<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 12, 1999
KELLSTROM INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-23764 13-3753725
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1100 International Parkway, Sunrise, Florida 33323
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (954) 845-0427
-----------------------------
- --------------------------------------------------------------------------------
(Former Name or Former Address; if Changed Since Last Report)
<PAGE> 2
This Form 8-K/A amends the Form 8-K filed with the Commission on
January 14, 1999, relating to the acquisition by Kellstrom Industries, Inc. (the
"Company") of all of the issued and outstanding shares of capital stock of
Solair, Inc., a Florida corporation ("Solair"), from Banner Aerospace, Inc. This
Form 8-K/A amends the information referred to in Item 7 of the Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The audited financial statements of Solair for the year ended March 31,
1998 and the unaudited financial statements of Solair for the nine months ended
December 31, 1998 are attached hereto as Section 7(a) and are incorporated
herein by this reference.
(b) PRO FORMA FINANCIAL INFORMATION.
The unaudited pro forma consolidated statements of earnings for the
year ended December 31, 1997 and for the nine months ended September 30, 1998,
and the pro forma consolidated balance sheet as of September 30, 1998 are
attached hereto as Section 7(b) and are incorporated herein by this reference.
(c) EXHIBITS.
The Exhibits to this Form 8-K/A are listed on the Exhibit Index and are
incorporated herein by reference.
<PAGE> 3
INDEX TO FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
(a) FINANCIAL STATEMENTS OF SOLAIR
Independent Auditors' Report
Balance Sheet of Solair as of March 31, 1998
Statement of Operations of Solair for the year ended March 31, 1998
Statement of Stockholder's Deficit of Solair for the year ended
March 31, 1998
Statement of Cash Flows of Solair for the year ended March 31, 1998
Notes to Financial Statements of Solair for the year ended
March 31, 1998
Balance Sheet of Solair as of December 31, 1998 (unaudited)
Statement of Operations of Solair for the nine months ended
December 31, 1998 and 1997 (unaudited)
Statement of Stockholder's Deficit for the nine months ended
December 31, 1998 and 1997 (unaudited)
Statement of Cash Flows for the nine months ended December 31, 1998
and 1997 (unaudited)
Notes to Financial Statements or Solair for the nine months ended
December 31, 1998 (unaudited)
(b) PRO FORMA FINANCIAL INFORMATION OF KELLSTROM (UNAUDITED)
Pro Forma Consolidated Statement of Earnings for the year ended
December 31, 1997 (unaudited)
Pro Forma Consolidated Balance Sheet as of September 30, 1998
(unaudited)
Pro Forma Consolidated Statement of Earnings for the nine months
ended September 30, 1998 (unaudited)
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
The Stockholder
Solair, Inc.:
We have audited the accompanying consolidated balance sheet of Solair, Inc. and
subsidiary as of March 31, 1998 and the related consolidated statements of
operations, stockholder's deficit, and cash flows for the year then ended. The
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Solair, Inc. and
subsidiary as of March 31, 1998, and the results of their operations and their
cash flows for the year ended March 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
Ft. Lauderdale, Florida
March 15, 1999
1
<PAGE> 5
SOLAIR, INC.
Consolidated Balance Sheet
March 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Trade receivables, net of allowances for returns and doubtful
accounts of $6,177,060 $ 20,869,847
Inventories 32,946,712
Prepaid expenses and other assets 1,345,391
------------
Total current assets 55,161,950
------------
Property and equipment, net 1,199,496
------------
Total assets $ 56,361,446
============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Bank overdraft $ 985,076
Accounts payable 14,384,990
Accrued expenses 1,567,935
Due to affiliates 453,849
Due to Parent 57,025,646
------------
Total liabilities 74,417,496
------------
Stockholder's deficit:
Common stock, $1 par value; 7,500 shares authorized;
800 shares issued and outstanding 800
Additional paid-in capital 16,226,574
Accumulated deficit (34,283,424)
------------
Total stockholder's deficit (18,056,050)
------------
Commitments and contingencies
Total liabilities and stockholder's deficit $ 56,361,446
============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 6
SOLAIR, INC.
Consolidated Statement of Operations
For the year ended March 31, 1998
Net sales $ 75,295,858
Cost of sales 61,052,592
Inventory write-down 14,027,176
------------
Gross profit 216,090
Selling, general and administrative expenses 16,073,459
------------
Loss from operations (15,857,369)
Interest expense (3,726,362)
Interest income 28,852
------------
Loss before income tax benefit (19,554,879)
Income tax benefit --
------------
Net loss $(19,554,879)
============
See accompanying notes to consolidated financial statements.
3
<PAGE> 7
SOLAIR, INC.
Consolidated Statement of Stockholder's Deficit
For the year ended March 31, 1998
<TABLE>
<CAPTION>
Additional Total
Common Common paid-in Accumulated stockholder's
shares stock capital deficit deficit
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Beginning balance, March 31, 1997 800 $800 14,865,974 (14,728,545) 138,229
Capital contribution -- -- 1,360,600 -- 1,360,600
Net loss -- -- -- (19,554,879) (19,554,879)
---- ----- ----------- ----------- -----------
Ending balance, March 31, 1998 800 $800 16,226,574 (34,283,424) (18,056,050)
==== ===== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 8
SOLAIR, INC.
Consolidated Statement of Cash Flows
For the year ended March 31, 1998
Cash flows from operating activities:
Net loss $(19,554,879)
Adjustments to reconcile net income to net cash used in
operating activities:
Inventory write-down 14,027,176
Depreciation 365,767
Provision for returns and doubtful accounts 1,274,467
Changes in operating assets and liabilities:
Increase in trade receivables, net (8,958,029)
Increase in inventories (17,900,359)
Increase in prepaid expenses (578,242)
Increase in accounts payable 9,569,296
Decrease in accrued expenses (1,200,349)
Increase in bank overdraft 47,381
Increase in due to affiliates 33,210
Increase in due to Parent 170,731
------------
Net cash used in operating activities (22,703,830)
------------
Cash flows from investing activities:
Purchase of property and equipment (1,004,319)
Proceeds from notes receivable 210,554
------------
Net cash used in investing activities (793,765)
Cash flows from financing activities:
Borrowings from Parent 65,986,848
Capital contributed by Parent 1,294,200
Payments on amounts due to Parent (43,783,453)
------------
Net cash provided by financing activities 23,497,595
------------
Net increase (decrease) in cash and cash equivalents --
Cash and cash equivalents, beginning of year --
------------
Cash and cash equivalents, end of year $ --
============
Supplemental disclosure of cash flow information:
Interest paid to Parent during the year $ 3,555,833
============
See accompanying notes to consolidated financial statements.
5
<PAGE> 9
SOLAIR, INC.
Consolidated Financial Statements
March 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Solair, Inc. ("Solair" or the "Company") was incorporated in the
state of Florida on March 7, 1980. The Company is a wholly-owned
subsidiary of Banner Aerospace, Inc. ("Banner" or the "Parent").
The principal business of the Company is the purchasing,
refurbishing (through subcontractors), reselling, and exchanging
of aircraft parts. The Company's customers are comprised of both
domestic and international commercial airlines, repair facilities
and brokers.
On December 31, 1998, the Company was acquired by Kellstrom
Industries, Inc. ("Kellstrom"). In connection with this
acquisition, the Company's due to Parent and due to affiliates
were not assumed by Kellstrom. As a result of the acquisition,
Solair will be a wholly-owned subsidiary of Kellstrom.
(B) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Banner Aerospace - U.K., Inc. wholly owned
subsidiary of Solair. All significant inter-company accounts have
been eliminated.
(C) REVENUE RECOGNITION
Sales and related cost of sales are recognized primarily upon
shipment of products and performance of services net of an
estimated allowance for sales returns.
(D) CASH AND CASH EQUIVALENTS
The Company considers cash and all highly liquid debt instruments
with original maturities of three months or less to be cash
equivalents.
(E) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
primarily determined using the specific identification method for
individual part purchases and on an allocated cost basis for bulk
purchases. Inventories are primarily comprised of new, refurbished
and as removed aircraft parts.
The Company's management performs an analysis of its inventories
to identify obsolete and slow moving parts. This analysis
includes a review of historical sales activity, current market
conditions, and other circumstances which may indicate an
impairment of inventories. During the year ended March 31, 1998,
the Company wrote-down its inventories by $14,027,176.
(F) PROPERTY AND EQUIPMENT
Equipment is stated at cost. Depreciation on equipment is
calculated on the straight-line method over the following
estimated useful lives: machinery equipment - seven years;
furniture and fixtures - five years; vehicles - four years;
leasehold improvements - the shorter of the life of the
improvement or lease term.
(Continued)
6
<PAGE> 10
SOLAIR, INC.
Consolidated Financial Statements
March 31, 1998
(G) INCOME TAXES
The Company joins with its Parent and affiliates in filing
consolidated U.S. federal and state income tax returns. For
financial reporting purposes, Solair calculates its income taxes
as if Solair filed its federal and state income tax returns on a
stand alone basis. Any differences between tax expense (or
benefit) allocated and payments made (or received from) the Parent
for tax expense (or benefit) are treated as capital transactions.
For the year ended March 31, 1998, capital contributions from the
Parent as a result of tax benefits allocated to Solair were
$1,360,600.
The Company accounts for income taxes pursuant to the provisions
of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). Under the asset and liability method of
SFAS No. 109, deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to be applied to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
(H) FINANCIAL INSTRUMENTS
The fair value of financial instruments, including bank overdraft,
accounts receivable, accounts payable, accrued expenses, and
amount due to Parent approximate fair value due to the short
maturities of these instruments.
(I) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare
these consolidated financial statements in conformity with
generally accepted accounting principles. The primary estimates
underlying the Company's consolidated financial statements include
allowances for returns, doubtful accounts and valuations of
inventories. Actual results could differ from those estimates.
(J) IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF
In accordance with the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" management of the Company reviews for the
impairment of long-lived assets and certain identifiable
intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell.
(Continued)
7
<PAGE> 11
SOLAIR, INC.
Consolidated Financial Statements
March 31, 1998
(K) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general
purpose financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 31, 1997. Management does not
anticipate a significant impact of the adoption of SFAS No. 130 on
the Company's consolidated financial position, results of
operations or cash flows. Comprehensive income equaled net income
for the year ended March 31, 1998.
(2) PROPERTY AND EQUIPMENT, NET
Property and equipment, net at March 31, 1998 consists of the following:
Furniture and fixtures $ 1,713,367
Leasehold improvements 699,641
Machinery and equipment 316,916
Vehicles 58,370
-------------
2,788,294
Accumulated depreciation 1,588,798
-------------
$ 1,199,496
=============
Depreciation expense for the year ended March 31, 1998 was $365,767.
(3) INCOME TAXES
Income tax benefit for the year ended March 31, 1998 is $-0-.
The following is a reconciliation of the "expected" income tax benefit
(computed by applying the U.S. federal corporate income tax rate of 35
percent to loss before income taxes) and the actual income tax benefit
for the year ended March 31, 1998.
Computed "expected" income tax benefit $ (6,844,208)
Increase (reduction) in income taxes resulting from:
Change in valuation for deferred tax asset 7,747,014
State income taxes, net of federal income tax benefit (463,328)
Disallowance of meal and entertainment expense 38,940
Other, net (478,418)
-------------
$ --
=============
(Continued)
8
<PAGE> 12
SOLAIR, INC.
Consolidated Financial Statements
March 31, 1998
As of March 31, 1998, the Company had a total net deferred tax asset of
$-0-. The tax effects of temporary differences between financial
statement carrying amounts and tax basis of assets that give rise to
significant portions of the deferred tax assets as of March 31, 1998 were
as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Inventories 10,492,115
Accounts receivable, principally due to allowance for returns
and doubtful accounts 2,385,620
Net operating loss carryforwards 1,716,605
Compensated absences, principally due to accrual for
financial reporting purposes 134,501
Property and equipment, principally due to differences
in depreciation 113,778
Other 76,335
---------------
Total gross deferred tax assets 14,918,954
Less valuation allowance (14,918,954)
---------------
Net deferred tax assets --
</TABLE>
The valuation allowance for deferred tax assets at March 31, 1998 was
$14,918,954. The net change in the total valuation allowance for the year
ended March 31, 1998 was an increase of $7,747,014.
At March 31, 1998, the Company has net operating loss for federal and
state income tax purposes of $3,252,315, which are available to offset
future federal taxable income, if any, through 2013. In addition to the
net operating loss generated during the year ended March 31, 1998, the
Company also has a Florida net operating loss for prior years of
$8,379,616 expiring beginning in 2010 through 2012.
(4) DUE TO PARENT
The Company is a co-borrower under the terms and conditions of a line of
credit agreement (the "Agreement") along with the Parent and other
affiliated companies. The Company's and its subsidiary's issued and
outstanding shares are pledged as collateral under the Agreement. At
March 31, 1998, the Parent's available line of credit and amount drawn
down were approximately $72.6 million and $48.9 million, respectively.
Amounts due to Parent at March 31, 1998, represent principal and interest
of $56,734,729 and $450,860, respectively, net of other receivable due
from Parent in the amount of $159,943. The borrowings under the line with
Parent bear interest at the Parent's effective borrowing rate payable
monthly. The Parent's effective borrowing rate at March 31, 1998 was 9.8
percent. Interest expense related to amount due to Parent were
approximately $3,726,000 for the year ended March 31, 1998.
In connection with the acquisition of Solair by Kellstrom, Solair is no
longer a borrower nor are the Company's and its subsidiary's shares
pledged as collateral under the terms of the Agreement.
(Continued)
9
<PAGE> 13
SOLAIR, INC.
Consolidated Financial Statements
March 31, 1998
(5) COMMITMENTS AND CONTINGENCIES
The Company has several operating leases for facilities that expire over
varying years. These leases generally require the Company to pay all
executory costs such as maintenance and insurance and provide for early
termination at stipulated values. Future minimum lease payments under
operating lease agreements having an initial or remaining non-cancelable
term in excess of one year as of March 31, 1998 are as follows:
1999 $ 598,950
2000 535,226
2001 502,906
2002 496,062
2003 and thereafter 346,288
---------------
$ 2,479,432
===============
The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, these claims and lawsuits, in the
aggregate, will not have a material adverse effect on the Company's
consolidated financial condition, results of operations or its cash
flows.
(6) RELATED PARTY TRANSACTIONS
The Company and its employees participate in the Parent's defined
contribution plan covering substantially all of its employees. The
Company matches 50 percent of the employee's contribution up to the first
6 percent contributed by the employee (the "Employer's Matching"). The
Employer's Matching expense for the year ended March 31, 1998 was
$75,575. Included in accrued expenses as of March 31, 1998 is $30,043
related to the Company's employee contributions and Employer Matching to
the Parent's defined contribution plan.
The Company incurred and paid approximately $540,000 to the Parent for
management fees. Such fees are charged to selling, general and
administrative expenses as incurred.
The Company has entered into various purchase and sales transactions with
affiliated companies. During the year ended March 31, 1998, purchases
from and sales to affiliates were approximately $964,000 and $144,000,
respectively. Amounts due to affiliated companies at March 31, 1998 is
$453,849.
(Continued)
10
<PAGE> 14
SOLAIR, INC.
Consolidated Financial Statements
March 31, 1998
(7) BUSINESS AND CREDIT CONCENTRATIONS
The Company's business is impacted by the general economic conditions
of the commercial aviation industry. Airlines and other operators
recognize the need to cut costs, shift inventory requirements, and
conserve capital to sustain profitability. The Company's industry is
also subject to regulation by various governmental agencies with
responsibilities over civil aviation. Increased regulations imposed by
organizations such as the Federal Aviation Administration may
significantly affect industry operations. Accordingly economic and
regulatory changes in the marketplace may significantly affect
management's estimates and future performance.
The financial instrument which potentially subjects the Company to
concentrations of credit risk is accounts receivable. The Company
estimates an allowance for doubtful accounts based on the
creditworthiness of its customers as well as general economic
conditions and generally requires no collateral from its customers. The
allowance for doubtful accounts is based on the expected collectibility
of all accounts receivable. Consequently, an adverse change in those
factors could affect the Company's estimate of its bad debts.
The Company operates in one reportable business segment in accordance
with SFAS 131.
Export sales by geographic area for the fiscal year ended March 31,
1998, were as follows:
Asia $ 11,437,000
Europe 6,932,000
Latin America 6,149,000
Canada 637,000
Other 981,000
---------------
$ 26,136,000
===============
(8) YEAR 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define a specific year. Absent
corrective actions, a computer program that has date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing
disruptions to various activities and operations.
(Continued)
11
<PAGE> 15
SOLAIR, INC.
Consolidated Financial Statements
March 31, 1998
Banner initiated a plan to identify, assess and remediate potentially
significant exposures to the Company as a result of the Year 2000 Issue.
As a result of the acquisition of Solair by Kellstrom, this plan was
suspended. In connection with the acquisition, Kellstrom is including
Solair in its Year 2000 Issues plan. Subsequent to the sale of the
Company, Kellstrom initiated preliminary evaluations of Solair's
principal computer systems, applications, and other potential exposures.
In addition, the Company currently plans to verify that Year 2000
interruptions will not occur in the company's supply chain that would
cause interference with normal operations. However, the Company has not
yet developed comprehensive plans nor initiated formal communications
with significant customers and vendors. The Company has not yet
determined the total cost of remediating identified Year 2000 Issues.
Accordingly, there can be no assurance that the Company's operations will
not be impacted by Year 2000 issues, nor that the costs associated with
remediating identified exposures would not have a material adverse effect
on the Company's business, results of operations, or financial condition.
12
<PAGE> 16
SOLAIR, INC.
Condensed Consolidated Balance Sheet
December 31, 1998
(unaudited)
<TABLE>
<CAPTION>
1998
------------
<S> <C>
ASSETS
Current assets:
Trade receivables, net of allowances for returns and doubtful
accounts of $7,432,131 $ 7,290,889
Inventories 41,371,604
Prepaid expenses and other assets 181,317
------------
Total current assets 48,843,810
------------
Property and equipment, net 1,413,210
------------
Total assets $ 50,257,020
============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Bank overdraft $ 1,287,872
Accounts payable 5,471,384
Accrued expenses 885,902
Due to affiliates 934,746
Due to Parent 68,133,953
------------
Total liabilities 76,713,857
------------
Stockholder's deficit:
Common stock, $1 par value; 7,500 shares authorized;
800 shares issued and outstanding 800
Additional paid-in capital 18,111,474
Accumulated deficit (44,569,111)
------------
Total stockholder's deficit (26,456,837)
------------
Commitments and contingencies
Total liabilities and stockholder's deficit $ 50,257,020
============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
13
<PAGE> 17
SOLAIR, INC.
Condensed Consolidated Statement of Operations
For the nine-months ended December 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Net sales $ 47,700,111 53,345,665
Cost of sales 34,890,678 41,364,777
Inventory write-down 5,628,643 14,027,176
------------ -----------
Gross profit (loss) 7,180,790 (2,046,288)
Selling, general administrative, other income and expenses 13,372,640 12,177,725
------------ -----------
Loss from operations (6,191,850) (14,224,013)
Interest income 165,858 4,188
Interest expense (4,259,695) (2,506,377)
------------ -----------
Loss before income tax benefit (10,285,687) (16,726,202)
------------ -----------
Income tax benefit -- --
------------ -----------
Net loss $(10,285,687) (16,726,202)
============ ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
14
<PAGE> 18
SOLAIR, INC.
Condensed Consolidated Statement of Stockholder's Deficit
For the nine-months ended December 31, 1998
(unaudited)
<TABLE>
<CAPTION>
Additional Total
Common Common paid-in Accumulated stockholder's
shares stock capital deficit deficit
-------- ----------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Beginning balance, March 31, 1998 800 $ 800 16,226,574 (34,283,424) (18,056,050)
Capital contribution -- -- 1,884,900 -- 1,884,900
Net loss -- -- -- (10,285,687) (10,285,687)
-------- ----------- ---------- ----------- -----------
Ending balance, December 31, 1998 800 $ 800 18,111,474 (44,569,111) (26,456,837)
======== =========== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
15
<PAGE> 19
SOLAIR, INC.
Condensed Consolidated Statement of Stockholder's Deficit
For the nine-months ended December 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Additional Total
Common Common paid-in Accumulated stockholder's
shares stock capital deficit deficit
------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Beginning balance, March 31, 1997 800 $ 800 14,865,974 (14,728,545) 138,229
Capital contribution -- -- 740,600 -- 740,600
Net loss -- -- -- (16,726,202) (16,726,202)
------- ----------- ---------- ----------- -----------
Ending balance, December 31, 1997 800 $ 800 15,606,574 (31,454,747) (15,847,373)
======= =========== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
16
<PAGE> 20
SOLAIR, INC.
Condensed Consolidated Statements of Cash Flows
For the nine-month period ended December 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,285,687) (16,726,202)
Adjustments to reconcile net income to net cash used in
operating activities:
Inventory write-down 5,628,643 14,027,176
Depreciation 342,738 227,960
Provision for returns and doubtful accounts 1,562,328 1,014,362
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables, net 12,016,630 (2,282,365)
Increase in inventories (14,053,535) (8,103,754)
(Increase) decrease in prepaid expenses 1,164,074 (3,092,879)
Increase (decrease) in accounts payable (8,913,606) 4,095,752
Increase (decrease) in accrued expenses (682,033) 1,392,757
Increase in bank overdraft 302,796 727,503
Increase (decrease) in due to affiliates 480,897 (83,433)
Increase in due to Parent 27,395 28,349
------------ ---------
Net cash used in operating activities (12,409,360) (8,774,774)
------------ ---------
Cash flows from investing activities:
Purchase of property and equipment (556,452) (780,847)
Proceeds from notes receivable -- 210,554
------------ ---------
Net cash used in investing activities (556,452) (570,293)
Cash flows from financing activities:
Borrowings from Parent 52,986,602 46,713,522
Capital contributed by Parent 2,037,443 975,900
Payments on amounts due to Parent (42,058,233) (38,344,355)
------------ ---------
Net cash provided by financing activities 12,965,812 9,345,067
------------ ---------
Net increase (decrease) in cash and cash equivalents -- --
Cash and cash equivalents, beginning of year -- --
------------ ---------
Cash and cash equivalents, end of year $ -- --
============ =========
Supplemental disclosure of cash flow information:
Interest paid to Parent during the year $ 4,228,241 2,530,538
============ =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
17
<PAGE> 21
SOLAIR, INC.
Notes to Condensed Consolidated Financial Statements
December 31, 1998 and 1997
(unaudited)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by Solair, Inc. (the "Company") without audit, pursuant to
generally accepted accounting principles. Certain information and
footnote disclosures, normally included in financial statements prepared
in accordance with generally accepted accounting principles, have been
condensed or omitted. These condensed financial statements should be read
in conjunction with the financial statements and notes thereto included
in the Company's March 31, 1998 consolidated financial statements.
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 the condensed
consolidated financial position of Solair, Inc. as of December 31, 1998
and the condensed consolidated results of operations, condensed
consolidated statements of accumulated stockholder's deficit and the
condensed consolidated statements of cash flows for the nine-month period
ended December 31, 1998 and 1997. The results of operations for such
interim periods are not necessarily indicative of the results for the
full year.
(2) ACQUISITION
On December 31, 1998, the Company was acquired by Kellstrom Industries,
Inc. ("Kellstrom"). In connection with this acquisition, the Company's
due to Parent and due to affiliates were not assumed by Kellstrom.
18
<PAGE> 22
(b) PRO FORMA FINANCIAL INFORMATION.
The pro forma consolidated balance sheet of the Company as of September 30,
1998 is based on the historical balance sheet of the Company and has been
adjusted to reflect the acquisition of Solair as though the companies had
combined on September 30, 1998. The pro forma consolidated statements of
earnings for the year ended December 31, 1997 and the nine months ended
September 30, 1998 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 Technologies Holdings, Corp. ("ITC"), Aerocar
Aviation Corp. and Aerocar Parts, Inc. (collectively, "Aerocar"), and Solair as
though the companies had combined at the beginning of the periods being
reported.
The pro forma consolidated financial information does not purport to be
indicative of results that would have occurred had the acquisitions been in
effect for the period presented, nor does it purport to be indicative of the
results that will be obtained in the future. The pro forma consolidated
financial information is based on certain assumptions and adjustments described
in the notes hereto and should be read in conjunction therewith.
The pro forma consolidated statements of earnings for the year ended December
31, 1997 and nine months ended September 30, 1998 reflect the effect of the
Company's recent secondary public offering of common stock and convertible
subordinated notes.
19
<PAGE> 23
KELLSTROM INDUSTRIES, INC.
Pro Forma Consolidated Statement of Earnings
Year Ended December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------------------------
KELLSTROM AERO SUPPORT(A) ITC(B) AEROCAR(C) SOLAIR
------------ -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales of aircraft and engine parts, net $ 71,534,539 $ 20,041,644 $ 28,214,141 $ 31,693,131 $ 75,295,858
Rental revenues 7,904,610 -- 738,636 10,784,562 --
------------ ------------ ------------ ------------ ------------
Total revenues 79,439,149 20,041,644 28,952,777 42,477,693 75,295,858
Cost of goods sold (46,800,589) (13,162,382) (17,034,996) (11,957,687) (61,052,592)
Inventory write-down (See Below) -- -- -- -- (14,027,176)
Depreciation of equipment under
operating leases (4,594,399) -- (449,673) (3,025,095) --
Selling general and administrative
expenses (8,877,598) (3,690,856) (5,615,848) (4,600,069) (15,707,692)
Depreciation and amortization (1,555,673) (68,583) (12,758) (31,592) (365,767)
-- -- -- -- --
-- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total operating expenses (61,828,259) (16,921,821) (23,113,275) (19,614,443) (91,153,227)
Operating income 17,610,890 3,119,823 5,839,502 22,863,250 (15,857,369)
Interest expense, net of interest
income (3,991,212) (197,011) (481,812) (92,108) (3,697,510)
-- -- -- -- --
Expenses related to the sale of business -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Income before income taxes 13,619,678 2,922,812 5,357,690 22,771,142 (19,554,879)
Income taxes (5,077,159) (196,401) -- -- --
------------ ------------ ------------ ------------ ------------
Net income $ 8,542,519 $ 2,726,411 $ 5,357,690 $ 22,771,142 $(19,554,879)
============ ============ ============ ============ ============
Earnings per common share - basic $ 1.18
============
Earnings per common share - diluted $ 0.95
============
Weighted average number of common
shares outstanding - basic 7,266,534
============
Weighted average number of common
shares outstanding - diluted 9,394,439
============
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS(D) ADJUSTMENTS(E) ADJUSTMENTS(F) ADJUSTMENTS(G) COMBINED
-------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Sales of aircraft and engine parts, net $ (6,817,932) $ -- $(20,300,000) $ -- $ 199,661,381
Rental revenues -- -- -- -- 19,427,808
------------ ------------ ------------ ------------ -------------
Total revenues (6,817,932) -- (20,300,000) -- 219,089,189
Cost of goods sold 4,161,267 -- 4,286,710 -- (139,958,940)
1,601,329
Inventory write-down (See Below) -- -- -- -- (14,027,176)
Depreciation of equipment under
operating leases -- -- 557,877 -- (7,511,290)
Selling general and administrative
expenses 856,045 152,272 (938,259) 540,000 (35,077,609)
2,804,396
Depreciation and amortization 16,500 -- (280,302) (3,011,109)
(659,517) (211,853) -- -- --
158,436 -- -- -- --
------------ ------------ ------------ ------------ -------------
Total operating expenses 4,532,731 (59,581) 8,312,053 259,698 (199,586,124)
Operating income (2,285,201) (59,581) (11,987,947) 259,698 19,503,065
Interest expense, net of interest
income 197,011 (2,129,325) (4,123,059) 3,726,362 (15,365,956)
(1,070,437) 481,812 -- (3,988,667) --
Expenses related to the sale of business -- -- 321,461 -- 321,461
------------ ------------ ------------ ------------ -------------
Income before income taxes (3,158,627) (1,707,094) (15,789,545) (2,607) 4,458,570
Income taxes 284,308 (1,360,873) (2,602,608) 7,294,340 (1,658,393)
------------ ------------ ------------ ------------ -------------
Net income $ (2,874,319) $ (3,067,967) $(18,392,153) $ 7,291,733 $ 2,800,177
============ ============ ============ ============ =============
Earnings per common share - basic $ 0.27
=============
Earnings per common share - diluted $ 0.22
=============
Weighted average number of common
shares outstanding - basic 10,429,034
=============
Weighted average number of common
shares outstanding - diluted 12,556,939
-------------
</TABLE>
Solair's historical results for the year ended March 31, 1998 reflect a charge
to income of $14.0 million for the write-down of inventory. Since this charge is
not expected to recur, if it was excluded from the pro forma statement of
earnings for the year ended December 31, 1997 net income would be $11.6 million
and earnings per share on a basic and diluted basis would be $1.11 and $0.92,
respectively.
20
<PAGE> 24
KELLSTROM INDUSTRIES, INC.
Notes to Pro Forma Consolidated Statement of Earnings
(Unaudited)
(A) The Registrant acquired substantially all of the assets, and assumed certain
of the liabilities, of Aero Support USA, Inc. ("Aero Support") in September 1997
(the "Aero Support Acquisition"). For complete financial statements of Aero
Support and certain pro forma financial information, see the Form 8-K filed by
the Registrant on September 24, 1997, as amended on November 24, 1997 and
February 27, 1998.
(B) The Registrant acquired all of the assets, and assumed certain of the
liabilities, of Integrated Technology Corp. ("ITC") on April 1, 1998 (the "ITC
Acquisition"). For complete financial statements of ITC and certain pro forma
financial information, see the Form 8-K filed by the Registrant on May 18, 1998.
(C) The Registrant purchased all of the outstanding capital stock of Aerocar
Aviation Corp., ("Aerocar Aviation") and Aerocar Parts, Inc. ("Aerocar Parts,"
together with Aerocar Aviation, "Aerocar") in June 1998. For complete financial
statements of Aerocar Aviation and Aerocar Parts, and certain pro forma
financial information, see the two Form 8-K's filed by the Registrant on May 18,
1998, as amended on June 30, 1998.
(D) For the purpose of presenting the pro forma consolidated statement of
earnings, the following adjustments have been made for the Aero support
acquisition:
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
<S> <C>
Increase (decrease) in income:
Reversal of Aero Support revenues for the period September 10, 1997 to December 31, 1997 $ (6,817,932)
Reversal Of Aero Support cost of goods sold for the period September 10, 1997 to December 31, 1997 4,161,267
Reversal of Aero Support selling, general and administrative expenses September 10, 1997 to December 31, 1997 856,045
Reversal of Aero Support depreciation and amortization for the period September 10, 1997 to December 31, 1997 16,500
Amortization of goodwill and non-complete agreement related to Aero Support acquisition (659,517)
Elimination of leasehold amortization expense for assets not acquired 158,436
Reduction in interest expense due to pay-off of debt on Aero Support line of credit 197,011
Interest expense on acquisition debt and debt incurred to repay existing Aero Support line of credit (1,070,437)
-----------------
(3,158,627)
Tax effect of pro forma adjustments and impact of acquisition on the provision for income taxes 284,308
-----------------
Net adjustment $ (2,874,319)
=================
</TABLE>
(E) For the purpose of presenting the pro forma consolidated statement of
earnings, the following adjustments have been made for the ITC acquisition:
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
Increase (decrease) in income:
<S> <C>
Amortization of goodwill and non-compete agreement related to ITC acquisition $ (211,853)
Reduction in selling, general and administrative expense due to elimination of pepnsion expense 152,272
Reduction in interest expense due to pay-off of debt on ITC line of credit 481,812
Interest expense on acquisition debt and debt incurred on ITC's line of credit (2,129,325)
-----------------
(1,707,094)
Tax effect of pro forma adjustments and impact of acquisition on the provision for income taxes (1,360,873)
-----------------
Net adjustment $ (3,067,967)
=================
</TABLE>
(F) For the purpose of presenting the pro forma consolidated statement of
earnings, the following adjustments have been made for the Aerocar Aviation and
Aerocar Parts acquisitions:
(Note regarding final purchase price allocation)
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
<S> <C>
Increase (decrease) in income:
Reversal of Aerocar Aviation revenues for sales to Kellstrom Industries, Inc. $ (20,300,000)
Reversal in cost of goods sold for sales to Kellstrom Industries, Inc. 4,286,710
Reduction in cost of goods sold for sale of equipment previously owned by Aeroca 1,601,329
Reduction in depreciation expense from sales to Kellstrom Industries, Inc. 557,877
Amortization of goodwill and non-compete related to Aerocar Aviation and Aerocar (938,259)
Elimination of Aerocar Aviation and Aerocar Parts officer's salary and bonus 2,804,396
Increase in interest expense from acquisition debt (4,123,059)
Reduction in interest expense due to pay-off of debt on Aerocar Aviation and Aerocar Parts line-of-credit 321,461
-------------
(15,789,545)
Tax effect of pro forma adjustments and impact of acquisition on the provision for income taxes (2,602,608)
-------------
Net adjustments $ (18,392,153)
=============
</TABLE>
(G) For the purpose of presenting the pro forma consolidated statement of
earnings, the statement of operations of Solair for the year ended March 31,
1998 has been used and the following adjustments have been made for the Solair
acquisition:
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
Increase (decrease) in income:
<S> <C>
Reduction in selling, general & administrative expenses for elimination of Banner management fees $ 540,000
Amortization of goodwill related to Solair acquisition (280,302)
Reduction in interest expense due to pay-off of Solair debt 3,726,362
Increase in interest expense from acquisition debt (3,988,667)
------------------
(2,607)
Tax effect of pro forma adjustments and impact of acquisition on the provision for income taxes 7,294,340
------------------
Net adjustment $ 7,291,733
==================
</TABLE>
21
<PAGE> 25
KELLSTROM INDUSTRIES, INC.
Pro Forma Consolidated Balance Sheet
As of September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------
HISTORICAL
--------------------- PRO FORMA PRO FORMA
KELLSTROM SOLAIR ADJUSTMENTS(A) COMBINED
------------ -------- -------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current asset:
Cash and cash equivalents $ 895,054 $ -- -- $ 895,054
Trade receivables 18,227,052 7,290,889 -- 25,517,941
Inventories 93,922,554 41,371,604 -- 135,294,158
Prepaid expenses and other current assets 3,973,801 181,317 -- 4,155,118
Deferred tax assets 2,105,699 -- 6,630,011 8,735,710
------------ ------------ ------------ ------------
Total current assets 119,124,160 48,843,810 6,630,011 174,597,981
Equipment under operating leases, net 117,762,431 -- -- 117,762,431
Property, plant and equipment, net 10,792,123 1,413,210 12,205,333
Goodwill, net 64,584,775 -- 9,810,587 74,395,362
Other assets 10,243,551 -- 10,243,551
------------ ------------ ------------ ------------
Total Assets $322,507,040 $ 50,257,020 $ 16,440,598 $389,204,658
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes payable $ 2,324,368 $ 1,287,872 -- 3,612,240
Accounts payable 12,715,564 5,471,384 -- 18,186,948
Accrued expenses 9,007,087 885,902 510,000 10,402,989
Due to Affiliates -- 934,746 (934,746) --
Due to parent -- 68,133,953 (68,133,953) --
------------ ------------ ------------ ------------
Total current liabilities 24,047,019 76,713,857 (68,558,699) 32,202,177
Long-term debt, less current maturities 13,395,920 -- 57,390,887 70,786,807
Convertible subordinated notes 140,250,000 -- -- 140,250,000
Deferred tax liabilities 2,962,141 -- -- 2,962,141
------------ ------------ ------------ ------------
Total Liabilities 180,655,080 76,713,857 (11,167,812) 246,201,125
Stockholders' Equity:
Common stock 11,761 800 (800) 11,761
Additional paid-in capital 118,852,119 18,111,474 (18,111,474) 120,003,692
1,151,573
Retained earnings/(Accumulated deficit) 24,381,152 (44,569,111) 44,569,111 24,381,152
Loans receivable from directors and officers (1,393,072) -- -- (1,393,072)
------------ ------------ ------------ ------------
Total Stockholders' Equity 141,851,960 (26,456,837) 27,608,410 143,003,533
------------ ------------ ------------ ------------
Total Liabilities and Stockholders' Equity $322,507,040 $50,257,020 $ 16,440,598 $389,204,658
============ ============ ============ ============
</TABLE>
Unaudited - See accompanying notes to pro forma consolidated balance sheet
22
<PAGE> 26
KELLSTROM INDUSTRIES, INC.
Notes to Pro Forma Consolidated Balance Sheet
(Unaudited)
(A) For the purpose of presenting the pro forma consolidated balance sheet, the
balance sheet of Solair as of December 31, 1998 has been used and the following
adjustments have been made for the Solair acquisition:
<TABLE>
<CAPTION>
September 30, 1998
------------------
<S> <C>
Excess purchase price over fair value of net assets acquired $ 9,810,587
Establish deferred tax asset for temporary differences between tax
and book basis of net assets acquired 6,630,011
Acquisition related liabilities incurred 510,000
Elimination of Solair due to affiliates (934,746)
Elimination of Solair intercompany debt to Banner (68,133,953)
Increase in line of credit 57,390,887
Elimination of Solair common stock (800)
Elimination of Solair paid-in capital (18,111,474)
Elimination of Solair accumulated deficit 44,569,111
Warrants issued to Solair 1,151,573
</TABLE>
23
<PAGE> 27
KELLSTROM INDUSTRIES, INC.
Pro Forma Consolidated Statement of Earnings
Nine-months Ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------------------------
KELLSTROM ITC AEROCAR SOLAIR
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales of aircraft and engine parts, net $ 98,263,721 $ 18,409,842 $ 3,458,512 $ 47,700,111
Rental revenues 21,696,484 3,281,657 3,454,041 --
------------- ------------- ------------- -------------
Total revenues 119,960,205 21,691,499 6,912,553 47,700,111
Cost of goods sold (65,601,702) (11,741,726) (1,724,577) (34,890,678)
Inventory write-down (see below) -- -- -- (5,628,643)
Depreciation of equipment under operating
leases (11,818,038) (1,892,119) (757,895) --
Selling, general and administrative expenses (12,837,670) (1,632,051) (1,443,646) (13,029,902)
Depreciation and amortization (2,148,240) (98,558) -- (342,738)
------------- ------------- ------------- -------------
Total operating expenses (92,405,650) (15,364,454) (3,926,118) (53,891,961)
Operating income 27,554,555 6,327,045 2,986,435 (6,191,850)
Interest expense, net of interest income (7,099,434) (180,407) (87,257) (4,093,837)
------------- ------------- ------------- -------------
Income before income taxes 20,455,121 6,146,638 2,899,178 (10,285,687)
Income taxes (7,629,130) (1,391,032) -- --
------------- ------------- ------------- -------------
Net income $ 12,825,991 $ 4,755,606 $ 2,899,178 $ (10,285,687)
============= ============= ============= =============
Earnings per common share - basic $ 1.34
=============
Earnings per common share - diluted $ 1.06
=============
Weighted average number of common shares
outstanding - basic 9,553,238
=============
Weighted average number of common shares
outstanding - diluted 14,131,293
=============
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS (A) ADJUSTMENTS (B) ADJUSTMENTS (C) COMBINED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales of aircraft and engine parts, net $ (10,373,266) $ -- $ 157,458,920
Rental revenues (2,743,351) -- 25,688,831
------------- ------------- ------------- -------------
Total revenues (13,116,617) -- -- 183,147,751
Cost of goods sold 6,743,984 -- (107,214,699)
Inventory write-down (see below) -- (5,628,643)
Depreciation of equipment under operating
leases 1,602,802 (12,865,250)
Selling, general and administrative expenses 991,460 132,000 405,000 (27,371,648)
43,161
Depreciation and amortization 95,060 (431,194) (210,227) (3,278,487)
(142,590)
------------- ------------- ------------- -------------
Total operating expenses 9,333,877 (299,194) 194,773 (156,358,727)
Operating income (3,782,740) (299,194) 194,773 26,789,024
Interest expense, net of interest income 180,407 219,633 4,259,695 (12,386,561)
(532,331) (2,061,530) (2,991,500)
------------- ------------- ------------- -------------
Income before income taxes (4,134,664) (2,141,091) 1,462,968 14,402,463
Income taxes 640,628 (282,743) 3,290,602 (5,371,675)
------------- ------------- ------------- -------------
Net income $ (3,494,036) $ (2,423,834) $ 4,753,570 $ 9,030,788
============= ============= ============= =============
Earnings per common share - basic $ 0.78
-------------
Earnings per common share - diluted $ 0.56
-------------
Weighted average number of common shares
outstanding - basic 11,517,668
=============
Weighted average number of common shares
outstanding - diluted 16,095,723
=============
</TABLE>
Solair's historical results for the nine months ended December 31, 1998 reflect
a charge to income of $5.6 million for the write-down of inventory. Since this
charge is not expected to recur, if it was excluded from the pro forma statement
of income for the nine months ended September 30, 1998 net income would be $12.6
million and earnings per share on a basic and diluted basis would be $1.09 and
$0.78, respectively.
Unaudited - See accompanying notes to pro forma consolidated statement of
earnings.
24
<PAGE> 28
KELLSTROM INDUSTRIES, INC.
Notes to Pro Forma Consolidated Statement of Earnings
(Unaudited)
(A) For the purpose of presenting the pro forma consolidated statement of
earnings, the following adjustments have been made for the ITC acquisition:
<TABLE>
<CAPTION>
Nine-months Ended
September 30, 1998
------------------
<S> <C>
Increase (decrease) in income:
Reversal of ITC sales of aircraft parts for the period April 1, 1998 to September 30, 1998 $ (10,373,266)
Reversal of ITC rental revenues for the period April 1, 1998 to September 30, 1998 (2,743,351)
Reversal of ITC cost of goods sold for the period April 1, 1998 to September 30, 1998 6,743,984
Reversal of ITC depreciation of equipment under operating leases for the period April 1, 1998 to September 30, 1998 1,602,802
Reversal of ITC selling, general and administrative expense for the period April 1, 1998 to September 30, 1998 991,460
Reduction in selling, general and administrative expense due to elimination of pension expense 43,161
Reversal of ITC depreciation and administrative expense for the period April 1, 1998 to September 30, 1998 95,060
Amortization of goodwill and non-compete agreement related to ITC acquisition (142,890)
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 (532,331)
---------------
(4,134,964)
Tax effect of pro forma adjustments and impact of acquisition on the provision for income taxes 640,628
---------------
Net adjustment $ (3,494,336)
===============
</TABLE>
(B) For the purpose of presenting the pro forma consolidated statement of
earnings the following adjustments have been made for the Aerocar Aviation and
Aerocar Parts acquisitions:
<TABLE>
<CAPTION>
Nine-months Ended
September 30, 1998
------------------
<S> <C>
Increase (decrease) in income:
Elimination of Aerocar Aviation and Aerocar Parts officer's salary and bonus $ 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 and impact of acquisition on the provision for income taxes (282,743)
---------------
Net adjustments $ (2,423,834)
===============
</TABLE>
(C) For the purpose of presenting the pro forma consolidated statement of
earnings, the statement of operations of Solair for the nine months ended
December 31, 1998 has been used and the following adjustments have been made for
the Solair acquisition:
<TABLE>
<CAPTION>
Nine-months Ended
September 30, 1998
------------------
<S> <C>
Increase (decrease) in income:
Reduction in selling, general and administrative expenses for elimination of Banner management fees 405,000
Amortization of goodwill related to Solair acquisition (210,227)
Reduction in interest expense due to pay-off of Solair debt 4,259,695
Increase in interest expense from acquisition debt (2,991,500)
---------------
1,462,968
Tax effect of pro forma adjustments and impact of acquisition on the provision for income taxes 3,290,602
---------------
Net adjustment $ 4,753,570
===============
</TABLE>
25
<PAGE> 29
SIGNATURE
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 hereunto duly authorized.
Date: March 12, 1999 KELLSTROM INDUSTRIES, INC.
By: /s/ Michael W. Wallace
-----------------------------------
Michael W. Wallace
Chief Financial Officer
26
<PAGE> 30
EXHIBIT INDEX
EXHIBIT NO.:
2.1 Stock Purchase Agreement dated as of December 5, 1998 among
the Registrant, Solair and Banner Aerospace, Inc. (1)
10.1 Warrant dated December 31, 1998, issued by the Company to
Banner Aerospace, Inc. (2)
99.1 Press Release issued by the Registrant on January 4, 1998 (1)
- -------------------------------------------------------------------------------
(1) Previously filed.
(2) Filed herewith.
27
<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. BAI-1 300,000 Shares
FOR VALUE RECEIVED, Kellstrom Industries, Inc., a Delaware corporation
(the "Company"), hereby certifies that Banner Aerospace, Inc. (the "Purchaser")
or its permitted assigns, is entitled to purchase from the Company, at any time
or from time to time commencing on the date hereof (the "Commencement Date") and
prior to 5:00 P.M., New York City time, on December 31, 2002, Three Hundred
Thousand (300,000) fully paid and non-assessable shares of the common stock,
$.001 par value per share, of the Company for an aggregate purchase price of
$8,250,000 (computed on the basis of $27.50 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 Per Share Warrant Price is subject to
adjustment as hereinafter provided; in the event of any such adjustment, the
number of Warrant Shares shall be adjusted by dividing the Aggregate Warrant
Price by the Per Share Warrant Price in effect immediately after such
adjustment.
1. EXERCISE OF WARRANT. (a) This Warrant may be exercised in whole at
any time or in part from time to time, beginning on the Commencement Date and
prior to 5:00 P.M., New York City time, on December 31, 2002. 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 12(a) hereof, together with
proper
<PAGE> 2
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.
(b) Notwithstanding Section 1(a), at any time prior to the
Expiration Date of any Warrants, the Holder may, at its option, exchange such
warrants, in whole or in part, (a "Warrant Exchange"), into the number of fully
paid and non-assessable Warrant Shares determined in accordance with this
Section 1(b), by surrendering the Warrant to the Company, accompanied by a
notice stating such Holder's intent to effect such exchange, the number of
Warrant Shares to be exchanged and the date on which the Holder requests that
such Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange
shall take place on the date specified in the Notice of Exchange (the "Exchange
Date"). Certificates for the Warrant Shares issuable upon such Warrant Exchange
and, if applicable, a new Warrant of like tenor evidencing the balance of the
Warrant Shares remaining subject to the Holder's Warrant, shall be issued as of
the Exchange Date and delivered to the Holder within three days following the
Exchange Date. In connection with any Warrant Exchange, the Holder's Warrant
shall represent the right to subscribe for and acquire the number of Warrant
Shares (rounded to the nearest number of Warrant Shares) equal to (A) the number
of Warrant Shares specified by the Holder in its Notice of Exchange (the "Total
Share Number") less (B) the number of Warrant Shares equal to the quotient
obtained by dividing (i) the product of the Total Share Number and the existing
Exercise Price per Warrant Share by (ii) the Market Price of a share of Common
Stock. For purposes of this Section 1(b), "Market Price" shall have the meaning
ascribed to such term in Section 3(i) 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, (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,
and (c) if the Common Stock is not listed on a national securities exchange,
maintain the Common Stock listed on NASDAQ such that Warrant Shares are
authorized for trading on NASDAQ.
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<PAGE> 3
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 it 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 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
is equivalent to not more than an amount equal to 10% 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,
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<PAGE> 4
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.
(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 of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after such adjustment)
shall in good faith determine
4
<PAGE> 5
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 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.
(i) If at any time after the date of this Agreement, the
Company shall issue or sell any share of Common Stock at a price per share of
Common Stock that is lower than the Market Price per share of Common Stock in
effect immediately prior to such sale or issuance, the number of Warrant Shares
thereafter purchasable upon the exercise of each Warrant shall be determined by
multiplying the number of Warrant Shares theretofore purchasable upon the
exercise of each Warrant by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately after such sale or
issuance, and the denominator of which shall be sum of (A) the number of shares
of Common Stock outstanding immediately prior to such sale or issuance, plus (B)
the number of shares of Common Stock which the aggregate consideration received
by the Company for such sale or issuance would purchase at such Market Price per
share of Common Stock. Such adjustment shall be made successively whenever such
Common Stock are issued or sold and shall be effective immediately after such
issuance or sale. This Section (i) does not apply to: (1) the conversion or
exchange of other securities convertible or exchangeable for Common Stock;
provided that the exercise price of such securities was not less than the Market
Price of the Common Stock at the time of issuance of such security; (2) Common
Stock issued upon the exercise of rights or Warrants; and (3) Common Stock
issued in a bona fide public offering pursuant to a firm commitment
underwriting. For purposes of this Section, (a) "Market Price" at any date shall
be deemed to be the (x) last reported sale price, or, in case no such reported
sale takes place on such day, the average of the last reported sale prices for
the last three trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed and admitted
to trading quoted or by the Nasdaq Stock Market, National Market ("Nasdaq"), or,
if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted by Nasdaq, the average closing bid price as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through Nasdaq or a similar organization if Nasdaq is no longer reporting such
information, of (y) if the Common Stock is not quoted on Nasdaq, as determined
in good faith by resolution of the Board of Directors of the Company (A) taking
into account the most recently
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<PAGE> 6
completed arms-length transaction between the Company and a person other than an
Affiliate of the Company the closing of which shall have occurred within the
thirty-day period preceding the date the Market Price is determined, or (B) if
no transaction shall have occurred during such thirty-day period, taking into
account the fair market value of the security as determined by an Independent
Financial Expert, and (b) "Independent Financial Expert" means a United States
investment banking or valuation firm of national or regional standing in the
United States (i) which does not, and whose directors, officers and employees or
Affiliates do not have a direct or indirect material financial interest for its
proprietary account in the Company or any of its Affiliates and (ii) which, in
the judgment of the Board of Directors of the Company, is otherwise independent
with respect to the company and its Affiliates and qualified to perform the task
of which it is to be engaged.
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.
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(b) The Company agrees that if, at any time during the period
commencing on the six (6) month anniversary of the Commencement Date and ending
on the second anniversary of the date the Warrants are exercised in full, the
Holder and/or the Holders of 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 (the "Covered Warrant Shares") 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
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<PAGE> 8
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 15 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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(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 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
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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
mutually satisfactory to the indemnified and indemnifying parties, provided that
the indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the
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<PAGE> 11
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; provided, however that in no case shall any
Holder be required to contribute any amount in excess of the amount which such
Holder would be required to pay if the indemnification provided in this Section
were available. 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:
(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
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<PAGE> 12
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;
(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
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<PAGE> 13
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 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:
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<PAGE> 14
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. HOLDER INFORMATION. For purposes of this Agreement, the parties
hereby agree that the only written information pertaining to a Holder in a
prospectus or registration statement shall be the Holders name and address and
such other information as shall be required to be disclosed under applicable
securities laws, rules or regulations, or the rules or regulations of any
exchange on which shares of Common Stock shall then be traded.
12. 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 1100 International Parkway, Sunrise,
Florida 33323, Att.: Chief Executive Officer, facsimile no. 954-858-2449, or
such other address as the Company has designated in writing to the Holder, or
(b) if to the Holder at 45025 Aviation Drive, Suite 300,
Dulles, Virginia 20166- 7516, Att.: Warren D. Persavich, Senior Vice President
and Chief Operating Officer, or such other address as the Holder has designated
in writing to the Company.
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<PAGE> 15
13. HEADINGS. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
14. 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 31st day of December, 1998.
KELLSTROM INDUSTRIES, INC.
By:
-----------------------------------
Zivi R. Nedivi, President
ATTEST:
- --------------------------------
Chief Financial Officer
[Corporate Seal]
15
<PAGE> 16
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:
-----------------------------
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<PAGE> 17
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.
17
