 5 8 9 ---------------------- (RCRI 9030) - ------------------------------------------------------------ http://WWW.BANKING.US.HSBC.COM HSBC Bank USA - ------------------------------------------------------------ --------------------------------------------------------------- Primary Internet Web Address of Bank (Home Page), if any Legal Title of Bank (TEXT 9010) (TEXT 4087)(Example: www.examplebank.com) Buffalo --------------------------------------------------------------- City (TEXT 9130) N.Y. 14203 --------------------------------------------------------------- State Abbrev. (TEXT 9200) ZIP Code (TEXT 9220)
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency REPORT OF CONDITION Consolidated domestic subsidiaries HSBC Bank USA of Buffalo - -------------------------------------------------------------------------------- Name of Bank City in the state of New York, at the close of business June 30, 2001
ASSETS Thousands of dollars Cash and balances due from depository institutions: ------------------------ Non-interest-bearing balances currency and coin $ 1,798,225 - ----------------------------------------------------------------------------------------- Interest-bearing balances 3,626,235 - ----------------------------------------------------------------------------------------- Held-to-maturity securities 4,643,408 - ----------------------------------------------------------------------------------------- Available-for-sale securities 12,858,449 - ----------------------------------------------------------------------------------------- Federal funds sold and securities purchased under agreements to resell 3,338,625 - ----------------------------------------------------------------------------------------------------------------- Loans and lease financing receivables: ------------------------ Loans and leases held for sale $ 2,707,945 - ----------------------------------------------------------------------------------------------------------------- Loans and leases net of unearned income $ 39,126,969 - ------------------------------------------------------------------------------------------ LESS: Allowance for loan and lease losses 511,902 - ----------------------------------------------------------------------------------------------------------------- Loans and lease, net of unearned income, allowance, and reserve $ 38,615,067 - ------------------------------------------------------------------------------------------ Trading assets 8,656,314 - ------------------------------------------------------------------------------------------ Premises and fixed assets 790,761 - ------------------------------------------------------------------------------------------ Other real estate owned 18,451 - ------------------------------------------------------------------------------------------ Investments in unconsolidated subsidiaries 238,203 - ------------------------------------------------------------------------------------------ Customers' liability to this bank on acceptances outstanding 102,403 - ------------------------------------------------------------------------------------------ Intangible assets: Goodwill 2,308,594 - ------------------------------------------------------------------------------------------ Intangible assets: Other intangible assets 330,151 - ------------------------------------------------------------------------------------------ Other assets 2,789,792 - ------------------------------------------------------------------------------------------ Total assets 82,822,623 - -----------------------------------------------------------------------------------------------------------------
LIABILITIES Deposits: ------------------ In domestic offices 37,686,457 ------------------ - ------------------------------------------------------------------------------------------------- Non-interest-bearing 5,102,134 - -------------------------------------------------------------------------------- Interest-bearing 32,584,323 - ------------------------------------------------------------------------------------------------- In foreign offices 21,733,133 - -------------------------------------------------------------------------------- ------------------ Non-interest-bearing 361,092 - -------------------------------------------------------------------------------- Interest-bearing 21,372,041 - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 1,322,930 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- Trading Liabilities 3,583,989 - ------------------------------------------------------------------------------------------------- Other borrowed money 7,190,568 - ------------------------------------------------------------------------------------------------- Bank's liability on acceptances 102,403 - ------------------------------------------------------------------------------------------------- Subordinated notes and debentures 1,539,678 - ------------------------------------------------------------------------------------------------- Other liabilities 2,714,144 - ------------------------------------------------------------------------------------------------------------------- Total liabilities 75,873,302 - -------------------------------------------------------------------------------- ------------------ Minority Interests in consolidated Subsidiaries 172 - ------------------------------------------------------------------------------------------------------------------- EQUITY CAPITAL - ------------------------------------------------------------------------------------------------------------------- Perpetual preferred stock and related surplus - - ------------------------------------------------------------------------------------------------- Common Stock 205,000 - ------------------------------------------------------------------------------------------------- Surplus 6,382,026 - ------------------------------------------------------------------------------------------------- Retained earnings 323,672 - ------------------------------------------------------------------------------------------------- Accumulated other comprehensive income 38,451 - ------------------------------------------------------------------------------------------------- Other equity capital components - - ------------------------------------------------------------------------------------------------- Total equity capital 6,949,149 - ------------------------------------------------------------------------------------------------- Total liabilities, minority interests and equity capital 82,822,623 - -------------------------------------------------------------------------------------------------------------------
EX-99.1 13 dex991.txt FORM OF CONSENT AVIATION SALES COMPANY CONSENT AND LETTER OF TRANSMITTAL TO EXCHANGE AND TO GIVE CONSENT IN RESPECT OF 8-1/8% SENIOR SUBORDINATED NOTES DUE 2008 (CUSIP No.: 053672-AA-9) THE EXCHANGE OFFER AND CONSENT SOLICITATION WILL EXPIRE AT 5:00 PM, NEW YORK CITY TIME ON , 2001, UNLESS EXTENDED OR EARLIER TERMINATED (SUCH DATE, AS THE SAME MAY BE EXTENDED, THE "EXPIRATION DATE"). HOLDERS OF OLD NOTES MUST VALIDLY DELIVER THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER ON OR PRIOR TO THE EXPIRATION DATE IN ORDER TO RECEIVE THE EXCHANGE OFFER CONSIDERATION AND AUTOMATICALLY CONSENT TO THE PROPOSED AMENDMENTS TO THE INDENTURE AND WAIVER OF DEFAULTS UNDER THE INDENTURE. CONSENTS MAY BE REVOKED AND OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. The Exchange Agent for the Exchange Offer and Consent Solicitation is: HSBC Bank USA By Registered or Certified Mail: By Hand or Overnight Delivery: HSBC Bank USA Issuer Services 452 Fifth Avenue New York, NY 10018 Attention: ________________ Attention: ________________ By Facsimile Transmission: (for Eligible Institutions Only) To Confirm By Telephone or For Information Call: (toll-free) or (collect) DELIVERY OF THIS CONSENT AND LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. The instructions contained herein and in the prospectus and consent solicitation dated , 2001, (as it may be amended and supplemented from time to time the "prospectus") should be read carefully before this consent and letter of transmittal is completed. 1 HOLDERS WHO DESIRE TO EXCHANGE THEIR 8-1/8% SENIOR SUBORDINATED NOTES DUE DECEMBER 2008 (THE "OLD NOTES") PURSUANT TO THE EXCHANGE OFFER AND CONSENT SOLICITATION AND RECEIVE THE EXCHANGE OFFER CONSIDERATION ARE REQUIRED TO CONSENT TO THE PROPOSED AMENDMENTS TO THE INDENTURE WITH RESPECT TO SUCH OLD NOTES AND TO WAIVE THE CURRENTLY OUTSTANDING DEFAULT ARISING AS A RESULT OF OUR FAILURE TO PAY THE INTEREST PAYMENT DUE ON AUGUST 15, 2001 AND ANY OTHER DEFAULTS UNDER THE INDENTURE. THE COMPLETION, EXECUTION AND DELIVERY OF THIS CONSENT AND LETTER OF TRANSMITTAL CONSTITUTES A CONSENT TO THE PROPOSED AMENDMENTS AND A WAIVER OF DEFAULTS WITH RESPECT TO SUCH OLD NOTES. HOLDERS MAY NOT DELIVER CONSENTS WITHOUT EXCHANGING OLD NOTES. THE EXCHANGE OFFER AND CONSENT SOLICITATION IS MADE UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THE PROSPECTUS AND HEREIN. HOLDERS SHOULD CAREFULLY REVIEW THE INFORMATION SET FORTH THEREIN AND HEREIN. This consent and letter of transmittal is to be used by holders if: (i) certificates representing old notes are to be physically delivered to the exchange agent herewith by such holders, (ii) the exchange of old notes is to be made by book-entry transfer to the exchange agent's account at The Depositary Trust Company ("DTC") pursuant to the procedures set forth in the prospectus under the caption "The Exchange Offer and Consent Solicitation-- Tender of old notes held through DTC," by any financial institution that is a participant in DTC and whose name appears on a security position listing as the owner of old notes, unless an agent's message is delivered in connection with such book-entry transfer, or (iii) the exchange of old notes is to be made according to the guaranteed delivery procedures set forth in the prospectus under the caption "The Exchange Offer and Consent Solicitation--Guaranteed delivery." Delivery of documents to DTC does not constitute delivery to the exchange agent. The undersigned has completed, executed and delivered this consent and letter of transmittal to indicate the action the undersigned desires to take with respect to the exchange offer and consent solicitation. The instructions included with this consent and letter of transmittal must be followed. Questions and requests for assistance or for additional copies of the prospectus, this consent and letter of transmittal and the notice of guaranteed delivery should be directed to HSBC Bank USA, the exchange agent for the exchange offer and consent solicitation at the address and telephone number set forth on the inside back cover page of this consent and letter of transmittal. See Instruction 13 below. Holders that are exchanging by book-entry transfer to the exchange agent's account at DTC can execute the exchange through the DTC Automated Tender Offer Program ("ATOP"), for which the transaction will be eligible. DTC participants that are accepting the exchange offer and consent solicitation must transmit their acceptance to DTC, which will verify the acceptance and execute a book- entry delivery to the Exchange Agent's DTC account. DTC will then send an agent's message to the exchange agent for its acceptance. DTC participants may also accept the exchange offer and consent solicitation by submitting a notice of guaranteed delivery through ATOP. If a holder desires to exchange old notes pursuant to the exchange offer and consent solicitation and: (i) certificates representing such old notes are not immediately available, (ii) time will not permit such holder's consent and letter of transmittal, certificates representing such old notes and all other required documents to reach the exchange agent on or prior to the expiration date or (iii) the procedures for book-entry transfer (including delivery of an agent's message) cannot be completed on or prior to the expiration date, such holder may nevertheless exchange such old notes with the effect that such exchange will be deemed to have been received on or prior to the expiration date. Holders may effect such an exchange of old notes in accordance with the guaranteed delivery procedures set forth in the prospectus under the caption "The Exchange Offer and Consent Solicitation--Guaranteed delivery." See Instruction 2 below. 2 In the event that the exchange offer and consent solicitation is withdrawn or otherwise not completed, the exchange offer consideration will not be paid or become payable to holders of old notes who have validly exchanged their old notes in connection with the exchange offer and consent solicitation and any such old notes will be returned to the exchanging holder. The exchange offer and consent solicitation is not being made to (nor will tenders of old notes be accepted from or on behalf of) holders in any jurisdiction in which the making or acceptance of the exchange offer and/or consent solicitation would not be in compliance with the laws of that jurisdiction. Tender of Old Notes - -------------------------------------------------------------------------------- [_] Check here if tendered old notes or other required documents are being delivered by book-entry transfer made to the account maintained by the exchange agent with DTC and complete the following: Name of Tendering Institution: _______________________________________ Account Number: ______________________________________________________ Transaction Code Number: _____________________________________________ Upon the terms and subject to the conditions of the exchange offer described in this consent and letter of transmittal and the accompanying prospectus, you can choose to exchange your old notes under either of the following options (the "exchange offer consideration"): . $303 in cash for each $1,000 principal amount of outstanding old notes, up to an aggregate maximum of $10 million in cash for $33 million in principal amount of old notes, or . $757.58 principal amount of 8% senior subordinated convertible PIK notes due 2006 (the "new notes"), 34.12 post-reverse split shares of our common stock and warrants to purchase 22.75 post-reverse split shares of our common stock (at an exercise price of $5.16 per share) for each $1,000 principal amount of outstanding old notes. Up to $10 million in cash will be exchanged for $33 million principal amount of old notes. If less than all of the outstanding old notes are exchanged, then the $10 million in cash available will be reduced $303 for every $1,000 principal amount of old notes not exchanged. If more than $33 million principal amount of old notes are tendered for cash, every additional $1,000 principal amount of old notes tendered will be exchanged for the combination of $757.58 principal amount of new notes, 34.12 post-reverse split shares of our common stock and warrants to purchase 22.75 post-reverse split shares of our common stock (at an exercise price of $5.16 per share). We will distribute up to $10 million in cash so that everyone who tenders old notes under this option will receive cash, new notes, common stock and warrants in the same proportion as everyone else who tenders old notes under this option. In the aggregate, up to $100 million principal amount of new notes, up to 4,504,595 post-reverse split shares of our common stock and up to 3,003,063 warrants to purchase post-reverse split shares of our common stock (at an exercise price of $5.16 per share) will be exchanged for $132 million in principal amount of old notes. If more than $132 million principal amount of old notes are tendered under the non-cash option, every additional $1,000 principal amount tendered will be exchanged for $303 in cash. We will distribute the new notes, common stock and warrants so that everyone who tenders under this option will receive new notes, common stock, warrants and cash in the same proportion as everyone else who tenders old notes under this option. You do not have to choose the same option for all the old notes that you tender. You do not have to tender all of the old notes to participate in this exchange offer and consent solicitation. However, this exchange offer and consent solicitation is conditioned on us receiving valid tenders of at least $132 million in aggregate principal amount of old notes. You may withdraw your tender of old notes or change your choice of consideration options at any time before the expiration of this exchange offer and consent solicitation. 3 List below the old notes to which this consent and letter of transmittal relates. If the space provided below is inadequate, list the certificate numbers and principal amounts on a separately executed schedule and affix the schedule to this consent and letter of transmittal. All exchanging holders of old notes should complete the boxes below. Description of old notes - --------------------------------------------------------------------------------
Item 1. Name(s) and address(es) of registered Holder(s) of old notes or name Principal of DTC participant and DTC Amount participant's DTC account Aggregate Tendered and number in which the old notes Principal as to which are held. (Please fill in Certificate Amount Consents are blank) Number(s)/1/ Represented/2/ Given/3/ - ----------------------------------------------------------------------------- Names (Please Print) $ $ - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Address - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- City, State and Zip Code - ----------------------------------------------------------------------------- Total principal amount of old notes exchanged $ $ $ - -----------------------------------------------------------------------------
/1/Need not be completed by holders of old notes exchanging by book-entry transfer. /2/Unless otherwise indicated in the column labeled "Principal Amount Tendered and as to which Consents Are Given" and subject to the terms and conditions set forth in the prospectus, a holder will be deemed to have tendered the entire aggregate amount indicated in the column labeled "Aggregate Principal Amount Represented." /3/For a valid tender, consent must be given for all old notes tendered. If no entry is made in this box, consents will be deemed to be given for all old notes tendered on or before the exchange offer expiration date. 4 Election as to form of exchange offer consideration for holders exchanging old notes - -------------------------------------------------------------------------------- Item 2. Special Issuance/Special Delivery Instructions. [_]Mark this box if, in the event that your old notes are not accepted for exchange, they should be returned to an account other than the account for which they were tendered. (Complete the "Special Payment/Delivery Instructions" below.) [_]Mark this box if you want to provide special delivery instructions for the exchange consideration to which you may be entitled. (Complete the "Special Payment/Delivery Instructions" below.) Item 3. Election as to form of consideration. If you are accepting the exchange offer, you may elect to receive either (1) $303 in cash up to an aggregate maximum of $10 million in cash for $33 million in principal amount of old notes, or (2) $757.58 principal amount of our new notes, 34.12 post-reverse split shares of our common stock and warrants to purchase 22.75 post-reverse split shares of our common stock (at an exercise price of $5.16 per share) for each $1,000 principal amount of old notes you hold. A. [_] Check this box if you want to exchange all of your old notes for $303 in cash for each $1,000 principal amount of old notes exchanged by you. If more than $33 million principal amount of old notes are exchanged for cash, every additional $1,000 principal amount of old notes exchanged will be exchanged for the combination of $757.58 principal amount of our new notes, 34.12 post-reverse split shares of common stock and warrants to purchase 22.75 post- reverse split shares of common stock (at an exercise price of $5.16 per share). B. [_] Check this box if you want to exchange all of your old notes in exchange for $757.58 principal amount of our new notes, 34.12 post- reverse split shares of common stock and warrants to purchase 22.75 post-reverse split shares of common stock (at an exercise price of $5.16 per share) for each $1,000 principal amount of old notes exchanged by you. C. [_] Check this box, and complete the remainder of this Item, if you hold more than $1,000 in aggregate principal amount of old notes and you wish to make a mixed election as to form of consideration. (1) Indicate the principal amount of your old notes for which you elect to receive only $303 in cash. (2) Indicate the principal amount of your old notes for which you elect to receive only new notes, common stock and warrants. (3) Total principal amount for which you are making this mixed election. (This amount is the total of Items 3C(1) and 3C(2) above and must be equal to the total principal amount of the registered holder's old notes being tendered as indicated in Item 1 above.) The names and addresses of the holders of old notes should be printed, if not already printed above, exactly as they appear on the certificates representing old notes that are being exchanged. 5 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: By the execution hereof, the undersigned acknowledges receipt of the prospectus and consent solicitation, dated December , 2001, (as it may be amended or supplemented from time to time, the "prospectus"), of Aviation Sales Company, a Delaware corporation, and this consent and letter of transmittal and instructions hereto (the "consent and letter of transmittal" and, together with the prospectus, the "exchange offer"), which together constitute: (i) our offer to exchange any and all of our $165,000,000 aggregate principal amount of our old notes, upon the terms and subject to the conditions set forth in the prospectus, and (ii) our solicitation (the "solicitation") of consents (the "consents") from each holder (each a "holder" and, collectively, the "holders") to certain proposed amendments (the "proposed amendments") to the indenture dated as of , (the "indenture"), among us, certain of its subsidiaries as guarantors and (the "trustee"), pursuant to which the old notes were issued, and a waiver of the currently outstanding default arising as a result of our failure to pay the interest payment due on August 15, 2001 and any other defaults under such indenture. The proposed amendments and proposed waiver will be set forth in a supplemental indenture to the indenture (the "supplemental indenture") which will be executed and delivered by us the trustee and the other parties to the indenture. Upon the terms and subject to the conditions of the exchange offer and consent solicitation, the undersigned hereby tenders to us the aggregate principal amount of old notes indicated above and consents to the proposed amendments. Subject to, and effective upon, the acceptance for exchange of, and payment of the exchange offer consideration for, the principal amount of old notes exchanged with this consent and letter of transmittal, the undersigned hereby sells, assigns and transfers to, or upon the order of, Aviation Sales Company, all right, title and interest in and to the old notes that are being exchanged hereby, waives any and all other rights with respect to the old notes (including without limitation, any existing or past defaults, including our failure to pay the interest payment due on August 15, 2001, and their consequences in respect of the old notes and the indenture under which the old notes were issued) and releases and discharges us from any and all claims the undersigned may have now, or may have in the future, arising out of, or related to, the old notes, including without limitation any claims that the undersigned is entitled to receive principal or interest payments with respect to the old notes or to participate in any redemption or defeasance of the old notes, and also consents to the proposed amendments (as defined in the prospectus). The undersigned hereby irrevocably constitutes and appoints the exchange agent true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that the exchange agent also acts as the agent of Aviation Sales Company) with respect to such old notes, with full power of substitution and re-substitution (such power- of-attorney being deemed to be an irrevocable power coupled with an interest) to: (i) present such old notes and all evidences of transfer and authenticity to, or transfer ownership of, such old notes on the account books maintained by the DTC to, or upon the order of, the Aviation Sales Company, (ii) present such old notes for transfer of ownership on the books of the Aviation Sales Company, (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such old notes and (iv) deliver to Aviation Sales Company and the trustee this consent and letter of transmittal on or prior to the expiration date as evidence of the undersigned's consent to the proposed amendments, and as certification that validly exchanged and not revoked consents from holders of not less than $132 million in aggregate principal amount of old notes (the "requisite consents") to the proposed amendments, duly executed by holders of such old notes, have been received, all in accordance with the terms and conditions of the exchange offer and the consent solicitation as described in the prospectus. Execution and delivery of this consent and letter of transmittal on or prior to the expiration date will also be deemed to constitute a consent to the proposed amendments. The undersigned agrees and acknowledges that, by the execution and delivery hereof, the undersigned makes and provides the written consent, with respect to the old notes exchanged hereby, to the proposed amendments and waiver as permitted by article nine of the indenture if this consent and letter of transmittal is 6 executed and delivered on or prior to the expiration date. The undersigned understands that the consent provided hereby shall remain in full force and effect until such consent is revoked in accordance with the procedures set forth in the prospectus and this consent and letter of transmittal, which procedures are hereby agreed to be applicable in lieu of any and all other procedures for revocation set forth in the indenture, which are hereby waived. Delivery on or prior to the expiration date of this consent and letter of transmittal constitutes delivery by the undersigned to Aviation Sales Company and the trustee pursuant to article nine of the indenture. The undersigned understands that consents may not be revoked after the expiration date. Although the supplemental indenture will be executed by us and the trustee promptly after the expiration date if the requisite consents have been obtained, the proposed amendments will not become operative until we accept for payment old notes tendered in the exchange offer, which is expected to occur, subject to all conditions to the exchange offer having been satisfied or waived, promptly after the expiration date. If the proposed amendments become operative, all persons who continue to hold old notes thereafter will be subject to the provisions of the indenture as amended by the proposed amendments (except that the extension of the grace period to pay interest and the waiver of any default to pay interest will not be effective against those holders of notes not consenting to that amendment or waiver). The undersigned understands that tenders of old notes and the deliveries of the related consents may be withdrawn or revoked by written notice of withdrawal or revocation, or a properly transmitted request message through ATOP received by the exchange agent at any time on or prior to the expiration date. Holders may not deliver consents without exchanging their old notes in the exchange offer. Holders may not withdraw previously exchanged old notes on or prior to the expiration date without revoking the previously delivered consents to which such tender relates. Holders may revoke consents on or prior to the expiration date, but a valid revocation will render an exchange of the holder's old notes defective. Unless we waive such defect (or unless the old notes are withdrawn and properly re-exchanged), the exchanging holder will not be eligible to receive the exchange offer consideration with respect to those old notes. In the event the exchange offer and consent solicitation is terminated, old notes exchanged prior to such termination will be returned to the exchanging holder promptly. If we make a material adverse change in the terms of the exchange offer or waive a material condition of the exchange offer, we will disseminate additional exchange offer materials in respect of the exchange offer and will extend the exchange offer to the extent required by law. If the consideration to be paid in the exchange offer is increased or decreased or the principal amount of the old notes subject to the exchange offer is decreased, the exchange offer will remain open at least ten business days from the date we first give notice to holders, by public announcement or otherwise, of such decrease. If the consent solicitation is amended in a manner determined by us, in our sole discretion, to constitute a material adverse change to the holders, we will promptly disclose such amendment and, if necessary, extend the consent solicitation for a period deemed by us to be adequate to permit holders of the old notes to withdraw their old notes and revoke their consents. In addition, we may, if we deem appropriate, extend the consent solicitation for any other reason. The undersigned understands that, in order to be valid, a notice of revocation of consent must contain the name of the person who delivered the consent and the description of the old notes to which the consent relates, the certificate number or numbers of such old notes (unless such old notes were exchanged by book-entry transfer) and the aggregate principal amount represented by the old notes, be signed by the holder thereof in the same manner as the original signature on this consent and letter of transmittal (including any required signature guarantee) or be accompanied by evidence satisfactory to us and the exchange agent that the person revoking the consent has the legal authority to withdraw such consent on behalf of the holder and be received by the exchange agent, at its address set forth on the first page of this consent and letter of transmittal, prior to the expiration date. A purported notice of revocation that lacks any of the required information or which is dispatched to an improper address will not validly revoke a consent previously given. Any withdrawal of previously exchanged old notes in any way other than in accordance with the provisions described herein and in the prospectus will not constitute a valid revocation of such holder's 7 consent. Any old notes validly exchanged and consents validly delivered and not withdrawn or revoked prior to the expiration date may not be withdrawn or revoked after the expiration date. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the old notes exchanged hereby and the consents contained herein, and that if and when such old notes are accepted for payment by us, we will acquire good title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim or right. The undersigned will, upon request, execute and deliver any additional documents deemed by the exchange agent or us to be necessary or desirable to complete the sale, assignment and transfer of the old notes exchanged hereby, to perfect the undersigned's consent to the proposed amendments and waiver of defaults and to complete the execution of the supplemental indenture providing for such proposed amendment. The undersigned understands that tenders of old notes pursuant to any of the procedures described in the prospectus and in the instructions hereto and acceptance for payment thereof by us will constitute a binding agreement between the undersigned and us, upon the terms and subject to the conditions of the exchange offer and the consent solicitation. For purposes of the exchange offer, the undersigned understands that we will be deemed to have accepted for payment validly tendered (or defectively tendered old notes with respect to which we have or have caused to be waived defect) old notes if, as and when we give oral or written notice thereof to the exchange agent. For purposes of the consent solicitation, consents received by the exchange agent will be deemed to have been accepted if, as and when we give written notice to the trustee of the receipt by the exchange agent of the requisite consents and the supplemental indenture is executed. The undersigned will, upon request, execute and deliver any additional documents deemed by us to be necessary or desirable to complete the sale, assignment and transfer of the old notes tendered hereby. The undersigned hereby represents and warrants that the undersigned is relying on the information contained in the accompanying prospectus and consent solicitation in making its investment decision with respect to the exchange offer and consent solicitation. The undersigned further acknowledges that neither we nor any person representing us has made any representation to it with respect to us, the exchange offer and consent solicitation or the issuance of the exchange consideration, other than the information contained in this prospectus and consent solicitation. The undersigned understands that our obligation to accept for payment, and to pay for, old notes validly exchanged pursuant to the exchange offer is conditioned upon the satisfaction of the conditions described under "The Exchange Offer and Consent Solicitation--Conditions to the exchange offer and consent solicitation," in the prospectus. Any old notes not accepted for payment will be returned promptly to the undersigned at the address set forth above unless otherwise indicated herein under "Special Delivery Instructions" below. All authority conferred or agreed to be conferred by this consent and letter of transmittal shall survive the death or incapacity of the undersigned and every obligation of the undersigned under this consent and letter of transmittal shall be binding upon the undersigned's heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives. The undersigned understands that the delivery and surrender of the old notes is not effective, and the risk of loss of the old notes does not pass to the exchange agent, until receipt by the exchange agent, whether through DTC's ATOP procedures for transfer or otherwise, of this consent and letter of transmittal (or a manually signed facsimile hereof) properly completed and duly executed, together with all accompanying evidences of authority and any other required documents in form satisfactory to us, or receipt of an agent's message. All questions as to the form of all documents and the validity (including time of receipt) and acceptance of exchanges and withdrawals of old notes and deliveries and revocations of consents will be determined by us, in our sole discretion, which determination shall be final and binding. 8 Unless otherwise indicated under "Special Payment Instructions" below, please issue a check from the exchange agent for any old notes exchanged hereby that are tendered for the limited cash option, and/or return any certificates representing old notes not exchanged or not accepted for payment, in the name(s) of the holder(s) appearing under "Description of Old Notes." In the event that both the Special Payment Instructions and the Special Delivery Instructions are completed, please issue the check for the exchange consideration, and/or return any certificates representing old notes not exchanged or not accepted for payment (and any accompanying documents, as appropriate), to the person or persons so indicated. In the case of a book- entry delivery of old notes, please credit the account maintained at DTC with any old notes not exchanged or not accepted for payment. The undersigned recognizes that Aviation Sales does not have any obligation pursuant to the Special Payment Instructions to transfer any old notes from the name of the holder thereof if Aviation Sales does not accept for payment any of the old notes so exchanged. SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instructions 5, 6, 7 and 8) (See Instructions 5, 6, 7 and 8) To be completed ONLY if To be completed ONLY if the certificates for old notes in a exchange offer consideration is to principal amount not accepted for be sent to someone other than the exchange are to be issued in the person or persons whose name of, or are to be issued to signature(s) appear(s) within this the order of, someone other than consent and letter of transmittal the person or persons whose to an address different from that signature(s) appear(s) within this shown in the box entitled consent and letter of transmittal "Description of old notes" within or issued to an address different this consent and letter of from that shown in the box transmittal. entitled "Description of old notes" within this consent and letter of transmittal, or if old notes exchanged by book-entry transfer that are not accepted for purchase are to be credited to an account maintained at DTC other than the one designated above. Deliver exchange offer consideration as follows: Name: _____________________________ (Please Print) Address: __________________________ (Please Print) Issue: 8- 1/8% Senior Subordinated Notes due 2008 ___________________________________ (Zip Code) Pay to the order of: ___________________________________ Name: _____________________________ (Taxpayer Identification or Social (Please Print) Security Number) Send Payment to: (See Substitute Form W-9 herein) Address: __________________________ (Please Print) ___________________________________ (Zip Code) ___________________________________ (Taxpayer Identification or Social Security Number) (See Substitute Form W-9 herein) Credit unpurchased old notes by book-entry to the account maintained at DTC set forth below. DTC Account Number ___________________________________ Number of Account Party ___________________________________ Dated: ____________________________ 9 PLEASE SIGN HERE (To be completed by all tendering and consenting holders) The completion, execution and delivery of this consent and letter of transmittal on or prior to the expiration date will be deemed to constitute a consent to the proposed amendments and a waiver of all defaults. This consent and letter of transmittal must be signed by the registered holder(s) of old notes exactly as their name(s) appear(s) on certificate(s) for old notes or, if tendered by book-entry transfer by a participant in DTC, exactly as such participant's name appears on a security position listing as the owner of old notes, or by person(s) authorized to become registered holder(s) by endorsements on certificates for old notes or by bond powers transmitted with this consent and letter of transmittal. Endorsements on old notes and signatures on bond powers by registered holders not executing this consent and letter of transmittal must be guaranteed by a medallion signature guarantor. (See Instructions 1 and 6 below). If the signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below under "Capacity" and submit evidence satisfactory to us of such person's authority to do so. See Instruction 6 below. If the signature appearing below is not of the registered holder(s) of the old notes, then the registered holder(s) must sign a valid proxy. (See Instructions 3 and 6 below) X ................................................................................ X ................................................................................ (Signature(s) of Holder(s) or Authorized Signatory) Dated: ........................................................................ Name (s): ........................................................................ (Please Print) Capacity: ........................................................................ Address: ........................................................................ (including Zip Code) Area Code and Telephone Number: ..................................................... Tax Identification or Social Security No. .................................................. PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN SIGNATURE GUARANTEE (See Instructions 1 and 6 below) Certain Signatures Must be Guaranteed by a Medallion Signature Guarantor ................................................................................ (Name of Medallion Signature Guarantor Guaranteeing Signature) ................................................................................ (Address (including zip code) and Telephone Number (including area code) of Firm) ................................................................................ (Authorized Signature) ................................................................................ (Printed Name) ................................................................................ (Title) Date: ........................................................................ 10 INSTRUCTIONS Forming Part of the Terms and Conditions of the Exchange Offer and Consent Solicitation 1. Guarantee of Signatures. Signatures on this consent and letter of transmittal must be guaranteed by a Medallion Signature Guarantor unless the old notes tendered thereby are tendered by a registered holder of old notes (or by a participant in DTC whose name appears on a security position listing as the owner of such old notes) who has not completed any of the boxes entitled "Special Payment Instructions" or "Special Delivery Instructions" in this consent and letter of transmittal, or for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. ("NASD") or a commercial bank or trust company having an office or correspondent in the United States (each of the foregoing being referred to as an "eligible institution"). If the old notes are registered in the name of a person other than the signer of the consent and letter of transmittal or if old notes not accepted for payment or not exchanged are to be returned to a person other than the registered holder, then the signature on this consent and letter of transmittal accompanying the tendered old notes must be guaranteed by a Medallion Signature Guarantor as described above. See Instruction 6. 2. Requirements of Tender. This consent and letter of transmittal must be completed by holders of old notes if certificates representing such old notes are to be forwarded herewith, or if delivery of such certificates is to be made by book-entry transfer to the account maintained by DTC, pursuant to the procedures set forth in the prospectus and consent solicitation under the caption "The Exchange Offer and Consent Solicitation--Procedures for exchanging old notes and delivering consents." For a holder to properly tender old notes and consent pursuant to the exchange offer and the consent solicitation, this properly completed and duly executed consent and letter of transmittal (or a manually signed facsimile thereof), together with any signature guarantees and any other documents required by these Instructions, must be received by the exchange agent at its address set forth herein on or prior to the expiration date, and either (i) certificates representing such old notes must be received by the exchange agent at its address or (ii) such old notes must be transferred pursuant to the procedures for book-entry transfer described in the prospectus and consent solicitation under the caption "The Exchange Offer and Consent Solicitation--Procedures for exchanging old notes and delivering consents," and a book-entry confirmation must be received by the exchange agent, on or prior to the expiration date. A holder who desires to exchange old notes and who cannot comply with procedures set forth herein for exchange on a timely basis or whose old notes are not immediately available must comply with the guaranteed delivery procedures discussed below. If a holder desires to exchange old notes pursuant to the exchange offer and consent solicitation and: (i) certificates representing such old notes are not immediately available, (ii) time will not permit such holder's consent and letter of transmittal, certificates representing such old notes and all other required documents to reach the exchange agent on or prior to the expiration date or (iii) the procedures for book-entry transfer cannot be completed on or prior to the expiration date, such holder may nevertheless exchange such old notes with the effect that such exchange will be deemed to have been received on or prior to the expiration date if the procedures set forth in the prospectus and consent solicitation under the caption "The Exchange Offer and Consent Solicitation--Procedures for exchanging old notes and delivering consent" are followed. Pursuant to such procedures: (i) the tender must be made by or through an eligible institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by us herewith, or an agent's message with respect to a guaranteed delivery that is accepted by us, must be received by the exchange agent on or prior to the expiration date and (iii) the certificates for the tendered old notes in proper form for transfer (or a book-entry confirmation of the transfer of such old notes into the exchange agent's account at DTC as described in the prospectus and consent solicitation), together with this consent and letter of transmittal (or manually signed facsimile thereof) properly completed and duly executed, with any required signature guarantees and any other documents required by the consent and letter of transmittal or a properly transmitted agent's message, must be received by the exchange agent within two business days after the date of execution of the Notice of Guaranteed Delivery. 11 The method of delivery of this consent and letter of transmittal, the old notes and all other required documents, including delivery through DTC and acceptance of an agent's message transmitted through ATOP, is at the election and risk of the exchanging holder. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed for such documents to reach the exchange agent. This consent and letter of transmittal and the old notes should be sent only to the exchange agent, not to Aviation Sales, the information agent, the dealer manager or the trustee. Delivery of documents to DTC does not constitute delivery to the exchange agent. No alternative, conditional or contingent exchanges shall be accepted. All exchanging holders, by execution of this consent and letter of transmittal (or a manually signed facsimile thereof) waive any right to receive any notice of the acceptance of their old notes for payment or the effectiveness of the proposed amendments. 3. Consents to Proposed Amendments and Waiver of Defaults. Holders who exchange old notes pursuant to the exchange offer and consent solicitation will automatically consent to the proposed amendments and waiver of defaults. A holder may not consent to the proposed amendments or waiver of defaults without exchanging the old notes related thereto. 4. Withdrawal of Tenders and Revocation of Consents. Tenders of old notes may be withdrawn at any time prior to the expiration date but not thereafter. A valid withdrawal of exchanged old notes made on or prior to the expiration date will constitute a concurrent valid revocation of such holder's related consent. Consents may be revoked at any time prior to the expiration date but not thereafter. Valid revocation of consents will render an exchange of old notes defective, and, unless we waive such defect (or unless the old notes are withdrawn and re-exchanged), the exchanging holder will not be eligible to receive the exchange offer consideration with respect to the old notes. Exchanges of old notes may be validly withdrawn if the exchange offer is terminated without any old notes being exchanged thereunder. In the event of a termination of the exchange offer, the old notes exchanged pursuant to the exchange offer will be promptly returned to the exchanging holder, the proposed amendments and waiver of defaults will not become operative and the consents will be deemed revoked. If the consent solicitation is amended on or prior to the expiration date in a manner determined by us to constitute a material adverse change to the holders, we will promptly disclose such amendment and, if necessary, extend the consent solicitation for a period deemed by us to be adequate to permit holders to withdraw their old notes and revoke their consents. In addition, we may extend the consent solicitation for any other reason. If we make a material change in the terms of the exchange offer or the information concerning the exchange offer or waive a material condition of the exchange offer, we will disseminate additional exchange offer materials and extend such exchange offer to the extent required by law. If the exchange offer consideration is decreased, the exchange offer will remain open at least ten business days from the date we first give notice to holders, by public announcement or otherwise, of such decrease. In addition, we may, if we deem appropriate, extend the exchange offer for any other reason. For a withdrawal of tendered old notes or the revocation of consents, as the case may be, to be effective, a written or facsimile transmission notice of withdrawal or revocation, or a properly transmitted "Request Message" through ATOP, must be received by the exchange agent on or prior to the expiration date at its address set forth on the cover of this consent and letter of transmittal. Any such notice of withdrawal must: (i) specify the name of the person who exchanged the old notes to be withdrawn or to which the revocation of consents relates, (ii) contain the description of the old notes to be withdrawn and identify the certificate number or numbers shown on the particular certificates evidencing such old notes (unless such old notes were exchanged by book-entry transfer) and the aggregate principal amount represented by such old notes and (iii) (other than a notice transmitted through ATOP) be signed by the holder of such old notes in the same manner as the original signature on the consent and letter of transmittal by which such old notes were exchanged (including any required signature guarantees) or the related consent was given, or be accompanied by (x) documents of transfer sufficient to have the trustee register the transfer of the old notes into the name of the person withdrawing such old notes and/or revoking such consent, (including, in the case of old notes 12 exchanged by book-entry transfer, the account at DTC to which such withdrawn old notes should be credited) and (y) a properly completed irrevocable proxy authorizing such person to effect such withdrawal on behalf of such holder. If the old notes to be withdrawn have been delivered or otherwise identified to the exchange agent, a signed notice of withdrawal is effective immediately upon written or facsimile notice of such withdrawal even if physical release is not yet effected. Any valid revocation of consents will automatically render the prior exchange of the old notes to which such consents relate defective and we will have the right, which we may waive, to reject such tender as invalid. Any permitted withdrawal of old notes and revocation of consents may not be rescinded. Any old notes properly withdrawn will thereafter be deemed not validly tendered and any consents revoked will be deemed not validly delivered for purposes of the exchange offer and consent solicitation, provided, however, that withdrawn old notes may be re-exchanged by again following one of the appropriate procedures described herein at any time on or prior to the expiration date. All questions as to the validity, form and eligibility (including time of receipt) of notices of withdrawal will be determined by us, in our sole discretion (whose determination shall be final and binding). None of Aviation Sales, the exchange agent, the dealer manager or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal of exchanges, or revocation of consents or incur any liability for failure to give any such notification. 5. Partial Tenders and Consents. Tenders of old notes pursuant to the exchange offer and consent solicitation (and the corresponding consents thereto pursuant to the consent solicitation) will be accepted only in principal amounts equal to $1,000 or integral multiples thereof. If less than the entire principal amount of any old notes evidenced by a submitted certificate is tendered, the tendering holder must fill in the principal amount exchanged in the last column of the box entitled "Description of old notes" herein. The entire principal amount represented by the certificates for all old notes delivered to the exchange agent will be deemed to have been exchanged and a related consent in respect thereof delivered unless otherwise indicated. If the entire principal amount of all old notes is not exchanged or not accepted for purchase, certificates for the principal amount of old notes not exchanged or not accepted for payment will be sent (or, if exchanged by book-entry transfer, returned by credit to the account at DTC designated herein) to the holder unless otherwise provided in the appropriate box in this consent and letter of transmittal (see Instruction 7) promptly after the old notes are accepted for purchase. 6. Signatures on this Consent and Letter of Transmittal, Bond Powers and Endorsement Guarantee of Signatures. If this consent and letter of transmittal is signed by the registered holder(s) of certificated old notes tendered hereby or with respect to which consent is given, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If this consent and letter of transmittal is signed by a participant in DTC whose name is shown as the owner of the old notes tendered hereby, the signature must correspond with the name shown on the security position listing the owner of the old notes. IF THIS CONSENT AND LETTER OF TRANSMITTAL IS EXECUTED BY A HOLDER OF OLD NOTES WHO IS NOT THE REGISTERED HOLDER, THEN THE REGISTERED HOLDER MUST SIGN A VALID PROXY, WITH THE SIGNATURE OF SUCH REGISTERED HOLDER GUARANTEED BY A MEDALLION SIGNATURE GUARANTOR, UNLESS THE SIGNATURE IS THAT OF AN ELIGIBLE INSTITUTION. IN ADDITION SUCH EXCHANGE MUST BE ACCOMPANIED BY A VALID CONSENT OR PROXY OF SUCH REGISTERED HOLDER(S), SINCE OLD NOTES MAY NOT BE EXCHANGED ON OR PRIOR TO THE EXPIRATION DATE WITHOUT A CONSENT TO THE PROPOSED AMENDMENTS AND ONLY REGISTERED HOLDER(S) ARE ENTITLED TO PROVIDE CONSENTS TO THE PROPOSED AMENDMENTS, SIGNATURES ON SUCH CONSENTS OR PROXY MUST BE GUARANTEED BY A MEDALLION SIGNATURE GUARANTOR UNLESS THE SIGNATURE IS THAT OF AN ELIGIBLE INSTITUTION. 13 If any of the old notes exchanged hereby (and with respect to which consent is given) are registered in the name of two or more joint holders, all such holders must sign this consent and letter of transmittal. If any old notes exchanged hereby are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this consent and letter of transmittal and any necessary accompanying documents as there are different names in which certificates are held. If this consent and letter of transmittal is signed by the registered holder, and the certificates for any principal amount of old notes not tendered or accepted for payment are to be issued (or if any principal amount of old notes that is not validly tendered or not accepted for payment is to be reissued or returned) to or, if tendered by book-entry transfer, credited to the account at DTC of the registered holder, and payments for the exchange offer consideration is to be made in connection with the exchange offer and consent solicitation are to be made or credited to the registered holder, then the registered holder need not endorse any certificates for tendered old notes, nor provide a separate bond power. In any other case (including if this consent and letter of transmittal is not signed by the registered holder), the registered holder of tendered old notes must either properly endorse the certificates for old notes tendered or transmit a separate properly completed bond power with this consent and letter of transmittal (in either case, executed exactly as the name(s) of the registered holder(s) appear(s) on such old notes, and, with respect to a participant in DTC whose name appears on a security position listing as the owner of old notes, exactly as the name(s) of the participant(s) appear(s) on such security position listing), with the signature on the endorsement or bond power guaranteed by a Medallion Signature Guarantor, unless such certificates or bond powers are executed by an Eligible Institution. See Instruction 1. If this consent and letter of transmittal or any certificates of old notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and the proper evidence satisfactory to us of their authority so to act, must be submitted with this consent and letter of transmittal. When this consent and letter of transmittal is signed by the registered holder(s) of the old notes listed and transmitted hereby, no endorsements of old notes or separate instruments of transfer are required unless payment is to be made, or old notes not validly tendered or purchased are to be issued, to a person other than the registered holder(s), in which case the signatures on such old notes or instruments of transfer must be guaranteed by a Medallion Signature Guarantor. Endorsements on certificates for old notes, signatures on bond powers and proxies provided in accordance with this Instruction 6 by registered holders not executing this consent and letter of transmittal must be guaranteed by a Medallion Signature Guarantor. See Instruction 1. 7. Special Payment and Special Delivery Instructions. Tendering holders should indicate in the applicable box or boxes the name and address to which old notes for principal amounts not tendered or not accepted for payment or checks constituting payments for the exchange offer consideration to be made in connection with the exchange offer and consent solicitation are to be issued or sent, if different from the name and address of the registered holder signing this consent and letter of transmittal. If old notes not validly tendered or not accepted for payment are to be credited to a different account at DTC, such special instructions must be indicated here and to DTC. In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. If no instructions are given, old notes not tendered or not accepted for payment will be returned to the registered holder of the old notes exchanged. For holders of old notes tendered by book- entry transfer, old notes not tendered or not accepted for payment will be returned by crediting the account at DTC designated above. 8. Taxpayer Identification Number. Each exchanging holder is required to provide the exchange agent with the holder's correct taxpayer identification number ("TIN"), generally the holder's social security or federal employer identification number, on Substitute Form W-9, which is provided following "Important Tax Information" below, or, alternatively, to establish another basis for exemption from backup withholding. A holder must cross out item (2) in the Certification box on Substitute Form W-9 if such holder is subject to 14 backup withholding. Failure to provide the exchange agent with either (i) the correct TIN and certificate of no loss of exemption from back up withholding or (ii) other adequate basis for exemption may subject the exchanging holder to a $50 penalty fee and to 31% federal income tax backup withholding on the payments made to the holder or other payee pursuant to the exchange offer and consent solicitation. The box in Part 3 of the Substitute Form W-9 should be checked if the exchanging holder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked and the exchange agent is not provided with a TIN within sixty days thereafter, the exchange agent will withhold 31% from any payments made with respect to the old notes to be purchased and remit such amounts to the Internal Revenue Service. 9. Transfer Taxes. We will pay or cause to be paid all transfer taxes applicable to the purchase and transfer of old notes to it pursuant to the exchange offer and consent solicitation, except in the case of deliveries of certificates for old notes for principal amounts not exchanged or not accepted for payment that are registered or issued in the name of any person other than the registered holder of old notes tendered hereby, in which case the amount of any transfer taxes payable on account of the transfer of old notes to such other person will be deducted from the exchange offer consideration unless satisfactory evidence of the payment of such taxes, or exemption therefrom is submitted. Except as provided in this Instruction 9, it will not be necessary for transfer stamps to be affixed to the certificates listed in this consent and letter of transmittal. 10. Irregularities. All questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance of any tendered old notes or delivery of consents or the withdrawal and revocation thereof pursuant to any of the procedures described above will be determined by us in our sole discretion (which determination shall be final and binding). We expressly reserve the absolute right, in our sole discretion, subject to applicable law, to reject any or all tenders of any old notes determined by us not to be in proper form or if the acceptance for payment of, or payment for, such old notes may, in the opinion of our counsel, be unlawful. We also reserve the absolute right, in our sole discretion, to waive any defect or irregularity with respect to any tender of old notes or delivery of consents of any particular holder, whether or not similar defects or irregularities are waived in the case of other holders. Our interpretation of the terms and conditions of the exchange offer and consent solicitation (including the consent and letter of transmittal and the Instructions thereto) will be final and binding. Any defect or irregularity in connection with exchanges of old notes or deliveries of consents must be cured within such time as we determine, unless waived by us and any such defective tenders or consents shall not be deemed to have been made until all defects or irregularities have been waived by us or cured. A defective tender (whose defect is not waived by us) will not constitute a valid consent. None of Aviation Sales, the exchange agent, the dealer manager, the information agent, the trustee or any other person will be under any duty to give notification of any defects or irregularities in exchanges or will incur any liability for failure to give any such notification. If we waive our right to reject a defective exchange of old notes, the holder will be entitled to the exchange offer consideration. 11. Waiver of Conditions. We reserve the right, in our sole discretion to waive any and all conditions to the exchange offer or consent solicitation and to accept for payment any note exchanged pursuant to the exchange offer and consent solicitation. Subject to compliance with applicable securities laws and the terms set forth in the prospectus, and in this consent and letter of transmittal, we reserve the right to extend or terminate the exchange offer and the solicitation, or to otherwise amend the exchange offer and consent solicitation in any respect. 12. Mutilated, Lost, Stolen or Destroyed Certificates. Any holder of old notes whose certificates for old notes have been mutilated, lost, stolen or destroyed should write to or telephone whose address and telephone number appears below: Attention: . 13. Requests for Assistance or Additional Copies. Questions relating to the procedure for tendering old notes and consenting to the proposed amendments, requests for assistance or additional copies of the prospectus and consent solicitation and this consent and letter of transmittal may be directed to, and additional information about the exchange offer and consent solicitation may be obtained from, either the dealer manager or the information agent, whose addresses and telephone numbers appear below. 15 IMPORTANT TAX INFORMATION Under United States federal income tax laws, a holder whose exchanged old notes are accepted for payment is required to provide the exchange agent (as payer) with such holder's correct TIN on Substitute Form W-9 below or otherwise establish a basis for exemption from backup withholding. If such holder is an individual, the TIN is his social security number. If the exchange agent is not provided with the TIN, a $50 penalty may be imposed by the Internal Revenue Service, and payments made with respect to old notes purchased pursuant to the exchange offer and consent solicitation may be subject to backup withholding. Failure to comply truthfully with the backup withholding requirements also may result in the imposition of severe criminal and/or civil fines and penalties. Certain holders (including, among others, all corporations and certain foreign persons) are not subject to these backup-withholding requirements. Exempt holders should furnish their TIN, write "Exempt" on the face of the Substitute Form W-9, and sign, date and return the Substitute Form W-9 to the exchange agent. A foreign person, including entities, may qualify as an exempt recipient by submitting to the exchange agent a properly completed Internal Revenue Service Form W-8, signed under penalties of perjury, attesting to that holder's foreign, exempt status. A Form W-8 can be obtained from the exchange agent. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. If backup withholding applies, the exchange agent is required to withhold 31% of any payments made to the holder or other payee. Backup withholding is not an additional United States federal income tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service, provided the required information is provided to the Internal Revenue Service. Purpose of Substitute Form W-9 To prevent backup withholding on payments made with respect to old notes purchased pursuant to the exchange offer and consent solicitation, the holder is required to provide the exchange agent with either: (i) the holder's correct TIN by completing the form below, certifying that the TIN provided on Substitute Form W-9 is correct (or that such Holder is awaiting a TIN) and that (a) the holder has not been notified by the Internal Revenue Service that the Holder is subject to backup withholding as a result of failure to report all interest or dividends or (b) the Internal Revenue Service has notified the holder that the holder is no longer subject to backup withholding, or (ii) the holder establishes an adequate basis for exemption. A nonexempt holder may check the box in Part 3 of the attached Substitute Form W-9 if such holder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If a nonexempt holder checks the box in Part 3, such holder must also complete the attached certificate of awaiting taxpayer identification number in order to prevent backup withholding. In the event that such holder fails to provide a TIN to the exchange agent within sixty days, the exchange agent must backup withhold 31% of the payments made to such holder. What Number to Give the Exchange Agent The holder is required to give the exchange agent the TIN (e.g., social security number or employer identification number) of the registered holder of the old notes. If the old notes are held in more than one name or are not held in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. 16 PAYER'S NAME: AVIATION SALES COMPANY Part 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND ---------------------- SUBSTITUTE CERTIFY BY SIGNING AND Social security number Form W-9 DATING BELOW. OR ---------------------- Department of Employer identification the Treasury number Internal (1) The number shown on this form is my correct Revenue Taxpayer Identification Number (or I am waiting Service for a number to be issued to me); and -------------------------------------------------------- Part 2--Certification--Under Penalties of Perjury, I certify that: (2) I am not subject to backup withholding because: (a) I am exempt from back-up withholding, (b) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup Payer's Request for withholding as a result of failure to report all Taxpayer interest or dividends, or (c) the IRS has Identification notified me that I am no longer subject to backup Number ("TIN") withholding. Part 3 Certification Instructions--You must Awaiting cross out item (2) in Part 2 above if TIN [_] you have been notified by the IRS that you are subject to backup with- holding because you have failed to report interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you re- ceived another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out item (2). -------------------------------------------------------- ---------------- Part 4 Exempt from Backup Withholding [_] Signature: _____________ Date: ______ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER AND CONSENT SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 17 YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalty of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number within sixty days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. Signature: ______________________________________ Date: Name: _______________________________________________________________________ (Please Print) 18 The Exchange Agent for the Exchange Offer and Consent Solicitation: HSBC Bank USA ---------------- By Registered or Certified Mail: By Hand or Overnight Delivery: HSBC Bank USA Issuer Services 452 Fifth Avenue New York, NY 10018 Attention: __________________ Attention: _________________ By Facsimile Transmission: (for Eligible Institutions Only) ---------------- To Confirm By Telephone or For Information Call: ---------------- (toll-free) or (collect) Any questions or requests for assistance or additional copies of the prospectus, this consent and letter of transmittal or the notice of guaranteed delivery may be directed to the dealer manager at the telephone numbers and address listed below. A holder may also contact such holder's broker, dealer, commercial bank or trust company or nominee for assistance concerning the exchange offer and consent solicitation. The Dealer Manager for the Exchange Offer and Consent Solicitation is: HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL 685 Third Avenue, 15th Floor New York, New York 10017-4024 Telephone: (212) 497-4100 (collect) 19 EX-99.2 14 dex992.txt FORM OF LETTER TO CLIENTS AVIATION SALES COMPANY NOTICE Dated , 2001 of EXCHANGE OFFER FOR AND CONSENT SOLICITATION WITH RESPECT TO ALL OF ITS OUTSTANDING 8 1/8% SENIOR SUBORDINATED NOTES DUE 2008 THE EXCHANGE OFFER AND CONSENT SOLICITATION WILL EXPIRE AT 5:00 PM, NEW YORK CITY TIME ON , 2001, UNLESS EXTENDED OR EARLIER TERMINATED (SUCH DATE, AS THE SAME MAY BE EXTENDED, THE "EXPIRATION DATE"). HOLDERS OF OLD NOTES MUST VALIDLY DELIVER THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER ON OR PRIOR TO THE EXPIRATION DATE IN ORDER TO RECEIVE THE EXCHANGE OFFER CONSIDERATION AND AUTOMATICALLY CONSENT TO THE PROPOSED AMENDMENTS TO THE INDENTURE AND WAIVER OF DEFAULTS UNDER THE INDENTURE. CONSENTS MAY BE REVOKED AND OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. To Our Clients: Enclosed for your consideration is material relating to the offer (the "Exchange Offer") and the solicitation of consents (the "Consent Solicitation") by Aviation Sales Company (the "Company") to exchange, at your election: (i) $303 in cash for each $1,000 principal amount of 8% senior subordinated notes due 2008 (the "Old Notes") tendered and accepted for exchange, up to an aggregate maximum of $10 million in cash for $33 million in principal amount of Old Notes; or (ii) $757.58 principal amount of 8% senior subordinated convertible PIK notes due 2006 (the "New Notes"), 34.12 post-reverse split shares of Company common stock and warrants to purchase 22.75 post-reverse split shares of Company common stock (at an exercise price of $5.16 per share) for each $1,000 principal amount of Old Notes tendered and accepted for exchange, as described in the Prospectus and Consent Solicitation dated , 2001, (as it may be amended and supplemented from time to time the "Prospectus") under the caption "The Exchange Offer and Consent Solicitation--Terms of the exchange offer and consent solicitation." In addition, in conjunction with the Exchange Offer, the Company is also soliciting (the "Solicitation") consents (the "Consents") for certain proposed amendments (the "Proposed Amendments") to the Indenture dated as of February 17, 1998, among the Company, certain of its subsidiaries as guarantors and the SunTrust Bank Central Florida, National Association, as Trustee (the "Indenture") and a waiver (the "Waiver") of the currently outstanding default arising as a result of the Company's failure to pay the interest due on August 15, 2001 and any other defaults under the Indenture. The Proposed Amendments and Waiver will be set forth in a supplemental indenture to the Indenture (the "Supplemental Indenture"), which will be executed and delivered by the Company, the Trustee and the other parties to the Indenture. If the Proposed Amendments become operative, all persons who continue to hold Old Notes thereafter will be subject to the provisions of the Indenture as amended by the Proposed Amendments (except that the extension of the grace period to pay interest and the waiver of any default to pay interest will not be effective against those holders of Old Notes not consenting to that amendment or waiver). By exchanging Old Notes, you will automatically Consent to the Proposed Amendments to, and Waiver under, the Indenture governing the Old Notes. A holder may not Consent to the Proposed Amendments and Waiver without exchanging the Old Notes related thereto. If more than $33 million principal amount of Old Notes are exchanged for cash, every additional $1,000 principal amount of Old Notes tendered will be exchanged for the combination of $757.58 principal amount of New Notes, 34.12 post-reverse split shares of Company common stock and warrants to purchase 22.75 post-reverse split shares of Company common stock (at an exercise price of $5.16 per share). The Company will distribute the $10 million in cash so that everyone who exchanges Old Notes for cash will receive cash, New Notes, common stock and warrants in the same proportion as everyone else who exchanges Old Notes for cash. If more than $132 million in principal amount of Old Notes are tendered for New Notes, common stock and warrants, every additional $1,000 principal amount of Old Notes tendered will be exchanged for $303 in cash. The Company will distribute the New Notes, common stock and the warrants so that everyone who tenders under this option will receive New Notes, common stock, warrants and cash in the same proportion as everyone else who tenders Old Notes under this option. This material relating to the Exchange Offer and Consent Solicitation is being forwarded to you as the beneficial owner of Old Notes carried by us for your account or benefit but not registered in your name. An exchange of any Old Notes and the subsequent automatic Consent with respect to any Old Notes may only be made by us as the registered Holder and pursuant to your instructions. Therefore, the Company urges beneficial owners of Old Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee to contact such registered Holder promptly if they wish to exchange Old Notes pursuant to the Exchange Offer and therefore automatically Consent to the Proposed Amendments to, and Waiver under, the Indenture. We urge you to read carefully the Prospectus, the Consent and Letter of Transmittal and the other materials provided herewith before instructing us to exchange your Old Notes. Your instructions to us should be forwarded as promptly as possible in order to permit us to exchange Old Notes and Consent on your behalf in accordance with the provisions of the Exchange Offer and Consent Solicitation. Please note that exchanges of Old Notes must be received by the Expiration Date to receive the exchange offer consideration, and the Exchange Offer will expire at 5:00 p.m., New York City time, on , 2001, unless extended by the Company. Your attention is directed to the following: 1. The Exchange Offer is for any and all of the Old Notes. 2. The Exchange Offer is subject to the conditions described in the Prospectus under the caption "The Exchange Offer and Consent Solicitation--Conditions to the exchange offer and consent solicitation. 3. If you desire to exchange any Old Notes pursuant to the Exchange Offer and receive the exchange offer consideration, we must receive your instructions in ample time to permit us to effect an exchange of Old Notes on your behalf on or prior to 5:00 p.m., New York City time on the Expiration Date. 4. You may not validly exchange Old Notes without delivering a Consent to the Proposed Amendments and Waiver. You may not validly deliver a Consent to the Proposed Amendments and Waiver without exchanging your Old Notes in the Exchange Offer. If you wish to have us exchange your Old Notes held by us for your account or benefit and deliver your Consent, please so instruct us by completing, executing and returning to us the instruction form that appears below, allowing sufficient time for us to submit an exchange on your behalf prior to the Expiration Date. The accompanying Consent and Letter of Transmittal is furnished to you for informational purposes only and may not be used by you to exchange Old Notes held by us and registered in our name for your account. 2 You may withdraw exchanges of Old Notes at any time before the Expiration Date of the Exchange Offer, but the exchange offer consideration will not be issuable in exchange for Old Notes so withdrawn. A valid withdrawal of your Old Notes will also constitute a revocation of your Consent to the Proposed Amendments to, and Waiver under, the Indenture. Any permitted withdrawal of Old Notes may not be rescinded, and any Old Note properly withdrawn will afterwards be deemed not validly exchanged for purposes of the Exchange Offer. Withdrawn Old Notes may, however, be re-exchanged by again following one of the appropriate procedures described in the Prospectus at any time before the Expiration Date of the Exchange Offer. Consents may be revoked prior to the Expiration Date, but a valid revocation of your Consent will also constitute a withdrawal of your Old Notes for exchange pursuant to the Exchange Offer. 3 INSTRUCTIONS WITH RESPECT TO EXCHANGE OFFER AND CONSENT SOLICITATION The undersigned acknowledge(s) receipt of your letter dated , 2001, and the enclosed materials referred to therein relating to the Exchange Offer and the Consent Solicitation with respect to the Company's Old Notes. This will instruct you to exchange the principal amount of Old Notes indicated below held by you for the account or benefit of the undersigned and automatically deliver the undersigned's Consent to the Proposed Amendments to, and Waiver under, the Indenture governing the Old Notes with respect to the principal amount of Old Notes indicated below, pursuant to the terms of and conditions set forth in the Prospectus and the Consent and Letter of Transmittal. AVIATION SALES COMPANY Principal Amount of Old Notes, with respect to which Consent to the Proposed Amendments and Waiver is given, and which are to be exchanged unless otherwise indicated: Principal Amount Exchanged:* $ ------------------------------------- $ ------------------------------------- Total Principal Amount Exchanged: $ ------------------------------------- Form of Exchange Offer Consideration: Cash ---------------------------------- New Notes, common stock, and warrants ----------------------------- PLEASE SIGN HERE - -------------------------------------------------------------------------------- Signature(s) - -------------------------------------------------------------------------------- Name(s) (Please Print) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Address - -------------------------------------------------------------------------------- City, State and Zip Code - -------------------------------------------------------------------------------- Area Code and Telephone No. - -------------------------------------------------------------------------------- Tax Identification or Social Security No. - -------------------------------------------------------------------------------- My Account Number With You Date: --------------------------------------------------------------------------- - -------- * I (we) understand that if I (we) sign this instruction form without indicating an aggregate principal amount of Old Notes in the space above, all Old Notes held by you for my (our) account will be exchanged, regardless of the principal amount listed above, and that I (we) will be deemed to automatically Consent to the Solicitation. 4 EX-99.3 15 dex993.txt FORM OF LETTER TO BROKER AVIATION SALES COMPANY NOTICE Dated , 2001 of EXCHANGE OFFER FOR AND CONSENT SOLICITATION WITH RESPECT TO ALL OF ITS OUTSTANDING 8 1/8% SENIOR SUBORDINATED NOTES DUE 2008 THE EXCHANGE OFFER AND CONSENT SOLICITATION WILL EXPIRE AT 5:00 PM, NEW YORK CITY TIME ON , 2001, UNLESS EXTENDED OR EARLIER TERMINATED (SUCH DATE, AS THE SAME MAY BE EXTENDED, THE "EXPIRATION DATE"). HOLDERS OF OLD NOTES MUST VALIDLY DELIVER THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER ON OR PRIOR TO THE EXPIRATION DATE IN ORDER TO RECEIVE THE EXCHANGE OFFER CONSIDERATION AND AUTOMATICALLY CONSENT TO THE PROPOSED AMENDMENTS TO THE INDENTURE AND WAIVER OF DEFAULTS UNDER THE INDENTURE. CONSENTS MAY BE REVOKED AND OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. To:Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees: Enclosed for your consideration is material relating to the offer (the "Exchange Offer") and the solicitation of consents (the "Consent Solicitation") by Aviation Sales Company (the "Company") to exchange, at your election: (i) $303 in cash for each $1,000 principal amount of 8 1/8% senior subordinated notes due 2008 (the "Old Notes") tendered and accepted for exchange, up to an aggregate maximum of $10 million in cash for $33 million in principal amount of Old Notes; or (ii) $757.58 principal amount of 8% senior subordinated convertible PIK notes due 2006, (the "New Notes"), 34.12 post-reverse split shares of Company common stock and warrants to purchase 22.75 post- reverse split shares of Company common stock (at an exercise price of $5.16 per share) for each $1,000 principal amount of Old Notes tendered and accepted for exchange, as described in the Prospectus and Consent Solicitation dated , 2001, (as it may be amended and supplemented from time to time the "Prospectus") under the caption "The Exchange Offer and Consent Solicitation--Terms of the exchange offer and consent solicitation." In addition, in conjunction with the Exchange Offer, the Company is also soliciting (the "Solicitation") consents (the "Consents") for certain proposed amendments (the "Proposed Amendments") to the Indenture dated as of February 17, 1998, among the Company, certain of its subsidiaries as guarantors and SunTrust Bank Central Florida, National Association, as Trustee (the "Indenture") and a waiver (the "Waiver") of the currently outstanding default arising as a result of the Company's failure to pay the interest due on August 15, 2001 and any other defaults under the Indenture. The Proposed Amendments and Waiver will be set forth in a supplemental indenture to the Indenture (the "Supplemental Indenture"), which will be executed and delivered by the Company, the Trustee and the other parties to the Indenture. If the Proposed Amendments become operative, all persons who continue to hold Old Notes thereafter will be subject to the provisions of the Indenture as amended by the Proposed Amendments (except that the extension of the grace period to pay interest and the waiver of any default to pay interest will not be effective against those holders of Old Notes not consenting to that amendment or waiver). By exchanging Old Notes, you will automatically consent to the Proposed Amendments to, and Waiver under, the Indenture governing the Old Notes. A Holder may not Consent to the Proposed Amendments and Waiver without exchanging the Old Notes related thereto. If more than $33 million principal amount of Old Notes are exchanged for cash, every additional $1,000 principal amount of Old Notes tendered will be exchanged for the combination of $757.58 principal amount of New Notes, 34.12 post-reverse split shares of Company common stock and warrants to purchase 22.75 post-reverse split shares of Company common stock (at an exercise price of $5.16 per share). The Company will distribute the $10 million in cash so that everyone who exchanges Old Notes for cash will receive cash, New Notes, common stock and warrants in the same proportion as everyone else who exchanges Old Notes for cash. If more than $132 million in principal amount of Old Notes are tendered for New Notes, common stock and warrants, every additional $1,000 principal amount of Old Notes tendered will be exchanged for $303 in cash. The Company will distribute the New Notes, common stock and warrants so that everyone who tenders under this option will receive New Notes, common stock, warrants and cash in the same proportion as everyone else who tenders Old Notes under this option. For your information and for forwarding to your clients for whom you hold Old Notes registered in your name or in the name of your nominee, we are enclosing the following documents: 1. Prospectus dated , 2001. 2. A Consent and Letter of Transmittal for your use and for the information of your clients in accepting the Exchange Offer and Consent Solicitation. The Consent and Letter of Transmittal will enable your clients to exchange all Old Notes that they own and thereby automatically deliver the related Consents. 3. A printed form of letter, including a Letter of Instructions, which may be sent to your clients for whose accounts you hold Old Notes registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Exchange Offer and Consent Solicitation. 4. A Notice of Guaranteed Delivery for each of the Old Notes to be used to accept the Exchange Offer and Consent Solicitation if the Old Notes and all other required documents cannot be delivered to (the "Exchange Agent") by the Expiration Date. 5. Guidelines for Certification of Taxpayer Identification Number of Substitute Form W-9, providing information relating to backup United States federal income tax withholding together with a Substitute Form W- 8 for non-U.S. holders of Old Notes. DTC participants will be able to execute exchanges through the DTC Automated Tender Offer Program ("ATOP"). In all cases, payment of the exchange offer consideration for Old Notes accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates evidencing such Old Notes (or a confirmation of book-entry transfer of such Old Notes to the Exchange Agent's account at DTC), a Consent and Letter of Transmittal (or a signed facsimile thereof) properly completed and duly executed (whether through DTC's ATOP procedure or otherwise), and any other required documents in accordance with the instructions contained in the Consent and Letter of Transmittal. The Company will not pay any fees or commissions to any broker, dealer, commercial bank, trust company or other nominees (other than the Exchange Agent, and the Dealer Manager, as described in the Prospectus) in connection with the Solicitation for the exchange of Old Notes and Consents pursuant to the Exchange Offer and Consent Solicitation. However, the Company will reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. The Company will pay all transfer taxes to purchase and transfer the Old Notes pursuant to the Exchange Offer, except as provided in Instruction 9 of the Consent and Letter of Transmittal. 2 We urge you to contact your clients as promptly as possible in order to obtain their instructions. Any inquiries you may have with respect to the Exchange Offer and Consent Solicitation should be addressed to HSBC Bank USA, the Exchange Agent at the telephone number and address set forth on the back page of the Consent and Letter of Transmittal. Additional copies of the enclosed materials may be obtained from us or the Exchange Agent. Very truly yours, AVIATION SALES COMPANY NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS THE AGENT OF THE COMPANY, THE DEALER MANAGER, OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED HEREIN AND THEREIN IMPORTANT: The Consent and Letter of Transmittal (or a facsimile), together with Old Notes and all other required documents must be received by the Exchange Agent on or before the Expiration Date in order for holders to receive cash and New Notes in the Exchange Offer. 3 EX-99.4 16 dex994.txt FORM OF NOTICE Notice of Guaranteed Delivery for Exchange of 8 1/8% Senior Subordinated Notes Due 2008 of Aviation Sales Company As set forth under "The Exchange Offer and Consent Solicitation--Procedures for exchanging old notes and delivering consents," of the prospectus and consent solicitation dated , 2001, (as it may be amended or supplemented from time to time, the "Prospectus"), this form or one substantially equivalent hereto must be used to accept the exchange offer (as defined below) if certificates for 8 1/8% senior subordinated notes due 2008, (the "Old Notes") are not immediately available, or if the procedure for book- entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the exchange agent (as defined below) at the address set forth below prior to the expiration date (as defined in the prospectus). This form may be delivered by hand to the exchange agent or transmitted by telegram, facsimile transmission or mail to the exchange agent and must include a guarantee by an eligible institution (as defined in the Prospectus). See "Procedures for exchanging old notes and delivering consents," in the Prospectus. The Exchange Agent for the Exchange Offer and Consent Solicitation is: HSBC Bank USA By Registered or Certified Mail: By Hand or Overnight Delivery: HSBC Bank USA Issuer Services 452 Fifth Avenue New York, NY 10018 Attention: ______________________ Attention: _____________________ By Facsimile Transmission: (for Eligible Institutions Only) To Confirm By Telephone or For Information Call: (toll-free) or (collect) DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on a consent and letter of transmittal is required to be guaranteed by an eligible institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the consent and letter of transmittal. Ladies and Gentlemen: The undersigned hereby tenders to Aviation Sales Company, a Delaware corporation (the "Company"), upon the terms and subject to the conditions set forth in the Prospectus, and the related consent and letter of transmittal (together with the Prospectus, the "Exchange Offer"), receipt of which is hereby acknowledged, the aggregate principal amount of Old Notes set forth below, all pursuant to the guaranteed delivery procedures set forth under, "Procedures for tendering notes and delivering consents," of the Prospectus. All capitalized terms used herein but not defined shall have the meanings ascribed to them in the Prospectus. Aggregate Principal Amount of Old Notes Tendered for Exchange (must be integral multiples of $1,000): ----------------------------------------------------------------------------- Certificate Nos. (if available): ----------------------------------------------------------------------------- (Check box if Notes will be tendered by book-entry transfer) [_] The Depository Trust Company Account Number ______________________________________________________________ Dated _______________________________________________________________________ Name(s) of Record Holder(s) _________________________________________________ ----------------------------------------------------------------------------- Please Print Address(es) _________________________________________________________________ ----------------------------------------------------------------------------- Zip Code Area Code and Tel. No. ______________________________________________________ Signature(s) ________________________________________________________________ Dated: ______________________________ 2 GUARANTEE (Not To Be Used For Signature Guarantee) The undersigned, a participant in the Security Transfer Agent's Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program, hereby guarantees to deliver to the exchange agent either the certificates representing the old notes tendered hereby, in proper form for transfer, or a book-entry confirmation with respect to such old notes, in any such case together with a properly completed and duly executed consent and letter of transmittal (or facsimile thereof), with any required signature guarantees, or an agent's message, and any other required documents within two business days (as defined in the prospectus) after the date hereof. The eligible institution that completes this form must communicate the guarantee to the exchange agent and must deliver the consent and letter of transmittal and certificates for old notes to the exchange agent within the time period shown herein. Failure to do so could result in a financial loss to such eligible institution. All capitalized terms used herein have the meanings set forth in the prospectus. Name of Firm: _______________________________________________________________ Address: ____________________________________________________________________ ----------------------------------------------------------------------- Zip Code Area Code and Tel. No.: _____________________________________________________ ----------------------------------------------------------------------------- Authorized Signature _____________________________________________________________________________ Please Print Title: ______________________________________________________________________ NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS NOTICE. CERTIFICATES FOR OLD NOTES SHOULD BE SENT WITH YOUR CONSENT AND LETTER OF TRANSMITTAL. 3 -----END PRIVACY-ENHANCED MESSAGE-----