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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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.
(Name of Small Business Issuer in its Charter)
Delaware 13-3753725
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
14000 N.W. 4 St., Sunrise, Florida 33325
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(Address of Principal Executive Offices) Zip Code
(954) 845-0427
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(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of
the Exchange Act:
Title of Each Class
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Common Stock, $.001 par value (NASDAQ SmallCap Market)
Preferred Stock Purchase Rights (NASDAQ SmallCap Market)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter periods that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this Form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for the fiscal year ending December 31, 1996 were: $24,921,587
As of March 25, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $97,590,261 based on the
closing price on that date of $14 1/8. As of that date, there were 7,495,583
shares of the registrant's Common Stock outstanding.
Transitional Small Business Disclosure Format. Yes No X
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This report contains forward-looking statements, under the captions
"Description of Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." These forward-looking statements are based
on many assumptions and factors, and are subject to many conditions, including
the Company's continuing ability to acquire adequate inventory and to obtain
favorable pricing for such inventory, the ability to arrange for the repair of
aircraft engines by third-party contractors prior to resale or lease,
competitive pricing for the Company's products, customer concentration, demand
for the Company's products which depends upon the condition of the airline
industry, ability to collect receivables and government regulation, and the
effects of increased indebtedness as a result of the acquisition of the business
of International Aircraft Support, L.P.
PART I
Item 1. Description of Business.
General
Kellstrom Industries, Inc. ("Kellstrom" or, together with its
subsidiaries, the "Company") engages in the purchasing, refurbishing (through
subcontractors), leasing, marketing and selling of commercial jet engines and
jet engine parts. The Company's customers include major domestic and
international airlines, engine manufacturers, engine part distributors and
dealers and overhaul service suppliers throughout the world. The Company enables
customers to reduce their engine maintenance costs by providing Federal Aviation
Administration ("FAA")-approved engines and engine parts on a timely basis and
at competitive prices. On January 15, 1997, Kellstrom completed the acquisition
of the business of International Aircraft Support, L.P. ("IASI"), a
California-based worldwide seller of new and used aircraft engine parts. (See
"History of the Company -- Recent Developments"). The Company previously
conducted business under the name "Westco International" and "International
Aircraft Support," and changed the operational name of both business units to
"Kellstrom Industries" on January 30, 1997.
The Company's principal executive office is located at Sawgrass
International Corporate Park, 14000 N.W. Fourth Street, Sunrise, Florida 33325.
Its telephone number is (954) 845-0427.
History of the Company
KST Acquisition.
Kellstrom, formerly Israel Tech Acquisition Corp., was formed in
December 1993 as a Specified Purpose Acquisition Company ("SPAC"), the objective
of which was to consummate an initial public offering and then to enter into a
business combination with an operating business. In April 1994, Kellstrom
consummated the initial public offering, from which it derived net proceeds of
$11,321,197 after expenses. On February 15, 1995, Kellstrom entered into an
Asset Purchase Agreement (the "Acquisition Agreement") with Rada Electronic
Industries, Inc., an Israeli corporation
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("Rada"), Tasco Electronics Inc. (a wholly owned subsidiary of Rada), and
Kellstrom Industries, Inc. ("KST"), which was an indirect, wholly-owned
subsidiary of Rada, to acquire from KST substantially all of the assets,
liabilities and operations of its commercial jet aircraft engine part
distribution business (the "Business"). This acquisition is hereinafter referred
to as the "KST Acquisition." In connection with the closing (the "Closing"),
which took place on June 22, 1995, Kellstrom changed its name from Israel Tech
Acquisition Corp. to Kellstrom Industries, Inc.
In consideration for the Business, Kellstrom paid $9,000,000, of which
$6,000,000 was paid in cash at the Closing. The remaining $3,000,000 was paid in
the form of an unsecured, non-interest bearing promissory note of Kellstrom of
which $1,000,000 is to be paid in eight equal installments over four years from
the Closing and $2,000,000 is to be paid as a balloon payment (the "Balloon
Payment") on the fourth anniversary of the Closing. The Balloon Payment is
payable by Kellstrom in cash or, under certain circumstances, in whole or in
part by issuance of shares of Kellstrom's common stock, par value $.001 per
share (the "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. Subsequent to
December 31, 1996, the promissory note of Kellstrom was paid in full.
In addition, (i) Rada issued to Kellstrom a five-year warrant (the
"Rada Warrant") to purchase 400,000 shares of common stock of Rada (which
represented approximately 7% of the then-issued and outstanding stock of Rada)
at $3.00 per share; (ii) Kellstrom and Rada entered into a five-year marketing,
management and consulting agreement which provided for: (A) the nomination of
Mr. Joram Rosenfeld and Mr. Yoav Stern, then-current Co-Chairmen of the Board of
Directors of Kellstrom (the "Board") for election to Rada's Board of Directors
and (B) the payment by Rada to Kellstrom of an annual $200,000 consulting fee
for five years; and (iii) Kellstrom was granted a right of first refusal to
purchase any additional securities which may be privately offered by Rada during
the five year period following the Closing. In order to maintain a long-term
strategic relationship between the Company and Rada, on December 26, 1996,
Kellstrom exercised the Rada Warrant upon payment of $1,200,000. As a result of
certain antidilution provisions contained in the Rada Warrant, upon payment of
the $1,200,000 exercise price, Kellstrom received 464,643 shares of Rada common
stock, representing 5.6% of the outstanding shares of Rada at the time of
exercise.
Recent Developments.
On January 15, 1997, Kellstrom, through a wholly owned subsidiary,
completed the acquisition of substantially all the assets and certain
liabilities of IASI for $26.5 million in cash and warrants to acquire 500,000
shares of Common Stock at $9.25 per share, expiring January 15, 1999.
IASI is a worldwide seller of new and used aircraft engine parts to
maintenance and overhaul facilities, major commercial airlines and other
redistributors. Along with its engine parts sales (which includes the sale of
consignment parts), IASI is a lessor of jet engines and offers engine repair
management programs through its technical
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services business. The technical services and engine leasing businesses
represented only 0.3% and 8.2%, respectively of 1996 revenues, but both support
the resale of engine spare parts. Technical services allow IASI to supply parts
for engines during engine shop visits managed by IASI and for those engines for
which it has developed maintenance programs. IASI's mix of business and its
purchasing activities ultimately contribute to its position as a "market-maker"
in redistributed engines and/or various engine spare parts.
IASI's current product lines power aircraft which constitute 65% of the
world aircraft fleet. Its customers include major airlines, engine overhaul
facilities including those operated by airlines, independent overhaul and
maintenance organizations and aircraft engine manufacturers.
Industry Overview
The demand for after-market engine parts is driven primarily by flying
hours or cycles; a cycle is defined as a take-off or landing. Regardless of the
profitability of the airline industry, regulations require that parts be
serviced and/or replaced at scheduled intervals; often after specified flight
hours or cycles. As such, the demand for after-market parts is a function of
demand for world air travel. The airline industry has experienced rapid growth
in business and leisure air travel since 1993, primarily due to a world economic
recovery. The high demand for airline capacity has increased the utilization of
aircraft which in turn has significantly increased the demand for spare engine
parts. The Company's business remains dependent upon the overall economic
condition of the airline industry, however, which has historically been
volatile.
According to an industry report by the Canaan Group, a consulting firm
that tracks the aviation market, the total size of the market for commercial
spare engine parts (new and used) is approximately $3 billion. The $3 billion
spare parts market is divided between new and after-market parts. The $2.5
billion new parts market includes parts manufactured by original equipment
manufacturers ("OEMs") and third party manufacturers. The $500 million engine
parts after-market includes parts refurbished by third party manufacturers and
overhaul facilities. In addition to this $3 billion spare parts market, the
whole engine market is estimated to be $7 billion and includes the sale and
leasing of new and overhauled engines. With the addition of IASI, the Company
competes in the entire $10 billion market for engines and engine parts. The
Company competes in the after-market for engine parts, the new engine spare
parts market, and the market for whole engines through its leasing and engine
resale businesses.
The engine parts industry is being affected by the following trends:
Increasing emphasis on documentation and traceability. As safety
requirements have become more stringent, regulatory authorities have increased
the level of documentation required of aircraft operators. This requirement has
in turn been extended by operators to independent dealers. The expense and
sophistication required
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to track the history of inventory consisting of thousands of components is
considerable and provides a barrier to entry into the aircraft engine parts
resale market. In addition to the barriers created by documentation
requirements, management believes that tighter regulations regarding the
operating procedures of resellers may eliminate smaller participants and create
additional barriers to entry.
Outsourcing of inventory management function. Some airlines have
attempted to streamline their operations by outsourcing the entire inventory
management function to independent third parties. This improves the airline's
profitability, as measured by return on assets by removing parts inventories
from the balance sheet. Outsourcing allows third party inventory managers to
achieve economies of scale unavailable to individual airlines. Under consignment
agreements, the supplier is granted the right to sell spare parts from the
airlines' inventory, with the proceeds divided between the supplier and the
airline itself.
Leasing. Similar to outsourcing, leasing aircraft jet engines or parts
is an attempt by airlines to lower their overhead and/or working capital
requirements. Short-term leases, often 30-90 days in duration, are used by some
carriers that do not wish to maintain a pool of spare engines. Intermediate and
long-term leases (up to 10 years) are used by many larger carriers as they
upgrade their fleets. Almost all of the new aircraft flown by the major carriers
are leased. These carriers prefer to lease rather than purchase spare engines
for their fleet. In addition, many of the new entrant jet carriers are capital
constrained and thereby prefer to lease rather than own engines.
Reduction in number of approved suppliers and consolidation of the
engine part after-market. In order to reduce their administrative costs,
airlines are increasingly limited to a small number of approved suppliers with
whom they do business. To remain an approved supplier to the airlines, dealers
must maintain very high standards of quality control, enabling customers to
trace the complete history of any part. This move to limit the number of
approved suppliers is causing a realignment among independent dealers. A small
number of dealers continue to do business directly with airlines, and a new tier
of dealers sell to these approved suppliers. This reduction in supplier base
will continue to lead to consolidation in the market for aircraft spare parts.
Increased importance of capital. Suppliers need ready access to capital
in order to take advantage of various profitable opportunities including
outsourcing and leasing. Larger inventories, sophisticated information
technology systems and more expensive jet engines require increased access to
capital.
The Aero Engine After-Market.
Airlines maintain inventories of engines and spare parts, with
inventory levels determined by the expected usage for the particular part. These
inventories are stored primarily at the airline's maintenance centers, although
limited quantities of certain
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parts are also kept at each airport serviced by the operator in order to avoid
revenue-damaging AOG (aircraft on ground) situations.
For the first few years after a new engine is introduced, most parts
are supplied by the engine manufacturer itself. After about five years, engine
parts tend to become available on the surplus market. This availability is the
result of three primary factors.
When aircraft and engines are sold, supporting inventories may be sold
to third parties.
The development of repair scenarios provides a supply of overhauled
and serviceable parts.
With experience, operators become better able to forecast their need
for a particular engine part, enabling them to declare excess new part
inventory as surplus.
Three types of engine parts are available in the after-market: new
parts; serviceable parts (i.e. used parts that were removed from aircraft and
were inspected and designated airworthy by the airline or by an FAA-approved
repair station or that were overhauled by an FAA-approved entity); and
unserviceable parts (i.e. used parts that were removed from aircraft that may or
may not be repairable). The decision as to which type of part to purchase is
made based upon the relative price and availability of parts, the condition of
the specific part, the repair facilities that have been used during the life of
the part, the previous owners of the part, the life remaining on the part (if
applicable), the maintenance policy of the airline which will use the part and
other considerations.
Commercial aircraft engine parts are available from a variety of
sources, including OEMs, third party dealers, brokers (who maintain no
inventory), overhaul and repair facilities, lessors and airline operators.
Relationships in the engine parts market are complex; at different times
participants may act as both buyers and sellers, suppliers and clients. The
Company, for example, both buys from and sells to airlines, OEMs, lessors,
operators of refurbishment facilities and other independent dealers.
Sources for surplus aircraft engines do not exist as an organized
market, and the Company must rely on field representatives and personnel,
advertisements and its reputation as a buyer of surplus aircraft engines and
components in order to generate opportunities to purchase these materials. The
market for bulk sales of surplus aircraft engines and components is highly
competitive, in some instances involving a bidding process. While the Company
has been able to purchase surplus aircraft engines in this manner successfully
in the past, there can be no assurance that such parts will be available on
acceptable terms when needed in the future.
The engine after-market consists of several business segments including
engine sales, leasing, maintenance management, parts distribution, parts repair
and overhauls.
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Kellstrom and IASI are active in most of these segments, either directly through
in-house activity or indirectly, by contracting refurbishment work to third
party suppliers.
Products
Engine spare parts are purchased by customers in both the commercial
and military sectors. The Company is active only in the commercial aircraft
sector, which itself is divided into large jet transports, smaller commercial
aircraft (known as general aviation aircraft) and helicopters. General aviation
includes both jet and propeller-driven planes for business and personal use. The
Company currently specializes in the large jet segment of the business. The
Company has chosen not to get involved in turbojet technology, which is used
mainly in older commercial engines and in military engines. The Company also has
not entered the turboprop market which is typically low-end in terms of cost per
unit.
The Company specializes in providing refurbished, new and as-removed
parts for large fan engines, particularly the Pratt & Whitney JT9D engine and to
a lesser extent the PW 4000 engine, as well as narrow-body engines (through
IASI) such as the Pratt & Whitney JT8D and PW 2000 engines. The JT9D and PW 4000
power the Boeing 747 and 767 aircraft, McDonnell Douglas MD-11 and the Airbus
A300/310/330, and the JT8D and PW2000 engines power the Boeing 727, 737 and 757
aircraft as well as the McDonnell Douglas MD-80 and DC-9 series aircraft.
Moreover, IASI recently entered the CFM-56 engine market which powers the Boeing
737-300, -400 and -500 aircraft as well as the Airbus A320, A321 and A340
aircraft and the McDonnell Douglas DC-8. The Company's growth strategy is based
upon its goal of purchasing inventory at attractive prices, its ability to
identify parts for which there should be strong demand and its concentration on
the Pratt & Whitney engines, which represent the largest segment of the
commercial jet engines and engine parts after-market. The Company's management
has developed a systematic algorithm and management procedures to assess which
parts will be in demand.
Purchasers of engine parts have strict approval processes through which
a company may achieve status as an approved supplier for such purchaser. Some
purchasers maintain a very limited number of, and will do business only with,
those companies who are one of their "Approved Suppliers." Since the Company's
founding in 1990, it has achieved "Approved Supplier" status with over 50
purchasers in six countries that maintain such a limited list of "Approved
Suppliers," including the leading aero engine OEMs, international airlines, and
major aero engine refurbishment and repair facilities. In addition to the
relationships with those clients for whom the Company is an "Approved Supplier,"
the Company also maintains active relationships with many other customers that
utilize a broader list of approved suppliers.
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Several manufacturers dominate the market for large commercial
airplanes, including Boeing, McDonnell Douglas, and Airbus Industries. A small
number of suppliers provide the bulk of engines used to power large jet
aircraft. The suppliers include the Pratt & Whitney division of United
Technologies, General Electric, Rolls Royce and CFM International. Following is
a brief description of the engines for which the Company supplies engine parts:
The JT9D Engine. JT9D engines, introduced by Pratt & Whitney in the
late 1960's are used in Boeing 747 and 767 aircraft, the McDonnell Douglas
DC-10, and Airbus A300/310's. The JT9D was the first commercial turbo fan with a
high bypass ratio, enabling the engine to provide unprecedented thrust with
outstanding fuel efficiency and relatively low noise.
The JT9D engine has flown more than 135 million hours. Three thousand
of these engines were built until production ceased in 1990; 2,800 are still
flying on wide body aircraft operated by over 50 airlines. Kellstrom estimates
that JT9D engines will be widely used for the next ten to fifteen years. Pratt &
Whitney continues to upgrade and improve in-service engines to meet current
noise and emissions requirements, thus increasing the life span of these
engines.
The JT8D Engine. JT8D engines, a derivative military J-52 Turbojet,
were originally developed by Pratt & Whitney for the Boeing 727 airliner in
1963. The engine is the most widely used engine in commercial aviation history.
More than 12,000 of the JT8D family of engines have been produced and the engine
is still in production today. A variant of the basic JT8D, called the 200 Series
was introduced in 1977. More than 13,000 of these engines have been manufactured
to date.
The older, less fuel efficient JT8D engines are used in the Boeing 727
and 737, the McDonnell Douglas DC-9, the Aerospatiale Carvelle, Dassualt
Mercure, and the C-9 and C-22, U.S. military versions of the DC-9 and 727
aircraft. The newer 200 Series JT8D engines are used throughout the McDonnell
Douglas MD-80 range of aircraft models. The Company estimates that the JT8D
engines will be in service for at least ten more years.
The PW 2000 Engine. Pratt & Whitney began development in 1974 of a
series of advanced technology aircraft engines to power the commercial
transports of the mid-1980s and beyond. The PW 2037, the first in the series,
was awarded FAA certification in December 1983. These highly fuel efficient
engines feature high thrust, low noise and reduced emissions. The PW 2000 series
engines are used to power the Boeing 757 and are considered to be current
technology engines that are likely to continue in service for at least
twenty-five more years.
The PW4000 Engine. In 1982, Pratt & Whitney launched development of the
PW 4000 Series turbofan - an all-new commercial jet engine series with improved
fuel efficiency and higher takeoff thrust rating. The PW4000 entered commercial
service in mid 1987. The PW4000 is designed for use on current and advanced
versions of such
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wide-body aircraft as the Airbus A300, A310, A330, the Boeing 747, 767, 777 and
the McDonnell Douglas MD-11. These engines are considered to be current
technology engines and are likely to continue in service for at least
twenty-five more years.
The CFM-56 Engine. IASI has recently added CFM56 parts to its
inventory. The CFM56 is manufactured by CFM International, a joint venture
between General Electric and SNECMA, and is the second most popular engine as
measured by number of aircraft in the worldwide fleet powered by this engine
type. The CFM56 is used to power the Boeing 737 and the Airbus A320/A321/A340,
and the McDonnell Douglas DC-8. These engines are considered to be current
technology engines and are likely to continue in service for at least
twenty-five more years.
The development of a new engine for a commercial aircraft can take five
to fifteen years. Often, an engine becomes the basis for numerous series,
tailored to the needs of particular aircraft. For example, the JT9D and JT8D
engine families for Pratt & Whitney include more than 15 models each.
Quality Control
Engine parts are generally more expensive, flight critical, technically
complex and utilize more specialized heat tolerant metals than other aircraft
parts. A high standard for quality control and documentation is an absolute
necessity. The history of a given part from the date of original manufacture
must be documented and available to regulators and maintenance personnel. The
Company is dependent on third-party FAA certified repair facilities to perform
repair services to bring surplus aircraft engines held for resale and certain
engine components into a condition of airworthiness so that the Company can sell
such equipment.
The Company's management believes that obtaining "Approved Supplier"
status is heavily dependent on quality assurance, and that the Company's
comprehensive quality assurance program is among the best in its industry. The
Company is a member of the Coordinating Agency for Supplier Evaluation (CASE), a
self-governing organization formed by the airlines that evaluates and audits
parts suppliers and repair stations, as well as the Airline Suppliers
Association. In addition, in September 1996, the Company received certification
under ISO 9002. The ISO 9002 designation indicates a quality assurance standard
recognized by leading companies throughout the world. The Company was the first
aftermarket supplier of commercial jet engines and engine parts in North America
to receive such a certification. In addition, the Company is one of the few
vendors in the industry to have invested in a sophisticated optical imaging
system for document storage and retrieval. This system provides a high degree of
traceability by serial number for parts sold by the Company.
Customers
The Company's customers include airlines, OEMs, lessors, operators of
refurbishment facilities and other independent dealers. Five of the Company's
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customers (each individually accounting for over 10% of trade receivables and/or
revenues at December 31, 1995 and December 31, 1996) collectively account for
94% and 96% (1995) and 64% and 55% (1996) of trade receivables and revenues,
respectively. Certain significant customers vary from period to period as a
result of the large unit prices associated with whole aircraft engine sales. The
loss of, or significant curtailments of purchases by, the Company's significant
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
Competition
The aviation after-market is highly competitive. Competition is based
on product quality, the ability to provide needed parts quickly and price. The
largest segment of the after-market is served by OEM's. However, the relatively
high overhead and slow response times which characterize these large
organizations can present a handicap in a fast-moving, price-sensitive
marketplace. OEMs generally concentrate on selling new parts, leaving the market
in serviceable and refurbished parts to other suppliers. OEM-manufactured new
parts generally do not compete with refurbished parts.
The largest resellers (with annual revenues of approximately $70-$100
million generated from engine spare parts related reselling activity) include
companies such as AAR Corp. and AGES Group. There are approximately 10 midsize
competitors with annual engine and engine parts sales of $10-$30 million.
Midsize resellers include AVTEAM and the Company. A large portion of the market
revenue is generated by over 50 small aftermarket suppliers and brokers with
$1-$10 million in annual sales. As a result of industry consolidation,
management expects that a number of these smaller operators will either be
acquired or will have difficulty competing in this changing market. There can be
no assurance that the Company will continue to compete effectively against
present and future competitors or that competitive pressures will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition, the engine parts supply business has been reshaped by the
widespread adoption of ILS - the Inventory Locator Service. The ILS lists the
availability of thousands of types of parts from brokers, distributors, repair
facilities and airlines. The listing includes the quantity of parts available,
the condition of the parts, when the parts are available and a contact for more
information. The ILS has created a much freer flow of information concerning the
supply and demand for particular parts. Dealers now must compete not only on the
basis of their relationships with customers and knowledge regarding a potential
source for products, but also on the quality of the parts available, the
documentation tracing the history of the parts and the price.
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Government Regulation
The aviation industry, including the life and maintenance of engine
parts, is highly regulated in the United States by the FAA and the equivalent
regulatory agencies in other countries. While the Company's business of buying
and selling engine parts is not directly regulated, the aircraft engines, engine
components and airframe materials must be accompanied by documentation which
enable the customers to comply with applicable regulatory requirements. Aircraft
operators must maintain logs concerning the utilization and condition of
aircraft engines, life-limited engine components and airframes.
Management believes that the industry will be subject to continued
regulatory activity. Increased oversight has and will continue to originate with
quality assurance departments at airline operators. The Company has been able to
meet all such requirements to date, and believes that it will meet any
additional requirements that may be imposed. There can be no assurance, however,
that new, more stringent government regulations will not be adopted in the
future or that any such new regulations, if enacted, would not have an adverse
impact on the Company.
Environmental Matters
The Company believes that it is in compliance in all material respects
with applicable environmental laws and regulations and due to the nature of the
Company's business there is little or no direct cost associated with such
compliance.
Employees
At the end of 1996, Kellstrom had 18 full-time employees and 2
part-time employees, and IASI had 16 full-time employees and 2 part-time
employees. None of the Company's or IASI's employees are members of a labor
union.
Item 2. Description of Property.
The Company owns its newly built 31,000 square foot facility located on
its 2.5 acres in the Sawgrass International Corporate Park, Sunrise, Florida
which is near Fort Lauderdale. Kellstrom's address is 14000 N.W. 4 Street,
Sunrise, Florida 33325. The property is subject to a ten-year fixed interest
rate (10.49% per annum) mortgage held by BankAtlantic. The balance of the
mortgage note as of December 31, 1996 was $1,194,277.
The Company leases a facility, assumed in connection with the
acquisition of IASI, located at 821 Industrial Road, San Carlos, California
94070. The property is subject to a lease which expires January 31, 1999 (the
"IASI Lease"). Under the terms of the lease, the current monthly base rental is
$20,903 per month, subject to increases each year based on the consumer price
index.
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In addition, the Company's Board of Directors has approved the
construction of a new facility in the Fort Lauderdale area in anticipation of
the expiration of the IASI Lease and the consolidation of operations in a single
location. The cost and scope of the new facility have not yet been determined,
but management believes that the necessary funds for construction can be
obtained from financial institutions in the area and from the Company's cash
resources. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Item 3. Legal Proceedings.
There are no material legal proceedings pending against the Company or
any of its property.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Common Stock was quoted on the OTC Bulletin Board under the symbol
ITAC from April 19, 1994 to August 18, 1995, at which time the Company's Common
Stock was listed on the National Association of Securities Dealers Automated
Quotation System, Inc. ("Nasdaq") SmallCap market under the symbol KELL.
Following the filing of this Report, the Company will apply for listing of the
Common Stock on the Nasdaq National Market.
The following table sets forth the range of high and low bid prices for
the Common Stock for the last two years, as reported by the OTC Bulletin Board
and Nasdaq, as applicable. The quotes represent "Inter-dealer" prices without
retail markups, markdowns or commissions and may not necessarily represent
actual transactions.
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Common Stock
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High Low
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Year Ended December 31, 1995:
First Quarter............................................. 4 13/16 3 7/8
Second Quarter............................................ 5 1/2 4 3/4
Third Quarter............................................. 5 3/4 5
Fourth Quarter............................................ 6 3/8 4 7/8
Year Ended December 31, 1996:
First Quarter............................................. 7 1/4 4 3/4
Second Quarter............................................ 8 7/8 6 1/2
Third Quarter............................................. 8 3/8 7
Fourth Quarter............................................ 8 9/16 7 3/8
</TABLE>
As of March 25, 1997, there were 7,495,583 shares of Common Stock
outstanding, held by 56 stockholders of record. The Company believes that
certain holders of record hold a substantial number of shares of Common Stock as
nominees for a significant number of beneficial owners. The closing price for
the Company's Common Stock on March 25, 1997 was $14 1/8.
Kellstrom has not paid any cash dividends on its Common Stock to date.
The payment of dividends is within the discretion of the Board of Directors. It
is the present intention of the Board of Directors to retain all earnings for
use in the
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<PAGE>
<PAGE>
Company's business operations and, accordingly, the Board does not anticipate
declaring any dividends in the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following should be read in conjunction with Kellstrom's financial
statements and the related notes thereto included elsewhere herein.
Kellstrom, formerly named Israel Tech Acquisition Corp., was formed in
December 1993 as a SPAC, the objective of which was to consummate an initial
public offering and then to enter into a business combination with an operating
business. In April 1994 Kellstrom consummated the initial public offering. On
June 22, 1995, Kellstrom completed the acquisition of substantially all of the
assets, liabilities and operations of the commercial jet aircraft engine part
distribution business of Kellstrom Industries, Inc., an indirect, wholly-owned
subsidiary of Rada Electronic Industries, Inc. In connection with the Closing,
Kellstrom changed its name from Israel Tech Acquisition Corp. to Kellstrom
Industries, Inc. 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 year ended
December 31, 1995 (as set forth in Note 15(b) to Kellstrom's financial
statements included elsewhere herein) and upon actual operating results for
Kellstrom for the year ended December 31, 1996 as reported in Kellstrom's
financial statements included elsewhere herein.
On January 15, 1997, Kellstrom, through a wholly-owned subsidiary,
completed the acquisition of substantially all the assets and certain
liabilities of IASI for $26.5 million in cash and warrants to purchase 500,000
shares of Common Stock at $9.25 per share. The warrants expire in January 1999.
See Note 15(c) to the Kellstrom's financial statements for a pro forma combined
balance sheet of the Company and IASI at December 31, 1996 and a pro forma
combined statement of earnings for 1996. Historical financial statements of IASI
appear as Exhibits to this report. The following discussion does not reflect
IASI's operations.
The Company has only a limited operating history upon which an
evaluation of the Company and its prospects can be based. Although the Company
has historically experienced increasing net sales, the Company may experience
significant fluctuations in its gross margins and operating results in the
future, both on an annual and a quarterly basis, caused by various factors,
including general economic conditions, specific economic conditions in the
commercial aviation industry, the availability and price of surplus aviation
material, the size and timing of customer orders, returns by and allowances to
customers and the cost of capital to the Company. In a strategic response to a
changing, competitive environment, the Company may elect from time to time to
make certain pricing, product or marketing decisions, and any such decisions
could have a material adverse effect on the Company's periodic results of
operations, including net sales and net income from quarter to quarter.
Therefore, comparisons
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<PAGE>
<PAGE>
of recent net sales and operating results of the Company should not be taken as
indicative of the results of operations that can be expected in the future.
There can be no assurance that the net sales and operating results of the
Company will continue at their current levels or will grow, or that the Company
will be able to achieve sustained profitability on a quarterly or annual basis.
The Company's inability to collect receivables from a substantial sale
could adversely affect the Company's financial position and results of
operations for a particular period although the Company's policy is to generally
sell whole engines for cash at closing. Although the Company's bad debt loss was
zero for the year ended December 31, 1996, the Company anticipates that it may
incur some bad debt losses in the future as its customer base grows. In
addition, the Company expects to experience greater exposure to its customers as
a result, in part, of the implementation of its program for the short term
leasing of aircraft engines.
Results of Operations.
Net revenues increased 69% from $14,708,178 (pro forma) in 1995 to
$24,921,587 (actual) in 1996. The Company was able to increase its net revenues
in 1996 primarily due to the increased availability of cash resources to acquire
inventory for resale. The Company believes that the availability of inventory is
a critical factor in achieving sales growth in its industry. In addition, the
Company's foreign revenues increased by over $1,000,000 in 1996 due to the
Company's expansion of its product lines to include the PW4000 engine type which
is widely used by the Company's foreign customers.
Gross margins increased 68% from $5,161,784 (pro forma) in 1995 to
$8,686,428 (actual) in 1996, but decreased as a percentage of sales from 35.1%
for 1995 to 34.9% for 1996. The decrease in gross margins as a percentage of
sales in 1996 compared to 1995 resulted primarily from unusually high gross
margins of nearly 40% experienced by the Company during the fourth quarter of
1995 as a result of several large, very profitable engine sales. Management does
not anticipate that the unusually high margins experienced in the fourth quarter
of 1995 will continue on a regular basis.
Total selling, general and administrative expenses increased 47% from
$2,382,172 (pro forma) in 1995 to $3,491,457 (actual) in 1996, but decreased as
a percentage of net revenues from 16.2% to 14.0%. The increase in these expenses
was a result of expanding the Company's office and warehouse facilities along
with its sales, administrative and warehouse personnel levels to efficiently
address the Company's increased inventories and the resultant increased volume
of revenues.
Depreciation and amortization expense increased 26% from $350,904 (pro
forma) in 1995 to $441,854 (actual) in 1996, but decreased from 2.4% of net
revenues in 1995 to 1.8% of net revenues in 1996. The increase in the 1996
expense is attributable
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<PAGE>
<PAGE>
primarily to the increased depreciation expense resulting from the expansion of
the Company's office and warehouse facilities during 1996.
Interest expense (net of interest income) increased 448% from $117,641
(pro forma) in 1995 to $644,527 (actual) in 1996 due to increased borrowing
levels necessary to expand the Company's inventory levels, as well as financing
of the expansion of the Company's office and warehouse facilities. Further
increases in interest expense can be anticipated in the future as the Company
continues to expand its inventory levels and facilities to support future growth
in operations.
Net income increased 83% from $1,444,417 (pro forma) in 1995 to
$2,646,343 (actual) in 1996. Net income per share increased by 50% from $0.30
per share in 1995 to $0.45 per share in 1996. 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. The effect of this is to
increase the weighted average number of shares outstanding from 2,764,757
(weighted average actual outstanding) to 7,188,095 for 1995 and from 2,943,902
(weighted average actual outstanding) to 8,147,455 for 1996.
Liquidity And Capital Resources.
The Company's working capital was $13,735,157 as of December 31, 1996,
an increase of $4,064,785 since December 31, 1995. The principal reasons for the
increase in working capital were the increase in inventories and an increase in
cash resulting from the exercise of warrants.
The primary use of funds during the twelve month period ended December
31, 1996 was to purchase inventory ($3,871,351), to construct additional
warehouse and office facilities and provide the necessary furnishing and
fixtures for the new facility ($1,372,244) and for the exercise of the Rada
Warrant ($1,200,000). The source of the funds utilized for these purposes was
from financing activities ($5,106,870) and the remainder was from operations.
The Company intends to use its available funds to acquire inventories
of jet aircraft engines and jet engine parts. Greater availability of
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 current credit facilities and through the employment of its cash
flows along with the management of trade credits.
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 accommodated increased inventory
purchases to enable the Company's anticipated future growth and also allowed the
Company to eliminate the cost of leasing off-site warehouse facilities. The cost
of this expansion was financed principally from a $750,000 construction/mortgage
loan. The Company intends to
-16-
<PAGE>
<PAGE>
acquire land and construct a new facility to accommodate the consolidated
Kellstrom/IASI businesses. This project is scheduled to be commenced in 1997 and
to be completed by mid-1998. The cost and scope of the new facility have not
been determined, but management believes that the funds necessary for this
project can be obtained from financial institutions in the vicinity of the
facility and from the Company's cash resources.
The Company entered certain short-term engine leases during 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 the 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.
During May 1996, the Company and its then-lead bank, BankAtlantic,
completed an increase of the Company's working capital line of credit, secured
by substantially all the Company's assets, 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 was 1% over the bank's
prime rate with the interest payable monthly. Principal on the guidance line was
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 were to
mature on May 31, 1997.
On December 23, 1996, the Company entered into a Revolving Loan
Agreement with Barnett Bank, N.A. This Revolving Loan Agreement replaced the
working capital line and the guidance line with BankAtlantic, and increased the
Company's bank credit lines from $8.0 million to $15.0 million. This new
arrangement also reduced the interest rate paid by the Company from 1% above
BankAtlantic's prime rate to 1/8% below Barnett's prime rate (which interest
rate payable by the Company was 8.125% at December 31, 1996) or, at the
Company's option, to LIBOR (which was 5.50 at December 31, 1996) plus 275 basis
points. Indebtedness under the Revolving Loan Agreement is secured by
substantially all the Company's assets. The advance rate formulas under this new
bank facility were liberalized to provide for advances against foreign
receivables. This modification is important to the Company as its foreign
business has recently represented a greater percentage of its net revenues.
The $1,194,277 first mortgage (including a $750,000
construction/mortgage loan) held by BankAtlantic and secured by the Company's
office and warehouse facilities continues to remain in place. The interest on
the mortgage is 10.49% per annum. Principal and interest are payable in monthly
installments of $20,238. Principal is amortized over a ten-year period with a
final payment of $20,238 due May 2005.
During 1996 the Company's highest utilization of its BankAtlantic $5.0
million working capital line was $4,251,000 and the Company's highest
utilization of the
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<PAGE>
<PAGE>
BankAtlantic guidance line was $3.0 million. The balance due at December 31,
1996 on the Barnett Bank revolving credit facility was approximately $5.2
million.
The acquisition of IASI was completed on January 15, 1997 and was
primarily financed through the issuance of $15 million in senior subordinated
debt (the "Senior Debt") and warrants and from the proceeds of a $6,000,000
subordinated bridge loan ("Bridge Loan") and warrants with the balance from the
Company's working capital. The Company also assumed IASI's existing debt,
including various credit facilities with Union Bank of California secured by
IASI's assets, which facilities provided for credit of up to a maximum of
approximately $20,000,000 as of the date of the acquisition. The amount of
credit outstanding as of the date of acquisition was $14,555,826. Interest on
the credit facilities accrues daily and ranges from .50% to 1.0% above Union
Bank's prime rate, and is payable monthly.
The Senior Debt is held by The Equitable Life Assurance Society of the
United States ("Equitable"). The interest rate on the Senior Debt is 11.75% per
annum, payable quarterly. Additionally, warrants to purchase 305,660 shares of
Common Stock were issued to Equitable. The warrants are exercisable at $10 per
share and expire on January 15, 2004. Principal on this debt is payable in three
equal annual installments beginning January 15, 2002. An advance principal
payment of up to $3,750,000 is permitted (along with a premium payment of 1%)
prior to December 31, 1998 from the proceeds of the exercise of the Company's
publicly traded warrants. It is anticipated by the Company that such an advance
payment will be made during this advance payment period. Moreover, the Company
may, at its option, redeem up to $4.5 million principal amount of the Senior
Debt concurrently or within five days after the occurrence of any public
offering of the Company's Common Stock as long as the principal balance of the
debt is not reduced below $10.5 million.
The Bridge Loan is due April 15, 1997. In connection with the Bridge
Loan, the Company issued warrants to purchase 75,000 shares of Common Stock at
an exercise price of $10 per share, exercisable until three years from the
repayment of the Bridge Loan. A portion of the Bridge Loan, in the amount of
$1,000,000, was repaid on February 12, 1997.
The Company called its publicly traded warrants on February 4, 1997
pursuant to their terms. There were 4,166,510 publicly traded warrants
outstanding at December 31, 1996. Each warrant entitles the holder to purchase
one share of the Company's Common Stock at an exercise price of $5.00 per share.
The Company received total proceeds of $22,961,950 from the exercise of warrants
during the period from October 1, 1996 to March 21, 1997.
The Company's management believes that cash flow from operations,
combined with the Company's borrowing facilities should be sufficient for the
Company's current level of operations. In addition, the Company is seeking to
further increase its bank financing to expand its facility (as described above
and under the caption "Properties") and to increase inventory purchases.
However, the Company may elect to seek equity
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<PAGE>
<PAGE>
capital in the future depending upon market condition and the capital needs of
the Company.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation." As
provided for in Statement No. 123, the Company has elected to continue to apply
the provisions of APB No. 25, "Accounting for Stock Issued to Employees" in
accounting for stock-based compensation and to provide pro forma disclosure of
what the impact on the Company's financial results would have been had it
applied SFAS No. 123. The disclosures required by the new statement are included
in Note 10 to Kellstrom's financial statements.
Item 7. Financial Statements.
Kellstrom's financial statements and IASI's combined financial
statements for 1995 and 1996 and the respective notes thereto are set forth
herein as Exhibits to this report. An index of these financial statements
appears in Item 13.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
Executive Officers and Directors
The directors and executive officers of the Company, their ages,
positions in the Company, and the dates of their initial election or appointment
as director or executive officer are as follows:
<TABLE>
<CAPTION>
Officer or
Name Age Position with the Company Director Since
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Yoav Stern (1) 43 Chairman of the Board December 1993
Zivi R. Nedivi 39 Chief Executive Officer, President and Director June 1995
John S. Gleason 47 Chief Financial Officer, Executive Vice President,Treasurer July 1995
Fred von Husen 52 Executive Vice President January 1997
Anthony Motisi 38 Vice President and Secretary June 1995
Donald Reynolds 58 Vice President, Technical Operations January 1997
Paul F. Steele 37 Vice President, Purchasing June 1995
Ian McDonald 45 Vice President, Sales January 1997
Thomas McMillen (1) 44 Director October 1996
David Jan Mitchell (1) 36 Director December 1993
</TABLE>
- ------------------
(1) Member of the Audit Committee.
-19-
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<PAGE>
Yoav Stern is the Chairman of the Board and a director of the Company.
Mr. Stern is a principal of Helix Capital Corporation, L.L.C., a merchant
banking firm ("Helix"). From the Company's inception until June 22, 1995, Mr.
Stern was the Co-Chief Executive Officer and Co-President of the Company. Mr.
Stern has been a director of the Company since its inception. Mr. Stern was a
Co-CEO of European Gateway Acquisition Corporation ("EGAC") since March 1995.
EGAC acquired Bogen Communications, Inc. and changed its name to Bogen
International, Inc. ("Bogen") in August 1995. Bogen's shares are traded on the
American Stock Exchange. Since that time, Mr. Stern has served as a director and
member of the executive committee of Bogen. From February 1994 to April 1995,
Mr. Stern served as a director of Random Access, Inc., a public company traded
on the Nasdaq National Market, which is engaged in the information technology
business. From January 1993 to September 1993, Mr. Stern was President and a
director of WordStar International, Inc. ("WordStar"), which is engaged in
research and development and worldwide marketing and distribution of software
for business and consumer applications. Mr. Stern structured the business
combination of WordStar with two other public companies, after which WordStar
changed its name to SoftKey International, Inc. ("SoftKey"). SoftKey is traded
on the Nasdaq National Market. Mr. Stern is currently a director of, and a
consultant to, SoftKey. From March 1990 to December 1992, Mr. Stern was Vice
President of Business Development of Elron Electronic Industries Ltd. ("Elron"),
a multinational high-technology public holding company based in Israel with
aggregate annual revenues in excess of $900 million. Elron is engaged in
operating and investing in companies in the technology-led industry, including
medical diagnostic imaging, advanced defense electronics, data communication,
manufacturing automation, semiconductor and software products, and sophisticated
productivity tools. Elron is traded on both the Nasdaq National Market and Tel
Aviv Stock Exchange. From August 1988 to February 1990, Mr. Stern was director
of Business Development at Keter Plastics Ltd., a private company engaged in the
manufacture of injection molded plastic products. From December 1988 to February
1990, he was the President, Chief Executive Officer and a director of Lipski
Ltd., an Israel public company traded on the Tel Aviv Stock Exchange, which is
engaged in the development, production and marketing of injection molded plastic
products. From January 1985 to June 1988, he was founder, President and Chief
Executive Officer of Co/Rent Computer Rentals, a private company based in
Canada, active in the rental of microcomputers. From February 1973 to December
1983, Mr. Stern served in the Israeli Air Force as a fighter pilot, avionic
systems officer, commander of Operational Training Unit and a Deputy Squadron
Commander. Mr. Stern earned a Practical Engineering Diploma in advance mechanics
and automation from ORT Technological College, Israel, graduated from the Israel
Air Force Academy and earned a B.S. degree in Mathematics and Computer Science
from Tel Aviv University.
Zivi R. Nedivi has been the Chief Executive Officer and a director of
the Company since June 22, 1995. Mr. Nedivi was the founder, President and CEO
of Kellstrom Industries, Inc., an indirectly wholly-owned subsidiary of Rada,
from its establishment in 1990 until June 1995. From September 1994 until June
1995, Mr. Nedivi also served as Corporate Vice President of Rada, a public
company traded on the Nasdaq National Market which is engaged in the business of
avionics for the commercial and military aviation industries. From October 1984
to September 1990, Mr. Nedivi was co-founder and General Manager of Maakav Ltd.,
a private aviation management company based in Israel. Maakav represented
certain American companies in Israel, including companies active in the
distribution of aircraft parts. From February 1986 until October 1990 Mr. Nedivi
was also co-founder and director of NBC Aviation Inc., a private company based
in Texas active in the sale of commercial jet engines and related components. A
graduate of the Israel Air Force Academy, Mr. Nedivi served in the Israel Air
Force as an F-15 fighter pilot for seven years and held the rank of Major. He
also served as a Human Engineering Consultant to Israel Aircraft Industries on
the Lavi fighter aircraft program.
John S. Gleason joined the Company in July 1995 as its Chief Financial
Officer and was appointed Treasurer in August 1995 and Executive Vice President
in January 1997. From January 1986 until July 1995, Mr. Gleason served as the
Vice President of Finance of IASI. Mr. Gleason was also responsible for buying,
selling and leasing IASI's commercial jet engines on a worldwide basis, as well
as the
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<PAGE>
procurement of jet engine inventory consignment arrangements. Mr. Gleason is a
Florida and California CPA and earned a B.S. degree in accounting from Florida
Atlantic University in 1971.
Fred von Husen joined the Company in January 1997 as its Executive Vice
President. Mr. von Husen was IASI's President and Chief Executive Officer since
1987. Mr. von Husen has 32 years experience in the aviation industry primarily
in engine and aircraft maintenance plus financial and organization management.
Prior to joining IASI, he served as Vice President of Operations and earlier as
Vice President of Technical Services at Aircal, a passenger airline based in
California. Mr. von Husen also spent 17 years at United Airlines in various
positions including engine maintenance, engineering, and corporate planning.
Anthony Motisi has been a Vice President since June 22, 1995. Mr.
Motisi was the Vice President of Operations for Kellstrom Industries, Inc. from
December 1994 until June 22, 1995 and Director of Sales and Marketing from July
1993 until December, 1994. In 1980, Mr. Motisi earned a B.S. degree in finance
from the University of Florida. Prior to joining Kellstrom Industries, Inc., Mr.
Motisi held the position of Manager of Engine Parts Sales at Aviation Sales
Corporation.
Donald Reynolds became Vice President of Technical Operations in
January 1997. Mr. Reynolds served in the same role at IASI since 1985. Mr.
Reynolds is responsible for inventory management, quality control, purchasing,
outside vendor business, shipping and receiving, and all technical services
activities. Mr. Reynolds also spent 24 years with United Airlines in various
positions including commercial airline engine maintenance, production planning,
customer service and contract administration.
Paul F. Steele has been a Vice President of the Company since June 22,
1995. Mr. Steele was the Vice President of Purchasing for Kellstrom Industries,
Inc. from December 1994 until June 22, 1995 and a Director of Operations from
November 1993 until December 1994. Prior to joining Kellstrom Industries, Inc.,
Mr. Steele held the position of Vice President of Technical Sales at AGES Group,
a subsidiary of Volvo Flygmotor and supplier of commercial aircraft engines. Mr.
Steele graduated from Bolton Street College, Dublin.
Thomas McMillen became a director in October 1996. Mr. McMillen served
three consecutive terms in the U.S. House of Representatives from the Fourth
Congressional District of Maryland (1987 to 1993), and is currently Chairman and
CEO of Complete Wellness Centers, Inc., a physician practice management company.
He served as Chief Administrative Officer of CliniCorp., Inc., an owner and
operator of chiropractic clinics, from November 1993 to March 1994. While in
Congress, Mr. McMillen served on the Transportation, Aviation & Materials
Subcommittee of the Science, Space & Technology Committee, as well as on the
Energy and Commerce Committee. Mr. McMillen serves on the Boards of Directors of
a number of public companies, including Integrated Communication Network, Inc.,
C.H.G. Inc., Commodore Applied Technologies, Inc. and Orion Acquisition Corp. I.
He is a member of the Board of Visitors of the University of Maryland School of
Public Affairs and is National Chairman of the University of Maryland
President's Club. He is an Advisory Council Member of the Paul Nitze School of
Advanced International Studies of the Johns Hopkins University and is a member
of the Board of Directors of the International Visitors Center. He also serves
on the Democratic National Committee's Business Council. Since 1993, Mr.
McMillen has, at the request of President Clinton, co-chaired the President's
Council on Physical Fitness and Sports. Mr. McMillen received a B.S., Phi Beta
Kappa, in Chemistry in 1974 from the University of Maryland and was also a
Rhodes Scholar.
Ian McDonald joined the Company in January 1997 as Vice President of
Sales. For ten years prior to joining the Company, Mr. McDonald vas Senior Vice
President of AGES Group. Earlier in his career, Mr. McDonald was with Canadian
Airlines where he was manager of power plant maintenance, the airline's aircraft
engine and overhaul operations. In 1973 he received an Engineering Technician
Certificate from the City and Guilds of London, part of Scotland's Motherwell
Technical College.
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<PAGE>
David Jan Mitchell has been a director of the Company since its
inception in December 1993. From the Company's inception until August 21, 1995,
Mr. Mitchell was the Secretary of the Company. Since August 1994, Mr. Mitchell
has served as a director of Holmes Protection Group, a publicly traded security
alarm system company, and, since March 1995 has served as a director of Bogen.
Since January 1991, he has been the President of Mitchell & Company, a New
York-based merchant banking company he founded. Mitchell & Company is engaged in
venture capital investments and financing. Mr. Mitchell serves as a director of
several private companies, including Madah-Com, an Israeli-based company
involved in sound transmission and First Home, a company that markets houses
developed for first time homeowners. Mr. Mitchell also serves as President of
AmeriCash LLC, a national network of Automated Teller Machines in non-bank
locations. Since March 1992, he has been a partner of Petherton Capital
Corporation, a privately held real estate investment company.
The Board is divided into two classes, each of which serves for a term
of two years, with only one class of directors being elected in each year. The
term of office of the first class of directors, presently consisting of David
Jan Mitchell and Thomas McMillen, will expire at the ensuing annual meeting of
stockholders, and the term of office of the second class of directors, presently
consisting of Yoav Stern and Zivi R. Nedivi, will expire at the second
succeeding annual meeting of stockholders. In each case, a director will hold
office until the next annual meeting of stockholders at which his class of
directors is to be elected.
Compliance with Section 16(a) of the Exchange Act
The Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires the Company's executive officers, directors and beneficial owners of
more than 10% of a class of the Company's stock, to file reports of ownership
and changes in ownership with the Securities and Exchange Commission (the
"Commission") and Nasdaq. Based solely upon a review of Forms 3, 4 and 5, and
amendments thereto, furnished to the Company during its most recent fiscal year,
there were individuals subject to compliance reporting requirements under the
Exchange Act who failed to file on a timely basis. Zivi R. Nedivi, John S.
Gleason, Paul F. Steele, David Jan Mitchell, Yoav Stern and Anthony Motisi
failed to file on a timely basis a Form 5, each reporting one exempt transaction
during fiscal year 1996. Donald Reynolds, Fred von Husen, Ian McDonald and
Thomas McMillen each failed to file on a timely basis a Form 3. Mr. Mitchell
failed to file on a timely basis a Form 4 reporting one transaction.
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<PAGE>
<PAGE>
PART IV
Item 10. Executive Compensation.
The following table summarizes the compensation for services rendered
to the Company by the Chief Executive Officer and the Company's three most
highly compensated executive officers who earned compensation in excess of
$100,000 in 1996 (the "Named Executives"). No other executive officer earned
compensation in excess of $100,000 in 1996. Prior to the KST Acquisition, none
of the Company's executive officers, including the Chief Executive Officer,
received any compensation from the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
- ----------------------------------------------------------------------- ----------------------------------------------------------
Awards Payouts
------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Name Annual Restricted Under- Other
and Compen- Stock lying LTIP Compen-
Principal Salary Bonus sation Award(s) Options(#) Payouts sation
Position Year ($)(1) ($) ($)(2) ($) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Zivi R. Nedivi(3)
Chief Executive
Officer and 1995 97,500 183,809 14,849 0 49,000 0 0
President 1996 180,000 218,047 0 0 100,000 0 9,446(4)
John S. Gleason
Chief Financial
Officer, Executive 1995 68,750 58,061 1,213 0 30,000 0 0
Vice President 1996 150,000 60,557 10,819 0 50,000 0 1,224(5)
and
Treasurer
Paul F. Steele 1995 56,875 55,466 11,234 0 13,500 0 0
Vice President 1996 130,000 60,557 0 0 25,000 0 48,183(6)
Anthony Motisi
Vice President 1995 40,625 55,466 4,507 0 13,500 0 0
and Secretary 1996 78,000 48,466 0 0 25,000 0 4,562(7)
</TABLE>
(1) 1995 figures are salaries paid by Kellstrom commencing on June 23, 1995
until December 31, 1995.
(2) Consisting of the use of a company vehicle and a premium allowance paid to a
nonqualified corporate benefit program on behalf of each executive.
(3) Mr. Nedivi owns an interest in Helix Capital Corporation, LLC (together with
related entities, "Helix"). Helix has entered into an engagement letter with the
Company under which it receives a retainer and is entitled to certain
transaction fees under certain circumstances. Mr. Nedivi receives no portion of
the retainer payments to Helix, but it is anticipated that he may receive a
portion of any transaction fees received by Helix from the Company. See "Certain
Relationships and Related Transactions".
(4) Consisting of a $8,095 life insurance premium and a $1,351 holiday bonus.
(5) Consisting of a holiday bonus.
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<PAGE>
(6) Consisting of a loan of $35,436 to the employee that was forgiven, a $11,448
life insurance premium and a $1,299 holiday bonus.
(7) Consisting of a $3,360 life insurance premium and a $1,202 holiday bonus.
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<PAGE>
The following table sets forth information concerning options granted
in the last fiscal year to the Named Executives.
Option/SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities % of Total
Underlying Options Granted Exercise or
Options to Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/Sh) Date
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Zivi R. Nedivi 100,000 43.9 7.63 Sept. 2006
John S. Gleason 50,000 21.9 7.63 Sept. 2006
Paul F. Steele 25,000 11 7.63 Sept. 2006
Anthony Motisi 25,000 11 7.63 Sept. 2006
</TABLE>
The following table sets forth information concerning the value of
unexercised stock options at the end of the 1996 fiscal year for the Named
Executives.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired FY-End (#) FY-End ($)
on Value
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Zivi R. Nedivi 0 0 16,333/132,667 55,124/185,251
John S. Gleason 0 0 10,000/70,000 33,750/105,000
Paul F. Steele 0 0 4,500/34,000 15,188/49,125
Anthony Motisi 0 0 4,500/34000 15,188/49,125
</TABLE>
The Company had no long-term incentive plan awards granted as of December 31,
1996.
-25-
<PAGE>
<PAGE>
Compensation of Directors
During 1996, the Company paid Yoav Stern and Joram Rosenfeld, and in
each case entities controlled by them, an aggregate of $90,000 each, for
services rendered by Yoav Stern and Joram Rosenfeld as Co-Chairmen of the
Company's Board of Directors.
The Company's Chief Executive Officer receives no additional cash
compensation for service as a Director. All Directors are reimbursed for
out-of-pocket expenses incurred in attending Board meetings. During 1996, (a)
Messrs. Stern and McMillen were granted options to purchase 100,000 and 30,000
shares of Common Stock, respectively, under the Company's 1996 Stock Option
Plan; and (b) Mr. Mitchell was granted options to purchase 2,250 shares of
Common Stock under the Company's 1995 Stock Option Plan. See "1995 Stock Option
Plan" and "1996 Stock Option Plan," below.
Employment Agreements
The Company entered into a seven-year management agreement, effective
January 1, 1997, with East Shore Ventures, Inc. (the "Manager"), of which Mr.
Nedivi is President and sole shareholder. The agreement provides for an annual
base fee of $240,000 and a bonus payable on the following terms: (i) if the
Company achieves a target net income level which may be adjusted each year by
the Board (the "Target"), then the Manager will receive a bonus of $240,000;
(ii) if the actual net income for the Company in any year exceeds the Target for
such year, the Manager's bonus will increase by a corresponding percentage,
provided that the bonus may not exceed $360,000; and (iii) if the actual net
income for the Company in any year is less than the Target for such year, the
Manager's bonus will decrease by twice the corresponding percentage (so that if
the actual net income for the Company is 50% or less of the Target, there will
be no bonus paid). In addition, the management agreement provides that Mr.
Nedivi will be paid severance of four months of the base fee if the Manager's
services are terminated without cause, provided that upon a change of control
Mr. Nedivi will be paid severance equal to twelve months of his base salary. A
change of control is defined in the contract as (i) any transaction which
results in the stockholders of the Company immediately before the transaction
ceasing to own at least 51% of the voting stock or of the entity which results
from the transaction, (ii) a merger, consolidation or other transaction where
the Company is not the surviving entity or (iii) a disposition of all or
substantially all of the assets of the Company. Under the terms of the
management agreement, the Company maintains a life insurance policy on the life
of Mr. Nedivi in the amount of $4 million, which is transferable without
consideration to Mr. Nedivi after January 1, 1999. The management agreement may
be terminated by mutual agreement between the Company and the Manager, or by
either party upon sixty (60) days written notice.
The Company entered into a five-year employment contract with Mr.
Gleason, effective as of May 18, 1995 which was amended on February 14, 1997.
The amended contract provides for an annual base salary of $190,000 and a bonus
payable on the following terms: (i) if the Company achieves a target net income
level which may be adjusted each year by the Board (the "Gleason Target"), then
Mr. Gleason will receive
-26-
<PAGE>
<PAGE>
a bonus of $90,000; (ii) if the actual net income for the Company in any year
exceeds the Gleason Target for such year, Mr. Gleason's bonus will increase by a
corresponding percentage, provided that the bonus may not exceed $135,000; and
(iii) if the actual net income for the Company in any year is less than the
Gleason Target for such year, Mr. Gleason's bonus will decrease by twice the
corresponding percentage (so that if the actual net income for the Company is
50% or less of the Gleason Target, there will be no bonus paid). In addition,
the amended employment agreement provides for the grant of options (outside of
the Company's 1996 Stock Option Plan) to purchase 100,000 shares of the
Company's Common Stock subject to the approval of the Board of Directors. The
employment agreement provides that Mr. Gleason will be paid severance of four
months of his base salary if employment is terminated without cause, and that
upon a change of control (as previously defined) Mr. Gleason will be paid
severance equal to twelve months of his base salary. Moreover, the amended
agreement provides that the Company will maintain a life insurance policy on the
life of Mr. Gleason in the amount of $2 million which is transferable without
consideration to Mr. Gleason after January 1, 1999. The agreement may be
terminated by mutual agreement between the Company and Mr. Gleason, or by either
party upon sixty (60) days written notice.
The Company entered into a five-year employment contract with Mr.
Steele, effective as of January 1, 1996, providing for an annual base salary of
$130,000. Effective January 1, 1997, Mr. Steele's annual base salary increased
to $160,000. The agreement also provides for a bonus payable on the following
terms: (i) if the Company achieves a target net income level which may be
adjusted each year by the Board (the "Steele Target"), then Mr. Steele will
receive a bonus of $50,000; (ii) if the actual net income for the Company in any
year exceeds the Steele Target for such year, Mr. Steele's bonus will increase
by a corresponding percentage, provided that the bonus may not exceed $75,000;
and (iii) if the actual net income for the Company in any year is less than the
Steele Target for such year, Mr. Steele's bonus will decrease by twice the
corresponding percentage (so that if the actual net income for the Company is
50% or less of the Steele Target, there will be no bonus paid). If Mr. Steele's
employment is terminated without cause, the employment agreement provides that
Mr. Steele will be paid (i) to the extent not already paid, his salary through
the date of such termination, (ii) a cash lump sum for any vacation days accrued
but unused as of the date of termination and (iii) an amount equal to six months
of Mr. Steele's base salary, provided that if termination is due to a change of
control (as previously defined), Mr. Steele will be paid an amount equal to
eight months of his base salary. The agreement may be terminated by mutual
agreement between the Company and Mr. Steele, or by either party upon sixty (60)
days written notice.
The Company entered into an amended and restated five-year employment
contract with Mr. Motisi on January 30, 1996, providing for annual base salary
of $75,000. Effective January 1, 1997, Mr. Motisi's annual base salary increased
to $100,000. The agreement also provides for a bonus payable on the following
terms: (i) if the Company achieves a target net income level which may be
adjusted each year by the Board (the "Motisi Target"), then Mr. Motisi will
receive a bonus of $40,000; (ii) if the actual net income for the Company in any
year exceeds the Motisi Target for such year, Mr. Motisi's bonus will increase
by a corresponding percentage, provided that the
-27-
<PAGE>
<PAGE>
bonus may not exceed $60,000; and (iii) if the actual net income for the Company
in any year is less than the Motisi Target for such year, Mr. Motisi's bonus
will decrease by twice the corresponding percentage (so that if the actual net
income for the Company is 50% or less of the Motisi Target, there will be no
bonus paid). If Mr. Motisi's employment is terminated without cause, the
employment agreement provides that Mr. Motisi will be paid (i) to the extent not
already paid, his salary through the date of such termination, (ii) a cash lump
sum for any vacation days accrued but unused as of the date of termination and
(iii) an amount equal to six months of Mr. Motisi's base salary, provided that
if termination is due to a change of control (as previously defined), Mr. Motisi
will be paid an amount equal to eight months of Mr. Motisi's base salary. The
agreement may be terminated by mutual agreement between the Company and Mr.
Motisi, or by either party upon sixty (60) days written notice.
1995 Stock Option Plan
On May 10, 1995, the Board adopted the 1995 Stock Option Plan, and on
June 22, 1995, the Company's stockholders approved the 1995 Stock Option Plan.
The purpose of the 1995 Stock Option Plan is to advance the interests of the
Company by providing an additional incentive to attract and retain qualified and
competent key employees, officers, directors and independent contractors for the
Company and its subsidiaries. The 1995 Stock Option Plan provides for the
granting of options to purchase or acquire, in the aggregate, up to 250,000
shares of Common Stock, with no individual to be granted options to purchase
more than 100,000 shares of Common Stock during the ten year period from April
1994 through the tenth anniversary thereof. Options granted pursuant to the 1995
Stock Option Plan may be either incentive stock options ("ISOs") or
non-qualified options ("NQSOs"). Shares of the Common Stock subject to options
may be from shares held in the Company's treasury or from authorized and
unissued shares.
The 1995 Stock Option Plan is administered by either the Board, the
Compensation Committee of the Board or another committee, if any, appointed by
the Board (references in this discussion to the "Committee" include the Board,
the Compensation Committee or another committee appointed by the Board to the
extent any of the foregoing administers the 1995 Stock Option Plan unless the
context otherwise requires). If the 1995 Stock Option Plan is administered by a
Committee (other than the Board or the Compensation Committee), such Committee
will consist of at least two persons, each of whom is a "disinterested person"
within the meaning of Section 16(b) of the Exchange Act, and if the Board so
determines, an "outside director" within the meaning of Section 162(m) of the
Internal Revenue Code. The authority of the Committee will include, among other
things, determining the persons to whom options are granted, the period of
exercisability, the designation of options as ISOs or NQSOs and the other terms
and provisions thereof.
Options may be granted only to key employees, officers, directors and
independent contractors of the Company or any subsidiary corporation of the
Company, whether now existing or subsequently formed or acquired, provided,
however, that ISOs may only be granted to key employees.
The exercise price for each share subject to an option will not be less
than the fair market value of the Common Stock on the date the option is
granted. However,
-28-
<PAGE>
<PAGE>
the exercise price per share of an ISO granted to any employee who, on the date
of the grant, possesses more than 10% of the total combined voting power of all
classes of stock of the Company (or of any subsidiary or parent corporation),
will not be less than 110% of the fair market value of the shares of Common
Stock on the date the ISO is granted.
1996 Stock Option Plan
The 1996 Stock Option Plan was adopted by the Board on July 10, 1996
and approved by the Company's Stockholders on August 28, 1996. The 1996 Stock
Option Plan is administered by the Board of Directors of the Company. The Board
of Directors determines, among other things, the recipients of grants, whether a
grant will consist of ISOs, NQSO's or stock appreciation rights ("SARs") (in
tandem with an option or free-standing) or a combination thereof, and the number
of shares to be subject to such options. ISOs may be granted only to officers
and key employees of the Company and its subsidiaries. Nonqualified stock
options and SARs may be granted to such officers and employees as well as to
agents and directors of and consultants to the Company, whether or not otherwise
employees of the Company.
The Plan provides for the granting of ISOs to purchase the Company's
Common Stock at not less than the fair market value on the date of the option
grant and the granting of nonqualified options and SARs with any exercise price.
SARs granted in tandem with an option have the same exercise price as the
related option. The total number of shares with respect to which options and
SARs may be granted under the Plan is currently 1,100,000. The Plan contains
certain limitations applicable only to ISOs granted thereunder. To the extent
that the aggregate fair market value, as of the date of grant, of the shares to
which ISOs become exercisable for the first time by an optionee during the
calendar year exceeds $100,000, the option will be treated as a nonqualified
option. In addition, if an optionee owns more than 10% of the total voting power
of all classes of the Company's stock at the time the individual is granted an
ISO, the option price per share cannot be less than 110% of the fair market
value per share and the term of the ISO cannot exceed five years. No option or
SAR may be granted under the Plan after July 9, 2006, and no option or SAR may
be outstanding for more than ten years after its grant.
Upon the exercise of an option, the holder must make payment of the
full exercise price. Such payment may be made in cash, check or, under certain
circumstances, in shares of any class of the Company's Common Stock, or any
combination thereof. SARs, which give the holder the privilege of surrendering
such rights for the appreciation in the Common Stock between the time of the
grant and the surrender, may be settled, in the discretion of the Board or
committee, as the case may be, in cash, Common Stock, or in any combination
thereof. The exercise of an SAR granted in tandem with an option cancels the
option to which it relates with respect to the same number of shares as to which
the SAR was exercised. The exercise of an option cancels any related SAR with
respect to the same number of shares as to which the option was exercised.
Generally, options and SARs may be exercised while the recipient is performing
services for the Company and within three months after termination of such
services.
-29-
<PAGE>
<PAGE>
The Plan may be terminated at any time by the Board of Directors, which
may also amend the Plan, except that without stockholder approval, it may not
increase the number of shares subject to the Plan or change the class of persons
eligible to receive options under the Plan.
-30-
<PAGE>
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of March 25,
1997 regarding the beneficial ownership of the Company's Common Stock by (i)
each stockholder known to the Company to beneficially own more than five percent
(5%) of such Common Stock, (ii) each director and executive officer and (iii)
all directors and executive officers as a group:
<TABLE>
<CAPTION>
Percentage
Number of Beneficially
Principal Stockholders Shares Owned(%)
- ---------------------- ---------- ---------
<S> <C> <C>
Yoav Stern(1) 186,250 2.48
98 Battery Street
Suite 600
San Francisco, CA 94111
David Jan Mitchell 75,137 1.00
850 Third Avenue, 10th Floor
New York, NY 10022
Estate of Joram D. Rosenfeld(1) 107,500 1.43
c/o Exodus
360 East 88th Street, #41B
New York, NY 10128
Zivi R. Nedivi(1)(2) 217,651 2.90
14000 N.W. 4 Street
Sunrise, FL 33325
John S. Gleason(3) 31,000 .41
14000 N.W. 4 Street
Sunrise, FL 33325
</TABLE>
-31-
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
Paul F. Steele(4) 6,600 .09
14000 N.W. 4 Street
Sunrise, FL 33325
Anthony Motisi(4) 7,500 .10
14000 N.W. 4 Street
Sunrise, FL 33325
Delaware Management Company, Inc.(5) 413,900 5.52
2005 Market Street
Philadelphia, PA 19103
Jeffrey Schwartz(6) 435,858 5.81
660 Madison Avenue
20th Floor
New York, NY 10021
Karen Finerman(6) 435,858 5.81
660 Madison Avenue
20th Floor
New York, NY 10021
All Officers and Directors 524,138 6.96
as a Group (10 persons)(7)
</TABLE>
(1) Each of Messrs. Stern and Nedivi and the Estate of Joram Rosenfeld may be
deemed to be a member of a group for the purposes of Section 13(d) under
the Exchange Act by virtue of a stockholders' agreement entered into by
Messrs. Stern, Nedivi and Rosenfeld on August 24, 1995. Each party thereto
agreed not to sell, encumber or otherwise dispose of the stock of the
Company beneficially owned by him except in accordance with the terms of
said agreement. As members of a group, each may be deemed to share the
voting power with respect to the shares owned by all three, or 511,401
shares, which represents 6.82% of the shares outstanding. In addition, on
January 15, 1996, Messrs. Nedivi, Rosenfeld and Stern each contributed
capital to Helix Capital Corporation, LLC in the form of promissory notes
secured by (a) in the case of Mr. Nedivi, 181,818 shares of Common Stock,
(b) in the case of Mr. Stern, among other collateral, Mr. Stern's interest
in a certain Stock Escrow Agreement, dated as of April 11, 1994, by and
among the Company, Mr. Stern, Mr. Rosenfeld and certain other parties named
therein (the "Escrow Agreement"), entered into in connection with the
Company's initial public offering, including without limitation 156,250
shares of Common Stock deposited into escrow by Mr. Stern pursuant thereto
and (c) in the case of the Mr. Rosenfeld, among other collateral, Mr.
Rosenfeld's interest (now held by the Estate of Joram Rosenfeld) in the
Escrow Agreement, including without limitation 97,500 shares of Common
Stock deposited in escrow by Mr. Rosenfeld pursuant thereto. The Escrow
Agreement terminates on April 11, 1997. Helix Capital Corporation, LLC is
controlled by Messrs. Nedivi, Stern and the Estate of Joram Rosenfeld.
(2) 16,333 shares are issuable upon the exercise of options to purchase Common
Stock, which options are exercisable within 60 days.
(3) 10,000 shares are issuable upon the exercise of options to purchase Common
Stock, which options are exercisable within 60 days.
(4) 4,500 shares are issuable upon the exercise of options to purchase Common
Stock, which options are exercisable within 60 days.
(5) According to a Schedule 13G filed February 12, 1997 by Delaware Management
Company, Inc. ("Management") and Delaware Management Holdings, Inc.
("Holdings"), Management is an investment advisor, the parent company of
which is Holdings.
(6) Following is information included in a Schedule 13D filed jointly on
January 21, 1997 by Jeffrey Schwarz, Karen Finerman, Bedford Falls
Investors, L.P. ("Bedford"), Metropolitan Capital Advisors, L.P.
("Metropolitan L.P."), Metropolitan Capital Advisors, Inc. ("Metropolitan,
Inc."), Metropolitan Capital Partners II, L.P. ("Metropolitan Partners")
and KJ Advisors, Inc. ("KJ"): Metropolitan Inc. is the sole general partner
of Metropolitan L.P., which is in turn the sole general partner of Bedford.
KJ is the sole general partner of Metropolitan Partners. Bedford is the
beneficial owner of 353,840 shares of Common Stock, 50,625 of which may be
acquired upon exercise of currently exercisable warrants; Metropolitan L.P.
is the beneficial owner of the shares of Common Stock owned by Bedford, as
general partner of Bedford, and has purchased currently exercisable
warrants to purchase 4,375 shares of Common Stock. Metropolitan Inc.
beneficially owns 358,215 shares of Common Stock as general partner of
Metropolitan L.P. KJ Advisors beneficially owns 38,018 shares of Common
Stock, of which 4,375 shares may be acquired upon the exercise of currently
exercisable warrants, as general partner of Metropolitan Partners, which
beneficially owns such shares. Jeffrey Schwarz may be deemed the beneficial
owner of 396,233 shares of Common Stock as a result of his being a
director, executive officer and stockholder of each of Metropolitan, Inc.
and KJ. Mr. Schwarz may also be deemed the beneficial owner of an
additional 39,625 shares of Common Stock by virtue of his position as a
director, executive officer and stockholder of a corporation which, through
an affiliate, may be deemed to have beneficial ownership over securities
held by a foreign investment entity. Accordingly, Mr. Schwarz may be deemed
to be the beneficial owner of a total of 435,858 shares of Common Stock,
70,000 of which may be acquired upon exercise of currently exercisable
warrants. Jeffrey Schwarz does not beneficially own any shares of Common
Stock for his own account. Karen Finerman may be deemed the beneficial
owner of 435,858 shares of Common Stock as a result of her being a
director, executive officer and/or stockholder of each of the entities
described in the Schedule 13D which directly or indirectly serve as general
partners, or investment advisors to the owners of Common Stock. Karen
Finerman does not beneficially own any shares of Common Stock other than
through such positions.
(7) 35,333 shares are issuable upon the exercise of options to purchase Common
Stock, which options are exercisable within 60 days.
-32-
<PAGE>
<PAGE>
Item 12. Certain Relationships and Related Transactions.
On August 24, 1995, the Company entered into an agreement with Mr.
Nedivi pursuant to which Mr. Nedivi purchased 181,818 shares of Common Stock at
a purchase price of $1,000,000. Mr. Nedivi has agreed not to directly or
indirectly, offer, sell, transfer, assign, hypothecate or otherwise dispose of
any interest in any of the shares (or solicit any offers to buy, purchase, or
otherwise acquire or take a pledge of any of the shares) until April 11, 1997.
During 1996, the Company paid Yoav Stern and Joram Rosenfeld, and in
each case entities controlled by them, an aggregate of $90,000 each, for
services rendered by Yoav Stern and Joram Rosenfeld as Co-Chairmen of the
Company's Board of Directors.
The Company has engaged a Helix entity, in which Messrs. Stern and
Nedivi own a majority interest to act as the Company's exclusive financial
advisor with respect to merger and acquisition transactions and as principal
financial adviser with respect to other transactions for an initial term of
eighteen months. Under the terms of the agreement, the Helix entity will receive
a monthly retainer of $25,000 and a success fee to be determined by the Company
on a per transaction basis, not to fall below 2% of the aggregate consideration
paid in connection with the applicable transaction. In addition, the terms of
the engagement letter will provide for an insurance policy in the amount of $3
million on the life of Mr. Stern which is transferable without consideration to
Mr. Stern after two years. Payments under the engagement letter are in lieu of
fees payable to Mr. Stern as Chairman of the Board. It is expected that a
substantial portion of the retainer will be paid by the Helix entity to Mr.
Stern. As a result of ownership interests held by Messrs. Stern and Nedivi in
the Helix entity, it is anticipated that a substantial portion of the
transaction fees, if any, paid by the Company to the Helix entity will, in turn,
be distributed to Messrs. Stern and Nedivi.
On February 25, 1997 The Board of Directors of the Company approved
loans in the aggregate amount of $530,000, to certain officers and directors of
the Company for the purposes of purchasing shares of Common Stock. The loans
will be unsecured and payable over four years for employees or five years for
directors at an interest rate based on the "Applicable Federal Rate" at the time
of the loan (6.1% per annum at February 25, 1997). Interest will be paid
annually by officers and will accrue and be paid at maturity by directors. The
loans will provide for mandatory prepayment if the officer or director sells any
shares of the Company's Common Stock. As of February 25, 1997, the Board has
approved loans to the following individuals:
Name Principal Amount
- ---- ----------------
Zivi R. Nedivi $150,000
Yoav Stern $150,000
John Gleason $50,000
Ian McDonald $50,000
Thomas McMillen $50,000
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<PAGE>
<PAGE>
David Jan Mitchell $50,000
Anthony Motisi $15,000
Fred von Husen $15,000
See also "Employment Agreements."
PART V
Item 13. Exhibits and Reports on Form 8-K.
(a) The following financial statements are filed as part of this Form 10-KSB:
Kellstrom Industries, Inc. Financial Statements:
- ------------------------------------------------
Independent Auditor's Report
Balance Sheets at December 31, 1996 and December 31, 1995
Statements of Earnings for the years
ended December 31, 1996 and
December 31, 1995
Statements of Stockholders' Equity for
the years ended December 31, 1996 and
December 31, 1995
Statements of Cash Flows for years ended
December 31, 1996 and December 31, 1995
Notes to Financial Statements
International Aircraft Support Combined Financial Statements:
- --------------------------------------------------------------
1996
- ----
Independent Auditor's Report
Combined Balance Sheet at December 31, 1996
Combined Statement of Income and Equity for the
year ended December 31, 1996
Combined Statement of Cash Flows for the year
ended December 31, 1996
Notes to Combined Financial Statements
1995
- ----
Independent Auditor's Report
Combined Balance Sheet at December 31, 1995
Combined Statement of Income and Equity for the
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<PAGE>
<PAGE>
year ended December 31, 1995
Combined Statement of Cash Flows for the year
ended December 31, 1995
Notes to Combined Financial Statements
(b) The following exhibits are filed as part of this Form 10-KSB:
Exhibit No. Description
- ------------------------------
3.1 The Company's Restated Certificate of Incorporation.(1)
3.2 The Company's By-laws.(1)
3.3 Certificate of Designations setting forth the terms of the Series A
Junior Participating Cumulative Preferred Stock, par value $.001 per
share (incorporated by reference to Exhibit 1 to Registration Statement
on Form 8-A filed with the Commission on January 16, 1997).
10.2 Letter Agreement among each of the Stockholders of the Registrant, the
Company, and GKN Securities Corp. (without schedules).(2)
10.3 Asset Purchase Agreement, dated February 15, 1995, among ITAC, Rada
Electronic Industries Limited, Tasco Electronics Inc. and the
Company.(3)
10.4* Management Agreement, dated January 1, 1997, between East Shore
Ventures, Inc. and the Company.
10.5* Employment Agreement, dated January 30, 1996, between Anthony Motisi
and the Company.
10.6* Employment Agreement, dated January 1, 1996, between Paul F. Steele and
the Company.
10.7* Employment Agreement, dated May 18, 1995, between John Gleason and the
Company.(3)
10.8* Amendment No. 1 to Employment Agreement, dated February 14, 1997,
between John Gleason and the Company.
10.9 Stockholders Agreement dated August 24, 1995 among Zivi R. Nedivi,
Joram D. Rosenfeld and Yoav Stern.(4)
10.10 Amendment, dated January 15, 1996, to Stockholders Agreement dated
August 24, 1995, among Zivi R. Nedivi, Joram D. Rosenfeld and Yoav
Stern.
10.11 Stock Purchase Agreement dated August 24, 1995, between the Company and
Zivi R. Nedivi.(4)
10.12* Employment Agreement, dated October 25, 1996, between Fred von Husen
and the Company.
10.13 Asset Purchase Agreement, dated October 28, 1996, by and among the
Company, a wholly owned subsidiary of the Company and IASI.(5)
10.14 Securities Purchase Agreement dated as of January 15, 1997 between the
Company and The Equitable Life Assurance Society of the United States.
10.15 Amendment No. 1 to Securities Purchase Agreement dated February 14,
1997 between the Company and The Equitable Life Assurance Society of
the United States.
10.16 Warrant dated January 15, 1997 between the Company and The Equitable
Life Assurance Society of the United States.
-35-
<PAGE>
<PAGE>
10.17 Note Purchase Agreement dated as of January 9, 1997 by and among the
Company and the Purchasers listed on Schedule I thereto.
10.18 Amendment No. 1 to the Note Purchase Agreement dated January 15, 1997
by and among the Company and the Purchasers listed on Schedule I
thereto.
10.19 Form of warrant between the Company and the Purchasers listed on
Schedule I to the Note Purchase Agreement.
10.20 Revolving Loan Agreement dated as of December 23, 1996 by and between
the Company and Barnett Bank, N.A.
10.21 Letter Agreement dated December 24, 1996 by and between Helix Capital
Corporation LLC and the Company, as amended.
10.22 Rights Agreement, dated January 14, 1997, by and between the Company
and Continental Stock Transfer and Trust Company.(6)
10.23* 1995 Stock Option Plan of the Company.(7)
10.24* 1996 Stock Option Plan of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consents of KPMG Peat Marwick LLP.
- --------
(1) Incorporated by reference to Amendment No. 1 to Registration Statement
on Form S-1, Number 33-75750, filed with the Commission April 1, 1994.
(2) Incorporated by reference to Registration Statement on Form S-1, Number
33- 75750, filed with the Commission February 25, 1994.
(3) Incorporated by reference to the Current Report on Form 8-K/A filed
with the Commission on March 14, 1994.
(4) Incorporated by reference to the Annual Report on Form 10-KSB filed
with the Commission on March 30, 1996.
(5) Incorporated by reference to the Current Report on Form 8-K filed with
the Commission on January 23, 1997.
(6) Incorporated by reference to Registration Statement on Form 8-A filed
with the Commission on January 16, 1997.
(7) Incorporated by reference to the Proxy Statement of the Company filed
with the Commission on May 12, 1995 in connection with the Special
Meeting of Shareholders of Kellstrom Industries, Inc. on June 22, 1995.
* Compensatory plan or agreement.
(b) Reports on Form 8-K:
-36-
<PAGE>
<PAGE>
No reports on Form 8-K were filed during the last quarter of
the Company's fiscal year ended December 31, 1996.
-37-
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this reports to be signed
on its behalf by the undersigned thereunto duly authorized.
Date: March 31, 1997 KELLSTROM INDUSTRIES, INC.
(Registrant)
By: /s/ Zivi R. Nedivi
-----------------------------
Title: Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf by the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------ ---------------------- --------------
<S> <C> <C>
/s/ Zivi R. Nedivi Chief Executive Officer March 31, 1997
- ----------------------- President and Director
Zivi R. Nedivi (principal executive officer)
/s/ Yoav Stern Chairman of the Board March 31, 1997
- -----------------------
Yoav Stern
/s/ John S. Gleason Chief Financial Officer, March 31, 1997
- ----------------------- Executive Vice President
John S. Gleason and Treasurer (principal
financial and accounting officer)
/s/ David Jan Mitchell Director March 31, 1997
- -----------------------
David Jan Mitchell
/s/ Thomas McMillen Director March 31, 1997
- -----------------------
Thomas McMillen
</TABLE>
-38-
<PAGE>
<PAGE>
The following Financial Statements are attached hereto:
<TABLE>
<CAPTION>
- -------------------------------------------------
Page
----
<S> <C>
Kellstrom Industries, Inc. Financial Statements:
Independent Auditor's Report..................................................................................... F-1
Balance Sheets at December 31, 1996 and December 31, 1995........................................................ F-2
Statements of Earnings for the years
ended December 31, 1996 and
December 31, 1995.............................................................................................. F-3
Statement of Stockholders' Equity for
the years ended December 31, 1996 and
December 31, 1995.............................................................................................. F-4
Statements of Cash Flows for years ended
December 31, 1996 and December 31, 1995........................................................................ F-5
Notes to Financial Statements.................................................................................... F-7
International Aircraft Support Combined Financial Statements:
- -------------------------------------------------------------
1996
- ----
Independent Auditor's Report..................................................................................... F-32
Combined Balance Sheet at December 31, 1996...................................................................... F-33
Combined Statement of Income and Equity for the
year ended December 31, 1996................................................................................... F-34
Combined Statement of Cash Flows for the year
ended December 31, 1996........................................................................................ F-35
Notes to Combined Financial Statements........................................................................... F-36
1995
- ----
Independent Auditor's Report..................................................................................... F-44
Combined Balance Sheet at December 31, 1995..................................................................... F-45
Combined Statement of Income and Equity for the
year ended December 31, 1995................................................................................... F-46
Combined Statement of Cash Flows for the year
ended December 31, 1995........................................................................................ F-47
Notes to Combined Financial Statements........................................................................... F-48
</TABLE>
<PAGE>
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Kellstrom Industries, Inc.:
We have audited the accompanying balance sheets of Kellstrom Industries, Inc. as
of December 31, 1996 and 1995, and the related statements of earnings,
stockholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kellstrom Industries, Inc. as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Ft. Lauderdale, Florida
March 10, 1997
F-1
<PAGE>
<PAGE>
ITEM I FINANCIAL STATEMENTS
KELLSTROM INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
------------------------------------
1996 1995
-------------- ---------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 154,254 $ 210,871
Trade receivables, net of allowances for returns and
doubtful accounts of $150,000 and $125,531
for 1996 and 1995 respectively 4,023,298 3,319,025
Inventory 15,723,370 11,852,019
Prepaid expenses and other current assets 588,286 236,582
Deferred tax asset (Note 8) 57,176 70,469
Investment in securities (Note 3) 1,829,532 --
------------- -------------
Total current assets $ 22,375,916 $ 15,688,966
Property, plant and equipment, net (Note 4, 6, 7) 2,943,077 1,738,677
Intangible assets, net 3,618,862 3,921,624
Investment in warrants (Note 3) -- 200,000
Deferred tax asset (Note 8) 306,079 288,000
Other assets 376,791 80,296
------------- -------------
Total Assets $ 29,620,725 $ 21,917,563
============= =============
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term notes payable (Note 6) $ 5,157,302 $ 2,251,000
Current maturities of long-term debt and capital lease obligation (Note 6) 211,068 97,915
Accounts payable 1,651,405 2,167,214
Accrued expenses (Note 5) 1,290,393 858,733
Income taxes payable 157,212 643,732
Deferred tax liability (Note 8) 173,379 --
------------- -------------
Total current liabilities $ 8,640,759 $ 6,018,594
Long-term debt and capital lease obligations, less current maturities 2,819,225 2,760,223
------------- -------------
Total Liabilities $ 11,459,984 $ 8,778,817
Stockholders' Equity (Note 9):
Preferred stock, $ .001 par value; 1,000,000 shares authorized;
none issued -- --
Common stock, $ .001 par value; 20,000,000 shares authorized;
3,315,308 shares and 2,881,818 shares issued and outstanding
in 1996 and 1995 respectively 3,315 2,882
Additional paid-in capital 14,871,559 12,769,565
Retained earnings 3,012,642 366,299
Unrealized gain on investment securities, net 273,225 --
------------- -------------
Total Stockholders' Equity $ 18,160,741 $ 13,138,746
------------- -------------
Total Liabilities and Stockholders' Equity $ 29,620,725 $ 21,917,563
============= =============
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------
1996 1995
------------- -----------
<S> <C> <C>
Net revenues $ 24,921,587 $ 8,579,017
Cost of goods sold (16,235,159) (5,378,053)
Selling, general and administrative expenses (3,491,457) (1,482,048)
Depreciation and amortization (441,854) (202,331)
------------- -----------
Operating income $ 4,753,117 $ 1,516,585
SPAC operating costs and expenses -- (389,361)
Investment advisory expenses -- (720,795)
------------- -----------
Income before interest and income taxes $ 4,753,117 $ 406,429
Interest income 18,001 370,756
Interest expense (662,528) (145,304)
------------- -----------
Income before income taxes $ 4,108,590 $ 631,881
Income taxes (Note 8) (1,462,247) (257,442)
------------- -----------
Net income $ 2,646,343 $ 374,439
============= ===========
Net income per share $ 0.45 $ 0.14
============= ===========
Weighted average number of common shares outstanding 8,147,455 2,741,195
============ ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock Retained Net unrealized
------------------- ----------------- Additional Earnings gain on Total
Number Number paid-in (accumulated investment stockholders'
of shares Amount of shares Amount capital deficit) securities equity
--------- ------- --------- ------ ------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,1994 2,220,215 $ 2,220 -- -- $9,232,814 $ (8,410) -- $ 9,226,894
Reclassify common stock
whose redemption rights
have expired 429,785 430 -- -- 2,155,733 -- -- 2,156,163
Issuance of common stock
and warrants to investment banker
in lieu of fees for financial
advisory services provided
with respect to the Acquisition 50,000 50 -- -- 381,200 -- -- 381,250
Purchase of common stock
by company President
(@ $5.50 per share) 181,818 182 -- -- 999,818 -- -- 1,000,000
Net income -- -- -- -- -- 374,439 -- 374,439
--------------------- ------------------ ----------- ---------- -------------- -------------
Balances, December 31,1995 2,881,818 $2,882 -- -- $12,769,565 $ 366,299 -- $13,138,746
Exercise of warrants 433,490 433 -- -- 2,101,994 -- -- 2,102,427
Unrealized gain on investment
securities, net -- -- -- -- -- -- $ 273,225 273,225
Net income -- -- -- -- -- 2,646,343 -- 2,646,343
--------------------- ------------------ ----------- ---------- -------------- -------------
Balances, December 31,1996 3,315,308 $3,315 -- -- $14,871,559 $3,012,642 $ 273,225 $18,160,741
===================== ================== =========== ========== ============== =============
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,646,343 $ 374,439
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization $ 441,854 $ 202,331
Acquisition expenses paid through issuance of common stock --- 381,250
Amortization of deferred financing costs 30,172 4,132
Deferred income taxes 12,285 (358,469)
Changes in operating assets and liabilities:
Increase in trade receivables, net (704,273) (1,062,397)
Increase in inventory (3,871,351) (7,616,960)
Increase in prepaid expenses and other current assets (351,704) (121,284)
Increase in other assets (255,655) (4,763)
Decrease in accounts payable (515,809) (366,250)
Increase in accrued expenses 431,661 551,457
(Decrease) Increase in income taxes payable (486,519) 540,587
Net cash used in operating activities $ (2,622,996) $ (7,475,927)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
U S Government securities sold $ --- $ 10,786,209
Treasury bills sold --- 594,518
Investment in securities (1,200,000) ---
Purchase of KST assets, net of cash acquired --- (5,790,800)
Purchase of property, plant and equipment (1,372,244) (262,974)
Other 31,753 ---
------------- -------------
Net cash (used in) provided by investing
activities $ (2,540,491) $ 5,326,953
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt proceeds $ 27,577,960 $ 2,250,000
Debt repayment, including capital lease obligations (24,499,503) (943,560)
Common stock issued 2,102,427 1,000,000
Other (74,014) (18,951)
------------- -------------
Net cash provided by financing activities $ 5,106,870 $ 2,287,489
------------- -------------
NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS $ (56,617) $ 138,515
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 210,871 72,356
------------- -------------
CASH & CASH EQUIVALENTS, END OF PERIOD $ 154,254 $ 210,871
============= =============
</TABLE>
(continued)
See accompanying notes to financial statements
F-5
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------
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
------------- =============
Unrealized gain on investment securities, net $ 273,225 $ 0
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 558,083 $ 155,144
============= =============
Income taxes $ 1,936,481 $ 26,680
============= =============
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 $ 5,790,000
=============
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Kellstrom Industries, Inc. (the "Company")
(formerly known as Israel Tech Acquisition Corp.) was incorporated in
Delaware on December 28, 1993 as a Specified Purpose Acquisition
Company ("SPAC"), the objective of which was to consummate an initial
public offering and then enter into a business combination with an
operating business. On June 22, 1995, the Company consummated the
acquisition of all of the assets of Kellstrom Industries, Inc. ("KST")
and immediately changed its name to Kellstrom Industries, Inc. The
Company engages in the purchasing, refurbishing, (through
subcontractors), leasing, marketing and distributing of commercial jet
engines and jet engine parts. The Company's customers include major
domestic and international airlines, engine manufacturers, engine part
distributors and dealers and overhaul service suppliers throughout the
world. The Company enables customers to reduce their engine maintenance
costs by providing Federal Aviation Administration-approved engine
parts on a timely basis and at competitive prices.
REVENUE RECOGNITION - Revenue is recognized upon shipment of the
product to the customer net of an estimated allowance for sales
returns.
CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
INVENTORIES - Inventories are stated at the lower of cost or market.
Cost is determined using the specific identification method.
Inventories is made up primarily of new, refurbished and as removed
engines and engine parts.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated at cost. Machinery and equipment under capital leases are stated
at the lesser of fair value or present value of minimum lease payments.
Depreciation on property, plant and equipment is calculated on the
straight-line method over the following estimated useful lives:
building - 25 years, machinery and equipment - 3 to 10 years and
furniture and fixtures - 7 years. Machinery and equipment held under
capital leases are amortized straight line over the shorter of the
lease term or the estimated useful life indicated above.
F-7
<PAGE>
<PAGE>
GOODWILL - Goodwill, which represents the excess of purchase price over
fair value of net assets acquired, is amortized on a straight-line
basis over the expected periods to be benefitted, generally 15 to 20
years. The Company assesses the recoverability of this intangible asset
by determining whether the amortization of the goodwill balance over
its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's
average cost of funds. The assessment of the recoverability of goodwill
will be impacted if estimated future operating cash flows are not
achieved. Accumulated amortization was $409,863 at December 31, 1996
and $138,853 at December 31, 1995.
INCOME TAXES - Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
FINANCIAL INSTRUMENTS - The fair value of financial instruments,
consisting of investments in cash and cash equivalents, trade accounts
receivables, investments, other current assets, trade accounts
payables, notes payable to banks, accrued expenses, and debt
instruments, is based on interest rates available to the Company and
comparisons to quoted prices. At December 31, 1996 and 1995, the
carrying amounts reported in the balance sheet equal or approximate
fair values.
COMMITMENTS AND CONTINGENCIES - During 1996 the Company entered into
two separate agreements to purchase two aircraft engines at a total
purchase price of $4,150,000. The Company is committed to purchasing
the engines upon successful completion of certain inspections. At
December 31, 1996, the purchase had not yet been consummated.
The Company records liabilities for loss contingencies, including those
arising from claims, assessments, litigation, fines and penalties, and
other sources when it is probable that a liability has been incurred
and the amount of the liability can be reasonably estimated.
USE OF ESTIMATES - Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to
prepare these financial
F-8
<PAGE>
<PAGE>
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
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.
LONG-LIVED ASSETS TO BE DISPOSED OF - The Company adopted the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of on January 1, 1995.
This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. Adoption
of this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
STOCK OPTIONS - Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." As provided for in Statement No. 123, the
Company has elected to continue to apply the provisions of APB No. 25,
"Accounting for Stock Issued to Employees" in accounting for
stock-based compensation. The disclosures required by the new Statement
are included in the "Employee Stock Option Plans" footnote.
RECLASSIFICATIONS - Certain 1995 financial statement amounts have been
reclassified to conform with 1996 presentation.
2. KST ACQUISITION
On June 22, 1995, the Company acquired substantially all of KST's
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. In
consideration therefor, 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,
F-9
<PAGE>
<PAGE>
non-interest bearing note (see Note 6). 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 the five years following the closing of such
acquisition. The Company recognized consulting fee income of $182,000
from Rada for 1995 and $200,000 for 1996. The acquisition has been
accounted for using the purchase method. Accordingly, the Company's
Statements of Operations for the twelve months ended December 31, 1995
only reflect the operations of KST from June 22, 1995 to December 31,
1995. A Pro Forma Financial Statement of Operations - Unaudited has
been provided in Note 15(b) to report the results of operations for the
year ended December 31, 1995 as though the acquisition had occurred at
the beginning of the period being reported.
3. INVESTMENTS
Upon consummation of the acquisition of the assets of KST, the Company
received warrants to purchase 400,000 shares of common stock of Rada
(the "Rada Warrants") at $3.00 per share, commencing on July 1, 1995
and expiring on or before July 1, 2000. The Rada Warrants were
originally recorded at their fair value on the date of the acquisition.
The Company classifies these warrants as "available for sale". At
December 31, 1995 the fair value of the warrants approximated their
carrying cost. As a result, there was no unrealized gain or loss
reflected in the statement of shareholder's equity. In December 1996
the Company exercised the Rada Warrants upon payment of $1,200,000. As
a result of certain antidilution provisions contained in the Rada
Warrant, the Company received 464,643 shares of Rada, representing 5.6%
of the outstanding shares of Rada at the time of exercise. The Company
classifies the shares of Rada as "available for sale". At December 31,
1996, the cost, gross unrealized holding gains, gross unrealized
holding losses and fair value for the shares was $1,400,000, $429,532,
$0, and $1,829,532 respectively.
4. PROPERTY, PLANT, AND EQUIPMENT, NET
The components of property, plant, and equipment are summarized below:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 422,600 $ 422,600
Building 1,807,192 763,929
Machinery and Equipment 715,038 299,956
Furniture and Fixtures 222,052 158,126
- ---------------------------------------------------------------------------------------------------
3,166,882 1,644,611
Accumulated Depreciation (223,805) (56,661)
- ---------------------------------------------------------------------------------------------------
2,943,077 1,587,950
Construction in Progress 0 150,727
- ---------------------------------------------------------------------------------------------------
$ 2,943,077 $ 1,738,677
============== ==============
</TABLE>
F-10
<PAGE>
<PAGE>
5. ACCRUED EXPENSES
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Employee bonuses $ 422,000 $ 366,668
Acquisition expenses 122,674 296,197
Accrued Interest 111,147 ----
Customer Deposits 436,500 ----
Other 198,072 195,868
- -----------------------------------------------------------------------------------------------------
$ 1,290,393 $ 858,733
================ ==============
</TABLE>
6. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt at December 31, 1996 and 1995 consists of the following:
1996 1995
- --------------------------------------------------------------------------------
First mortgage note bearing interest at
10.49% payable in monthly installments of
$20,238, including interest, with final
payment of $20,238 due May 2005; secured by
real property with depreciated cost of
$1,167,698 in 1995 and $2,175,265 in 1996. $1,194,277 $ 643,768
Borrowings under revolving line of credit,
interest, at prime+1% (9.5% at December 31,
1995), and at prime-1/8% (8.125% at December
31, 1996) is payable monthly; the revolving
line of credit expires in April 1998. 5,157,302 1,000
Non-interest bearing note payable in
semi-annual installments of $125,000,
including interest, with final payment of
$1,775,000 due June 1999. The note was
discounted using an interest rate of 9% The
note was paid in full subsequent to year end. 1,830,150 2,205,625
F-11
<PAGE>
<PAGE>
Term loan bearing interest at prime+1% (9.5%
at December 31, 1995) secured by a specific
jet engine. Interest on the note is payable
monthly. Principal is due upon the earlier of
the sale of the acquired jet engine (or its
parts) or November 1996. 0 2,250,000
Capital lease obligations 5,866 8,745
- --------------------------------------------------------------------------------
Total long-term debt and capital lease
obligations 8,187,595 5,109,138
Less short-term notes payable (5,157,302) (2,251,000)
Less current installments on long-term debt and
capital lease obligations (211,068) (97,915)
- --------------------------------------------------------------------------------
Long-term debt and capital lease obligations,
excluding current installments $2,819,225 $2,760,223
========== ==========
Upon the consummation of the acquisition by the Company of the assets of KST,
the Company assumed the mortgage note in the amount of $666,820. Subsequently, a
$750,000 construction loan was added to this mortgage note in 1996. The mortgage
note is secured by a first mortgage on the Company's land and building.
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 December 23, 1996 the Company entered into a Revolving Loan Agreement with a
total commitment of $15,000,000 with Barnett Bank, N.A. This agreement replaced
the lines of credit the Company had established with BankAtlantic. This
agreement, which bears interest at 1/8% below the bank's prime rate (8.125% at
December 31, 1996), expires in April 1998 and is secured by substantially all
the Company's assets. Interest is payable monthly. No compensatory balances are
required under the agreement. At December 31, 1996, the Company had $9,842,698
available under the agreement.
F-12
<PAGE>
<PAGE>
Debt maturities (excluding capital lease obligations) for each of the
five years subsequent to December 31, 1996 are as follows: 1997, $5,364,791;
1998, $197,558; 1999, $1,835,227; 2000, $167,856; 2001, $186,336; and thereafter
$429,961.
7. LEASES
The Company is obligated under two capital leases for certain office equipment
that expire in December 1997 and February 1999, respectively. At December 31,
1996 and 1995, the gross amount of office equipment and related accumulated
amortization recorded under capital leases were as follows:
1996 1995
- -------------------------------------------------------------------------------
Office Equipment $10,878 $10,878
Less accumulated
amortization (4,998) (2,823)
- -------------------------------------------------------------------------------
$ 5,880 $ 8,055
================================================================================
Amortization of assets held under capital leases is included with depreciation
expense.
The Company also has several operating leases, primarily for transportation
equipment and facilities, that expire over the next one to three years. These
leases generally require the Company to pay all executory costs such as
maintenance and insurance and provide for early termination at stipulated
values. Rental payments for the transportation equipment include minimum rentals
plus contingent rentals based on mileage. Rental expense for operating leases
during 1996 and 1995 consisted of the following:
1996 1995
- --------------------------------------------------------------------------------
Minimum rentals $66,437 $30,778
Contingent rentals 4,007 0
- --------------------------------------------------------------------------------
Rental expense $70,444 $30,778
================================================================================
Future minimum lease payments under operating lease agreements and future
minimum capital lease payments as of December 31, 1996 are:
F-13
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Year ending December 31: Capital Operating
Leases Leases
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1997 4,370 $77,643
1998 2,150 18,813
1999 360 744
- -------------------------------------------------------------------------------------------------------------------------
Total minimum lease payments $6,880 $ 97,200
Less amount representing interest (1,014)
- -------------------------------------------------------------------------------------------------------------------------
Present value of minimum lease payments 5,866
Less current installments (3,579)
- -------------------------------------------------------------------------------------------------------------------------
Obligations under capital leases, excluding current $2,287
installments ======
</TABLE>
8. INCOME TAXES
The actual tax expense differs from the "expected" tax expense for the years
ended December 31, 1996 and 1995 (computed by applying the U.S. federal
corporate tax rate of 34% to income before income taxes), as follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computed "expected" tax expense $1,396,921 $214,840
State income tax, net of federal benefit 98,411 24,398
Reorganization costs --- 14,705
Other (33,085) 3,499
- ---------------------------------------------------------------------------------------------------------
Actual tax expense $1,462,247 $257,442
========== ========
</TABLE>
Income tax expense for the years ended December 31, 1996 and 1995 is summarized
as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current:
Federal $1,299,550 $525,766
State 150,412 90,145
- --------------------------------------------------------------------------------------------------------
1,449,962 615,911
Deferred 12,285 (358,469)
- --------------------------------------------------------------------------------------------------------
Total $1,462,247 $257,442
========== ========
</TABLE>
F-14
<PAGE>
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996 and
1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Acquisition costs $214,174 $312,064
Bad debts 54,586 47,237
Inventory 90,491 ---
Other 4,004 (832)
- --------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 363,255 358,469
Less valuation allowance 0 0
- --------------------------------------------------------------------------------------------------------
Deferred tax assets $363,255 $358,469
- --------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Inventory $(17,071) $0
Unrealized gain on (156,308) 0
investment securities
- --------------------------------------------------------------------------------------------------------
Deferred tax liabilities (173,379) 0
- --------------------------------------------------------------------------------------------------------
Net Deferred tax assets $189,876 $358,469
======== ========
</TABLE>
The Company's management believes that it is more likely than not that the
results of future operations will generate sufficient taxable income to realize
the deferred tax asset.
9. 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, $.001 par
value. At December 31, 1995 and 1996, the Company had 2,881,818 and 3,315,308
shares, respectively, of Common Stock outstanding.
F-15
<PAGE>
<PAGE>
Upon consummation of the acquisition of the assets of KST, in consideration for
services provided by its investment bankers in connection with the acquisition
of KST, the Company issued 50,000 shares of the Company's Common Stock and a
warrant to purchase an additional 300,000 shares of the Company's Common Stock
at a stated price of $5.00. The expense recognized by the Company as a result of
the issuance of the shares and warrants was determined based on the fair value
of the shares and warrants on the closing date of the acquisition.
At December 31, 1996 and 1995, the Company had 4,576,510 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 an average stated price of $5.08 and
$5.00 respectively. 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 5,000,000 common shares for the exercise of these warrants.
See Note 14.
At December 31, 1996 and 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 and two redeemable common stock purchase warrants. These unit
purchase options are exercisable commencing on April 11, 1995 and expiring on
April 11, 1999. As of December 31, 1996 none of the unit purchase options had
been exercised.
10. EMPLOYEE STOCK OPTION PLANS
The 1995 Stock Option Plan provides for the granting of stock options to
purchase up to 250,000 shares of Common Stock to key employees, with no
individual granted options to purchase more than 100,000 shares of Common Stock
during the ten-year period commencing on June 22, 1995, at a price which will
not be less than the fair market value of Common Stock on the date of grant.
These options will be exercisable at such times, in such amounts and during such
intervals as determined on the date of grant. However, no option will be
exercisable during the first six months after the date of grant or more than 10
years after the date of grant. In 1995 the Company granted 235,000 stock options
at an exercise price of $5.00; all of which provide that such options fully vest
over a period of three years from the date of grant.
The 1996 Stock Option Plan provides for the granting of incentive stock options
to purchase shares of Common Stock at not less than the fair market value on the
date of the option grant and the granting of nonqualified options and stock
appreciation rights ("SARs") with any exercise price. SARs granted in tandem
with an option have the same exercise price as the related option. The total
number of shares with respect to which options and SARs may be granted under the
Plan is currently 1,100,000. No option or SAR may be granted under the Plan
after July 9, 2006, and no option or SAR may be outstanding for more than ten
years after its grant.
F-16
<PAGE>
<PAGE>
The following table summarizes the status of the company's stock option plans:
<TABLE>
<CAPTION>
Weighted Average Option
Shares Exercise Price
------- --------------------
<S> <C> <C>
Outstanding at January 1, 1996 235,000 $5.000
Granted 373,000 7.625
Exercised - -
Expired or Canceled -
- ----------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 608,000 6.610
At December 31, 1996
Exercisable options 78,333 5.00
Shares Available for Future Grant 742,000
</TABLE>
The weighted average per share fair values of options granted under the
Company's stock option plans during 1996 and 1995 were $4.02 and $2.48.
respectively. Had the fair value of the grants under these plans been recognized
as compensation expense over the vesting period of the awards, the Company's net
earnings and earnings per share would have reflected the pro forma amounts shown
below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net earnings - as reported $2,646,343 $374,439
- pro forma 2,260,098 284,456
Earnings per share - as reported 0.45 0.14
- pro forma 0.40 0.13
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black- Scholes option-pricing model with the following weighted average
assumptions for 1996 and 1995: dividend yield of 0%; expected volatility of 20%;
a risk-free interest rate of 6.59%; and an expected holding period 5 years.
Increased pro forma compensation expense in 1996 is the result of the additional
options granted and further vesting of 1995 grants during 1996. Pro forma
expense for 1997 is expected to increase over 1996 for the same reasons.
F-17
<PAGE>
<PAGE>
11. BUSINESS AND CREDIT CONCENTRATIONS
The Company's business is impacted by the general economic conditions of the
commercial aviation industry. Airlines and other operators recognize the need to
cut costs, shift inventory requirements, and conserve capital to sustain
profitability. The Company's industry is also subject to regulation by various
governmental agencies with responsibilities over civil aviation. Increased
regulations imposed by organizations such as the Federal Aviation Administration
may significantly affect industry operations. Accordingly economic and
regulatory changes in the marketplace may significantly affect management's
estimates and future performance.
Five of the Company's customers (each individually accounting for over 10% of
trade receivables and/or revenues at December 31, 1995 and December 31, 1996)
collectively account for 94% and 96% (1995) and 64% and 55% (1996) of trade
receivables and revenues, respectively.
The Company estimates an allowance for doubtful accounts based on the credit
worthiness of its customers as well as general economic conditions. Consequently
an adverse change in those factors could effect the Company's estimate of its
bad debts.
12. OTHER MATTERS
At December 31, 1996 there were no material legal proceedings pending against
the Company or any of its property. However, the Company may become party to
various claims, legal actions and complaints arising in the ordinary course of
business. While any proceeding or litigation has an element of uncertainty,
management believes that the disposition of any matter that may arise will not
have a material impact on the financial condition, liquidity or results of
operations of the Company.
13. RELATED PARTY TRANSACTIONS
During 1996, the Company paid Yoav Stern and Joram D. Rosenfeld, and in each
case entities controlled by them, an aggregate of $90,000 each for services
rendered by Yoav Stern and Joram D. Rosenfeld as Co-Chairmen of the Company's
Board of Directors.
On December 24, 1996, the Company engaged Helix Capital Corporation, LLC
("Helix"), in which Yoav Stern, Chairman, and Zivi Nedivi, President and Chief
Executive Officer, own a majority interest, to act as the Company's exclusive
financial advisor with respect to merger and acquisition transactions and as
principal financial advisor with respect to other transactions for an initial
term of eighteen months beginning January 1, 1997. Under the terms of the
agreement, Helix will receive a monthly retainer $25,000 and a success fee to be
determined by the Company on a per transaction basis, not to fall below 2% of
the aggregate consideration paid in connection with the applicable transaction.
F-18
<PAGE>
<PAGE>
14. SUBSEQUENT EVENTS
On January 15, 1997, the Company through its 100% subsidiary, IASI, Inc.,
completed the acquisition of substantially all of the assets and assumed certain
of the liabilities of International Aircraft Support, L.P., a California limited
partnership, for a cash purchase consideration of $26.5 million and issued
warrants, with an expiration date of two years from January 15, 1997, to
purchase 500,000 shares of the Company's Common Stock at $9.25 per share. The
acquisition was financed through the issuance of $15 million in senior
subordinated debt and warrants, along with the proceeds of a $6 million
subordinated bridge loan and warrants ("Bridge Loan") with the balance from the
Company's working capital. The acquisition will be accounted for using the
purchase method of accounting for business combinations. The Company also
assumed IASI's existing debt including IASI's Union Bank of California various
credit facilities that totaled approximately $20 million as of the date of the
acquisition. The Bridge Loan matures on April 15, 1997. The interest rate on the
Bridge Loan is 10% and, additionally, 75,000 warrants that are exercisable at
$10 and expire on April 15, 2000 were issued to the Bridge Loan lenders. The
interest rate on the $15 million senior subordinated debt is 11.75%, payable
quarterly. Additionally, 305,660 warrants were issued to this lender, such
warrants are exercisable at $10 and expire on January 15, 2004. Principal on
this debt is payable in three equal annual installments beginning January 15,
2002. See Note 15(c) for certain pro forma information.
On January 17, 1997, the Company's Board of Directors declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share of Common
Stock. Each right entitles the registered holder to purchase from the Company
one one-hundredth of a share of Series A Junior Participating Cumulative
Preferred Stock ("Series Preferred Stock") at an exercise price of $80.
The Rights are not exercisable, or transferable apart from the Common Stock,
until the earlier to occur of (i) ten days following a public announcement that
a person or group of affiliated or associated persons have acquired beneficial
ownership of 20% or more of the outstanding Common Stock of the Company or (ii)
ten business days (or such later date, as defined) following the commencement
of, or announcement of an intention
F-19
<PAGE>
<PAGE>
to make, a tender offer or exchange offer, the consummation of which would
result in the beneficial ownership by a person or group of 19% or more of the
outstanding Common Stock of the Company. Furthermore, if the Company enters into
a consolidation, merger, or other business combination, as defined, each Right
would entitle the holder upon exercise to receive, in lieu of shares of Series A
Preferred Stock, that number of shares of common stock of the acquiring company
having a value of two times the exercise price of the Right, as defined. The
Rights contain antidilutive provisions, are redeemable at the Company's option,
subject to certain defined restrictions, for $.01 per Right, and expire on
January 14, 2007.
As a result of the Rights dividend, the Board designated 200,000 shares of
preferred stock as Series A Preferred Stock. Series A Preferred Stockholders
will be entitled to a preferential cumulative quarterly dividend of the greater
of $1.00 per share or 100 times the per share dividend declared on the Company's
Common Stock. The Series A Preferred Stock has a liquidation preference, as
defined. In addition, each share will have 100 votes and will vote together with
the shares.
On February 4, 1997 the Company called its publicly traded warrants (the "Public
Warrants") pursuant to their terms. There were 4,166,510 Public Warrants
outstanding at December 31, 1996. The Company received proceeds of $22,961,950
from the exercise of Public Warrants during the period from October 1, 1996 to
March 21, 1997.
On February 25, 1997, the Board of Directors of the Company approved loans in
the aggregate amount of $530,000 to certain officers and directors of the
Company for the purposes of purchasing shares of common stock. The loans will be
unsecured and payable over four years for employees or five years for directors
at an interest rate based on the applicable federal rate, as defined by the
agreement, at the time of the loan. The interest rate at February 25, 1997 was
6.1% per annum. Interest will be paid annually by officers and will accrue and
be paid at maturity by directors.
15. SUPPLEMENTAL FINANCIAL DATA
(a) QUARTERLY DATA - UNAUDITED
<TABLE>
<CAPTION>
Quarters
---------------------------------------------------------------------------
First Second Third Fourth
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
1996 $5,270,995 $5,917,832 $6,462,088 $7,270,672
1995 0 153,888 3,286,480 5,138,649
- -------------------------------------------------------------------------------------------------------------------------
Earnings from continuing
operations: $ 516,707 $ 828,409 $ 662,133 $ 639,094
1996
1995 (112,323) (479,400) 214,738 751,424
- -------------------------------------------------------------------------------------------------------------------------
Net earnings:
1996 $ 516,707 $ 828,409 $ 662,133 $ 639,094
1995 (112,323) (479,400) 214,738 751,424
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-20
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Quarters
-------------------------------------------------------------------
First Second Third Fourth
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings per common share for continuing operations:
1996 $.09 $.13 $.11 $.11
1995 (.04) (.18) .06 .13
- -------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per common share:
1996 $ .09 $ .13 $ .11 $.11
1995 (.04) (.18) .06 .13
=========================================================================================================================
</TABLE>
(b) PRO FORMA STATEMENT OF OPERATIONS - UNAUDITED
The Company acquired substantially all of the assets and operations of KST on
June 22, 1995 (see Note 2). Accordingly, the Company's Statement of Earnings for
the year ended December 31, 1995 reflects the operations of the SPAC for the
period of January 1, 1995 through June 22, 1995 along with the operations of the
acquired company from June 22, 1995 ("Acquisition Date") through December 31,
1995.
Subsequent to the Acquisition Date, the operations that were unique to the SPAC
were no longer needed and have accordingly been discontinued. Certain
significant expense items that are directly related to these unique SPAC
activities will not recur in future periods including acquisition expenses, SPAC
operating costs and expenses and SPAC interest expenses. Also, the interest
income that was realized by the trust fund (into which proceeds of the Company's
initial public offering were placed pending the consummation of a business
combination) will no longer occur, although the Company expects to continue to
invest excess cash in interest-bearing accounts and securities.
Pro forma Statements of Earnings have been provided herein to report the results
of operations for the year ended December 31, 1995 as though the companies had
combined at the beginning of the period being reported.
F-21
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
ACTUAL and PRO FORMA STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------
1996 1995
------------- -------------
Pro Forma
Actual Combined
------------- -------------
<S> <C> <C>
Net revenues $ 24,921,587 $ 14,708,178
Cost of goods sold (16,235,159) (9,546,394)
Selling, general and administrative expenses (3,491,457) (2,382,172)
Depreciation and amortization (441,854) (350,904)
------------ ------------
Operating income $ 4,753,117 $ 2,428,708
Interest income 18,001 192,721
Interest expense (662,528) (310,362)
------------ ------------
Income before income taxes $ 4,108,590 $ 2,311,067
Income taxes (1,462,247) (866,650)
------------ ------------
Net income $ 2,646,343 $ 1,444,417
============ ============
Net income per share $ 0.45 $ 0.30
============ ============
Weighted average number of shares outstanding 8,147,455 7,188,095
============ ============
</TABLE>
Unaudited--See accompanying notes to financial statements and to
pro forma combined statement of earnings
F-22
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
-------------------------------------------------------------------
HISTORICAL PRO FORMA PRO FORMA
ITAC KST ADJUSTMENTS(A) COMBINED
------------------------------ -------------- ----------
<S> <C> <C> <C> <C>
Net revenues $ 8,579,017 $ 6,111,079 $ 18,082 $ 14,708,178
Cost of goods sold (5,378,053) (4,168,341) (9,546,394)
Selling, general and administrative expenses (1,482,048) (924,478) 4,587 (2,382,172)
(90,000)
109,767
Depreciation and amortization (202,331) (57,054) 33,912 (350,904)
(124,731)
(700)
------------ ------------ ------------ ------------
Operating income $ 1,516,585 $ 961,206 $ (49,083) $ 2,428,708
SPAC operating costs and expenses (389,361) -- 389,361 --
Investment advisory expenses (720,795) (13,823) 734,618 --
------------ ------------ ------------ ------------
Operating income $ 406,429 $ 947,383 $ 1,074,896 $ 2,428,708
Interest income 370,756 23,154 (201,189) 192,721
Interest expense (145,304) (132,609) 61,093 (310,362)
1,584
(95,126)
------------ ------------ ------------ ------------
Income before income taxes $ 631,881 $ 837,928 $ 841,258 $ 2,311,067
Income taxes (257,442) (439,699) (169,509) (866,650)
------------ ------------ ------------ ------------
Net income $ 374,439 $ 398,229 $ 671,749 $ 1,444,417
============ ============ ============ ============
Net income per share $ 0.14 $ 0.30
============ ============
Weighted average number of common shares outstanding 2,741,195 7,188,095
============ ============
</TABLE>
Unaudited--See accompanying notes to financial statements and to
pro forma combined statement of earnings
F-23
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF EARNINGS--UNAUDITED
(A) For purposes of presenting the pro forma combined statement of
earnings, the following adjustments have been made:
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
-----------------
<S> <C>
Increase (decrease) in income:
Increase in consulting income relating to consulting agreement with Rada $ 18,082
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 for the period from Jan 1 - June 22 (90,000)
Elimination of 1994 expenses reflected in 1995 selling, general and administrative expenses 109,767
Decrease in amortization expense resulting from write-off of existing goodwill 33,912
Amortization of goodwill (124,731)
Depreciation of building (700)
Elimination of all ITAC S. G. & A. expenses since all business activities will be conducted
by Kellstrom after the Acquisition 389,361
Elimination of all acquisition expense since it is non-recurring 734,618
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)
-----------------
$ 841,258
Tax effect of pro forma adjustments (169,509)
-----------------
Net adjustment $ 671,749
=================
</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.
F-24
<PAGE>
<PAGE>
(c) PRO FORMA FINANCIAL INFORMATION -- UNAUDITED
Set forth below is the unaudited pro forma combined balance sheet information,
at December 31, 1996, assuming that the acquisition of substantially all of the
assets and certain of the liabilities of International Aircraft Support, L.P.
had been consummated at December 31, 1996 and that the Public Warrants had been
exercised at that date and the unaudited pro forma combined statement of
earnings for the year ended December 31, 1996, assuming that the acquisition of
substantially all of the assets and certain of the liabilities of International
Aircraft Support, L.P. had been consummated at the beginning of the period being
reported and that the proceeds of the exercise of the Public Warrants had been
applied to reduce indebtedness of the Company at January 1, 1996.
F-25
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1996
(Unaudited)
Assets
<TABLE>
<S> <C>
Current Assets:
Cash and cash equivalents $ 157,854
Trade receivables, net of allowances for returns and
doubtful accounts of $168,622 7,688,538
Inventory 33,310,539
Engines under operating leases, net 8,853,978
Notes receivable 1,124,950
Prepaid expenses and other current assets 679,989
Investment in securities 1,829,532
-----------
Total current assets $53,645,380
Property, plant and equipment, net 3,017,942
Intangible assets, net 17,420,228
Other assets 3,430,100
-----------
Total Assets $77,513,650
===========
Liabilities and Equity
Current Liabilities:
Short-term notes payable $ 5,045,438
Current maturities of long-term debt and capital lease obligations 6,299,344
Accounts payable 3,019,488
Accrued expenses 4,523,193
Income taxes payable 157,212
Deferred tax liability 173,379
-----------
Total current liabilities $19,218,054
Long-term debt and capital lease obligations, less current maturities 16,598,725
-----------
Total Liabilities $35,816,779
Stockholders' Equity:
Preferred stock, $ .001 par value; 1,000,000 shares
authorized; none issued --
Common stock, $ .001 par value; 20,000,000 shares authorized;
7,481,818 shares issued and outstanding 7,482
Additional paid-in capital 38,403,522
Retained earnings 3,012,642
Net unrealized gain on investment securities 273,225
-----------
Total Stockholders' Equity $41,696,871
-----------
Total Liabilities and Stockholders' Equity $77,513,650
===========
</TABLE>
Unaudited -- See accompanying notes to pro forma combined balance sheet
F-26
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
KELLSTROM IASI ADJUSTMENTS(A) COMBINED
------------------------- ------------- -------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 154,254 $ 3,600 $ 20,832,550 c $ 157,854
(1,209,784) d
Trade receivables, net of allowances for returns and (19,622,766) e
doubtful accounts of $150,000 for Kellstrom and
$18,622 for IASI 4,023,298 3,711,669 (46,429) a 7,688,538
Inventory 15,723,370 21,969,313 (4,382,144) b 33,310,539
Engines under operating leases, net 0 12,903,284 (4,049,306) b 8,853,978
Notes receivable -- 2,251,847 (1,126,897) b 1,124,950
Prepaid expenses and other current assets 645,462 46,735 (12,208) b 679,989
Investment in securities 1,829,532 -- -- 1,829,532
------------ ------------ ------------ ------------
Total current assets $ 22,375,916 $ 40,886,448 $ (9,616,984) $ 53,645,380
Property, plant and equipment, net 2,943,077 74,865 3,017,942
Intangible assets, net 3,618,862 324,509 13,801,366 b 17,420,228
(324,509) b
Other assets 682,870 7,000 2,740,230 d 3,430,100
------------ ------------ ------------ ------------
Total Assets $ 29,620,725 $ 41,292,822 $ 6,600,103 $ 77,513,650
============ ============ ============ ============
Liabilities and Equity
Current Liabilities:
Short-term notes payable $ 5,157,302 $ 5,900,550 $ 6,000,000 b $ 5,045,438
3,822,852 b
(15,835,266) e
Current maturities of long-term debt and capital lease obligations 211,068 6,088,276 6,299,344
Accounts payable 1,651,405 1,414,512 (46,429) a 3,019,488
Accrued expenses 1,290,393 3,330,037 (97,237) b 4,523,193
Income taxes payable 157,212 -- -- 157,212
Deferred tax liability 173,379 0 173,379
------------ ------------ ------------ ------------
Total current liabilities $ 8,640,759 $ 16,733,375 $ (6,156,080) $ 19,218,054
Long-term debt and capital lease obligations, less current maturities 2,819,225 2,567,000 15,000,000 b 16,598,725
(3,787,500) e
------------ ------------ ------------ ------------
Total Liabilities $ 11,459,984 $ 19,300,375 $ 5,056,420 $ 35,816,779
Equity:
Preferred stock, $ .001 par value; 1,000,000 shares
authorized; none issued -- -- --
Common stock, $ .001 par value; 20,000,000 shares authorized;
3,315,308 shares issued and outstanding 3,315 -- 4,167 c 7,482
Additional paid-in capital / Contributed capital 14,871,559 5,398,129 (5,398,129) b 38,403,522
1,173,134 b
20,828,383 c
1,530,446 d
Retained earnings / Accumulated earnings 3,012,642 16,594,318 (16,594,318) b 3,012,642
Net unrealized gain on investment securities 273,225 -- -- 273,225
------------ ------------ ------------ ------------
Total Equity $ 18,160,741 $ 21,992,447 $ 1,543,683 $ 41,696,871
------------ ------------ ------------ ------------
Total Liabilities and Equity $ 29,620,725 $ 41,292,822 $ 6,600,103 $ 77,513,650
============ ============ ============ ============
</TABLE>
Unaudited -- See accompanying notes to pro forma financial statements
F-27
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED BALANCE SHEET--UNAUDITED
(A) For purposes of presenting the pro forma combined balance sheet, the
following adjustments have been made:
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
a. Elimination of inter-company balances:
Reduction in accounts receivable:
Kellstrom accounts receivable from IASI $ (40,600)
IASI accounts receivable from Kellstrom (5,829)
------------
$ (46,429)
============
Reduction in accounts payable
Kellstrom accounts payable to IASI $ (5,829)
IASI accounts payable to Kellstrom (40,600)
------------
$ (46,429)
============
b. Acquisition of IASI assets:
Revaluation of inventory acquired (due to change in intended use) $ (4,382,144)
Revaluation of engines acquired (under operating leases)
(due to change in intended use) (4,049,306)
Elimination of IASI notes receivable (1,126,897)
Elimination of prepaid insurance (12,208)
Excess of Purchase Price over Fair Value of Net Assets Acquired 13,801,366
Elimination of IASI goodwill (324,509)
Bank note payable incurred 3,822,852
Elimination of some IASI accrued expenses (97,237)
Bridge loan debt incurred 6,000,000
Subordinated debt incurred 15,000,000
Elimination of IASI contributed capital (5,398,129)
Elimination of IASI accumulated earnings (16,594,318)
Additional paid-in capital from warrants issued 1,173,134
------------
$ 0
============
c. Exercise balance of warrants:
Common stock issued 4,167
Additional paid-in capital received 20,828,383
------------
$ 20,832,550
============
d. Prepayment of finance charge on acquisition debt:
Additional paid-in capital from warrants issued 1,530,446
Finance charge paid in cash 1,209,784
------------
$ 2,740,230
============
e. Use of proceeds from exercise of warrants:
Reduction of bridge loans and line of credit financing (15,835,266)
Reduction of subordinated notes (3,787,500)
------------
$(19,622,766)
============
</TABLE>
F-28
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
Pro Forma
Combined
-----------------
<S> <C>
Net revenues $ 47,291,200
Cost of goods sold (30,951,057)
Selling, general and administrative expenses (4,542,415)
Depreciation and amortization (2,045,686)
-----------------
Operating income $ 9,752,042
Interest income 61,278
Interest expense (3,307,986)
-----------------
Income before income taxes $ 6,505,334
Income taxes (2,315,248)
-----------------
Net income $ 4,190,086
=================
Net income per share 0.53
=================
Weighted average number of shares outstanding 7,952,470
=================
</TABLE>
See accompanying notes to pro forma combined statement of earnings
F-29
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
------------------------------------------------------------------
HISTORICAL PRO FORMA PRO FORMA
KELLSTROM IASI ADJUSTMENTS (A) COMBINED
------------------------------ --------------- ---------
<S> <C> <C> <C> <C>
Net revenues $ 24,921,587 $ 22,863,747 $ (494,134) $ 47,291,200
------------ ------------ ----------- ------------
Cost of goods sold (16,235,159) (15,083,516) 367,618 (30,951,057)
Selling, general and administrative expenses (3,491,457) (1,744,434) 693,476 (4,542,415)
Depreciation and amortization (441,854) (937,716) 23,952 (2,045,686)
(690,068)
------------ ------------ ----------- ------------
Operating income $ 4,753,117 $ 5,098,081 $ (99,156) $ 9,752,042
Interest income 18,001 43,277 61,278
Interest expense (662,528) (1,066,418) 942,515 (3,307,986)
(2,521,555)
Expenses related to sale of business -- (234,866) 234,866 --
------------ ------------ ----------- ------------
Income before income taxes $ 4,108,590 $ 3,840,074 $(1,443,330) $ 6,505,334
Income taxes (1,462,247) (3,075) (849,926) (2,315,248)
------------ ------------ ----------- ------------
Net income $ 2,646,343 $ 3,836,999 $(2,293,256) $ 4,190,086
============ ============ =========== ============
Net income per share $ 0.45 $ 0.53
============ ============
Weighted average number of common shares outstanding 8,147,455 7,952,470
============ ============
</TABLE>
Unaudited -- See accompanying notes to pro forma combined statement of earnings
F-30
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF EARNINGS
(A) For purposes of presenting the pro forma combined statement of
operations, the following adjustments have been made:
<TABLE>
<CAPTION>
Twelve Months Ended
December 31, 1996
-------------------
<S> <C>
Increase (decrease) in income:
Decrease in net revenues from inter-company sales $ (494,134)
Decrease in cost of goods sold from inter-company sales 367,618
Decrease in IASI selling, general and administrative expenses due to elimination of
pension plan and bonus program and consolidation of insurance policies 693,476
Elimination of IASI goodwill amortization expense 23,952
Amortization of goodwill related to acquisition (690,068)
Reduction of bank interest expense - exercise of warrants 942,515
Interest expense on acquisition debt (2,521,555)
Elimination of expenses related to the sale of IASI 234,866
-------------------
$ (1,443,330)
Tax effect of pro forma adjustments (849,926)
-------------------
Net adjustment $ (2,293,256)
===================
</TABLE>
F-31
<PAGE>
<PAGE>
Report of Independent Auditors
The Board of Directors
International Aircraft Support
We have audited the accompanying combined balance sheet of International
Aircraft Support (the "Company") as of December 31, 1996, and the related
combined statements of income and retained earnings, and cash flows for the year
then ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of International
Aircraft Support as of December 31, 1996, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
San Francisco, California
February 21, 1997
F-32
<PAGE>
<PAGE>
International Aircraft Support
Combined Balance Sheet
December 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 3,600
Accounts receivable, net of allowance for doubtful
accounts of $18,622 3,711,669
Inventory 21,969,313
Notes receivable from related parties 2,251,847
Other current assets 46,735
------------
Total current assets 27,983,164
Jet aircraft engines held for lease, net of
accumulated depreciation of $3,861,190 12,903,284
Property and equipment:
Furniture and equipment 317,588
Trucks and automobiles 41,997
Leasehold improvements 26,501
------------
386,086
Accumulated depreciation and amortization (311,221)
------------
74,865
Goodwill, net of accumulated amortization of $163,678 324,509
Other assets 7,000
------------
Total assets $ 41,292,822
============
LIABILITIES AND EQUITY
Current liabilities:
Revolving line of credit $ 4,000,000
Engine line of credit 1,900,550
Current portion of notes payable 6,088,276
Accounts payable and accrued liabilities 3,439,967
Consignments payable 1,258,032
Other current liabilities 46,550
------------
Total current liabilities 16,733,375
Notes payable, less current portion 2,567,000
------------
Total liabilities 19,300,375
------------
Commitments and contingencies
Equity:
Contributed capital 5,398,129
Retained earnings 16,594,318
------------
21,992,447
------------
Total liabilities and equity $ 41,292,822
============
</TABLE>
See accompanying notes to combined financial statements.
F-33
<PAGE>
<PAGE>
International Aircraft Support
Combined Statement of Income and Retained Earnings
Year ended December 31, 1996
<TABLE>
<S> <C>
Revenues, including consignment parts sales of $2,289,107 $ 22,863,747
Operating expenses:
Direct labor and materials, including consignment parts cost
of $ 1,793,270 13,662,392
Indirect labor and operating 1,421,124
Depreciation and amortization 937,716
General and administrative 1,744,434
------------
Total operating expenses 17,765,666
Income from operations 5,098,081
Other (income) expense:
Interest expense 1,066,418
Expenses related to sale of business 234,866
Other income (43,277)
------------
Income before income taxes 3,840,074
Provision for income taxes 3,075
------------
Net income 3,836,999
Retained earnings at beginning of year 12,757,319
------------
Retained earnings at end of year $ 16,594,318
============
</TABLE>
See accompanying notes to combined financial statements.
F-34
<PAGE>
<PAGE>
International Aircraft Support
Combined Statement of Cash Flows
Year ended December 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,836,999
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 937,716
Decrease in accounts receivable, net 275,795
Increase in inventory, net (1,940,775)
Decrease in other assets 64,387
Increase in accounts payable and accrued liabilities 1,666,442
Increase in consignments payable 472,351
Increase in other liabilities 38,587
-----------
Net cash provided by operating activities 5,351,502
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment (6,328)
Purchase of jet aircraft engine held for lease and overhaul costs (5,950,542)
-----------
Net cash used in investing activities (5,956,870)
NET CASH FLOWS FROM FINANCING ACTIVITIES
Loan to shareholder (1,500,000)
Net borrowings on lines of credit 1,612,550
Proceeds from borrowings on notes payable 6,300,000
Principal payments on notes payable (6,328,720)
-----------
Net cash provided by financing activities 83,830
Decrease in cash (521,538)
Cash at beginning of year 525,138
-----------
Cash at end of year $ 3,600
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 1,049,977
===========
Noncash transaction: transfer of engine held for lease to inventory
at book value $ 314,282
===========
</TABLE>
See accompanying notes to combined financial statements.
F-35
<PAGE>
<PAGE>
International Aircraft Support
Notes to Combined Financial Statements
December 31, 1996
1. BASIS OF PRESENTATION
The combined financial statements include the accounts of International Aircraft
Support, Inc. and International Aircraft Support, L.P. (collectively referred to
as "International Aircraft Support" or the "Company"). All material intercompany
balances and transactions have been eliminated.
International Aircraft Support, Inc. was acquired by IASI, Inc., an entity
wholly-owned by General William Lyon, on February 15, 1990. IASI, Inc. was
merged into International Aircraft Support, Inc. on February 26, 1990.
Accordingly, International Aircraft Support, Inc. is wholly-owned by General
William Lyon. The acquisition was accounted for as a purchase.
International Aircraft Support, L.P. (the "Partnership") is a California limited
partnership formed in 1990. International Aircraft Support, Inc. is the 5%
managing general partner of the Partnership, Air/Lyon, Inc. is a 5% general
partner and Air/Lyon Associates L.P. is the sole 90% limited partner. Air/Lyon
Associates L.P. is a California limited partnership comprised of Air/Lyon, Inc.,
general partner, and General William Lyon, limited partner. Air/Lyon, Inc. is
wholly-owned by General William Lyon. Effective August 1, 1990, the operations
of International Aircraft Support, Inc. were transferred to the Partnership.
The Company provides jet aircraft engine maintenance support to owners and/or
operators of commercial jet aircraft engines. The Company's services include:
complete engine sales and leasing, engine part sales, engine maintenance
monitoring and technical support services. Customers of the Company consist
primarily of airlines, commercial jet engine repair shops, air freight operators
and aircraft leasing companies.
Partnership losses are allocated in reverse order of previously allocated
profits and then in proportion to capital accounts until capital account
balances are zero, with any remaining losses allocated to the general partners
in proportion to their ownership interests. Profits are first allocated in
reverse order of previously allocated losses and then in proportion to the
partners' ownership interests. Preferred returns are a special allocation of
profits calculated at prime plus .5% on the partners' unreturned capital
contributions.
F-36
<PAGE>
<PAGE>
International Aircraft Support
Notes to Combined Financial Statements (continued)
2. ACCOUNTING POLICIES
INVENTORY
Inventory, consisting primarily of new and used jet aircraft engine parts, is
stated at the lower of cost or market. Market is based on net realizable value.
Appropriate consideration is given to deterioration, obsolescence and other
factors in evaluating net realizable value. Engine parts are acquired primarily
by purchasing engines and disassembling them into their component parts. Engine
costs are then allocated to the individual parts using the relative sales value
method. The costs of refurbishing individual parts are included in the total
cost of each part using the specific identification method. Costs related to
procurement, storage and refurbishment activities are also allocated to
inventory costs.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and includes expenditures for major
replacements and improvements. Depreciation is computed using the straight-line
or double declining balance method over the estimated useful service lives of
the assets, which range from five to seven years. Leasehold improvements are
depreciated using the straight line method over the shorter of the useful life
of the improvement or the remaining term of the lease. Repairs and maintenance
costs are expensed as incurred.
The Company leases jet aircraft engines to airlines and air freight operators.
Depreciation of engines is computed based upon flight hours, flight cycles or
both over the estimated useful service lives of the engines, allowing for
estimated salvage value. The costs associated with major engine overhauls are
accrued based upon usage. During the year ended December 31, 1996, depreciation
for engines totaled $879,776. Overhaul costs of $1,736,261 were incurred during
1996.
GOODWILL
Goodwill arising from the acquisition of International Aircraft Support, Inc. by
IASI, Inc. totaled $488,187 and is being amortized using the straight-line
method over 20 years.
REVENUE RECOGNITION
Revenue generated from complete engine sales is recognized upon acceptance of
the equipment by the customer. Parts sales revenue is recognized upon shipment
of the related item to the customer. Technical services and leasing revenues are
recognized over the term of the related agreements.
F-37
<PAGE>
<PAGE>
International Aircraft Support
Notes to Combined Financial Statements (continued)
CONSIGNMENT REVENUE AND COSTS
Consignment revenue and costs represent the sales of engine parts which the
Company does not own. The Company routinely takes possession of engines which it
does not own, has the engines disassembled and the parts overhauled as needed.
The Company then inventories the parts at the Company's warehouse and sells the
parts to third parties. The Company is responsible for the costs to disassemble
the engine, overhaul, warehouse and sell the parts. Certain of these costs are
allocated to the parts and recovered from the parts sales prior to the owner of
the parts participating in the sale proceeds. At December 31, 1996, the Company
had incurred $774,931 of refurbishment costs, which are included in accounts
receivable, that had not been recovered. These costs are fully reimbursable to
the Company upon the termination of their services under the terms of the
consignment agreements.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The financial instruments which potentially subject the Company to
concentrations of credit risk are accounts receivable. Concentrations of credit
risk with respect to accounts receivable that consist principally of receivables
from airlines, commercial jet engine repair shops, air freight operators and
aircraft leasing companies located throughout the world, are limited due to the
initial and continuing credit evaluation of all customers who are extended
credit.
Approximately 44% of the Company's total revenue relates to five recurring
customers which are significant participants in the aviation industry. In 1996,
one customer accounted for more than 10% of revenues.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of notes receivable from related parties approximates their
fair value due to short-term maturity. Management estimates or believes the
carrying value of the Company's long-term debt approximates its fair value due
to periodic adjustments in floating interest rates.
F-38
<PAGE>
<PAGE>
International Aircraft Support
Notes to Combined Financial Statements (continued)
3. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1996, consists of $2,923,782 in trade
account receivables, $774,931 of consignment repair receivables and $31,578 of
unbilled work-in-process, net of a $18,622 allowance for doubtful accounts. The
majority of unbilled work-in-process relates to technical support services which
were not complete as of December 31, 1996. Subsequent to December 31, 1996, all
year-end work-in-process was completed and invoiced
4. INVENTORY
Inventory at December 31, 1996, consists primarily of new and used jet aircraft
engine parts. All inventory is held for sale and, accordingly, has been
classified as a current asset in the combined balance sheet. Historically, the
period required to sell the jet aircraft engine parts is substantially longer
than one year. As a result, management anticipates that a portion of the jet
aircraft engine parts inventory at December 31, 1996, will not be sold during
1997 and such amount could be significant. Inventory at December 31, 1996,
consists of new and used jet aircraft engine parts totaling $13,416,595 and
$7,017,542, respectively. During 1996, the Company sold new and used jet
aircraft engine parts with a cost basis approximating $10,630,334. Included in
inventory at December 31, 1996, is $1,532,542 of capitalized costs related to
the procurement, storage and refurbishment of aircraft engine parts.
During 1996, the Company purchased for their parts inventory a new model PW4060
engine for cash of $2,755,687 and a Prime +1% interest bearing note payable to
the Union Bank of California (the Bank) of $3,000,000. This engine is currently
awaiting teardown to piece parts.
In addition, the company purchased a CFM 56-3B1 aircraft engine and a CFM 56-3B2
core module for $3,200,000. This was financed through the Company's line of
credit ($758,000) and the Engine line of credit ($2,442,000). These are in
inventory as piece parts as of December 31, 1996.
5. AIRCRAFT ENGINES HELD FOR LEASE
Aircraft engines held for lease, stated at cost, consist of the following at
December 31, 1996:
Model PW4060 aircraft engine, leased $ 8,686,777
Model JT9D-7A aircraft engine 3,803,526
Model JT8D-217A aircraft engine, leased 1,774,171
Model JT8D-219 aircraft engine, leased 2,500,000
-------------
16,764,474
Accumulated depreciation (3,861,190)
-------------
$ 12,903,284
=============
Aircraft engines are normally leased for periods of less than one year.
Generally, the lessee is responsible for rental payments based on in-flight
usage of the engine as well as a daily or monthly base lease charge.
F-39
<PAGE>
<PAGE>
International Aircraft Support
Notes to Combined Financial Statements (continued)
5. AIRCRAFT ENGINES HELD FOR LEASE (continued)
During 1994, the Company entered into a longterm lease with a German carrier
involving the model PW4060 aircraft engine. The lease expires on July 29, 2000
and provides for minimum annual amounts of $559,200, plus a usage fee per flight
hour. The lessee has an option to terminate this lease after July 29, 1997, with
a 90-day prior notice to the Company. This lease also gives the lessee an option
to purchase the engine for a defined amount.
During 1995, the Company entered into a lease agreement for the model JT9D-7A
aircraft engine with an air freight operator. The lease term for this engine
expired on October 24, 1996, and as of December 31, 1996 this engine was not
leased.
During 1996, the Company entered into a lease agreement for the model JT8D-217A
with a domestic carrier. The lease was for a period of 90 days (beginning March
15, 1996), with the lessee having the option for three successive 180 day
periods. At December 31, 1996, the lessee had exercised this option up.
On November 26, 1996, the Company entered into a lease agreement for the model
JT8D-219 with a Scandinavian carrier. The lease was for a minimum period of six
months. This provides for minimum monthly amounts of $39,000, plus a usage fee
per flight hour.
During the year ended December 31, 1996, leasing income totaled $1,881,686,
including $961,196 for usage fees.
6. LINES OF CREDIT
The Company has a revolving line of credit with the Bank, with interest payable
monthly at the Bank's prime rate (8.25% at December 31, 1996) plus 1/2%. The
line is secured by a general security agreement on accounts receivable and
inventory. Borrowings are available through the line's due date of June 30,
1997, and may not exceed the lower of $7,000,000 or eligible accounts receivable
and inventory. The balance on the line of credit at December 31, 1996, was
$4,000,000.
The Company also has an engine line of credit with availability of up to
$4,000,000 with interest payable monthly at the Bank's prime rate plus 1%. This
engine line of credit is secured by any engine purchased with amounts drawn on
the line of credit. Borrowings are available through the line's due date of June
30, 1997, and may not exceed the lower of 90% of the actual purchase price of
the aircraft engine to be financed or the maximum credit available at the time
of the advance. As of December 31, 1996, the balance on the engine line of
credit is $1,900,550, which is secured by the residual parts from a model
PW2000, from a CFM56 engine and a CFM56 module.
F-40
<PAGE>
<PAGE>
International Aircraft Support
Notes to Combined Financial Statements (continued)
7. NOTES PAYABLE
Notes payable consist of the following at December 31, 1996:
<TABLE>
<S> <C>
Note payable secured by model PW4060 aircraft engine held for lease, monthly
principal payments due of $35,000 plus interest at prime plus 0.5%, with the
unpaid balance due September 30, 1997. $1,985,000
Note payable secured by a model PW4060 aircraft engine parts, and proceeds of
sale of aircraft engine parts, monthly minimum principal payments due of
$100,000 plus interest at prime plus 1.0%, with the unpaid balance due
November 30, 1997. 3,000,000
Note payable secured by an automobile, monthly principal payments of $672
plus interest at 10.0% with the unpaid
balance due in October, 1997. 5,276
Note payable secured by model JT8D-219 aircraft engine held for lease monthly
principal payments due of $36,500 plus interest of prime plus 0.75%, with the
unpaid balance due November 30, 1998. 2,200,000
Note payable secured by model JT8D-217A aircraft engine held for lease,
monthly principal payments of $30,000, plus interest at prime plus 0.5%, with
the unpaid balance due May 31, 1999. 890,000
Note payable secured by model JT9D-7A aircraft engine held for lease, monthly
principal payments due of $25,000 plus interest at prime plus 0.5%, with the
unpaid balance due August 31, 1999. 575,000
----------
8,655,276
Less: current portion 6,088,276
----------
$2,567,000
==========
The future principal payments due under the terms of notes payable and the
Company's lines of credit subsequent to December 31, 1996, are as follows:
Years ending December 31
1997 $ 6,088,276
1998 2,397,000
1999 170,000
-----------
Total $ 8,655,276
===========
</TABLE>
The prime rate averaged approximately 8.38% during the year ended December 31,
1996, and was 8.25% at December 31, 1996.
F-41
<PAGE>
<PAGE>
International Aircraft Support
Notes to Combined Financial Statements (continued)
8. INCOME TAXES
Effective January 1, 1991, International Aircraft Support, Inc. elected S
corporation status. Accordingly, a provision has not been provided for federal
income taxes on the earnings of International Aircraft Support, Inc. for the
year ended December 31, 1996, as its income is taxed at the shareholder's level
for federal income tax purposes. A provision has been provided for State of
California franchise taxes equal to 1.5% of the earnings of International
Aircraft Support, Inc. for the year ended December 31, 1996.
A provision has not been provided for federal and state income taxes on the
earnings of International Aircraft Support, L.P., a partnership, as its income
and losses are taxed at the partner level for federal and state income tax
purposes.
9. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution Money Purchase Pension Plan (the "Plan")
which provides retirement and other benefits for most full-time employees. Under
the Plan, the Company is required to contribute amounts equal to 10% of eligible
employees' compensation, up to $150,000 in covered compensation per employee per
year. For the period ended December 31, 1996, the Company accrued contributions
of $87,833 to the Plan. Historically, the Company has not contributed amounts to
the Plan in excess of the maximum amount deductible for federal income tax
purposes.
10. COMMITMENTS AND CONTINGENCIES
The Company conducts its operations in leased facilities and the lease is
accounted for as an operating lease. The lease requires monthly rent payments of
approximately $21,000 and expires January 31, 1999. Facility rent expense, net
of sublease income, was $226,659 for the year ended December 31, 1996.
During 1994, the Company, as lessor, entered into an engine lease agreement with
a European carrier whereby the Company will provide an aircraft parts purchasing
credit to the lessee for any additional costs incurred by the lessee due to
European tax laws associated with the lease. As of December 31, 1996, this
purchasing credit was not material.
The loan agreements for the revolving line of credit, the engine line of credit
and the notes payable (see Note 7) contain certain convenants which restrict the
distribution of cash or the payment of dividends and require the Company to
maintain certain levels of net worth and profitability.
F-42
<PAGE>
<PAGE>
International Aircraft Support
Notes to Combined Financial Statements (continued)
11. RELATED PARTY TRANSACTIONS
During June 1996, the Company issued a promissory note for $1,500,000 to William
Lyon at 0% interest. As a part of purchase by Kellstrom, this note was repaid on
January 15, 1997 (see Note 12). Also, the Company issued, in prior years, two
promissory notes totaling $600,000 at 6% interest to companies under common
ownership. These notes are unsecured and are due upon demand. As of December 31,
1996, accrued interest on these notes was $151,847. The Company recognized
$42,258 of interest income on the notes during 1996.
The Company participates in an insurance program for essentially all of its
insurance needs, other than employee benefits, with companies affiliated through
common ownership. Payments for such services during 1996 totaled $165,577.
During July 1995, the Company purchased from an affiliate certain aircraft parts
for $400,000 (purchase price). In accordance with the agreement, the affiliate
guaranteed the recovery of the Company's purchase price plus accrued, imputed
interest compounded annually at the prime rate. As of December 31, 1996, the
parts were held on consignment by a third party located in Florida. As of
December 31, 1996, related parts with a costs basis of $376,860 remain in
inventory.
12. SUBSEQUENT EVENTS
On January 15, 1997, Kellstrom Industries, Inc. (Kellstrom) through its 100%
subsidiary, IASI, Inc., purchased substantially all of the assets and assumed
certain of the liabilities of International Aircraft Support, L.P. for a cash
purchase consideration of $26.5 million. In addition, the Partners of
International Aircraft Support, L.P., were issued warrants, with an expiration
date of two years from January 15, 1997, to purchase 500,000 shares of Kellstrom
at $9.25 per share. The combined financial statements do not include accruals
for future decisions, activities and transactions or adjustments relating to
decisions regarding the Company's operations and assets that might result from
the subsequent event.
F-43
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
International Aircraft Support
We have audited the accompanying combined balance sheet of International
Aircraft Support (the 'Company') as of December 31, 1995, and the related
combined statements of income and equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of International
Aircraft Support as of December 31, 1995, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
March 21, 1996
Ernst & Young LLP
F-44<PAGE>
<PAGE>
International Aircraft Support
Combined Balance Sheet
December 31, 1995
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $525,000
Accounts receivable net of allowance
for doubtful accounts of $42,000 3,987,000
Inventory 19,757,000
Other current assets 111,000
-----------
TOTAL CURRENT ASSETS 24,380,000
Jet aircraft engines held for lease,
net of accumulated depreciation of $2,981,000 8,147,000
Property and equipment:
Furniture and equipment 311,000
Trucks and automobiles 42,000
Leasehold improvements 27,000
-----------
380,000
Accumulated depreciation and amortization (277,000)
-----------
103,000
Goodwill, net of accumulated amortization 348,000
of $140,000
OTHER ASSETS 716,000
-----------
TOTAL ASSETS $33,694,000
===========
</TABLE>
F-45
<PAGE>
<PAGE>
<TABLE>
<S> <C>
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Revolving line of credit $2,600,000
Engine line of credit 1,688,000
Current portion of notes payable 5,869,000
Accounts payable and accrued liabilities 1,773,000
Consignments payable 786,000
Other current liabilities 8,000
-----------
TOTAL CURRENT LIABILITIES 12,724,000
Long Term Liabilities:
Notes payable, less current portion 2,815,000
-----------
TOTAL LIABILITIES 15,539,000
Commitments and contingencies
Equity 5,398,000
Contributed capital 12,757,000
-----------
Accumulated earnings 18,155,000
-----------
TOTAL LIABILITIES AND EQUITY $33,694,000
===========
</TABLE>
See accompanying notes.
F-46
<PAGE>
<PAGE>
INTERNATIONAL AIRCRAFT SUPPORT
COMBINED STATEMENT OF INCOME AND EQUITY
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Revenues, including consignment parts sales $22,135,000
of $2,956,000:
Operating expenses:
Direct labor and materials, including consignment 13,342,000
parts cost of $2,463,000
Indirect labor and operating 1,360,000
Depreciation and amortization 1,021,000
General and administrative 1,737,000
-----------
17,460,000
Income from operations 4,675,000
Interest expense 1,423,000
Amortization of intangibles 25,000
Other income 89,000
-----------
Income before income taxes 3,316,000
Provision for income taxes 2,000
-----------
NET INCOME 3,314,000
EQUITY AT BEGINNING OF YEAR 14,841,000
-----------
EQUITY AT END OF YEAR $18,155,000
===========
</TABLE>
See accompanying notes.
F-47
<PAGE>
<PAGE>
INTERNATIONAL AIRCRAFT SUPPORT
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income $3,314,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,046,000
Decrease in accounts receivable, net 5,151,000
Decrease in inventory, net 2,221,000
Increase in other assets (97,000)
Decrease in accounts payable and accrued liabilities (1,648,000)
Increase in consignments payable 273,000
Decrease in other liabilities (92,000)
----------
Net cash provided by operating activities 10,168,000
Investing activities
Dispositions of property and equipment, net 27,000
Change in jet aircraft engine held for lease (449,000)
-----------
Net cash used in investing activities (422,000)
FINANCING ACTIVITIES
Net borrowings on lines of credit (371,000)
Proceeds from borrowings on notes payable 1,200,000
Principal repayments on notes payable (10,054,000)
-----------
Net cash used in financing activities (9,225,000)
Net change in cash 521,000
Cash at beginning of year 4,000
----------
Cash at end of year $525,000
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $1,426,000
==========
</TABLE>
See accompanying notes.
F-48
<PAGE>
<PAGE>
INTERNATIONAL AIRCRAFT SUPPORT
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. BASIS OF PRESENTATION
The combined financial statements include the accounts of International Aircraft
Support, Inc. and International Aircraft Support, L.P. (collectively referred to
as "International Aircraft Support" or the "Company"). All material intercompany
balances and transactions have been eliminated.
International Aircraft Support, Inc. was acquired by IASI, Inc., an entity
wholly-owned by General William Lyon, on February 15, 1990. IASI, Inc. was
merged into International Aircraft Support, Inc. on February 26, 1990.
Accordingly, International Aircraft Support, Inc. is wholly-owned by General
William Lyon. The acquisition was accounted for as a purchase.
International Aircraft Support, L.P. (the "Partnership") is a California limited
partnership formed in 1990. International Aircraft Support, Inc. is the 5%
managing general partner of the Partnership, Air/Lyon, Inc. is a 5% general
partner and Air/Lyon Associates L.P. is the sole 90% limited partner. Air/Lyon
Associates L.P. is a California limited partnership comprised of Air/Lyon, Inc.,
general partner, and General William Lyon, limited partner. Air/Lyon, Inc. is
wholly-owned by General William Lyon. Effective August 1, 1990, the operations
of International Aircraft Support, Inc. were transferred to the Partnership.
Partnership losses are allocated in reverse order of previously allocated
profits and then in proportion to capital accounts until capital account
balances are zero, with any remaining losses allocated to the general partners
in proportion to their ownership interests. Profits are first allocated in
reverse order of previously allocated losses and then in proportion to the
partners' ownership interests. Preferred returns are a special allocation of
profits calculated at prime plus .5% on the partners' unreturned capital
contributions.
The Company provides jet aircraft engine maintenance support to owners and/or
operators of commercial jet aircraft engines. The Company's services include:
complete engine sales and leasing, engine part sales, engine maintenance
monitoring and technical support services. Customers of the Company consist
primarily of airlines, commercial jet engine repair shops, air freight operators
and aircraft leasing companies.
2. ACCOUNTING POLICIES
Inventory
Inventory, consisting primarily of new and used jet aircraft engine parts, is
stated at the lower of cost or market. Market is based on net realizable value.
Appropriate consideration is given to deterioration, obsolescence and other
factors in evaluating net realizable value. During 1995, $151,000 of estimated
costs related to obsolete inventory was written-off as direct
F-49
<PAGE>
<PAGE>
materials expense. Engine parts are acquired primarily by purchasing engines and
disassembling them into their component parts. Engine costs are then allocated
to the individual parts using the relative sales value method. The costs of
refurbishing individual parts are included in the total cost of each part using
the specific identification method. Overhead costs related to procurement,
storage and refurbishment activities are also allocated to inventory costs.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and includes expenditures for major
replacements and improvements. Depreciation is computed using the straight-line
or double declining balance method over the estimated useful service lives of
the assets, which range from three to ten years. Leasehold improvements are
depreciated using the straight-line method over the shorter of the useful life
of the improvement or the remaining term of the lease. Repairs and maintenance
costs are expensed as incurred.
The Company leases jet aircraft engines to airlines. Depreciation of engines is
computed based upon flight hours, flight cycles or both over the estimated
useful service lives of the engines, allowing for estimated salvage value. The
costs associated with major engine overhauls are accrued based upon usage.
During the year ended December 31, 1995, depreciation for engines totaled
$980,000. Overhaul costs of $817,000 were incurred during 1995.
GOODWILL
Goodwill arising from the acquisition of International Aircraft Support, Inc. by
IASI, Inc. totaled $488,000 and is being amortized using the straight-line
method over 20 years.
REVENUE RECOGNITION
Revenue generated from complete engine sales is recognized upon acceptance of
the equipment by the customer. Parts sales revenue is recognized upon shipment
of the related item to the customer. Technical services and leasing revenues are
recognized over the term of the related agreements.
CONSIGNMENT REVENUE AND COSTS
Consignment revenue and costs represent the sales of engine parts which the
Company does not own. The Company routinely takes possession of engines which it
does not own, has the engines disassembled and the parts overhauled as needed.
The Company then inventories the parts at the Company's warehouse and sells the
parts to third parties. The Company is responsible for the costs to disassemble
the engine, overhaul, warehouse and sell the parts. Certain of these costs are
allocated to the parts and recovered from the parts sales prior to the owner of
the parts participating in the sale proceeds. At December 31, 1995, the Company
had incurred $961,000 of refurbishment costs, which are included in accounts
receivable, that had not been recovered. These costs are fully reimbursable to
the Company upon the termination of their services under the terms of the
consignment agreements. Additionally, on certain consignment engines, the
consignor has the option to require the Company to purchase any consigned
inventory below a specific sales threshold. As of December 31, 1995, this option
had
F-50
<PAGE>
<PAGE>
not been exercised and the Company's total outstanding purchase commitment was
approximately $176,000.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash investments and accounts
receivable. The Company performs a periodic evaluation of the credit standing of
the financial institution in which its cash is maintained. Concentrations of
credit risk with respect to accounts receivable that consist principally of
receivables from airlines, commercial jet engine repair shops, air freight
operators and aircraft leasing companies located throughout the world, are
limited due to the initial and continuing credit evaluation of all customers who
are extended credit.
Approximately 59% of the Company's total revenue relates to six recurring
customers which are significant participants in the aviation industry.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash approximates its fair value due to its short-term
maturity. The carrying value of the Company's long-term debt approximates its
fair value due to periodic adjustments in floating interest rates.
3. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1995, consists of $2,921,000 in trade
account receivables, $961,000 of consignment repair receivables and $147,000 of
unbilled work-in-process, net of a $42,000 allowance for doubtful accounts. The
majority of unbilled work-in-process relates to technical support services which
were not complete as of December 31, 1995. Subsequent to December 31, 1995, all
year-end work-in-process was completed and invoiced.
4. INVENTORY
Inventory at December 31, 1995, consists primarily of new and used jet aircraft
engine parts. All inventory is held for sale and, accordingly, has been
classified as a current asset in the combined balance sheet. Historically, the
period required to sell the jet aircraft engine parts is substantially longer
than one year. As a result, management anticipates that a portion of the jet
aircraft engine parts inventory at December 31, 1995, will not be sold during
1996 and such amount could be significant. Inventory at December 31, 1995,
consists of new and used jet aircraft engine parts totaling $12,839,000 and
$6,918,000, respectively. During 1995, the
F-51
<PAGE>
<PAGE>
Company sold new and used jet aircraft engine parts with a cost basis
approximating $10,172,000. Included in inventory at December 31, 1995, is
$1,491,000 of capitalized overhead costs related to the procurement, storage and
refurbishment of aircraft engine parts.
During 1995, the Company purchased for their parts inventory two new model
PW2000 engines for cash of $4,200,000 and a noninterest bearing note payable to
the seller of $3,700,000. The note payable to the seller was discounted by
$238,000 based upon an imputed interest rate of 7.75% and the related cost basis
of the engine purchased was adjusted for the discount (see Note 7). In addition,
the Company purchased a JT9D-7A engine for their parts inventory, for cash and a
note payable to the seller of $347,000, bearing interest at 10% (see Note 7).
5. AIRCRAFT ENGINES HELD FOR LEASE
Aircraft engines held for lease, stated at cost, consist of the following at
December 31, 1995:
Model PW4060 aircraft engine, leased $7,433,000
Model JT9D-7A aircraft engine, leased 3,789,000
----------
Accumulated depreciation 3,075,000
----------
$8,147,000
==========
Aircraft engines are normally leased for periods of less than one year.
Generally, the lessee is responsible for rental payments based on in-flight
usage of the engine as well as a daily or monthly base lease charge. During
1994, the Company entered into a long-term lease with a European carrier
involving the model PW4060 aircraft engine. The lease expires on July 29, 2000
and provides for minimum annual amounts of $559,000, plus a usage fee per flight
hour. The lessee has an option to terminate this lease after July 29, 1997, with
a 90-day prior notice to the Company. This lease also gives the lessee an option
to purchase the engine for a defined amount. During 1995, the Company entered
into a lease agreement for the model JT9D-7A aircraft engine. The lease term for
this engine expires on October 24, 1996.
During the year ended December 31, 1995, leasing income totaled $1,818,000.
6. LINES OF CREDIT
The Company has a revolving line of credit with a bank, with interest payable
monthly at the bank's prime rate (8.5% at December 31, 1995) plus 1/2%. The line
is secured by a general security agreement on accounts receivable and inventory.
Borrowings are available through the line's due date of June 30, 1996, and may
not exceed the lower of $6,000,000 or eligible accounts receivable and
inventory. The balance on the line of credit at December 31, 1995, was
$2,600,000.
The Company also has an engine line of credit which was modified during 1995 to
increase the amount of availability to $4,000,000 with interest payable monthly
at the bank's prime rate plus 1%. This engine line of credit is secured by any
engine purchased with amounts drawn on the line of credit. Borrowings are
available through the line's due date of June 30, 1996, and may not exceed the
lower of 90% of the actual purchase price of the aircraft engine to be
F-52
<PAGE>
<PAGE>
financed or the maximum credit available at the time of the advance. As of
December 31, 1995, the balance on the engine line of credit is $1,688,000, and
is secured by engine model PW2000 aircraft engine parts.
7. NOTES PAYABLE
Notes payable consist of the following at December 31, 1995:
Note payable secured by a model PW4060
aircraft engine held for lease, monthly
principal payments due of $35,000 plus
interest at prime plus 0.5%, with unpaid
balance due September 30, 1997. $2,405,000
Note payable secured by model PW4000 aircraft
engine parts, bearing interest at an imputed
rate of 5.5% (net of unamortized discount of
$41,000), with the unpaid balance due June 9,
1996. 1,959,000
Notes payable secured by model PW2000
aircraft engine parts, bearing interest at an
imputed rate of 7.75% (net of unamortized
discount of $170,000), with the unpaid
balance due December 27, 1996. 2,836,000
Notes payable secured by automobiles, monthly
principal payments of $631 plus interest at
10.0% with unpaid balance due in October,
1997. 12,000
Note payable secured by model JT8D-9A and
JT9D-7A aircraft engine parts, monthly
principal payments due of $25,000, plus
interest at prime plus 0.5%, with unpaid
balance due August 31, 1999 $1,125,000
Note payable secured by model JT9D-7A
aircraft engine parts with principal plus
interest at 10% due June 13, 1996, paid in
full in March 1996. 347,000
----------
8,684,000
Less current portion 5,869,000
----------
$2,815,000
==========
The future principal payments due under the terms of notes payable and the
Company's lines of credit subsequent to December 31, 1995, are as follows:
Years ending December 31
- -------------------------
F-53
<PAGE>
<PAGE>
1996 $5,869,000
1997 2,290,000
1998 300,000
1999 225,000
----------
Total $8,684,000
==========
The prime rate averaged approximately 8.83% during the year ended December 31,
1995, and was 8.5% at December 31, 1995.
8. INCOME TAXES
Effective January 1, 1991, International Aircraft Support, Inc. elected S
corporation status. Accordingly, a provision has not been provided for federal
income taxes on the earnings of International Aircraft Support, Inc. for the
year ended December 31, 1995, as its income is taxed at the shareholder's level
for federal income tax purposes. A provision has been provided for state of
California franchise taxes equal to 1.5% of the earnings of International
Aircraft Support, Inc. for the year ended December 31, 1995.
A provision has not been provided for federal and state income taxes on the
earnings of International Aircraft Support, L.P., a partnership, as its income
and losses are taxed at the partner level for federal and state income tax
purposes.
9. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution Money Purchase Pension Plan (the "Plan")
which provides retirement and other benefits for most full-time employees. Under
the Plan, the Company is required to contribute amounts equal to 10% of eligible
employees' compensation, up to $150,000 in covered compensation per employee per
year. For the period ended December 31, 1995, the Company accrued contributions
of $94,000 to the Plan. Historically, the Company has not contributed amounts to
the Plan in excess of the maximum amount deductible for federal income tax
purposes.
10. COMMITMENTS AND CONTINGENCIES
The Company conducts its operations in leased facilities and the lease is
accounted for as an operating lease. The lease requires monthly rent payments of
approximately $18,000 and expires January 31, 1996. Facility rent expense was
$215,000 for the year ended December 31, 1995.
During 1994, the Company, as lessor, entered into an engine lease agreement with
a European carrier whereby the Company will provide an aircraft parts purchasing
credit to the lessee for any additional costs incurred by the lessee due to
European tax laws associated with the lease.
As of December 31, 1995, this purchasing credit was not material.
The loan agreements for the revolving line of credit, the engine line of credit
and the notes payable (see Note 7) contain certain covenants which restrict the
distribution of cash or the payment of dividends and require the Company to
maintain certain levels of net worth and profitability.
F-54
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<PAGE>
11. RELATED PARTY TRANSACTIONS
Included in other assets at December 31, 1995, are two unsecured promissory
notes totaling $600,000 from companies affiliated through common ownership. The
promissory notes are due upon demand and bear interest at 6% per annum. The
Company recognized $40,000 of interest income on the promissory notes during
1995. Repayment from the affiliates is not expected in the next year; the
promissory notes may ultimately become an obligation of the owner of the
affiliates which is the owner of the Company.
The Company participates in an insurance program for essentially all of its
insurance needs, other than employee benefits, with companies affiliated through
common ownership. Payments for such services during 1995 totaled $145,000.
On July 1995, the Company purchased from an affiliate certain aircraft parts for
$400,000 (purchase price). In accordance with the agreement, the affiliate
guaranteed the recovery of the Company's purchase price plus accrued, imputed
interest compounded annually at the prime rate. Currently, the parts are held on
consignment by a third party located in Florida. As of December 31, 1995,
related engine parts with a costs basis of $390,000 remain in inventory.
During 1995, the Company entered into an agreement with Air/Lyon, Inc. to
provide a debt repayment guarantee of up to $1,240,000 for an affiliated entity.
12. SUBSEQUENT EVENTS
On February 1996, the Company purchased a CFM 53-3B1 aircraft engine and a CFM
56-382 core module for $3,200,000. In accordance with the purchase agreement,
the seller agreed to repurchase approximately $3,400,000 worth of parts from the
engine and module. The engine and module are in the process of being torn-down
by the seller on behalf of the Company.
F-55
<PAGE>
<PAGE>
MANAGEMENT AGREEMENT
This Management Agreement is entered into as of January 1, 1997 between
Kellstrom Industries, Inc., a Delaware corporation, having its principal place
of business at 14000 N.W. 4th Street, Sunrise, Florida 33325 (the "Company"),
and East Shore Ventures, Inc., a Florida corporation having its principal place
of business at 14000 N.W. 4th Street, Sunrise, Florida 33325 (the "General
Manager").
W I T N E S S E T H:
WHEREAS, the Company desires to engage the General Manager to provide
certain management services to the Company relating to the Company's business
operations; and
WHEREAS, the General Manager is willing to render such services to the
Company on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Company and the General Manager hereby agree as follows:
1. DEFINITIONS.
(a) The "Asset Purchase Agreement" shall mean the Asset
Purchase Agreement dated October 28, 1996 by and among Kellstrom
Industries, Inc., IASI Inc., International Aircraft Support L.P. and
William Lyon.
(b) The "Base Annual Fee" shall mean the amount set forth in
Section 3(a) of this Management Agreement.
(c) The "Board" shall mean the Board of Directors of the
Company.
(d) The "Annual Bonus" shall mean the amount set forth in
Section 3(b) of this Management Agreement.
(e) The "Management Period" shall mean the period commencing
on the date hereof and ending on the seventh anniversary of the date
hereof.
<PAGE>
<PAGE>
2. MANAGEMENT SERVICES TO BE RENDERED BY THE GENERAL MANAGER.
(a) The General Manager shall furnish the Company with the management
services necessary of a chief executive officer responsible for the overall
direction of the operations and administration of the business of the Company
with such powers and duties as provided for a chief executive officer of the
Company under the Company's by-laws and pursuant to the General Corporation Law
of the State of Delaware. The General Manager shall have such other incidental
powers and duties as shall be assigned from time to time by the Board.
(b) Unless the Company otherwise consents, the General Manager's
services shall be rendered through the services of Zivi R. Nedivi ("Mr.
Nedivi"), the President of the General Manager. Unless the context otherwise
requires, all references to the "General Manager" herein shall be deemed to
refer also to Mr. Nedivi and to any other personnel of the General Manager who
shall be engaged in the rendering of services hereunder. In performing services
and duties for the Company, the General Manager shall comply with the policies
of, and be subject to the direction of, the Board.
3. MANAGEMENT FEE AND COMPENSATION.
(a) Base Annual Fee. The Company shall pay to the General Manager a
Base Annual Fee of $240,000. During the Management Period, the General Manager's
Base Annual Fee may be reviewed and changed; however, the Company shall not pay
the General Manager a Base Annual Fee less than $240,000 during the Management
Period. Any increase in the Base Annual Fee shall not serve to limit or reduce
any other obligation to the General Manager under this Management Agreement. The
Base Annual Fee shall be paid on a twice-per-month basis in accordance with the
Company's annual payroll practices.
(b) Annual Bonus. For each calendar year commencing with the year
ending December 31, 1997, at the end of which this Management Agreement is in
effect:
(A) if the Company has net income for such year of an
amount equal to the target net income before taxes, determined
in accordance with generally accepted accounting principles in
the U.S. as in effect from time to time (the "Net Income") as
approved by the Board (or the Executive Committee of the
Board, if one exists) for such year (the "Target"), the
General Manager shall be entitled to an Annual Bonus in an
amount equal to $240,000 (the "Target Bonus"). During the
Management Period, the Target Bonus shall be adjusted to equal
any increase in the General Manager's Base Annual Fee, and the
amounts in the formulae set forth below will be accordingly
adjusted.
-2-
<PAGE>
<PAGE>
(B) if the Company has Net Income for such year of
more than the Target and less than 150% of the Target, the
General Manager shall be entitled to an Annual Bonus as
calculated below:
B = $240,000 + $240,000 x (NI - T)
__________
T
where:
B = the Annual Bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income for such year.
(C) if the Company has Net Income for such year of
150% of the Target or more, the General Manager shall be
entitled to an Annual Bonus of $360,000.
(D) if the Company has Net Income for such year of
less than 50% of the Target, the General Manager shall not be
entitled to an Annual Bonus.
(E) if the Company has Net Income for such year of at
least 50% of the Target but less than the Target, the General
Manager shall be entitled to an Annual Bonus as calculated
below:
B = $240,000 - ($240,000 x 2 x (T - NI))
_________________
T
where:
B = the Annual Bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income for such year.
(c) Adjustment for Taxes. In addition to the amounts set forth in
Section 3(a) and 3(b) hereof for the Base Annual Fee and the Annual Bonus, the
Company shall pay to the General Manager an amount equal to the General
Manager's Federal, state and local payroll and related taxes associated with the
General Manager's salary and bonus payments to Mr. Nedivi.
-3-
<PAGE>
<PAGE>
(d) Asset Purchase Agreement. Notwithstanding the above, payment of the
Base Annual Fee and the Annual Bonus to the General Manager assumes the closing
of the transactions contemplated by the Asset Purchase Agreement. Absent closing
of the transactions contemplated by the Asset Purchase Agreement, the terms of
this Section 3 will be renegotiated by the parties to fairly reflect the nature
and extent of the services to be rendered by the General Manager.
4. BENEFITS. In addition to the compensation payable to the General Manager as
set forth in Section 3 above, during the Management Period Mr. Nedivi shall be
eligible to participate in all incentive, savings, pension, welfare (including
without limitation medical, dental, disability and salary continuance insurance)
plans, practices, policies and programs applicable on or after the date hereof
to employees of the Company. In addition, the Company shall obtain and maintain
a life insurance policy on the life of Mr. Nedivi in the amount of $4,000,000
with a variable annuity feature mutually acceptable to the General Manager and
the Company. The Company will pay the premium on such policy for the entire
period commencing on the date hereof and ending on the seventh anniversary of
the date hereof (the "Policy Period"). Until the second anniversary of the date
hereof, the Company shall own, and shall have the right to designate the
beneficiary under, such insurance policy. The General Manager shall have the
option of causing the Company to transfer the ownership of the policy (and the
right to designate the beneficiary thereunder) to the General Manager at no cost
to the General Manager after the second anniversary of the date hereof (but the
Company will continue to pay the premium on such policy for the entire Policy
Period). If the General Manager does not exercise its option to transfer
ownership of the policy, upon the termination of the Policy Period, the Company
shall transfer the policy to the General Manager at no cost to the General
Manager. In the event that this Management Agreement is terminated (other than
for cause) prior to that time, the Company will transfer ownership of the policy
to the General Manager and pay the General Manager a lump sum payment equal to
the unpaid premium remaining through the end of the Policy Period. Such lump sum
payment shall include an amount sufficient to compensate the General Manager for
any Federal, state or local income taxes associated with the receipt of such
payment.
5. EXPENSES.
(a) Relocation Expenses. If Mr. Nedivi is relocated during the
Management Period the General Manager shall be entitled to repayment of
relocation expenses in an amount not greater than $10,000 in the case of any
move within the United States or $20,000 in the case of any move to outside the
United States.
(b) Other Business Expenses. During the Management Period the General
Manager shall be entitled to receive prompt reimbursement from the Company for
all reasonable business expenses incurred by the General Manager or Mr. Nedivi,
itemized in accordance with the Company's existing policies, practices and
procedures.
-4-
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<PAGE>
6. FRINGE BENEFITS. During the Management Period, Mr. Nedivi shall be entitled
to all fringe benefits applicable on or after the date hereof to employees of
the Company, including Mr. Nedivi's existing life insurance and pension
arrangements.
7. VACATION. During the Management Period, Mr. Nedivi shall be entitled to paid
vacation in accordance with the policies and practices applicable on or after
the date hereof to executives of the Company, provided that Mr. Nedivi shall be
entitled to a minimum of three weeks of paid vacation per calendar year and all
holidays that are prescribed by the Company's policies and practices. If the
Management Agreement is in effect for less than a full calendar year, the
minimum three weeks shall be prorated for the period of the year in which Mr.
Nedivi served pursuant to the Management Agreement. Vacation accrued but unused
at the end of a calendar year may be carried over into the following calendar
year or years; provided however that such accrued but unused vacation cannot be
carried over for more than two years. All earned, unused and accrued vacation
will be paid to the General Manager at the termination of this Agreement.
8. OFFICE AND SUPPORT STAFF. During the Management Period Mr. Nedivi shall be
entitled to an appropriate office or offices and with furnishings and other
appointments and with a secretary and other support staff as are usual and
customary for the executive officers of a corporation of comparable size to the
Company.
9. AUTOMOBILE. During the Management Period, the Company shall make available to
the General Manager an automobile for use by Mr. Nedivi and shall pay for all
expenses related thereto including, without limitation, gas and insurance.
10. THE GENERAL MANAGER'S OBLIGATIONS. During the Management Period, and
excluding any periods of vacation and sick leave to which Mr. Nedivi is
entitled, the General Manager agrees to cause Mr. Nedivi to devote substantially
all of his attention and time during normal business hours to the business and
affairs of the Company and to perform faithfully and efficiently the
responsibilities assigned to the General Manager. During the Management Period
it shall not be a violation of this Management Agreement for Mr. Nedivi to serve
on corporate, civic or charitable boards, deliver lectures, fulfill speaking
engagements or teach at educational institutions or manage personal investments,
so long as such activities do not significantly interfere with the performance
of his duties and responsibilities hereunder on behalf of the General Manager.
11. TERMINATION.
(a) Mutual Agreement. During the Management Period, this Management
Agreement may be terminated at any time by mutual agreement between the Company
and the General Manager on terms to be negotiated at the time of such
termination. Any such termination by mutual agreement shall be evidenced by a
written document signed by the Company and the General Manager. In the event of
a termination by mutual agreement, the Company's obligation to the General
Manager under this
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Management Agreement shall be determined by such mutual agreement as evidenced
by a written document signed by the General Manager and the Company.
(b) Death. This Management Agreement shall terminate automatically upon
Mr. Nedivi's death. If this Management Agreement is terminated by reason of Mr.
Nedivi's death, the Company shall have no further obligations under this
Management Agreement, other than (i) those obligations accrued, earned or vested
as of the date of Mr. Nedivi's death, (ii) that portion of any Annual Bonus
determined pursuant to Section 3(b) of this Management Agreement in respect of a
prior calendar year that had been deferred, which amount shall be paid to the
General Manager as soon as practicable, and (iii) with respect to the calendar
year in which Mr. Nedivi's death occurs, in the event that an Annual Bonus would
have been payable to the General Manager pursuant to Section 3(b) of this
Agreement in respect of such calendar year had Mr. Nedivi not died, the General
Manager shall be entitled to receive a prorated amount of such Annual Bonus
based on a fraction in which the numerator is the number of days Mr. Nedivi
continued service to the Company under this Management Agreement in the calendar
year in which Mr. Nedivi died and the denominator is 365, with such Annual Bonus
payment to be paid in one cash lump sum paid as soon as practicable following
delivery of audited financial statements for the year in which Mr. Nedivi dies.
In addition, Mr. Nedivi's family shall be entitled to receive benefits at least
equal to the most favorable benefits provided by the Company to surviving
families of employees of the Company based on the terms of the benefit plans
referenced in Section 4 of this Management Agreement as in effect on the date of
Mr. Nedivi's death.
(c) Disability. If the Company determines in good faith that Mr. Nedivi
has a "disability" (as defined below), it may give the General Manager written
notice of its intention to terminate this Management Agreement. In such event,
this Management Agreement shall terminate effective on the 60th day after
receipt by the General Manager of such notice. No such notice of termination by
reason of disability shall be given until Mr. Nedivi has experienced a period of
three consecutive months of disability and the disability is continuing. The
notice of termination shall not be effective if Mr. Nedivi returns to full-time
performance of his duties prior to the expiration of the 60-day notice period.
For purposes of this Management Agreement, "disability" shall mean a physical or
mental condition which, three months after its commencement, is determined to be
total and permanent by a physician selected by the Company. Mr. Nedivi and the
General Manager shall be entitled to all compensation and benefits provided for
under this Management Agreement during the three-month waiting period for the
disability determination and during the 60-day notice of termination period. In
the event that the Company provides long-term disability benefits for Mr.
Nedivi, such benefits shall not commence until after this Management Agreement
has been terminated and the Company has ceased paying compensation pursuant to
the foregoing sentence. If this Management Agreement is terminated by reason of
Mr. Nedivi's disability, this Management Agreement shall terminate without
further obligations to Mr. Nedivi or the General Manager under this Management
Agreement, other than (i) those obligations accrued, earned or vested as of the
date of the termination, (ii) that portion of any Annual Bonus determined
pursuant to Section
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3(b) of this Management Agreement in respect of a prior calendar year that had
been deferred, which amount shall be paid to the General Manager as soon as
practicable, and (iii) with respect to the calendar year in which this
Management Agreement is terminated, in the event that an Annual Bonus would have
been payable to the General Manager pursuant to Section 3(b) of this Management
Agreement in respect of such calendar year had this Management Agreement not
terminated, the General Manager shall be entitled to a pro-rated amount of such
Annual Bonus based on a fraction in which (A) the numerator is the number of
days in the calendar year in which this Management Agreement was terminated that
Mr. Nedivi provided services to the Company under this Management Agreement and
which were prior to the period of Mr. Nedivi's disability and (B) the
denominator is 365, with such Annual Bonus payment to be paid in one cash lump
sum paid as soon as practicable following delivery of audited financial
statements for the year in which this Management Agreement is terminated. In the
event Mr. Nedivi becomes disabled but returns to active service under this
Management Agreement prior to the expiration of the three-month waiting period,
or prior to the expiration of the 60-day notice of intent to terminate period,
the General Manager shall be entitled to the full amount of any Annual Bonus
payable pursuant to Section 3(b) of this Agreement in respect of the year in
which he became disabled without regard to the period of absence due to the
disability. In addition, Mr. Nedivi and Mr. Nedivi's family shall be entitled to
receive benefits, including without limitation disability benefits, at least
equal to the most favorable benefits provided by the Company to employees of the
Company based on the terms of the benefit plans referenced in Section 4 of this
Management Agreement as in effect on the date Mr. Nedivi's disability commenced.
(d) Voluntary Termination or Retirement. If Mr. Nedivi shall elect to
voluntarily terminate his services under this Management Agreement (other than
for "good reason" as defined in Section 11(g) below) or to retire during the
Management Period, this Management Agreement shall terminate automatically and
the Company shall have no further obligations to the General Manager under this
Management Agreement, other than those obligations accrued, earned or vested as
of the date of the termination or retirement. In the event of voluntary
termination or early retirement (prior to Mr. Nedivi's 65th birthday), the
General Manager shall be entitled to receive a pro-rated amount of any Annual
Bonus payable in respect of the year of voluntary termination or early
retirement. If Mr. Nedivi retires upon the expiration of this Management
Agreement at the end of the Management Period, and in the event that an Annual
Bonus would have been payable to the General Manager pursuant to Section 3(b) of
this Management Agreement in respect of such calendar year had this Management
Agreement not terminated, the General Manager shall be entitled to receive a
pro-rated amount of such Annual Bonus based on a fraction in which (i) the
numerator is the number of days in the calendar year in which Mr. Nedivi was
terminated that he provided services to the Company under this Management
Agreement and (ii) the denominator is 365, with such Annual Bonus payment to be
paid on one cash lump sum paid as soon as practicable following delivery of
audited financial statements for the year in which this Management Agreement is
terminated.
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(e) Cause. During the Management Period, the Company may terminate this
Management Agreement for "cause," as defined below. For purposes of this
Management Agreement, "cause," shall mean:
(i) an act or acts of personal dishonesty taken by Mr. Nedivi
or the General Manager at the expense of or against the interests of
the Company;
(ii) repeated violations by Mr. Nedivi or the General Manager
of the obligations under Section 10 of this Agreement which are not
remedied within a reasonable period of time after receipt of written
notice from the Company of such violations;
(iii) any direct or indirect disclosure of any confidential
information or other special knowledge of the finances, business or
other affairs of the Company;
(iv) the conviction of Mr. Nedivi or the General Manager of a
felony;
or
(v) the conviction of Mr. Nedivi of a serious misdemeanor
involving illegal use, possession or sale of drugs, larceny, crimes of
violence or sex offenses.
(vi) the entry of a decree or order for relief in respect of
the General Manager by a court having jurisdiction in the premises, or the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the General Manager or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, in an involuntary case under the Federal bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal or state bankruptcy,
insolvency or other similar law; the commencement against the General Manager of
an involuntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency or
other similar law, and the continuance of any such case unstayed and in effect
for a period of 30 consecutive days; or the commencement by the General Manager
of a voluntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or the consent by it to the entry of an order for relief in
an involuntary case under any such law or the consent by it to the appointment
of or taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the General Manager or of any
substantial part of its property, or the making by it of a general assignment
for the benefit of creditors, or the failure of the General Manager generally to
pay its debts as such debts become due or the taking of any corporate action in
furtherance of the foregoing.
If this Management Agreement is terminated for cause, this Management Agreement
shall terminate without further obligations to the General Manager or to Mr.
Nedivi under this Management Agreement, other than those obligations accrued,
earned or
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vested as of the date of the termination. The General Manager shall not be
entitled to any Annual Bonus in respect of the year of termination in the event
this Management Agreement is terminated for cause pursuant to this Section
11(e).
(f) Involuntary Termination. If during the Management Period the
Company terminates this Management Agreement other than for reasons set forth in
Section 11(a) through 11(e) above, it shall be deemed to be an involuntary
termination and the Company shall pay to the General Manager the following
amounts:
(i) to the extent not theretofore paid, the Company shall pay
the Base Annual Fee through the date of such involuntary termination as
well as that portion of any Annual Bonus determined pursuant to Section
3(b) of this Management Agreement in respect of a prior calendar year
which had been deferred;
(ii) the Company shall pay the General Manager on the date of
such involuntary termination an amount equal to two years of the Base
Annual Fee;
(iii) with respect to the year in which such involuntary
termination occurs, in the event that an Annual Bonus would have been
payable to the General Manager pursuant to Section 3(b) of this
Management Agreement in respect of such year had this Management
Agreement not been terminated, the General Manager shall be entitled to
receive a pro-rated amount of such Annual Bonus based on a fraction in
which (A) the numerator is the number of days in the calendar year in
which this Management Agreement terminated that Mr. Nedivi provided
services to the Company under this Management Agreement and (B) the
denominator is 365, which such Annual Bonus payment to be paid in one
cash lump sum paid as soon as practicable following delivery of audited
financial statements for the year in which this Management Agreement is
involuntarily terminated; and
(iv) the Company shall pay in one cash lump sum any vacation
days accrued but unused as of the date of Mr. Nedivi's involuntary
termination.
(g) Good Reason. During the Management Period, the General Manager may
terminate this Management Agreement for "good reason" as defined below. For
purposes of this Management Agreement, "good reason" shall mean:
(i) the assignment to the General Manager of any duties
inconsistent in any respect with the position, duties and
responsibilities as set forth in Section 2(a) of this Management
Agreement or any action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose any isolated, insubstantial and inadvertent action by the
Company which is not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the General
Manager;
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(ii) any failure by the Company to comply with any of the
provisions of Sections 3 through 8 of this Management Agreement
regarding the management fee, compensation, benefits, expenses, fringe
benefits, vacation and office staff, other than an isolated,
insubstantial and inadvertent action by the Company which is not taken
in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the General Manager;
(iii) the Company's requiring Mr. Nedivi to be based at any
office or location other than the address set forth in the first
paragraph of this Management Agreement, except for travel reasonably
required in the performance of his responsibilities; or
(iv) any failure by the Company to comply with and satisfy
Section 18 of this Management Agreement with respect to successors.
In the event that the General Manager terminates this Management Agreement for
good reason as defined in this Section 11(g), it shall be deemed to be an
"involuntary termination" as set forth in Section 11(f) above and the General
Manager shall be entitled to all payments and obligations set forth in Sections
11(f)(i) through 11(f)(iv) of this Management Agreement as if this Management
Agreement had been involuntarily terminated.
12. NOTICE OF TERMINATION. Any termination by the Company for any reason or by
the General Manager for any reason shall be communicated by a written notice
which indicates (i) the specific termination provision in this Management
Agreement relied upon, (ii) the facts and circumstances claimed to provide a
basis for such termination, and (iii) the date of termination.
13. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Management Agreement shall
prevent or limit Mr. Nedivi's continuing or future participation in any benefit,
bonus, incentive or other plans, programs, policies or practices provided by the
Company and for which Mr. Nedivi may otherwise qualify. Amounts which are vested
benefits or which Mr. Nedivi is otherwise entitled to receive under any plan,
policy, practice or program of the Company at or subsequent to the termination
of this Management Agreement shall be payable in accordance with such plan,
policy, practice or program.
14. FULL SETTLEMENT. The Company's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment or other claim, right or
action which the Company may have against the General Manager, Mr. Nedivi or
others. In no event shall Mr. Nedivi be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the General
Manager under any of the provisions of this Management Agreement. In connection
with any contest by the Company or others of the validity or enforceability of,
or liability under, any provision of this Management Agreement in which the
General Manager is ultimately successful, the Company agrees to pay, to the full
extent permitted by law, all reasonable legal fees
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and expenses, as incurred by the Company, the General Manager, Mr. Nedivi and
others, which the General Manager may reasonably incur as a result of any such
contest.
15. CONFIDENTIALITY.
(a) The General Manager shall hold, and cause Mr. Nedivi to hold, in a
fiduciary capacity for the benefit of the Company all secret, proprietary or
confidential information, knowledge or data relating to the Company and its
business, including without limitation financial information and customer lists,
which shall have been obtained by the General Manager or Mr. Nedivi during the
Management Period and which shall not be or become public knowledge (other than
by acts by the General Manager or Mr. Nedivi in violation of this Management
Agreement). Notwithstanding the foregoing, the General Manager and Mr. Nedivi
may disclose any such information if such information is compelled by legal
process, provided that if the General Manager or Mr. Nedivi is so compelled, it
or he shall provide the Company with prompt notice so that it may seek a
protective order or other remedy. In any event, the General Manager and Mr.
Nedivi shall furnish only that portion of the confidential information that is
legally required to be disclosed.
(b) In the event that the General Manager or Mr. Nedivi breaches any
provision of this Section 15, any payments or other benefits promised under this
Management Agreement shall be forfeited. In addition, the Company shall be
entitled to apply to any court of competent jurisdiction for an injunction
restraining the General Manager and Mr. Nedivi from committing or continuing any
violation of this Management Agreement.
16. NON-COMPETITION. The General Manager agrees, and shall cause Mr. Nedivi to
agree, that during the Management Period and for three years thereafter (or, if
the General Manager terminates this Management Agreement for good reason or is
terminated involuntarily, only during the Management Period), they will not,
within the continental United States, Israel, Ireland or any other country in
which the Company has operations, directly or indirectly, engage or participate
or make any financial investments in or become employed by or render advisory or
other services to or for any person, firm or corporation, or in connection with
any business activity, other than that of the Company and its subsidiaries,
directly or indirectly in competition with any of the business operations or
activities of the Company and its subsidiaries as of the date in question or, if
later, as of the date of termination of this Management Agreement, whether such
companies are presently existing or hereafter acquired. Nothing herein
contained, however, shall restrict the General Manager or Mr. Nedivi from making
any investments in any company whose stock is listed on a national securities
exchange or actively traded in the over-the-counter market, so long as such
investment does not give either of them the right to control or influence the
policy decisions of any such business or enterprise which is or might be
directly or indirectly in competition with any of such business operations or
activities of the Company or any of its subsidiaries.
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17. RESTRICTIONS ON SOLICITATION. The General Manager agrees that during the
Management Period and for three years thereafter, it will not, and it will cause
Mr. Nedivi not to:
(i) directly or indirectly solicit, raid, entice or induce any
employee of the Company or any of its subsidiaries to become an
employee of any person, firm or corporation which is, directly or
indirectly, in competition with the business or activities of the
Company or any of its subsidiaries;
(ii) directly or indirectly approach any such employee for
these purposes;
(iii) authorize or knowingly approve the taking of such
actions by other persons on behalf of any such person, firm or
corporation, or assist any such person, firm or corporation in taking
such action; or
(iv) directly or indirectly solicit, raid, entice or induce
any person, firm or corporation who or which on the date hereof is, or
at the time during the term of this Management Agreement shall be, a
customer of the Company or of any of its subsidiaries to become a
customer for the same or similar products which it purchased from the
Company or any of its subsidiaries, of any other person, firm or
corporation, and neither the General Manager nor Mr. Nedivi shall
approach any such customer for such purpose or authorize or knowingly
approve the taking of such actions by any other person; provided that
if the General Manager terminates this Management Agreement for good
reason or this Management Agreement is terminated involuntarily, then
this subsection (iv) shall not apply.
18. SUCCESSORS. This Management Agreement is personal to the General Manager and
Mr. Nedivi and without the prior written consent of the Company shall not be
assignable by either of them otherwise than by will or the laws of descent and
distribution. This Management Agreement shall inure to the benefit of and be
enforceable by the legal representatives of Mr. Nedivi and the successors of the
General Manager. This Management Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to perform this Management
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. The General Manager
will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the General Manager to assume expressly and agree to perform this
Management Agreement in the same manner and to the same extent that the General
Manager would be required to perform if no such succession had taken place. As
used in this Management Agreement, "Company" shall mean the Company as defined
herein and any successor to its business and/or assets
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as aforesaid which assumes this Management Agreement by operation of law or
otherwise.
19. BINDING ARBITRATION. In the event that the Company and the General Manager
cannot agree on an interpretation of any provision of this Management Agreement,
or in the event that the Company fails to make any payments or otherwise fulfill
any obligations required by the terms of this Management Agreement, the Company
and the General Manager agree to resolve any such dispute through binding
arbitration. Any request for such arbitration shall be served on the other party
by written notice. The parties shall agree upon and select an arbitrator within
20 days after written demand is made by either party for such arbitration. The
arbitrator shall set a time for hearing within 60 days of his/her selection.
Each party shall have an opportunity to present evidence on the issues in
dispute before the arbitrator and each party may be represented by legal counsel
if either so desires. The decision of the arbitrator shall be rendered in
writing to both parties within 30 days of the close of the hearing. The decision
of the arbitrator shall be final and binding upon both parties. Any legal fees,
expenses or other costs incurred by the Company and the General Manager in
connection with such arbitration shall be borne by the Company.
20. INDEMNIFICATION.
(a) If the General Manager or Mr. Nedivi acted in good faith and in a
manner it or he reasonably believed to be in or not opposed to the best
interests of the Company, and the General Manager or Mr. Nedivi had no
reasonable cause to believe that its or his conduct was unlawful or detrimental
to the Company, the Company shall indemnify and hold harmless the General
Manager and its successors and Mr. Nedivi and his legal representatives from and
against any and all claims, losses, liabilities, damages, costs, demands, causes
of action (whether legal, equitable, administrative, civil or criminal),
judgments, settlements (subject to the last sentence of paragraph (c) hereof),
fines, court costs and other expenses of any kind or nature whatsoever,
including, without limitation, attorneys' fees and disbursements (collectively,
"Losses"), which may be threatened against, incurred or suffered by the General
Manager or its successors or Mr. Nedivi or his legal representatives in
connection with, relating to or arising out of, directly or indirectly, the
General Manager's or Mr. Nedivi's performance, duties and responsibilities to,
for and on behalf of, the Company, including, without limitation, (i) this
Management Agreement and all actions or omissions taken thereunder and (ii) any
acts, omissions or alleged acts or omissions arising out of the General
Manager's or Mr. Nedivi's activities on behalf of the Company or in furtherance
of the interests of the Company.
(b) Exception. Notwithstanding anything contained herein or in the
By-Laws of the Company, the Company shall have no obligation to indemnify the
General Manager or Mr. Nedivi if the Loss incurred by the General Manager or Mr.
Nedivi (i) arises out of an action brought directly by the Company against the
General Manager or Mr. Nedivi or (ii) arises, directly or indirectly, as a
result of this Management
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Agreement being terminated for cause (as such term is defined in this Management
Agreement).
(c) Notification of Claim. Promptly after receipt by the Company of
notice of any claim against the General Manager or Mr. Nedivi pursuant to which
the General Manager or Mr. Nedivi is entitled to indemnification, the Company
shall have the right to assume the defense of such claim, including the
employment of counsel of its choice. Although the General Manager and Mr. Nedivi
shall have the right to employ its or his own counsel, the fees and expenses of
such counsel shall be at the expense of the General Manager or Mr. Nedivi, as
the case may be. The Company shall not be liable for any settlement of any claim
or action effected without its written consent, provided that such consent was
not unreasonably withheld.
(d) Payment of Indemnity Amounts. The Company agrees to pay all amounts
payable in respect of Losses immediately upon its receipt of a statement with
respect thereto rendered by the General Manager or Mr. Nedivi, together with
appropriate supporting documentation thereof. It is the express intention of the
parties hereto that all such amounts shall be paid by the Company on or before
the date payment thereof is due, and that neither the General Manager nor Mr.
Nedivi shall be required at any time to bear any costs or expenses on account of
Losses.
21. MISCELLANEOUS.
(a) This Management Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(b) The captions in this Management Agreement are not part of the
provisions hereof and shall have no force or effect. This Management Agreement
may not be amended or modified otherwise than by a written agreement executed by
the parties hereto or their respective successors and legal representatives.
(c) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the General Manager: If to the Company:
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East Shore Ventures, Inc. Kellstrom Industries, Inc.
14000 N.W. 4th Street 14000 N.W. 4th Street
Sunrise, Florida 33325 Sunrise, Florida 33325
Attn: Zivi R. Nedivi Attn: John Gleason
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or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(d) The invalidity or unenforceability of any provision of this
Management Agreement shall not affect the validity or enforceability of any
other provisions of this Management Agreement.
(e) A party's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
(f) This Management Agreement supersedes the prior employment agreement
between the Company and Mr. Nedivi, dated June 9, 1995, as amended, and contains
the entire understanding of the Company and the General Manager with respect to
the subject matter hereof.
IN WITNESS WHEREOF, this Management Agreement has been executed and
delivered on the date first above written by the undersigned.
KELLSTROM INDUSTRIES, INC.
By:-----------------------
Name:
Title:
EAST SHORE VENTURES, INC.
By:-----------------------
Zivi R. Nedivi
President
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EXHIBIT 10.5
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement is entered into as of
January 30, 1996 between Kellstrom Industries, Inc. (formerly Israel Tech
Acquisition Corp.), a Delaware corporation, having its principal place of
business at Sawgrass International Corporate Park, 14000 Northwest Fourth
Street, Sunrise, Florida 33325 (the "Company"), and Anthony Motisi, residing at
7440 SW 29th Street, Plantation, Florida, 33317 (the "Executive") amends and
restates the employment agreement dated June 22, 1995 by and between the Company
and the Executive (the "Original Employment Agreement").
W I T N E S S E T H:
WHEREAS, the Executive has assumed duties of a responsible nature to
the benefit of the Company and its Board of Directors; and
WHEREAS, the Board of Directors of the Company believes it to be in the
best interests of the Company to enter into this Agreement to assure the
Executive's continuing services to the Company and to diminish any distraction
on the part of the Executive resulting from personal uncertainties and risks
associated with assuming this position; and
WHEREAS, the Company and the Executive entered into the Original
Employment Agreement;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Company and the Executive hereby agree that the Original
Employment Agreement shall be amended and restated in its entirety to read as
follows:
1. DEFINITIONS.
(a) The "Agreement" shall mean this Employment Agreement between the
Company and the Executive.
(b) The "Board" shall mean the Board of Directors of the Company.
(c) A "Change of Control" shall mean (i) any transaction that has the
result that stockholders of the Company immediately before such transaction
cease to own at least 51% of (x) the voting stock of the Company or (y) of any
entity that results from the participation of the Company in reorganization,
liquidation or any other form of corporate transaction; (ii) a merger,
consolidation, reorganization, liquidation or dissolution in which the Company
does not survive; or (iii) a sale, lease, exchange or other disposition of all
or substantially all the property and assets of the Company.
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(d) The "Company" shall mean Kellstrom Industries, Inc. (formerly
Israel Tech Acquisition Corp.), a Delaware corporation.
(e) "Dependents" shall mean the Executive's spouse and children, if
any.
(f) The "Effective Date" shall mean the date of the closing of the
Asset Purchase Agreement dated February 15, 1995 among Israel Tech Acquisition
Corp., a Delaware corporation, Rada Electronic Industries Ltd., Tasco
Electronics Inc., a Delaware corporation, and the Company.
(g) The "Employment Period" shall mean the period commencing on the
Effective Date and ending on the fifth anniversary of the Effective Date.
(h) The "Executive" shall mean Anthony Motisi.
(i) The "Health Insurance" shall mean such health insurance as is
available to other contract employees of the Company.
(j) The "Pension Plan" shall have the meaning set forth is Section
3(c)(i) of this Agreement.
(k) The "Salary" shall mean the amount set forth in Section 3(b) of
this Agreement.
2. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in his
employ, and the Executive hereby agrees to remain in the employ of the Company,
for the duration of the Employment Period under the terms and conditions
provided herein. This Agreement shall terminate at the end of the Employment
Period, unless it is terminated prior to the end of the Employment Period by
virtue of one of the provisions of Section 5 of this Agreement.
3. TERMS OF EMPLOYMENT.
(a) Position and Duties. During the Employment Period the Executive's
position shall be the Vice President - Operations. The Executive's services
shall be performed at the Company's headquarters or a location where a
substantial activity for which the Executive has responsibility is located.
(b) Compensation.
(i) Base Salary. As of the Effective Date of the Agreement,
the Executive's annual salary (the "Salary") shall be $75,000. During the
Employment Period, the Executive's Salary may be reviewed and changed; however,
the Company shall not pay the Executive a Salary less than $75,000 during the
Employment Period. Any increase in the Salary shall not serve to limit or reduce
any other obligation to the Executive under this Agreement.
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(ii) Annual Bonus. For each calendar year commencing with the
year ending December 31, 1996, at the end of which the Executive is employed by
the Company as its Vice-President:
(A) if the Company has Net Income (as defined below) for such
year of an amount equal to the target net income before taxes (such net
income to be determined by eliminating the effect of any intercompany
transactions prior to the closing date of the Acquisition and any
deductions from net income in respect of transaction expenses related
to the Acquisition), determined in accordance with generally accepted
accounting principles in the U.S. as in effect from time to time (the
"Net Income") as approved by the board of directors of the Company (or
the Executive Committee of the Board, if one exists) for such year (the
"Target"), the Executive shall be entitled to a bonus in an amount
equal to $40,000.
(B) if the Company has Net Income for such year of more than
the Target and less than 150% of the Target, the Executive shall be
entitled to a bonus as calculated below:
B = 40,000 + $40,000 x (NI - T)
------------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income for such year.
(C) if the Company has Net Income for such year of 150% of the
Target or more, the Executive shall be entitled to a bonus of $60,000.
(D) if the Company has Net Income for such year of less than
50% of the Target, the Executive shall not be entitled to a bonus.
(E) if the Company has Net Income for such year of at least
50% of the Target but less than the Target, the Executive shall be
entitled to a bonus as calculated below:
B = $40,000 - ($40,000 x 2 x (T - NI))
-------------
T
where:
B = the bonus earned in such year.
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T = the Target for such year.
NI = the actual Net Income for such year.
(c) Benefits. In addition to the compensation payable to the
Executive as set forth in Section 3(b) above, during the Employment
Period the Executive shall be eligible to participate in the following:
(i) Pension Plan. The Company shall establish for the
Executive an accumulating life insurance plan/pension plan to
which the Company shall contribute $4,000 annually (the
"Pension Plan").
(ii) Health Insurance. The Company shall provide the
Health Insurance for the Executive and his Dependents that it
provides to other contract employees of the Company. The
provision of the Health Insurance shall be subject to
acceptance by the insurance company of the Executive and his
Dependents to the Company's current program or whatever other
program the Company's Board of Directors may decide to elect.
The Executive shall be solely responsible for all deductible
and copayment amounts due according to the Health Insurance.
Upon termination of this Agreement, all payments under this
Section 3(c)(ii) shall cease, provided, however, that the
Executive shall be entitled to payments for periods prior to
the date of the termination and for which the Executive has
not yet been paid.
(iii) Other Benefits. The Executive shall be eligible
to all other incentive, savings, welfare (including without
limitation medical and dental, disability and salary
continuance insurance) plans, practices, policies and programs
applicable on or after the Effective Date to other contract
employees of the Company.
(d) Other Business Expenses. During the Employment Period the
Executive shall be entitled to receive prompt reimbursement from the
Company for all reasonable business expenses incurred by the Executive,
itemized in accordance with the Company's existing policies, practices
and procedures.
(e) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to all fringe benefits applicable on or
after the Effective Date to other contract employees of the Company.
(f) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the policies and
practices applicable on or after the Effective Date to other executives
of the Company, provided that the Executive shall be entitled to a
minimum of three weeks of paid vacation per calendar year. If during
the Employment Period the Executive serves for less than a full
calendar year, the minimum three weeks shall be prorated for the
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period of the year in which the Executive served. Vacation accrued but
unused at the end of a calendar year may be carried over into the
following calendar year or years, provided that unused vacation days
shall be accrued up to a maximum of six weeks.
(g) Holidays and Sick Leave. The Executive shall be entitled
to all holidays that are prescribed by the Company's policies and
practices. The Executive shall be entitled to 5 days paid sick leave
per year. Unused sick leave days may not be carried over to the
following calendar year or years.
(h) Automobile. During the Employment Period, the Company
shall make available to the Executive an automobile commensurate with
his position and shall pay for all expenses related thereto including,
without limitation, gas and insurance.
4. EXECUTIVE'S OBLIGATIONS. During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote substantially all of his attention and time during
normal business hours to the business and affairs of the Company and to perform
faithfully and efficiently the responsibilities assigned to the Executive.
5. TERMINATION.
(a) Notice. During the Employment Period, the Executive's employment
hereunder may be terminated upon sixty (60) days prior notice by either
Executive or the Company. Any such termination shall be evidenced by a written
document signed by the party providing notice. If the Executive's employment is
terminated by reason of the Executive's death, the Company shall have no further
obligations to the Executive's legal representatives under this Agreement, other
than those obligations accrued, earned or vested by the Executive as of the date
of his death. In addition, the Executive's family shall be entitled to receive
benefits at least equal to the most favorable benefits provided by the Company
to surviving families of other contract employees of the Company based on the
terms of the benefit plans referenced in Section 3(c) of this Agreement as in
effect on the date of the Executive's death.
(b) Death. This Agreement shall terminate automatically upon the
Executive's death. If the Executive's employment is terminated by reason of the
Executive's death, the Company shall have no further obligations to the
Executive's legal representatives under this Agreement, other than those
obligations accrued, earned or vested by the Executive as of the date of his
death. In addition, the Executive's family shall be entitled to receive benefits
at least equal to the most favorable benefits provided by the Company to
surviving families of other contract employees of the Company based on the terms
of the benefit plans referenced in Section 3(c) of this Agreement as in effect
on the date of the Executive's death.
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(c) Disability. If the Company determines in good faith that the
Executive has a "disability" (as defined below), it may give the Executive
written notice of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective on
the 60th day after receipt by the Executive of such notice. No such notice of
termination by reason of disability shall be given until the Executive has
experienced a period of three consecutive months of disability and the
disability is continuing. The notice of termination shall not be effective if
the Executive returns to full-time performance of his duties prior to the
expiration of the 60-day notice period. For purposes of this Agreement,
"disability" shall mean a physical or mental condition which, three months after
its commencement, is determined to be total and permanent by a physician
selected by the Company. The Executive shall be entitled to all compensation and
benefits provided for under this Agreement during the three-month waiting period
for the disability determination and during the 60-day notice of termination
period. In the event that the Company provides long-term disability benefits for
the Executive, such benefits shall not commence until after the employment of
the Executive has been terminated and the Company has ceased paying the
Executive compensation pursuant to the foregoing sentence. If the Executive's
employment is terminated by reason of the Executive's disability, this Agreement
shall terminate without further obligations to the Executive or the Executive's
legal representatives under this Agreement, other than those obligations
accrued, earned or vested by the Executive as of the date of the termination. In
addition, the Executive and the Executive's family shall be entitled to receive
benefits, including without limitation disability benefits, at least equal to
the most favorable benefits provided by the Company to other contract employees
of the Company based on the terms of the benefit plans referenced in Section
3(c) of this Agreement as in effect on the date the Executive's disability
commenced.
(d) Voluntary Termination or Retirement. If the Executive shall elect
to voluntarily terminate his employment (other than for "good reason" as defined
in Section 5(g) below) or to retire during the Employment Period, this Agreement
shall terminate automatically and the Company shall have no further obligations
to the Executive under this Agreement, other than those obligations accrued,
earned or vested by the Executive as of the date of the termination or
retirement.
(e) Cause. During the Employment Period, the Company may terminate the
Executive's employment for "cause," as defined below. For purposes of this
Agreement, "cause," shall mean:
(i) an act or acts of personal dishonesty taken by the
Executive at the expense of or against the interests of the Company;
(ii) repeated violations by the Executive of his obligations
under Section 4 of this Agreement which are not remedied within a
reasonable period of time after receipt of written notice from the
Company of such violations;
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(iii) any direct or indirect disclosure of any confidential
information or other special knowledge of the finances, business or
other affairs of the Company;
(iv) the conviction of the Executive of a felony; or
(v) the conviction of the Executive of a serious misdemeanor
involving illegal use, possession or sale of drugs, larceny, crimes of
violence or sex offenses.
If the Executive's employment is terminated for cause, this Agreement shall
terminate without further obligations to the Executive under this Agreement,
other than those obligations accrued, earned or vested by the Executive as of
the date of the termination. The Executive shall not be entitled to any Bonus in
respect of the year of termination in the event the Executive's employment is
terminated for cause pursuant to this Section 5(e).
(f) Involuntary Termination. If during the Employment Period the
Company terminates the Executive's employment other than for reasons set forth
in Sections 5(a) through 5(e) above, it shall be deemed to be an involuntary
termination and the Company shall pay to the Executive the following amounts:
(i) to the extent not theretofore paid, the Company shall pay
the Executive's Salary through the date of such involuntary
termination; and
(ii) the Company shall pay the Executive on the date of such
involuntary termination an amount equal to six months of the
Executive's Base Salary; provided that if such involuntary termination
occurs as a result of a Change of Control, such payment shall be in an
amount equal to eight months of the Executive's Base Salary;
(iii) the Company shall pay in one cash lump sum any vacation
days accrued but unused as of the date of termination to be paid within
30 days of such involuntary termination.
(g) Good Reason. During the Employment Period, the Executive
may terminate his employment for "good reason" as defined below. For
purposes of this Agreement, "good reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with Executive's position, duties
and responsibilities as set forth in Section 3(a) of this
Agreement or any action by the Company which results in a
diminution in such position, authority, duties or
responsibilities, excluding for this purpose any isolated,
insubstantial and inadvertent action by the Company which is
not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the
Executive;
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(ii) any failure by the Company to comply with any of
the provisions of Sections 3(b) through 3(g) of this Agreement
regarding the Executive's compensation, benefits, expenses,
fringe benefits, vacation and office staff, other than an
isolated, insubstantial and inadvertent action by the Company
which is not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than that described in
Section 3(a) of this Agreement, except for travel reasonably
required in the performance of the Executive's
responsibilities; or
(iv) any failure by the Company to comply with and
satisfy Section 10 of this Agreement with respect to
successors.
In the event that the Executive terminates his employment for good reason as
defined in this Section 5(g), it shall be deemed to be an "involuntary
termination" as set forth in Section 5(f) above and the Executive shall be
entitled to all payments and obligations set forth in Sections 5(f)(i) through
5(f)(iv) of this Agreement as if the Executive's employment had been
involuntarily terminated.
6. NOTICE OF TERMINATION. Any termination by the Company for any reason or by
the Executive for any reason shall be communicated by a written notice which
indicates (i) the specific termination provision in this Agreement relied upon,
(ii) the facts and circumstances claimed to provide a basis for such
termination, and (iii) the date of termination.
7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any benefit, incentive or
other plans, programs, policies or practices provided by the Company and for
which the Executive may otherwise qualify. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of the Company at or subsequent to the termination of the
Executive's employment shall be payable in accordance with such plan, policy,
practice or program.
8. FULL SETTLEMENT. The Company's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment or other claim, right or
action which the Company may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement. The Company agrees to pay, to the full extent
permitted by law, all legal fees and expenses, as incurred by the Company, the
Executive and others, which the Executive may reasonably incur as a result of
any contest by the Company or others of the validity or enforceability of, or
liability under, any provision of this Agreement
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or any guarantee of performance thereof, plus in each case interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Internal
Revenue Code of 1986, as amended (the "Code").
9. CONFIDENTIALITY.
(a) The Executive shall hold in a fiduciary capacity for the benefit of
the Company all secret, proprietary or confidential information, knowledge or
data relating to the Company and its business, including without limitation
financial information and customer lists, which shall have been obtained by the
Executive during his employment with the Company and which shall not be or
become public knowledge (other than by acts by the Executive or his
representatives in violation of this Agreement). Notwithstanding the foregoing,
the Executive may disclose any such information if such information is compelled
by legal process, provided that if Executive is so compelled, he shall provide
the Company with prompt notice so that it may seek a protective order or other
remedy. In any event, the Executive shall furnish only that portion of the
confidential information that is legally required to be disclosed.
(b) In the event that the Executive breaches any provision of this
Section 9, any payments or other benefits promised under this Agreement shall be
forfeited. In addition, the Company shall be entitled to apply to any court of
competent jurisdiction for an injunction restraining the Executive from
committing or continuing any violation of this Agreement.
10. NON-COMPETITION. The Executive agrees that during the Employment Period and
for two years thereafter, he will not, within the continental United States,
Israel or any other country in which the Company has operations, directly or
indirectly, engage or participate or make any financial investments in or become
employed by or render advisory or other services to or for any person, firm or
corporation, or in connection with any business activity, other than that of the
Company and its subsidiaries, directly or indirectly in competition with any of
the business operations or activities of the Company and its subsidiaries as at
the date of termination of his employment, whether such companies are presently
existing or hereafter acquired. Nothing herein contained, however, shall
restrict the Executive from making any investments in any company whose stock is
listed on a national securities exchange or actively traded in the over-the-
counter market, so long as such investment does not give him the right to
control or influence the policy decisions of any such business or enterprise
which is or might be directly or indirectly in competition with any of such
business operations or activities of the Company or any of its subsidiaries.
11. RESTRICTIONS ON SOLICITATION. The Executive agrees that during the
Employment Period and for two years thereafter, he will not:
(i) directly or indirectly solicit, raid, entice or
induce any employee of the Company or any of its subsidiaries
to become an employee of any person, firm or corporation which
is, directly or indirectly, in
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competition with the business or activities of the Company or
any of its subsidiaries;
(ii) directly or indirectly approach any such
employee for these purposes;
(iii) authorize or knowingly approve the taking of
such actions by other persons on behalf of any such person,
firm or corporation, or assist any such person, firm or
corporation in taking such action; or
(iv) directly or indirectly solicit, raid, entice or
induce any person, firm or corporation who or which on the
date hereof is, or at the time during the term of his
employment with the Company shall be, a customer of the
Company or of any of its subsidiaries to become a customer for
the same or similar products which it purchased from the
Company or any of its subsidiaries, of any other person, firm
or corporation, and the Executive shall not approach any such
customer for such purpose or authorize or knowingly approve
the taking of such actions by any other person.
12. SUCCESSORS. This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives. This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes this Agreement by operation of law, or
otherwise.
13. BINDING ARBITRATION. In the event that the Company and the Executive cannot
agree on an interpretation of any provision of this Agreement, or in the event
that the Company fails to make any payments or otherwise fulfill any obligations
required by the terms of this Agreement, the Company and the Executive agree to
resolve any such dispute through binding arbitration. Any request for such
arbitration shall be served on the other party by written notice. The parties
shall agree upon and select an arbitrator within 20 days after written demand is
made by either party for such arbitration. The arbitrator shall set a time for
hearing within 60 days of his/her selection. Each party shall have an
opportunity to present evidence on the issues in dispute before the arbitrator
and each party may be represented by legal counsel if either so desires. The
decision of the arbitrator shall be rendered in writing to both parties within
30 days of the close of the hearing. The decision of the arbitrator shall
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be final and binding upon both parties. Any legal fees, expenses or other costs
incurred by the Company and the Executive in connection with such arbitration
shall be borne by the Company.
14. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
(b) The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(c) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: If to the Company:
- ------------------- -----------------
7440 SW 29th Street,
Plantation, Florida, 33317
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(d) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(e) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(f) A party's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
(g) This Agreement supersedes any prior employment agreement between
the Company and the Executive and contains the entire understanding of the
Company and the Executive with respect to the subject matter hereof.
(h) This Agreement may be executed in counterparts, each of which shall
be deemed an original and all of which, together, shall constitute one and the
same instrument.
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IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
KELLSTROM INDUSTRIES, INC. (FORMERLY
ISRAEL TECH ACQUISITION CORP.):
/s/ Zivi R. Nedivi
--------------------------------------
Zivi R. Nedivi
Date of Signature: 1/30/96
EXECUTIVE
/s/ Anthony Motisi
--------------------------------------
Anthony Motisi
Date of Signature: 1/30/96
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Agreement is entered into as of January 30, 1996 between Kellstrom
Industries, Inc. (formerly Israel Tech Acquisition Corp.), a Delaware
corporation, having its principal place of business at Sawgrass International
Corporate Park, 14000 Northwest Fourth Street, Sunrise, Florida 33325 (the
"Company"), and Paul F. Steel, residing at 9203B Boca Garden Circle South, Boca
Raton, Florida, 33496 (the "Executive").
W I T N E S S E T H
WHEREAS, the Executive has assumed duties of a responsible nature to
the benefit of the Company and its Board of Directors; and
WHEREAS, the Board of Directors of the Company believes it to be in the
best interests of the Company to enter into this Agreement to assure the
Executive's continuing services to the Company and to diminish any distraction
on the part of the Executive resulting from personal uncertainties and risks
associated with assuming this position;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Company and the Executive hereby agree as follows:
1. DEFINITIONS.
(a) The "Agreement" shall mean this Employment Agreement between the
Company and the Executive.
(b) The "Board" shall mean the Board of Directors of the Company.
(c) A "Change of Control" shall mean (i) any transaction that has the
result that stockholders of the Company immediately before such transaction
cease to own at least 51% of (x) the voting stock of the Company or (y) of any
entity that results from the participation of the Company in a reorganization,
liquidation or any other form of corporate transaction; (ii) a merger,
consolidation, reorganization, liquidation or dissolution in which the Company
does not survive; or (iii) a sale, lease, exchange or other disposition of all
or substantially all the property and assets of the Company.
(d) The "Company" shall mean Kellstrom Industries, Inc. (formerly
Israel Tech Acquisition Corp.), a Delaware corporation.
(e) "Dependents" shall mean the Executive's spouse and children, if
any.
(f) The "Effective Date" shall mean January 1, 1996.
(g) The "Employment Period" shall mean the period commencing on the
Effective Date and ending on the fifth anniversary of the Effective Date.
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(h) The "Executive" shall mean Paul F. Steele.
(i) The "Health Insurance" shall mean such health insurance as is
available to other contract employees of the Company.
(j) The "Loan" shall have the meaning set forth Section 3(d) of this
Agreement.
(k) The "Pension Plan" shall have the meaning set forth is Section
3(c)(i) of this Agreement.
(l) The "Salary" shall mean the amount set forth in Section 3(b) of
this Agreement.
2. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in his
employ, and the Executive hereby agrees to remain in the employ of the Company,
for the duration of the Employment Period under the terms and conditions
provided herein. This Agreement shall terminate at the end of the Employment
Period, unless it is terminated prior to the end of the Employment Period by
virtue of one of the provisions of Section 5 of this Agreement.
3. TERMS OF EMPLOYMENT.
(a) Position and Duties. During the Employment Period the Executive's
position shall be the Vice President-Purchasing. The Executive's services shall
be performed at the Company's headquarters or a location where a substantial
activity for which the Executive has responsibility is located.
(b) Compensation.
(i) Base Salary. As of the Effective Date of the Agreement,
the Executive's annual salary (the "Salary") shall be $ During the Employment
Period, the Executive's Salary may be reviewed and changed; however, the Company
shall not pay the Executive a Salary less than $ during the Employment Period.
Any increase in the Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement.
(ii) Annual Bonus. For each calendar year commencing with the
year ending December 31, 1996, at the end of which the Executive is employed by
the Company as its Vice-President:
(A) if the Company has Net Income (as defined below)
for such year of an amount equal to the target net income
before taxes (such net income to be determined by eliminating
the effect of any intercompany transactions prior to the
closing date of the Acquisition and any deductions from net
income in respect of transaction expenses related to the
Acquisition), determined in accordance with generally accepted
accounting principles in the U.S. as in effect from time to
time (the "Net
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Income") as approved by the board of directors of the Company
(or the Executive Committee of the Board, if one exists) for
such year (the "Target"), the Executive shall be entitled to a
bonus in an amount equal to
(B) if the Company has Net Income for such year of
more than the Target and less than 150% of the Target, the
Executive shall be entitled to a bonus as calculated below:
B = ( ) + x (NI - T) )
--------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income for such year.
(C) if the Company has Net Income for such year of
150% of the Target or more, the Executive shall be entitled to
a bonus of
(D) if the Company has Net Income for such year of
less than 50% of the Target, the Executive shall not be
entitled to a bonus.
(E) if the Company has Net Income for such year of at
least 50% of the Target but less than the Target, the
Executive shall be entitled to a bonus as calculated below:
B = $ - ( x 2 x (T - NI) )
------------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income for such year.
(c) Benefits. In addition to the compensation payable to the Executive
as set forth in Section 3(b) above, during the Employment Period the Executive
shall be eligible to participate in the following:
(i) Pension Plan. The Company has established and continue for
the Executive an accumulating life insurance plan/pension plan to which
the Company shall contribute annually (the "Pension Plan"). The
Executive hereby agrees to assign the benefits of the Pension Plan to
the Company, which
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assignment shall terminate at such time as the Loan has been paid in
full, or until November 1, 1996, whichever is earlier.
(ii) Health Insurance. The Company shall provide the Health
Insurance for the Executive and his Dependents that it provides to
other contract employees of the Company. The provision of the Health
Insurance shall be subject to acceptance by the insurance company of
the Executive and his Dependents to the Company's current program or
whatever other program the Company's Board of Directors may decide to
elect. The Executive shall be solely responsible for all deductible and
copayment amounts due according to the Health Insurance. Upon
termination of this Agreement, all payments under this Section 3(c)(ii)
shall cease, provided, however, that the Executive shall be entitled
to payments for periods prior to the date of the termination and for
which the Executive has not yet been paid.
(iii) Other Benefits. The Executive shall be eligible to all
other incentive, savings, welfare (including without limitation medical
and dental, disability and salary continuance insurance) plans,
practices, policies and programs applicable on or after the Effective
Date to other contract employees of the Company.
(d) Loans. (1) The Executive hereby acknowledges that he has received a
loan in the amount of $ (the "Loan") from the Company on November 1, 1993.
The Loan shall bear 10% annual interest, which will be accumulated annually and
will be added to the principal of the Loan. This Loan is due immediately upon
(i) termination for cause under Section 5(e) of this Agreement at any time or
(ii) termination by the Executive of this Agreement at any time before
November 1, 1996; provided further that if such Loan is not so due immediately
prior to November 1, 1996, then the entire principle and interest due on the
Loan shall be forgiven.
(2) The Company hereby acknowledges that Executive may borrow, at one
time, up to $ (the "Residence Loan") from the Company until January 1, 1997
for the purpose of purchasing a residence in the Sunrise, Florida area. The
Residence Loan shall bear 8% annual interest, which will be accumulated annually
and will be added to the principal of the Residence Loan. Within 30 days of the
closing of the purchase of the residence by Executive, Executive will execute
and deliver to the Company a second mortgage on such residence securing the
Residence Loan in form and substance satisfactory to the Company (and Executive
shall take all other actions necessary or desirable in the opinion of the
Company to perfect such mortgage). This Residence Loan is due immediately upon
the earliest of (i) five years from the date which the Company makes the
Residence Loan pursuant to this subsection (3), (ii) termination for cause under
Section 5(e) of this Agreement at any time, (iii) termination by the Executive
of this Agreement at any time (other than for "good reason" as defined in
Section 5(g)), and (iv) sale of the residence. The Executive agrees that he
shall repay the Residence Loan in an amount of at least 50% of the bonus by the
Company to Executive paid pursuant to Section 3(b)(ii).
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(3) The Company hereby acknowledges that Executive may borrow, at one
time, up to $____________ (the "Other Loan") from the Company until January 1,
1997 for the purpose of purchasing stock of the Company. The Other Loan shall
bear 9% annual interest, which will be accumulated annually and will be added to
the principal of the Other Loan. At the time of the closing of the purchase of
the Company stock, Executive will execute and deliver to the Company a first
priority pledge of such stock securing the Other Loan in form and substance
satisfactory to the Company (and Executive shall take all other actions
necessary or desirable in the opinion of the Company to perfect such pledge).
This Other Loan is due immediately upon the earliest of (i) three years from the
date which the Company makes the Other Loan pursuant to this subsection (3),
(ii) termination for cause under Section 5(e) of this Agreement at any time,
(iii) termination by the Executive of this Agreement at any time before November
1, 1996 (other than for "good reason" as defined in Section 5(g)), and (iv) sale
of such stock. The Executive agrees that he shall repay the Other Loan in an
amount of at least 50% of the bonus by the Company to Executive paid pursuant to
Section 3(b)(ii).
(e) Other Business Expenses. During the Employment Period the Executive
shall be entitled to receive prompt reimbursement from the Company for all
reasonable business expenses incurred by the Executive, itemized in accordance
with the Company's existing policies, practices and procedures.
(f) Fringe Benefits. During the Employment Period, the Executive shall
be entitled to all fringe benefits applicable on or after the Effective Date to
other contract employees of the Company.
(g) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the policies and practices
applicable on or after the Effective Date to other executives of the Company,
provided that the Executive shall be entitled to a minimum of three weeks of
paid vacation per calendar year. If during the Employment Period the Executive
serves for less than a full calendar year, the minimum three weeks shall be
prorated for the period of the year in which the Executive served. Vacation
accrued but unused at the end of a calendar year may be carried over into the
following calendar year or years, provided that unused vacation days shall be
accrued up to a maximum of six weeks.
(h) Holidays and Sick Leave. The Executive shall be entitled to all
holidays that are prescribed by the Company's policies and practices. The
Executive shall be entitled to 5 days paid sick leave per year. Unused sick
leave days may not be carried over to the following calendar year or years.
(i) Automobile. During the Employment Period, the Company shall make
available to the Executive an automobile commensurate with his position and
shall pay for all expenses related thereto including, without limitation, gas
and insurance.
4. EXECUTIVE'S OBLIGATIONS. During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote substantially all of his attention and time during
normal business
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hours to the business and affairs of the Company and to perform faithfully and
efficiently the responsibilities assigned to the Executive.
5. TERMINATION.
(a) Notice. During the Employment Period, the Executive's employment
hereunder may be terminated upon sixty (60) days prior notice by either
Executive or the Company. Any such termination shall be evidenced by a written
document signed by the party providing notice. If the Executive's employment is
terminated by reason of the Executive's death, the Company shall have no further
obligations to the Executive's legal representatives under this Agreement, other
than those obligations accrued, earned or vested by the Executive as of the date
of his death. In addition, the Executive's family shall be entitled to receive
benefits at least equal to the most favorable benefits provided by the Company
to surviving families of other contract employees of the Company based on the
terms of the benefit plans referenced in Section 3(c) of this Agreement as in
effect on the date of the Executive's death.
(b) Death. This Agreement shall terminate automatically upon the
Executive's death. If the Executive's employment is terminated by reason of the
Executive's death, the Company shall have no further obligations to the
Executive's legal representatives under this Agreement, other than those
obligations accrued, earned or vested by the Executive as of the date of his
death. In addition, the Executive's family shall be entitled to receive benefits
at least equal to the most favorable benefits provided by the Company to
surviving families of other contract employees of the Company based on the terms
of the benefit plans referenced in Section 3(c) of this Agreement as in effect
on the date of the Executive's death.
(c) Disability. If the Company determines in good faith that the
Executive has a "disability" (as defined below), it may give the Executive
written notice of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective on
the 60th day after receipt by the Executive of such notice. No such notice of
termination by reason of disability shall be given until the Executive has
experienced a period of three consecutive months of disability and the
disability is continuing. The notice of termination shall not be effective if
the Executive returns to full-time performance of his duties prior to the
expiration of the 60-day notice period. For purposes of this Agreement,
"disability" shall mean a physical or mental condition which, three months after
its commencement, is determined to be total and permanent by a physician
selected by the Company. The Executive shall be entitled to all compensation and
benefits provided for under this Agreement during the three-month waiting period
for the disability determination and during the 60-day notice of termination
period. In the event that the Company provides long-term disability benefits for
the Executive, such benefits shall not commence until after the employment of
the Executive has been terminated and the Company has ceased paying the
Executive compensation pursuant to the foregoing sentence. If the Executive's
employment is terminated by reason of the Executive's disability, this Agreement
shall terminate without further obligations to the Executive or the Executive's
legal representatives under this Agreement, other than those obligations
accrued, earned or vested by the Executive as of the date of the termination.
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In addition, the Executive and the Executive's family shall be entitled to
receive benefits, including without limitation disability benefits, at least
equal to the most favorable benefits provided by the Company to other contract
employees of the Company based on the terms of the benefit plans referenced in
Section 3(c) of this Agreement as in effect on the date the Executive's
disability commenced.
(d) Voluntary Termination or Retirement. If the Executive shall elect
to voluntarily terminate his employment (other than for "good reason" as defined
in Section 5(g) below) or to retire during the Employment Period, this Agreement
shall terminate automatically and the Company shall have no further obligations
to the Executive under this Agreement, other than those obligations accrued,
earned or vested by the Executive as of the date of the termination or
retirement.
(e) Cause. During the Employment Period, the Company may terminate the
Executive's employment for "cause," as defined below. For purposes of this
Agreement, "cause," shall mean:
(i) an act or acts of personal dishonesty taken by the
Executive at the expense of or against the interests of the Company;
(ii) repeated violations by the Executive of his obligations
under Section 4 of this Agreement which are not remedied within a
reasonable period of time after receipt of written notice from the
Company of such violations;
(iii) any direct or indirect disclosure of any confidential
information or other special knowledge of the finances, business or
other affairs of the Company;
(iv) the conviction of the Executive of a felony; or
(v) the conviction of the Executive of a serious misdemeanor
involving illegal use, possession or sale of drugs, larceny, crimes of
violence or sex offenses.
If the Executive's employment is terminated for cause, this Agreement shall
terminate without further obligations to the Executive under this Agreement,
other than those obligations accrued, earned or vested by the Executive as of
the date of the termination. The Executive shall not be entitled to any Bonus in
respect of the year of termination in the event the Executive's employment is
terminated for cause pursuant to this Section 5(e).
(f) Involuntary Termination. If during the Employment Period the
Company terminates the Executive's employment other than for reasons set forth
in Sections 5(a) through 5(e) above, it shall be deemed to be an involuntary
termination and the Company shall pay to the Executive the following amounts:
(i) to the extent not theretofore paid, the Company shall pay
the Executive's Salary through the date of such involuntary
termination;
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(ii) the Company shall pay the Executive on the date of such
involuntary termination an amount equal to six months of the
Executive's Base Salary; provided that if such involuntary termination
occurs as a result of a Change of Control, such payment shall be in an
amount equal to eight months of the Executive's Base Salary; and
(iii) the Company shall pay in one cash lump sum any vacation
days accrued but unused as of the date of termination to be paid within
30 days of such involuntary termination.
(g) Good Reason. During the Employment Period, the Executive may
terminate his employment for "good reason" as defined below. For purposes of
this Agreement, "good reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent
in any respect with Executive's position, duties and responsibilities
as set forth in Section 3(a) of this Agreement or any action by the
Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose any isolated,
insubstantial and inadvertent action by the Company which is not taken
in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Sections 3(b) through 3(g) of this Agreement regarding
the Executive's compensation, benefits, expenses, fringe benefits,
vacation and office staff, other than an isolated, insubstantial and
inadvertent action by the Company which is not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section 3(a) of this
Agreement, except for travel reasonably required in the performance of
the Executive's responsibilities; or
(iv) any failure by the Company to comply with and satisfy
Section 10 of this Agreement with respect to successors.
In the event that the Executive terminates his employment for good reason as
defined in this Section 5(g), it shall be deemed to be an "involuntary
termination" as set forth in Section 5(f) above and the Executive shall be
entitled to all payments and obligations set forth in Sections 5(f)(i) through
5(f)(v) of this Agreement as if the Executive's employment had been
involuntarily terminated.
6. NOTICE OF TERMINATION. Any termination by the Company for any reason or by
the Executive for any reason shall be communicated by a written notice which
indicates (i) the specific termination provision in this Agreement relied upon,
(ii) the facts and circumstances claimed to provide a basis for such
termination, and (iii) the date of termination.
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7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any benefit, incentive or
other plans, programs, policies or practices provided by the Company and for
which the Executive may otherwise qualify. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of the Company at or subsequent to the termination of the
Executive's employment shall be payable in accordance with such plan, policy,
practice or program.
8. FULL SETTLEMENT. The Company's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment or other claim, right or
action which the Company may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement. The Company agrees to pay, to the full extent
permitted by law, all legal fees and expenses, as incurred by the Company, the
Executive and others, which the Executive may reasonably incur as a result of
any contest by the Company or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof, plus in each case interest at the applicable Federal rate provided for
in Section 7872(f)(2) of the Internal Revenue Code of 1986, as amended (the
"Code").
9. CONFIDENTIALITY.
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret, proprietary or confidential
information, knowledge or data relating to the Company and its
business, including without limitation financial information and
customer lists, which shall have been obtained by the Executive during
his employment with the Company and which shall not be or become public
knowledge (other than by acts by the Executive or his representatives
in violation of this Agreement). Notwithstanding the foregoing, the
Executive may disclose any such information if such information is
compelled by legal process, provided that if Executive is so compelled,
he shall provide the Company with prompt notice so that it may seek a
protective order or other remedy. In any event, the Executive shall
furnish only that portion of the confidential information that is
legally required to be disclosed.
(b) In the event that the Executive breaches any provision of
this Section 9, any payments or other benefits promised under this
Agreement shall be forfeited. In addition, the Company shall be
entitled to apply to any court of competent jurisdiction for an
injunction restraining the Executive from committing or continuing any
violation of this Agreement.
10. NON-COMPETITION. The Executive agrees that (a) during the Employment Period
and (b) unless the Executive terminates his employment for "good reason or his
employment is involuntarily terminated, for two years thereafter, he will not,
within the continental United States, Israel or any other country in which the
Company has operations, directly or indirectly, engage or participate or make
any financial
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investments in or become employed by or render advisory or other services to or
for any person, firm or corporation, or in connection with any business
activity, other than that of the Company and its subsidiaries, directly or
indirectly in competition with any of the business operations or activities of
the Company and its subsidiaries as at the date of termination of his
employment, whether such companies are presently existing or hereafter acquired.
Nothing herein contained, however, shall restrict the Executive from making any
investments in any company whose stock is listed on a national securities
exchange or actively traded in the over-the-counter market, so long as such
investment does not give him the right to control or influence the policy
decisions of any such business or enterprise which is or might be directly or
indirectly in competition with any of such business operations or activities of
the Company or any of its subsidiaries.
11. RESTRICTIONS ON SOLICITATION. The Executive agrees that during the
Employment Period and for two years thereafter, he will not:
(i) directly or indirectly solicit, raid, entice or induce any
employee of the Company or any of its subsidiaries to become an
employee of any person, firm or corporation which is, directly or
indirectly, in competition with the business or activities of the
Company or any of its subsidiaries;
(ii) directly or indirectly approach any such employee for
these purposes;
(iii) authorize or knowingly approve the taking of such
actions by other persons on behalf of any such person, firm or
corporation, or assist any such person, firm or corporation in taking
such action; or
(iv) directly or indirectly solicit, raid, entice or induce
any person, firm or corporation who or which on the date hereof is, or
at the time during the term of his employment with the Company shall
be, a customer of the Company or of any of its subsidiaries to become a
customer for the same or similar products which it purchased from the
Company or any of its subsidiaries, of any other person, firm or
corporation, and the Executive shall not approach any such customer for
such purpose or authorize or knowingly approve the taking of such
actions by any other person.
12. SUCCESSORS. This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executives
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives. This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business
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and/or assets as aforesaid which assumes this Agreement by operation of law, or
otherwise.
13. BINDING ARBITRATION. In the event that the Company and the Executive cannot
agree on an interpretation of any provision of this Agreement, or in the event
that the Company fails to make any payments or otherwise fulfill any obligations
required by the terms of this Agreement, the Company and the Executive agree to
resolve any such dispute through binding arbitration. Any request for such
arbitration shall be served on the other party by written notice. The parties
shall agree upon and select an arbitrator within 20 days after written demand is
made by either party for such arbitration. The arbitrator shall set a time for
hearing within 60 days of his/her selection. Each party shall have an
opportunity to present evidence on the issues in dispute before the arbitrator
and each party may be represented by legal counsel if either so desires. The
decision of the arbitrator shall be rendered in writing to both parties within
30 days of the close of the hearing. The decision of the arbitrator shall be
final and binding upon both parties. Any legal fees, expenses or other costs
incurred by the Company and the Executive in connection with such arbitration
shall be borne by the Company.
14. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(b) The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(c) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive: If to the Company:
9203B Boca Garden Circle South,
Boca Raton, Florida, 33496
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
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(d) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
(e) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(f) A party's failure to insist upon strict compliance with
any provision hereof shall not be deemed to be a waiver of such
provision or any other provision thereof.
(g) This Agreement supersedes any prior employment agreement
between the Company and the Executive and contains the entire
understanding of the Company and the Executive with respect to the
subject matter hereof.
(h) This Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which, together, shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
KELLSTROM INDUSTRIES, INC. (FORMERLY
ISRAEL TECH ACQUISITION CORP.):
__________________________________________
Zivi R. Nedivi
Date of Signature:________________________
EXECUTIVE
__________________________________________
Paul F. Steele
Date of Signature:________________________
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AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT ("Amendment"), entered into as of
February ___, 1997 but bearing an effective date of January 1, 1997, by and
between KELLSTROM INDUSTRIES, INC., a Delaware corporation having offices
at 14000 N.W. 4th Street, Sunrise, Florida 33325 (the "Company") and John S.
Gleason, residing at ____________________ (the "Executive").
RECITALS
--------
WHEREAS, the Company and the Executive entered into an Employment
Agreement, dated as of May 18, 1995 (the "Employment Agreement"), pursuant to
which, among other things, the Executive assumed duties of a responsible nature
to the benefit of the Company and its Board of Directors; and
WHEREAS, the Company and the Executive desire to amend the Employment
Agreement as set forth herein;
NOW, THEREFORE, the Company and the Executive hereby agree as follows:
1. Section 3(a) of the Employment Agreement is hereby amended to read in
its entirety as follows:
(a) Position and Duties. Effective as of January 1, 1997 and thereafter
during the Employment Period the Executive's position shall be Executive
Vice President, Chief Financial Officer, Treasurer and Assistant Secretary
of the Company. The Executive's services shall be performed at the
Company's headquarters or a location where a substantial activity for which
the Executive has responsibility is located.
2. Section 3(b) of the Employment Agreement is hereby amended to read in
its entirety as follows:
(b) Compensation.
(i) Base Salary. Effective as of January 1, 1997, the Executive's base
annual salary shall be $190,000. During the Employment Period, the Executive's
base annual salary may be reviewed and changed; however, the Company shall not
pay the Executive a base annual salary less than $190,000 after January 1,
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1997 and thereafter during the Employment Period. Any increase in base salary
shall not serve to limit or reduce any other obligation to the Executive under
this Agreement.
(ii) Annual Bonus. For each calendar year commencing with the year ending
December 31, 1997, at the end of which the Executive is employed by the Company
as set forth herein:
(A) if the Company has Net Income (as defined below) for such year of an
amount equal to the target net income before taxes determined in accordance with
generally accepted accounting principles in the U.S. as in effect from time to
time (the "Net Income") as approved by the Board of Directors of the Company (or
the Executive Committee of the Board of Directors, if one exists) for such year
(the "Target"), the Executive shall be entitled to a bonus in an amount equal to
$90,000.
(B) if the Company has Net Income for such year of more than the Target and
less than 150% of the Target, the Executive shall be entitled to a bonus as
calculated below:
B = $90,000 + $90,000 x (NI - T)
------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income for such year.
(C) if the Company has Net Income for such year of 150% of the Target or
more, the Executive shall be entitled to a bonus of $135,000.
(D) if the Company has Net Income for such year of less than 50% of the
Target, the Executive shall not be entitled to a bonus.
(E) if the Company has Net Income for such year of at least 50% of the
Target but less than the Target, the Executive shall be entitled to a
bonus as calculated below:
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B = $90,000 - ($90,000 x 2 x (T - NI) )
---------------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income for such year.
3. Section 3(c) of the Employment Agreement is hereby amended to include
the following Subsection (iv) which shall read in its entirety as follows:
(iv) Life Insurance. The Company shall obtain and maintain a
life insurance policy on the life of the Executive in the amount of
$2,000,000 with a variable annuity feature mutually acceptable to the
Executive and the Company. The Company will pay the premium on such
policy for the entire period commencing on the date of this Amendment
and ending on the seventh anniversary of the date hereof (the "Policy
Period"). Until January 1, 1999, the Company shall own, and shall have
the right to designate the beneficiary under, such insurance policy.
The Executive shall have the option of causing the Company to transfer
the ownership of the policy (and the right to designate the beneficiary
thereunder) to the Executive at no cost to the Executive after January
1, 1999 (but the Company will continue to pay the premium on such
policy for the entire Policy Period). If the Executive does not
exercise his option to transfer ownership of the policy, upon the
termination of the Policy Period, the Company shall transfer the policy
to the Executive at no cost to the Executive. In the event that this
Agreement is terminated (other than for cause) prior to that time, the
Company will transfer ownership of the policy to the Executive and pay
the Executive a lump sum payment equal to the unpaid premium remaining
through the end of the Policy Period. Such lump sum payment shall
include an amount sufficient to compensate the Executive for any
Federal, state or local income taxes associated with the receipt of
such payment.
4. Section 8(b) of the Employment Agreement is hereby amended to read in
its entirety as follows:
(b) as soon as practicable after the Company has received
at least $15,000,000 of proceeds from the exercise of its existing
public warrants outstanding as of the January 1, 1997 and so long as the
Employment Period has not expired or been terminated, the Executive shall
be granted options to purchase 100,000 shares of the Company's common
stock, subject to the approval of the Company's Board of Directors. Such
options will, subject to the terms thereof (consistent with the terms of
the Company's 1996 Stock Option Plan), be exercisable at a price equal to
100% of the fair market value of the common
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stock of the Company at the time such options are granted and shall
vest with the Executive in three equal annual installments beginning on
the first anniversary of the date of grant.
5. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW).
6. As herein amended, the Employment Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the Company and the Executive have caused this
Amendment to be executed as of the date first written above.
KELLSTROM INDUSTRIES, INC.
By:________________________
Name: Zivi R. Nedivi
Title: President and CEO
---------------------------
John S. Gleason
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AMENDMENT
AMENDMENT, dated as of January 15, 1996, among Zivi R. Nedivi, Joram
D. Rosenfeld and Yoav Stern (each a "Stockholder" and collectively, the
"Stockholders").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Stockholders are parties to a Stockholders Agreement
dated August 24, 1995 (the "Stockholders Agreement"), pursuant to which the
Stockholders agreed, among other things, to restrict the disposition of the
Shares owned by them (capitalized terms used herein not otherwise defined shall
have the meanings given to them in the Stockholders Agreement);
WHEREAS, on the date hereof, the Stockholders have formed Helix
Capital Corporation, L.L.C., a Delaware limited liability company ("Helix");
WHEREAS, the Stockholders desire to contribute capital to Helix in the
form of the promissory notes attached hereto as Exhibit A (the "Notes") and
Helix is desirous of accepting such capital contribution on the condition that
the Shares are pledged as collateral for the Notes;
WHEREAS, in connection therewith, the Stockholders have agreed to
amend the Stockholders Agreement pursuant to the terms and provisions contained
herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Disposition of Shares. Section 3(a) of the Stockholders Agreement
is hereby amended by adding at the end thereof the following phrase:
"and the issuance of, and in accordance with the terms of,
the Secured Non-Recourse Promissory Notes issued by each
Stockholder to Helix Capital Corporation, L.L.C. on the date
hereof, which Notes are secured by, among other things, the
Shares."
2. Exercise by Helix. The Stockholders agree that notwithstanding
anything contained in the Stockholders Agreement to the contrary, any exercise
by Helix of the rights granted to it pursuant to the Notes shall not constitute
a violation or breach of the Stockholders Agreement, including without
limitation, the right to
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purchase the Shares in accordance with the terms of the Notes and the right,
upon a default of the Notes, to exercise all ownership rights to the Shares.
3. Stockholder Capacity. Each Stockholder executing this Amendment
does not make any agreement or understanding herein in his capacity as an
officer or director of the Company. Each Stockholder signs solely in his
capacity as the record and beneficial owner of, or the trustee of a trust whose
beneficiaries are the beneficial owners of, such Stockholder's Shares.
4. Governing Law. This Amendment shall be governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
the principles of conflicts of laws thereunder.
5. Effect of Amendment. Except as expressly set forth herein, the
amendments contained herein shall not constitute a waiver or amendment of any
term or provision of the Stockholders Agreement, and all such terms and
provisions shall remain in full force and effect and are hereby ratified and
confirmed in all respects.
6. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed being deemed an original and all of
which taken together constituting one and the same agreement.
7. Section Headings. The section headings contained herein are for the
purpose of convenience only and are not intended to define or limit the contents
thereof.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed as of the date first above written.
---------------------------------
Zivi R. Nedivi
---------------------------------
Joram D. Rosenfeld
---------------------------------
Yoav Stern
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<PAGE>
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of October 25, 1996,
between Kellstrom Industries, Inc., a Delaware corporation, having its principal
place of business at Sawgrass International Corporate Park, 14000 Northwest
Fourth Street, Sunrise, Florida 33325 (the "Company"), and Fred von Husen, an
individual residing at 1317 Still Creek Place, Danville, California 94506 (the
"Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to provide for the employment of the
Employee, and the Employee desires to accept such employment, on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Company and the Employee hereby agree as follows:
1. Definitions.
(a) The "Agreement" shall mean this Employment Agreement between the
Company and the Employee.
(b) The "Board" shall mean the Board of Directors of the Company.
(c) The "Company" shall mean Kellstrom Industries, Inc., a Delaware
corporation.
(d) "Dependents" shall mean the Employee's spouse and children, if any.
(e) A "Change of Control" shall mean (i) any transaction that has the
result that stockholders of the Company immediately before such transaction
cease to own at least 51% of (x) the voting stock of the Company or (y) of any
entity that results from the participation of the Company in a reorganization,
liquidation or any other form of corporate transaction; (ii) a merger,
consolidation, reorganization, liquidation or dissolution in which the Company
does not survive; or (iii) a sale, lease, exchange or other disposition of all
or substantially all the property and assets of the Company.
(f) The "Effective Date" shall mean December 31, 1996, or such other
date as shall coincide with the Closing Date of the acquisition by the Company
of substantially all of the assets of International Aircraft Support, L.P.
(the"Acquisition").
(g) The "Employment Period" shall mean the period commencing on the
Effective Date and ending on the fifth anniversary of the Effective Date.
(h) The "Employee" shall mean Fred von Husen.
<PAGE>
<PAGE>
(i) "GAAP" shall mean generally accepted accounting principles in the
United States as in effect from time to time.
(j) The "Health Insurance" shall mean health insurance benefits
comparable to the other contract employees of the Company.
(k) The "Salary" shall mean the amount set forth in Section 3(b)(i) of
the Agreement.
2. Employment Period. The Company hereby agrees to employ the Employee,
and the Employee hereby agrees to be employed by the Company, for the duration
of the Employment Period and pursuant to the other terms and conditions provided
herein. This Agreement shall terminate at the end of the Employment Period,
unless terminated prior to the end of the Employment Period by virtue of one of
the provisions of Section 5 of this Agreement.
3. Terms of Employment.
(a) Position and Duties. During the Employment Period the Employee's
position shall be the Executive Vice President.
(b) Compensation.
(i) Base Salary. As of the Effective Date, the Employee's
annual salary (the "Salary") shall be $190,000, payable twice monthly, for the
duration of the Employment Period. During the Employment Period, the Employee's
Salary may be reviewed and changed; however, the Company shall not pay the
Employee a Salary less than such amount during the Employment Period. Any
increase in the Salary shall not serve to limit or reduce any other obligation
of the Company under the Agreement.
(ii) Annual Company Bonus. For each calendar year commencing
with the year ending December 31, 1997, at the end of which the Employee is
employed by the Company:
(A) if the Company has Net Income (as hereinafter defined) for
such year of an amount equal to the Company's target net income before taxes as
determined solely by the Board (or the Executive Committee of the Board, if one
exists) for such year (the "Target"), the Employee shall be entitled to a bonus
in the amount equal to $90,000.
(B) if the Company has Net Income for such year more than the
Target and less than 150% of the Target, the Employee shall be entitled to a
bonus as calculated below:
B = $90,000 + $90,000 x (NI - T)
_______
T
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<PAGE>
<PAGE>
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income of the Company for such year as
determined in accordance with GAAP.
(C) if the Company has Net Income for such year of 150% of the
Target or more, the Employee shall be entitled to a bonus of $135,000.
(D) if the Company has Net Income for such year of less than
50% of the Target, the Employee shall not be entitled to a bonus.
(E) if the Company has Net Income for such year of at least
50% of the Target but less than the Target, the Employee shall be entitled to a
bonus as calculated below:
B = $90,000 - ($90,000 x 2 x (T - NI)
_______
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income of the Company for such year as
determined in accordance with GAAP.
(iii) Signing Bonus. The Employee shall be paid a $30,000
signing bonus immediately following the Effective Date, such amount shall also
compensate Employee for any moving expenses that may ultimately be incurred by
Employee.
(iv) Stock Options. As soon as practicable, the Company shall
issue to the Employee options to purchase 30,000 shares of the Company's common
stock, such options to be exercisable at a price equal to 100% of the fair
market value of the common stock of the Company at the time such options are
granted, shall vest with the Employee over three years, and shall be forfeited
in the event the Acquisition of IASI does not occur in accordance with Section
14. hereof.
(c) Benefits. In addition to the compensation payable to the Employee
as set forth in Section 3(b) above, during the Employment Period the Employee
shall be eligible for the following:
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<PAGE>
<PAGE>
(i) Health Insurance. The Company shall provide Health
Insurance for the Employee and his Dependents which shall be effective as of the
effective date of employment hereunder and shall continue for the Employment
Period. The Employee shall be solely responsible for all deductible and
co-payment amounts due according to the Health Insurance. Upon termination of
this Agreement, all payments under this Section 3(c)(i) shall cease, provided,
however, that the Employee shall be entitled to payments for periods prior to
the date of the termination and for which the Employee has not yet been paid.
(ii) Disability Insurance. The Company shall pay, or reimburse
the Employee for, disability insurance premiums up to a maximum annual amount of
$2,500. The Employee shall be solely responsible for obtaining disability
insurance coverage.
(iii) Pension Plan. The Company shall contribute an amount
equal to 5% of the Salary towards the accumulating life insurance plan/pension
plan selected and established by the Employee.
(iv) Car. During the Employment Period, the Company shall
furnish the Employee with an automobile commensurate with his position for use
by the Employee in connection with the performance of this duties hereunder, and
shall also pay or reimburse the Employee for all expenses of insurance,
maintenance and operation of such automobile.
(v) Other Benefits. The Employee shall be eligible for similar
incentive, stock option grants, savings, welfare (including without limitation
medical and dental insurance) plans, practices, policies and programs applicable
on or after the Effective Date to other contract employees of the Company as
determined in the discretion of the Board (or the Executive Committee, if any).
(d) Vacation. During the Employment Period, the Employee shall be
entitled to paid vacation in accordance with the policies and practices
applicable on or after the Effective Date to other executives of the Company,
provided that the Employee shall be entitled to a minimum of twenty (20) days of
paid vacation per calendar year. If during the Employment Period the Employee
serves for less than a full calendar year, the minimum twenty (20) days shall be
prorated for the period of the year in which the Employee served. Vacation
accrued but unused at the end of a calendar year may be carried over into the
following calendar year or years, provided that unused vacation days shall be
accrued up to a maximum of four weeks.
(e) Holidays and Sick Leave. The Employee shall be entitled to all
holidays that are prescribed by the Company's policies and practices. The
Employee shall be entitled to 5 days paid sick leave per year. Unused sick leave
days may not be carried over to the following calendar year or years.
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<PAGE>
<PAGE>
4. Employee's Obligations and Representations; Indemnity.
(a) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Employee is entitled, the Employee agrees to devote
substantially all of his attention and time during normal business hours to the
business and affairs of the Company and to perform faithfully and efficiently
the responsibilities assigned to the Employee by the Company.
(b) The Employee represents and warrants to the Company that there are
no agreements or arrangements, whether written or oral, in effect which would
prevent the Employee from rendering exclusive service to the Company during the
Employment Period, including without limitation any obligations or restrictions
of the Employee to his prior employer. The Employee further represents, warrants
and agrees with the Company that as of the Effective Date he has not made and
will not make during the Employment Period any commitment or do any act in
conflict with this Agreement, or take any action that might divert from the
Company any opportunity which would be in the scope of any present or future
business of the Company or any subsidiary thereof.
5. Termination.
(a) Death. This Agreement shall terminate automatically upon the
Employee's death. If the Employee's employment is terminated by reason of the
Employee's death, the Company shall have no further obligations to the
Employee's legal representatives under this Agreement, other than those
obligations accrued, earned or vested by the Employee as of the date of his
death. In addition, the Employee's family shall be entitled to receive benefits
at least equal to the most favorable benefits provided by the Company to
surviving families of other contract employees of the Company based on the terms
of the benefit plans referenced in Section 3(c) of this Agreement as in effect
on the date of the Employee's death.
(b) Disability. If the Company determines in good faith that the
Employee has a "disability" (as defined below), it may give the Employee written
notice of its intention to terminate the Employee's employment. In such event,
the Employee's employment with the Company shall terminate effective on the 30th
day after receipt by the Employee of such notice. No such notice of termination
by reason of disability shall be given until the Employee has experienced a
period of two consecutive months of disability and the disability is continuing.
The notice of termination shall not be effective if the Employee returns to
full-time performance of his duties prior to the expiration of the 30-day notice
period. For purposes of this Agreement, "disability" shall mean a physical or
mental condition which, two months after its commencement, is determined to be
total and permanent by a physician selected by the Company. The Employee shall
be entitled to all compensation and benefits provided for under this Agreement
during the two-month waiting period for the disability determination and during
the 30-day notice of termination period. In the event that the Company provides
long-term disability benefits for the Employee, such benefits shall not
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<PAGE>
<PAGE>
commence until after the employment of the Employee has been terminated and the
Company has ceased paying the Employee compensation pursuant to the foregoing
sentence. If the Employee's employment is terminated by reason of the Employee's
disability, this Agreement shall terminate without further obligations to the
Employee or the Employee's legal representatives under this Agreement, other
than those obligations accrued, earned or vested by the Employee as of the date
of the termination. In addition, the Employee and the Employee's family shall be
entitled to receive benefits, including without limitation disability benefits,
at least equal to the most favorable benefits provided by the Company to other
contract employees of the Company based on the terms of the benefit plans
referenced in Section 3(c) of this Agreement as in effect on the date the
Employee's disability commenced.
(c) Voluntary Termination. The Employee agrees to provide the Company
with 15 days notice prior to voluntarily terminating his employment (other than
for "good reason" as defined in Section 5(f) below). At the end of such 15-day
period, this Agreement shall terminate automatically and the Company shall have
no further obligations to the Employee under this Agreement, other than those
obligations accrued, earned or vested by the Employee as of the date of the
termination. The Employee shall not be entitled to any Bonus in respect of the
year of termination in the event the Employee's employment is terminated
pursuant to this Section 5(c).
(d) Cause. During the Employment Period, the Company may terminate the
Employee's employment for "cause" as defined below. For purposes of the
Agreement, "cause" shall mean:
(i) an act or acts of fraud, embezzlement or any other act
that would constitute a felony under the laws of the state of Florida or
California taken by the Employee;
(ii) repeated violations by the Employee of his obligations
under Section 4(a) of this Agreement which are not remedied within a reasonable
period of time after receipt of written notice from the Company of such
violations or a breach by the Employee of his representations or obligations
under Section 4(b) of this Agreement;
(iii) any direct or indirect disclosure of any confidential
information or other special knowledge of the finances, business or other
affairs of the Company; or
(iv) the indictment of the Employee of a crime, where the
Company reasonably believes it would impair the Employee's ability to perform
his services under this Agreement.
If the Employee's employment is terminated for cause, this Agreement shall
terminate without further obligations to the Employee under this Agreement,
other than those obligations accrued, earned or vested by the Employee as of the
date of the termination. The Employee shall not be entitled to any Bonus in
respect of the year of termination
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<PAGE>
<PAGE>
in the event the Employee's employment is terminated for cause pursuant to this
Section 5(d).
(e) Involuntary Termination. If during the Employment Period the
Company terminates the Employee's employment other than for reasons set forth in
Sections 5 (a) through 5(d) above, it shall be deemed to be an involuntary
termination and the Company shall pay to the Employee the following amounts:
(i) to the extent not theretofore paid, the Company shall pay
the Employee's Salary through the date of such involuntary termination and any
accrued bonus as determined by the Board;
(ii) the Company shall pay the Employee on the date of such
involuntary termination an amount equal to four months of the Employee's Base
Salary and an amount equal to twelve months of the Employee's Base Salary in the
event of Change of Control; and
(iii) the Company shall pay in one cash lump sum any vacation
days accrued but unused as of the date of termination to be paid within 30 days
of such involuntary termination.
(f) Good Reason. During the Employment Period, the Employee may
terminate his employment for "good reason" as defined below. For purposes of
this Agreement, "good reason" shall mean:
(i) the assignment to the Employee of any duties inconsistent
in any respect with Employee's position, duties and responsibilities as set
forth in Section 3 (a) of this Agreement or any action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose any isolated, insubstantial and inadvertent action by
the Company which is not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Employee;
(ii) any failure by the Company to comply with any of the
provisions of Sections 3(b) through 3(e) of this Agreement regarding the
Employee's compensation, benefits, vacation, holidays and sick leave other than
an isolated, insubstantial and inadvertent action by the Company which is not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Employee.
In the event that the Employee terminates his employment for good reason as
defined in this Section 5(f), it shall be deemed to be an "involuntary
termination" as set forth in Section 5(e) above and the Employee shall be
entitled to all payments and obligations set forth in Sections 5(e)(i) through
5(e)(iii) of this Agreement as if the Employee's employment had been
involuntarily terminated.
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<PAGE>
<PAGE>
6. Notice of Termination. Any notice of termination by the Company for
any reason or by the Employee for any reason shall be communicated by a written
notice which indicates (i) the specific termination provision in this Agreement
relied upon, (ii) the facts and circumstances claimed to provide a basis for
such termination, and (iii) the date or proposed date of termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Employee's continuing or future participation in any benefit,
incentive or other plans, programs, policies or practices provided by the
Company and for which the Employee may otherwise qualify. Amounts which are
vested benefits or which the Employee is otherwise entitled to receive under any
plan, policy, practice or program of the Company at or subsequent to the
termination of the Employee's employment shall be payable in accordance with
such plan, policy, practice or program.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment or
other claim, right or action which the Company may have against the Employee.
9. Confidentiality.
(a) The Employee shall hold in a fiduciary capacity for the benefit of
the Company all secret, proprietary or confidential information, knowledge or
data relating to the Company and its business, including without limitation
financial information and customer lists, which shall have been obtained by the
Employee during his employment with the Company and which shall not be or become
public knowledge (other than by acts by the Employee or his representatives in
violation of this Agreement). Notwithstanding the foregoing, the Employee may
disclose any such information if such information is compelled by legal process,
provided that if Employee is so compelled, he shall provide the Company with
prompt notice so that it may seek a protective order or other remedy. In any
event, the Employee shall furnish only that portion of the confidential
information that is legally required to be disclosed.
(b) In the event that the Employee breaches any provision of this
Section 9 or Sections 10 or 11, the Company shall be entitled to apply to any
court of competent jurisdiction for an injunction restraining the Employee from
committing or continuing any violation of this Agreement. The Employee agrees
that there is no adequate remedy at law to remedy such a breach.
10. Non-Competition. The Employee agrees that (a) during the Employment
Period and (b) unless the Employee terminates his employment for "good reason"
or his employment is involuntarily terminated, for two years thereafter (or, in
the case of a Change of Control, for 6 months; or in the case of an Involuntary
Termination, for 12 months), he will not, within the continental United States,
Israel, Ireland, England or any other country in which the Company has
operations at the time of termination and prior thereto, directly or indirectly,
engage or participate or make any financial
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<PAGE>
<PAGE>
investments in or become employed by or render advisory or other services to or
for any person, firm or corporation, or in connection with any business activity
which directly or indirectly is in competition with any of the business
operations or activities of the Company and its subsidiaries as of the date of
termination of his employment or for any time prior thereto. Nothing herein
contained, however, shall restrict the Employee from making any investments in
any company whose stock is listed on a national securities exchange or actively
traded in the over-the-counter market, as long as such investment does not give
him the right to control or influence the policy decisions of any such business
or enterprise which is or might be directly or indirectly in competition with
any of such business operations or activities of the Company or any of its
subsidiaries.
11. Restriction on Solicitation. The Employee agrees that during the
Employment Period and for two years thereafter, he will not:
(i) directly or indirectly solicit, raid, entice or induce any
employee of the Company or any of its subsidiaries to become an employee of any
person, firm or corporation which is, directly or indirectly, in competition
with the business or activities of the Company or any of its subsidiaries;
(ii) directly or indirectly approach any such employee
for these purposes;
(iii) authorize or knowingly approve the taking of such
actions by other persons on behalf of any such person, firm or corporation, or
assist any such person, firm or corporation in taking such action; or
(iv) directly or indirectly solicit, raid, entice or induce
any person, firm or corporation who or which on the date hereof is, or at the
time during his employment with the Company shall be, a customer of the Company
or of any of its subsidiaries to become a customer for the same or similar
products which it purchased from the Company or any of its subsidiaries, of any
other person, firm or corporation, and the Employee shall not approach any such
customer for such purpose or authorize or knowingly approve the taking of such
actions by any other person.
12. Successors. This Agreement is personal to the Employee and without
the prior written consent of the Company shall not be assignable by the
Employee.
13. Binding Arbitration. In the event that the Company and the Employee
cannot agree on an interpretation of any provision of this Agreement, or in the
event that either of the parties fails to make any payments or otherwise fulfill
any obligations required by the terms of this Agreement, the Company and the
Employee agree to resolve any such dispute through arbitration under the rules
then obtaining of the American Arbitration Association in the State of Florida.
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<PAGE>
14. This Agreement is subject to the acquisition by the Company of
substantially all of the assets of International Aircraft Support. L.P. by no
later than January 15, 1997. The failure of the Acquisition to occur by January
15, 1997 shall cause this Agreement to be null and void with no further rights
or responsibilities or obligations to either party.
15. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida.
(b) The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(c) All notices, requests, demands and other communications hereunder
shall be in writing and shall be in writing and be deemed to have given if sent
by facsimile transmission, delivered by overnight or other carrier service, or
mailed, certified first class mail, postage prepaid, return receipt requested,
to the parties hereto at the following addresses:
If to the Company, to:
Kellstrom Industries, Inc.
14000 N.W. 4th Street
Sunrise, Florida 33325
Att: President
Telecopier: (954) 845-0428
If to the Employee, to:
Fred von Husen
1317 Still Creek Place
Danville, California 94506
or to such other address as either party shall have furnished to the other in
accordance herewith.
(d) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(e) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
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<PAGE>
(f) A party's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
(g) This Agreement embodies the entire agreement between the Company
and the Employee and supersedes all prior agreements and understandings, oral or
written, with respect thereto.
(h) This Agreement may be executed in counterparts, each of which shall
be deemed an original and all of which, together, shall constitute one and the
same instrument.
[Remainder of page intentionally omitted; signatures to follow.]
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<PAGE>
IN WITNESS WHEREOF, the Employee has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
KELLSTROM INDUSTRIES, INC.
By:------------------------------------
Name: Zivi R. Nedivi
Title: President & Chief Executive
Officer
EMPLOYEE
-----------------------------------
Fred von Husen
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<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
11 3/4% SENIOR SUBORDINATED NOTES DUE 2004
($15,000,000 Aggregate Principal Amount)
and
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
SECURITIES PURCHASE AGREEMENT
Dated as of January 15, 1997
<PAGE>
<PAGE>
TABLE OF CONTENTS
(NOT PART OF AGREEMENT)
<TABLE>
<S> <C> <C>
Section 1. Authorization of the Securities...................................... 1
Section 2. Purchase and Sale of Securities; Closing............................. 2
2.1 Purchase and Sale.................................................... 2
2.2 Allocation of Purchase Price......................................... 2
2.3 Closing.............................................................. 2
Section 3. Fees................................................................. 3
Section 4. Prepayment of Notes.................................................. 3
4.1 Mandatory Redemption................................................. 3
4.2 Optional Redemption with Premium..................................... 3
4.3 Optional Redemption upon Public Offering............................. 3
4.4 Contingent Redemption Upon Change of Control......................... 4
4.5 Contingent Redemption in the Event of Excess Sale Proceeds........... 4
4.6 Special Optional Redemption.......................................... 5
4.7 Notice of Optional Redemptions; Officers' Certificate................ 5
4.8 Allocation of Partial Prepayments.................................... 5
4.9 Maturity; Surrender, etc............................................. 6
4.10 Acquisition of Notes................................................. 6
Section 5. Representations and Warranties of the Company........................ 6
5.1 Corporate Existence and Power........................................ 6
5.2 Subsidiaries......................................................... 7
5.3 Possession of Franchises, Licenses, etc.............................. 7
5.4 Corporate Authority.................................................. 7
5.5 Binding Effect....................................................... 7
5.6 Consents, etc........................................................ 7
5.7 No Conflicts with Agreements, etc.................................... 8
5.8 Litigation; No Violation of Government Orders or Laws................ 8
5.9 Financial Statements................................................. 9
5.10 Inventories.......................................................... 9
5.11 No Illegal or Improper Transactions.................................. 9
5.12 Accounts Receivable.................................................. 10
5.13 Contracts and Leases................................................. 10
5.14 Acquisition Sub...................................................... 11
5.15 Related Documents and Senior Debt Instruments........................ 11
5.16 Outstanding Debt and Undisclosed Liabilities......................... 11
5.17 Capital Stock........................................................ 11
5.18 Taxes................................................................ 12
</TABLE>
<PAGE>
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<S> <C> <C>
5.19 Title to Properties.................................................. 13
5.20 Intellectual Property................................................ 14
5.21 Labor Matters........................................................ 14
5.22 Compliance with ERISA................................................ 14
5.23 Offering of Securities; Compliance with Securities Laws.............. 16
5.24 Environmental Regulations............................................ 16
5.25 Status under Certain Laws............................................ 17
5.26 Foreign Assets Control Regulations................................... 17
5.27 Legality............................................................. 17
5.28 Solvency............................................................. 18
5.29 Margin Regulations; Use of Proceeds.................................. 18
5.30 Affiliates........................................................... 18
5.31 Disclosure........................................................... 18
5.32 Representations in Related Documents................................. 18
5.33 Broker's or Finder's Commissions..................................... 19
Section 6. Representations of Purchaser......................................... 19
6.1 Purchase for Investment.............................................. 19
6.2 ERISA................................................................ 19
6.3 U.S. Person.......................................................... 20
6.4 Restricted Securities................................................ 20
6.5 Transfer Restrictions................................................ 20
Section 7. Closing Conditions................................................... 20
7.1 Representations and Warranties True, etc.; Certificates.............. 21
7.2 Opinions of Purchaser's Special Counsel.............................. 21
7.3 Opinion of Counsel for the Company................................... 21
7.4 Other Opinions....................................................... 21
7.5 Your Purchase Permitted by Applicable Laws; Legal Investment......... 21
7.6 Compliance with Securities Laws...................................... 21
7.7 Proceedings Satisfactory............................................. 22
7.8 Related Documents.................................................... 22
7.9 Acquisition.......................................................... 22
7.10 Senior Debt Instruments.............................................. 22
7.11 Consent of Lenders to this Agreement................................. 22
7.12 Fees Payable at Closing.............................................. 23
7.13 Legislative Changes.................................................. 23
7.14 Solvency............................................................. 23
7.15 PPN Application...................................................... 23
7.16 Material Adverse Effect.............................................. 23
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<S> <C> <C>
Section 8. Financial Statements and Information................................. 23
Section 9. Inspection of Properties and Books................................... 28
Section 10. Affirmative Covenants................................................ 29
10.1 Legal Existence; Compliance with Laws, etc........................... 29
10.2 Maintenance of Property and Insurance................................ 29
10.3 Payment of Taxes..................................................... 30
10.4 Payment of Other Debt, etc........................................... 30
10.5 Environmental Laws................................................... 30
10.6 Further Assurances................................................... 30
10.7 Reservation of Common Stock.......................................... 31
10.8 Consolidated Interest and Dividend Coverage Ratio.................... 31
10.9 Compliance with Related Documents.................................... 31
10.10 Subsidiary Guaranties, etc........................................... 31
10.11 Certain Amendment.................................................... 32
10.12 Application of Certain Proceeds...................................... 32
Section 11. Negative Covenants................................................... 33
11.1 Debt................................................................. 33
11.2 Liens, etc........................................................... 34
11.3 Restricted Investments............................................... 36
11.4 Restricted Payments.................................................. 37
11.5 Minimum Net Worth.................................................... 39
11.6 Transactions with Affiliates......................................... 39
11.7 Consolidation or Merger, Sale of Assets, etc. ....................... 39
11.8 Subsidiary Stock and Debt............................................ 41
11.9 Compliance with ERISA................................................ 41
11.10 Restrictions Affecting Subsidiaries.................................. 43
11.11 Amendment of Senior Credit Agreements................................ 43
11.12 Nature of Business................................................... 43
11.13 Transactions Affecting Notes......................................... 44
11.14 Limitation on Other Subordinated Indebtedness........................ 44
Section 12. Events of Default.................................................... 44
12.1 Events of Default; Remedies.......................................... 44
12.2 Suits for Enforcement................................................ 46
12.3 Remedies Cumulative.................................................. 47
12.4 Remedies Not Waived.................................................. 47
Section 13. Subordination......................................................... 47
</TABLE>
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TABLE OF CONTENTS
(continued)
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13.1 General.............................................................. 47
13.2 Payment Defaults..................................................... 47
13.3 Non-Payment Defaults................................................. 47
13.4 Notice of Defaults................................................... 48
13.5 Notice of Acceleration............................................... 48
13.6 Bankruptcy, etc...................................................... 48
13.7 Amounts in Trust..................................................... 49
13.8 Subrogation.......................................................... 49
13.9 Reinstatement........................................................ 49
13.10 Proofs of Claim...................................................... 49
13.11 Reliance on Orders................................................... 50
13.12 Rights of Senior Debt................................................ 50
13.13 No Modification, etc................................................. 50
13.14 Further Assurances................................................... 50
13.15 Waiver of Notice..................................................... 51
13.16 Specific Performance................................................. 51
13.17 Events of Default.................................................... 51
13.18 Obligations Unconditional............................................ 51
13.19 Absence of Notice.................................................... 51
13.20 Information.......................................................... 52
13.21 Intercreditor Subordination.......................................... 52
Section 14. Registration, Exchange and Transfer of Notes......................... 53
Section 15. Lost, Stolen, Damaged and Destroyed Securities....................... 53
Section 16. Definitions.......................................................... 54
16.1 General Terms........................................................ 54
16.2 Accounting Terms..................................................... 69
Section 17. Miscellaneous........................................................ 69
17.1 Home Office Payment; Endorsements of the Notes....................... 69
17.2 Amendment and Waiver................................................. 70
17.3 Expenses............................................................. 70
17.4 Survival of Representations and Warranties........................... 71
17.5 Successors and Assigns............................................... 71
17.6 Rights Confined to Parties and Holders............................... 71
17.7 Notices.............................................................. 71
17.8 Governing Law........................................................ 72
17.9 Submission to Jurisdiction; WAIVER OF JURY TRIAL..................... 72
17.10 Indemnification...................................................... 72
</TABLE>
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TABLE OF CONTENTS
(continued)
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17.11 Integration.......................................................... 73
17.12 Counterparts......................................................... 73
17.13. Headings............................................................. 74
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KELLSTROM INDUSTRIES, INC.
SECURITIES PURCHASE AGREEMENT
Dated as of January 15, 1997
To the Purchaser
Listed in the Attached
Schedule I
Ladies and Gentlemen:
The undersigned, KELLSTROM INDUSTRIES, INC., a Delaware
corporation (the "Company"), has authorized the issuance and sale of $15,000,000
aggregate principal amount of its 11 3/4 Senior Subordinated Notes due 2004 (the
"Notes") and Warrants (the "Warrants") to purchase 305,660 shares of Common
Stock. Pursuant to an Asset Purchase Agreement, dated as of October 28, 1996
(the "Acquisition Agreement"), among the Company, IASI Inc., a Delaware
corporation and a Subsidiary of the Company ("Kellstrom Subsidiary"),
International Aircraft Support, L.P. ("IASI") and William Lyon, a principal of
each of the general partners of IASI, the Company has agreed to acquire (the
"Acquisition") substantially all of the assets and business of IASI. The
proceeds of the Notes to be issued and sold hereunder are to be applied to the
purchase price of IASI. Prior to entering into this Agreement, the Company has
entered into a Note Purchase Agreement, dated as of January 9, 1997, with
Bedford Falls Investors, L.P. and the other purchasers identified therein for
issue and sale of $6,000,000 aggregate principal amount of 10% Senior
Subordinated Notes and warrants to purchase up to 450,000 shares of Common
Stock.
Certain capitalized terms used in this Agreement are defined in
Section 16; references to a Section are, unless otherwise specified, to one of
the Sections of this Agreement and references to an "Exhibit" or "Schedule" are,
unless otherwise specified, to one of the exhibits or schedules attached hereto.
As used herein, the term "Securities" shall include, collectively, the Notes,
the Warrants and any shares of Common Stock issuable or issued to you upon
exercise of any Warrants. You are herein sometimes referred to as the
"Purchaser".
Section 1. Authorization of the Securities. Prior to the Closing
Date, the Company shall have duly authorized the issue, sale and delivery to the
Purchaser of:
(a) its 113/4% Senior Subordinated Note due 2004 in the
principal amount specified opposite such Purchaser's name on Schedule I, to be
dated the date of issue thereof, to bear interest (computed on the basis of a
360-day year of twelve 30-day months) from such date on the outstanding
principal amount thereof at the Applicable Rate per annum payable semi-annually,
in arrears on the 15th day of January and July in each year (commencing July 15,
1997) and at maturity, and to bear
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interest (so computed) after maturity at the rate per annum equal to the
Applicable Rate plus 2%, whether by acceleration or otherwise, until paid, on
any overdue principal and any premium and, to the extent permitted by applicable
law, on any overdue interest, until the same shall be paid, to mature on January
15, 2004, and to be substantially in the form of Exhibit A; and
(b) Warrants to purchase the aggregate number of shares of the
Company's common stock, par value $.001 per share (the "Common Stock"), such
Common Stock having the rights set forth in the Certificate of Incorporation of
the Company (the "Certificate of Incorporation") attached as Exhibit B hereto
(all shares of Common Stock originally issued pursuant to this Agreement, or
delivered in substitution or exchange for any thereof, are herein referred to
collectively as the "Common Shares"), equal to the total number of Warrant
Shares (as defined in the Warrant), to be dated the date of issue thereof, and
to be substantially in the form of Exhibit C.
Section 2. Purchase and Sale of Securities; Closing.
2.1 Purchase and Sale. Subject to the terms and conditions herein
set forth, the Company hereby agrees to sell to you, and you hereby agree to
purchase from the Company, in accordance with the provisions hereof, the
aggregate principal amount of Notes and Warrants set forth opposite your name in
Schedule I hereto at 100% of the principal amount of the Notes to be purchased.
2.2 Allocation of Purchase Price. The Company has determined that
for United States federal income tax purposes the "issue price" of the Notes
under Section 1273(b) of the Code, based upon the relative fair market value of
the Notes and the Warrants, shall equal $14,850,000. The Company agrees to use
the foregoing issue price for United States federal income tax purposes with
respect to this transaction.
2.3 Closing. The purchase and delivery of the Securities to be
purchased by you hereunder shall take place at the New York offices of Fulbright
& Jaworski L.L.P. at 10:00 a.m., New York City time on January 15, 1997 or such
other date not later than January 31, 1997 as shall be agreed upon by the
Company and the Purchaser (herein called the "Closing Date"). On the Closing
Date, the Company will deliver to you:
(a) Notes, registered in your name or in the name of your
nominee, each such Note to be duly executed and dated the Closing Date, in any
denominations (multiples of $1,000) and in an aggregate principal amount (which
shall be an integral multiple of $1,000) to be purchased by you as specified
above, all as you may specify by timely notice to the Company (or, in the
absence of such notice, one Note registered in your name in a principal amount
equal to the aggregate principal amount of Notes to be purchased by you from the
Company hereunder), and
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(b) Warrants issued in your name or in the name of your nominee
exercisable for the number of shares of Common Stock equal to the total number
of Warrant Shares, in such denominations as you may specify by timely notice
(or, in the absence of such notice, one Warrant exercisable for the total number
of Warrant Shares), in each case against your delivery to the account or
accounts designated by the Company (at least three Business Days in advance of
the Closing) of immediately available funds in the amount specified opposite
your name on Schedule I constituting the aggregate purchase price of such
Warrants.
If at the date on which the Closing is scheduled to occur the
Company shall fail to tender to you any of the Securities to be purchased by you
under this Section 2.3, or any of the conditions specified in Section 7 shall
not have been satisfied, you shall, at your election, be relieved of all further
obligations under this Agreement, without waiving any other rights you may have
by reason of such failure or such non-fulfillment.
Section 3. Fees. The Company agrees to pay to Alliance Capital on
the Closing Date, in consideration of the services provided by Alliance Capital
in arranging for the purchase of the Securities to be purchased at the Closing
hereunder by you, a transaction fee equal to $225,000 by wire transfer of
immediately available funds to Account No. 3026-3303 at Citibank, N.A., 399 Park
Avenue, New York, New York, ABA No. 021-000-089, for the account of Alliance
Capital Management, L.P. The Company agrees that such fee is the only fee
payable to Alliance Capital, the Purchaser or their respective Affiliates in
connection with the foregoing transactions.
Section 4. Prepayment of Notes.
4.1 Mandatory Redemption. On each of January 15, 2002, January
15, 2003 and January 15, 2004, the Company will redeem $5,000,000 principal
amount of the Notes (or such lesser principal amount as shall then be
outstanding), at the principal amount of the Notes so redeemed, without premium,
provided that, upon any other redemption of less than all of the Notes, the
principal amount of each required redemption of the Notes becoming due under
this Section 4.1 on and after the date of such redemption shall be reduced in
the same proportion as the aggregate unpaid principal amount of the Notes is
reduced as a result of such redemption.
4.2 Optional Redemption with Premium. The Company may, at its
option, upon notice as provided in Section 4.7, redeem at any time all, or from
time to time any part (in an amount of at least $500,000 in the aggregate or an
integral multiple of $1,000 in excess thereof) of, the Notes at the principal
amount so redeemed, plus accrued and unpaid interest to the date of redemption
and the Make-Whole Premium.
4.3 Optional Redemption upon Public Offering. The Company may, at
its option, upon notice as provided in Section 4.7, redeem at any time on or
prior to January 15, 2000, concurrently with or within five days after the
occurrence of any
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Public Offering, up to $4,500,000 principal amount (in an amount of at least
$500,000 in the aggregate or an integral multiple of $1,000 in excess thereof)
of the Notes, at the aggregate principal amount so redeemed, plus accrued and
unpaid interest to the date of redemption and a premium equal to the lesser of
(a) the Make-Whole Premium and (b) 9.0% of the aggregate principal amount of the
Notes so redeemed, provided that no redemption shall be made pursuant to this
Section 4.3 unless, immediately after giving effect to such redemption, the
aggregate principal amount of the Notes remaining outstanding shall be not less
than $10,500,000.
4.4 Contingent Redemption Upon Change of Control. In the event of
the occurrence of a Change of Control, then the Company shall give prompt
written notice thereof to each holder of the Notes, by registered mail (and
shall confirm such notice by prompt telephonic advice to an investment officer
of each such holder), which notice shall contain a written, irrevocable offer by
the Company to redeem, on a date specified in such notice (which date shall be
not less than 30 days and not more than 60 days after the date of such notice),
the Notes held by such holder in full (and not in part). Upon the acceptance of
such offer by such holder mailed to the Company at least 10 days prior to the
date of redemption specified in the Company's offer, such redemption shall be
made at the principal amount of the Notes so redeemed, plus a premium equal to
1.0% of the principal amount of the Notes so redeemed. Any offer by the Company
to redeem the Notes pursuant to this Section 4.4 shall be accompanied by an
Officers' Certificate certifying that the conditions of this Section 4.4 have
been fulfilled and specifying the particulars of such fulfillment. If the holder
of any Notes shall accept such offer, the principal amount of such Notes shall
become due and payable on the date specified in such offer.
4.5 Contingent Redemption in the Event of Excess Sale Proceeds.
In the event that at any time there shall be Excess Sale Proceeds of $1,000,000
or more, then the Company shall give prompt written notice thereof to each
holder of the Notes, by registered mail (and shall confirm such notice by prompt
telephonic advice to an investment officer of each such holder), which notice
shall contain a written, irrevocable offer by the Company to redeem, on a date
specified in such notice (which date shall be not less than 30 days and not more
than 60 days after the date of such notice), the Notes in an aggregate principal
amount equal to the amount of Excess Sale Proceeds. Upon the acceptance of such
offer by such holder mailed to the Company at least 10 days prior to the date of
redemption specified in the Company's offer, such redemption shall be made at
the principal amount of the Notes so prepaid, plus a premium equal to (a) 6.0%
of the aggregate principal amount of the Notes so redeemed, if the date of
redemption shall be on or prior to January 15, 1999, and (b) 5.0% of the
aggregate principal amount of the Notes so prepaid, if the date of prepayment
shall be after January 15, 1999. Any offer by the Company to prepay the Notes
pursuant to this Section 4.5 shall be accompanied by an Officers' Certificate
certifying that the conditions of this Section 4.5 have been fulfilled and
specifying the particulars of such fulfillment. If the holder of any Notes shall
accept such offer, the principal amount of such Notes to be redeemed shall
become due and payable on the date specified in such offer. Upon the
consummation of the redemption of all the Notes tendered pursuant
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to a redemption offer under this Section 4.5, the amount of Excess Sale Proceeds
shall be reset at zero.
4.6 Special Optional Redemption. At any time prior to December
31, 1998, but subject to the provisions of Section 10.12, the Company may redeem
in the aggregate up to $3,750,000 of the original principal amount of the Notes
with the Net Cash Proceeds from the exercise of the Company's outstanding
warrants, currently traded on NASDAQ under "KELLW", at the principal amount of
the Notes so redeemed plus accrued and unpaid interest to the date of redemption
and a premium, at the option of any holder of the Notes as specified in a notice
from such holder given the Company at least 10 days prior to the date fixed for
such redemption, equal to either (i) 1% of the principal amount thereof, or (ii)
2% of the principal amount thereof, provided that at least $11,250,000 of the
Notes remains outstanding after such redemption. The premium specified in clause
(ii) shall be paid in the form of such number of additional Warrants as the
Company and holders of a majority of the outstanding Notes shall agree is equal
in value to such 2% premium (the "Premium Warrants"), such Premium Warrants
having an exercise price equal to the lower of (a) the Market Price at the time
of such redemption, or (b) the Exercise Price (as such terms are defined in the
Warrant), provided that in the absence of notice from a holder as referred to in
this Section 4.6 or in the absence of such agreement prior to the date fixed for
redemption, the premium shall be paid in cash as set forth in clause (i).
4.7 Notice of Optional Redemptions; Officers' Certificate.
(a) The Company will give each holder of any Notes written notice
of each optional redemption under Section 4 not less than 30 days and not more
than 60 days prior to the date fixed for such redemption, in each case
specifying such date, the aggregate principal amount of the Notes to be
redeemed, the principal amount of each Note held by such holder to be redeemed,
and the premium, if any, applicable to such redemption. Such notice shall be
accompanied by an Officers' Certificate certifying that the conditions of such
section have been fulfilled and specifying the particulars of such fulfillment.
(b) In the event that there shall have been a partial redemption
of the Notes under Section 4.2, 4.3, 4.4 or 4.5, the Company shall promptly give
notice to the holders of the Notes, accompanied by an Officers Certificate
setting forth the principal amount of each of the Notes that was redeemed and
specifying how each such amount was determined, and if some but not all of the
Notes were redeemed, setting forth the reduced amount of each required
redemption thereafter becoming due with respect to the Notes under Section 4.1
and certifying that such reduction has been computed in accordance with Section
4.1.
4.8 Allocation of Partial Prepayments. In the case of each
partial redemption (except a redemption pursuant to Section 4.4 or 4.5 of the
Notes held by some but not all holders), the principal amount of the Notes to be
redeemed shall be allocated (in integral multiples of $1,000) among all of the
Notes at the time
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outstanding in proportion, as nearly as practicable, to the respective unpaid
principal amounts thereof not theretofore called for redemption, with
adjustments, to the extent practicable, to compensate for any prior redemptions
not made exactly in such proportion.
4.9 Maturity; Surrender, etc. In the case of each redemption, the
principal amount of each Note to be redeemed shall mature and become due and
payable on the date fixed for such redemption, together with interest on such
principal amount accrued to such date and the applicable premium, if any. From
and after such date, unless the Company shall fail to pay such principal amount
when so due and payable, together with the interest and premium, if any, as
aforesaid, interest on such principal amount shall cease to accrue. Any Note
paid or redeemed in full shall be surrendered to the Company and canceled and
shall not be reissued, and no Note shall be issued in lieu of any redeemed
principal amount of any Note.
4.10 Acquisition of Notes. The Company will not, and will not
permit any Subsidiary or Affiliate to, purchase, redeem or otherwise acquire any
Note except upon the redemption thereof in accordance with the terms of this
Agreement and such Note.
Section 5. Representations and Warranties of the Company. The
Company represents and warrants to the Purchaser that:
5.1 Corporate Existence and Power.
(a) Each of the Company and its Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified to do business as a
foreign corporation in each additional jurisdiction where the failure to so
qualify would have a Material Adverse Effect and, in any event, in each
jurisdiction so specified with respect to it in Schedule 5.2.
(b) Each of the Company and its Subsidiaries has all requisite
power (corporate and other) to own its properties and to carry on its business
as now being conducted and as proposed to be conducted, and to execute, deliver
and perform its obligations under the Related Documents to which it is a party
and in addition, in the case of the Company, to execute, deliver and perform its
obligations under this Agreement, to execute, deliver and perform its
obligations under the Notes and the Warrants and to issue, sell and deliver the
Common Shares issuable upon exercise of any Warrants, and in each case to engage
in the respective transactions contemplated hereby and thereby.
(c) The Company has furnished the Purchaser with true and correct
copies of the Certificate of Incorporation of the Company and each Subsidiary
and the By-laws of the Company and each Subsidiary, each as in full force and
effect on the
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date hereof.
5.2 Subsidiaries. Set forth in Schedule 5.2 is a true and
complete list of all Subsidiaries of the Company in existence as of the Closing,
setting forth as to each such Subsidiary its jurisdiction of incorporation, each
jurisdiction where it is authorized or qualified to do business as a foreign
corporation and the percentage of each outstanding class of capital stock
thereof owned directly or indirectly by the Company. As of the Closing, except
as set forth on Schedule 11.3(f): (i) the Company will not have any equity
interest (direct or indirect) in any Person other than the Subsidiaries shown on
Schedule 5.2, (ii) all outstanding shares of capital stock of each such
Subsidiary will have been duly and validly issued, fully paid and
non-assessable, (iii) the Company will have good title to all of the shares of
capital stock it owns of each of its Subsidiaries, in each case free and clear
of any Lien, other than Permitted Liens, and (iv) neither any of such shares nor
any unissued or treasury shares of capital stock of any such Subsidiary will be
subject to any option, warrant, right to call, preemptive right or commitment of
any kind or character.
5.3 Possession of Franchises, Licenses, etc. The Company and its
Subsidiaries possess all material authorizations, licenses and permits of any
Governmental Body granted or assigned to the Company or any Subsidiary or under
which the Company and its Subsidiaries have the right to operate, and the same
constitute the only material authorizations, licenses and permits of any public
or governmental regulatory body which are required or necessary for the conduct
of the respective businesses of the Company and its Subsidiaries as now
conducted or proposed to be conducted, and none of the Company or any of its
Subsidiaries is in violation of any thereof.
5.4 Corporate Authority. The execution, delivery and performance
by the Company of this Agreement and by the Company or any Subsidiary of the
Related Documents to which the Company or any Subsidiary is a party, the
execution, delivery and performance of the Notes and the Warrants, and the
issuance, sale and delivery of the Common Shares issuable upon exercise of any
Warrants have been duly authorized by all necessary corporate action on the part
of the Company or such Subsidiary, as the case may be, and such Person's
stockholders.
5.5 Binding Effect. This Agreement and the Related Documents to
which the Company or any Subsidiary is a party are the legal, valid and binding
obligations of the Company or such Subsidiary, and the Securities when issued
and delivered against payment therefor as herein provided will be the legal,
valid and binding obligations of the Company, enforceable against such Person in
each case in accordance with their respective terms.
5.6 Consents, etc. No consent, approval or authorization of or
declaration, registration or filing with any Governmental Body or any
nongovernmental Person, including without limitation any creditor or stockholder
of the Company or its Subsidiaries, is required to be obtained or made on or
prior to the Closing Date in
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connection with the execution, delivery and performance of this Agreement, the
Related Documents, the Securities, or the transactions contemplated hereby or
thereby, or as a condition to the legality, validity or enforceability of this
Agreement, the Related Documents, or the offer, issuance, sale or delivery of
the Securities to the Purchaser hereunder or the fulfillment of or compliance
with the terms and provisions of the Securities being purchased hereunder,
except for such consents, approvals, authorizations, declarations, registrations
and filings as are set forth in Schedule 5.6, including, without limitation,
such consents, approvals, authorizations, declarations and filings as are
required by the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as
amended, all of which have been, or will on the Closing Date have been, obtained
or made and are or will then be in full force and effect.
5.7 No Conflicts with Agreements, etc. Neither the Company nor
any of its Subsidiaries is a party to any contract or agreement or subject to
any restriction contained in the charter or by-laws of any such Person, the
performance of which, or compliance with which, will individually or in the
aggregate have a Material Adverse Effect. Neither the execution and delivery of
this Agreement, the Related Documents or the Securities, nor the fulfillment of
or compliance with the terms and provisions hereof and thereof, will conflict
with, or result in a breach of the terms, conditions or provisions of, or
constitute (or with notice or lapse of time would constitute) a default under,
or result in any violation of, the Certificate of Incorporation or By-laws of
the Company or any Subsidiary, any contract, agreement, mortgage, indenture,
lease, instrument, Order, statute, law, rule or regulation to which any of them
or any of their respective assets is subject, or result in the creation of any
Lien (other than the Liens in favor of the Senior Lenders created under the
terms of the Senior Debt Instruments) on any properties or assets of the Company
or its Subsidiaries, or require for its validity any authorization, consent,
approval, exemption or other action by any Governmental Body or any of the
stockholders of the Company or its Subsidiaries. After giving effect to the
transactions contemplated by this Agreement and the Related Documents, neither
the Company nor any of its Subsidiaries is in violation of, or in default under,
any contract, mortgage, indenture, lease, instrument or agreement binding upon
any of them or upon any of their respective assets, which violation or default,
individually or in the aggregate, might have a Material Adverse Effect.
5.8 Litigation; No Violation of Government Orders or Laws.
(a) Except as disclosed in the Company SEC Reports or as set
forth in Schedule 5.8, there are no actions, suits or proceedings pending or, to
the knowledge of the Company, threatened, nor is there, to the knowledge of the
Company, any investigation pending or threatened (or any basis in fact therefor
known to the Company), against or affecting any of the Company or its
Subsidiaries which, if adversely determined, would have a Material Adverse
Effect, or which seeks to enjoin, or otherwise prevent the consummation of, any
of the transactions contemplated hereby or by the Related Documents or to
recover any damages or obtain any relief as a result of any of the transactions
contemplated hereby or thereby in any court or before any arbitrator of any kind
or before or by any Governmental Body.
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(b) After giving effect to the transactions contemplated by this
Agreement and the Related Documents, neither the Company nor any of its
Subsidiaries is (i) subject to any Order arising out of any action, suit or
proceeding or in default under or in violation of any statute or law or of any
rule or regulation of any Governmental Body, respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters or (ii) except as
disclosed in the Company SEC Reports or as set forth in Schedule 5.8, in default
under or violation of any statute or law or of any rule or regulation of any
Governmental Body, or any Order, which default or violation might have a
Material Adverse Effect.
5.9 Financial Statements.
(a) The pro forma combined balance sheet of the Company and its
Subsidiaries as at September 30, 1996, attached hereto as Schedule 5.9(a), is
accurate and presents fairly the consolidated and consolidating financial
condition of the Company and its Subsidiaries as at such date as if the
transactions contemplated by the Acquisition Documents to have occurred on the
Acquisition Closing Date, and the transactions contemplated by this Agreement
and the other Related Documents to occur on the Closing Date, as the case may
be, had occurred on such date and contains all pro forma adjustments necessary
in order to fairly reflect such assumptions.
(b) Attached hereto, as Schedule 5.9(b)(i) through 5.9(b)(v) are
copies of the Company's (i) Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995, (ii) Quarterly Reports for the fiscal quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996, and (iii) the Definitive
Proxy Statement for the Annual Meeting dated July 23, 1996 (collectively, the
"Company SEC Reports"). The Company 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 Exchange Act, 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 Company with the SEC since the filing
of the Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended
September 30, 1996. Since the filing of the Company's Form 10-QSB for the fiscal
quarter ended September 30, 1996, there has been no Material Adverse Effect.
5.10 Inventories. All Inventories set forth on the Company's
balance sheet, dated as of September 30, 1996 (the "September Balance Sheet"),
are valued in accordance with GAAP. In the good faith opinion of the Company,
all Inventories included therein 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
September Balance Sheet, to realizable market value. In the Company's
experience, the present quantities of Inventories are, and at Closing will be,
reasonable and warranted in light of the Company's business.
5.11 No Illegal or Improper Transactions. The Company has not,
nor has any stockholder, officer or employee of the Company, directly or
indirectly, used
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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 GAAP.
5.12 Accounts Receivable. Except as set forth in Schedule 5.12,
each of the accounts receivable of the Company reflected on the September
Balance Sheet (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 material respects legal and proper,
and (c) was entered into, and credit granted pursuant thereto, 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 Company's financial statements are adequate
and were calculated consistent with past practice.
5.13 Contracts and Leases. The Company SEC Reports contain an
accurate and complete listing of all material contracts, leases, agreements or
understandings, whether written or oral, required to be described therein or
filed as exhibits thereto pursuant to the Exchange Act and the applicable rules
and regulations thereunder. Except as set forth on Schedule 5.13, each of such
contracts, leases, agreements and understandings is in full force and effect and
(a) none of the Company or its Subsidiaries or, to the Company's best knowledge,
any other party thereto, has breached or is in-default thereunder, (b) no event
has occurred which, with the passage of time or the giving of notice would
constitute such a breach or default, (c) no claim of material default thereunder
has, to the Company's best knowledge, been asserted or threatened and (d) none
of the Company or its Subsidiaries or, to the Company's best knowledge, any
other party thereto is seeking the renegotiation thereof or substitute
performance thereunder, except where such breach or default, or attempted
renegotiation or substitute performance, individually or in the aggregate, does
not have and would not be reasonably expected (so far as can be reasonably
foreseen at this time) to have a Material Adverse Effect.
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5.14 Acquisition Sub. Kellstrom Subsidiary was organized on
October 25, 1996, and since inception (i) has at no time had assets or
liabilities in excess of $500 in the aggregate, and (ii) has not carried on any
activities or incurred any liabilities or obligations whatsoever other than in
connection with its organization and the execution and delivery of the
Acquisition Agreement.
5.15 Related Documents and Senior Debt Instruments. The Company
has delivered, or will on or prior to the Closing Date deliver, to you and your
special counsel true and correct copies of each of the Acquisition Documents and
Senior Debt Instruments (including all Exhibits and Schedules thereto) as in
effect on the Closing Date and each document, certificate or statement required
to be delivered by any party thereunder (and there have not been and will not be
any amendments or modifications or supplements to any of the Acquisition
Documents and Senior Debt Instruments except as consented to by you in writing).
5.16 Outstanding Debt and Undisclosed Liabilities. The Company
SEC Reports or Schedule 5.16 sets forth a correct and complete list identifying
all Debt of the Company and its Subsidiaries and all Liens securing such Debt,
outstanding or existing on the date of this Agreement. Neither the Company nor
any of its Subsidiaries has any Debt or liability, absolute or contingent, known
or unknown, liquidated or unliquidated, which is not reflected in the pro forma
combined balance sheet as at September 30, 1996 attached hereto as Schedule
5.9(a) as required by GAAP, except Debt and liabilities incurred for the
purchase of equipment in the ordinary course of business since September 30,
1996 (provided that the aggregate amount of Debt and liabilities of the Company
as of the Closing Date is not in excess of the amount thereof as shown on such
balance sheet plus $1,000,000) or provided for in this Agreement or the Related
Documents.
5.17 Capital Stock.
(a) The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, of which 3,871,001 shares are issued and
outstanding as of January 13, 1997 and 1,000,000 shares of Preferred Stock of
which no shares are issued and outstanding on the date hereof.
(b) As of January 13, 1997 there are currently outstanding
warrants (including Unit Purchase Options) to acquire 4,695,817 shares of Common
Stock, which warrants (including Unit Purchase Options) are currently
exercisable, for an aggregate exercise price of $24,753,065. These warrants have
been duly authorized and are the legal, valid and binding obligations of the
Company and the shares of Common Stock issuable upon the exercise thereof have
been duly authorized and reserved for issuance. With reference to the Company's
warrants previously issued to public investors ("Public Warrants"), which the
Company represents are currently traded on NASDAQ under "KELLW", and to GKN
Securities Corp. ("GKN") and Brean Murray, Foster Securities Inc. as
underwriters in the form of Unit Common Share Equivalents, such warrants are
currently exercisable. (The aggregate number of shares of Common Stock issuable
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pursuant to the Unit Common Share Equivalents is 600,000.) The Public Warrants
will be redeemable by the Company if the last sales price of the Common Stock
has been at least $8.50 on each of the twenty (20) consecutive trading days
ending on the third business day prior to the date on which notice of redemption
is given. The Company intends to redeem such Public Warrants at such time, if
any, that it may do so under the terms thereof, and the Company has heretofore
delivered to Purchaser a complete and correct copy of the consent given by GKN
to such redemption, which consent is in full force and effect and may not be
revoked or modified without the Purchaser's consent.
(c) The Common Shares issuable upon exercise of the Warrants have
been duly authorized and reserved for issuance and, when issued upon due
exercise of the Warrants, will be validly issued, fully paid and non-assessable
and will be free and clear of all preemptive rights and Liens except as
otherwise provided herein and will be entitled to the voting powers and other
rights as are set forth with respect thereto in the Certificate of
Incorporation.
(d) On the Closing Date, after giving effect to the transactions
contemplated hereby and by the Related Documents, except as contemplated by this
Agreement, or as set forth in Schedule 5.17 or the Company SEC Reports, the
Company will not have outstanding any capital stock or other securities
convertible into or exchangeable for any of its capital stock, nor will it have
outstanding any rights to subscribe for or to purchase, or any warrants or
options for the purchase of, or any agreements (contingent or otherwise)
providing for the issuance of, or any calls, commitments or claims of any
character relating to, any of its capital stock or any securities convertible
into or exchangeable for any of its capital stock. Except as disclosed in the
Company SEC Reports or as set forth in Schedule 5.17, after giving effect to the
transactions contemplated hereby and by the Related Documents, neither the
Company nor any of its Subsidiaries will be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any of
the Company's capital stock.
5.18 Taxes.
(a) Each of the Company and its Subsidiaries (referred to
separately and collectively as the "Company Taxpayers") or the affiliated,
combined or unitary group of which any such Person is or was a member, as the
case may be, has (x) filed when due (taking into account extensions) with the
appropriate federal, state, local, foreign and other governmental agencies, all
material tax returns, estimates and reports required to be filed by it with
respect to Taxes (as hereinafter defined), and (y) paid when due and payable all
required federal, state, local or foreign taxes, levies, imposts, duties,
licenses and registration fees and charges of any nature whatsoever, including,
without limitation, unemployment and social security taxes, interest, penalties
and additions to tax with respect thereto ("Taxes") or has established reserves
on their respective balance sheets that, in the aggregate, are adequate
therefor. Complete and accurate copies of all such returns, estimates and
reports have been made available to
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the Purchaser, upon its request. Federal, state and local income tax returns of
the Company have not been examined and reported on by the appropriate taxing
authority or closed by applicable statute.
(b) Except as disclosed in the Company SEC Reports or as set
forth on Schedule 5.18, there are no Taxes assessed or asserted in writing in
respect of any tax returns filed by the Company Taxpayers or the affiliated,
combined or unitary group of which any such Person is or was a member, as the
case may be, or claimed in writing to be due by any taxing authority or
otherwise that e.re not reserved for on the applicable financial statements in
accordance with GAAP. Except as set forth on Schedule 5.18, no tax return of the
Company Taxpayers or the common parent of any affiliated, combined or unitary
group of which such entity is or was a member is currently being audited by the
Internal Revenue Service or other taxing authority (whether foreign or
domestic). Except as disclosed in the Company SEC Reports or as set forth on
Schedule 5.18, none of the Company Taxpayers or the common parent of any
affiliated, combined or unitary group of which any such Person is or was a
member has executed or filed with the Internal Revenue Service or any other
taxing authority (whether foreign or domestic) any agreement or other document
extending, or having the effect of extending, the period of assessment or
collection of any Taxes. All final adjustments made by the Internal Revenue
Service with respect to any federal tax return of the Company Taxpayers have
been reported to the relevant state, local or foreign taxing authorities to the
extent required by law. No requests for ruling or determination letters are
pending with any taxing authority.
(c) None of the Company Taxpayers has (i) filed a consent
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply to any disposition of a subsection (f) asset owned by it, (ii) is
a party to an agreement that provides for the payment of any amount that would
constitute an "excess parachute payment" within the meaning of Section 280G of
the Code, (iii) agreed to or is required to make any adjustment pursuant to
Section 481(a) of the Code by reason of a change in accounting method initiated
by the taxpayer or has any knowledge that the Internal Revenue Service has
proposed any such adjustment or change in accounting method, (iv) any obligation
under any tax sharing or similar agreement, or (v) participated in or cooperated
with any international boycott within the meaning of Section 999 of the Code.
5.19 Title to Properties. Each of the Company and its
Subsidiaries has (i) good and marketable fee simple title to its respective real
properties (other than real properties which are leased from others), subject to
no Lien of any kind except Liens which are set forth on Schedule 5.19 or
Permitted Liens and (ii) good title to all of its other respective properties
and assets (other than properties and assets leased from others), subject to no
Lien of any kind except Liens which are disclosed in the Company SEC Reports or
as set forth on Schedule 5.19 or Permitted Liens. Each of the Company and its
Subsidiaries has the right to peaceful and undisturbed possession under all
leases of real or personal property necessary in any material respect for the
operation of its business and assets, none of which contains any unusual or
burdensome
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provisions which might have a Material Adverse Effect and all such leases are
valid and subsisting and in full force and effect. Schedule 5.19 contains a true
and complete list and brief description of all real property owned or leased by
the Company or its Subsidiaries on the date hereof.
5.20 Intellectual Property. The Company and its Subsidiaries own
or have the right to use all Intellectual Property, free from burdensome
restrictions or any licenses to or rights of others in respect thereof, which
are used in or are necessary for the operation of their respective businesses as
presently conducted or proposed to be conducted. Schedule 5.20 contains a true
and correct list and brief description of all Intellectual Property owned by or
licensed to any of the Company or its Subsidiaries as of the date hereof. Except
as set forth in Schedule 5.20, nothing has come to the attention of the Company
or its Subsidiaries to the effect that (i) any of their respective present or
contemplated operations or other use of Intellectual Property may infringe any
patent, trademark, service mark, trade name, franchise, copyright, license or
other right owned by any other Person, or (ii) there is pending or threatened
any claim or litigation against or affecting any of them contesting the right of
any of them to engage in any such operation, or contesting the validity of any
of the Intellectual Property, and neither the Company nor any of its
Subsidiaries knows of any basis for any such charge or claim.
5.21 Labor Matters. During the past three years, there has been
no strike, work stoppage, slowdown or other labor dispute or grievance involving
the Company or its Subsidiaries or their respective employees, or threat of any
of the foregoing, nor to their knowledge is any such action, dispute or
grievance currently pending or threatened against the Company or any of its
Subsidiaries which in any case might have a Material Adverse Effect. Except as
disclosed in the Company SEC Reports or as set forth in Schedule 5.21, neither
the Company nor any of its Subsidiaries is a party to any collective bargaining
agreement and neither the Company nor any of its Subsidiaries has any knowledge
of any pending or threatened effort to organize any of their employees nor to
their knowledge has there been any such organizing effort within the past three
years.
5.22 Compliance with ERISA. Except as disclosed in the Company's
SEC Reports or as set forth in Schedule 5.22, (a) each Plan established or
maintained by the Company or any of its Subsidiaries or any ERISA Affiliate or
to which the Company or any of its Subsidiaries or any ERISA Affiliate make
contributions or in which any employee of the Company or any of its Subsidiaries
or any ERISA Affiliate participates or with respect to which the Company or any
of its Subsidiaries otherwise may have liability, and each related trust,
insurance contract or other funding arrangement (any such Plan, trust, insurance
contract or other funding arrangement being referred to hereafter as a "Company
Plan"), if any, is in compliance with the requirements provided by any and all
statutes, Orders or governmental rules or regulations in effect, including, but
not limited to, ERISA and the Code that are applicable to the Plans; (b) all
required reports and descriptions of each Company Plan (including, but not
limited to, Form 5500 Annual Reports, Form 1024 Application for
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Recognition of Exemption under Section 501(c)9, Summary Annual Reports and
Summary Plan Descriptions) have been timely filed and distributed; (c) none of
the Company, its Subsidiaries or any fiduciary in respect of any Company Plan
has failed to give any notices required by ERISA or the Code, or any other
applicable law, or any applicable ruling or regulation with respect to the Plan,
including, but not limited to, any notices required by Sections 204(h) and 606
of ERISA and Sections 162(k)(6) and 4980B(f)(6) of the Code where such failure
could have a Material Adverse Effect; (d) none of the Company, its Subsidiaries
or any fiduciary has breached any of the responsibilities, duties or obligations
imposed on it by the Code or ERISA with respect to any Company Plan, which
breach has given rise to or could in the future be reasonably expected to give
rise to any Material Adverse Effect; (e) no prohibited transaction (as defined
in Section 406 of ERISA or Section 4975 of the Code) has occurred with respect
to any of the Company Plans, which could subject the Company or its Subsidiaries
to any liability with respect to a non-exempt prohibited transaction described
in Section 406 of ERISA or Section 4975 of the Code which might have a Material
Adverse Effect or a material adverse effect on the assets, operation or
prospects of any Plan; (f) none of the Company Plans is a multiemployer plan
(within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA) and for the
preceding five calendar years, neither the Company nor any of its Subsidiaries
or any ERISA Affiliate has any obligation to contribute to, or any liability
under, any multiemployer plan; (g) no Company Plan which is subject to Part 3 of
Subtitle B of Title I of ERISA or Section 412 of the Code had an accumulated
funding deficiency (as such term is defined in Section 302 of ERISA or Section
412 of the Code), whether or not waived, as of the last day of the most recent
plan year of such Company Plan heretofore ended, and as of January 1, 1996, the
assets of each such Company Plan are sufficient to provide all benefit
liabilities (as defined in Section 4001(a)(16) of ERISA) thereof as contemplated
under Section 4041(a) of ERISA, using the Company Plan's actuarial assumptions
as set forth in the most recent actuarial reports for such Company Plan; (h) no
liability to the PBGC (other than required insurance premiums, all of which have
been paid) has been incurred with respect to any Company Plan; there has not
been any Reportable Event with respect to any Company Plan; the PBGC has not
instituted or threatened a proceeding to terminate any Company Plan, and there
has been no event or condition which presents a material risk of termination of
any Company Plan by the PBGC; (i) no event has occurred with respect to any Plan
which might give rise to a material liability to the Company or any of its
Subsidiaries or any ERISA Affiliate under Section 4069 of ERISA or any other
provision of ERISA or the Code; (j) neither the Company nor any of its
Subsidiaries or any ERISA Affiliate has any material liability with respect to
any Plan for termination of a single employer plan or any multiple employer
plan, nor has incurred or expects to incur withdrawal liability under Title IV
of ERISA; (k) none of the Company Plans that is an employee welfare benefit plan
provides for continued medical, health, life or other welfare benefits for
employees after they leave the employment of any Company or any of its
Subsidiaries (other than any such welfare benefits required to be provided by
the Consolidated Omnibus Budget Reconciliation Act of 1985 or other similar
law); and (l) there are no material liabilities under any of the Company Plans
that are employee welfare benefit plans providing for medical, health, life or
other welfare benefits that are not insured by fully paid
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non-assessable insurance policies.
5.23 Offering of Securities; Compliance with Securities Laws.
(a) Neither the Company nor any of its Subsidiaries or any of
their respective Affiliates or representatives has, directly or indirectly,
offered any of the Securities or any security similar to any of them for sale
to, or solicited any offers to buy any of the Securities or any security similar
to any of them from, or otherwise approached or negotiated with respect thereto
with, more than 35 Persons, and neither the Company nor any of its Subsidiaries
or any of their respective Affiliates or representatives has taken or will take
any action which would subject the issuance or sale of any of the Securities to
the provisions of Section 5 of the Securities Act or violate the provisions of
any securities or Blue Sky law of any applicable jurisdiction.
(b) The offering, issuance and sale of the Securities under this
Agreement complies with all applicable requirements of federal and state
securities laws.
(c) The Company has filed all reports required to be filed with
the SEC since the date it first became subject to such requirements.
5.24 Environmental Regulations.
Except as disclosed in the Company SEC Reports or as set forth in
Schedule 5.24:
(a) Each of the Company and its Subsidiaries has complied and is
in compliance with all Environmental Laws in all material respects.
(b) Each of the Company and its Subsidiaries has obtained and
complied with, and is in compliance with, all permits, licenses and other
authorizations that are required pursuant to Environmental Laws for the
occupation of its facilities and the operation of its business, without
transfer, reissuance, or other governmental approval or action.
(c) Neither the Company nor any of its Subsidiaries has received
any written claim, complaint, citation, report or other written or oral notice
regarding any liabilities or potential liabilities, including any investigatory,
remedial or corrective obligations, arising under Environmental Laws.
(d) No underground storage tanks or surface impoundments or
asbestos-containing material in any form or condition exists at any property
owned or occupied by the Company or any of its Subsidiaries.
(e) Neither the Company nor any of its Subsidiaries has treated,
stored, disposed of, arranged for or permitted the disposal of, transported,
handled, or released
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any substance, including without limitation any Hazardous Material, or owned or
operated any facility or property, in a manner that would reasonably be expected
to give rise to liabilities of the Company or any of its Subsidiaries for
response costs, natural resources damages or attorneys fees pursuant to CERCLA
or other Environmental Laws.
(f) No facts, events or conditions relating to the past or
present facilities, properties or operations of the Company or its Subsidiaries
will prevent, hinder or limit continued compliance with Environmental Laws, give
rise to any investigatory, remedial or corrective obligations pursuant to
Environmental Laws, or give rise to any other liabilities pursuant to
Environmental Laws, including without limitation any relating to onsite or
offsite Releases (as defined in CERCLA) or threatened Releases of Hazardous
Material or otherwise regulated materials, substance or wastes, personal injury,
property damage or natural resources damage.
(g) Neither the Company nor any of its Subsidiaries has, either
expressly or by operation of law, assumed or undertaken any liability or
corrective or remedial obligation of any other Person relating to Environmental
Laws.
5.25 Status under Certain Laws. Neither the Company nor any of
its Subsidiaries is an "investment company" or a "person directly or indirectly
controlled by or acting on behalf of an investment company" within the meaning
of the Investment Company Act of 1940, as amended, or a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Company Act of 1935, as amended, or a "United
States real property holding corporation" within the meaning of the Foreign
Investment in Real Property Tax Act of 1980, as amended.
5.26 Foreign Assets Control Regulations. Neither the sale or
issuance by the Company of the Notes or the Warrants (or the Common Shares
issuable upon the exercise thereof) nor the use of the proceeds of any thereof
as contemplated hereby will violate the Foreign Assets Control Regulations, the
Foreign Funds Control Regulations, the Transaction Control Regulations, the
Cuban Assets Control Regulations, the Iranian Assets Control Regulations, the
Nicaraguan Trade Control Regulations, the Libyan Sanctions Regulations, the
South African Transactions Regulations, the Panamanian Transactions Regulations,
the Iranian Transactions Regulations, the Kuwaiti Assets Control Regulations,
the Iraqui Sanctions Regulations, the Haitian Transactions Regulations, the
Federal Republic of Yugoslavia (Serbia and Montenegro) Sanctions Regulations or
the Unita (Angola) Sanctions Regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended).
5.27 Legality. Each of the Company and its Subsidiaries, after
giving effect to the transactions contemplated hereby and by the Related
Documents, will be a "solvent institution", as such term is used in Section
1405(c) of the New York Insurance Law, whose obligations ... are not in default
as to principal or interest," as
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such terms are used in said Section.
5.28 Solvency. Each of the Company and its Subsidiaries is
Solvent prior to and after giving effect to the transactions contemplated by
this Agreement and the Related Documents.
5.29 Margin Regulations; Use of Proceeds. Neither the Company nor
any of its Subsidiaries owns or now intends to acquire any "margin stock" as
defined in Regulation G of the Board of Governors of the Federal Reserve System
(12 CFR 207). The proceeds (net of expenses of the transactions contemplated
hereby to be consummated on the Closing Date) of the issuance of the Securities
hereunder will be used to pay the purchase price in the Acquisition. No part of
the proceeds of the Securities will be used, directly or indirectly, for the
purpose of buying or carrying any margin stock within the meaning of Regulation
G of the Board of Governors of the Federal Reserve System (12 CFR 207), or for
the purpose of buying or carrying or trading in any securities under such
circumstances as to involve the Company or any of its Subsidiaries in a
violation of Regulation X of said Board (12 CFR 224) or to involve any broker or
dealer in a violation of Regulation T of said Board (12 CFR 220). As used in
this Section, the term "purpose of buying or carrying" has the meaning assigned
thereto in the aforesaid Regulation G.
5.30 Affiliates. Except as otherwise disclosed on Schedule 5.30,
neither the Company nor any of its Subsidiaries is, or has been since inception,
a party to any contract or agreement, or otherwise engaged in any transaction
with, any of its Affiliates, the cancellation or termination of which would
detrimentally affect the Company and its Subsidiaries.
5.31 Disclosure. To the best knowledge of the Company and its
Subsidiaries, neither this Agreement, the Related Documents nor any other
document, certificate or statement furnished to the Purchaser by or on behalf of
the Company or its Subsidiaries in connection herewith or therewith (including,
without limitation, the Private Placement Memorandum) contained, as of its
respective date, any untrue statement of a material fact or as of any such date
omitted to state a material fact necessary in order to make the statements
contained herein or therein (as the case may be) not misleading. There is no
fact known to the Company or its Subsidiaries which, when taken in conjunction
with all other facts, has a Material Adverse Effect or in the future may (so far
as the Company and its Subsidiaries can now reasonably foresee) have a Material
Adverse Effect.
5.32 Representations in Related Documents. All representations
and warranties made by the Company and its Subsidiaries and by IASI in any of
the Related Documents and in any document, certificate or statement delivered
pursuant to the terms of the Related Documents are true and correct in all
material respects. The Company agrees that you shall be entitled to rely upon
such representations and warranties as if made to you by the Company and its
Subsidiaries and by IASI in this Agreement.
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5.33 Broker's or Finder's Commissions. Except for the fee payable
to Alliance Capital pursuant to Section 3 and to Alex. Brown & Sons in the
amount heretofore disclosed to the Purchaser, no broker's or finder's fee or
commission or similar payment will be payable by the Company or any of its
Subsidiaries with respect to the issuance and sale of the Securities or the
transactions contemplated by this Agreement.
Section 6. Representations of Purchaser.
6.1 Purchase for Investment. You represent, and in making this
sale to you it is specifically understood and agreed, that you are acquiring the
Securities to be purchased by you hereunder for the purpose of investment and
not with a view to or for sale in connection with any distribution thereof
(other than pursuant to the terms of the Warrant or otherwise in compliance with
the Securities Act and all applicable state securities laws), provided, that the
disposition of your property shall at all times be of and remain within your
control.
6.2 ERISA. You represent, with respect to the funds with which
you are acquiring the Securities, that all of such funds are from or are
attributable to one or more of:
(a) your general account assets or assets of one or more segments
of such general account as such term is used in PTCE 95-60 issued by the United
States Department of Labor and the amount of reserves and liabilities (as
defined in the annual statement for life insurance companies approved by the
National Association of Insurance Commissioners (the "NAIC Annual Statement")
and before reduction for credits on account of any reinsurance ceded on the
coinsurance basis) (the "Reserves and Liabilities"), for the general account
contract(s) held by or on behalf of any Plan, together with the amount of the
Reserves and Liabilities for the general account contract(s) held by or on
behalf of any other Plans maintained by the same employer (or any "affiliate"
thereof within the meaning of Section V(a)(1) of PTCE 95-60), does not exceed
10% of the total Reserves and Liabilities of such general account plus surplus,
as set forth in the NAIC Annual Statement filed with the state of domicile of
the insurance company maintaining such general account;
(b) a "separate account" (as defined in Section 3 of ERISA):
(i) in respect of which all requirements for an
exemption under DOL Prohibited Transaction Class
Exemption 90-1 are met with respect to the use of
such funds to purchase the Securities;
(ii) that is comprised of employee benefit plans
identified by you in writing and with respect to
which the Company hereby warrants and represents
that as of the Closing Date, neither the Company
nor any ERISA Affiliate is a "party in interest"
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(as defined in Section 3 of ERISA) or a
"disqualified person" (as defined in Section 4975
of the Code) with respect to any plan so
identified; or
(iii) that is maintained solely in connection with fixed
contractual obligations of an insurance company,
under which any amounts payable, or credited, to
any employee benefit plan having an interest in
such account and to any participant or beneficiary
of such plan (including an annuitant) are not
affected in any manner by the investment
performance of the separate account (as provided by
29 CFR ss.2510.3-101(h)(1)(iii));
(c) an "investment fund" managed by a "qualified professional
asset manager" (as such terms are defined in Part V of DOL Prohibited
Transaction Class Exemption 84-14) and all the requirements for an exemption
under such Exemption are met with respect to the use of the funds to purchase
the Securities; or
(d) an employee benefit plan that is excluded from the provisions
of Section 406 of ERISA by virtue of Section 4(b) of ERISA.
6.3 U.S. Person. You represent and warrant that you are a "United
States person" within the meaning of Section 7701(a)(30) of the Internal Revenue
Code and an exempt recipient for purposes of back-up withholding and information
reporting provisions of applicable law.
6.4 Restricted Securities. The Notes shall bear a restrictive
legend in substantially the following form:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SO REGISTERED PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT, OR AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT IS AVAILABLE.
6.5 Transfer Restrictions. You agree that you shall not sell or
otherwise transfer the Notes or Warrants to AGES Group LP, a limited partnership
with offices in Florida, AAR Corporation, a Delaware corporation, Banner
Aerospace Inc., a Delaware corporation, Greenwich Air Services, a Delaware
corporation, UNC, Inc., a Delaware corporation, Heico Corporation, a Florida
corporation or Aviation Sales Inc., a Delaware corporation, provided, that the
disposition of the Notes or Warrants shall at all times remain within your
control.
Section 7. Closing Conditions. Your obligation to purchase and
pay for the Securities to be purchased by you hereunder on the Closing Date
shall be subject to the satisfaction, on or before the Closing Date, of the
following conditions:
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7.1 Representations and Warranties True, etc.; Certificates. As
of the Closing, the representations and warranties contained in Section 5
(including without limitation, all Schedules referenced therein) shall be true
in all material respects at and as of the Closing with the same effect as if
such representations and warranties had been made on and as of the Closing Date
(and with respect to any scheduled item, there shall not have occurred since the
date hereof any adverse changes or developments); the Company and its
Subsidiaries shall have performed in all material respects all agreements on
their part required to be performed under this Agreement, the Related Documents
and the Securities on or prior to the Closing Date; there shall exist on the
Closing Date no Default or Event of Default; the Company and its Subsidiaries
shall have delivered to you an Officer's Certificate, dated the Closing Date, to
the effect of the foregoing matters stated in this Section 7.1 and to the effect
of the matters set forth in Sections 7.8, 7.9 and 7.10; and you shall have
received such certificates or other evidence as you may request to establish
that the proceeds of the sale of the Securities on the Closing Date will be
applied as contemplated by Section 5.29.
7.2 Opinions of Purchaser's Special Counsel. On the Closing Date,
you shall have received from Friedman & Kaplan LLP, which is acting as special
counsel for you in connection with this transaction, an opinion addressed to you
and dated the Closing Date, covering such matters incidental to the matters
herein contemplated as you may reasonably request.
7.3 Opinion of Counsel for the Company. On the Closing Date, you
shall have received from Fulbright & Jaworski L.L.P., counsel for the Company,
an opinion addressed to you dated the Closing Date, substantially in the form of
Exhibit D. Such opinions shall cover such other matters incidental to the
matters herein contemplated as you may reasonably request.
7.4 Other Opinions. On the Closing Date, you shall receive a
letter, in form and substance satisfactory to you, from Irell & Manella LLP,
entitling you to rely on the opinion rendered by such firm in connection with
the closing of the transactions contemplated under the Acquisition Agreement.
7.5 Your Purchase Permitted by Applicable Laws; Legal Investment.
As of the Closing Date, your purchase of and payment for the Securities to be
purchased by you hereunder shall be permitted by the laws and regulations of the
jurisdictions to which you are subject, without reference to any "basket"
provisions of such laws such as New York Insurance Law Section 1405(a)(8); and
you shall have received such certificates or other evidence as you may
reasonably request to establish compliance with this condition.
7.6 Compliance with Securities Laws. The offering and sale of the
Notes and Warrants to you shall have complied with all applicable requirements
of federal and state securities laws and you shall have received evidence
thereof in form and substance reasonably satisfactory to you.
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7.7 Proceedings Satisfactory. As of the Closing Date, all
corporate and other proceedings taken or to be taken in connection with the
transactions contemplated hereby and all documents incidental thereto shall be
reasonably satisfactory in form and substance to you and your special counsel,
and you and your special counsel shall have received all such counterpart
originals or certified or other copies of such documents as you or they may
reasonably request.
7.8 Related Documents. As of the Closing Date, each of the
Related Documents shall have been duly executed and delivered by the parties
thereto and shall be in full force and effect, and no term or condition thereof
shall have been supplemented, amended, modified or waived without your prior
written consent.
7.9 Acquisition. Prior to or simultaneously with the consummation
of the transactions contemplated hereby at the Closing, the transactions
contemplated by the Acquisition Documents, including, without limitation, the
Acquisition, shall have been consummated in conformity with the terms and
provisions thereof, and you shall have received such evidence thereof as you may
request, including, without limitation, certified copies of the Acquisition
Documents, all of which shall be reasonably satisfactory in form and substance
to you; all conditions to the obligation of each of the parties to the
Acquisition Agreement to effect the Acquisition shall have been satisfied in all
respects without regard to any waiver of any of the provisions thereof; and
except as set forth on Schedule 7.9, neither the Company nor any of its
Subsidiaries shall have consented or agreed to (or requested) the taking of any
action or the failure to take any action by any other party to the Acquisition
Agreement, or given its approval to any act or thing, which consent, agreement,
request or approval is required by the terms of the Acquisition Agreement.
7.10 Senior Debt Instruments. As of the Closing Date, all terms,
conditions and provisions of the Senior Debt Instruments shall be satisfactory
to you in all respects, including without limitation provisions respecting
principal amounts, rates of interest, prepayment charges (if any), fees and
expenses, affirmative and negative covenants, conditions to disbursements of
loan funds, defaults and remedies therefor, collateral and loans thereby
contemplated. The disbursements of loan funds contemplated by the Senior Debt
Instruments (in the amount of $4 million under the Barnett Facility, and in the
amount of $6 million under the Bridge Facility) shall have been made in
accordance with the terms thereof and you shall receive such evidence thereof as
you may request, including without limitation certified copies of the Senior
Debt Instruments.
7.11 Consent of Lenders to this Agreement. As of the Closing
Date, all terms, conditions and provisions of this Agreement and the Notes shall
be satisfactory to the Senior Lenders under the Senior Credit Agreements in all
respects, including without limitation the subordination provisions contained in
Section 13, and you shall receive such evidence thereof as you may request.
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7.12 Fees Payable at Closing. On the Closing Date, Alliance
Capital shall have received payment of the fees described in Section 3 as due on
the Closing Date, and your special counsel shall have received the legal fees
and expenses required to be paid or reimbursed by the Company as provided in
Section 17.3 for statements rendered on or prior to the Closing Date.
7.13 Legislative Changes. After the date hereof, no legislation,
Order, rule, ruling or regulation, or interpretation of any of the foregoing,
shall have been enacted, made or released by or on behalf of any Governmental
Body, nor shall have any legislation been introduced or favorably reported for
passage to either House of Congress by any committee of either such House to
which such legislation has been referred for consideration, nor, with respect to
any previously introduced legislation, shall have any development occurred that
makes passage more likely, nor shall any Order have been rendered which, in your
reasonable judgment, would materially affect leveraged transactions or would
otherwise materially and adversely affect any of the Securities or the benefits
expected to be derived by the Purchaser from its purchase of such Securities or
by the Company from its sale of such Securities.
7.14 Solvency. On the Closing Date, you shall have received an
Officer's Certificate of the Company, dated the Closing Date, substantially in
the form of Exhibit E, to the effect that, after giving effect to the
transactions contemplated by this Agreement and the Related Documents, the
Company is Solvent.
7.15 PPN Application. The Company shall have furnished the
Purchaser with a certificate or other evidence satisfactory to the Purchaser
that (i) the Company has filed, on the Purchaser's behalf, with Standard &
Poor's Corporation CUSIP Service Bureau an application for the assignment of a
PPN with respect to the Notes, and (ii) all fees and expenses payable in
connection with said application shall have been paid by the Company.
7.16 Material Adverse Effect. Since the respective dates of
information set forth in the Private Placement Memorandum and except as set
forth therein, there shall not have been any Material Adverse Effect.
Section 8. Financial Statements and Information. The Company will
furnish to you and to any of your Affiliates, so long as you or such Affiliate
shall hold any Securities, and to each other institutional holder of any
Securities (such a holder in any such case being hereinafter called an "Eligible
Holder"), in duplicate:
(a) as soon as available and in any event within 45 days after
the end of the first, second and third quarterly accounting periods in each
fiscal year of the Company,
(i) copies of the consolidated and consolidating
balance sheets of the Company and its Subsidiaries
as of the end of such accounting period, and of the
related consolidated and
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consolidating statements of income and expense,
statements of cash flow and changes in financial
position for such accounting period and for the
portion of the fiscal year ended with the last day
of such accounting period, together with the
accompanying notes thereto, all in reasonable
detail and stating in comparative form the
consolidated and consolidating figures as for the
end of and for the corresponding date and period in
the previous fiscal year, all certified by its
chief financial officer as complete and correct and
as presenting fairly the information contained
therein in accordance with GAAP consistently
applied, consistent with the audited financial
statements required pursuant to subsection (b) of
this Section 8 subject to recurring non-material
changes resulting from year-end audit adjustments,
together with a management summary of the Company's
performance during such quarter; and
(ii) a written statement of such financial officer
setting forth computations in reasonable detail
showing whether or not as at the end of such
accounting period there was compliance with Section
10.8;
(b) as soon as available and in any event within 90 days after
the end of each fiscal year of the Company,
(i) copies of the consolidated and consolidating
balance sheets of the Company and its Subsidiaries
as of the end of such fiscal year, and of the
related consolidated and consolidating statements
of income and expense, retained earnings and
changes in financial position and stockholders'
equity, and statements of cash flow, for such
fiscal year, all in reasonable detail and stating
in comparative form the respective consolidated and
consolidating figures as of the end of and for the
previous fiscal year, together with the
accompanying notes thereto, and accompanied by a
report thereon of independent public accountants of
recognized national standing selected by the
Company and acceptable to the Eligible Holders (the
"Accountants"), which report shall be unqualified
as to going concern and scope of audit and shall
state that such financial statements present fairly
the financial position of the Company and its
Subsidiaries as at the dates indicated and their
consolidated income, cash flows and retained
earnings for the periods indicated in conformity
with GAAP applied on a basis consistent with prior
years (except for such changes with which the
Accountants shall concur) and that the examination
by such
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Accountants in connection with such consolidated
financial statements has been made in accordance
with generally accepted auditing standards, and
(ii) computations in reasonable detail showing whether
or not as at the end of such fiscal year there was
compliance with Section 10.8, accompanied by a
letter from the Accountants stating that in making
the examination necessary for their report on such
financial statements, nothing has come to their
attention that would cause them to believe there
has been any default by the Company or by its
Subsidiaries in the fulfillment of any of the
terms, covenants, provisions or conditions of this
Agreement, or if such Accountants shall believe
there has been any such default, specifying the
nature and status thereof;
(c) concurrently with the financial statements furnished pursuant
to subsections (a) and (b) of this Section 8, an Officer's Certificate of the
Company stating that, based upon such examination or investigation and review of
this Agreement and the Related Documents, and such other materials as in the
opinion of the signer is necessary to enable the signer to express an informed
opinion with respect thereto, no default by the Company or by any of its
Subsidiaries in the fulfillment of any of the terms, covenants, provisions or
conditions of this Agreement or the Related Documents exists or has existed
during such period or, if such a default shall exist or have existed, the nature
and period of existence thereof and what action the Company or such Subsidiary,
as the case may be, has taken, is taking or proposes to take with respect
thereto;
(d) on or before April 15 of each year, a written statement
setting forth the amount, if any, of any distribution with respect to the Common
Stock made, or deemed to be made pursuant to any provision of the Code, during
the prior calendar year that constitutes a "dividend" within the meaning of
Section 316 of the Code or any successor provision;
(e) promptly after the receipt thereof by the Company or any of
its Subsidiaries and in any event within 15 days thereof, copies of any reports
as to material inadequacies in accounting controls (including reports as to the
absence of any such inadequacies) submitted to any such Person by the
Accountants in connection with any audit of such Person made by the Accountants;
(f) promptly upon receipt thereof, copies of all audit reports
submitted to the Company by independent public accountants in connection with
each interim or special audit of the books of the Company made by such
accountants and copies of all representation letters from management of the
Company or any of its Subsidiaries to such accountants;
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(g) promptly after the same are available and in any event within
15 days thereof, copies of all proxy statements, financial statements and
reports as the Company or its Subsidiaries shall send or make available
generally to any of their security holders, and copies of all regular and
periodic reports and of all registration statements (other than on Form S-8 or
Form 701 or any similar form) which the Company or its Subsidiaries or any of
them may file with the SEC or with any securities exchange;
(h) promptly (and in any event within three Business Days) after
becoming aware of (i) the existence of any Default or Event of Default on the
part of the Company or any of its Subsidiaries, an Officer's Certificate of the
Company, specifying the nature and period of existence thereof and what action
the Company or such Subsidiary is taking or proposes to take with respect
thereto; or (ii) any Debt being declared due and payable before its expressed
maturity, or any holder of such Debt having the then exercisable right to
declare such Debt due and payable before its stated maturity, because of the
occurrence of any default under such Debt, an Officer's Certificate of the
Company describing the nature and status of such matters and what action the
Company or such Subsidiary is taking or proposes to take with respect thereto;
(i) promptly (and in any event within 30 days) after the Company
knows or, in the case of a single employer Pension Plan has reason to know, that
a Reportable Event with respect to any Pension Plan for which notice has not
been waived has occurred, that any Pension Plan is or is likely to be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA (in each case, to the extent such event could give rise to a material
liability under ERISA), or that the Company or its Subsidiaries will or is
likely to incur any material liability to or on account of a Pension Plan under
Section 4062, 4063, 4064, 4201 or 4204 of ERISA or any other material liability
under ERISA has been asserted against the Company or its Subsidiaries the
Company will deliver to you an Officers' Certificate of the Company setting
forth information as to such occurrence and what action, if any, the Company or
any such Subsidiary is required or proposes to take with respect thereto,
together with any notices concerning such occurrences which are (i) required to
be filed by the Company or such Subsidiary or the plan administrator of any such
Pension Plan controlled by the Company or such Subsidiary with the Internal
Revenue Service or the PBGC, or (ii) received by the Company or such Subsidiary
from any plan administrator of a Pension Plan not under their control. Each
notice required to be delivered hereunder shall be delivered no later than 30
days after the later of the date such notice is filed with the Internal Revenue
Service or the PBGC or the date such notice is received by the Company or any of
its Subsidiaries;
(j) promptly (and in any event within three Business Days) after
becoming aware of any Material Adverse Effect, with respect to which notice is
not otherwise required to be given pursuant to this Section 8, an Officer's
Certificate of the Company setting forth the details of such Material Adverse
Effect and stating what action the Company or its Subsidiaries are taking or
propose to take with respect
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thereto;
(k) at least 15 days prior to the voluntary prepayment or
reduction of any material Debt, including without limitation Debt incurred under
the Senior Debt Instruments (but other than repayment of debt under a revolving
credit or like facility in the ordinary course), or the amendment or other
modification of any of the terms of payment of principal of, or interest on, any
such Debt, or the amendment, modification or waiver of any of the terms of the
Senior Debt Instruments, an Officer's Certificate of the Company describing the
nature and status of such matters and what action the Company or its
Subsidiaries or any of them is taking or proposes to take with respect thereto;
(l) promptly (and in any event within 15 days) after the Company
knows of (i) the institution of, or non-frivolous threat of, any action, suit,
proceeding, governmental investigation or arbitration against or affecting the
Company or its Subsidiaries or their respective properties or assets not
disclosed herein, or (ii) any material development in any such action, suit,
proceeding, governmental investigation or arbitration, which, in either case, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect, an Officer's Certificate of the Company describing the nature and status
of such matter in reasonable detail;
(m) promptly upon their being filed, copies of any and all
periodic or special reports filed by the Company or any Subsidiary with any
Governmental Body, if such reports indicate any Material Adverse Effect on the
Company or any of its Subsidiaries or if copies thereof are requested by the
Purchaser, and copies of any and all material notices and other material
communications from any Governmental Body (including without limitation notice
of any lapse or other termination of any consent or approval issued to the
Company by any Governmental Body or any other Person that is material to the
operation of the Company business) which specifically relate to the Company or
any of its Subsidiaries or which could reasonably be expected to have a Material
Adverse Effect on the Company or any of its Subsidiaries;
(n) if the Company receives notice from any Governmental Body
that any Facility, or any real property adjacent to or that may affect, or may
have been affected by, any Facility, has or may become contaminated or subject
to a cleanup order or decree by a Governmental Body having jurisdiction over the
Company or any Subsidiary of the Company, upon request from the Purchaser, such
reports, certificates, engineering studies or other written material or data as
the Purchaser reasonably may require from them so as to satisfy the Purchaser
that the Company and each Subsidiary of the Company is in compliance with all
applicable laws and regulations in connection with any EPA Matter; provided,
that with respect to real estate adjacent to a Facility, reports, certificates,
studies and other material or data shall not be required to be provided by the
Company or any Subsidiary if (i) they are not otherwise required to be created
or provided pursuant to statute, regulation, Order or otherwise, and (ii) such
contamination is not attributable to the acts or omissions of the Company or any
Subsidiary or Affiliate of the Company or predecessor of any of them or any
previous
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owner, lessee, lessor or other user of the Facility;
(o) promptly upon delivery thereof, copies of any notices, other
than administrative or other routine notices that are not material, delivered by
the Company or any Subsidiary to the Senior Lenders pursuant to the Senior Debt
Instruments; and
(p) any other information, including without limitation financial
statements and computations, relating to the performance of this Agreement
and/or the affairs of the Company or its Subsidiaries that the Purchaser or any
other Eligible Holder may from time to time reasonably request (including,
without limitation, a brief statement containing a management discussion and an
analysis of the financial condition of the Company and its Subsidiaries and
describing the results of operations and significant events relating to the
Company and its Subsidiaries for any fiscal period; copies of all information
furnished to stockholders of the Company; a copy of a list of stockholders of
the Company; and, if the Company is not then subject to the reporting
requirements of the Exchange Act, copies of the minutes of all meetings of the
Board of Directors of the Company or any committee thereof and copies of all
information furnished to members of the Board of Directors of the Company or any
committee thereof).
The Company will keep at its principal executive offices a true
and correct copy of this Agreement and each Related Document, and of all
amendments, modifications and supplements to any of the foregoing, and cause the
same to be available for inspection at said office during normal business hours
by any holder of any of the Securities or any prospective purchaser of any
thereof designated by the holder thereof.
Section 9. Inspection of Properties and Books. You, so long as
you shall be obligated to purchase or shall hold any Securities, and each other
Eligible Holder of any of the Securities, shall have the right to visit and
inspect any of the Properties of the Company and its Subsidiaries during normal
business hours (subject to the rights of the tenants of such properties) upon
reasonable prior notice, to examine their books of account and records, to make
such copies and extracts therefrom at their expense as you may reasonably
request, to discuss their affairs, finances and accounts with, and to be advised
as to the same by, its and their officers and employees, and its and their
independent public accountants (whose fees and expenses shall be paid by the
Company or such Subsidiary) and by this provision each of the Company and its
Subsidiaries authorizes its accountants to discuss its affairs, finances and
accounts, whether or not any of its representatives is present, all at such
times and intervals and in such reasonable manner as you or such Eligible Holder
may desire, so long as no unreasonable interference with the business of the
Company and its Subsidiaries results therefrom. So long as you shall hold any
Securities, you and each other Eligible Holder of any of the Securities may meet
with the senior management of the Company, at such times and intervals and in
such reasonable manner as you or such Eligible Holder may desire, to discuss the
business, financial condition, assets, operations, budget, plans and prospects
of the Company. The Company and its Subsidiaries will likewise afford you
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and any such Eligible Holder the opportunity to obtain any information, to the
extent they possess such information or can acquire it without unreasonable
effort or expense, necessary to verify the accuracy of any of the
representations and warranties made by each of them hereunder.
Section 10. Affirmative Covenants. The Company covenants and
agrees that, commencing on the Closing Date and so long as any of the Notes
shall remain outstanding:
10.1 Legal Existence; Compliance with Laws, etc. The Company
will, and will cause each Subsidiary to (except insofar as failure to do any of
the following would not have a Material Adverse Effect): maintain its corporate
existence and business; maintain all properties which are reasonably necessary
for the conduct of such business, now or hereafter owned by the Company or any
Subsidiary, in good repair, working order and condition; and, except as
otherwise provided herein, comply in all material respects with all applicable
statutes, rules, regulations and Orders of, and all applicable restrictions
imposed by, all Governmental Bodies in respect of the conduct of its business
and the ownership of its properties (including, without limitation, all
Environmental Laws and all applicable statutes, rules, regulations, Orders and
restrictions relating to safety and other similar standards or controls) and the
material terms of all material leases, agreements and licenses; provided,
however, that neither the Company nor any Subsidiary shall be required by reason
of this subsection to comply therewith at any time while the Company or such
Subsidiary shall be contesting its obligation to do so in good faith by
appropriate proceedings promptly initiated and diligently conducted, and if (a)
it shall have set aside on its books such reserves, if any, with respect thereto
as are required by GAAP and deemed adequate by the Company and its independent
public accountants, and (b) such failure to comply shall not be materially
adverse to the interests of the holders of the Notes. Without limiting the
generality of the foregoing, whenever there is potential non-compliance with any
Environmental Law by the Company or any of its Subsidiaries that might
reasonably be expected to have a Material Adverse Effect, the Company shall, at
the reasonable request of a majority of the holders of the Notes, provide
information to such holders with respect thereto and take such other actions at
the Company's expense as may be reasonably necessary to remedy such
noncompliance.
10.2 Maintenance of Property and Insurance. The Company shall,
and shall cause each of its Subsidiaries to: (a) maintain all of its Property
necessary and useful (in the reasonable judgment of the Company's management) in
its business in good operating condition and repair, ordinary wear and tear
excepted; and (b) maintain with financially sound and reputable insurers such
insurance with respect to its Property and business against casualties and
contingencies of such types (including, without limitation, business
interruption, libel and slander, environmental liability, public liability,
product liability, and larceny, embezzlement or other criminal misappropriation)
and in such amounts as is customary for Persons of established reputation
engaged in the same or a similar business and similarly situated, naming the
holders of the Notes, at their request, as additional insureds under each such
policy.
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10.3 Payment of Taxes. The Company will, and will cause each
Subsidiary to, pay and discharge promptly as they become due and payable all
taxes, assessments and other governmental charges or levies imposed upon it or
its income or upon any of its property or assets, or upon any part thereof, as
well as all lawful claims of any kind (including claims for labor, materials and
supplies) which, if unpaid, might by law become a Lien or a charge upon its
property; provided that neither the Company nor any Subsidiary shall be required
to pay any such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in good faith by
appropriate proceedings or other appropriate actions promptly initiated and
diligently conducted and if the Company or such Subsidiary, as the case may be,
shall have set aside on its books such reserves, if any, with respect thereto as
are required by GAAP and deemed appropriate by the Company and their independent
public accountants.
10.4 Payment of Other Debt, etc. Except as to matters being
contested in good faith and by appropriate proceedings, and subject to the
provisions of this Agreement, the Company will, and will cause each Subsidiary
to, pay promptly when due, or in conformance with customary trade terms, all
material Debt and obligations incident to the conduct of its business.
10.5 Environmental Laws. The Company shall, and shall cause each
of its Subsidiaries to, conduct its business in full compliance with all
material Environmental Laws applicable to it, including, without limitation,
those relating to the Company's or any Subsidiary's generation, handling, use,
storage, and disposal of hazardous and toxic wastes and substances. No Hazardous
Material shall be used by any Person for any purpose at or upon any Facility or
stored thereon or disposed or discharged therefrom, except in compliance in all
material respects with any Environmental Law or any permit or Order issued
pursuant to an Environmental Law. The Company shall take prompt and appropriate
action to respond to any non-compliance with Environmental Laws and shall
regularly report to the holders of the Notes on such response. Without limiting
the generality of the foregoing, whenever there is potential non-compliance with
any Environmental Law by the Company or any of its Subsidiaries, the Company
shall, at the request of the holders of more than 50% of the outstanding
principal amount of the Notes and the Company's expense: (a) cause an
independent environmental engineer acceptable to the holders of the Notes to
conduct such tests of the site where the Company's or such Subsidiary's
non-compliance or alleged non-compliance with Environmental Laws has occurred
and prepare and deliver to the holders of the Notes a report setting forth the
results of such tests, a proposed plan for responding to any environmental
problems described therein, and an estimate of the costs thereof; and (b)
provide to the holders of the Notes a supplemental report of such engineer
whenever the scope of the environmental problems, or the response thereto or the
estimated costs thereof, shall change.
10.6 Further Assurances. From time to time hereafter, the Company
will execute and deliver, or will cause to be executed and delivered, such
additional instruments, certificates or documents, and will take all such
actions, as the Purchaser
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may reasonably request, for the purposes of implementing or effectuating the
provisions of this Agreement, the Related Documents, the Notes and the Warrants
(including, without limitation, taking reasonable steps to obtain an assignment
of a PPN with respect to the Notes as referred to in Section 7.15).
10.7 Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the exercise of the Warrants and otherwise
complying with the terms of this Agreement, such number of its duly authorized
shares of Common Stock as shall be sufficient to effect the exercise of the
Warrants or otherwise to comply with the terms of the Warrants. The Company will
use its best efforts to obtain any authorization, consent, approval or other
action by or make any filing with any court or administrative body that may be
required under applicable U.S. state securities laws in connection with the
issuance of the Warrant Shares upon exercise of the Warrants or any requirements
of any domestic securities exchange upon which shares of Common Stock may be
listed (except for official notice of issuance which will be immediately
transmitted by the Company upon issuance); provided that the Company shall not
for any such purpose be required to qualify to do business as a foreign
corporation or to consent to the jurisdiction of any court or subject itself to
suit, in any jurisdiction wherein it is not qualified.
10.8 Consolidated Interest and Dividend Coverage Ratio. The
Company will cause to be maintained for each period set forth below a
Consolidated Interest and Dividend Coverage Ratio in an amount not less than the
amount set forth opposite such period:
<TABLE>
<CAPTION>
Period Consolidated Interest
and Dividend Coverage
Ratio
--------------------------
<S> <C>
Closing - December 31, 1997 2.0 to 1.00
January 1, 1998 - December 31, 1999 2.25 to 1.00
January 1, 2000 - December 31, 2000 2.50 to 1.00
Thereafter 2.75 to 1.00
</TABLE>
10.9 Compliance with Related Documents. The Company shall, and
shall cause each of its Subsidiaries to, comply in all material respects with
the terms and provisions of each Related Document to which it is a party.
10.10 Subsidiary Guaranties, etc. The Company shall cause any
Person that is currently or hereafter becomes a Wholly-Owned Subsidiary of the
Company, other than a Non-US Subsidiary, to execute and deliver, on the Closing
Date or such later date that such Person becomes a Subsidiary, to the holders of
the Notes, a Guaranty in the form of Exhibit F with respect to the obligations
of the Company
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hereunder and under the Notes. Notwithstanding the foregoing, the Purchaser has
entered into the Collateral Agency Agreement and has waived the condition that
such Guaranty be delivered by IASI Inc. at the Closing. However, if within 120
days after the Closing Date (or such later time to which Purchaser, if it so
elects, may consent in its sole discretion) IASI Inc. executes and delivers to
Purchaser a Subsidiary Guaranty (and Purchaser receives such other documentation
in connection therewith as it may reasonably request, including without
limitation satisfactory opinions of counsel to IASI Inc. and counsel to
Purchaser with respect thereto), Purchaser will agree to terminate the
Collateral Agency Agreement in accordance with the terms thereof. If Purchaser
determines in its reasonable judgment that the provisions of the preceding
sentence have been complied with, the Company shall be deemed to have "Satisfied
the Section 10.10 Condition."
10.11 Certain Amendment.
(a) If requested by holders of a majority in principal amount of
the outstanding Notes, the Company will as promptly as practicable take all
action necessary (in accordance with applicable law) to provide that the
Warrants held by such holders shall be exercisable for shares of "Non-Voting
Stock" rather than Common Stock, including such amendments to the Warrant,
Section 10.7 of this Agreement and (subject to the following provisions of this
Section 10.11) the Certificate of Incorporation as reasonably requested by such
holder to effectuate the provisions of this Section 10.11. In such event and
subject to the fiduciary duties of the Company's Board of Directors under
applicable law as advised in writing by counsel, the Company shall take all
lawful action to adopt and cause to become effective a Certificate of
Designation to the Certificate of Incorporation or an amendment to the
Certificate of Incorporation; and promptly thereafter the Company shall furnish
to the Purchaser a legal opinion of its outside counsel, in form and substance
reasonably satisfactory to the Purchaser, as to the effectiveness and validity
of such amendment.
(b) With reference to the foregoing, the holders may request
either that a class of Non-Voting Convertible Preferred Stock or Non-Voting
Common Stock ("Non-Voting Stock") be issued (in either case having terms
corresponding to those set forth in the form attached hereto as Exhibit G, with
changes as reasonably requested by such holders if the stock is to be Preferred
Stock). In the event that an amendment to the Certificate of Incorporation must
be approved by the stockholders of the Company, the Company may present the
amendment at the next stockholders meeting that is at least 45 days after the
request to adopt such amendment, rather than calling a special stockholders'
meeting.
10.12 Application of Certain Proceeds. Subject to the following
proviso, the Company shall apply (as promptly as permissible under the Bridge
Notes) any and all proceeds from the exercise of the Company's outstanding
warrants, currently traded on NASDAQ under "KELLW", to the redemption of any
Bridge Notes outstanding, provided that the Company may apply such proceeds to
the repayment of other Senior Debt if (a) at the time it is not permitted to
repay the Bridge Notes, (b) it has no
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reason to believe that an amount equal to such proceeds will not be available
for borrowing under the Barnett Credit Facility for purposes of repaying the
Bridge Notes promptly when permissible and (c) it repays such amount of the
Bridge Notes promptly when permissible under the terms of the Bridge Notes.
Section 11. Negative Covenants. The Company covenants that from
the date of this Agreement through the Closing and thereafter so long as any of
the Notes are outstanding:
11.1 Debt. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or
otherwise become or remain directly or indirectly liable with respect to, any
Debt, or create, issue, sell, or otherwise become or remain directly or
indirectly liable with respect to, any Disqualified Stock, except:
(a) Debt evidenced by the Notes;
(b) Debt outstanding pursuant to the Senior Credit Agreements in
an aggregate outstanding principal amount not to exceed at any time $40,000,000;
(c) Debt incurred to refund the Debt outstanding under the Senior
Credit Agreements (which shall not include any extension or modification of the
Senior Credit Agreements or any restructuring of the Senior Credit Agreements
involving the same or substantially the same parties as the parties to the
Senior Credit Agreements on the date hereof) or any previous refunding thereof
(any such Debt being referred to as "Refunding Debt") if (i) the principal
amount of such Refunding Debt does not exceed the principal amount of the Debt
being refunded, (ii) the Weighted Average Life to Maturity of such Refunding
Debt is not shorter than that of the Debt being refunded, (iii) the terms and
conditions of such Refunding Debt shall when viewed as a totality be no less
favorable to the Company than the Debt being refunded, and (iv) the rate or
rates of interest applicable to such Refunding Debt does not exceed the interest
rate or rates (including the rate of interest payable upon the occurrence of any
default or event of default thereunder) permitted to be charged under the Senior
Credit Agreements as in effect on the date hereof;
(d) Debt and Disqualified Stock outstanding on the date of this
Agreement and referred to in Schedule 11.1(d);
(e) Debt or Disqualified Stock subordinate in right of payment to
the Notes and (i) issued by the Company and held by a Subsidiary or (ii) issued
by any Subsidiary and held by the Company;
(f) Debt incurred in connection with the purchase of real estate
and improvements thereto used in the conduct cf the business of the Company,
provided that the aggregate principal amount of such Debt shall not exceed $3.5
million;
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(g) Debt incurred in connection with the purchase of Property,
other than pursuant to Section 11.1(f), acquired by the Company or a Subsidiary
after the Closing Date, provided that the aggregate principal amount outstanding
of such Debt plus the aggregate principal amount outstanding of Debt referred to
in the second paragraph of Schedule 11.1(d), shall not at any time exceed $1.5
million;
(h) Senior Debt (which may be pursuant to the Senior Credit
Agreements) in addition to that otherwise permitted by the foregoing provisions
of this Section 11.1 in an aggregate principal amount outstanding not to exceed
$4,000,000 at any time of determination; and
(i) Debt (which may be pursuant to the Senior Credit Agreements)
in addition to that otherwise permitted by the foregoing provisions of this
Section 11.1, provided that, on the date the Company or any Subsidiary becomes
liable with respect to such Debt and immediately after giving effect thereto and
to the concurrent retirement of any other Debt:
(i) the Consolidated Interest and Dividend
Coverage Ratio (calculated on a proforma
basis as if such Debt had been incurred on
the first day of the applicable Reference
Period) is no less than 2.0 to 1.00 from
January 15, 1997 until December 31, 1997,
2.25 to 1.00 from January 1, 1998 until
December 31, 1999, 2.50 to 1.00 from January
1, 2000 until December 31, 2000 and 2.75 to
1.00 thereafter;
(ii) the ratio of Debt plus Disqualified Stock to
Adjusted EBIT shall not exceed 4.5 to 1.0 as
of any date on or prior to December 31,
1997, 4.25 to l.0 as of any date after
December 31, 1997 and on or prior to
December 31, 1998, and 4.0 to 1.0 as of any
date after December 31, 1998; and
(iii) no condition or event shall exist which
constitutes an Event of Default or Potential
Event of Default.
11.2 Liens, etc. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, assume or permit to exist
any Lien on or with respect to any property or asset (including any document or
instrument in respect of goods or accounts receivable) of the Company or any
Subsidiary, whether now owned or held or hereafter acquired, or any income or
profits therefrom, without equally and ratably securing the Notes, except for
Permitted Liens.
The term "Permitted Liens" means:
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(a) Liens for taxes, assessments or other governmental charges
the payment of which is not at the time required by Section 10.3 or that are
being contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in accordance with GAAP shall have been made therefor;
(b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics and materialmen incurred in the ordinary course of
business for sums not yet due or the payment of which is not at the time
required by Section 10.3;
(c) Liens (other than any Lien imposed by ERISA or the Code in
connection with a Plan) incurred or deposits made in the ordinary course of
business (i) in connection with workers' compensation, unemployment insurance
and other types of social security, or (ii) to secure (or to obtain letters of
credit that secure) the performance of tenders, statutory obligations, surety
and appeal bonds, bids, leases, performance bonds, purchase, construction or
sales contracts and other similar obligations, in each case not incurred or made
in connection with the borrowing of money, the obtaining of advances or credit
or the payment of the deferred purchase price of property;
(d) any attachment or judgment Lien, unless the judgment it
secures shall not, within 60 days after the entry thereof, have been discharged
or execution thereof stayed pending appeal, or shall not have been discharged
within 60 days after the expiration of any such stay;
(e) leases or subleases granted to others, easements,
rights-of-way, restrictions and other similar charges or encumbrances, in each
case incidental to, and not interfering with, the ordinary conduct of the
business of the Company or any Subsidiary;
(f) Liens incurred to secure Debt (other than Subordinated Debt)
of the Company outstanding in compliance with Section 11.l(b) or (c) or (if the
Debt referred to in Section 11.1(h) is incurred pursuant to the Senior Credit
Agreements) Section 11.1(h);
(g) Liens existing on the date of this Agreement and securing the
Debt of the Company and its Subsidiaries referred to in Schedule 11.1(d);
(h) any Lien created to secure all or any part of the purchase
price, or to secure Debt incurred or assumed to pay all or any part of the
purchase price, of Property acquired by the Company or a Subsidiary after the
Closing Date, provided that (i) any such Lien shall be confined solely to the
item or items of Property so acquired and, if required by the terms of the
instrument originally creating such Lien, other Property which is an improvement
to or is acquired for specific use in connection with such acquired Property,
(ii) the principal amount of the Debt secured by any such Lien shall at no time
exceed an amount equal to 100% of the lesser of (A) the cost to
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the Company or such Subsidiary of the Property so acquired and (B) the fair
market value of such Property (as determined in good faith by the Board) at the
time of such acquisition, and (iii) any such Lien shall be created within three
months after, in the case of Property, its acquisition, or, in the case of
improvements, their completion;
(i) any Lien existing on Property of a Person immediately prior
to its being consolidated with or merged into the Company or a Subsidiary or its
becoming a Subsidiary, or any Lien existing on any Property acquired by the
Company or any Subsidiary at the time such Property is so acquired (whether or
not the Debt secured thereby shall have been assumed), provided that no such
Lien shall have been created or assumed in contemplation of such consolidation
or merger or such Person's becoming a Subsidiary or such acquisition of
Property, and provided further that each such Lien shall at all times be
confined solely to the item or items of Property so acquired and, if required by
the terms of the instrument originally creating such Lien, other Property which
is an improvement to or is acquired for specific use in connection with such
acquired Property;
(j) any Lien renewing, extending or refunding any Lien permitted
by subdivision (f), (g), (h) or (i) of this Section 11.2, provided that the
principal amount of Debt secured by such Lien immediately prior thereto is not
increased or the maturity thereof reduced and such Lien is not extended to other
Property, and provided further that each such Lien shall at all times be
confined solely to the item or items of Property subject to the Lien being
renewed, extended or refunded;
(k) Liens securing Debt of a Subsidiary owed to the Company or
another Subsidiary, provided, however, that Liens under this clause (k) will no
longer continue to be Permitted Liens in the event that (i) any subsequent
issuance or transfer of any capital stock, or other circumstance, results in any
such Subsidiary ceasing to be a Subsidiary or (ii) the Debt secured by such
Liens is transferred to a Person other than the Company or another Subsidiary;
and
(i) Liens securing Debt of a Non-US Subsidiary that are imposed
as a matter of law or common commercial practice in the jurisdiction of such
Subsidiary's organization, provided that any such Liens are confined solely to
Property of such Subsidiary located in such jurisdiction.
11.3 Restricted Investments. The Company will not, and will not
permit any Subsidiary to, directly or indirectly make or own any Investment in
any Person, or create or become or be liable with respect to any Guaranty,
except:
(a) Cash Equivalents;
(b) Investments in any Person which simultaneously therewith
becomes a Wholly-Owned Subsidiary of the Company if such Person is a corporation
organized under the laws of the United States or any state thereof or the
District of Columbia and at least 90% of the fair market value of its assets are
located and at least 90% of its
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business (as measured on the basis of revenues) is conducted within the United
States, in each case as determined in the reasonable judgment of the Board of
Directors of the Company;
(c) advances, Investments or loans by any Subsidiary to the
Company;
(d) advances, Investments or loans by the Company or any
Subsidiary to any Wholly-Owned Subsidiary;
(e) receivables acquired by the Person to whom such receivable is
payable, provided, however, such receivables are created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms;
(f) Investments existing on the date of this Agreement and listed
on Schedule 11.3(f);
(g) advances for payroll, relocation, travel and other
employee-related expenses incurred in the ordinary course of business not to
exceed, in the aggregate, $150,000 at any time outstanding;
(h) Investments by the Company in a joint venture or joint
ventures relating to the purchase of engines for inventory and engine leasing
not to exceed at any time an aggregate of $5,000,000 or 30% of the Company's
Adjusted Net Worth;
(i) Investments by the Company in Non Wholly-Owned Subsidiaries,
Non-US Subsidiaries and in Capital Stock of Rada Electronic Industries Limited,
a company organized under the laws of the State of Israel, and other entities
engaged in businesses related to the business of the Company and its
Subsidiaries, in an amount not to exceed at any time in the aggregate $4,000,000
or such higher amount (which shall in no event exceed $7,000,000) if the Company
could on the date of such Investment and after giving effect thereto, incur
$1.00 of additional Debt under Section 11.1(i); and
(j) Guaranties of Senior Debt permitted under Section 11 hereof.
11.4 Restricted Payments. (a) The Company will not, directly or
indirectly, and will not permit any Subsidiary to declare, order, pay, make or
set apart any sum or Property for any Restricted Payment, unless, immediately
after giving effect to any such proposed action:
(i) no condition or event shall exist which constitutes
an Event of Default or Potential Event of Default;
and
(ii) the sum of the aggregate amount of all sums and
Property included in all Restricted Payments
directly or indirectly declared, ordered, paid,
made or set apart by the Company
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during the period from the Closing Date to and
including the date of such proposed action shall
not exceed the sum of:
(A) 50% (but, in the case of a deficit, 100%) of Consolidated Net
Income from the Closing Date to the end of the most recent fiscal
quarter ending at least 45 days prior to the date of such proposed
action; plus
(B) the aggregate amount of the Net Cash Proceeds received during
such period from the issuance and sale other than to a Subsidiary of its
capital stock (other than Disqualified Stock), and as consideration for
the issuance and sale during such period of Debt of the Company
convertible into its capital stock (other than Disqualified Stock), but
only to the extent that any such Debt has been converted into shares of
such stock during such period, provided that the aggregate amount of
such Net Cash Proceeds to be taken into account for such period shall
not exceed the aggregate of the amounts expended by the Company during
such period for the redemption, retirement, purchase or other
acquisition, direct or indirect, of any shares of capital stock of the
Company or for the retirement, purchase or other acquisition, direct or
indirect, of any Debt which is pari passu with or subordinated to the
Note;
provided that any dividend which could be paid in compliance with this Section
11.4 at the date of its declaration may be paid within the following 60 days (if
the condition specified in clause (a) (i) above would be satisfied at such time)
notwithstanding that the conditions set forth in clause (a)(ii) would not be
satisfied at such time.
(b) The provisions of Section 11.4 shall not, so long as no
condition or event shall exist which constitutes an Event of Default or
Potential Event of Default, prevent (i) the retirement, redemption, or other
acquisition of any shares of any class of the Company's capital stock in
exchange for, or out of the Net Cash Proceeds of a substantially concurrent
sale, of other shares of its capital stock (other than Disqualified Stock), (ii)
the retirement, redemption, or other acquisition of any Debt which is pari passu
with or subordinated to the Notes in exchange for, or out of the Net Cash
Proceeds of a substantially concurrent sale, of shares of the capital stock
(other than Disqualified Stock), (iii) the acquisition by the Company of shares
of the capital stock of any Subsidiary from a third party in exchange for, or
out of the Net Cash Proceeds of a substantially concurrent sale of shares of the
capital stock (other than Disqualified Stock) of the Company, and (iv) any
dividend or distribution payable solely in capital stock of the Company (other
than Disqualified Stock).
(c) For the purposes of this Section 11.4, the amount involved in
any Restricted Payment directly or indirectly declared, ordered, paid, made or
set apart in Property shall be the greater of the fair market value of such
Property (as determined in good faith by the Board) and the net book value
thereof on the books of the Company (determined in accordance with GAAP) on the
date such Restricted Payment is declared, ordered, paid, made or set apart. The
Company will not declare any dividend (other than a dividend payable solely in
shares of its own stock) on any shares
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of any class of its stock which is payable more than 60 days after the date of
declaration thereof.
11.5 Minimum Net Worth. The Company will not, as of the end of
any fiscal quarter of the Company, permit Adjusted Net Worth to be less than the
sum of $12,000,000 and 50.0% (but, in the case of a deficit, 100%, and in each
case on a cumulative basis) of Consolidated Net Income for the period from the
Closing Date to and including the date of determination.
11.6 Transactions with Affiliates. The Company will not, and will
not permit any Subsidiary to, directly or indirectly, engage in any transaction
(or series of related transactions) including, without limitation, the purchase,
sale or exchange of assets or the rendering of any service, with any Affiliate
of the Company, except in the ordinary course of and pursuant to the reasonable
requirements of the Company's or such Subsidiary's business and upon fair and
reasonable terms that are no less favorable to the Company or such Subsidiary,
as the case may be, than those which might be obtained, in the good faith
judgment of the Company, in an arm's length transaction at the time from Persons
which are not Affiliates. In the case of any such transaction with an Affiliate
involving aggregate consideration in excess of $500,000, the Company shall
deliver to each holder of Notes an Officer's Certificate certifying that such
transaction complies with this Section 11.6; and in the case of any such
transaction with an Affiliate involving aggregate consideration in excess of
$2,000,000, (a) the Company shall deliver to each holder of Notes a favorable
opinion as to the fairness to the Company or such Subsidiary of such transaction
from a financial point of view, issued by an investment banking or accounting
firm of national standing and (b) such transaction shall have been approved by
the Audit Committee of the Board or, if appropriate, the entire Board. The
restriction contained in this Section 11.6 shall not apply to (i) transactions
between the Company and a Wholly-Owned Subsidiary or between Wholly-Owned
Subsidiaries, (ii) employment arrangements or advisory fees for officers and
directors who are not otherwise, by virtue of stock ownership or other
circumstances, Affiliates of the Company and (ii) the purchase of inventory
(including without limitation, the purchase, sale, lease or exchange of any
assets or the rendering of any service), in each case in the ordinary course of
business.
11.7 Consolidation or Merger, Sale of Assets, etc. The Company
will not, and will not permit any Subsidiary (other than a Non-US Subsidiary)
to, directly or indirectly,
(a) consolidate with or merge into any other Person or permit any
other Person to consolidate with or merge into it, except:
(i) a merger or consolidation involving no person other
than the Company and/or one or more of its
Wholly-Owned Subsidiaries; or
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(ii) a merger or consolidation involving the Company or
a Subsidiary pursuant to which the surviving
corporation or partnership is a corporation or
partnership organized and existing under the laws
of the United States of America or a state thereof,
with at least 90% of the fair market value of its
assets located and at least 90% of its business (as
measured on the basis of revenues) conducted within
the United States, in each case as determined in
the reasonable judgment of the Board of Directors
of the Company, and (x) such corporation or
partnership (if other than the Company or such
Subsidiary) expressly assumes, through the
execution of an instrument of assumption reasonably
satisfactory to the Purchaser, the obligations of
the Company or such Subsidiary as applicable, under
this Agreement and under the Notes or the
Subsidiary Guaranties, and (y) immediately after
giving effect to such transaction (and such
assumption) (A) such corporation or partnership
could incur at least $1.00 of additional Debt in
compliance with Section 11.1(i) and (B) no
condition or event shall exist which constitutes an
Event of Default or a Potential Event of Default;
or
(b) sell, issue, convey, transfer, lease or otherwise dispose
(including, without limitation, by way of merger, consolidation, or sale and
leaseback transaction) (collectively, a "transfer"), directly or indirectly, in
one or a series of related transactions, of: (i) any capital stock of any
Subsidiary; (ii) all or substantially all of the properties and assets of any
division or line of business of the Company or its Subsidiaries, or (iii) any
other properties or assets of the Company or any Subsidiary other than in the
ordinary course of business, except:
(i) transfers by any Wholly-Owned Subsidiary of all or
substantially all its assets to the Company or
another Wholly-Owned Subsidiary;
(ii) transfer by the Company or a Subsidiary of all or
substantially all its assets (including capital
stock of a Subsidiary provided such capital stock
constitutes all the capital stock of such
Subsidiary) to any corporation into which the
Company or such Subsidiary could be consolidated or
merged in compliance with subdivision (a) (ii) of
this Section 11.7, provided that (x) each of the
conditions set forth in such subdivision (a) (ii)
shall have been fulfilled, and (y) no such
disposition shall relieve the Company from its
obligations under this Agreement or the Notes;
(iii)transfers of obsolete inventory and equipment;
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(iv) during any Reference Period, transfers of assets
having a Fair Market Value in the aggregate of not
more than 10% of the Consolidated assets of the
Company shown on the balance sheet of the Company
as of the end of the fiscal quarter ending at least
45 days prior to (1) the commencement of such
Reference Period or, if less, (2) the date of such
asset sale;
(v) transfers pursuant to which the gross proceeds
received by the Company and its Subsidiaries is
less than $250,000 in the aggregate; and
(vi) transfers of (i) assets (other than capital stock
of any Subsidiary) or (ii) all (but not less than
all) of the capital stock of a Subsidiary, if (x)
at least 85% of the consideration is in the form of
immediately available funds consisting of United
States Dollars or Cash Equivalents, (y) such
consideration is at least equal to the Fair Market
Value of the shares or assets to be sold and (z)
the Net Cash Proceeds thereof shall, on or prior to
the 120th day following such sale, be applied to
the prepayment of the Notes to the extent required
pursuant to Section 4.5, unless prior to such date
such proceeds have been:
(A) reinvested in another asset or business as permitted by
Section 11.2; or
(B) applied to the prepayment of Senior Debt of the Company.
11.8 Subsidiary Stock and Debt.
(a) The Company will not, and will not permit any Subsidiary to,
directly or indirectly, sell, assign, pledge or otherwise dispose of any Debt of
the Company or any Wholly-Owned Subsidiary except to the Company or another
Subsidiary, or as permitted by Section 11.2.
(b) The Company will not permit any Wholly-Owned Subsidiary
existing on the date hereof to issue or have outstanding any shares of capital
stock, or options, warrants or securities convertible into shares of capital
stock, other than shares of capital stock which are owned by the Company or a
Wholly-Owned Subsidiary.
11.9 Compliance with ERISA. The Company will not, and will not
permit any Subsidiary to,
(a) engage in any transaction in connection with which the
Company or any Subsidiary could be subject to either a civil penalty assessed
pursuant to Section
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502(I) of ERISA or a tax imposed by Section 4975 of the Code, terminate or
withdraw from any Plan (other than a Multi employer Plan) in a manner, or take
any other action with respect to any such Plan (including, without limitation, a
substantial cessation of operations within the meaning of Section 4062(f) of
ERISA), which could result in any liability of the Company or any Subsidiary to
the PBGC, to a trust established pursuant to Section 4041(c) (3) (B) (ii) or
(iii) or 4042(I) of ERISA, or to a trustee appointed under Section 4042(b) or
(c) of ERISA, incur any liability to the PBGC on account of a termination of a
Plan under Section 4064 of ERISA, fail to make full payment when due of all
amounts which, under the provisions of any Plan, the Company or any Subsidiary
is required to pay as contributions thereto, or permit to exist any accumulated
funding deficiency, whether or not waived, with respect to any Plan (other than
a Multi employer Plan), if, in any such case, such penalty or tax or such
liability, or the failure to make such payment, or the existence of such
deficiency, as the case may be, could have a Material Adverse Effect;
(b) permit the present value of all vested accrued benefits under
all Plans maintained at any time by the Company and any Subsidiary (other than
Multi employer Plans) guaranteed under Title IV of ERISA to exceed the current
value of the assets of such Plans allocable to such vested accrued benefits by
more than $2,000,000;
(c) permit the aggregate complete or partial withdrawal liability
under Title IV of ERISA with respect to Multi employer Plans incurred by the
Company and its Subsidiaries to exceed $1,000,000; or
(d) permit the sum of (i) the amount by which the current value
of all vested accrued benefits referred to in subdivision (b) of this Section
11.9 exceeds the current value of the assets referred to in such subdivision (b)
and (ii) the amount of the aggregate incurred withdrawal liability referred to
in subdivision (c) of this Section 11.9 to exceed $2,000,000.
For the purposes of subdivisions (c) and (d) of this Section 11.9, the amount of
the withdrawal liability of the Company and its Subsidiaries at any date shall
be the aggregate present value of the amount claimed to have been incurred less
any portion thereof as to which the Company reasonably believes, after
appropriate consideration of possible adjustments arising under Sections 4219
and 4221 of ERISA, it and its Subsidiaries will have no liability, provided that
the Company shall obtain prompt written advice from independent actuarial
consultants supporting such determination. The Company agrees (i) once in each
calendar year to request and obtain a current statement of withdrawal liability
from each Multi employer Plan and (ii) to transmit a copy of such statement to
each holder of any Notes, within 15 days after the Company receives the same. As
used in this Section 11.9, the term "accumulated funding deficiency" has the
meaning specified in Section 302 of ERISA and Section 412 of the Code, and the
terms "present value", "current value" and "accrued benefit" have the meanings
specified in Section 3 of ERISA.
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11.10 Restrictions Affecting Subsidiaries. The Company will not,
and will not permit any Wholly-Owned Subsidiary other than a Non-US Subsidiary
to, create or otherwise permit to exist any restriction on the ability of any
such Subsidiary to (a) pay dividends or make any other distributions.on its
capital stock or any other interest in its profits owned by the Company or any
other Wholly-Owned Subsidiary, or pay any Debt owed to the Company or any other
Wholly-Owned Subsidiary; (b) make any loan or advance to the Company or any
other Wholly-Owned Subsidiary; or (c) transfer any of its properties or assets
to the Company or any other Wholly-Owned Subsidiary, other than any such
restriction:
(i) in effect on the date of this Agreement and
described in Schedule 11.10;
(ii) in effect pursuant to Debt of a Person outstanding
at the time such Person becomes a Subsidiary (other
than Debt incurred in contemplation of its becoming
a Subsidiary), provided that such restriction shall
at all times be confined solely to the Person or
the assets and properties of the Person so
acquired;
(iii)in effect pursuant to Debt incurred to renew,
extend or refund any Debt referred to in paragraph
(i) or (ii) of this Section 11.10, provided that
the restrictions in effect under such Debt shall be
no less favorable to the holders of the Notes than
those in effect prior thereto;
(iv) contained in security agreements permitted by
Section 10.2 securing Debt of a Subsidiary,
provided that such restriction shall at all times
be confined solely to the item or items of property
covered by such security agreement; and
(v) consisting of customary non-assignment provisions
in leases governing leasehold interests to the
extent such provisions restrict the transfer of
such leasehold interests.
11.11 Amendment of Senior Credit Agreements. The Company will not
enter into any amendment or modification of the Senior Credit Agreements
containing terms that would not be permitted in Refunding Debt under Section
11.1(c).
11.12 Nature of Business. The Company will not, and will not
permit any Subsidiary to, (a) change the nature of the business in which it is
presently engaged to any business which is not a reasonable extension thereof,
(b) acquire any Subsidiary engaged in a business that the Company itself could
not engage in under this Section 11.12, or (c) except as specifically permitted
hereby, purchase or invest, directly or indirectly, in any assets or property
other than assets or property which are useful in, necessary for and are to be
used in its business as permitted to be conducted hereunder.
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11.13 Transactions Affecting Notes. The Company will not, and
will permit any Subsidiary to, enter into any transaction which could reasonably
be expected to materially and adversely affect the Company's ability to repay
the Notes.
11.14 Limitation on Other Subordinated Indebtedness. Neither the
Company nor any Subsidiary will create, incur, issue, assume, guarantee or
otherwise in any manner become directly or indirectly liable for, or with
respect to, or otherwise permit to exist any Debt that is subordinate in right
of payment to any debt of the Company or of such Subsidiary, as the case may be,
unless such debt is also pari passu with the Notes or subordinate in right of
payment to the Notes in the same manner as the Notes are subordinate in right of
payment to Senior Debt.
Section 12. Events of Default.
12.1 Events of Default; Remedies. If, at any time that any Note
shall be outstanding, any of the following events (herein called "Events of
Default") shall have occurred and be continuing (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or by
operation of law or otherwise):
(a) the Company shall default in the due and punctual payment or
prepayment of all or any part of the principal of or premium (if any) on the
Notes when and as the same shall become due and payable, whether at stated
maturity, by acceleration, by notice of prepayment or otherwise;
(b) the Company shall default in the due and punctual payment or
prepayment of any interest on any Note when and as such interest shall become
due and payable, or shall fail to pay any other amount payable hereunder, and
such default or failure to pay shall continue until the tenth consecutive day
following the date on which notice of such default shall have been given to the
Company;
(c) the Company or any of its Subsidiaries shall default in the
performance or observance of any of the covenants, agreements or conditions
contained in Section 11.1, 11.4, 11.7 or 11.8 (other than defaults which are the
subject of any other paragraph of this Section 12.1);
(d) the Company or any of its Subsidiaries shall default in the
performance or observance of any other of the covenants, agreements or
conditions contained in this Agreement and such default shall continue for a
period of 30 days after the earlier of (i) delivery of notice of such default to
the Company by any holder of Notes and (ii) the Company's otherwise becoming
aware of such default;
(e) Debt of the Company or any of its Subsidiaries having a
principal amount of at least $1,000,000 in the aggregate shall be declared due
and payable, or required to be prepaid other than by a required prepayment,
prior to the stated maturity thereof, and the Company or such Subsidiary shall
fail to pay such Debt when due;
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(f) any of the Company or its Subsidiaries shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its property, (ii) be generally unable to pay its debts as such debts become
due, (iii) make a general assignment for the benefit of its creditors, (iv)
commence a voluntary case under the Federal Bankruptcy Code, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) fail to controvert in a timely or appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under the
Federal Bankruptcy Code, (vii) admit in writing its inability to pay its debts
generally as such debts become due, (viii) take any action under the laws of its
jurisdiction of organization analogous to any of the foregoing, or (ix) take any
requisite corporate action for the purpose of effecting any of the foregoing;
(g) a proceeding or case shall be commenced, without the
application or consent of the Company or any of its Subsidiaries in any court of
competent jurisdiction, seeking (i) the liquidation, reorganization,
dissolution, winding-up, or composition or readjustment of the debts of any of
them, (ii) the appointment of a trustee, receiver, custodian, liquidator or the
like of any of them or of all or any substantial part of their assets, or (iii)
similar relief in respect of any of them, under any law providing for the relief
of debtors, and such proceeding, case or appointment shall continue undismissed,
or unstayed and in effect, for a period of 60 days; or an order for relief shall
be entered in an involuntary case under the Federal Bankruptcy Code, against any
of the Company or any of its Subsidiaries; or action analogous to any of the
foregoing shall be taken with respect to the Company or any of its Subsidiaries
and shall continue undismissed, or unstayed and in effect, for a period of 60
days;
(h) final judgment for the payment of money in excess of
$1,000,000 shall be rendered by a court of competent jurisdiction against any of
the Company or its Subsidiaries, and the Company or any such Subsidiary, as the
case may be, shall not discharge the same or provide for its discharge in
accordance with its terms, or procure a stay or execution thereof, within 60
days from the date of entry thereof and within said period of 60 days, or such
longer period during which execution of such judgment shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal; or
(i) any representation or warranty made by or on behalf of the
Company or its Subsidiaries or any officer of any of them in this Agreement, by
the Company or any Subsidiary in any Related Document, or which is made in any
certificate or other instrument or document delivered under or pursuant to or in
connection with any provision of this Agreement or any Related Document, shall
prove to have been false or incorrect or breached in any material respect on the
date as of which made with respect to the Company and its then existing
Subsidiaries taken as a whole;
then, subject to the provisions of Section 13, (i) upon the occurrence of any
Event of Default described in subsection (f) or (g), the unpaid principal amount
of all Notes, together with the interest accrued thereon and, to the extent
permitted by law, an
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additional amount equal to the Make-Whole Premium in respect of such amount,
shall automatically become immediately due and payable, or (ii) upon the
occurrence of any other Event of Default, the holders of at least 35% of the
unpaid principal amount of the Notes at the time outstanding may, by written
notice to the Company and the Agent (as defined in the Senior Credit Agreements)
(although the failure to provide such notice to the Agent shall not affect the
rights of the holders of the Notes except as provided in Section 13), declare
the unpaid principal amount of all Notes to be, and the same shall forthwith
become, immediately due and payable, together with the interest accrued thereon
and, to the extent permitted by law, an additional amount equal to the
Make-Whole Premium in respect of such amount, all without presentment, demand,
notice, protest or other requirements of any kind, all of which are hereby
expressly waived; provided that, during the existence of an Event of Default
described in subsection (a) or (b) with respect to any Note, the holders of at
least 25% of the unpaid principal amount of the Notes at the time outstanding
may, by written notice to the Company, declare such Note or Notes to be, and the
same shall forthwith become, due and payable, together with the interest accrued
thereon and, to the extent permitted by law, an additional amount equal to the
Make-Whole Premium in respect of such amount, all without presentment, demand,
notice, protest or other requirements of any kind, all of which are hereby
expressly waived. If any holders of any Notes shall exercise the option
specified in the proviso to the preceding sentence, the Company will forthwith
give written notice thereof to the holders of all other outstanding Notes and
each such holder may (whether or not such notice is given or received), by
written notice to the Company, declare the principal of all Notes held by it to
be, and the same shall forthwith become, immediately due and payable, together
with interest accrued thereon and, to the extent permitted by law, an additional
amount equal to the Make-Whole Premium in respect of such amount.
The provisions of this Section 12.1 are subject, however, to the
conditions that if, at any time after any Note shall have so become due and
payable, the Company shall pay all arrears of interest on the Notes and all
payments on account of the principal of the Notes which shall have become due
otherwise than by acceleration (with interest on such principal and, to the
extent permitted by law, on overdue payments of interest), at the respective
rates per annum provided for in the Notes in respect of overdue amounts of
principal and interest, and all Events of Default (other than non-payment of
principal of, and accrued interest on Notes, due and payable solely by virtue of
acceleration) shall be remedied or waived pursuant to Section 17.2, then, and in
every such case, the holder or holders of at least a majority in unpaid
principal amount of the Notes at the time outstanding, by written notice to the
Company, may rescind and annul any such acceleration and its consequences with
respect to the Notes; but no such action shall affect any subsequent Default or
Event of Default or impair any right consequent thereon.
12.2 Suits for Enforcement. If any Event of Default shall have
occurred and be continuing, the holder of any Note may proceed to protect and
enforce its rights, either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant or agreement contained in
this Agreement or in aid of the
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exercise of any power granted in this Agreement, or the holder of any Note may
proceed to enforce the payment of all sums due upon such Note or to enforce any
other legal or equitable right of the holder of such Note.
The Company covenants that, if it shall default in the making of
any payment or principal of or interest or premium on any Note or in the
performance or observance of any agreement contained in this Agreement, it will
pay to the holder thereof such further amounts, to the extent lawful, as shall
be sufficient to pay the costs and expenses of collection or of otherwise
enforcing such holder's rights, including counsel fees and costs.
12.3 Remedies Cumulative. No remedy herein conferred upon you or
the holder of any Note is intended to be exclusive of any other remedy and each
and every such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or otherwise.
12.4 Remedies Not Waived. No course of dealing between the
Company and you or the holder of any other Note and no delay or failure in
exercising any rights hereunder or under any Note in respect thereof shall
operate as a waiver of any of your rights or the rights of any holder of such
Note.
Section 13. Subordination.
13.1 General. The Company, for itself and its Wholly-Owned
Subsidiaries and their respective successors and assigns, and each holder of
Subordinated Debt, by its acceptance thereof, agree that the payment of the
Subordinated Debt is and shall be junior in right of payment to the prior
payment in full in cash or cash equivalents of all Senior Debt to the extent and
in the manner hereinafter set forth in this Section 13. Each holder of Senior
Debt shall have been deemed to have acquired such Senior Debt in reliance upon
the subordination provisions set forth in this Section 13. The provisions of
this Section 13 are, and are intended, solely for the purpose of defining the
relative rights of the holders of the Subordinated Debt, on the one hand, and
the holders of Senior Debt, on the other hand.
13.2 Payment Defaults. During the continuance of any default in
the payment of any Senior Debt, whether at maturity, upon redemption or pursuant
to acceleration or otherwise (a "Payment Default"), no direct or indirect
payment of any kind shall be made with respect to principal of or interest or
premium (if any) on the Subordinated Debt until such Payment Default has been
cured or waived.
13.3 Non-Payment Defaults. During the continuance of any event of
default on or in respect of Senior Debt (other than a Payment Default) that
entitles the holders of such Senior Debt to accelerate the maturity of the
obligations outstanding thereunder (a "Non-Payment Default"), no direct or
indirect payment of any kind shall be made with respect to principal of or
interest (other than interest payable in the form of additional Securities) or
premium (if any) on the Subordinated Debt, and no holders
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of Subordinated Debt shall accept any such payment, for a period beginning on
the date on which written notice of such default (a "Blockage Notice") is given
to the Company by the holders of Senior Debt of an aggregate of at least
$3,000,000 in principal amount and ending on the earlier of (x) 179 days after
delivery of such Blockage Notice, or (y) the date on which such Non-Payment
Default is cured or waived, after which period the Company shall immediately
make all past-due payments and shall resume all other required payments
hereunder, including any payments omitted pursuant to this Section 13. No single
Non-Payment Default may serve as the basis for more than one Blockage Notice
(other than a Non-Payment Default that has been cured for a period of 90
consecutive days); no Non-Payment Default in existence on the date of delivery
of a Blockage Notice shall serve as the basis for any subsequent Blockage Notice
unless such Non-Payment Default shall have been cured for a period of 90
consecutive days; and during any 360-day period the holders of Senior Debt shall
not give more than one Blockage Notice. The Company agrees to deliver copies of
all Blockage Notices to the holders of Subordinated Debt immediately upon
receipt, although the failure of the Company to do so shall not affect the
rights of holders of Senior Debt under this Section 13.
13.4 Notice of Defaults. The Company shall give prompt written
notice to each holder of Subordinated Debt then outstanding of any default or
event of default in respect of Senior Debt referred to in Section 13.2 or 13.3.
13.5 Notice of Acceleration. Until all Senior Debt has been paid
in full in cash or Cash Equivalents, no holder of Subordinated Debt shall
accelerate the maturity of any Subordinated Debt, unless such holder of
Subordinated Debt shall give written notice at least seven Business Days prior
thereto to the Senior Lenders of its intention to accelerate, provided that any
payment to such holder of Subordinated Debt resulting from any such acceleration
shall be subject to the provisions of this Section 13.
13.6 Bankruptcy, etc. Upon any distribution of assets of the
Company of any kind or character upon any dissolution, winding up, total or
partial liquidation or reorganization of the Company (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit of
creditors or otherwise):
(a) the holders of all Senior Debt shall first be entitled to
receive payment in full in cash or cash equivalents of all obligations owing in
respect thereof before any payment is made on account of the principal of or
interest or premium (if any) on the Subordinated Debt; and
(b) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to which the holders
of Subordinated Debt would be entitled except for the provisions of this Section
13 shall be paid by the liquidating trustee or agent or other Person making such
payment or distribution directly to the holders of Senior Debt or their
representative or representatives under the agreements pursuant to which the
Senior Debt may have been issued, to the extent necessary to make payment in
full of all Senior Debt remaining unpaid after giving
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effect to any concurrent payment or distribution to the holders of such Senior
Debt.
Notwithstanding the foregoing, nothing herein shall be construed
as prohibiting the holders of Subordinated Debt from receiving Reorganization
Securities in connection with any such dissolution, winding up, liquidation or
reorganization of the Company.
13.7 Amounts in Trust. If any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities, shall be received by the holders of Subordinated Debt on account of
principal of or interest or premium (if any) on the Subordinated Debt that,
because of the provisions of this Section 13, should not have been made, then
such payment or distribution shall be received and held in trust for, and shall
be paid over to, the holders of the Senior Debt remaining unpaid or unprovided
for or their representative or representatives under the agreements pursuant to
which the Senior Debt may have been issued for application to the payment of
such Senior Debt until all such Senior Debt shall have been paid in full, after
giving effect to any concurrent payment or distribution to the holders of such
Senior Debt.
13.8 Subrogation. Subject to the holders of Senior Debt having
received payment in full of all Senior Debt, the holders of Subordinated Debt
shall be subrogated to the rights of the holders of Senior Debt to receive
payments or distributions of assets of the Company made on the Senior Debt until
all amounts payable in respect of the Subordinated Debt shall be paid in full.
For purposes of such subrogation, no payment or distribution to the holders of
the Senior Debt of assets, whether in cash, property or securities,
distributable to the holders of Senior Debt under the provisions of this Section
13 to which the holders of the Subordinated Debt would be entitled except for
the provisions of this Section 13, and no payment pursuant to the provisions of
this Section 13 to the holders of Senior Debt by the holders of the Subordinated
Debt shall, as between the Company, its creditors other than the holders of the
Senior Debt, and the holders of the Subordinated Debt, be deemed to be a payment
by the Company to or on account of such Senior Debt.
13.9 Reinstatement. If, at any time, all or part of any payment
with respect to Senior Debt theretofore made by the Company or any other Person
is rescinded for any reason whatsoever (including, without limitation, the
insolvency, bankruptcy or reorganization of the Company or such other Person),
the subordination provisions set forth herein shall continue to be effective or
be reinstated, as the case may be, all as though such payment had not been made.
13.10 Proofs of Claim. So long as any Senior Debt is outstanding,
if any Event of Default under Section 12(f) or (g) occurs, and if any holder of
Subordinated Debt fails to file any claim or proof of claim necessary to enforce
the obligations of the Company in respect of such Subordinated Debt at least ten
days before the time to file such claim or proof of claim has expired, any
holder of Senior Debt may (but shall have no obligation to) file any such claim
or proof of claim, and each holder of a Note hereby acknowledges that any Senior
Lender may so file any such claims and proofs of claim.
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13.11 Reliance on Orders. Upon any distribution of assets of the
Company referred to in this Section 13, the holders of the Subordinated Debt
shall be entitled to rely upon any Order or decree made by any court of
competent jurisdiction in which such bankruptcy, insolvency, receivership,
dissolution, winding-up, liquidation, reorganization or other proceeding is
pending, or a certificate of the liquidating trustee or agent or other Person
making any distribution to such holders, for the purpose of ascertaining the
Persons entitled to participate in such distribution, the holders of the Senior
Debt, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Section 13.
Nothing in the foregoing sentence shall limit the right of the holders of Senior
Debt to receive payment in full of the Senior Debt.
13.12 Rights of Senior Debt. Each holder of Subordinated Debt
agrees and consents that without notice to or assent by such holder of
Subordinated Debt, and without affecting the liabilities and obligations of the
Company and the rights and benefits of the holders of the Senior Debt set forth
in this Section 13:
(a) the obligations and liabilities of the Company and any other
party or parties for or upon the Senior Debt may, from time to time, be
increased, renewed, refinanced, extended, modified, amended, restated,
compromised, supplemented, terminated, waived or released (but only to the
extent permitted by the terms of Section 11.1);
(b) the holders of Senior Debt, and any representative or
representatives acting on behalf thereof, may exercise or refrain from
exercising any right, remedy or power granted by or in connection with any
agreements relating to the Senior Debt; and
(c) any balance or balances of funds with any holder of Senior
Debt at any time outstanding to the credit of the Company may, from time to
time, in whole or in part, be surrendered or released, all as the holders of any
Senior Debt, or any representative or representatives acting on behalf thereof,
may deem advisable, and all without impairing, abridging, diminishing, releasing
or affecting the subordination of the obligations hereunder to Senior Debt.
13.13 No Modification, etc. The provisions of this Section 13 are
for the benefit of the holders from time to time of Senior Debt and, so long as
any Senior Debt remains outstanding, may not be modified, rescinded or canceled
in whole or in part without the prior written consent thereto of all holders of
Senior Debt.
13.14 Further Assurances. Until all of the Senior Debt has been
fully paid, each holder of Subordinated Debt hereby undertakes and agrees for
the benefit of the holders of Senior Debt that, upon the occurrence and during
the continuance of any events set forth in Section 13.2 or 13.3, such holder of
Subordinated Debt shall take any actions reasonably requested by any holder of
Senior Debt to effectuate the full benefit of the subordination contained
herein.
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13.15 Waiver of Notice. To the extent permitted by applicable
law, the holders of Subordinated Debt and the Company hereby waive (i) notice of
acceptance hereof by the holders of the Senior Debt and (ii) all diligence in
the collection or protection of or realization upon the Senior Debt.
13.16 Specific Performance. The Company and the holders of
Subordinated Debt hereby expressly agree that the holders of Senior Debt may
enforce any and all rights derived herein by suit, either in equity or at law,
for specific performance of any agreement contained in this Section 13 or for
judgment at law and any other relief whatsoever appropriate to such action or
procedure.
13.17 Events of Default. The failure to make a payment on account
of the principal of or interest or premium (if any) on the Subordinated Debt by
reason of any provision in this Section 13 shall not be construed as preventing
the occurrence of an Event of Default under Section 12.
13.18 Obligations Unconditional. Nothing contained in this
Section 13 or elsewhere in this Agreement or in any Subordinated Debt is
intended to or shall impair, as between the Company and its creditors other than
the holders of Senior Debt, the obligations of the Company to the holders of the
Subordinated Debt to pay any amount in respect of the Subordinated Debt as and
when such amount shall become due and payable in accordance with the terms
hereof and thereof, or to affect the relative rights of the holders of the
Subordinated Debt and creditors of the Company other than the holders of Senior
Debt, nor shall anything herein prevent any holder of Subordinated Debt from
exercising all remedies otherwise permitted by applicable law upon the happening
of an Event of Default under this Agreement, subject to Section 13.2, 13.3 or
13.5 and the rights, if any, under this Section 13 of the holders of Senior Debt
in respect of assets, whether in cash, property or securities, of the Company
received upon the exercise of any such remedy.
Nothing contained in this Section 13 or elsewhere in this
Agreement or in the Subordinated Debt shall, except during the pendency of any
dissolution, winding-up, liquidation, reorganization, arrangement, adjustment,
composition, recapitalization or readjustment of the Company or its securities
or debt (whether voluntary or involuntary or in bankruptcy, insolvency,
reorganization, liquidation, receivership proceedings, or upon an assignment for
the benefit of creditors, or any other marshaling of the assets and liabilities
of the Company, or otherwise), affect the obligation of the Company to make, or
prevent the Company from making, at any time (except under the circumstances
described in Section 13.2 and 13.3), payment of any amount in respect of the
Subordinated Debt.
13.19 Absence of Notice. No holder of any Subordinated Debt shall
at any time be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to it, unless and until such holder shall
have received written notice thereof at the address set forth in Schedule I from
the Company or from one or more holders of Senior Debt or from any
representative thereof; and prior to the receipt
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of any such written notice each such holder of Subordinated Debt shall be
entitled to assume conclusively that no such facts exist, without, however,
limiting any rights of holders of Senior Debt under this Section 13 to recover
from the holders of the Subordinated Debt any payment made to any such holder
which it is not entitled under this Section 13 to retain.
Each holder of any Subordinated Debt shall be entitled to rely on
the delivery to it of a written notice by a Person representing himself or
itself to be a holder of Senior Debt to establish that such notice has been
given by a holder of Senior Debt. In the event that such holder of Subordinated
Debt determines in good faith that further evidence is required with respect to
the right of any Person as a holder of Senior Debt to participate in any payment
or distribution pursuant to this Section 13, such holder of Subordinated Debt
may request such Person to furnish evidence reasonably satisfactory to such
holder of Subordinated Debt as to the amount of Senior Debt held by such Person,
the extent to which such Person is entitled to participate in such payment or
distribution, and any other facts pertinent to the rights of such Person under
this Section 13, and if such evidence is not furnished such holder of
Subordinated Debt may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
13.20 Information. The Company will not publish or give to any
creditor or prospective creditor of the Company any copy, statement or summary
(or acquiesce in the publication or giving of any such copy, statement or
summary) as to the subordination of the rights of the holders of the
Subordinated Debt without also stating or causing to be stated (in a conspicuous
manner in the case of any document) that such subordination is solely for the
benefit of the holders of Senior Debt and not for the benefit of any other
creditor of the Company.
13.21 Intercreditor Subordination. Notwithstanding anything to
the contrary contained in this Section 13, for purposes of this Section 13:
(a) As between the holder of the Notes and the holders of the
Bridge Notes, and notwithstanding anything to the contrary in the Bridge
Facility, Debt of the Company owing under the Bridge Facility shall be treated
as Senior Debt, and subject to paragraph (c) below, the provisions of this
Section 13 shall apply to the holders of the Notes and the holders of the Bridge
Notes mutatis mutandis with respect to each other.
(b) Debt and other obligations owing under any Subsidiary
Guaranty shall be included within the definition of Subordinated Debt.
(c) Any notice or other action which the Senior Lenders have the
right to give or take pursuant to this Section 13 (including but not limited to
giving a Blockage Notice pursuant to Section 13.3 and filing proofs of claim
pursuant to Section 13.10) shall be given or taken by the Senior Lender under
the Barnett Facility in its sole discretion, and the holders of the Bridge Notes
shall have no right to give any such
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notice or take any such action unless the Senior Lender under the Barnett
Facility has consented thereto in writing in its sole discretion, provided that
the provisions of this Section 13 may not be modified, rescinded or canceled in
whole or in part without the prior written consent of all Senior Lenders
(including the holders of the Bridge Notes).
Section 14. Registration, Exchange and Transfer of Notes. The
Company will keep at its principal executive office a register, in which,
subject to such reasonable regulations as it may prescribe, but at its expense
(other than transfer taxes, if any), it will provide for the registration and
transfer of the Notes.
Whenever any Notes shall be surrendered either at the principal
executive office of the Company or at the place of payment named in the Note,
for transfer or exchange, accompanied (if so required by the Company) by a
written instrument of transfer in form satisfactory to the Company duly executed
by the holder thereof or by such holder's attorney duly authorized in writing,
the Company will execute and deliver in exchange therefor a new Note or Notes.
If reasonably requested by the Company, in the case of a transfer to a Person
that is not a "qualified institutional buyer" (as defined in Rule 144A under the
Securities Act), such holder shall furnish to the Company an opinion of counsel
in form and substance reasonably satisfactory to the Company, to the effect that
such transfer and exchange is in compliance with the Federal securities laws.
Any Note issued in exchange for any other Note or upon transfer thereof shall
carry the rights to unpaid interest and interest to accrue which were carried by
the Note so exchanged or transferred, and neither gain nor loss of interest
shall result from any such transfer or exchange. Any transfer tax or
governmental charge relating to such transaction shall be paid by the holder
requesting the exchange.
The Company and its agents may treat the Person in whose name any
Note is registered as the owner of such Note for the purpose of receiving
payment on the principal of and prepayment charge (if any) and interest on such
Note and for all other purposes whatsoever, whether or not such Note be overdue.
Section 15. Lost, Stolen, Damaged and Destroyed Securities. At
the request of any holder of any Note or Warrant, the Company will issue and
deliver at its expense, in replacement of any Note or Warrant lost, stolen,
damaged or destroyed, upon surrender thereof, if mutilated, a new Note or Notes
in the same unpaid principal amount and otherwise of the same tenor, or a new
Warrant containing the same rights with respect to the exercise price,
conditions (if any) to exercise, expiration date, anti-dilution provisions, and
number of shares and class of stock issuable thereunder, as the Note or Warrant
reported by the holder thereof as lost, stolen, damaged or destroyed, upon the
receipt from such holder of an indemnity or security reasonably satisfactory to
the Company; provided that if such holder shall be you or your nominee or
another Eligible Holder or its nominee, your or such Eligible Holder's unsecured
agreement of indemnity shall be sufficient for purposes of this Section.
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Section 16. Definitions.
16.1 General Terms. For the purposes of this Agreement, the
following terms shall have the following meanings:
"Accountants" is defined in Section 8.
"Acquisition" is defined in the first paragraph hereof.
"Acquisition Agreement" is defined in the first paragraph hereof.
"Acquisition Closing Date" means the date of the closing of the
transactions under the Acquisition Agreement.
"Acquisition Documents" means the Acquisition Agreement and all
agreements, instruments and documents executed and delivered pursuant to each of
them, as the same may be amended, modified or supplemented in accordance with
the terms hereof and thereof.
"Adjusted EBIT" for any Reference Period, means Consolidated Net
Income before dividends, (a) adjusted by adding thereto (i) Consolidated
Interest Expense and (ii) income taxes, all to the extent deducted in arriving
at the calculation of Consolidated Net Income for such Reference Period; and (b)
further adjusted by excluding therefrom all extraordinary gains and losses and
all other extraordinary or non-recurring items (in each case as determined in
accordance with GAAP).
"Adjusted Net Worth" at any date of determination, means the
aggregate Consolidated stockholders' equity (including amounts attributable to
Preferred Stock) shown on the balance sheet of the Company and its Consolidated
Subsidiaries delivered pursuant to Section 7 most recently prior to such date,
adjusted to exclude (to the extent included in calculating such equity), (a)
amounts attributable to Disqualified Stock or treasury stock of the Company and
its Consolidated Subsidiaries, (b) all upward revaluations and other write-ups
in the book value of any asset of the Company or a Subsidiary subsequent to the
Closing Date.
"Affiliate" means any Person directly or indirectly controlling
or controlled by or under common control with the Company or any Subsidiary,
including (without limitation) any Person beneficially owning or holding 5% or
more of any class of voting securities of the Company or any Subsidiary or any
other corporation of which the Company or any Subsidiary owns or holds 5% or
more of any class of voting securities, provided that, for purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise,
and provided further that neither you nor any other Person which is an
institutional investor shall
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be deemed to be an Affiliate of the Company or any of its Subsidiaries solely by
reason of ownership of the Notes or Warrants or other securities issued in
exchange for the Notes or Warrants or by reason of having the benefits of any
agreements or covenants of the Company contained in this Agreement.
"Agreement" means this Securities Purchase Agreement as it may be
amended, modified, supplemented or restated from time to time.
"Alliance Capital" means Alliance Capital Management, L.P., a
Delaware limited partnership.
"Applicable Rate" means 11 3/4%, unless the Bridge Notes are
outstanding after January 15, 1998 in which event and from and after such date
the Applicable Rate shall be 12 3/4% and shall remain at such rate at all times
after January 15, 1998; provided that if the Company has not Satisfied the
Section 10.10 Condition, the Applicable Rate shall be (a) 14% from and after May
15, 1997 or (b) 15% from and after January 15, 1998, if any Bridge Notes are
outstanding after such date, provided however that at such time that the Company
has Satisfied the Section 10.10 Condition the Applicable Rate will be reduced to
11 3/4% or 12 3/4%, as applicable.
"Barnett Facility" has the meaning specified in the definition of
Senior Credit Agreements herein.
"Board" means the Board of Directors of the Company or a
committee of two or more directors lawfully exercising the relevant powers of
the Board.
"Bridge Facility" has the meaning specified in the definition of
Senior Credit Agreements herein.
"Bridge Notes" means the Senior Subordinated Notes issued
pursuant to the Bridge Facility.
"Business Day" means any day except a Saturday, a Sunday or a
legal holiday in the City of New York.
"Capital Lease" as applied to any Person, any lease of any
Property (whether real, personal or mixed) by such Person as lessee which would,
in accordance with GAAP, be required to be classified and accounted for as a
capital lease on a balance sheet of such Person, other than, in the case of the
Company or a Subsidiary, any such lease under which the Company or a
Wholly-Owned Subsidiary is the lessor.
"Capital Lease Obligation" with respect to any Capital Lease,
means the amount of the obligation of the lessee thereunder which would, in
accordance with GAAP, appear on a balance sheet of such lessee in respect of
such Capital Lease.
"Cash Equivalents" means
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(i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or issued by
any agency thereof and backed by the full faith and
credit of the United States of America, in each case
maturing within one year from the date of acquisition
thereof,
(ii) marketable direct obligations issued by any state of the
United States of America or any political subdivision of
any such state or any public instrumentality thereof
maturing within one year from the date of acquisition
thereof and having as at any date of determination the
highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc.,
(iii) commercial paper maturing no more than 270 days from the
date of creation thereof and having as at any date of
determination the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors
Service, Inc.,
(iv) certificates of deposit maturing within one year from
the date of acquisition thereof issued by commercial
banks incorporated under the laws of the United States
of America or any state thereof or the District of
Columbia, each having as at any date of determination
combined capital and surplus of not less than
$300,000,000 ("Permitted Banks") or a foreign branch
thereof,
(v) bankers' acceptances eligible for rediscount under
requirements of The Board of Governors of the Federal
Reserve System and accepted by Permitted Banks,
(vi) obligations of the type described in clauses (i) through
(iv) above purchased from a securities dealer designated
as a "primary dealer" by the Federal Reserve Bank of New
York or a Permitted Bank as counterparty pursuant to a
repurchase agreement obligating such counterparty to
repurchase such obligations not later than 14 days after
the purchase thereof and which provides that the
obligations which are the subject thereof are held for
the benefit of the Company and its Subsidiaries by a
custodian which is a Permitted Bank and which is not the
counterparty to the repurchase agreement in question,
and
(vii) the securities of any investment company registered
under the Investment Company Act of 1940 which is a
"money market fund" within the meaning of regulations of
the Securities and Exchange Commission, or an interest
in a pooled fund maintained by a Permitted Bank having
comparable investment restrictions.
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"Certificate of Incorporation" is defined in Section l(b).
"certified" means, when used with respect to any financial
information of any Person to be certified by any of its respective financial or
accounting officers, that such information is to be accompanied by a certificate
to the effect that such financial information has been prepared in accordance
with GAAP, subject in the case of interim financial information to non-material
recurring year-end audit adjustments (which, if anticipated, shall be footnoted
and be taken into account for all purposes of this Agreement) and the absence of
notes thereto, and presents fairly the information contained therein as at the
dates and for the periods covered thereby.
"Change of Control" means (a) the sale, lease or transfer of all
or substantially all of the Company's assets to any Person or "group" (within
the meaning of Section 13(d) of the Exchange Act, hereinafter a "Group")
together with any Affiliates thereof, (b) the liquidation of the Company, (c)
the acquisition after the date hereof by any Person or Group, together with any
Affiliates thereof, of a majority of the Voting Stock of the Company, or (d) the
success by any Person or Group, together with any Affiliates thereof, in causing
its or their nominees to be elected to the Board such that such nominees, when
added to any director remaining on the Board who is an Affiliate or Related
Person of such Person or Group, shall constitute a majority of the Board of
Directors.
"Closing" means the closing of the transactions contemplated to
occur on the Closing Date.
"Closing Costs" means all fees, costs and expenses incurred by
the Company and its Subsidiaries in connection with the closing of the
transactions contemplated hereunder, including, without limitation, legal fees,
accounting fees, financing fees and broker's fees.
"Closing Date" is defined in Section 2.3.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Agency Agreement" means the Collateral Agency
Agreement, dated as of the date hereof, among Barnett Bank N.A. (as Senior
Lender and as Collateral Agent), Purchaser and the Company.
"Common Shares" is defined in Section 1(b).
"Common Stock" is defined in Section 1(b).
"Company" is defined in the first paragraph hereof and shall
include any successor in interest to the Company by merger, consolidation or
otherwise.
"Company Plan" is defined in Section 5.20.
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"Company SEC Reports" is defined in Section 5.9(b).
"Company Taxpayers" is defined in Section 5.16.
"Consolidated" means, when used with reference to any financial
term in this Agreement, the aggregate for the Company and its Subsidiaries of
the amounts signified by such term determined on a consolidated basis in
accordance with GAAP.
"Consolidated Interest and Dividend Coverage Ratio" for any
Reference Period, means the ratio of (a) Adjusted EBIT for such Reference Period
to (b) the sum of (i) Consolidated Interest Expense for such Reference Period,
plus (ii) capitalized interest for such Reference Period, plus (iii) all cash
dividends accrued or paid on capital stock, including Disqualified Stock, of the
Company during such Reference Period.
"Consolidated Interest Expense" for any Reference Period means
(a) the Interest Expense of the Company and its Subsidiaries during such
Reference Period, less (b) the Interest Expense of any Non-US Subsidiary during
such Reference Period.
"Consolidated Net Income" for any Reference Period, means (a) the
net income (or deficit) of the Company and its Subsidiaries for such period
(taken as a cumulative whole), after deducting all operating expenses,
provisions for all taxes and reserves and all other proper deductions, all
determined in accordance with GAAP on a consolidated basis, less (k) the sum of
(i) the net income (or deficit) of any Wholly-Owned Subsidiary which is subject
to a restriction of the type referred to in Section 11.10 and of any Non
Wholly-Owned Subsidiary and (ii) the net income (or deficit) of any Non-US
Subsidiary.
"Consolidated Tangible Net Worth" means Adjusted Net Worth,
adjusted by deducting therefrom the net book amount of all assets, after
deducting any reserves applicable thereto, which would be treated as intangible
under GAAP.
"Controlled Group" shall mean all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Company, are treated as a single
employer under Section 414 of the Code.
"Credit Documents" means the Senior Credit Agreements and all
agreements, instruments and documents executed and delivered pursuant thereto,
as the same may from time to time be amended, modified or supplemented in
accordance with the terms hereof and thereof.
"Debt" as applied to any Person (without duplication) means:
(a) any indebtedness for borrowed money which such Person has
directly or indirectly created, incurred or assumed; and
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(b) any indebtedness secured by any Lien in respect of Property
owned by such Person, whether or not such Person has assumed or become
liable for the payment of such indebtedness; and
(c) any indebtedness with respect to which such Person has become
directly or indirectly liable and which represents or has been incurred
to finance the purchase price (or a portion thereof) of any property or
services or business acquired by such Person, whether by purchase,
consolidation, merger or otherwise; and
(d) any indebtedness of any other Person of the character
referred to in subdivision (a), (b) or (c) of this definition with
respect to which the Person whose Debt is being determined has become
liable by way of a Guaranty.
"Debt for Borrowed Money" as to any Person means Debt in respect
of borrowed money, any Capital Lease or the deferred purchase price of Property.
"Default" means any event or condition which, with due notice or
lapse of time or both, would become an Event of Default.
"Disqualified Stock" means (a) any capital stock of the Company
or any Subsidiary that, by its terms, matures, or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or is redeemable at the
option of the holder or holders thereof, in whole or in part on or prior to the
date of final maturity of the Notes, (b) any Preferred Stock of any Subsidiary,
(c) any capital stock issuable or issued pursuant to the Rights Plan, and (d)
any capital stock of the Company or any Subsidiary which is convertible into or
exchangeable for any stock described in clauses (a), (b) and (c) above.
"EBITDA" shall mean for any period the sum of (i) Adjusted EBIT,
(ii) depreciation expenses for such period and (iii) amortization expenses for
such period.
"Eligible Holder" is defined in Section 8.
"Environmental Laws" means the Comprehensive Environmental
Response, Compensation, and Liability Act, the Resource Conservation and
Recovery Act, the Emergency Planning and Community Right to Know Act, the Clean
Water Act, the Safe Drinking Water Act, the Clean Air Act, any so-called
"Superfund" or "Superlien" law, or any other federal, state or local statute,
law, ordinance, code, rule, regulation, Order, decree or other requirement of
any Governmental Body regulating, relating to or imposing liability or standards
of conduct concerning, health, safety and any Hazardous Material.
"EPA Matters" is defined in Section 5.22.
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"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means any corporation or other Person which is
or was a member of the same controlled group (within the meaning of Section
414(b) of the Code) of corporations or other Persons as the Company, or is or
was under common control (within the meaning of Section 414(c) of the Code) with
the Company.
"Event of Default" is defined in Section 12.1.
"Excess Sale Proceeds" means Net Cash Proceeds which have not
been reinvested or applied pursuant to Section 11.7(b)(vi)(A) or (B).
"Exchange Act" meats the Securities Exchange Act of 1934, as
amended.
"Facility" means any real property owned, operated, or leased by
the Company or any Subsidiary of the Company, either as of the date hereof or at
any time previously or thereafter.
"Fair Market Value" with respect to any sale of assets of the
Company or any of its Subsidiaries pursuant to Section 11.7, means the fair
market value of the assets to be sold (a) in the case of any asset sale
involving consideration of $5,000,000 or less, as determined in good faith by
the Board and evidenced by a resolution filed with the minutes of the meeting of
the Board and (b) in the case of any asset sale involving consideration of more
than $5,000,000, as determined by an investment banking or accounting firm of
national standing selected by the Company.
"Federal Bankruptcy Code" means the United States Bankruptcy Code
of 1978, as amended.
"Financial Statements" means any financial statements required to
be given to the Eligible Holders under this Agreement.
"Fiscal Year" means the accounting period of each of the Company
and its Subsidiaries ending on December 31 of each year.
"GAAP" means generally accepted accounting principles the United
States of America in effect from time to time, applied on a consistent basis
both as to classification of items and amounts.
"Governmental Body" means any federal, state, county, city, town,
village, municipal or other governmental department, commission, board, bureau,
agency, authority, instrumentality or court, domestic or foreign.
"Guaranty" as applied to any Person, means any direct or indirect
liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease,
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dividend or other obligation of another, including, without limitation, any such
obligation directly or indirectly guaranteed, endorsed (otherwise than for
collection or deposit in the ordinary course of business) or discounted or sold
with recourse by such Person, or in respect of which such Person is otherwise
directly or indirectly liable, including, without limitation, any such
obligation in effect guaranteed by such Person through any agreement (contingent
or otherwise) to purchase, repurchase or otherwise acquire such obligation or
any security therefor, or to provide funds for the payment or discharge of such
obligation (whether in the form of loans, advances, stock purchases, capital
contributions or otherwise), or to maintain the solvency or any balance sheet or
other financial condition of the obligor of such obligation, or to make payment
for any products, materials or supplies or for any transportation or services
regardless of the non-delivery or non-furnishing thereof, in any such case if
the purpose or intent of such agreement is to provide assurance that such
obligation will be paid or discharged, or that any agreements relating thereto
will be complied with, or that the holders of such obligation will be protected
against loss in respect thereof. The amount of any Guaranty shall be equal to
the outstanding principal amount of the obligation guaranteed. For the purposes
of Section 11.3, the amount involved in any Guaranty which constitutes a
Restricted Investment made during any period shall be the aggregate amount of
the obligation guaranteed, less any amount by which the guarantor may have been
discharged with respect thereto (including any discharge by way of a reduction
in the amount of the obligation guaranteed), provided that the guarantor shall
not be deemed to have been discharged with respect to any Guaranty to the extent
the guarantor shall have been required to perform such Guaranty (except to the
extent that any loss on such Guaranty has been recognized in reducing
Consolidated Net Income).
"Hazardous Materials" means any chemicals, pollutants,
contaminants, wastes, hazardous or toxic substances, radioactive materials,
asbestos, genetically modified organisms, petroleum or hydrocarbon and petroleum
or hydrocarbon products.
"Indemnified Liabilities" is defined in Section 17.10(a).
"Indemnitee" is defined in Section 17.10(a).
"Intellectual Property" means all of the following, whether now
owned or hereafter arising or acquired: licenses, franchises, permits, patents,
patent rights, copyrights, works which are the subject matter of copyrights,
trademarks, tradenames, tradestyles, patent and trademark applications and
licenses and rights thereunder, including, without limitation, those patents,
trademarks and copyrights set forth on Schedule 5.20, and all other rights under
any of the foregoing, all extensions, renewals, reissues, divisions,
continuations, and continuations-in-part of any of the foregoing, and all rights
to sue for past, present, and future infringement of any of the foregoing;
inventions, trade secrets, formulae, processes, compounds, drawings, designs,
blueprints, surveys, reports, manuals, and operating standards; goodwill,
customer and other lists, in whatever form maintained; and trade secret rights,
copyright rights, rights in works of authorship, and contract rights relating to
computer software programs, in whatever
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form created or maintained.
"Interest Coverage Ratio" means the ratio of (i) EBITDA to (ii)
Interest Expense.
"Interest Expense" as applied to any Person with reference to any
period, means interest expense of such Person for such period, including
amortization of debt discount and expense and imputed interest on Capital Lease
Obligations properly chargeable to income during such period in accordance with
GAAP.
"Inventories" means goods held for sale or lease or furnished
under contract of service or raw materials, work in progress or materials used
or consumed in the operation of the Company's business.
"Investments" means any advances or loans to, or investments (by
way of transfers of property, contribution to capital, acquisitions of stocks,
securities or evidences of indebtedness or otherwise) in, or guarantees on
behalf of any Person.
"Lien" as to any Person, means any mortgage, lien, pledge,
adverse claim, charge, security interest or other encumbrance in or on, or any
interest or title of any vendor, lessor, lender or other secured party to or of
such Person under any conditional sale or other title retention agreement or
Capital Lease with respect to, any property or asset owned or held by such
Person, or the signing or filing of a financing statement which names such
Person as debtor, or the signing of any security agreement authorizing any other
party as the secured party thereunder to file any financing statement.
"Make-Whole Premium" with respect to any Note, means a premium
equal to the excess, if any, of the Discounted Value of the outstanding
principal amount of such Note at the time of determination over the Called
Principal of such Note. The Make-Whole Premium shall in no event be less than
zero. As used in this definition, the following terms have the following
meanings:
"Called Principal" with respect to any Note, means the principal of such
Note that is to be prepaid, subject to a Make-Whole Premium, pursuant to
Section 4.2 or 4.3 or is declared to be immediately due and payable
pursuant to Section 12, as the context requires.
"Discounted Value" with respect to the Called Principal of any Note,
means the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on a semiannual basis) equal to the
Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" with respect to the Called Principal of any Note,
means the
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sum of (a) 1.0% plus (b) the yield to maturity determined by reference
to the Treasury Constant Maturity Series yields reported, for the latest
day for which such yields shall have been reported as of the Business
Day next preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or, if
such Statistical Release is not published, any publicly available source
of similar market data acceptable to the holders of more than 50% in
principal amount of the Notes being prepaid or accelerated) for actively
traded U.S. Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement
Date. Such implied yield shall be determined, if necessary, (x) by
converting U.S. Treasury bill quotations to bond-equivalent yields in
accordance with accepted financial practice and (y) by linear
interpolation between reported yields.
"Remaining Average Life" with respect to the Called Principal of any
Note, means the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (a) such Called Principal into (b) the sum of
the products obtained by multiplying (i) each Remaining Scheduled
Payment of such Called Principal (but not of interest thereon) by (ii)
the number of years (calculated to the nearest one-twelfth year) which
will elapse between the Settlement Date with respect to such Called
Principal and the scheduled due date of such Remaining Scheduled
Payment.
"Remaining Scheduled Payments" with respect to the Called Principal of
any Note, means all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect
to such Called Principal if no payment of such Called Principal were
made prior to its scheduled due date.
"Settlement Date" with respect to the Called Principal of any Note,
means the date on which such Called Principal is to be prepaid pursuant
to Section 4.2 or 4.3 or is declared to be immediately due and payable
pursuant to Section 12, as the context requires.
"Material Adverse Effect" means any change(s) or effect(s) that
individually or in the aggregate is or may (so far as can be reasonably foreseen
at the time) be materially adverse to (i) the assets, business, operations,
income, prospects or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole, or, if so expressly provided in this Agreement,
the Company or any of its Subsidiaries, or the transactions contemplated by this
Agreement or the Related Documents, or (ii) the ability of the Company to
perform its obligations under this Agreement, the Related Documents to which it
is a party and any of the Securities, as the case may be, and of any of its
Subsidiaries to perform its obligations under the Related Documents to which
such Subsidiary is a party.
"Net Cash Proceeds" means, for any Asset Sale, any other sale,
lease, transfer or other disposition of any asset, or for any sale or issuance
of any security,
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by any Person, the aggregate amount of cash received by such Person for such
asset or security after deducting therefrom (a) the amount of such proceeds
required to be applied at such time to repay Senior Debt, (b) brokerage
commissions, legal fees, finder's fees and other similar fees and commissions,
(c) the amount of taxes currently payable in connection with or as a result of
such transaction, and (d) other out-of-pocket costs incurred in connection
therewith, in the case of each of clauses (a), (b), (c) and (d) above to the
extent, but only to the extent, that the amounts so deducted are, at the time of
receipt of such cash, paid to a Person that is not an Affiliate of such Person
(or, if paid to such an Affiliate, to the extent the terms of such payment are
no more favorable to such Affiliate than such terms would be in an arm's-length
transaction) and are properly attributable to such transaction or to the asset
or security that is the subject thereof.
"Net Income" means, for any period, net income (or loss),
excluding extraordinary, unusual and non-recurring items, of the Company and its
Subsidiaries for such period, determined in accordance with GAAP on a
consolidated basis.
"Non-US Subsidiary" means any Subsidiary not incorporated or
organized under the laws of one of the states of the United States.
"Non Wholly-Owned Subsidiary" means any Subsidiary of the Company
which is not a Wholly-Owned Subsidiary.
"Notes" is defined in the first paragraph hereof.
"Obligations" means all Debt, obligations and liabilities of the
Company to the Purchaser incurred under or arising out of or in connection with
this Agreement and the Notes, whether for principal, interest, premium, fees,
expenses or otherwise.
"Officer's Certificate" means with respect to any corporation, a
certificate signed by the Chairman of the Board, the President, one of the Vice
Presidents or the chief financial officer of the specified corporation.
"Order" includes any order, writ, injunction, decree, judgment,
award, determination or written direction of any court, arbitrator or
Governmental Body.
"PBGC" means the Pension Benefit Guaranty Corporation or any
governmental authority succeeding to any of its functions.
"Permitted Liens" is defined in Section 11.2.
"Pension Plan" means an employee pension benefit plan, as defined
in Section 3(2) of ERISA, maintained by the Company or any of its Subsidiaries.
"Person" means and includes an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any
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department or agency thereof.
"Plan" and "Plans" means any employee benefit plan as defined in
Section 3 of ERISA established or maintained for the benefit of employees of the
Company or any of its Subsidiaries.
"Potential Event of Default" means any condition or event which,
with notice or lapse of time or both, would become an Event of Default.
"Preferred Stock" as applied to any corporation, means shares of
such corporation which shall be entitled to preference or priority over any
other shares of such corporation in respect of either the payment of dividends
or the distribution of assets upon liquidation or both.
"Private Placement Memorandum" means the Private Placement
Memorandum prepared by Alex. Brown & Sons Incorporated for use in connection
with the Company's private placement of the Notes and Warrants.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Public Offering" means an underwritten primary public offering
of Common Stock of the Company pursuant to an effective registration statement
under the Securities Act such that, after giving effect to such offering, the
Company shall have received net proceeds from such public offering of at least
$8,000,000.
"Purchaser" is defined in the second paragraph hereof.
"Reference Period" as of any date of determination, means the
four consecutive full fiscal quarters (or such lesser period during which such
Person has been in existence) ended most recently prior to such date.
"Related Documents" means the Warrants, the Subsidiary Guaranty,
the Collateral Agency Agreement, the Acquisition Documents, and the Senior Debt
Instruments, and all other documents and instruments executed or delivered in
connection therewith or pursuant thereto.
"Related Person" means any trade or business, whether or not
incorporated, which, together with the Company, is under common control, as
described in Section 414(b) or (c) of the Code.
"Reorganization Securities" means, as to any Person, securities
of such Person as reorganized or readjusted or securities of such Person
provided for by a plan of reorganization, arrangement, adjustment, composition,
recapitalization or readjustment, or other securities (including, without
limitation, equity securities), in each case the payment of which is
subordinate, at least to the extent provided in
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Section 13 with respect to the Subordinated Debt, to the payment of all Senior
Debt at the time outstanding and to the payment of all securities issued in
exchange therefor to holders of such Senior Debt at the time outstanding.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder (with the exception of those
events for which the 30-day notice is waived by regulations).
"Required Holders" means, at any time, the holders of at least
51% of the aggregate principal amount of the Subordinated Debt then outstanding.
"Restricted Payment" means (a) any declaration or payment of any
dividend or other distribution, direct or indirect, on account of any shares of
any class of stock of the Company or any of its Subsidiaries (other than to the
Company or to other Subsidiaries), now or hereafter outstanding, other than
pursuant to the Rights Plan; (b) any redemption, retirement, purchase or other
acquisition, direct or indirect, of any shares of any class of stock of the
Company now or hereafter outstanding, or of any warrants, rights or options to
acquire any such shares, (other than (x) stock held by the Company or other
Subsidiaries, (y) stock issued upon exercise of the Company's outstanding
publicly traded warrants in accordance with the terms of such warrants or (z)
stock issued pursuant to the Rights Plan); and (c) any payment, direct or
indirect, of or on account of any principal of or premium on any Subordinated
Debt now or hereafter outstanding or any redemption, retirement, purchase or
other acquisition, direct or indirect, of any Subordinated Debt (except for any
sinking fund, other required prepayment or mandatory installment or final
payment at maturity pursuant to the provisions thereof and except for any
payment consisting solely of shares of stock, which is not Disqualified Stock or
of other Subordinated Debt).
"Rights Plan" means the Rights Agreement, approved by the Board
of Directors of the Company, on January 13, 1997, and to be entered into by the
Company and Continental Stock Transfer and Trust Company, in the form heretofore
delivered to the Purchaser.
"Satisfied the Section 10.10 Condition" has the meaning set forth
in Section 10.10.
"Securities" is defined in the second paragraph hereof.
"Securities Act" means the Securities Act of 1933, as amended.
"SEC" means the United States Securities and Exchange Commission,
and any governmental body or agency succeeding to the functions thereof.
"Senior Credit Agreements" shall mean (i) the Revolving Credit,
Term Loan and Security Agreement, dated as of December 23, 1996, among the
Company and Barnett Bank, N.A., a national banking association, as lender (the
"Barnett Facility"),
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(ii) Second Amended and Restated Credit Agreement, dated as of April 29, 1996,
as amended by First Amendment to Second Amended and Restated Credit Agreement
and Security Agreements, dated as of November 21, 1996, April 29, 1996,
September 7, 1995 and November 27, 1990, between International Aircraft Support,
L.P. and Union Bank of California, (iii) the Note Purchase Agreement, dated as
of January 9, 1997, as amended on the date hereof, between the Company and
Bedford Falls Investors, L.P. and the other purchasers identified therein (the
"Bridge Facility") and (iv) any Refunding Debt incurred pursuant to Section
11.(c), in each case as the same may be amended from time to time in accordance
with the terms hereof and thereof.
"Senior Debt" means all Debt of the Company incurred in
connection with Section 11.1 hereof, other than trade debt, that is not by its
terms pari passu with or subordinated to the Notes, including in respect thereof
obligations for payments of principal, premium if any, or mandatory prepayments,
interest (including post-petition interest), fees, expenses and indemnification.
"Senior Debt Instruments" means the Credit Documents and all
agreements, instruments and documents creating, evidencing, securing or
guaranteeing Debt referred to in of the definition of Senior Debt, as such
agreements, instruments and documents may from time to time be amended, modified
or supplemented in accordance with the terms hereof and thereof.
"Senior Lenders" means the lenders named in the Senior Credit
Agreements.
"Solvent" means, when used with respect to any Person, that (a)
the fair salable value of all its assets exceeds the amount that will be
required to pay the probable liability on its debts (including contingent
liabilities); (b) it does not have unreasonably small capital to carry out its
business as now conducted and as proposed to be conducted, including its capital
needs; (c) it will not have incurred liabilities, and does not intend to or
believe that it will incur liabilities, beyond its ability to pay such
liabilities as they become due; and (d) it is not "insolvent" as such term is
defined in Section 101(31) of the Federal Bankruptcy Code.
"Subordinated Debt" means all Debt now or hereafter existing
under the Notes or this Agreement (whether created directly or acquired by
assignment or otherwise), including the obligations of the Company under Section
17 or any other Section of this Agreement, and any indemnities payable under
this Agreement.
"Subsidiary" means any corporation, association, partnership or
other business entity at least 50% (by number of votes) of the Voting Stock of
which is at the time owned (i) by the Company, (ii) by one or more Subsidiaries
or (iii) by the Company and one or more Subsidiaries.
"Subsidiary Guaranty" means each Guaranty Agreement, the form of
which is attached hereto as Exhibit F, to be executed by any current or future
Wholly-Owned
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<PAGE>
Subsidiary of the Company other than Non-US Subsidiaries.
"Taxes" is defined in Section 5.16.
"Termination Event" shall mean (i) a Reportable Event with
respect to any Plan or Multiemployer Plan; (ii) the withdrawal of either the
Company or any member of the Controlled Group from a Plan or Multiemployer Plan
during a plan year in which such entity was a "substantial employer" as defined
in Section 4001(a)(2) of ERISA; (iii) the providing of notice of intent to
terminate a Plan in a distress termination described in Section 4041(c) of
ERISA; (iv) the institution by the PBGC of proceedings to terminate a Plan or
Multiemployer Plan; (v) any event or condition (a) which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan or Multiemployer Plan, or (b) that may
result in termination of a Multiemployer Plan pursuant to Section 4041A of
ERISA; or (vi) the partial or complete withdrawal within the meaning of Section
4203 and 4205 of ERISA, of either the Company or any member of the Controlled
Group from a Multiemployer Plan.
"Unit Common Share Equivalents" shall mean those Unit Purchase
Options issued to GKN Securities Corp. and Brean Murray, Foster Securities Inc.
in connection with the initial public offering of the Company pursuant to which
a holder may purchase one share of Common Stock of the Company and two warrants
of the Company.
"Voting Stock" means capital stock or other equity interests of
any class or classes of a corporation or other entity the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the election
of directors (or Persons performing similar functions).
"Warrant Shares" shall have the meanings set forth in the
Warrants.
"Warrants" is defined on the first page hereof.
"Weighted Average Life to Maturity" as applied to any Debt at any
date, means the number of years obtained by dividing (a) the then outstanding
principal amount of such Debt into (b) the total of the products obtained by
multiplying (i) the amount of each then remaining installment, sinking fund,
serial maturity or other regularly scheduled required payment, including payment
at final maturity, in respect thereof, by (ii) the number of years (calculated
to the nearest one-twelfth) which will elapse between such date and the date on
which such payment is to be made; as applied to any Preferred Stock at any date,
the number of years obtained by dividing (x) the then liquidation value of such
Preferred Stock into (y) the total of the products obtained by multiplying (A)
the amount of each then remaining installment, sinking fund or other required
redemption, including redemption at final maturity, in respect thereof, by (B)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such redemption.
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<PAGE>
"Wholly-Owned" as applied to any Subsidiary, means a Subsidiary
all the outstanding shares (other than directors' qualifying shares, if required
by law) of every class of stock of which are at the time owned by the Company or
by one or more Wholly-Owned Subsidiaries or by the Company and one or more
Wholly-Owned Subsidiaries.
16.2 Accounting Terms. Except as otherwise provided herein, all
accounting tests or standards used in this Agreement shall be computed on a
consolidated basis for the Company and each of its Subsidiaries. Any accounting
terms not specifically defined herein shall have the meanings customarily given
them in accordance with GAAP. In the event that changes in GAAP shall be
mandated by the Financial Accounting Standards Board and/or the American
Institute of Certified Public Accountants or any similar accounting body of
comparable standing, or shall be recommended by the Company's and its
Subsidiaries' certified public accountants, then to the extent that such
adjustments or changes would modify such accounting terms or the interpretation
or computation thereof as contemplated hereby at the time of their execution,
then in such event such adjustments or changes shall be followed in defining
such accounting terms only after the Company and you shall have agreed to amend
this Agreement to reflect their original intent in light of such adjustments or
changes.
Section 17. Miscellaneous.
17.1 Home Office Payment; Endorsements of the Notes.
(a) Notwithstanding anything to the contrary in this Agreement or
in the Securities, the Company agrees that, so long as you or any nominee
designated by you shall hold any Securities, the Company shall cause all
payments of principal, interest and premium (if any) on the Notes, and all
payments of dividends and other amounts payable to you in respect of the Common
Stock issued to you upon exercise of Warrants or the Common Shares, to be made
to you in the manner and to the address specified in Schedule I hereto, or in
such other manner or to such other address as you may designate in writing. You
agree that prior to the sale, transfer or disposition of any Note you will make
a notation thereon of the portion of the principal amount paid or prepaid and
the date to which interest has been paid thereon or surrender the same in
exchange for a new Note or Notes of the same tenor and of authorized
denominations in principal amount equal to the unpaid principal amount of the
Note or Notes so surrendered, duly executed by the Company. The Company shall
enter into an agreement similar to that contained in this Section with any other
Eligible Holder (or nominee thereof).
(b) You are authorized to endorse the date and amount of each
payment or prepayment under the Notes on the Schedule annexed to and forming a
part of the Notes, which endorsements shall constitute prima facie evidence of
the accuracy of the information so recorded.
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<PAGE>
17.2 Amendment and Waiver.
(a) Any term, covenant, agreement or condition of this Agreement
may, with the consent of the Company, be amended, or compliance therewith may be
waived (either generally or in a particular instance and either retroactively or
prospectively), by one or more substantially concurrent written instruments
signed by the holder or holders of at least a majority of the unpaid principal
amount of the Notes at the time outstanding except that:
(i) no such amendment or waiver shall reduce the principal of,
premium (if any) on, or the rate of interest on, or extend the time of payment
of interest or any Make-Whole Premium on, any of the Notes, modify any of the
provisions of this Agreement or of the Notes with respect to the terms of
subordination provided for by Section 13, or the provisions of Section 4.4,
reduce the percentage of Notes required with respect to any such amendment or to
effectuate any such waiver, or modify any provision of this Section, without the
consent of the holders of 66.7% in principal amount of the Notes at the time
outstanding; and
(ii) no waiver shall extend to or affect any obligation not
expressly waived or impair any right consequent thereon.
(b) Any amendment or waiver pursuant to subsection (a) above
shall apply equally to all the holders of the Securities at the time and shall
be binding upon them, upon each future holder of any of the Securities, and upon
the Company, in each case whether or not a notation thereof shall have been
placed on any of the Securities.
17.3 Expenses. The Company agrees, whether or not the
transactions hereby contemplated are consummated, to pay, and save you harmless
against liability for the payment of, all reasonable out-of-pocket expenses
arising in connection with the preparation, negotiation, execution and delivery
of this Agreement, the instruments and documents executed pursuant thereto or in
connection therewith, and the consummation of the transactions hereby
contemplated, and all such expenses incurred with respect to the administration
of and enforcement of any provision of this Agreement or any such instrument or
document (other than time charges, if any, of Purchaser's employees in
connection with routine administration) and the consideration of any legal
questions relevant thereto (including, without limitation, consideration of any
waiver or amendment of the terms of this Agreement or the Securities), all
reasonable expenses, incurred in connection with the reproduction of such
agreements, instruments and documents and all stamp and other similar taxes
(together in each case with interest and penalties, if any) which may be payable
in respect of the execution and delivery of such agreements, instruments and
documents, or the issuance, delivery or acquisition by you of any Security or
otherwise pursuant to this Agreement, and the reasonable fees and disbursements
in connection with any of the foregoing of Friedman & Kaplan LLP, and of any
other special or local counsel, and the reasonable fees and disbursements of the
Accountants. The obligations of the Company under this Section 17.3 shall
survive the payment or transfer of any Security, the enforcement of
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<PAGE>
any provision hereof or thereof, any such amendments or waivers and any such
consideration of legal questions.
17.4 Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by or on
behalf of any party to this Agreement or otherwise in connection herewith shall
(i) survive the execution and delivery of this Agreement and the delivery of the
Securities to you and the consummation of the transactions contemplated hereby,
as long as any Security is outstanding, and (ii) be deemed to have been relied
upon by you, regardless of any investigation made by you or on your behalf.
17.5 Successors and Assigns. All covenants and agreements in this
Agreement contained by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns whether so expressed or not, except that you shall not be
obligated to purchase any Note, Common Shares or Warrant from any Person other
than the Company. The provisions of this Agreement are intended to be for the
benefit of all permitted holders, from time to time, of any Securities purchased
pursuant hereto, and shall be enforceable by any such holder, whether or not an
express assignment to such holder of rights under this Agreement has been made
by you or your successor or assign; provided that the benefit of Section 8 and
Section 17.10 (as to satisfactory indemnity) shall be limited as provided
therein.
17.6 Rights Confined to Parties and Holders. Except as provided
in Section 13 and Section 17.5, nothing expressed or implied in this Agreement
is intended or shall be construed to confer upon or to give to any Person, other
than the parties hereto and their respective permitted successors and assigns,
any right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition hereof.
17.7 Notices. All communications provided for hereunder shall be
in writing and delivered personally or by overnight delivery (by courier or
nationally recognized overnight delivery service) or sent by first class
registered or certified mail, postage prepaid and return receipt requested, or
sent by facsimile (with such telecopy to be confirmed promptly in writing sent
personally, by overnight delivery or by first class mail), sent (i) if to you,
to the address or facsimile number set forth by you for such communications on
Schedule I hereto, or to such other address or facsimile number as you may have
designated to the Company in writing; (ii) if to any other holder of any Notes,
to the address or facsimile number (if any) of such holder as set forth in the
register maintained pursuant to Section 14; (iii) if to any other holder of any
shares of Common Stock, to the last address of such holder shown in the official
stock transfer register maintained by the Company; (iv) if to the Company,
Kellstrom Industries, Inc., 14000 N.W. 4th Street, Sunrise, Florida 33325,
Attention: Zivi R. Nedivi, telephone number (954) 845-0427, facsimile number
(954) 854-0428. All such communications shall be deemed to have been given or
made when so delivered by hand or sent by facsimile, or one Business Day after
being sent by overnight delivery or five Business Days after being so mailed.
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<PAGE>
17.8 Governing Law. This Agreement, the Notes and the Warrants
shall be construed in accordance with and shall be governed by the internal laws
of the State of New York, without regard to the choice of law principles of such
State.
17.9 Submission to Jurisdiction; WAIVER OF JURY TRIAL.
(a) The Company hereby irrevocably and unconditionally:
(i) submits for itself and its Property in any
legal action or proceeding relating to this
Agreement and any Related Document to which
it is a party, or for recognition and
enforcement of any judgment in respect of
any thereof, to the non-exclusive general
jurisdiction of the courts of the State of
New York, the courts of the United States of
America for the Southern District of New
York, and appellate courts of any thereof;
(ii) consents that any such action or proceeding
may be brought in such courts, and waives
any objection that it may now or hereafter
have to the venue of any such action or
proceeding was brought in an inconvenient
court and agrees not to plead or claim the
same;
(iii) agrees that service of process in any such
action or proceeding may be effected by
mailing a copy thereof by registered or
certified mail (or any substantially similar
form and mail), postage prepaid, to the
Company at its address set forth in Section
17.7 or at such other address of which the
Purchaser shall have been notified pursuant
thereto; and
(iv) agrees that nothing herein shall affect the
right to effect service of process in any
other manner permitted by law or shall limit
the right to sue in any other jurisdiction.
(b) THE COMPANY AND THE PURCHASER HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY .JURY IN ANY LEGAL ACTION OR PROCEEDING REFERRED
TO IN PARAGRAPH (a) ABOVE.
17.10 Indemnification. In consideration of the execution and
delivery of this Agreement by you, the Company agrees to indemnify, defend and
hold you and your Affiliates (including, without limitation, Alliance Capital)
and each of your and their shareholders, officers, directors, controlling
persons, advisors, employees and
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<PAGE>
agents (herein called the "Indemnitees") free and harmless from and against any
and all actions, causes of action, suits, losses, liabilities and damages, and
expenses in connection therewith, including, without limitation, counsel fees
and disbursements (herein called the "Indemnified Liabilities"), incurred by or
asserted or awarded against any Indemnitees, in each case arising out of or in
connection with or by reason of, or in connection with the preparation for a
defense of, any investigation, litigation or proceeding arising out of, related
to or in connection with
(a) (i) the Acquisition, any of the transactions contemplated
hereby or any use made or proposed to be made by the Company or any of its
Subsidiaries of all or any portion of the proceeds of the sale of the Securities
hereunder by the Company or any of its Subsidiaries or Affiliates, whether or
not an Indemnitee is a party thereto and whether or not the transactions
contemplated hereby are consummated or (ii) the execution, delivery, performance
or enforcement of this Agreement or any instrument contemplated hereby by any
Indemnitee, and
(b) notwithstanding the generality of the foregoing subsection
(a), any liability or alleged liability which arises under any Environmental Law
or by reason of any governmental response costs pursuant to any Environmental
Law; provided that to the extent that the Company is strictly liable under any
Environmental Law, the obligation of the Company to an Indemnitee shall likewise
be without regard to fault on the part of the Company or any of its Subsidiaries
with respect to any action or omission which results in liability to any
Indemnitee, and if and to the extent that the foregoing undertaking may be
unenforceable for any reason, the Company hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law, in either case except to
the extent such claim, damage, loss, liability or expense is found in a final,
nonappealable judgment by a court of competent jurisdiction to have resulted
from such Indemnitee's gross negligence or wilful misconduct.
The provisions of, and the obligations under, this Section 17.10
shall survive the execution and delivery of this Agreement, the delivery,
payment or transfer of any Security, the enforcement of any provision hereof or
thereof, the consummation of the transactions to occur on the Closing Date, any
investigation made by or on behalf of any holder of Subordinated Debt or any
Person controlling any such holder or by or on behalf of the Company, its
officers or directors or any other Person controlling the Company, and any
amendments or waivers and any such consideration of legal questions as provided
in Section 17.3.
17.11 Integration. This Agreement embodies the entire agreement
and understanding between you and the Company and supersedes all prior
agreements and understandings relating to the subject matter hereof.
17.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same instrument.
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<PAGE>
17.13. Headings. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
* * *
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<PAGE>
If you are in agreement with the foregoing, please sign the form
of acceptance in the space provided below whereupon this letter shall become a
binding agreement between you and the undersigned.
Very truly yours,
KELLSTROM INDUSTRIES, INC.
By _________________________
Name:
Title:
Accepted as of January 15, 1997
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
By _________________________________
Name:
Title:
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<PAGE>
SCHEDULE I
SCHEDULE OF PURCHASER
<TABLE>
<CAPTION>
Principal Amount
Name of Address of Notes; Number
of Purchaser of Warrants
------------ -----------
<S> <C>
THE EQUITABLE LIFE INSURANCE Principal Amount of Note:
SOCIETY OF THE UNITED STATES
(1) All payments by wire transfer of $15,000,000
immediately available funds (other than in
respect of transaction fees) to: Number of Warrants: 305,660
</TABLE>
The Chase Manhattan Bank, N.A.
110 West 52nd Street
New York, New York 10019
ABA No. 021-000021
A/C The Equitable Life Assurance
Society of the United States
Account No. 037-2-409417
Each such wire transfer shall set forth the name of the Company, the private
placement number, the due date of the payment being made and if such payment is
a final payment.
Payments by wire transfer of immediately available funds in respect of
transaction fees to:
Citibank, N.A.
399 Park Avenue
New York, New York 10021
ABA No. 021000089
A/C Alliance Capital
Management, L.P.
Account No. 3026-3303
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<PAGE>
(2) All notices of payment and written
confirmation of such wire transfers to:
The Equitable Life Assurance
Society of the United States
c/o Alliance Capital Management,
L.P.
135 West 50th Street
6th Floor
New York, New York 10020
Attention: Cash Operations
(3) All other communications to be sent to:
The Equitable Life Assurance
Society of the United States
c/o Alliance Capital Management,
L.P.
1345 Avenue of the Americas
41st Floor
New York, New York 10105
(4) Securities to be delivered to:
The Equitable Life Assurance
Society of the United States
787 Seventh Avenue
TW/41
New York, New York 10019
(5) TIN 13-5570651
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<PAGE>
AMENDMENT NO. 1
TO
SECURITIES PURCHASE AGREEMENT
AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT ("Amendment") dated as
of February 14, 1997, by and between KELLSTROM INDUSTRIES, INC., a Delaware
corporation, having its executive office at 14000 N.W. 4th Street, Sunrise,
Florida 33325 (the "Company") and the purchaser named on the signature page
hereto (the "Purchaser").
RECITALS
--------
WHEREAS, the Company and the Purchaser entered into a Securities
Purchase Agreement, dated as of January 15, 1997 (the "Securities Purchase
Agreement"), pursuant to which, among other things, the Company issued to the
Purchaser an aggregate of $15,000,000 principal amount of its 11 3/4% Senior
Subordinated Notes (the "Notes");
WHEREAS, pursuant to the Securities Purchase Agreement, the Company has
issued to the Purchaser warrants (the "Warrants") to purchase 305,660 shares of
the Company's common stock, par value $.001 per share (the "Common Stock"); and
WHEREAS, the Company and the Purchaser desire to amend the Securities
Purchase Agreement as set forth herein;
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. Section 11.3(g) of the Securities Purchase Agreement is hereby amended
to read in its entirety as follows:
(g) advances for payroll, relocation, travel and other
employee-related expenses incurred in the ordinary course of
business not to exceed, in the aggregate, $150,000 at any time
outstanding; and loans to officers and directors of the
Company for any purpose not to exceed, in the aggregate,
$750,000 at any time outstanding, at any time after the
Company shall have given notice to the holders of its Common
Stock Purchase Warrants (the "Publicly Traded Warrants") of
its intention to redeem all of the outstanding Publicly Traded
Warrants;
<PAGE>
<PAGE>
2. Section 11.6 of the Securities Purchase Agreement is hereby amended to
read in its entirety as follows:
11.6. Transactions with Affiliates. The Company will not, and
will not permit any Subsidiary to, directly or indirectly,
engage in any transaction (or series of related transaction)
including, without limitation, the purchase, sale or exchange
of assets or the rendering of any service, with any Affiliate
of the Company, except in the ordinary course of and pursuant
to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms that
are no less favorable to the Company or such Subsidiary, as
the case may be, than those which might be obtained, in the
good faith judgment of the Company, in an arm's length
transaction at the time from Persons which are not Affiliates.
In the case of any such transaction with an Affiliate
involving aggregate consideration in excess of $500,000, the
Company shall deliver to each holder of Notes an Officer's
Certificate certifying that such transaction complies with
this Section 11.6; and in the case of any such transaction
with an Affiliate involving aggregate consideration in excess
of $2,000,000, (a) the Company shall deliver to each holder of
Notes a favorable opinion as to the fairness to the Company or
such Subsidiary of such transaction from a financial point of
view, issued by an investment banking or accounting firm of
national standing and (b) such transaction shall have been
approved by the Audit Committee of the Board or, if
appropriate, the entire Board. The restriction contained in
this Section 11.6 shall not apply to (i) transactions between
the Company and a Wholly-Owned Subsidiary or between
Wholly-Owned Subsidiaries, (ii) employment arrangements or
advisory fees for officers and directors who are not
otherwise, by virtue of stock ownership or other
circumstances, Affiliates of the Company, (iii) the purchase
of inventory (including without limitation, the purchase sale,
lease or exchange of any assets or the rendering of any
service), in each case in the ordinary course of business and
(iv) loans permitted by Section 11.3(g) above.
3. Other than as set forth in this Amendment, the Securities Purchase
Agreement, the Notes and the Warrants shall remain in full force and effect.
4. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall together constitute one
and the same instrument.
5. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW).
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IN WITNESS WHEREOF, the Company and the Purchaser have caused this
Amendment to be executed by their duly authorized officers as of the date first
written above.
KELLSTROM INDUSTRIES, INC.
By:
--------------------------------
Name: John S. Gleason
Title: Executive Vice President and CFO
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By:
--------------------------------
Name:
Title:
<PAGE>
<PAGE>
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED
FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS
AVAILABLE. THE OFFERING OF THIS SECURITY HAS NOT BEEN REVIEWED OR APPROVED BY
ANY STATE SECURITIES ADMINISTRATOR. THIS WARRANT AND THE SHARES OF COMMON STOCK
PURCHASABLE HEREUNDER ARE ALSO BENEFITTED BY AND SUBJECT TO A SECURITIES
PURCHASE AGREEMENT, DATED AS OF JANUARY 15, 1997, BETWEEN KELLSTROM INDUSTRIES,
INC. AND THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, A COPY OF
WHICH AGREEMENT IS ON FILE WITH KELLSTROM INDUSTRIES, INC.
NO. W - 1
PPN: 488035 2* 6 Dated: January 15, 1997
WARRANT
To Purchase 305,660 of Shares of Common Stock (subject to adjustment)
KELLSTROM INDUSTRIES, INC.
Expiring January 15, 2004
THIS IS TO CERTIFY THAT, for value received, The Equitable Life
Assurance Society of the United States, or its assigns (the "Holder") is
entitled to purchase from KELLSTROM INDUSTRIES, INC., a Delaware corporation
(the "Company"), at any time or from time to time after 9:00 a.m., New York City
time, on the Closing Date (under the Purchase Agreement as defined below) and
prior to 5:00 p.m., New York City time, on the Expiration Date (as defined
below) at the Company's principal executive office, at the Exercise Price (as
defined below), 305,660 shares of Common Stock of the Company (the "Warrant
Shares"), all subject to adjustment and upon the terms and conditions
hereinafter provided, and is also entitled to exercise the other appurtenant
rights, powers and privileges.hereinafter described. Capitalized terms used
herein have the respective meanings set forth in Article VI.
This Warrant (together with any Warrants issued pursuant to article
II, the "Warrants") is being issued pursuant to the Securities Purchase
Agreement, dated
<PAGE>
<PAGE>
as of January 15, 1997 (the "Purchase Agreement"), between the Company and the
Holder, and the Holder is entitled to certain benefits as set forth therein. The
Company shall keep a copy of the Purchase Agreement, and any amendments thereto,
at its principal executive office and shall furnish, without charge, copies
thereof to the Holder upon request.
ARTICLE I
EXERCISE OF WARRANTS
1.1 Method of Exercise. To exercise this Warrant in whole or in part,
the Holder shall deliver on any Business Day to the Company, at its principal
executive office, (a) this Warrant, (b) a written notice, substantially in the
form of the Subscription Notice attached hereto, of such Holder's election to
exercise this Warrant, which notice shall specify the number of Warrant Shares
to be purchased, and the denominations of the share certificate or certificates
desired and the name or names in which such certificates are to be registered,
and (c) payment of the Exercise Price with respect to such shares. Payment of
the aggregate Exercise Price shall be made, at the election of the Holder,
either (i) by certified or cashier's check or wire transfer or (ii) in lieu of
paying the Exercise Price in cash, by surrendering Warrants with an aggregate
value equal to the aggregate Exercise Price. For purposes of the preceding
sentence, the value of any Warrant shall be equal to the difference between the
aggregate Fair Market Value of the Warrant Shares issuable upon exercise thereof
and the aggregate Exercise Price payable upon exercise thereof.
The Company shall, as promptly as practicable and in any event within
two Business Days thereafter, execute and deliver or cause to be executed and
delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of Warrant Shares specified in said notice
together with cash in lieu of any fraction of a share as provided in Section
1.3. The share certificate or certificates so delivered shall be in such
denominations as may be specified in such notice or, if such notice shall not
specify denominations, in the aggregate number of shares of Common Stock for
which the Warrant is being exercised, and shall be issued in the name of the
Holder or such other name or names as shall be designated in such notice. This
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and such Holder or any other
person so designated to be named therein shall be deemed for all purposes to
have become a holder of record of such shares, as of the date the aforementioned
notice is received by the Company. If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of such certificate or
certificates, deliver to the Holder a new Warrant evidencing the rights to
purchase the remaining shares of Common Stock subject to this Warrant, which new
Warrant shall in all other respects be identical with this Warrant or, at the
request of the Holder, make appropriate notation on this Warrant which shall
then be returned to the Holder. The Company shall pay all expenses, taxes and
other charges payable in connection with the preparation, issuance and delivery
of share certificates and new Warrants, except that, if share certificates or
new Warrants shall
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be registered in a name or names other than the name of the Holder, funds
sufficient to pay all transfer taxes payable as a result of such transfer shall
be paid by the Holder at the time of delivery of the aforementioned notice of
exercise or promptly upon receipt of a written request of the Company for
payment.
1.2 Shares to be Fully Paid and Nonassessable. All shares of Common
Stock issued upon the exercise of this Warrant shall be duly authorized, validly
issued, fully paid and nonassessable and, if the Common Stock is then listed on
any national securities exchange or quoted on NASDAQ, shall be duly listed or
quoted thereon, as the case may be.
1.3 No Fractional Shares to be Issued. The Company shall not be
required to issue fractions of shares of Common Stock upon exercise of this
Warrant. If any fraction of a share would, but for this Section, be issuable
upon any exercise of this Warrant, in lieu of such fractional share the Company
shall pay to the Holder, in cash, an amount equal to the same fraction of the
Fair Market Value per share of Common Stock outstanding on the Business Day
immediately prior to the date of such exercise.
1.4 Share Legend. Each certificate for shares of Common Stock issued
upon exercise of this Warrant, unless at the time of exercise such shares are
registered under the Securities Act or the Holder has furnished the Company with
an opinion of counsel as set forth in the following paragraph, shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE
SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED OR
QUALIFIED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR
UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THE OFFERING OF
THIS SECURITY HAS NOT BEEN REVIEWED OR APPROVED BY ANY STATE
SECURITIES ADMINISTRATOR. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO BENEFITTED BY AND SUBJECT TO A SECURITIES
PURCHASE AGREEMENT, DATED AS OF JANUARY 15, 1997, BETWEEN KELLSTROM
INDUSTRIES, INC. AND THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES, A COPY OF WHICH IS ON FILE WITH KELLSTROM INDUSTRIES,
INC."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the
Securities Act) shall also bear such legend unless, in the opinion of counsel
selected by the holder of such certificate (who may be an employee of such
holder) and reasonably acceptable to the
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Company, the securities represented thereby need no longer be subject to
restrictions on resale under the Securities Act.
1.5 Reservation. The Company has duly reserved and will keep available
for issuance upon exercise of the Warrants the total number of Warrant Shares
deliverable from time to time upon exercise of all Warrants from time to time
outstanding.
1.6 CUSIP Number. The Company agrees to obtain promptly after the date
hereof, and thereafter to maintain, a private placement number in respect of the
Warrants and a CUSIP number in respect of the Common Stock assigned by the CUSIP
Service Bureau of Standard & Poor's Corporation.
ARTICLE II
TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS
2.1 Ownership of Warrant. The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by any person
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentment of this Warrant for registration of transfer
as provided in this Article II.
2.2 Transfer of Warrant. The Company agrees to maintain at its
principal executive office books for the registration of transfers of the
Warrants, and transfer of this Warrant and all rights hereunder shall be
registered, in whole or in part, on such books, upon surrender of this Warrant
at the Company's principal executive office, with a written assignment of this
Warrant duly executed by the Holder or its duly authorized agent or attorney,
with (unless the Holder is an institutional investor) signatures guaranteed by a
bank or trust company or a broker or dealer registered with the NASD, and funds
sufficient to pay any transfer taxes payable upon such transfer. Upon surrender
and, if required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denominations specified in the instrument of assignment and shall issue to the
assignor a new warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be canceled. Notwithstanding the foregoing, a
Warrant may be exercised by a new holder without having a new Warrant issued.
2.3 Division or Combination of Warrants. This Warrant may be divided
or combined with other Warrants upon presentment hereof and of any Warrant or
Warrants with which this Warrant is to be combined at the Company's principal
executive office, together with a written notice specifying the names and
denominations in which the new Warrant or Warrants are to be issued, signed by
the holders hereof and thereof or their respective duly authorized agents or
attorneys. Subject to
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compliance with Section 2.3 as to any transfer which may be involved in the
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
2.4 Loss, Theft Destruction or Mutilation of Warrants. Upon receipt of
evidence satisfactory to the Company of the ownership of and the loss, theft,
destruction or mutilation of any Warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity or security satisfactory to the
Company (the original Holder's unsecured indemnity being satisfactory indemnity
in the event of loss, theft or destruction of any Warrant owned by such original
Holder), or, in the case of any such mutilation, upon surrender and cancellation
of such Warrant, the Company will make and deliver, in lieu of such lost,
stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and
representing the right to purchase the same aggregate number of shares of Common
Stock.
2.5 Expenses of Delivery of Warrants. The Company shall pay all
expenses, taxes (other than transfer taxes) and other charges payable in
connection with the preparation, issuance and delivery of Warrants hereunder.
ARTICLE III
CERTAIN RIGHTS
3.1 Purchase Agreement. This Warrant is entitled to the benefits of
the Purchase Agreement. The Company shall keep copies of the Purchase Agreement,
and any amendments thereto, at its principal executive office and shall furnish,
without charge, copies thereof to the Holder upon request.
3.2 Contest and Appraisal Rights. Upon each determination of Fair
Market Value hereunder, the Company shall promptly give notice thereof to all
Warrantholders, setting forth in reasonable detail the method and basis of
determination of such Fair Market Value. Unless the Property whose Fair Market
Value is being determined is a security for which Closing Prices are available
(in which case the Fair Market Value thereof shall be the Market Price), if a
Majority in Interest of Warrantholders shall disagree with such determination
and shall, by notice to the Company given within 30 days after the Company's
notice of such determination, elect to dispute such determination, such dispute
shall be resolved through the Appraisal Procedure.
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ARTICLE IV
ANTIDILUTION PROVISIONS
4.1 Adjustment of Purchase Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the payment
of the Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events set forth below.
4.2 Reclassification, Consolidation or Merger. In case of any
reclassification or change of outstanding securities of the Company (including
without limitation for purposes of this Section 4.2 purchases of Preferred
Shares by holders of Rights pursuant to the Rights Agreement) issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value, or from no par value to par value or as a result of a subdivision
or combination) or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with another corporation in which
the Company is the surviving corporation and which does not result in any
reclassification or change -- other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination -- of outstanding securities of the Company issuable
upon exercise of this Warrant), or in case of any sale or transfer to another
corporation of the Property of the Company as an entirety or substantially as an
entirety, the Company or such successor or purchasing corporation, as the case
may be, shall, without payment of any additional consideration therefor, prior
to or simultaneously with the consummation of such transaction, issue a new
Warrant, providing that the Holder shall have the right to exercise such new
Warrant and procure upon such exercise in lieu of each Warrant Share theretofore
issuable upon exercise of this Warrant the kind and the highest amount of shares
of stock, other securities, money and property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by a holder of
one share of Common Stock, issuable upon exercise of this Warrant had it been
exercised immediately prior to such reclassification, change, consolidation,
merger, sale or transfer; and the Company shall indemnify the Holder, upon
demand, on an after-tax basis, against any and all taxes (including interest and
penalties) payable in connection with the issuance or amendment of a Warrant
pursuant to this Section 4.2. The Company shall not effect any such
reclassification, change, consolidation, merger, sale or transfer, unless prior
to or simultaneously with the consummation thereof, the successor or purchasing
corporation, as the case may be, shall assume, by written instrument executed
and delivered to the Holder, the obligation to deliver to the Holder such
shares, other securities, money and property as, in accordance with the
foregoing provisions, the Holder may be entitled to purchase and the other
obligations.under this Warrant. Such new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article IV. The provisions of this Section 4.2 shall
similarly apply to successive reclassifications, changes, consolidations,
mergers, sales and transfers.
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4.3 Subdivision or Combination of Shares. If the Company shall
subdivide or combine its Common Stock, the Exercise Price shall be
proportionately reduced, in case of subdivision of shares, as at the effective
date of such subdivision, or if the Company shall take a record of holders of
its Common Stock for the purpose of so subdividing, as at such record date,
whichever is earlier, or shall be proportionately increased, in the case of
combination of shares, as at the effective date of such combination or, if the
Company shall take a record of holders of its Warrant Shares for the purpose of
so combining, as at such record date, whichever is earlier.
4.4 Certain Dividends and Distributions. If the Company shall:
(a) Stock Dividends. Pay a dividend in, or make any other distribution
to the holders of its Common Stock of, Common Stock, the Exercise Price shall be
adjusted, as at the date the Company shall take a record of the holders of its
Common Stock, for the purpose of receiving such dividend or other distribution
(or if no such record is taken, as at the date of such payment or other
distribution), to that price determined by multiplying the Exercise Price in
effect immediately prior to such record date (or if no such record is taken,
then immediately prior to such payment or other distribution), by a fraction (1)
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (2) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution (plus in the event
that the Company paid cash for fractional shares, the number of additional
shares which would have been outstanding had the Company issued fractional
shares in connection with said dividends); or
(b) Distributions of Property, etc. Make a distribution of its
Property to the holders of its Common Stock as a dividend (in liquidation or
partial liquidation or by way of return of capital or otherwise), other than
cash dividends in an amount not exceeding 25% of the Company's net income in the
current or immediately preceding fiscal year, the Holder shall at such time be
entitled to receive the amount of such Property as would have been payable to
such Holder as owner of that number of Warrant Shares of the Company receivable
by exercise of this Warrant, had such Holder been the holder of record of such
Warrant Shares on the record date for such distribution.
4.5 Issuance of Additional Shares of Common. If the Company shall
issue any Additional Shares of Common (other than (x) as provided in Sections
4.2, 4.3 or 4.4, (y) Management Shares or (z) pursuant to warrants outstanding
on the date hereof as disclosed in the applicable Schedule to the Purchase
Agreement) for a consideration per share less than the Fair Market Value per
share of Common Stock then outstanding (before giving effect to such issuance)
or for no-consideration, then the Exercise Price shall be adjusted, as at the
date of such issuance, to that price determined by multiplying the Exercise
Price in effect immediately priory to such issuance by a fraction (i) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of
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shares of Common Stock which the aggregate consideration for the total number of
such Additional Shares of Common so issued would purchase at the Fair Market
Value thereof at such time, and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such issuance.
The provisions of this Section 4.5 shall not apply under any of the
circumstances for which an adjustment is provided in Sections 4.2, 4.3 or 4.4.
No adjustment of the Exercise Price shall be made under this Section 4.5 upon
the issuance of any Additional Shares of Common which are issued pursuant to any
Common Stock Equivalent if upon the issuance of any such Common Stock Equivalent
(i) any such adjustment shall previously have been made pursuant to Section 4.6
or (ii) no adjustment was required pursuant to Section 4.6.
4.6 Issuance of Common Stock Equivalents. If the Company shall issue
any Common Stock Equivalents (other than warrants exercisable for up to 234,340
shares of Common Stock in the aggregate pursuant to that certain 10% Senior
Subordinated Note issued under the Bridge Facility (as defined in the Purchase
Agreement), and the price per share for which Common Stock is issuable upon the
exercise, conversion or exchange of such Common Stock Equivalents, determined by
dividing
(i) the aggregate amount, if any, received or receivable by
the Company as consideration for the granting of such Common Stock
Equivalents, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such
Common Stock Equivalents, plus, in the case of Common Stock
Equivalents to acquire Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issuance
or sale of such Convertible Securities and upon the conversion or
exchange thereof, by
(ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such Common Stock Equivalents or upon
the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Common Stock Equivalents,
shall be less than the Fair Market Value per share of Common Stock outstanding
on the date of granting such Common Stock Equivalent (before giving effect to
such grant), then the Exercise Price upon each such issuance shall be adjusted
as provided in the first sentence of Section 4.5 on the basis that the maximum
number of Additional Shares of Common issuable pursuant to all such Common Stock
Equivalents shall be deemed to have been issued as of the earlier of (x) in the
event the Company shall enter into a binding agreement for the issuance of such
Common Stock Equivalents, the date on which all material conditions to such
issuance shall have been waived or substantially satisfied or (y) the date of
actual issuance of such Common Stock Equivalents. No adjustment of the Exercise
Price shall be made under this Section 4.6 upon the issuance of any Convertible
Security which is issued pursuant to the exercise
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of any warrants or other subscription or purchase rights therefor, if any
adjustment shall previously have been made in the Exercise Price then in effect
upon the issuance of such warrants or other rights pursuant to this Section 4.6.
4.7 Purchase of Common Stock by the Company. If the Company shall,
directly or indirectly through a Subsidiary or otherwise, purchase, redeem or
otherwise acquire any of its Common Stock at a price per share greater than the
Fair Market Value per share of Common Stock then outstanding (before giving
effect to such purchase, redemption or other acquisition), then the Exercise
Price upon each such purchase, redemption or acquisition shall be adjusted to
that price determined by multiplying such Exercise Price by a fraction (i) the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such purchase, redemption or acquisition, minus the number
of shares of Common Stock which the aggregate consideration for the total number
of such shares of Common Stock so purchased, redeemed or acquired would purchase
at the Market Price, and (ii) the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such purchase, redemption
or acquisition. For the purposes of this Section 4.7, the date as of which the
Fair Market Value shall be computed shall be the earlier of (x) in the event the
Company shall enter into a binding agreement for the purchase, redemption or
acquisition of any Common Stock, the date on which all material conditions to
such purchase, redemption or acquisition shall have been waived or substantially
satisfied or (y) the date of actual purchase, redemption or acquisition of such
Common Stock. For the purposes of this Section 4.7, a purchase, redemption or
acquisition of a Common Stock Equivalent shall be deemed to be a purchase of the
underlying Common Stock (it being understood that, if any Common Stock
Equivalent also evidences another obligation of the Company (such as
indebtedness for borrowed money) the Fair Market Value of the consideration
given by the Company to purchase, redeem or acquire such Common Stock Equivalent
shall be allocated in good faith by the Board of Directors of the Company to the
satisfaction of such obligation and the purchase, redemption or acquisition of
the underlying Common Stock), and the computation herein required shall be made
on the basis of the full exercise, conversion or exchange of such Common Stock
Equivalent on the date as of which such computation is required hereby to be
made even if such Common Stock Equivalent is not exercisable, convertible or
exchangeable on such date.
4.8 Other Provisions Applicable to Adjustments. The following
provisions shall be applicable to the making of adjustments in the Exercise
Price hereinbefore provided in this Article IV:
(a) Computation of Consideration. The consideration received by the
Company shall be deemed to be the following: to the extent that any Additional
Shares of Common or any Common Stock Equivalents shall be issued for a cash
consideration, the consideration received by the Company therefor, or, if such
Additional Shares of Common or Common Stock Equivalents are offered by the
Company for subscription, the subscription price, or, if such Additional Shares
of Common or Common Stock Equivalents are sold to underwriters or dealers for
public offering without a
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subscription offering, the public offering price, in any such case without
deduction for any customary amounts of compensation, discounts, commissions or
expenses paid or incurred by the Company for and in the underwriting of, or
otherwise in connection with, the issue thereof; to the extent that such
issuance shall be for a consideration other than cash, then, except as herein
otherwise expressly provided, the Fair Market Value of such consideration at the
time of such issuance. The consideration for any Additional Shares of Common,
Convertible Securities or Common Stock Equivalents issued in connection with any
merger in which the Company is the surviving corporation shall be that portion
of the Fair Market Value of the non-surviving corporation as the Board of
Directors of the Company in good faith shall determine to be attributable to
such Additional Shares of Common, Convertible Securities or Common Stock
Equivalents, as the case may be. The consideration for any Additional Shares of
Common issuable pursuant to any Common Stock Equivalents shall be the
consideration received by the Company for issuing such Common Stock Equivalents,
plus the additional consideration payable to the Company upon the exercise,
conversion or exchange of such Common Stock Equivalents, plus the
additional-consideration payable to the Company upon the exercise, conversion or
exchange of such Common Stock Equivalents, plus in the case of Common Stock
Equivalents to acquire Convertible Securities, any additional consideration
payable to the Company upon the issuance or sale of such Convertible Securities
and upon conversion or exchange thereof. In case of the issuance at any time of
any Additional Shares of Common or Common Stock Equivalents in payment or
satisfaction of any dividend upon any class of capital stock other than Common
Stock, the Company shall be deemed to have received for such Additional Shares
of Common or Common Stock Equivalents a consideration equal to the amount of
such dividend so paid or satisfied. In any case in which the consideration to be
received or paid shall be other than cash, the Board of Directors of the Company
shall notify the Holder of its determination of the Fair Market Value of such
consideration prior to payment or accepting receipt thereof or as promptly as
practicable thereafter.
(b) Readjustment of Exercise Price. Upon the expiration of the right
to convert, exchange or exercise any Common Stock Equivalent the issuance of
which effected an adjustment in the Exercise Price, if any such Common Stock
Equivalent shall not have been converted, exercised or exchanged, the number of
shares of Common Stock deemed to be issued and outstanding by reason of the fact
that they were issuable upon conversion, exchange or exercise of any such Common
Stock Equivalent shall no longer be computed as set forth above, and the
Exercise Price shall forthwith be readjusted and thereafter be the price which
it would have been (but reflecting any other adjustments in the Exercise Price
made pursuant to the provisions of this Article IV after the issuance of such
Common Stock Equivalent) had the adjustment of the Exercise Price been made in
accordance with the issuance or sale of the number of Additional Shares of
Common actually issued upon conversion, exchange or issuance of such Common
Stock Equivalent and thereupon only the number of Additional Shares of Common
actually so issued shall be deemed to have been issued and only the
consideration actually received by the Company (computed as in
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paragraph (a) of this Section 4.8) shall be deemed to have been received by the
Company.
(c) Treasury Shares. The number of shares of Common Stock at any time
outstanding shall not include any shares thereof then directly or indirectly
owned or held by or for the account of the Company or any of its Subsidiaries.
(d) Other Action Affecting Common Stock. In case after the date hereof
the Company shall take any action affecting its Common Stock, other than an
action described in any of Sections 4.2 through 4.8, inclusive, and the failure
to make any adjustment would not fairly protect the purchase rights represented
by this Warrant in accordance with the essential intent and principle of this
Article IV, then the Exercise Price shall be adjusted in such manner and at such
time as the Board of Directors of the Company may in good faith determine to be
equitable in the circumstances.
(e) Adjustment of Number of Shares. Upon each adjustment in the
Exercise Price pursuant to any provision of this Article IV, the number of
Warrant Shares shall be adjusted, to the nearest one-hundredth of a whole share,
to the product obtained by multiplying such number of shares purchasable
immediately prior to such adjustment in the Exercise Price by a fraction, the
numerator of which shall be the Exercise Price immediately prior to such
adjustment and the denominator of which shall be the Exercise Price immediately
thereafter. If the Company shall be in default under its agreement contained in
Section 1.5 so that applicable law prevents the issuance of shares at the
Exercise Price adjusted in accordance with this Article IV, the adjustment of
shares provided in the foregoing sentence shall nonetheless be made and the
Holder shall be entitled to purchase such greater number of shares at the lowest
price at which this Warrant may then be exercised. Such exercise shall not
constitute a waiver of any claim arising against the Company by reason of its
default under the agreement contained in Section 1.5.
4.9 Notice of Adjustment. Whenever the Exercise Price shall be
adjusted pursuant to this Article IV, the Company shall cause its chief
financial officer to prepare and execute a certificate setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Board of Directors of the Company made any
determination hereunder), and the Exercise Price and the number of Warrant
Shares after giving effect to such adjustment, and shall cause copies of such
certificate to be mailed (by first class registered or certified mail, postage
prepaid and return receipt requested) to the Holder promptly after each
adjustment. If the Holder questions an amount set forth in such certificate, the
Holder may request, by notice to the Company given within twenty days after
receipt of such certificate, that the independent accounting firm then regularly
engaged by the Company to report on its financial statements determine the
appropriate amount within twenty days of receipt of such notice at the Company's
expense; provided that if the amount so determined by the accounting firm is
disparate by less than two
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percent from the amount set forth in the Company's certificate, the Holder shall
pay the fees and expenses of such firm incurred in such determination.
4.10 Fractional Shares. No fractional Warrant Shares will be issued in
connection with any exercise hereof, but in lieu of such fractional shares, the
Company shall make a cash payment therefor equal in amount to the product of the
applicable fraction multiplied by the Exercise Price then in effect.
ARTICLE V
REGISTRATION RIGHTS
5.1 Demand Registrations.
(a) Right to Demand Registration. At any time after the date hereof,
(i) the original Holder (including any of its Permitted Transferees), so long as
the original Holder (together with its Permitted Transferees) beneficially owns
Warrants exercisable for a number of Warrant Shares equal to or greater than 51%
of the number of Warrant Shares issuable upon exercise of the Warrants issued to
the original Holder on the date hereof, or (ii) the holders of not less than a
majority of the Registrable Securities (collectively, the "Offerors") may
request registration under the Securities Act of all or part of their
Registrable Securities. A request pursuant to this Section 5.1 shall state the
number of Registrable Securities requested to be registered, the intended method
of disposition thereof and the jurisdictions in which registration is desired.
Within seven days after receipt of any such request, the Company will give
written notice of such request to all other holders of Registrable Securities
and will include in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein within 20
days after the receipt of the Company's notice. Each registration requested
pursuant to this Section 5.1 is referred to herein as a "Demand Registrations".
(b) Number of Demand Registrations. The holders of Registrable
Securities will be entitled to request up to three Demand Registrations. A
registration will not constitute a Demand Registration for purposes of this
Section 5.1 (i) until it has become effective (ii) if the Offerors for such
registration are not able to sell at least 80% of the Registrable Securities
requested to be included in such registration, or (iii) if after it has become
effective, the offering of Registrable Securities pursuant to such registration
is interfered with by any stop order, injunction or other order or requirement
of the SEC or other governmental agency or court.
(c) Priority on Demand Registrations. Without the written consent of
the Offerors: (i) the Company will not include in the first Demand Registration
any securities which are not Registrable Securities and (ii) the Company will
not include in any subsequent Demand Registration any securities which are not
Registrable Securities unless such offering is an underwritten offering and the
managing
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underwriters advise the Company and the Offerors in writing that in their
opinion the inclusion of such other securities will not materially impair the
ability of the Offerors to sell the Registrable Securities included in the
offering. If other securities are permitted to be included in a Demand
Registration which is an underwritten offering and the managing underwriters
advise the Company and the Offerors in writing that in their opinion the number
of Registrable Securities and other securities requested to be included exceeds
the number of securities which can be sold without materially adversely
affecting such offering, the Company will include in such registration prior to
the inclusion of any securities which are not Registrable Securities the number
of Registrable Securities requested to be included which in the opinion of such
managing underwriters can be sold, pro rata among the respective holders of the
Registrable Securities on the basis of the amount of such securities owned.
(d) Restrictions on Demand Registrations. The Company will not be
obligated to effect any Demand Registration within 180 days (or, if applicable,
such shorter period during which the Offerors are prohibited under Section
5.4(a) from selling, transferring or otherwise disposing of Registrable
Securities or other securities of the Company) after the effective date of a
previous registration in which the Offerors sold all the Registrable Securities
included therein pursuant to piggyback rights granted under Section 5.2. The
Company may postpone, for up to three months in the aggregate in any 12-month
period, the filing or the effectiveness of a registration statement for a Demand
Registration if the Board of Directors of the Company determines (and the
Company so certifies in writing to the Offerors) that such Demand Registration
might reasonably be expected to have a material adverse effect on any proposal
or plan by the Company or any of its Subsidiaries to engage in any material
corporate transaction; provided that in such event, the Offerors initiating the
request for such Demand Registration will be entitled to withdraw such request.
(e) Registration Expenses. The Company will pay all Registration
Expenses in connection with the first Demand Registration and any requested
Demand Registration (prior to the first Demand Registration that constitutes a
Demand Registration for purposes of this Section 5.1) the request for which is
withdrawn pursuant to the proviso to the last sentence of paragraph (d) above.
The Holders will pay all Registration Expenses in connection with all other
Demand Registrations.
(f) Selection of Underwriters. In connection with any registration
initiated as a Demand Registration, the Offerors will have the right to select
the investment banker(s) and manager(s) to administer the offering, subject to
the Company's approval which will not be unreasonably withheld.
(g) Customary Documentation. In connection with any registration
subject to this Section 5.1, the holders of Registrable Securities included in
such registration shall enter into such underwriting, lock-up and other
agreements, and shall execute and complete such questionnaires and other
documents, as are customary in a secondary offering.
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5.2 Piggyback Registrations.
(a) Right to Piggyback Registrations. Whenever the Company proposes to
register any of its Capital Stock under the Securities Act, the Company will
give prompt written notice (in any event within ten business days after its
receipt of notice of any exercise of other demand registration rights) to the
holders of Registrable Securities of its intention to effect such a registration
and will include in such registration all Registrable securities with respect to
which the Company has received written requests for inclusion therein within 15
days after the receipt of the Company's notice by such holders. A request
pursuant to this Section 5.2 shall state the number of Registrable Securities
requested to be registered. All registrations requested pursuant to this Section
5.2 are referred to herein as "Piggyback Registrations". No registration
effected under this Section 5.2 shall relieve the Company of its obligation to
effect up to three Demand Registrations pursuant to Section 5.1.
(b) Piggyback Expenses. The Registration Expenses of the holders of
Registrable Securities will be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold without materially adversely affecting such offering, the
Company will include in such registration (i) first, the securities the Company
proposes to sell and (ii) second, Registrable Securities and all other
securities requested to be included in such registration that are subject to
comparable registration rights, pro rata among the holders thereof on the basis
of the number of shares owned by such holders that are subject to such
registration rights.
(d) Priority on Secondary Registrations. If a Piggyback Registration
is an underwritten secondary registration on behalf of holders of the Company's
securities (and in which the Company is not issuing any securities under such
registration), and the managing underwriters advise the Company in writing that
in their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold without materially adversely
affecting such offering, the Company will include in such registration (i)
first, the securities requested to be included in such registration by the
holder or holders who requested such registration (such holders being entitled
to participate in accordance with the relative priorities, if any, as may exist
among them) and (ii) second, Registrable Securities and all other securities
requested to be included in such registration, pro rata among the holders
thereof on the basis of the number of shares owned by such holders that are
subject to such registration rights.
(e) Selection of Underwriters. In connection with a Piggyback
Registration which is an underwritten primary registration on behalf of the
Company,
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the Company will have the right to select any investment banker(s) and
manager(s) of nationally recognized standing to administer the offering.
(f) Customary Documentation. In connection with any registration
subject to this Section 5.2, the holders of Registrable Securities included in
such registration shall enter into such underwriting, lock-up and other
agreements, and shall execute and complete such questionnaires and other
documents, as are customary in a primary offering.
5.3 No Inconsistent Agreement. Any right given by the Company to any
holder or prospective holder of the Company's securities in connection with the
registration of securities shall be conditioned such that it shall be consistent
with the rights of the holders of Registrable Securities provided in this
Warrant and (without limiting the generality of the foregoing) shall not
materially adversely affect the right of the holders of Registrable Securities
to participate in Piggyback Registrations in the manner set forth in this
Warrant. Except as provided for herein, no holder of the Company's securities
(other than the Bridge Note Holders pursuant to warrants issued to them under
the Bridge Facility, International Aircraft Support L.P. pursuant to warrants
issued in connection with the Acquisition Agreement and each of GKN Securities
Corp. and Brean Murray, Foster Securities Inc. pursuant to Unit Common Share
Equivalents issued in connection with the Company's Initial public offering)
owns or possesses any registration rights with respect to any of the Company's
securities, and the Company represents and warrants to the Holder that no rights
of any such holders are inconsistent with the rights of the holders of
Registrable Securities provided in this Warrant (with respect to Demand
Registrations, Piggyback Registrations or otherwise).
5.4 Lockup Agreement.
(a) The Holder agrees, and prior to transferring Registrable
Securities will cause its proposed transferee to agree, if requested by the
Company and the managing underwriters of Registrable Securities, not to sell or
otherwise transfer or dispose of (other than by private placement) any other
Registrable Securities (or other securities of the Company) ten days prior to or
during the 180-day period (the "Lock-Up Period") following the effective date of
a registration statement of the Company filed under the Securities Act, provided
that all officers, directors and stockholders owning five percent or more (on a
fully diluted basis, treating all outstanding options, rights and warrants to
acquire equity securities of the Company as fully exercised, and treating all
securities convertible into or exchangeable for equity securities of the Company
as fully converted or exchanged) of the Company's equity securities shall enter
into similar agreements, and provided further that if the Lock-Up Period
applicable to any of such officers, directors or stockholders is less than 180
days, then the Lock-Up Period applicable to the Holder shall be reduced to the
shortest Lock-Up Period applicable to any of such officers, directors or
stockholders. Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The
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Company may impose stop transfer instructions with respect to the shares (or
securities) subject to the foregoing restriction until the end of said Lock-Up
Period.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the ten days prior to
and during the 90-day period beginning on the effective date of any underwritten
Demand Registration or any underwritten Piggyback Registration (except as part
of such underwritten registration or pursuant to registrations on Form S-8 or
any successor form not available for registering capital stock for sale to the
public at large), unless all of the Registrable Securities included in such
Registration have been sold and (ii) to cause each beneficial owner of at least
five percent of its equity securities acquired from the Company (other than a
holder that acquired such securities in a registered public offering or in open
market transactions, unless such holder owned beneficially five percent or more
of the Company's equity securities prior to such public offering) to agree not
to effect any public sale or distribution of any such securities during such
period (except as part of such underwritten registration, if otherwise
permitted), unless all of the Registrable Securities included in such
Registration have been sold.
5.5 Registration Procedures. Whenever the Offerors have requested that
any Registrable Securities be registered pursuant to this Warrant, the Company
will use its best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become and remain effective for a period of not less
than three months; provided that before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company will furnish to
the counsel selected by the Offerors requesting such registration statement
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel before such filing is made, and the
Company will comply with any reasonable request made by such counsel to make
changes to the extent such documents do not comply in all material respects with
the Securities Act;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than three months and
to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of
conformed copies of such registration statement, each amendment and supplement
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thereto (in each case including all exhibits), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to service of process except as required by the
securities or blue sky laws in any such jurisdiction);
(e) notify each seller of such Registrable Securities at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act of the Company's becoming aware of any event as a result of which the
prospectus included in such registration statement, as then in effect, contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made, and, at the
written request of any such seller, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made;
(f) cause all such Registrable Securities covered by such registration
statement to be listed or quoted on the principal securities exchange or
national automated quotation system on which similar securities issued by the
Company are then listed or quoted or, if not then listed or quoted, use its best
efforts to cause such Registrable Securities to be listed on a national
securities exchange or quoted on a national automated quotation system;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) in the event the offering is an underwritten offering, use its
best efforts to obtain a "cold comfort" letter from the independent public
accountants for the Company in customary form and covering such matters of the
type customarily covered by such letters;
(i) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably
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request in order to expedite or facilitate the disposition of such Registrable
Securities; and
(j) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors, employees and independent accountants to supply
all information reasonably requested by any such seller, underwriter attorney,
accountant or agent in connection with such registration statement.
The Company will make generally available to the holders of
Registrable Securities a consolidated earnings statement (which need not be
audited) for the twelve months beginning after the effective date of a
registration statement as soon as reasonably practicable after the end of such
period, which earnings statement shall satisfy Section 11(a) of the Securities
Act.
The Company will at all times after the Company has filed a
registration statement with the SEC pursuant to the requirements of either the
Securities Act or the Exchange Act, file all reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder, and take such further action as any holder or
holders of Registrable Securities may reasonably request, all to the extent
required to enable such holders to be eligible to sell Registrable Securities
pursuant to (i) Rule 144 adopted by the SEC under the Securities Act, as such
rule may be amended from time to time) or any similar rule or regulation
hereafter adopted by the SEC or (ii) a registration statement on Form S-2 or S-3
or any similar registration form hereafter adopted by the SEC. Upon request, the
Company will deliver to holders of Registrable Securities a written statement as
to whether it has complied with such requirements.
5.6 Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Warrant, including, without limitation, all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, word processing, duplicating and printing expenses, messenger and delivery
expenses, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the Company (all such expenses being
herein called "Registration Expenses"), will be borne as provided in this
Warrant; provided that the Company will pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses and
fees for listing the securities to be registered on each securities exchange
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on which similar securities issued by the Company are then listed or on a
national automated quotation system.
(b) In connection with the first Demand Registration, the Company will
reimburse the holders of Registrable Securities covered by such registration for
the reasonable fees and disbursements of one counsel chosen by the holders of a
majority of the Registrable Securities included in such registration.
(c) To the extent Registration Expenses are not required to be paid by
the Company each holder of securities included in any registration hereunder
will pay those Registration Expenses allocable to the registration of such
holder's securities so included, and any Registration Expenses not so allocable
will be borne by all sellers of securities included in such registration in
proportion to the aggregate selling price of the securities to be so registered.
5.7 Indemnification.
(a) The Company agrees to indemnify, to the fullest extent permitted
by law, each holder of Registrable Securities, its officers and directors or
general or limited partners (and directors and officers thereof and, if such
holder is a portfolio or investment fund, its investment advisers or agents,
and, with respect to any indemnification to be provided to The Equitable Life
Assurance Society of the United States, Alliance Corporate Finance Group
Incorporated and Alliance Capital Management, L.P. and their officers and
directors) and each Person who controls such holder (within the meaning of the
Securities Act) (each, a "Holder Indemnitee"), as follows:
(i) against all losses, claims, damages, liabilities and
expenses arising out of or based upon any untrue or alleged untrue
statement of material fact contained in any registration statement,
prospectus or preliminary prospectus, or any amendment thereof or
supplement thereto, or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of any prospectus or preliminary
prospectus, in light of the circumstances under which they were made),
except insofar as the same arise out of or are based upon any such
untrue statement or omission or allegation thereof made in any such
registration statement, prospectus or preliminary prospectus,
amendment or supplement in reliance on and in conformity with any
information furnished in writing to the company by such holder
expressly for use therein or by such holder's failure to deliver a
copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such holder with a
sufficient number of copies of the same;
(ii) against all losses, claims, damages, liabilities and
expenses to the extent of the aggregate amount paid in settlement of
any litigation, or investigation or proceeding by any governmental
agency or body, commenced or
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threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the prior written
consent of the Company; and
(iii) against all expenses reasonably incurred by such
holder in connection with investigating, preparing or defending
against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under clause (i) or (ii) above.
In connection with an underwritten offering, the Company will indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters within the meaning of the Securities Act to the same extent as
provided above with respect to the indemnification of the Holder Indemnitee.
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify the Company, its
directors and officers and each Person who controls the Company within the
meaning of the Securities Act (each, a "Company Indemnitee") against any losses,
claims, damages, liabilities and expenses arising out of or based upon any
untrue statement of material fact contained in the registration statement,
prospectus or preliminary prospectus, or any amendment thereof or supplement
thereto, or any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading (in the case of any
prospectus or preliminary prospectus, in light of the circumstances under which
they were made), but only to the extent the same arise out of or are based upon
any such untrue statement or omission or allegation thereof made in any such
registration statement, prospectus or preliminary prospectus, amendment or
supplement in reliance on and in conformity with any information furnished in
writing to the Company by such holder expressly for use therein; provided that
the obligation to indemnify will be several, not joint and several, among such
holders of Registrable Securities and the liability of each such holder of
Registrable Securities will be in proportion to and limited to the net amount
received by such holder from the sale of Registrable Securities pursuant to such
registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
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unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified hereunder by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim in which case such indemnified party shall have the right to employ
separate counsel. Failure to give prompt written notice shall not release the
indemnifying party from its obligations hereunder, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice.
(d) The indemnification provided for under this Warrant will remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities. The Company also
agrees to make such provisions as are reasonably requested by any indemnified
party for contribution to such party in the event the Company's indemnification
is unavailable for any reason.
5.8 Contribution. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
5.7 is for any reason not available, the parties required to indemnify by the
terms thereof shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnity agreement
incurred by any Holder Indemnitee, any Company Indemnitee and one or more of the
underwriters, except to the extent that contribution is not permitted under
Section 11(f) of the Securities Act. In determining the amounts which the
respective parties shall contribute, there shall be considered the parties'
relative fault concerning the matter with respect to which the claim was
asserted, knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
statement or omission and any other equitable considerations appropriate under
the circumstances; provided that, if applicable law or a court of competent
jurisdiction requires that the relative benefits received by each party from the
offering of the Registrable Securities be taken into account in determining the
amounts which the respective parties shall contribute, the parties agree that it
would be unjust and inequitable not to take into account the benefits received
by the Company Indemnitees in connection with the transactions contemplated by
the Securities Purchase Agreement referred to in the second paragraph of this
Warrant, including but not limited to the proceeds of the securities sold by the
Company to the Holder thereunder. The Company and each Person selling securities
agree with each other that no seller of Registrable Securities shall be required
to contribute any amount in excess of the amount such seller would have been
required to pay to an indemnified party if the indemnity under Section 5.8 were
available. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The Company
and each such seller agree with each other and the underwriters of the
Registrable Securities, if requested by such underwriters, that it would not be
equitable if the amount of such contribution were determined by pro rata
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or per capita allocation (even if the underwriters were treated as one entity
for such purpose) or for the underwriters' portion of such contribution to
exceed the percentage that the underwriting discount bears to the initial public
offering price of the Registrable Securities. For purposes of this Section 5.8,
each Person, if any, who controls an underwriter within the meaning of Section
15 of the Securities Act shall have the same rights to contribution as such
underwriter, and each director and each officer of the Company who signed the
registration statement, and each Person, if any, who controls the Company or a
seller of Registrable Securities within the meaning of Section 15 of the
Securities Act, shall have the same rights to contribution as the Company or a
seller of Registrable Securities, as the case may be.
5.9 Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
5.10 Recapitalization of Nonvoting Stock. At any time a holder of
nonvoting Registrable Securities wishes to sell such shares pursuant to a public
offering of shares of voting common stock, the Company shall cause such shares
to be recapitalized into or exchanged for shares of voting common stock, such
recapitalization or exchange to become effective at such time as the
registration statement pertaining to such shares has been filed with and
declared effective by the SEC.
ARTICLE VI
DEFINITIONS
As used herein, the following terms have the following meanings:
"Additional Shares of Common" shall mean all shares of Common Stock
issued by the Company after the date hereof except Warrant Shares.
"Appraisal Procedure" means a procedure whereby two independent
accounting or investment banking firms of nationally recognized standing (each,
an "Appraiser"), one chosen by the Company and one by a Majority in Interest of
Warrantholders, shall mutually agree upon the determinations then the subject of
appraisal. Each party shall deliver a notice to the other appointing its
Appraiser within 15 days after the Appraisal Procedure is invoked. If within 30
days after appointment of the two Appraisers they are unable to agree upon the
amount in question, an independent accounting or investment banking firm of
nationally recognized standing shall be chosen to serve as a third Appraiser
within 10 days thereafter by the mutual consent of such first two Appraisers or,
if such first two Appraisers fail to agree upon
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the appointment of a third Appraiser (or if either party fails to appoint an
Appraiser), such appointment shall be made by the American Arbitration
Association, or any organization successor thereto, from a panel of arbitrators
having experience in the appraisal of the type of Property then the subject of
appraisal. The decision of the third Appraiser so appointed and chosen shall be
given within 30 days after the selection of such third Appraiser. If three
Appraisers shall be appointed and the determination of one Appraiser is
disparate from the middle determination by more than twice the amount by which
the other determination is disparate from the middle determinations then the
determination of such Appraiser shall be excluded, the remaining two
determinations shall be averaged and such average shall be binding and
conclusive on the Company and the Warrantholders; otherwise the average of all
three determinations shall be binding and conclusive on the Company and the
Warrantholders. The costs of conducting any Appraisal Procedure shall be borne
as follows: (i) the costs of the Appraiser designated by the Company shall be
borne by the Company; (ii) the costs of the Appraiser designated by the
Warrantholders shall be borne by the Warrantholders; (iii) other costs
separately incurred by the Company and by the Warrantholders shall be borne
separately by them; and (iv) the costs of the third Appraiser, if any, shall be
borne equally by the Company and the Warrantholders, provided that if the
Appraisal Procedure results in a determination of Fair Market Value that is
disparate by five percent or more from the Company's initial determination of
Fair Market Value pursuant to Section 3.2, the costs of the third Appraiser
shall be borne solely by the Company.
"Business Day" means (a) if the Common Stock is listed or admitted to
trading on a national securities exchange, a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for business or (b) if the Common Stock is not so listed or admitted to
trading, a day on which any New York Stock Exchange member firm is open for
business.
"Capital Stock" means all issued and outstanding shares of capital
stock of any class of the Company.
"Closing Price" on any day means (a) if the Common Stock is listed or
admitted for trading on a national securities exchange, the reported last sales
price regular way or, if no such reported sale occurs on such day, the average
of the closing bid and asked prices regular way on such day, in each case on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, or (b) if the Common Stock is not listed or admitted to
trading on any national securities exchange, the closing price reported by the
NASDAQ National Market System or, if not so reported, the average of the closing
bid and asked prices in the over-the-counter market on such day as reported by
NASDAQ or any comparable system or, if not so reported, as reported by any New
York Stock Exchange member firm selected by the Company for such purpose.
"Common Stock" means the Common Stock, par value $0.001 per share, of
the Company, subject to change pursuant to Article IV.
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"Common Stock Equivalent" shall mean any Convertible Security or
warrant, option or other right to subscribe for or purchase any Additional
Shares of Common or any Convertible Security.
"Company" is defined in the first paragraph of this Warrant.
"Company Indemnitee" is defined in Section 5.7(b).
"Convertible Securities" shall mean evidences of indebtedness, shares
of capital stock or other securities which are or may be at any time convertible
into or exchangeable for Additional Shares of Common.
"Demand Registration" is defined in Section 5.1(a).
"Exercise Price" means $10.00 per Warrant Share, subject to adjustment
pursuant to Article IV.
"Expiration Date" means January 15, 2004.
"Fair Market Value" means the fair market value of the business or
Property in question, as determined in good faith by the Board of Directors of
the Company or otherwise as provided herein; provided, that the Fair Market
Value of any security for which a Closing Price is available shall be the Market
Price of such security. The Fair Market Value of the Company shall be the Fair
Market Value of the Company and its Subsidiaries on a consolidated basis.
"Holder" is defined in the first paragraph of this Warrant.
"Holder Indemnitee" is defined in Section 5.7(a).
"Majority in Interest of Warrantholders" means the holders of Warrants
entitling such holders to purchase a majority of the shares of Common Stock
subject to purchase upon exercise of such Warrants at the time outstanding
(exclusive of Warrants then owned by the Company or any Affiliate (as defined in
the Purchase Agreement).
"Management Shares" means (a) shares of Common Stock issued to
officers, directors, employees or consultants of the Company from time to time,
upon the exercise of options granted pursuant to a stock option plan or similar
plan approved by the Company's shareholders, and (b) no more than 100,000 shares
of Common Stock (subject to adjustment for stock splits, combinations and the
like) in any calendar year issued to persons becoming officers, directors,
employees or consultants of the Company in order to induce such persons to
accept such positions; provided that in either case, on the date of grant, the
exercise price of such options is equal to the Fair Market Value of the shares
issuable upon exercise thereof.
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"Market Price" as at any date of determination means the average of
the daily Closing Prices of a share of Common Stock for the shorter of (i) the
20 consecutive Business Days ending on the most recent Business Day prior to the
Time of Determination and (ii) the period commencing on the date next succeeding
the first public announcement of the issuance, sale, distribution or grant to
stockholders through such most recent Business Day prior to the Time of
Determination. "Time of Determination" means the time and date of the earlier of
(x) the determination of stockholders entitled to receive such issuance, sale,
distribution or grant and (y) the commencement of "ex-dividend" trading in
respect thereof.
"NASD" means The National Association of Securities Dealers, Inc.
"NASDAQ" means The National Association of Securities Dealers, Inc.
Automated Quotation System.
"Offerors" is defined in Section 5.1(a).
"Permitted Transferee" means, with respect to the original Holder, any
of its Affiliates and any portfolio or investment fund for which such Holder or
any of its Affiliates acts as investment adviser.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible, including, without
limitation, cash or cash equivalents.
"Purchase Agreement" is defined in the second paragraph of this
Warrant.
"Piggyback Registration" is defined in Section 5.2(a).
"Registrable Securities" means the Warrant Shares and any shares into
which such Warrant Shares are subdivided, combined or otherwise converted by the
Company.
"Registration Expenses" is defined in Section 5.6.
"SEC" means the United States Securities and Exchange Commission and
any successor agency.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, as to any person, a corporation or other entity
whose shares of capital stock or other ownership interests having ordinary
voting power (other than shares of capital stock or other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the directors of such corporation, or other persons performing
similar functions for such entity, are owned, directly or indirectly, by such
person.
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"Warrantholder" means a holder of a Warrant.
"Warrants" is defined in the second paragraph of this Warrant.
"Warrant Shares" means the shares of Common Stock issuable upon the
exercise of the Warrants.
ARTICLE VII
MISCELLANEOUS
7.1 Notices. All communications provided for hereunder shall be in
writing and delivered personally or by overnight delivery (by courier or
nationally recognized overnight delivery service) or sent by first class
registered or certified mail, postage prepaid and return receipt requested, or
sent by facsimile (with such facsimile to be confirmed promptly by return
facsimile), sent (i) if to the Holder or any other holder of Warrants, to its
address as shown on the books maintained by the Company, unless the Holder or
other holder of Warrants shall notify the Company that notices and
communications should be sent to a different address, in which case such notices
and communications shall be sent to the address specified by the Holder; and
(ii) if to the Company, at the address specified in the Purchase Agreement. All
such communications shall be deemed to have been given or made when so delivered
by hand or sent by facsimile, or one Business Day after being sent by overnight
delivery or five Business Days after being so mailed.
7.2 Waivers; Amendments. No failure or delay of the Holder in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power. The rights and remedies of the Holder are cumulative and not exclusive of
any rights or remedies which it would otherwise have. The provisions of this
Warrant may be amended, modified or waived with (and only with) the written
consent of the Company and a Majority in Interest of Warrantholders; provided,
however, that no such amendment, modification or waiver adverse to any Holder
shall, without the written consent of such Holder, (a) change the number of
shares of Common Stock subject to purchase upon exercise of this Warrant, the
Exercise Price or any provision for payment thereof or (b) amend, modify or
waive the provisions of this Section or Article III or IV. The provisions of the
Purchase Agreement may be amended, modified or waived only in accordance with
the respective provisions thereof.
Any such amendment, modification or waiver effected pursuant to this
Section or the applicable provisions of the Purchase Agreement shall be binding
upon the holders of all Warrants and Warrant Shares, upon each future holder
thereof and upon the Company. In the event of any such amendment, modification
or waiver the
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Company shall give prompt notice thereof to all holders of Warrants and Warrant
Shares and, if appropriate, notation thereof shall be made on all Warrants
thereafter surrendered for registration of transfer or exchange.
No notice or demand on the Company in any ease shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
7.3 Governing Law. This Warrant shall be construed in accordance with
and governed by the laws of New York, except to the extent that the laws of
Delaware shall be mandatorily applicable hereto.
7.4 Survival of Agreements; Representations and Warranties, etc. All
warranties, representations and covenants made by the Company or the Holder
herein or in any certificate or other instrument delivered by or on behalf of it
in connection with the Warrants shall be considered to have been relied upon by
the Holder or the Company, respectively, and shall survive the issuance and
delivery of the Warrants, regardless of any investigation made by the Holder or
the Company, and shall continue in full force and effect so long as this Warrant
is outstanding. All statements in any such certificate or other instrument shall
constitute representations and warranties hereunder.
7.5 Covenants To Bind Successor and Assigns. All covenants,
stipulations, promises and agreements in this Warrant contained by or on behalf
of the Company or the Holder shall bind its successors and assigns, whether so
expressed or not.
7.6 Severability. In case any one or more of the provisions contained
in this Warrant shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
7.7 Section Headings. The section headings used herein are for
convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
7.8 No Rights as Stockholder. This Warrant shall not entitle the
Holder to any rights as a stockholder of the Company.
7.9 Information to Holder. The Company agrees that it shall deliver to
the Holder promptly after their becoming available copies of all financial
statements, reports and proxy statements which the Company shall have sent to
its stockholders generally.
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7.10 No Impairment. The Company shall not by any action, including,
without limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issuance
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (c) use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.
7.11 Complete Agreement. This Warrant and the Purchase Agreement,
together with the documents referred to herein and therein, contain the complete
agreement between the parties with respect to the subject matter hereof, and
supersede any prior understandings, agreements or representations by or between
the parties, written or oral, with respect to the subject matter hereof. This
Warrant is entitled to the benefits of Section 10.11 of the Purchase Agreement,
which is incorporated herein by reference.
* * *
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<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Warrant to be
executed in its corporate name by one of its officers thereunto duly authorized,
as of the date first above written.
KELLSTROM INDUSTRIES, INC.
By________________________________
Name:
Title:
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SUBSCRIPTION NOTICE
(To be executed upon exercise of Warrant)
To KELLSTROM INDUSTRIES, INC.:
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the attached Warrant for, and to purchase thereunder,
__________ shares of Common Stock as provided for therein, and [tenders herewith
payment of the Exercise Price in the form of a certified or bank cashier's check
or wire transfer] [in lieu of payment in cash, hereby surrenders Warrants with
an aggregate value equal to the aggregate Exercise Price. For purposes of the
preceding sentence, the value of any Warrant shall be equal to the difference
between the aggregate Market Value of the Warrant Shares issuable upon exercise
thereof and the aggregate Exercise Price payable upon exercise thereof].
Please issue a certificate or certificates for such shares of Common
Stock in the following name or names and denominations:
If said number of shares shall not be all the shares issuable upon
exercise of the attached Warrant, a new Warrant is to be issued in the name of
the undersigned for the balance remaining of such shares less any fraction of a
share paid in cash.
Dated:
______________________________
[Note: the above signature
should correspond exactly with
the name on the face of the
attached Warrant or with the
name of the assignee appearing
in the assignment form below.]
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<PAGE>
ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received, __________________________ hereby sells, assigns
and transfers unto ____________________________________________ the attached
Warrant, together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint ___________________ attorney to transfer
said Warrant on the books of KELLSTROM INDUSTRIES, INC., with full power of
substitution in the premises.
______________________________
[Note: the above signature
should correspond exactly with
the name on the face of the
attached Warrant.]
Dated:
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<PAGE>
ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received, _____________________________ hereby sells,
assigns and transfers unto _______________________________________________ the
attached Warrant, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint _____ attorney to transfer said
Warrant on the books of KELLSTROM INDUSTRIES, INC., with full power of
substitution in the premises.
______________________________
[Note: the above signature
should correspond exactly with
the name on the face of the
attached Warrant.]
Dated:
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<PAGE>
NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT ("Agreement") dated as of January 9, 1997, by
and between KELLSTROM INDUSTRIES, INC., a Delaware corporation, having its
executive office at 14000 N.W. 4th Street, Sunrise, Florida 33325 (the
"Company") and the purchasers named on Schedule I hereto (hereinafter referred
to individually as a "Purchaser" and collectively as the "Purchasers").
RECITALS
--------
WHEREAS, the Company desires to issue and sell to the Purchasers,
subject to the terms and conditions hereinafter provided, (i) an aggregate of
$6,000,000 principal amount of its 10% Senior Subordinated Notes (the "Notes"),
all as more fully set forth in this Agreement; (ii) warrants (the "Original
Warrants") to purchase 75,000 shares of the Company's common stock, par value
$.001 per share (the "Common Stock"); and (iii) if required under the terms of
the Notes, warrants (the "Additional Warrants") to purchase an aggregate of up
to 375,000 additional shares of Common Stock (collectively with the Original
Warrants, the "Bridge Financing Warrants").
WHEREAS, subject to the terms and conditions hereinafter set forth, the
Purchasers desire to purchase (i) the Notes in the aggregate principal amounts
set forth opposite their respective names on Schedule I hereto; (ii) the
Original Warrants for the number of shares set forth opposite their respective
names on Schedule I hereto; and (iii) if required under the terms of the Notes,
the Additional Warrants for the number of shares set forth opposite their
respective names on Schedule I hereto.
NOW, THEREFORE, the Company and each Purchaser agree as follows:
Section 1. Definitions.
-----------
Section 1.1. Defined Terms. For the purposes of this Agreement, the
following terms shall have the following respective meanings:
"Accountants" has the meaning specified in Section 7.2.
"Additional Warrants" means warrants to purchase an aggregate of up to
375,000 shares of the Common Stock.
"Asset Purchase Agreement" means the Asset Purchase Agreement, dated
October 28, 1996, by and among the Company, IASI Inc., a Delaware corporation
and a wholly-owned subsidiary of the Company, International Aircraft Support
L.P. and William Lyon.
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"Audited Financial Statements" has the meaning specified in Section 3.4.
"Bridge Financing Warrants" means the collective Original Warrants and
Additional Warrants.
"Business Day" means any day except a Saturday, a Sunday or a legal
holiday in the State of Florida.
"Capital Stock" means and includes any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock, including, without limitation, shares of preferred or
preference stock.
"Common Stock" means the common stock, par value $.001 per share, of
the Company.
"Company" means Kellstrom Industries, Inc., a Delaware corporation, or
any of its successors or permitted assigns.
"Debt" with respect to any Person means, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) any obligation incurred for
all or any part of the purchase price of capital equipment or real property,
other than accounts payable and accrued expenses included in current liabilities
in accordance with GAAP, (iii) indebtedness or obligations evidenced by bonds,
notes or similar written instruments, (iv) all reimbursement obligations of such
Person (whether contingent or otherwise) in respect of letters of credit,
bankers' acceptances, surety or other bonds and similar instruments, (v) any
obligation (whether or not such Person has assumed or become liable for the
payment of such obligation) secured by a Lien on any Property of such Person,
(vi) capitalized lease obligations of such Person, and (vii) all Guarantees by
such Person of obligations of any other Person of the types referred to in the
foregoing clauses (i) through (vi), inclusive.
"Default" means any event or condition which, with due notice or lapse
of time or both, would become an Event of Default.
"Escrow Agent" means the party appointed as the escrow agent under the
Escrow Agreement.
"Escrow Agreement" means the Escrow Agreement dated the date hereof, by
and among the Company, the Purchasers and Fulbright & Jaworski L.L.P.
"Event of Default" has the meaning specified in Section 10.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as
amended, or any similar statute then in effect, and a reference to a particular
section thereof shall include a reference to the comparable section, if any, of
any such similar statute.
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"Filed Documents" has the meaning specified in Section 3.4.
"Financial Statements" has the meaning specified in Section 3.4.
"Funded Debt" of any Person shall mean all Debt of such Person payable
more than one year from the date such Debt is incurred, including the current
portion of such Debt, it being understood that any Debt of such Person which has
an initial term of more than one year shall be treated as Funded Debt throughout
the term of such Debt.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America applied on a consistent basis both
as to classification of items and amounts (except for changes in accounting
methods required by GAAP and concurred with by the Accountants).
"Governmental Body" means any federal, state, county, city, town,
village, municipal or other governmental department, commission, board, bureau,
agency, authority or instrumentality, domestic or foreign.
"Guarantee" means, with respect to any Person, any guarantee or other
contingent liability (other than any endorsement for collection or deposit in
the ordinary course of business and performance bonds, indemnities and similar
obligations not guaranteeing or otherwise insuring payment of any Debt or other
financial obligation), direct or indirect, of such Person with respect to any
Debt or other obligations of another Person (including, without limitation,
obligations under leases), through an agreement or otherwise, including, without
limitation, (a) any other endorsement or discount with recourse or undertaking
substantially equivalent to or having economic effect similar to a guarantee in
respect of any such Debt or other obligations and (b) any agreement (i) to
purchase, or to advance or supply funds for the payment or purchase of, any such
obligations, (ii) to purchase, sell or lease Property, products, materials or
supplies, or transportation or services, in respect of enabling such other
Person to pay any such obligation or to assure the owner thereof against loss
regardless of the delivery or nondelivery of the Property, products, materials
or supplies or transportation or services or (iii) to make any loan, advance or
capital contribution to or other investment in, or to otherwise provide funds to
or for, such other Person in respect of enabling such Person to satisfy any
obligation (including any liability for a dividend, stock liquidation payment or
expense) or to assure a minimum equity, working capital or other balance sheet
condition in respect of any such obligation.
"Lien" means any security interest, mortgage, pledge, lien, claim,
charge, encumbrance, conditional sale or title retention agreement, lessor's
interest under a capitalized lease or analogous instrument, in, of or on any of
a Person's Property (whether held on the date hereof or hereafter acquired), or
any signed or filed financing statement which names such Person as the debtor,
or the execution of any security
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<PAGE>
agreement or the like authorizing any other Person as the secured party
thereunder to file such a financing statement.
"Material Adverse Effect" means any change or changes or effect or
effects that individually or in the aggregate are or are likely to be materially
adverse to (i) the assets, business, operations, income, prospects or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole,
(ii) the legality, validity or enforceability of this Agreement, the Escrow
Agreement, the Notes or the Bridge Financing Warrants, and (iii) the ability of
the Company to fulfill its obligations under this Agreement or the Notes or the
Bridge Financing Warrants without material delay or impairment.
"Maturity Date" means the 90th day following the Closing Date.
"Note" and "Notes" have the meanings specified in Section 2.1.
"Order" means any order, writ, injunction, decree, judgment, award,
determination or written direction or demand of any court, arbitrator or
Governmental Body.
"Original Warrants" means warrants to purchase an aggregate of 75,000
shares of the Common Stock.
"Person" means and includes an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof.
"Proceeding" means a bankruptcy, insolvency, reorganization,
receivership, composition, assignment for benefit of creditors or other similar
proceeding initiated by or against the Company or any dissolution or winding up
or total or partial liquidation or reorganization of the Company.
"Property" and "Properties" with respect to any Person, means any
interest in any kind of property or asset, whether real, personal or mixed,
tangible or intangible, of such Person.
"Purchaser" and "Purchasers" refer to the purchasers named on Schedule
I hereto.
"Revolving Loan Agreement" means the Revolving Loan Agreement by and
between the Company and Barnett Bank N.A., dated December 23, 1996.
"SEC" means the U.S. Securities and Exchange Commission and any
succeeding agency, authority, commission or Governmental Body.
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<PAGE>
"Securities Act" means as of any date the U.S. Securities Act of 1933,
as amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall include a reference to the comparable section,
if any, of any such similar Federal statute.
"Securities Purchase Agreement" means the Securities Purchase Agreement
by and between the Company and The Equitable Life Assurance Society of the
United States to be executed at the closing of the transactions contemplated by
the Asset Purchase Agreement.
"Senior Indebtedness" has the meaning specified in Section 8.
"Shares" means the shares of the Common Stock.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other entity of which at least a majority of the outstanding Voting Stock is at
the time directly or indirectly owned or controlled by such Person or by one or
more of any entities directly or indirectly owned or controlled by such Person.
"Unaudited Financial Statements" has the meaning specified in
Section 3.4.
"Voting Stock" with respect to any Person shall mean Capital Stock of
such Person of any class or classes, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of members of the
Board of Directors (or Persons performing similar functions) of such Person.
Section 1.2. Accounting Terms. All accounting terms used in this
Agreement shall be applied on a consolidated basis for the Company and its
Subsidiaries, unless otherwise specifically indicated herein. Any accounting
terms not specifically defined herein shall have the meanings customarily given
them in accordance with GAAP.
Section 2. Sale and Purchase of the Notes.
Section 2.1. Authorization of the Notes. The Board of Directors of the
Company has duly authorized the issue, sale and delivery of (i) an aggregate of
$6,000,000 principal amount of its 10% Senior Subordinated Notes, to be dated
the date of issue thereof, to bear interest from such date on the unpaid
principal amount thereof and to mature on the Maturity Date, all in accordance
with the terms of the Notes which shall be in the form of Exhibit A hereto (the
Notes originally issued pursuant to this Agreement, or any Note delivered in
substitution or exchange therefor, being collectively called the "Notes" and
individually a "Note"); (ii) the Original Warrants; and (iii) the Additional
Warrants to the extent required under the terms of the Notes.
Section 2.2. Sale and Purchase of the Notes and Warrants. (a) Subject
to the applicable terms and conditions set forth in this Agreement, the Company
will issue and sell to the Purchasers, and the Purchasers will purchase from the
Company, on the
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Closing Date, (i) Notes with an aggregate principal amount of $6,000,000 to the
Purchasers in the aggregate principal amount set forth opposite each such
Purchaser's name on Schedule I hereto and (ii) the Original Warrants to purchase
the number of Shares set forth opposite their respective names on Schedule I
hereto.
(b) The purchase price to be paid by the Purchaser as consideration for
the issuance and sale of the Notes on the Closing Date shall be $6,000,000.
Section 2.3. Closing. Simultaneously with the execution of this
Agreement or at such later time as the Company and the Purchasers shall mutually
agree, but in no event later than 1:00 p.m. on January 10, 1997, (a) the Company
will deliver to the Escrow Agent (i) Notes, in the form of Exhibit A hereto, in
the aggregate principal amount of $6,000,000 payable to the Purchasers in the
amounts set forth opposite their respective names on Schedule I hereto and (ii)
the Original Warrants, in the form of Exhibit B hereto, for the purchase of the
number of shares set forth opposite their respective names on Schedule I hereto
and (b) the Purchasers shall deliver to the Escrow Agent immediately available
funds in an amount equal to $6,000,000, all of which deliveries to the Escrow
Agent shall be held in accordance with the Escrow Agreement.
Section 3. Representations and Warranties of the Company.
The Company represents and warrants to the Purchaser that:
Section 3.1. Corporate Existence and Power; Qualification. The Company
and each of its Subsidiaries is a company duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation or
organization. The Company and each of its Subsidiaries has full power and
authority to conduct all the activities conducted by it, to own or lease all the
assets owned or leased by it and to conduct its business as described in the
Filed Documents. The Company and each of its Subsidiaries is duly qualified to
transact business as a foreign corporation in each jurisdiction in which the
nature of the business conducted by it or its ownership or leasing of property
make such qualification necessary, except where the failure to so qualify would
not have a Material Adverse Effect.
Section 3.2. Corporate Authority; Binding Effect. The Company has full
corporate power and authority to execute, deliver and perform this Agreement,
the Escrow Agreement, the Notes and the Bridge Financing Warrants. This
Agreement has been duly authorized, executed and delivered by the Company and,
assuming the due authorization, execution and delivery by the Purchaser, is the
legal, valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms. The Notes to be issued and sold by the
Company to the Purchasers hereunder have been duly and validly authorized and,
when issued, executed and delivered against payment therefor as provided herein,
will constitute the legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with their terms. The Original
Warrants and any Additional Warrants to be issued and sold by
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the Company to the Purchasers hereunder have been duly and validly authorized
and, when issued, executed and delivered against payment therefor as provided
herein, will constitute the legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with their terms.
Section 3.3. Share Capital. The authorized share capital of the Company
consists of 20,000,000 Shares and 1,000,000 shares of Preferred Stock. As of
December 31, 1996 there were (i) 3,315,308 Shares issued and outstanding, (ii)
4,166,510 Shares reserved for issuance pursuant to issued and outstanding
warrants; (iii) 600,000 Shares reserved for issuance pursuant to issued and
outstanding unit purchase options, each such option entitling the holder to
purchase one unit consisting of one Share of Common Stock and two warrants; (iv)
500,000 Shares reserved for issuance pursuant to the Asset Purchase Agreement;
(v) 250,000 Shares reserved for issuance under the Company's 1995 Stock Option
Plan; (vi) 1,100,000 Shares reserved for issuance under the Company's 1996 Stock
Option Plan; (vii) 60,000 Shares reserved for issuance upon the exercise of
options granted to certain employees and prospective employees; (viii) 540,000
Shares which will be reserved for issuance in accordance with the Securities
Purchase Agreement; and (ix) 410,000 Shares reserved for issuance pursuant to
other warrants issued by the Company. The outstanding Shares have been duly
authorized, validly issued, fully paid and nonassessable and will not be subject
to any preemptive right, right of first refusal or similar right. Except as set
forth in this Section 3.3, the Company does not have outstanding any options to
purchase, or any rights or warrants to subscribe for, or any securities or
obligations convertible into, or exchangeable for, or any contracts or
commitments to issue or sell, any Capital Stock of the Company or any Subsidiary
or any such options, warrants, convertible or exchangeable securities or
obligations. There are no outstanding obligations, contingent or other of the
Company or any Subsidiary to purchase, redeem or otherwise acquire any Capital
Stock of the Company or any Subsidiary. To the best of the Company's knowledge,
except as contemplated hereunder or by the Stockholders' Agreement, dated August
24, 1995, by and among Joram Rosenfeld, Yoav Stern and Zivi Nedivi, there are no
voting trusts or other contracts, agreements, arrangements plans or
understandings restricting or otherwise relating to voting, dividend or other
rights with respect to the capital stock of the Company or any Subsidiary.
Section 3.4. Business Operations and Other Information; Financial
Condition. (a) The Company has made available to the Purchaser copies of the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1995, the
Company's Quarterly Reports on Form 10-QSB for the quarters ended March 31,
1996, June 30, 1996 and September 30, 1996, the Company's Proxy Statement
distributed to its shareholders in connection with a special meeting of
shareholders held on June 22, 1995, and all other documents filed with the SEC
since January 1, 1996 (collectively, the "Filed Documents"). The Company has
filed all documents required to be filed by it under the Securities Act and the
Exchange Act, and the rules and regulations of the SEC thereunder. The Filed
Documents, as of their respective dates, do not contain any misstatement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
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made, not misleading. The Filed Documents, as of their respective dates, contain
a true and correct description of the businesses, operations and principal
properties of the Company and its Subsidiaries. Set forth in the Filed Documents
are (i) the audited consolidated balance sheet of the Company and its
Subsidiaries as of December 31, 1995 and the related audited consolidated
statements of operations, shareholders' equity and cash flows for the fiscal
year then ended, together with the notes thereto and the reports thereon of KPMG
Peat Marwick (the "Audited Financial Statements") and (ii) the unaudited
consolidated balance sheet of the Company and its Subsidiaries as of September
30, 1996 and the related unaudited consolidated statements of operations,
shareholders' equity and cash flows for the nine months then ended and for the
comparable period in the prior fiscal year (the "Unaudited Financial
Statements"; the Audited Financial Statements and the Unaudited Financial
Statements are sometimes hereinafter collectively referred to as the "Financial
Statements"). The Financial Statements have been prepared in accordance with
GAAP consistently applied throughout the periods involved, and present fairly,
in all material respects, the consolidated financial position of the Company and
its Subsidiaries as of the dates of each of the balance sheets included in the
Financial Statements and the results of operations and cash flows of the Company
and its Subsidiaries for each of the periods then ended, subject to, in the case
of the Unaudited Financial Statements, normal year-end audit adjustments (which
adjustments will not have a Material Adverse Effect) and absence of the notes
required by GAAP.
(b) Since September 30, 1996, except for in connection
with the transactions contemplated by (i) the Asset Purchase Agreement, (ii) the
Revolving Loan Agreement; and (iii) the Securities Purchase Agreement and from
the date hereof until the Closing Date the Company shall have:
(i) (a) conducted its business in the manner in which such
business has heretofore been conducted in all material respects; (b) not
incurred any material liability or obligation whatsoever, secured or unsecured,
direct or indirect, other than current liabilities for accounts payable in the
ordinary course of its business, or as otherwise disclosed in this Agreement;
(c) not entered into any material contracts or agreements whatsoever, other than
in the ordinary course of its business; and (d) not amended nor terminated nor
suffered the amendment nor termination of, nor given nor received any notice of
any proposed amendment or termination of, any material contract or agreement;
(ii) without limiting the generality of subparagraph (i), not
sold, leased, mortgaged or otherwise encumbered or disposed of any of its
assets, except in the ordinary course of its business;
(iii)made no changes in its Certificate of Incorporation or
By-Laws;
(iv) without limiting the generality of subparagraph (i), not
canceled or released any material debts or claims except, in each case, in the
ordinary course of business;
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(v) not suffered any extraordinary loss or knowingly waived
any right, in either case which would have a Material Adverse Effect;
(vi) not suffered any damage, destruction or loss, whether or
not covered by insurance, which would have a Material Adverse Effect;
(vii) not suffered any Material Adverse Effect or any
occurrences or circumstances which might reasonably be expected to result in a
Material Adverse Effect;
(viii) not effected any material changes in the management or
operation of its business; and
(ix) not changed in any material respect any of its accounting
methods, principles, practices or policies.
Section 3.5. Litigation. (a) There are no actions, suits, arbitrations,
investigations or proceedings pending, or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries or any of
their Properties or rights of any of them which, if adversely determined,
individually or in the aggregate have had or could reasonably be expected to
have a Material Adverse Effect. There is no judgment, decree, injunction, rule
or order of any Government Body or arbitrator outstanding against the Company or
any Subsidiary having or which, insofar as reasonably can be foreseen, in the
future would have a Material Adverse Effect.
(b) There are no actions, suits, investigations or proceedings pending,
or, to the knowledge of the Company, threatened against or affecting the Company
or any of its Subsidiaries which seek to enjoin, or otherwise prevent the
consummation of, the transactions contemplated herein or to recover any damages
or obtain any relief as a result of any of the transactions contemplated herein
in any court or before any arbitrator of any kind or before or by any
Governmental Body.
Section 3.6. No Conflicts with Agreements, Etc. (a) Neither the
execution and delivery by the Company of this Agreement, the Escrow Agreement,
the Notes or the Bridge Financing Warrants, nor the fulfillment of or compliance
with the terms and provisions hereof or thereof (including, without limitation,
the payment of principal and interest on the Notes), will conflict with, or
result in a breach or violation of the terms, conditions or provisions of, or
constitute a default under, or result in the creation of any Lien on any
Properties or assets of the Company or its Subsidiaries pursuant to, or result
in the acceleration of any obligation under, (i) the Certificate of
Incorporation or By-Laws of the Company or of the organizational documents of
any of its Subsidiaries, (ii) any contract, agreement, mortgage, indenture,
lease or instrument to which any of them is a party or by which any of them is
bound or to which any of them or any of their respective assets are subject, or
(iii) any Order, statute, law, rule or regulation to which any of them or any of
their respective assets are subject, or result
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in any suspension, revocation, impairment, forfeiture or non-renewal of any
material licenses.
(b) None of the Company or its Subsidiaries is now, or will be after or
as a result of giving effect to the transactions contemplated herein, in default
under or in violation of its respective Certificate of Incorporation or By-Laws,
other organizational documents, any contract, agreement, mortgage, indenture,
lease or instrument to which any of them is a party or by which any of them is
bound or to which any of them or any of their respective assets are subject, or
any order of any court, arbitrator or Governmental Body or of any federal,
state, local or foreign statute, ordinance or law or of any rule or regulation
of any Governmental Body, in each case which default or violation individually
or in the aggregate together with other such defaults and violations, has had or
could reasonably be expected to have a Material Adverse Effect.
Section 3.7. Consents, Etc.; Notice. Except for those which have been
obtained prior to the date hereof, no consent, approval, order or authorization
of or declaration, registration or filing with any Governmental Body or any
nongovernmental Person, including, without limitation, any creditor or
shareholder of the Company or any of its Subsidiaries or any party to a contract
to which the Company or any Subsidiary is a party or any of their respective
assets is subject, is required in connection with the execution or delivery by
the Company of this Agreement, the Escrow Agreement, the Notes or the Bridge
Financing Warrants, or the performance by the Company of its obligations
hereunder and thereunder, or as a condition to the legality, validity or
enforceability of this Agreement, the Escrow Agreement, the Notes or the Bridge
Financing Warrants.
Section 3.8. Compliance with Law. The operations of the Company and its
Subsidiaries have been conducted, and are now being conducted, in compliance in
all material respects with all applicable laws, rules, regulations and Orders
except in all cases in which the violation of said laws, rules, regulations and
Orders would not have a Material Adverse Effect.
Section 3.9. Contracts. Each material contract, agreement, mortgage,
indenture, lease or instrument to which the Company or any Subsidiary is bound
is a valid and binding obligation of the Company or its Subsidiary, as
applicable, 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, agreements,
mortgages, indentures, leases or instruments which by their terms expire after
the date hereof or are terminated after the date hereof in accordance with the
terms thereof or which, if terminated, would not have a Material Adverse
Effect).
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Section 4. Representations and Warranties of the Purchasers.
Each Purchaser warrants to the Company that:
Section 4.1. Corporate Existence and Power. Such Purchaser is a
corporation, partnership or other legal entity, duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization. Such Purchaser has full power and authority to conduct all the
activities conducted by it, to own or lease all the assets owned or leased by it
and to conduct its business.
Section 4.2. Corporate Authority; Binding Effect. Such Purchaser has
full corporate power and authority to execute, deliver and perform this
Agreement. This Agreement has been duly authorized, executed and delivered by
such Purchaser and, assuming the due authorization, execution and delivery by
the Company, is the legal, valid and binding agreement of such Purchaser,
enforceable against such Purchaser in accordance with its terms.
Section 4.3. Litigation. There are no actions, suits, investigations or
proceedings pending, or, to the knowledge of such Purchaser, threatened against
or affecting such Purchaser which seek to enjoin, or otherwise prevent the
consummation of, the transactions contemplated herein or to recover any damages
or obtain any relief as a result of any of the transactions contemplated herein
in any court or before any arbitrator of any kind or before or by any
Governmental Body.
Section 4.4. No Conflicts with Agreements, Etc. Neither the execution
and delivery by such Purchaser of this Agreement, nor the fulfillment of or
compliance with the terms and provisions hereof, will conflict with, or result
in a breach or violation of the terms, conditions or provisions of, or
constitute a default under, or result in the creation of any Lien on any
Properties or assets of such Purchaser or its Subsidiaries pursuant to, or
result in the acceleration of any obligation under, (i) the Certificate of
Incorporation or By-Laws or other organizational documents of the Purchaser or
of the organizational documents of any of its Subsidiaries, (ii) any contract,
agreement, mortgage, indenture, lease or instrument to which any of them is a
party or by which any of them is bound or to which any of them or any of their
respective assets are subject, or (iii) any Order, statute, law, rule or
regulation to which any of them or any of their respective assets are subject,
or result in any suspension, revocation, impairment, forfeiture or non-renewal
of any material licenses.
Section 4.5. Consents, Etc.; Notice. No consent, approval, order or
authorization of or declaration, registration or filing with any Governmental
Body or any nongovernmental Person, including, without limitation, any creditor
or shareholder of such Purchaser or any of its Subsidiaries or any party to a
contract to which such Purchaser or any Subsidiary is a party or any of their
respective assets is subject, is required in connection with the execution or
delivery by such Purchaser of this Agreement, or the performance by such
Purchaser of its obligations hereunder, or as a condition to the legality,
validity or enforceability of this Agreement.
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Section 4.6. Investment Intent. Such Purchaser represents that (i) it
is an "accredited investor" as such term in defined in Rule 501 (a) of
Regulation D promulgated under the Securities Act, (ii) it is purchasing the
Notes and the Bridge Financing Warrants for its own account for investment and
not with a view to a public distribution thereof (within the meaning of the
Securities Act and rules and regulations promulgated thereunder) and (iii) no
distribution of the Notes shall be made unless such distribution shall have been
duly registered under the Securities Act, or an exemption for such distribution
under the Securities Act is available. The Notes and the Bridge Financing
Warrants shall bear restrictive legends in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SO REGISTERED
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT IS AVAILABLE.
Section 4.7 Investigations; Inquiries; Facilities. In making the
decision to purchase the Notes and the Bridge Financing Warrants hereunder, (a)
such Purchaser has relied, in addition to the representations and warranties of
the Company set forth in this Agreement, upon independent investigations made by
such Purchaser or its advisor(s), (b) the Purchaser and/or such Purchaser's
advisor(s) has/have had a reasonable opportunity to ask questions of and receive
answers from a person or persons acting on behalf of the Company concerning the
purchase and sale of the Notes and the Bridge Financing Warrants and all such
questions have been answered to the full satisfaction of the Purchaser and (c)
the Purchaser and/or the Purchaser's advisor(s) has/have had a reasonable
opportunity to visit and inspect the books and records of the Company and the
Company's facilities.
Section 5. Covenants.
The Company covenants and agrees that, so long as any principal or
interest under the Notes remains outstanding:
Section 5.1. Payment of Principal and Interest. The Company will duly
and punctually pay the principal of and interest on the Notes in accordance with
the terms of the Notes and this Agreement. The Company will comply with all of
the covenants, agreements and conditions contained in this Agreement, the Escrow
Agreement, the Notes and the Bridge Financing Warrants.
Section 5.2. Further Assurances. The Company will, and will cause its
Subsidiaries to, from time to time execute any and all further documents and
instruments, and take all further actions which may be required under applicable
law, or which the Purchasers may reasonably request, in order to effectuate the
transactions contemplated by this Agreement.
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Section 5.3. SEC Filings. The Company shall timely file all reports
required to be filed by it with the SEC.
Section 5.4. Opinion of Counsel to the Company. Simultaneously with the
release of the Notes, the Original Warrants and the purchase price therefor from
escrow in accordance with the terms of the Escrow Agreement, the Company shall
cause to be delivered to Purchasers from counsel to the Company an opinion with
respect to the matters set forth in Section 3.1 with regard to the Company only
(other than the third sentence, regarding which no opinion shall be required),
Section 3.2, Section 3.6(a) (except that the matters set forth in clauses (ii)
and (iii) of such Section 3.6(a) shall be to the knowledge of such counsel), and
Section 3.7 (except that the matters set forth therein shall be to the knowledge
of such counsel).
Section 6. Transfer of the Notes and the Bridge Financing Warrants.
(a) The Purchaser acknowledges and agrees that the Notes may not be
transferred unless (i) an Event of Default shall have occurred and be continuing
thereunder as of the date of the proposed transfer, or (ii) the assignee shall
assume all the obligations of the Purchaser hereunder and under the Notes and
(iii) the transferring party shall receive the written consent of the Company,
which consent shall not be unreasonably withheld. If the Company shall consent
to a transfer of the Notes, any Note issued upon transfer thereof shall carry
the rights to unpaid interest and interest to accrue which were carried by the
Notes so transferred, and neither gain nor loss of interest shall result from
any such transfer. Any transfer tax or governmental charge relating to such
transaction shall be paid by the holder requesting the transfer.
(b) Subject to the provisions of Section 8(a), the Notes and Bridge
Financing Warrants may not be sold, transferred, assigned or hypothecated by any
holder thereof except in compliance with the provisions of the Securities Act or
any available exemption thereunder and any Notes or Bridge Financing Warrants
issued upon the transfer or assignment of a Note or Bridge Financing Warrant
will be dated the same date as such transferred or assigned Note or Bridge
Financing Warrant, and all rights of the holder thereof shall be identical to
those of the holder of such transferred or assigned Note or Bridge Financing
Warrant.
Section 7. Lost, Stolen, Damaged and Destroyed Notes or Bridge
Financing Warrants. At the request of the Purchasers, the Company will issue and
deliver at its expense, in replacement of any Notes lost, stolen, damaged or
destroyed, upon surrender thereof, if mutilated, new Notes for the same
aggregate unpaid principal amount and otherwise of the same tenor, or in
replacement of any Bridge Financing Warrants lost, stolen, damaged or destroyed,
upon surrender thereof, if mutilated, new Bridge Financing Warrants of the same
tenor as the Bridge Financing Warrants so lost, stolen, damaged or destroyed,
duly executed by the Company. The Company may condition the replacement of a
Note or Bridge Financing Warrant reported by the holder thereof as lost, stolen,
damaged or destroyed, upon the receipt from such holder
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of an indemnity or security reasonably satisfactory to the Company; provided
that if such holder be a Purchaser or a commercial or investment banking firm or
other institutional lender or institutional investor, or its nominee, such
Person's unsecured agreement of indemnity shall be sufficient for purposes of
this Section 9.
Section 8. Subordination.
(a) Subordination to Senior Indebtedness. The indebtedness evidenced by
the Notes, and the payment of the principal thereof, and any interest thereon,
is wholly subordinated, junior and subject in right of payment, to the extent
and in the manner hereinafter provided, to the prior payment of all Senior
Indebtedness of the Company now outstanding or hereinafter incurred. "Senior
Indebtedness" means the principal of, and premium, if any, and interest on (i)
all Funded Debt (excluding Guarantees made by the Company on behalf of
non-affiliated third parties), including deferrals, renewals, extensions and
refundings thereof; (ii) all debt incurred pursuant to the Revolving Loan
Agreement; (iii) the debt incurred by International Aircraft Support L.P.
pursuant to a credit agreement with Union Bank of California, N.A., dated April
29, 1996 and assumed by IASI, Inc. a Subsidiary of the Company; (iv) any other
Debt of the Company which the Company and the Purchaser may hereafter from time
to time expressly and specifically agree in writing shall constitute Senior
Indebtedness, provided that the debt incurred pursuant to the Securities
Purchase Agreement by and between the Company and The Equitable Life Assurance
Society of the United States and any other party, to be executed at the closing
of the transactions contemplated by the Asset Purchase Agreement, shall not
constitute Senior Indebtedness and, in turn, shall be subordinated, junior and
subject in right of payment to the prior payment of the Notes pursuant to this
Agreement in a manner comparable to the subordination provisions contained
herein.
(b) No Payment if Default in Senior Indebtedness. No payment on account
of principal of or interest on the Notes shall be made, and the Notes shall not
be redeemed or purchased directly or indirectly by the Company (or any of its
Subsidiaries), if at the time of such payment or purchase or immediately after
giving effect thereto, (i) there shall exist a default in any payment with
respect to any Senior Indebtedness or (ii) there shall have occurred an event of
default (other than a default in the payment of amounts due thereon) with
respect to any Senior Indebtedness, as defined in the instrument under which the
same is outstanding, permitting the holders thereof to accelerate the maturity
thereof, and such event of default shall not have been cured or waived or shall
not have ceased to exist; provided, however, that the payments and purchases
described above may resume in the case of an event of default described under
clause (ii) above upon the expiration of a period of 120 days after the
occurrence of the event of default if, at such time, the holders of the Senior
Indebtedness shall not have accelerated such Senior Indebtedness.
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(c) Payment upon Dissolution, Etc.
------------------------------
(i) Upon payment or distribution to creditors in a Proceeding
of assets of the Company of any kind or character, whether in cash, property or
securities, all principal and interest due upon any Senior Indebtedness shall
first be paid in full, or payment thereof in full duly provided for, before any
holders of the Notes shall be entitled to receive or, if received, to retain any
payment or distribution on account of the Notes; and upon any such Proceeding,
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which any holders of the Notes would
be entitled except for the provisions of this Section 10 shall be paid by the
Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or
other person making such payment or distribution, or by any holders of the Notes
who shall have received such payment or distribution, directly to the holders of
the Senior Indebtedness (pro rata to each such holder on the basis of the
respective amounts of such Senior Indebtedness held by such holder) or their
representatives to the extent necessary to pay all such Senior Indebtedness in
full after giving effect to any concurrent payment or distribution to or for the
holder of such Senior Indebtedness, before any payment or distribution is made
to any holders of the Notes. In the event of any Proceeding, the holders of the
Notes shall be entitled to be paid one hundred percent (100%) of the principal
amount thereof and accrued interest thereon after payment of the Senior
Indebtedness, on a pari passu basis with the other creditors of the Company
before any distribution of assets shall be made among the holders of any class
of shares of the capital stock of the Company in their capacities as holders of
such shares or to any creditors of the Company subordinated to the holders of
the Notes.
(ii) For purposes of this Section 10(c), the words "assets"
and "cash, property or securities" shall not be deemed to include Shares of the
Company as reorganized or readjusted, or securities of the Company or any other
person provided for by a plan of reorganization or readjustment, the payment of
which is subordinated at least to the extent provided in this Section 10 with
respect to the Notes to the payment of all Senior Indebtedness which may at the
time be outstanding, if (x) the Senior Indebtedness is assumed by the new
person, if any, resulting from any such reorganization or readjustment, and (y)
the rights of the holders of Senior Indebtedness are not, without the consent of
such holders, altered by such reorganization or readjustment.
(d) Subrogation. Subject to payment in full of all Senior Indebtedness,
the holder of the Notes shall be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of the assets of the
Company made on such Senior Indebtedness until all principal and interest on the
Notes shall be paid in full; and for purposes of such subrogation, no payments
or distributions to the holders of Senior Indebtedness of any cash, property or
securities to which any holders of the Notes would be entitled except for the
subordination provisions of this Section 10 shall, as between the holders of the
Notes and the Company and/or its creditors
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other than the holder of the Senior Indebtedness, be deemed to be a payment on
account of the Senior Indebtedness.
(e) Rights of Holder Unimpaired. The provisions of this Section 10 are
and are intended solely for the purposes of defining the relative rights of the
Company, on the one hand, and on the other hand, the holders of the Notes and
the holders of Senior Indebtedness and nothing in this Section 10 shall impair,
as between the Company and any holders of the Notes, the obligation of the
Company, which is unconditional and absolute, to pay to the holders of the Notes
the principal thereof and interest thereon, in accordance with the terms of the
Notes, nor shall anything herein prevent any holders of the Notes from
exercising all remedies otherwise permitted by applicable law or hereunder upon
default, subject to the rights set forth above of holders of Senior Indebtedness
to receive cash, property or securities otherwise payable or deliverable to the
holders of the Notes.
(f) Holders of Senior Indebtedness. These provisions regarding
subordination will constitute a continuing offer to all persons who, in reliance
upon such provisions, become holders of, or continue to hold, Senior
Indebtedness (including the purchasers under the Securities Purchase Agreement);
such provisions are made for the benefit of the holders of Senior Indebtedness,
and such holders are hereby made obligees under such provisions to the same
extent as if they were named therein, and they or any of them may proceed to
enforce such subordination. The holders of the Notes shall execute and deliver
to any holder of Senior Indebtedness (i) any such instrument as such holder of
Senior Indebtedness may request in order to confirm the subordination of the
Notes to such Senior Indebtedness upon the terms set forth in the Notes, and
(ii) any powers of attorney specifically confirming the rights of holders of
Senior Indebtedness to enforce such subordination and all such proofs of claim,
assignments of claim and other instruments as may be requested by the holders of
Senior Indebtedness or their representatives to enforce all claims upon or in
respect of the Notes.
(g) Notes as Payment for Warrants. Notwithstanding anything contained
in this Agreement to the contrary, the Purchasers shall be entitled to exercise
the Original Warrants and, if applicable, the Additional Warrants, in accordance
with Section 1, clause (ii) of such warrants.
Section 9. Termination. The Purchasers may terminate this Agreement if
the closing of the sale of the Notes and the Original Warrants does not take
place prior to January 31, 1997 as a result of the conditions set forth in
Section 5 hereof not having been fulfilled prior to such date. The Company may
terminate this Agreement if the closing of the sale of the Notes and the
Original Warrants does not take place prior to January 31, 1997 as a result of
the failure of the conditions set forth in Section 6 hereof not having been
fulfilled to such date.
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Section 10. Events of Default.
-----------------
The entire unpaid principal of the Notes and the interest then accrued
on the Notes shall become and be immediately due and payable upon written demand
of the holder of the Notes, without any other notice or demand of any kind or
any presentment or protest, if any one of the following events (each an "Event
of Default") shall occur and be continuing at the time of such demand, whether
voluntarily or involuntarily, or, without limitation, occurring or brought about
by operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any Governmental Body:
(a) If any principal or interest payment under the Notes is
not made when due, and remains unpaid for seven (7) days (including if such
non-payment results from the provisions of Section 8 hereof);
(b) If the Company shall default in the performance or
observance of any material covenant, agreement or condition contained in this
Agreement, and such default shall remain unremedied for fifteen (15) days after
written notice of such default is given to the Company;
(c) If the Company (i) makes a composition or an assignment
for the benefit of creditors or trust mortgage, (ii) applies for, consents to,
acquiesces in, files a petition seeking or admits (by answer, default or
otherwise) the material allegations of a petition filed against it seeking the
appointment of a trustee, receiver or liquidator, in bankruptcy or otherwise, of
itself or of all or substantial portion of its assets, or a reorganization,
arrangement with creditors or other remedy, relief or adjudication available to
or against a bankrupt or insolvent debtor under any bankruptcy or insolvency law
or any law affecting the rights of creditors generally, or (iii) admits in
writing its inability to pay its debts generally as they become due; or
(d) If an order for relief shall have been entered by a
bankruptcy court or if a decree, order or judgment shall have been entered
adjudging the Company insolvent, or appointing a receiver, liquidator, custodian
or trustee, in bankruptcy or otherwise, for it or for all or a substantial
portion of its assets, or approving the winding-up or liquidation of its affairs
on the grounds of insolvency or nonpayment of debts, and such order for relief,
decree, order or judgment shall remain undischarged or unstayed for a period of
forty-five (45) days; or if any substantial part of the property of the Company
is sequestered or attached and shall not be returned to the possession of the
Company or such subsidiary or released from such attachment within forty-five
(45) days.
Notwithstanding anything in this Section 12 to the contrary,
in the case of any Event of Default other than an Event of Default specified in
(c) or (d) above, if there is any Senior Indebtedness outstanding at the time of
an acceleration under this Section 12, such acceleration (i) shall not become
effective until the first to occur of (A) an acceleration of any Senior
Indebtedness and (B) the 30th calendar day after notice
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of acceleration of the Notes is received by the Company and (ii) shall (in the
absence of an acceleration under Senior Indebtedness) automatically be rescinded
if on or prior to such 30th calendar day the Company shall have (x) discharged
the indebtedness which triggered an Event of Default hereunder (if the Event of
Default was pursuant to clause (c) of this Section 12) or (y) otherwise cured
the Event of Default.
Section 11. Miscellaneous.
-------------
Section 11.1. Amendment and Waiver. No amendment or waiver of any
provision of this Agreement, the Escrow Agreement, the Notes or the Bridge
Financing Warrants, or any consent to any departure by the Company or any of its
Subsidiaries therefrom, shall in any event be effective as regards any holder of
Notes unless the same shall be in writing and signed by such holder. Any such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given. Neither any failure nor any delay on the part of the
Purchasers in exercising any right, power or privilege hereunder, under the
Notes or under the Bridge Financing Warrants shall operate as a waiver thereof,
nor shall a single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. Except
as otherwise provided herein, in the Notes or in the Bridge Financing Warrants,
no notice to or demand on the Company or any of its Subsidiaries in any case
shall entitle the Company or such Subsidiary to any other or further notice or
demand in the same, similar or other circumstances.
Section 11.2. Expenses. Each of the parties hereto agrees to pay its
own costs and expenses in connection with the negotiation, execution and
delivery of this Agreement, the Escrow Agreement, the Notes and the Bridge
Financing Warrants and the consummation of the transactions contemplated hereby
and thereby, except that the Company agrees to pay the reasonable fees and
disbursements of legal counsel (not to exceed $5,000) for the Purchaser incurred
in connection with the negotiation, preparation and closing of the sale and
purchase of the Notes and the Original Warrants.
Section 11.3. Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by or on
behalf of any party to this Agreement or otherwise in connection herewith, shall
survive the execution and delivery of this Agreement and the delivery of the
Notes and the Bridge Financing Warrants to the Purchasers to the maximum extent
permitted by law notwithstanding any investigation made by, or constructive or
actual knowledge of, the Purchasers or the Company, as applicable, of any fact
which would constitute a breach of a representation or warranty.
Section 11.4. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Company and the Purchasers and their
respective successors and assigns; provided, however, that any attempted
assignment or other attempted transfer of the Notes or Bridge Financing Warrants
shall be subject to the provisions of Section 8 hereof; provided further, that
the Company shall not have the
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right to assign its rights hereunder or any interest herein or to delegate any
of its duties hereunder without the prior written consent of the Purchasers.
Section 11.5. Notices. All notices hereunder shall be in writing and
shall be conclusively deemed to have been received and shall be effective (a) on
the day on which delivered if delivered personally or transmitted by telex or
telegram or telecopier, or (b) one Business Day after the date on which the same
is delivered to a nationally recognized overnight courier service, and shall be
addressed:
(i) in the case of the Company, to:
KELLSTROM INDUSTRIES, INC.
14000 N.W. 4th Street
Sunrise, Florida 33325
Attention: Zivi R. Nedivi
Telecopier No.: (954) 845-0428
with a copy to:
FULBRIGHT & JAWORSKI L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: Richard H. Gilden, Esq.
Telecopier No.: (212) 752-5958
(ii) in the case of the Purchasers, to them at their
addresses set forth with their signatures hereto.
with a copy to:
LANE ALTMAN & OWENS
101 Federal Street
Boston, MA 02110
Attn: Joseph F. Mazzella
Telecopier No. (617) 345-0400
Section 11.6. Integration and Severability. This Agreement, the Escrow
Agreement, the Notes, the Escrow Agreement, and the Bridge Financing Warrants
embody the entire agreement and understanding between the Purchasers and the
Company, and supersede all prior agreements and understandings relating to the
subject matter hereof. In case any one or more of the provisions contained in
this Agreement or in any instrument contemplated hereby for such date, or any
application thereof, shall be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and therein, and any other application thereof, shall not in any way be
affected or impaired thereby.
-19-
<PAGE>
<PAGE>
Section 11.7. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall together constitute one and the same instrument.
SECTION 11.8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW).
Section 11.9. Remedies Cumulative. No remedy herein conferred upon or
reserved to the Company, or upon or to the Purchasers, is intended to be
exclusive of any other remedy, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
existing or hereafter to exist by law or by statute.
Section 11.10. Binding Agreement. This Agreement shall be binding upon
all Purchasers who execute this Agreement, and each such Purchaser shall be
obligated to purchase Notes and Original Warrants in the amounts set forth
opposite their respective names on Schedule I hereto, even in the event that
less than all the Purchasers named on Schedule I hereto execute this Agreement.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement by their duly authorized officers as of the date first written above.
KELLSTROM INDUSTRIES, INC.
By:
--------------------------------
Name: John S. Gleason
Title: Executive Vice President and CFO
<PAGE>
<PAGE>
NOTE PURCHASE AGREEMENT
- -----------------------
PURCHASERS:
BEDFORD FALLS INVESTORS, L.P.
By: Metropolitan Capital Advisors, L.P.
General Partner
By: Metropolitan Capital Advisors, Inc.
General Partner
By:
-----------------------------
Jeffrey E. Schwarz
Chief Executive Officer
660 Madison Avenue
20th Floor
New York, New York 10021
METROPOLITAN CAPITAL ADVISORS, L.P.
By: Metropolitan Capital Advisors, Inc.
General Partner
By:
------------------------------
Jeffrey E. Schwarz
Chief Executive Officer
660 Madison Avenue
20th Floor
New York, New York 10021
METROPOLITAN CAPITAL ADVISORS
INTERNATIONAL LIMITED
By: Metropolitan Capital Partners III, L.P.
Investment Manager
By: Metropolitan Capital III, Inc.
General Partner
By:
------------------------------
Jeffrey E. Schwarz
Chief Executive Officer
660 Madison Avenue
20th Floor
New York, New York 10021
<PAGE>
<PAGE>
DIVERSIFIED STRATEGIES FUND, L.P.
By: Ramsey Financial, Inc.
General Partner
By:
---------------------------------
Neil P. Ramsey
President
108 South Madison Avenue
Louisville, Kentucky 40243
SCOGGIN CAPITAL MANAGEMENT, L.P.
By: S & E Partners, L.P.
General Partner
By: Scoggin, Inc.
General Partner
By:
--------------------------------
Craig Effron
President
660 Madison Avenue
20th Floor
New York, New York 10021
<PAGE>
<PAGE>
AMENDMENT NO. 1
TO
NOTE PURCHASE AGREEMENT
AND BRIDGE FINANCING WARRANTS
AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENT ("Amendment") dated as of
January 15, 1997, by and between KELLSTROM INDUSTRIES, INC., a Delaware
corporation, having its executive office at 14000 N.W. 4th Street, Sunrise,
Florida 33325 (the "Company") and the purchasers named on the signature page
hereto (hereinafter referred to individually as a "Purchaser" and collectively
as the "Purchasers").
RECITALS
--------
WHEREAS, the Company and the Purchasers entered into a Note Purchase
Agreement, dated as of January 9, 1997 (the "Note Purchase Agreement"), pursuant
to which, among other things, the Company issued to the Purchasers an aggregate
of $6,000,000 principal amount of its 10% Senior Subordinated Notes (the
"Notes");
WHEREAS, pursuant to the Note Purchase Agreement, the Company has
issued to the Purchasers warrants (the "Original Warrants") to purchase an
aggregate of 75,000 shares of the Company's common stock, par value $.001 per
share (the "Common Stock"), and may, under certain circumstances described in
the Notes, issue warrants (the "Additional Warrants") to purchase an aggregate
of up to 375,000 additional shares of Common Stock (collectively with the
Original Warrants, the "Bridge Financing Warrants");
WHEREAS, the Notes and the Original Warrants are being held in escrow
pursuant to an escrow agreement, dated January 9, 1997, among the Company, the
Purchasers and the escrow agent named therein (the "Escrow Agent"); and
WHEREAS, the Company and the Purchasers desire to amend the Note
Purchase Agreement and the Original Warrants as set forth herein;
NOW, THEREFORE, the Company and each of the Purchasers agree as
follows:
Section 1. Clause (iv) of Section 8(a) of the Note Purchase Agreement
is hereby amended to read in its entirety as follows:
<PAGE>
<PAGE>
"(iv) any other Debt of the Company which the Company and the Purchaser
may hereafter from time to time expressly and specifically agree in writing
shall constitute Senior Indebtedness, provided that the debt incurred pursuant
to the Securities Purchase Agreement by and between the Company and The
Equitable Life Assurance Society of the United States and any other party, to be
executed at the closing of the transactions contemplated by the Asset Purchase
Agreement, shall not constitute Senior Indebtedness and, in turn, shall be
subordinated, junior and subject in right of payment to the prior payment of the
Notes in the manner set forth in the Securities Purchase Agreement."
Section 2. The last two sentences of Section 5(g) of (a) the form of
Bridge Financing Warrants attached as Exhibit B to the Note Purchase Agreement
and (b) each of the Original Warrants issued by the Company, are hereby amended
to read in their entirety as follows:
"If the managing underwriter for the offering advises the
Company in writing that the total amount of securities sought
to be registered by the Holders and other shareholders of the
Company having similar registration rights (collectively, the
"Kellstrom Shareholders") exceeds the amount of securities
that can be offered without adversely affecting the offering
by the Company or, if applicable the Kellstrom Shareholder
demanding registration rights (the "Demand Shareholder"), then
the Company may reduce the number of shares to be registered
by the Company for the Kellstrom Shareholders (other than the
Demand Shareholder), including Warrant Shares, to a number
satisfactory to such managing underwriter. Any such reduction
shall be among Kellstrom Shareholders exercising piggy-back
registration rights pro rata, based upon the total number of
shares held by each such Kellstrom Shareholder which are
subject to registration rights."
Section 3. The Company shall cause Original Warrants to be delivered to
the Purchasers, amended as set forth herein.
Section 4. Other than as set forth in this Amendment, the Note Purchase
Agreement, the Notes and the Bridge Financing Warrants shall remain in full
force and effect.
-2-
<PAGE>
<PAGE>
Section 5. This Amendment may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall together
constitute one and the same instrument.
SECTION 6. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW).
Section 7. This Amendment shall be binding upon all Purchasers who
execute this Amendment, even in the event that less than all the Purchasers
named on Schedule I to the Note Purchase Agreement execute this Agreement.
-3-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchasers have caused this
Amendment to be executed by their duly authorized officers as of the date first
written above.
KELLSTROM INDUSTRIES, INC.
By:
--------------------------------
Name: John S. Gleason
Title: Executive Vice President and CFO
BEDFORD FALLS INVESTORS, L.P.
By: Metropolitan Capital Advisors, L.P.
General Partner
By: Metropolitan Capital Advisors, Inc.
General Partner
By:
-----------------------
Jeffrey E. Schwarz
Chief Executive Officer
660 Madison Avenue
20th Floor
New York, New York 10021
METROPOLITAN CAPITAL ADVISORS, L.P.
By: Metropolitan Capital Advisors,
Inc.
General Partner
By:
--------------------------
Jeffrey E. Schwarz
Chief Executive Officer
660 Madison Avenue
20th Floor
New York, New York 10021
-4-
<PAGE>
<PAGE>
METROPOLITAN CAPITAL ADVISORS
INTERNATIONAL LIMITED
By: Metropolitan Capital Partners III, L.P.
Investment Manager
By: Metropolitan Capital III, Inc.
General Partner
By:
------------------------------
Jeffrey E. Schwarz
Chief Executive Officer
660 Madison Avenue
20th Floor
New York, New York 10021
DIVERSIFIED STRATEGIES FUND, L.P.
By: Ramsey Financial, Inc.
General Partner
By:
------------------------------
Neil P. Ramsey
President
108 South Madison Avenue
Louisville, Kentucky 40243
SCOGGIN CAPITAL MANAGEMENT, L.P.
By: S & E Partners, L.P.
General Partner
By: Scoggin, Inc.
General Partner
By:
-------------------------
Craig Effron
President
660 Madison Avenue
20th Floor
New York, New York 10021
<PAGE>
<PAGE>
EXHIBIT 10.19
KELLSTROM INDUSTRIES, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. [75,000 Shares]
FOR VALUE RECEIVED, Kellstrom Industries, Inc., a Delaware
corporation (the "COMPANY"), hereby certifies that [ ] (the "PURCHASER") or its
permitted assigns, is entitled to purchase from the Company, at any time or from
time to time commencing on the date hereof (the "COMMENCEMENT DATE") and prior
to 5:00 P.M., New York City time, on April 15, 2000 (subject to extension as
provided in Section 1 below), [Seventy Five Thousand (75,000)] fully paid and
non-assessable shares of the common stock, $.001 par value per share, of the
Company for an aggregate purchase price of [$750,000] (computed on the basis of
$10.00 per share). (Hereinafter, (i) said common stock, together with any other
equity securities which may be issued by the Company with respect thereto or in
substitution therefor, is referred to as the "COMMON STOCK," (ii) the shares of
the Common Stock purchasable hereunder or under any other Warrant (as
hereinafter defined) are referred to individually as a "WARRANT SHARE" and
collectively as the "WARRANT SHARES," (iii) the aggregate purchase price payable
for the Warrant Shares hereunder is referred to as the "AGGREGATE WARRANT
PRICE," (iv) the price payable for each of the Warrant Shares hereunder is
referred to as the "PER SHARE WARRANT PRICE," (v) this Warrant, all similar
Warrants issued on the date hereof and all Warrants hereafter issued in exchange
or substitution for this Warrant or such similar Warrants are referred to as the
"WARRANTS" and (vi) the holder of this Warrant is referred to as the "HOLDER"
and the holder of this Warrant and all other Warrants or Warrant Shares issued
upon the exercise of any Warrant are referred to as the "HOLDERS.") The
Aggregate Warrant Price is not subject to adjustment. The Per Share Warrant
Price is subject to adjustment as hereinafter provided; in the event of any such
adjustment, the number of Warrant Shares shall be adjusted by dividing the
Aggregate Warrant Price by the Per Share Warrant Price in effect immediately
after such adjustment. This Warrant is being issued in connection with the
purchase by the Purchaser and the other purchasers named therein of certain
Notes in the aggregate principal amount of $6,000,000 (the "Notes") under a Note
Purchase Agreement of even date herewith.
1. EXERCISE OF WARRANT. This Warrant may be exercised in whole
at any time or in part from time to time, beginning on the Commencement Date and
prior to 5:00 P.M., New York City time, on April 15, 2000; provided, however,
that such date shall be extended, without action by the Company or the
Purchasers, by one day for each day beyond April 15, 1997 that the Notes remain
outstanding and unpaid, in whole or in part. Exercise of this Warrant by the
Holder shall be made by the surrender of this Warrant (with the subscription
form at the end hereof, or a reasonable facsimile thereof, duly executed) at the
address set forth in Subsection 9(a) hereof, together with proper payment of the
Aggregate Warrant Price, or the proportionate part hereof if this
<PAGE>
<PAGE>
Warrant is exercised in part. Payment for Warrant Shares shall be made by either
(i) certified or official bank check payable to the order of the Company or (ii)
by election of the Purchasers, made in writing, to cancel, extinguish or
otherwise record and acknowledge as paid, such dollar amount of the principal or
accrued interest of the Notes then held by the Purchasers as shall equal the
amount due on account of such exercise. If this Warrant is exercised in part,
this Warrant must be exercised for a number of whole shares of the Common Stock,
and the Holder is entitled to receive a new Warrant covering the Warrant Shares
which have not been exercised and setting forth the proportionate part of the
Aggregate Warrant Price applicable to such Warrant Shares. Upon such surrender
of this Warrant, the Company will (a) issue a certificate or certificates in the
name of the Holder (or any designee of the Holder to whom the Warrant is
transferred in accordance with Section 6 hereof) for the largest number of whole
shares of the Common Stock to which the Holder shall be entitled and, if this
Warrant is exercised in whole, in lieu of any fractional share of the Common
Stock to which the Holder shall be entitled, pay to the Holder cash in an amount
equal to the fair value of such fractional share (determined in such reasonable
manner as the Board of Directors of the Company shall determine), and (b)
deliver the other securities and properties receivable upon the exercise of this
Warrant, or the proportionate part thereof if this Warrant is exercised in part,
pursuant to the provisions of this Warrant.
2. RESERVATION OF WARRANT SHARES; LISTING. The Company agrees
that, prior to the expiration of this Warrant, the Company will at all times (a)
have authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer and free and clear of all preemptive rights and rights of first refusal
and (b) if the Company hereafter lists its Common Stock on any national
securities exchange, keep the shares of the Common Stock receivable upon the
exercise of this Warrant authorized for listing on such exchange upon notice of
issuance.
3. PROTECTION AGAINST DILUTION. (a) In case the Company shall
hereafter (i) pay a dividend or make a distribution on its capital stock in
shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares or (iv) issue by reclassification of its
Common Stock any shares of capital stock of the Company, the Per Share Warrant
Price shall be adjusted so that the Holder upon the exercise hereof shall be
entitled to receive the number of shares of Common Stock or other capital stock
of the Company which he would have owned immediately following such action had
such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this Subsection 3(a) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(b) If, at any time or from time to time after the date of
this Warrant, the Company shall issue or distribute to the holders of shares of
Common
-2-
<PAGE>
<PAGE>
Stock evidences of its indebtedness, any other securities of the Company or any
cash, property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common Stock,
adjustment for which would be made pursuant to Subsection 3(a), and also
excluding cash dividends or cash distributions paid out of net profits legally
available therefor and accrued after the date hereof if the full amount thereof,
together with the value of other dividends and distributions made substantially
concurrently therewith or pursuant to a plan which includes payment thereof, is
equivalent to not more than a cumulative amount equal to 15% of the Company's
net worth) (any such nonexcluded event being herein called a "SPECIAL
DIVIDEND"), the Per Share Warrant Price shall be adjusted by multiplying the Per
Share Warrant Price then in effect by a fraction, the numerator of which shall
be the then current market price of the Common Stock (defined as the average for
the thirty consecutive business days immediately prior to the record date of the
daily closing price of the Common Stock as reported by the national securities
exchange upon which the Common Stock is then listed or if not listed on any such
exchange, the average of the closing prices as reported by Nasdaq National
Market, or if not then listed on the Nasdaq National Market, the average of the
highest reported bid and lowest reported asked prices as reported by NASDAQ, or
if not then publicly traded, the fair market price as determined by the
Company's Board of Directors) less the fair market value (as determined in good
faith by the Company's Board of Directors) of the evidences of indebtedness,
cash, securities or property, or other assets issued or distributed in such
Special Dividend applicable to one share of Common Stock and the denominator of
which shall be such then current market price per share of Common Stock. An
adjustment made pursuant to this Subsection 3(b) shall become effective
immediately after the record date of any such Special Dividend.
(c) In case of any capital reorganization or reclassification,
or any consolidation or merger to which the Company is a party other than a
merger or consolidation in which the Company is the continuing corporation, or
in case of any sale or conveyance to another entity of the property of the
Company as an entirety or substantially as an entirety, or in the case of any
statutory exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third corporation into the
Company), the Holder of this Warrant shall have the right thereafter to receive
on the exercise of this Warrant the kind and amount of securities, cash or other
property which the Holder would have owned or have been entitled to receive
immediately after such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had this Warrant been exercised
immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3 with respect to the
rights and interests thereafter of the Holder of this Warrant to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The above provisions of this Subsection 3(c) shall similarly apply
to successive reorganizations, reclassifications, consolidations, mergers,
statutory exchanges, sales or conveyances.
-3-
<PAGE>
<PAGE>
The issuer of any shares of stock or other securities or property thereafter
deliverable on the exercise of this Warrant shall be responsible for all of the
agreements and obligations of the Company hereunder. Notice of any such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance and of said provisions so proposed to be made, shall be
mailed to the Holders of the Warrants not less than 15 days prior to such event.
A sale of all or substantially all of the assets of the Company for a
consideration consisting primarily of securities shall be deemed a consolidation
or merger for the foregoing purposes.
(d) No adjustment in the Per Share Warrant Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.05 per share of Common Stock; provided, however, that any adjustments
which by reason of this Subsection 3(d) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment; provided
further, however, that adjustments shall be required and made in accordance with
the provisions of this Section 3 (other than this Subsection 3(d)) not later
than such time as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Common Stock issuable upon
exercise hereof. All calculations under this Section 3 shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be. Anything
in this Section 3 to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the Per Share Warrant Price, in addition to those
required by this Section 3, as it in its discretion shall deem to be advisable
in order that any stock dividend, subdivision of shares or distribution of
rights to purchase stock or securities convertible or exchangeable for stock
hereafter made by the Company to its stockholders shall not be taxable.
(e) If the Board of Directors of the Company shall (i) declare
any dividend or other distribution with respect to the Common Stock, other than
a cash dividend subject to the first parenthetical in Subsection 3(b), (ii)
offer to the holders of shares of Common Stock any additional shares of Common
Stock, any securities convertible into or exercisable for shares of Common Stock
or any rights to subscribe thereto, or (iii) propose a dissolution, liquidation
or winding up of the Company, the Company shall mail notice thereof to the
Holders of the Warrants not less than 15 days prior to the record date fixed for
determining stockholders entitled to participate in such dividend, distribution,
offer or subscription right or to vote on such dissolution, liquidation or
winding up.
(f) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after such adjustment)
shall in good faith determine the allocation of the adjusted Per Share Warrant
Price between or among shares or such classes of capital stock or shares of
Common Stock and other capital stock.
-4-
<PAGE>
<PAGE>
(g) If at any time or from time to time the Company shall take
any action affecting its Common Stock or any other capital stock of the Company,
not otherwise described in any of the foregoing subsections of this Section 3,
then, if the failure to make any adjustment would in the reasonable opinion of
the Board of Directors of the Company have a materially adverse effect upon the
rights of the Holder of the Warrant, the number of shares of Common Stock or
other stock comprising a Warrant Share, or the Per Share Warrant Price, shall be
adjusted in such manner and at such time as the Board of Directors of the
Company may in good faith determined to be equitable under the circumstances.
(h) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the rights of the Holder
of Warrants in accordance with this Section 3, the Company shall promptly cause
its Chief Financial Officer to provide a notice to the Holder setting forth the
Per Share Warrant Price and the number of Warrant Shares after such adjustment
or the effect of such modification, a brief statement of the facts requiring
such adjustment or modification and the manner of computing the same.
4. FULLY PAID STOCK; TAXES. The Company agrees that the shares
of the Common Stock, or any other capital stock, represented by each and every
certificate for Warrant Shares delivered on the exercise of this Warrant shall,
at the time of such delivery, be validly issued and outstanding, fully paid and
nonassessable, and not subject to preemptive rights or rights of first refusal,
and the Company will take all such actions as may be necessary to assure that
the par value or stated value, if any, per share of the Common Stock is at all
times equal to or less than the then Per Share Warrant Price. The Company
further covenants and agrees that it will pay, when due and payable, any and all
Federal and state stamp, original issue or similar taxes which may be payable in
respect of the issue of any Warrant Share or certificate therefor.
5. REGISTRATION UNDER SECURITIES ACT OF 1933.
(a) The Company agrees that if, at any time during the period
beginning on the Commencement Date and ending on the second anniversary of the
date the Warrants are exercised in full, the Holder and/or the Holders of any
other Warrants and/or Warrant Shares who or which shall hold not less than 50%
of the aggregate number of Warrants and Warrant Shares outstanding at such time
and not previously sold (the "Covered Warrant Shares") pursuant to this Section
5 shall request that the Company file, under the Securities Act of 1933 (the
"ACT"), a registration statement under the Act covering not less than 50% of the
Covered Warrant Shares, the Company will (i) promptly notify each Holder of the
Warrants and each holder of Warrant Shares not so previously sold that such
registration statement will be filed and that the Warrant Shares which are then
held, and/or may be acquired upon exercise of the Warrants by the Holder and
such Holders, will be included in such registration statement at the Holder's
and such Holders' request, (ii) cause such registration statement to be filed
with the Securities and Exchange Commission (the "Commission") as soon as
possible following such request and to cover all Warrant Shares which it has
been so requested to
-5-
<PAGE>
<PAGE>
include, (iii) use its best efforts to cause such registration statement to
become effective as soon as practicable and (iv) take all other action necessary
under any Federal or state law or regulation of any governmental authority to
permit all Warrant Shares which it has been so requested to include in such
registration statement to be sold or otherwise disposed of, and will maintain
such compliance with each such Federal and state law and regulation of any
governmental authority for the period necessary for such Holder to effect the
proposed sale or other disposition. The Company shall be required to effect a
registration or qualification pursuant to this Subsection 5(a) on one occasion
only; provided that a request for registration shall not be deemed to constitute
a registration pursuant to this Subsection 5(a) if: (i) the conditions to
closing specified in the purchase agreement or underwriting agreement entered
into in connection with such registration are not satisfied other than by reason
of some act or omission by the Holder; (ii) the Company voluntarily takes any
action that would result in the Holder not being able to sell such Warrant
Shares covered thereby; (iii) the Holder determines not to proceed following any
delay imposed hereunder by the Company; provided, however, that prior to such
delay, the Holder shall not have sold more than ninety percent (90%) of the
Warrant Shares included in such registration; or (iv) other than by action of
the Holder, such registration does not remain effective for ninety (90) days or
more. Notwithstanding the foregoing, (a) if the Holder exercises its right to
request that a registration statement be filed pursuant to this Subsection 5(a)
at a time when the Company in good faith as evidenced by a Board resolution
believes that a public offering of Common Stock would materially impair a
pending financing or other material transaction of the Company, the Company
shall have the right to defer filing a Registration Statement hereunder for a
period not to exceed 90 days or (b) in lieu of causing a registration statement
to be filed under this Section 5(a), the Company may elect, by providing written
notice (the "REPURCHASE NOTICE") to the Holder or Holders requesting
registration within ten (10) days of the Company's receiving such request, to
repurchase from the requesting Holder or Holders either (x) the Warrants
relating to the Warrant Shares requested to be registered, at a price per
Warrant equal to the difference between the Market Price per share of the Common
Stock (as defined below) and the Per Share Warrant Price or (y) if the Warrants
relating to the Warrant Shares requested to be registered had already been
exercised, such Warrant Shares at a price per Warrant Share equal to the Market
Price per share of the Common Stock. As used in this Section 5(a), the "Market
Price per share of the Common Stock" shall mean the average of the last sale
price of the Common Stock, or if no last sale price is reported, the average of
the asked and bid prices of the Common Stock, on the Nasdaq National Market or
Nasdaq Small Cap Market, as applicable, for the 20 consecutive trading days
ending on the day prior to the delivery by the Holder or Holders of the request
for a registration statement pursuant to this Section 5(a). Any repurchase of
the Warrants or the Warrant Shares under this Section 5(a) shall be made within
30 days of the delivery by the Company of the Repurchase Notice.
(b) The Company agrees that if, at any time and from time to
time during the period beginning on the Commencement Date and ending on the
second anniversary of the date the Warrants are exercised in full, the Board of
Directors of the Company shall authorize the filing of a registration statement
(any such registration
-6-
<PAGE>
<PAGE>
statement being hereinafter called a "SUBSEQUENT REGISTRATION STATEMENT") under
the Act (otherwise than pursuant to Subsection 5(a) hereof, or other than a
registration statement on Form S-4 or Form S-8 or other form which does not
include substantially the same information as would be required in a form for
the general registration of securities) in connection with the proposed offer of
any of its securities by it or any of its stockholders, the Company will (i)
promptly notify the Holder and each of the Holders, if any, of other Warrants
and/or Warrant Shares not previously sold pursuant to this Section 5 that such
Subsequent Registration Statement will be filed and that the Warrant Shares
which are then held, and/or which may be acquired upon the exercise of the
Warrants, by the Holder and such Holders, will, at the Holder's and such
Holders' request, be included in such Subsequent Registration Statement, (ii)
upon the written request of a Holder made within 15 days after the giving of
such notice by the Company, include in the securities covered by such Subsequent
Registration Statement all Warrant Shares which it has been so requested to
include, (iii) use its best efforts to cause such Subsequent Registration
Statement to become effective as soon as practicable and (iv) take all other
action necessary under any Federal or state law or regulation of any
governmental authority to permit all Warrant Shares which it has been so
requested to include in such Subsequent Registration Statement to be sold or
otherwise disposed of, and will maintain such compliance with each such Federal
and state law and regulation of any governmental authority for the period
necessary for the Holder and such Holders to effect the proposed sale or other
disposition.
(c) Whenever the Company is required pursuant to the
provisions of this Section 5 to include Warrant Shares in a registration
statement, the Company shall (i) furnish each Holder of any such Warrant Shares
and each underwriter of such Warrant Shares with such copies of the prospectus,
including the preliminary prospectus, conforming to the Act (and such other
documents as each such Holder or each such underwriter may reasonably request)
in order to facilitate the sale or distribution of the Warrant Shares, (ii) use
its best efforts to register or qualify such Warrant Shares under the blue sky
laws (to the extent applicable) of such jurisdiction or laws (to the extent
applicable) of such jurisdiction or jurisdictions as the Holders of any such
Warrant Shares and each underwriter of Warrant Shares being sold by such Holders
shall reasonably request and (iii) take such other actions as may be reasonably
necessary or advisable to enable such Holders and such underwriters to
consummate the sale or distribution in such jurisdiction or jurisdictions in
which such Holders shall have reasonably requested that the Warrant Shares be
sold.
(d) The Company shall furnish to each Holder participating in
an offering pursuant to a registration statement under this Section 5 and to
each underwriter, if any, a signed counterpart, addressed to such Holder or
underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "comfort" letter dated the effective date of
such registration statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have issued a
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<PAGE>
report on the Company's financial statements included in such registration
statement, in each case covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and, in the
case of such accountants' letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities.
(e) The Company shall enter into an underwriting agreement
with the managing underwriters selected by Holders holding 50% of the Covered
Warrant Shares requested to be included in a registration statement filed
pursuant to Section 5(a). Such agreement shall be reasonably satisfactory in
form and substance to the Company, each Holder and such managing underwriters,
and shall contain such representations, warranties and covenants by the Company
and such other terms as are customarily contained in agreements of that type
used by the managing underwriter.
(f) The Company shall pay all expenses incurred in connection
with any registration statement or other action pursuant to the provisions of
this Section 5, other than underwriting discounts, applicable transfer taxes
relating to the Warrant Shares and the fees and expenses of counsel for the
Holders of the Warrant Shares; provided that, with respect to any registration
or qualification pursuant to Subsection 5(a).
(g) In connection with any public offering by the Company
involving an underwriting of its securities effected pursuant to Section 5(b)
hereof, the Company shall not be required to include in such registration any
Warrant Shares held by the Holder unless the Holder agrees to the terms of the
underwriting agreement between the Company and the managing underwriter of such
offering, which agreement may require that the Warrant Shares be withheld from
the market by the Holders for a period of up to 120 days after the effective
date of the registration statement by which such public offering is being
effected. Furthermore, the Company shall be obligated to include in such
registration only the quantity of Warrant Shares, if any, as will not, in the
opinion of the managing underwriter, jeopardize the success of the offering by
the Company. If the managing underwriter for the offering advises the Company in
writing that the total amount of securities sought to be registered by the
Holders and other shareholders of the Company having similar registration rights
as of the date hereof (collectively, the "Kellstrom Shareholders") exceeds the
amount of securities that can be offered without adversely affecting the
offering by the Company, then the Company may reduce the number of shares to be
registered by the Company for the Kellstrom Shareholders, including Warrant
Shares, to a number satisfactory to such managing underwriter. Any such
reduction shall be pro rata, based upon the total number of shares held by each
Kellstrom Shareholder.
(h) The Company will indemnify and hold harmless the Holder
and any person or entity engaged by the Holder to sell the Holder's Warrant
Shares, and each person, if any, who controls such persons or entities within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act") (collectively, a
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<PAGE>
"Holder Indemnitee"), against any losses, claims, damages, liabilities or
expenses (or actions, proceedings, or settlements in respect thereof) (joint or
several) to which a Holder Indemnitee may become subject under the Act, the 1934
Act, or other federal or state law, insofar as such losses, claims, damages,
liabilities or expenses (or actions, proceedings or settlements in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto; (ii) the omission or alleged omission to
state therein 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 (iii) the employment by the Company of any device, scheme or
artifice to defraud or the engagement by the Company in any act, practice or
course of business which operates or would operate as a fraud or deceit upon the
purchasers of its securities pursuant to such registration statement. The
Company will also reimburse each Holder Indemnitee for any legal or other
expenses reasonably incurred by such Holder Indemnitee in connection with
investigating, defending, and settling any such loss, claim, damage, liability,
or action.
The indemnity agreement contained in this Subsection 5(h)
shall not apply to amounts paid in settlement of any loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld, nor shall the Company
be liable to any Holder Indemnitee for any loss, claim, damage, liability or
action (i) to the extent that it arises solely out of or is based solely upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
or on behalf of the Holder or any agent of the Holder, which consent shall not
be unreasonably withheld, or controlling person of either; or (ii) in the case
of a sale directly by the Holder (including a sale of such Warrant Shares
through any underwriter retained by such Holder to engage in a distribution
solely on behalf of such Holder), such untrue statement or alleged untrue
statement or omission or alleged omission was contained in a preliminary
prospectus and corrected in a final or amended prospectus, and the Holder failed
to deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the Warrant Shares to the person asserting any such
loss, claim, damage or liability in any case where such delivery is required by
the Act.
(i) The Holder will indemnify and hold harmless the Company,
each of its employees, officers, directors or persons who control the Company
within the meaning of the Act or the 1934 Act, and each agent or underwriter for
the Company or any other person or entity engaged by the Company to sell the
Company's securities offered in the registration statement, or any of their
respective directors, officers, partners, agents, employees or control persons
(collectively, a "Company Indemnitee"), against any losses, claims, damages,
liabilities or expenses (joint or several) to which the Company or any such
Company Indemnitee may become subject under the Act, the 1934 Act, or other
federal or state law, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereto) arise solely out of or are based solely
upon any
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<PAGE>
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by or on behalf of the Holder expressly for use in connection with
such registration; and each Holder will reimburse any legal or other expenses
reasonably incurred by a Company Indemnitee in connection with investigating or
defending any such loss, claim, damage, liability, or action. Notwithstanding
the above, the amount of any losses, claims, damages, liabilities, legal fees
and expenses to be paid by any Holder shall not exceed the amount of the
proceeds received by the Holder from the sale of its Warrant Shares.
The indemnity agreement contained in this Subsection 5(i)
shall not apply to amounts paid in settlement of any loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
indemnifying Holder, which consent shall not be unreasonably withheld, nor, in
the case of a sale directly by the Company of its securities (including a sale
of such securities through any underwriter retained by the Company to engage in
a distribution solely on behalf of the Company), shall the Holder be liable to
the Company in any case in which such untrue statement or alleged untrue
statement or omission or alleged omission was contained in a preliminary
prospectus and corrected in a final or amended prospectus, and the Company
failed to deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the securities to the person asserting any such
loss, claim, damage or liability in any case where such delivery is required by
the Act.
(j) (i) Promptly after receipt by an indemnified party under
Subsections 5(h) and (i) of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume and control the defense thereof with counsel
mutually satisfactory to the indemnified and indemnifying parties, provided that
an indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests (as reasonably
determined by either party) between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
Subsection 5(h) or (i), respectively, to the extent of such prejudice, but the
failure to so deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under Subsection 5(h) or (i), respectively.
(ii) The obligations of the Company and the Holders under
Subsections 5(h) and (i), respectively, shall survive the completion of any
offering of Warrant Shares made pursuant to a registration under this Agreement.
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(iii) The amount paid or payable by a party as a result of
the losses, claims, damages, or liabilities (or actions or proceedings in
respect thereof) referred to in Subsections 5(h) and (i) shall include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim.
(k) If the indemnification provided for in the preceding
subsections 5(h) or (i) is unavailable to an indemnified party in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall be
entitled to contribution, except to the extent that contribution is not
permitted under Section 11(f) of the Act. In determining the amount of
contribution to which the respective parties are entitled, there shall be
considered the parties' relative knowledge and access to information concerning
the matter with respect to which the claim was asserted, the opportunity correct
and prevent any statement or omission, and any other equitable considerations
appropriate under the circumstances. Notwithstanding the provisions of this
paragraph, the Holder shall not be required to contribute any amount in excess
of the net proceeds received by the Holder from the sale of Warrant Shares. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(l) The Holder, in addition to being entitled to exercise all
rights provided in this Section 5, including recovery of damages, will be
entitled to specific performance of its rights hereunder. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Section 5 and hereby
agrees to waive the defense in any action for specific performance that a remedy
at law would be adequate.
(m) In connection with the Company's obligations to effect a
registration under the Section 5, the Company will:
(i) cooperate and assist in any filings required to be
made with the National Association of Securities Dealers, Inc., and before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to counsel selected by Holder copies of all
such documents proposed to be filed, which documents will be subject to their
review and comments;
(ii) cause the prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Act;
(iii) notify the Holder promptly (A) when the prospectus
or any prospectus supplement or post-effective amendment has been filed, and
with respect to the registration statement or any post-effective amendment, when
the same has become effective; (B) of any request by the for any amendments or
supplements to the registration statement or the prospectus or for additional
information; (C) of the issuance
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by the Commission of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for the purpose; (D)
if, at any time prior to the closing contemplated by an underwriting agreement
entered into in connection with such registration statement, that the
representations and warranties of the Company contained in such agreement cease
to be true and correct in any material respect; (E) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Warrant Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and (F) of the happening of any
event which makes any statement made in the registration statement, the
prospectus of or any document incorporated therein by reference untrue in any
material respect and which requires the making of any changes in the
registration statement, the prospectus or any document incorporated therein by
reference in order to make the statement therein not materially misleading;
(iv) make commercially reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of the registration
statement;
(v) if required, based on the advice of the Company's
counsel, prepare a supplement or post-effective amendment to the registration
statement, the related prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Warrant Shares, the prospectus will not contain an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading;
(vi) cause all Warrant Shares covered by the registration
statement to be listed on each securities exchange on which identical securities
issued by the Company are then listed if requested by the Holder or the managing
underwriters, if any;
(vii) provide and cause to be maintained a transfer agent
and registrar for all Warrant Shares covered by such registration statement from
an after a date not later than the effective date of such registration
statement;
(viii) use its best efforts to provide a CUSIP number for
the Warrant Shares, not later than the effective date of the registration
statement;
(ix) make available for inspection, in connection with the
preparation of a registration statement pursuant to this Agreement, by the
Holder, and any attorney or accountant retained by the Holder, all financial and
other records and pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representative, attorney or
accountant in connection with such registration; provided, however, that any
records, information or documents that are designated by the Company in writing
as confidential shall be kept confidential by such persons unless disclosure of
such records, information or documents is required by court or administrative
order;
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(x) if so required by the managing underwriter, not sell,
make any short sale of, loan, grant any option for the purpose of, effect any
public sale or distribution of or otherwise dispose of its equity securities or
securities convertible into or exchangeable or exercisable for any of such
securities during the ten days prior to and the 90 days after any underwritten
registration pursuant hereto has become effective, except as part of such
underwritten registration and except pursuant to registrations on Form S-4 or
S-8 or any successor or similar forms thereto, except that the Company may make
grants of options under its stock option plans and may issue securities issuable
upon the exercise or conversion of outstanding convertible securities, stock
options and other options, warrants and rights of the Company; and
(xi) otherwise use its best effort to comply with all
applicable rules and regulations of the Commission and make available to its
securityholders as soon as reasonably practicable, an earnings statement which
satisfies the provision of Section 11(a) of the Act.
(n) The Company shall not be obligated to register any Warrant
Shares pursuant to this Section 5 at any time when the resale provisions of Rule
144 promulgated under the Act are available to the Holder without limitation as
to volume.
6. LIMITED TRANSFERABILITY. This Warrant may not be sold,
transferred, assigned or hypothecated by the Holder except in compliance with
the provisions of the Act, and is so transferable only upon the books of the
Company which it shall cause to be maintained for the purpose; provided, that
the Company will cooperate with the Holder in the event that the Holder desires
to effect a private placement of the Warrant. The Company may treat the
registered Holder of this Warrant as he or it appears on the Company's books at
any time as the Holder for all purposes. The Company shall permit any Holder of
a Warrant or his duly authorized attorney, upon written request during ordinary
business hours, to inspect and copy or make extracts from its books showing the
registered holders of Warrants. All Warrants issued upon the transfer or
assignment of this Warrant will be dated the same date as this Warrant, and all
rights of the Holder thereof shall be identical to those of the Holder.
7. LOSS, ETC., OF WARRANT. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like date,
tenor and denomination.
8. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof.
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9. INFORMATION TO HOLDER. The Company agrees that it shall
deliver to the Holder promptly after their becoming available copies of all
financial statements, reports and proxy statements which the Company shall have
sent to its stockholders generally.
10. NOTICES. All notices and other communications required or
permitted to be given under this Warrant shall be in writing and shall be deemed
to have been duly given if delivered personally or by facsimile transmission, or
sent by recognized overnight courier or by certified mail, return receipt
requested, postage paid, to the parties hereto as follows:
(a) if to the Company at 14000 NW 4th Street, Sunrise,
Florida 33325, Att.: Chief Executive Officer, facsimile no.
954-845-0428, or such other address as the Company has
designated in writing to the Holder, or
(b) if to the Holder at Bedford Falls Investors, L.P., 660
Madison Avenue, 20th Floor, New York, New York, 10021, Att.:
Jeffrey E. Schwarz, facsimile no. (212) 355-7480, or such other
address or facsimile number as the Holder has designated in
writing to the Company.
11. HEADINGS. The headings of this Warrant have been inserted as
a matter of convenience and shall not affect the construction hereof.
12. APPLICABLE LAW. This Warrant shall be governed by and
construed in accordance with the law of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
IN WITNESS WHEREOF, Kellstrom Industries, Inc. has caused this
Warrant to be signed by its President and its corporate seal to be hereunto
affixed and attested by its Secretary this ____ day of ____________, 199_.
KELLSTROM INDUSTRIES, INC.
By:______________________
President
ATTEST:
- -------------------------
Secretary
[Corporate Seal]
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ASSIGNMENT
FOR VALUE RECEIVED ____________________________ hereby sells,
assigns and transfers unto __________________________ the foregoing Warrant and
all rights evidenced thereby, and does irrevocably constitute and appoint
_______________________, attorney, to transfer said Warrant on the books of
Kellstrom Industries, Inc.
Dated: ______________________________ Signature:________________________________
Address: ________________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby assigns
and transfers unto ____________________________ the right to purchase
______________ shares of the Common Stock of _________________________ covered
by the foregoing Warrant, and a proportionate part of said Warrant and the
rights evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer that part of said Warrant on the
books of Kellstrom Industries, Inc.
Dated: ______________________________ Signature:________________________________
Address: ________________________________
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SUBSCRIPTION FORM
(To be executed upon exercise of Warrant pursuant to Section 1 (a)(i))
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the within Warrant for, and to purchase
thereunder, ______________ shares of Common Stock, as provided for in Section
1(a)(i), and tenders herewith payment of the purchase price in full in the form
of cash or a certified or official bank check in the amount of $___________.
Please issue a certificate or certificates for such Common
Stock in the name of, and pay any cash for any fractional share to:
Name_________________________________________
(Please Print Name, Address and Social
Security No.)
Address _____________________________________
_____________________________________
Social _____________________________________
Security Number
Signature ___________________________________
NOTE: The above signature should
correspond exactly with the name on
the first page of this Warrant or with
the name of the assignee appearing in
the assignment form below.
Date ________________________________________
And if said number of shares shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned for the balance remaining of the shares purchasable
thereunder.
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REVOLVING LOAN AGREEMENT
BY AND BETWEEN
KELLSTROM INDUSTRIES, INC.
(THE BORROWER)
AND
BARNETT BANK, N.A.
(THE BANK)
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Copyright 1996
English, McCaughan & O'Bryan, P.A.
All Rights Reserved.
<PAGE>
<PAGE>
TABLE OF CONTENTS
(The Table of Contents for this Revolving Loan Agreement is
for convenience of reference only and is not intended to
define, limit or describe the scope or intent of any
provisions of this Revolving Loan Agreement.)
ARTICLE/SECTION HEADING PAGE
- --------------- ------- ----
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS........ 1
1.01 Definitions...................................... 1
1.02 Accounting Terms................................. 19
ARTICLE II AMOUNTS AND TERMS OF FACILITY 1......... 19
2.01 Facility 1....................................... 19
2.02 Borrowing Base for Facility 1.................... 19
2.03 Facility 1 Note.................................. 20
2.04 Advance of Proceeds of Facility 1................ 21
2.05 Interest Rate; Payment of Facility 1 Note........ 21
2.06 Prepayments...................................... 21
2.07 Calculation of Interest.......................... 22
2.08 Set-Off.......................................... 22
2.09 Late Payment Penalty............................. 22
2.10 Use of Proceeds.................................. 23
2.11 Right to Debit Account........................... 23
2.12 Commitment Fee................................... 23
ARTICLE III AMOUNTS AND TERMS OF FACILITY 2.................. 23
3.01 Facility 2....................................... 23
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3.02 Borrowing Base for Facility 2.................... 23
3.03 Facility 2 Note.................................. 24
3.04 Advance of Proceeds of Facility 2................ 25
3.05 Payment of Facility 2 Note....................... 26
3.06 Prepayments...................................... 26
3.07 Calculation of Interest.......................... 26
3.08 Use of Proceeds.................................. 27
3.09 Commitment Fee................................... 27
ARTICLE IV CUSTODY, INSPECTION, COLLECTION AND
HANDLING OF COLLATERAL AND RECORDS............... 27
4.01 Collection of Accounts........................... 27
4.02 Power of Attorney................................ 28
4.03 Liability for Handling Collateral................ 28
4.04 Custodian of Collateral.......................... 29
4.05 Cash Collateral Account(s)....................... 29
ARTICLE V REPRESENTATIONS AND WARRANTIES.......... 29
5.01 Organization, Corporate Powers, etc.............. 30
5.02 Authorization of Loan, etc....................... 30
5.03 Financial Statements............................. 30
5.04 Tax Returns and Payments......................... 31
5.05 Agreements....................................... 31
5.06 Title to Properties and Assets, Liens, etc....... 31
5.07 Litigation, etc.................................. 32
5.08 Consents and Approvals........................... 32
5.09 Enforceable Obligations.......................... 32
5.10 Full Disclosure.................................. 32
5.11 Hazardous Materials.............................. 33
5.12 Outstanding Debt................................. 34
ARTICLE VI COVENANTS OF BORROWER............................ 34
6.01 Affirmative Covenants............................ 34
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6.02 Negative Covenants............................... 40
6.03 Financial Covenants.............................. 44
ARTICLE VII CONDITIONS OF LENDING................... 45
A. The First Advance......................................... 45
7.01 Evidence of Borrower Action...................... 45
7.02 Notes............................................ 45
7.03 Opinion of Counsel to Borrower................... 45
7.04 Security Agreement and Other Security Documents.. 45
7.05 Financing Statements............................. 46
7.06 Property and Public Liability Insurance.......... 46
7.07 Fees............................................. 46
7.08 Concerning the Subordinated Debt................. 46
7.09 Other Documents.................................. 46
7.10 Asset-Based Lending Audit........................ 47
B. All Loans................................................. 47
7.11 Compliance....................................... 47
7.12 Delivery of Documents............................ 47
7.13 Borrowing Request................................ 47
7.14 Supplemental Opinions............................ 47
7.15 Documentation and Proceedings.................... 48
7.16 Required Acts and Conditions..................... 48
7.17 Approval of Bank's Counsel....................... 48
7.18 Pledge Agreement from Affiliates Created
Post-Closing................................... 48
7.19 Representations and Warranties................... 48
7.20 No Default or Adverse Change..................... 49
7.21 Loan Documents................................... 49
7.22 Payment of Commitment Fee........................ 49
7.23 Intercreditor Agreements......................... 49
ARTICLE VIII EVENTS OF DEFAULT....................... 50
8.01 Events of Default................................ 50
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ARTICLE IX RIGHTS UPON DEFAULT.............................. 52
9.01 Acceleration..................................... 52
9.02 Right of Set-off................................. 52
9.03 Other Rights..................................... 52
9.04 Uniform Commercial Code.......................... 52
ARTICLE X MISCELLANEOUS........................... 53
10.01 No Waiver; Cumulative Remedies................... 53
10.02 Entire Agreement; Amendments, etc................ 53
10.03 Addresses for Notices, etc....................... 53
10.04 Applicable Law................................... 54
10.05 Survival of Representations and Warranties....... 54
10.06 Time of the Essence.............................. 55
10.07 Headings......................................... 55
10.08 Severability..................................... 55
10.09 Counterparts..................................... 55
10.10 Conflict......................................... 55
10.11 Duration......................................... 55
10.12 Expenses......................................... 55
10.13 Successors and Assigns........................... 56
10.14 Cross Defaults................................... 57
10.15 Non-Waiver....................................... 57
10.16 WAIVER OF TRIAL BY JURY.......................... 57
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EXHIBIT "A" FORM OF FACILITY 1 NOTE................. 59
EXHIBIT "B" FORM OF FACILITY 2 NOTE................. 60
EXHIBIT "C" FORM OF SECURITY AGREEMENT.............. 61
EXHIBIT "D" FORM OF LEGAL OPINION................... 62
EXHIBIT "E" BORROWING BASE CERTIFICATE.............. 63
EXHIBIT "F" BORROWING REQUEST....................... 64
SCHEDULE 4.07 PENDING LITIGATION...................... 65
SCHEDULE 6.01(L) OUTSTANDING DEBT........................ 66
SCHEDULE 6.02(C) PLACES OF BUSINESS, LOCATION OF REPAIR
FACILITIES AT WHICH COLLATERAL IS
CURRENTLY LOCATED....................... 67
SCHEDULE 6.02(F) PERMITTED LIENS......................... 68
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REVOLVING LOAN AGREEMENT
THIS REVOLVING LOAN AGREEMENT (the "AGREEMENT") made and entered into
as of December 23, 1996, by and between KELLSTROM INDUSTRIES, INC., a Delaware
corporation formerly known as Israel Tech Acquisition Corp. (hereinafter
referred to as the "BORROWER") and BARNETT BANK, N.A., a national banking
association (hereinafter referred to as the "BANK").
RECITALS
A. Borrower desires to borrow and obtain from Bank a working capital
line of credit loan up to a maximum amount of NINE MILLION DOLLARS
($9,000,000.00) ("FACILITY 1").
B. Borrower desires to borrow and obtain from Bank a revolving line of
credit for acquisition of whole-aircraft engines up to a maximum amount of SIX
MILLION DOLLARS ($6,000,000.00) ("FACILITY 2") (Facility 1 and Facility 2,
individually and collectively the "Loan").
C. Bank is willing to grant the Loan upon the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, for and in consideration of the above premises and the
mutual covenants and agreements contained herein, and for consideration,
acknowledged to be adequate, Borrower and Bank, intending to be legally bound,
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01 Definitions. For the purposes of this Agreement, the following
terms shall have the respective meanings specified in this Section 1.01 (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
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"Account" shall mean any right to payment for goods sold or leased or
for services rendered by Borrower which is not evidenced by an instrument or
chattel paper, whether or not it has been earned by performance including, but
not limited to, all contract rights.
"Account Debtor" shall mean any Person who is obligated on an Account.
"Account Collateral Certificate" shall mean a certificate executed and
certified correct by an officer of Borrower and in form acceptable to Bank
setting forth the name and address of each Account Debtor, the amount owed by
each Account Debtor and the period of time said Account has been outstanding.
"Adjusted Base Rate" shall mean a per annum rate of interest that is
equal to the Base Rate (as hereinafter defined) plus the Base Rate Spread (as
hereinafter defined). The rate of interest charged under this Agreement on sums
bearing interest at the Adjusted Base Rate shall change each time the Base Rate
is changed. Any such change in the rate of interest shall become effective as of
the opening of business on the day on which such change in the Base Rate is made
generally effective. A certificate executed by an officer of Bank shall be
conclusive as to the Adjusted Base Rate but no certificate need be issued for
the Adjusted Base Rate to be effective hereunder.
"Adjusted Libor" shall mean a per annum rate of interest that is equal
to Libor (as hereinafter defined) plus the Libor Spread (as hereinafter
defined).
"Adjusted Rate" shall mean as applicable, Adjusted Base Rate or
Adjusted Libor.
"Advance" shall mean the proceeds of the Loan delivered to Borrower by
Bank pursuant to either Section 2.04 or 3.04 hereof.
"Advance Date" shall mean the date of the Initial Advance or any
Subsequent Advance under this Agreement.
"Affiliate" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with Borrower,
including a Subsidiary. A Person shall be deemed to control a corporation if
such Person possesses, directly or
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indirectly, through the ownership of Voting Stock, by contract, management,
understanding, relationship, or otherwise, the power to direct or cause the
direction of the management and policies of such corporation.
"Assets" shall mean all property, real or personal, tangible or
intangible in which the Borrower has any legal, beneficial or other interest.
"Authorized Representative" shall mean an officer, member, partner or
other representative of an entity who is authorized to execute agreements,
documents, or certifications on behalf of such entity and authorized to make
decisions, institute litigation, and take all other necessary actions on behalf
of such entity.
"BankAtlantic" shall mean BankAtlantic, a federal savings bank.
"BankAtlantic Loan" shall mean the loan extended to Borrower by
BankAtlantic and evidenced by the loan agreement and related documents dated as
of June 22, 1994, as amended, and secured by a mortgage on the Borrower's
primary place of business.
"Base Rate" shall mean the Prime Rate.
"Base Rate Interest Period" shall mean for each Base Rate Portion, one
month.
"Base Rate Loan" shall mean that portion of the outstanding principal
balance of the Loan for which the interest rate is the Adjusted Base Rate.
"Base Rate Portion" shall mean that portion of the outstanding
principal balance of the Loan which is not included in any Libor Portion (as
hereinafter defined).
"Base Rate Spread" shall mean that number of basis points (one eighth
of one Percent (1/8%)) to be subtracted from the Base Rate.
"Borrowing Base" shall mean the assets of Borrower against which
Advances may be made, as calculated according to the formulas set forth in
Sections 2.02 and 3.02 hereof.
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"Borrowing Base Certificate" shall mean, collectively, a certificate
executed with respect to Facility 1 and a certificate executed with respect to
Facility 2, each certificate certified as being true and correct by the chief
financial officer or other Authorized Representative of Borrower, setting forth
the calculations leading to, as well as the amount of, the relevant Borrowing
Base (as further described in Sections 2.02 and 3.02) and including a statement
that Borrower is in full compliance with all provisions of the Loan Documents
(including without limitation all financial covenants and conditions), the form
of which certificate shall be substantially similar to Exhibit E hereto.
"Borrowing Request" shall mean a request for a Loan in the form of
Exhibit "F" attached hereto.
"Business Day" shall mean a day other than a Saturday, Sunday or other
day on which commercial banks in the State of Florida are authorized or required
by law to close.
"Capital Funds" shall mean the sum of Tangible Net Worth plus
Subordinated Debt.
"Capital Funds Ratio" shall mean the ratio of all liabilities of
Borrower less Subordinated Debt divided by Capital Funds as of any particular
date.
"Capitalized Lease Obligations" shall mean all rental obligations
which, under GAAP, are or will be required to be capitalized on the balance
sheet of Borrower.
"Cash Collateral Account(s)" shall mean Borrower's account(s)
established with Bank, which account(s) shall, unless and until the occurrence
of an Event of Default, constitute the primary depository account(s) for
payments received by Borrower on Accounts under Facility 1 and Facility 2. Upon
the occurrence of an Event of Default, the Cash Collateral Account(s) may, at
Bank's sole discretion, be replaced with a lockbox/lockboxes established at Bank
to receive payments under Facility 1 and Facility 2.
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"Cash Flow" means, for any fiscal period, the difference between the
gross cash receipts and the total amount of gross cash payments arising from
operating activities as determined in accordance with GAAP.
"Chattel Paper" shall mean a writing or writings which evidence both a
monetary obligation and a security interest in or a lease of specific goods.
"Closing Date" shall mean December 23 1996.
"Collateral" shall mean and include:
(a) all Accounts, contract rights, Instruments, Chattel Paper,
Documents, Equipment and General Intangibles of Borrower including all bank
accounts in which Borrower has deposited proceeds of any Collateral, all
patents, trademarks and trade names, files, correspondence, advertising
programs, customer lists, all monies becoming due Borrower from any sale of
Collateral on account of rebates, warranty service, or bonuses; all amounts due
under and all rights under any letters of credit for the benefit of Borrower or
in which the Borrower has rights;
(b) any other obligations or indebtedness owed to Borrower
from whatever source arising;
(c) all rights of Borrower to receive any payments in money or
in kind;
(d) all of Borrower's right, title and interest in and to, and
all of Borrower's rights, remedies, security interests and liens under,
guaranties or other contracts of suretyship, security therefor, security
agreements, deposits, leases or other agreements or property securing or
relating to any of the items referred to in subparagraph (a) hereof or acquired
for the purpose of securing and enforcing any of such items;
(e) all of Borrower's right, title, and interest in and with
respect to the goods, services, or other property that gave rise to or that
secure any of the foregoing and insurance policies relating thereto (to the
extent such collateral constitutes part of the Borrowing Base), and all of
Borrower's rights as an unpaid seller of goods and
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services, including, but not limited to, the rights of stoppage in transit,
replevin, reclamation, repossession, and resale;
(f) all Inventory now owned or hereafter owned or acquired by
Borrower, wherever located, whether in possession of a seller and identified to
a contract of sale between a seller and Borrower, in transit from the seller to
Borrower, in transit from Borrower to a purchaser, or being returned to Borrower
from any purchaser, on Borrower's premises or elsewhere, all contractual rights
to purchase inventory, all shipping invoices, bills of lading, and warehouse
receipts covering such inventory, all Eligible Finished Goods Inventory, all
Robert A. Ware Materials, work in process and other materials to be used or
consumed in Borrower's business;
(g) all instruments, documents, securities, cash, and property
owned by Borrower or in which Borrower has an interest (except as to which
accounts Borrower is trustee), which now or hereafter are at any time in the
possession or control of Bank or in transit by mail or carrier to or in the
possession of any third party acting on behalf of Bank, without regard to
whether Bank received the same in pledge, for safekeeping, as Bank for
collection or transmission or otherwise or whether Bank had conditionally
released the same, and all of Borrower's deposits, accounts, balances, sums and
credits with, and all of Borrower's claims against, Bank;
(h) all Books and Records including computer records, files,
directories, tapes and programs;
(i) all other property and money of Borrower now or hereafter
in the possession, custody or control of Bank;
(j) all of the foregoing, whether now owned or existing or
hereafter created or acquired by Borrower; and
(k) proceeds and products of all such Collateral.
"Commitment Fee" shall mean $15,000.00 for Facility 1 and $10,000.00
for Facility 2.
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"Current Assets" shall mean those assets which in the regular course of
business of Borrower and its Subsidiaries on a consolidated basis, will be
readily and quickly realized or converted into cash, all in accordance with
GAAP, within the applicable accounting or time period together with such
additional assets as may readily be converted into cash without impairing the
business of Borrower or any of its Subsidiaries, and shall include cash,
temporary investments, receivables, inventories and prepaid expenses, but shall
exclude all inter-company assets between Borrower and such Subsidiaries.
"Current Liabilities" shall mean those liabilities of Borrower and its
Subsidiaries on a consolidated basis, or any portion thereof, the maturity of
which will not extend beyond one year from the date said determination is to be
made, but excluding all inter-company Liabilities between Borrower and such
Subsidiaries.
"Current Ratio" shall mean, for the applicable period, the ratio of (i)
Borrower's Current Assets to (ii) Borrower's Current Liabilities.
"Day" shall mean a calendar day, unless the context indicates
otherwise.
"Debt" means (i) indebtedness for borrowed money or for the deferred
purchase price of property or services, (ii) obligations as lessee under leases
which shall have been or should be, in accordance with GAAP, recorded as capital
leases, and (iii) obligations under direct or indirect guaranties in respect of
indebtedness or obligations of others of the kinds referred to in clause (i) or
(ii) above.
"Debt Service Coverage Ratio" shall mean for the applicable period, as
to Borrower, the ratio set forth in Section 6.03(c).
"Default" shall mean any event or condition which with the passage of
time or giving of notice, or both, would constitute an Event of Default.
"Default Rate" shall mean the highest rate of interest permitted from
time to time by applicable law.
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"Document" shall mean a bill of lading, dock warrant, dock receipt,
warehouse receipt or order for the delivery of goods, and also any other
document which, in the regular course of business or financing, is treated as
adequately evidencing that the person in possession of it is entitled to
receive, hold and dispose of the document and goods it covers.
"Dollars" shall mean lawful money of the United States of America.
"Due Date" shall mean the date any payment of principal, interest or
any other amount is due and payable on the Loan or the Notes.
"Eligible Accounts" shall mean the net amount of Accounts outstanding
after eliminating from the aggregate amount of outstanding Accounts, such
Accounts as to which more than 90 days have elapsed since the invoice date, and
eliminating:
(a) all Accounts arising from sales or services to any single
account debtor, more than ten percent (10%) of whose Accounts owing to the
Borrower remain unpaid more than 90 days after the invoice date,
(b) all Accounts arising from sales or services to any account
debtor affiliated with the Borrower,
(c) the amount by which Accounts existing as of any point in
time during the duration of the Loan arising from sales or services to any one
account debtor exceed 20% of the Borrower's Tangible Net Worth as of such time
(unless such Accounts are otherwise approved by Bank, in its sole discretion),
(d) all U.S. Government account receivables as to which the
Borrower has failed to execute such instruments and take all steps required by
Bank in order that all monies due and to become due thereunder have been
assigned to Bank and notice thereof given to the applicable department, agency
and/or instrumentality of the United States Government under the Federal
Assignment of Claims Act, as same may be amended from time to time,
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(e) (as to Domestic Accounts but not as to Foreign Accounts)
all Accounts arising from sales or services to Account Debtors primarily
conducting business in foreign countries, and
(f) those Accounts excluded because of the credit worthiness
of any account debtor and deducting from the aggregate face amount of the
remaining Accounts all payments, adjustments, allowances, deductions, discounts
and credits applicable thereto and all amounts due thereon considered by the
Bank difficult to collect or uncollectible by reason of return, rejection,
repossession, loss or damage of or to the merchandise giving rise thereto, which
determination shall be final and binding upon the Borrower.
This list is non-inclusive. The Advance Formula is at all times subject
to the right of the Bank to modify it based on findings of its Asset-Based
Lending audits and the Bank's sole judgment.
"Eligible Domestic Account" shall mean Eligible Accounts arising from
sales within the United States.
"Eligible Foreign Accounts" shall mean Eligible Accounts arising from
sales or services to Account Debtors primarily conducting business in foreign
countries whether or not supported by an irrevocable Letter of Credit issued in
favor of Borrower.
"Equipment" shall mean all goods used or bought for use primarily in
the business of Borrower that are not included in the definition of Inventory.
"Events of Default" shall mean the events of default specified in
Article Eight of this Agreement.
"FAA" shall mean the Federal Aviation Administration or any successor
agency.
"FAA-certified Overhauled Parts Inventory" shall mean those items of
Inventory that have accumulated zero hours and cycles since their refurbishment
and re-certification by an FAA-certified repair station and were purchased by
Borrower less than two years previous to the date of an Advance against such
items.
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"Facility 1" shall mean a $9,000,000.00 commercial asset based
revolving line of credit for working capital.
"Facility 1 Note" shall mean the demand promissory in the original
principal amount of $9,000,000.00 evidencing Facility 1.
"Facility 2" shall mean a $6,000,000.00 commercial asset based
revolving line of credit for acquisition of Whole Aircraft Engines.
"Facility 2 Note" shall mean the demand promissory in the original
principal amount of $6,000,000.00 evidencing Facility 2.
"Financing Statement" shall mean all financing statements permitted
under the UCC or any other state law for the purpose of perfecting the security
interest in the Collateral granted by Borrower to Bank under the Security
Agreement (the "Security Interest"), and shall include (without limitation)
financing statements to be filed in the States of California and Florida or any
other state against Borrower as debtor.
"GAAP" shall mean those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through its Accounting Principles Board or by the
Financial Accounting Standards Board or through other appropriate boards or
committees thereof.
"General Intangibles" shall mean any personal property (including
things in action) other than goods, Accounts, Chattel Paper, Instruments and
money, and shall include, but not be limited to, tax refunds, returns of
insurance premiums and customer lists.
"Hazardous Materials" shall mean materials defined as "hazardous waste"
under the Federal Resource Conservation and Recovery Act and similar state laws,
or as "hazardous substances" under the Federal Comprehensive Environmental
Response, Compensation and Liability Act and similar state laws, and any solid,
semi-solid, liquid or gaseous substances which are toxic, ignitable, corrosive,
carcinogenic or otherwise dangerous to human, plant or animal health and well
being.
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"IASI" shall mean IASI Inc, a Delaware corporation and wholly owned
subsidiary of Borrower.
"IASLP" shall mean International Aircraft Support, L.P., a California
limited partnership, as further described in Section 7.09 hereof.
"Initial Advance" shall mean the initial delivery of a portion of the
proceeds of the Loan pursuant to the terms hereof on or after the Closing Date.
"Initial Advance Date" shall mean the date on which the first Advance
is made under the Loan.
"Instruments" shall mean a negotiable instrument or a security or any
other writing which evidences a right to the payment of money (whether or not
negotiable) and is not itself a security agreement or a lease and is of a type
which is in the ordinary course of business transferred by delivery with any
necessary indorsement or assignment.
"Intangible Assets" shall mean those assets of Borrower and its
Subsidiaries on a consolidated basis which, in accordance with GAAP, are not
Tangible Assets and shall include, but not be limited to, patents, copyrights,
trademarks, trade names, franchises, good will, covenants not to compete,
experimental expenses and other similar assets which would be classified as
"intangible assets" under GAAP.
"Inventory" shall mean all Parts Inventory, Whole Aircraft Engines,
goods, merchandise, and other personal property now owned or hereafter owned or
acquired by Borrower that are held for sale or lease or that are possessed for
sale or lease, or that are furnished or are to be furnished under any contract
of service or are raw materials, work-in-process, supplies, finished goods or
materials used or consumed in Borrower's business, and all other tangible
property now owned or hereafter acquired and held for sale or lease or furnished
or to be furnished under contracts of service or used or consumed in Borrower's
business, and all products, substitutions, replacements, additions, or
accessions for or to any of the foregoing.
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"Inventory Collateral Certificate" shall mean a certificate executed
and certified as correct by an officer of Borrower in form acceptable to Bank
setting forth information concerning descriptions, quantities, costs, fair
market value and the location of all Inventory.
"Inventoried Engines" shall mean Whole Aircraft Engines that are owned
by the Borrower and are held as Inventory for sale or lease.
"Leased Engines" shall mean Whole Aircraft Engines that the Borrower
owns but are, at the time of such classification, subject to leases to third
parties.
"Liabilities" shall mean all liabilities and obligations of Borrower,
or all liabilities and obligations of Borrower and its Subsidiaries on a
consolidated basis, as the case may be, and shall include Long Term and
Contingent Liabilities and/or Current Liabilities, as the case may be, all as
determined in accordance with GAAP.
"Libor" shall mean the annual rate of interest displayed on Telerate
page 3750 (or such other page as may replace such page on that service for the
purpose of displaying interest rates at which Dollar deposits are offered by
prime banks in the London interbank market) as quoted by Bank to banks in the
London interbank market as of 10:00 a.m. New York time two (2) Business Days
before the first day of the relevant Libor Interest Period, divided by one (1)
minus the Libor Reserve Percentage. If Telerate ceases to quote Libor at any
time during the duration of the Loan, then at Bank's option, Libor shall be
determined by reference to (i) the rate of Libor interest quoted as such by
another financial information data service or publication reasonably selected by
Bank or (ii) the arithmetic mean of the interest rates at which Dollar deposits
are offered to certain Libor reference banks (to be reasonably designated by
Bank) in the London interbank market, for the relevant Libor Interest Period.
Each Libor quotation shall be for a period of time equal or comparable to the
Libor Interest Period selected by Borrower and in an amount equal or comparable
to the principal amount of the Libor Portion to which the Libor Interest Period
relates. Each determination by Bank of the Libor shall be conclusive and
binding.
"Libor Interest Period" shall mean for each Libor Portion, a period
from the date of commencement of the Adjusted Libor on the subject portion of
the outstanding
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principal balance of the Loan to the day which shall occur 30, 90 or 180 days
after the date of such commencement, as selected by Borrower pursuant to this
Agreement. However, if the last day of such Libor Interest Period would
otherwise occur on a day which is not a Business Day, such last day shall be
extended to the next succeeding Business Day unless such extension would extend
the maturity date of such Libor Interest Period or cause the last day to occur
in a new calendar month, in which event such last day shall be the immediately
preceding Business Day.
"Libor Portion" shall mean each portion of the outstanding principal
balance of the Loan on which, as a result of Borrower's election hereunder,
Borrower is being charged interest at the corresponding Adjusted Libor for the
corresponding Libor Interest Period. Each Libor Portion must be an integral
multiple of $250,000.00 and be not less than $1,000,000.00.
"Libor Reserve Percentage" shall mean for any day, that percentage
(expressed as a decimal) that is in effect on such day for determining maximum
reserve requirements, including without limitation: (i) any basic, supplemental,
marginal, or emergency reserve under any regulations of any governmental
authority, domestic or foreign, having jurisdiction with respect thereto; or
(ii) any applicable reserve prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum reserve
requirement for a member bank of the Federal Reserve System in New York City
with deposits exceeding $5,000,000,000.00 in respect of "Euro-currency
liabilities" (or in respect of any other category of liabilities which includes
deposits by reference to which the interest rate on Libor Portions is
determined, or any category of extensions of credit which includes loans by a
non-United States office of a member of the Federal Reserve System to United
States residents). After such calculation, Libor shall be adjusted up to the
next highest 1/16th of one percent.
"Libor Spread" shall be 275 basis points (2.75%).
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien, or charge of any kind and shall include, but not be limited to, any
agreement to give any of the foregoing, any conditional sales or other title
retention agreements, or any lease in the nature thereof, the filing of or
agreement to give any financing statement under
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the UCC of any jurisdiction, the lien of a lien creditor defined in the UCC, and
the lien of a statutory lienor.
"Loan Documents" shall mean this Agreement, the Notes, the Financing
Statement, the Security Agreement, the other security documents, any Borrowing
Base Certificate, Account Collateral Certificate, and Inventory Collateral
Certificate and Officer's Certificate and all of the other documents,
agreements, certificates, schedules, notes, statements and opinions, however
described, referenced herein or executed or delivered pursuant hereto or in
connection with or arising with the Loans or the transactions contemplated by
this Agreement.
"Long Term and Contingent Liabilities" shall mean and include without
duplication:
(i) any liability or obligation payable more than one year
from the date of creation thereof (including any secured by any Lien on property
owned by Borrower or any Subsidiary), which under GAAP is shown on the balance
sheet as a liability (including Capitalized Lease Obligations, but excluding
reserves for deferred income taxes and other reserves to the extent that such
reserves do not constitute an obligation); and
(ii) guarantees, endorsements (other than endorsements of
negotiable instruments for collection in the ordinary course of business), and
other contingent liabilities (whether direct or indirect) in connection with the
obligations, stock, or dividends of any Person; both as determined in accordance
with GAAP.
"New Parts Inventory" shall mean those items of Inventory that have
accumulated zero hours and cycles since their original manufacture and were
purchased by Borrower less than two years prior to the date on which an Advance
is made against such items.
"Net Profit" shall mean, with respect to any fiscal period, net income
of Borrower and its Subsidiaries on a consolidated basis after taxes for that
fiscal period, exclusive of extraordinary items.
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"Notes" shall mean Borrower's promissory note or notes evidencing
Facility 1 in the form of Exhibit "A" attached hereto, and any and all allonges
thereto, and any and all extensions, renewals or modifications thereof and
Facility 2 in the form of Exhibit "B" attached hereto, and any and all allonges
thereto, and any and all extensions, renewals or modifications thereof.
"Obligations", with respect to Borrower, shall mean, individually and
collectively, the payment and performance duties, obligations and liabilities of
Borrower to Bank evidenced by the Notes and the other Loan Documents, together
with all accrued but unpaid interest thereon, and all other payment and
performance duties, obligations and liabilities of Borrower to Bank, whether or
not presently contemplated by Borrower or Bank, however and whenever incurred,
acquired or evidenced, whether primary or secondary, direct or indirect,
absolute or contingent, sole or joint and several, or due or to become due,
including, without limitation, all such duties, obligations and liabilities of
Borrower to Bank, under and pursuant to this Agreement, the Notes and the
Security Documents and all renewals, modifications or extensions of any thereof.
"Officer's Certificate" shall mean a certificate signed in the name of
Borrower by its President, one of its Vice Presidents, its Treasurer or its
chief financial officer.
"Opinion" shall mean the legal opinion of counsel to Borrower
substantially in the form of Exhibit "D" attached hereto, which shall be
satisfactory to Bank.
"Parts Inventory" shall mean New Parts Inventory, FAA-certified
Overhauled Parts Inventory, Serviceable Parts Inventory, and Repairable Parts
Inventory.
"Permitted Liens" shall mean those Liens in or upon the Collateral as
further described in Section 6.02(f) hereof and set forth in Schedule 6.02(f)
attached hereto.
"Permitted Loan" shall mean, individually and collectively, (i) the
BankAtlantic Loan, (ii) the unsecured, non-interest-bearing note payable to the
former owner of the Borrower (the "Kellstrom Loan"), having a present balance as
of the date of this Agreement of $1,755,150, (iii) the existing loan to IASLP by
Union Bank of California secured by liens on the assets of IASLP (the "IASLP
Existing Loan"), which loan is contemplated to remain in existence after the
acquisition by IASI of the assets of
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IASLP, and (iv) the Subordinated Loans. A loan described in clause (iv) herein
shall not be a Permitted Loan if, immediately after said loan, Borrower is not
in compliance with all the terms and conditions of this Agreement, and if Bank
has not received prior written notice of such loan.
"Person" shall mean any individual, joint venture, partnership, firm,
corporation, trust, unincorporated organization or other organization or entity,
or a governmental body or any department or agency thereof, and shall include
both the singular and the plural.
"Place of Business" shall mean any location in which Borrower
undertakes its business, including, but not limited to, the storage of
Inventory, all as set forth in Schedule 5.02(c) attached hereto.
"Plan" shall mean an employee benefit plan or other plan and any trust
created thereunder which has been established or maintained or hereafter is
established or maintained for employees of Borrower and covered by Title IV of
the Employee Retirement Income Security Act of 1974, as amended, including the
rulings and regulations issued thereunder or pursuant thereto ("ERISA"), or
subject to the minimum funding standards under Section 412 of the Internal
Revenue Code of 1986, as amended (the "IRS Code").
"Prime Rate" shall mean the annual rate of interest announced from time
to time by Barnett Bank, N.A., as the prime rate (which interest rate is only a
reference rate for the information and use of Bank in establishing the actual
rates to be charged to its borrowers and which is purely discretionary and is
not necessarily the best or lowest interest rate charged to borrowing customers
of Barnett Bank, N.A.).
"Proceeds" shall mean whatever is received upon the sale, exchange,
collection or other disposition of the Collateral or Proceeds, whether cash or
non-cash, including, but not limited to, insurance proceeds.
"Property" shall mean any Place of Business of Borrower owned or leased
by Borrower or a Subsidiary (as further described in Section 5.11 hereof).
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"Records" shall mean all books, records, ledger cards or sheets,
customer lists, files, documents and instruments including, but not limited to,
computer programs, files, directories, programs, tapes, software and related
electronic data processing software, and all other property and General
Intangibles evidencing an interest in or relating to Collateral.
"Repairable Parts Inventory" shall mean items of FAA-certified Parts
Inventory that have no useful life remaining and were purchased less than one
(1) year prior to the date of an Advance against such items.
"Revolving Period" shall mean the period during which Borrower may
obtain Advances under the Loan. The Revolving Period shall commence on the date
hereof, and shall end on the earliest of (i) an Event of Default, (ii) demand
(plus, in the case of demand made in the absence of a default or an Event of
Default, 90 days), and (iii) April 30, 1998. The Loan shall be automatically
renewed for additional one-year periods unless Bank or Borrower shall have,
within 90 days before the applicable April 30, provided the other party with
notice of its intention to terminate the Loan. Upon such renewal, the definition
of "Revolving Period" shall be understood to include such additional renewal
period.
"Security Agreement" shall mean the security agreement of Borrower
granting a security interest to Bank in the Collateral substantially in the form
of Exhibit "C" attached hereto.
"Security Documents" shall mean the Security Agreement, and all other
documents, agreements, mortgages, assignments, filings, financing statements,
certificates of title, notices, returns and other security instruments and
records, however described or denominated, now or hereafter created or existing,
pledging or evidencing any pledge of any property or assets, however described,
to secure any or all of the Obligations.
"Serviceable Parts Inventory" shall mean items of FAA-certified
Overhauled Parts Inventory that have hours and cycles remaining in their useful
life and were purchased less than one (1) year prior to the date of an Advance
against such items.
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"Stockholder" shall mean any Person owning stock of Borrower.
"Subordinated Loan" shall mean, individually and collectively, (a) the
senior/subordinated debt contemplated to be incurred by Borrower in connection
with the contemplated acquisition (through IASI) of the assets of IASLP (such
debt, the "ACQUISITION LOAN"), and (b) other indebtedness of Borrower (whether
in the form of loans, guarantees or leases or any other form), which other
indebtedness is up to the amount of $100,000 on an annual basis.
"Subsequent Advances" shall mean individually and collectively all
Advances hereunder after the initial Advance.
"Subsidiary" shall mean any corporation, limited liability company, or
partnership whether now existing or hereafter created or acquired, fifty percent
(50%) or more of the voting stock, membership or partnership interests of which
is owned, directly or indirectly, by Borrower, and shall include subsidiaries of
a Subsidiary.
"Tangible Assets" shall mean the assets of Borrower and its
Subsidiaries on a consolidated basis, all as determined in accordance with GAAP,
but excluding Intangible Assets.
"Tangible Net Worth" shall mean paid-in capital plus retained earnings
plus loans from stockholders plus Subordinated Debt, less any intangible assets.
"UCC" shall mean the Uniform Commercial Code as adopted in any relevant
jurisdiction, as amended.
"Whole Aircraft Engines" shall mean aircraft engines that have not been
disassembled into their parts, and shall include both (i) aircraft engines that
are part of the inventory of Borrower ("INVENTORIED ENGINES"), and (ii) aircraft
engines that are under lease by Borrower to a lessee ("LEASED ENGINES"). For
purposes of the Loan, "Whole Aircraft Engines" shall mean only those Inventoried
Engines and Leased Engines which are located in the United States. *An appraisal
shall be performed as to each Whole Aircraft Engine at Borrower's expenses
within 30 days after its acquisition by the Borrower.
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"Working Capital" shall mean the excess of Current Assets over Current
Liabilities.
1.02 Accounting Terms. All accounting terms used herein shall be
construed in accordance with GAAP (unless such terms are specifically defined
otherwise herein) consistently applied and all financial data submitted pursuant
to this Agreement shall be prepared in accordance with GAAP.
ARTICLE II
AMOUNTS AND TERMS OF FACILITY 1
2.01 Facility 1. Bank agrees from time to time during the Revolving
Period to lend to Borrower, upon Borrower's request, up to the aggregate
principal amount of the Borrower Base for Facility 1 (as defined hereinafter) on
the terms and conditions set forth herein. During the Revolving Period, Borrower
shall be entitled to receive the entire proceeds of Facility 1 in one or more
Advances pursuant to Section 2.04 hereof, except as otherwise specifically set
forth in this Agreement. Advances under Facility 1 shall be evidenced by the
Facility 1 Note. After the expiration of the Revolving Period, Borrower shall
not be entitled to receive any Subsequent Advance. Facility 1 shall be a
revolving loan and Borrower may borrow up to the maximum principal amount of
Facility 1, repay all or any portion of such principal amount of Facility 1, and
reborrow up to such maximum principal amount, subject to the terms and
conditions set forth herein.
2.02 Borrowing Base for Facility 1. The Borrowing Base for Facility 1
shall be as follows:
(a) 80% of Eligible Domestic Accounts;
(b) 70% of Eligible Foreign Accounts;
(c) 65% of New Parts Inventory and FAA-certified
Overhauled Parts Inventory; and
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(d) 50% of Serviceable Parts Inventory and Repairable
Parts Inventory, provided that Advances secured by Serviceable Parts
Inventory and Repairable Parts Inventory collectively shall not exceed One
Million Dollars ($1,000,000.00) at any time during the duration of the Loan.
In no event shall the aggregate of all Advances outstanding against New
Parts Inventory, FAA-certified Overhauled Parts Inventory, Serviceable Parts
Inventory and Repairable Parts Inventory at any one time under Facility 1 exceed
Seven Million Dollars ($7,000,000.00).
The value of the Parts Inventory shall be based upon either the cost to
Borrower of said Parts Inventory or the market value thereof, whichever is
lower, after deducting an amount or percentage for slow moving and/or obsolete
Parts Inventory, such amount or percentage to be determined by Bank in its sole
discretion.
2.03 Facility 1 Note. The advances made by Bank pursuant to Section
2.01 herein shall be evidenced by the Facility 1 Note in form and substance
acceptable to Bank, and payable to the order of Bank. The Facility 1 Note shall
be deemed to reflect the aggregate unpaid principal amount of all indebtedness
to Bank under Facility 1, whether or not the face amount of the Facility 1 Note
is in excess of the amount actually outstanding from time to time, and whether
or not the Indebtedness outstanding thereunder is from time to time repaid and
reborrowed.
THE PARTIES ACKNOWLEDGE AND AGREE THAT DEMAND FOR PAYMENT OF FACILITY 1
MAY BE MADE BY THE BANK AT ANY TIME IN ITS SOLE DISCRETION,
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FACILITY 1 DOCUMENTS.
WITHOUT LIMITING IN ANY WAY THE BANK'S DISCRETION REGARDING FACILITY 1
AND REPAYMENT THEREOF, THE BORROWER IS MAKING THE AGREEMENTS AND
COVENANTS SET FORTH IN THIS AGREEMENT. THE BORROWER HEREBY ACKNOWLEDGES
AND AGREES THAT ALL SUCH AGREEMENTS AND COVENANTS ARE MADE SOLELY AS AN
INDUCEMENT TO THE BANK TO ESTABLISH DEMAND FACILITY 1 AND TO MAKE THE
LOAN CONTEMPLATED HEREUNDER AND SHALL NOT IN ANY WAY
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RESTRICT OR COMPROMISE THE BANK'S DISCRETIONARY RIGHT TO DEMAND PAYMENT
UNDER THE NOTE OR THE BORROWER'S OBLIGATION TO MAKE PAYMENT UPON SUCH
DEMAND. FURTHER, BORROWER ACKNOWLEDGES AND AGREES THAT NO EXTENSION OF
THE DURATION OF FACILITY 1 OR FORBEARANCE OF FAILURE BY BANK OF ITS
RIGHT TO DEMAND PAYMENT OR TO ENFORCE ANY OF ITS RIGHTS UNDER FACILITY
1 SHALL AFFECT BANK'S RIGHT IN ITS SOLE DISCRETION TO DEMAND PAYMENT OF
FACILITY 1 AT ANY TIME OR THE BORROWER'S OBLIGATION TO MAKE SUCH
PAYMENT UPON SUCH DEMAND.
2.04 Advance of Proceeds of Facility 1. On the Initial Advance Date and
on Subsequent Advance Dates, upon initial and continued satisfaction of the
conditions precedent set forth in Article Seven hereof, Borrower shall be
entitled to receive Advances. Borrower shall give Bank written notice, signed by
an officer of Borrower authorized by the borrowing resolutions, of any requested
Advance hereunder. Such notice shall specify the proposed date of the Advance
and the amount thereof. Each request for an Advance shall constitute, without
the necessity of specifically containing a written statement, a representation
and warranty by Borrower that no Default or Event of Default exists, that
Borrower is in compliance with all the conditions of the Loan Documents, and
that all representations and warranties contained in any Loan Document are true
and correct on and as of the date the requested Subsequent Advance is made.
Requests by Borrower for any Subsequent Advance hereunder on any date shall be
in the minimum principal amount of Twenty-five Thousand and No/100 Dollars
($25,000.00).
2.05 Interest Rate; Payment of Facility 1 Note. Borrower shall pay
interest on the outstanding principal balance of the Facility 1 Note at the
Adjusted Base Rate on the Base Rate Portion, and at the corresponding Adjusted
Libor on each Libor Portion, according to the terms and provisions of the
Facility 1 Note.
2.06 Prepayments. Borrower may at any time prepay all or any part of
the principal amount of Facility 1 outstanding without penalty. Each prepayment
other than full payment shall be in the minimum amount of Fifty Thousand and
No/100
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Dollars ($50,000.00) and shall be made prior to 2:00 P.M. (Fort Lauderdale time)
on a Business Day in immediately available funds.
2.07 Calculation of Interest. Any interest due on Facility 1 or any
other Obligations shall be calculated on the basis of a year containing 360
days, to the extent accrued as of midnight on the last day immediately prior to
each interest payment date. Notwithstanding anything herein or in any Loan
Document to the contrary, the sum of all interest and all other amounts
reserved, charged, or taken by Bank as compensation for fees, services, or
expenses incidental to the making, negotiation, or collection of Facility 1 that
would be deemed interest under Florida or other applicable law which may be
collected by Bank hereunder shall not exceed the maximum lawful interest rate
permitted by such law from time to time. Bank and Borrower intend and agree that
under no circumstance shall Borrower be required to pay interest on the Facility
1 or on any other Obligations at a rate in excess of the maximum interest rate
permitted by applicable law from time to time, and in the event any such
interest is received or charged by Bank in excess of that rate, Borrower shall
be entitled to an immediate refund of any such excess interest by a credit to
and payment toward the unpaid balance of Facility 1 (such credit to be
considered to have been made at the time of the payment of the excess interest)
with any excess interest not so credited to be immediately paid to Borrower by
Bank.
2.08 Set-Off. Borrower hereby grants to Bank a lien on, and a security
interest in, the deposit balances, accounts, items, certificates of deposit
(whether matured or unmatured) and monies of Borrower and each Subsidiary in the
possession of or on deposit with Bank to secure and as collateral for the
payment and performance of the Obligations. Upon an Event of Default, Bank may
at any time and from time to time, without demand or notice, appropriate and
set-off against and apply the same to the Obligations when and as due and
payable.
2.09 Late Payment Penalty. A late payment penalty of the lesser of
$100.00 or five percent (5%), calculated on the interest payment due on the
first day of the month, will be assessed against Borrower on any payment not
received by Bank by the tenth day after such payment was due, and the late
payment penalty amount shall accompany such payment.
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2.10 Use of Proceeds. Proceeds of Facility 1 shall be used for the
general corporate purposes of Borrower, including acquisition of core assets.
2.11 Right to Debit Account. At Bank's option, Bank shall have the
right to automatically debit the Cash Collateral Account with Bank on a daily
basis for the amount of principal payable to Bank, with notice to Borrower
thereof on the date of such debit. Bank shall have the right to debit the Cash
Collateral Account on a monthly basis for all interest and fees payable to Bank,
with notice to Borrower thereof on the date of such debit.
2.12 Commitment Fee. As partial consideration for Bank entering into
this Agreement and establishing Facility 1, Borrower shall pay to Bank a fully
earned Fifteen Thousand Dollar ($15,000.00) commitment fee simultaneously with
execution of this Agreement, irrespective of any funding under the Facilities.
ARTICLE III
AMOUNTS AND TERMS OF FACILITY 2
3.01 Facility 2. Bank agrees from time to time during the Revolving
Period to lend to Borrower, upon Borrower's request, up to the aggregate
principal amount of the Borrowing Base for Facility 2 (as defined herein) on the
terms and conditions set forth herein. During the Revolving Period, Borrower
shall be entitled to receive the entire proceeds of Facility 2 in one or more
Advances pursuant to Section 3.04 hereof, except as otherwise specifically set
forth in this Agreement. Advances under Facility 2 shall be evidenced by the
Facility 2 Note. After the expiration of the Revolving Period, Borrower shall
not be entitled to receive any Subsequent Advance. Facility 2 shall be a
revolving loan and Borrower may borrow up to the maximum principal amount of
Facility 2, repay all or any portion of such principal amount of Facility 2, and
reborrow up to such maximum principal amount, subject to the terms and
conditions set forth herein.
3.02 Borrowing Base for Facility 2. The Borrowing Base for Facility
2 shall be the lesser of:
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(a) 90% of the cost to Borrower of Whole Aircraft Engines,
and
(b) 75% of the appraised fair market value (calculated by
appraisers satisfactory to Bank) of Whole Aircraft Engines. Appraisals of newly
acquired Whole Aircraft Engines shall be performed at Borrower's expense no more
than 30 days before Advances against such Whole Aircraft Engines may be made.
As soon as dismantlement of a Whole Aircraft Engine begins for purpose
of breaking it up into parts, the engine will become ineligible for Facility 2
and must be either paid off or moved to Facility 1 and re-classified into the
appropriate category of Parts Inventory.
For Inventoried Engines, a principal curtailment of 5% of the cost of
such Inventoried Engine is required after 90 days in inventory, 5% additional
curtailment after 120 days in inventory, and 10% more for each additional thirty
(30) day period until the earlier of (i) such time as the Advance against such
Inventoried Engine is repaid or (ii) such time as such Inventoried Engine is
sold. Upon receipt by Bank of evidence of such sale, and repayment of Advances
against such Inventoried Engine, Bank will file with the FAA releases of its
security interest in such sold Inventoried Engine.
For Leased Engines, the principal curtailment schedule will be the
greater of (i) 75% of the lease payments received by Borrower to date on such
Leased Engine, and (ii) the curtailments that would be due if it were an
Inventoried Engine. If any Whole Aircraft Engine after being an Inventoried
Engine becomes a Leased Engine and then becomes an Inventoried Engine again
(whether through repossession, expiration of the lease or otherwise) then
notwithstanding any payments made during the term of the lease, the principal
curtailment schedule at the time such Whole Aircraft Engine becomes an
Inventoried Engine again shall resume as if such Whole Aircraft Engine was never
a Leased Engine.
3.03 Facility 2 Note. The advances made by Bank pursuant to Section
3.01 herein shall be evidenced by the Facility 2 Note in the principal amount of
Six Million Dollars ($6,000,000.00), in form and substance acceptable to Bank,
and payable to the order of Bank (the "Facility 2 Note"). The Facility 2 Note
shall be deemed to reflect the
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aggregate unpaid principal amount of all Indebtedness to Bank under Facility 2,
whether or not the face amount of the Facility 2 Note is in excess of the amount
actually outstanding from time to time, and whether or not the Indebtedness
outstanding thereunder is from time to time repaid and reborrowed.
THE PARTIES ACKNOWLEDGE AND AGREE THAT DEMAND FOR PAYMENT OF FACILITY 2
MAY BE MADE BY THE BANK AT ANY TIME IN ITS SOLE DISCRETION,
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE LOAN DOCUMENTS. WITHOUT
LIMITING IN ANY WAY THE BANK'S DISCRETION REGARDING FACILITY 2 AND
REPAYMENT THEREOF, THE BORROWER IS MAKING THE AGREEMENTS AND COVENANTS
SET FORTH IN THIS AGREEMENT. THE BORROWER HEREBY ACKNOWLEDGES AND
AGREES THAT ALL SUCH AGREEMENTS AND COVENANTS ARE MADE SOLELY AS AN
INDUCEMENT TO THE BANK TO ESTABLISH THE DEMAND FACILITY 2 AND TO MAKE
THE LOAN CONTEMPLATED HEREUNDER AND SHALL NOT IN ANY WAY RESTRICT OR
COMPROMISE THE BANK'S DISCRETIONARY RIGHT TO DEMAND PAYMENT UNDER THE
FACILITY 2 NOTE OR THE BORROWER'S OBLIGATION TO MAKE PAYMENT UPON SUCH
DEMAND. FURTHER, BORROWER ACKNOWLEDGES AND AGREES THAT NO EXTENSION OF
THE DURATION OF FACILITY 2 OR FORBEARANCE OR FAILURE BY BANK OF ITS
RIGHT TO DEMAND PAYMENT OR TO ENFORCE ANY OF ITS RIGHTS UNDER FACILITY
2 SHALL AFFECT BANK'S RIGHT IN ITS SOLE DISCRETION TO DEMAND PAYMENT OF
FACILITY 2 AT ANY TIME OR THE BORROWER'S OBLIGATION TO MAKE SUCH
PAYMENT UPON SUCH DEMAND.
3.04 Advance of Proceeds of Facility 2. On the Initial Advance Date and
on Subsequent Advance Dates, upon initial and continued satisfaction of the
conditions precedent set forth in Article Seven hereof, Borrower shall be
entitled to receive Advances. Borrower shall give Bank written notice, signed by
an officer of Borrower authorized by the borrowing resolutions, of any requested
Advance hereunder. Such notice shall specify the proposed date of the Advance
and the amount thereof. Each
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request for an Advance shall constitute, without the necessity of specifically
containing a written statement, a representation and warranty by Borrower that
no Default or Event of Default exists, that Borrower is in compliance with all
the conditions of the Loan Documents, and that all representations and
warranties contained in any Loan Document are true and correct on and as of the
date the requested Subsequent Advance is made. Requests by Borrower for any
Subsequent Advance hereunder on any date shall be in the minimum principal
amount of Twenty-five Thousand and No/100 Dollars ($25,000.00).
3.05 Payment of Facility 2 Note. Borrower shall pay interest on the
outstanding principal balance of Facility 2 at the Adjusted Base Rate on the
Base Rate Portion, and at the corresponding Adjusted Libor on each Libor
Portion, according to the terms and provisions of the Facility 2 Note.
3.06 Prepayments. Borrower may at any time prepay all or any part of
the principal amount of Facility 2 outstanding without penalty. Each prepayment
other than full payment shall be in the minimum amount of Twenty Five Thousand
and No/100 Dollars ($25,000.00) and shall be made prior to 2:00 P.M. (Fort
Lauderdale time) on a Business Day in immediately available funds.
3.07 Calculation of Interest. Any interest due on Facility 2 or any
other Obligations shall be calculated on the basis of a year containing 360
days, to the extent accrued as of midnight on the last day immediately prior to
each interest payment date. Notwithstanding anything herein or in any Loan
Document to the contrary, the sum of all interest and all other amounts
reserved, charged, or taken by Bank as compensation for fees, services, or
expenses incidental to the making, negotiation, or collection of Facility 2 that
would be deemed interest under Florida or other applicable law which may be
collected by Bank hereunder shall not exceed the maximum lawful interest rate
permitted by such law from time to time. Bank and Borrower intend and agree that
under no circumstance shall Borrower be required to pay interest on Facility 2
or on any other Obligations at a rate in excess of the maximum interest rate
permitted by applicable law from time to time, and in the event any such
interest is received or charged by Bank in excess of that rate, Borrower shall
be entitled to an immediate refund of any such excess interest by a credit to
and payment toward the unpaid balance of Facility 2 (such credit to be
considered to have been made at the time
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of the payment of the excess interest) with any excess interest not so credited
to be immediately paid to Borrower by Bank.
3.08 Use of Proceeds. Proceeds of Facility 2 shall be used for the
general corporate purposes of Borrower, provided, however, that Borrower shall
not make any advances, loans or investments to or in any Affiliate with proceeds
of Facility 2.
3.09 Commitment Fee. As partial consideration for Bank entering into
this Agreement and establishing Facility 2, Borrower shall pay to Bank a fully
earned Ten Thousand Dollar ($10,000.00) commitment fee simultaneously with
execution of this Agreement, irrespective of any funding under the Loan.
ARTICLE IV
CUSTODY, INSPECTION, COLLECTION
AND HANDLING OF COLLATERAL AND RECORDS
4.01 Collection of Accounts. Until Borrower's authority to do so is
curtailed or terminated (which Bank may do at any time), Borrower will, at
Borrower's cost and expense, collect and otherwise enforce all remittances and
all amounts unpaid on Accounts.
Bank shall at any time after the occurrence of an Event of Default have
the right to send notice of assignment or notice of its Security Interest to any
Account Debtor or any other Person obligated on, holding, or otherwise concerned
with any of the Collateral, and thereafter Bank shall have the sole right to
collect the Accounts and/or take possession of the Collateral and the Records.
Any and all of Bank's reasonable collection expenses including, but not limited
to, attorneys' fees, stationery and postage, telephone and telegraph,
secretarial and clerical expenses and the salaries of any Person utilized to
collect the Accounts, shall be charged to Borrower's account and added to the
Obligations.
During the duration of the Loan, Bank will credit collections of
Eligible Accounts immediately to the Loan, and will charge a clearance fee
consisting of an amount equal
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to two days interest on each collected item, which fee shall be calculated at
the interest rate charged on the Loan.
4.02 Power of Attorney. Borrower hereby constitutes Bank and any of its
agents or designees as Borrower's attorney-in-fact, at Borrower's cost and
expense, to exercise at any time after an Event of Default (without any further
action being necessary) all or any of the following powers, which, being coupled
with an interest, shall be irrevocable until all Obligations have been paid in
full: to receive, take, endorse, assign, deliver, accept and deposit, in Bank's
or Borrower's name, any and all checks, notes, remittances, drafts and other
documents and instruments relating to the Collateral; to receive, open and
dispose of all mail addressed to Borrower and relating to the Collateral and to
notify postal authorities to change the address for delivery of payments on
Accounts from Borrower's address to such address (including to a lockbox) as
Bank may designate; to transmit to Account Debtors notice of Bank's interest in
the Accounts and to request from Account Debtors at any time, in Bank's or
Borrower's name or that of any Bank's designees, information concerning the
Accounts; to notify Account Debtors to make payment directly to Bank; to execute
in Borrower's name and on Borrower's behalf any financing statements or
amendments thereto; and to take or bring, in Bank's or Borrower's name, all
steps, actions or proceedings deemed by Bank necessary or desirable to effect
collection of the Collateral or to preserve, protect or enforce Bank's interest
therein. The Bank acting as said attorney (whether through its agents or
designees), and any of its agents or designees shall not be liable for any acts
of omission or commission, nor for any error of judgment or mistake of fact or
law, except for gross negligence or willful misconduct of Bank.
4.03 Liability for Handling Collateral. Nothing herein contained shall
be construed to constitute Borrower as Bank's agent for any purpose whatsoever.
Bank shall not be responsible nor liable for any shortage, discrepancy, damage,
loss or destruction of any Collateral wherever the same may be located and
regardless of the cause thereof, before Bank takes possession of the Collateral.
Bank shall not be responsible nor liable for any such shortage, discrepancy,
damage, loss or destruction after Bank takes possession of such Collateral
except for that caused by Bank's gross negligence or willful misconduct.
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4.04 Custodian of Collateral. Bank shall have the right, at any time
after an Event of Default and from time to time thereafter, to employ and have
present on any of Borrower's premises one or more custodians selected by Bank
each of whom shall have the right to exercise any and all of Bank's rights
hereunder or under any other Loan Document. Borrower hereby agrees to cooperate
with any such custodian and to do whatever Bank may reasonably request by way of
leasing warehouses or otherwise preserving the Collateral. All expenses incurred
by Bank by reason of the employment of the custodian shall be payable on demand
and, until paid by Borrower, shall be charged to Borrower's account and added to
and deemed part of the Obligations.
4.05 Cash Collateral Account(s). Borrower shall establish one or more
Cash Collateral Accounts at Bank in Borrower's name, into which Borrower will
deposit all payments received on Accounts promptly after receipt thereof under
Facility 1 and 2. Amounts deposited into the Cash Collateral Account(s) shall be
swept on a daily basis out of the Cash Collateral Account(s) and applied to
Facility 1 against the principal outstanding under such Facility as of such day.
As to Facility 2, payments against principal outstanding under such Facility
will be made by Borrower by the fifteenth of each month beginning January 1997
(or on the next Business Day if the fifteenth is not a Business Day) as to
principal due for the preceding calendar month. The Cash Collateral Account(s),
and all proceeds thereof, shall be pledged to Bank. Upon the occurrence of an
Event of Default under either Facility, or if Bank believes that the prospect of
payment or performance of the obligations of Borrower under the Loan is
impaired, Bank shall have the right, without prior notice to Borrower, to
establish a lockbox for such Facility into which Bank may direct Account Debtors
to deposit all payments on Accounts. Upon exercising its right to establish a
lockbox or lockboxes after an Event of Default, Bank may apply the contents of
such lockboxes, which shall be pledged to Bank, to any of Borrower's Obligations
in its sole discretion.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Borrower, and each Subsidiary (as and when applicable as if
specifically set forth and named herein), represents and warrants to Bank that:
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5.01 Organization, Corporate Powers, etc. Borrower (i) is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, (ii) has all requisite power and authority, corporate and
otherwise, to own its respective properties and assets and to carry on its
respective business as now conducted and proposed to be conducted, (iii) is duly
qualified to do business and is in good standing in every jurisdiction in which
the character of its properties or assets owned or the nature of its activities
conducted makes such qualification necessary, and (iv) has the corporate power
and authority to execute and deliver, and to perform its obligations under this
Agreement and the other Loan Documents. Borrower is in compliance with all laws,
rules, regulations, orders and decrees of any legislative, administrative or
judicial body or official which are applicable to Borrower or to its properties,
including the Collateral. As of the date of this Agreement, Borrower has one
Subsidiary, IASI, which is contemplated to be the vehicle through which the
Borrower will acquire the assets of IASLP.
5.02 Authorization of Loan, etc. The execution, delivery and
performance of the Loan Documents by Borrower (a) have been duly authorized by
all requisite corporate action and (b) will not (i) violate (y) any provision of
law, any governmental rule or regulation, any order of any court or other agency
of government or the Articles of Incorporation or Bylaws or any corporate
resolution of minutes of Borrower or (z) any provision of any indenture,
Agreement or other instrument to which Borrower is a party or by which Borrower
or any of its properties or assets are bound, or (ii) result in the creation or
imposition of any Lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of Borrower other than as permitted by the terms
hereof.
5.03 Financial Statements. Borrower has furnished Bank with the
following financial statements, identified by the chief financial officer of
Borrower: (i) audit level balance sheets of Borrower as of 12/31/95, and profit
and loss statements, statements of cash flow and statements of stockholder's
equity of Borrower for the fiscal year ended on 12/31/95. Such financial
statements (including any related schedules and/or notes) are true and correct
in all material respects and have been prepared in accordance with GAAP and show
all liabilities, direct and contingent, of Borrower required to be shown in
accordance with such principles. The balance sheets fairly present the condition
of Borrower as at the dates thereof, and the profit and loss
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statements, statement of cash flow and statements of stockholders' equity fairly
present the results of the operations of Borrower for the periods indicated.
From the date of the annual financial statements to the date of this Agreement,
there has been, and to the date of the Initial Advance and each Subsequent
Advance there will be, no change in the properties, assets, liabilities (whether
contingent or otherwise), financial condition, business, operations, affairs or
prospects of Borrower and its Subsidiaries on a consolidated basis, as the case
may be, from that set forth or reflected in the fiscal year-end balance sheet,
which have been, either in any case or in the aggregate, materially adverse.
5.04 Tax Returns and Payments. All federal, state and local tax returns
and reports of Borrower required to be filed have been filed, and all taxes,
assessments, fees and other governmental charges upon Borrower, or upon any of
its properties, assets, incomes or franchises, which are due and payable have
been paid, other than those presently contested in good faith and by appropriate
and lawful proceedings prosecuted diligently. Borrower has and will establish
all necessary reserves and make all payments required of Borrower to be set
aside or made in regard to all F.I.C.A., withholding, sales or excise, and all
other similar federal, state and local taxes.
5.05 Agreements.
(a) Borrower is not a party to any Agreement, indenture, lease
or instrument or subject to any charter or other corporate restriction or any
judgment, order, writ, injunction, decree, rule or regulation materially and
adversely affecting its business, properties, assets, operations or condition
(financial or otherwise). There are no material unrealized losses with respect
to any such Agreement, indenture, lease or instrument.
(b) Borrower is not in default in the performance, observance
or fulfillment of any of the material obligations, covenants or conditions
contained in any material Agreement or instrument to which it is a party.
5.06 Title to Properties and Assets, Liens, etc. Borrower has good
title to all of its properties and assets, including the properties and assets
reflected in the balance sheet as of October 31, 1996, hereinabove described
(other than properties and assets
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disposed of in the ordinary course of business). Borrower enjoys peaceful and
undisturbed possession of all leases. All such leases are valid and subsisting
and are in full force and effect. Borrower owns or has the right to use all of
the patents, trademarks, service marks, trade names, copyrights, franchises and
licenses, and rights with respect thereto necessary for the conduct of its
business as now conducted or proposed to be conducted, without any known
conflict with the rights of others.
5.07 Litigation, etc. There are no actions or proceedings pending or,
to the knowledge of Borrower, threatened, against Borrower or affecting Borrower
which, either in any case or in the aggregate, might result in any material
adverse change in the financial condition, business, prospects, affairs or
operations of Borrower or in any of its properties or assets, or which questions
the validity of this Agreement or the other Loan Documents or with the
transaction contemplated hereby or thereby, except for the pending litigation of
Borrower set forth in Schedule 5.07 attached hereto.
5.08 Consents and Approvals. No authorization, license, consent,
approval, notice, filing (except for UCC financing statements), or undertaking
is required under any applicable law in connection with the execution, delivery
and performance by Borrower of this Agreement or any of the other Loan
Documents.
5.09 Enforceable Obligations. The Loan Documents have been duly
executed and delivered by Borrower and are the legal and binding Obligations of
Borrower enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency or similar laws at the time in effect
affecting the rights of creditors generally, and to general equitable
principles, whether applied in proceeding at law or in equity.
5.10 Full Disclosure. There is no material fact (including, without
limitation, any litigation or outstanding Long Term and Contingent Liabilities
or Current Liabilities) that Borrower has not disclosed to Bank which would have
a material adverse effect on the properties, business, prospects or condition
(financial or otherwise) of Borrower (or of any Subsidiary, as applicable).
Neither the financial statements referenced in Section 5.03 hereof, nor any
certificate or statement delivered herewith or heretofore by Borrower to Bank in
connection with this Agreement, contains any untrue statement of a material fact
or omits to state any material fact
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necessary to keep the statements contained herein or therein from being
misleading. As to Liabilities, there exists no default and, after giving effect
to the transaction contemplated in this Agreement, there will exist no default
under the provisions of any instrument evidencing such Liabilities or of any
Agreement relating thereto.
5.11 Hazardous Materials. With regard to any real property heretofore,
now, or hereafter owned or leased by Borrower (or by a Subsidiary, as
applicable) (the "Property"):
(a) To the best of Borrower's knowledge, the Property is free
from Hazardous Materials (except for de minimis amounts used in compliance with
all applicable laws) and materials that could produce Hazardous Materials or
toxic effects on humans, and does not constitute an environmental hazard of any
type under local, state or federal law;
(b) There has been an inspection, audit, or other
investigation conducted as to the quality of the air, surface, or subsurface
conditions at or on the Property by a third party, which report has not been
reviewed and approved by Bank, and Borrower has not received written, oral, or
any other type of notice that any other third party, including governmental
agencies, proposes to carry out an inspection, audit, or other investigation of
the Property; and
(c) To the best of Borrower's knowledge, there has been no
treatment, storage, disposal, discharge, or other type of release on land
adjacent or near to the Property which may constitute a risk of contamination of
the Property or surface or ground water flowing to the Property.
(d) Borrower has put in place internal environmental policies,
copies of which have been provided to Bank and which are satisfactory to Bank in
its sole discretion. Borrower represents and warrants to Bank that such policies
have been developed with adequate information and do not omit anything necessary
in order to render such policy complete and thorough, and Borrower further
represents and warrants to Bank that such policies are consistently enforced by
Borrower.
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5.12 Outstanding Debt. As of the date hereof, Borrower has no
outstanding debt except for: (a) the Kellstrom Loan, (b) the BankAtlantic Loan,
(c) a revolving credit note payable to BankAtlantic and having a present balance
as of the date of this Agreement of $1,490,725, which note is being satisfied
with the proceeds of the Loan, (d) a guidance note payable to BankAtlantic and
having a present balance as of the date of this Agreement of $3,000,000.00,
which note is being satisfied with the proceeds of the Loan, and (e) general
trade accounts payables generated by Borrower in the ordinary course of
business.
ARTICLE VI
COVENANTS OF BORROWER
6.01 Affirmative Covenants. Borrower covenants, for so long as any of
the principal amount of or interest on the Notes is outstanding and unpaid or
any duty or obligation of Borrower hereunder or under any of the other
Obligations remains unpaid or unperformed, as follows:
(a) Accounting; Financial Statements; etc. Borrower will
deliver to Bank copies of each of the following:
(i) as soon as practicable and in any event within forty-five
(45) days after the end of each fiscal quarter (other than the last quarterly
period) in each fiscal year, a consolidated profit and loss statement of
Borrower and its Subsidiaries for such fiscal year, and a consolidated balance
sheet of Borrower and its Subsidiaries as at the end of such quarterly period,
setting forth in each case in comparative form consolidated figures for the
corresponding period in the preceding fiscal year, all in reasonable detail and
certified by an authorized financial officer of Borrower, subject to changes
resulting from year-end adjustments;
(ii) as soon as practicable and in any event within ninety (90)
days after the end of each fiscal year, an audited consolidating balance sheet,
profit and loss statement, statement of stockholder's equity, and statement of
cash flows of each of Borrower and its Subsidiaries, setting forth in each case
in comparative form
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corresponding consolidated figures from the preceding annual audit, all to be
audit level statements in form and scope acceptable to Bank and certified to
Borrower by independent certified public accountants of recognized standing
whose certificate shall be in scope and substance reasonably satisfactory to
Bank.
(iii) as soon as practicable and in any event within fifteen
(15) days after the end of each month during the duration of this Agreement, an
Account Collateral Certificate, showing Accounts classified as Domestic and
Foreign, a Borrowing Base Certificate and an Inventory Collateral Certificate
showing Parts Inventory classified by type and age, and any other ageing
schedules Bank may reasonably request of Borrower in form satisfactory to Bank;
(iv) as soon as practicable and in any event within twenty
(20) days after the end of each fiscal quarter in each fiscal year, an Officer's
Certificate confirming full compliance with all financial covenants contained
herein and all other provisions and conditions of the Loan Documents, which
Officer's Certificate shall be in scope and substance reasonably satisfactory to
Bank;
(v) promptly upon receipt thereof, a copy of each other report
submitted to Borrower by independent accountants in connection with any annual,
interim or special audit made by them of the books of Borrower; and
(vi) with reasonable promptness, such other data and
information as from time to time may be reasonably required by Bank.
Borrower covenants that forthwith upon any officer of Borrower obtaining
knowledge of any Event of Default or Default under this Agreement or any other
obligation of Borrower, it shall deliver to Bank an Officer's Certificate
specifying the nature thereof, the period of existence thereof, and what action
Borrower proposes to take with respect thereto.
(b) Inspection of Records and Collateral. At all reasonable
times, Bank (or its designated representative) shall have full access to, and
the right to audit, check, inspect, examine and make abstracts and copies from,
Borrower's Records and all other books, records, audits, correspondence and
papers relating to the Collateral, the right
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to confirm and verify all Accounts, to discuss the Collateral with any Person
having a Permitted Encumbrance, and to do whatever Bank may deem necessary to
preserve or protect its interest in the Obligations and the Collateral. Bank or
its agents may enter upon any of Borrower's premises at any time and from time
to time during business hours for the purpose of inspecting the Collateral and
any and all Records. Such entry onto Borrower's premises shall be with prior
oral notice to Borrower (unless a Default or Event of Default exists or Bank
deems that the prospect of payment or performance of all or any part of the
Obligations or the value of any of the Collateral is impaired or endangered, in
which case no prior notice to Borrower is necessary). At any time after an Event
of Default Bank may take possession of and remove or require Borrower to deliver
to Bank any or all Records. The rights of inspection and access granted to Bank
herein are continuing rights and shall survive closing and remain in effect
until payment in full of all Obligations regardless of the existence of an Event
of Default or of any action to foreclose Bank's Security Interest or otherwise
protect Bank's rights. Bank shall have the right, at its discretion, to conduct
audits of the books, records and accounts of Borrower at a time or times
reasonably acceptable to Borrower and Bank. Prior to the occurrence of an Event
of Default, these audits shall be conducted at Bank's expense. After the
occurrence of an Event of Default, they shall be conducted at Borrower's
expense.
(c) Maintenance of Corporate Existence; Compliance with Laws.
Borrower (and each Subsidiary, as applicable), shall each at all times preserve
and maintain in full force and effect its corporate existence, powers, rights,
licenses, permits and franchises in the jurisdiction of its incorporation;
continue to conduct and operate its business substantially as conducted and
operated during the present and preceding fiscal year; operate in substantial
compliance with all applicable laws, statutes, regulations, certificates of
authority and orders in respect of the conduct of its business; and qualify and
remain qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary or appropriate in view of its business and
operations.
(d) Creation of Accounts. Upon Bank's request, Borrower will
provide Bank with information as to each Account, including: (i) confirmatory
assignment schedules; (ii) copies of all documents evidencing the sale and
delivery of goods or the performance of services which created any Accounts,
including, but not limited to, contracts, orders, invoices, bills of lading,
warehouse receipts, delivery tickets and
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shipping receipts; and (iii) such further schedules and/or information as Bank
may reasonably require.
(e) Maintenance of Properties. Borrower (and each Subsidiary,
as applicable), shall maintain or cause to be maintained in good repair, working
order and condition all properties used in its business including, but not
limited to, any real property and all improvements located thereon, and from
time to time will make or cause to be made all appropriate repairs, renewals,
improvements and replacements thereof and of leases or agreements covering such
properties (including the Property) so that the businesses carried on in
connection therewith may be properly conducted at all times.
Borrower shall further keep and maintain, at its cost and expense,
Records pertaining to the Collateral in such detail, form and scope as Bank
shall from time to time require. Borrower will mark its Records with appropriate
notations satisfactory to Bank, disclosing that such Collateral has been
pledged, sold, assigned, mortgaged and transferred to Bank and that Borrower has
granted to Bank a Security Interest therein.
(f) Notice of Suit, Proceedings, Adverse Change; Default.
Borrower (and each Subsidiary, as applicable), shall promptly give Bank notice
in writing (i) of all threatened or actual actions or suits (at law or in
equity) and of all threatened or actual investigations or proceedings affecting
Borrower or any Subsidiary or the rights or other properties of Borrower or any
Subsidiary, (i) which involves potential liability of Borrower or any Subsidiary
in an amount in excess of One Hundred Thousand and No/100 Dollars ($100,000.00)
either in any individual case or in the aggregate for all such cases; (ii) of
any material adverse change in the condition (financial or otherwise) of
Borrower or any such Subsidiary; (iii) of any seizure or levy upon any material
part of the properties of Borrower or any such Subsidiary under any process or
by a receiver; and (iv) of the happening, occurrence or existence of any Event
of Default or Default and shall provide Bank with a detailed statement by a
responsible officer of Borrower of all relevant facts and the action being taken
or proposed to be taken by Borrower with respect thereto.
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(g) Checking Accounts. Borrower and each Subsidiary shall
maintain all its checking accounts and business accounts with Bank in a manner
satisfactory to Bank and use Bank as its sole depository.
(h) Insurance. Borrower shall timely procure and maintain and
comply with such insurance and policies of insurance (including without
limitation public liability, product liability, business interruption, insurance
on foreign accounts receivable (as currently in force), hazard, fire and
extended coverage, property damage and casualty insurance) as may be required by
law and such other insurance, to such extent and against such hazards and
liabilities, as is customarily maintained by companies similarly situated, and
to furnish to Bank upon its request evidence of said insurance. In any event,
Borrower shall at all times maintain at least the policies of insurance and the
levels of insurance coverage as are currently maintained by Borrower as of the
date hereof. Bank shall be loss payee as to the business contents portion of
hazard insurance policies, and as to all foreign Accounts to the extent such
Accounts constitute part of the Borrowing Base. All policies or certificates
thereof, including all endorsements thereof and those required hereunder, shall
be deposited with Bank.
(i) Debts and Taxes and Liabilities. Borrower and each
Subsidiary shall pay and discharge (i) all of its indebtedness and obligations
in accordance with their terms and before they shall become in default, (ii) all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income and profits or against its properties, prior to the date on which
penalties attach thereto, and (iii) all lawful claims which, if unpaid, might
become a Lien or charge upon any of its properties; provided, however, that
Borrower shall not be required to pay the items listed in subsections (i)
through (iii) that are being contested in good faith by appropriate and lawful
proceedings diligently pursued and for which adequate reserves (with respect to
any material claims) have been set aside on its books.
(j) Further Assurances; Additional Collateral Documents.
Borrower will, at its expense, execute, acknowledge and deliver and cause to be
executed, acknowledged and delivered, to Bank all such instruments, including,
without limitation, financing statements, security agreements, assumptions and
continuation statements, deliver to Bank all such legal opinions, and take all
such other action as Bank may from time to time request for the purpose of
further assuring to Bank the
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security for the Obligations provided for, or intended to be provided for, in
this Agreement and the other Loan Documents, and to confirm the Obligations to
carry out and fulfill the intent and purpose of this Agreement and the Loan
Documents. Further, to the extent Borrower acquires from time to time any
additional property within the definition of the term Collateral, Borrower shall
immediately execute and deliver to Bank such documents as are necessary to grant
Bank a valid and first priority perfected lien or security interest in such
property. Borrower shall notify Bank of all new patents and trademarks acquired
or originated by Borrower. To the extent that Bank considers any patent or
trademark owned by Borrower to be materially economically significant to
Borrower, Borrower shall promptly take all actions requested by Bank to perfect
Bank's security interest in such patent or trademark.
(k) Consent of Lessor. In the event that any of the Collateral
is at any time located on any leased premises, Borrower will promptly furnish to
Bank a consent of lessor subordinating any landlord's lien to the lien of the
Bank, which consent shall be satisfactory to Bank. If such consent is not
obtained within a reasonable time not to exceed fifteen (15) Business Days, such
collateral as in the nature of Inventory will (at Bank's sole discretion) be
designated as not eligible as Inventory until such consent is obtained.
(l) Subordination of Non-Bank Debt; Permitted Loans. With
regard to all Subordinated Debt of Borrower, whether existing as of the date
hereof or incurred during the duration of the Loan, Borrower shall deliver or
cause to be delivered to Bank a copy of the original promissory note evidencing
such Subordinated Debt together with all amendments, along with a subordination
Agreement, in form and substance acceptable to Bank. Pursuant to such
subordination Agreement, such Subordinated Debt shall be absolutely and
unconditionally subordinated to the Loan, provided, however, that payment of
interest only on Subordinated Debt shall be allowed by Bank without prior
consent provided that all financial covenants of Borrower are met on a quarterly
basis and there is no Event of Default, and payments of principal on
Subordinated Debt, other than those payments specifically permitted below, shall
be allowed by Bank only on prior written consent of Bank. Permitted principal
payments include the following payments against the Acquisition Loan; up to
$8,833,333.33 during the year 2001, up to $8,833,333.33 during the year 2002,
and up to $8,833,333.34 during the year 2003. Payment of principal on the
Subordinated Debt
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may only be made if (a) Borrower is not in default under the Loan, and (b) such
payment would not cause a violation of the Debt Service Coverage covenant
pursuant to Section 6.03(c).
Prior to the occurrence of an Event of Default, scheduled payments of
interest on and principal of the BankAtlantic Loan and the Kellstrom Loan may be
made by Borrower. No prepayments or acceleration of such loans may be made by
Borrower. After the occurrence of an Event of Default, such payments may only be
made with prior written consent of Bank. Bank has been notified by Borrower that
principal payments on the Kellstrom Loan are scheduled to be paid in
installments of $125,000 every 6 months until June 22, 1999 when the remaining
principal balance of the Kellstrom Loan will be due in a balloon payment.
(m) Hazardous Materials. Borrower shall immediately notify
Bank orally and in writing of any notice of (i) the happening of any event
involving the spill, release, leak, seepage, discharge or cleanup of any
Hazardous Materials on the Property or in connection with Borrower's operations
thereon or (ii) any complaint, order, citation or notice with regard to air
omissions, water discharges, or any other environmental, health or safety matter
affecting Borrower or any of the Property.
6.02 Negative Covenants. Borrower covenants, for so long as any of the
principal amount of or interest on the Notes is outstanding and unpaid or any
duty or obligation of Borrower hereunder or under any of the other Obligations
remains unpaid or unperformed, as follows:
(a) Other Agreements. Borrower will not enter into any
arrangements, contractual or otherwise, which would materially and adversely
affect its duties or the rights of Bank under the Loan Documents or which is
inconsistent with or limits or abrogates the Loan Documents.
(b) Sale of Assets. Neither Borrower nor any Subsidiary will
sell, lease, assign, transfer or otherwise dispose of all or a substantial
(being defined as equal to or greater than $200,000 worth of fixed assets which
are not Current Assets) part of its assets or properties, tangible or
intangible, to any Person without the prior written
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consent of Bank, except for the sale or lease of Inventory in the ordinary
course of business.
(c) Merger, Consolidation, Dissolution, Change of Name,
Location or Business, etc. Without prior written consent of Bank, neither
Borrower nor any Subsidiary will consolidate with or merge into any other
corporation, or permit another corporation to merge into it (unless, in the case
of a merger or consolidation involving Borrower, Borrower is surviving
corporation), or permit any other type of reorganization or recapitalization, or
dissolve or take or omit to take any action which would result in its
dissolution, or acquire all or substantially all the properties or assets of any
other Person (except for the contemplated acquisition, by IASI, of the assets of
IASLP, which acquisition is specifically permitted provided that it is
consummated under substantially the terms and conditions provided to Bank as of
the date of this Agreement, and provided that there is no Event of Default under
any Loan Document at the time of such acquisition; if there is any substantive
or material change to the structure of the acquisition between the Closing Date
and the date of the acquisition, Bank shall have the right to review and approve
such changes prior to the acquisition), or change the name or use of any trade
names of Borrower or any Subsidiary (including the fictitious name "Westco
International", which Borrower represents and warrants is the only name other
than Borrower's legal name under which Borrower conducts its business; Borrower
holds no trademarks) or the location of the chief executive office (as that term
is used in the UCC) of Borrower or such Subsidiary, the location of any records
pertaining to any Accounts or other Collateral, or the address where any
Inventory is or may be stored (except that Borrower has disclosed to Bank that
Inventory is sent to repair facilities in various states in the ordinary course
of business, which repair facilities change from time to time; the initial
repair facilities as of the date hereof are set forth in Schedule 6.02(c)), or
maintain a Place of Business at any time outside the State of Florida other than
those set forth in Schedule 6.02(c) attached hereto (unless Bank shall first
have consented thereto and Borrower shall have executed such documents which, in
the reasonable opinion of Bank, are required in order to perfect, under the laws
of the state where said Place of Business is located, the Security Interest
granted Bank in the Collateral under the Security Agreement), or engage in any
business other than the business presently conducted by it on the date of this
Agreement and business of substantially the same type or reasonably related
thereto.
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(d) Sale of Collateral; Liens on Collateral. Borrower will not
sell, assign or discount any of the Collateral with or without recourse, except
for the collection or disposition of Accounts or the sale or lease of Inventory
in the ordinary course of business; or borrow from anyone on the security of or
create, incur or suffer to exist any Lien (other than Bank's, which Borrower
warrants is a first priority security interest) on any of the Collateral or
permit any financing statement (other than Bank's Financing Statement) to be on
file with respect thereto.
(e) Fiscal Year. Borrower will not change its fiscal year from
a year ending 12/31 without prior reasonable notice to Bank.
(f) Liens. Neither Borrower nor any Subsidiary, as applicable,
will create, assume, or suffer to exist any Lien, (including Capitalized Lease
Obligations) upon any of its property or assets, whether now owned or hereafter
acquired except:
(i) Liens for taxes not yet due or which are being actively
contested in good faith by appropriate proceedings;
(ii) Permitted Liens as described in Schedule 6.02(f) attached
hereto, including Liens incurred in connection with the BankAtlantic Loan and
the contemplated acquisition of the assets of IASLP; and existing Liens on
Borrower's Equipment;
(iii) Purchase money Liens and Capitalized Lease Obligations
on machinery and Equipment hereafter acquired, and extensions or renewals of any
of the same; or
(iv) Liens not placed by Borrower on the Collateral, as to
which Liens an Event of Default will not be deemed by Bank to exist for 60 days
after its placement if within such time it is removed or bonded off.
(g) Additional Indebtedness. Except for Permitted Loans and
the Obligations, Borrower will not incur, create, assume or otherwise permit the
existence, at any time during any fiscal year of Borrower, of any indebtedness
or liability for borrowed money, any indebtedness evidenced by notes, bonds,
debentures, or similar
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obligations or any conditional sales or title retention Agreement or capitalized
leases without the prior written consent of Bank. Prior to obtaining any
Permitted Loan, Borrower must first notify Bank and furnish to Bank any
information which Bank may request regarding the proposed Permitted Loan.
Further, any payment (of interest or principal) on a Permitted Loan may only be
made pursuant to Section 6.01(l) hereof.
(h) Transactions with Affiliates. Neither Borrower nor any
Subsidiary will directly or indirectly, purchase, acquire, or lease any property
from, or sell, transfer, or lease any property to, or otherwise deal with, in
the ordinary course of business or otherwise, or make or permit to remain
outstanding any loan or advance to or own, purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any Affiliate except to the extent that such acts and
transactions are on terms not less favorable to Borrower or to any Subsidiary
than if no such relationship described above existed.
(i) Amendment to Existing Agreements; Adoption of Plan.
Borrower shall not enter into any amendment, change or modification to any
existing agreements, which change or amendment would have a material effect on
the business or condition of Borrower, or suffer or permit to occur any Event of
Default or Default thereunder, or adopt a Plan, without the prior written
consent of Bank.
(j) Establishment of Subsidiaries. Neither Borrower nor its
Subsidiaries, as applicable, will establish or acquire any new subsidiaries
without Bank's prior written consent thereto, which consent shall not be
unreasonably withheld or denied. Upon the establishment of any such new
Subsidiary, Borrower will obtain (i) a pledge of such Subsidiary's Stock (and,
with the exception of IASI, such Subsidiary's assets), and (ii) in addition, its
joinder upon such Loan Documents as Bank shall require in connection with the
Loan if in Bank's sole judgment such new Subsidiary directly or indirectly
benefits from the proceeds of the Loan.
(k) Policies; Returns and Credits. Borrower shall not
materially amend or deviate from any of its policies and procedures with regard
to returns of or rejection of Inventory, or with regard to any deduction,
discount, credit, or allowance of any kind relating to the sale or lease of
Inventory as set forth on Schedule 6.02(p) hereof.
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6.03 Financial Covenants. Borrower covenants, for so long as any of the
principal amount of or interest on the Notes are outstanding and unpaid or any
duty or Obligation of Borrower hereunder or under any of the other Loan
Documents remains unpaid or unperformed, as follows:
(a) Maximum Capital Funds Ratio. The ratio of Debt to Tangible
Net Worth of Borrower (both on an individual operating unit basis and on a
consolidated basis) shall never exceed 2.5 to 1 at any time during the duration
of the Loan, beginning at December 31, 1996. Debt to Tangible Net Worth shall be
computed on a quarterly basis.
(b) Minimum Consolidated Tangible Net Worth. At all times
during the duration of the Loan, beginning with fiscal year 1997, Tangible Net
Worth of Borrower and its Subsidiaries on a consolidated basis shall not be less
than Ten Million Dollars ($10,000,000.00) plus fifty percent (50%) of all Net
Profit in each such fiscal year.
(c) Minimum Debt Service Coverage Ratio. Tested quarterly,
both on an individual operating basis and consolidated basis, beginning at
December 31, 1996, the Borrower must meet the following minimum debt service
coverage ratios. The measurement shall be made based on operating data for the
cumulative past four quarters.
Ratio A: Net Profit plus Interest Expense plus Depreciation and
Amortization Expense divided by the sum of Senior Debt Interest Expense plus
non- Subordinated required minimum principal payments must exceed 1.25x.
Ratio B: Net Profit plus Interest Expense plus Depreciation and
Amortization Expense divided by the sum of Senior and Subordinated Debt Interest
Expense plus non-Subordinated required minimum principal payments plus
Subordinated Debt principal payments must exceed 1.00x.
(d) Loan. At no time will the outstanding principal balance of
each Facility Loan exceed the Borrowing Base for such Facility.
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ARTICLE VII
CONDITIONS OF LENDING
A. The First Advance. The obligation of the Bank to fund the Loan hereunder on
the Initial Advance Date shall be subject to the fulfillment of the following
conditions precedent (and, in addition, to the conditions to any Advance set
forth in subsection B of this Article VII):
7.01 Evidence of Borrower Action. The Bank shall have received a
certificate, dated as of the Closing Date, of an Authorized Representative of
the Borrower: (i) attaching true and complete copies of the resolutions of its
Board of Directors, written action of general partner, or written action of
members, as applicable, and of all documents (in form and substance satisfactory
to the Bank) evidencing other necessary corporate, partnership, or company
action taken by the Borrower to authorize this Agreement, the Notes and the
other Loan Documents, (ii) attaching a true and complete copy of its certificate
of incorporation and bylaws, partnership Agreement, or articles of organization
and regulations, as applicable; (iii) setting forth the incumbency of its
officers who sign this Agreement, the Notes, and the other Loan Documents,
including therein signature specimens of such officers, and (iv) attaching a
certificate of good standing of the Secretary of State of the state of
incorporation or organization of Borrower and of all states in which Borrower is
qualified to do business, together with such other documents as the Bank shall
reasonably require.
7.02 Notes. The Bank shall have received the Notes, executed by an
Authorized Representative of Borrower.
7.03 Opinion of Counsel to Borrower. The Bank shall have received the
opinion of Stearns, Weaver, Miller, et al., P.A., counsel to the Borrower,
addressed to the Bank and dated the Closing Date, substantially in the form of
Exhibit "D" attached hereto.
7.04 Security Agreement and Other Security Documents. The Bank shall
have received and be in possession of (i) the Security Agreement, duly executed
by an Authorized Representative of the Borrower; and (ii) such other supporting
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documentation as shall be reasonably requested by Bank, in form and substance
satisfactory to Bank.
7.05 Financing Statements. The Borrower shall have executed such
financing statements and other documents as may be required or advisable under
the Security Agreement, or the other Loan Documents, as Bank may request, for
the purpose of perfecting the security interests granted therein and herein.
7.06 Property and Public Liability Insurance. The Bank shall have
received the policy or policies of property, public and products liability and
other insurance required by this Agreement with such endorsements and
certificates as may be required thereby.
7.07 Fees. Bank shall have received the Commitment Fees and the fees
and disbursements of Bank's counsel shall have been paid.
7.08 Concerning the Subordinated Debt. Borrower's indebtedness
evidenced by the Subordinated Debt shall not be in default.
7.09 Other Documents. Review and approval by the Bank and/or Bank
counsel shall have been obtained of:
(a) the IASLP purchase Agreement,
(b) the documents evidencing the Acquisition Loan;
(c) the Agreement with Alex Brown & Sons as placement agent in
connection with the $26.5MM Acquisition Loan and any subsequent senior and
subordinated debt documentation;
(d) proforma financial statements showing the post-acquisition
consolidated financial condition of IASI and Borrower, and
(e) any other document requested by Bank or its counsel.
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7.10 Asset-Based Lending Audit. Prior to the Initial Advance, Bank
shall have conducted a comprehensive asset-based lending audit, the results of
which shall be satisfactory to Bank, in Bank's sole judgment.
B. All Loans. The obligation of Bank to make any Advance on any Borrowing Date
(including the Closing Date) is subject to the satisfaction of the following
conditions precedent as of such Borrowing Date:
7.11 Compliance. On each Borrowing Date, and after giving effect to the
Advances to be made thereon; (a) Borrower shall be in compliance with all of the
terms, covenants and conditions of this Agreement, the Notes and the other Loan
Documents; (b) there shall exist no Default or Event of Default hereunder or
thereunder; (c) the representations and warranties contained in this Agreement
and the other Loan Documents shall be true and correct, with the same effect as
though such representations and warranties had been made on such Borrowing Date
(after giving effect to any updating by Borrower of the Exhibits referred to in
such representations and warranties), except such matters relating thereto as
are indicated in each Borrowing Request, which shall be satisfactory to the Bank
in its reasonable discretion; and (d) there shall have occurred no material
adverse change in the financial condition, operations, status, business,
prospects, Assets or property of Borrower and any Affiliate since the Closing
Date. The acceptance of each Advance shall constitute a certification by
Borrower as of such Borrowing Date that each of the foregoing matters is true
and correct in all respects.
7.12 Delivery of Documents. All documents required by the provisions of
this Agreement to be executed or delivered to the Bank on or before such
Borrowing Date shall have been executed and shall have been delivered at the
office of the Bank set forth in Section 8.8 on or before such Borrowing Date.
7.13 Borrowing Request. The Bank shall have received a Borrowing
Request duly executed by an Authorized Representative of Borrower.
7.14 Supplemental Opinions. If requested by the Bank with respect to
such Borrowing Date, there shall have been delivered to the Bank favorable
supplementary opinions of counsel to Borrower, addressed to Bank and dated such
Borrowing Date,
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covering such matters incident to such transactions contemplated herein as the
Bank shall reasonably request.
7.15 Documentation and Proceedings. All corporate and legal proceedings
and all documents and papers in connection with the transactions contemplated by
this Agreement shall be reasonably satisfactory in form and substance to Bank
(including without limitation those documents listed in Section 4.4, 4.5 and
4.6), and Bank shall have received all information and copies of all documents,
which may reasonably have requested in connection therewith, such documents
where appropriate to be certified by an Authorized Representative of Borrower or
proper Governmental Authorities.
7.16 Required Acts and Conditions. All acts, conditions and things
(including, without limitation, the obtaining of any necessary regulatory
approvals and the making of any required filings, recordings or registrations)
required to be done and performed and to have happened prior to such Borrowing
Date and the continued performance and effectiveness of this Agreement, the
Notes and the other Loan Documents, shall have been done and performed and shall
have happened in due compliance with all applicable laws, including the payment
of all Commitment Fees due and payable on or prior to such Borrowing Date.
7.17 Approval of Bank's Counsel. All legal matters in connection with
the making of each Advance shall be satisfactory to Bank's counsel.
7.18 Pledge Agreement from Affiliates Created Post-Closing. Bank shall
have received pledge agreements duly executed by Borrower assigning to Bank as
security for the Loan all Borrower's right, title and interest in and to any
Affiliate of Borrower created after the Closing Date, including any such
Affiliate created for the purpose of acquiring Assets, and in the case of any
such Affiliate that is a corporation, Borrower shall have delivered to Bank the
stock of such Affiliate, together with all necessary endorsements. Borrower
shall cause any such Affiliates that are Subsidiaries to be added as guarantors
of the Loan immediately upon organization of any such Affiliates.
7.19 Representations and Warranties. The representations and warranties
set forth in the Loan Documents are true and correct on and as of the date
hereof, and on the date of each Advance hereunder, and no material omission
shall have been made
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by Borrower to Bank concerning its business operations, financial condition or
any aspect of the Loan.
7.20 No Default or Adverse Change. On the date hereof and on the date
of each Advance, Borrower shall be in compliance with all the terms and
provisions set forth in the Loan Documents on its part to be observed or
performed, and no Event of Default or Default or adverse change in the condition
or operations of Borrower shall have occurred and be continuing at such time.
7.21 Loan Documents. Borrower shall have delivered or caused to be
delivered to Bank all the Loan Documents (including, without limitation, the
Opinion, the Security Agreement and all applicable Consents of Lessor, in form
and substance satisfactory to Bank, as Bank may request), and all of the Loan
Documents are in full force and effect. Borrower shall have filed all Financing
Statements necessary for perfection of Bank's security interest in the
Collateral and taken all other steps necessary to perfect Bank's security
interest in the Collateral. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby, and all documents
incident thereto shall be satisfactory in substance and form to Bank, and Bank
shall have received all such counterpart originals or certified or other copies
of such documents as Bank may reasonably request.
7.22 Payment of Commitment Fee. Borrower shall have paid to Bank any
Commitment Fee then due and owing.
7.23 Intercreditor Agreements. Assuming Borrower has acquired the
assets of IASLP prior to the Closing Date, Bank shall have received (if deemed
appropriate in Bank's sole judgment) intercreditor agreements in form and
substance satisfactory to Bank, between Bank and Union Bank of California,
current lender to IASLP, and between Bank and Alex Brown & Sons, as placement
agent for IASLP, and all senior/subordinated debt holders. If the Closing Date
occurs prior to the completion of the acquisition of IASLP, Borrower shall
provide Bank with intercreditor agreements satisfactory to Bank as soon as
possible but in all events before the completion of the acquisition.
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ARTICLE VIII
EVENTS OF DEFAULT
8.01 Events of Default. The following each and all are Events of
Default hereunder:
(a) Monetary Default. If Borrower shall default in any payment
of principal, interest or other charges in respect of any Obligations including,
but not limited to, the Loan, within 10 days of the date due and payable,
whether on demand, at maturity, by acceleration or otherwise; or
(b) Certain Non-Monetary Defaults. If Borrower shall default
in the performance of or compliance with Subsection 6.01(c) as to corporate
existence, any term or covenant contained in Section 6.02 of this Agreement as
to negative covenants or in subsections (d) through (j) of this Article Eight;
or
(c) Other Non-Monetary Defaults. If Borrower shall default in
the performance of or compliance with Section 6.03, or with any other term or
covenant contained in the Loan Documents, which default or non-compliance shall
continue and not be cured within ninety (90) days of notice thereof to Borrower
by Bank; or
(d) Misrepresentation. If any representation, warranty,
certificate, schedule, or other information made or furnished in writing by or
on behalf of Borrower herein or in any other Loan Document shall prove to have
been false or incorrect in any material respect on the date as of which made or
reaffirmed; or
(e) Bankruptcy, Insolvency, Dissolution or Liquidation. If
Borrower or any Subsidiary shall make an assignment for the benefit of
creditors, file a petition in bankruptcy, petition or apply to any tribunal for
the appointment of a custodian, receiver or trustee for it or a substantial part
of its assets, or shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect, or if
there shall have been filed any such petition or application against Borrower or
any Subsidiary, or any such proceeding shall have been commenced against
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any thereof (provided that proceedings filed against Borrower shall not
constitute Events of Default if (i) Bank shall have been notified promptly of
such proceedings, (ii) such proceedings have been released within 60 days after
being instituted, and (iii) no other default or Event of Default exists under
any Loan Document at the time of such proceeding or thereafter); or if Borrower,
or any Subsidiary shall admit in writing its inability, or be generally unable,
to pay its debts as they become due or shall make an assignment for the benefit
of creditors, petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for Borrower, or any such Subsidiary or a
substantial part of its assets, or Borrower, or any Subsidiary by any act or
omission shall indicate its consent to, approval of or acquiescence in any such
petition, application, or proceeding or order for relief or the appointment of a
custodian, receiver or any trustee for Borrower, or any such Subsidiary or any
substantial part of any of its properties; or if any order, judgment, or decree
is entered in any proceedings against Borrower, or any Subsidiary decreeing the
dissolution or liquidation of Borrower, or any such Subsidiary; or
(f) Final Judgment. If a final judgment for the payment of
money in excess of an aggregate of One Hundred Thousand and No/100 Dollars
($100,000.00) shall be rendered against Borrower, or any Subsidiary, and the
same shall remain undischarged for a period of thirty (30) consecutive days
during which execution shall not be effectively stayed; or
(g) Revocation of Consent or License. If any consent,
approval, franchise, license or permit of any governmental agency or body
necessary for the ownership of Borrower's assets or the operation of Borrower's
business is cancelled, revoked or modified in a manner which materially
adversely affects Borrower or its properties; or
(h) Enforceability of Loan Documents. If any of the Loan
Documents shall cease to be legal, valid and binding agreements enforceable
against the Person executing the same in accordance with the respective terms
thereof or shall in any way be terminated or become or be declared ineffective
or inoperative or shall in any way whatsoever cease to give or provide the
respective liens, security interest, rights, titles, interest, remedies, powers
or privileges intended to be created thereby; or
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(i) Impairment of Payment. If Bank in good faith believes that
the prospect of payment or performance of all or any part of the Obligations or
the value of any of the Collateral is impaired.
ARTICLE IX
RIGHTS UPON DEFAULT
Upon the occurrence of any Event of Default, Bank shall have and may
exercise any or all of the rights set forth herein provided, however, Bank shall
be under no duty or obligation to do so:
9.01 Acceleration. To declare the indebtedness evidenced by the Notes
and all other Obligations to be forthwith due and payable, whereupon the Notes
and all other Obligations shall become forthwith due and payable, both as to
principal and interest, without presentment, demand, protest or any other notice
or grace period of any kind, all of which are hereby expressly waived, anything
contained herein or in the Notes or in such other Obligations to the contrary
notwithstanding and, upon such acceleration, the unpaid principal balance and
accrued interest upon the Notes shall from and after such date of acceleration
bear interest at the Default Rate.
9.02 Right of Set-off. To exercise its right of setoff as permitted
under Section 2.06.
9.03 Other Rights. To exercise such other rights as may be permitted
under any of the Loan Documents.
9.04 Uniform Commercial Code. To exercise from time to time any and all
rights and remedies of a secured creditor under the UCC as in effect from time
to time in the State of Florida and any and all rights and remedies available to
it under any other applicable law.
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ARTICLE X
MISCELLANEOUS
10.01 No Waiver; Cumulative Remedies. No failure or delay on the part
of Bank in exercising any right, power or remedy hereunder, or under the Notes
or the other Loan Documents shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy
hereunder or thereunder. The remedies herein and therein provided are cumulative
and not exclusive of any remedies provided by law or in equity.
10.02 Entire Agreement; Amendments, etc. Except as otherwise expressly
provided, this Agreement and the other Loan Documents embody the entire
Agreement and understanding between the parties hereto and supersede all prior
agreements and understandings relating to the subject matter hereof. No
amendment, modification, termination or waiver of any provision of this
Agreement, the Notes or the other Loan Documents, nor consent to any departure
by Borrower therefrom, shall in any event be effective unless the same shall be
in writing and signed by Bank and Borrower, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
10.03 Addresses for Notices, etc. All notices, requests, demands and
other communications provided for hereunder shall be in writing (including
telex, telecopier or telegraphic communications) and shall be sufficient if
mailed, sent by overnight courier, telexed, telecopied, telegraphed or delivered
to the applicable party at the address indicated below:
If to Borrower: John Gleason
Chief Financial Officer
Kellstrom Industries, Inc.
14000 N.W. 4th Street
Sunrise, FL 33325
Facsimile: 954-545-0428
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With a copy to: Shawn Bayne, Esq.
Stearns Weaver Miller Weissler
Alhadeff & Sitterson, P.A.
200 East Broward Boulevard
Fort Lauderdale, Florida 33301
Facsimile: 954-462-9567
If to Bank: Donald Eachus
Barnett Bank, N.A., Broward County
888 N.W. 62nd Street
Fort Lauderdale, FL 33309
Facsimile: 954-928-1947
With a copy to: Judith L. Keiser, Esq.
English, McCaughan & O'Bryan, P.A.
100 N.E. Third Avenue, Suite 1100
Fort Lauderdale, FL 33301
Facsimile: 954-763-2439
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to the delivery with the
terms of this Section. Except as otherwise expressly provided in this Agreement,
all such notices, requests, demands and other communications shall, when mailed,
telexed, telecopied or telegraphed, be effective 4 days after being deposited in
the mails (postage paid), sent over a telex or telecopier owned or operated by a
party hereto (with an answer back response set forth on the sender's copy of the
document in the case of a telex) or delivered to Borrower addressed as aforesaid
or delivered to the other party at the address set forth above.
10.04 Applicable Law. This Agreement, and each of the Loan Documents
and transactions contemplated herein shall be governed by and interpreted in
accordance with the laws of the State of Florida.
10.05 Survival of Representations and Warranties. All representations,
warranties, covenants and agreements contained herein or made in writing by
Borrower
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in connection herewith shall survive the execution and delivery of this
Agreement, the Notes and the other Loan Documents and be true and correct during
the duration of the Loan.
10.06 Time of the Essence. Time is of the essence of this Agreement,
the Notes and the other Loan Documents.
10.07 Headings. The headings in this Agreement are intended to be for
convenience of reference only, and shall not define or limit the scope, extent
or intent or otherwise affect the meaning of any portion hereof.
10.08 Severability. In case any one or more of the provisions contained
in this Agreement, the Notes or the other Loan Documents shall for any reason be
held to be invalid, illegal or unenforceable in any respect, the same shall not
affect any other provision of this Agreement, the Notes or the other Loan
Documents, but this Agreement, the Notes and the other Loan Documents shall be
construed as if such invalid or illegal or unenforceable provision had never
been contained therein.
10.09 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
10.10 Conflict. In the event any conflict arises between the terms of
this Agreement and the terms of any other Loan Document, Bank shall have the
option of selecting which conditions shall govern the loan relationship evidence
by this Agreement and, if Bank does not so indicate, the terms of this Agreement
shall govern in all instances of such conflict.
10.11 Duration. The duration of this Agreement shall be for such period
of time until the Loan and the Notes have been repaid in full, and all of the
other Obligations have been paid to Bank in full.
10.12 Expenses. Borrower agrees, whether or not the transactions hereby
contemplated shall be consummated, to pay, and save Bank harmless against
liability
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for the payment of, all out-of-pocket expenses arising in connection with this
transaction (including attorneys' fees (whether incurred at trial, in any
bankruptcy or appellate proceeding or otherwise) and the fees and commissions of
collection agencies or other costs and penalties incurred by Bank in enforcing
its rights under the Loan Documents or pursuant to law), all taxes, together in
each case with interest and penalties, if any, which may be payable in respect
of the execution, delivery and performance of this Agreement or the execution,
delivery, and performance of the Notes issued under or pursuant to this
Agreement (excepting only any tax on or measured by net income of Bank
determined substantially in the same manner, other than the rate of tax, as net
income is presently determined under the IRS Code), all costs incurred by Bank
in connection with Hazardous Materials found on or affecting the Property or
Borrower's operations; the reasonable legal fees and expenses (whether incurred
at trial, in any bankruptcy or appellate proceeding or otherwise) or counsel to
Bank in connection with the negotiation, preparation and enforcement of this
Agreement, the Notes, the Security Agreement, or any of the other Loan
Documents, or incurred by Bank in its efforts to enforce payment of Accounts,
whether incurred through judicial proceedings or otherwise, and whether incurred
at trial, in any bankruptcy or appellate proceeding or otherwise. Borrower
either (a) agrees to pay all documentary stamp taxes due as a result of the
closing of this transaction within the State of Florida, or (b) acknowledges
that at its request the Loan is being closed and the Notes are being held by
Bank outside of the State of Florida and that no Florida documentary stamp taxes
are being paid by Bank on the Notes. Borrower agrees to indemnify and hold Bank
harmless from the payment of all documentary stamp taxes, together with any
penalties and interest thereon, if Bank, at any time or for any reason, is
required to pay such taxes under the laws of the State of Florida. The
obligations of Borrower under this Section 10.12 shall survive payment of the
Notes. The obligations of Borrower hereunder do not affect Borrower's right to
contest any tax after payment of the disputed amounts or establishment of
adequate reserves, as applicable.
10.13 Successors and Assigns. All covenants and agreements in this
Agreement contained by or on behalf of either of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not; provided, however, this clause shall not by
itself authorize any delegation of duties by Borrower or any other assignment
which may be prohibited by the terms and conditions of this Agreement, and
provided further that the parties
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intend that this Agreement is solely for their benefit and no person not a party
hereto shall have any rights or privileges under this Agreement whatsoever
either as the third party beneficiary or otherwise.
10.14 Cross Defaults. A Default under any Loan Document, including a
default under this Agreement, shall be and constitute a Default under each and
every Loan Document, including this Agreement.
10.15 Non-Waiver. No delay, forbearance, or non-exercise by Bank in
exercising any of its rights under this Agreement and no course of dealing
between Bank and Borrower shall operate as a waiver of any rights of Bank unless
Bank has expressly so waived said rights in a writing signed by it. Any such
action shall not preclude Bank from thereafter exercising its rights as set
forth in this Agreement.
10.16 WAIVER OF TRIAL BY JURY. EACH OF BORROWER AND BANK HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT TO ANY LITIGATION BASED ON THIS AGREEMENT, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, ANY LOAN DOCUMENT OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF EITHER BANK OR
BORROWER OR ANY OTHER PERSON. THIS WAIVER OF TRIAL BY JURY BY BORROWER IS A
MATERIAL INDUCEMENT FOR BANK TO ENTER INTO THIS AGREEMENT.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed, sealed and delivered, as applicable, by their duly
Authorized Representatives on the day and year first above written.
Borrower:
KELLSTROM INDUSTRIES, INC.
(CORPORATE SEAL)
By:---------------------------
Name: John S. Gleason
Title: Executive Vice President/Chief
Financial Officer
ATTEST:
- ----------------------
Secretary
Bank:
BARNETT BANK, N.A.
By: ----------------------------
John J. Viadero, Vice President
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Exhibit 10.21
1. Proposed Services
1.1. Helix will act as the Company's exclusive mergers & acquisitions and
principal financial advisor and will assist the Company in analyzing,
structuring, negotiating, and effecting the Transactions, including the
Proposed Transactions (as described in section 1.3) on the terms and
conditions of this Agreement, below. In parallel with services relating
to the Proposed Transactions, Helix will assist and consult with the
Company on strategic financial and operational issues and tactical
implementation of concepts relating to the growth of the Company.
1.2. Helix will assign its Managing Partner, Yoav Stern, to serve on the
Company's board of directors as Co-Chairman and member of the executive
committee of the board. Mr. Stern will devote a substantial amount of
his time, as needed from time to time, to participate in meetings, lead
strategic planning sessions, initiate and help in recruiting key
personnel and advise management on operational issues in growth and/or
turn around situations. Mr. Stern will not receive any fees in addition
to the compensation described in section 2.3 herein.
1.3. Proposed Transaction(s):
1.3.1. M&A Transaction: As used herein, the term "Transaction" shall
mean any transaction or series of transactions other than the
purchase or sale of assets in the ordinary course of the
Company's business, whereby, directly or indirectly, the Company
or any of its businesses, assets or properties acquires, is
acquired by or is merged with another entity, or any other
similar business transaction or arrangement between the Company
and a third party, including without limitation, a merger,
combination or consolidation, regardless of the accounting or
tax treatment of such transaction.
1.3.2. Other Transactions: As used herein, the term "Transaction" shall
also mean any transaction or series of transactions other than
senior debt financing transactions arranged by the Company's
management in the ordinary course of business, whereby, directly
or indirectly, the Company or any of its businesses receives
additional capital, debt financing or markets additional equity
other than through a public offering. With regard to
transactions described in this section 1.3.2, the Company's
obligation to retain Helix is subject and subordinate to
existing agreements with investment banking firms relating to
private debt or equity financing. Moreover, the Company retains
the right to engage an investment banking firm to assist it in
arranging any such Transaction, provided that the Company will
notify Helix in
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writing 60 days in advance regarding a proposed engagement with
any investment banking firm. No fee will be payable to Helix as
per section 2.3 with regards to any Transaction arranged by any
such investment banking firm.
1.4. Other Activities: Helix will undertake certain activities on the
Company's behalf, including, if appropriate, the following:
1.4.1. Assisting the Company in its determination of appropriate values
to be realized in Transactions;
1.4.2. Advising the Company in the negotiations as to the form and
structure of Transactions;
1.4.3. Advising and assisting the Company's management in making
presentations to the Company's Board of Directors about
Transactions;
1.4.4. In addition to advising on any Transactions, rendering such other
financial advisory and merchant banking services as may from time
to time be agreed in writing between Helix and the Company.
2. Further Agreement Terms
2.1. Transaction Timing. A Transaction shall be deemed to have occurred when
Consideration Paid for a Transaction, having been received by the
Company or the Company's shareholders, or in the event of a merger,
acquisition, purchase by the Company, Consideration Paid has been sent
to the receiving party, provided that if, Consideration Paid shall be
paid in installments, the full amount will be construed to have been
received on the receipt of the first installment exchanged between
parties to a Transaction.
2.2. Limitation and Exclusivity. To the extent that this agreement created an
exclusive relationship with Helix in cases of Transactions described in
section 1.3.2, and in all cases of Transactions described in section
1.3.1, the Company agrees that as of the date hereof, Helix shall be the
exclusive advisor to the Company and the Company shall not enter into
any agreement relating to a Transaction during the term of this
Agreement without the participation of Helix. If the Company consummates
a Transaction during the term of this Agreement (or for a period of one
year thereafter as described below) without Helix's participation, the
Company agrees that it, and its successors and assigns, shall
nevertheless be obligated to provide or cause to be provided to Helix,
the compensation provided herein in paragraph 2.3.
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2.3. Compensation. The Company will compensate Helix in the form of a
retainer, success fees and reimbursement of its reasonable expenses as
described below. Fees will be paid directly to Helix Capital LLC., or to
another entity as assigned from time to time by Helix.
2.3.1. Retainer: The Company will pay Helix a monthly retainer in the
amount of $25,000 for a minimum period of 18 months and
thereafter for the length of this Agreement (see Termination in
paragraph 2.8)
2.3.2. Consideration Paid: For the purpose of this Agreement,
Consideration Paid is defined as:
2.3.2.1. In the event of a sale by the Company of newly issued
securities, the amount of cash invested in the Company;
2.3.2.2. In the event of a sale, merger or acquisition of the
Company or the Company's assets, the cash consideration
plus the market value of non-cash consideration, plus
the amount of debt and other interest bearing
obligations assumed, refinanced by the acquiror, or
retired, or defeased, in connection with the
Transaction;
2.3.2.3. In the event of a purchase, merger or acquisition
Transaction by the Company, the purchase price of the
equity paid plus the amount of debt and other interest
bearing Obligations assumed or refinanced by the
Company, less any cash retained by the Company upon
successful completion of the Transaction.
2.3.2.4. The fair market value of any non-cash consideration
delivered in a Transaction will be the value agreed upon
by the Company and Helix prior to the consummation of
the Transaction.
2.3.3. Success fees:
2.3.3.1. For an M&A Transaction as defined in section 1.3.1 the
Company shall pay Helix a success fee upon closing of
each Transaction. Success fees for any Transaction as
defined above, will be determined by mutual consent by
Helix and the Company based on market conditions and on
a per Transaction basis, but in any case will be no less
than 2% of the
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Consideration Paid transferred to or transferred from
the Company or the Company's shareholders. Success fees
shall be due and payable if the Company completes a
Proposed Transaction during the term of this Agreement
and within one year of the termination of this Agreement
with a party introduced by or that was in contact with
Helix within the term of this Agreement. This success
fee will be paid in cash, or in other negotiable
securities and financial instruments as specifically
agreed in writing by Helix and the Company.
2.3.3.2. For any other Transaction as defined in section 1.3.2,
the Company and Helix will reach and agreement on a
success fee for each specific Transaction if and when
the Company instructs Helix to proceed with preparation
for a specific Transaction.
2.3.4. Expenses: The Company shall reimburse Helix, upon Helix's request
and regardless of whether the Company consummates any
Transactions, for its reasonable and actual out of pocket
expenses incurred by it in connection with this Agreement. In on
event, however, shall the Company be liable to Helix for
out-of-pocket expenses in excess of $10,000 per month without the
prior approval of Kellstrom.
2.3.5 Life Insurance. The Company shall obtain and maintain a life
insurance policy on the life of Mr. Stern in the amount of
$3,000,000 with a variable annuity feature mutually acceptable to
Mr. Stern and the Company. The Company will pay the premium on
such policy for the entire period commencing on the effective
date of this agreement and ending on the seventh anniversary of
the date hereof (the "Policy Period"). Until January 1, 1999, the
Company shall own, and shall have the right to designate the
beneficiary under, such insurance policy. Mr. Stern shall have
the option of causing the Company to transfer the ownership of
the policy (and the right to designate the beneficiary
thereunder) to Mr. Stern at no cost to Mr. Stern after January 1,
1999 (but the Company will continue to pay the premium
on such policy for the entire Policy Period). If Mr. Stern does
not exercise his option to transfer ownership of the policy, upon
the termination of the Policy Period, the Company shall transfer
the policy to Mr . Stern at no cost to Mr. Stern. In the event
that this agreement is terminated (other than as a result of a
breach by Helex of the terms of this agreement) prior to that
time, the Company will transfer ownership of the policy to
Mr. Stern and pay Mr. Stern a lump sum payment equal to the
unpaid premium remaining through the end of the Policy Period.
Such lump sum payment shall include an amount sufficient to
compensate Mr. Stern for any Federal, state or local income taxes
associated with the receipt of such payment.
2.4. Information & Reliance: In connection with Helix's engagement, the
Company will furnish Helix with all information concerning the Company
which Helix and the Company deem appropriate and will provide Helix with
access to the Company's officers, directors, accountants and counsel. It
is understood that Helix will rely on the accuracy and completeness of
such information supplied by the Company, its officers and agents, or
available from generally recognized public sources, without any
independent investigation or verification thereof.
2.5. Confidentiality. Any advice, data, materials, contacts or other
information provided by Helix, its affiliates or subsidiaries to the
Company under this Agreement, including the existence of this Agreement,
shall not be disclosed to third parties other than attorneys,
representatives and affiliates controlled by the Company, except to the
extent such disclosure is in the opinion of counsel, required by law or
legal process, without prior written approval by Helix, it being
understood that a copy of this Agreement must be filed with the
Securities and Exchange Commission and its terms be described in
Company's public filings. All non-public information given to Helix by
the Company will, likewise, be treated by Helix as confidential.
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2.6. Indemnification. The Company agrees to indemnify and hold Helix harmless
from and against any and all losses, claims, damages and liabilities (or
actions including security holder actions in respect thereof) related to
or arising out of Helix's engagement hereunder or its role in connection
herewith, and will reimburse Helix for all reasonable expenses
(including reasonable counsel fees and expenses) as they are incurred by
Helix in connection with investigating, preparing for or defending any
such action or claim, whether or not in connection with pending or
threatened litigation in which Helix is a party and whether or not
initiated by or on behalf of the Company. The Company will not, however,
be responsible for any claims, liabilities, losses, damages or expenses
which have resulted from the bad faith or gross negligence of Helix. The
Company also agrees that Helix shall not have any liability to the
Company for or in connection with Helix's engagement, except for
liability for losses, claims, damages, liabilities or expenses incurred
by the Company that result from the bad faith or gross negligence of
Helix.
2.6.1. In the event that the foregoing indemnity is unavailable, then
the Company shall contribute to amounts paid or payable by Helix
in respect of its losses, claims, damages and liabilities:
2.6.1.1. in such proportion as appropriately reflects the
relative benefits received by, the Company and Helix in
connection with the matters as to which such losses,
claims, damages or liabilities relate, or
2.6.1.2. if (but only if) the allocation provided for in 2.6.1.1
is for any reason held to unenforceable, in such
proportion as is appropriate to reflect not only the
relative benefits referred to in 2.6.1.1 but also the
relative fault of the Company and Helix, as well as any
other relevant equitable considerations;
2.6.1.3. provided, however, that in no event shall the amount to
be contributed by Helix exceed the amount of the fee
actually received by Helix. The foregoing shall be in
addition to any rights that Helix may have at common law
or otherwise and shall extend upon the same terms to and
inure to the benefit of Helix and its affiliates and
their respective directors, officers, employees, agents
or controlling persons of Helix.
2.6.1.4. The Company agrees that, without Helix's prior written
consent, it will not settle, compromise or consent to
the entry of any judgment in any pending or threatened
claim, action, or proceeding in respect
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of which indemnification could be sought under the
indemnification provisions of this Agreement (whether or
not Helix or any other party is an actual or potential
party to such claim, action or proceeding), unless such
settlement, compromise or consent includes an
unconditional release of each indemnified party from all
liability arising out of such claim, action or
proceeding.
2.7. Limited Commitment. It is understood that Helix makes no commitment to
raise capital and/ or effect any of the Proposed Transactions. In
addition, the Company has the right not to accept any or all offers
with respect to the Proposed Transactions.
2.8. Term and termination. This Agreement shall have an initial term of 18
months from January 1, 1997, and will be renewed automatically
thereafter for additional 12 month-terms every 12 months, unless
terminated by written notice at least 90 days prior to the last day of
the initial term or any extensions thereof, by any party.
Notwithstanding the foregoing, the provisions of paragraphs 2.3, 2.5,
2.6 and 2.8 will survive any termination.
2.9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida and the federal laws
of the United States of America applicable therein. Any controversy or
claim arising out of or relating to this letter agreement shall be
settled by arbitration in accordance with the rules of the American
Arbitration Association, and judgment upon an award arising in
connection therewith may be entered in any court of competent
jurisdiction.
2.10. Survival. In the event that any provision herein is determined to be
unenforceable under the current law at the time of execution of this
letter Agreement, or unenforceable under a law that may supersede that
law in place at the time of execution, all other provisions and the
intent of this Agreement shall survive such findings.
2.11. Independent Contractor. The Company acknowledges and agrees that Helix
has been retained solely as a M&A and financial advisor to the Company.
In such capacity, Helix shall act as an independent contractor, and any
duties arising out of its engagement pursuant to this Agreement shall
be owed solely to the Company.
2.12. Waiver of Rights. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is
agreed to in writing by the party against whom the same is sought to be
enforced and no failure by either party to enforce any of its rights
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hereunder shall, except as aforesaid, be deemed to be a waiver of such
right. No waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any provision of this
Agreement to be performed by such other party shall be deemed to be a
waiver of a similar or dissimilar provision hereof at the same or any
prior or subsequent time.
2.13. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be properly given if delivered
personally, mailed prepaid registered mail, overnight courier, or sent
by telecopy (as long as the telecopy is followed by a hard copy)
addressed as follows:
In the case of Helix:
Alex Hoag
Helix Capital L.L.C.
98 Battery Street
Suite 600
San Francisco, CA 94104
Tel: (415) 956-9950 Fax: (415) 956-9951
In the case of Kellstrom:
John Gleason
Chief Financial Officer
14000 NW 4th St.
Sunrise, Florida 33325
Tel: (954) 845-0427 Fax: (954) 845-0428
or to such other address as the parties shall from time to time specify
by notice given in accordance herewith. Any notice so given shall be
conclusively deemed to have been given or made on the day of delivery,
if delivered, if mailed by registered mail, upon the date shown on the
postal return receipt as the date upon which the envelope containing
such notice was actually received by the addressee, if delivered by
overnight courier, two (2) days after deposit with the overnight
courier, and if by telecopy, upon transmission thereof, as long as the
telecopy is followed by delivery of a hard copy.
2.14. Entire Agreement. This mutually signed Agreement, attached Exhibits and
any properly executed and signed Amendments, constitutes the entire
agreement between the parties with respect to the engagement of Helix
contemplated hereby and cancels and supersedes all prior undertakings
and agreements between the parties with respect thereto and no
agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
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3. Miscellaneous. Each of the parties represents that it is duly authorized to
execute this Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be the same agreement.
If you are in agreement with the foregoing, please execute a copy in the
space provided below and return it to Helix Capital Corporation, L.L.C.
Regards,
Helix Capital Corporation, LLC
For Helix Capital Corporation, LLC
By: /s/
--------------------------------------
Name: Alexander W. Hoag
Title: Vice President, Partner
Accepted this 24 of December, 1996
For Kellstrom Industries Inc.
By: /s/
---------------------------------------
Name: John Gleason
Title: Chief Financial Officer
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Qualifications.
Alexander Hoag is a Partner and Vice President of Helix Capital Corporation,
L.L.C. He brings extensive experience in technology company Merger &
Acquisitions, Marketing, Operations and Research & Development in some of the
preeminent success stories of the software industry. Mr. Hoag will lead this
effort and will be the primary contact and manager of Helix's efforts on The
Company's behalf.
Until recently he served as Executive Vice President, Products, and Chief
Technology Officer of SoftKey International Inc., a Massachusetts based $350M
consumer software company that culminated the successful turn around effort
begun at WordStar International in 1990. Previous experience at Quark, Inc.
(Director of Marketing), Broderbund Software Inc. (Publisher, NASDAQ:BROD) and
Blyth Software, Inc. (Vice President, Special Markets, NASDAQ:BLY) represent a
string of successful product, divisional and company turnarounds where leading
competitive positions were forged from undercapitalized or competitively laggard
entities. In each case, Mr. Hoag was instrumental in reorganizing the strategic
focus, building management, marketing and development teams, and establishing a
series of defensible product and company niches that have won significantly
improved shareholder returns as well as industry recognition for distinguished
achievement.
Mr. Hoag holds a Masters of International Business Administration from The
Monterey Institute (Monterey, California) and a BA in Political Science from the
University of California, San Diego.
OGEN PERRY is a Partner and Director of Helix Capital. He brings extensive
experience in M&A and strategic planning.
Mr. Perry joined Helix from Intel Corporation where he served as manager,
Corporate Business Development. At Intel, he spearheaded several strategic
investments in emerging technology companies including networking, compression
and database software.
Prior to Intel, Mr. Perry was an Engagement Manager with McKinsey & Co., leading
consultant and client teams in the development business strategies.
Until 1987, Mr. Perry was New Business Development Manager for Matrix
Instruments, Inc. Mr. Perry's efforts to create a VAR program and to promote the
adoption of the company's high level graphics language contributed to a doubling
of division sales.
Mr. Perry holds and MBA in finance from the Wharton School as well as an M.E.
and a B.Sc. in Computer Engineering from Rensselaer Polytechnic Institute.
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KELLSTROM INDUSTRIES, INC. 1996 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The purpose of the Kellstrom Industries, Inc. 1996 Stock
Option Plan (the "Plan") is to promote the interests of Kellstrom Industries,
Inc., a Delaware corporation (the "Company"), and its stockholders by
strengthening the Company's ability to attract and retain competent employees,
to make service on the Board of Directors of the Company (the "Board") more
attractive to present and prospective non-employee directors of the Company and
to provide a means to encourage stock ownership and proprietary interest in the
Company by officers, non-employee directors and valued employees and other
individuals upon whose judgment, initiative and efforts the financial success
and growth of the Company largely depend. The Plan became effective on July 10,
1996, by resolution of the Board, subject to ratification of the Plan by a
majority vote of the stockholders of the Company at its 1996 Annual Meeting of
Stockholders.
2. STOCK SUBJECT TO THE PLAN. (a) The total number of shares of the authorized
but unissued or treasury shares of the Common Stock, $.001 par value per share,
of the Company ("Common Stock") for which options and stock appreciation rights
("SARs") may be granted under the Plan shall be 1,100,000, provided that 700,000
of such options and SARs may not be granted until at least 75% of the 4,600,000
outstanding Redeemable Common Stock Purchase Warrants which were issued to the
public in the Company's 1994 initial public offering are exercised by the
holders thereof or redeemed by the Company in accordance with the terms of such
Warrants, subject to adjustment as provided in Section 14 hereof, which shares
may be of any class of Common Stock; provided, however, that such number of
shares may from time to time be reduced to the extent that a corresponding
number of issued and outstanding shares of Common Stock are purchased by the
Company and set aside for issue upon the exercise of options.
(b) If an option granted or assumed hereunder shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
subject thereto shall again be available for subsequent option grants under the
Plan; provided, however, that shares as to which an option has been surrendered
in connection with the exercise of a related SAR will not again be available for
subsequent option or SAR grants under the Plan.
(c) Stock issuable upon exercise of an option or SAR granted under the
Plan may be subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board. No
member of the Board shall act upon any matter exclusively affecting an option or
SAR granted or to be granted to himself or herself under the Plan. A majority of
the members of the Board shall constitute a quorum, and any action may be taken
by a majority of those present and voting at any meeting. The decision of the
Board as to all questions of interpretation and application of the Plan shall be
final, binding and conclusive on all persons. The Board may, in its sole
discretion, grant options to
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purchase shares of Common Stock, grant SARs and issue shares upon exercise of
such options and SARs, as provided in the Plan. The Board shall have authority,
subject to the express provisions of the Plan, to construe the respective option
and SAR agreements and the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of the
respective option and SAR agreements, which may but need not be identical, and
to make all other determinations in the judgment of the Board necessary or
desirable for the administration of the Plan. The Board may correct any defect
or supply any omission or reconcile any inconsistency in the Plan or in any
option or SAR agreement in the manner and to the extent it shall deem expedient
to carry the Plan into effect and shall be the sole and final judge of such
expediency. No director shall be liable for any action or determination made in
good faith. The Board may, in its discretion, delegate its power, duties and
responsibilities to a committee, consisting of two or more members of the Board.
If a committee is so appointed, all references to the Board herein shall mean
and relate to such committee, unless the context otherwise requires.
4. TYPE OF OPTIONS. Options granted pursuant to the Plan shall be authorized by
action of the Board (or a committee designated by the Board) and may be
designated as either incentive stock options meeting the requirements of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified options which are not intended to meet the requirements of Section
422 of the Code, the designation to be in the sole discretion of the Board.
Options designated as incentive stock options that fail to continue to meet the
requirements of Section 422 of the Code shall be redesignated as non-qualified
options automatically on the date of such failure to continue to meet the
requirements of Section 422 of the Code without further action by the Board.
5. ELIGIBILITY. Options designated as incentive stock options may be granted
only to officers and key employees of the Company or of any subsidiary
corporation (herein called "subsidiary" or "subsidiaries"), as defined in
Section 424 of the Code and the Treasury Regulations promulgated thereunder (the
"Regulations"). Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to be granted incentive stock options pursuant
to the Plan. SARs and options designated as non-qualified options may be granted
to (i) officers and key employees of the Company or of any of its subsidiaries,
or (ii) agents and directors of and consultants to the Company, whether or not
otherwise employees of the Company.
In determining the eligibility of an individual to be granted an option
or SAR, as well as in determining the number of shares to be optioned to any
individual, the Board shall take into account the recommendation of the
Company's Chairman, the position and responsibilities of the individual being
considered, the nature and value to the Company or its subsidiaries of his or
her service and accomplishments, his or her present and potential contribution
to the success of the Company or its subsidiaries, and such other factors as the
Board may deem relevant.
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6. RESTRICTIONS ON INCENTIVE STOCK OPTIONS. Incentive stock options (but not
non-qualified options) granted under this Plan shall be subject to the following
restrictions:
(a) Limitation on Number of Shares. The aggregate fair market value of
the shares of Common Stock with respect to which incentive stock options are
granted, determined as of the date the incentive stock options are granted,
exercisable for the first time by an individual during any calendar year shall
not exceed $100,000. If an incentive stock option is granted pursuant to which
the aggregate fair market value of shares with respect to which it first becomes
exercisable in any calendar year by an individual exceeds such $100,000
limitation, the portion of such option which is in excess of the $100,000
limitation, and any such options issued subsequently in the same calendar year,
shall be treated as a non-qualified option pursuant to Section 422(d)(1) of the
Code. In the event that an individual is eligible to participate in any other
stock option plan of the Company or any parent or subsidiary of the Company
which is also intended to comply with the provisions of Section 422 of the Code,
such $100,000 limitation shall apply to the aggregate number of shares for which
incentive stock options may be granted under this Plan and all such other plans.
(b) Ten Percent (10%) Stockholder. If any employee to whom an incentive
stock option is granted pursuant to the provisions of this Plan is on the date
of grant the owner of stock (as determined under Section 424(d) of the Code)
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any parent or subsidiary of the Company, then the
following special provisions shall be applicable to the incentive stock options
granted to such individual:
(i) The option price per share subject to such incentive stock
options shall be not less than 110% of the fair market value of the stock
determined at the time such option was granted. In determining the fair market
value under this clause (i), the provisions of Section 8 hereof shall apply.
(ii) The incentive stock option shall have a term expiring not
more than five (5) years from the date of the granting thereof.
7. OPTION AGREEMENT. Each option and SAR shall be evidenced by an agreement (the
"Agreement") duly executed on behalf of the Company and by the grantee to whom
such option or SAR is granted, which Agreement shall comply with and be subject
to the terms and conditions of the Plan. The Agreement may contain such other
terms, provisions and conditions which are not inconsistent with the Plan as may
be determined by the Board, provided that options designated as incentive stock
options shall meet all of the conditions for incentive stock options as defined
in Section 422 of the Code. No option or SAR shall be granted within the meaning
of the Plan and no purported grant of any option or SAR shall be effective until
the Agreement shall have been duly executed on behalf of the Company and the
optionee. More than one option and SAR may be granted to an individual.
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8. OPTION PRICE. (a) The option price or prices of shares of Common Stock for
options designated as non-qualified stock options shall be as determined by the
Board.
(b) Subject to the conditions set forth in Section 6(b) hereof, the
option price or prices of shares of Common Stock for options designated as
incentive stock options shall be at least the fair market value of such Common
Stock at the time the option is granted as determined by the Board in accordance
with clause (c) below.
(c) If the Common Stock is then listed on any national securities
exchange, the fair market value shall be the mean between the high and low sales
prices, if any, on the largest such exchange on the date of the grant of the
option or, if none, shall be determined by taking a weighted average of the
means between the highest and lowest sales on the nearest date before and the
nearest date after the date of grant in accordance with Regulations Section
25.2512-2. If the Common Stock is not then listed on any such exchange, the fair
market value shall be the mean between the closing "Bid" and the closing "Ask"
prices, if any, as reported in the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") for the date of the grant of the option,
or, if none, shall be determined by taking a weighted average of the means
between the highest and lowest sales on the nearest date before and the nearest
date after the date of grant in accordance with Regulations Section 25.2512-2.
If the Common Stock is not then either listed on any such exchange or quoted in
NASDAQ, the fair market value shall be the mean between the average of the "Bid"
prices, if any, as reported in the National Daily Quotation Service for the date
of the grant of the option, or, if none, shall be determined by taking a
weighted average of the means between the highest and lowest sales on the
nearest date before and the nearest date after the date of grant in accordance
with Regulations Section 25.2512-2. If the fair market value of the Common Stock
cannot be determined under the preceding three sentences, it shall be determined
in good faith by the Board in accordance with the Regulations promulgated under
Section 422 of the Code.
9. MANNER OF PAYMENT; MANNER OF EXERCISE. (a) Options granted under the Plan may
provide for the payment of the exercise price by delivery of (i) cash or a check
payable to the order of the Company in an amount equal to the exercise price of
such options, (ii) shares of Common Stock owned by the optionee having a fair
market value equal in amount to the exercise price of such options, or (iii) any
combination of (i) and (ii); provided, however, that payment of the exercise
price by delivery of shares of Common Stock owned by such optionee may be made
only upon the condition that such payment does not result in a charge to
earnings for financial accounting purposes as determined by the Board, unless
such condition is waived by the Board. The fair market value of any shares of
Common Stock which may be delivered upon exercise of an option shall be
determined by the Board in accordance with Section 8 hereof.
(b) To the extent that the right to purchase shares under an option has
accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares with
respect to which the option
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is being exercised, accompanied by payment in full for such shares as provided
in subparagraph (a) above. Upon such exercise, delivery of a certificate for
paid-up non-assessable shares shall be made at the principal office of the
Company to the person or persons exercising the option at such time, during
ordinary business hours, after three (3) days but not more than ninety (90) days
from the date of receipt of the notice by the Company, as shall be designated in
such notice, or at such time, place and manner as may be agreed upon by the
Company and the person or persons exercising the option.
10. EXERCISE OF OPTIONS AND SARS. Each option and SAR granted under the Plan
shall, subject to Section 11(b) and Section 13 hereof, be exercisable at such
time or times and during such period as shall be set forth in the Agreement;
provided, however, that no option or SAR granted under the Plan shall have a
term in excess of ten (10) years from the date of grant. To the extent that an
option or SAR is not exercised when it becomes initially exercisable, it shall
not expire but shall be carried forward and shall be exercisable, on a
cumulative basis, until the expiration of the exercise period. No partial
exercise may be made for less than one hundred (100) full shares of Common
Stock. The exercise of an option shall result in the cancellation of the SAR to
which it relates with respect to the same number of shares of Common Stock as to
which the option was exercised.
11. TERM OF OPTIONS AND SARS; EXERCISABILITY.
(a) Term. (i) Each option shall expire not more than ten (10) years from
the date of the granting thereof, except as (a) otherwise provided pursuant to
the provisions of Section 6(b) hereof, and (b) earlier termination as herein
provided.
(ii) Except as otherwise provided in this Section 11, an option
or SAR granted to any grantee who ceases to perform services for the Company or
one of its subsidiaries shall terminate three months after the date such grantee
ceases to perform services for the Company or one of its subsidiaries, or on the
date on which the option or SAR expires by its terms, whichever occurs first.
(iii) If the grantee ceases to perform services for the Company
because of dismissal for cause or because the grantee is in breach of any
employment agreement, such option or SAR will terminate on the date the grantee
ceases to perform services for the Company or one of its subsidiaries.
(iv) If the grantee ceases to perform services for the Company
because the grantee has become permanently disabled (within the meaning of
Section 22(e)(3) of the Code), such option or SAR shall terminate twelve months
after the date such grantee ceases to perform services for the Company, or on
the date on which the option or SAR expires by its terms, whichever occurs
first.
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(v) In the event of the death of any grantee, any option or SAR
granted to such grantee shall terminate twelve months after the date of death,
or on the date on which the option or SAR expires by its terms, whichever occurs
first.
(b) Exercisability. (i) Except as provided below, an option or SAR
granted to a grantee who ceases to perform services for the Company or one of
its subsidiaries shall be exercisable only to the extent that such option or SAR
has accrued and is in effect on the date such grantee ceases to perform services
for the Company or one of its subsidiaries.
(ii) An option or SAR granted to a grantee who ceases to perform
services for the Company or one of its subsidiaries because he or she has become
permanently disabled (as defined above) shall be exercisable with respect to the
full number of shares covered thereby, whether or not under the provisions of
Section 10 hereof the grantee was entitled to do so at the date he or she became
permanently disabled, and may be exercised by a legal representative on behalf
of the grantee.
(iii) In the event of the death of any grantee, the option or SAR
granted to such grantee may be exercised with respect to the full number of
shares covered thereby, whether or not under the provisions of Section 10 hereof
the grantee was entitled to do so at the date of his or her death, by the estate
of such grantee, or by any person or persons who acquired the right to exercise
such option or SAR by bequest or inheritance or by reason of the death of such
grantee.
12. OPTIONS NOT TRANSFERABLE. The right of any grantee to exercise any option or
SAR granted to him or her shall not be assignable or transferable by such
grantee other than by will or the laws of descent, and any such option or SAR
shall be exercisable during the lifetime of such grantee only by him. Any option
or SAR granted under the Plan shall be null and void and without effect upon the
bankruptcy of the grantee to whom the option is granted, or upon any attempted
assignment or transfer except as herein provided, including without limitation,
any purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, attachment, trustee process or similar
process, whether legal or equitable, upon such option or SAR.
13. TERMS AND CONDITIONS OF SARS. (a) An SAR may be granted separately or in
connection with an option (either at the time of grant or at any time during the
term of the option).
(b) The exercise of an SAR granted in connection with an option shall
result in the cancellation of the option to which it relates with respect to the
same number of shares of Common Stock as to which the SAR was exercised.
(c) An SAR granted in connection with an option shall be exercisable or
transferable only to the extent that such related option is exercisable or
transferable.
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(d) Upon the exercise of an SAR related to an option, the holder will be
entitled to receive payment of an amount determined by multiplying:
(i) the difference obtained by subtracting the purchase price of
a share of Common Stock specified in the related option from the fair market
value of a share of Common Stock on the date of exercise of such SAR (as
determined by the Board in accordance with Section 8 hereof), by
(ii) the number of shares as to which such SAR is exercised.
(e) An SAR granted without relationship to an option shall be
exercisable as determined by the Board, but in no event after ten years from the
date of grant.
(f) An SAR granted without relationship to an option will entitle the
holder, upon exercise of the SAR, to receive payment of an amount determined by
multiplying:
(i) the difference obtained by subtracting the fair market value
of a share of Common Stock on the date the SAR was granted from the fair market
value of a share of Common Stock on the date of exercise of such SAR (as
determined by the Board in accordance with Section 8 hereof), by
(ii) the number of shares as to which such SAR is exercised.
(g) Notwithstanding subsections (d) and (f) above, the Board may limit
the amount payable upon exercise of an SAR. Any such limitation shall be
determined as of the date of grant and noted on the instrument evidencing the
SAR granted.
(h) At the discretion of the Board, payment of the amount determined
under subsections (d) and (f) above may be made either in whole shares of Common
Stock valued at their fair market value on the date of exercise of the SAR (as
determined by the Board in accordance with Section 8 hereof), or solely in cash,
or in a combination of cash and shares. If the Board decides to make full
payment in shares of Common Stock and the amount payable results in a fractional
share, payment for the fractional share shall be made in cash.
(i) Neither an SAR nor an option granted in connection with an SAR
granted to a person subject to Section 16(b) of the Exchange Act may be
exercised before six months after the date of grant.
14. RECAPITALIZATION, REORGANIZATION AND THE LIKE. In the event that the
outstanding shares of Common Stock are changed into or exchanged for a different
number or kind of shares or other securities of the Company or of another
corporation by reason of any reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination of shares, or
dividends payable in capital stock, appropriate adjustment shall be made in
accordance with Section 424(a) of the Code in the number and kind of shares as
to which options and SARs may be granted under the Plan and as to which
-7-
<PAGE>
<PAGE>
outstanding options and SARs or portions thereof then unexercised shall be
exercisable, to the end that the proportionate interest of the grantee shall be
maintained as before the occurrence of such event; such adjustment in
outstanding options and SARs shall be made without change in the total price
applicable to the unexercised portion of such options and SARs and with a
corresponding adjustment in the exercise price per share.
In addition, unless otherwise determined by the Board in its sole
discretion, in the case of any (i) sale or conveyance to another entity of all
or substantially all of the property and assets of the Company or (ii) Change in
Control (as hereinafter defined) of the Company, the purchaser(s) of the
Company's assets or stock may, in his, her or its discretion, deliver to the
optionee the same kind of consideration that is delivered to the stockholders of
the Company as a result of such sale, conveyance or Change in Control, or the
Board may cancel all outstanding options and SARs in exchange for consideration
in cash or in kind which consideration in both cases shall be equal in value to
the value of those shares of stock or other securities the optionee would have
received had the option been exercised (to the extent then exercisable) and no
disposition of the shares acquired upon such exercise been made prior to such
sale, conveyance or Change in Control, less the exercise price therefor. Upon
receipt of such consideration, the options and SARs shall immediately terminate
and be of no further force and effect. The value of the stock or other
securities the grantee would have received if the option had been exercised
shall be determined in good faith by the Board, and in the case of shares of
Common Stock, in accordance with the provisions of Section 8 hereof.
The Board shall also have the power and right to accelerate the
exercisability of any options or SARs, notwithstanding any limitations in this
Plan or in the Agreement upon such a sale, conveyance or Change in Control. Upon
such acceleration, any options or portion thereof originally designated as
incentive stock options that no longer qualify as incentive stock options under
Section 422 of the Code as a result of such acceleration shall be redesignated
as non qualified stock options.
A "Change in Control" shall be deemed to have occurred if any person, or
any two or more persons acting as a group, and all affiliates of such person or
persons, who prior to such time owned less than fifty percent (50%) of the then
outstanding Common Stock, shall acquire such additional shares of Common Stock
in one or more transactions, or series of transactions, such that following such
transaction or transactions, such person or group and affiliates beneficially
own fifty percent (50%) or more of the Common Stock outstanding.
If by reason of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation, the Board shall
authorize the issuance or assumption of a stock option or stock options in a
transaction to which Section 424(a) of the Code applies, then, notwithstanding
any other provision of the Plan, the Board may grant an option or options upon
such terms and conditions as it may deem appropriate for the purpose of
assumption of the old option, or substitution of a new option for the old
option, in conformity with the provisions of such Section 424(a) of
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<PAGE>
<PAGE>
the Code and the Regulations thereunder, and any such option shall not reduce
the number of shares otherwise available for issuance under the Plan.
No fraction of a share shall be purchasable or deliverable upon the
exercise of any option or SAR, but in the event any adjustment hereunder in the
number of shares covered by the option or SAR shall cause such number to include
a fraction of a share, such fraction shall be adjusted to the nearest smaller
whole number of shares.
15. NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in the Plan or in any option
or SAR granted under the Plan shall confer upon any grantee any right with
respect to the continuation of his or her employment by the Company (or any
subsidiary) or interfere in any way with the right of the Company (or any
subsidiary), subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of the grantee from the rate in existence at the time of the
grant of an option or SAR. Whether an authorized leave of absence, or absence in
military or government service, shall constitute termination of employment shall
be determined in accordance with Regulations Section 1.421-7(h)(2).
16. WITHHOLDING. The Company's obligation to deliver shares upon the exercise of
any non-qualified option or SAR granted under the Plan shall be subject to the
option holder's satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements. The Company and optionee may agree
to withhold shares of Common Stock purchased upon exercise of an option or SAR
to satisfy the above-mentioned withholding requirements; provided, however, that
no such agreement may be made by a grantee who is an "officer" or "director"
within the meaning of Section 16 of the Exchange Act, except pursuant to a
standing election to so withhold shares of Common Stock purchased upon exercise
of an option, such election to be made not less than six months prior to such
exercise and which election may be revoked only upon six months prior written
notice.
17. RESTRICTIONS ON ISSUANCE OF SHARES. (a) Notwithstanding the provisions of
Section 9 hereof, the Company may delay the issuance of shares covered by the
exercise of an option or SAR and the delivery of a certificate for such shares
until one of the following conditions shall be satisfied:
(i) The shares with respect to which such option or SAR has been
exercised are at the time of the issue of such shares effectively registered or
qualified under applicable Federal and state securities acts now in force or as
hereafter amended; or
(ii) Counsel for the Company shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld, that such shares are
exempt from registration and qualification under applicable Federal and state
securities acts now in force or as hereafter amended.
-9-
<PAGE>
<PAGE>
(b) It is intended that all exercises of options and SARs shall be
effective, and the Company shall use its best efforts to bring about compliance
with the above conditions, within a reasonable time, except that the Company
shall be under no obligation to qualify shares or to cause a registration
statement or a post-effective amendment to any registration statement to be
prepared for the purpose of covering the issue of shares in respect of which any
option may be exercised, except as otherwise agreed to by the Company in
writing.
18. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT REGISTRATION. Unless
the shares to be issued upon exercise of an option or SAR granted under the Plan
have been effectively registered under the Securities Act of 1933, as amended
(the "1933 Act"), the Company shall be under no obligation to issue any shares
covered by any option or SAR unless the person who exercises such option, in
whole or in part, shall give a written representation and undertaking to the
Company which is satisfactory in form and scope to counsel for the Company and
upon which, in the opinion of such counsel, the Company may reasonably rely,
that he or she is acquiring the shares issued pursuant to such exercise of the
option or SAR for his or her own account as an investment and not with a view
to, or for sale in connection with, the distribution of any such shares, and
that he or she will make no transfer of the same except in compliance with any
rules and regulations in force at the time of such transfer under the 1933 Act,
or any other applicable law, and that if shares are issued without such
registration, a legend to this effect may be endorsed upon the securities so
issued.
In the event that the Company shall, nevertheless, deem it necessary or
desirable to register under the 1933 Act or other applicable statutes any shares
with respect to which an option or SAR shall have been exercised, or to qualify
any such shares for exception from the 1933 Act or other applicable statutes,
then the Company may take such action and may require from each grantee such
information in writing for use in any registration statement, supplementary
registration statement, prospectus, preliminary prospectus or offering circular
as is reasonably necessary for such purpose and may require reasonable indemnity
to the Company and its officers and directors from such holder against all
losses, claims, damages and liabilities arising from such use of the information
so furnished and caused by any untrue statement of any material fact therein or
caused by the omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made.
19. LOANS. At the discretion of the Board, the Company may loan to the optionee
some or all of the purchase price of the shares acquired upon exercise of an
option granted under the Plan.
20. MODIFICATION OF OUTSTANDING OPTIONS AND SARS. Subject to limitations
contained herein, the Board may authorize the amendment of any outstanding
option or SAR with the consent of the grantee when and subject to such
conditions as are deemed to be in the best interests of the Company and in
accordance with the purposes of the Plan.
-10-
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<PAGE>
21. APPROVAL OF STOCKHOLDERS. The Plan shall be subject to approval by a
majority vote of the stockholders of the Company voting in person or by proxy at
the Company's 1996 Annual Meeting of Stockholders. The Plan became effective on
July 10, 1996 by resolution of the Board. The Board may grant options and SARs
under the Plan prior to such stockholder approval, but any such option shall
become effective as of the date of grant only upon such approval and,
accordingly, no such option may be exercisable prior to such approval.
22. TERMINATION AND AMENDMENT OF PLAN. Unless sooner terminated as herein
provided, the Plan shall terminate on July 9, 2006. The Board may at any time
terminate the Plan or make such modification or amendment thereof as it deems
advisable; provided, however, that (i) the Board may not, without approval by a
majority vote of the stockholders of the Company, increase the maximum number of
shares for which options and SARs may be granted or change the designation of
the class of persons eligible to receive options and SARs under the Plan, and
(ii) any such modification or amendment of the Plan shall be approved by a
majority vote of the stockholders of the Company to the extent that such
stockholder approval is necessary to comply with applicable provisions of the
Code, rules promulgated pursuant to Section 16 of the Exchange Act, applicable
state law, or applicable National Association of Securities Dealers, Inc. or
exchange listing requirements. Termination or any modification or amendment of
the Plan shall not, without the consent of an optionee, affect his or her rights
under an option or SAR theretofore granted to him or her.
23. LIMITATION OF RIGHTS IN THE UNDERLYING SHARES. A holder of an option or SAR
shall not be deemed for any purpose to be a stockholder of the Company with
respect to such option or SAR except to the extent that such option or SAR shall
have been exercised with respect thereto and, in addition, a stock certificate
shall have been issued theretofore and delivered to the holder.
24. NOTICES. Any communication or notice required or permitted to be given under
the Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: Chairman, and, if to the holder of an option or SAR, to the address
as appearing on the records of the Company.
-11-
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<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-20727) pertaining to the 1995 Stock Option Plan of Kellstrom
Industries, Inc. of our report dated March 21, 1996, with respect to the
combined financial statements of International Aircraft Support as of December
31, 1995 and for the year then ended included in this Form 10-KSB.
ERNST & YOUNG LLP
San Francisco, California
March 28, 1997
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-75750) of Kellstrom Industries, Inc. and in the related
Prospectus of our report dated March 21, 1996, with respect to the combined
financial statements of International Aircraft Support as of December 31,
1995 and for the year then ended included in this Form 10-KSB.
ERNST & YOUNG LLP
San Francisco, California
March 28, 1997
<PAGE>
<PAGE>
The Board of Directors
Kellstrom Industries, Inc.:
We consent to incorporation by reference in the registration statements on Forms
S-3 (No. 33-75750) and S-8 (No. 333-20727) of Kellstrom Industries, Inc. of our
report dated March 10, 1997, relating to the balance sheets of Kellstrom
Industries, Inc. as of December 31, 1996, and 1995, and the related statements
of earnings, stockholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 1996, which report appears in the December
31, 1996, annual report on Form 10-KSB of Kellstrom Industries, Inc.
KPMG Peat Marwick LLP
Ft. Lauderdale, Florida
March 31, 1997
<PAGE>
<PAGE>
[LOGO KPMG PEAT MARWICK LLP]
Three Embarcadero Center
San Francisco, CA 94111
Accountant's Consent
--------------------
The Board of Directors
Kellstrom Industries, Inc.
We consent to incorporation by reference in the registration statement on Form
S-8 (Registration No. 333-20727) and registration statement on Form S-3
(Registration No. 33-75750) of Kellstrom Industries, Inc. of our report dated
February 21, 1997, relating to the combined balance sheet of International
Aircraft Support as of December 31, 1996, and the related combined statements of
income and retained earnings and cash flows for the year ended December 31,
1996, which report appears in the December 31, 1996, annual report on Form
10-KSB of Kellstrom Industries, Inc.
San Francisco, California
March 28, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
KELLSTROM INDUSTRIES, INC. BALANCE SHEET AND STATEMENTS OF EARNINGS FOR
THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 154
<SECURITIES> 1,830
<RECEIVABLES> 4,023
<ALLOWANCES> 0
<INVENTORY> 15,723
<CURRENT-ASSETS> 22,376
<PP&E> 3,167
<DEPRECIATION> 224
<TOTAL-ASSETS> 29,621
<CURRENT-LIABILITIES> 8,641
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 18,157
<TOTAL-LIABILITY-AND-EQUITY> 29,621
<SALES> 24,922
<TOTAL-REVENUES> 24,922
<CGS> 16,235
<TOTAL-COSTS> 20,168
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 645
<INCOME-PRETAX> 4,109
<INCOME-TAX> 1,462
<INCOME-CONTINUING> 2,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 2,646
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
