<PAGE>
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-23764
KELLSTROM INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3753725
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
14000 N.W. 4TH ST., SUNRISE, FLORIDA 33325
(Address of principal executive offices) Zip Code
(954) 845-0427
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
------ ------
State the number of shares of common stock outstanding as of November 11,
1996: 2,997,818 shares.
Transitional Small Business Disclosure Format (check one):
YES NO X
---- -----
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
QUARTERLY REPORT FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
PART I
<S> <C>
Item 1 - Financial Statements:
Condensed Balance Sheet 3
Condensed Statements of Operations 5
Condensed Statements of Cash Flows 7
Notes to Condensed Financial Statements 9
Pro Forma Condensed Statements of Operations 11
Item 2 - Management's Discussion and Analysis of 16
Financial Condition and Results of Operations
PART II
Item 4 - Submission of Matters to a Vote of Security Holders 19
Item 6 - Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
2
<PAGE>
<PAGE>
ITEM I FINANCIAL STATEMENTS
KELLSTROM INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1996 December 31, 1995
<S> <C> <C>
------------------ -----------------
Assets
Current Assets:
Cash and cash equivalents $ 420,395 $ 210,871
Trade receivables, net of allowance
for returns and doubtful accounts of $125,531
as of September 30, 1996 and December 31, 1995 2,499,671 3,319,025
Inventory 14,932,333 11,852,019
Engines under operating leases, net 3,032,451 --
Prepaid expenses and other current assets 181,867 307,051
Investment in warrants 200,000 --
----------- -----------
Total current assets $21,266,717 $15,688,966
Property, plant and equipment, net 2,708,390 1,738,677
Intangible assets, net 3,715,947 3,921,624
Investment in warrants -- 200,000
Other assets 476,261 368,296
----------- -----------
Total Assets $28,167,315 $21,917,563
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements
3
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(continued)
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term notes payable $ 6,717,000 $ 2,251,000
Current maturities of long-term debt and capital lease obligations 104,296 97,915
Accounts payable 2,422,242 2,167,214
Accrued expenses 570,500 858,733
Income taxes payable 201,131 643,732
----------- -----------
Total current liabilities $10,015,169 $ 6,018,594
Long-term debt and capital lease obligations, less current maturities 3,006,150 2,760,223
----------- -----------
Total Liabilities $13,021,319 $ 8,778,817
Stockholders' Equity:
Preferred stock, $ .001 par value; 1,000,000 shares authorized;
none issued -- --
Common stock, $ .001 par value; 20,000,000 shares authorized;
2,881,818 shares issued and outstanding 2,882 2,882
Additional paid-in capital 12,769,565 12,769,565
Retained earnings 2,373,549 366,299
----------- -----------
Total Stockholders' Equity $15,145,996 $13,138,746
----------- -----------
Total Liabilities and Stockholders' Equity $28,167,315 $21,917,563
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements
4
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------
1996 1995
----------- -----------
<S> <C> <C>
Net revenues $ 6,462,088 $ 3,286,480
----------- -----------
Cost of goods sold (4,011,950) (2,251,710)
Selling, general and administrative expenses (915,790) (638,692)
Depreciation and amortization (322,608) (89,873)
----------- -----------
Operating income $ 1,211,740 $ 306,205
SPAC operating costs and expenses -- (43,709)
Investment advisory expenses -- (22,352)
----------- -----------
Income before interest and income taxes $ 1,211,740 $ 240,144
Interest income 3,031 47,297
Interest expense (163,765) (72,703)
----------- -----------
Income before income taxes $ 1,051,006 $ 214,738
Income taxes (388,873) --
----------- -----------
Net income $ 662,133 $ 214,738
----------- -----------
----------- -----------
Net income per share $ 0.11 $ 0.08
----------- -----------
----------- -----------
Weighted average number of shares outstanding 8,050,454 2,775,099
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements
5
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
1996 1995
------------ ------------
<S> <C> <C>
Net revenues $ 17,650,915 $ 3,440,369
Cost of goods sold (11,124,932) (2,292,099)
Selling, general and administrative expenses (2,393,222) (670,576)
Depreciation and amortization (526,231) (98,997)
------------ ------------
Operating income $ 3,606,530 $ 378,697
SPAC operating costs and expenses -- (389,038)
Investment advisory expenses -- (644,225)
------------ ------------
Income (loss) before interest and income taxes $ 3,606,530 $ (654,566)
Interest income 15,606 351,869
Interest expense (440,219) (74,288)
------------ ------------
Income (loss) before income taxes $ 3,181,917 $ (376,985)
Income taxes (1,174,667) --
------------ ------------
Net income (loss) $ 2,007,250 $ (376,985)
------------ ------------
------------ ------------
Net income (loss) per share $ 0.34 $ (0.14)
------------ ------------
------------ ------------
Weighted average number of shares outstanding 8,050,454 2,693,806
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements
6
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,007,250 $ (376,985)
------------ ------------
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization $ 526,231 $ 98,997
Amortization of deferred financing costs 16,226 335
Deferred income taxes 93,968 ---
Acquisition expenses --- 381,250
Reduction in provision for sales returns and doubtful accounts
receivable --- (116,590)
Changes in operating assets and liabilities:
(Increase) Decrease in trade receivables, net 819,354 (149,549)
(Increase) in inventory (3,080,314) (3,972,561)
(Increase) in prepaid expenses and other current assets (94,622) (115,782)
(Increase) Decrease in other assets 23,771 (324,707)
Increase in accounts payable 255,028 528,191
Increase (Decrease) in accrued expenses (288,232) 308,084
Increase (Decrease) in income taxes payable (442,601) 141,536
------------ ------------
Net cash (used in) operating activities $ (163,941) $ (3,597,781)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
U.S. Government securities sold --- $ 10,786,209
Treasury bills sold --- 594,518
Purchase of KST assets, net of cash acquired --- (5,790,800)
Purchase of engines held under operating leases $ (3,250,000) ---
Purchases of property, plant and equipment (1,070,468) (36,884)
Adjustment to goodwill (increase) --- (77,572)
------------ ------------
Net cash provided by (used in) investing activities $ (4,320,468) $ 5,475,471
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt proceeds $ 15,982,662 $ ---
Debt repayment, including capital lease obligations (11,264,354) (907,000)
Common stock issued --- 1,000,000
Other (24,375) ---
------------ ------------
Net cash provided by financing activities $ 4,693,933 $ 93,000
------------ ------------
NET INCREASE IN CASH and CASH EQUIVALENTS $ 209,524 $ 1,970,690
CASH and CASH EQUIVALENTS, BEGINNING OF PERIOD 210,871 72,356
------------ ------------
CASH and CASH EQUIVALENTS, END OF PERIOD $ 420,395 $ 2,043,046
------------ ------------
------------ ------------
</TABLE>
(continued)
See accompanying notes to condensed financial statements
7
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
------------ ------------
<S> <C> <C>
Supplemental disclosures of non-cash investing and financing activities:
KST assets acquired for notes payable $ 2,230,000
------------
------------
Issuance of common stock for acquisition expenses $ 381,250
------------
------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 325,831 $ 18,965
------------ ------------
------------ ------------
Income taxes $ 1,529,935 $ 23,402
------------ ------------
------------ ------------
Supplemental disclosures of purchase of KST assets, net of liabilities:
Cash $ 209,200
Receivables 2,256,628
Warrants 200,000
Inventory 4,235,059
Prepaid expenses 87,146
Property, plant and equipment 1,522,586
Goodwill 4,060,477
Other assets 64,491
------------
Total assets $12,635,587
------------
------------
Accrued expenses $ 310,303
Accounts payable 2,533,464
Notes payable 1,561,820
------------
Total liabilities $ 4,405,587
------------
------------
Net acquisition cost $ 8,230,000
------------
------------
Less discounted present value of note given to seller 2,230,000
------------
Cash paid to seller at closing $ 6,000,000
Less cash acquired 209,200
------------
Net cash used in acquisition $ 5,790,800
------------
------------
</TABLE>
See accompanying notes to condensed financial statements
8
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared by the
Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The condensed balance sheet as
of December 31, 1995 has been derived from audited financial statements.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to such
rules and regulations of the SEC. These condensed financial statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's latest annual report on Form 10-KSB.
In the opinion of management of the Company, the condensed financial
statements reflect all adjustments (which consist only of normal recurring
adjustments) necessary to present fairly the condensed financial position
of Kellstrom Industries, Inc. as of September 30, 1996, and the condensed
results of operations for the three month periods and nine month periods
ended September 30, 1996 and 1995 and the condensed cash flows for the
nine month periods ended September 30, 1996 and 1995. The results of
operations for such interim periods are not necessarily indicative of the
results for the full year.
NOTE 2 - ACQUISITION
On June 22, 1995, Israel Tech Acquisition Corp. ("ITAC" or the "Company")
acquired substantially all of Kellstrom Industries, Inc.'s ("KST") right,
title and interest in and to all of the assets and liabilities of the
commercial jet aircraft engine part distribution and refurbishing business
of KST of every kind, nature and description, whether real, personal, or
mixed, tangible or intangible ("Acquisition"). Upon consummation of the
transaction, ITAC changed its name to Kellstrom Industries, Inc. In
consideration for KST, the Company paid $9,000,000, of which $6,000,000
was paid in cash and the remaining $3,000,000 was paid in the form of an
unsecured, non-interest bearing note. Additionally, Rada Electronic
Industries, Inc. ("Rada"), the indirect parent of KST prior to the June
22, 1995 acquisition, will pay the Company an annual $200,000 consulting
fee for a period of five years. The acquisition has been accounted for
using the purchase method. Actual and Pro forma Condensed Statements of
Operations - unaudited have been provided herein to report the results of
operations for the nine month periods ended September 30, 1996 and 1995 as
though the Acquisition had occurred at the beginning of the period being
reported.
NOTE 3 - DEBT AND CAPITAL LEASE OBLIGATIONS
Upon the consummation of the acquisition by ITAC of the assets of KST, the
Company assumed a mortgage note in the amount of $666,820 and a revolving
line of credit in the amount of $895,000. The mortgage note is secured by
a first mortgage on the Company's land and building. The line of credit is
secured by the Company's accounts receivable, inventory, and equipment. A
payment of $894,000 was made on the line of credit on June 23, 1995. On
November 7, 1995, the revolving line of credit was replaced by a
$3,000,000 revolving note which was subsequently replaced on May 8, 1996
by a $5,000,000 revolving note which bears interest payable monthly at 1%
above the bank's prime rate (which was 8.25% at September 30, 1996).
As part of the purchase of the assets of KST, the Company issued an
unsecured non-interest bearing note in the amount of $3,000,000. The note
is payable in eight equal semi-annual payments of $125,000 with the
remaining $2,000,000 to be paid on the fourth anniversary of the
acquisition in cash or, under certain circumstances, in whole or in part
by the issuance of additional shares of Common Stock which for such
purpose shall be valued at the higher of the market price per share at
such time or $5.00 per share. The note is discounted at a rate of 9%.
On May 8, 1996 the Company entered into a $3,000,000 guidance note with
BankAtlantic to finance the purchase of specific jet engines. The note,
which bears interest at 1% above the bank's prime rate (which was 8.25% at
September 30, 1996), is due on the earlier of the sale of the acquired jet
engine or May 31, 1997. Interest is payable monthly. In January of 1996
the Company entered into a $750,000 credit facility in the form of a
construction/mortgage loan to fund the Company's expansion of its existing
office and warehouse complex. Interest at prime (8.25% at September 30,
1996) plus 1.5% is payable monthly; principal is due to become part of the
existing first mortgage note upon completion of the construction process.
The Company contracted for the expansion of its office and warehouse
facilities during the third quarter of 1995 and completion in September of
1996.
9
<PAGE>
<PAGE>
NOTE 4 - STOCKHOLDERS' EQUITY
The Company is authorized to issue 1,000,000 shares of preferred stock
with such designations, voting and other rights and preferences as may be
determined from time to time by the Board of Directors.
The Company is authorized to issue 20,000,000 shares of common stock, par
value $.001 per share. At September 30, 1996 and December 31, 1995 the
Company had 2,881,818 shares of common stock outstanding.
At September 30, 1996 and December 31, 1995 the Company had 5,010,000 and
4,910,000 warrants, respectively, outstanding. Each warrant entitles the
holder to the purchase of one share of the Company's common stock at a
stated price of $5.00 for 4,910,000 of the warrants and at $8.75 for the
additional 100,000 warrants that were outstanding at September 30, 1996.
These warrants are exercisable at various times principally commencing on
June 22, 1995 and expiring on or before April 11, 2001. The Company has
reserved 5,010,000 common shares for the exercise of these warrants.
At September 30, 1996 and December 31, 1995 the Company had 200,000 unit
purchase options outstanding. Each unit purchase option entitles the
holder to the purchase of one unit for $7.62 per unit. Each unit consists
of one share of the Company's common stock, $.001 par value, and two
warrants (such warrants are exercisable as previously defined). These unit
purchase options are exercisable commencing on April 11, 1995 and expiring
on April 11, 1999. As of September 30, 1996 none of the unit purchase
options had been exercised.
NOTE 5 - EARNINGS PER SHARE
Net earnings per common and common equivalent share are computed by
dividing net earnings by the weighted average number of common and common
equivalent shares outstanding during the period. Common equivalent shares
assume the exercise of all dilutive stock options and warrants. Primary
and fully diluted earnings per common and common equivalent share are
essentially the same. Quarterly and year-to-date computations of per share
amounts are made independently; therefore, the sum of per share amounts
for the quarters may not equal per share amounts for the year.
10
<PAGE>
<PAGE>
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
The Company acquired substantially all of the assets and operations of KST on
June 22, 1995 ("Acquisition Date").
Subsequent to the Acquisition Date, the operations that were unique to the
Company prior to the Acquisition Date are no longer needed and have accordingly
been discontinued. Certain significant expense items that are directly related
to these unique activities will not recur in future periods including
acquisition expenses, ITAC operating costs and expenses and ITAC interest
expenses. Also, the interest income that was realized by ITAC will no longer
occur, although the Company expects to continue to invest excess cash in
interest-bearing accounts and securities.
Pro forma Condensed Statements of Operations have been provided herein to report
the results of operations for the first nine months of the prior year as though
the companies had combined at the beginning of the period being reported.
11
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
ACTUAL and PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, 1995
September 30, 1996 Pro Forma
Actual Combined
------------ ------------
<S> <C> <C>
Net revenues $ 17,650,915 $ 9,569,530
Cost of goods sold (11,124,932) (6,460,440)
Selling, general and administrative expenses (2,393,222) (1,579,824)
Depreciation and amortization (526,231) (238,291)
------------ ------------
Operating income $ 3,606,530 $ 1,290,975
Interest income 15,606 173,834
Interest expense (440,219) (239,346)
------------ ------------
Income before income taxes $ 3,181,917 $ 1,225,463
Income taxes (1,174,667) (459,549)
------------ ------------
Net income $ 2,007,250 $ 765,914
------------ ------------
------------ ------------
Net income per share (B) $ 0.34 $ 0.18
------------ ------------
------------ ------------
Weighted average number of shares outstanding (B) 8,050,454 7,550,245
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed and pro forma condensed
statements of operations
12
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
PRO FORMA STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1995
----------------------------------------------------------
HISTORICAL PRO FORMA PRO FORMA
ITAC KST ADJUSTMENTS COMBINED
-------------------------- ----------- -------------
<S> <C> <C> <C> <C>
Net revenues $ 3,440,369 $ 6,183,648 $ 18,082 $ 9,569,530
(72,569)
Cost of goods sold (2,292,099) (4,208,729) 40,388 (6,460,440)
Selling, general and administrative expenses (670,576) (835,486) 31,884 (1,579,824)
4,587
(90,000)
(20,233)
Depreciation and amortization (including goodwill) (98,997) (57,054) 9,124 (238,291)
33,912
(124,576)
(700)
----------- ----------- ----------- -----------
Net Kellstrom operating income $ 378,697 $ 1,082,379 $ (170,101) $ 1,290,975
SPAC operating costs and expenses (389,038) -- 389,038 0
Investment advisory expenses (644,225) (13,823) 658,048 0
----------- ----------- ----------- -----------
Net operating income (loss) $ (654,566) $ 1,068,556 $ 876,985 $ 1,290,975
Interest income 351,869 23,154 (201,189) 173,834
Interest expense (74,288) (132,609) 61,093 (239,346)
1,584
(95,126)
----------- ----------- ----------- -----------
Net income (loss) before taxes $ (376,985) $ 959,101 $ 643,347 $ 1,225,463
Income tax (expense) benefit 0 (359,663) (99,886) (459,549)
----------- ----------- ----------- -----------
Net income (loss) $ (376,985) $ 599,438 $ 543,461 $ 765,914
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) per share $ (0.14) $ 0.18
----------- -----------
----------- -----------
Weighted average number of common shares outstanding 2,693,806
-----------
-----------
Pro forma weighted average number of
common shares outstanding 7,550,245
-----------
-----------
</TABLE>
See accompanying notes to pro forma condensed statement of operations
13
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
(Unaudited)
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
(A) For purposes of presenting the pro forma condensed combined statement of
operations, the following adjustments have been made:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1995
------------------
<S> <C>
Increase (decrease) in income:
Increase in consulting income relating to consulting agreement with Rada $ 18,082
Elimination of June 23 - June 30 activity reflected in ITAC and KST statements of operations:
Net revenues (72,569)
Cost of goods sold 40,388
Selling, general and administrative expenses 31,884
Depreciation and amortization 9,124
Marketing, management and director fees charged to Kellstrom by its former parent and affiliates 4,587
Annual $90,000 payments to the Co-Chairmen of the Board (90,000)
Adjustment of prior year accruals (20,233)
Decrease in amortization expense resulting from write-off of existing goodwill 33,912
Amortization of goodwill (15 year life) (124,576)
Depreciation of property (40 year life) (700)
Elimination of all ITAC S.G. & A. expenses since all business activities will be conducted
by Kellstrom after the Acquisition 389,038
Elimination of all acquisition expense since it is non-recurring 658,048
Decrease in interest income resulting from the sale of U.S. Government securities (201,189)
Elimination of interest charged to Kellstrom by its former parent company 61,093
Elimination of all ITAC interest expenses since all business activities will be conducted
by Kellstrom after the Acquisition 1,584
Imputed interest on $2,230,000 note payable to Rada issued at 9% (95,126)
---------
$ 643,347
To adjust pro forma tax provision to 37.5% of income before taxes (99,886)
---------
Net adjustment $ 543,461
---------
---------
</TABLE>
Management and director fees paid by Kellstrom to its former parent have been
eliminated as such fees were allocated to Kellstrom on a basis other than one
deemed reasonable by management. In the future, these services will be provided
by the Co-Chairmen of the Board and as such, an adjustment to income has been
included in the pro forma adjustments to reflect their compensation of $90,000
each per year.
14
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
NOTES TO PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(B) The following table reconciles net income to the amount used for purposes of
determining net income per share under the modified treasury stock method:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------------------------------------------------ ------------- -------------
Actual Pro Forma
1996 1995
------------------------------------------------------ ------------- -------------
<S> <C> <C>
Net income $2,007,250 $ 765,914
Adjustments to pro forma net income for proceeds
from exercise of common stock equivalents:
Elimination of interest expense (net of tax) 264,996 149,591
Interest income on U.S. Government Securities 440,521 472,325
(net of tax)
------------------------------------------------------ ------------- -------------
Adjusted net income $2,712,767 $1,387,830
Weighted average actual common shares outstanding 2,881,818 2,851,515
Weighted average common stock equivalents outstanding 5,168,636 4,698,730
------------------------------------------------------ ------------- -------------
Weighted average shares outstanding 8,050,454 7,550,245
------------------------------------------------------ ------------- -------------
Earnings per share $ .34 $ .18
------------------------------------------------------ ------------- -------------
</TABLE>
15
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following should be read in conjunction with the Company's financial
statements and the related notes thereto included elsewhere herein.
The Company acquired substantially all of the assets, liabilities and
operations of KST on June 22, 1995 and changed its name from Israel Tech
Acquisition Corporation ("ITAC") to Kellstrom Industries, Inc. as of that date.
This acquisition was the primary objective of the Company when it was formed as
a Specified Purpose Acquisition Company ("SPAC"). The operations of the SPAC are
no longer pertinent and, accordingly, this analysis of results of operations
will focus upon the pro forma combined operating results of Kellstrom and the
SPAC for the nine months ended September 30, 1995 and on the actual operating
results of the Company for the nine months ended September 30, 1996 as reported
on pages 11 to 15.
On October 29, 1996 the Company announced that it signed a definitive
agreement to purchase substantially all of the assets and assume certain
liabilities of San Carlos, California-based International Aircraft Support, L.P.
("IASI") for approximately $26.5 million in cash and warrants to purchase
500,000 shares of the Company's common stock at $9.25 per share. The warrants
expire two years from the closing date which is expected to occur by December
31, 1996. Kellstrom has named Alex. Brown & Sons Incorporated as placement agent
for the senior subordinated debt it intends to issue to finance the cash portion
of the acquisition.
IASI, founded in 1979 and privately owned, is an international reseller
of commercial jet engines and engine parts. Its customers include major
airlines, engine overhaul facilities including those operated by airlines,
independent overhaul and maintenance organizations and aircraft engine
manufacturers.
Closing of the transaction is subject to completion of the $26.5 million
debt financing being placed by Alex.Brown & Sons Incorporated according to terms
approved by the Company's Board of Directors.
Results of Operations.
The unaudited actual results of operations for the nine months ended
September 30, 1996, as compared with the pro forma results of the period ended
September 30, 1995, indicate that net revenue increased by 84% to $17,650,915
from $9,569,530 in 1995 and gross profits including engine leasing activities
increased by 103% to $6,308,434 from $3,109,090 in 1995. Operating income
increased by 179% to $3,606,530 from $1,290,975 pro forma in 1995 and net income
increased by 162% to $2,007,250 from $765,914 pro forma in 1995. The increase in
net revenue is due primarily to additional inventory availability as a result of
an increase in working capital made available from the SPAC and from the
Company's increased bank credit facility. Also contributing to the increase in
revenues is the expansion of the Company's sales department which contributed to
growth in sales to existing customers, coupled with the Company's additional
product lines which resulted in the growth of the Company's customer base. Gross
margins including engine leasing activity were unusually strong in the first
half of 1996 (36.4%) and these margins returned to the Company's historical
level during the third quarter (34.6%) of the year, resulting in a year to date
margin of 35.7%.
Total selling, general and administrative expenses increased to
$2,393,222 in the first nine months of 1996 from $1,579,824 pro forma in the
first nine months of 1995, but decreased by 3% as a percentage of net
revenues. The increase in these expenses was a result of 1) expanding the
Company's sales and warehouse operations in order to support a higher level of
revenue and a corresponding greater number of transactions; and 2) putting in
place the marketing and management personnel necessary to achieve the revenue
growth opportunities that are available due to the Company's expanded level of
inventory investment; and, 3) operating costs associated with the expansion of
the Company's warehouse and office facilities in Florida as well as the
Company's new office in Dublin, Ireland.
16
<PAGE>
<PAGE>
The net income per share is reported based upon the weighted average of
the common shares outstanding along with the inclusion of the effect of the
options and warrants outstanding during the periods using the modified treasury
stock method in accordance with generally accepted accounting principles. The
effect of this is to increase the weighted average number of common shares
outstanding from 2,881,818 to 8,050,454 for the nine months ended September 30,
1996 and from 2,851,515 to 7,550,245 shares for the nine months ended September
30, 1995 because the Company's outstanding options and warrants to purchase
shares of common stock had an exercise price of less than the market price and
were, therefore, deemed outstanding.
Liquidity And Capital Resources.
During May of 1996, the Company and its bank, BankAtlantic, completed
the increase to the Company's working capital line of credit from $3.0 million
to $5.0 million and also agreed upon a new guidance line of $3.0 million to fund
the acquisition of specific jet engines. The interest rate on these lines is 1%
over the bank's prime rate and the interest is payable monthly. Principal on the
guidance line is payable upon the earlier of the disposition of the underlying
collateral or the line maturity date. The working capital line and the guidance
line both mature on May 31, 1997.
The Company's working capital was $11,251,548 as of September 30, 1996,
an increase of $1,581,176 since December 31, 1995.
The primary use of funds during the nine month period ended September
30, 1996 was to increase inventories ($3,080,314), to purchase engines for lease
($3,250,000), and to construct the additional warehouse and office facilities
and provide the necessary furnishing and fixtures for the new facility
($1,070,468). The source of the funds utilized for these purposes was from
financing activities ($4,693,933) and the remainder was from operations.
The Company plans to take advantage of growth opportunities that are
consistent with the Company's expansion and profit objectives. These growth
opportunities will require the investment of cash into inventories of jet
engines and jet engine parts. Greater availability of such inventories will
better enable the Company to continue to increase its revenues as well as to
encourage the development of strategic relationships with new customers.
The Company intends to finance its inventory expansion program through
its increased bank credit facilities and through the employment of its cash
flows along with the effective management of trade credits. Based upon ongoing
negotiations with various banks, the Company has no reason to believe that funds
will not be available. However, the Company has not entered into any agreement
with respect to additional credit requirements and there can be no assurance
that such additional credit will be obtained.
The planned acquisition of IASI will be financed through the issuance of
$26.5 million in senior subordinated debt and warrants. The terms of this
transaction, including the interest rate and amortization of the debt,
the number of warrants to be issued and the exercise price of the warrants
will be determined after negotiation with the proposed purchasers of the debt.
The Company has engaged Alex.Brown & Sons Incorporated, an investment bank, to
arrange this financing.
The Company contracted for the expansion of its warehouse and office
facilities during the third quarter of fiscal 1995. This expansion was completed
in September, 1996. These expanded facilities will accommodate increased
inventory purchases to enable the Company's anticipated future growth and will
also allow the Company to eliminate the cost of leasing off-site warehouse
facilities. The cost of this expansion was paid primarily from the $750,000
construction/mortgage loan commitment that the Company obtained from its bank
during the fourth quarter of 1995 and executed during January of 1996 (see Note
3).
17
<PAGE>
<PAGE>
The Company entered the short-term engine leasing business during the
nine month period ended September 30, 1996. The Company believes this activity
should allow it to liquidate the remaining maintenance value of jet engines on a
profitable basis by realizing both rental income as well as maintenance reserve
fees charged to the Company's engine lease customers for their utilization of
such engines. Upon the full consumption of the remaining maintenance value in
each engine, the Company will evaluate the engine's condition in order to
determine if such engine should be refurbished or should be disassembled into
piece parts in support of the Company's parts supply business. These leases are
accounted for as operating leases.
During the nine month period ended September 30, 1996 the Company's
highest utilization of its $5,000,000 working capital line was $4,251,000. The
balance due under this line as of September 30, 1996 was $3,717,000. Also during
this period, the Company's highest utilization of the guidance line was
$3,000,000. The balance due under the guidance line as of September 30, 1996 was
$3,000,000. The highest utilization of the construction loan during the period,
as well as the balance due as of September 30, 1996, was $661,662.
The Company's management believes that cash flow from operations, and
cash that became available as a result of the Acquisition, combined with the
Company's borrowing facilities should be sufficient for the Company's current
level of operations. The Company is seeking to increase its bank financing to
expand inventory purchases and it has engaged Alex.Brown & Sons Incorporated to
seek financing for the acquisition of IASI.
This report contains forward-looking statements, under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." These forward-looking statements are based on many assumptions and
factors including the Company's continuing ability to acquire adequate inventory
and to obtain favorable pricing for such inventory, competitive pricing for the
Company's products, demand for the Company's products, and the effects of
increased indebtedness as a result of the IASI acquisition.
18
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of the stockholders of the Company was held on
August 28, 1996 pursuant to a proxy statement dated July 23, 1996. The
various matters voted upon as well as the results of such voting, are
as follows:
(a) Election of one Class I Director to serve for a term of one year.
<TABLE>
<S> <C>
Director's Name: David J. Mitchell
Votes in favor: 2,816,088
Votes against: 0
Abstentions: 36,000
---------
Total 2,852,088
</TABLE>
(b) Election of three Class II Directors to serve
for a terms of two years.
<TABLE>
<S> <C> <C> <C>
Directors' Names: Joram D. Rosenfeld Yoav Stern Zivi R. Nedivi
Votes in favor: 2,815,288 2,816,088 2,816,088
Votes against: 0 0 0
Abstentions: 36,800 36,000 36,000
--------- --------- ---------
Total 2,852,088 2,852,088 2,852,088
</TABLE>
(c) Ratify and approve the selection of KPMG Peat Marwick LLP
independent auditors of the Company
<TABLE>
<S> <C>
Votes in favor: 2,842,638
Votes against: 6,300
Abstentions: 3,150
---------
Total 2,852,088
</TABLE>
(d) Approval of the Company's 1996 Stock Option Plan
<TABLE>
<S> <C>
Votes in favor: 1,701,711
Votes against: 252,225
Abstentions: 28,118
Not Voted: 870,034
---------
Total 2,852,088
</TABLE>
A total of 2,852,088 shares were represented at the meeting, constituting a
quorum in accordance with the applicable provisions of the By-laws of the
Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Material Contracts. Asset Purchase Agreement by and among
Kellstrom Industries, Inc. and Kellstrom subsidiary and
International Aircraft Support, L.P. and the parties listed in
Schedule A hereto, dated as of October 28, 1996.
(b) Reports on Form 8-K. The Company has not filed a Report on
Form 8-K during the fiscal quarter ended September 30, 1996.
19
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 14, 1996 KELLSTROM INDUSTRIES, INC.
(Registrant)
/s/ JOHN S. GLEASON
--------------------------------
John S. Gleason
Chief Financial Officer
and Treasurer
20
STATEMENT OF DIFFERENCES
The section symbol shall be expressed as ss.
<PAGE>
<PAGE>
ASSET PURCHASE AGREEMENT
by and among
KELLSTROM INDUSTRIES, INC.
and
KELLSTROM SUBSIDIARY
and
INTERNATIONAL AIRCRAFT SUPPORT L.P.
and
The Parties
Listed in Schedule A Hereto
Dated as of October 28, 1996
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Purchase and Sale of Assets.................................................................... 1
1.1 Assets Conveyed....................................................................... 1
1.2 Excluded Assets....................................................................... 3
2. Payment of the Purchase Price and Assumption of Liabilities.................................... 4
2.1 Purchase Price........................................................................ 4
2.2 Liabilities Assumed by the Purchaser.................................................. 4
2.3 Liabilities Retained by the Company................................................... 5
2.4 Instruments of Conveyance and Transfer of Books
and Records....................................................................... 5
2.5 The Closing........................................................................... 6
3. Representations and Warranties of the Company.................................................. 6
3.1 Organization, Capitalization, Authorization, Etc...................................... 6
3.1.1 Organization................................................................. 6
3.1.2 Governing Documents.......................................................... 6
3.1.3 Officers..................................................................... 6
3.1.4 Subsidiaries................................................................. 6
3.2 Capitalization........................................................................ 7
3.3 Ownership of Assets................................................................... 7
3.4 Authority and No Conflict; Consents................................................... 7
3.5 Compliance with Law................................................................... 8
3.6 Financial Statements; Books and Records............................................... 9
3.6.1 Financial Statements Provided................................................ 9
3.6.2 Absence of Changes........................................................... 9
3.6.3 Inventories.................................................................. 10
3.7 Absence of Undisclosed Liabilities.................................................... 10
3.8 Tax Returns and Audits................................................................ 10
3.8.1 Taxes........................................................................ 10
3.8.2 Deficiencies................................................................. 12
3.8.3 Taxes Collected.............................................................. 12
</TABLE>
-i-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.9 Leased Property....................................................................... 12
3.9.1 Leased Property Schedule..................................................... 12
3.9.2 Environmental Protection..................................................... 13
3.10 Intellectual Property................................................................. 14
3.11 Tangible Personal Property............................................................ 14
3.12 Product Warranty...................................................................... 14
3.13 Securities Representation............................................................. 15
3.14 Personnel and Plans................................................................... 15
3.15 Insurance............................................................................. 16
3.16 Litigation............................................................................ 17
3.17 Contracts, Obligations and Commitments................................................ 17
3.18 Licenses.............................................................................. 18
3.19 No Broker............................................................................. 18
3.20 No Illegal or Improper Transactions................................................... 18
3.21 Related Party Transactions............................................................ 19
3.22 Disclosure............................................................................ 19
3.23 Suppliers and Providers of Services................................................... 19
3.24 Customers............................................................................. 20
3.25 Accounts Receivable................................................................... 20
4. Representations and Warranties of the Purchaser and
Kellstrom Subsidiary........................................................................... 20
4.1.1 Organization................................................................. 20
4.1.2 Authority and No Conflict.................................................... 21
4.1.3 Consents..................................................................... 21
4.1.4 No Broker.................................................................... 21
4.1.5 Issuance of Purchaser Warrants............................................... 22
4.1.6 Reports of the Purchaser..................................................... 22
4.1.7 No Material Adverse Change................................................... 22
4.1.8 Disclosure. ................................................................. 22
5. Covenants...................................................................................... 23
5.1.1 Access to Premises and Information........................................... 23
5.1.2 Conduct of Business in Ordinary Course....................................... 23
5.1.3 Representations and Warranties True at Closing............................... 24
5.1.4 Hiring of Employees; Bonuses................................................. 24
5.1.5 No Shopping.................................................................. 25
5.1.6 Non-Competition.............................................................. 25
</TABLE>
-ii-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.1.7 Repayment of Certain Indebtedness; Promissory
Note......................................................................... 26
5.1.8 Employee Notification........................................................ 26
5.1.9 Name Change.................................................................. 26
5.1.10 Further Authorization........................................................ 26
5.1.11 Subsequent Liability......................................................... 26
5.1.12 Schedules.................................................................... 27
5.2.1 Consents..................................................................... 27
5.2.2 Confidentiality; Public Announcements........................................ 27
5.2.3 Employee Matters............................................................. 28
5.2.4 Bulk Sales Law............................................................... 29
5.2.5 Financing Cooperation........................................................ 29
5.2.6 Allocation of Purchase Price................................................. 29
5.3.1 Financing.................................................................... 29
5.3.2 Union Bank Financing......................................................... 30
5.3.3 Representations and Warranties True at Closing............................... 30
6. Conditions Precedent to the Purchaser's and Kellstrom
Subsidiary's Performance....................................................................... 30
6.1 Accuracy of Representations and Warranties............................................ 30
6.2 Performance........................................................................... 30
6.3 No Material Adverse Change............................................................ 31
6.4 Certification by the Company.......................................................... 31
6.5 Certification by the Principal........................................................ 31
6.6 Opinion of the Company's Counsel...................................................... 31
6.7 Absence of Litigation................................................................. 31
6.8 Government Authorization.............................................................. 31
6.9 Consents.............................................................................. 31
6.10 Auditors.............................................................................. 32
6.11 Financing............................................................................. 32
6.12 Distributions......................................................................... 32
6.13 Affiliated Obligations................................................................ 32
6.14 Promissory Note....................................................................... 32
6.15 MA Guaranty........................................................................... 32
</TABLE>
-iii-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
7. Conditions Precedent to the Company's and the Principal's
Performance.................................................................................... 32
7.1 Accuracy of the Purchaser's and Kellstrom
Subsidiary's Representations and Warranties........................................... 32
7.2 Performance; Authorization............................................................ 33
7.3 No Material Adverse Change. .......................................................... 33
7.4 Certificates.......................................................................... 33
7.5 Absence of Litigation................................................................. 33
7.6 Government Authorization.............................................................. 33
7.7 Payment............................................................................... 33
7.8 Opinion of the Purchaser's Counsel.................................................... 33
8. Certain Actions After the Closing.............................................................. 34
8.1 Kellstrom Subsidiary to Act as Agent for the
Company............................................................................... 34
8.2 Delivery of Property Received by the Company or
Kellstrom Subsidiary After Closing.................................................... 34
8.3 Kellstrom Subsidiary Appointed Attorney for the
Company............................................................................... 34
8.4 Payment of Liabilities................................................................ 35
8.5 Financial Statements.................................................................. 35
9. Survival of Representations; Indemnification................................................... 35
9.1 Survival of Representations, Etc...................................................... 35
9.2 Company's Indemnity................................................................... 35
9.3 The Purchaser's and Kellstrom Subsidiary's
Indemnity............................................................................. 36
9.4 Limitation on Indemnification......................................................... 37
9.5 Tax Indemnification................................................................... 37
9.6 Notice and Defense of Claims.......................................................... 38
10. Termination.................................................................................... 39
10.1 Termination........................................................................... 39
10.2 Effect of Termination................................................................. 39
11. Entire Agreement; Modification, Waiver......................................................... 40
12. Further Assurances............................................................................. 40
</TABLE>
-iv-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
13. Successors and Assigns; Assignment............................................................. 40
14. Notices........................................................................................ 40
15. Governing Law.................................................................................. 41
16. Submission to Jurisdiction..................................................................... 41
17. Expenses....................................................................................... 42
EXHIBIT A
EXHIBIT B
EXHIBIT C
</TABLE>
-v-
<PAGE>
<PAGE>
ASSET PURCHASE AGREEMENT
AGREEMENT, made as of the 28th day of October 1996, by and
among (i) Kellstrom Industries, Inc., a Delaware corporation (the "Purchaser"),
(ii) IASI Inc., a Delaware corporation and a wholly-owned subsidiary of the
Purchaser ("Kellstrom Subsidiary"), (iii) International Aircraft Support L.P., a
California limited partnership (the "Company"), and (iv) William Lyon, a
principal of each of the general partners of the Company (the "Principal").
W I T N E S S E T H :
WHEREAS, the Purchaser, through Kellstrom Subsidiary, desires
to purchase and the Company desires to sell substantially all of the assets used
by the Company in the operation of its business (the "Business"), upon the terms
and subject to the conditions set forth in this Agreement;
WHEREAS, the general partners of the Company have determined
that it is in the best interest of the Company, and in furtherance of its
purposes, to sell substantially all assets, real and personal and mixed,
tangible and intangible, owned or leased by the Company and associated with or
employed in the operations of the Business, and substantially all other related
operations owned or leased by the Company to the Purchaser, or at the
Purchaser's direction, to Kellstrom Subsidiary, subject to the assumption by
Kellstrom Subsidiary of disclosed liabilities of the Company as more fully
described herein.
NOW, THEREFORE, in consideration of the mutual promises and
agreements hereinafter contained, the parties hereto agree as follows:
1. Purchase and Sale of Assets.
1.1 Assets Conveyed. At the closing of the
transactions contemplated hereby (the "Closing") on the Closing Date (as
hereinafter defined), and upon the basis of the representations, warranties,
covenants and agreements contained herein, the Company shall sell, transfer,
assign, convey and deliver to the Purchaser or, at Purchaser's direction, to
Kellstrom Subsidiary, and Kellstrom Subsidiary shall purchase on the terms set
forth herein, all of the Company's right, title and interest in and to the
Assets (as defined below) free and clear of all liens, charges, claims, pledges,
security interests, equities and encumbrances of any nature whatsoever
(collectively, "Liens"), except for the Permitted Liens (as hereinafter
defined). The "Assets" shall mean all those personal, tangible and intangible
properties, and the real property and
<PAGE>
<PAGE>
improvements of the Company used in connection with the operation of the
Business as set forth below other than Excluded Assets (as defined below)
including without limitation, those more particularly described in the Schedules
to this Section 1.1, including the going concern value of the Business:
(a) all the rights and benefits accruing to the Company under
all of the agreements, contracts, arrangements, leases with respect to personal
property, guarantees, commitments and orders, whether written or oral, between
the Company and any third party, including without limitation, the contracts
listed in Schedule 1.1(a) hereto (the "Assigned Contracts"); provided, however,
that the assignment of the Credit Agreement (as defined in Section 5.3.2 below)
shall be subject to the provisions of Section 5.3.2;
(b) all of the Company's inventories of raw materials, engines
(including engines held for lease), parts, work-in-process, intermediates and
finished goods, if any ("Inventories");
(c) all manufacturing, production, maintenance and testing
machinery and equipment, computers, computer hardware and software, tools,
supplies, furniture, vehicles, and other tangible personal property and assets
of the Company related to the Business, including, without limitation, the items
listed on Schedule 1.1(c) hereto;
(d) all the interest of and the rights and benefits accruing
to the Company as lessee under (i) any leases relating to the Leased Property
(as defined in Section 3.9.1) and all leasehold improvements and fixtures
relating thereto as described in Schedule 3.9.1 hereto and (ii) the leases or
rental agreements covering machinery, equipment, computers, computer hardware
and software, vehicles and other tangible personal property as described in
Schedule 1.1(d) hereto (the "Leased Personal Property");
(e) all accounts and notes receivable (including without
limitation, any claims, remedies and other rights related thereto) evidencing
rights to payment for services rendered through the Closing Date, except for the
Affiliated Obligations (it being understood that such Affiliated Obligations (as
defined in Section 5.1.7 below) shall be repaid or replaced by a promissory note
pursuant to Section 5.1.7);
(f) all operating data and records of the Company relating to
the Business, including, without limitation, client lists and records, referral
sources, production reports and records, equipment logs, operating guides and
manuals, projections, copies of financial, accounting and personnel records,
correspondence and other similar documents and records;
-2-
<PAGE>
<PAGE>
(g) all claims, warranty rights, causes of action and other
similar rights granted or owing to the Company arising out of the Business to
the extent the same are assignable;
(h) all of the Company's rights, to the extent of such rights,
to use the names set forth on Schedule 1.1(h) and all variations on any thereof
for any and all purposes;
(i) all the intangible and intellectual property of the
Company, including, without limitation, all software and software libraries,
processes, formulae, methods, plans, research data, marketing plans and
strategies, forecasts, patents and patent applications, inventions, discoveries,
know-how, trade secrets and ideas (including those in the possession of third
parties, but which are the property of the Company), and all drawings, records,
books or other indicia of the foregoing, trademarks, servicemarks, tradenames,
licenses, copyrights, operating rights, permits and other similar intangible
property and rights including, without limitation, all of those set forth on
Schedule 1.1(i) hereof;
(j) all licenses, permits, approvals, qualifications, consents
and other authorizations necessary for the lawful conduct, ownership and
operation of the Business to the extent the same are transferrable;
(k) all prepaid expenses and cash of the Company;
(l) all goodwill and going-concern value of the Company and
the Business; and
(m) all other assets and properties of any nature whatsoever
held by the Company, either directly or indirectly, and used in, allocated to,
or required for the conduct of the Business, but excluding the Excluded Assets
(as defined in Section 1.2 below.
1.2 Excluded Assets. Anything to the contrary in
Section 1.1 notwithstanding, the Assets shall exclude and the Purchaser shall
not purchase (i) all tax books of the Company, books and ledgers relating to the
ownership of partnership interests in the Company, and minutes of meetings of,
and actions taken by, the Company's general and limited partners, (ii) all
insurance policies of the Company, (iii) the rights which accrue or will accrue
to the Company under this Agreement, (iv) any employee pension benefit plan as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and (v) the Affiliated Obligations (collectively, the
"Excluded Assets").
-3-
<PAGE>
<PAGE>
2. Payment of the Purchase Price and Assumption of
Liabilities.
2.1 Purchase Price.
(a) The aggregate purchase price (the "Purchase
Price") to be paid by the Purchaser for the Assets shall consist of (i) Twenty
Six Million, Five Hundred Thousand Dollars ($26,500,000) in cash payable by
certified or official bank check or wire transfer on the Closing Date (subject
to adjustment as set forth in paragraph (b) of this Section 2.1), (ii) warrants
to purchase an aggregate of Five Hundred Thousand (500,000) shares of common
stock, par value $.001 per share, of the Purchaser (the "Common Stock"), in the
form attached hereto as Exhibit A (the "Purchaser Warrants") and (iii) the
assumption of the Assumed Liabilities; provided however, that, at the option of
the Company, the cash portion of the Purchase Price shall be paid by (x)
promissory note on terms mutually agreed upon between the Company and the
Purchaser or (y) in installments to be agreed upon by the Company and the
Purchaser, in each case as long as paying by promissory note or in installments,
as applicable, would not have an adverse effect on the Purchaser or Kellstrom
Subsidiary.
(b) The cash portion of the Purchase Price shall be
reduced by (i) the amount, if any, by which the amount of Affiliated Obligations
(as defined in Section 5.1.7(a) below) repaid in cash to the Company on or prior
to the Closing Date is less than One Million, Five Hundred Thousand Dollars
($1,500,000) and (ii) the amount of the Transaction Costs (as defined in Section
2.2 below) paid by the Company prior to the Closing Date except as otherwise set
forth in the provisions of Section 2.2 below.
2.2 Liabilities Assumed by the Purchaser. In further
consideration for the sale of the Assets, on the Closing Date, Kellstrom
Subsidiary shall assume and agree to pay, perform and discharge the Assumed
Liabilities. For purposes of this Agreement, the term "Assumed Liabilities"
shall include, and shall be limited solely to (a) those liabilities disclosed on
the August 31, 1996 unaudited balance sheet of the Company ("August Balance
Sheet"), excluding (except as provided below) any liabilities for transactional
and advisory costs, including, without limitation, attorneys' and accountants'
fees and expenses, incurred in connection with the transactions contemplated
hereby or the proposed sale of the Company or any equity interest therein
(collectively, "Transaction Costs"); (b) all liabilities of the Company that
have arisen after August 31, 1996 in the ordinary course of business (other than
any liability resulting from, arising out of, relating to, in the nature of, or
caused by any facts or circumstances which would constitute a breach of the
representations and warranties of the Company set forth herein for which the
Company and the Principal would be required to indemnify the Purchaser and
Kellstrom Subsidiary under the terms of this Agreement) or accruing from and
after August 31, 1996 pursuant to the Assigned Contracts; (c) the other
liabilities specifically set forth on Schedule 2.2 hereof which have been
approved by the Purchaser; provided, however that Kellstrom Subsidiary shall
-4-
<PAGE>
<PAGE>
assume Transaction Costs of up to Fifty Thousand Dollars ($50,000) (the
"Permitted Transaction Costs") to the extent such Transaction Costs consist of
the reasonable fees and expenses of Irell & Manella LLP ("counsel for the
Company"), it being understood that a portion of the Permitted Transaction Costs
may be costs which shall have been paid prior to the Closing Date and, to such
extent, the cash portion of the Purchase Price shall not be reduced as set forth
in Section 2.1(b) above; and (d) accrued sick leave, vacation or paid time off
and bonuses earned or accrued but not yet paid relating to the Company's
employees.
2.3 Liabilities Retained by the Company.
Notwithstanding anything to the contrary contained herein, neither the Purchaser
nor Kellstrom Subsidiary shall assume, pay, discharge, become liable for or
perform when due, and the Company shall not cause the Purchaser or Kellstrom
Subsidiary so to assume, pay, discharge, become liable for or perform, any
liabilities (contingent or otherwise), debts, contracts, commitments and other
obligations of the Company of any nature whatsoever which relate to or arise out
of (a) income or payroll taxes owing by the Company to any governmental agency
or other taxing authority, (b) any Employee Benefit Plan (as defined in Section
3.14), except that accrued sick leave, vacation or paid time off, and bonuses
earned or accrued but not yet paid, shall constitute Assumed Liabilities; (c)
acts, omissions, conditions or circumstances occurring or existing prior to the
Closing Date which give rise to liabilities or obligations under any
Environmental Laws (as defined in Section 3.9 below) or which relate to any
liabilities, debts, contracts, commitments or other obligations of the Company
not expressly assumed pursuant to Section 2.2 hereof; and (d) any liability or
obligation of the Company with regard to its construction guaranty for the
benefit of Martin Aviation (the "MA Guaranty"); provided, however, that the
items described in clauses (a) and (c) shall be assumed if the results of the
Purchaser's due diligence with respect to these items is satisfactory to the
Purchaser, which determination shall be made within the time period set forth in
Section 10.1(b) below.
2.4 Instruments of Conveyance and Transfer of
Books and Records.
(a) At the Closing, the Company shall deliver to the Purchaser
or, at Purchaser's direction, to Kellstrom Subsidiary such deeds, bills of sale,
endorsements, assignments and other instruments of sale, conveyance, transfer
and assignment, satisfactory in form and substance to the Purchaser and its
counsel, as may be reasonably requested by the Purchaser, in order to convey to
Kellstrom Subsidiary good and marketable title to the Assets, free and clear of
all Liens other than Permitted Liens. The Company shall pay all sales, transfer
or stamp taxes, or similar charges, payable by reason of the sale hereunder.
-5-
<PAGE>
<PAGE>
(b) At the Closing, the Company shall deliver to Kellstrom
Subsidiary all written consents which are required under any Assigned Contract.
2.5 The Closing.
Assuming the satisfaction or the waiver of satisfaction of the
conditions contained herein, the Closing will take place at the offices of
Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103 at such
time and place as the parties hereto may mutually agree but in no event later
than December 31, 1996, which date may be extended by Purchaser, if necessary,
to January 15, 1997. This date is the "Closing Date." The parties agree that
they will cooperate in good faith with regard to setting the Closing Date in
order to achieve the best possible accounting and tax result to each party.
3. Representations and Warranties of the Company.
In order to induce the Purchaser and Kellstrom Subsidiary to
enter into and perform this Agreement, the Company represents, warrants and
agrees as follows:
3.1 Organization, Capitalization, Authorization, Etc.
3.1.1 Organization. The Company is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of California with all the requisite power and authority to
execute, deliver and perform this Agreement and to hold the properties, rights
and assets and to carry on the businesses now conducted by it. The Company is
duly qualified to transact business as a foreign limited partnership in each
state in which the nature of the business conducted by it or its ownership or
leasing of property make such qualification necessary.
3.1.2 Governing Documents. Copies of the
certificate of limited partnership and the agreement of limited partnership of
the Company, each as amended, have heretofore been delivered to the Purchaser
and are true, complete and correct. The Company's minute books and the minute
books of the Company's general partners have been made available to the
Purchaser, and are true, complete and correct in all material respects.
3.1.3 Officers. Schedule 3.1.3 hereto sets forth
a complete list of the officers of International Aircraft Support, Inc., the
managing general partner of the Company (the "Managing General Partner"), and
the Company.
3.1.4 Subsidiaries. The Company has no equity
interest in any corporation, partnership, joint venture or other legal entity.
-6-
<PAGE>
<PAGE>
3.2 Capitalization. Schedule 3.2 sets forth a list of
all the general partners and limited partners of the Company, as well as the
outstanding general or limited partnership interests (the "Interests") owned of
record and beneficially by each of such general or limited partners of the
Company. All the Interests have been duly authorized and validly issued. Except
as disclosed in Schedule 3.2, no contract, commitment or undertaking of any kind
has been made for the issuance of any additional partnership or other interests
in the Company; nor is there in effect or outstanding any subscription, option,
warrant or preemptive or other right to acquire any of such interests or any
outstanding securities or other instruments convertible into or exchangeable for
any of such interests.
3.3 Ownership of Assets. Except as set forth in
Schedule 3.3 hereto, the Company is the legal and beneficial owner of the
Assets, free and clear of any Liens other than Permitted Liens and the Company
has full right, power and authority to sell, transfer, assign, convey and
deliver all of the Assets to be sold by it hereunder and delivery thereof will
convey to Kellstrom Subsidiary good, absolute and marketable title to said
Assets, free and clear of any Liens except for "Permitted Liens". For the
purposes of this Agreement, "Permitted Liens" shall mean (i) Liens for taxes,
assessments or other governmental charges not yet due or which are being
contested in good faith by appropriate proceedings diligently pursued and
against which adequate reserves have been established; (ii) other Liens
incidental to the conduct of its business or the ownership of its property and
assets including, but not limited to, materialmen's, mechanics', and workmens'
Liens, which were not incurred in connection with the borrowing of money or the
obtaining of advances or credit, and which do not in the aggregate materially
detract from the value of its property or assets or materially impair the use
thereof in the operation of its business; (iii) Liens in favor of the United
States of America or any department or agency thereof or in favor of a prime
contractor under a United States government contract and, in each case,
resulting from acceptance of progress or partial payments in the ordinary course
of business under United States government contracts or subcontracts thereunder;
(iv) easements, Liens or other minor encumbrances on or over real property which
do not in the aggregate materially detract from the market value or the value of
the Company or its property or assets or materially impair the use thereof in
the operation of its business; (v) other Liens not exceeding an aggregate of
$10,000 in amount; and (vi) any interest or title of any lessor under any lease
related to the Leased Property or the Leased Personal Property.
3.4 Authority and No Conflict; Consents.
3.4.1 The Company has the full right, power and
authority to execute, deliver and carry out the terms of this Agreement and all
documents and agreements necessary to give effect to the provisions of this
Agreement, and this Agreement has been duly authorized, executed and delivered
by the Company. Except to the extent that consents are required as set forth in
Schedule 3.4.2 below, the
-7-
<PAGE>
<PAGE>
execution and delivery of this Agreement by the Company does not, and
consummation of the transactions contemplated hereby will not (a) conflict with,
or result in any violation of or default or loss of any benefit under, any
provision of the Company's governing instruments; (b) conflict with, or result
in any violation of or default or loss of any material benefit under, any
permit, concession, grant, franchise, law, rule or regulation, or any judgment,
decree or order of any court or other governmental agency or instrumentality to
which the Company is a party or to which the Business is subject; (c) conflict
with, or result in a breach or violation of or default or loss of any material
benefit under, or accelerate the performance required by, the terms of any
material agreement, contract, indenture or other instrument to which the Company
is a party or to which the Business is subject, or constitute a default or loss
of any material right thereunder or the creation of any material Liens on the
Business or an event which, with the lapse of time or notice or both, might
result in a default or loss of any material right thereunder or the creation of
any Lien upon the Business; or (d) result in any suspension, revocation,
impairment, forfeiture or nonrenewal of any material License (as defined in
Section 3.18). All action and other authorizations prerequisite to the execution
of this Agreement and the consummation of the transactions contemplated by this
Agreement have been taken or obtained by the Company. This is a valid and
binding agreement of the Company enforceable in accordance with its terms
(except as such enforceability may be limited by any applicable bankruptcy,
insolvency or other laws affecting creditors' rights generally or by general
principles of equity, regardless of whether such enforceability is considered in
equity or at law).
3.4.2 Other than as set forth on Schedule 3.4.2
hereto, the execution, delivery and performance by the Company of this
Agreement, and the performance of the transactions contemplated by this
Agreement, do not require the authorization, consent, approval, certification,
license or order of, or any filing with, any court or governmental agency or any
other third party except for such authorizations, consents, approvals,
certifications, licenses and orders that have been obtained.
3.5 Compliance with Law.
The operations of the Business have been
conducted, and are now being conducted, in compliance in all material respects
with all applicable Laws (as defined in Section 3.9.1), rules, regulations and
court or administrative orders and processes (including, without limitation, any
that relate to the consumer protection, health and safety, products and
services, proprietary rights, anti-competitive practices, collective bargaining,
ERISA, equal opportunity, improper payments and environmental regulation). To
the best knowledge of the Company and the Principal, neither the Company, and
its officers, partners and employees nor the Principal, (a) are, and during the
past five years were not, in violation of, or not in compliance with, in any
material respect, such applicable Laws, rules, regulations, orders and processes
with respect to their conduct of the operations of the Business; (b) have not
received any notice from
-8-
<PAGE>
<PAGE>
any governmental authority, and to the best of the Company's knowledge none is
threatened, alleging that the Company has violated, or not complied with, any of
the above; and (c) are not a party to any agreement or instrument, or subject to
any judgment, order, writ, rule, regulation, code or ordinance which materially
and adversely affects, or might reasonably be expected to materially and
adversely affect, the Business.
3.6 Financial Statements; Books and Records.
3.6.1 Financial Statements Provided. Copies of
the financial statements of the Company for each of the five fiscal years ended
December 31, 1995 have been attached as Schedule 3.6.1 hereto (the "Audited
Financial Statements"). Also attached as Schedule 3.6.1 are unaudited financial
statements of the Company for the eight months ended August 31, 1996 (the
"Unaudited Financial Statements"), which financial statements have been prepared
on the same basis as the Audited Financial Statements, subject to normal year
end adjustments and accruals (none of which is expected to be material). (The
Audited Financial Statements and the Unaudited Financial Statements are
collectively referred to as the "Financial Statements.") The Financial
Statements are true and correct in all material respects, are consistent with
the books and records of the Company, fairly represent the financial condition
and results of operations of the Company as at and for the periods reflected
therein, have been prepared in accordance with generally accepted accounting
principles and have been audited by Ernst & Young LLP, or Kenneth Leventhal &
Co., certified public accountants.
3.6.2 Absence of Changes. Except as disclosed on
Schedule 3.6.2 hereto or otherwise approved in writing by the Purchaser, since
August 31, 1996 ("Balance Sheet Date"), there has not been any (a) transaction
by the Company except in the ordinary course of business as conducted during the
12 month period ending on that date; (b) capital expenditure exceeding $50,000
or Inventory expenditures exceeding $250,000 for any individual purchase; (c)
material adverse change in the condition (financial or otherwise), prospects,
business or liabilities or assets of the Company; (d) destruction, damage to, or
loss of any asset (whether or not covered by insurance) that, individually or in
the aggregate, materially and adversely affects the condition, financial or
otherwise, or business of the Company; (e) labor trouble or other event or
condition relating to employment or labor matters of any character that,
individually or in the aggregate, materially and adversely affect the condition,
financial or otherwise, or assets, of the Company; (f) any increase in
compensation payable to, or any employment, bonus or compensation agreement
entered into with, any employees or consultants of the Company (other than those
made after consultation with the Purchaser); (g) change in accounting methods or
practices (including, without limitation, changes in depreciation or
amortization policies or rates) by the Company; (h) revaluation of the Company's
assets; (i) sale or transfer of any asset of the Company
-9-
<PAGE>
<PAGE>
except in the ordinary course of business; (j) amendment or termination of any
material contract, agreement, or license to which the Company is a party, except
in the ordinary course of business; (k) loan by the Company to any person or
entity, or guaranty of any loan; (l) commitment to borrow money or mortgage,
pledge, or other encumbrance of any asset of the Company or grant or commitment
to grant a mortgage, pledge, or other encumbrance of any asset of the Company
other than Permitted Liens; (m) waiver or release of any right or claim of the
Company except in the ordinary course of business; (n) any material obligation
or liability (absolute or contingent) incurred by the Company or to which it has
become subject except current liabilities incurred in the ordinary course of
business and obligations under contracts entered into in the ordinary course of
business; (o) any write-off in excess of reserves as uncollectible of any
accounts or notes receivable; (p) any issue or split-up of, or grant of any
option or other right to acquire, any security of the Company; (q) any amendment
of the certificate of limited partnership or agreement of limited partnership of
the Company; or (r) any declaration, setting aside or payment or other
distribution in respect of any of the partnership interests of the Company, or
any direct or indirect redemption, purchase or other acquisition of any such
partnership interests by the Company.
3.6.3 Inventories. All Inventories of the
Business set forth on the August Balance Sheet, and all Inventories acquired
subsequent to the Balance Sheet Date are valued in accordance with generally
accepted accounting principles. In the good faith opinion of the Company, all
Inventories (other than Inventories which are the subject of the Sales Agreement
between the Company and Elsinore Aerospace Services, L.P., dated July 14, 1995)
included in the Assets consist, and at the Closing will consist, of a quality
and quantity usable and saleable in the ordinary course of business, except for
items of obsolete materials, which have been written down on the August Balance
Sheet to realizable market value. In the Company's experience, the present
quantities of Inventory of the Business are, and at Closing will be, reasonable
and warranted in the present and then circumstances of the Business.
3.7 Absence of Undisclosed Liabilities. The Company
does not have any debt, liability or obligation of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, which is
not reflected or reserved against in the August Balance Sheet except for those
which were incurred after August 31, 1996 in the ordinary course of business and
are usual and normal in amount both individually and in the aggregate except as
set forth in Schedule 3.7.
3.8 Tax Returns and Audits.
3.8.1 Taxes. The Company is not, and has not been
during at least the past five fiscal years, liable for any U.S. federal, state,
local or foreign income, profits or franchise taxes. Except as specifically set
forth in Schedule 3.8, (a) the Company has filed on a timely basis (taking into
account any extensions
-10-
<PAGE>
<PAGE>
received from the relevant taxing authorities) all returns and reports of all
U.S. federal, state, local and foreign unincorporated business, capital,
withholding, payroll, employment, disability, transfer, sales, use, occupation,
property, excise and any and all other taxes of any kind (all, together with any
penalties, additions to tax, fines and interest thereon or related thereto,
herein referred to collectively as "Taxes" or singularly as a "Tax") relating to
the Company or the Business that are or were required to be filed prior to the
Closing Date with the appropriate taxing authorities in all jurisdictions in
which such returns and reports are or were required to be filed, and all such
returns and reports are true, correct and complete in all material respects, (b)
all Taxes (including interest, additions to tax and penalties thereon together
with interest on such additions to tax and penalties) relating to the Company or
the Business that are due from or may be asserted against the Company or the
Business in respect of or attributable to all periods ending on or before the
Closing Date have been fully paid, deposited or adequately provided for on the
books and financial statements of the Company and the Business or are being
contested in good faith by appropriate proceedings in which case they are
described on Schedule 3.8, (c) the August Balance Sheet reflects and includes
adequate provisions for the payment in full of any and all Taxes for which the
Company is or could be liable, whether to any governmental entity or to other
persons (as, for example, under tax allocation agreements), not yet due for any
and all periods up to and including the date of such balance sheet, (d) all
Taxes for which the Company is or could be liable, whether to a governmental
entity or to another person (as, for example, under tax allocation agreements)
for periods through the Closing Date (whether or not the period ended for tax
purposes on the Closing Date) have been, or will be, paid when due or provided
for on the books and financial statements of the Company and the Business, (e)
no issues have been raised (or are currently pending) by any taxing authority in
connection with any of the returns and reports referred to in clause (a) which
might be determined adversely to the Company and which would have a material
adverse effect on the Business, (f) the Company has not given or been requested
to give waivers or extensions of any statute of limitations with respect to the
payment of Taxes relating to the Company or the Business, (g) no tax liens which
have not been satisfied or discharged by payment or concession by the relevant
taxing authority or as to which sufficient reserves have not been established on
the books and financial statements of the Company and the Business are in force
as of the date hereof with respect to any of the assets of the Company or the
Business; (h) all material elections and consents with respect to the
determination of any tax affecting the Company are obvious from the Company's
tax returns or are set forth on Schedule 3.8 and after the date hereof, no
election or consent with respect to the determination of any tax affecting the
Business will be made without the consent of the Purchaser; (i) the Company has
not agreed to and has not been required to make any adjustment under Section 481
of the Code, by reason of a change in accounting method or otherwise; (j) the
Company has filed its tax returns on the basis that it is a partnership under
the Internal Revenue Code for all years that it has been in existence; (k) the
Company is not
-11-
<PAGE>
<PAGE>
a party to any tax allocation or sharing agreement; and (l) no tax is required
to be withheld under Section 1445 of the Code as a result of the sale of the
Assets.
3.8.2 Deficiencies. All deficiencies proposed in
writing by taxing authorities which would have a material adverse effect on the
Company or the Business have been paid, reserved against, settled or are being
contested in good faith by appropriate proceedings.
3.8.3 Taxes Collected. All taxes relating to the
Company or the Business that the Company is or was required by law to withhold,
to deposit or to collect have been duly withheld, deposited or collected and, to
the extent required, have been paid to the relevant taxing authority or have
been accrued and reflected in the accounts of the Company.
3.9 Leased Property.
3.9.1 Leased Property Schedule.
(a) Schedule 3.9.1 hereto identifies all
leasehold interests in real property including land and improvements held by the
Company which is used or useful in the conduct of the Business (the "Leased
Property"). The Company does not own of record or beneficially any real
property.
(b) Except as set forth on Schedule 3.9.1, there
are no outstanding contracts made by the Company for any improvements to the
Leased Property which have not been fully paid for. At the Closing, the Company
shall cause to be discharged all mechanics' or materialmen's liens arising from
any labor or materials furnished to the Leased Property on behalf of the Company
prior to the time of Closing.
(c) To the best of the Company's knowledge, all
buildings, structures, improvements, fixtures, facilities, equipment, all
components of all buildings, structures and other improvements included within
the Leased Property, including but not limited to the roofs and structural
elements thereof and the heating, ventilation, air conditioning, plumbing,
electrical, mechanical, sewer, waste water, storm water, paving and parking
equipment, systems and facilities included therein, and other material items of
tangible property and assets are in good operating condition and repair, subject
to normal wear and maintenance and are usable in the regular and ordinary course
of business. No person other than the Company owns any equipment or other
tangible assets or properties situated on the Leased Property or necessary to
the operation of the Business, except for leased items disclosed on Schedules
3.9.1 and 1.1(d) hereto.
-12-
<PAGE>
<PAGE>
(d) To the best of the Company's knowledge, the
construction, use and operation of the Leased Property is in full compliance
with all applicable statutes, rules, regulations, ordinances, orders, writs,
injunctions, judgments, decrees, awards and restrictions of every governmental
authority having jurisdiction over any of the Leased Property, the Business or
the Company, and every instrumentality or agency thereof (including, without
limitation, applicable statutes, rules, regulations, orders and restrictions
relating to zoning, land use, safety, health, environment, hazardous substances,
pollution controls, employment and employment practices and access by the
handicapped) (collectively, "Laws"), and with all covenants, conditions,
restrictions, easements, disposition agreements and similar matters affecting
the Leased Property and, effective as of the Closing, Kellstrom Subsidiary shall
have the right under all Laws to continue the use and operation of the Leased
Property for its current uses in the operation of the Business. The Company has
not received any notice of any violation of or investigation regarding any Laws.
3.9.2 Environmental Protection. The Company shall
afford the Purchaser reasonable access to the Leased Property so that the
Purchaser may conduct such investigation as the Purchaser may decide. Except as
set forth on Schedule 3.9.2, to the best knowledge of the Company, (i) no
Hazardous Substances are present on or below the surface of the Leased Property
and such real estate has not previously been used for the manufacture, refining,
treatment, storage, or disposal of any Hazardous Substances; (ii) none of the
soil, ground water, or surface water of the Leased Property is contaminated by
any Hazardous Substance and the Company is not aware of any such contamination
from neighboring real estate; and (iii) except as consistent with applicable
Environmental Laws, no Hazardous Substances are being emitted, discharged or
released from the Leased Property into the environment. To the best knowledge of
the Company, except as set forth on Schedule 3.9.2, the Company is not liable
for cleanup or response costs with respect to the emission, discharge, or
release of any Hazardous Substance or for any other matter arising under the
Environmental Laws due to its ownership or operation of the Leased Property.
As used herein, "Environmental Laws" means, but is not limited
to the Resource Conservation Recovery Act (42 U.S.C. ss. 6901 et seq.), the
Comprehensive Environmental Responsibility Compensation and Liability Act (42
U.S.C. ss. 9601 et seq.), the Superfund Amendments and Reauthorization Act (42
U.S.C. ss. 11011 et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601
et seq.), the Hazardous Materials Transportation Act, the Clean Air Act (42
U.S.C. ss. 7401 et seq.), the Clean Water Act (33 U.S.C. ss. 1251 et seq.), the
Safe Drinking Water Act (42 U.S.C. ss. 300f et seq.) and other similar Federal
and state Laws, as now exist, together with all regulations issued or
promulgated thereunder, relating to pollution, the protection of the environment
or the health and safety of workers or the general public as said regulations
now exist. The term "Hazardous Substances" means any toxic or hazardous
substance or other pollutant of any nature as defined and/or regulated by
Environmental Laws as they now exist
-13-
<PAGE>
<PAGE>
(including, without limitation, asbestos and waste products of the operations of
the Company).
3.10 Intellectual Property. Schedule 3.10 contains a
schedule of all the intangible and intellectual property of the Company,
including, without limitation, all software products, processes, formulae,
methods, plans, research data, marketing plans and strategies, forecasts,
patents and patent applications, inventions, discoveries, know-how, trade
secrets and ideas (including those in the possession of third parties, but which
are the property of the Company), and all drawings, records, books or other
indicia of the foregoing, trademarks, servicemarks, tradenames, licenses,
copyrights, operating rights, permits and other similar intangible property and
rights (collectively, "Intellectual Property"), together with a brief
description of each. To the best knowledge of the Company and the Principal, the
Company has not infringed, and is not now infringing, any trade name, trademark,
service mark, copyright, patent, trade secret or other Intellectual Property
right belonging to a third party and has not received any notice of infringement
upon or conflict with the asserted rights of others. Except as set forth on
Schedule 3.10 hereto, none of such Intellectual Property rights are registered
with the United States Patent and Trademark Office or the United States
Copyright Office. Except as disclosed in Schedule 3.10, the Company is not a
party to any license, agreement, or arrangement, whether as licensor, licensee,
or otherwise, with respect to any Intellectual Property right. There are no
trade names, trademarks, service marks, copyrights, patents or applications for
patents and trade secrets other than those listed on Schedule 3.10 which are
necessary for the conduct of the Business, the loss of which could materially
and adversely affect the prospects, operations or condition, financial or
otherwise, of the Business. The Company is not a party to any outstanding
options, licenses or agreements of any kind relating to the foregoing. No
partner, officer or employee of the Company or any predecessor has any interest
in any of the foregoing rights.
3.11 Tangible Personal Property. The Assets constitute
in the aggregate, all of the assets and tangible personal property owned by, in
the possession of, or used by the Company in connection with the Business.
Except as disclosed in Schedule 3.11, no personal property used in connection
with the Business is held under any lease, security agreement, conditional sales
contract, or other title retention or security arrangement, or is other than in
its possession and control. All tangible personal property is in good operating
condition and repair and is suitable for the conduct of the Business.
3.12 Product Warranty. Each product manufactured,
sold, leased, or delivered by the Company has been in conformity with all
applicable contractual commitments and all express and implied warranties, if
any, and the Company does not have any material liability (and there is no
reasonable basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint,
-14-
<PAGE>
<PAGE>
claim, or demand against it giving rise to any material liability) for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth in the August Balance
Sheet as adjusted for the passage of time through the Closing Date in accordance
with the past custom and practice of the Company. No product manufactured, sold,
leased, or delivered by the Company is subject to any guaranty, warranty, or
other indemnity beyond the applicable standard terms and conditions of sale or
lease of such product.
3.13 Securities Representation. Each of the Company
and the Principal, jointly and severally, represent and warrant to the Purchaser
and Kellstrom Subsidiary that the Purchaser Warrants to be issued to the Company
pursuant to the provisions hereof will be acquired for distribution to the
Principal. Each of the Company and the Principal, jointly and severally, agree
that, prior to the delivery of any Purchaser Warrants issued to the Company
pursuant to the provisions hereof to the Principal, the Principal will execute
and deliver to the Purchaser an investment letter in the form of Exhibit B
hereto. The Company agrees that it will deliver a copy of such investment letter
to the Purchaser. Each certificate representing the Purchaser Warrants, issued
to each partner, shall bear the following legend:
"This warrant and the shares underlying this warrant shall not
be transferable at any time unless (i) a registration statement under the
Securities Act of 1933 shall be in effect with respect to such transfer at such
time or (ii) counsel for the Company shall give it an opinion to the effect that
such registration under said Act of such transfer at such time is not required."
Each of the Company and the Principal, jointly and severally, represent and
warrant to the Purchaser that no transaction in the Purchaser Warrants will be
effected other than transactions which will be exempt from registration under
the Securities Act of 1933, as amended.
3.14 Personnel and Plans. Schedule 3.14 comprises a
complete and correct list of (a) the names, titles, length of employment or
service and current annual salary rates and all other compensation and fringe
benefits of each of the employees, officers or consultants of the Company who is
engaged in the conduct of the Business; and (b) the amount of accrued bonuses,
vacation, sick leave, maternity leave and other leave for such personnel. The
Company is not in default with respect to any withholding or other employment
taxes or payments with respect to accrued vacation or severance pay on behalf of
any employee for which it is obligated on the date hereof, and will maintain and
continue to make all such necessary payments or adjustments arising through the
Closing Date. There are not in existence or, to the best of the Company's
knowledge after due inquiry, threatened any (c) work stoppages respecting
employees of the Company; or (d) unfair labor practice complaints against the
Company. No representation question exists respecting the employees of the
Company and no
-15-
<PAGE>
<PAGE>
collective bargaining agreement is currently being negotiated by the Company
covering employees of the Company, nor is any grievance procedure or arbitration
proceeding pending under any collective bargaining agreement and no claim
therefor has been asserted. The Company has not received notice from any union
or employees setting forth demands for representation, elections or for present
or future changes in wages, terms of employment or working conditions. There
have been no audits of the equal employment opportunity practices of the
Company, and, to the best knowledge of the Company, no basis for such audit
exists. True and complete copies of the current written personnel policies,
manuals and/or handbooks of the Company have previously been delivered to the
Purchaser.
There are no Liens against the Assets under Section 412(n) of
the Code or Sections 302(f) or 4068 of ERISA. Neither the Company nor any member
of the same controlled group of businesses as the Company within the meaning of
Section 4001(a)(14) of ERISA (an "ERISA Affiliate") is or was obligated to
contribute to any "multi-employer plan," as defined in Section 3(37) of ERISA.
As of the Closing, the Purchaser and Kellstrom Subsidiary will have no
obligation to contribute to, or any liability in respect of, any "Employee
Benefit Plan" (as defined below) sponsored or maintained by the Company or any
ERISA Affiliate of the Company, or to which the Company or any ERISA Affiliate
of the Company was obligated to contribute, except for obligations which are
Assumed Liabilities. Each Employee Benefit Plan of the Company which has been
required to comply with the provisions of Section 4980B of the Code has
substantially complied in all material respects. For purposes of this Agreement,
the term "Employee Benefit Plans" means all employee benefit plans described in
Section 3(3) of ERISA, and any similar employment, severance, or other
arrangement or policy providing for insurance coverage, including self-insured
arrangements, worker's compensation, medical, dental, vision, dependent care or
disability benefits, supplemental unemployment benefits, vacation, sick leave or
paid time off benefits, retirement benefits or death benefits, or for profit
sharing, deferred compensation, bonuses, stock options, stock appreciation or
other forms of incentive compensation, fringe benefits, or post-retirement
insurance compensation or benefits.
3.15 Insurance. Attached as Schedule 3.15 are
certificates of insurance setting forth all insurance agreements and policies
maintained by the Company, including any and all insurance agreements and
policies covering the Business and any and all life insurance policies
maintained by the Company on the lives of its employees, officers or directors,
and the type and amounts of coverage thereunder, which Schedule 3.15 reflects
all such insurance which is required by law to be maintained by the Company.
During the past three years, the Company has not been refused insurance in
connection with the Business, nor has any claim in excess of $10,000 been made
in respect of any such agreements or policies, except as set forth in Schedule
3.15 hereto. Such policies are in full force and effect, and the Company is not
delinquent with respect to any premium payments thereon. The Company maintains
the type and amount of
-16-
<PAGE>
<PAGE>
insurance which is adequate to protect it and its financial condition against
the risks involved in the conduct of the Business.
3.16 Litigation. Except as disclosed in Schedule 3.16,
there is no suit, action, arbitration, or legal, administrative, or other
proceeding, or governmental investigation pending against or affecting the
Company relating to any of the transactions contemplated by this Agreement or
which materially and adversely affect the business, assets, or condition,
financial or otherwise, of the Company. The Company is not in default of any
order, writ, injunction or decree of any Federal, state, local, or foreign
court, department, agency or instrumentality.
3.17 Contracts, Obligations and Commitments. Except as
set forth on Schedule 3.17 hereto, the Company does not have any existing
contract, obligation or commitment (written or oral) of any nature, including,
without limitation, the following: (a) loan or other agreements, notes,
indentures, or instruments relating to or evidencing indebtedness for borrowed
money or mortgaging, pledging or granting or creating a Lien on any of its
assets or any agreement or instrument evidencing any guaranty by the Company of
payment or performance by any other person; (b) any contract or series of
contracts with the same person for the furnishing or purchase of equipment,
goods or services for an excess of $25,000 (or, if for the purchase of
Inventory, $250,000); (c) any material joint venture contract or arrangement or
other material agreement involving a sharing of profits or expenses to which it
is a party or by which it is bound; (d) agreements which will materially limit
the freedom of the Purchaser or Kellstrom Subsidiary to compete in any line of
business or in any geographic area or with any person; (e) agreements providing
for disposition of the assets of the Company other than in the ordinary course
of business or agreements of merger or consolidation to which it is a party or
by which it is bound; (f) any lease under which the Company is either lessor or
lessee relating to any asset of the Business or any property at which the
Business or such assets are located if such lease involves lease payments in
excess of $25,000 per year; (g) any contract, commitment or arrangement not made
in the ordinary course of business of the Business; or (h) agreements with the
federal government or any state or local government or any agency thereof.
Except as set forth on Schedule 3.17, each contract,
agreement, arrangement, plan, lease, license or similar instrument listed on
Schedule 3.17 is a valid and binding obligation of the Company and, to the best
of the Company's knowledge, the other parties thereto, enforceable in accordance
with its terms (except as the enforceability thereof may be limited by any
applicable bankruptcy, insolvency or other Laws affecting creditors' rights
generally or by general principles of equity, regardless of whether such
enforceability is considered in equity or at law), and is in full force and
effect (except for any contracts which by their terms expire after the date
hereof or are terminated after the date hereof in accordance with the terms
thereof, provided,
-17-
<PAGE>
<PAGE>
however, that the Company shall not terminate any material contract after the
date hereof other than in the ordinary course of business without the prior
written consent of the Purchaser), and neither the Company nor, to the best of
the Company's knowledge, any other party thereto has breached any material
provision of, nor is in default in any material respect under the terms of (and,
to the best of the Company's knowledge, no condition exists which, with the
passage of time, the giving of notice, or both, would result in a default under
the terms of), any of such contracts. Except as set forth in Schedule 3.17
hereto, each of the Assigned Contracts is validly assignable to Kellstrom
Subsidiary without the consent of any other party thereto so that, after the
assignment thereof to Kellstrom Subsidiary pursuant to this Agreement, the
Purchaser will be entitled to the full economic and other benefits thereof. The
Company shall give the Purchaser written notice of each contract, agreement,
arrangement, plan, lease, license or similar instrument set forth on Schedule
3.17 which is terminated after the date hereof.
3.18 Licenses. The Business has all material licenses,
permits, consents, franchises and approvals required by law or governmental
regulations or that are necessary from all applicable Federal, state and local
authorities and any other regulatory agencies for the lawful conduct of its
business (each a "License"), all of which are listed on Schedule 3.18 hereto,
and it is not in default in any material respect under such licenses, permits,
consents and approvals.
3.19 No Broker. Other than Ernst & Young LLP, the
Company has not dealt with any broker or finder in connection with any of the
transactions contemplated by this Agreement and no broker or other person is
entitled to any commission or finder's fee in connection with any of such
transactions.
3.20 No Illegal or Improper Transactions. The Company
has not, nor has any partner, officer or employee of the Company, directly or
indirectly, used funds or other assets of the Company, or made any promise or
undertaking in such regards, for (a) illegal contributions, gifts, entertainment
or other expenses relating to political activity; (b) illegal payments to or for
the benefit of governmental officials or employees, whether domestic or foreign;
(c) illegal payments to or for the benefit of any person, firm, corporation or
other entity, or any director, officer, employee, agent or representative
thereof; (d) gifts, entertainment or other expenses that jeopardize the normal
business relations between the Company and any of its customers; or (e) the
establishment or maintenance of a secret or unrecorded fund. There have been no
false or fictitious entries made in the books or records of the Company, and the
Company has records that accurately and validly reflect its transactions and
accounting controls sufficient to insure that such transactions are (i) in all
material respects executed in accordance with its management's general or
specific authorization and (ii) recorded in conformity with generally accepted
accounting principles in the United States.
-18-
<PAGE>
<PAGE>
3.21 Related Party Transactions. Except as set forth
in Schedule 3.21, and except for compensation to employees for services
rendered, no current or former partner, officer or employee or any associate (as
defined in the rules promulgated under the Securities Exchange Act of 1934, as
amended) of the Company, is presently, or during the last three fiscal years has
been, (a) a party to any transaction with the Company with respect to the
Business (including, but not limited to, any contract, agreement or other
arrangement providing for the furnishing of services by, or rental of real or
personal property from, or otherwise requiring payments to, any such director,
officer, employee or shareholder or such associate), or (b) the direct or
indirect owner of an interest in any corporation, firm, association or business
organization which is a present (or potential) competitor, supplier or customer
of the Company with respect to the Business, nor does any such person receive
income from any source other than the Company which relates to the business of,
or should properly accrue to, the Company with respect to the Business.
3.22 Disclosure. The Company has not failed to
disclose to the Purchaser any material information adverse to the assets,
liabilities, business, financial condition or results of operations of the
Company or the Business, and no information furnished by or on behalf of the
Company to the Purchaser, taken generally with other information furnished to
the Purchaser, contains any untrue statement of a material fact or omits to
state a material fact necessary to make such statement, in the light of the
circumstances under which it was made, not misleading. All written information,
in whatever form, furnished by the Company to the Purchaser was true and correct
in all material respects as of the date so furnished and, except as the accuracy
thereof is affected by the passage of time, remains true and correct as of the
date hereof.
3.23 Suppliers and Providers of Services.
(a) Schedule 3.23 lists all suppliers of goods to, and
providers of services to, the Business (collectively, "Suppliers") to which the
Company or the Business made payments during the fiscal year ended December 31,
1995 or the eight months ended on the Balance Sheet Date, in excess of five
percent of any the Business's operating expenses as reflected on its statement
of operations for such year or eight month period, respectively.
(b) Neither the Company nor the Principal has any
information which might reasonably indicate that any of the Suppliers listed on
Schedule 3.23 intends to cease selling or rendering services to, or dealing
with, the Business, nor has any information been brought to their attention
which might reasonably lead them to believe any such Supplier intends to alter
in any material respect the amount of sales or service or the extent of dealings
with the Purchaser, or would alter in any material respect the sales or service
or dealings in the event of the consummation of the transactions contemplated
hereby.
-19-
<PAGE>
<PAGE>
3.24 Customers.
(a) Schedule 3.24 lists all customers to which the
Company or the Business sold products during the fiscal year ended December 31,
1995 or the eight months ended on the Balance Sheet Date, in excess of five
percent of the Business's revenues as reflected on its statement of operations
for such year or eight month period, respectively.
(b) Neither the Company, the Principal nor the
Business has any information which might reasonably indicate that any of the
customers listed on Schedule 3.24 intends to cease purchasing products from, or
dealing with, the Business, nor has any information been brought to their
attention which might reasonably lead them to believe any such customer intends
to alter in any material respect the amount of purchases or the extent of
dealings with the Purchaser, or would alter in any material respect the
purchases or dealings in the event of the consummation of the transactions
contemplated hereby.
3.25 Accounts Receivable. Except as set forth in
Schedule 3.21, each of the accounts receivable of the Company (a) arose from
bona fide sales in the ordinary course of business, (b) was entered into under
circumstances and by methods usual and customary in the Company's business in
the applicable state and the collection practices used with respect thereto have
been in all respect legal and proper and (c) was entered into, and credit
granted pursuant hereto, consistent with the Company's historical credit
policies and practices. The books of the Company correctly record the principal
balance of all accounts receivable and each of the security instruments securing
any account receivable, if any, constitutes a valid lien in favor of the Company
upon the property which it describes, and is enforceable by the Company and its
transferees. The reserves for doubtful accounts shown or reflected in the
Financial Statements are adequate and were calculated consistent with past
practice.
4. Representations and Warranties of the Purchaser and
Kellstrom Subsidiary.
4.1 In order to induce the Company to enter into and
perform this Agreement, the Purchaser and Kellstrom Subsidiary, jointly and
severally, represent, warrant and agree as follows:
4.1.1 Organization. Each of the Purchaser and
Kellstrom Subsidiary is a corporation duly organized, validly existing and in
good standing under the Laws of its jurisdiction of incorporation and has all
requisite power and authority to execute, deliver and perform this Agreement and
to consummate the transactions contemplated hereby.
-20-
<PAGE>
<PAGE>
4.1.2 Authority and No Conflict. Each of the
Purchaser and Kellstrom Subsidiary has the full right, power and authority to
execute, deliver and carry out the terms of this Agreement, and all documents
and agreements necessary to give effect to the provisions of this Agreement, and
this Agreement has been duly authorized, executed and delivered by each of the
Purchaser and Kellstrom Subsidiary. The execution and delivery of this Agreement
by each of the Purchaser and Kellstrom Subsidiary does not, and consummation of
the transactions contemplated hereby will not (a) conflict with, or result in
any violation of or default or loss of any benefit under, any provision of the
Purchaser's and Kellstrom Subsidiary's respective governing instruments; (b)
conflict with, or result in any violation of or default or loss of any material
benefit under, any permit, concession, grant, franchise, law, rule or
regulation, or any judgment, decree or order of any court or other governmental
agency or instrumentality to which the Purchaser or Kellstrom Subsidiary is a
party; or (c) conflict with, or result in a breach or violation of or default or
loss of any material benefit under, or accelerate the performance required by,
the terms of any material agreement, contract, indenture or other instrument to
which the Purchaser or Kellstrom Subsidiary is a party, or constitute a default
or loss of any right thereunder or an event which, with the lapse of time or
notice or both, might result in a default or loss of any right thereunder or the
creation of any material Lien upon the assets of the Purchaser or Kellstrom
Subsidiary. All action and other authorizations prerequisite to the execution of
this Agreement and the consummation of the transactions contemplated by this
Agreement have been taken or obtained by the Purchaser and Kellstrom Subsidiary.
This is a valid and binding agreement of each of the Purchaser and Kellstrom
Subsidiary enforceable in accordance with its terms (except as such
enforceability may be limited by any applicable bankruptcy, insolvency or other
laws affecting creditors' rights generally or by general principles of equity,
regardless of whether such enforceability is considered in equity or at law).
4.1.3 Consents. The execution, delivery and
performance by each of the Purchaser and Kellstrom Subsidiary of this Agreement,
and the performance of the transactions contemplated by this Agreement, do not
require the authorization, consent, approval, certification, license or order
of, or any filing with, any court or governmental agency or any other third
party except for such governmental authorizations, consents, approvals,
certifications, licenses and orders that have been obtained.
4.1.4 No Broker. Each of the Purchaser and
Kellstrom Subsidiary represents and warrants that it has not dealt with any
broker or finder in connection with any of the transactions contemplated by this
Agreement and no broker or other person is entitled to any commission or
finder's fee from the Purchaser or Kellstrom Subsidiary in connection with any
of such transactions.
-21-
<PAGE>
<PAGE>
4.1.5 Issuance of Purchaser Warrants. The
Purchaser has the full right, power and authority to issue, execute and deliver
the Purchaser Warrants and the Purchaser Warrants have been duly authorized, and
at the Closing shall be duly executed and delivered, by the Purchaser. The
Common Stock issuable upon the exercise of the Purchaser Warrants has been duly
and validly authorized and reserved and, upon issuance thereof upon exercise of
the Purchaser Warrants, will be duly and validly issued, fully paid and
non-assessable.
4.1.6 Reports of the Purchaser. The Purchaser has
delivered to the Company (i) the Purchaser's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995, (ii) the Purchaser's Quarterly Reports
for the fiscal quarters ended March 31, 1996 and June 30, 1996 and (iv) the
Purchaser's Definitive Proxy Statement for the Annual Meeting dated July 23,
1996 (collectively, the "SEC Reports"). The SEC Reports, when filed with the
Securities and Exchange Commission (the "SEC"), complied as to form in all
material respects with the requirements of the Securities Exchange Act of 1934,
as amended. As of their respective dates, the SEC Reports did not contain an
untrue statement of material fact or omit to state a material fact required to
be stated therein. There have been no Forms 8-K filed by the Purchaser with the
SEC since the filing of the Company's Quarterly Report on Form 10-QSB for the
fiscal quarter ended June 30, 1996.
4.1.7 No Material Adverse Change. Since the
filing of the Purchaser's Form 10-QSB for the fiscal quarter ended June 30,
1996, there has been no material adverse change in results of operations,
financial condition or business of the Purchaser.
4.1.8 Disclosure. The Purchaser has not failed to
disclose to the Company any material information adverse to the assets,
liabilities, business, financial condition or results of operations of the
Purchaser, and no information furnished by or on behalf of the Purchaser to the
Company, taken generally with other information furnished to the Company,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make such statement, in the light of the circumstances under
which it was made, not misleading. All written information, in whatever form,
furnished by the Purchaser to the Company was true and correct in all material
respects as of the date so furnished and, except as the accuracy thereof is
affected by the passage of time, remains true and correct as of the date hereof.
-22-
<PAGE>
<PAGE>
5. Covenants.
5.1 The Company and the Principal, jointly and
severally, agree that:
5.1.1 Access to Premises and Information. From
and after the date hereof until the Closing, the Purchaser and its counsel,
accountants, and other representatives will continue to have, during normal
business hours, access to the Business and to all properties, books, accounts
and records, contracts and documents of or relating to the Business; provided,
however, that the legal and accounting due diligence shall be completed no later
than two weeks following the execution and delivery of this Agreement. The
Company will furnish or cause to be furnished to the Purchaser and the
Purchaser's representatives all data and information concerning the business,
finances and properties of the Company and the Business that may be requested.
5.1.2 Conduct of Business in Ordinary Course.
From and after the date hereof until the Closing, the Company will carry on its
business diligently, in the ordinary course and in substantially the same manner
as such business has previously been carried out, and will not make or institute
any material purchase, sale, lease, management, accounting policy or operation
that will vary materially from those methods used by it during the 12 month
period ending on the date of this Agreement.
Without limiting the foregoing, from the date hereof until
the Closing Date, the Company will (i) not increase any compensation payable to
any employees or consultants (except in the ordinary course of business); (ii)
not create any material obligation or liability (absolute or contingent) except
liabilities incurred in the ordinary course of business and obligations under
contracts entered in the ordinary course of business; (iii) not enter into,
amend or terminate any material contract, agreement, permit or lease without the
prior written consent of the Purchaser other than in the ordinary course of
business; (iv) not amend the certificate of limited partnership or agreement of
limited partnership of the Company; (v) not enter into any commitment to borrow
money or mortgage, pledge, or subject to Lien, any assets or properties except
in the ordinary course of business or as contemplated hereunder; (vi) not sell
or transfer any of the Assets or cancel any debt or claim except in the ordinary
course of conduct of business or as contemplated hereunder; (vii) keep in full
force and effect all insurance relating to the Business comparable in amount and
scope of coverage to that now maintained; (viii) perform in all material
respects all its obligations under contracts, leases and documents relating to
or affecting conduct of the Business, all in the same manner as heretofore
performed; (ix) use its best efforts to maintain and preserve the Assets, the
Business, the good will and relationships with its present officers, employees,
suppliers, staff and others having a business relationship with it, and maintain
all material licenses and permits requisite to the conduct of the Business; (x)
not commit to
-23-
<PAGE>
<PAGE>
any capital expenditure or purchase of Inventory other than in the ordinary
course of business; (xi) maintain in working condition all buildings, equipment,
fixtures and other property, reasonable wear and tear excepted; (xii) duly and
timely file all tax and information returns with the appropriate Federal, state,
local and foreign governmental agencies and promptly pay when due all taxes,
excise taxes, assessments, charges, penalties and interest lawfully levied or
assessed upon it or any of its property; (xiii) make no material change in its
existing banking and safe deposit arrangements or grant any powers of attorney
except in the ordinary course of business; (xiv) not distribute, spend, commit
or otherwise transfer any interest in the funds paid to the Company except in
the ordinary course of business; (xv) issue or split-up, or grant any option or
other right to acquire, any partnership or other interest or any security of the
Company; or (xvi) make any declaration, set aside for payment or other
distribution in respect of any of the partnership interests of the Company, or
make any direct or indirect redemption, purchase or other acquisition of any
partnership interest of the Company. The Company will promptly report to the
Purchaser any material proposed capital expenditure or purchase of Inventory.
5.1.3 Representations and Warranties True at
Closing. All representations and warranties of the Company and the Principal set
forth in this Agreement will also be true and correct in all material respects
as of the Closing Date as if made on that date, and the Company and the
Principal shall immediately notify the Purchaser if any of them becomes aware of
any material inaccuracy in any representation or warranty at any time after the
date hereof. The Company and the Principal will not take, or agree to take, any
action which will result in any representation or warranty being untrue or
incorrect in any material respect at any time from the date of this Agreement to
the Closing Date. The Company undertakes to revise all Schedules hereto as may
be necessary from the date hereof until the Closing Date; provided that if any
changes reflected on such Schedules have a material adverse effect on the
Business or the transaction as a whole, the Purchaser shall not be obligated to
consummate the transactions contemplated hereby. If the Purchaser elects not to
consummate the transactions contemplated hereby in accordance with provisions of
the preceding sentence, such election will be treated as a termination of this
Agreement pursuant to Section 10.1(c) hereof unless the event giving rise to the
revision of the Schedule relates to an event or occurrence which does not
constitute a breach of any representation or warranty made by the Company
pursuant to this Agreement as of the date hereof. If the Purchaser elects to
consummate the transaction contemplated hereby notwithstanding a revision to the
Schedules hereto, the Schedules will be deemed to have been reinstated as of the
date hereof as if they had been originally attached to this Agreement.
5.1.4 Hiring of Employees; Bonuses.
(a) The Purchaser shall be permitted to interview
all employees of the Company engaged in the Business and discuss with, and offer
-24-
<PAGE>
<PAGE>
employment to, any of such employees. The Purchaser expects that the Company's
current management and staff will remain in place. The Company agrees that it
will not take any action which will impose liability on the Purchaser or
Kellstrom Subsidiary under the Worker Adjustment and Retraining Act ("WARN").
(b) Schedule 5.1.4 sets forth a list of all
employees of the Company entitled to bonuses which have not yet been paid, and
the amounts of those bonuses. The Purchaser shall be entitled to contact any or
all of such employees to negotiate paying a portion of such bonuses with shares
of Common Stock or options to purchase shares of Common Stock, upon terms
mutually acceptable to the Purchaser and such employees. The Company will use
its best efforts to facilitate contact and negotiation between the Purchaser and
such employees.
5.1.5 No Shopping. From the date of this
Agreement until the termination hereof, neither the Company, the Principal nor
any of their agents or representatives shall provide information to, solicit any
indications of interest from, or negotiate with, any third party with respect to
any possible sale of equity interests or assets, merger or other business
combination or similar transaction involving the Company and/or the Business (a
"Business Combination") until the termination of this Agreement in accordance
with the terms hereof.
5.1.6 Non-Competition. Each of the Company and
the Principal agrees that neither of them nor any of their affiliates will, for
a period of three (3) years from the Closing Date in the United States or
elsewhere in the world directly or indirectly (i) own, invest in, assist in the
development of, or have any management role in, any firm, corporation, business
or other organization or enterprise engaged, directly or indirectly, in the
purchasing, refurbishing, marketing or distribution of commercial jet engines or
jet engine parts, without the prior written consent of the Purchaser or
Kellstrom Subsidiary, (ii) solicit for employment any employee of Kellstrom
Subsidiary or the Purchaser or any of their affiliates, or (iii) interfere with,
disrupt or attempt to disrupt the relationship between Kellstrom Subsidiary and
the Purchaser or any of their affiliates, on the one hand, and any of their
respective employees, customers or suppliers, on the other hand; provided that
the provisions of this Section 5.1.6 shall not be breached as a result of the
continuing interest of the Principal in Martin Aviation and Elsinore Aviation
Services as long as their businesses are substantially similar to those
conducted on the date hereof. If any court determines that any of the
restrictive covenants set forth in this Section 5.1.6, or any part of such
covenants, is unenforceable because of the duration of such provision or the
area covered thereby, such court shall have the power to reduce the duration or
area of such provision and, in its reduced form, such provision shall then be
enforceable and shall be enforced.
-25-
<PAGE>
<PAGE>
5.1.7 Repayment of Certain Indebtedness;
Promissory Note.
(a) As of the date hereof, there is outstanding
and owed to the Company by affiliated parties an aggregate of $2,625,000 of
indebtedness and other obligations, as described in Schedule 3.21 hereto
(collectively, the "Affiliated Obligations"). The Company and the Principal,
jointly and severally, agree that on or prior to the Closing Date not less than
One Million, Five Hundred Thousand Dollars ($1,500,0000) of the Affiliated
Obligations shall be repaid in cash. Pursuant to Section 2.1(b) above, the
Purchase Price shall be reduced by the amount, if any, of any shortfall in the
amount of the Affiliated Obligations which shall have been repaid on or prior to
the Closing Date. To the extent Affiliated Obligations are repaid, the
promissory notes evidencing such Obligations shall be canceled.
(b) Any unpaid amounts of Affiliated Obligations
outstanding as of the Closing shall be evidenced by a nonrecourse, nonnegotiable
promissory note (the "Promissory Note"), in the form of Exhibit C hereto, made
by the Company to the Purchaser, bearing interest, payable at maturity, at the
rate of nine percent (9%) per annum and payable on the first anniversary of the
Closing Date and secured by the Purchaser Warrants.
5.1.8 Employee Notification. In the event that
any notices or other compliance actions are required under WARN, the Company
shall be responsible for the same.
5.1.9 Name Change. At the Closing the Company and
its Managing General Partner will change their names to names that are not
confusingly similar to their current names.
5.1.10 Further Authorization. The Company will
take, or cause to be taken, such further actions as may be necessary or
appropriate to authorize the execution, delivery and performance of this
Agreement by it.
5.1.11 Subsequent Liability. If, subsequent to
the Closing Date, any liability for Taxes relating to the Assets or the conduct
of the Business is imposed on the Purchaser or Kellstrom Subsidiary with respect
to any period prior to and through the Closing Date which has not otherwise been
assumed by the Purchaser pursuant to this Agreement, then the Company and the
Principal shall, jointly and severally, indemnify and hold the Purchaser and
Kellstrom Subsidiary harmless, from and against, and shall pay, the full amount
of such Tax liability, including any interest, additions to tax and penalties
thereon, together with interest on such additions to tax or penalties (as well
as reasonable attorneys' or other fees and disbursements of the Purchaser and
Kellstrom Subsidiary incurred in determination thereof or in connection
therewith), or the Company shall, at its sole expense and in its reasonable
discretion,
-26-
<PAGE>
<PAGE>
either settle any Tax claim that may be the subject of indemnification under
this Section 3.26 at such time and on such terms as they shall deem appropriate
or assume the entire defense thereof, provided, however, that the Company shall
not in any event take any position in such settlement or defense that subjects
the Purchaser or Kellstrom Subsidiary to any civil fraud or any civil or
criminal penalty. Notwithstanding the foregoing, the Company shall not consent,
without the prior written consent of the Purchaser, which prior written consent
shall not be unreasonably withheld, to any change in the treatment of any item
which would adversely affect the tax liability of the Purchaser or Kellstrom
Subsidiary for a period subsequent to the Closing Date.
5.1.12 Schedules. The Company acknowledges that
this Agreement was executed by the Purchaser and Kellstrom Subsidiary prior to
delivery of any of the Schedules referred to in this Agreement. Within seven
days of the execution of this Agreement, the Company and the Principal shall
deliver to the Purchaser a full and complete set of Schedules to this Agreement
which shall be satisfactory to the Purchaser and Kellstrom Subsidiary in all
respects.
5.2 The Company and the Purchaser agree that:
5.2.1 Consents. The Company and the Purchaser
will use their best efforts to obtain all consents, waivers, and the like
required to be obtained by each of them, respectively, and to take such actions
as are necessary or desirable to consummate the transactions contemplated hereby
and to satisfy the conditions to Closing set forth herein.
5.2.2 Confidentiality; Public Announcements. The
existence and the terms of this Agreement and the transactions contemplated
herein shall be maintained in confidence by the parties hereto and their
respective officers, directors, employees, partners and agents. Except as
provided in this Section 5.2.2, each of the parties agrees to hold in confidence
and not use, disclose or reveal to any other person any confidential or
proprietary information disclosed by any other party in connection with the
transactions proposed in this Agreement or the negotiations between such parties
unless or until such information has become generally available to the public
through no fault or omission on the part of the receiving party. No other public
announcements, notices or other communications to third parties with respect to
the transactions contemplated hereby shall be made by the Company, the
Principal, the Purchaser or Kellstrom Subsidiary or their respective
representatives. Notwithstanding the foregoing, (i) Purchaser shall be permitted
to make such disclosures to the public or to governmental agencies as its
counsel shall deem necessary to maintain compliance with and to prevent
violation of applicable federal or state laws, and (ii) Purchaser shall be
permitted to make such disclosures to potential lenders and investors as may be
reasonably required in order to obtain the financing referred to in Section 6.11
hereof. With respect to disclosures made by Purchaser pursuant to clause (i) of
the preceding
-27-
<PAGE>
<PAGE>
sentence, Purchaser will consult with the Company regarding the content of
public statements relating to the transactions but the final form of such public
statements shall be determined by Purchaser, in consultation with its counsel,
to ensure compliance by Purchaser with applicable laws. In the event that the
transactions contemplated hereby are not consummated, each party will promptly
return all copies of any confidential or proprietary information disclosed to
such party in connection with the transaction contemplated herein, except for
one copy to be retained by counsel to such party in order to evidence compliance
hereunder.
5.2.3 Employee Matters.
(a) The Company acknowledges that it has no
information that Kellstrom Subsidiary would not qualify for successor status
under Rev. Proc. 84-77. Pursuant to that pronouncement, the parties agree
Kellstrom Subsidiary will file (with the federal government and the state, where
appropriate) a single W-2 for each employee, reporting the wages paid by both
Kellstrom Subsidiary and the Company. In addition, both parties will file 941's
for the quarter during which the sale takes place, reflecting the wages and
deposits made during its period of ownership.
(b) Each employee of the Company who is hired by
Kellstrom Subsidiary shall be entitled to participate in all Employee Benefit
Plans maintained or sponsored by the Purchaser, or to which the Purchaser
contributes, and in which comparable employees of the Purchaser are entitled to
participate. Each such employee's period of service and compensation history
with the Company or any ERISA Affiliate of the Company shall be counted in
determining eligibility for, and the amount and vesting of, benefits under each
of such Employee Benefit Plans, subject in all respects to the eligibility
requirements of the relevant Employee Benefit Plan. Each such employee shall be
covered as of his date of hire under any such Employee Benefit Plan providing
health care benefits without regard to any waiting period or any condition or
exclusion based on any pre-existing conditions, medical history, claims
experience, evidence of insurability, or genetic factors, subject in all
respects to the eligibility requirements of the relevant Employee Benefit Plan.
Kellstrom Subsidiary shall be responsible for complying with Section 4980B of
the Code with respect to any employee of the Company who is hired by Kellstrom
Subsidiary at any time on or after the Closing. The Company shall be responsible
for complying with Section 4980B of the Code with respect to qualifying events
which occur on or before the Closing, except with respect to employees hired by
Kellstrom Subsidiary as described in the preceding sentence.
(c) Notwithstanding any provision herein, no term
of this Agreement shall be deemed to create any contract between the Purchaser
or Kellstrom Subsidiary and any such employee which gives the employee the right
to be retained in the employment of Kellstrom Subsidiary or any related
employer, or to
-28-
<PAGE>
<PAGE>
interfere with Kellstrom Subsidiary's right to terminate employment of any
employee at any time or to change its policies regarding salaries, benefits and
other employment matters at any time or from time to time. The representations,
warranties, covenants and agreements contained herein are for the sole benefit
of the parties hereto, and employees are not intended to be and shall not be
construed as beneficiaries hereof.
5.2.4 Bulk Sales Law. Kellstrom Subsidiary and
the Company shall comply with any bulk sales laws applicable to the transaction
contemplated hereby. The Company shall promptly provide to Kellstrom Subsidiary
all information required in order to effect such compliance or shall effect such
compliance on behalf of the Purchaser.
5.2.5 Financing Cooperation. The parties hereto
will cooperate in good faith and assist each other in connection with the
Purchaser obtaining financing required to effect the transactions contemplated
hereby and the assumption by the Purchaser of the Credit Agreement.
5.2.6 Allocation of Purchase Price. Prior to the
expiration of the time period set forth in Section 10.1(b) below, the Company
and the Purchaser shall agree upon an allocation of the Purchase Price in its
entirety among the Assets and the non-competition provisions of Section 5.1.6
hereof which is satisfactory to the Company and the Purchaser and as required by
Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code") and
Treasury Regulations promulgated thereunder. The Company and Kellstrom
Subsidiary shall file all required information and tax returns (and any
amendments thereto) in a manner consistent with such allocation and comply with
the applicable information reporting requirements of Section 1060 of the Code
and Treasury Regulations promulgated thereunder. If, contrary to the intent of
the parties hereto as expressed in this Section 5.2.6, any taxing authority
makes or proposes an allocation different from that agreed upon pursuant to this
Section 5.2.6, the Company and Kellstrom Subsidiary shall cooperate with each
other in good faith to contest such taxing authority's allocation (or proposed
allocation), provided, however, that, after consultation with the party
adversely affected by such allocation (or proposed allocation), another party
hereto may file such protective claims or returns as may reasonably be required
to protect its interests.
5.3 The Purchaser agrees that:
5.3.1 Financing. No later than thirty (30) days
following the date of this Agreement, the Purchaser shall provide to the Company
a letter, reasonably satisfactory to the Company, signed by the investment
banking firm which is arranging for the financing described in Section 6.11
below, to the effect that such financing is proceeding. The Purchaser shall
advise the Company of all material developments relating to such financing. The
Purchaser shall provide each potential
-29-
<PAGE>
<PAGE>
source of financing with a written disclaimer to the effect that neither the
Company nor the Principal has prepared or reviewed any submission to the
financing source and that neither has any responsibility therefor.
5.3.2 Union Bank Financing. The Company is a
party to a credit agreement, dated April 29, 1996, between the Company and The
Bank of California, N.A., a division of Union Bank of California (the "Credit
Agreement"). Effective as of the Closing Date, the Purchaser will either (a)
provide for the repayment of all amounts owed by the Company under the Credit
Agreement, and simultaneously therewith the Company will cause the Credit
Agreement and all Liens created thereunder to be terminated, or (b) assume the
obligations of the Company under the Credit Agreement and cause the release of
all obligations, including any guarantees, of the Company or any partner of the
Company pursuant to the Credit Agreement.
5.3.3 Representations and Warranties True at
Closing. All representations and warranties of the Purchaser and Kellstrom
Subsidiary set forth in this Agreement will also be true and correct as of the
Closing Date as if made on that date.
6. Conditions Precedent to the Purchaser's and Kellstrom
Subsidiary's Performance.
The obligations of the Purchaser and Kellstrom Subsidiary
under this Agreement are subject to the satisfaction, at or before the Closing,
of all the conditions set out below. The Purchaser and Kellstrom Subsidiary may
waive any or all of these conditions in whole or in part without prior notice;
provided, however, that no such waiver of a condition shall constitute a waiver
by the Purchaser or Kellstrom Subsidiary of any of the Purchaser's or Kellstrom
Subsidiary's other rights or remedies, at law or in equity, if the Company is in
default of any of the representations, warranties or covenants contained in this
Agreement, except to the extent that such defaults are expressly waived.
6.1 Accuracy of Representations and Warranties. All
representations and warranties by the Company in this Agreement or in any
agreement or in any written statement that is delivered to the Purchaser or
Kellstrom Subsidiary pursuant to this Agreement will be true and accurate in all
material respects on and as of the Closing Date as though made on that date.
6.2 Performance. The Company and the Principal will
have performed, satisfied, and complied in all material respects with all
covenants, agreements, and conditions required by this Agreement to be performed
or complied with by them on or before the Closing Date.
-30-
<PAGE>
<PAGE>
6.3 No Material Adverse Change. There shall have been
no material adverse change in the Assets, condition, or prospects, financial or
otherwise, or results of operations of the Business and the Company.
6.4 Certification by the Company. The Purchaser and
Kellstrom Subsidiary will have received certificates, dated the Closing Date,
signed by the president or vice president and secretary or assistant secretary
of the Managing General Partner of the Company, respectively, certifying, in
such detail as the Purchaser and its counsel may reasonably request, that the
conditions specified in Sections 6.1, 6.2 and 6.3 hereof have been fulfilled,
including, but not limited to, certified copies of all resolutions of the
Company and its general partners pertaining to the authorization of the
execution, delivery and performance of this Agreement.
6.5 Certification by the Principal. The Purchaser and
Kellstrom Subsidiary will have received certificates, dated the Closing Date,
signed by the Principal certifying, in such detail as the Purchaser and its
counsel may reasonably request, that the conditions specified in Sections 6.1,
6.2 and 6.3 hereof have been fulfilled.
6.6 Opinion of the Company's Counsel. The Purchaser
and Kellstrom Subsidiary shall have received from counsel to the Company its
favorable opinion dated the Closing Date as to the matters set forth in Section
3.1.1; Section 3.4.1 (except that the matters set forth in clauses (b), (c) and
(d) of such section shall be to the knowledge of such counsel); Section 3.4.2
(to the knowledge of such counsel); and Section 3.16 (to the knowledge of such
counsel).
6.7 Absence of Litigation. No action, suit, or
proceeding before any court or any governmental body or authority, pertaining to
the transactions contemplated by this Agreement or to their consummation, will
have been instituted and served or threatened in writing on or before the
Closing Date.
6.8 Government Authorization. All agreements and
consents necessary to permit the consummation of the transactions contemplated
by this Agreement shall have been obtained by the Company and the Principal, and
no Federal, state or other authority having jurisdiction over the transactions
contemplated hereby shall have taken any action to enjoin or prevent the
consummation of such transactions.
6.9 Consents. Consents (if any) in form and substance
reasonably satisfactory to the Purchaser and its counsel, to the assignment and
transfer of any material contracts, licenses and permits of the Business or
contemplated hereby and to the ownership of the property of the Company and of
the Assets by Kellstrom Subsidiary shall have been obtained.
-31-
<PAGE>
<PAGE>
6.10 Auditors. The Purchaser shall have received from
the Company's auditors (a) a "comfort letter" in usual form regarding the
Financial Statements of the Company and (b) a consent (which will be updated as
required) to include their reports on the Company's Financial Statements in
documents filed with the Securities and Exchange Commission and other regulatory
agencies.
6.11 Financing. The Purchaser shall have obtained
financing upon terms satisfactory to the Board of Directors of the Purchaser.
6.12 Distributions. No distribution to the partners or
to any other affiliates of the Company shall have been declared, set aside for
payment or other distribution or distributed, and no direct or indirect
redemption of any partnership interests of the Company shall have been made
following the Balance Sheet Date.
6.13 Affiliated Obligations. The amount of all
Affiliated Obligations outstanding on the Closing Date shall not exceed
$2,625,000, of which $1,500,000 shall be repaid in cash on or prior to the
Closing Date pursuant to Section 5.1.7 above. In the event that at the Closing
Date, without giving effect to the $1,500,000 payment referred to above, the
Affiliated Obligations shall exceed $2,625,000, the Company shall be repaid such
excess in cash at the Closing.
6.14 Promissory Note. If required pursuant to Section
5.1.7 above, the Company shall have delivered the Promissory Note to the
Purchaser.
6.15 MA Guaranty. The MA Guaranty shall have been
terminated or all Liens relating thereto on any of the Assets shall have been
released.
7. Conditions Precedent to the Company's and the Principal's
Performance.
The obligations of the Company and the Principal under this
Agreement are subject to the satisfaction, at or before the Closing, of all the
following conditions. The Company and the Principal may waive any or all of
these conditions in whole or in part without prior notice; provided, however,
that no such waiver of a condition shall constitute a waiver of any of the
Company's other rights or remedies, at law or in equity, if the Purchaser or
Kellstrom Subsidiary is in default of any of the representations, warranties or
covenants contained in this Agreement, except to the extent that such defaults
are expressly waived.
7.1 Accuracy of the Purchaser's and Kellstrom
Subsidiary's Representations and Warranties. All representations and warranties
by the Purchaser and Kellstrom Subsidiary contained in this Agreement or in any
written statement delivered by the Purchaser and Kellstrom Subsidiary under this
Agreement will be true and
-32-
<PAGE>
<PAGE>
accurate in all material respects on and as of the Closing as though such
representations and warranties were made on and as of that date.
7.2 Performance; Authorization. The Purchaser and
Kellstrom Subsidiary will have performed, satisfied and complied with all
covenants, agreements and conditions required by this Agreement to be performed
or complied with by it on or before the Closing Date.
7.3 No Material Adverse Change. There shall have been
no material adverse change in the assets, condition or prospects, financial or
otherwise, or the results of operations of Kellstrom since June 30, 1996.
7.4 Certificates. The Company will have received
certificates, dated the Closing Date, signed by the president or vice president
and secretary or assistant secretary of the Purchaser and Kellstrom Subsidiary
certifying, in such detail as the Company and its counsel may reasonably
request, that the conditions specified in Sections 7.1, 7.2 and 7.3 hereof have
been fulfilled, including, but not limited to, certified copies of all
resolutions of the Company pertaining to corporate authorization of the
execution, delivery and performance of this Agreement.
7.5 Absence of Litigation. No action, suit, or
proceeding before any court or any governmental body or authority pertaining to
the transactions contemplated by this Agreement or to their consummation, will
have been instituted and served or threatened in writing on or before the
Closing Date.
7.6 Government Authorization. All agreements and
consents necessary to permit the consummation of the transactions contemplated
by this Agreement shall have been obtained by the Purchaser and Kellstrom
Subsidiary and delivered to the Company, and no Federal, state or other
authority having jurisdiction over the transactions contemplated hereby shall
have taken any action to enjoin or prevent the consummation of such
transactions.
7.7 Payment. The Purchaser shall have (i) paid the
cash portion of the Purchase Price to the Company and (ii) delivered the
Purchaser Warrants, registered in the name of the Company, to the Escrow Agent.
7.8 Opinion of the Purchaser's Counsel. The Company
and the Principal shall have received from counsel to the Purchaser its
favorable opinion dated as of the Closing Date as to the matters set forth in
Section 4.1.1; Section 4.1.2 (except that the matters set forth in clauses (b)
and (c) of such section shall be to the knowledge of such counsel); Section
4.1.3 (to the knowledge of such counsel); and Section 4.1.5.
-33-
<PAGE>
<PAGE>
8. Certain Actions After the Closing.
8.1 Kellstrom Subsidiary to Act as Agent for the
Company. This Agreement shall not constitute an agreement to assign any contract
right included among the Assets if any attempted assignment of the same without
the consent of the other party thereto would constitute a breach thereof or in
any way adversely affect the rights of the Company thereunder. If such consent
is not obtained or if any attempted assignment would be ineffective or would
adversely affect the Company's rights thereunder so that Kellstrom Subsidiary
would not in fact receive all such rights, then Kellstrom Subsidiary shall act
as the agent for the Company in order to obtain for Kellstrom Subsidiary the
benefits thereunder and to assume the liabilities thereunder. Nothing herein
shall be deemed to make Kellstrom Subsidiary the Company's agent in respect of
the Excluded Assets.
8.2 Delivery of Property Received by the Company or
Kellstrom Subsidiary After Closing. From and after the Closing, Kellstrom
Subsidiary shall have the right and authority to collect, for the account of
Kellstrom Subsidiary, all assets which shall be transferred or are intended to
be transferred to Kellstrom Subsidiary as part of the Assets as provided in this
Agreement, and to endorse with the name of the Company any checks or drafts
received on account of any such assets. The Company agrees that it will transfer
or deliver to Kellstrom Subsidiary promptly after the receipt thereof, any cash
or other property which the Company receives after the Closing Date in respect
of any assets transferred or intended to be transferred to Kellstrom Subsidiary
as part of the Assets under this Agreement. In addition, Kellstrom Subsidiary
agrees that it will transfer or deliver to the Company, promptly after receipt
thereof, any cash or other property which Kellstrom Subsidiary receives after
the Closing Date in respect of any assets not transferred or intended to be
transferred to Kellstrom Subsidiary as part of the Assets under this Agreement.
8.3 Kellstrom Subsidiary Appointed Attorney for the
Company. The Company, effective at the Closing Date, hereby constitutes and
appoints Kellstrom Subsidiary, and its successors and assigns, the true and
lawful attorney of the Company, in the name of Kellstrom Subsidiary or the
Company (as Kellstrom Subsidiary shall determine in its sole discretion) but for
the benefit of Kellstrom Subsidiary: (i) to institute and prosecute all
proceedings which Kellstrom Subsidiary may deem proper in order to collect,
assert or enforce any claim, right or title of any kind in or to the Assets as
provided for in this Agreement; (ii) to defend or compromise any and all
actions, suits or proceedings in respect of any of the Assets, and to do all
such acts and things in relation thereto as Kellstrom Subsidiary shall deem
advisable; and (iii) to take all action which Kellstrom Subsidiary, its
successors or assigns may reasonably deem proper in order to provide for
Kellstrom Subsidiary, its successors or assigns, the benefits under any of the
Assets where any required consent of another party to the sale or assignment
thereof to Kellstrom Subsidiary pursuant to this Agreement shall not have been
obtained.
-34-
<PAGE>
<PAGE>
The Company acknowledges that the foregoing powers are coupled with an interest
and shall be irrevocable. Kellstrom Subsidiary shall be entitled to retain for
its own account any amounts collected pursuant to the foregoing powers,
including any amounts payable as interest in respect thereof. Kellstrom
Subsidiary agrees to act in good faith in seeking to collect, assert or enforce
any claim against any third party in accordance with this Section 8.3.
Notwithstanding the foregoing, the power of attorney set forth in this Section
8.3 shall not apply in the event that the Company or the Principal has an
indemnification obligation under Section 9 and is complying with such
obligation.
8.4 Payment of Liabilities. Following the Closing Date
each of Kellstrom Subsidiary and the Company agrees to discharge in accordance
with their terms the Assumed Liabilities and the Excluded Liabilities,
respectively.
8.5 Financial Statements. As soon as practicable, but
no later than 60 days following the Closing, the Company and the Principal,
jointly and severally agree, at their expense, to provide to the Purchaser
unaudited financial statements of the Company, prepared on the same basis as the
Financial Statements, covering the period from the end of the Company's last
fiscal year to the Closing Date. In addition, if the Closing shall take place in
1997, the Company and the Principal, jointly and severally agree, at their
expense, to provide to the Purchaser, no later than March 1, 1997, financial
statements of the Company for its fiscal year ending December 31, 1996, prepared
on the same basis as the Financial Statements and audited by Ernst & Young,
L.L.P.
9. Survival of Representations; Indemnification.
9.1 Survival of Representations, Etc. The several
representations, warranties, covenants and agreements of the parties contained
in this Agreement (or in any document delivered in connection herewith) shall be
deemed to have been made on the Closing Date, shall be deemed to be material and
to have been relied upon by the Purchaser, Kellstrom Subsidiary, the Company and
the Principal, as the case may be, notwithstanding any investigation made by the
Purchaser, Kellstrom Subsidiary or the Company, shall survive the Closing Date
and shall remain operative and in full force and effect for a period of eighteen
months following the Closing Date.
9.2 Company's Indemnity. The Company and the
Principal, jointly and severally, shall indemnify and hold harmless the
Purchaser and Kellstrom Subsidiary and their successors and assigns at all times
after the Closing Date against and in respect of:
(a) any damage, loss, cost, expense or liability
(including settlement costs and reasonable attorneys' fees) resulting to the
Purchaser or Kellstrom Subsidiary from any false, misleading or inaccurate
representation, breach of warranty or
-35-
<PAGE>
<PAGE>
nonfulfillment of any agreement, covenant or condition on the part of the
Company or the Principal under this Agreement or from any misrepresentation in
or any omission from any schedule or other instrument furnished to the Purchaser
or Kellstrom Subsidiary hereunder;
(b) all Excluded Liabilities and, except for the
Assumed Liabilities, any alleged or actual liability or responsibility arising
out of or relating to any claims, suits or proceedings brought against the
Purchaser, Kellstrom Subsidiary or their affiliates by any third parties arising
out of or relating to any (i) acts or omissions of the Company occurring, or
products sold or services rendered by the Company, prior to the Closing, or (ii)
acts or omissions of any person, or accidents of any type, and all injuries
(including death), or damage to or destruction, loss or loss of the use of the
property, regardless of the cause of any of the foregoing, occurring in
connection with the operation of the Assets prior to the Closing; and
(c) all claims, actions, suits, proceedings, demands,
assessments, judgments, costs and expenses incident to any of the foregoing.
This indemnity agreement in this Section 9.2 shall not
foreclose any other rights or remedies the Purchaser may have based on any
action for fraud.
9.3 The Purchaser's and Kellstrom Subsidiary's Indemnity. The
Purchaser and Kellstrom Subsidiary, jointly and severally, shall indemnify and
hold harmless the Company and the Principal and their successors and assigns at
all times after the Closing Date against and in respect of:
(a) any damage, loss, cost, expense or liability
(including settlement costs and reasonable attorneys' fees) resulting to the
Company from (i) any false, misleading or inaccurate representation, breach of
warranty or nonfulfillment of any agreement, covenant or condition on the part
of the Purchaser or Kellstrom Subsidiary under this Agreement or from any
misrepresentation in or any omission from any schedule or other instrument
furnished to the Company hereunder, including without limitation, the SEC
Reports; (ii) the exercise by the Purchaser or Kellstrom Subsidiary of the power
of attorney described in Section 8.3 under circumstances in which the Company
and the Principal are not required to provide indemnification under this Section
9; and (iii)(A) any untrue statement or alleged untrue statement of a material
fact contained in any offering materials supplied by the Company to prospective
investors or lenders in connection with the financing contemplated in Section
6.11 above, including any registration statement, any preliminary prospectus or
final prospectus contained therein or any amendments or supplements thereto
(collectively the "Offering Materials"), (B) the omission or alleged omission to
state in the Offering Materials a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made not misleading, or (C) the employment by the Purchaser of any
device, scheme or artifice to defraud or the
-36-
<PAGE>
<PAGE>
engagement by the Purchaser in any act, practice or course of business which
operates or would operate as a fraud or deceit upon such prospective investors
or lenders, unless the damage, loss, cost, expense or liability described in
this clause (iii) (x) occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such Offering
Materials by or on behalf of the Company, or (y) reasonably arises out of or is
related to information provided by the Company or on behalf of the Company which
constitutes a breach of a representation or warranty contained in this
Agreement;
(b) all Assumed Liabilities and, except for the
Excluded Liabilities, any alleged or actual liability or responsibility arising
out of or relating to any claims, suits or proceedings brought against the
Company or its affiliates by any third parties arising out of or relating to any
(i) acts or omissions of the Purchaser or Kellstrom Subsidiary occurring, or
products sold or services rendered by the Purchaser or Kellstrom Subsidiary,
after the Closing, or (ii) acts or omissions of any person, or accidents of any
type, and all injuries (including death), or damage to or destruction, loss or
loss of the use of the property, regardless of the cause of any of the
foregoing, occurring in connection with the operation of the Assets after the
Closing; and
(c) all claims, actions, suits, proceedings, demands,
assessments, judgments, costs and expenses incident to any of the foregoing.
This indemnity agreement in this Section 9.3 shall not
foreclose any other rights or remedies the Company or the Principal may have
based on any action for fraud.
9.4 Limitation on Indemnification. No claim for
indemnification may be made pursuant to Section 9.2 and 9.3 hereof (a) unless
and until the aggregate amounts claimed against the indemnifying parties under
either respective section shall exceed $200,000 and the claims may only be made
with respect to the excess amount over $200,000, and (b) from and after the
eighteen month anniversary of the Closing Date unless notice of a claim has been
given in reasonable detail prior to such second anniversary. The maximum amount
that may be claimed against the Indemnifying Party under either Section 9.2 or
9.3 shall be $15 million in the aggregate.
9.5 Tax Indemnification. (a) If, subsequent to the Closing
Date, any liability for any Taxes relating to the Assets, the employees of the
Company or Kellstrom Subsidiary, or the Business is imposed on the Purchaser or
Kellstrom Subsidiary with respect to any period prior to the Closing Date, then
the Company and the Principal, jointly and severally, shall indemnify and hold
the Purchaser and Kellstrom Subsidiary harmless from and against, and shall pay,
as an adjustment to the Purchase Price, the full amount of such tax liability,
including any interest, additions to tax and penalties thereon, together with
interest on such additions to tax or penalties (as well as reasonable attorneys'
or other fees and disbursements of the Purchaser and
-37-
<PAGE>
<PAGE>
Kellstrom Subsidiary incurred in determination thereof or in connection
therewith). The Company and the Principal shall, at their sole expense and in
their reasonable discretion, either settle any tax claim that may be the subject
of indemnification under this Section 9.4(a) at such time and on such terms as
it shall deem appropriate or assume the entire defense thereof, provided,
however, that the Company or the Principal shall in no event take any position
in such settlement or defense that subjects the Purchaser or Kellstrom
Subsidiary to any civil fraud or any civil or criminal penalty.
(b) If, subsequent to the Closing Date, any liability
for any Taxes relating to the Assets, the employees of the Company or Kellstrom
Subsidiary, or the Business is imposed on the Company with respect to any period
after the Closing Date, then the Purchaser and Kellstrom Subsidiary, jointly and
severally, shall indemnify and hold the Company harmless from and against, and
shall pay the full amount of such tax liability, including any interest,
additions to tax and penalties thereon, together with interest on such additions
to tax or penalties (as well as reasonable attorneys' or other fees and
disbursements of the Company incurred in determination thereof or in connection
therewith). The Purchaser and Kellstrom Subsidiary shall, at their sole expense
and in their reasonable discretion, either settle any tax claim that may be the
subject of indemnification under this Section 9.4(b) at such time and on such
terms as it shall deem appropriate or assume the entire defense thereof,
provided, however, that the Purchaser and Kellstrom Subsidiary shall in no event
take any position in such settlement or defense that subjects the Company or the
Principal to any civil fraud or any civil or criminal penalty.
9.6 Notice and Defense of Claims. Each party entitled to
indemnification under this Section 9 (the "Indemnified Party") shall give notice
to the party required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party, at the
Indemnifying Party's expense, to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 9 unless such failure
to give notice materially prejudices the Indemnifying Party's ability to defend
such claim. In any event, the Indemnified Party shall be entitled to participate
at its own expense and by its own counsel in any proceedings relating to any
third party claim; provided that the Indemnifying Party shall pay the reasonable
fees and expenses of such counsel if (i) the Indemnifying Party has failed
promptly to assume the defense and employ counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include the Indemnified
Party and the Indemnifying Party and the Indemnified Party shall have been
advised by counsel that there may be one or more legal defenses available to it
that are not available to the Indemnifying Party. The Indemnifying Party, in the
defense of any
-38-
<PAGE>
<PAGE>
such claim or litigation, shall not, except with the consent of the Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to the Indemnified Party of a release from all liability in respect to
such claim or litigation. The Indemnified Party shall furnish such information
regarding itself or the claim in question as the Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
10. Termination.
10.1 Termination. Certain of the parties may terminate
this Agreement as follows:
(a) all of the parties may terminate this Agreement
by unanimous written consent at any time.
(b) the Purchaser or Kellstrom Subsidiary may
terminate this Agreement by giving written notice to
the Company within fourteen (14) days following the
execution and delivery of this Agreement if (i) the
Purchaser or Kellstrom Subsidiary is not satisfied
with (A) the results of its continuing legal and
accounting due diligence regarding the Company and
the Business or (B) the Schedules delivered by the
Company pursuant to Section 5.1.12 or (ii) the
Purchaser or Kellstrom Subsidiary shall not have
entered in to an employment agreement with Fred Von
Husen.
(c) Any party may terminate this Agreement by giving
written notice to the other parties in the event that
any such other party has breached any representation,
warranty or covenant in this Agreement in any
material respect and such breach has not been cured
within 10 days of receipt of notice of breach (unless
such failure results from such party's material
breach of this Agreement).
10.2 Effect of Termination. If any party terminates
this Agreement pursuant to this Section 10, all rights and obligations of the
parties hereto shall terminate without any liability to the other parties
(except for any liability of any party then in breach). Without limiting any
other right which may exist in law or by contract, the breaching party shall be
liable to the party giving notice of termination for all expenses incurred by
the non-breaching party in connection with the negotiation and execution of this
Agreement and the consummation of the transactions being contemplated (including
legal, accounting and investment banking fees and expenses).
-39-
<PAGE>
<PAGE>
11. Entire Agreement; Modification, Waiver.
This Agreement constitutes the entire agreement between the
parties pertaining to the subject matter contained in it and supersedes all
prior and contemporaneous agreements, representations, and understandings of the
parties. No supplement, modification, or amendment of this Agreement will be
binding unless executed in writing by all of the parties. No waiver of any of
the provisions of this Agreement will be deemed, or will constitute, a waiver of
any other provisions, whether or not similar, nor will any waiver constitute a
continuing waiver. No waiver will be binding unless executed in writing by the
party making the waiver.
12. Further Assurances.
The parties from time to time will execute and deliver such
additional documents and instruments and take such additional actions as may be
necessary to carry out the transactions contemplated by the Agreement.
13. Successors and Assigns; Assignment.
This Agreement will be binding on, and inure to the benefit
of, the parties hereto and their respective heirs, legal representatives,
successors and assigns.
14. Notices.
All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement will be in
writing and will be delivered personally or will be sent postage prepaid by
United States registered or certified mail, return receipt requested or by
overnight courier service as follows:
(a) To the Company:
International Aircraft Support, L.P.
4400 Von Karman
Newport Beach, California 92660
Tel: (714) 833-3600
Fax: (714) 476-8604
Attention: General William Lyon
-40-
<PAGE>
<PAGE>
With copies to:
Irell & Manella L.L.P.
Suite 500
840 Newport Center Drive
Newport Beach, California 92660
Tel: (714) 760-0091
Fax: (714) 760-5200
Attention: Richard Sherman, Esq.
(b) To the Purchaser or
Kellstrom Subsidiary at:
Kellstrom Industries, Inc.
14000 N.W. 4th Street
Sunrise, Florida 33325
Tel: (954) 845-0427
Fax: (954) 854-0428
Attention: Zivi R. Nedivi
with a copy to:
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Tel: 212-318-3000
Fax: 212-752-5958
Attention: Richard H. Gilden, Esq.
15. Governing Law.
This Agreement will be construed in accordance with, and
governed by, the laws of the State of New York.
16. Submission to Jurisdiction.
(a) Any controversy or claim arising out of, or
relating to this Agreement, may be determined by the United States District
Court for the Southern District of New York and each party hereto hereby
irrevocably submits to the non-exclusive jurisdiction of either of these courts
for the purpose of adjudicating any such claim.
(b) Each party agrees not to assert by way of motion,
as a defense or otherwise, in any such suit, action or proceeding, any claim
that the party is
-41-
<PAGE>
<PAGE>
not personally subject to the jurisdiction of the above-named courts, that the
suit, action or proceeding is brought in an inconvenient forum, that the venue
of the suit, action or proceeding is improper or that this Agreement may not be
enforced in or by these courts.
17. Expenses.
Except as set forth herein, the Company, the Principals, the
Purchaser and Kellstrom Subsidiary will each pay all their legal, accounting and
other expenses incurred in connection with this transaction.
[Signature page follows this page.]
-42-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of October 28, 1996.
KELLSTROM INDUSTRIES, INC.
By: [signature]
-------------------------------------
Zivi R. Nedivi, President and CEO
IASI INC.
By: [signature]
-------------------------------------
Zivi R. Nedivi, President and CEO
INTERNATIONAL AIRCRAFT SUPPORT, L.P.
By: International Aircraft Support, Inc.,
a California corporation, its Managing
General Partner
By: /s/ William Lyon
-------------------------------------
William Lyon, Chairman
/s/ William Lyon
-------------------------------------
William Lyon
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains Summary Financial Information extracted
from Kellstrom Industries, Inc.'s condensed balance sheets and
statements of operations for the nine months ended September 30, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 420
<SECURITIES> 200
<RECEIVABLES> 2,500
<ALLOWANCES> 0
<INVENTORY> 18,000
<CURRENT-ASSETS> 21,267
<PP&E> 2,708
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,167
<CURRENT-LIABILITIES> 10,015
<BONDS> 0
<COMMON> 3
0
0
<OTHER-SE> 15,143
<TOTAL-LIABILITY-AND-EQUITY> 28,167
<SALES> 17,651
<TOTAL-REVENUES> 17,651
<CGS> 11,125
<TOTAL-COSTS> 14,044
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 425
<INCOME-PRETAX> 3,182
<INCOME-TAX> 1,175
<INCOME-CONTINUING> 2,007
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,007
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
