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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(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, 1997
or
[ ] 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.
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(Exact name of registrant as specified 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. 4th STREET
SUNRISE, FLORIDA 33325
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(Address of principal executive offices) (Zip Code)
(954) 845-0427
(Registrant telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value per share (NASDAQ National Market)
Preferred Stock Purchase Rights (NASDAQ National Market)
--------------------------------------------------------
(Title of each class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to
this Form 10-K. [ ]
As of February 27, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $184,506,600 based on the
closing price on that date of $24 per share. As of that date, there were
8,170,080 shares of the registrant's Common Stock outstanding.
Documents Incorporated by Reference
The information required by Items 10, 11, 12 and 13 of Part III of this Form
10-K is incorporated by reference to the definitive Proxy Statement of the
Company relating to the 1998 Annual Meeting of Stockholders.
Certain exhibits listed in Part IV of this annual report on Form 10-K are
incorporated by reference from prior filings made by the registrant under
the Securities Act of 1934, as amended.
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Kellstrom Industries, Inc.
Annual Report on Form 10-K
Index
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PAGE NUMBER
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PART I
Item 1. Business............................................. 3
Item 2. Description of Properties............................ 14
Item 3. Legal Proceedings.................................... 15
Item 4. Submission of Matters to a Vote of Security Holders.. 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................. 15
Item 6. Selected Financial Data.............................. 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 18
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.......................................... 25
Item 8. Financial Statements and Supplementary Data.......... 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 26
PART III
Item 10. Directors and Executive Officers of the Registrant... 27
Item 11. Executive Compensation............................... 27
Item 12. Security Ownership of Certain Beneficial Owners
and Management....................................... 27
Item 13. Certain Relationships and Related Transactions....... 27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.......................................... 27
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PART I
This report contains forward-looking statements, under the captions
"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 effectively integrate acquired companies and the
effects of increased indebtedness as a result of the Company's business
acquisitions, the Company's continuing ability to acquire adequate inventory and
to obtain favorable pricing for such inventory, the Company's 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 and the Company's ability to collect
receivables and government regulation.
ITEM 1. BUSINESS.
GENERAL
Kellstrom Industries, Inc. ("Kellstrom" or the "Company") is a leader in
the airborne equipment segments of the international aviation services after-
market. The Company's principal business is the purchasing, refurbishing
(through subcontractors), marketing, reselling, and leasing of aircraft jet
engines, jet engine parts and commercial aircraft. The Company is also an
international after-market reseller of turbojet engines and turbojet engine
parts for helicopters and large transport aircraft. The Company specializes in
providing engines and engine parts for large turbo-fan engines manufactured
by General Electric, CFM International, Pratt & Whitney and Rolls Royce.
According to industry analysts, the engine types serviced and supplied by the
Company comprise approximately 73% of the total world jet engine supply. The
Company's customers include original equipment manufacturers ("OEMs"), major
domestic and international airlines, engine manufactures, engine parts
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.
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. 4th Street, Sunrise, Florida 33325. Its
telephone number is (954) 845-0427.
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HISTORY OF THE COMPANY
KST Acquisition
The Company, 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 enter into a business
combination with an operating business. In April 1994, the Company consummated
the initial public offering, from which it derived net proceeds of $11,321,197
after expenses. On February 15, 1995, the Company entered into an Asset Purchase
Agreement (the "Acquisition Agreement") with Rada Electronic Industries, Inc.,
an Israeli corporation ("Rada"), Tasco Electronics Inc. (a direct wholly-owned
subsidiary of Rada), and Kellstrom Industries, Inc. ("KST") (an indirect
wholly-owned subsidiary of Rada), to acquire substantially all of the assets and
liabilities of KST's commercial jet aircraft engine part distribution business.
In connection with the closing on June 22, 1995, the Company changed its name
from Israel Tech Acquisition Corp. to Kellstrom Industries, Inc.
IASI Acquisition
On January 15, 1997, the Company completed the acquisition of substantially
all of the assets and certain liabilities of International Aircraft Support,
L.P. ("IASI") for approximately $25,100,000 in cash and warrants to acquire
500,000 shares of the Company's common stock, par value $.001 per share ("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 the
engine parts sales, IASI is a lessor of jet engines and offers engine repair
management programs through its technical services business. IASI's mix of
business and its purchasing activities ultimately contribute to its position as
a "market-maker" in redistributed engines and various engine parts.
The IASI acquisition has enabled the Company to enter into markets for
additional engine types, including the JT8D, PWA 2000 and CFM-56 markets.
According to industry analysts, these engine types power aircraft which
constitute 65% of the world aircraft fleet. In addition, the IASI acquisition
has accelerated the Company's entry into the engine leasing business, an area
in which IASI had been an active participant. The IASI acquisition has also
expanded and diversified the Company's customer base, particularly in European
markets. IASI's customers include major airlines, engine overhaul facilities
including those operated by airlines, independent overhaul and maintenance
organizations and aircraft engine manufacturers. Following the acquisition,
IASI's senior management joined the Company, further broadening the Company's
management team.
Aero Support Acquisition
On September 10, 1997, the Company completed the acquisition of
substantially all of the assets and liabilities of Aero Support USA, Inc. ("Aero
Support") for approximately $13,800,000 in cash and three warrants. One warrant
provides for the purchase of 75,000 shares of Common Stock at an exercise price
of $22.00 per share, expiring on September 9, 2000. The other two warrants
provide for the purchase of an aggregate of 175,000 shares of Common Stock at an
exercise price of $19.00 per share, expiring on September 9, 2002. Up to an
additional $5,000,000 cash consideration may be paid by the Company in the form
of an earn-out payable over three years based upon certain specified criteria.
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Aero Support is an international after-market reseller of turbojet engines
and engine parts for helicopters and large transport aircraft. Aero Support has
a customer base that includes domestic and foreign operators, commercial and
industrial enterprises and engine overhaul facilities. Aero Support's primary
focus is on the Allison (Rolls Royce) T56/501 engine, which powers the
military's Hercules C-130 aircraft, a widely used military transport aircraft,
and the Allison 250, with approximately 16,000 units actively in use by
helicopters. During 1996, Aero Support served 495 customers worldwide from its
headquarters in New York and its additional facility in Louisiana.
Prior to the Aero Support acquisition, the Company's business was focused
exclusively on the commercial jet engine industry. With the addition of Aero
Support's business, the Company entered the large transport aircraft and
commercial helicopter engine and engine parts market.
Recent Developments
On February 27, 1998, the Company signed a definitive agreement to acquire
privately held Integrated Technology Corporation ("ITC") for approximately
$20,225,000 in cash plus an earn-out payable over a three-year period based on
certain specified criteria. In addition, the Company received a three-year
option to purchase a 49% interest in an FAA-approved overhaul facility.
ITC is a leading after-market supplier of jet engines and jet engine parts
for the airline industry. It also provides related services such as engine
leasing. ITC's principal product line features the Rolls Royce RB-211, Pratt &
Whitney JT8D and Rolls Royce Allison models, and, to a lesser extent, it
supplies Pratt & Whitney JT9D engines and engine parts. ITC has some 75
customers worldwide, including major commercial airlines and jet engine repair
facilities.
GROWTH STRATEGY
The Company's growth plan is focused on strong internal growth,
supplemented by strategic inventory purchases, as well as the acquisition of
competing and complementary businesses meeting predefined criteria. The
Company pursues acquisitions either to strengthen its current product lines,
increase access to customers in its existing target markets, or to expand into
new product lines and reach new markets. The Company's management has developed
criteria, beyond marketing and operating due diligence, which are used to
analyze acquisition opportunities. The evaluation criteria include (i) the
effects on earnings per share, (ii) the expected stability and inherent strength
of gross margins, and (iii) and a comparative study of returns on invested
capital and assets.
The Company's operating strategy enables it to pursue its growth plans
while maintaining and improving operating efficiencies and results. As the
Company's acquisition team focuses on identifying, structuring and completing
acquisitions, the Company's operations team simultaneously enhances internal
procedures and controls, streamlines distribution channels and improves customer
retention and account management. This operating strategy, combined with the
Company's acquisition methodology, enables the Company to smoothly manage the
expansion of the Company's business resulting from acquisitions.
Using the foregoing methodology, the Company has been pursuing the
following growth and acquisition programs:
Strategic Inventory Purchases. The Company believes that its potential to
grow revenues from its existing business is largely dependent on its ability to
deliver engines and engine parts on a "just-in-time" basis. The lead time
between purchasing engines and engine parts and having a ready-for-sale product
is generally 60-90 days. The Company focuses on developing new sources of
supply, such as airlines replacing portions of their fleets or disposing of
excess inventory, OEMs and overhaul facilities. By broadening its sources of
supply, the Company is better able to maintain a strategic stock of inventory in
order to remain responsive to customer delivery requirements. The Company relies
on its market expertise to analyze both short and long-term demand and supply
trends.
Leasing. The Company is focusing its leasing efforts on the after-market
commercial engine and engine parts business. This is accomplished through the
extensive background and expertise of management in the commercial jet engine
and engine parts business. The Company believes that there are advantages for
its customer base to consider leasing as an alternative to traditional
financing. Operating leases allow greater financial flexibility due to the
short-term nature and relatively small initial capital investment. Currently,
the Company focuses primarily on short-term operating lease financing,
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with an emphasis on maximizing residual values. Leasing allows the Company
access to future engines and engine parts as these operating leases expire
enabling the Company to disassemble the engines for parts thereby enhancing the
residual values.
Acquisitions in Current Markets. As a result of its concentration in
certain niche markets, the Company's management develops intimate knowledge of
other resellers serving similar product lines, which may be potential
acquisition candidates. The IASI acquisition expanded the Company's customer
base within its existing product lines, enhanced its product offering and
strengthened its distribution network.
Acquisitions in Adjacent Markets. The Company seeks to acquire companies
offering similar product lines to target markets in which the Company does not
have a significant presence, as well as new product lines. As a result of the
Aero Support acquisition, the Company now offers engines and engine parts to
customers in the large transport aircraft and commercial helicopter markets,
which were not previously served by the Company. The Company believes that
similar expansion may be achieved through the acquisition of companies offering
different product lines than that of the Company, such as resellers of avionics
equipment and airframes.
Future Acquisition Strategies. In the future, the Company will consider
acquisitions aimed at gaining market share through the acquisition of competing
and complementary businesses. In addition, the Company may seek to vertically
integrate its operations by adding engine parts refurbishing and manufacturing
facilities, and avionics refurbishing facilities.
INDUSTRY OVERVIEW
The market for commercial engine parts, consisting of new and refurbished
parts, is approximately $3.0 billion, as estimated by the Canaan Group, a
consulting firm that tracks the aviation market. The $2.5 billion new parts
market includes parts manufactured by OEMs and third-party manufacturers. The
$500 million refurbished parts market includes parts refurbished by third-party
manufacturers and overhaul facilities. In addition, the market for whole engines
is estimated to be $7.0 billion and includes the sale and leasing of new and
overhauled engines. The Company competes in the entire $10.0 billion market for
engines and engine parts.
The demand for after-market engine parts is driven primarily by flying
hours or cycles (defined as a take-off or landing). Regardless of the
profitability of the airline industry, regulations require that parts be
serviced 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, which has historically been volatile.
The engine and 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. Operators have in
turn extended this requirement to independent dealers. The expense and
sophistication required to track the history of inventory consisting of
thousands of components is considerable and provides a barrier to entry into the
aircraft engine parts after-market. In addition to the
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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
parts 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
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 ENGINE AND ENGINE PARTS 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 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. After about five years, engine parts tend
to become available on the surplus market. This availability is the result of
three primary factors: (i) when aircraft and engines are sold, supporting
inventories may be sold to third parties, (ii) the development of repair
scenarios provides a supply of overhauled and serviceable parts, and (iii) with
experience, operators become better able to forecast their need for a particular
engine part, enabling them to sell excess new part inventories.
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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. The Company is active in most of these segments, either directly
through in-house activity or indirectly, by contracting refurbishment work to
third-party suppliers.
OPERATING APPROACH
The principal elements of the Company's operating approach are as
follows:
Continue Strong Quality Orientation. The Company's management believes that
its comprehensive quality program is among the best in the 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. In addition, the Company received
certification under ISO 9002 from the International Standards Organization
("ISO"). ISO's comprehensive evaluation system seeks to ensure satisfaction of
customer requirements, documentation of quality management systems and
verification that a product or service is designed, delivered and maintained in
accordance with specific requirements. The ISO 9002 designation indicates a
quality assurance standard recognized by leading businesses throughout the
world. The Company believes it was the first reseller of commercial jet engines
and engine parts in the world to receive such certification, which provides a
distinctive competitive advantage in the marketplace. In response to recent
airline tragedies and resultant increased scrutiny of airline safety, airlines
and maintenance repair facilities are demanding internationally recognized
quality assurance certification as a condition of doing business.
The Company is one of the few vendors in the industry to have invested in a
sophisticated optical imaging system for documentation storage and retrieval.
This system, which includes a WORM (write once, read many) drive, provides a
high degree of traceability by serial number for engine parts sold by
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the Company. The FAA accepts this form of electronic documentation as the
equivalent of original documents.
Additional Knowledgeable Personnel. The market for engine parts is highly
specialized and technically complex. The Company believes that its success
depends heavily on the high level of technical and engineering knowledge and
experience possessed by its personnel. The Company continues to add to its
technically proficient personnel as its business expands and through the
acquisition of competing and complementary businesses.
Significant Focus on a Limited Number of Market Niches. To date, the
Company has specialized in engine parts for Pratt & Whitney engines, which
represent the largest segment of the commercial jet engine and engine parts
after-market. The Company believes that demand in this segment will increase as
the JT9D engine continues to mature. The Company recently expanded its Pratt &
Whitney business to include the PWA 4000 engine. The IASI acquisition expanded
the Company's Pratt & Whitney market dominance as well as introduced the CFM-56
into the Company's product line. This diversification into the CFM-56 engines
extends the life cycle of the Company's products. The Aero Support acquisition
diversified the Company's products into the turbojet engine and engine parts
marketplace by adding the Allison (Roll Royce) T56/501 and A250 engines and
parts.
Optimize Inventory. The Company manages its inventory carefully by:
purchasing both whole engines and individual engine parts through
well-structured transactions; disassembling engines for parts when market
conditions are favorable; closely monitoring the refurbishment of selected parts
by high quality subcontractors; maintaining a high level of documentation at all
stages of the process; and storage of the engine parts in a carefully controlled
environment. In addition, the Company's management has developed a systematic
approach and management procedures to assess demand for engines and engine
parts. The Company believes that its ability in structuring and financing
inventory purchase transactions is critical to its success.
Expand Marketing Relationships. The Company maintains close relationships
with a variety of key customers, including OEMs, repair facilities, domestic and
international airlines and other distributors. The Company has received approved
supplier status from a broad customer base throughout the world.
Increase Capital Resources. It is critical for the Company to have the
capital to act quickly when purchasing opportunities present themselves. In
addition, increasing the Company's access to capital markets to finance working
capital requirements will allow the Company to take advantage of opportunities
such as leasing, inventory outsourcing and long-term inventory management
contracts.
PRODUCTS
Engine spare parts are purchased by customers in both the commercial and
military sectors. The Company is active in the commercial aircraft sector, which
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. With the recent
acquisition of Aero Support, the Company has added certain military customers
for turbojet engines and engine parts for large transport aircraft and
commercial customers for helicopters. The Company has not entered the turboprop
market which is typically low-end in terms of cost per unit.
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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 PWA 4000 engine, as well as narrow-body engines such as the
Pratt & Whitney JT8D and PWA 2000 engines. The JT9D and PWA 4000 power the
Boeing 747, 767, and 777 aircraft, McDonnell Douglas DC-10 and MD-11 and the
Airbus A300/310/330, and the JT8D and PWA 2000 engines power the Boeing 727, 737
and 757 aircraft as well as the McDonnell Douglas MD-80 and DC-9 series
aircraft. Moreover, the Company 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 also provides
Allison (Rolls Royce) T56/501 turbojet engines and engine parts which power the
military's Hercules C-130 aircraft and similar large transport aircraft and
Allison 250 turbojet engines and engine parts which power a range of commercial
helicopters.
Purchasers of engine parts have strict approval processes through which a
company may achieve status as an approved supplier for such purchaser. Some
purchasers will do business only with a very limited number of approved
suppliers. Since the Company's founding, it has achieved approved supplier's
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, the Company also maintains active relationships with
many other customers that utilize a broader list of approved suppliers.
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. The 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. The Company 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
13,000 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.
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 older JT8D engines will
be in service for at least ten more years, and the 200 Series JT8D engines will
be in service for at least twenty more years.
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The PWA 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 PWA 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 PWA 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 PWA 4000 Engine. In 1982, Pratt & Whitney launched development of the
PWA 4000 Series turbofan-an all-new commercial jet engine series with improved
fuel efficiency and higher takeoff thrust rating. The PWA 4000 entered
commercial service in mid 1987. The PWA 4000 is designed for use on current and
advanced versions of such 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. The CFM-56 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 CFM-56 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 T56/501 Engine. The T56/501 engine is used to power the widely used
military transport aircraft, the Hercules C-130, manufactured by Lockheed. Over
17,000 engines have been produced.
The A250 Engine. The A250 engine is used to power a wide range of
helicopters manufactured by Bell, McDonnell Douglas and Eurocopter. There are
16,000 engines currently in use by 2,700 helicopter operators.
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 (i)
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, (ii) a member of the Airline Suppliers
Association for which the Company is an accredited distributor under the
provisions of FAA AC 00-56, and (iii) is listed in the European Aerospace
Suppliers Register. In addition, in September 1996, the Company received
certification under
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ISO 9002. The ISO 9002 designation indicates a quality assurance standard
recognized by leading companies throughout the world. The Company believes it
was the first after-market supplier of commercial jet engines and engine parts
in the world 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 engine parts sold by the Company.
TRADEMARKS AND DESIGN PATENTS
The Company either owns or has applied for various trade names and
trademarks in the United States (and abroad), for use with its products. The
Company believes that its trade names and trademarks are well recognized within
the aviation industry. The Company also believes that the loss of any trade name
and/or trademark would not have a material adverse effect on its business
operations.
CUSTOMERS
The Company's customers include airlines, OEMs, lessors, operators of
refurbishment facilities and other independent dealers. These customers include
American, Delta, Lufthansa, Swissair and Singapore Airlines, Daimler-Benz, Pratt
& Whitney and GE Aircraft Engine Services. For the years ended December 31,
1997, 1996 and 1995, the five largest customers collectively accounted for
approximately 38%, 55% and 96% of the Company's consolidated revenues. 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, consolidated financial
condition, results of operations or cash flows.
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 OEMs. 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 include companies such as AAR Corp. and AGES Group.
There are approximately 10 to 15 midsize competitors, which include the Company.
Over 50 small after-market suppliers and brokers generate a large portion of the
market revenue. 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. The Company competes based on its
ability to deliver parts on a "just-in-time" basis, the breadth of its product
offering, quality assurance and part traceability, proven technical capabilities
and price. 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, consolidated
financial condition, results of operations or cash flows.
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 engine parts from brokers, distributors,
repair facilities and airlines. The listing includes the quantity of parts
available,
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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.
GOVERNMENT REGULATION
The aviation industry is highly regulated in the United States by the FAA
and the equivalent regulatory agencies in other countries. While the business
of selling after-market engines and engine parts is not regulated by the FAA,
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.
Before engine components may be installed in an aircraft engine, they must
meet certain standards of airworthiness established by the FAA or the equivalent
regulatory agencies in other countries. Specific regulations vary from country
to country, although regulatory requirements in other countries are generally
satisfied by compliance with FAA requirements. Engine components must also be
traceable to sources deemed acceptable by such agencies. Although the Company
believes it complies with the highest level of such regulatory standards,
standards may change in the future, requiring engine components already
contained in the Company's inventory to be scrapped or modified. Aircraft engine
manufacturers may also develop new engine components to be used in lieu of
engine components already contained in the Company's inventory. In all such
cases, to the extent that the Company has such engine components in its
inventory, their value may be reduced.
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 a material
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 current nature of
the Company's business there is little or no direct cost associated with such
compliance.
PRODUCT LIABILITY
The Company's business exposes it to possible claims for personal injury or
death which may result from the failure of an aircraft spare part or engine sold
by it. While the Company maintains what it believes to be adequate aviation
product liability insurance to protect it from such claims, and while no
material claims have, to date, been made against the Company, no assurance can
be given that claims will not arise in the future or that such insurance
coverage will be adequate. Although, the Company currently maintains insurance
coverage in the amount of $500 million on an aggregate and per claim basis,
there can be no assurance that insurance coverage can be maintained in the
future at an acceptable cost. Any such liability not covered fully or partially
by insurance or third-party indemnification could have a material
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adverse effect on the consolidated financial condition, results of operations or
cash flows of the Company.
EMPLOYEES
As of December 31, 1997, the Company had 65 full-time employees. None of
the Company's employees are members of a labor union. The Company believes that
its relations with its employees are good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC SALES
Total revenues derived from sales to domestic and international customers
accounted for 79% and 21%, respectively, for the year ended December 31, 1997,
77% and 23%, respectively, for the year ended December 31, 1996 and 95% and 5%,
respectively, for the year ended December 31, 1995.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company owns its newly built 45,000 square foot office facility located
on 2.5 acres in the Sawgrass International Corporate Park, Sunrise, Florida
which is near Fort Lauderdale, Florida. The Company's address is 14000 N.W. 4th
Street, Sunrise, Florida 33325. As of December 31, 1997, the property was
subject to a mortgage held by BankAtlantic with a remaining balance of
$1,079,787, which was fully repaid in January 1998.
The Company leases a 29,200 square foot facility, assumed in connection
with the acquisition of IASI, located at 821/837 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 $21,771 per month, subject to increases each year based on the
consumer price index.
The Company leases a 8,500 square foot facility of office and warehouse
space entered into in connection with the acquisition of Aero Support, located
at 44 Hudson Street, New York, New York 10013. The lease provides for an initial
term ending on September 9, 1998 with an option on the part of the Company to
extend the term for a one-year and then five-year period. The annual rent
payable for the initial term is $50,000 and for the initial extension is
$132,000, in the case of each extension, on a triple net basis. The rent for the
five-year extension will be based on market conditions at the time of renewal.
The Company leases a 4,000 square foot facility of office and warehouse
space, assumed in connection with the acquisition of Aero Support, located at
112 Turn Row, Lafayette, Louisiana 70502. The lease provides for a term ending
September 30, 2001 at a base rental of $14,400 per year plus certain operating
expenses.
In addition, the Company's Board of Directors has approved the construction
of a new facility in the Sawgrass International Corporate Park area, which is
near Fort Lauderdale, Florida in anticipation of the expiration of the IASI
Lease and the consolidation of operations in a single location. The new facility
will consist of approximately 195,000 square feet of office and warehouse space.
The final cost of the new facility is estimated to be approximately $9,500,000.
(See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources".)
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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.
No matters were submitted to a vote of stockholders of the Company during
the fourth quarter of the fiscal year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since June 1997, the Company's Common Stock has been listed on The Nasdaq
Stock Market ("NASDAQ")-National Market under the symbol "KELL." Prior to that
date, the Company's Common Stock was listed on the NASDAQ-SmallCap Market under
the same symbol.
The following table sets forth the range of high and low bid prices for the
Common Stock for the period from January 1996 to December 1997, as reported by
NASDAQ. The quotes represent "Inter-dealer" prices without retail markups,
markdowns or commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock
High Low
<S> <C> <C>
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
Year Ended December 31, 1997:
First Quarter $14 7/8 $8 1/4
Second Quarter $17 1/8 $11 7/8
Third Quarter $21 7/8 $15
Fourth Quarter $27 1/2 $17 1/8
</TABLE>
As of February 27, 1998, there were 8,170,080 shares of Common Stock
outstanding, held by 60 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 February 27, 1998 was $24 per share.
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The Company 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 Company's business operations and, accordingly, the Board does not
anticipate declaring any dividends in the foreseeable future.
ISSUANCE OF UNREGISTERED SECURITIES DURING 1997
All of the transactions listed below involve the issuance of securities of
the Company in reliance upon Section (4)2 of the Securities Act of 1933, as
amended.
On January 15, 1997, in connection with the acquisition of substantially
all of the assets and certain liabilities of IASI, the Company issued to IASI a
warrant to acquire 500,000 shares of Common Stock at an exercise price of $9.25
per share, expiring January 15, 1999. During January 1998, the 500,000 warrants
were exchanged for 274,390 shares of the Company's Common Stock.
On January 15, 1997, in connection with the senior subordinated debt
financing related to the IASI acquisition, the Company issued a warrant to The
Equitable Life Assurance Society to acquire 305,660 shares of Common Stock at an
exercise price of $10.00 per share, expiring on January 15, 2004.
On January 15, 1997, in connection with the bridge financing related to the
IASI acquisition, the Company issued warrants to Scoggin Capital Management LP,
Bedford Falls Investors LP, Metropolitan Capital Advisors LP, Diversified
Strategic Funds LP, Metropolitan Capital Advisors International, Ltd to acquire
an aggregate 85,625 shares of Common Stock at an exercise price of $10.00 per
share, expiring on April 15, 2000.
On September 10, 1997, in connection with the acquisition of substantially
all of the assets and liabilities of Aero Support, the Company issued to Aero
Support (i) a warrant to acquire 75,000 shares of Common Stock at an exercise
price of $22.00 per share, expiring September 9, 2000, and (ii) two warrants to
acquire an aggregate of 175,000 shares of Common Stock at an exercise price of
$19.00 per share, expiring September 9, 2002.
On September 10, 1997, in connection with the acquisition of Aero Support,
the Company issued to Helix Capital Corporation, LLC, (i) a warrant to acquire
2,250 shares of Common Stock at an exercise price of $22.00 per share expiring
September 9, 2000, and (ii) a warrant to acquire 5,250 shares of Common Stock
at an exercise price of $19.00 per share expiring September 9, 2002, relating
to services performed by Helix.
On October 10, 1997, the Company sold $50,000,000 aggregate principal
amount of 5 3/4% Convertible Subordinated Notes due 2002, to BT Alex. Brown for
resale to certain qualified institutional buyers. On November 14, 1997, BT Alex.
Brown exercised its overallotment option and acquired an additional $4,000,000
of such notes for resale to certain qualified institutional buyers. The Notes
are convertible into shares of Common Stock at a conversion price of $27.50 per
share. The aggregate net proceeds to the Company from the sale of the notes was
approximately $52,209,819.
ITEM 6. SELECTED FINANCIAL DATA
The financial data set forth below should be read in conjunction with the
Company's consolidated financial statements and notes thereto included elsewhere
herein. See also "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCEPTION
DECEMBER 28,
1993 THROUGH
DECEMBER 31,
1997 1996 1995 1994
_______ _______ _______ _______
(IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
Total revenues $79,439 $24,922 $ 8,579 $ --
Total operating expenses 61,828 20,168 7,062 --
Net operating income 17,611 4,753 1,517 --
Interest expense, net of interest income 3,991 645 (225) (309)
Non-operating expenses -- -- 1,110 317
Income taxes 5,077 1,462 257 --
------- ------- ------- -------
Net income (loss) $ 8,543 $ 2,646 $ 374 $ (8)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1997 1996 1995 1994
------ ------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total current assets $ 53,333 $ 19,655 $ 15,689 $ 685
Total current liabilities 19,020 8,565 6,019 100
Total assets 134,361 29,545 21,918 11,483
Non-current obligations 65,430 2,819 2,760 --
Stockholders' equity 49,912 18,161 13,139 9,227
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following should be read in conjunction with the Company's consolidated
financial statements and the related notes thereto included elsewhere herein.
The Company, 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 enter into a business combination with an operating
business. In April 1994, the Company consummated the initial public offering. On
June 22, 1995, the Company completed the acquisition of substantially all of the
assets and liabilities 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, the Company
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 actual operating results
of the Company for the years ended December 31, 1997, 1996 and 1995 as reported
in the Company's consolidated financial statements included elsewhere herein.
On January 15, 1997, the Company through a wholly-owned subsidiary
completed the acquisition of substantially all of the assets and certain
liabilities of IASI for approximately $25,100,000 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 18(b) to the Company's consolidated financial
statements for a pro forma consolidated combined statements of earnings for the
years ended December 31, 1997 and 1996.) During January 1998, the 500,000
warrants were exchanged for 274,390 shares of the Company's Common Stock.
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 September 10, 1997, the Company through a wholly-owned subsidiary
completed the acquisition of substantially all of the assets and certain
liabilities of Aero Support for approximately $2,100,000 in cash and
approximately $11,700,000 in short-term notes payable, plus 3-5 year warrants to
purchase up to 250,000 shares of the Company's Common Stock at $19.00-22.00 per
share. (See Note 18(b) to the Company's consolidated financial statements for a
pro forma consolidated combined statements of earnings for the years ended
December 31, 1997 and 1996.)
On September 24, 1997, the Company through a wholly-owned subsidiary
completed the acquisition of a portfolio of commercial aircraft and jet engines,
all of which were under operating leases from Aerocar Aviation Corp. The leases
expire beginning in early 1998 through the spring of 2002. The consideration
paid by the Company consisted of approximately $20,300,000 in cash.
On October 10, 1997, the Company completed a private placement of
$50,000,000 aggregate principal amount of 5 3/4% Convertible Subordinated Notes
(the "144A Notes") due 2002, plus an additional $4,000,000 to cover
overallotments to BT Alex. Brown for resale to certain qualified institutional
buyers under Rule 144A under the Securities Act of 1933, as amended. Proceeds
from the offering were used for repayment of indebtedness, the purchase of
inventory, and general corporate purposes including acquisitions of
complementary businesses.
On February 27, 1998, the Company signed a definitive agreement to acquire
privately held Integrated Technology Corporation ("ITC") for approximately
$20,225,000 in cash plus an earn-out
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payable over a three-year period based on certain specified criteria. In
addition, the Company received a three-year option to purchase a 49% interest in
a related FAA-approved overhaul facility.
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, package size 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. A large portion of the Company's operating expenses are relatively
fixed. Since the Company typically does not obtain long-term purchase orders or
commitments from its customers with respect to the sale of engines or engine
parts, it must anticipate the future volume of orders based upon the historic
purchasing patterns of its customers and upon its discussions with its
customers as to their future requirements. Cancellations, reductions or delays
in orders by a customer or group of customers could have a material adverse
effect on the Company's business, consolidated financial condition, results of
operations or cash flows. Therefore, comparisons 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 Board of Directors has approved the construction of a new
facility in the Sawgrass International Corporate Park area, which is near Fort
Lauderdale, Florida in anticipation of the expiration of the IASI Lease and
the consolidation of operations in a single location. The new facility will
consist of approximately 195,000 square feet of office and warehouse space. The
final cost of the new facility is estimated to be approximately $9,500,000.
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
$17,796 for the year ended December 31, 1997, the Company anticipates that it
may incur greater bad debt losses in the future as its customer base grows and
the Company experiences greater exposure to its customers as a result, in part,
of the implementation of its program for the leasing of aircraft engines
airframes. There can be no assurance that the Company will not incur significant
bad debt losses in the future.
RESULTS OF OPERATIONS
Years Ended December 31, 1997 and 1996
Net sales of aircraft and engine parts increased by 198% to $71,534,539 for
the year ended December 31, 1997 as compared to $24,019,999 for the year ended
December 31, 1996. The increase in net sales of aircraft and engine parts was
primarily due to (i) incremental sales of approximately $23,800,000 related to
the acquisition of the IASI operations, (ii) internal growth of sales of
approximately $16,900,000 primarily due to additional inventory availability as
a result of the Company's increased capital resources, and (iii) incremental
sales of approximately $6,800,000 related to the acquisition of the Aero Support
operations.
Rental revenues increased by 777% to $7,904,610 for the year ended December
31, 1997 as compared to $901,588 for the year ended December 31, 1996. The
increase in rental revenues was
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primarily due to (i) the Company's continued expansion into the short-term
leasing business through purchases of individual assets resulting in incremental
rental revenues of approximately $5,500,000 and (ii) the purchase of a portfolio
of commercial aircraft and jet engines during the fourth quarter of 1997
resulting in additional rental revenues of approximately $1,500,000.
Cost of goods sold increased by 199% to $46,800,589 for the year ended
December 31, 1997 as compared to $15,649,127 for the year ended December 31,
1996; the gross profit margin decreased to 34.6% in 1997 from 34.9% in 1996.
The increase in cost of goods sold was primarily due to the increased
sales volume associated with the IASI and Aero Support operations as well as
continued internal sales growth within the Company.
Depreciation of equipment under operating leases increased by 684% to
$4,594,399 for the year ended December 31, 1997 as compared to $586,032 for the
year ended December 31, 1996. The increase in depreciation of equipment under
operating leases was primarily due to (i) the Company's expansion into the
short-term leasing business through purchases of individual assets resulting in
incremental depreciation expense of approximately $3,300,000 and (ii) the
purchase of a portfolio of commercial aircraft and jet engines during the fourth
quarter of 1997, resulting in additional depreciation expense of approximately
$700,000.
Selling, general and administrative expenses increased by 154% to
$8,877,598 for the year ended December 31, 1997 as compared to $3,491,457 for
the year ended December 31, 1996; however, as a percentage of total revenues,
selling, general and administrative expenses decreased to 11.2% in 1997 from
14.0% in 1996. The increase in selling, general and administrative expenses was
primarily due to expenses of approximately $2,900,000 related to the continuing
operations of IASI and Aero Support. In addition, approximately $2,500,000
related to the continued expansion of the Company's sales and warehouse
operations in order to support a higher level of revenue and a corresponding
greater number of whole engine and engine component transactions, and the
continued addition of marketing and management personnel necessary to achieve
and administer the revenue growth opportunities that are available due to the
Company's expanded level of inventory investment. Selling, general and
administrative expenses as a percentage of total revenues decreased primarily
due to economies of scale and operating efficiencies. The Company expects
selling, general and administrative expenses to continue to increase due to the
Company's growth plans and need for additional personnel and facilities to
support the Company's operations.
Depreciation and amortization expense increased by 252% to $1,555,673 for
the year ended December 31, 1997 as compared to $441,854 for the year ended
December 31, 1996; however, as a percentage of total revenues, depreciation and
amortization expense increased to 2.0% in 1997 from 1.8% in 1996. The increase
in depreciation and amortization expense was primarily due to amortization of
goodwill related to the IASI and Aero Support acquisitions.
Interest expense (net of interest income) increased by 519% to $3,991,212
for the year ended December 31, 1997 as compared to $644,527 for the year ended
December 31, 1996. The increase in interest expense was primarily due to
interest expense and related costs of approximately $3,000,000 for the
$35,600,000 and $17,300,000 of debt assumed and incurred related to the
acquisitions of IASI and Aero Support, respectively, as well as interest expense
of approximately $400,000 related to the overall increases in the Company's debt
levels due to the investment in equipment under operating leases. The Company
expects interest expense to continue to increase as the Company continues to
expand its inventory levels and facilities to support future growth in
operations and completes acquisitions funded
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by debt. There can be no assurance, however, that the Company's operations will
expand or that it will complete any material acquisitions.
Net income increased by 223% to $8,542,519 for the year ended December 31,
1997 as compared to $2,646,343 for the year ended December 31, 1996. Basic
earnings per common share increased by 31% to $1.18 for the year ended December
31, 1997 as compared to $0.90 for the year ended December 31, 1996. Diluted
earnings per common share increased by 70% to $0.95 for the year ended December
31, 1997 as compared to $0.56 for the year ended December 31, 1996.
Years Ended December 31, 1996 and 1995
Net sales of aircraft and engine parts increased by 180% to $24,019,999 for
the year ended December 31, 1996 as compared to $8,579,017 for the year ended
December 31, 1995. The increase in net sales of aircraft and engine parts was
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.
Rental revenues increased by 100% to $901,588 for the year ended December
31, 1996 as compared to no rental revenue for the year ended December 31, 1996.
The increase in rental revenues was primarily due to the Company entering into
two new operating leases during the year ended December 31, 1996.
Cost of goods sold increased by 191% to $15,649,127 for the year ended
December 31, 1996 as compared to $5,378,053 for the year ended December 31,
1995; however, gross profit margins decreased to 34.9% in 1996 from 37.3% in
1995. The increase in cost of goods sold was primarily due to increased sales
volume and a shift in the sales mix during 1996. During the year ended December
31, 1995, the gross profit margin was unusually high as a result of several
large, very profitable engine sales. The Company does not anticipate that the
unusually high gross profit margins experienced in the fourth quarter of 1995
will continue on a regular basis.
Depreciation of equipment under operating leases increased by 100% to
$586,032 for the year ended December 31, 1996 as compared to no depreciation of
equipment under operating leases for the year ended December 31, 1995. The
increase in depreciation of equipment under operating leases was primarily due
to the depreciation associated with the two new operating leases entered into
during the year ended December 31, 1996.
Selling, general and administrative expenses increased by 136% to
$3,491,457 for the year ended December 31, 1996 as compared to $1,482,048 for
the year ended December 31, 1995; however, as a percentage of total revenues,
selling, general and administrative expenses decreased to 14.0% in 1996 from
17.3% in 1995. The increase in selling, general and administrative expenses was
primarily due to 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 by 118% to $441,854 for the
year ended December 31, 1996 as compared to $202,331 for the year ended December
31, 1995; however, as a percentage of total revenues, depreciation and
amortization decreased to 1.8% in 1996 from 2.4% in 1995. The increase in
depreciation and amortization expense was primarily due to increased
depreciation
21
<PAGE>
<PAGE>
expense resulting from the expansion of the Company's office and warehouse
facilities during the year ended December 31, 1996.
Interest expense (net of interest income) increased by 186% to $644,527 for
the year ended December 31, 1996 as compared to net interest income of $225,452
for the year ended December 31, 1995. The increase in interest expense was
primarily due to the increase in the 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.
Net income increased by 607% to $2,646,343 for the year ended December 31,
1996 as compared to $374,439 for the year ended December 31, 1995. Basic
earnings per common share increased by 543% to $0.90 for the year ended December
31, 1996 as compared to $0.14 for the year ended December 31, 1995. Diluted
earnings per common share increased by 460% to $0.56 for the year ended December
31, 1996 as compared to $0.10 for the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES.
As of December 31, 1997, the Company's liquidity and capital resources
included cash and cash equivalents of $462,676 and working capital of
$34,313,730. As of December 31, 1997, total outstanding debt was $73,088,800 as
compared to $8,187,595 as of December 31, 1996. As of December 31, 1997, the
outstanding principal balance on the 144A Notes was $54,000,000 and the Company
had contractual lines of credit totaling $55,000,000 of which $27,048,011 was
available.
Cash flows used in operating activities for the year ended December 31,
1997 was $22,356,482 compared with $2,622,996 for the year ended December 31,
1996. The primary uses of cash for operating activities during the year ended
December 31, 1997 was due to purchases of equipment under operating leases of
$51,891,994 and an increase in accounts receivable and prepaid expenses with a
corresponding decrease in accounts payable which amounted to $8,183,434. The
primary sources of cash for operating activities for the year ended December 31,
1997 was due to a decrease in inventory and increase in accrued expenses which
amounted to $22,504,327, coupled with net income of $8,542,519 and total
depreciation and amortization of $6,910,091.
Cash flows used in investing activities for the year ended December 31,
1997 was $28,952,749 compared with $2,540,491 for the year ended December 31,
1996. The primary uses of cash for investing activities for the year ended
December 31, 1997 was related to the acquisitions of IASI and Aero Support for
$27,709,430 and purchases of property, plant and equipment for $2,418,677,
offset by proceeds from the sale of investment securities of $428,499.
On January 15, 1997, the acquisition of IASI was completed and primarily
financed through the issuance of $15,000,000 in senior subordinated debt (the
"Senior Debt") and warrants, as well as 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 ("Union Bank")
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 accrued daily and ranged from .50% to 1.00%
above Union Bank's prime rate, and was payable monthly. In March 1997, the
remaining balance outstanding on this credit facility was fully repaid.
22
<PAGE>
<PAGE>
The Company entered into certain short-term equipment leases during the
years ended December 31, 1997 and 1996, and acquired certain other equipment
under lease as part of the IASI acquisition. The Company continues to believe
this activity should allow it to liquidate the remaining maintenance value of
jet engines on a profitable basis by realizing both rental revenue as well as
maintenance reserve fees charged to the Company's engine lease customers for
their utilization of such engines. Upon the full consumption of the remaining
maintenance value of the equipment, the Company will evaluate the equipment's
condition in order to determine if such equipment should be refurbished or
should be disassembled into piece parts in support of the Company's parts supply
business. These leases are accounted for as operating leases.
The Company's acquisition of Aero Support was financed primarily through
the issuance of short-term notes payable, which were due from September 1997 to
January 1998, the Company's working capital and warrants. The Company also
assumed Aero Support's existing debt of $3,498,537, which was immediately paid
by the Company upon consummation of the acquisition. The amount of short-term
notes payable as of the date of acquisition and December 31, 1997 was
$11,687,867 and $2,688,410, respectively. Interest on the remaining short-term
notes payable accrued at an annual rate equal to the prime rate and was fully
repaid during January 1998.
Cash flows provided by financing activities for the year ended December 31,
1997 was $51,617,653 compared with $5,106,870 for the year ended December 31,
1996. The primary sources of cash for financing activities for the year ended
December 31, 1997 related to proceeds from the issuance of the 144A Notes of
$54,000,000 and issuance of Common Stock of $20,776,420, offset by repayments of
debt incurred and assumed of $18,363,997 and payment of deferred financing costs
of $4,432,355.
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 arrangement
reduced the interest rate paid by the Company from 1% above BankAtlantic's prime
rate to 1/8% below Barnett's prime rate or, at the Company's option, to LIBOR
plus 275 basis points. Indebtedness under the Revolving Loan Agreement was
secured by substantially all the Company's assets. The advance rate formulas
under this 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 total
revenues.
On April 24, 1997, in order to modify and consolidate its current credit
facilities, the Company entered into a $55,000,000 revolving loan agreement with
Barnett Bank, N.A. The loan bears interest at .25% below the bank's prime rate
(which was 8.25% at February 27, 1998) and is due on April 24, 1998. On April
28, 1997, utilizing funds from the new facility, the Company paid $13,640,774 to
fully satisfy the existing credit lines outstanding with Union Bank. The new
loan agreement is secured by substantially all of the Company's assets.
Effective March 11, 1998, the Company's credit facility has been expanded to
a three-year $100,000,000 lending agreement. The interest rate under the new
expanded credit facility is .25% below the bank's prime, or at the Company's
option, LIBOR plus 175-275 basis points.
During the year ended December 31, 1997, the Company's highest utilization
of its Barnett Bank $55,000,000 working capital line was $26,868,581. The
outstanding balance at December 31, 1997 on the Barnett Bank revolving credit
facility was $4,070,603.
As of December 31, 1997, the Company had a first mortgage of $1,079,787
(including a $750,000 construction/mortgage loan) held by BankAtlantic and
secured by the Company's office and warehouse facilities. 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
23
<PAGE>
<PAGE>
payment of $20,238 due May 2005. During January 1998, the Company fully repaid
the first mortgage held by BankAtlantic.
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 3/4% 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 two
equal annual installments beginning January 15, 2002 and a final payment in the
amount of $1,250,000 payable on January 15, 2004. The outstanding balance at
December 31, 1997 on the Senior Debt was $11,250,000. An advance principal
payment of $3,750,000, along with a prepayment penalty of 1%, was made by the
Company on October 10, 1997 with the proceeds received from the 144A Notes
offering. Moreover, the Company may at its option, redeem up to an additional
$750,000 (along with a prepayment penalty of 1%) of principal amount of 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 $10,500,000.
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 with the
remaining amount of $5,000,000 being repaid on April 15, 1997.
On February 4, 1997, the Company called its publicly traded warrants
pursuant to their terms. There were 4,166,510 publicly traded warrants
outstanding at December 31, 1996. Each warrant entitled 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.
On September 24, 1997, the Company signed a definitive agreement with
Aerocar Aviation Corp. to purchase commercial aircraft and jet engines, all of
which were under operating leases, for $20,300,000 in cash. The portfolio
consists of aircraft and engines on leases expiring from early 1998 through
2002. The purchase is intended to enable the Company to enter the short-term
aircraft leasing business and to increase its whole engine leasing business. The
agreement with Aerocar Aviation Corp. closed on October 14, 1997, and was
financed with the net proceeds from the sale of the 144A Notes.
On October 10, 1997, the Company completed a private placement under Rule
144A of the Securities Act of 1933, as amended, of $54,000,000 aggregate
principal amount of the 144A Notes. Proceeds of the offering were used for
repayment of indebtedness, the purchase of inventory, acquisitions of
complementary businesses and general corporate purposes.
The Company plans to take advantage of growth opportunities that are
consistent with the Company's expansion and profit objectives. These growth
opportunities will require the investment of cash into inventories of jet
engines and jet engine parts. Greater availability of such inventories will
better enable the Company to continue to increase its revenues as well as to
encourage the development of strategic relationships with new customers. The
Company intends to finance its inventory expansion program through its credit
facilities, which were expanded in March 1998, and through the employment of
its cash flows along with the management of trade credits. In the future,
the Company may require additional sources of capital to continue to fund its
expansion.
The Company's Board of Directors has approved the construction of a new
facility in the Sawgrass International Corporate Park area, which is near Fort
Lauderdale, Florida in anticipation of the expiration of the IASI Lease and
the consolidation of operations in a single location. The new facility will
consist of approximately 195,000 square feet of office and warehouse space.
The final cost of the new facility is estimated to be approximately $9,500,000.
24
<PAGE>
<PAGE>
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 continues to evaluate
the expansion of its credit facility and to increase inventory purchases.
However, the Company may elect to seek equity capital in the future depending
upon market conditions and the capital needs of the Company.
YEAR 2000 ISSUE
The Company has developed plans to address the possible exposures related
to the impact on its computer systems of the Year 2000 problem. The plan
provides for the conversion efforts to be completed by the end of 1999. The Year
2000 problem is the result of computer programs being written using two digits
rather than four to define the applicable year. Management does not expect the
financial impact of making the required system changes to be material to the
Company's consolidated financial position, results of operations or cash flows
which are being funded through operating cash flows. The Company is expensing
all costs associated with these systems changes as the costs are incurred.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. SFAS 130 is effective for fiscal years beginning after
December 15, 1997. Management does not anticipate a significant impact of the
adoption of SFAS 130 on the Company's consolidated financial position, results
of operations or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that these enterprises report
selected information about operating segments in interim financial reports to
shareholders. SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997. Management does not anticipate a significant
impact of the adoption of SFAS 131 on the Company's consolidated financial
position, results of operations or cash flows.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS 132 standardizes the
disclosure requirements of SFAS 87 and SFAS 106 to the extent practicable and
recommends a parallel format for presenting information about pensions and other
postretirement benefits. SFAS 132 is effective for fiscal years beginning after
December 15, 1997. Management does not anticipate a significant impact of the
adoption of SFAS 132 on the Company's consolidated financial position, results
of operations or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
25
<PAGE>
<PAGE>
The Company's consolidated financial statements for the years ended
December 31, 1997, 1996 and 1995, and the respective notes thereto, are set
forth elsewhere in this report. An index of these financial statements appears
in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
26
<PAGE>
<PAGE>
PART III
The information required by Items 10, 11, 12 and 13 of Part III of Form
10-K will be set forth in the definitive Proxy Statement of the Company relating
to the 1998 Annual Meeting of Stockholders and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) The following consolidated financial statements are filed as part of this
Form 10-K:
Kellstrom Industries, Inc. Consolidated Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Earnings for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for years ended December 31, 1997,
1996 and 1995
Notes to Consolidated Financial Statements
(2) The following financial statement schedules are filed as part of this
Form 10-K:
Schedule II - Valuation and Qualifying Accounts
(3) See Index of Exhibits included elsewhere herein.
(b) Reports on Form 8-K:
On March 31, 1997, the Company filed an Amended Report on Form 8-K/A. The
Form 8-K/A was filed to incude the financial statements and pro forma financial
information relating to the Company's acquisition of substantially all of the
assets and certain liabilities of International Aircraft Support, L.P.
On November 24, 1997, the Company filed an Amended Report on Form 8-K/A.
The Form 8-K/A was filed to include the financial statements and pro forma
financial information relating to the Company's acquisition of substantially all
of the assets and certain liabilities of Aero Support USA, Inc.
27
<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 report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: March 23, 1998 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 President and Chief Executive March 23, 1998
- ------------------------ Officer and Director
Zivi R. Nedivi (principal executive officer)
/s/ Yoav Stern Chairman of the Board of Directors March 23, 1998
- ------------------------
Yoav Stern
/s/ John S. Gleason Executive Vice President March 23, 1998
- ------------------------ Treasurer and President
John S. Gleason of Kellstrom Commercial
Aircraft Division and Director
/s/ Michael W. Wallace Chief Financial Officer March 23, 1998
- ------------------------ (principal financial and
Michael W. Wallace accounting officer)
/s/ David Jan Mitchell Director March 23, 1998
- ------------------------
David Jan Mitchell
/s/ Niv Harizman Director March 23, 1998
- ------------------------
Niv Harizman
</TABLE>
28
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
_______________________
3.1 The Company's Restated Certificate of Incorporation (incorporated by
reference to Amendment No. 1 to Registration Statement on Form S-1,
Number 33-75750, filed with the Commission April 1, 1994).
3.2 The Company's By-laws (incorporated by reference to Amendment
No. 1 to Registration Statement on Form S-1, Number 33-75750, filed
with the Commission April 1, 1994).
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).
4.1 Indenture, dated as of October 10, 1997, by and between the Company
and First Union National Bank (incorporated by reference to the
Quarterly Report on Form 10-QSB filed with the Commission on
November 11, 1997).
4.2 Form of Note (included in Exhibit 4.1).
4.3 Registration Rights Agreement dated as of October 10, 1997 by and
between the Company and BT Alex. Brown Incorporated (incorporated by
reference to the Quarterly Report on Form 10-QSB filed with the
Commission on November 11, 1997).
10.1 Letter Agreement among each of the Stockholders of the Company, the
Company, and GKN Securities Corp. (without schedules) (incorporated by
reference to Registration Statement on Form S-1, Number 33- 75750, filed
with the Commission February 25, 1994).
10.2 Asset Purchase Agreement, dated February 15, 1995, among ITAC, Rada
Electronic Industries Limited, Tasco Electronics Inc. and the Company
(incorporated by reference to the Current Report on Form 8-K/A filed
with the Commission on March 14, 1994).
10.3* Management Agreement, dated January 1, 1997, between East Shore
Ventures, Inc. and the Company (incorporated by reference to the
Annual Report on Form 10-KSB filed with the Commission on March 31,
1997).
10.4* Employment Agreement, dated January 30, 1996, between Anthony Motisi and
the Company (incorporated by reference to the Annual Report on Form
10-KSB filed with the Commission on March 31, 1997).
10.5* Employment Agreement, dated January 1, 1996, between Paul F. Steele and
the Company (incorporated by reference to the Annual Report on Form
10-KSB filed with the Commission on March 31, 1997).
10.6* Employment Agreement, dated May 18, 1995, between John Gleason and the
Company (incorporated by reference to the Annual Report on Form 10-KSB
filed with the Commission on March 30, 1996).
10.7* Employment Agreement, dated October 25, 1996, between Fred von Husen and
the Company (incorporated by reference to the Annual Report on Form
10-KSB filed with the Commission on March 31, 1997).
10.8* Amendment No. 1 to Employment Agreement, dated February 14, 1997,
between John Gleason and the Company (incorporated by reference to
the Annual Report on Form 10-KSB filed with the Commission on March 31,
1997).
10.9* Employment Agreement, dated April 1, 1997, between Michael Wallace and
the Company.
29
<PAGE>
<PAGE>
10.10* Employment Agreement, dated October 25, 1996, between Donald E.
Reynolds and the Company.
10.11 Stockholders Agreement dated August 24, 1995 among Zivi R. Nedivi,
Joram D. Rosenfeld and Yoav Stern (incorporated by reference to the
Annual Report on Form 10-KSB filed with the Commission on March 30,
1996).
10.12 Amendment, dated January 15, 1996, to Stockholders Agreement dated
August 24, 1995, among Zivi R. Nedivi, Joram D. Rosenfeld and Yoav Stern
(incorporated by reference to the Annual Report on Form 10-KSB filed
with the Commission on March 31, 1997).
10.13 Stock Purchase Agreement dated August 24, 1995, between the Company and
Zivi R. Nedivi (incorporated by reference to the Annual Report on Form
10-KSB filed with the Commission on March 30, 1996).
10.14 Asset Purchase Agreement, dated October 28, 1996, by and among the
Company, a wholly owned subsidiary of the Company and IASI (incorporated
by reference to the Current Report on Form 8-K filed with the Commission
on January 23, 1997).
10.15 Form of Warrant dated January 15, 1997 between the Company and IASI
(incorporated by reference to the Current Report on Form 8-K filed with
the Commission on January 23, 1997).
10.16 Securities Purchase Agreement dated as of January 15, 1997 between the
Company and The Equitable Life Assurance Society of the United States
(incorporated by reference to the Annual Report on Form 10-KSB filed
with the Commission on March 31, 1997).
10.17 Amendment No. 1 to Securities Purchase Agreement dated February 14, 1997
between the Company and The Equitable Life Assurance Society of the
United States (incorporated by reference to the Annual Report on Form
10-KSB filed with the Commission on March 31, 1997).
10.18 Warrant dated January 15, 1997 between the Company and The Equitable
Life Assurance Society of the United States (incorporated by reference
to the Annual Report on Form 10-KSB filed with the Commission on March
31, 1997).
10.19 Note Purchase Agreement dated as of January 9, 1997 by and among the
Company and the Purchasers listed on Schedule I thereto (incorporated by
reference to the Annual Report on Form 10-KSB filed with the Commission
on March 31, 1997).
10.20 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
(incorporated by reference to the Annual Report on Form 10-KSB filed
with the Commission on March 31, 1997).
10.21 Form of warrant between the Company and the Purchasers listed on
Schedule I to the Note Purchase Agreement (incorporated by reference to
the Annual Report on Form 10-KSB filed with the Commission on March 31,
1997).
10.22 Revolving Loan Agreement dated as of March 11, 1998 by and between
the Company and Barnett Bank, N.A.
10.23 Letter Agreement dated March 28, 1997 by and between Helix Management
Company II, LLC and Helix Capital Services, LLC (collectively "Helix")
and the Company.
10.24 Rights Agreement, dated January 14, 1997, by and between the Company and
Continental Stock Transfer and Trust Company (incorporated by reference
to the Registration Statement on Form 8-K/A filed with the Commission
on January 16, 1997).
30
<PAGE>
<PAGE>
10.25* 1995 Stock Option Plan of the Company (incorporated by reference to the
Current Report on Form 8-K filed with the Commission on September 24,
1997).
10.26* 1996 Stock Option Plan of the Company (incorporated by reference to the
Annual Report on Form 10-KSB filed with the Commission on March 31,
1997).
10.27* 1997 Stock Option Plan of the Company.
10.28 Asset Purchase Agreement, dated September 10, 1997, by and among
Kellstrom Industries, Inc. and Aero Support Holdings, Inc., on the one
hand and Aero Support, U.S.A. Inc. Zvi Bar-On, Mordechai Markowicz and
Michael Navon, on the other hand. (incorporated by reference to the
Current Report on Form 8-K filed with the Commission on September 24,
1997).
10.29 Form of Warrant between the Company and Aero Support, USA, Inc.
(incorporated by reference to the Quarterly Report on Form 10-QSB filed
with the Commission on November 11, 1997).
10.30 Warrant dated September 10, 1997 between the Company and Helix.
10.31 Warrant dated September 10, 1997 between the Company and Helix.
21 Subsidiaries of the Registrant
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule
* Compensatory plan or agreement.
Kellstrom Industries, Inc.
Schedule II - Valuation and Qualifying Accounts
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additions- Additions- Deductions-
Balance at charged to based on uncollectible Balance at
beginning costs and purchase accounts end
Description of period expenses accounting written off of period
----------- --------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1997
Allowance for doubtful accounts $150,000 $ -- $167,990 $ 17,796 $ 335,786
Accumulated amortization-goodwill 409,863 1,145,663 -- -- 1,555,526
1996
Allowance for doubtful accounts $125,531 $ 24,469 $ -- $ -- $ 150,000
Accumulated amortization - goodwill 138,853 271,010 -- -- 409,863
1995
Allowance for doubtful accounts $ -- $ 11,000 $168,590 $ 54,059 $ 125,531
Accumulated amortization - goodwill -- 138,853 -- -- 138,853
</TABLE>
31
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as.............................. 'SS'
<PAGE>
<PAGE>
The following Consolidated Financial Statements are attached hereto:
<TABLE>
<CAPTION>
Page
____
<S> <C>
Kellstrom Industries, Inc. Consolidated Financial Statements:
Independent Auditors' Report F-1
Consolidated Balance Sheets at December 31, 1997 and 1996 F-2
Consolidated Statements of Earnings for the years ended December 31, 1997,
1996 and 1995 F-3
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997,
1996 and 1995 F-4
Consolidated Statements of Cash Flows for years ended December 31, 1997,
1996 and 1995 F-5
Notes to Consolidated Financial Statements F-9
</TABLE>
<PAGE>
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Kellstrom Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Kellstrom
Industries, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Kellstrom
Industries, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Ft. Lauderdale, Florida
February 27, 1998
F-1
<PAGE>
<PAGE>
ITEM I. FINANCIAL STATEMENTS
KELLSTROM INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
------------ -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 462,676 $ 154,254
Trade receivables, net of allowances for returns
and doubtful accounts of $335,786 and $150,000
for 1997 and 1996, respectively 10,189,082 4,023,298
Notes receivable 2,475,856 --
Inventories 35,965,376 13,059,402
Prepaid expenses 2,646,629 588,286
Income tax receivable 531,762 --
Deferred tax assets (Note 10) 636,115 --
Investment in securities (Note 5) 425,759 1,829,532
------------ -------------
Total current assets 53,333,255 19,654,772
Equipment under operating leases, net (Note 3) 39,932,388 2,663,968
Property, plant and equipment, net (Note 4, 7) 5,027,096 2,943,077
Goodwill, net 29,775,709 3,618,862
Deferred tax assets (Note 10) -- 287,594
Other assets 6,293,050 376,791
------------ ------------
Total Assets $134,361,498 $ 29,545,064
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable (Note 7) $ 6,759,013 $ 5,157,302
Current maturities of long-term debt and capital lease
obligations (Note 7) 1,079,787 211,068
Accounts payable 6,183,762 1,651,405
Accrued expenses (Note 6) 4,996,963 1,290,393
Income taxes payable -- 157,212
Deferred tax liabilities (Note 10) -- 97,718
------------ -------------
Total current liabilities 19,019,525 8,565,098
Long-term debt and capital lease obligations, less current
maturities (Note 7) 11,250,000 2,819,225
Convertible subordinated notes (Note 8) 54,000,000 --
Deferred tax liabilities (Note 10) 180,053 --
------------ -------------
Total Liabilities 84,449,578 11,384,323
Stockholders' Equity: (Note 11)
Preferred stock, $ .001 par value; 1,000,000 shares
authorized;
None issued -- --
Common stock, $ .001 par value; 20,000,000 shares
authorized; 7,879,356 shares and 3,315,308 shares
issued and outstanding in 1997 and 1996,
respectively 7,879 3,315
Additional paid-in capital 39,027,053 14,871,559
Retained earnings 11,555,161 3,012,642
Loans receivable from directors and officers (362,415) --
Unrealized (loss)/gain on investment securities, net (315,758) 273,225
------------- -------------
Total Stockholders' Equity 49,911,920 18,160,741
------------- -------------
Total Liabilities and Stockholders' Equity $134,361,498 $29,545,064
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Sales of aircraft and engine parts, net $ 71,534,539 $ 24,019,999 $ 8,579,017
Rental revenues 7,904,610 901,588 --
------------ ------------ ------------
Total revenues 79,439,149 24,921,587 8,579,017
Cost of goods sold (46,800,589) (15,649,127) (5,378,053)
Depreciation of equipment under operating leases (4,594,399) (586,032) --
Selling, general and administrative expenses (8,877,598) (3,491,457) (1,482,048)
Depreciation and amortization (1,555,673) (441,854) (202,331)
------------ ------------ ------------
Total operating expenses (61,828,259) (20,168,470) (7,062,432)
Operating income 17,610,890 4,753,117 1,516,585
SPAC operating costs and expenses -- -- (389,361)
Investment advisory expenses -- -- (720,795)
Interest expense (4,390,384) (662,528) (145,304)
Interest income 399,172 18,001 370,756
------------ ------------ ------------
Income before income taxes 13,619,678 4,108,590 631,881
Income taxes (Note 10) (5,077,159) (1,462,247) (257,442)
------------ ------------ ------------
Net income $ 8,542,519 $ 2,646,343 $ 374,439
============ ============ ============
Earnings per common share - basic $ 1.18 $ 0.90 $ 0.14
============ ============ ============
Earnings per common share - diluted $ 0.95 $ 0.56 $ 0.10
============ ============ ============
Weighted average number of common shares outstanding - basic 7,266,534 2,943,902 2,745,265
============ ============ ============
Weighted average number of common shares outstanding - diluted 9,394,439 4,759,890 3,609,956
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Loans
Common Stock Preferred Stock Retained Receivable Net unrealized
-------------------- --------------------- Additional Earnings/ from (loss)/gain on
Number Number Paid-in (Accumulated Directors Investment Stockholders'
of shares Amount of shares Amount Capital Deficit) and Officers Securities Equity
--------- ------ --------- ------ --------- -------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31,
1994 2,220,215 $2,220 -- -- $9,232,814 $ (8,140) -- -- $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
Exercise of
warrants 4,564,048 4,564 -- -- 20,771,856 -- -- -- 20,776,420
Issuance of
warrants
related to the
IASI and
Aero Support
acquisitions -- -- -- -- 1,853,192 -- -- -- 1,853,192
Issuance of
warrants in
lieu of
financing
fees provided
with
respect to
IASI
acquisition -- -- -- -- 1,530,446 -- -- -- 1,530,446
Borrowings on
loans
receivable -- -- -- -- -- -- (362,415) -- (362,415)
Unrealized
loss on
investment
securities,
net -- -- -- -- -- -- -- (588,983) (588,983)
Net income -- -- -- -- -- 8,542,519 -- -- 8,542,519
------------------- -------------------- ------------------------- -------------------- ----------
Balances,
December
31, 1997 $7,879,356 7,879 -- -- $39,027,053 $11,555,161 $(362,415) $(315,758) $49,911,920
===================== ==================== ========================= ===================== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,542,519 $ 2,646,343 $ 374,439
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 1,555,673 441,854 202,331
Depreciation of equipment under operating leases 4,594,399 586,032 --
Acquisition expenses paid through issuance of common stock -- -- 381,250
Amortization of deferred financing costs 760,019 30,172 4,132
Purchase of equipment under operating leases (51,891,994) (3,250,000) --
Deferred income taxes 80,631 12,285 (358,469)
Loss on sales of investment securities 38,051 -- --
Changes in operating assets and liabilities:
Increase in trade receivables, net (2,392,056) (704,273) (1,062,397)
Decrease (increase) in inventories 18,797,757 (621,351) (7,616,960)
Increase in prepaid expenses (3,042,546) (351,704) (121,284)
Decrease (increase) in other assets 330,878 (255,655) (4,763)
Decrease in accounts payable (2,748,832) (515,809) (366,250)
Increase in accrued expenses 3,706,570 431,661 551,457
(Increase) decrease in income taxes payable (687,551) (486,519) 540,587
------------- ------------- ------------
Net cash used in operating activities (22,356,482) (2,622,996) (7,475,927)
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of US Government securities -- -- 10,786,209
Proceeds from sale of Treasury bills -- -- 594,518
Purchase of investment securities -- (1,200,000) --
Purchase of KST assets, net of cash acquired -- -- (5,790,800)
Purchase of IASI assets, net of cash acquired (25,053,141) -- --
Proceeds from sales of investment securities 428,499 -- --
Purchase of Aero Support assets, net of cash acquired (2,656,289) -- --
Purchase of property, plant and equipment (2,418,677) (1,372,244) (262,974)
Proceeds from sales of property, plant and equipment 744,744 -- --
Other 2,115 31,753 --
------------- ------------- ------------
Net cash provided by (used in) investing activities (28,952,749) (2,540,491) 5,326,953
------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit agreement 1,086,699 -- --
Proceeds from the issuance of debt 21,000,000 27,577,960 2,250,000
Debt repayment, including capital lease obligation (40,450,696) (24,499,503) (943,560)
Proceeds from the issuance of subordinated debentures 54,000,000 -- --
Proceeds from the issuance of common stock 20,776,420 2,102,427 1,000,000
Borrowings for loans receivable from directors and officers (362,415) -- --
Payment of deferred financing costs (4,432,355) -- --
Other -- (74,014) (18,951)
------------- ------------- ------------
Net cash provided by financing activities 51,617,653 5,106,870 2,287,489
------------- ------------- ------------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 308,422 (56,617) 138,515
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 154,254 210,871 72,356
------------- ------------- ------------
CASH & CASH EQUIVALENTS, END OF PERIOD $ 462,676 $ 154,254 $ 210,871
============= ============= ============
</TABLE>
(continued)
See accompanying notes to consolidated financial statements
F-5
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
------------- ------------ ------------
<S> <C> <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
============= ============ ============
IASI assets acquired for warrants $ 1,173,134 $ -- $ --
============= ============ ============
Aero Support assets acquired for warrants $ 680,058 $ -- $ --
============= ============ ============
Net transfer of equipment under operating
leases to inventories $10,029,175 $ -- $ --
============= ============ ============
Deferred financing costs paid through
the issuance of warrants $ 1,530,446 $ -- $ --
============= ============ ============
Unrealized gain/(loss) on investment securities, net $ (588,983) $ 273,225 $ --
============= ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,436,209 $ 558,083 $ 155,144
============= ============ ============
Income taxes $ 5,685,502 $ 1,936,481 $ 26,680
============= ============ ============
Supplemental disclosures of purchase of IASI assets, net
of liabilities:
Cash $ 36,709
Receivables 1,621,664
Inventory 27,275,861
Prepaid expenses and other assets 1,132,400
Property, plant and equipment 74,865
Goodwill 14,055,172
Other assets 26,177
-------------
Total assets $ 44,222,848
=============
Accrued expenses $ 2,350,280
Accounts payable 1,530,786
Notes payable 14,078,798
-------------
Total liabilities 17,959,864
=============
Net acquisition cost 26,262,984
Less warrants issued to seller 1,173,134
-------------
Cash paid to seller at closing 25,089,850
Less cash acquired 36,709
-------------
Net cash used in acquisition $ 25,053,141
=============
</TABLE>
(continued)
See accompanying notes to consolidated financial statements
F-6
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
Supplemental disclosures of purchase of Aero
Support assets, net of liabilities:
Cash $ 426,929
Receivables 2,152,064
Inventory 5,091,063
Prepaid expenses and other current assets 359,253
Property, plant, and equipment 37,926
Goodwill 13,198,554
Intangible - Non compete 1,080,000
Other assets 4,014
------------
Total assets $22,349,803
============
Accrued expenses $ 238,803
Accounts payable 3,161,320
Notes payable - Bank 3,498,537
-----------
Total liabilities 6,898,660
============
Net acquisition cost 15,451,143
Less warrants issued to sellers 680,058
Less notes payable to sellers 11,687,867
-----------
Cash paid to sellers at closing 3,083,218
Less cash acquired 426,929
-----------
Net cash used in acquisition $ 2,656,289
============
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
=============
</TABLE>
(continued)
See accompanying notes to consolidated financial statements
F-7
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
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 required 209,200
-------------
Net cash used in acquisition $ 5,790,800
=============
</TABLE>
See accompanying notes to consolidated financial statements
F-8
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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 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's principal business
is the purchasing, refurbishing (through subcontractors), marketing, reselling,
and leasing of aircraft jet engines, jet engine parts and commercial aircraft.
The Company is also an international after-market reseller of turbojet engines
and turbojet engine parts for helicopters and large transport aircraft. 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's business enables customers to
reduce their engine maintenance costs by providing Federal Aviation
Administration approved engine parts on a timely basis and at competitive
prices.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions have
been eliminated.
REVENUE RECOGNITION
Revenue is recognized upon shipment of the product to the customer net of an
estimated allowance for sales returns. Revenue from equipment under operating
leases is recognized as rental revenue on a straight-line basis over the lease
term.
CASH AND 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 primarily
determined using the specific identification method for individual part
purchases and on an allocated cost basis for whole engines and aircraft.
Inventories are made up primarily of new, refurbished and as removed engines
and engine parts.
INVESTMENT IN SECURITIES
Investment in securities at December 31, 1997 and 1996 consist of equity
securities. All equity securities are classified as available for sale.
Available for sale securities are recorded at fair value. Unrealized holding
gains and losses, net of the related tax effect, on available for sale
securities are excluded from earnings and are reported as a separate component
of stockholders' equity until realized. Realized gains and losses from the sale
of available for sale securities are determined on a specific identification
basis.
F-9
<PAGE>
<PAGE>
A decline in the market value of any available for sale security below cost that
is deemed to be other than temporary results in a reduction in carrying amount
to fair value. The impairment is charged to earnings and a new cost basis for
the security is established. Dividend and interest income are recognized when
earned.
EQUIPMENT UNDER OPERATING LEASES
The cost of the asset under lease is the original purchase price plus overhaul
costs. Depreciation of the cost is computed based on a usage-variable method,
which adjusts straight-line depreciation to reflect the usage levels of the
equipment. Maintenance and repair costs are expensed as incurred.
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 and improvements - 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.
GOODWILL
Goodwill represents the excess of purchase price over fair value of net assets
acquired, which is amortized on a straight-line basis over the expected periods
to be benefited, generally 15 to 20 years. Amortization expense of goodwill was
$1,145,663, $271,010 and $138,853 for the years ended December 31, 1997, 1996
and 1995, respectively. The Company assesses the recoverability of the carrying
value of goodwill by determining whether the carrying value can be recovered
through undiscounted future operating cash flows. The amount of 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 of goodwill was
$1,555,526 and $409,863 at December 31, 1997 and 1996, respectively.
DEFERRED FINANCING COSTS
Deferred financing costs are capitalized and amortized on a straight-line basis
over the life of the related debt, which currently approximates one to seven
years. Amortization expense was $760,019, $30,172, and $4,132 for the years
ended December 31, 1997, 1996 and 1995, respectively.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments, consisting of cash and cash
equivalents, trade accounts receivables, other current assets, equipment under
operating leases, trade accounts payables, accrued expenses, and notes payable
to banks, is based on the short maturity of these instruments which approximates
fair value at December 31, 1997 and 1996. The fair value of the senior
subordinated debt and convertible subordinated debt is
F-10
<PAGE>
<PAGE>
estimated by discounting the future cash flows of each instrument at rates
currently offered to the Company for similar debt instruments of comparable
maturities by the Company's bankers which approximate fair value at December 31,
1997. Investment securities available for sale are recorded at fair value based
on quoted market prices.
COMMITMENTS AND CONTINGENCIES
During 1997, the Company entered into agreements to purchase six aircraft
engines at a total purchase price of $29,478,948. The Company is committed to
purchasing the engines upon successful completion of certain inspections. At
December 31, 1997, the purchases had not yet been consummated.
The Company's Board of Directors has approved the construction of a new facility
in the Sawgrass International Corporate Park area, which is near Fort
Lauderdale, Florida in anticipation of the expiration of the IASI Lease and the
consolidation of operations in a single location. The new facility will consist
of approximately 195,000 square feet of office and warehouse space. The final
cost of the new facility is estimated to be approximately $9,500,000.
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 statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
EARNINGS PER SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 establishes
standards for computing and presenting basic and fully diluted earnings per
share and applies to entities with publicly held common stock or potential
common stock. Basic earnings per share ("EPS") is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Common equivalent shares
assume the exercise of all dilutive stock options and warrants. The weighted
average number of common shares outstanding used to compute basic and fully
diluted EPS was 7,266,534 and 9,394,439 for the year ended December 31, 1997,
2,943,902 and 4,759,890 for the year ended December 31, 1996, and 2,745,265 and
3,609,956 for the year ended December 31, 1995. 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.
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR 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. SFAS No. 121 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 SFAS No. 121 did not have a material impact on the
Company's consolidated financial position, results of operations or cash flows.
STOCK OPTIONS
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
F-11
<PAGE>
<PAGE>
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair value based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 31, 1997. Management does not anticipate a
significant impact of the adoption of SFAS No. 130 on the Company's consolidated
financial position, results of operations or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that these enterprises report
selected information about operating segments in interim financial reports to
shareholders. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. Management does not anticipate a significant
impact of the adoption of SFAS No. 131 on the Company's consolidated financial
position, results of operations or cash flows.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS 132 standardizes the
disclosure requirements of SFAS 87 and SFAS 106 to the extent practicable and
recommends a parallel format for presenting information about pensions and other
postretirement benefits. SFAS 132 is effective for fiscal years beginning after
December 15, 1997. Management does not anticipate a significant impact of the
adoption of SFAS 132 on the Company's consolidated financial position, results
of operations or cash flows.
RECLASSIFICATIONS
Certain 1996 financial statement amounts have been reclassified to conform with
the 1997 presentation.
2. ACQUISITIONS
On January 15, 1997, the Company through a wholly-owned subsidiary completed the
acquisition of substantially all of the assets and assumed certain of the
liabilities of International Aircraft Support, L.P. ("IASI"), a California
limited partnership, for a cash purchase consideration of approximately
$25,100,000 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 $15,000,000 in senior
subordinated debt and warrants, along with the proceeds of a $6,000,000
subordinated bridge loan and warrants ("Bridge Loan") with the balance from the
Company's working capital. The Company also assumed IASI's existing debt
including IASI's Union Bank of California various credit facilities that totaled
approximately $20,000,000 as of the date of the acquisition. The Bridge Loan
matured on April 15, 1997 and was fully repaid. The interest rate on the Bridge
Loan was 10% and, additionally, 85,625 warrants that are exercisable at $10 and
expire on April 15, 2000 were issued to the Bridge Loan lenders. The interest
rate on the $15,000,000 senior subordinated debt is 11 3/4%, 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.
F-12
<PAGE>
<PAGE>
On September 10, 1997, the Company through a wholly-owned subsidiary completed
the acquisition of substantially all of the assets and liabilities of Aero
Support USA, Inc. ("Aero Support") for approximately $13,800,000 in cash (the
"Cash Purchase Price") and three warrants. One warrant is for the purchase of
75,000 shares of Common Stock at an exercise price of $22.00 per share, expiring
in three years. The other two warrants are for the purchase of an aggregate
175,000 shares of Common Stock at an exercise price of $19.00 per share,
expiring in five years. Up to an additional $5,000,000 cash consideration may be
paid in the form of an earn-out payable over three years based on certain
specified criteria.
In addition to the $2,100,000 paid at closing, a portion of the Cash Purchase
Price consisted of the issuance of (i) a promissory note in the aggregate
principal amount of $9,000,000,which matured and was fully repaid on September
17, 1997, bearing interest at the prime rate of interest charged from time to
time by Barnett Bank, N.A. (Kellstrom's senior lender) on short-term loans and
(ii) two promissory notes in the aggregate principal amount of $2,700,000, which
matured and was fully repaid on January 15, 1998, bearing interest at the same
rate. The financing for the payment of the Cash Purchase Price is being funded
through the Company's Revolving Credit Facility. Borrowings under the Revolving
Credit Facility bear interest at .25% below the prime rate or at LIBOR plus 225
basis points and are secured by substantially all the assets of the Company.
Both the IASI and Aero Support acquisitions have been accounted for using the
purchase method for accounting in accordance with APB Opinion No. 16, "Business
Combinations," and accordingly, the operating results from both IASI and Aero
Support have been included in the operating results since the dates of
acquisition. A Pro Forma Consolidated Combined Statements of Earnings -
Unaudited has been provided in Note 18(b) to report the results of operations
for the years ended December 31, 1997 and 1996 as though the acquisitions had
occurred at the beginning of the period being reported.
3. EQUIPMENT UNDER OPERATING LEASES, NET
Equipment under operating leases consists primarily of aircraft and engines with
typical lease terms of less than 18 months. At December 31, 1997 and 1996,
equipment under operating leases consists of the following:
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
Equipment under operating leases $ 42,766,620 $ 3,250,000
Accumulated depreciation (2,834,232) (586,032)
--------------- --------------
$ 39,932,388 $ 2,663,968
=============== ==============
</TABLE>
At December 31, 1997, future minimum rental revenue on equipment under operating
leases are as follows:
1998 $ 4,166,800
1999 2,300,000
2000 1,980,000
2001 1,980,000
2002 495,000
------------
$10,921,800
============
4. PROPERTY, PLANT AND EQUIPMENT, NET
F-13
<PAGE>
<PAGE>
Property, plant and equipment at December 31, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
Land $ 2,133,642 $ 422,600
Building and Improvements 1,824,552 1,807,192
Machinery and Equipment 1,496,438 715,038
Furniture and Fixtures 545,486 222,052
--------------- --------------
6,000,118 3,166,882
Accumulated Depreciation (1,157,450) (223,805)
--------------- --------------
4,842,668 2,943,077
Construction in Progress 184,428 --
--------------- --------------
$ 5,027,096 $ 2,943,077
=============== ==============
</TABLE>
5. INVESTMENT IN SECURITIES
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." 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." As of December
31, 1997, the Company's ownership of Rada common stock is 309,643 shares,
representing approximately 3.7% of the then current outstanding shares.
At December 31, 1997 and 1996, the cost, gross unrealized holding gains, gross
unrealized holding losses and fair value for investment in securities available
for sale are as follows:
<TABLE>
<CAPTION>
1997
----
Gross Unrealized Gross Unrealized
Cost Holding Gains Holding Losses Fair Value
---------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Rada common stock $932,025 $0 $507,691 $425,759
================ ================= ================= ==============
</TABLE>
<TABLE>
<CAPTION>
1996
----
Gross Unrealized Gross Unrealized
Cost Holding Gains Holding Losses Fair Value
---------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Rada common stock $1,400,000 $429,532 $0 $1,829,532
================ ================= ================= ==============
</TABLE>
During the year ended December 31, 1997, the Company sold 155,000 shares of its
investment in Rada. The Company received cash proceeds of $428,499 and recorded
a realized loss of $38,051 related to these sales. Realized gains and losses on
the sales of investments are determined on the specific identification method.
6. ACCRUED EXPENSES
F-14
<PAGE>
<PAGE>
Accrued expenses at December 31, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accrued expenses $ 912,513 $ 198,072
Employee bonuses 1,033,580 422,000
Acquisition expenses -- 122,674
Accrued interest 1,359,508 111,147
Customer deposits 870,300 436,500
Deferred income 821,062 --
--------------- --------------
$ 4,996,963 $ 1,290,393
=============== ==============
</TABLE>
F-15
<PAGE>
<PAGE>
7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations at December 31, 1997 and 1996
consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
11 3/4% Senior subordinated debt due
January 15, 2004. $11,250,000 $ --
First mortgage note bearing interest at 10.49% payable
in monthly installments of $20,238, including interest,
with a final payment of $20,238 due April 2005; secured
by real property with depreciated cost of $2,107,647 in
1997 and $2,175,265 in 1996. During January 1998, amount
was fully repaid. 1,079,787 1,194,277
Borrowings under revolving line of credit, interest at
prime - 1/4% (8.25% at December 31, 1997), and at prime
- -1/8% (8.125% at December 31, 1996) is payable monthly;
the revolving line of credit expires in April 1998. 4,070,603 5,157,302
Notes payable bearing interest at prime rate (8.25% at
December 31, 1997) related to Aero Support acquisition
with final payment due January 1998. During January
1998, amount was fully repaid. 2,688,410 --
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%. During March
1997, amount was fully repaid. -- 1,830,150
Capital lease obligations -- 5,866
----------- -----
Total long-term debt and capital lease
obligations 19,088,800 8,187,595
Less short-term notes payable (6,759,013) (5,157,302)
Less current installments on long-term debt and
capital lease obligations (1,079,787) (211,068)
----------- ----------
Long-term debt and capital lease obligations,
less current installments $11,250,000 $2,819,225
=========== ==========
</TABLE>
F-16
<PAGE>
<PAGE>
During January 1997, the Company completed the acquisition of IASI, which was
primarily financed through the issuance of $15,000,000 of 11 3/4% Senior
Subordinated Debt (the "Senior Debt") maturing on January 15, 2004. Interest on
the senior debt is payable semi-annually. Principal on this debt is payable in
two equal annual installments beginning January 15, 2002 and a final payment in
the amount of $1,250,000 payable on January 15, 2004. The Company made an
advance principal payment of $3,750,000, along with a prepayment penalty of 1%,
on October 10, 1997. The Company may, at its option, redeem up to an additional
$750,000 (along with a prepayment penalty of 1%) of principal amount of 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
Senior Debt is not reduced below $10,500,000.
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. During
January 1998, the amount outstanding under this facility was fully repaid.
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%. During March 1997, the amount outstanding was fully repaid.
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 bore interest at 1/8% below the bank's prime rate (8.125% at
December 31, 1996), was secured by substantially all the Company's assets.
Interest is payable monthly. No compensatory balances were required under the
agreement.
On April 24, 1997, in order to modify and consolidate the $15,000,000 credit
facility, the Company entered into a $55,000,000 revolving loan agreement with
Barnett Bank, N.A. The loan bears interest at .25% below the bank's prime rate
(which was 8.25% at March 24, 1998) is due on April 24, 1998. On April 28, 1997,
utilizing funds from the new facility, the Company paid $13,640,774 to fully
satisfy the existing credit lines outstanding with Union Bank. The new loan
agreement is secured by substantially all of the Company's assets. At December
31, 1997, the Company had $27,048,311 available under the agreement. No
compensatory balances are required under the modified revolving loan agreement.
On September 10, 1997, the Company acquired Aero Support which was financed
primarily through the issuance of short-term notes payable which were due from
September 1997 to January 1998. The Company also assumed Aero Support's existing
debt of $3,498,537 which was immediately paid by the Company upon consummation
of the acquisition. The balance of short-term notes payable outstanding at
December 31, 1997 was $2,688,410. Interest on the short-term notes payable
accrued at an annual rate equal to the prime rate and was fully repaid during
January 1998.
Debt maturities for each of the five years subsequent to December 31, 1997 are
as follows: 1998, $7,838,800; 2002, $59,000,000; and thereafter $6,250,000.
F-17
<PAGE>
<PAGE>
8. CONVERTIBLE SUBORDINATED NOTES
During October 1997, the Company completed the offering and sale in a private
placement transaction of $50,000,000 of 5 3/4% Convertible Subordinated Notes
(the "Notes") maturing on October 15, 2002. In November 1997, the underwriters
of the Notes exercised their overallotment option for $4,000,000. The principal
amount is convertible into shares of common stock at the option of the holders
at a conversion price equal to $27.50, subject to adjustment in certain events.
In addition, the Company may at any time on or after October 15, 2000, 2001, and
2002 redeem all or any part of the Notes at prices (expressed in percentages of
the principal amount) of 102.30%, 101.15%, and 100%, respectively. Interest on
the Notes is payable semi-annually.
9. LEASES
The Company has several operating leases, primarily for transportation equipment
and facilities that expire over the next five 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. Future minimum lease
payments under operating lease agreements having an initial or remaining
non-cancelable term in excess of one year as of December 31, 1997 are as
follows:
1998 $454,760
1999 92,461
2000 43,733
2001 22,292
2002 20,435
---------
$ 633,681
=========
Total rent expense for all operating leases for the years ended December 31,
1997, 1996 and 1995 amounted to $346,291, $70,444, and $30,778, respectively.
F-18
<PAGE>
<PAGE>
10. INCOME TAXES
Income tax expense for the years ended December 31, 1997, 1996 and 1995 is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Current:
<S> <C> <C> <C>
Federal $ 4,393,569 $ 1,299,550 $ 525,766
State and local 602,959 150,412 90,145
-------------- -------------- --------------
4,996,528 1,449,962 615,911
Deferred: 80,631 12,285 (358,469)
-------------- -------------- --------------
Total $ 5,077,159 $ 1,462,247 $ 257,442
============== ============== ==============
</TABLE>
The actual tax expense differs from the "expected" tax expense for the years
ended December 31, 1997, 1996 and 1995 (computed by applying the U.S. federal
corporate tax rate of 34% to income before income taxes), as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 4,630,691 $ 1,396,921 $ 214,840
State income tax, net of federal benefit 573,245 98,411 24,398
Reorganization costs -- -- 14,705
Foreign sales corporation benefit (123,771) -- --
Other (3,006) (33,085) (3,499)
-------------- -------------- ------------
Actual tax expense $ 5,077,159 $ 1,462,247 $ 257,442
============== ============== ============
</TABLE>
Total income tax expense for the years ended December 31, 1997, 1996 and 1995
was allocated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income from continuing operations $ 5,077,159 $1,462,247 $ 257,442
Stockholders' equity, for unrealized
gain/(loss) on investment securities (346,817) 156,308 --
-------------- -------------- --------------
$ 4,730,342 $1,618,555 $ 257,442
============== ============== ==============
</TABLE>
F-19
<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, 1997 and
1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
----- ----
Deferred tax assets:
<S> <C> <C>
Intangible assets $ 70,194 $ 214,174
Accounts receivable, principally due to
allowance for doubtful accounts 70,688 54,586
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 278,403 90,491
Unrealized losses on investment securities 190,508 --
Accrued liabilities, principally for financial
reporting purposes 92,335 --
Other 4,181 4,004
-------------- --------------
Total gross deferred tax assets 706,309 363,255
Less valuation allowance -- --
-------------- --------------
Deferred tax assets 706,309 363,255
Deferred tax liabilities:
Property, plant and equipment (23,575) (17,071)
Equipment under operating leases (226,672) --
Unrealized gains on investment securities -- (156,308)
-------------- --------------
Deferred tax liabilities
(250,247) (173,379)
-------------- --------------
Net deferred tax assets $ 456,062 $ 189,876
============== ==============
</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.
11. 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. The Company had 7,879,356 and 3,315,308 shares of Common Stock
outstanding at December 31, 1997 and 1996, respectively.
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.
F-20
<PAGE>
<PAGE>
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 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 of Common Stock.
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. As of December 31, 1997, the outstanding
balance on the loans receivable was $362,415.
Upon consummation of the acquisition of the assets of IASI and Aero Support, the
Company issued warrants to purchase an additional 750,000 shares of the
Company's Common Stock at stated prices of $9.25-$22.00, expiring two to five
years from the dates of issuance. The amounts recorded 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.
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.
The Company had 1,593,155 and 4,576,510 warrants outstanding at December 31,
1997 and 1996, respectively. Each warrant entitles the holder to the purchase of
one share of the Company's common stock at an average stated price of $10.14 and
$5.08 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.
The Company had no unit purchase options outstanding at December 31, 1997 and
200,000 unit purchase options outstanding at December 31, 1996. Each unit
purchase option entitled the holder to the purchase of one Unit for $7.62 per
unit. Each unit consisted of one share of the Company's Common Stock and two
redeemable common stock purchase warrants. These unit purchase options were
exercisable commencing on April 11, 1995 and expiring on April 11, 1999. As of
December 31, 1997, all of the issued unit purchase options had been exercised.
F-21
<PAGE>
<PAGE>
12. 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 or 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.
The 1997 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. The total
number of shares with respect to which options may be granted under the Plan is
currently 600,000. No option may be granted under the Plan after October 27,
2007, and no option may be outstanding for more than ten years after its grant.
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 $5.00
Granted 373,000 7.63
Exercised -- --
Expired or Canceled -- --
-------------- ------------------
Outstanding at December 31, 1996 608,000 6.61
Granted 1,542,000 12.66
Exercised 5,499 5.00
Expired or Canceled 81,000 6.94
-------------- ------------------
Outstanding at December 31, 1997 2,063,501 11.12
============== ==================
At December 31, 1997:
Exercisable options 285,333 6.09
Shares Available for Future Grant -- --
</TABLE>
The following table summarizes the status of stock options outstanding and
exercisable as of December 31, 1997, by range of exercise price:
<TABLE>
<CAPTION>
Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Term Price Exercisable Price
-------- ----------- ------------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$ 5.00-$ 7.50 195,501 7 Years $ 5.00 166,667 $5.00
$ 7.51-$11.25 1,196,000 8 Years $ 8.13 118,666 $7.63
$11.26-$16.88 60,000 9 Years $13.84 -- --
$16.88-$22.00 612,000 10 Years $18.67 -- --
--------- -------
2,063,501 285,333
========= =======
</TABLE>
F-22
<PAGE>
<PAGE>
The weighted average per share fair values of options granted under the
Company's stock option plans during 1997, 1996 and 1995 were $12.66, $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>
1997 1996 1995
----- ---- ----
<S> <C> <C> <C>
Net earnings (as reported) $ 8,542,519 $2,646,343 $374,439
- pro forma 7,193,698 2,260,098 284,456
Earnings per share - basic (as reported) 1.18 0.90 0.14
- pro forma 0.99 0.77 0.10
Earnings per share - diluted (as reported) 0.95 0.56 0.10
- pro forma 0.77 0.47 0.08
</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 the years ended December 31, 1997, 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
1997 is the result of the additional options granted and further vesting of 1995
and 1996 grants during 1997. Pro forma expense for 1998 is expected to increase
over 1997 for the same reasons.
13. EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings Per
Share." As such, prior years' earnings per share have been restated. Basic and
diluted earnings per share for the years ended December 31, 1997, 1996 and 1995
were calculated based on the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic earnings per common share:
Net income $8,542,519 $2,646,343 $ 374,439
========== ========== ==========
Weighted average shares outstanding 7,266,534 2,943,902 2,745,265
========== ========== ==========
Basic earnings per common share $ 1.18 $ 0.90 $ 0.14
==== ==== ====
Diluted earnings per common share:
Net income $8,542,519 $2,646,343 $ 374,439
Income adjustment relating to reduction of
debt based on the if converted method 405,921 -- --
---------- ---------- ----------
Net income available to common and common
equivalent shares $8,948,440 $2,646,343 $ 374,439
========== ========== ==========
Weighted average shares outstanding 7,266,534 2,943,902 2,745,265
Net effect of dilutive stock options and warrants
based on the treasury stock method 1,712,196 1,815,988 864,691
Net effect of dilutive convertible subordinated
notes based on the if converted method 415,709 -- --
---------- ---------- ----------
Weighed average shares outstanding - diluted 9,394,439 4,759,890 3,609,956
========== ========== ==========
Diluted earnings per common share $ 0.95 $ 0.56 $ 0.10
==== ==== ====
</TABLE>
14. 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.
Total revenues derived from sales to domestic and international customers
collectively accounted for 79% and 21%, respectively, for the year ended
December 31, 1997, 77% and 23%, respectively, for the year ended December 31,
1996 and 95% and 5%, respectively, for the year ended December 31, 1995. For the
years ended December 31, 1997, 1996 and 1995, the five largest customers
collectively accounted for approximately 38%, 55% and 96%, respectively, of the
Company's consolidated revenues.
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 affect the Company's estimate of its
bad debts.
15. OTHER MATTERS
At December 31, 1997 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, results of operations or cash
flows of the Company.
The Company has certain employment agreements with officers with terms of five
to seven years. The employment agreement provides that such officers may earn
bonuses, based on the Company achieving certain
F-23
<PAGE>
<PAGE>
target net income levels. Further, each of the employment agreements provide
that in the event of termination without cause, the employment agreement shall
be terminable by the mutual agreement between the Company and the officers, or
by either party upon sixty days notice and provides for certain levels of
severance compensation.
16. RELATED PARTY TRANSACTIONS
During the year ended December 31, 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. These payments were terminated
for Yoav Stern in December 1996 and for Joram D. Rosenfeld in March 1997.
Payments to Joram D. Rosenfeld during 1997 amounted to $16,200.
On March 28, 1997, the Company engaged Helix Management Company II, LLC and
Helix Capital Services, LLC (collectively "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. The agreement entered into between the
Company and Helix on December 24, 1996 was terminated.
In addition, under the terms of the agreement, a success fee is to be determined
by the Company on a per transaction basis, not to fall below 2% of the aggregate
consideration in connection with the applicable transaction. During the year
ended December 31, 1997, the Company paid $519,000 and issued warrants for the
purchase of an aggregate 7,500 shares of the Company's common stock at an
exercise price of $19.00 and $22.00 per share, expiring in three to five years,
to Helix relating to such agreement.
17. SUBSEQUENT EVENTS
On February 1, 1998, the Company sponsored a 401(k) savings plan covering most
employees. Contributions made by the Company to the 401(k) savings plan are
based on a specified percentage of employee contributions.
On February 27, 1998, the Company signed a definitive agreement to acquire
privately held Integrated Technology Corporation ("ITC") for approximately
$20,225,000 in cash plus an earn-out payable over a three-year period based on
certain specified criteria. In addition, the Company received a three-year
option to purchase a 49% interest in an FAA-approved overhaul facility.
F-24
<PAGE>
<PAGE>
18. SUPPLEMENTAL FINANCIAL DATA
(a) QUARTERLY DATA - UNAUDITED
<TABLE>
<CAPTION>
Quarters
----------------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Total revenues:
1997 $16,466,073 $17,949,910 $20,352,441 $24,670,725
1996 5,270,995 5,917,832 6,462,088 7,270,672
Earnings from continuing operations:
1997 $1,659,368 $1,941,214 $ 2,326,652 $ 2,615,285
1996 516,707 828,409 662,133 639,094
Net earnings:
1997 $1,659,368 $ 1,941,214 $ 2,326,652 $ 2,615,285
1996 516,707 828,409 662,133 639,094
Earnings per common share for continuing
operations - diluted:
1997 $ 0.21 $ 0.22 $ 0.25 $ 0.27
1996 0.13 0.17 0.14 0.12
Net earnings per common share - diluted:
1997 $ 0.21 $ 0.22 $ 0.25 $ 0.27
1996 0.13 0.17 0.14 0.12
</TABLE>
(b) PRO FORMA CONSOLIDATED COMBINED STATEMENTS OF OPERATIONS - UNAUDITED
The Company acquired substantially all of the assets and operations of IASI on
January 15, 1997 (see Note 2). Accordingly, the Company's Consolidated Statement
of Earnings for the year ended December 31, 1996 reflects the operations of
Kellstrom. The operations of IASI for the period January 1, 1997 to January 14,
1997 were immaterial and are included in the Pro Forma Consolidated Statements
of Earnings under the caption of Kellstrom. In addition, the Company acquired
substantially all of the assets and operations of Aero Support on September 10,
1997 (see Note 2). Accordingly, the Company's Consolidated Statements of
Earnings for the year ended December 31, 1997 reflect the operations of Aero
Support from September 10, 1997 through December 31, 1997.
Pro forma Consolidated Statements of Earnings have been provided herein to
report the results of operations for the years ended December 31, 1997 and 1996
as though the companies had combined at the beginning of the periods being
reported. The pro forma consolidated results do not purport to be indicative of
results that would have occurred had the acquisitions been in effect for the
periods presented, nor do they purport to be indicative of the results that will
be obtained in the future.
F-25
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
PRO FORMA CONSOLIDATED COMBINED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1997 1996
----------------- -----------------
Pro Forma Pro Forma
Combined Combined
----------------- -----------------
<S> <C> <C>
Sales of aircraft and engine parts, net $ 84,758,251 $ 61,805,644
Rental revenues 7,904,610 2,783,274
------------ ------------
Total revenues 92,662,861 64,588,918
Cost of goods sold (55,801,704) (40,939,792)
Depreciation of equipment under
operating leases (4,594,399) (1,809,128)
Selling, general and administrative expenses (11,712,409) (8,243,017)
Depreciation and amortization (2,108,837) (2,989,380)
------------ ------------
Total operating expenses (74,217,349) (53,981,317)
Operating income 18,445,512 10,607,601
Interest expense, net of interest income (5,061,650) (4,543,090)
------------ ------------
Income before income taxes 13,383,863 6,064,511
Income taxes (4,989,397) (2,158,359)
------------ ------------
Net income $ 8,394,466 $ 3,906,152
============ ============
Earnings per common share - basic $ 1.16 $ 1.33
============ ============
Earnings per common share - diluted $ 0.88 $ 0.66
============ ============
Weighted average number of shares outstanding - basic 7,266,534 2,943,902
============ ============
Weighted average number of shares outstanding - diluted 9,587,564 5,908,675
============ ============
</TABLE>
Unaudited - See accompanying notes to pro forma consolidated
combined statements of earnings
F-26
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
PRO FORMA CONSOLIDATED COMBINED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA PRO FORMA
KELLSTROM AERO SUPPORT ADJUSTMENTS (A) COMBINED
----------------------------------------- --------------- -------------
<S> <C> <C> <C> <C>
Sales of aircraft and engine parts, net $ 71,534,539 $ 20,041,644 $ (6,817,932) $ 84,758,251
Rental revenues 7,904,610 -- -- 7,904,610
------------ ------------ ------------ ------------
Total revenues 79,439,149 20,041,644 (6,817,932) 92,662,861
Cost of goods sold (46,800,589) (13,162,382) 4,161,267 (55,801,704)
Depreciation of equipment under
operating leases (4,594,399) -- -- (4,594,399)
Selling, general and administrative
expenses (8,877,598) (3,690,856) 856,045 (11,712,409)
Depreciation and amortization (1,555,673) (68,583) 16,500 (2,108,837)
(659,517)
158,436
------------ ------------ ------------ ------------
Total operating expenses (61,828,259) (16,921,821) 4,532,731 (74,217,349)
Operating income 17,610,890 3,119,823 (2,285,201) 18,445,512
Interest expense, net of interest income (3,991,212) (197,011) 197,011 (5,061,650)
(1,070,438)
------------ ------------ ------------ ------------
Income before income taxes 13,619,678 2,922,812 (3,158,627) 13,383,863
Income taxes (5,077,159) (196,401) 284,163 (4,989,397)
------------ ------------ ------------ ------------
Net income $ 8,542,519 $ 2,726,411 $ (2,874,464) $ 8,394,466
============ ============ ============ ============
Earnings per common share - basic $ 1.18 $ 1.16
============ ============
Earnings per common share - diluted $ 0.95 $ 0.88
============ ============
Weighted average number of common
shares outstanding - basic 7,266,534 7,266,534
============ ============
Weighted average number of common
shares outstanding - diluted 9,394,439 9,587,564
============ ============
</TABLE>
Unaudited - See accompanying notes to pro forma
consolidated combined statements of earnings
F-27
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
NOTES TO PRO FORMA CONSOLIDATED COMBINED STATEMENT OF EARNINGS - UNAUDITED
(A) For purposes of presenting the pro forma consolidated combined statement of
earnings, the following adjustments have been made:
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
<S> <C>
Increase (decrease) in income:
Reversal of Aero Support revenues for the period
September 10, 1997 to December 31, 1997 $ (6,817,932)
Reversal of Aero Support cost of goods sold for the period
September 10, 1997 to December 31, 1997 4,161,267
Reversal of Aero Support selling, general and administrative expenses
for the period September 10, 1997 to December 31, 1997 856,045
Reversal of Aero Support depreciation and amortization for the period
September 10, 1997 to December 31, 1997 16,500
Amortization of goodwill and non-compete agreement related to Aero Support
Acquisition (659,517)
Elimination of leasehold amortization expense for
assets not acquired 158,436
Reduction in interest expense due to pay-off of debt
on Aero Support line of credit 197,011
Interest expense on acquisition debt and debt incurred to repay existing
Aero Support line of credit (1,070,438)
-----------
(3,158,627)
Tax effect of pro forma adjustments 284,163
------------
Net adjustment $ (2,874,464)
============
</TABLE>
F-28
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
KELLSTROM INDUSTRIES, INC.
PRO FORMA CONSOLIDATED COMBINED STATEMENT OF EARNINGS
(Unaudited)
Year Ended December 31, 1996
-----------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA PRO FORMA
KELLSTROM IASI AERO SUPPORT ADJUSTMENTS (A) ADJUSTMENTS (B) COMBINED
------------------------- -------------- ------------------ -------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales of aircraft and engine
parts, net $24,019,999 $20,982,061 $ 17,297,718 $ (494,134) $ -- 61,805,644
Rental revenues 901,588 1,881,686 -- -- -- 2,783,274
------------ ------------ --------------- ------------- ------------------- ----------
Total revenues 24,921,587 22,863,747 17,297,718 (494,134) -- 64,588,918
Cost of goods sold (15,649,127) (13,860,420) (11,797,863) 367,618 -- (40,939,792)
Depreciation of equipment
under operating leases (586,032) (1,223,096) -- -- -- (1,809,128)
Selling, general and
administrative expenses (3,491,457) (1,744,434) (3,700,602) 693,476 -- (8,243,017)
Depreciation and amortization (441,854) (937,716) (139,193) 23,952 (875,928) (2,989,380)
(690,068) 71,427
------------ ------------ --------------- ------------- ------------------- ----------
Total operating expenses (20,168,470) (17,765,666) (15,637,658) 394,978 (804,501) (53,981,317)
Operating income 4,753,117 5,098,081 1,660,060 (99,156) (804,501) 10,607,601
Interest expense, net of
interest income (644,527) (1,023,141) (181,962) 942,515 182,918 (4,543,090)
(2,521,555) (1,297,338)
Expenses related to sale of
business -- 234,866 -- (234,866) -- --
------------ ------------ --------------- ----------- --------------- -----------
Income before income taxes 4,108,590 3,840,074 1,478,098 (1,443,330) (1,918,921) 6,064,511
Income taxes (1,462,247) (3,075) -- (849,926) 156,889 (2,158,359)
------------ ------------ --------------- ----------- --------------- -----------
Net income $2,646,343 $3,836,999 $1,478,098 $(2,393,256) $ (1,762,032) $ 3,906,152
============ ============ =============== ============ =============== ===========
Earnings per common share -
basic $ 0.90 $ 1.33
============ ===============
Earnings per common share -
diluted $ 0.56 $ 0.66
============ ===============
Weighted average number of
common shares outstanding -
basic 2,943,902 2,943,902
============ ===============
Weighted average number of
common shares outstanding -
diluted 4,759,890 5,908,675
============ ===============
</TABLE>
Unaudited - See accompanying notes to pro forma
consolidated combined statement of earnings
F-29
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC.
NOTES TO PRO FORMA CONSOLIDATED COMBINED STATEMENT OF EARNINGS - UNAUDITED
(A) For purposes of presenting the pro forma consolidated combined statement of
operations, the following adjustments have been made for the IASI acquisition:
<TABLE>
<CAPTION>
Year 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>
(B) For purposes of presenting the pro forma consolidated combined statement of
operations, the following adjustments have been made for the Aero Support
acquisition:
<TABLE>
<CAPTION>
Year Ended
December 31,
1996
---------------
<S> <C>
Increase (decrease) in income:
Amortization of goodwill and non-compete agreement related to Aero
Support acquisition $ (875,928)
Elimination of leasehold amortization expense on assets not acquired 71,427
Reduction of interest expense due to pay-off of debt on Aero Support
line of credit 182,918
Interest expense on Aero Support acquisition debt and debt incurred to
repay existing Aero Support line of credit (1,297,338)
-------------
(1,918,921)
Tax effect of pro forma adjustments 156,889
------------
Net adjustment $(1,762,032)
============
</TABLE>
F-30
<PAGE>
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of April 1, 1997, 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 Michael W. Wallace, an
individual residing at 8995 Southern Orchard Road, Davie, Florida 33328 (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 April 14, 1997.
(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 Michael W. Wallace.
(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,
<PAGE>
<PAGE>
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 Director of Finance. Upon mutually satisfactory
performance of the duties of Director of Finance, during the first 12 months of
employment, Mr. Wallace will be given the position of Chief Financial Officer.
(b) Compensation.
(i) Base Salary. As of the Effective Date, the Employee's annual
salary (the "Salary") shall be $100,000, 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 $20,000.
(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 = $20,000 + $20,000 x (NI - T)
--------
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.
(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 $30,000.
(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
2
<PAGE>
<PAGE>
but less than the Target, the Employee shall be entitled to a bonus as
calculated below:
B = $20,000 - ($20,000 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) Stock Options. As soon as practicable, the Company shall
issue to the Employee options to purchase 15,000 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 and shall vest with the Employee over three years.
(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:
(i) Health Insurance. The Company shall provide Health Insurance
for the Employee and his Dependents. The provision of the Health Insurance shall
be subject to acceptance by the insurance company of the Employee and his
Dependents to the Company's current program or whatever other program the Board
may decide to elect. The Employee 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)(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) 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.
(iii) 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 two (2) weeks of
paid vacation per calendar year. 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.
3
<PAGE>
<PAGE>
(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 6 days paid sick leave per year. Unused sick leave
days may not be carried over to the following calendar year or years.
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.
(b) 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.
(c) 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 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
4
<PAGE>
<PAGE>
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.
(d) 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).
(e) 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 in the event the Employee's employment is
terminated for cause pursuant to this Section 5(d). Notwithstanding anything
herein to the contrary, the Company shall have the right, at any time upon
notice to the Employee, to terminate the Employment.
(f) Involuntary Termination. If during the Employment Period the Company
terminates the Employee's employment other than for cause or disability 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 therefore 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 two months of the Employee's Base
Salary and an amount equal to six months of the Employee's Base Salary in the
event of termination following a Change of Control; and
5
<PAGE>
<PAGE>
(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 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.
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.
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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, other than for cause, for two
years thereafter (or, in the case of a Change of Control, for 6 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
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
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(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.
14. 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 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:
Michael W. Wallace
8995 Southern Orchard Road
David, Florida 33328
or to such other address as either party shall have furnished to the other in
accordance herewith.
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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, local or foreign 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 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.]
9
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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
---------------------------------
Michael W. Wallace
10
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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 Donald E. Reynolds,
an individual residing at 119 Blueberry Drive, Scotts Valley, CA 95066 (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 ________, 199_ and 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 eighteenth anniversary of the Effective Date.
(h) The "Employee" shall mean Donald E. Reynolds.
(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.
<PAGE>
<PAGE>
3. TERMS OF EMPLOYMENT.
(a) Position and Duties. During the Employment Period the Employee's
position shall be the Vice President, Technical Operations. The Employee's
services shall be performed at the Company's office in California.
(b) Compensation.
(i) Base Salary. As of the Effective Date, the Employee's annual
salary (the "Salary") shall be $115,000, 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 $57,500.
(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 = $57,500 + $57,500 x (NI - T)
--------
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.
(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 $86,250.
(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 = $57,500 - ($57,500 x 2 x (T - NI))
----------------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
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NI = the actual Net Income of the Company for such year as
determined in accordance with GAAP.
(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:
(i) Health Insurance. The Company shall provide Health Insurance
for the Employee and his Dependents. The provision of the Health Insurance shall
be subject to acceptance by the insurance company of the Employee and his
Dependents to the Company's current program or whatever other program the Board
may decide to elect. The Employee 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)(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) 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.
(iii) 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.
(iv) 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.
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.
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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 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
4
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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 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 therefore 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 one month of the Employee'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.
(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.
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
5
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<PAGE>
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 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.
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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.
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 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:
Donald E. Reynolds
119 Blueberry Dr.
Scotts Valley, CA 95066
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.
(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.
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(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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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
---------------------------------
Donald E. Reynolds
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
REVOLVING LOAN AGREEMENT
DATED AS OF MARCH 11, 1998
BY AND BETWEEN
KELLSTROM INDUSTRIES, INC.
(THE BORROWER)
AND
BARNETT BANK, N.A.
(THE BANK)
$100,000,000.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Copyright 1998
English, McCaughan & O'Bryan, P.A.
All Rights Reserved.
<PAGE>
<PAGE>
TABLE OF CONTENTS
(The Table of Contents for this Amended and Restated 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 Amended and Restated Revolving Loan
Agreement.)
<TABLE>
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ARTICLE I DEFINITIONS AND ACCOUNTING TERMS..........................................2
1.01 Definitions...............................................................2
1.02 Accounting Terms.........................................................21
ARTICLE II AMOUNTS AND TERMS OF LOAN................................................21
2.01 Loan.....................................................................21
2.02 Borrowing Base for the Loan..............................................21
2.03 Other Advance Limitations................................................23
2.04 The Note.................................................................24
2.05 Advance of Proceeds of the Loan..........................................24
2.06 Interest Rate; Payment of the Note.......................................24
2.07 Prepayments..............................................................25
2.08 Calculation of Interest..................................................25
2.09 Setoff...................................................................25
2.10 Late Payment Penalty.....................................................25
2.11 Use of Proceeds..........................................................26
2.12 Letter of Credit.........................................................26
2.13 Letter of Credit Requests; Notices of Issuance...........................27
2.14 Agreement to Repay Letter of Credit Drawings.............................27
2.15 Right to Debit Account...................................................27
2.16 Fees.....................................................................28
ARTICLE III CUSTODY, INSPECTION, COLLECTION AND HANDLING OF COLLATERAL AND RECORDS...28
3.01 Collection of Accounts...................................................28
3.02 Power of Attorney........................................................28
3.03 Liability for Handling Collateral........................................29
3.04 Custodian of Collateral..................................................29
3.05 Cash Collateral Account(s)...............................................29
ARTICLE IV REPRESENTATIONS AND WARRANTIES...........................................30
4.01 Organization, Corporate Powers, etc......................................30
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4.02 Authorization of Loan, etc...............................................31
4.03 Financial Statements.....................................................31
4.04 Tax Returns and Payments.................................................31
4.05 Agreements...............................................................32
4.06 Title to Properties and Assets, Liens, etc...............................32
4.07 Litigation, etc..........................................................32
4.08 Consents and Approvals...................................................32
4.09 Enforceable Obligations..................................................32
4.10 Full Disclosure..........................................................32
4.11 Hazardous Materials......................................................33
4.12 Outstanding Debt.........................................................33
4.13 Designated Senior Indebtedness; Compliance with Indenture................34
4.14 Affirmation of Previous Transactions and Initial Loan
Documents and Warranties and Representations;
Assumption of Obligations under Initial Transactions
and Initial Loan Documents...............................................34
ARTICLE V COVENANTS OF BORROWER....................................................34
5.01 Affirmative Covenants....................................................34
5.02 Negative Covenants.......................................................42
5.03 Financial Covenants......................................................46
ARTICLE VI CONDITIONS OF LENDING....................................................47
A. The First Advance.................................................................47
6.01 Evidence of Borrower Action..............................................47
6.02 Note.....................................................................47
6.03 Opinion of Counsel to Borrower...........................................47
6.04 Security Agreement and Other Security Documents..........................47
6.05 Financing Statements.....................................................48
6.06 Property and Public Liability Insurance..................................48
6.07 Fees.....................................................................48
6.08 Concerning the Subordinated Debt.........................................48
6.09 Other Documents..........................................................48
6.10 Asset-Based Lending Audit................................................48
6.11 Stock of Subsidiaries....................................................49
6.12 December 31, 1997 Draft Financial Statements.............................49
6.13 Credit Approval..........................................................49
B. All Advances......................................................................49
6.14 Compliance...............................................................49
6.15 Delivery of Documents....................................................50
6.16 Borrowing Request........................................................50
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6.17 Supplemental Opinions....................................................50
6.18 Documentation and Proceedings............................................50
6.19 Required Acts and Conditions.............................................50
6.20 Approval of Bank's Counsel...............................................50
6.21 Guaranty and Pledge Agreement from Affiliates Created
Post-Closing.............................................................50
6.22 Representations and Warranties...........................................51
6.23 No Default or Adverse Change.............................................51
6.24 Loan Documents...........................................................51
6.25 Payment of Unused Fee....................................................51
6.26 Subordination Agreement..................................................51
6.27 FAA Filing and Lien Search...............................................52
ARTICLE VII EVENTS OF DEFAULT........................................................52
7.01 Events of Default........................................................52
ARTICLE VIII RIGHTS UPON DEFAULT......................................................54
8.01 Acceleration.............................................................54
8.02 Right of Setoff..........................................................54
8.03 Other Rights.............................................................54
8.04 Uniform Commercial Code..................................................55
ARTICLE IX MISCELLANEOUS............................................................55
9.01 No Waiver, Cumulative Remedies...........................................55
9.02 Entire Agreement; Amendments, etc........................................55
9.03 Addresses for Notices, etc...............................................55
9.04 Applicable Law...........................................................56
9.05 Survival of Representations and Warranties...............................56
9.06 Time of the Essence......................................................57
9.07 Headings.................................................................57
9.08 Severability.............................................................57
9.09 Counterparts.............................................................57
9.10 Conflict.................................................................57
9.11 Duration.................................................................57
9.12 Expenses.................................................................57
9.13 Successors and Assigns...................................................58
9.14 Cross Defaults...........................................................58
9.15 Non-Waiver...............................................................59
9.16 WAIVER OF TRIAL BY JURY..................................................59
JOINDER AND CONSENT OF GUARANTORS.........................................................60
EXHIBIT "A" Form of Advance Note.....................................................61
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EXHIBIT "B" Form of Consolidated Note................................................62
EXHIBIT "C" Form of Security Agreement and FAA Security Agreement....................63
EXHIBIT "D" Opinion of Counsel.......................................................64
EXHIBIT "E" Form of Corporate Guaranty...............................................65
EXHIBIT "F" Borrowing Base Certificate...............................................66
EXHIBIT "G" Borrowing Request........................................................67
EXHIBIT "H" Preapproved Foreign Whole Aircraft Engines as of Closing.................68
SCHEDULE 4.07 Pending Litigation.......................................................69
SCHEDULE 5.01(l) Outstanding Debt.........................................................70
SCHEDULE 5.02(c) Places of Business.......................................................71
SCHEDULE 5.02(f) Permitted Liens..........................................................72
SCHEDULE 5.02(k) Returns and Credit Policies..............................................73
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AMENDED AND RESTATED REVOLVING LOAN AGREEMENT
PREAMBLE
THIS AMENDED AND RESTATED REVOLVING LOAN AGREEMENT (this "AGREEMENT") is
made and entered into as of March 11, 1998, by and between KELLSTROM INDUSTRIES,
INC., a Delaware corporation ("BORROWER"), and BARNETT BANK, N.A., a national
banking association, or its successors, assigns, and affiliates ("BANK").
RECITALS
A. Bank entered into a loan transaction (the "INITIAL TRANSACTION") with
Borrower on April 24, 1997, under which Bank provided to Borrower a loan
(the "INITIAL LOAN") in the original principal amount of $55,000,000.00,
secured by the "Collateral" (as hereinafter defined).
B. The Initial Transaction was evidenced and secured by, among other
things: (1) Promissory Note (the "INITIAL NOTE") dated April 24, 1997,
executed in favor of Bank, in the original principal amount of
$55,000,000.00; (2) Revolving Loan Agreement dated April 24, 1997 (the
"INITIAL LOAN AGREEMENT"); (3) Security Agreement dated April 24, 1997
(the "SECURITY AGREEMENT"); and (4) UCC-1 Financing Statements filed
with the Secretaries of State of Florida, New York, Connecticut,
California, Georgia, Missouri, and Texas (the "INITIAL FINANCING
STATEMENTS") (collectively, the Initial Note, the Initial Loan
Agreement, the Security Agreement, and the Initial Financing Statements,
the "INITIAL LOAN DOCUMENTS").
C. Borrower has requested that: (1) the amount of financing under the
Initial Loan be increased to $100,000,000.00 (as so increased, the
"LOAN", as it may be amended, renewed, or increased from time to time),
to be evidenced by a one-day note executed by Borrower in favor of Bank,
in the original principal amount of $45,000,000.00 (the "ADVANCE NOTE")
and a revolving credit note executed by Borrower in favor of Bank in the
original principal amount of $100,000,000.00, that would consolidate the
Initial Note and the Advance Note (the "CONSOLIDATED NOTE"); (2) certain
of the terms and conditions governing the Initial Loan Agreement be
modified; and (3) the Initial Loan Agreement be amended and restated in
its entirety.
D. Bank has agreed to make and Borrower has agreed to accept the Loan
described above, upon the terms and conditions set forth in this
Agreement.
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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
I.1 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):
"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 and accounts receivable.
"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 Authorized Representative 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) minus 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).
"Advance" shall mean the proceeds of the Loan delivered to Borrower by
Bank pursuant to Section 2.05.
"Advance Date" shall mean the date of the Initial Advance or any
Subsequent Advance under this Agreement.
"Advance Note" shall have the meaning set forth in the Recitals.
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"Aero Support" shall mean Aero Support Holdings, Inc., a Delaware
corporation.
"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 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.
"Agreement" shall have the meaning set forth in the Preamble.
"Appraisal" shall mean an appraisal certified to Bank and current within
thirty (30) days of the applicable time, and "appraised value" shall mean the
value as of or within thirty (30) days before the applicable time.
"Assets" shall mean all property, real or personal, tangible or
intangible, in which Borrower has any legal, beneficial or other interest.
"Authorized Representative" shall mean the president, vice president,
chief executive officer, chief financial officer, controller or treasurer (or
other officer, member, partner or other representative of an entity who is
specifically authorized and whose authorization is approved by Bank 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).
"Bank" shall have the meaning set forth in the Preamble.
"Bank's Parties" shall have the meaning set forth in Section 4.14
herein.
"Base Rate" shall mean the Prime Rate.
"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.
"Base Rate Spread" shall mean one-fourth percent (1/4%).
"Book Net Worth" shall mean common stock plus paid-in capital plus
retained earnings, as defined according to GAAP.
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"Books" shall mean the full and complete books of accounts and other
records reflecting the results of Borrower's and its Affiliates' operations, in
accordance with GAAP, including but not limited to any documents, instruments,
agreements, information, data, statements, certificates, or other matters that
Borrower is required, pursuant to the terms of this Agreement and the other Loan
Documents, to deliver to Bank.
"Borrower" shall have the meaning set forth in the Preamble.
"Borrowing Base" shall mean the assets of Borrower against which
Advances may be made, as calculated according to the formula set forth in
Sections 2.02 and 2.03.
"Borrowing Base Certificate" shall mean a certificate executed with
respect to the Loan and delivered to Bank pursuant to Section 5.01(a)(iii), such
certificate being 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 2.03) 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 F hereto.
"Borrowing Date" shall mean the date of the Initial Advance or any
Subsequent Advance under this Agreement.
"Borrowing Request" shall mean a request for a Loan, in the form of
Exhibit "G" 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 Expenditure" shall mean, on a consolidated basis, expenditures
considered to be capital expenditures under GAAP, including all expenditures
made by Borrower and its Affiliates for the maintenance of its Assets, not
including expenditures made in connection with periodic overhauls and
inspections of equipment and engines in inventory (and not including
expenditures made in connection with acquisitions of other entities or
substantially all the assets of other entities), which expenditures are or are
required to be capitalized on its balance sheet for financial reporting purposes
in accordance with GAAP.
"Capital Funds" shall mean the Book Net Worth plus Subordinated Debt,
less any Intangible Assets. The calculation of Book Net Worth shall include one
hundred percent (100%) of all equity offerings by Borrower.
"Capital Funds Ratio" shall mean, as of any particular date, the ratio
of all Liabilities of Borrower less Subordinated Debt, divided by Capital Funds.
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"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 pursuant to Section 3.05 hereof, 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. Upon the occurrence of
an Event of Default or on request of the Bank, the Cash Collateral Account(s)
may, at Bank's sole discretion, be replaced with a lockbox/lockboxes established
at Bank to receive payments under the Loan.
"Chattel Paper" shall mean a writing or writings that evidence both a
monetary obligation and a security interest in or a lease of specific goods.
"CIRRA" shall mean the Convention on the International Recognition of
Rights in Aircraft, signed June 19, 1948, and effective September 17, 1953 (as
ratified by signatories thereto).
"Closing Date" shall mean March ___, 1998.
"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 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, interest rate protection agreements, leases, maintenance and other
reserves, 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
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insurance policies relating thereto, and all of Borrower's rights as an unpaid
seller of goods and 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 finished goods Inventory, all raw
materials, work in process and other materials to be used or consumed in
Borrower's business;
g. all instruments, documents, securities, cash, post office
boxes, lockboxes, 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 of Borrower, including computer records,
files, directories, disks, manuals, imaging equipment, tapes and programs,
correspondence, all computer software (including all imaging software) and
hardware and Borrower's rights under license agreements or other agreements to
any software necessary to utilize, access or obtain any thereof, and hard copies
of information related to or retrieved using such items;
i. all awards and settlements hereafter made, and all insurance
proceeds paid, for any damage to the Collateral and all unearned insurance
premiums on any insurance policies maintained by Borrower;
j. all bank accounts, certificates of deposit, and trust accounts
of Borrower and all other property and money of Borrower now or hereafter in the
possession, custody or control of Bank;
k. all of Borrower's Ownership Interests (as hereinafter
defined);
l. all of the foregoing, whether now owned or existing or
hereafter created or acquired by Borrower; and
m. proceeds and products of all such Collateral.
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"Commitment" shall mean the Bank's undertaking to make the Loan to
Borrower, subject to the terms and conditions hereof, in an original principal
amount not to exceed One Hundred Million and No/100 Dollars ($100,000,000.00).
"Consent of Lessor" shall mean a landlord subordination agreement or
waiver of statutory lien rights, as may be requested by Bank.
"Consolidated Note" shall have the meaning set forth in the Recitals.
"Contingent Liabilities" shall mean 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.
"Core Trading Asset Level" shall mean the combined value of Borrower's
Accounts and Inventory.
"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.
"Debentures" shall mean the 5-3/4% Convertible Subordinated Notes due
2002 issued by Borrower as of October 10, 1997, pursuant to the Indenture, in
the total principal amount of Fifty-Four Million and 00/100 Dollars
($54,000,000.00).
"Debt Service Coverage Ratio" shall be calculated as follows:
Net Profit + Interest Expense + Depreciation Expense + Amortization Expense
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Interest Expense + Current Maturities of Long Term Liabilities + Dividends
"Default" shall mean any event or condition that 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.
"Discriminatory Advances" shall mean all Advances made against Eligible
Accounts, New Parts Inventory, FAA-Certified Overhauled Parts Inventory,
Serviceable Parts Inventory, and Whole Aircraft Engines (including Inventoried
Engines and Leased Engines).
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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.
"Domestic Account" shall mean Accounts arising from sales within the
United States.
"Domestic Whole Aircraft Engines" shall mean Inventoried Engines that
are located in the United States.
"EBITDA" shall mean earnings before interest, taxes, depreciation, and
amortization expenses.
"Eligible Accounts" shall mean Eligible Domestic Accounts and Eligible
Foreign Accounts.
"Eligible Domestic Accounts" shall mean the net amount of Domestic
Accounts outstanding after eliminating from the aggregate amount of outstanding
Domestic Accounts, such Domestic Accounts as to which more than ninety (90) days
have elapsed since the invoice date, and after eliminating such Domestic
Accounts as Bank desires in its sole discretion including, by way of example,
but not limited to:
a all Domestic Accounts arising from sales or services to any
Account Debtor affiliated with Borrower;
b the amount of Domestic Accounts existing as of any point in
time during the term of the Loan arising from sales or services
to any one Account Debtor that exceeds ten percent (10%) of
Borrower's Tangible Capital Funds as of such time (unless such
Domestic Accounts are otherwise approved by Bank, in its sole
discretion);
c all United States Government account receivables as to which
Borrower has failed to execute such instruments and take all
steps required by Bank or necessary 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;
d those Domestic Accounts excluded because of the credit
worthiness of any Account Debtor;
e if ten percent (10%) or more of a Domestic Account arising from
sales or services to one Account Debtor remains unpaid for
ninety (90) or more
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days from the date of the invoice, then all Accounts from that
debtor shall be deemed ineligible; and
f deducting from the aggregate face amount of the remaining
Domestic Accounts all payments, adjustments (including any
contra accounts arising out of sales to and purchases from a
particular party), allowances, deductions, discounts and
credits applicable thereto and all amounts due thereon
reasonably considered by Bank difficult to collect or
uncollectible by reason of return, rejection, repossession,
loss or damage of or to the merchandise giving rise thereto.
This list is non-inclusive. The Borrowing Base is at all times subject
to the right of Bank to modify it based on findings of its asset-based lending
audits and Bank's sole judgment.
"Eligible Foreign Accounts" shall mean the net amount of Foreign
Accounts outstanding after eliminating from the aggregate amount of outstanding
Foreign Accounts, such Foreign Accounts as to which more than ninety (90) days
have elapsed since the invoice date, and after eliminating such Foreign Accounts
as Bank desires in its sole discretion including, by way of example, but not
limited to:
a all Foreign Accounts arising from sales or services to any
Account Debtor affiliated with Borrower;
b the amount of Foreign Accounts existing as of any point in time
during the term of the Loan arising from sales or services to
any one Account Debtor that exceeds ten percent (10%) of
Borrower's Tangible Capital Funds as of such time (unless such
Foreign Accounts are otherwise approved by Bank, in its sole
discretion); and
c if ten percent (10%) or more of a Foreign Account arising from
sales or services to one Account Debtor exceeds ninety (90)
days from the date of the invoice, then all Accounts from that
Account Debtor shall be deemed ineligible.
Foreign Accounts are subject to specific individual pre-approval by Bank
in addition to the eligibility requirements listed above for Eligible Foreign
Accounts. Borrower will submit a list of international clients for eligibility
as Foreign Accounts. Bank will pre-approve Foreign Accounts eligibility limits
and foreign country limits individually. These limits may be reviewed and
adjusted from time to time at Bank's sole discretion.
"Eligible Inventory" shall mean all Inventory of Borrower that was
acquired two years or less than two years before the date of any requested
Advance based in part or in whole on such Inventory, provided that so long as
any Inventory is located in California on real property leased by Borrower, any
such California Inventory, to the extent by which its
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value exceeds Six Hundred Thousand and No/100 Dollars ($600,000.00), shall not
be considered Eligible Inventory.
"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.
"Equitable" shall have the meaning described in the definition of
"Equitable Loan."
"Equitable Loan" shall mean that certain subordinated loan in the
original principal amount of Fifteen Million and No/100 Dollars ($15,000,000.00)
extended by The Equitable Life Assurance Society of the United States ("THE
EQUITABLE") to Borrower, evidenced by the Securities Purchase Agreement dated as
of January 15, 1997, between Borrower and The Equitable, as amended, including
Consent and Fourth Amendment of even date herewith.
"ERISA" shall have the meaning described in the definition of "Plan."
"Event of Default" shall mean any event of default specified in Article
VIII of this Agreement, after the expiration of any applicable grace period.
"FAA" shall mean the Federal Aviation Administration or any successor
agency.
"FAA-certified Overhauled Parts Inventory" shall mean those items of
Parts Inventory that have accumulated zero hours and cycles since their
refurbishment and re-certification by an FAA-certified repair station.
"FAA Security Agreement" shall mean the FAA security agreement of each
of Borrower and Guarantor, as applicable, granting a security interest to Bank
in the Collateral, substantially in the form of Exhibit "C" attached hereto, as
same may be amended from time to time.
"Federal Assignment of Claims Act" shall mean 41 U.S.C. 'SS' 15 and 31
U.S.C. 'SS' 3727.
"Fee Letter" shall have the meaning set forth in Section 6.07.
"Financing Statement" shall mean all financing statements permitted
under the UCC or any other state law or federal law for the purpose of
perfecting the security interest in the Collateral granted by Borrower to Bank
under the Security Agreement and the FAA Security Agreement (the "SECURITY
INTEREST"), and shall include (without limitation) financing statements to be
filed in the States of California, Louisiana, New York and Florida or any other
state against Borrower as debtor, and FAA Security Agreements or other documents
to be filed with the FAA.
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"Foreign Account" shall mean 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.
All Foreign Accounts shall be subject to individual preapproval by Bank.
"Foreign Whole Aircraft Engines" shall mean Inventoried Engines that are
located outside the United States. For purposes of calculating the Borrowing
Base, Foreign Whole Aircraft Engines shall mean only those engines located in
jurisdictions that are signatories to CIRRA. Furthermore, Foreign Whole Aircraft
Engines are subject to specific individual pre-approval by Bank in addition to
the eligibility requirements listed for eligible Whole Aircraft Engines.
Borrower will submit a list of engines for eligibility as Foreign Whole Aircraft
Engines. Any such preapproved Foreign Whole Aircraft Engines as of the Closing
Date are set forth on Exhibit "H" hereto. Bank will preapprove Foreign Whole
Aircraft Engine eligibility limits individually. These limits may be reviewed
and adjusted from time to time at Bank's sole discretion.
"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.
"Goods" shall mean all things that are moveable at the time the security
interest attaches or that are fixtures, but shall not include money, Documents,
Instruments, Accounts, Chattel Paper, General Intangibles, or minerals or the
like (including oil and gas) before extraction.
"Guarantor" shall mean, individually, any guarantor of the Loan,
including each of Borrower's Subsidiaries existing as of the Closing Date and
any other Subsidiary acquired or created during the term of the Loan.
"Hazardous Materials" shall mean materials defined as "hazardous waste"
under the Federal Resource Conservation and Recovery Act, as amended, and
similar state laws, or as "hazardous substances" under the Federal Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 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.
"Headquarters Transaction" shall mean the contemplated construction of a
new headquarters for Borrower, which is currently planned to involve the
issuance of development bonds backed by a letter of credit, and which is
contemplated to total not more than Ten Million and No/100 Dollars
($10,000,000.00). The Headquarters Transaction shall be cross-defaulted with the
Loan.
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"Improvements" shall mean the improvements now or hereafter made to the
Collateral or any portion thereof, together with all fixtures, furnishings,
machinery, equipment, and personal property necessary for the use or operation
thereof.
"Indenture" shall mean that certain Indenture dated October 10, 1997,
between Borrower and First Union National Bank as Indenture Trustee.
"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.
"Initial Financing Statements" shall have the meaning set forth in the
Recitals.
"Initial Loan" shall have the meaning set forth in the Recitals.
"Initial Loan Agreement" shall have the meaning set forth in the
Recitals.
"Initial Loan Documents" shall have the meaning set forth in the
Recitals.
"Initial Note" shall have the meaning set forth in the Recitals.
"Initial Transaction" shall have the meaning set forth in the Recitals.
"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 endorsement 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, goodwill, covenants not to compete,
experimental expenses, prepaid finance charges 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. The value of Inventory shall be based
on the cost to Borrower or the
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market value of such Inventory, whichever is lower, after deducting an amount or
percentage for slow-moving or obsolete Inventory, such amount or percentage to
be determined solely by Bank in its reasonable discretion.
"Inventory Collateral Certificate" shall mean a certificate executed and
delivered to Bank pursuant to Section 5.01(a)(iii), certified as correct by an
Authorized Representative 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 part of
the Inventory of Borrower.
"IRS Code" shall have the meaning described in the definition of "Plan."
"Kellstrom International Sales Corporation" shall mean Kellstrom
International Sales Corporation, a United States Virgin Islands corporation and
Subsidiary of Borrower.
"Leased Engines" shall mean Whole Aircraft Engines that Borrower owns
but are, at the time of such classification, subject to leases to third parties.
"Leases" means any interest Borrower has in any real or personal
property Leases, whether as lessor or lessee, and includes without limitation
any interest Borrower currently has or in the future may have in rental monies
and other proceeds of any Lease.
"Letter of Credit" shall mean an irrevocable standby letter of credit
for the account of Borrower in such form as may be approved by Bank.
"Letter of Credit Fee" shall mean one percent (1%) per annum of the
stated amount of each Letter of Credit, prorated for the term of such Letter of
Credit to a minimum of one-quarter percent (1/4%) or Seven Hundred Fifty and
No/100 Dollars ($750.00), whichever is less; and payable at issuance of each
Letter of Credit issued on behalf of Borrower.
"Letter of Credit Request" shall have the meaning set forth in Section
2.13 hereof.
"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 offered rate for deposits in United States
dollars in the London Interbank market for the Libor Interest Period which
appears on the Libor Rate Reference Page as of 11:00 a.m. (London time) on the
day that is two Business Banking Days preceding the first Business Day of the
Interest Period. If at least two such offered
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rates appear on the Libor Rate Reference Page, the rate will be the arithmetic
mean of such offered rates.
"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 principal balance of the Loan to the day which shall occur 1, 2,
or 3 months 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 Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) and be
not less than One Million and No/100 Dollars ($1,000,000.00).
"Libor Rate Reference Page" shall mean either (1) the Reuters Screen
LIBO Page; (2) the Dow Jones Telerate Page 3750; or (3) such other nationally
recognized source as may from time to time be used by Bank in its sole
discretion as a reference for determining any applicable Libor rate.
"Libor Spread" shall be the following:
Senior Debt/EBITDA Ratio Libor Spread
4.00x through and including 5.00x 275 basis points
3.00x through and including 3.99x 250 basis points
2.50x through and including 2.99x 225 basis points
1.75x through and including 2.49x 200 basis points
0.00x through and including 1.74x 175 basis points
The Senior Debt/EBITDA Ratio shall be measured as of the end of each
calendar quarter based upon financial information provided by Borrower
in accordance with the provisions of this Agreement. Changes in the
Libor Spread shall be effective forty-five (45) days after the end of
each fiscal quarter.
"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 the UCC of any
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jurisdiction, the lien of a lien creditor as defined in the UCC, and the lien of
a statutory lienor.
"Loan" shall have the meaning set forth in the Recitals.
"Loan Documents" shall mean this Agreement, the Advance Note, the
Consolidated Note, the Financing Statement, the Security Agreement, the
Subsidiary Guarantees, the other security documents, any Borrowing Base
Certificate, Account Collateral Certificate, Inventory Collateral Certificate,
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 Loan or the transactions contemplated by this Agreement.
"Long Term Liabilities" shall mean and include without duplication 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).
"Mature Engines" shall mean any Domestic Whole Aircraft Engines that
have been in the possession of Borrower for more than two (2) years and any
Foreign Whole Aircraft Engines that have been in the possession of Borrower for
more than one (1) year.
"Maturity Date" shall mean March 10, 2001.
"New Parts Inventory" shall mean those items of Parts Inventory that
have accumulated zero hours and cycles since their original manufacture.
"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, as defined according to GAAP.
"Nondiscriminatory Advances" shall mean all Advances that do not meet
the normal eligibility criteria established in the Borrowing Base.
"Note" shall mean the Consolidated Note or any other note evidencing the
Loan in the form of Exhibit "A" 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 Note and the other Loan Documents, together
with all accrued but unpaid
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interest thereon, and all other payment and performance duties, obligations and
liabilities of Borrower to Bank, including without limitation reimbursement
obligations under Letters of Credit and Unpaid Drawings thereunder, 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 Note 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, its Executive Vice President, its Treasurer, its Vice
President, its Chief Financial Officer, or other Authorized Representative.
"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.
"Other Personal Property" includes (without limitation) management
contracts, construction contracts, architectural contracts, service contracts,
engineering contracts, advertising contracts, contracts for purchase and sale,
purchase orders, consignment agreements, equipment leases, monies in escrow
accounts, reservation agreements, prepaid expenses, deposits and down payments
with respect to the sale or rental of any of Borrower's Assets, options and
agreements with respect to additional or after acquired property, surveys,
abstracts of title, all brochures, and advertising materials.
"Ownership Interests" means shares of stock, partnership interests,
ownership interests in limited liability companies, beneficial interests in
trusts, and any other evidence of ownership interests in any kind of entity.
"Participant" shall mean any financial institution that is, during the
term of the Loan, party to a participation agreement with regard to the Loan,
and shall include Bank (as a party to such participation agreement). Borrower
acknowledges Bank's right to enter into participation agreements with regard to
the Loan, and agrees that Bank may provide Participants with such information
about Borrower as it deems necessary or desirable in connection with such
participation.
"Parts Inventory" shall mean New Parts Inventory, FAA-certified
Overhauled Parts Inventory, and Serviceable Parts Inventory. 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 reasonable discretion.
"Payment Default" shall mean a default or Event of Default set forth in
Section 7.01(a) hereof.
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"Permitted Liens" shall mean those Liens in or upon the Collateral as
further described in Section 5.02(f) hereof and set forth in Schedule 5.02(f)
attached hereto.
"Permitted Loan" shall mean, individually and collectively, the
Subordinated Debt, the Headquarters Transaction, and indebtedness incurred in
connection with the financing of a Mature Engine pursuant to Section 2.03(h)
hereof or any of Borrower's Assets pursuant to Section 5.02(d) hereof. Any
indebtedness incurred after the date of this Agreement (including Subordinated
Debt) shall not be a Permitted Loan if, immediately after said indebtedness is
incurred, 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
indebtedness.
"Person" shall mean any individual, joint venture, partnership, firm,
corporation, limited liability company, trust, unincorporated organization,
foreign sales corporation, 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").
"Prepayment Costs" shall mean, with respect to Borrower's prepayment of
all or any portion of prepayment of an outstanding Libor Portion, whether
voluntarily or due to Bank's acceleration of the maturity of the Note or
portions thereof: (i) any loss, cost or expense incurred by Bank or Participants
as a result of the timing of such payment, including, without limitation, the
loss, cost or expense incurred by Bank or Participants in reinvesting such
funds; (ii) any loss, cost or expense incurred by Bank or Participants in
terminating, covering or redeploying their funding arrangements due to any delay
or failure (other than a delay or failure solely of or caused solely by Bank or
such Participant) in satisfying all conditions to having a Libor Portion bear
interest on the commencement date of the applicable Libor Interest Period at the
Adjusted Libor after Borrower has submitted a request for same; (iii) any loss,
cost or expense incurred by Bank or Participants as a result of the conversion
(for any reason whatsoever, whether voluntarily or involuntarily) of any Libor
Portion to a Base Rate Portion on a date other than the last day of a Libor
Interest Period; (iv) if Bank or any Participant is a party to any interest rate
protection agreement with or on behalf of Borrower, any loss, cost or expense
not attributable solely to Bank's or any Participant's acts under
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such interest rate protection agreement; and (v) any other out-of-pocket
third-party costs or expenses incurred by Bank or Participants as a result of
the timing of such prepayment and including all costs and sums due under or
incurred in terminating or amending any interest rate protection agreement. All
Prepayment Costs shall constitute additional sums payable with respect to the
outstanding principal sum due under the Note; provided, however, that such sums,
if characterized as interest under any applicable law, shall not be applied in
reduction of accrued and unpaid interest.
"Prime Rate" shall mean the annual rate of interest announced from time
to time by Barnett Bank, N.A., or its successors and assigns 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 of the
Collateral, 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 4.11 hereof).
"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.
"Rents and Leases" means any interest Borrower has in any Leases or
rental monies.
"Required Participants" shall mean the Participants holding sixty-six
and two-thirds percent (66-2/3%) or more of the Commitment.
"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 earlier of an Event of Default and the Maturity
Date.
"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, as amended by Amendment No. 1 of even date
herewith and as it may be further amended from time to time.
"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
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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, as same may be amended from time to time.
"Security Interest" shall have the meaning described in the definition
of "Financing Statement."
"Senior Debt" shall mean that portion of the Total Liabilities that is
held by Bank and all other individuals or entities that is: (a) secured by a
first (or purported to be first) lien on, or security interest in, any or all of
the Assets; (b) is not secured by a lien or pledge and is not, by its terms,
expressly subordinate to other specified indebtedness of Borrower; or (c) which
Bank reasonably determines to be "senior debt" under customary banking standards
of national or international lenders. Other than the Loan, the Borrower has no
existing Senior Debt as of the Closing Date.
"Senior Debt to EBITDA Ratio" shall mean the ratio of Senior Debt to
EBITDA.
"Serviceable Parts Inventory" shall mean items of Parts Inventory that
have been deemed airworthy by an FAA-approved entity, that have hours and cycles
remaining in their useful life.
"Subordinated Debt" shall mean, individually and collectively: (a) the
Equitable Loan; (b) the Debentures; and (c) any other indebtedness of Borrower
(whether in the form of loans, guarantees or leases or any other form),
subordinated to the Loan with subordination provisions satisfactory to Bank.
"Subsequent Advance" shall mean any Advances made 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.
"Subsidiary Guarantees" shall mean the Guarantees executed by certain of
Borrower's Subsidiaries in favor of Bank, substantially in the form of Exhibit E
attached hereto.
"Swing Line" shall mean an option whereby Bank shall, at its sole
discretion, make available to Borrower same-day Advances up to Five Million and
No/100 Dollars ($5,000,000.00) in the aggregate on a weekly basis. Advances
under the Swing Line shall bear interest at the Adjusted Base Rate pursuant to
Section 2.06 hereof.
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"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 Capital Funds" shall mean Book Net Worth less Intangible
Assets plus Subordinated Debt.
"Total 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.
"UCC" shall mean the Uniform Commercial Code as adopted in any relevant
jurisdiction, as same may be amended from time to time.
"United States" shall mean the United States of America and its
possessions and territories.
"Unpaid Drawing" shall have the meaning set forth in Section 2.14
hereof.
"Unused Fee" shall mean fifteen basis points (.15%) on the unused
portion of the Loan, calculated as follows: (a) the lesser of One Hundred
Million and No/100 Dollars ($100,000,000.00) or the Tangible Capital Funds of
Borrower or an amount which is five times EBITDA; less (b) the average principal
balance outstanding under the Loan during each calendar quarter. The Unused Fee
shall be payable quarterly in arrears on the forty-fifth (45th) day after the
end of each calendar quarter, commencing May 15, 1998.
"Whole Aircraft Engines" shall mean, for purposes both of determining
Collateral of Borrower and of calculating the Borrowing Base, aircraft engines
that have not been disassembled into their parts, and shall include both
Inventoried Engines and Leased Engines.
For purposes of calculating the Borrowing Base (and subject to Bank's
right to determine eligibility pursuant to the terms hereof), "Whole Aircraft
Engines" shall further mean only: (a) Domestic Whole Aircraft Engines up to two
(2) years after acquisition by Borrower; (b) Foreign Whole Aircraft Engines up
to one (1) year after acquisition by Borrower; (c) all Leased Engines wherever
located that have been approved by Bank pursuant to Section 2.03(i) hereof; (d)
engines as to which Financing Statements were filed prior to the date an Advance
is requested against such engines; and (e) engines as to which satisfactory
Appraisals (obtained at Borrower's expense) were received and approved by Bank
no later than five (5) days before such Advances are requested against such
engines. Such approval shall be deemed to have been refused if Bank shall have
received complete and accurate information necessary to approve the Appraisal
(including copies of lien
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searches, lien filings, insurance policies and all other information covering
such engines and listed in Section 6.27 hereof) and Bank shall either have given
a written or oral refusal to an Authorized Representative of Borrower or Bank
shall have failed to communicate to the Borrower relating to the Appraisal or to
any other information provided to Bank within a reasonable time frame (which may
be longer than but shall be not shorter than ten (10) Business Days after
receipt of all information required).
"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. All accounting and
financial information shall be deemed to be prepared on a consolidated basis
unless otherwise specified. All accounting and financial information shall be
deemed to have been prepared on a consolidated basis unless otherwise specified.
ARTICLE II
AMOUNTS AND TERMS OF LOAN
II.1 Loan. 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 the Loan on the terms and conditions set forth herein. During
the Revolving Period, Borrower shall be entitled to receive the entire proceeds
of the Loan in one or more Advances pursuant to Section 2.05 hereof, except as
otherwise specifically set forth in this Agreement. Advances under this Loan
shall be evidenced by the Note and the Security Documents. After the expiration
of the Revolving Period, Borrower shall not be entitled to receive any
Subsequent Advance. The Loan shall be a revolving loan and Borrower may borrow
up to the maximum principal amount of the Loan, repay all or any portion of such
principal amount of the Loan, and reborrow up to such maximum principal amount,
subject to the terms and conditions set forth herein.
II.2 Borrowing Base for the Loan. The Borrowing Base for the Loan shall be the
lesser of:
a One Hundred Million and No/100 Dollars ($100,000,000.00) minus
the sum of (i) all Advances outstanding, and (ii) the aggregate
stated amount of all Letters of Credit outstanding, or
b the sum of the following (i. through vi.):
i eighty percent (80%) of Eligible Domestic Accounts; plus
ii the lesser of:
(a) seventy percent (70%) of Eligible Foreign Accounts,
or
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(b) Fifteen Million and No/100 Dollars
($15,000,000.00); plus
iii the lesser of:
(a) sixty-five percent (65%) of New Parts Inventory and
FAA-certified Overhauled Parts Inventory; or
(b) Thirty Million and No/100 Dollars ($30,000,000.00);
plus
iv the lesser of:
(a) fifty percent (50%) of Serviceable Parts Inventory;
or
(b) Fifteen Million and No/100 Dollars
($15,000,000.00); plus
v the least of:
(a) during the first twelve (12) months after purchase
of a Whole Aircraft Engine, seventy-five percent
(75%) of the lesser of cost or appraised value of
such Whole Aircraft Engine (calculated by
appraisers satisfactory to Bank) provided that if
the Whole Aircraft Engine is a Leased Engine, the
total of the lease payments received as of the
applicable time shall reduce such number which is
the lesser of cost or appraised value before
applying the advance rate for calculation of
availability, and provided further that for
purposes of this subparagraph v.(a) only (and not
for subparagraph v.(b), Foreign Whole Aircraft
Engines shall be considered eligible for such
seventy-five percent (75%) advance rate during the
first twelve (12) month period, or
(b) during the second twelve (12) months after purchase
of a Whole Aircraft Engine, fifty percent (50%) of
the lesser of cost or market value of such Whole
Aircraft Engine (calculated by appraisers
satisfactory to Bank) provided that if the Whole
Aircraft Engine is under lease, the total of the
lease payments received shall reduce such number
which is the lesser of cost or appraised value
before applying the advance rates for calculation
of availability, and provided further that Foreign
Whole Aircraft Engines shall not be considered
eligible for any Advances during such second
12-month period, or
(c) Sixty Million and No/100 Dollars ($60,000,000.00),
provided that Advances at any one time on Foreign
Whole Aircraft Engines shall be no greater than
Fifteen Million and No/100 Dollars
($15,000,000.00); plus
vi the lesser of:
(a) Twenty Million and No/100 Dollars ($20,000,000.00);
or
(b) Nondiscriminatory Advances, subject to the
following condition precedent: Borrower's Senior
Debt divided by EBITDA cannot exceed 4.0x. For the
purpose of this calculation, until June 30, 1998,
EBITDA will be calculated
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based on Borrower's trailing two quarters EBITDA
annualized. For all periods thereafter, EBITDA will
be calculated based on Borrower's trailing four
quarters EBITDA.
II.3 Other Advance Limitations.
a Advances may be made against New Parts Inventory, FAA-certified
Overhauled Parts Inventory, Serviceable Parts Inventory, and Whole Aircraft
Engines until two (2) years after the date of purchase.
b In no event shall the aggregate of Discriminatory Advances and
Nondiscriminatory Advances outstanding at any one time exceed the Core Trading
Asset Level.
c In no event shall the aggregate of Discriminatory Advances and
Nondiscriminatory Advances outstanding at any one time exceed the lesser of: One
Hundred Million and No/100 Dollars ($100,000,000.00) or Borrower's Tangible
Capital Funds.
d Only outstanding Accounts and Inventory in which Bank has obtained
a first priority perfected security interest, and Whole Aircraft Engines as to
which Bank has received a lien search and a recorded FAA Security Agreement (as
well as the other conditions listed in Section 6.27 hereof) shall be included in
the calculation of the Borrowing Base.
e If Borrower desires that an Account be considered an Eligible
Account, Borrower shall submit information concerning such Account to Bank three
(3) Business Days prior to submitting any Borrowing Request for purposes of
which such Account is desired to be an Eligible Account. Bank shall inform
Borrower as to Bank's acceptance or rejection of such Account as an Eligible
Account before the date on which Borrower is to submit the related Borrowing
Request.
f As soon as dismantlement of a Whole Aircraft Engine begins for
purpose of breaking it up into parts, the engine will become reclassified into
the appropriate parts category.
g Whole Aircraft Engine appraisals must be current within thirty
(30) days before Advances may be made against such engines.
h As to Mature Engines, Borrower may finance Mature Engines with
other lenders and may grant a security interest therein upon prior written
consent of Bank, which consent shall not be unreasonably withheld as long as
Borrower is in compliance with all provisions of this Agreement including
without limitation the financial covenants, both
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before and after giving effect to such release. Bank shall execute all necessary
documents as requested by Borrower to release its Security Interest as to any
such financed Mature Engines.
i As to Leased Engines, inclusion in the Borrowing Base depends on
fulfillment of the following conditions in addition to those listed in the
definition of "Leased Engine:" Bank must review and approve and be named loss
payee on all insurance policies covering such Leased Engines; and (as for all
Collateral intended to be included in the Borrowing Base) the conditions listed
in Section 6.27 must be fulfilled. In addition, for purposes of calculating the
Borrowing Base, such leases and third parties must be preapproved by Bank to be
considered part of the Borrowing Base and Appraisals of such Whole Aircraft
Engines must be preapproved by Bank. Such approval shall be deemed to have been
refused if Bank shall have received complete and accurate information necessary
to approve such lease and such third party (including copies of insurance
policies covering such engines and naming Bank as loss payee) and Bank shall
either have given a written or oral refusal to an Authorized Representative of
Borrower or Bank shall have failed to communicate to the Borrower relating to
the lease or the third party or any such information within a reasonable time
frame (which may be longer than but shall not be shorter than ten (10) Business
Days) after receipt by Bank of all information required.
II.4 The Note. The advances made by Bank pursuant to Section 2.01 herein shall
be evidenced by the Note, in form and substance acceptable to Bank, and payable
to the order of Bank. The Note shall be deemed to reflect the aggregate unpaid
principal amount of all indebtedness to Bank under the Loan, whether or not the
face amount of the 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.
II.5 Advance of Proceeds of the Loan. On the Initial Advance Date and on
Subsequent Advance Dates, upon initial and continued satisfaction of the
conditions precedent set forth in Article Six 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
(if not the same Business Day) and the amount thereof. For any Advances under
the Base-Rate Portion, such notice shall be received prior to 12 p.m. (Eastern
Standard Time) for any same-day Advance. For any Advances under the Libor
Portion, such notice shall be received prior to 12 p.m. (Eastern Standard Time)
at least three (3) Business Days prior to the requested Advance Date. 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 Advance is made. Requests by Borrower for any Advance
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hereunder on any date shall be in the minimum principal amount of One Hundred
Thousand and No/100 Dollars ($100,000.00).
II.6 Interest Rate; Payment of the Note. Borrower shall pay interest on the
outstanding principal balance of the 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 Note. Any Advances made under the
Swing Line shall bear interest at the Adjusted Base Rate and shall constitute
part of the Base Rate Portion.
II.7 Prepayments. Provided that no Event of Default has occurred, Borrower may
at any time prepay all or any part of the outstanding principal amount of the
Loan. Prepayment of all or any part of the Base Rate Portion and prepayment of a
Libor Portion at the expiration of a Libor Interest Period shall be without
penalty. Prepayment of a Libor Portion other than at the expiration of a Libor
Interest Period shall also be permitted upon payment of applicable Prepayment
Costs. Each prepayment other than full payment shall be in the minimum amount of
Fifty Thousand and No/100 Dollars ($50,000.00) and shall be made prior to 2:00
P.M. (Eastern Standard Time) on a Business Day in immediately available funds.
II.8 Calculation of Interest. Any interest due on the Loan 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 the Loan that would be
deemed interest under Florida or other applicable law, 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 Loan 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 the Loan (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.
II.9 Setoff. 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, setoff
against and apply the same to the Obligations when and as due and payable.
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II.10 Late Payment Penalty. A late payment penalty of five percent (5%),
calculated on the interest payment due on the last 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.
II.11 Use of Proceeds. Borrower will use the proceeds of the Loan for working
capital purposes and for other general corporate purposes, including
acquisitions. The Proceeds of the Loan that are to be used for Letters of Credit
shall be capped at Twenty Million and No/100 Dollars ($20,000,000.00). The
proceeds of the Loan to be used for Nondiscriminatory Advances shall be capped
at Twenty Million and No/100 Dollars ($20,000,000.00).
II.12 Letter of Credit. Borrower shall have the right during the term of the
Loan, upon prior written consent of Bank (and subject to the conditions set
forth in this Section 2.12 and elsewhere in the Loan Documents), to request Bank
to issue a Letter of Credit for the account of Borrower in such form as may be
approved by Bank, and in an amount not to exceed the lesser of:
a Twenty Million and No/100 Dollars ($20,000,000.00) minus the
aggregate stated amount of all Letters of Credit outstanding
(subject to the provisions hereof limiting aggregate Advances
hereunder, including draws under Letters of Credit, to, at
most, the amount of the Commitment); and
b the applicable Borrowing Base limitations (for Letters of
Credit constituting Discriminatory Advances).
The Letter of Credit shall have an expiry date occurring not later than
one (1) year after such Letter of Credit's date of issuance but in no case later
than one day prior to the Maturity Date. Bank shall have no obligation to
consent to the establishment of such Letter of Credit unless (and Borrower
hereby agrees and acknowledges the following):
i there exists no Default or Event of Default hereunder or under
any Loan Document;
ii the amount of the Letter of Credit shall reduce funds available
for borrowing under the Loan as set forth in this Section 2.12
unless and until the Letter of Credit has been delivered back
to Bank and terminated without a draw being made thereunder;
iii if funds are drawn by the beneficiary under the Letter of
Credit, such amounts shall be deemed an Advance under the Loan
(unless an Event of Default of the type specified in Section
7.01(e) has occurred and is continuing);
iv. one of the documentary conditions to the issuance of a Letter
of Credit is that Borrower provide Bank with a certification
that Borrower knows of no Default or Event of Default under the
Loan Documents; and
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v. the Obligations secured by the Collateral shall from and after
at the time of issuance of the Letter of Credit include
Borrower's reimbursement obligations and all Unpaid Drawings
(as hereinafter defined) under the Letter of Credit and
interest thereon.
II.13 Letter of Credit Requests; Notices of Issuance. Whenever Borrower desires
that a Letter of Credit be issued, Borrower shall give Bank a written notice
(including by way of facsimile transmission) prior to 1:00 P.M. (Eastern
Standard Time) at least five (5) Business Days (or such shorter period as may be
acceptable to Bank) prior to the proposed date of issuance (which shall be a
Business Day) (each a "LETTER OF CREDIT REQUEST"), which Letter of Credit
Request shall include an application for such Letter of Credit and any other
documents that Bank customarily requires in connection therewith. Bank shall
promptly notify each Participant of each Letter of Credit Request.
Bank shall, on the date of each issuance of a Letter of Credit by it,
give each Participant and Borrower written notice of the issuance of such Letter
of Credit.
II.14 Agreement to Repay Letter of Credit Drawings. Unless an Event of Default
of the type specified in Section 7.01(e) exists and is continuing, Borrower
hereby irrevocably authorizes an Advance under the Loan immediately upon each
draw under a Letter of Credit in an amount equal to the draw. To the extent not
so advanced under the Loan to reimburse Bank, Borrower agrees to reimburse Bank,
by making payment to Bank in immediately available funds at the office of Bank,
for any payment or disbursement made by Bank under any Letter of Credit (each
such amount so paid or disbursed, until reimbursed, an "UNPAID DRAWING")
immediately after, and in any event on the date on which, Bank notifies Borrower
of such payment or disbursement (which notice to Borrower shall be delivered
reasonably promptly after any such payment or disbursement), with interest on
the amount so paid or disbursed by Bank, to the extent not reimbursed, from and
including the date paid or disbursed to but not including the date Bank is
reimbursed therefor (if such payment is received by Bank before 2:00 p.m.
Eastern Standard Time; if such payment is received after such time, it must
include interest for such date) at a rate per annum which shall be the rate then
applicable to Base Rate Loans, such interest also to be payable on demand.
Borrower's obligation under this Section 2.14 to reimburse Bank with
respect to Unpaid Drawings (including, in each case, interest thereon) shall be
absolute and unconditional under any and all circumstances and irrespective of
any set off, counterclaim, or defense to payment which Borrower may have or have
had against Bank, including, without limitation, any defense based upon the
failure of any drawing under a Letter of Credit to conform to the terms of the
Letter of Credit or any non-application or misapplication by the beneficiary of
the proceeds of such drawing, provided, however, that Borrower shall not be
obligated to reimburse Bank for any wrongful payment made by Bank under a Letter
of Credit as a result of acts or omissions constituting willful misconduct or
gross negligence on the part of Bank.
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II.15 Right to Debit Account. Unless an Event of Default of the type specified
in Section 7.01(e) has occurred and is continuing, 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.
II.16 Fees. As partial consideration for Bank entering into this Agreement and
establishing the Loan, Borrower has paid to Bank one-half of a fully earned
facility fee and an agent fee. Payment in full of the remaining balance of the
Facility Fee, pursuant to the Fee Letter, shall be a condition of closing. In
addition to the Facility Fee and the Agent Fee, Borrower shall pay to Bank any
Unused Fee and any Letter of Credit Fee as may be payable during the term of the
Loan.
ARTICLE III
CUSTODY, INSPECTION, COLLECTION
AND HANDLING OF COLLATERAL AND RECORDS
III.1 Collection of Accounts. Until Borrower's authority to do so is curtailed
or terminated (which Bank may so terminate at any time after the occurrence and
during the continuation of an Event of Default), 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 have the right after the occurrence and during
the continuation of an Event of Default 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 to one (1) day's interest at the Adjusted Base
Rate on each collected item, which fee shall be calculated at the interest rate
charged on the Loan.
III.2 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 all or any of the following powers, which, being coupled
with an interest, shall be
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irrevocable until all Obligations have been paid in full: (a) 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; (b) after the occurrence and during the continuance
of an Event of Default (without any further action being necessary), to receive,
open and dispose of all mail addressed to Borrower and relating to the
Collateral; (c) after the occurrence and during the continuance of an Event of
Default (without any further action being necessary), 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; (d) after the occurrence and during the continuance of an Event of
Default (without any further action being necessary), 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 of Bank's
designees, information concerning the Accounts; (e) after the occurrence and
during the continuance of an Event of Default (without any further action being
necessary), to notify Account Debtors to make payment directly to Bank; (f) to
execute in Borrower's name and on Borrower's behalf any financing statements or
amendments thereto; and (g) 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. 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.
III.3 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.
III.4 Custodian of Collateral. Bank shall have the right, at any time after and
during the continuance of 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.
III.5 Cash Collateral Account(s). Borrower shall establish one or more Cash
Collateral Accounts at Bank in Borrower's name, into which Borrower and all
domestic Subsidiaries
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will deposit all payments received by Borrower (including without limitation
payments on Accounts, proceeds of sales of engines, insurance proceeds, and wire
transfers) promptly after receipt thereof. Amounts deposited into the Cash
Collateral Account(s) shall be swept by Bank on a daily basis out of the Cash
Collateral Account(s) and applied to the Loan against the principal outstanding
under the Base Rate Portion of the Loan as of such day. Once all outstanding
Base Rate Advances have been repaid, the balance shall accumulate until the
earlier of (a) the expiration of any outstanding Libor Interest Period, (b) the
request of Borrower, or (c) the occurrence of an Event of Default. At such time,
amounts swept out of the Cash Collateral Account shall be applied to the Loan
against the principal outstanding under any Libor Portion of the Loan as of such
day. The Cash Collateral Account(s), and all proceeds thereof, shall be pledged
to Bank, and shall be a blocked account/blocked accounts (i.e., withdrawals from
such account(s) may only be made by Bank). Upon the occurrence of an Event of
Default under the Loan, 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 the Loan 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 IV
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:
IV.1 Organization, Corporate Powers, etc. Borrower:
a. is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware,
b. 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,
c. 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
d. 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 that
are applicable to Borrower or to its properties, including the Collateral. As of
the date of this Agreement, Borrower has three
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(3) operating Subsidiaries: Kellstrom Commercial Aircraft, Inc., a Delaware
corporation; Aero Support Holdings, Inc., a Delaware corporation, and Integrated
Technology Holdings Corp., a Delaware corporation, and one (1) non-operating
foreign sales company, Kellstrom International Sales Corporation, incorporated
under the laws of the United States Virgin Islands.
IV.2 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
a) any provision of law, any governmental rule
or regulation, any order of any court or
other agency of government or the Certificate
of Incorporation or Bylaws or any corporate
resolution or minutes of Borrower or
b) 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.
IV.3 Financial Statements. Borrower has furnished Bank with the following
financial statements, identified by the chief financial officer of Borrower: an
audit level balance sheet of Borrower as of December 31, 1996, profit and loss
statements, statements of cash flow, and statements of stockholder's equity of
Borrower for the fiscal year ended on December 31, 1996, and unaudited interim
statements as of September 30, 1997. 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 of
the dates thereof, and the profit and loss statements, statements 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.
IV.4 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
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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.
IV.5 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.
IV.6 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 September 30, 1997, hereinabove described (other than
properties and assets 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.
IV.7 Litigation, etc. There are no actions or proceedings pending or, to the
knowledge of Borrower, threatened, against Borrower or affecting Borrower that,
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 transactions
contemplated hereby or thereby, except for the pending litigation of Borrower
set forth in Schedule 4.07 attached hereto.
IV.8 Consents and Approvals. No authorization, license, consent, approval,
notice, filing (except for UCC financing statements and FAA filings), 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.
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IV.9 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 a proceeding at law or in equity.
IV.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 4.03 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 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 transactions contemplated in this Agreement, there
will exist no default under the provisions of any instrument evidencing such
Liabilities or of any agreement relating thereto.
IV.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 no 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; 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
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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.
IV.12 Outstanding Debt. As of the date hereof, Borrower has no outstanding debt
except for:
a. the Loan,
b. the Equitable Loan,
c. the Debentures, and
d. general trade accounts payables generated by Borrower in the
ordinary course of business.
IV.13 Designated Senior Indebtedness; Compliance with Indenture. The Indenture
has not been amended, modified, or changed in any manner as of the date hereof
and Borrower will not amend or modify same during the term of the Loan without
the prior written consent of Bank. Borrower hereby provides that the Loan is to
be included within the definition of "Designated Senior Indebtedness" under the
Indenture and Bank is entitled to the rights and benefits accorded to the
holders of such indebtedness, as described therein.
IV.14 Affirmation of Previous Transactions and Initial Loan Documents and
Warranties and Representations; Assumption of Obligations under Initial
Transactions and Initial Loan Documents. Borrower hereby ratifies and affirms
the Initial Loan Documents as same may be amended and restated or otherwise
modified hereby, and the representations and warranties set forth therein
(except as modified concurrently herewith), and affirms that the Initial
Loan Documents (as amended and restated or otherwise modified) and all
representations and warranties therein remain true and correct and in full
force and effect (except as modified concurrently herewith). Borrower hereby:
(i) acknowledges that as of the date hereof, to Borrower's knowledge, Bank has
performed all of its obligations, if any, under the Initial Loan Documents;
(ii) acknowledges that as of the date hereof it has no claims, defenses or
rights of setoff against Bank or as to the validity or enforceability of the
Initial Loan Documents, or any of them, or as to any other documents executed
in connection therewith; and (iii) waives, discharges, and releases forever
any and all existing claims, actions, causes of action, demands, defenses or
rights of setoff, whether in contract, tort or otherwise, which Borrower might
have against Bank and its affiliates and their respective officers, directors,
shareholders, agents, or employees (collectively, "BANK'S PARTIES"), or the
successors or assigns of any or all of the Persons constituting Bank's Parties,
or which may affect the enforceability by Bank of Bank's rights and remedies
under any or all of the Initial Loan Documents and which are based on events
or occurrences existing or arising prior to the date hereof.
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ARTICLE V
COVENANTS OF BORROWER
V.1 Affirmative Covenants. Borrower (and each Subsidiary as and when applicable
as if specifically set forth and named herein) covenants, for so long as any of
the principal amount of or interest on the Note 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 and all Participants at the addresses provided to Borrower at closing or
during the term of the Loan, 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 in each
fiscal year, a consolidated and consolidating 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
consolidated and 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 corresponding consolidated figures from the preceding
annual audit, together with a copy of the accompanying
auditors' letter to management, 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, a Borrowing Base Certificate (at least
once per month or more often if requested by Bank, up to
twice per month, and also as a condition precedent to an
Advance, to establish the required availability under the
Borrowing Base in connection with such Advance); an
Account Collateral Certificate, showing Accounts
classified as Domestic and
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Foreign; and an Inventory Collateral Certificate showing
Parts Inventory classified by type, cost and age, a
detailed listing of Whole Aircraft Engines, an accounts
receivable aging report, and an accounts payable report,
and any other aging schedules Bank may reasonably request
of Borrower in form satisfactory to Bank;
iv. as soon as practicable and in any event within forty-five
(45) days after the end of each fiscal quarter in each
fiscal year, an Officer's Certificate calculating with
reasonable detail and 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. as soon as practicable and in any event within forty-five
(45) days after the end of each fiscal year, financial
projections for the two-year period commencing with such
recently ended fiscal quarter;
vi. 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
vii. 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 (or any
Subsidiary, as applicable) obtaining knowledge of any Event of Default or
Default under this Agreement or any other obligation of Borrower, it shall
deliver to Bank and all Participants 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 to confirm and verify all Accounts, to discuss the
Collateral with any Person having a Permitted Lien, and to do whatever Bank may
deem reasonably 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
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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, except for
asset-based lending audits, which shall be conducted at least quarterly at
Borrower's expense (at $250.00/day, or the then current fee for such asset-based
lending audits, plus costs). After the occurrence of an Event of Default, all
audits 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 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.
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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 Million and No/100 Dollars
($1,000,000.00) 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 an Authorized Representative of Borrower of all
relevant facts and the action being taken or proposed to be
taken by Borrower with respect thereto.
g. Checking Accounts. For collateral purposes, Borrower and each
domestic Subsidiary (except for Subsidiaries whose headquarters and operations
are conducted in locations where Bank has no presence, as to which Subsidiaries
business checking accounts may be maintained in other financial institutions in
such locations until such time as Bank establishes a presence there) shall
maintain all its main depository and concentration accounts and business
accounts with Bank. All receipts by Borrower and all domestic Subsidiaries
(except for non-material levels of funds retained in local checking accounts to
cover daily expenses of such Subsidiaries in the ordinary course of business)
shall be deposited in or promptly transferred to the Cash Collateral Account.
h. Insurance. Borrower (and each Subsidiary) 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 (including insurance covering engines with all riders
and
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endorsements necessary to cover all engines whether or not attached to aircraft
and whether such engines are Leased Engines or Inventoried Engines), as is
customarily maintained by companies similarly situated and as may be requested
by Bank hereunder, 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 as to all foreign
Accounts and as to all Leased Engines. 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 and in a reasonable time period not to exceed ten (10) Business
Days (and in any event prior to any Advance), 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
reasonably request for the purpose of further assuring to Bank the 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 promptly (and in any event shall include such
information in the next monthly Borrowing Base Certificate delivered to Bank)
notify Bank of any new locations where Collateral shall be located, including
without limitation any repair facilities, and shall execute any Financing
Statements or other documents necessary to perfect Bank's Security Interest in
Collateral at such locations. Borrower shall notify Bank of all new
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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. Borrower shall promptly transfer to Bank any stock or other
certificates evidencing Borrower's Ownership Interests in any Subsidiary, and
take all action necessary to perfect Bank's Security Interest in all Ownership
Interests, provided that, in the absence of an Event of Default, Borrower shall
be entitled to vote such Ownership Interests, as applicable, and receive
distributions and dividends arising out of such Ownership Interests and exercise
all other rights of an owner of such Ownership Interests, subject to the other
provisions hereof.
k. Consent of Lessor; California Inventory. 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 Bank, which Consent of Lessor shall be satisfactory to Bank in its sole
discretion. If such Consent of Lessor is not obtained within a reasonable time
not to exceed fifteen (15) Business Days, such collateral as is in the nature of
Inventory will (at Bank's sole discretion) be designated as not eligible as
Inventory until such consent is obtained. Notwithstanding the foregoing, no such
Consent of Lessor shall be necessary for any real property in San Carlos,
California leased by Borrower as of the Closing Date as long as the value of
Inventory located on such premises does not exceed Six Hundred Thousand and
No/100 Dollars ($600,000.00).
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. All Subordinated Debt (with
the exception of the Equitable Loan and the Debentures, as more fully set forth
in this Section 5.01(l)) shall be absolutely and unconditionally subordinated
(pursuant to such subordination agreement) to the Loan, provided, however, that
payment of interest on Subordinated Debt (with the exception of the Equitable
Loan and the Debentures, as more fully set forth in this Section 5.01(l)) shall
be allowed by Bank without prior consent provided that all financial covenants
of Borrower contained in this Agreement are met on a quarterly basis and no
Event of Default exists at the time of any interest payment or after giving
effect thereto.
All non-Bank group debt incurred after the date of this Agreement must
be subordinated to the Loan. In addition, proceeds of all future non-Bank group
debt involving capital markets must be used first to pay down and satisfy the
Loan in full. No principal repayment of any future non-Bank group debt will be
permitted without Bank's prior consent. No prepayment or acceleration of such
loans may be made by Borrower. No payments in any form on future non-Bank group
debt will be allowed if the Loan is in default.
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Borrower currently has Subordinated Debt from The Equitable Life
Assurance Society of the United States in the current outstanding principal
amount of Eleven Million Two Hundred Fifty Thousand and No/100 Dollars
($11,250,000.00). Borrower also currently has Subordinated Debt in the form of
Debentures in the outstanding principal balance of Fifty Four Million and No/100
Dollars ($54,000,000.00). Notwithstanding anything contained in this Agreement
or the other Loan Documents to the contrary, Borrower's Subordinated Debt under
the Equitable Loan and the Debentures shall be subordinated only pursuant to the
terms of the documents evidencing such Subordinated Debt as effective as of the
Closing Date, which documents have been reviewed and approved by the Bank.
As more specifically provided in the documents evidencing the Equitable
Loan (and subject to the provisions of such documents), payments of interest and
principal and premium payments (if applicable) on the Equitable Loan may be made
as long as no Payment Default exists or is continuing under the Loan. During the
continuance of a Default that is not a Payment Default, payments may be made
under the Equitable Loan only after the expiration of the "blockage period" as
described in the Securities Purchase Agreement (except for interest in the form
of securities). The Equitable Loan may be accelerated pursuant to the terms of
the Securities Purchase Agreement upon seven (7) days' written notice to Bank
(and subject to the subordination provisions thereof).
As more specifically provided in the Indenture (and subject to the
provisions of the Indenture), payments of interest and principal and premium
payments (if applicable) on the Debentures may be made as long as no Payment
Default exists or is continuing under the Loan. During the continuance of a
Default that is not a Payment Default, payments may be made under the Debentures
only after the expiration of 179 days, as described in the Indenture.
Acceleration of the Debentures is permitted subject to the subordination
provisions of the Indenture.
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.
n. Future Capital Market Financing. Borrower shall apply the Proceeds of
any future financings from the capital markets first to reduce the outstanding
principal balance of the Loan, and shall provide Bank with evidence of such
payment.
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o. SEC Filings, Subordinated Debt. Borrower will deliver to Bank and all
Participants as soon as practicable and in any event within seven (7) days of
filing, copies of all documents filed with the Securities and Exchange
Commission, and will promptly deliver to Bank copies of all documents received
from and required to be provided lenders under the Subordinated Debt.
p. Capital Expenditures. Borrower shall limit annual Capital
Expenditures to an amount not to exceed One Million and No/100 Dollars
($1,000,000.00) in the aggregate during any fiscal year.
V.2 Negative Covenants. Borrower (and each Subsidiary, as and when applicable as
if specifically set forth and named herein) covenants, for so long as any of the
principal amount of or interest on the Note 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 or Stock. Neither Borrower nor any Subsidiary will
sell, lease, assign, transfer, or otherwise dispose of all or a substantial part
(being defined as equal to or greater than Two Hundred Thousand and No/100
Dollars ($200,000.00) worth of fixed assets which are not Current Assets) of its
assets or properties, tangible or intangible, or all or a substantial part
(being defined as equal to or greater than twenty percent (20%)) of its capital
stock to any Person without the prior written 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
i. consolidate with or merge into any other corporation, or
ii. permit another corporation to merge into it (unless, in the
case of a merger or consolidation involving Borrower, Borrower
is the surviving corporation), or
iii. permit any other type of reorganization or recapitalization, or
iv. dissolve or take or omit to take any action which would result
in its dissolution, or
v. acquire all or substantially all the properties, Ownership
Interests or assets of any other Person (except the pending
asset purchase by Integrated Technology Holdings Corp.,
pursuant to the Asset Purchase Agreement, dated as of February
27, 1998, between
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Integrated Technology Corp. and Borrower and Gideon Vaisman,
which has been reviewed and approved by Bank), or
vi. 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 (unless
Borrower has given Bank ten (10) days' prior notice of such
change, Bank shall first have performed all due diligence
deemed by it to be necessary in order to assure proper
perfection and maintenance of its Security Interest and
consented to such change and Borrower shall have executed such
documents and taken such actions as are required in the
reasonable opinion of Bank, in order to perfect, under the laws
of the state where said Place of Business or repair facility is
located, the Security Interest granted Bank in the Collateral
under the Security Agreement) (except that Inventory is
permitted to be sent to repair facilities in various states in
the ordinary course of business, which repair facilities change
from time to time; the repair facilities in use as of the date
hereof are set forth in Schedule 5.02(c) and Borrower shall
promptly notify Bank of such changes), or
vii. maintain a Place of Business or use a repair facility at any
time outside the State of Florida other than those set forth in
Schedule 5.02(c) attached hereto, or
viii. 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.
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 (except as provided in Section 2.03(h)
herein) 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 Statements) to be on file with respect thereto,
except for Liens on specific items of Collateral permitted pursuant to Section
2.03(h) hereof. Assets other than the Collateral may be mortgaged in connection
with the Headquarters Transaction, assuming consummation of the Headquarters
Transaction in a form substantially similar to that described to Bank as of the
Closing Date, and provided that if Bank is not involved in the Headquarters
Transaction, the Headquarters Transaction must be secured exclusively by the
real estate and related personal property, must not (in Bank's reasonable
judgment) impair
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Borrower's ability to perform its duties under and comply with the Loan
Documents, and Bank shall have the right to review and approve all documentation
evidencing the Headquarters Transaction prior to its execution.
Bank may, upon prior written request by Borrower, consent (which consent
may be withheld at Bank's sole discretion) to the refinance by Borrower and the
release from the Security Interest of any of Borrower's Assets (including Mature
Engines, airframes, and Leased Engines) which Borrower desires to finance with a
third party and in which Assets Borrower desires to grant a security interest to
such third party, as long as Borrower is in compliance with all provisions of
this Agreement, including without limitation the financial covenants, both
before and after giving effect to such release.
e. Fiscal Year. Borrower will not change its fiscal year from a year
ending December 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 5.02(f) attached
hereto 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;
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 sixty (60) days after its placement if within such time it
is removed or bonded off; or
v. Liens incurred in connection with the Headquarters Transaction.
g. Additional Indebtedness. Except for Permitted Loans and the
Obligations, Borrower will not incur, create, guarantee, 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 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
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Permitted Loan. Further, any payment (of interest or principal) on a Permitted
Loan may only be made pursuant to Section 5.01(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. Notwithstanding the
foregoing, Borrower shall not so deal with any Affiliate controlled by Borrower
that is not a Guarantor.
i. Amendment to Existing Agreements; Adoption of Plan. Borrower shall
not enter into any amendment, change or modification of the Indenture or the
documents evidencing the Equitable Loan without prior written consent of Bank.
Borrower shall not enter into any amendment, change or modification to any other
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. execution of a Corporate Guaranty by such Subsidiary
substantially in the form of Exhibit "E" hereto, and
ii. a pledge of such Subsidiary's Stock and such Subsidiary's
assets, and
iii. 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 5.02(k) hereof. Borrower shall not accept returned goods following an
Event of Default.
l. Change in Management. Borrower shall not make, permit, or suffer any
change in senior management of Borrower whereby (a) Zivi Nedivi and John Gleason
would fail to remain active in the daily operations of Borrower or, (b) all of
the other high level
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members of current management would fail to remain in place, provided that
Borrower shall have ninety (90) days after any such departure, removal or other
failure to remain active to select a replacement acceptable to Bank, such
approval not to be unreasonably withheld.
m. Distributions. Borrower shall not, without prior written consent of
Bank, make any distribution, or dividend to or repurchase any of its stock from
any shareholder or Affiliate of Borrower if such distribution, dividend, or
repurchase exceeds fifty percent (50%) of current Net Profit and assuming
compliance with the terms of this Agreement before and after giving effect
thereto.
V.3 Financial Covenants. Borrower covenants, for so long as any of the principal
amount of or interest on the Note is 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 Total Liabilities (less
Subordinated Debt to Capital Funds of Borrower on both an individual operating
basis and a consolidated basis) shall never exceed 1.75 to 1.0 at any time
during the duration of the Loan. The maximum Capital Funds Ratio shall be
computed on a quarterly basis beginning with figures from the December 31, 1997
financial statement of Borrower.
b. Minimum Consolidated Capital Funds Position. During the term of the
Loan, the Capital Funds position of Borrower and its wholly-owned subsidiaries
on a consolidated basis shall not be less than Seventy-Five Million and No/100
Dollars ($75,000,000.00) plus fifty percent (50%) of all net profits in each
fiscal year, beginning with the fiscal year beginning January 1, 1998. The
minimum Capital Funds position shall be computed quarterly beginning with
figures from the December 31, 1997 financial statement of Borrower.
c. Minimum Debt Service Coverage Ratio. Tested quarterly, on both an
individual operating basis and a consolidated basis, beginning with the fiscal
first quarter of 1998, Borrower's minimum Debt Service Coverage Ratio shall not
be less than 1.25 to 1.0.
d. Senior Debt to EBITDA Ratio. Tested quarterly, beginning with the
first fiscal quarter of 1998, Borrower's Senior Debt to EBITDA Ratio shall not
be greater than 5.00 to 1.00. For the purposes of this calculation, EBITDA will
be calculated quarterly based on Borrower's trailing two quarters EBITDA
annualized until June 30, 1998. For all periods thereafter, EBITDA will be
calculated based on Borrower's trailing four quarters EBITDA.
e. Loan. At no time will the outstanding principal balance of the Loan
exceed the Borrowing Base. In the event the current principal balance of the
Note outstanding at any time exceeds the Borrowing Base at such time, then
Borrower shall be required to
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immediately reduce the outstanding principal balance of the Note (by payment in
immediately available funds) to comply with the Borrowing Base.
ARTICLE VI
CONDITIONS OF LENDING
A. The First Advance. The obligation of 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 VI):
VI.1 Evidence of Borrower Action. Bank shall have received a certificate, dated
as of the Closing Date, signed by an Authorized Representative of Borrower, or
Guarantor, as applicable:
a. 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 Bank) evidencing other
necessary corporate, partnership, or company action taken by
Borrower or such Guarantor or Comfort Provider to authorize
this Agreement, the Note and the other Loan Documents,
b. attaching a true and complete copy of its certificate of
incorporation and bylaws, partnership agreement, or articles of
organization and regulations, as applicable;
c. setting forth the incumbency of its officers who sign this
Agreement, the Note, and the other Loan Documents, including
therein signature specimens of such officers, and
d. attaching a certificate of good standing of the Secretary of
State of the state of incorporation or organization of Borrower
or such Guarantor and of all states in which Borrower or such
Guarantor is qualified to do business, together with such other
documents as Bank shall reasonably require.
VI.2 Note. Bank shall have received the Advance Note and the Consolidated Note,
executed by an Authorized Representative of Borrower.
VI.3 Opinion of Counsel to Borrower. Bank shall have received the opinion of
Stearns Weaver Miller et al, P.A., counsel to Borrower, addressed to Bank and
dated the Closing Date, substantially in the form of Exhibit "D" attached
hereto, and Fulbright & Jaworski, LLP, counsel to Borrower in connection with
the Indenture.
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VI.4 Security Agreement and Other Security Documents. Bank shall have received
and be in possession of:
a. the Security Agreement, duly executed by an Authorized
Representative of Borrower; and
b. FAA Security Agreements duly executed by an Authorized
Representative of Borrower and attaching a complete and
accurate list or lists of all engines owned by Borrower, a
Corporate Guaranty from each of Kellstrom Commercial Aircraft,
Aero Support Holdings, Inc. and Integrated Technology Holdings
Corp.; and
c. a Comfort Letter from Kellstrom International Sales
Corporation, such other supporting documentation as shall be
reasonably requested by Bank, in form and substance
satisfactory to Bank.
VI.5 Financing Statements. Borrower shall have executed such Financing
Statements and other documents as may be required or advisable under the
Security Agreement, the FAA Security Agreement or the other Loan Documents, as
Bank may request, for the purpose of perfecting the security interests granted
therein, including UCC and FAA Financing Statements.
VI.6 Property and Public Liability Insurance. 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.
VI.7 Fees. The Bank and the Participants shall have received the fees described
in a side letter between Borrower and Bank (the "FEE LETTERS"), and the fees and
disbursements of Bank's counsel shall have been paid.
VI.8 Concerning the Subordinated Debt. Borrower's indebtedness evidenced by the
Subordinated Debt shall not be in default.
VI.9 Other Documents. Review and approval by Bank and/or Bank counsel shall have
been obtained of:
a. a Consent of Lessor and a conditional assignment of any real
property lease to which Borrower is a party (except as to the
San Carlos, California leased property, provided that the level
of Inventory on the San Carlos, California leased property is
less than Six Hundred Thousand and No/100 Dollars ($600,000.00)
on the Closing Date).
b. any other document requested by Bank or its counsel.
VI.10 Asset-Based Lending Audit. Prior to the Initial Advance, Bank shall have
conducted a comprehensive asset-based lending audit at Borrower's expense, the
results of which shall
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be satisfactory to Bank, in Bank's sole judgment, and Bank shall have confirmed
to Borrower that such audit is satisfactory.
A comprehensive Inventory evaluation shall be conducted at Borrower's
expense by a consulting firm satisfactory to Bank pre-closing, and the results
of such audit shall be satisfactory to Bank, in Bank's sole judgment and Bank
shall have confirmed to Borrower that such evaluation is satisfactory.
VI.11 Stock of Subsidiaries. Borrower shall pledge all the stock of all
Subsidiaries, whether currently existing or formed or acquired post-closing, and
deliver possession of all stock certificates pledged, to Bank as further
security for the Loan. All Borrower's Subsidiaries shall join in the covenants
and other provisions of the Loan Documents, and shall guarantee the Loan and
pledge their assets to Bank as further security for the Loan.
VI.12 December 31, 1997 Draft Financial Statements. Borrower shall provide Bank
with a copy of the draft December 31, 1997, financial statements; Bank
acknowledges that such financial statements are in draft form and may be subject
to further adjustment.
VI.13 Credit Approval. Bank (and each Participant) shall have obtained credit
approval for its proportionate share of the Commitment, which approval has been
obtained.
B. All Advances. 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:
VI.14 Compliance. On each Advance 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 Note 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 Bank in its reasonable discretion; and
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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
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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.
VI.15 Delivery of Documents. All documents required by the provisions of this
Agreement to be executed or delivered to Bank on or before such Borrowing Date
shall have been executed and shall have been delivered at the office of Bank set
forth in Section 9.03 on or before such Advance Date.
VI.16 Borrowing Request. By 12 p.m. Eastern Standard Time on such Borrowing Date
Bank shall have received a Borrowing Request duly executed by an Authorized
Representative of Borrower, together with a Borrowing Base Certificate if
required pursuant to Section 5.01(a)(iii).
VI.17 Supplemental Opinions. If requested by Bank with respect to such Borrowing
Date, there shall have been delivered to Bank favorable supplementary opinions
of counsel to Borrower, addressed to Bank and dated such Borrowing Date,
covering such matters incident to such transactions contemplated herein as Bank
shall reasonably request.
VI.18 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 and
Bank shall have received all information and copies of all documents that it may
have reasonably requested in connection therewith, such documents where
appropriate to be certified by an Authorized Representative of Borrower or
proper governmental authorities.
VI.19 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 Note 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 Unused
Fees and other fees due and payable on or prior to such Borrowing Date.
VI.20 Approval of Bank's Counsel. All legal matters in connection with the
making of each Advance shall be satisfactory to Bank's counsel.
VI.21 Guaranty and Pledge Agreement from Affiliates Created Post-Closing. Bank
shall have received guaranties and 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 in
which Borrower has an Ownership Interest, 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
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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.
VI.22 Representations and Warranties. The representations and warranties set
forth in the Loan Documents shall be 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 in any disclosure by Borrower to Bank concerning its
business operations, financial condition or any aspect of the Loan.
VI.23 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.
VI.24 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 shall
be in full force and effect. Borrower shall have executed all Financing
Statements necessary for perfection of Bank's security interest in the
Collateral and taken all other steps necessary to enable Bank 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.
VI.25 Payment of Unused Fee. Borrower shall have paid to Bank any Unused Fee
then due and owing.
VI.26 Subordination Agreement. Bank shall have received a Consent of Lessor or
other landlord subordination agreements and waivers and conditional assignments
of any real property leases to which Borrower is a party, provided that no such
landlord subordination agreement shall be necessary for any real property in San
Carlos, California leased by Borrower as of the Closing Date or the date of a
Subsequent Advance if the level of Inventory located on such premises does not
exceed Six Hundred Thousand and No/100 Dollars ($600,000.00) as of the Closing
Date, or the date of the related Subsequent Advance, as applicable. Borrower
shall provide the Consent of Lessor, landlord subordination agreement, and other
documents that Bank may require, in a form satisfactory to Bank. Bank shall have
sole discretion in determining the satisfactory nature of any such documents.
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VI.27 FAA Filing and Lien Search. Prior to any Advance with respect to any Whole
Aircraft Engine having at least 750 rated takeoff horsepower or equivalent or
any aircraft propeller capable of absorbing 750 or more rated takeoff shaft
horsepower, Borrower shall be required to: (a) grant to Bank and perfect a
security interest therein including, without limitation, filing all applicable
Financing Statements with the FAA; (b) provide to Bank copies of an Appraisal
and all insurance covering such engine; (c) in addition, for any such engine
that is a Leased Engine, provide to Bank an Appraisal, a copy of the lease
covering such engine, and lessee's financial information (whether obtained from
the lessee or from other sources); (d) in addition, for any Whole Aircraft
Engine that is not a Leased Engine, provide to Bank copies of purchase
agreements and other purchase information; (e) provide to Bank an Appraisal and
a lien search satisfactory to Bank and from a search firm satisfactory to Bank
that such Collateral is free and clear of any encumbrances; and (f) provide to
Bank any other information reasonably requested by Bank. Borrower shall also
provide to Bank a post-closing lien search indicating that liens other than
Bank's lien have been released.
ARTICLE VII
EVENTS OF DEFAULT
VII.1 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 ten
(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 5.01(c) as to
corporate existence, any term or covenant contained in Section
5.02 of this Agreement as to negative covenants or in
subsections (d) through (i) of this Article VII (after the
expiration of any applicable grace periods); or
c. Other Non-Monetary Defaults. If Borrower shall default in the
performance of or compliance with Section 5.03, or with any
other term or covenant contained in the Loan Documents, which
default or non-compliance shall continue and not be cured
within sixty (60) 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
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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 any thereof (provided that proceedings filed against
Borrower or such Subsidiary shall not constitute Events of
Default if:
i. Bank shall have been notified promptly of such
proceedings,
ii. such proceedings have been released within sixty (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 Three Hundred Thousand and No/100 Dollars
($300,000.00) individually or One Million and No/100 Dollars
($1,000,000.00) in the aggregate 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
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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
there is any other event or occurrence which results in a
material adverse change to the condition or operations of
Borrower which adversely affects Borrower's ability to fulfill
its obligations hereunder; 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
(except if such result is solely due to willful misconduct or
gross negligence by Bank); or
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 VIII
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.
VIII.1 Acceleration. To declare the indebtedness evidenced by the Note and all
other Obligations to be forthwith due and payable, whereupon the Note 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 Note or in such other Obligations to the contrary
notwithstanding and, upon such acceleration, the unpaid principal balance and
accrued interest upon the Note shall from and after such date of acceleration
bear interest at the Default Rate. Notwithstanding anything to the contrary
herein, upon the occurrence of an Event of Default of the type specified in
Section 7.01(e), the Loan shall be automatically accelerated and the Commitment
shall be automatically terminated.
VIII.2 Right of Setoff. To exercise its right of setoff as permitted under
Section 2.09.
VIII.3 Other Rights. To exercise such other rights as may be permitted under
any of the Loan Documents.
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VIII.4 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.
ARTICLE IX
MISCELLANEOUS
IX.1 No Waiver, Cumulative Remedies. No failure or delay on the part of Bank in
exercising any right, power or remedy hereunder, or under the Note 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.
IX.2 Entire Agreement; Amendments, etc. Except as otherwise expressly provided
(including without limitation in Section 4.14 hereof), 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 Note 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.
IX.3 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: Michael W. Wallace
Chief Financial Officer
Kellstrom Industries, Inc.
14000 N.W. 4th Street
Sunrise, FL 33325
Facsimile: 954-845-0428
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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: Andrew D. Hahn
Barnett Bank, N.A.
1 East Broward Boulevard
Fort Lauderdale, FL 33301
Facsimile: 954-765-1663
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
and to: Barnett Bank, N.A.
2700 Douglas Road
Floor M, Suite 200
Coral Gables, FL 33134
Attn: Asset-Based Lending Department
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 four (4) days after being
deposited in the mails (postage paid), on the date 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.
IX.4 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 without regard to its
principles of conflict of laws.
IX.5 Survival of Representations and Warranties. All representations,
warranties, covenants and agreements contained herein or made in writing by
Borrower in connection herewith shall survive the execution and delivery of this
Agreement, the Note and the other Loan Documents and be true and correct during
the duration of the Loan.
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IX.6 Time of the Essence. Time is of the essence of this Agreement, the Note and
the other Loan Documents.
IX.7 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.
IX.8 Severability. In case any one or more of the provisions contained in this
Agreement, the Note 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 Note or the other Loan Documents, but
this Agreement, the Note and the other Loan Documents shall be construed as if
such invalid or illegal or unenforceable provision had never been contained
therein.
IX.9 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.
IX.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.
IX.11 Duration. The duration of this Agreement shall be for such period of time
until the Loan and the Note have been repaid in full, and all of the other
Obligations have been paid to Bank in full.
IX.12 Expenses. Borrower agrees, whether or not the transactions hereby
contemplated shall be consummated, to pay, and save Bank harmless against
liability 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
Prepayments Costs, 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
Note 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) of counsel to Bank in connection with the negotiation,
preparation and enforcement of this Agreement, the Note, the Security Agreement,
or any of the other Loan Documents, or incurred by Bank
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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
outside of the State of Florida and that no Florida documentary
stamp taxes are being paid by Bank on the Note.
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 (other than any liability that results from Banks
gross negligence or willful misconduct). The obligations of Borrower under this
Section 9.12 shall survive payment of the Note. The obligations of Borrower
hereunder and the provisions of any other Loan Document do not affect Borrower's
right to contest any tax after payment of the disputed amounts or establishment
of adequate reserves, as applicable.
IX.13 Successors and Assigns. All covenants and agreements in this Agreement and
the other Loan Documents by or on behalf of either of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns
(including Participants and including NationsBank, N.A., as successor by merger
to Barnett Bank, N.A.) 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
(including any such successors and assigns and Participants) 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. Bank may assign its interest in this
Agreement and the Loan to persons other than Participants and NationsBank, N.A.
upon prior written notice to Borrower, such notice to be provided in a
reasonable time (not to exceed thirty (30) days) before the effective date of
such assignment. Borrower shall have the right at any time during the term of
the Loan to permanently reduce and/or terminate the Loan by payment in full of
all principal, interest and other fees and expenses hereunder and under the
other Loan Documents. Borrower shall not have any right to the refund of any
fees upon such reduction or termination, but shall have no liability for Unused
Fees due after such termination.
IX.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. A Default under the Headquarters
Transaction shall be and constitute a Default under the Loan, and a Default
under the Loan shall be and constitute a Default under the Headquarters
Transaction (when and if consummated).
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IX.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.
IX.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.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed, sealed and delivered, as applicable, by its duly Authorized
Representatives on the day and year first above written.
BORROWER:
KELLSTROM INDUSTRIES, INC.
By:
--------------------------------------
Michael W. Wallace
Chief Financial Officer
BANK:
BARNETT BANK, N.A.
By:
--------------------------------------
Andrew D. Hahn
Senior Vice President
<PAGE>
<PAGE>
JOINDER AND CONSENT OF GUARANTORS
The undersigned, as Guarantors of that certain Note of even date
herewith, executed and given by Kellstrom Industries, Inc., a Delaware
corporation (the "BORROWER"), in favor of Barnett Bank, N.A., a national banking
association, its successors, assigns and affiliates (the "BANK"), hereby join in
the execution of this Agreement for the purpose of affirming the representations
and warranties specifically set forth herein and signifying their consent and
agreement to all of the covenants contained herein, and the Guarantors hereby
agree to be bound by all of the provisions of this Agreement to the extent such
provisions relate to or impose obligations on the Guarantors.
Kellstrom Commercial Aircraft, Inc.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Kellstrom International Sales Corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Aero Support Holdings, Inc.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Integrated Technology Holdings Corp.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE>
<PAGE>
EXHIBIT "A"
FORM OF ADVANCE NOTE
Attached
<PAGE>
<PAGE>
EXHIBIT "B"
FORM OF CONSOLIDATED NOTE
Attached
<PAGE>
<PAGE>
EXHIBIT "C"
FORM OF SECURITY AGREEMENT
Attached
<PAGE>
<PAGE>
EXHIBIT "D"
OPINION OF COUNSEL
Attached
<PAGE>
<PAGE>
EXHIBIT "E"
FORM OF CORPORATE GUARANTY
Attached
<PAGE>
<PAGE>
EXHIBIT "F"
BORROWING BASE CERTIFICATE
Attached
<PAGE>
<PAGE>
EXHIBIT "G"
BORROWING REQUEST
Attached
<PAGE>
<PAGE>
EXHIBIT "H"
PREAPPROVED FOREIGN WHOLE AIRCRAFT ENGINES AS OF CLOSING
None
<PAGE>
<PAGE>
SCHEDULE 4.07
PENDING LITIGATION
None
<PAGE>
<PAGE>
SCHEDULE 5.01(l)
OUTSTANDING DEBT
Equitable Loan
Debentures
<PAGE>
<PAGE>
SCHEDULE 5.02(c)
PLACES OF BUSINESS
Street Address Leased or Owned
- -------------- ---------------
Kellstrom Industries, Inc. Owned
14000 N.W. 4th Street
Sunrise, FL 33325
Kellstrom Industries, Inc. Leased
821 Industrial Road
San Carlos, CA 94070
Aero Support Holdings, Inc. Leased
112 Turn Row
Lafayette, LA 70502
Aero Support Holdings, Inc. Leased
44 Hudson Street
New York, NY 10013
LOCATION OF REPAIR FACILITIES AT WHICH
COLLATERAL IS CURRENTLY LOCATED
California
Connecticut
Florida
Georgia
Missouri
New York
Texas
<PAGE>
<PAGE>
SCHEDULE 5.02(f)
PERMITTED LIENS
None
<PAGE>
<PAGE>
SCHEDULE 5.02(k)
RETURNS AND CREDIT POLICIES
[provided to Bank]
<PAGE>
<PAGE>
1. PROPOSED SERVICES
1.1. Helix Management Company II, L.L.C. ("Helix") will act as the
exclusive mergers & acquisitions and principal financial advisor
to Kellstrom Industries, Inc. (the "Company") 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
<PAGE>
<PAGE>
assist it in arranging any such Transaction, provided that
the Company will notify Helix in 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
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<PAGE>
<PAGE>
obligated to provide or cause to be provided to Helix, the
compensation provided herein in paragraph 2.3.
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,
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
-3-
<PAGE>
<PAGE>
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 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 the
Company.
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
-4-
<PAGE>
<PAGE>
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 Helix 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.
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
-5-
<PAGE>
<PAGE>
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 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.
-6-
<PAGE>
<PAGE>
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 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
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<PAGE>
<PAGE>
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:
Yoav Stern
Helix Management Company II, L.L.C.
98 Battery Street
Suite 600
San Francisco, CA 94104
Tel: (415) 956-9950 Fax: (415) 956-9951
IN THE CASE OF THE COMPANY:
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.
-8-
<PAGE>
<PAGE>
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 Management Company II, L.L.C.
Regards,
Helix Management Company II, L.L.C.
FOR HELIX MANAGEMENT COMPANY II, L.L.C.
By: /s/ Yoav Stern
-------------------------------------------
NAME: YOAV STERN
TITLE: Principle
Accepted this 28th day of March, 1997
FOR KELLSTROM INDUSTRIES INC.
By: /s/ John Gleason
-------------------------------------------
NAME: JOHN GLEASON
TITLE: CHIEF FINANCIAL OFFICER
-9-
<PAGE>
<PAGE>
KELLSTROM INDUSTRIES, INC. 1997 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The purpose of the Kellstrom Industries, Inc. 1997 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 October
27, 1997, by resolution of the Board, subject to ratification of the Plan by a
majority vote of the stockholders of the Company at its 1998 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 may be granted under the Plan
shall be 600,000, 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.
(c) Stock issuable upon exercise of an option 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
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 purchase shares of Common Stock and issue shares
upon exercise of such options, as provided in the Plan. The Board shall have
authority, subject to the express provisions of the Plan, to construe the
respective option 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 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 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
<PAGE>
<PAGE>
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. Options designated as nonqualified 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,
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.
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
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<PAGE>
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 shall be evidenced by an agreement (the
"Agreement") duly executed on behalf of the Company and by the grantee to whom
such option 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 shall be granted within the meaning of the
Plan and no purported grant of any option shall be effective until the Agreement
shall have been duly executed on behalf of the Company and the optionee. More
than one option may be granted to an individual.
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
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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 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. Each option granted under the Plan shall, subject to
Section 11(b) 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
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 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.
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11. TERM OF OPTIONS; 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
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 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 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 shall terminate twelve months after
the date such grantee ceases to perform services for the Company, or on the date
on which the option expires by its terms, whichever occurs first.
(v) In the event of the death of any grantee, any option granted
to such grantee shall terminate twelve months after the date of death, or on the
date on which the option expires by its terms, whichever occurs first.
(b) Exercisability. (i) Except as provided below, an option 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 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 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
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 by bequest or inheritance or by reason of the death of such grantee.
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12. OPTIONS NOT TRANSFERABLE. The right of any grantee to exercise any option
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 shall be
exercisable during the lifetime of such grantee only by him. Any option 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.
13. 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 may be granted under the Plan and as to which outstanding
options 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 shall be made
without change in the total price applicable to the unexercised portion of such
options 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 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 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, 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.
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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 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, but in the event any adjustment hereunder in the number
of shares covered by the option shall cause such number to include a fraction of
a share, such fraction shall be adjusted to the nearest smaller whole number of
shares.
14. NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in the Plan or in any option
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.
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).
15. WITHHOLDING. The Company's obligation to deliver shares upon the exercise of
any non-qualified option 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 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 Securities Exchange Act of 1934, as amended (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.
16. RESTRICTIONS ON ISSUANCE OF SHARES. (a) Notwithstanding the provisions of
Section 9
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hereof, the Company may delay the issuance of shares covered by the exercise of
an option 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 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.
(b) It is intended that all exercises of options 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.
17. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT REGISTRATION. Unless
the shares to be issued upon exercise of an option 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 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
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 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.
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18. 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.
19. MODIFICATION OF OUTSTANDING OPTIONS. Subject to limitations contained
herein, the Board may authorize the amendment of any outstanding option 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.
20. 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 1998 Annual Meeting of Stockholders. The Plan became effective on
October 27, 1997 by resolution of the Board. The Board may grant options 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.
21. TERMINATION AND AMENDMENT OF PLAN. Unless sooner terminated as herein
provided, the Plan shall terminate on October 27, 2007. 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 may be granted or change the designation of
the class of persons eligible to receive options 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 theretofore granted to him or her.
22. LIMITATION OF RIGHTS IN THE UNDERLYING SHARES. A holder of an option shall
not be deemed for any purpose to be a stockholder of the Company with respect to
such option except to the extent that such option shall have been exercised with
respect thereto and, in addition, a stock certificate shall have been issued
theretofore and delivered to the holder.
23. 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, to the address as
appearing on the records of the Company.
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KELLSTROM INDUSTRIES, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 2,250 Shares
FOR VALUE RECEIVED, Kellstrom Industries, Inc., a Delaware
corporation (the "COMPANY"), hereby certifies that Helix Capital II, L.L.C.
("Helix") or its permitted assigns, is entitled to purchase from the Company, at
any time or from time to time commencing on September 10, 1997 (the
"COMMENCEMENT DATE") and prior to 5:00 P.M., New York City time, on September 9,
2000 (the "Exercise Period"), two thousand two hundred fifty (2,250), subject to
adjustment as hereinafter provided, fully paid and non-assessable shares of the
common stock, $.001 par value per share, of the Company for an aggregate
purchase price of $49,500 (computed on the basis of $22.00 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 to Helix 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.
1. EXERCISE OF WARRANT. (a) 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 September 9, 2000, by the
Holder by the surrender of this Warrant (with the subscription form or the
cashless exercise notice, as applicable, at the end hereof, or a reasonable
facsimile thereof, duly executed) at the address set forth in Subsection 10(a)
hereof, together with proper payment of the Aggregate Warrant Price, or the
proportionate part hereof if this Warrant is exercised in part. Payment for
Warrant Shares shall be made at the election of the Holder, either (i) by
certified or official bank check payable to the order of the Company or (ii)
with a Cashless Exercise Form annexed hereto (or a reasonable facsimile thereof)
duly executed (a "CASHLESS
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EXERCISE"). Presentation of the Cashless Exercise Form and surrender of this
Warrant shall be deemed a waiver of the Holder's obligation to pay all of the
Aggregate Warrant Price, or the applicable portion thereof with respect to a
partial exercise. In the event of a Cashless Exercise, the Holder shall exchange
its Warrant for that number of shares of Common Stock determined by multiplying
the number of Warrant Shares being exercised by a fraction, the numerator of
which shall be the difference between the then current market price per share of
the Common Stock and the Per Share Warrant Price, and the denominator of which
shall be the then current market price per share of Common Stock. For purposes
of any computation under this Section 1(a)(ii), the then current market price
per share of Common Stock at any date shall be deemed to be the average for the
five consecutive business days immediately prior to the Cashless Exercise of the
daily closing prices of the Common Stock on the principal national securities
exchange on which the Common Stock is admitted to trading or listed, or if not
listed or admitted to trading on any such exchange, the closing prices as
reported by the 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 the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") or if not then publicly traded, the fair
market price of the Common Stock as determined by the Board of Directors.
(b) 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, as promptly as practicable, (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
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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 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,
referred to in Subsection 3(a), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor 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 (as defined above) of
the Common Stock 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,
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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. 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.
(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
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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.
(g) 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 third 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 Warrants and/or Warrant Shares outstanding at such time and not
previously sold 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 Warrant Shares issued or issuable upon the
exercise of all of the Warrants and not so previously sold, 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
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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 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, it being
agreed that a registration pursuant to this Subsection 5(a) shall not be deemed
to have been effected unless a registration statement with respect thereto has
become effective; provided that if such registration statement failed to become
effective as a result of the decision of the Holder not to consummate, or the
failure of the Holder to satisfy the conditions to, the sale of the Warrant
Shares pursuant to such registration statement, the Company shall have no
further obligation to effect a registration pursuant to this Subsection 5(a).
Notwithstanding the foregoing, 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.
(b) The Company agrees that if (without any obligation to do so),
at any time and from time to time during the period beginning on the
Commencement Date and ending on the third 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 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
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<PAGE>
Shares which it has been so requested to include, and (iii) 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. Notwithstanding the foregoing, the Company shall be under no
obligation to cause such Subsequent Registration Statement to become effective.
(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 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.
(e) 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 certain period 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 or warrantholders of the Company having similar registration rights
(collectively, the "Kellstrom Shareholders") exceeds the amount of securities
that can be offered without
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<PAGE>
adversely affecting the offering by the Company or the Company's stockholders
which had initially been included in such Subsequent Registration Statement,
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.
(f) 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 "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
in connection with investigating, defending, and settling any such loss, claim,
damage, liability, or action.
The indemnity agreement contained in this Subsection 5(f) 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, delayed or conditioned, 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
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<PAGE>
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.
(g) 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
up;on any 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(g) 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, delayed or conditioned
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.
(h) (i) Promptly after receipt by an indemnified party under
Subsections 5(f) and (g) 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
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<PAGE>
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 actually prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
Subsection 5(f) or (g), respectively, to the extent of such actual 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(f) or (g), respectively.
(ii) The obligations of the Company and the Holders under
Subsections 5(f) and (g), respectively, shall survive the completion of any
offering of Warrant Shares made pursuant to a registration under this Agreement.
(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(f) and (g) shall include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim.
(i) If the indemnification provided for in the preceding
subsections 5(f) or (g) 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 to
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.
(j) 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
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specific performance that a remedy at law would be adequate.
(k) 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 with respect to the
Warrant Shares without limitation as to volume; provided, however, that the
Company shall file all reports required to be filed under the Act and the 1934
Act as set forth in paragraph (c) of Rule 144.
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.
9. INFORMATION TO HOLDER. The Company agrees that it shall from
time to time 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:
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(a) if to the Company at 14000 NW 4th Street, Sunrise,
Florida 33325, Attn.: 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 98 Battery Street, Suite 600, San
Francisco, California 94111 Attn.: Yoav Stern, 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.
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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 as of the 10th day of September, 1997.
KELLSTROM INDUSTRIES, INC.
By: ________________________
ATTEST:
- -----------------------------------
Secretary
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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 previously
delivered to the Company.
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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CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 1(a)(ii))
The undersigned hereby irrevocably elects to surrender _______
shares purchasable under this Warrant for such shares of Common Stock issuable
in exchange therefor pursuant to the Cashless Exercise provisions of the within
Warrant, as provided for in Section 1(a)(ii) of such Warrant.
Please issue a certificate or certificates for such Common Stock
in the name of, and pay cash for fractional shares 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 previously delivered
to the Company.
Date__________________________________
And if said number of shares shall not be all the shares
exchangeable or purchasable under the within Warrant, a new Warrant is to be
issued in the name of the undersigned for the balance remaining of the shares
purchasable thereunder.
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<PAGE>
KELLSTROM INDUSTRIES, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 5,250 Shares
FOR VALUE RECEIVED, Kellstrom Industries, Inc., a Delaware
corporation (the "COMPANY"), hereby certifies that Helix Capital II, L.L.C.
("Helix") or its permitted assigns, is entitled to purchase from the Company, at
any time or from time to time commencing on September 10, 1997 (the
"COMMENCEMENT DATE") and prior to 5:00 P.M., New York City time, on September 9,
2002 (the "Exercise Period"), five thousand two hundred fifty (5,250), subject
to adjustment as hereinafter provided, fully paid and non-assessable shares of
the common stock, $.001 par value per share, of the Company for an aggregate
purchase price of $99,750 (computed on the basis of $19.00 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 to Helix 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.
1. EXERCISE OF WARRANT. (a) 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 September 9, 2002, by the
Holder by the surrender of this Warrant (with the subscription form or the
cashless exercise notice, as applicable, at the end hereof, or a reasonable
facsimile thereof, duly executed) at the address set forth in Subsection 10(a)
hereof, together with proper payment of the Aggregate Warrant Price, or the
proportionate part hereof if this Warrant is exercised in part. Payment for
Warrant Shares shall be made at the election of the Holder, either (i) by
certified or official bank check payable to the order of the Company or (ii)
with a Cashless Exercise Form
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annexed hereto (or a reasonable facsimile thereof) duly executed (a "CASHLESS
EXERCISE"). Presentation of the Cashless Exercise Form and surrender of this
Warrant shall be deemed a waiver of the Holder's obligation to pay all of the
Aggregate Warrant Price, or the applicable portion thereof with respect to a
partial exercise. In the event of a Cashless Exercise, the Holder shall exchange
its Warrant for that number of shares of Common Stock determined by multiplying
the number of Warrant Shares being exercised by a fraction, the numerator of
which shall be the difference between the then current market price per share of
the Common Stock and the Per Share Warrant Price, and the denominator of which
shall be the then current market price per share of Common Stock. For purposes
of any computation under this Section 1(a)(ii), the then current market price
per share of Common Stock at any date shall be deemed to be the average for the
five consecutive business days immediately prior to the Cashless Exercise of the
daily closing prices of the Common Stock on the principal national securities
exchange on which the Common Stock is admitted to trading or listed, or if not
listed or admitted to trading on any such exchange, the closing prices as
reported by the 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 the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") or if not then publicly traded, the fair
market price of the Common Stock as determined by the Board of Directors.
(b) 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, as promptly as practicable, (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
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<PAGE>
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 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,
referred to in Subsection 3(a), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor 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 (as defined above) of
the Common Stock 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
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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. 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.
(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
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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.
(g) 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 third 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 Warrants and/or Warrant Shares outstanding at such time and not
previously sold 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 Warrant Shares issued or issuable upon the
exercise of all of the Warrants and not so previously sold, the Company will (i)
promptly notify each Holder of the Warrants and each holder of Warrant
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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 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, it being
agreed that a registration pursuant to this Subsection 5(a) shall not be deemed
to have been effected unless a registration statement with respect thereto has
become effective; provided that if such registration statement failed to become
effective as a result of the decision of the Holder not to consummate, or the
failure of the Holder to satisfy the conditions to, the sale of the Warrant
Shares pursuant to such registration statement, the Company shall have no
further obligation to effect a registration pursuant to this Subsection 5(a).
Notwithstanding the foregoing, 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.
(b) The Company agrees that if (without any obligation to do so),
at any time and from time to time during the period beginning on the
Commencement Date and ending on the third 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 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,
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include in the securities covered by such Subsequent Registration Statement all
Warrant Shares which it has been so requested to include, and (iii) 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. Notwithstanding the foregoing, the Company shall be under no
obligation to cause such Subsequent Registration Statement to become effective.
(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 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.
(e) 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 certain period 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 or warrantholders of the Company having similar registration rights
(collectively, the
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"Kellstrom Shareholders") exceeds the amount of securities that can be offered
without adversely affecting the offering by the Company or the Company's
stockholders which had initially been included in such Subsequent Registration
Statement, 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.
(f) 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 "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
in connection with investigating, defending, and settling any such loss, claim,
damage, liability, or action.
The indemnity agreement contained in this Subsection 5(f) 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, delayed or conditioned, 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,
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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.
(g) 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
up;on any 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(g) 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, delayed or conditioned
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.
(h) (i) Promptly after receipt by an indemnified party under
Subsections 5(f) and (g) 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
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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 actually prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified party
under Subsection 5(f) or (g), respectively, to the extent of such actual
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(f) or (g), respectively.
(ii) The obligations of the Company and the Holders under
Subsections 5(f) and (g), respectively, shall survive the completion of any
offering of Warrant Shares made pursuant to a registration under this Agreement.
(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(f) and (g) shall include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
(i) If the indemnification provided for in the preceding
subsections 5(f) or (g) 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 to
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.
(j) 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
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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.
(k) 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 with respect to the
Warrant Shares without limitation as to volume; provided, however, that the
Company shall file all reports required to be filed under the Act and the 1934
Act as set forth in paragraph (c) of Rule 144.
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.
9. INFORMATION TO HOLDER. The Company agrees that it shall from
time to time 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
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follows:
(a) if to the Company at 14000 NW 4th Street, Sunrise,
Florida 33325, Attn.: 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 98 Battery Street, Suite 600, San
Francisco, California 94111 Attn.: Yoav Stern, 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.
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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 as of the 10th day of September, 1997.
KELLSTROM INDUSTRIES, INC.
By:
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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:
-----------------------------
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Address:
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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:
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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 previously delivered
to the Company.
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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CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 1(a)(ii))
The undersigned hereby irrevocably elects to surrender _______ shares
purchasable under this Warrant for such shares of Common Stock issuable in
exchange therefor pursuant to the Cashless Exercise provisions of the within
Warrant, as provided for in Section 1(a)(ii) of such Warrant.
Please issue a certificate or certificates for such Common Stock in
the name of, and pay cash for fractional shares 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 previously delivered
to the Company.
Date
----------------------------------------
And if said number of shares shall not be all the shares exchangeable
or purchasable under the within Warrant, a new Warrant is to be issued in the
name of the undersigned for the balance remaining of the shares purchasable
thereunder.
-16-
<PAGE>
<PAGE>
Exhibit 21
Kellstrom Industries, Inc. and subsidiaries
Subsidiaries of the Registrant
The following list sets forth the subsidiaries of the Company:
Kellstrom Industries, Inc.
Aero Support Holdings, Inc.
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Kellstrom Industries, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-20727 and No. 333-41159) on Form S-8 and in the registration statements
(No. 333-10313 and 333-44019) on Form S-3 of Kellstrom Industries, Inc. and
subsidiaries of our report dated February 27, 1998, relating to the consolidated
balance sheets of Kellstrom Industries, Inc. and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997, which report appears in the December 31, 1997
annual report on Form 10-K of Kellstrom Industries, Inc.
KPMG Peat Marwick LLP
Ft. Lauderdale, Florida
March 20, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
KELLSTROM INDUSTRIES, INC. BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE
PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> 12-MOS
<CASH> 463
<SECURITIES> 426
<RECEIVABLES> 13,000
<ALLOWANCES> 336
<INVENTORY> 35,965
<CURRENT-ASSETS> 53,333
<PP&E> 5,027
<DEPRECIATION> 0
<TOTAL-ASSETS> 134,361
<CURRENT-LIABILITIES> 19,096
<BONDS> 0
<COMMON> 8
0
0
<OTHER-SE> 49,904
<TOTAL-LIABILITY-AND-EQUITY> 134,361
<SALES> 79,439
<TOTAL-REVENUES> 79,439
<CGS> 42,206
<TOTAL-COSTS> 61,828
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,991
<INCOME-PRETAX> 13,620
<INCOME-TAX> 5,077
<INCOME-CONTINUING> 8,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,543
<EPS-PRIMARY> 1.18
<EPS-DILUTED> .95
</TABLE>
