<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-23764
KELLSTROM INDUSTRIES, INC.
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3753725
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
14000 N.W. 4TH ST., SUNRISE, FLORIDA 33325
- ------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(954) 845-0427
--------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date: 11,694,622 shares of
common stock, $.001 par value per share, were outstanding as of July 31, 1998.
<PAGE> 2
KELLSTROM INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Earnings 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II
Item 4 - Matters Submitted to a Vote of Security Holders 17
Item 5 - Other Information 18
Item 6 - Exhibits and Reports on Form 8-K 24
</TABLE>
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
KELLSTROM INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1998 Dececember 31, 1997
------------- -------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 2,049,912 $ 462,676
Trade receivables, net of allowances for returns and
doubtful accounts of $1,672,054 and $335,786 in 1998
and 1997, respectively 18,097,324 10,189,082
Notes receivable -- 2,475,856
Inventories 86,659,419 35,965,376
Prepaid expenses and other current assets 2,509,620 2,646,629
Income tax receivable 1,622,152 531,762
Deferred tax assets 1,311,464 636,115
Investments in securities 136,222 425,759
------------- -------------
Total current assets 112,386,113 53,333,255
Equipment under operating leases, net 104,415,340 39,932,388
Property, plant and eqipment, net 8,961,236 5,027,096
Goodwill, net 64,968,021 29,775,709
Other assets 8,799,044 6,293,050
------------- -------------
Total Assets $ 299,529,754 $ 134,361,498
============= =============
Liabilities and Stockholders' Equity
Current Liabilities:
Account payable $ 11,545,613 $ 6,183,762
Accrued expenses 8,607,947 4,996,963
Short-term notes payable 2,309,469 6,759,013
Current maturities of long-term debt -- 1,079,787
------------- -------------
Total current liabilities 22,463,029 19,019,525
Long-term debt, less current maturities 20,658,207 11,250,000
Convertible subordinated notes 129,000,000 54,000,000
Deferred tax liabilities 1,828,285 180,053
------------- -------------
Total Liabilites 173,949,521 84,449,578
Stockholders' Equity:
Preferred stock, $.001 par value; 1,000,000 shares authorized;
none issued -- --
Common stock, $.001 par value; 50,000,000 shares authorized;
11,251,027 and 7,879,356 shares issued and
outstanding in 1998 and 1997, respectively 11,251 7,879
Additional paid-in capital 108,443,077 39,027,053
Retained earnings 18,177,835 11,555,161
Loans receivable from directors and officers (1,023,172) (362,415)
Unrealized loss on investments securities, net (28,758) (315,758)
------------- -------------
Total Stockholders' Equity 125,580,233 49,911,920
------------- -------------
Total Liabilities and Stockholders' Equity $ 299,529,754 $ 134,361,498
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
KELLSTROM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales of aircraft and engine parts, net $ 30,177,845 $ 16,650,131 $ 55,513,541 $ 32,109,047
Rental revenues 7,885,272 1,299,779 11,640,147 2,306,936
------------ ------------ ------------ ------------
Total revenues 38,063,117 17,949,910 67,153,688 34,415,983
Cost of goods sold (20,325,614) (10,962,783) (36,993,778) (21,035,115)
Depreciation of equipment under operating leases (4,120,927) (844,856) (6,164,083) (1,499,509)
Selling, general and administrative expenses (4,320,998) (1,914,440) (7,754,953) (3,684,769)
Depreciation and amortization (668,079) (351,279) (1,261,302) (640,158)
------------ ------------ ------------ ------------
Total operating expenses (29,435,618) (14,073,358) (52,174,116) (26,859,551)
Operating income 8,627,499 3,876,552 14,979,572 7,556,432
Interest expense (2,826,505) (873,812) (4,541,228) (1,976,554)
Interest income 60,571 82,048 137,340 148,932
------------ ------------ ------------ ------------
Income before income taxes 5,861,565 3,084,788 10,575,684 5,728,810
Income taxes (2,180,501) (1,143,574) (3,953,010) (2,128,228)
------------ ------------ ------------ ------------
Net income $ 3,681,064 $ 1,941,214 $ 6,622,674 $ 3,600,582
============ ============ ============ ============
Earnings per common share - basic $ 0.42 $ 0.26 $ 0.79 $ 0.53
============ ============ ============ ============
Earnings per common share - diluted $ 0.34 $ 0.22 $ 0.63 $ 0.42
============ ============ ============ ============
Weighted average number of common
shares outstanding - basic 8,751,400 7,558,921 8,435,039 6,758,977
============ ============ ============ ============
Weighted average number of common
shares outstanding - diluted 12,642,833 8,947,279 12,222,479 8,551,991
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
KELLSTROM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,622,674 $ 3,600,582
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 1,261,302 640,158
Depreciation of equipment under operating leases 6,164,083 1,499,509
Amortization of deferred financing costs 532,956 402,586
Purchase of equipment under operating leases (48,581,682) --
Deferred income taxes 521,420 (114,519)
Other 18,626 --
Changes in operating assets and liabilities:
Increase in trade receivables, net (1,414,612) (2,003,524)
Increase in inventory (23,600,523) (2,405,151)
Decrease in prepaid expenses and other current assets 1,552,028 385,394
(Increase) decrease in other assets 104,674 (212,266)
Decrease in accounts payable (151,401) (1,576,654)
(Decrease) increase in accrued expenses 463,548 (1,126,074)
Increase in income taxes payable -- 332,747
------------- -------------
Net cash used in operating activities (56,506,907) (577,212)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of IASI assets, net of cash acquired -- (25,053,141)
Purchase of ITC assets, net of cash acquired (20,422,248) --
Purchase of Aerocar assets, net of cash acquired (44,333,009) --
Proceeds from the sale of investment securities 710,079 301,000
Purchases of property, plant and equipment (4,067,276) (220,107)
------------- -------------
Net cash used in investing activities (68,112,454) (24,972,248)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit agreements (8,403,611) (3,098,264)
Proceeds from the issuance of debt -- 21,000,000
Debt repayment, including capital lease obligations (2,688,410) (7,891,646)
Proceeds from the issuance of common stock 67,358,522 20,794,370
Proceeds from the issuance of convertible subordinated notes 72,750,000 --
Proceeds from the exercise of options and warrants 663,911 --
Net repayments (borrowings) for loans receivable (660,757) (200,000)
Payment of deferred financing costs (2,813,058) (1,309,284)
------------- -------------
Net cash provided by financing activities 126,206,597 29,295,176
------------- -------------
NET INCREASE IN CASH & CASH EQUIVALENTS 1,587,236 3,745,716
------------- -------------
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 462,676 154,254
------------- -------------
CASH & CASH EQUIVALENTS, END OF PERIOD $ 2,049,912 $ 3,899,970
============= =============
</TABLE>
(continued)
See accompanying notes to condensed consolidated financial statements
5
<PAGE> 6
KELLSTROM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(continued)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Supplemental disclosures of non-cash investing and financing activities:
IASI assets acquired for warrants $ -- $ 1,173,134
=========== ===========
Aerocar assets acquired for warrants $ 1,405,000 $ --
=========== ===========
Deferred financing costs paid through the issuance of warrants $ -- $ 1,530,446
=========== ===========
Net transfer of equipment under operating leases to inventories $ 5,351,721 $ --
=========== ===========
Unrealized gain/(loss) on investment securities, net $ 287,000 $ (231,116)
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,107,613 $ 882,061
=========== ===========
Income taxes $ 4,483,105 $ 1,905,285
=========== ===========
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 current 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 condensed consolidated financial statements
6
<PAGE> 7
KELLSTROM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(continued)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Supplemental disclosures of purchase of ITC assets, net of liabilities:
Cash $ 841,012
Receivables 6,095,225
Inventory 16,815,078
Prepaid expenses and other current assets 29,553
Engines under operating leases 4,594,456
Property, plant and equipment 33,121
Goodwill 5,442,685
Other assets 19,171
-----------
Total assets $33,870,301
===========
Accrued expenses $ 3,147,436
Accounts payable 3,109,605
Notes payable 6,350,000
-----------
Total liabilities $12,607,041
===========
Net acquisition cost 21,263,260
Less cash acquired 841,012
-----------
Net cash used in acquisition $20,422,248
===========
Supplemental disclosures of purchase of Aerocar assets, net of liabilities:
Cash $ 227,855
Receivables 473,118
Inventory 9,683,625
Engines under operating leases 18,065,714
Property, plant and equipment 151,103
Goodwill 30,591,424
Other assets 39,532
-----------
Total assets $59,232,371
===========
Accounts payable $ 2,395,610
Notes payable 10,870,897
-----------
Total liabilities $13,266,507
===========
Net acquisition cost 45,965,864
Less warrants issued to seller 1,405,000
-----------
Cash paid to seller at closing 44,560,864
Less cash acquired 227,855
-----------
Net cash used in acquisition $44,333,009
===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
7
<PAGE> 8
KELLSTROM INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Kellstrom Industries, Inc. and its subsidiaries (the
"Company") after elimination of intercompany accounts and transactions.
These statements have been prepared by the Company without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). The condensed consolidated balance sheet as of
December 31, 1997 has been derived from audited financial statements. In
order to prepare the financial statements in conformity with generally
accepted accounting principles, management has made a number of estimates
and assumptions relating to the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities. Actual
results could differ from those estimates. Certain information and
footnote disclosures, normally included in financial statements prepared
in accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such rules and regulations of the SEC.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's latest annual report on Form 10-K.
In the opinion of management of the Company, the condensed consolidated
financial statements reflect all adjustments (which consist only of
normal recurring adjustments) necessary to present fairly the condensed
consolidated financial position of Kellstrom Industries, Inc. and its
subsidiaries as of June 30, 1998, and the condensed consolidated results
of earnings for the three and six month periods ended June 30, 1998 and
1997 and the condensed consolidated statements of cash flows for the
three and six month periods ended June 30, 1998 and 1997. The results of
operations for such interim periods are not necessarily indicative of the
results for the full year.
NOTE 2 - ACQUISITIONS
On April 1, 1998, the Company through a wholly-owned subsidiary,
Integrated Technology Holdings Corp., completed the acquisition of
substantially all of the assets and assumed certain liabilities of
privately held Integrated Technology Corp. ("ITC") for approximately
$20.2 million 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 related FAA-approved
overhaul facility. The Company funded the purchase from its current
banking facility. The acquisition was accounted for using the purchase
method of accounting for business combinations and accordingly, the
operating results have been included since the date of acquisition.
On June 17, 1998, the Company completed the acquisition of Aerocar
Aviation Corp. and Aerocar Parts, Inc., (collectively "Aerocar") for
approximately $44.3 million in cash, warrants to purchase an aggregate of
250,000 shares of the Company's common stock, exercisable at $26.00 per
share, plus an additional $5.0 million payable within a two-year period
after closing either in cash, or at the option of the Company, in shares
of common stock having an equivalent value as of the date of the
acquisition. The Company funded the cash portion of this acquisition with
a portion of the proceeds from its secondary public offering. The
acquisition was accounted for using the purchase method of accounting for
business combinations and accordingly, the operating results have been
included since the date of acquisition.
8
<PAGE> 9
NOTE 3 - EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 128, "Earnings per Share." Subsequent to
the effective date, all prior period earnings per share data presented
will be restated to conform with the provisions of SFAS No. 128. Basic
and diluted earnings per share for the three and six months ended June
30, 1998 and 1997 were calculated based on the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER COMMON SHARE:
Net income $ 3,681,064 $ 1,941,214 $ 6,622,674 $ 3,600,582
=========== =========== =========== ===========
Weighted average common shares outstanding 8,751,400 7,558,921 8,435,039 6,758,977
=========== =========== =========== ===========
Basic earnings per common share $ 0.42 $ 0.26 $ 0.79 $ 0.53
=========== =========== =========== ===========
DILUTED EARNINGS PER COMMON SHARE:
Net income $ 3,681,064 $ 1,941,214 $ 6,622,674 $ 3,600,582
Income adjustment relating to reduction of
debt based on the if converted method 592,578 -- 1,077,734 --
----------- ----------- ----------- -----------
Net income available to common and common
equivalent shares $ 4,273,642 $ 1,941,214 $ 7,700,408 $ 3,600,582
=========== =========== =========== ===========
Weighted average common shares outstanding 8,751,400 7,558,921 8,435,039 6,758,977
Net effect of dilutive stock options and warrants
based on the treasury stock method 1,594,464 1,388,358 1,657,137 1,793,014
Net effect of dilutive convertible subordinated
notes based on the if converted method 2,296,969 -- 2,130,303 --
----------- ----------- ----------- -----------
Weighted average common shares outstanding
- diluted 12,642,833 8,947,279 12,222,479 8,551,991
=========== =========== =========== ===========
Diluted earnings per common share $ 0.34 $ 0.22 $ 0.63 $ 0.42
=========== =========== =========== ===========
</TABLE>
NOTE 4 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires that all items recognized
under accounting standards as components of comprehensive income be
reported in an annual financial statement that is displayed with the same
prominence as other annual financial statements. The Company's total
comprehensive income, comprised of unrealized gain/(loss) on investment
securities, for the three and six month periods ended June 30, 1998 and
1997 were as follows:
9
<PAGE> 10
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 3,681,064 $ 1,941,214 $ 6,622,674 $ 3,600,582
Other comprehensive income, net of taxes (16,593) (172,968) 343,934 (231,116)
----------- ----------- ----------- -----------
Total comprehensive income $ 3,664,471 $ 1,768,246 $ 6,966,608 $ 3,369,466
=========== =========== =========== ===========
</TABLE>
NOTE 5 - RECENT PUBLIC OFFERINGS
In June 1998, the Company completed a secondary public offering of
2,750,000 shares of its common stock resulting in net proceeds of $67,358,522.
On July 2, 1998, the Company's underwriters exercised their overallotment option
to purchase an additional 412,500 shares of common stock at $26.00. The net
proceeds to the Company from this sale were $10,164,000. Proceeds of the
offering were used to repay outstanding borrowings under its revolving credit
facility, to finance the Aerocar acquisition and for general corporate purposes.
In June 1998, the Company completed a public offering of $75,000,000
aggregate principal amount of 5 1/2% Convertible Subordinated Notes due 2003
(the "Notes"), resulting in net proceeds of $72,750,000. On July 2, 1998, the
Company's underwriters exercised their overallotment option to purchase an
additional $11,250,000 aggregate principal amount of Notes. The net proceeds to
the Company from this sale were $10,938,281. Proceeds of the offering were used
to repay outstanding borrowings under its revolving credit facility and for
general corporate purposes.
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS
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.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires companies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Gains and losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS 133 is effective for fiscal
years beginning after June 15, 1999, with earlier adoption encouraged.
Management does not anticipate a significant impact of the adoption of SFAS 133
on the Company's consolidated financial position, results of operations or cash
flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following should be read in conjunction with the Company's
consolidated financial statements and the related notes thereto included
elsewhere herein.
This Report contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
the Company's business, financial condition and
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<PAGE> 11
results of operations. The words "estimate," "project," "intend," "expect," and
similar expressions are intended to identify forward-looking statements. These
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those contemplated in such
forward-looking statements, including those described below. Investors are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
On April 1, 1998, the Company through a wholly-owned subsidiary,
Integrated Technology Holdings Corp., completed the acquisition of substantially
all of the assets and assumed certain liabilities of privately held Integrated
Technology Corp. ("ITC") for approximately $20.2 million 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 a related FAA-approved overhaul facility. The acquisition was accounted for
using the purchase method of accounting for business combinations and
accordingly, the operating results have been included since the date of
acquisition. The Company funded the purchase from its current banking facility.
On June 17, 1998, the Company completed the acquisition of Aerocar
Aviation Corp. and Aerocar Parts Inc., (collectively "Aerocar") for
approximately $44.3 million in cash, warrants to purchase an aggregate of
250,000 shares of the Company's common stock, exercisable at $26.00 per share,
plus an additional $5.0 million payable within a two-year period after closing,
either in cash, or at the option of the Company, in shares of common stock
having an equivalent value as of the date of the acquisition. The acquisition
was accounted for using the purchase method of accounting for business
combinations and accordingly, the operating results have been included since the
date of acquisition. The Company funded the cash portion of this acquisition
with a portion of the proceeds of its secondary public offering.
On June 17, 1998, the Company completed a secondary public offering of
2,750,000 shares of common stock at $26.00 per share, resulting in net proceeds
of $67,358,522. On July 2, 1998, the Company's underwriters exercised their
overallotment option to purchase an additional 412,500 shares of common stock at
$26.00. The net proceeds to the Company from this sale were $10,164,000.
Proceeds of the offering were used to repay outstanding borrowings under its
revolving credit facility, to finance the Aerocar acquisition and for general
corporate purposes.
On June 17, 1998, the Company completed an underwritten public offering
of $75,000,000 aggregate principal amount of 5 1/2% Convertible Subordinated
Notes due 2003 (the "Notes"), resulting in net proceeds of $72,750,000. On July
2, 1998, the Company's underwriters exercised their overallotment option to
purchase an additional $11,250,000 aggregate principal amount of Notes. The net
proceeds to the Company from this sale were $10,938,281. Proceeds of the
offering were used to repay outstanding borrowings under its revolving credit
facility and for general corporate purposes.
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 and operating results, 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 acquisitions and 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
11
<PAGE> 12
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.
RESULTS OF OPERATIONS.
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Net sales of aircraft and engine parts increased by 81% to $30,177,845
for the three months ended June 30, 1998 as compared with $16,650,131 for the
three months ended June 30, 1997. The increase in net sales of aircraft and
engine parts was primarily due to (i) internal growth of sales of approximately
$3,600,000 primarily due to additional inventory availability as a result of the
Company's increased capital resources, and (ii) incremental sales of
approximately $9,900,000 related to the acquisitions of the Aero Support and ITC
operations.
Rental revenues increased by 507% to $7,885,272 for the three months
ended June 30, 1998 as compared with $1,299,779 for the three months ended June
30, 1997. The increase in rental revenues was primarily due to (i) the Company's
continued expansion into the short-term leasing business through purchases of
individual leased assets resulting in increased rental revenues of approximately
$5,300,000, and (ii) incremental rental revenues of approximately $1,300,000
related to the acquisition of the ITC operations.
Cost of goods sold increased by 85% to $20,325,614 for the three months
ended June 30, 1998 as compared to $10,962,783 for the three months ended June
30, 1997; however, the gross profit margin decreased to 32.6% in 1998 from 34.2%
in 1997. The increase in cost of goods sold was primarily due to increased sales
volume driven by internal sales growth and the acquisitions of Aero Support and
ITC. The decrease in the gross profit margin was primarily due to the mix of
product sales which resulted in a lower gross profit margin. However, despite
the decrease in the gross profit margin during the second quarter of 1998, the
gross profit margin remains in the range of the Company's historical gross
profit margin.
Depreciation of equipment under operating leases increased by 388% to
$4,120,927 for the three months ended June 30, 1998 as compared with $844,856
for the three months ended June 30, 1997. The increase in depreciation of
equipment under operating leases was primarily due to (i) the Company's
continued expansion into the short-term leasing business through purchases of
individual leased assets resulting in increased depreciation expense of
approximately $2,500,000, and (ii) incremental depreciation of approximately
$750,000 related to the leased assets acquired from the ITC operation.
Selling, general and administrative expenses increased by 126% to
$4,320,998 for the three months ended June 30, 1998 as compared to $1,914,440
for the three months ended June 30, 1997, which resulted in an increase as a
percentage of total revenues to 11.4% in 1998 from 10.7% in 1997. The increase
in selling, general and administrative expenses was primarily the result of (i)
expenses of approximately $1,300,000 related to the continuing operations of
Aero Support and ITC, and (ii) expenses
12
<PAGE> 13
of approximately $1,100,000 from 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. 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 90% to $668,079 for
the three months ended June 30, 1998 as compared with $351,279 for the three
months ended June 30, 1997, which resulted in a decrease as a percentage of
total revenues to 1.8% in 1998 from 2.0% in 1997. The increase in depreciation
and amortization expense is primarily the result of amortization of goodwill
related to the Aero Support and ITC acquisitions.
Interest expense (net of interest income) increased by 249% to
$2,765,934 for the three months ended June 30, 1998 as compared to $791,764 for
the three months ended June 30, 1997. The increase in interest expense was
primarily due to (i) interest expense and related costs of approximately
$775,000 from the $17,300,000 and $20,225,000 of debt related to the
acquisitions of Aero Support and ITC, respectively, (ii) amortization of
deferred financing costs of approximately $285,000, and (iii) increased
borrowings by the Company during 1998 necessary to expand the Company's
inventory levels which resulted in approximately $915,000 of interest expense.
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 by debt. There can be no
assurance, however, that the Company's operations will expand or that it will
complete any material acquisitions.
Provision for income taxes increased 91% to $2,180,501 for the three
months ended June 30, 1998 as compared to $1,143,574 for the three months ended
June 30, 1997, which resulted in a slight increase as a percentage of income
before income taxes of 37.2% in 1998 from 37.1% in 1997. The increase in income
taxes is due to higher levels of pre-tax income for the three months ended June
30, 1998. The Company's effective tax rate differs from the statutory rate
primarily due to state income taxes offset by the use of the foreign sales
corporation.
Net income increased by 90% to $3,681,064 for the three months ended
June 30, 1998 as compared to $1,941,214 for the three months ended June 30,
1997. Basic earnings per common share increased by 62% to $0.42 for the three
months ended June 30, 1998 as compared to $0.26 for the three months ended June
30, 1997. Diluted earnings per common share increased by 55% to $0.34 for the
three months ended June 30, 1998 as compared to $0.22 for the three months ended
June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Net sales of aircraft and engine parts increased by 73% to $55,513,541
for the six months ended June 30, 1998 as compared with $32,109,047 for the six
months ended June 30, 1997. The increase in net sales of aircraft and engine
parts was primarily due to (i) internal growth of sales of approximately
$7,900,000 primarily due to additional inventory availability as a result of the
Company's increased capital resources, and (ii) incremental sales of
approximately $15,500,000 related to the acquisitions of the Aero Support and
ITC operations.
Rental revenues increased by 405% to $11,640,147 for the six months
ended June 30, 1998 as compared with $2,306,936 for the six months ended June
30, 1997. The increase in rental revenues was primarily due to (i) the Company's
continued expansion into the short-term leasing business through
13
<PAGE> 14
purchases of individual leased assets resulting in increased rental revenues of
approximately $8,000,000 and (ii) incremental rental revenues of approximately
$1,300,000 related to the acquisition of the ITC operations.
Cost of goods sold increased by 76% to $36,993,778 for the six months
ended June 30, 1998 as compared to $21,035,115 for the six months ended June 30,
1997; the gross profit margin decreased to 33.4% in 1998 from 34.5% in 1997. The
increase in cost of goods sold was primarily due to increased sales volume
across all product lines. The decrease in the gross profit margin was primarily
due to the mix of product sales during the first six months of 1998, resulting
in a lower gross profit margin. However, despite the slight decrease in the
gross profit margin during the first six months of 1998, the gross profit margin
remains in the range of the Company's historical gross profit margin.
Depreciation of equipment under operating leases increased by 311% to
$6,164,083 for the six months ended June 30, 1998 as compared with $1,499,509
for the six months ended June 30, 1997. The increase in depreciation of
equipment under operating leases was primarily due to (i) the Company's
continued expansion into the short-term leasing business through purchases of
individual leased assets resulting in increased depreciation of approximately
$3,900,000, and (ii) incremental depreciation of $750,000 related to the
acquisition of the ITC operations.
Selling, general and administrative expenses increased by 110% to
$7,754,953 for the six months ended June 30, 1998 as compared to $3,684,769 for
the six months ended June 30, 1997, which resulted in an increase as a
percentage of total revenues to 11.5% in 1998 from 10.7% in 1997. The increase
in selling, general and administrative expenses was primarily the result of (i)
expenses of approximately $2,000,000 related to the continuing operations of
Aero Support and ITC, and (ii) expenses of approximately $2,100,000 from 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. 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 97% to $1,261,302
for the six months ended June 30, 1998 as compared with $640,158 for the six
months ended June 30, 1997, which resulted in depreciation and amortization as a
percentage of total revenues remaining flat at 1.9% for 1998 and 1997. The
increase in depreciation and amortization expense is primarily the result of
amortization of goodwill related to the Aero Support and ITC acquisitions.
Interest expense (net of interest income) increased by 141% to
$4,403,888 for the six months ended June 30, 1998 as compared to $1,827,622 for
the six months ended June 30, 1997. The increase in interest expense was
primarily due to (i) interest expense and related costs of approximately
$1,500,000 from the $17,300,000 and $20,225,000 of debt related to the
acquisitions of Aero Support and ITC, and (ii) amortization of deferred
financing costs of approximately $532,000, and (iii) increased borrowings by the
Company during 1998 necessary to expand the Company's inventory levels which
resulted in approximately $544,000 of interest expense. 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 by debt. There can be no assurance, however, that
the Company's operations will expand or that it will complete any material
acquisitions.
Provision for income taxes increased 86% to $3,953,010 for the six
months ended June 30, 1998 as compared to $2,128,228 for the six months ended
June 30, 1997, which resulted in a slight increase as
14
<PAGE> 15
a percentage of income before income taxes of 37.4% in 1998 from 37.2% in 1997.
The increase in income taxes is due to higher levels of pre-tax income for the
six months ended June 30, 1998. The Company's effective tax rate differs from
the statutory rate primarily due to state income taxes offset by the use of the
foreign sales corporation.
Net income increased by 84% to $6,622,674 for the six months ended June
30, 1998 as compared to $3,600,582 for the six months ended June 30, 1997. Basic
earnings per common share increased by 49% to $0.79 for the six months ended
June 30, 1998 as compared to $0.53 for the six months ended June 30, 1997.
Diluted earnings per common share increased by 50% to $0.63 for the six months
ended June 30, 1998 as compared to $0.42 for the six months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES.
As of June 30, 1998, the Company's liquidity and capital resources
included cash and cash equivalents of $2,049,912 and working capital of
$89,923,084. As of June 30, 1998, total outstanding debt was $151,967,676 as
compared to $73,088,800 as of December 31, 1997. As of June 30, 1998, the
outstanding principal balance on the Company's convertible subordinated notes
was $129,000,000 and the Company had contractual lines of credit totaling
$100,000,000 of which $92,758,997 was available.
Cash flows used in operating activities for the six months ended June
30, 1998 was $56,506,907 as compared to $577,212 for the six months ended June
30, 1997. The primary uses of cash for operating activities during the six
months ended June 30, 1998 were due to (i) purchases of equipment under
operating leases of $48,581,682, and (ii) an increase in inventory and trade
receivables which amounted to $25,015,135. The primary sources of cash for
operating activities for the six months ended June 30, 1998 were due to an
increase in prepaid expenses and other current assets of $1,552,028, coupled
with net income of $6,622,674 and total depreciation and amortization of
$7,958,341.
Cash flows used in investing activities for the six months ended June
30, 1998 was $68,112,454 compared to $24,972,248 for the six months ended June
30, 1997. The primary uses of cash for investing activities for the six months
ended June 30, 1998 related to (i) the purchases of ITC and Aerocar for an
aggregate of $64,755,257, and (ii) purchases of property, plant and equipment of
$4,067,276. The primary sources of cash for investing activities for the six
months ended June 30, 1998 related to proceeds from the sales of investment
securities of $710,079.
Cash flows provided by financing activities for the six months ended
June 30, 1998 was $126,206,597 compared to $29,295,176 for the six months ended
June 30, 1997. The primary uses of cash for financing activities for the six
months ended June 30, 1998 related to debt repayments of $11,092,021 and
payments of deferred financing costs of $2,813,058. The primary sources of cash
for financing activities for the six months ended June 30, 1998 related to net
proceeds from the sale of common stock of $67,358,522 and proceeds from the sale
of convertible subordinated notes of $72,750,000.
On March 11, 1998, in order to expand its current credit facility, the
Company entered into a three year $100,000,000 revolving loan agreement with
Barnett Bank, N.A., a wholly-owned subsidiary of NationsBank Corp. The loan
bears interest at 1/4% below Barnett Bank's prime rate (which was 8 1/4% at July
31, 1998), or at the Company's option, LIBOR plus 175 - 275 basis points. The
expanded credit facility is secured by substantially all of the Company's
assets.
On June 17, 1998, the Company completed a secondary public offering of
2,750,000 shares of Common Stock at $26.00 per share, resulting in net proceeds
of $67,358,522. On July 2, 1998, the
15
<PAGE> 16
Company's underwriters exercised their overallotment option to purchase an
additional 412,500 shares of Common Stock at $26.00. The net proceeds to the
Company from this sale were $10,164,000. Proceeds of the offering were used to
repay outstanding borrowings under its revolving credit facility, to finance the
Aerocar acquisition and for general corporate purposes.
On June 17, 1998, the Company completed an underwritten public offering
of $75,000,000 aggregate principal amount of Notes, resulting in net proceeds of
$72,750,000. On July 2, 1998, the Company's underwriters exercised their
overallotment option to purchase an additional $11,250,000 aggregate principal
amount of Notes. The net proceeds to the Company from this sale were
$10,938,281. Proceeds of the offering were used to repay outstanding borrowings
under its revolving credit facility and for general corporate purposes.
During the six months ended June 30, 1998, the Company's highest
utilization of its Barnett Bank $100,000,000 line of credit was $98,182,099. The
outstanding balance at June 30, 1998 on the Barnett Bank revolving credit
facility was $7,241,003.
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 inventory including jet
engines and jet engine parts. The Company believes that greater availability of
such inventory 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 facility, which were expanded in March 1998, proceeds from
the recently completed public offerings 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 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 needs of the Company.
YEAR 2000 ISSUE
The Company has developed plans to address any possible liability
related to the impact of the Year 2000 problem on its computer systems through a
conversion plan 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. The Company 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.
There can be no assurance that the Company's suppliers or vendors are
or will be Year 2000 compliant. Failure of any third-party enterprises with
which the Company interacts to achieve Year 2000 compliance could have a
material adverse effect on the Company's business, financial condition and
results of operations.
16
<PAGE> 17
RECENT ACCOUNTING PRONOUNCEMENTS.
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.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires companies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Gains and losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS 133 is effective for fiscal
years beginning after June 15, 1999, with earlier adoption encouraged.
Management does not anticipate a significant impact of the adoption of SFAS 133
on the Company's consolidated financial position, results of operations or cash
flows.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders of Kellstrom Industries, Inc. was held
on May 29, 1998 pursuant to a proxy statement dated April 29, 1998.
(c) The following matters were submitted to a vote at the meeting:
(1) Election of the following nominees as Class II directors for a two
year term:
<TABLE>
<CAPTION>
Director's Name: JOHN S. GLEASON ZIVI R. NEDIVI YOAV STERN
--------------- -------------- ----------
<S> <C> <C> <C>
Votes in favor: 5,736,818 5,737,118 5,736,918
Votes against: 0 0 0
Abstentions: 22,350 22,050 22,250
</TABLE>
(2) Approve and adopt an amendment to the Company's Restated Certificate
of Incorporation to increase the number of authorized shares of the
Company's common stock from 20,000,000 to 50,000,000 shares:
Votes in favor: 4,730,772
Votes against: 1,017,716
Abstentions: 10,680
(3) Consider and vote upon a proposal to approve and adopt the Company's
1997 Stock Option Plan:
Votes in favor: 4,705,468
Votes against: 1,031,365
Abstentions: 22,335
(4) Consider and vote upon a proposal to approve and adopt the Company's
1998 Stock Purchase Plan:
Votes in favor: 5,625,923
Votes against: 117,055
Abstentions: 16,190
17
<PAGE> 18
(5) Ratify and approve the reappointment of KPMG Peat Markwick LLP as the
Company's independent auditors:
Votes in favor: 5,737,973
Votes against: 12,860
Abstentions: 8,335
A total of 5,759,168 shares were represented at the meeting, constituting a
quorum in accordance with the applicable provisions of the By-laws of the
Company.
Item 5. Other Information
PRO FORMA CONSOLIDATED COMBINED STATEMENTS OF EARNINGS - UNAUDITED
The consolidated combined statement of earnings of the Company for the six
months ended June 30, 1998 and 1997 are based on historical financial
statements of the Company and have been adjusted to reflect the
acquisitions of Aero Support Holdings, Inc. ("Aero Support"), Integrated
Technology Holdings Corp. ("ITHC"), and Aerocar Aviation Corp. and Aerocar
Parts, Inc. (collectively "Aerocar") as though the companies had combined
at the beginning of the periods being reported.
The Company acquired substantially all of the assets and operations of
Aero Support USA, Inc. on September 10, 1997, Integrated Technology Corp.
on April 1, 1998, and Aerocar Aviation Corp. and Aerocar Parts, Inc. on
June 17, 1998. The pro forma condensed consolidated statement of earnings
do not purport to be indicative of results that would have occurred had
the acquisition been in effect for the periods presented, nor do they
purport to be indicative of the results that will be obtained in the
future. The pro forma consolidated combined financial information is based
on certain assumptions and adjustments described in the notes hereto and
should be read in conjunction therewith.
The following pro forma consolidated combined statement of earnings for
the six months ended June 30, 1997 reflect the effect of the Company's
recent secondary public offerings of common stock and convertible
subordinated notes.
18
<PAGE> 19
KELLSTROM INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
--------------------------------
Six Months Ended June 30,
--------------------------------
1998 1997
------------- --------------
Pro Forma Pro Forma
Combined Combined
------------- --------------
<S> <C> <C>
Sales of aircraft and engine parts, net $ 67,008,629 $ 64,995,633
Rental revenues 15,632,494 8,068,535
------------- --------------
Total revenues 82,641,123 73,064,168
Cost of goods sold (43,716,097) (39,730,378)
Depreciation of equipment under operating leases (7,211,295) (2,957,955)
Selling, general and administrative expenses (9,617,337) (8,595,453)
Depreciation and amortization (1,783,750) (1,728,620)
------------- --------------
Total operating expenses (62,328,479) (53,012,406)
Operating income 20,312,644 20,051,762
Interest expense (7,667,421) (5,829,527)
Interest income 269,716 264,277
------------- --------------
Income before income taxes 12,914,939 14,486,512
Income taxes (4,843,103) (5,432,443)
------------- --------------
Net income 8,071,836 9,054,069
============= ==============
Earnings per common share - basic $ 0.96 $ 1.30
============= ==============
Earnings per common share - diluted $ 0.75 $ 1.03
============= ==============
Weighted average number of common shares
outstanding -- basic 8,435,039 6,957,588
============= ==============
Weighted average number of common shares
outstanding -- diluted 12,222,479 8,917,269
============= ==============
</TABLE>
Unaudited - See accompanying notes to pro forma condensed consolidated
statements of earnings
19
<PAGE> 20
KELLSTROM INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
--------------------------------------------
HISTORICAL
-------------------------------------------- PRO FORMA PRO FORMA PRO FORMA
KELLSTROM ITC AEROCAR ADJUSTMENTS(A) ADJUSTMENTS(B) COMBINED
------------ ------------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales of aircraft and engine parts, net $ 55,513,541 $ 13,434,356 $ 3,458,512 $ (5,397,780) $ -- $ 67,008,629
Rental revenues 11,640,147 1,814,281 3,454,041 (1,275,975) -- 15,632,494
------------ ------------ ------------ ------------ ------------ ------------
Total revenues 67,153,688 15,248,637 6,912,553 (6,673,755) -- 82,641,123
Cost of goods sold (36,993,778) (8,412,559) (1,724,577) 3,414,817 -- (43,716,097)
Depreciation of equipment under
operating leases (6,164,083) (1,028,513) (757,895) 739,196 -- (7,211,295)
Selling, general and administrative
expenses (7,754,953) (1,081,683) (1,443,646) 487,784 132,000 (9,617,337)
43,161
Depreciation and amortization (1,261,302) (50,190) -- 46,692 (431,194) (1,783,750)
(87,756)
------------ ------------ ------------ ------------ ------------ ------------
Total operating expenses (52,174,116) (10,572,945) (3,926,118) 4,643,894 (299,194) (62,328,479)
Operating income 14,979,572 4,675,692 2,986,435 (2,029,861) (299,194) 20,312,644
Interest expense (4,541,228) (180,407) (219,633) 180,407 219,633 (7,667,421)
(1,064,663) (2,061,530)
Interest income 137,340 -- 132,376 -- -- 269,716
------------ ------------ ------------ ------------ ------------ ------------
Income before income taxes 10,575,684 4,495,285 2,899,178 (2,914,117) (2,141,091) 12,914,939
Income taxes (3,953,010) (732,967) -- 140,029 (297,155) (4,843,103)
------------ ------------ ------------ ------------ ------------ ------------
Net income $ 6,622,674 $ 3,762,318 2,899,178 $ (2,774,088) $ (2,438,246) $ 8,071,836
============ ============ ============ ============ ============ ============
Earnings per common share - basic $ 0.79 $ 0.96
============ ============
Earnings per common share - diluted $ 0.63 $ 0.75
============ ============
Weighted average number of
common shares outstanding - basic 8,435,039 8,435,039
============ ============
Weighted average number of
common shares outstanding - diluted 12,222,479 12,222,479
============ ============
</TABLE>
20
<PAGE> 21
KELLSTROM INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------
HISTORICAL
------------------------------------------------------------ Pro Forma
Kellstrom Aero Support ITC Aerocar Adjustments(A)
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Sales of aircraft and engine
parts, net $ 32,109,047 $ 10,073,232 $ 14,107,071 $ 8,706,283 $ --
Rental revenues 2,306,936 -- 369,318 5,392,281 --
------------ ------------ ------------ ------------ -------------
Total revenues 34,415,983 10,073,232 14,476,389 14,098,564 --
Cost of goods sold (21,035,115) (7,142,941) (8,517,498) (3,034,824) --
Depreciation of equipment under
operating leases (1,499,509) -- (224,837) (1,233,609) --
Selling, general and administrative
expenses (3,684,769) (2,214,128) (2,807,924) (1,366,966) --
Depreciation and amortization (640,158) (169,648) (6,379) (15,796) (437,964)
114,882
------------ ------------ ------------ ------------ -------------
Total operating expenses (26,859,551) (9,526,717) (11,556,638) (5,651,195) (323,082)
Operating income 7,556,432 546,515 2,919,751 8,447,369 (323,082)
Interest expense (1,976,554) (142,412) (240,906) (160,731) 142,412
(726,780)
Interest income 148,932 668 -- 114,677 --
------------ ------------ ------------ ------------ -------------
Income before income taxes 5,728,810 404,771 2,678,845 8,401,315 (907,450)
Income taxes (2,128,228) -- -- -- 188,505
------------ ------------ ------------ ------------ -------------
Net income $ 3,600,582 $ 404,771 $ 2,678,845 $ 8,401,315 $ (718,945)
============ ============ ============ ============ =============
Earnings per common share - basic $ 0.53
============
Earnings per common share - diluted $ 0.42
============
Weighted average number of
common shares outstanding - basic 6,758,977
============
Weighted average number of
common shares outstanding - diluted 8,551,991
============
<CAPTION>
Pro Forma Pro Forma Pro Forma
Adjustments(B) Adjustments(C) Combined
-------------- -------------- ------------
<C> <C> <C>
$ -- $ -- $ 64,995,633
-- -- 8,068,535
------------- ------------- ------------
-- -- 73,064,168
-- -- (39,730,378)
-- -- (2,957,955)
76,136 1,402,198 (8,595,453)
(105,927) (467,630) (1,728,620)
--
------------- ------------- ------------
(29,791) 934,568 (53,012,406)
(29,791) 934,568 20,051,762
240,906 160,731 (5,829,527)
(1,064,663) (2,061,530)
-- -- 264,277
------------- ------------- ------------
(853,548) (966,231) 14,486,512
(684,487) (2,808,233) (5,432,443)
------------- ------------- ------------
$ (1,538,035) $ (3,774,464) $ 9,054,069
============= ============= ============
$ 1.30
============
$ 1.03
============
6,957,588
============
8,917,269
============
</TABLE>
21
<PAGE> 22
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 for the ITC
acquisition:
<TABLE>
<CAPTION>
Six months ended
June 30, 1998
-------------
<S> <C>
Increase (decrease) in income:
Reversal of ITC sales of aircraft parts for the period April 1, 1998
to June 30, 1998 $ (5,397,780)
Reversal of ITC rental revenues for the period April 1, 1998 to
June 30, 1998 (1,275,975)
Reversal of ITC cost of goods sold for the period April 1, 1998 to
June 30, 1998 3,414,817
Reversal of ITC depreciation of equipment under operating leases for
the period April 1, 1998 to June 30, 1998 739,196
Reversal of ITC selling, general and administrative expense for the
period April 1, 1998 to June 30, 1998 487,784
Elimination of pension expense 43,161
Reversal of ITC depreciation and amortization expense for the period April 1,
1998 to June 30, 1998 46,692
Amortization of goodwill and non-compete agreement related to
ITC acquisition (87,756)
Reduction in interest expense due to pay-off of debt on ITC line of credit 180,407
Interest expense on acquisition debt and debt incurred to repay existing
ITC line of credit (1,064,663)
------------
(2,914,117)
Tax effect of pro forma adjustments 140,029
------------
Net adjustment $ (2,774,088)
============
</TABLE>
(B) For purposes of presenting the pro forma consolidated combined statement
of earnings, the following adjustments have been made for the Aerocar
Aviation and Aerocar Parts acquisitions:
<TABLE>
<CAPTION>
Six months ended
June 30, 1998
----------------
<S> <C>
Increase (decrease) in income:
Elimination of Aerocar Aviation and Aerocar Parts officer's salary $ 132,000
Amortization of goodwill related to Aerocar Aviation and Aerocar
Parts acquisitions (431,194)
Reduction in interest expense due to pay-off of debt on Aerocar
Aviation and Aerocar Parts line of credit 219,633
Interest expense on acquisition debt and debt incurred to repay existing
Aerocar Aviation and Aerocar Parts line of credit (2,061,530)
------------
(2,141,091)
Tax effect of pro forma adjustments (297,155)
------------
Net adjustment $ (2,438,246)
============
</TABLE>
22
<PAGE> 23
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 for the Aero Support
acquisition:
<TABLE>
<CAPTION>
Six months ended
June 30, 1997
-------------
<S> <C>
Increase (decrease) in income:
Amortization of goodwill and non-compete agreement related to
Aero Support acquisition $ (437,964)
Elimination of leasehold amortization expense for assets not acquired 114,882
Reduction in interest expense due to pay-off of debt on Aero Support
line of credit 142,412
Interest expense on acquisition debt and debt incurred to repay existing Aero
Support line of credit (726,780)
------------
(907,450)
Tax effect of pro forma adjustments 188,505
------------
Net adjustment $ (718,945)
============
</TABLE>
(B) For purposes of presenting the pro forma consolidated combined statement
of earnings, the following adjustments have been made for the ITC
acquisition:
<TABLE>
<CAPTION>
Six months ended
June 30, 1997
-------------
<S> <C>
Increase (decrease) in income:
Amortization of goodwill and non-compete agreement related to
ITC acquisition $ (105,927)
Elimination of pension expense 76,136
Reduction in interest expense due to pay-off of debt on ITC
line of credit 240,906
Interest expense on acquisition debt and debt incurred to repay existing
ITC line of credit (1,064,663)
-----------
(853,548)
Tax effect of pro forma adjustments (684,487)
-----------
Net adjustment $(1,538,035)
===========
</TABLE>
23
<PAGE> 24
(C) For purposes of presenting the pro forma consolidated combined statement
of earnings, the following adjustments have been made for the Aerocar
Aviation and Aerocar Parts acquisitions:
<TABLE>
<CAPTION>
Six months ended
June 30, 1997
-------------
<S> <C>
Increase (decrease) in income:
Amortization of goodwill related to Aerocar Aviation and
Aerocar Parts acquisitions $ (467,630)
Elimination of Aerocar Aviation and Aerocar Parts officer's salary 1,402,198
Reduction in interest expense due to pay-off of debt on Aerocar
Aviation and Aerocar Parts line of credit 160,731
Interest expense on acquisition debt and debt incurred to repay existing
Aerocar Aviation and Aerocar Parts line of credit (2,061,530)
------------
(966,231)
Tax effect of pro forma adjustments (2,808,233)
------------
Net adjustment $ (3,774,464)
============
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 - Warrant dated June 17, 1998, by and between the Company
and Carmel Shashua.
10.2 - Warrant dated June 17, 1998, by and between the Company
and Rosa Shashua.
27.1 - Financial Data Schedule for the Six Months Ended
June 30, 1998.
27.2 - Financial Data Schedule for the Six Months Ended
June 30, 1997 (Restated).
(b) Reports on Form 8-K.
The Company filed a Report on Form 8-K dated April 14, 1998,
which included a copy of a press release regarding the purchase
of substantially all the assets and certain liabilities of
Integrated Technology Corp.
The Company filed a Report on Form 8-K dated May 18, 1998,
which included a copy of a press release regarding the purchase
of substantially all the assets and certain liabilities of
Aerocar Aviation Corp. and Aerocar Parts, Inc.
The Company filed a Report on Form 8-K/A dated May 18, 1998, as
amended, which announced the completion of the purchase of
substantially all the assets and certain liabilities of
Integrated Technology Corp.
The Company filed a Report on Form 8-K dated June 17, 1998,
which included a copy of a press release which announced the
completion of the purchase of substantially all the assets and
certain liabilities of Aerocar Aviation Corp. and Aerocar
Parts, Inc.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 11, 1998 KELLSTROM INDUSTRIES, INC.
(Registrant)
/s/ Michael W. Wallace
------------------------------
Michael W. Wallace
Chief Financial Officer
25
<PAGE> 1
EXHIBIT 10.1
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE OR SECURITIES LAWS
AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH LAWS OR AN EXEMPTION
FROM REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION
OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY
TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
KELLSTROM INDUSTRIES, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. AAC-1 187,500 Shares
FOR VALUE RECEIVED, Kellstrom Industries, Inc., a Delaware corporation
(the "Company"), hereby certifies that Carmel Shashua (the "Purchaser") or his
permitted assigns, is entitled to purchase from the Company, at any time or from
time to time commencing on the date hereof (the "Commencement Date") and prior
to 5:00 P.M., New York City time, on June 17, 2001, One Hundred Eighty Seven
Thousand Five Hundred (187,500) fully paid and non-assessable shares of the
common stock, $.001 par value per share, of the Company for an aggregate
purchase price of $4,875,000 (computed on the basis of $26.00 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, 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. 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 June 17, 2001. Exercise of this Warrant by
the Holder shall be made by the surrender of this Warrant (with the subscription
form at the end hereof, or a reasonable facsimile thereof, duly
<PAGE> 2
executed) at the address set forth in Subsection 11(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
by certified or official bank check payable to the order of the Company. If this
Warrant is exercised in part, this Warrant must be exercised for a number of
whole shares of the Common Stock, and the Holder is entitled to receive a new
Warrant covering the Warrant Shares which have not been exercised and setting
forth the proportionate part of the Aggregate Warrant Price applicable to such
Warrant Shares. Upon such surrender of this Warrant, the Company will (a) issue
a certificate or certificates in the name of 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 Common Stock and other
securities and properties as from time to time shall be receivable upon the
exercise of this Warrant, free and clear of all restrictions on sale or transfer
and free and clear of all preemptive rights and rights of first refusal and (b)
if the Company hereafter lists its Common Stock on any national securities
exchange, keep the shares of the Common Stock receivable upon the exercise of
this Warrant authorized for listing on such exchange upon notice of issuance.
3. PROTECTION AGAINST DILUTION. (a) In case the Company shall hereafter
(i) pay a dividend or make a distribution on its capital stock in shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares or (iv) issue by reclassification of its Common
Stock any shares of capital stock of the Company, the Per Share Warrant Price
shall be adjusted so that the Holder upon the exercise hereof shall be entitled
to receive the number of shares of Common Stock or other capital stock of the
Company which he would have owned immediately following such action had such
Warrant been exercised immediately prior thereto. An adjustment made pursuant to
this Subsection 3(a) shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(b) If, at any time or from time to time after the date of
this Warrant, the Company shall issue or distribute to the holders of shares of
Common Stock evidences of its indebtedness, any other securities of the Company
or any cash, property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common Stock,
adjustment for which would be made pursuant to Subsection Common Stock,
adjustment for which
2
<PAGE> 3
would be made pursuant to Subsection 3(a), and also excluding cash dividends or
cash distributions paid out of net profits legally available therefor and
accrued after the date hereof if the full amount thereof, together with the
value of other dividends and distributions made substantially concurrently
therewith or pursuant to a plan which includes payment thereof, is equivalent to
not more than a cumulative amount equal to 15% of the Company's net worth) (any
such nonexcluded event being herein called a "Special Dividend"), the Per Share
Warrant Price shall be adjusted by multiplying the Per Share Warrant Price then
in effect by a fraction, the numerator of which shall be the then current market
price of the Common Stock (defined as the average for the thirty consecutive
business days immediately prior to the record date of the daily closing price of
the Common Stock as reported by the national securities exchange upon which the
Common Stock is then listed or if not listed on any such exchange, the average
of the closing prices as reported by Nasdaq National Market, or if not then
listed on the Nasdaq National Market, the average of the highest reported bid
and lowest reported asked prices as reported by NASDAQ, or if not then publicly
traded, the fair market price as determined by the Company's Board of Directors)
less the fair market value (as determined in good faith by the Company's Board
of Directors) of the evidences of indebtedness, cash, securities or property, or
other assets issued or distributed in such Special Dividend applicable to one
share of Common Stock and the denominator of which shall be such then current
market price per share of Common Stock. An adjustment made pursuant to this
Subsection 3(b) shall become effective immediately after the record date of any
such Special Dividend.
(c) In case of any capital reorganization or reclassification,
or any consolidation or merger to which the Company is a party other than a
merger or consolidation in which the Company is the continuing corporation, or
in case of any sale or conveyance to another entity of the property of the
Company as an entirety or substantially as an entirety, or in the case of any
statutory exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third corporation into the
Company), the Holder of this Warrant shall have the right thereafter to receive
on the exercise of this Warrant the kind and amount of securities, cash or other
property which the Holder would have owned or have been entitled to receive
immediately after such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had this Warrant been exercised
immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3 with respect to the
rights and interests thereafter of the Holder of this Warrant to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The above provisions of this Subsection 3(c) shall similarly apply
to successive reorganizations, reclassifications, consolidations, mergers,
statutory exchanges, sales or conveyances. 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 Holder of the Warrants
not less than 15 days prior to such event. A
3
<PAGE> 4
sale of all or substantially all of the assets of the Company for a
consideration consisting primarily of securities shall be deemed a consolidation
or merger for the foregoing purposes.
(d) No adjustment in the Per Share Warrant Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.05 per share of Common Stock; PROVIDED, HOWEVER, that any adjustments
which by reason of this Subsection 3(d) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment; PROVIDED
FURTHER, however, that adjustments shall be required and made in accordance with
the provisions of this Section 3 (other than this Subsection 3(d)) not later
than such time as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Common Stock issuable upon
exercise hereof. All calculations under this Section 3 shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be. Anything
in this Section 3 to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the Per Share Warrant Price, in addition to those
required by this Section 3, as it in its discretion shall deem to be advisable
in order that any stock dividend, subdivision of shares or distribution of
rights to purchase stock or securities convertible or exchangeable for stock
hereafter made by the Company to its stockholders shall not be taxable.
(e) If the Board of Directors of the Company shall (i) declare
any dividend or other distribution with respect to the Common Stock, other than
a cash dividend subject to the first parenthetical in Subsection 3(b), (ii)
offer to the holders of shares of Common Stock any additional shares of Common
Stock, any securities convertible into or exercisable for shares of Common Stock
or any rights to subscribe thereto, or (iii) propose a dissolution, liquidation
or winding up of the Company, the Company shall mail notice thereof to the
Holders of the Warrants not less than 15 days prior to the record 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 or 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) If at any time or from time to time the Company shall take
any action affecting its Common Stock or any other capital stock of the Company,
not otherwise described in any of the foregoing subsections of this Section 3,
then, if the failure to make any adjustment would in the reasonable opinion of
the Board of Directors of the Company have a materially adverse effect upon the
rights of the Holder of the Warrant, the number of shares of Common Stock or
other stock comprising a Warrant Share, or the Per Share Warrant Price, shall be
adjusted in such manner and at such time as the Board of Directors of the
Company may in good faith determined to be equitable under the circumstances.
4
<PAGE> 5
(h) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the rights of the Holder
of Warrants in accordance with this Section 3, the Company shall promptly cause
its Chief Financial Officer to provide a notice to the Holder setting forth the
Per Share Warrant Price and the number of Warrant Shares after such adjustment
or the effect of such modification, a brief statement of the facts requiring
such adjustment or modification and the manner of computing the same.
4. FULLY PAID STOCK; TAXES. The Company agrees that the shares of the
Common Stock, or any other capital stock, represented by each and every
certificate for Warrant Shares delivered on the exercise of this Warrant shall,
at the time of such delivery, be validly issued and outstanding, fully paid and
nonassessable, and not subject to preemptive rights or rights of first refusal,
and the Company will take all such actions as may be necessary to assure that
the par value or stated value, if any, per share of the Common Stock is at all
times equal to or less than the then Per Share Warrant Price. The Company
further covenants and agrees that it will pay, when due and payable, any and all
Federal and state stamp, original issue or similar taxes which may be payable in
respect of the issue of any Warrant Share or certificate therefor.
5. REGISTRATION UNDER SECURITIES ACT OF 1933.
(a) The Company agrees that if, at any time and from time to
time during the period beginning on the Commencement Date and ending on the
second anniversary of the date the Warrants are exercised in full, the Board of
Directors of the Company shall authorize the filing of a registration statement
(any such registration statement being hereinafter called a "Registration
Statement") under the Act (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 the Company 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 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 Holder's request, be included in such
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 Registration Statement 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
the Holder and such Holders to effect the proposed sale or other disposition.
(b) The Company agrees that if the Company shall not have
authorized the filing of a Registration Statement pursuant to Subsection 5(a)
hereof within one (1) year after the
5
<PAGE> 6
Commencement Date, then at any time thereafter during the period ending on the
second anniversary of the date the Warrants are exercised in full, if the Holder
and/or the Holders of Warrants and/or Warrant Shares who or which shall hold not
less than 50% of the aggregate number of Warrants and Warrant Shares outstanding
at such time and not previously sold (the "Covered Warrant Shares") pursuant to
this Section 5 shall request that the Company file a registration statement
under the Act covering not less than 50% of the Covered Warrant Shares, the
Company will (i) promptly notify each Holder of the Warrants and each Holder of
Warrant Shares not so previously sold that such registration statement will be
filed and that the Warrant Shares which are then held, and/or may be acquired
upon exercise of the Warrants by the Holder and such Holders, will be included
in such registration statement at the Holder's and such Holders' request, (ii)
cause such registration statement to be filed with the Securities and Exchange
Commission (the "Commission") as soon as possible following such request and to
cover all Warrant Shares which it has been so requested to 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 government 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(b) on one occasion only; provided
that a request for registration shall not be deemed to constitute a registration
pursuant to this Subsection 5(b) if: (i) the conditions to closing specified in
the purchase agreement or underwriting agreement entered into in connection with
such registration are not satisfied other than by reason of some act or omission
by the Holder; (ii) the Company voluntarily takes any action that would result
in the Holder not being able to sell such Warrant Shares covered thereby; (iii)
the Holder determines not to proceed following any delay imposed hereunder by
the Company; PROVIDED, HOWEVER, that prior to such delay, the Holder shall not
have sold more than ninety percent (90%) of the Warrant Shares included in such
registration; or (iv) other than by action of the Holder, such registration does
not remain effective for ninety (90) days or more. Notwithstanding the
foregoing, (a) if the Holder exercises its right to request that a registration
statement be filed pursuant to this Subsection 5(b) at a time when the Company
in good faith as evidenced by a Board resolution believes that a public offering
of Common Stock would materially impair a pending financing or other material
transaction of the Company, the Company shall have the right to defer filing a
Registration Statement hereunder for a period not to exceed 90 days or (b) in
lieu of causing a registration statement to be filed under this Section 5(b),
the Company may elect, by providing written notice (the "Repurchase Notice") to
the Holder or Holders requesting registration within ten (10) days of the
Company's receiving such request, to repurchase from the requesting Holder or
Holders either (x) the Warrants relating to the Warrant Shares requested to be
registered, at a price per Warrant equal to the difference between the Market
Price per share of the Common Stock (as defined below) and the Per Share Warrant
Price or (y) if the Warrants relating to the Warrant Shares requested to be
registered had already been exercised, such Warrant Shares at a price per
Warrant Share equal to the Market Price per share of the Common Stock. As used
in this Section 5(b), the "Market Price per share of the Common Stock" shall
mean the average of the last sale price of the Common Stock, or if no last sale
price is reported, the average of the asked and bid prices of the Common Stock,
on the Nasdaq National Market or
6
<PAGE> 7
Nasdaq Small Cap Market, as applicable, for the 20 consecutive trading days
ending on the day prior to the delivery by the Holder or Holders of the request
for a registration statement pursuant to this Section 5(b). Any repurchase of
the Warrants or the Warrant Shares under this Section 5(b) shall be made within
30 days of the delivery by the Company of the Repurchase Notice.
(c) Whenever the Company is required pursuant to the
provisions of this Section 5 to include Warrant Shares in a registration
statement, the Company shall (i) furnish each Holder of any such Warrant Shares
and each underwriter of such Warrant Shares with such copies of the prospectus,
including the preliminary prospectus, conforming to the Act (and such other
documents as each such Holder or each such underwriter may reasonably request)
in order to facilitate the sale or distribution of the Warrant Shares, (ii) use
its best efforts to register or qualify such Warrant Shares under the blue sky
laws (to the extent applicable) of such jurisdiction or laws (to the extent
applicable) of such jurisdiction or jurisdictions as the Holders of any such
Warrant Shares and each underwriter of Warrant Shares being sold by such Holders
shall reasonably request and (iii) take such other actions as may be reasonably
necessary or advisable to enable such Holders and such underwriters to
consummate the sale or distribution in such jurisdiction or jurisdictions in
which such Holders shall have reasonably requested that the Warrant Shares be
sold.
(d) The Company shall furnish to each Holder participating in
an offering pursuant to a registration statement under this Section 5 and to
each underwriter, if any, a signed counterpart, addressed to such Holder or
underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "comfort" letter dated the effective date of
such registration statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountant's letter with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(e) The Company shall enter into an underwriting agreement
with the managing underwriters selected by Holders holding 50% of the Covered
Warrant Shares requested to be included in a registration statement filed
pursuant to Section 5(b). Such agreement shall be reasonably satisfactory in
form and substance to the Company, each Holder and such managing underwriters,
and shall contain such representations, warranties and covenants by the Company
and such other terms as are customarily contained in agreements of that type as
used by the managing underwriters.
(f) The Company shall pay all expenses incurred in connection
with any registration statement or other action pursuant to the provisions of
this Section 5, other than
7
<PAGE> 8
underwriting discounts, applicable transfer taxes relating to the Warrant Shares
and the fees and expenses of counsel for the Holders of the Warrant Shares.
(g) In connection with any public offering by the Company
involving an underwriting of its securities effected pursuant to Section 5(a)
hereof, the Company shall not be required to include in such registration any
Warrant Shares held by the Holder unless the Holder agrees to the terms of the
underwriting agreement between the Company and the managing underwriter of such
offering, which agreement may require that the Warrant Shares be withheld from
the market by the Holders for a period of up to 180 days after the effective
date of the registration statement by which such public offering is being
effected (or such longer period as may be requested by any securities exchange
upon which the Common Stock is then listed). Furthermore, the Company shall be
obligated to include in such registration only the quantity of Warrant Shares,
if any, as will not, in the opinion of the managing underwriter, jeopardize the
success of the offering by the Company. If the managing underwriter for the
offering advises the Company in writing that the total amount of securities
sought to be registered by the Holders and other shareholders of the Company
having similar registration rights as of the date thereof (collectively, the
"Kellstrom Shareholders") exceeds the amount of securities that can be offered
without adversely affecting the offering by the Company, then the Company may
reduce the number of shares to be registered by the Company for the Kellstrom
Shareholders, including Warrant Shares, to a number satisfactory to such
managing underwriter. Any such reduction shall be pro rata, based upon the total
number of shares held by each Kellstrom Shareholder.
(h) The Company will indemnify and hold harmless the Holder
and any person or entity engaged by the Holder to sell the Holder's Warrant
Shares, and each person, if any, who controls such persons or entities within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act") (collectively, a "Holder Indemnitee"), against any losses, claims,
damages, liabilities or expenses (or actions, proceedings, or settlements in
respect thereof) (joint or several) to which a Holder Indemnitee may become
subject under the Act, the 1934 Act, or other federal or state law, insofar as
such losses, claims, damages, liabilities or expenses (or actions, proceedings
or settlements in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; or (iii) the employment by the Company of
any device, scheme or artifice to defraud or the engagement by the Company in
any act, practice or course of business which operates or would operate as a
fraud or deceit upon the purchasers of its securities pursuant to such
registration statement. The Company will also reimburse each Holder Indemnitee
for any legal or other expenses reasonably incurred by such Holder Indemnitee in
connection with investigating, defending, and settling any such loss, claim,
damage, liability, or action.
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<PAGE> 9
The indemnity agreement contained in this Subsection 5(h) shall not
apply to amounts paid in settlement of any loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Company, which
consent shall not be unreasonably withheld, nor shall the Company be liable to
any Holder Indemnitee of any loss, claim, damage, liability or action (i) to the
extent that it arises solely out of or is based solely upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by or on behalf of the
Holder or any agent of the Holder, which consent shall not be unreasonably
withheld, or controlling person of either; or (ii) in the case of a sale
directly by the Holder (including a sale of such Warrant Shares through any
underwriter retained by such Holder to engage in a distribution solely on behalf
of such Holder), such untrue statement or alleged untrue statement or omission
or alleged omission was contained in a preliminary prospectus and corrected in a
final or amended prospectus, and the Holder failed to deliver a copy of the
final or amended prospectus at or prior to the confirmation of the sale of the
Warrant Shares to the person asserting any such loss, claim, damage or liability
in any case where such delivery is required by the Act.
(i) The Holder will indemnify and hold harmless the Company,
each of its employees, officers, directors or persons who control the Company
within the meaning of the Act or the 1934 Act, and each agent or underwriter for
the Company or any other person or entity engaged by the Company to sell the
Company's securities offered in the registration statement, or any of their
respective directors, officers, partners, agents, employees or control persons
(collectively, a "Company Indemnitee"), against any losses, claims, damages,
liabilities or expenses (joint or several) to which the Company or any such
Company Indemnitee may become subject under the Act, the 1934 Act, or other
federal or state law, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereto) arise solely out of or are based solely
upon any 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.
The indemnity agreement contained in this Subsection 5(i) shall not
apply to amounts paid in settlement of any loss, claim, damage, liability, or
action if such settlement is effected without the consent of the indemnifying
Holder, which consent shall not be unreasonably withheld, nor, in the case of a
sale directly by the Company of its securities (including a sale of such
securities through any underwriter retained by the Company to engage in a
distribution solely on behalf of the Company), shall the Holder be liable to the
Company in any case in which such untrue statement or alleged untrue statement
or omission or alleged omission was contained in a preliminary prospectus and
corrected in a final or amended prospectus, and the Company failed to deliver a
copy of the final or amended prospectus at or prior to the confirmation of the
sale of the securities to the person asserting any such loss, claim, damage or
liability in any case where such delivery is required by the Act.
(j) Promptly after receipt by an indemnified party under
Subsections 5(h) or (i) of notice of the commencement of any action (including
any governmental action), such indemnified
9
<PAGE> 10
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 part 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,
provide the an indemnified part shall have the right to retain its own counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests (as reasonably determined by either party) between such indemnified
party and any other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under Subsection 5(h) or (i), respectively, to the extent
of such prejudice, but the failure to so deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under Subsection 5(h) or (i), respectively.
(ii) The obligations of the Company and the Holders
under Subsections 5(h) and (i), respectively, shall survive the completion of
any offering of Warrant Shares made pursuant to a registration under this
Agreement.
(iii) The amount paid or payable by a party as a
result of the losses, claims, damages, or liabilities (or actions or proceedings
in respect thereof) referred to in Subsections 5(h) and (i) shall include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
(k) If the indemnification provided for in the preceding
Subsections 5(h) or (i) is unavailable to an indemnified party in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall be
entitled to contribution, except to the extent that contribution is not
permitted under Section 11(f) of the Act. In determining the amount of
contribution to which the respective parties are entitled, there shall be
considered the parties' relative knowledge and access to information concerning
the matter with respect to which the claim was asserted, the opportunity correct
and prevent any statement or omission, and any other equitable considerations
appropriate under the circumstances. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(l) The Holder, in addition to being entitled to exercise all
rights provided in this Section 5, including recovery of damages, will be
entitled to specific performance of its rights hereunder. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Section 5 and hereby
agrees to waive the defense in any action for specific performance that a remedy
at law would be adequate.
10
<PAGE> 11
(m) In connection with the Company's obligations to effect a
registration under Section 5, the Company will:
(i) cooperate and assist in any filings required to
be made with the National Association of Securities Dealers, Inc., and before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to counsel selected by Holder copies of all
such documents proposed to be filed, which documents will be subject to their
review and comments;
(ii) cause the prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Act;
(iii) notify the Holder promptly (A) when the
prospectus or any prospectus supplement or post-effective amendment has been
filed, and with respect to the registration statement or any post-effective
amendment, when the same has become effective; (B) of any request by the
Commission for any amendments or supplements to the registration statement or
the prospectus or for additional information; (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for the purpose; (D) if, at any
time prior to the closing contemplated by an underwriting agreement entered into
in connection with such registration statement, that the representations and
warranties of the Company contained in such agreement cease to be true and
correct in any material respect; (E) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the Warrant
Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and (F) of the happening of any event which makes
any statement made in the registration statement, the prospectus of or any
document incorporated therein by reference untrue in any material respect and
which requires the making of any changes in the registration statement, the
prospectus or any document incorporated therein by reference in order to make
the statement therein not materially misleading;
(iv) make commercially reasonable efforts to obtain
the withdrawal of any order suspending the effectiveness of the registration
statement;
(v) if required, prepare a supplement or
post-effective amendment to the registration statement, the related prospectus
or any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Warrant
Shares, the prospectus will not contain an untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein not
misleading;
(vi) cause all Warrant Shares covered by the
registration statement to be listed on each securities exchange on which
identical securities issued by the Company are then listed if requested by the
Holder or the managing underwriters, if any;
11
<PAGE> 12
(vii) provide and cause to be maintained a transfer
agent and registrar for all Warrant Shares covered by such registration
statement from and after a date not later than the effective date of such
registration statement;
(viii) use its best efforts to provide a CUSIP number
for the Warrant Shares, not later than the effective date of the registration
statement;
(ix) make available for inspection, in connection
with the preparation of a registration statement pursuant to this Agreement, by
the Holder, and any attorney or accountant retained by the Holder, all financial
and other records and pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representative, attorney or
accountant in connection with such registration; PROVIDED, HOWEVER, that any
records, information or documents that are designated by the Company in writing
as confidential shall be kept confidential by such persons unless disclosure of
such records, information or documents is required by court or administrative
order;
(x) if so required by the managing underwriter, not
sell, make any short sale of, loan, grant any option for the purpose of, effect
any public sale or distribution of or otherwise dispose of its equity securities
or securities convertible into or exchangeable or exercisable for any of such
securities during the ten days prior to and the 90 days after any underwritten
registration pursuant hereto has become effective, except as part of such
underwritten registration and except pursuant to registrations on Form S-4 or
S-8 or any successor or similar forms thereto, except that the Company may make
grants of options under its stock option plans and may issue securities issuable
upon the exercise or conversion of outstanding convertible securities, stock
options and other options, warrants and rights of the Company; and
(xi) otherwise use its best effort to comply with all
applicable rules and regulations of the Commission and make available to its
security holders as soon as reasonably practicable, an earnings statement which
satisfies the provision of Section 11(a) of the Act.
(n) The Company shall not be obligated to register any Warrant
Shares pursuant to this Section 5 at any time when the resale provisions of Rule
144 promulgated under the Act are available to the Holder without limitation as
to volume.
(o) The Company will use its reasonable best efforts to file
with the Commission all information required to be filed under Section 13 or
15(d) of the 1934 Act.
6. LIMITED TRANSFERABILITY. This Warrant may not be offered, sold,
transferred, assigned, hypothecated or otherwise disposed of by the Holder
except pursuant to an effective registration statement under the Act and/or
applicable state securities laws or an exemption from registration under the Act
and such laws which, in the opinion of counsel for the Holder, which counsel and
opinion are reasonably satisfactory to the Company, is available. 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
12
<PAGE> 13
Holder for all purposes. The Company shall permit any Holder of a Warrant or his
or her 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. SECURITIES ACT OF 1933 LEGEND. This Warrant, the Warrant Shares and
any of the other securities issuable upon exercise of this Warrant have not been
registered under the Act. Upon exercise of this Warrant, in part or in whole,
the certificates representing the Warrant Shares and any of the other securities
issuable upon exercise of this Warrant shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE OR SECURITIES LAWS AND NEITHER THE
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH
SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL
FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
8. 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.
9. 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.
10. INFORMATION TO HOLDER. The Company agrees that it shall deliver to
the Holder promptly after their becoming available copies of all financial
statements, reports and proxy statements which the Company shall have sent to
its stockholders generally.
11. 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:
13
<PAGE> 14
(a) if to the Company at 14000 NW 4th Street, Sunrise, Florida
33325, Att.: Chief Executive Officer, facsimile no. 954-845-0428, or such other
address as the Company has designated in writing to the Holder, or
(b) if to the Holder at 1111 South Southlake Drive, Hollywood,
Florida 33019, or such other address as the Holder has designated in writing to
the Company.
12. HEADINGS. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
13. 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. Venue shall be in Broward County,
Florida.
IN WITNESS WHEREOF, Kellstrom Industries, Inc. has caused this Warrant
to be signed by its President and its corporate seal to be hereunder affixed and
attested by its Chief Financial Officer as of the ____ day of June, 1998.
KELLSTROM INDUSTRIES, INC.
By: /s/ Zivi R. Nedivi
----------------------------------
Zivi R. Nedivi, President
ATTEST:
/s/ Illegible
- ------------------------------------
Chief Financial Officer
[Corporate Seal]
14
<PAGE> 15
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 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:
-----------------------------------
15
<PAGE> 16
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant pursuant to Section 1)
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, 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 of such Common Stock in the
name of, and pay any cash for any fractional share to:
Name
------------------------------------
(Please Print Name, Address and Social Security
No.)
Address
-----------------------------------
-----------------------------------
Social
-----------------------------------
Security Number
Signature
---------------------------------
NOTE: The above signature should
correspond exactly with the name on
the first page of this Warrant or with
the name of the assignee appearing in
the assignment form below.
Date
-----------------------------------
And if said number of shares shall not be all the shares purchasable
under the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
16
<PAGE> 1
EXHIBIT 10.2
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE OR SECURITIES LAWS
AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH LAWS OR AN EXEMPTION
FROM REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION
OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY
TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
KELLSTROM INDUSTRIES, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. AAC-2 62,500 Shares
FOR VALUE RECEIVED, Kellstrom Industries, Inc., a Delaware corporation
(the "Company"), hereby certifies that Rosa Shashua (the "Purchaser") or her
permitted assigns, is entitled to purchase from the Company, at any time or from
time to time commencing on the date hereof (the "Commencement Date") and prior
to 5:00 P.M., New York City time, on June 17, 2001, Sixty Two Thousand Five
Hundred (62,500) fully paid and non-assessable shares of the common stock, $.001
par value per share, of the Company for an aggregate purchase price of
$1,625,000 (computed on the basis of $26.00 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, 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. 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 June 17, 2001. Exercise of this Warrant by
the Holder shall be made by the surrender of this Warrant (with the subscription
form at the end hereof, or a reasonable facsimile thereof, duly executed) at the
address set forth in Subsection 11(a) hereof, together with proper payment of
the
<PAGE> 2
Aggregate Warrant Price, or the proportionate part hereof if this Warrant is
exercised in part. Payment for Warrant Shares shall be made by certified or
official bank check payable to the order of the Company. If this Warrant is
exercised in part, this Warrant must be exercised for a number of whole shares
of the Common Stock, and the Holder is entitled to receive a new Warrant
covering the Warrant Shares which have not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of 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 Common Stock and other
securities and properties as from time to time shall be receivable upon the
exercise of this Warrant, free and clear of all restrictions on sale or transfer
and free and clear of all preemptive rights and rights of first refusal and (b)
if the Company hereafter lists its Common Stock on any national securities
exchange, keep the shares of the Common Stock receivable upon the exercise of
this Warrant authorized for listing on such exchange upon notice of issuance.
3. PROTECTION AGAINST DILUTION. (a) In case the Company shall hereafter
(i) pay a dividend or make a distribution on its capital stock in shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares or (iv) issue by reclassification of its Common
Stock any shares of capital stock of the Company, the Per Share Warrant Price
shall be adjusted so that the Holder upon the exercise hereof shall be entitled
to receive the number of shares of Common Stock or other capital stock of the
Company which he would have owned immediately following such action had such
Warrant been exercised immediately prior thereto. An adjustment made pursuant to
this Subsection 3(a) shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(b) If, at any time or from time to time after the date of
this Warrant, the Company shall issue or distribute to the holders of shares of
Common Stock evidences of its indebtedness, any other securities of the Company
or any cash, property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common Stock,
adjustment for which would be made pursuant to Subsection Common Stock,
adjustment for which would be made pursuant to Subsection 3(a), and also
excluding cash dividends or cash distributions
2
<PAGE> 3
paid out of net profits legally available therefor and accrued after the date
hereof if the full amount thereof, together with the value of other dividends
and distributions made substantially concurrently therewith or pursuant to a
plan which includes payment thereof, is equivalent to not more than a cumulative
amount equal to 15% of the Company's net worth) (any such nonexcluded event
being herein called a "Special Dividend"), the Per Share Warrant Price shall be
adjusted by multiplying the Per Share Warrant Price then in effect by a
fraction, the numerator of which shall be the then current market price of the
Common Stock (defined as the average for the thirty consecutive business days
immediately prior to the record date of the daily closing price of the Common
Stock as reported by the national securities exchange upon which the Common
Stock is then listed or if not listed on any such exchange, the average of the
closing prices as reported by Nasdaq National Market, or if not then listed on
the Nasdaq National Market, the average of the highest reported bid and lowest
reported asked prices as reported by NASDAQ, or if not then publicly traded, the
fair market price as determined by the Company's Board of Directors) less the
fair market value (as determined in good faith by the Company's Board of
Directors) of the evidences of indebtedness, cash, securities or property, or
other assets issued or distributed in such Special Dividend applicable to one
share of Common Stock and the denominator of which shall be such then current
market price per share of Common Stock. An adjustment made pursuant to this
Subsection 3(b) shall become effective immediately after the record date of any
such Special Dividend.
(c) In case of any capital reorganization or reclassification,
or any consolidation or merger to which the Company is a party other than a
merger or consolidation in which the Company is the continuing corporation, or
in case of any sale or conveyance to another entity of the property of the
Company as an entirety or substantially as an entirety, or in the case of any
statutory exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third corporation into the
Company), the Holder of this Warrant shall have the right thereafter to receive
on the exercise of this Warrant the kind and amount of securities, cash or other
property which the Holder would have owned or have been entitled to receive
immediately after such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had this Warrant been exercised
immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3 with respect to the
rights and interests thereafter of the Holder of this Warrant to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The above provisions of this Subsection 3(c) shall similarly apply
to successive reorganizations, reclassifications, consolidations, mergers,
statutory exchanges, sales or conveyances. 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 Holder of the Warrants
not less than 15 days prior to such event. A sale of all or substantially all of
the assets of the Company for a consideration consisting primarily of securities
shall be deemed a consolidation or merger for the foregoing purposes.
3
<PAGE> 4
(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 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 or 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) If at any time or from time to time the Company shall take
any action affecting its Common Stock or any other capital stock of the Company,
not otherwise described in any of the foregoing subsections of this Section 3,
then, if the failure to make any adjustment would in the reasonable opinion of
the Board of Directors of the Company have a materially adverse effect upon the
rights of the Holder of the Warrant, the number of shares of Common Stock or
other stock comprising a Warrant Share, or the Per Share Warrant Price, shall be
adjusted in such manner and at such time as the Board of Directors of the
Company may in good faith determined to be equitable under the circumstances.
(h) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the rights of the Holder
of Warrants in accordance with this Section
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<PAGE> 5
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 and from time to
time during the period beginning on the Commencement Date and ending on the
second anniversary of the date the Warrants are exercised in full, the Board of
Directors of the Company shall authorize the filing of a registration statement
(any such registration statement being hereinafter called a "Registration
Statement") under the Act (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 the Company 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 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 Holder's request, be included in such
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 Registration Statement 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
the Holder and such Holders to effect the proposed sale or other disposition.
(b) The Company agrees that if the Company shall not have
authorized the filing of a Registration Statement pursuant to Subsection 5(a)
hereof within one (1) year after the Commencement Date, then at any time
thereafter during the period ending on the second anniversary of the date the
Warrants are exercised in full, if the Holder and/or the Holders of Warrants
and/or
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<PAGE> 6
Warrant Shares who or which shall hold not less than 50% of the aggregate
number of Warrants and Warrant Shares outstanding at such time and not
previously sold (the "Covered Warrant Shares") pursuant to this Section 5 shall
request that the Company file a registration statement under the Act covering
not less than 50% of the Covered Warrant Shares, the Company will (i) promptly
notify each Holder of the Warrants and each Holder of Warrant Shares not so
previously sold that such registration statement will be filed and that the
Warrant Shares which are then held, and/or may be acquired upon exercise of the
Warrants by the Holder and such Holders, will be included in such registration
statement at the Holder's and such Holders' request, (ii) cause such
registration statement to be filed with the Securities and Exchange Commission
(the "Commission") as soon as possible following such request and to cover all
Warrant Shares which it has been so requested to 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 government 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(b) on one occasion only; provided that a request for
registration shall not be deemed to constitute a registration pursuant to this
Subsection 5(b) if: (i) the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such
registration are not satisfied other than by reason of some act or omission by
the Holder; (ii) the Company voluntarily takes any action that would result in
the Holder not being able to sell such Warrant Shares covered thereby; (iii) the
Holder determines not to proceed following any delay imposed hereunder by the
Company; PROVIDED, HOWEVER, that prior to such delay, the Holder shall not have
sold more than ninety percent (90%) of the Warrant Shares included in such
registration; or (iv) other than by action of the Holder, such registration does
not remain effective for ninety (90) days or more. Notwithstanding the
foregoing, (a) if the Holder exercises its right to request that a registration
statement be filed pursuant to this Subsection 5(b) at a time when the Company
in good faith as evidenced by a Board resolution believes that a public offering
of Common Stock would materially impair a pending financing or other material
transaction of the Company, the Company shall have the right to defer filing a
Registration Statement hereunder for a period not to exceed 90 days or (b) in
lieu of causing a registration statement to be filed under this Section 5(b),
the Company may elect, by providing written notice (the "Repurchase Notice") to
the Holder or Holders requesting registration within ten (10) days of the
Company's receiving such request, to repurchase from the requesting Holder or
Holders either (x) the Warrants relating to the Warrant Shares requested to be
registered, at a price per Warrant equal to the difference between the Market
Price per share of the Common Stock (as defined below) and the Per Share Warrant
Price or (y) if the Warrants relating to the Warrant Shares requested to be
registered had already been exercised, such Warrant Shares at a price per
Warrant Share equal to the Market Price per share of the Common Stock. As used
in this Section 5(b), the "Market Price per share of the Common Stock" shall
mean the average of the last sale price of the Common Stock, or if no last sale
price is reported, the average of the asked and bid prices of the Common Stock,
on the Nasdaq National Market or Nasdaq Small Cap Market, as applicable, for the
20 consecutive trading days ending on the day prior to the delivery by the
Holder or Holders of the request for a registration statement pursuant to this
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<PAGE> 7
Section 5(b). Any repurchase of the Warrants or the Warrant Shares under this
Section 5(b) shall be made within 30 days of the delivery by the Company of the
Repurchase Notice.
(c) Whenever the Company is required pursuant to the
provisions of this Section 5 to include Warrant Shares in a registration
statement, the Company shall (i) furnish each Holder of any such Warrant Shares
and each underwriter of such Warrant Shares with such copies of the prospectus,
including the preliminary prospectus, conforming to the Act (and such other
documents as each such Holder or each such underwriter may reasonably request)
in order to facilitate the sale or distribution of the Warrant Shares, (ii) use
its best efforts to register or qualify such Warrant Shares under the blue sky
laws (to the extent applicable ) of such jurisdiction or laws (to the extent
applicable) of such jurisdiction or jurisdictions as the Holders of any such
Warrant Shares and each underwriter of Warrant Shares being sold by such Holders
shall reasonably request and (iii) take such other actions as may be reasonably
necessary or advisable to enable such Holders and such underwriters to
consummate the sale or distribution in such jurisdiction or jurisdictions in
which such Holders shall have reasonably requested that the Warrant Shares be
sold.
(d) The Company shall furnish to each Holder participating in
an offering pursuant to a registration statement under this Section 5 and to
each underwriter, if any, a signed counterpart, addressed to such Holder or
underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "comfort" letter dated the effective date of
such registration statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountant's letter with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(e) The Company shall enter into an underwriting agreement
with the managing underwriters selected by Holders holding 50% of the Covered
Warrant Shares requested to be included in a registration statement filed
pursuant to Section 5(b). Such agreement shall be reasonably satisfactory in
form and substance to the Company, each Holder and such managing underwriters,
and shall contain such representations, warranties and covenants by the Company
and such other terms as are customarily contained in agreements of that type as
used by the managing underwriters.
(f) The Company shall pay all expenses incurred in connection
with any registration statement or other action pursuant to the provisions of
this Section 5, other than underwriting discounts, applicable transfer taxes
relating to the Warrant Shares and the fees and expenses of counsel for the
Holders of the Warrant Shares.
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<PAGE> 8
(g) In connection with any public offering by the Company
involving an underwriting of its securities effected pursuant to Section 5(a)
hereof, the Company shall not be required to include in such registration any
Warrant Shares held by the Holder unless the Holder agrees to the terms of the
underwriting agreement between the Company and the managing underwriter of such
offering, which agreement may require that the Warrant Shares be withheld from
the market by the Holders for a period of up to 180 days after the effective
date of the registration statement by which such public offering is being
effected (or such longer period as may be requested by any securities exchange
upon which the Common Stock is then listed). Furthermore, the Company shall be
obligated to include in such registration only the quantity of Warrant Shares,
if any, as will not, in the opinion of the managing underwriter, jeopardize the
success of the offering by the Company. If the managing underwriter for the
offering advises the Company in writing that the total amount of securities
sought to be registered by the Holders and other shareholders of the Company
having similar registration rights as of the date thereof (collectively, the
"Kellstrom Shareholders") exceeds the amount of securities that can be offered
without adversely affecting the offering by the Company, then the Company may
reduce the number of shares to be registered by the Company for the Kellstrom
Shareholders, including Warrant Shares, to a number satisfactory to such
managing underwriter. Any such reduction shall be pro rata, based upon the total
number of shares held by each Kellstrom Shareholder.
(h) The Company will indemnify and hold harmless the Holder
and any person or entity engaged by the Holder to sell the Holder's Warrant
Shares, and each person, if any, who controls such persons or entities within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act") (collectively, a "Holder Indemnitee"), against any losses, claims,
damages, liabilities or expenses (or actions, proceedings, or settlements in
respect thereof) (joint or several) to which a Holder Indemnitee may become
subject under the Act, the 1934 Act, or other federal or state law, insofar as
such losses, claims, damages, liabilities or expenses (or actions, proceedings
or settlements in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; or (iii) the employment by the Company of
any device, scheme or artifice to defraud or the engagement by the Company in
any act, practice or course of business which operates or would operate as a
fraud or deceit upon the purchasers of its securities pursuant to such
registration statement. The Company will also reimburse each Holder Indemnitee
for any legal or other expenses reasonably incurred by such Holder Indemnitee in
connection with investigating, defending, and settling any such loss, claim,
damage, liability, or action.
The indemnity agreement contained in this Subsection 5(h) shall not
apply to amounts paid in settlement of any loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Company, which
consent shall not be unreasonably withheld, nor shall the Company be liable to
any Holder Indemnitee of any loss, claim, damage, liability or action (i) to the
extent that
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<PAGE> 9
it arises solely out of or is based solely upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by or on behalf of the Holder or any
agent of the Holder, which consent shall not be unreasonably withheld, or
controlling person of either; or (ii) in the case of a sale directly by the
Holder (including a sale of such Warrant Shares through any underwriter retained
by such Holder to engage in a distribution solely on behalf of such Holder),
such untrue statement or alleged untrue statement or omission or alleged
omission was contained in a preliminary prospectus and corrected in a final or
amended prospectus, and the Holder failed to deliver a copy of the final or
amended prospectus at or prior to the confirmation of the sale of the Warrant
Shares to the person asserting any such loss, claim, damage or liability in any
case where such delivery is required by the Act.
(i) The Holder will indemnify and hold harmless the Company,
each of its employees, officers, directors or persons who control the Company
within the meaning of the Act or the 1934 Act, and each agent or underwriter for
the Company or any other person or entity engaged by the Company to sell the
Company's securities offered in the registration statement, or any of their
respective directors, officers, partners, agents, employees or control persons
(collectively, a "Company Indemnitee"), against any losses, claims, damages,
liabilities or expenses (joint or several) to which the Company or any such
Company Indemnitee may become subject under the Act, the 1934 Act, or other
federal or state law, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereto) arise solely out of or are based solely
upon any 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.
The indemnity agreement contained in this Subsection 5(i) shall not
apply to amounts paid in settlement of any loss, claim, damage, liability, or
action if such settlement is effected without the consent of the indemnifying
Holder, which consent shall not be unreasonably withheld, nor, in the case of a
sale directly by the Company of its securities (including a sale of such
securities through any underwriter retained by the Company to engage in a
distribution solely on behalf of the Company), shall the Holder be liable to the
Company in any case in which such untrue statement or alleged untrue statement
or omission or alleged omission was contained in a preliminary prospectus and
corrected in a final or amended prospectus, and the Company failed to deliver a
copy of the final or amended prospectus at or prior to the confirmation of the
sale of the securities to the person asserting any such loss, claim, damage or
liability in any case where such delivery is required by the Act.
(j) Promptly after receipt by an indemnified party under
Subsections 5(h) or (i) of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying part so desires, jointly with any other indemnifying party
similarly noticed, to assume and control the defense thereof with counsel
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<PAGE> 10
mutually satisfactory to the indemnified and indemnifying parties, provide the
an indemnified part shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests (as reasonably
determined by either party) between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
Subsection 5(h) or (i), respectively, to the extent of such prejudice, but the
failure to so deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under Subsection 5(h) or (i), respectively.
(ii) The obligations of the Company and the Holders
under Subsections 5(h) and (i), respectively, shall survive the completion of
any offering of Warrant Shares made pursuant to a registration under this
Agreement.
(iii) The amount paid or payable by a party as a
result of the losses, claims, damages, or liabilities (or actions or proceedings
in respect thereof) referred to in Subsections 5(h) and (i) shall include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
(k) If the indemnification provided for in the preceding
Subsections 5(h) or (i) is unavailable to an indemnified party in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall be
entitled to contribution, except to the extent that contribution is not
permitted under Section 11(f) of the Act. In determining the amount of
contribution to which the respective parties are entitled, there shall be
considered the parties' relative knowledge and access to information concerning
the matter with respect to which the claim was asserted, the opportunity correct
and prevent any statement or omission, and any other equitable considerations
appropriate under the circumstances. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(l) The Holder, in addition to being entitled to exercise all
rights provided in this Section 5, including recovery of damages, will be
entitled to specific performance of its rights hereunder. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Section 5 and hereby
agrees to waive the defense in any action for specific performance that a remedy
at law would be adequate.
(m) In connection with the Company's obligations to effect a
registration under Section 5, the Company will:
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(i) cooperate and assist in any filings required to
be made with the National Association of Securities Dealers, Inc., and before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to counsel selected by Holder copies of all
such documents proposed to be filed, which documents will be subject to their
review and comments;
(ii) cause the prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Act;
(iii) notify the Holder promptly (A) when the
prospectus or any prospectus supplement or post-effective amendment has been
filed, and with respect to the registration statement or any post-effective
amendment, when the same has become effective; (B) of any request by the
Commission for any amendments or supplements to the registration statement or
the prospectus or for additional information; (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for the purpose; (D) if, at any
time prior to the closing contemplated by an underwriting agreement entered into
in connection with such registration statement, that the representations and
warranties of the Company contained in such agreement cease to be true and
correct in any material respect; (E) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the Warrant
Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and (F) of the happening of any event which makes
any statement made in the registration statement, the prospectus of or any
document incorporated therein by reference untrue in any material respect and
which requires the making of any changes in the registration statement, the
prospectus or any document incorporated therein by reference in order to make
the statement therein not materially misleading;
(iv) make commercially reasonable efforts to obtain
the withdrawal of any order suspending the effectiveness of the registration
statement;
(v) if required, prepare a supplement or
post-effective amendment to the registration statement, the related prospectus
or any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Warrant
Shares, the prospectus will not contain an untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein not
misleading;
(vi) cause all Warrant Shares covered by the
registration statement to be listed on each securities exchange on which
identical securities issued by the Company are then listed if requested by the
Holder or the managing underwriters, if any;
(vii) provide and cause to be maintained a transfer
agent and registrar for all Warrant Shares covered by such registration
statement from and after a date not later than the effective date of such
registration statement;
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<PAGE> 12
(viii) use its best efforts to provide a CUSIP number
for the Warrant Shares, not later than the effective date of the registration
statement;
(ix) make available for inspection, in connection
with the preparation of a registration statement pursuant to this Agreement, by
the Holder, and any attorney or accountant retained by the Holder, all financial
and other records and pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representative, attorney or
accountant in connection with such registration; PROVIDED, HOWEVER, that any
records, information or documents that are designated by the Company in writing
as confidential shall be kept confidential by such persons unless disclosure of
such records, information or documents is required by court or administrative
order;
(x) if so required by the managing underwriter, not
sell, make any short sale of, loan, grant any option for the purpose of, effect
any public sale or distribution of or otherwise dispose of its equity securities
or securities convertible into or exchangeable or exercisable for any of such
securities during the ten days prior to and the 90 days after any underwritten
registration pursuant hereto has become effective, except as part of such
underwritten registration and except pursuant to registrations on Form S-4 or
S-8 or any successor or similar forms thereto, except that the Company may make
grants of options under its stock option plans and may issue securities issuable
upon the exercise or conversion of outstanding convertible securities, stock
options and other options, warrants and rights of the Company; and
(xi) otherwise use its best effort to comply with all
applicable rules and regulations of the Commission and make available to its
security holders as soon as reasonably practicable, an earnings statement which
satisfies the provision of Section 11(a) of the Act.
(n) The Company shall not be obligated to register any Warrant
Shares pursuant to this Section 5 at any time when the resale provisions of Rule
144 promulgated under the Act are available to the Holder without limitation as
to volume.
(o) The Company will use its reasonable best efforts to file
with the Commission all information required to be filed under Section 13 or
15(d) of the 1934 Act.
6. LIMITED TRANSFERABILITY. This Warrant may not be offered, sold,
transferred, assigned, hypothecated or otherwise disposed of by the Holder
except pursuant to an effective registration statement under the Act and/or
applicable state securities laws or an exemption from registration under the Act
and such laws which, in the opinion of counsel for the Holder, which counsel and
opinion are reasonably satisfactory to the Company, is available. 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 or her 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
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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. SECURITIES ACT OF 1933 LEGEND. This Warrant, the Warrant Shares and
any of the other securities issuable upon exercise of this Warrant have not been
registered under the Act. Upon exercise of this Warrant, in part or in whole,
the certificates representing the Warrant Shares and any of the other securities
issuable upon exercise of this Warrant shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE OR SECURITIES LAWS AND NEITHER THE
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH
SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL
FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
8. 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.
9. 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.
10. INFORMATION TO HOLDER. The Company agrees that it shall deliver to
the Holder promptly after their becoming available copies of all financial
statements, reports and proxy statements which the Company shall have sent to
its stockholders generally.
11. NOTICES. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or by facsimile transmission, or sent by
recognized overnight courier or by certified mail, return receipt requested,
postage paid, to the parties hereto as follows:
(a) if to the Company at 14000 NW 4th Street, Sunrise, Florida
33325, Att.: Chief Executive Officer, facsimile no. 954-845-0428, or such other
address as the Company has designated in writing to the Holder, or
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(b) if to the Holder at 1111 South Southlake Drive, Hollywood,
Florida 33019, or such other address as the Holder has designated in writing to
the Company.
12. HEADINGS. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
13. 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. Venue shall be in Broward County,
Florida.
IN WITNESS WHEREOF, Kellstrom Industries, Inc. has caused this Warrant
to be signed by its President and its corporate seal to be hereunder affixed and
attested by its Chief Financial Officer as of the ____ day of June, 1998.
KELLSTROM INDUSTRIES, INC.
By: /s/ Zivi R. Nedivi
-----------------------------------
Zivi R. Nedivi, President
ATTEST:
/s/ Illegible
- ----------------------------------
Chief Financial Officer
[Corporate Seal]
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ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby sells, assigns and
transfers unto __________________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
__________________________, attorney, to transfer said Warrant on the books of
Kellstrom Industries, Inc.
Dated:
-------------------------------
Signature:
---------------------------
Address:
-----------------------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby assigns and
transfers unto __________________________ the right to purchase __________
shares of 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:
-----------------------------------
15
<PAGE> 16
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant pursuant to Section 1)
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, 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 of such Common Stock in the
name of, and pay any cash for any fractional share to:
Name
--------------------------------------
(Please Print Name, Address and Social Security
No.)
Address
-----------------------------------
-----------------------------------
Social
------------------------------------
Security Number
Signature
-----------------------------------
NOTE: The above signature should correspond
exactly with the name on the first page of
this Warrant or with the name of the
assignee appearing in the assignment form
below.
Date
--------------------------------------
And if said number of shares shall not be all the shares purchasable
under the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
16
<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 JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,050
<SECURITIES> 136
<RECEIVABLES> 19,769
<ALLOWANCES> 1,672
<INVENTORY> 86,659
<CURRENT-ASSETS> 112,386
<PP&E> 9,219
<DEPRECIATION> 257
<TOTAL-ASSETS> 299,530
<CURRENT-LIABILITIES> 22,463
<BONDS> 0
0
0
<COMMON> 11
<OTHER-SE> 125,569
<TOTAL-LIABILITY-AND-EQUITY> 299,530
<SALES> 55,514
<TOTAL-REVENUES> 67,154
<CGS> 36,994
<TOTAL-COSTS> 52,174
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,004
<INCOME-PRETAX> 10,576
<INCOME-TAX> 3,953
<INCOME-CONTINUING> 6,623
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,623
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.63
</TABLE>
<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 JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,900
<SECURITIES> 729
<RECEIVABLES> 7,828
<ALLOWANCES> 180
<INVENTORY> 43,905
<CURRENT-ASSETS> 58,018
<PP&E> 3,238
<DEPRECIATION> 181
<TOTAL-ASSETS> 81,514
<CURRENT-LIABILITIES> 20,943
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 44,547
<TOTAL-LIABILITY-AND-EQUITY> 81,514
<SALES> 34,416
<TOTAL-REVENUES> 34,416
<CGS> 22,535
<TOTAL-COSTS> 26,860
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,828
<INCOME-PRETAX> 5,729
<INCOME-TAX> 2,128
<INCOME-CONTINUING> 3,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,601
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.42
</TABLE>
