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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 0-23764
KELLSTROM INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-3753725
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1100 INTERNATIONAL PARKWAY
SUNRISE, FLORIDA 33323
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(Address of Principal Executive Offices) (Zip Code)
(954) 845-0427
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(Registrant telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value per share (Nasdaq National Market)
Preferred Stock Purchase Rights (Nasdaq National Market)
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(Title of Each Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 29, 2000, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $79,102,117 based on
the closing price on that date of $6 15/16 per share. As of that date, there
were 11,910,981 shares of the registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits listed in Part IV of this Annual Report on Form 10-K
are incorporated by reference from prior filings made by the registrant under
the Securities Act of 1934, as amended.
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Kellstrom Industries, Inc.
Annual Report on Form 10-K
Index
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PAGE NUMBER
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PART I
Item 1. Business ..................................................................................... 4
Item 2. Properties ................................................................................... 18
Item 3. Legal Proceedings ............................................................................ 19
Item 4. Submission of Matters to a Vote of Security Holders........................................... 19
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ........................ 20
Item 6. Selected Financial Data ...................................................................... 21
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................................................ 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................................... 28
Item 8. Financial Statements and Supplementary Data .................................................. 29
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 29
PART III
Item 10. Directors and Executive Officers of the Registrant............................................ 30
Item 11. Executive Compensation ....................................................................... 35
Item 12. Security Ownership of Certain Beneficial Owners and Management ............................... 40
Item 13. Certain Relationships and Related Transactions ............................................... 41
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .............................. 45
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PART I
This report contains or incorporates by reference forward-looking
statements that are subject to risks and uncertainties. Forward-looking
statements include information concerning the financial condition, results of
operations, plans, objectives, future performance and business of Kellstrom
Industries, Inc. (the "Company"). The Company includes forward-looking
statements in descriptions of future earnings and cash flows, anticipated
capital expenditures and management's strategies, plans and objectives.
Statements preceded by, followed by or that include the words "believes,"
"expects," "anticipates" or similar expressions are generally considered to be
forward-looking statements.
Forward-looking statements involve both known and unknown risks and
uncertainties and actual results or performance may therefore differ materially
from the expected results or performance expressed or implied by the
forward-looking statements. The following important factors, in addition to
factors the Company discusses elsewhere in this report and in the documents that
are incorporated into this report by reference, could affect the Company's
actual results or performance:
o the Company's continuing ability to effectively integrate acquired
companies and the effects of increased indebtedness as a result of
the Company's business acquisitions;
o the Company's continuing ability to acquire adequate inventory and
to obtain favorable pricing for such inventory;
o the Company's ability to arrange for the repair of aircraft engines
and engine parts by third-party contractors prior to resale or
lease;
o the Company's ability to control costs;
o competitive pricing for the Company's products;
o customer concentration;
o fluctuations in demand for the Company's products, which are
dependent upon the condition of the airline industry and the
Company's ability to collect receivables;
o changes in government regulation;
o the availability to the Company of acquisition and expansion
opportunities on attractive terms;
o the Company's ability to develop and implement systems to manage
rapidly growing operations;
o the availability of capital to fund growth and acquisition
opportunities; and
o adverse conditions in the capital markets or in the general economy.
In light of these risks and uncertainties the forward-looking events
discussed in this report might not occur. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
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ITEM 1. BUSINESS.
GENERAL
The Company is a leader in the airborne equipment segments of the
international aviation services after-market. The Company's principal business
is the purchasing, overhauling (through subcontractors), reselling and leasing
of aircraft, avionics and aircraft rotables, and aircraft engines and engine
parts. The Company specializes in providing:
- Engines and after-market engine parts for large turbo-
fan engines manufactured by CFM International, General Electric,
Pratt & Whitney and Rolls Royce.
- Aircraft parts and turbojet engines and engine parts for large
transport aircraft and helicopters.
- Aircraft rotables and expendable components including flight data
recorders, electrical and mechanical equipment and radar and
navigation equipment.
The Company is a supplier to a broad base of approximately 1,000
domestic and international customers representing nearly all segments of the
worldwide aviation industry, including commercial airlines such as American,
Delta, Lufthansa, Swiss Air and Singapore Airlines, and original equipment
manufacturers ("OEMs") and engine overhaul facilities such as Daimler-Benz, GE
Aircraft Engine Services and Pratt & Whitney. The Company enables customers to
reduce their inventory, inventory carrying costs and airborne equipment
maintenance costs by offering a broad inventory of engines and engine parts on a
timely basis and at competitive prices. For the year ended December 31, 1999,
the Company generated revenues of $330.9 million, earnings before interest,
taxes, depreciation and amortization ("EBITDA") of $86.7 million and net
earnings of $20.5 million (or $1.48 per diluted share).
The Company's business strategy is focused on strong and controlled
internal growth, supplemented by strategic inventory purchases and acquisitions
of competing and complementary businesses meeting pre-defined criteria. In
evaluating acquisition opportunities, the Company's management considers the
following criteria in addition to customary business and operational due
diligence: the effects on earnings per share, the expected stability and
inherent strength of gross margins and a comparative analysis of returns on
invested capital and assets. The Company pursues acquisitions to strengthen
current product lines, increase access to customers in its existing markets and
expand into new product lines and markets.
The Company's operating approach enables it to pursue its growth plans
while maintaining and improving operating efficiencies and results. As the
Company's operations team strives to enhance internal procedures and controls,
streamline distribution channels and maintain and expand customer relationships
and account management, the Company's acquisition team works continuously with
outside advisors to identify, structure and consummate acquisitions. This
operating approach enables the Company to manage the internal growth of its
business and to integrate acquired businesses while continuing to evaluate
acquisition opportunities.
The Company's principal executive office is located at Sawgrass
International Corporate Park, 1100 International Parkway, Sunrise, Florida
33323. Its telephone number is (954) 845-0427.
MARKETS AND BUSINESS STRATEGIES
Markets
The airline industry is forecasted to grow at a higher pace than the
economy as a whole over the next 10 and 20 years, respectively. According to the
Boeing 1999 Current Market Outlook (the "Boeing Report"), passenger traffic is
forecasted to grow at 4.7% over the next 10 and 20 years as compared to overall
economic growth of 2.7% and 2.8% over the next 10 and 20 years, respectively.
The Boeing Report projects that the worldwide fleet of commercial aircraft is
expected to increase more than 50% from approximately 12,600 at the end of 1998
to over 19,100 by 2008.
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The increase in worldwide air travel has resulted in a corresponding
increase in demand for aircraft, avionics and aircraft rotables, and engines and
engine parts. In light of the requirements of the Federal Aviation
Administration (the "FAA") that aircraft engines and engine parts be serviced at
scheduled intervals of flying hours, the increase in worldwide air travel has
resulted in the need for more frequent servicing cycles and a corresponding
increase in demand for engines and engine parts. The Company believes that, due
to cost constraints, many airlines and repair and maintenance facilities that
historically purchased parts from new parts manufacturers are increasingly
utilizing after-market parts sold by resellers such as the Company.
At the same time that demand for aircraft, avionics and aircraft
rotables, and aircraft engines and engine parts has been increasing, the
competitive environment of the commercial airline industry has led many airlines
to "outsource" a larger percentage of non-core functions, including ownership of
such inventory, in order to focus resources on improving passenger and freight
services. As a result, airlines are increasingly turning to operating leases and
inventory management providers to maximize operational and financial flexibility
while minimizing upfront capital requirements.
The aircraft engine and engine parts market is estimated by the United
States Department of Commerce to exceed $18 billion annually. The resale segment
of this market is highly fragmented, characterized by a limited number of large
suppliers with broad product offerings and numerous smaller competitors serving
niche markets. Several notable trends in the industry have recently emerged to
improve safety, reduce costs and increase efficiency, including increasing
emphasis on documentation and traceability of parts, outsourcing of inventory
management functions, implementing "just-in-time" inventory management systems
and reducing the number of approved suppliers. The Company believes that only
those companies with superior quality assurance programs, sophisticated
information systems and adequate capital will succeed in this changing
environment. The Company is an active participant in the consolidation of the
industry, having completed six acquisitions with combined annual revenues in the
years preceding the respective acquisitions of approximately $212 million since
1995.
The airborne equipment segment of the worldwide aviation services
industry is being affected by the following trends:
INCREASING EMPHASIS ON DOCUMENTATION AND TRACEABILITY. As safety
requirements have become more stringent, regulatory authorities have increased
the level of documentation required of aircraft operators. Operators have, in
turn, extended this requirement to the independent dealers from which they
purchase after-market parts. The expense and sophistication required to track
the history of inventory consisting of thousands of components is considerable
and provides a barrier to entry into the engine parts after-market. In addition
to the barriers created by documentation requirements, management believes that
the potential adoption of tighter regulations by government and industry
regulators regarding the operating procedures of resellers may eliminate smaller
participants and create additional barriers to entry.
OUTSOURCING OF INVENTORY MANAGEMENT FUNCTION. Some airlines have
streamlined their operations by outsourcing the entire inventory management
function to independent third parties. These independent third parties (such as
the Company) acquire directly or through consignment arrangements a large
inventory and make such inventory attractive to a broad customer base. Under
consignment agreements, the supplier is granted the right to sell spare parts
from the airlines' inventory, with the proceeds divided between the supplier and
the airline itself. This improves the airline's profitability, as measured by
return on assets, by removing parts inventory from the balance sheet.
Outsourcing allows airlines to secure parts on an "as-needed" basis without
incurring the costs associated with carrying their own expensive inventory.
LEASING. Similar to outsourcing, leasing engines or engine parts
enables airlines to meet short-term operating needs while lowering their
overhead and/or working capital requirements. Short-term leases, often 30-90
days in duration, are used by some carriers that do not wish to maintain a pool
of spare engines or engine parts. Intermediate and long-term leases (up to 10
years) are used by many larger carriers as they upgrade their fleets. A
significant portion of the new aircraft flown by the major carriers are leased
and such carriers typically prefer to lease rather than purchase spare engines
for their fleet. In addition, many of the new entrant jet carriers are
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capital-constrained and thereby prefer to lease rather than own aircraft and
engines in order to minimize upfront capital outlays.
REDUCTION IN NUMBER OF SUPPLIERS AND CONSOLIDATION OF THE ENGINE PARTS
AFTER-MARKET. In order to ensure better control of their safety standards and
reduce their administrative costs, airlines are limiting the number of suppliers
with which they do business. To remain a supplier to the airlines, dealers must
maintain high standards of quality control, enabling customers to trace the
complete history of any part. This move to limit the number of suppliers is
causing a realignment among independent dealers. A small number of dealers
continue to do business directly with airlines, and a new tier of dealers sell
to these approved suppliers. The Company believes that this reduction in
supplier base will continue to lead to consolidation in the market for aircraft
spare parts.
INCREASED IMPORTANCE OF CAPITAL. Suppliers need ready access to capital
in order to take advantage of various profitable opportunities, including
purchasing large portfolios of assets to be made available for outsourcing and
leasing. Larger inventories, sophisticated information technology systems and
more expensive jet engines require increased access to capital.
Business Strategies
The Company has experienced significant growth over the past few years.
The Company believes that the following strategies should provide opportunities
for continued growth:
STRONG AND CONTROLLED INTERNAL GROWTH. The Company has achieved strong
and controlled internal growth by increasing business with its existing
customers, expanding its customer base and constantly improving the efficiency
of its operations. On a pro forma basis , the total revenue of the Company
increased by 25% from 1998 to 1999. During this time period, the Company has
expanded its management team and continued to focus on its marketing efforts in
order to support its customer base. The Company believes that the focus of its
core business on purchasing, overhauling (through subcontractors), reselling and
leasing of aircraft, avionics and aircraft rotables, and aircraft engines and
engine parts results in cost-efficient operations which maximize its profit
margins and minimize its dependence on expensive machinery, equipment and labor.
E-COMMERCE INITIATIVE. Since inception, the Company has invested
heavily in building a state-of-the-art information technology infrastructure,
believing that the industry would become increasingly dependent on information
processing and dissemination. The Company is combining off-the-shelf e-commerce
facilities with proprietary software modules, now in an advanced stage of
development, to supply tools designed to enable each of the Company's divisions
to achieve a level of process automation unprecedented in our industry. The
system, which is being built with internet development tools, is expected to be
the cornerstone of the Company's business-to-business e-commerce strategy. The
Company expects that this software will also enable a unique level of
integration with our customers' technology environment through an `e-commerce
engine' that is incorporated within. The first module of this new system is
planned to be up-and-running by the close of the first quarter of 2000 and the
entire system is expected to be fully operational one year later.
STRATEGIC INVENTORY PURCHASES. The Company believes that its potential
to increase revenues from its existing business is largely dependent on its
ability to deliver aircraft, avionics and aircraft rotables, and engines and
engine parts on a "just-in-time" basis. The lead time between purchasing
aircraft, avionics and aircraft rotables, and engines and engine parts and
having a ready-for-sale product is generally 60 to 90 days. The Company focuses
on developing new sources of supply, such as OEMs and overhaul facilities, as
well as airlines which are replacing portions of their fleets or disposing of
excess inventory. By broadening its sources of supply, the Company is better
able to maintain a strategic stock of inventory in order to remain responsive to
customer delivery requirements. The Company relies on its market expertise and
industry network to analyze both short and long-term trends in supply and demand
in the aviation industry.
AIRBORNE EQUIPMENT LEASING. In 1997, the Company established Kellstrom
Commercial Aircraft, Inc. ("KELLCAD"), a wholly-owned subsidiary, which manages
a portfolio of aircraft and aircraft engines that are available to the Company's
customers on short to medium term (approximately 3 to 60 month) operating
leases. These operating leases allow carriers to improve their balance sheets by
leasing, rather than owning, spare engines from a reliable, proven engine
leasing source. KELLCAD is an integral part of the Company's plan to provide
total inventory management solutions. As previously announced, the Company is
evaluating a proposed off-balance sheet initiative for this lease portfolio,
pursuant to which the Company would sell its aircraft and engine portfolio to
one or more partnerships between the Company and appropriate third parties.
Under the proposed initiative, the Company expects that it would retain a
minority ownership stake in the proposed partnerships and continue to manage the
operations of those partnerships. The Company expects to implement this
initiative if and when one or more appropriate financial/leasing organizations
are identified and transaction terms are finalized. As of December 31, 1999, the
Company leased 8 aircraft and 48 engines to third parties.
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ACQUISITIONS IN EXISTING COMMERCIAL AVIATION MARKETS. As a result of
its concentration in certain niche markets, the Company's management develops
in-depth knowledge of other resellers serving similar product lines that may be
potential acquisition candidates. The Company's acquisition of Certified
Aircraft Parts, Inc. ("Certified") in April of 1999 expanded the Company's
ability to offer parts, after-market support and logistics for the Lockheed
Martin C-130/L100 Hercules aircraft. The acquisition of Certified will
complement the Company's Defense segment, which supplies inventory management
for C-130 aircraft and engines.
ACQUISITIONS IN ADJACENT MARKETS. As a result of its position in the
industry, the Company's management also becomes familiar with companies serving
complementary markets that may be attractive acquisition candidates. The Company
continually works with outside advisors to evaluate and pursue companies that
will enable it to expand into product lines and markets in which the Company
does not have a significant presence. As a result of the acquisition of Solair,
Inc. ("Solair") in December 1998, the Company is able to offer avionics
equipment, a complimentary product line, which was not previously sold by the
Company. The Company believes that the continued expansion may be achieved
through the acquisition of companies offering different product lines than those
of the Company.
PRODUCTS
The Company's principal business is the purchasing, overhauling
(through subcontractors), reselling and leasing of aircraft, avionics and
aircraft rotables and engines and engine parts.
AFTER-MARKET SALES BUSINESS. Customers in both the commercial and
military sectors purchase spare and replacement parts and other airborne
equipment. The Company is active in both the commercial aircraft sector, which
is divided into large jet transports, smaller commercial aircraft (known as
general aviation aircraft) and helicopters, and the military sector. General
aviation includes both jet and propeller-driven planes for business and personal
use. The Company's Commercial Engine Parts division specializes in engine parts
for the large jet segment of the commercial aircraft sector. Through Certified,
its Defense segment, the Company also services certain military customers for
aircraft parts and turbojet engines and engine parts for large transport
aircraft and commercial customers for helicopters. Solair, the Company's
Airframe Avionics and Rotables segment, provides aircraft rotables and
expendable components.
Boeing (which acquired McDonnell Douglas) and Airbus Industries
dominate the market for the production of large commercial aircraft. A small
number of suppliers provide the bulk of engines used to power these large
commercial jet aircraft. The suppliers include the Pratt & Whitney division of
United Technologies, General Electric, Rolls Royce and CFM International. The
following is a brief description of the products which the Company supports:
THE JT9D ENGINE. JT9D engines, introduced by Pratt & Whitney in the
late 1960's, are used in Boeing 747 and 767 aircraft, the McDonnell Douglas
DC-10 and Airbus A300/310's. The JT9D was the first commercial turbo fan with a
high bypass ratio, enabling the engine to provide unprecedented thrust with
outstanding fuel efficiency and relatively low noise. The JT9D engine has flown
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more than 135 million hours. Approximately 3,000 of these engines were built
until production ceased in 1990; approximately 2,700 are still flying on wide
body aircraft operated by over 60 airlines. The Company estimates that JT9D
engines will be widely used for the next 10-15 years. Pratt & Whitney continues
to upgrade and improve in-service engines to meet current noise and emissions
requirements, thus increasing the life span of these engines.
THE JT8D ENGINE. JT8D engines, a derivative military J-52 Turbojet,
were originally developed by Pratt & Whitney for the Boeing 727 airliner in
1963. The engine is the most widely used engine in commercial aviation history.
More than 13,000 of the JT8D family of engines have been produced and the engine
is still in production today. A variant of the basic JT8D, called the 200
Series, was introduced in 1977. The older, less fuel efficient JT8D engines are
used in the Boeing 727 and 737, the McDonnell Douglas DC-9, the Aerospatiale
Carvelle, Dassualt Mercure and the C-9 and C-22, U.S. military versions of the
DC-9 and 727 aircraft. The newer 200 Series JT8D engines are used throughout the
McDonnell Douglas MD-80 range of aircraft models. The Company estimates that the
older JT8D engines will be in service for at least ten more years, and the 200
Series JT8D engines will be in service for at least 20 more years.
THE PWA 2000 ENGINE. Pratt & Whitney began development in 1974 of a
series of advanced technology aircraft engines to power the commercial
transports of the mid-1980s and beyond. The PWA 2037 engine model, the first in
the series of such models, was awarded FAA certification in December 1983. These
highly fuel efficient engines feature high thrust, low noise and reduced
emissions. The PWA 2000 series engines are used to power the Boeing 757 and are
considered to be current technology engines that are likely to continue in
service for at least 25 more years.
THE PWA 4000 ENGINE. In 1982, Pratt & Whitney launched development of
the PWA 4000 Series turbo fan - an all new commercial jet engine series with
improved fuel efficiency and higher takeoff thrust rating. The PWA 4000 entered
commercial service in mid 1987. The PWA 4000 is designed for use on current and
advanced versions of such wide-body aircraft as the Airbus A300, A310, A330, the
Boeing 747, 767, 777 and the McDonnell Douglas MD-11. These engines are
considered to be current technology engines and are likely to continue in
service for at least 25 more years.
THE ROLLS ROYCE RB-211 ENGINE. The RB-211 was built by Rolls Royce
beginning in 1970 for the Lockheed L-1011, the majority of which were purchased
by Delta and Eastern. Approximately 928 aircraft are still in use which use the
RB-211.
THE CFM-56 ENGINE. The CFM-56 is manufactured by CFM International, a
joint venture between General Electric and SNECMA, and is the second most
popular engine as measured by number of aircraft in the worldwide fleet powered
by this engine type. The CFM-56 is used to power the Boeing 737 and the Airbus
A320, A321, A340 and the McDonnell Douglas DC-8. These engines are considered to
be current technology engines and are likely to continue in service for at least
25 more years.
THE T56/501 ENGINE. The T56/501 engine is used to power the widely used
military transport aircraft, the Hercules C-130, manufactured by Lockheed. Over
17,000 engines have been produced.
THE A250 ENGINE. The A250 engine is used to power a wide range of
helicopters manufactured by Bell, McDonnell Douglas and Eurocopter. There are
approximately 17,000 engines currently in use by approximately 2,700 helicopter
operators.
THE C-130/L100. In 1953, Lockheed Martin began manufacturing the C-130
aircraft. The C-130 is a versatile aircraft which can be used for troop
transport, inflight refueling, rescue, fire fighting and other uses. There are
approximately 1,600 aircraft in use of over 2,200 originally produced. The
largest operator of the C-130 is the United States military.
AIRCRAFT ROTABLES AND EXPENDABLE COMPONENTS. Aircraft rotables are
major aircraft components which are regularly removed, replaced and overhauled
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in the course of aircraft operation and maintenance. Aircraft rotables supplied
by the Company include flight data recorders, electrical and mechanical
equipment and radar and navigation systems. The Company stocks a wide variety of
rotables and expendables for all commercial jet aircraft types manufactured by
Boeing, McDonnell-Douglas, Airbus, British Aerospace and Fokker Aircraft.
QUALITY CONTROL
Airborne equipment is typically highly engineered as to dimension,
composition and performance characteristics. In addition, engine parts are
generally more expensive, flight critical, technically complex and utilize more
specialized heat tolerant metals than other aircraft parts. A high standard for
quality control and documentation is an absolute necessity. The history of a
given part from the date of original manufacture must be documented and
available to regulators and maintenance personnel. The Company works closely
with third-party FAA certified repair facilities to perform repair services to
bring surplus aircraft engines held for resale and certain engine components
into a condition of airworthiness so that the Company can sell such equipment.
The Company's management believes that its ability to continue to act
as an approved supplier for the major airlines, OEMs and overhaul facilities is
heavily dependent on quality assurance, and that the Company's comprehensive
quality assurance program is among the best in its industry. The Company is (i)
a member of the Coordinating Agency for Supplier Evaluation ("CASE"), a
self-governing organization formed by the airlines that evaluates and audits
parts suppliers and repair stations (ii) a member of the Airline Suppliers
Association for which the Company is an accredited reseller under the provisions
of FAA AC 00-56, and (iii) listed in the European Aerospace Suppliers Register.
In addition, in August 1998, the Company received its recertification under ISO
9002 which was originally received in 1996. The ISO 9002 designation indicates a
quality assurance standard recognized by leading companies throughout the world.
The Company believes it was the first after-market supplier of commercial jet
engines and engine parts in the world to receive such a certification. In
addition, the Company believes that it is one of the few vendors in the industry
to have invested in a sophisticated optical imaging system for document storage
and retrieval. This system provides a high degree of traceability by serial
number for engine parts sold by the Company.
CUSTOMERS
The Company's customers include airlines, OEMs, lessors, operators of
overhaul facilities and other independent dealers. These customers include
American, Daimler-Benz, Delta, Lufthansa, GE Aircraft Engine Services, Pratt &
Whitney, SwissAir and Singapore Airlines. For the years ended December 31, 1999,
1998 and 1997, the five largest customers collectively accounted for
approximately 36%, 42% and 38%, respectively of the Company's consolidated
revenues. Certain significant customers vary from period to period as a result
of the large unit prices associated with whole aircraft engine sales.
OPERATING APPROACH
The principal elements of the Company's operating approach are as
follows:
CONTINUE STRONG QUALITY ORIENTATION. The Company's management believes
that its comprehensive quality program is among the best in the industry. The
Company is a member of CASE, a self-governing organization formed by the
airlines that evaluates and audits parts suppliers and repair stations. The
Company believes it is one of the few resellers of commercial jet engines and
engine parts in the world to receive ISO 9002 certification which the Company
believes provides it with a distinctive competitive advantage. ISO's
comprehensive evaluation system seeks to ensure satisfaction of customer
requirements, documentation of quality management systems and verification that
a product or service is designed, delivered and maintained in accordance with
specific requirements. The ISO 9002 designation indicates a quality assurance
standard recognized by leading businesses throughout the world. In response to
recent airline tragedies and resultant increased scrutiny of airline safety,
airlines and maintenance repair facilities are demanding internationally
recognized quality assurance certification as a condition of doing business.
The Company believes that it is one of the few vendors in the industry
to have invested in a sophisticated optical imaging system for documentation
storage and
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retrieval. This system, which includes a WORM (write once, read many) drive,
provides a high degree of traceability by serial number for engine parts sold by
the Company. The FAA and customers accept this form of electronic documentation
as the equivalent of original documents. In addition, the Company is working to
make such documentation available online to customers worldwide.
ADDITIONAL KNOWLEDGEABLE PERSONNEL. The market for engine parts is
highly specialized and technically complex. The Company believes that its
success depends heavily on the high level of technical and engineering knowledge
and experience possessed by its personnel. The Company continues to hire
technically proficient personnel as its business expands both internally and
through the acquisition of competing and complementary businesses.
OPTIMIZE INVENTORY. The Company manages its inventory carefully by
purchasing both whole engines and individual engine parts through
well-structured transactions, disassembling engines for parts when market
conditions are favorable, and closely monitoring the overhauling of selected
parts by high quality subcontractors, while maintaining a high level of
documentation at all stages of the process and storing the engine parts in a
carefully controlled environment. In addition to management's expertise of
market forces and conditions, the Company has developed a series of management
procedures to assess demand for engines and engine parts. In such assessments,
the Company compiles a periodic analysis of the industry's supply and demand on
a product-by-product basis, reevaluates its available supply of inventory and
interfaces with customers and suppliers to forecast supply and demand. The
Company believes that its ability to structure and finance inventory purchase
transactions is critical to success.
EXPAND MARKETING RELATIONSHIPS. The Company maintains and strives to
expand its close relationships with a variety of key customers, including OEMs,
repair facilities, domestic and international airlines and other distributors.
The Company continually seeks to expand its customer base, by among other
things, regularly attending industry trade conferences.
INCREASE CAPITAL RESOURCES. It is critical for the Company to have the
capital to act quickly when purchasing opportunities present themselves. In
addition, increasing the Company's access to capital markets to finance working
capital requirements will allow the Company to take advantage of opportunities
such as leasing, inventory outsourcing and long-term inventory management
contracts.
COMPETITION
The aviation after-market is highly competitive. Competition is based
on product quality, price, and the ability to provide needed parts quickly. The
largest segment of the after-market is served by OEMs. However, the relatively
high overhead and slow response times which characterize these large
organizations can present a handicap in a fast-moving, price-sensitive
marketplace. OEMs generally concentrate on selling new parts, leaving the market
in serviceable and overhauled parts to other suppliers. OEM-manufactured new
parts generally do not compete with overhauled parts.
The largest resellers include companies such as AAR Corp. and The AGES
Group. There are approximately 10 to 15 midsize competitors, including the
Company. Over 50 small after-market suppliers and brokers generate a large
portion of the market revenue. As a result of industry consolidation, management
expects that a number of these smaller operators will either be acquired or will
have difficulty competing in this changing market. The Company competes based on
its ability to deliver parts on a "just-in-time" basis, the breadth of its
product offering, quality assurance and part traceability, proven technical
capabilities and price.
In addition, the engine parts supply business has been reshaped by the
widespread adoption of parts listing services and Web based auction services.
The parts listing services list the availability of thousands of types of engine
parts from brokers, resellers, repair facilities and airlines. The listing
includes the quantity of parts available, the condition of the parts, when the
parts are available and a contact for more information. The listing services
have created a much freer flow of information concerning the supply and demand
for particular parts. Dealers now must compete not only on the basis of their
relationships with customers and knowledge regarding a potential source for
products, but also on the quality of the parts available, the documentation
tracing the history of the parts and the price.
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GOVERNMENT REGULATION
The aviation industry is highly regulated by the FAA in the United
States and the equivalent regulatory agencies in other countries. While the
business of selling after-market engines and engine parts is not regulated by
the FAA, the aircraft engines, engine components and airframe materials supplied
by after-market suppliers must be accompanied by documentation which enables the
customers to comply with applicable regulatory requirements. Aircraft operators
must maintain logs concerning the utilization and condition of aircraft engines,
life-limited engine components and airframes.
Before engine components may be installed in an aircraft engine, they
must meet certain standards of airworthiness established by the FAA or the
equivalent regulatory agencies in other countries. Specific regulations vary
from country to country, although regulatory requirements in other countries are
generally satisfied by compliance with FAA requirements. Engine components must
also be traceable to sources deemed acceptable by such agencies. Although the
Company believes it complies with the highest level of such regulatory
standards, standards may change in the future, requiring engine components
already contained in the Company's inventory to be scrapped or modified.
Aircraft engine manufacturers may also develop new engine components to be used
in lieu of engine components already contained in the Company's inventory. In
all such cases, to the extent that the Company has such engine components in its
inventory, their value may be reduced.
Management believes that the industry will be subject to continued
regulatory activity. Increased oversight has and will continue to originate with
quality assurance departments at airline operators. The Company has been able to
meet all such requirements to date, and believes that it will meet any
additional requirements that may be imposed.
STRATEGIC ACQUISITIONS
IASI ACQUISITION. On January 15, 1997, the Company completed the
acquisition of substantially all of the assets and certain liabilities of
International Aircraft Support, L.P. ("IASI") for $25.1 million in cash and
warrants to acquire 500,000 shares of the Company's common stock, par value
$.001 per share ("Common Stock"), at $9.25 per share, expiring January 15, 1999.
IASI was a worldwide seller of new and used aircraft engine parts to maintenance
and overhaul facilities, major commercial airlines and other redistributors.
Along with the engine parts sales, IASI was a lessor of jet engines and offered
engine repair management programs through its technical services business.
IASI's mix of business and its purchasing activities ultimately contributed to
its position as a "market-maker" in redistributed engines and various engine
parts.
The IASI acquisition enabled the Company to enter into markets for
additional engine types, including the JT8D, PWA 2000 and CFM-56 markets.
According to industry analysts, these engine types power aircraft which, as of
the date of the IASI Acquisition, constituted a majority of the world aircraft
fleet. In addition, the IASI acquisition accelerated the Company's entry into
the engine leasing business, an area in which IASI had been an active
participant. The IASI acquisition also expanded and diversified the Company's
customer base, particularly in European markets. IASI's customers included major
airlines, engine overhaul facilities including those operated by airlines,
independent overhaul and maintenance organizations and aircraft engine
manufacturers. Following the acquisition, IASI's senior management joined the
Company, further broadening the Company's management team.
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AERO SUPPORT ACQUISITION. On September 10, 1997, the Company completed
the acquisition of substantially all of the assets and liabilities of Aero
Support for approximately $2.7 million in cash, three promissory notes in the
aggregate principal amount of $11.7 million, and three warrants. One warrant
provides for the purchase of 75,000 shares of Common Stock at an exercise price
of $22.00 per share, expiring on September 9, 2000. The other two warrants
provide for the purchase of an aggregate of 175,000 shares of Common Stock at an
exercise price of $19.00 per share, expiring on September 9, 2002. Up to an
additional $5.0 million cash consideration may be paid by the Company in the
form of an earn-out payable over three years based upon certain specified
criteria, of which $1.7 million and $1.3 million was earned during 1998 and
1999, respectively.
Aero Support was an international after-market reseller of turbojet
engines and engine parts for helicopters and large transport aircraft. Aero
Support had a customer base that included domestic and foreign operators,
commercial and industrial enterprises and engine overhaul facilities. Aero
Support's primary focus was on the Allison (Rolls Royce) T56/501 engine, which
powers the military's Hercules C-130 aircraft, a widely used military transport
aircraft, and the Allison 250, with approximately 16,000 units actively in use
by helicopters. Prior to its acquisition, Aero Support served 495 customers
worldwide from its headquarters in New York and its additional facility in
Louisiana. With the addition of Aero Support's business, the Company entered the
large transport aircraft and commercial helicopter engine and engine parts
market.
ITC ACQUISITION. On April 1, 1998, the Company completed the
acquisition of substantially all of the assets and liabilities of ITC for $20.5
million in cash, plus up to $10.0 million cash consideration which may be paid
in the form of an earn-out payable over three years based on certain specified
criteria, of which $3.3 million and $1.1 million was earned during 1998 and
1999, respectively. In addition, the Company received a three-year option to
purchase a 49% interest in a related FAA-approved overhaul facility.
ITC was an after-market supplier of jet engines and jet engine parts
for the airline industry. It also provided related services such as engine
leasing. ITC's principal product line featured the Rolls Royce RB-211, Pratt &
Whitney JT8D and Rolls Royce Allison models, and, to a lesser extent, it
supplied Pratt & Whitney JT9D engines and engine parts. ITC had some 75
customers worldwide, including major commercial airlines and jet engine repair
facilities.
AEROCAR ACQUISITION. On June 17, 1998, the Company acquired all of the
outstanding capital stock of Aerocar for $42.3 million in cash, warrants to
purchase an aggregate of 250,000 shares of the Company's Common Stock at an
exercise price of $26.00 per share, expiring on June 17, 2001, plus an
additional $5.0 million payable within a two-year period after closing, either
in cash, or at the option of the Company, in shares of Common Stock having an
equivalent value as of the date of the acquisition. Aerocar was engaged in the
sale and leasing of aircraft engines and aircraft engine parts to major airlines
and regional carriers. Aerocar's primary focus was on the Pratt & Whitney JT8D
engine.
SOLAIR ACQUISITION. On December 31, 1998, the Company acquired all of
the outstanding capital stock of Solair, a wholly-owned subsidiary of Banner
Aerospace, Inc., for approximately $57.4 million in cash and a warrant to
purchase 300,000 shares of Common Stock at an exercise price of $27.50 per
share, expiring on December 31, 2002. Solair is engaged in the sale of a wide
variety of aircraft rotables and expendable components including flight data
recorders, electrical and mechanical equipment and radar and navigation systems.
Through the acquisition of Solair, the Company expanded into the adjacent
avionics and aircraft rotables business.
CERTIFIED ACQUISITION. On April 29, 1999, the Company acquired all of
the outstanding capital stock of Certified for $16.7 million in cash and the
assumption of $2.7 million in debt. Certified was engaged in the sale of parts,
after-market support and logistics for the Lockheed Martin C-130/L100 Hercules
aircraft. The acquisition of Certified expanded the Company's presence in the
after-market for military transport aircraft.
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TRADEMARKS AND DESIGN PATENTS
The Company either owns or has applied for various trade names and trademarks in
the United States (and abroad), for use with its products. The Company believes
that its trade names and trademarks are well recognized within the aviation
industry. The Company believes that its trade name and trademarks are not
critical to its continued business success and that the loss of any trade name
and/or trademark would not have a material adverse effect on its business
operations.
ENVIRONMENTAL MATTERS
The Company believes that it is in compliance in all material respects
with applicable environmental laws and regulations and, due to the current
nature of the Company's business, there is little or no direct cost associated
with such compliance.
PRODUCT LIABILITY
The Company's business exposes it to possible claims for personal
injury or death that may result from the failure of an aircraft or engine owned
and leased by it or an engine part sold by it. The Company currently maintains
product liability insurance coverage in the amount of $750 million on an
aggregate and per claim basis.
CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS
The Company does not provide financial performance forecasts. The
Company's operating results and financial condition have varied in the past and
may in the future vary significantly depending on a number of factors. Except
for the historical information in this report, the matters contained in this
report include forward-looking statements that involve risks and uncertainties.
The following factors, among others, could cause actual results to differ
materially from those contained in forward-looking statements made in this
report and presented elsewhere by management from time to time. Such factors,
among others, may have a material adverse effect upon the Company's business,
results of operation and financial condition.
LIMITED OPERATING HISTORY; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS.
The Company has only a limited operating history upon which an evaluation of the
Company and its prospects can be based. Although the Company has historically
experienced increasing net revenues, the Company may experience significant
fluctuations in its net revenues, gross margins and operating results in the
future, both on an annual and a quarterly basis, caused by various factors,
including general economic conditions, specific economic conditions in the
aviation industry, the availability and price of surplus aviation equipment, the
size and timing of customer orders and the cost of capital to the Company. In a
strategic response to a changing, competitive environment, the Company may elect
from time to time to make certain pricing, product or marketing decisions, and
any such decisions could have a material adverse effect on the Company's
periodic results of operations, including net revenues and net income from
quarter to quarter. A large portion of the Company's operating expenses are
relatively fixed. Since the Company typically does not obtain long-term purchase
orders or commitments from its customers with respect to the sale of aircraft,
avionics and aircraft rotables, and engines and engine parts, it must anticipate
the future volume of orders based upon the historic purchasing patterns of its
customers and upon its discussions with its customers as to their future
requirements. Cancellations, reductions or delays in orders by a customer or
group of customers could have a material adverse effect on the Company's
business, financial condition and results of operations. Therefore, recent net
revenues and operating results of the Company should not be taken as indicative
of the results of operations that can be expected in the future. There can be no
assurance that the net revenues and operating results of the Company will
continue at their current levels or will grow, or that the Company will be able
to achieve sustained profitability on a quarterly or annual basis.
MANAGEMENT OF GROWTH. The Company has recently experienced significant
expansion that has placed substantial demands upon its management, systems and
resources. The Company's ability to manage its future growth, if any, will
require the Company continually to improve its financial controls, management
controls, reporting systems and procedures on a timely basis, implement new
systems as necessary and expand, train and manage its workforce. There can be no
assurance that the Company's controls, systems or procedures will continue to be
adequate to support the Company's operations. The failure of the Company's
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management to respond effectively to changing business conditions would have a
material adverse effect upon the Company's business, financial condition and
results of operations.
GROWTH STRATEGY AND RISKS RELATING TO ACQUISITIONS. A key element of
the Company's strategy involves growth through the acquisition of additional
inventories of aircraft, avionics and aircraft rotables, and engines and engine
parts and the acquisition of other companies, assets or product lines that would
complement or expand the Company's existing business. The Company's ability to
grow by acquisition is dependent upon, and may be limited by, the availability
of suitable aircraft, avionics and aircraft rotables, and engines and engine
parts inventories, acquisition candidates and capital, and by restrictions
contained in the Company's credit agreements. The company completed the IASI
acquisition in January 1997, the Aero Support acquisition in September 1997, the
ITC acquisition in April 1998, the Aerocar acquisition in June 1998, the Solair
acquisition in December 1998 and the Certified acquisition in April 1999. The
process of seeking to integrate an acquired company's business into the
Company's operations may result in ongoing and extraordinary operating
difficulties and expenditures, may absorb significant management attention that
would otherwise be available for the ongoing development of the Company's
business and may result in charges against income. In addition, future
acquisitions by the Company could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities and
amortization expenses related to goodwill and other intangible assets, any of
which could materially adversely affect the Company's operating results and
financial condition. There can be no assurance that the Company will be able to
consummate any future acquisitions on satisfactory terms or that it will be able
to successfully integrate newly acquired businesses into its existing
operations.
UNCERTAIN SUPPLY OF INVENTORY. The Company obtains its inventories of
aircraft, avionics and aircraft rotables, and engines and engine parts by
purchasing surplus inventory from airlines, overhaul facilities and other
suppliers. There is not an organized market for surplus aircraft, avionics and
aircraft rotables, and engines and engine parts, and the Company must rely on
field representatives and personnel, advertisements and its reputation as a
buyer of surplus inventory in order to generate opportunities to purchase such
equipment. The market for bulk sales of surplus aircraft, avionics and aircraft
rotables, and engines and engine parts is highly competitive, in some instances
involving a bidding process. While the Company has been able to purchase surplus
inventory in this manner successfully in the past, there can be no assurance
that surplus aircraft, avionics and aircraft rotables, and engines and engine
parts of the type required by the Company's customers will be available on
acceptable terms when needed in the future or that the Company will continue to
compete effectively in the purchase of such surplus equipment.
DEPENDENCE ON THIRD-PARTY AIRCRAFT ENGINE REPAIR FACILITIES. The
Company is dependent on third-party FAA-approved repair facilities to perform
repair services to bring surplus aircraft, avionics and aircraft rotables, and
engines and engine parts into a condition of airworthiness so that the Company
can then sell or lease such equipment to its customers. Third-party repair
facilities may experience heavy workloads or may allocate their resources to
customers with whom they have entered into long-term, regularly scheduled
aircraft engine and airframe maintenance agreements and thereby delay the
services to be provided to the Company. The repair facilities utilized by the
Company are responsible for inspecting and certifying engines and engine parts
to be of serviceable quality. The Company does not have direct control over the
quality of repairs performed by such repair facilities or the accuracy of the
airworthiness condition designated by such facility. It is possible that engines
and engine parts could pass inspection by the Company, be sold by the Company
and be incorporated into an aircraft, and subsequently be determined to be
unsafe or in need of further repair. In such event, the FAA has the authority to
take actions that may include the grounding of an aircraft that contains such
parts. Additionally, the customer who purchased such engines or engine parts
could demand a replacement from the Company. While the Company has insurance
coverage to cover related losses, the effect of such a development on passenger
confidence and customer relations could have a material adverse effect upon the
Company.
CUSTOMER CONCENTRATION. The Company's five largest customers accounted
for approximately 36% of total revenue for the year ended December 31, 1999.
While the relative significance of customers varies from period to period as a
result of the large unit prices associated with whole aircraft engine sales, the
loss of, or significant curtailments of purchases by, one or more of the
Company's significant customers at any time could have a material adverse effect
on the Company's business, financial condition and results of operations.
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CUSTOMER CREDIT RISKS. The Company's inability to collect receivables
from a substantial sale could adversely affect the Company's financial position
and results of operations for a particular period, although Company policy is
generally to sell whole engines for cash at closing. The Company's bad debt
expense was 1.1% of revenues for the year ending December 31, 1999 and less than
0.5% of revenues for the years ended December 31, 1997 and 1998. The Company
anticipates that it may incur greater bad debt losses in the future as its
customer base grows and the Company experiences greater exposure to its
customers as a result, in part, of the implementation of a program for the
leasing of aircraft engines and airframes. There can be no assurance that the
Company will not incur significant bad debt losses in the future that
individually, or in the aggregate, could have a material adverse effect on the
Company's business, financial condition and results of operations.
ADVERSE CONSEQUENCES OF DEBT AND LEVERAGE. As a result of incurring
debt, the Company is subject to the risks normally associated with debt
financing, including, without limitation, the following: (i) a substantial
portion of the Company's net cash provided by operations may be committed to the
payment of the Company's interest expense and principal repayment obligations
and will not be available to the Company for other purposes; (ii) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures or acquisitions may be limited; and (iii) the Company's
level of indebtedness could limit its flexibility in reacting to changes in its
industry and general economic conditions. The Company's ability to pay interest
on its debt and to satisfy its other debt obligations will depend upon its
future operating performance, including its ability to implement its business
strategy, which will be affected by prevailing economic conditions and
financial, business and other factors, many of which are beyond the Company's
control. If the Company is unable to service its indebtedness, it will be forced
to adopt an alternative strategy that may include actions such as reducing or
delaying planned acquisition activity, selling assets, restructuring or
refinancing its indebtedness or seeking additional capital. There can be no
assurance that any of these strategies could be effected on satisfactory terms,
if at all, or that the Company's failure to service any of its indebtedness will
not have a material adverse effect on the Company's business, financial
condition and results of operations.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS. The Company has debt
obligations which restrict, among other things, the ability of the Company
and/or its subsidiaries to: (i) incur additional indebtedness; (ii) incur liens;
(iii) pay dividends or make certain other restricted payments; (iv) consummate
certain asset sales; (v) enter into certain transactions with affiliates; (vi)
merge or consolidate with any other person; or (vii) sell, assign, transfer,
lease, convey or otherwise dispose of its assets. In addition, the Company's
senior credit facility requires the Company to maintain specified financial
ratios and satisfy certain financial tests. The Company's ability to maintain
those financial ratios and to satisfy those tests will be affected by events
beyond its control, and there can be no assurance that the Company will be able
to do so. A breach of any of the financial covenants in the senior credit
facility, or certain other debt obligations could result in a default under each
of the governing agreements. Upon the occurrence of an event of default under
the senior credit facility, the respective lenders could elect to declare all
amounts outstanding, together with accrued interest, to be immediately due and
payable. Substantially all of the assets of the Company and each of its U.S.
subsidiaries are pledged as collateral security for the senior credit facility.
If the Company were unable to repay all such outstanding amounts, the lenders
could proceed against the collateral granted to them to secure that
indebtedness, and any proceeds realized upon the sale of such collateral would
be used first to satisfy all amounts outstanding under the senior credit
facility, and thereafter, any other liabilities of the Company. If the
indebtedness under the senior credit facility were to be accelerated, there can
be no assurance that the assets of the Company would be sufficient to repay in
full that indebtedness and any other indebtedness of the Company, which could
have a material adverse effect upon the Company's business, financial condition
and results of operations.
DEPENDENCE UPON KEY PERSONNEL. The Company depends upon the efforts of
its officers and directors. The loss of the services of such key personnel could
have a material adverse effect on the Company's ability to successfully achieve
its business objectives. Although each of the key employees has executed an
employment agreement that prohibits the employee from competing against the
Company for a specified period of time, there can be no assurance that such
remedy will be available to the Company or that such protection will mitigate
any losses incurred as a result of termination of employment.
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PRODUCT LIABILITY. The Company's business exposes it to possible claims
for personal injury or death that may result from the failure of an aircraft or
engine owned and leased by it or an engine part sold by it. The Company
currently maintains product liability insurance coverage in the amount of $750
million on an aggregate and per claim basis. There can be no assurance that
claims will not arise in the future, that such insurance coverage can be
maintained in the future at an acceptable cost or that such coverage will be
adequate to cover any future liability of the Company. Any such liability not
covered by insurance could have a material adverse effect on the financial
condition of the Company.
DEPENDENCE ON THE CONDITION OF THE AIRLINE INDUSTRY. Aircraft engine
and engine parts pricing is affected to a degree by the overall economic
condition of the airline industry, which has historically been volatile. The
demand for after-market engines and engine parts is driven primarily by flying
hours or cycles. Regardless of the profitability of the airline industry, parts
must be serviced or replaced at scheduled intervals. As such, the demand for
after-market parts is a function of the level of worldwide air traffic.
Additionally, factors such as the price of fuel affect the aircraft parts
market, since older aircraft (into which aircraft parts are most often placed)
become less economically viable as the price of fuel increases. During a
downturn in the aviation industry, there may be reduced overall demand for
aircraft, avionics and aircraft rotables, and engines and engine parts, lower
selling prices for the Company's products and increased credit risk associated
with doing business with industry participants. There can be no assurance that
economic and other factors that might affect the airline industry will not have
an adverse impact on the Company's business, financial condition and results of
operations.
COMPETITION. The aviation parts after-market is highly competitive.
Competition is based on product quality, price and the ability to provide needed
parts quickly. The largest segment of the after-market is served by OEMs.
However, the relatively high overhead and slow response times often associated
with such large organizations can present a handicap in a fast-moving, price-
sensitive marketplace. OEMs generally concentrate on selling new parts, leaving
the market in serviceable and overhauled parts to other suppliers.
OEM-manufactured new parts generally do not compete with overhauled parts. The
largest resellers include companies such as AAR Corp. and The AGES Group. There
are approximately 10 to 15 midsize resellers, including the Company. A large
portion of the market revenue is generated by over 50 small after-market
suppliers and brokers. As a result of industry consolidation, management expects
that a number of these smaller operators will either be acquired or will have
difficulty competing in this changing market. In addition, the engine parts
supply business has been reshaped by the widespread adoption of parts listing
services. The parts listing services list the availability of thousands of types
of parts from brokers, distributors, repair facilities and airlines. The listing
includes the quantity of parts available, the condition of the parts, when the
parts are available and a contact for more information. The parts listing
services have created a much freer flow of information concerning the supply and
demand for particular parts. Dealers now must compete not only on the basis of
their relationships with customers and knowledge regarding a potential source
for products, but also on the quality of the parts available, the documentation
tracing the history of the parts and the price. There can be no assurance that
the Company will continue to compete effectively against present and future
competitors or that competitive pressures will not have a material adverse
effect on the Company's business, financial condition and results of operations.
GOVERNMENT REGULATION. The aviation industry is highly regulated by the
FAA in the United States and the equivalent regulatory agencies in other
countries. While the Company's reselling business is not regulated, the
aircraft, avionics and aircraft rotables, and engines and engine parts that the
Company sells to its customers must be accompanied by documentation that enables
the customer to comply with applicable regulatory requirements. There can be no
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assurance that new and more stringent government regulations will not be adopted
in the future or that any such new regulations, if enacted, would not have an
adverse impact on the Company. Before engine parts may be installed in an
aircraft engine, they must meet certain standards of airworthiness established
by the FAA or the equivalent regulatory agencies in other countries. Specific
regulations vary from country to country, although regulatory requirements in
other countries are generally satisfied by compliance with FAA requirements.
Engine components must also be traceable to sources deemed acceptable by such
agencies. Although the Company believes it complies with the highest level of
such regulatory standards, standards may change in the future, requiring engine
components already contained in the Company's inventory to be scrapped or
modified. Aircraft engine manufacturers may also develop new engine components
to be used in lieu of engine components already contained in the Company's
inventory. In all such cases, to the extent that the Company has such engine
components in its inventory, their value may be reduced and the Company's
business, financial condition and results of operations could be adversely
affected.
NO DIVIDENDS. The Company intends to retain all earnings for the
foreseeable future for use in the operations and expansion of its business.
Consequently, the Company does not anticipate paying any cash dividends on its
Common Stock to its stockholders for the foreseeable future. In addition, the
debt financing agreements to which the Company is a party contain restrictions
on the Company's ability to declare dividends.
EMPLOYEES
As of December 31, 1999, the Company had approximately 340 full-time
employees. None of the Company's employees are members of a labor union. The
Company believes that its relations with its employees are good.
STOCK OPTION PLANS
CORPORATE POLICY. The Company is operating in a unique environment
where its relatively small number of employees (consisting of 23 executives and
317 employees) make the daily decisions that directly effect the Company's
operational and financial results. The Company continually strives to build and
maintain a team comprised of the best executives and employees in their field by
offering the most attractive work environment and performance based compensation
packages available. The Board believes that the Company's stock option plans are
an essential component of the Company's compensation package which promote the
interests of the Company and its stockholders by strengthening the Company's
ability to attract, retain and incentivize competent employees and executives
and making service on the Company's Board of Directors more attractive to
present and prospective non-employee directors. Such stock option plans
encourage stock ownership and proprietary interest in the Company by the
individuals upon whose judgment, initiative and efforts the financial success
and growth of the Company largely depend.
STOCK OPTION PLAN FOR NEW EXECUTIVES AND EMPLOYEES AND OUTSIDE
DIRECTORS. Consistent with the corporate policy placing importance on stock
options as part of compensation packages, the Company intends to continue to use
stock options as part of the performance based compensation packages used to
attract and incentivize new executives and employees. The Company also intends
to use stock options in lieu of cash compensation to continue to make service by
present and prospective outside directors attractive. For these reasons, the
Board adopted, subject to shareholder approval, a 1998 Stock Option Plan (the
"Plan") effective as of November 15, 1998 and intends to only grant options
under this Plan to newly hired executives and employees as an inducement to
enter into employment arrangements with the Company, and to outside members of
the Board, in lieu of cash compensation, as an incentive for their service on
the Board. The Plan authorizes the issuance of stock options to purchase an
aggregate of 170,000 shares of the Company's Common Stock and contains
substantially the same terms as the Company's 1997 Stock Option Plan. The
Company obtained shareholder approval of the Plan at the 1999 Annual Meeting of
Shareholders.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC REVENUES
Total revenues derived from domestic and international customers
accounted for 64% and 36%, respectively, for the year ended December 31, 1999,
67% and 33%, respectively, for the year ended December 31, 1998, and 79% and
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21%, respectively, for the year ended December 31, 1997. See Footnote 15 to the
Consolidated Financial Statements.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company owns its 193,000 square foot headquarters and warehouse facility
located on 11.5 acres in the Sawgrass International Corporate Park, Sunrise,
Florida which is near Fort Lauderdale, Florida. The Company's address is 1100
International Parkway, Sunrise, Florida 33323. The property is subject to a
mortgage held by Bank of America, N.A. to secure the Company's obligations under
its bank credit facility.
The Company owns its previous 45,000 square foot office and warehouse facility
located on 2.5 acres in the Sawgrass International Corporate Park, Sunrise,
Florida which is near Fort Lauderdale, Florida at 14000 N.W. 4th Street,
Sunrise, Florida 33325. The property is subject to a mortgage held by Bank of
America, N.A.
The Company leases a 20,000 square foot facility of office and warehouse space,
assumed in connection with the acquisition of Aerocar, located at 1495 N. Park
Drive, Weston, Florida 33326. The lease was recently negotiated for a term
ending December 31, 2010 at a base rent of approximately $18,000 per month.
The Company leases a 12,000 square foot facility of office and warehouse space,
assumed in connection with the acquisition of Certified, located at 2870
Stirling Road, Hollywood, Florida 33020. The month to month lease provides for a
base rent of approximately $10,000 per month.
The Company leases a 4,000 square foot facility of warehouse space, assumed in
connection with the acquisition of Certified, located at RT 10 Box 916, Lake
City, Florida 32025. The month to month lease provides for a base rent of
approximately $1,000 per month.
The Company leases a 4,000 square foot facility of warehouse space, assumed in
connection with the acquisition of Certified, located at 2060-G Tigertail
Boulevard., Dania, Florida 33004. The month to month lease provides for a base
rent of approximately $2,000 per month.
The Company leases a 8,614 square foot facility of warehouse space, assumed in
connection with the acquisition of Certified, located at 2201-2385 Stirling
Road, Fort Lauderdale, Florida, 33312. The lease provides for a term ending
March 31, 2000 at a base rent of approximately $4,800 per month.
The Company leases a 12,000 square foot facility of warehouse space, assumed in
connection with the acquisition of Certified, located at 5030 N.W. 109 Avenue,
Suites E & H, Sunrise, Florida 33313. The month to month lease provides for a
base rent of approximately $7,500 per month.
18
<PAGE> 19
The Company leases a 44,000 square foot facility of office and warehouse space,
assumed in connection with the acquisition of Solair, located at 3380 S.W. 11th
Avenue, Fort Lauderdale, Florida 33315. The lease provides for a term ending
August 31, 2007 at a base rent of $20,000 per month through August 31, 2002 and
$23,000 per month through August 31, 2007.
The Company leases a 40,000 square foot facility of warehouse space located at
3301 S.W. 9th Avenue, Fort Lauderdale, Florida 33315. The lease provides for a
term ending August 31, 2001 at a base rent of $15,045 per month.
The Company leases a 2,000 square foot facility of office and warehouse space,
assumed in connection with the acquisition of Solair, located at Unit 15
Farnborough Business Centre, Pelmoor Rd., Farnborough England. The lease
provides for a term ending April 7, 2003 at a base rent of approximately $19,000
plus value added taxes per year.
ITEM 3. LEGAL PROCEEDINGS.
On July 7, 1999, the Company settled a lawsuit brought by the Estate of
the late Mr. Joram Rosenfeld (a former Director of the Company) with respect
to, among other things, a claim alleging entitlement to a stock option grant in
late 1996. The settlement was entered into in order to limit the expense of
litigating the suit as well as the protracted use of management's time and
related corporate resources. The Company recorded a one-time pre-tax charge of
approximately $2.2 million during the second quarter of 1999 to fulfill its
obligation under the settlement and for accrued legal expenses.
There are no material legal proceedings pending against the Company or
any of its property. However, the Company may become party to various claims,
legal actions and complaints arising in the ordinary course of business or
otherwise. The Company cannot determine whether such actions would have a
material impact on the financial condition, results of operations or cash flows
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of stockholders of the Company
during the fourth quarter of the fiscal year ended December 31, 1999.
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<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since June 1997, the Company's Common Stock has been listed on The
Nasdaq Stock Market ("NASDAQ")-National Market under the symbol "KELL." Prior to
that date, the Company's Common Stock was listed on the NASDAQ-SmallCap Market
under the same symbol.
The following table sets forth the range of high and low bid prices for
the Common Stock for the period from January 1998 to December 1999, as reported
by NASDAQ. The quotes represent "Inter-dealer" prices without retail markups,
markdowns or commissions and may not necessarily represent actual transactions.
COMMON STOCK
------------------------
HIGH LOW
---- ---
Year Ended December 31, 1998:
First Quarter $27 3/4 $20
Second Quarter $27 3/4 $23
Third Quarter $27 1/8 $12 7/8
Fourth Quarter $28 3/4 $9 1/8
Year Ended December 31, 1999:
First Quarter $28 3/4 $12 1/4
Second Quarter $20 5/8 $14 5/8
Third Quarter $18 1/2 $9 1/2
Fourth Quarter $10 9/16 $7 1/2
As of February 29, 2000, there were 11,910,981 shares of Common Stock
outstanding, held by 73 stockholders of record. The Company believes that
certain holders of record hold a substantial number of shares of Common Stock as
nominees for a significant number of beneficial owners. The closing price for
the Company's Common Stock on February 29, 2000 was $6 15/16 per share.
The Company has not paid any cash dividends on its Common Stock to
date. The payment of dividends is within the discretion of the Board of
Directors. The debt financing arrangements to which the Company is a party
contain restrictions on the Company's ability to pay dividends. It is the
present intention of the Board of Directors to retain all earnings for use in
the Company's business operations and, accordingly, the Board does not
anticipate declaring any dividends in the foreseeable future.
ISSUANCE OF UNREGISTERED SECURITIES DURING 1999
All of the transactions listed below involve the issuance of securities
of the Company in reliance upon Section 4(2) of the Securities Act of 1933, as
amended.
On March 23, 1999, in connection with the acquisition of Solair, the
Company issued to Helix a warrant to acquire 2,250 shares of Common Stock at an
exercise price of $27.50 per share, expiring on December 31, 2002, in partial
consideration for the services performed by Helix in connection with the
transaction.
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<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
The financial data set forth below should be read in conjunction with
the Company's consolidated financial statements and notes thereto included
elsewhere herein. See also "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues $ 330,944 $ 180,049 $ 79,439 $ 24,922 $ 8,579
Total operating expenses 276,751 139,019 61,828 20,169 7,062
Net operating income 54,193 41,030 17,611 4,753 1,517
Interest expense, net of interest 21,268 9,773 3,991 645 (225)
income
Non-operating expenses -- -- -- -- 1,110
Income taxes 12,390 11,679 5,077 1,462 258
------------ ------------ ------------ ------------ ------------
Net income $ 20,535 $ 19,578 $ 8,543 $ 2,646 $ 374
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total current assets $ 361,053 $ 272,530 $ 74,215 $ 19,655 $ 15,689
Total current liabilities 38,193 42,147 19,020 8,565 6,019
Total assets 541,445 434,050 134,361 29,545 21,918
Non-current obligations 332,039 242,144 65,430 2,819 2,760
Stockholders' equity 171,213 149,759 49,912 18,161 13,139
</TABLE>
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<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED
ELSEWHERE HEREIN.
GENERAL
The Company is a leader in the airborne equipment segments of the
international aviation services after-market. The Company's net revenues have
increased from $79.4 million for the year ended December 31, 1997 to $330.9
million for the year ended December 31, 1999. During the same time period, the
Company's net income increased from $8.5 million to $20.5 million. The increase
in revenues and net income is the result of a number of factors, including the
expansion of the Company's product lines, customer base and market share,
increases in the Company's internal growth, cost controls and overall operating
efficiencies, acquisitions in existing and adjacent markets and significant
capital investments.
The Company is organized based on the products that it offers. Under
this organizational structure, the Company has four reportable segments: (i)
Commercial Engine Parts, (ii) Defense, (iii) Whole Engine and Aircraft and (iv)
Airframe Avionics and Rotables. The Commercial Engine Parts segment is involved
in the business of purchasing, overhauling (primarily through subcontractors),
reselling and leasing of engine parts for large turbo-fan engines manufactured
by CFM International, General Electric, Pratt & Whitney and Rolls Royce. The
Defense segment is an after-market reseller of aircraft parts and turbojet
engines and engine parts for helicopters and large transport aircraft. The
segment's primary focus is on the Lockheed Martin C-130 Hercules aircraft, a
widely used military transport aircraft, the Allison (Rolls Royce) T56/501
engine, which powers this aircraft and the Allison 250, with approximately
16,000 units actively in use by helicopters. The Company entered the small
engine segment in 1997 with the acquisition of Aero Support. The acquisition of
Certified on April 29, 1999 enhanced the Company's presence in this market
segment. The Whole Engine and Aircraft segment leases and resells whole engines
and aircraft. The Airframe Avionics and Rotables segment is engaged in the sale
of a wide variety of aircraft rotables and expendable components including
flight data recorders, electrical and mechanical equipment and radar and
navigation systems. The Company entered the avionics and rotables segment in
1998 with the acquisition of Solair.
The Company has completed 6 acquisitions during the period from 1997 to
1999. These acquisitions were accounted for using the purchase method of
accounting for business combinations and accordingly, those companies' operating
results have been included in the Company's results of operations since the date
of acquisition.
RESULTS OF OPERATIONS
For the periods indicated, the following table sets forth the
percentage of certain income statement items to total revenues derived from the
Company's consolidated statements of earnings.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-----------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Revenues:
Sales Revenues, net 87.3% 82.7% 90.1%
Rental Revenues 12.7 17.3 9.9
Total Revenues 100.0 100.0 100.0
Operating Expenses:
Cost of Goods Sold 60.7 55.7 58.9
Depreciation of Equipment Under Operating Leases 8.2 9.3 5.7
Selling, General and Administrative Expenses 12.4 10.6 11.2
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-----------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Depreciation and Amortization Expense 1.6 1.7 2.0
Other non-recurring expenses 0.7 -- --
Total Operating Expenses 83.6 77.3 77.8
Interest Expense (net of Interest Income) 6.4 5.4 5.0
Income before income taxes 9.9 17.3 17.2
Income Taxes 3.7 6.4 6.4
Net Income 6.2 10.9 10.8
</TABLE>
YEARS ENDED DECEMBER 31, 1999 AND 1998
Consolidated sales revenues increased by 94% to $288.9 million for the
year ended December 31, 1999 as compared to $148.9 million for the year ended
December 31, 1998. The increase in sales revenues was impacted by the results of
the Company's Solair division which was acquired in December 1998 and generated
revenues of $54.0 million for the year ended December 31, 1999. Sales revenues
from the Company's commercial engine parts segment increased to $75.0 million
from $41.5 million in the prior year. The increase in sales of commercial engine
parts was primarily due to higher levels of inventory availability as a result
of the Company's increased capital resources as well as the impact of the
acquisition of ITC during 1998. Sales revenues from the Company's defense
segment increased by $23.8 million to $48.0 million partially due to internal
growth as a result of the Company's significant investment in marketing and
higher levels of inventory availability and partially the result of the
acquisition of Certified in April 1999. Sales of whole aircraft and engines
increased 34.5% in 1999 primarily due to higher levels of inventory availability
as a result of the Company's increased capital resources. In connection with the
proposed off-balance sheet initiative for the Company's aircraft and engine
lease portfolio discussed in the liquidity and capital resources section below,
the Company believes sales of whole aircraft and engines will decrease in the
future.
Rental revenues increased by 35% to $42.0 million for the year ended
December 31, 1999 as compared to $31.1 million for the year ended December 31,
1998, primarily due to an increase in the Company's aircraft and engine lease
portfolio partially offset by higher levels of idle equipment. In connection
with the proposed off-balance sheet initiative for the Company's aircraft and
engine lease portfolio discussed in the liquidity and capital resources section
below, the Company believes sales of whole aircraft and engines will decrease in
the future.
Cost of goods sold increased by 101% to $200.9 million for the year
ended December 31, 1999 as compared to $100.2 million for the year ended
December 31, 1998. Gross profit margin on sales decreased to 30.5% in 1999 from
32.7% in 1998. The increase in cost of goods sold was primarily due to the
increase in revenues. The decrease in the gross profit margin was primarily due
to lower gross profit margins on the sales of whole aircraft and engines of
28.3% as compared to 31.1% in 1998 along with expected lower margins from the
Company's Airframe Avionics and Rotables segment. Gross profit margins in the
Company's commercial engine parts and defense segments were relatively stable as
compared with 1998.
Depreciation of equipment under operating leases increased by 62% to
$27.1 million for the year ended December 31, 1999 as compared to $16.7 million
for the year ended December 31, 1998. Gross profit margin on rental revenues
decreased to 35.5% in 1999 from 46.4% in 1998. The increase in depreciation of
equipment under operating leases was primarily due to the increase in the
Company's aircraft and engine lease portfolio. The decrease in gross profit
margin was primarily due to a continued shift in the Company's lease portfolio
to longer term leases and newer equipment as well as the impact of depreciation
expense incurred in connection with the slightly higher levels of idle
equipment. In connection with the proposed off-balance sheet initiative for the
Company's aircraft and engine lease portfolio discussed in the liquidity and
capital resources section below, the Company believes depreciation of equipment
under operating leases will decrease in the future.
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<PAGE> 24
Selling, general and administrative expenses increased by 116% to $41.1
million for the year ended December 31, 1999 as compared to $19.1 million for
the year ended December 31, 1998. As a percentage of total revenues, selling,
general and administrative expenses increased to 12.4% in 1999 from 10.6% in
1998. The increase in selling, general and administrative expenses was primarily
due to (i) the acquisitions of ITC, Aerocar, Solair and Certified being combined
into Kellstrom, (ii) the Company's continued investment in personnel and
facilities for the defense, commercial engine parts and airframe avionics and
rotables segments in order to support the Company's growth model, (iii)
increased professional service fees incurred in connection with (a) the design
of the Company's new management information system and (b) pre-settlement legal
fees incurred in connection with defending the lawsuit brought by the Estate of
a late Director of the Company and (iv) an increase in bad debt expense as
a result of the expansion of the Company's customer base. The Company believes
selling, general and administrative expenses will continue to increase due to
the Company's growth plans and need for additional personnel and facilities to
support the Company's operations.
Depreciation and amortization expense increased by 77% to $5.4 million
for the year ended December 31, 1999 as compared to $3.1 million for the year
ended December 31, 1998; however, as a percentage of total revenues,
depreciation and amortization expense decreased to 1.6% in 1999 from 1.7% in
1998. The increase in depreciation and amortization expense was primarily due to
amortization of goodwill related to the ITC, Aerocar, Solair and Certified
acquisitions in addition to depreciation of the Company's new headquarters
facility which was completed in December 1998.
Other non-recurring expenses for 1999 reflect a $2.2 million charge to
fulfill the Company's obligation under the settlement of a lawsuit brought by
the Estate of a late Director of the Company, with respect to, among other
things, a claim alleging entitlement to a stock option grant in late 1996, and
for accrued legal expenses incurred in connection with the settlement.
Interest expense (net of interest income) increased by 118% to $21.3
million for the year ended December 31, 1999 as compared to $9.8 million for the
year ended December 31, 1998. The increase in interest expense was primarily
driven by an increase in the Company's average debt levels during 1999,
resulting from the acquisitions of ITC, Aerocar, Solair and Certified and growth
in inventories and equipment under operating leases. Except for the expected
impact on interest expense of the proposed off-balance sheet initiative for the
Company's aircraft and engine lease portfolio discussed in the liquidity and
capital resources section below, the Company believes interest expense will
continue to increase as the Company continues to expand its inventory levels and
facilities to support future growth in operations and completes acquisitions
funded by debt. There can be no assurance, however, that the Company's
operations will expand or that it will complete any material acquisitions.
The Company's effective tax rate for the year ended December 31, 1999
was 37.6% as compared to 37.4% for the year ended December 31, 1998.
Net income increased by 5% to $20.5 million for the year ended December
31, 1999 as compared to $19.6 million for the year ended December 31, 1998.
Basic earnings per common share decreased by 11% to $1.73 for the year ended
December 31, 1999 as compared to $1.94 for the year ended December 31, 1998.
Diluted earnings per common share decreased by 3% to $1.48 for the year ended
December 31, 1999 as compared to $1.53 for the year ended December 31, 1998.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Sales revenues increased by 108% to $148.9 million for the year ended
December 31, 1998 as compared to $71.5 million for the year ended December 31,
1997. The increase in sales was primarily due to (i) growth of sales of
approximately $38.4 million due to additional inventory availability as a result
of the Company's increased capital resources as well as the acquisition of
Aerocar being combined into Kellstrom, and (ii) incremental sales of
approximately $39.0 million related to the acquisition of Aero Support and ITC.
Commercial engine parts revenues increased to $41.5 million in 1998 from $37.0
24
<PAGE> 25
million in 1997 due in part to the acquisition of ITC. Sales revenues from the
Company's defense segment increased 255% in 1998 to $24.2 million as a result of
the acquisition of Aero Support. Sales of whole engine and aircraft increased
200% in 1998 to $83.2 million due to additional inventory availability as a
result of the Company's increased capital resources as well as the acquisition
of Aerocar being combined into Kellstrom.
Rental revenues increased by 294% to $31.1 million for the year ended
December 31, 1998 as compared to $7.9 million for the year ended December 31,
1997. The increase in rental revenues was primarily due to (i) the Company's
continued expansion into the leasing business through purchases of individual
assets as well as the acquisition of Aerocar being combined into Kellstrom
resulting in increased rental revenues of approximately $20.0 million, and (ii)
incremental rental revenues of approximately $3.2 million related to the
acquisition of the ITC operations.
Cost of goods sold increased by 114% to $100.2 million for the year
ended December 31, 1998 as compared to $46.8 million for the year ended December
31, 1997. Gross profit margin decreased to 32.7% in 1998 from 34.6% in 1997. The
increase in cost of goods sold was primarily due to the increased revenues
across all segments. The decrease in the gross profit margin was primarily due
to lower gross profit margins on sales from the Company's defense segment of
34.7% in 1998 compared to 39.6% in 1997.
Depreciation of equipment under operating leases increased by 263% to
$16.7 million for the year ended December 31, 1998 as compared to $4.6 million
for the year ended December 31, 1997. The increase in depreciation of equipment
under operating leases was primarily due to (i) the Company's continued
expansion into the leasing business through purchases of individual assets as
well as the acquisition of Aerocar being combined into Kellstrom, resulting in
increased depreciation of approximately $10.2 million, and (ii) incremental
depreciation of approximately $1.9 million related to the acquisition of ITC.
Selling, general and administrative expenses increased by 115% to $19.1
million for the year ended December 31, 1998 as compared to $8.9 million for the
year ended December 31, 1997; however, as a percentage of total revenues,
selling, general and administrative expenses decreased to 10.6% in 1998 from
11.2% in 1997. The increase in selling, general and administrative expenses was
primarily due to (i) expenses of approximately $5.2 million related to the
continuing operations of Aero Support and ITC, and (ii) expenses of
approximately $5.0 million related to the continued expansion of the Company's
sales and warehouse operations. This expansion consisted of greater resources to
support a higher level of revenue and a corresponding greater number of whole
engine and engine component transactions, and the continued addition of
marketing and management personnel necessary to achieve and administer the
revenue growth opportunities that are available due to the Company's expanded
level of inventory investment as well as the acquisition of Aerocar being
combined into Kellstrom. Selling, general and administrative expenses as a
percentage of total revenues decreased during 1998 primarily due to economies of
scale and operating efficiencies derived from the consolidation of operations
related to completed acquisitions.
Depreciation and amortization expense increased by 97% to $3.1 million
for the year ended December 31, 1998 as compared to $1.6 million for the year
ended December 31, 1997; however, as a percentage of total revenues,
depreciation and amortization expense decreased to 1.7% in 1998 from 2.0% in
1997. The increase in depreciation and amortization expense was primarily due to
amortization of goodwill related to the Aero Support, ITC and Aerocar
acquisitions.
Interest expense (net of interest income) increased by 145% to $9.8
million for the year ended December 31, 1998 as compared to $4.0 million for the
year ended December 31, 1997. The increase in interest expense was primarily
driven by an increase in the Company's average debt levels during 1998,
resulting from the acquisition of ITC and growth in inventories and equipment
under operating leases.
The Company's effective tax rate for the year ended December 31, 1998
was 37.4% as compared to 37.3% for the year ended December 31, 1997.
Net income increased by 129% to $19.6 million for the year ended
December 31, 1998 as compared to $8.5 million for the year ended December 31,
1997. Basic earnings per common share increased by 64% to $1.94 for the year
25
<PAGE> 26
ended December 31, 1998 as compared to $1.18 for the year ended December 31,
1997. Diluted earnings per common share increased by 61% to $1.53 for the year
ended December 31, 1998 as compared to $0.95 for the year ended December 31,
1997.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company's liquidity and capital resources
included cash and cash equivalents of $0.3 million and working capital of $322.9
million. At December 31, 1999, total outstanding debt was $326.1 million as
compared to $239.9 million as of December 31, 1998. As of December 31, 1999, the
outstanding principal balance on the Company's convertible subordinated notes
was $140.3 million and the Company had contractual lines of credit totaling
$256.7 million, of which $172.4 million was outstanding and $36.6 million was
available.
Cash flows used in operating activities for the year ended December 31,
1999 was $48.6 million compared with $89.0 million for the year ended December
31, 1998. The primary uses of cash for operating activities during the year
ended December 31, 1999 was for increases in inventories and equipment under
operating leases of $33.2 million and $36.7 million, respectively, and an
increase in trade receivables of $25.1 million. The increases in inventories,
equipment under operating leases and trade receivables were to support the
Company's growth. The primary sources of cash from operating activities for the
year ended December 31, 1999 was from net income of $20.5 million, adjusted for
non-cash expenses related to depreciation and amortization of $32.5 million.
Cash flows used in investing activities for the year ended December 31,
1999 was $36.1 million compared with $130.1 million for the year ended December
31, 1998. The primary uses of cash for investing activities for the year ended
December 31, 1999 was related to the acquisitions of Certified for $16.7
million, a $3.3 million purchase price adjustment payment related to the Solair
acquisition, earn-out payments in connection with the acquisitions of Aero
Support and ITC of $5.1 million in the aggregate and purchases of property,
plant and equipment for $11.1 million.
Cash flows provided by financing activities for the year ended December
31, 1999 was $83.9 million compared with $219.7 million for the year ended
December 31, 1998. The primary sources of cash for financing activities for the
year ended December 31, 1999 related to borrowings under line of credit
agreements of $88.5 million, offset by repayments of debt of $5.0 million.
The Company is evaluating the possibility of establishing partnerships
with financial/leasing organizations for the continued expansion of its aircraft
and engine sales and leasing business. Under the proposed initiative, the
Company expects that it would retain a minority ownership stake in the proposed
partnerships and continue to manage the operations of those partnerships.
Although there are no guarantees that it will happen, this action, if
consummated, could give the Company a cash infusion which it expects would be
used to pay down a substantial portion of its line of credit with its commercial
banks. The proposed initiative is expected to take place if and when one or more
appropriate financial/leasing organizations are identified and transaction terms
are finalized.
The Company expects that the proposed initiative, if implemented, would
have the effect of reducing debt and interest expense, improving cash flow, and
freeing up capital for strategic business initiatives. While the Company would
forego the revenues and some of the profits expected to be generated by its
existing lease portfolio, the Company would continue to receive a pro-rata share
of any partnership profits.
The Company maintains a $256.7 million syndicated credit facility with
Bank of America, N.A. (formerly NationsBank, N.A.) ("Bank of America") as the
agent bank, consisting of a $250.0 million revolving credit facility and a
letter of credit in the amount of up to $6.7 million, with an option by the
Company to increase the revolving credit facility by an additional $50.0 million
for a total of $306.7 million throughout the term, subject to the approval of
Bank of America and the satisfaction of certain conditions. The credit facility
bears interest ranging from prime rate plus 0 to 50 basis points, or at the
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<PAGE> 27
Company's option, LIBOR plus 150 to 250 basis points. The letter of credit
component of the $256.7 million syndicated credit facility was specifically
committed to the permanent financing of the Company's new world headquarters.
The $6.7 million financing was completed by the Company on February 22, 1999.
The Company intends to take advantage of growth opportunities that are
consistent with the Company's expansion and profit objectives. It is anticipated
that such growth opportunities will require the investment of cash into
inventories of aircraft and aircraft parts, engines and engine parts and
avionics and rotables. Greater availability of such inventories will better
enable the Company to continue to increase its revenues as well as to encourage
the development of strategic relationships with new customers. The Company
intends to finance its inventory expansion program through its syndicated credit
facility, and through its cash flows. In the future, the Company may require
additional sources of capital to continue to fund its expansion.
The Company's management believes that free cash flow (net income plus
depreciation of property, plant and equipment and amortization of goodwill),
combined with the Company's syndicated credit facility should be sufficient for
the Company's current level of operations. However, the Company may elect to
seek equity capital or other debt financing in the future depending upon market
conditions and the capital needs of the Company.
YEAR 2000 ISSUE
The Year 2000 problem is primarily the result of computer programs
being written using two digits rather than four to define the applicable year.
Such programs will be unable to interpret dates beyond the year 1999, which
could cause a system failure or other computer errors, including possible
miscalculations, and a disruption in the operation of such systems. This is
commonly referred to as the Year 2000 issue.
The Company and each of its operating subsidiaries have executed a plan
to identify and address any possible business issues related to the impact of
the Year 2000 problem on both its information technology ("IT") and non-IT
systems (e.g., embedded technology). This plan addressed the Year 2000 issue in
multiple phases, including (i) determining an initial inventory of the Company's
systems, equipment (including embedded technology in the Company's aircraft,
engine and parts inventory as well as leased equipment), vendors, customers and
third party administrators that may be vulnerable to system failures or
processing errors as a result of Year 2000 issues, (ii) assessment and
prioritization of inventoried items to determine risks associated with their
failure to be Year 2000 compliant, (iii) testing of systems and equipment to
determine Year 2000 compliance, (iv) remediation and implementation of systems
and equipment, and (v) contingency planning to assess reasonably likely
worst-case scenarios. As part of the Company's plan, the Company retained a
third party Year 2000 solution provider to assist with a risk analysis of the
Company's Year 2000 issue and assist with project office management. For those
systems which the Company determined were not Year 2000 compliant,
implementation of the required changes was completed during 1999. Risk
assessment, readiness evaluation, action plans and contingency plans related to
the Company's suppliers, vendors and other third parties were also completed
during 1999.
Incremental costs, which include consulting costs and costs associated
with internal resources to modify existing systems in order to achieve Year 2000
compliance, were charged to expense as incurred. The Company's cost of making
the required system changes did not exceed $250,000.
To date, the Company has experienced no significant disruptions in its
information technology systems as a result of the Year 2000 date change. The
Company will continue to monitor for undetected Year 2000 matters that may
arise.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" which amended SFAS 133 to change the effective date to fiscal
quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 requires
companies to recognize all derivative contracts as either assets or liabilities
in the balance sheet and to measure them at fair value. Management does not
anticipate a significant impact of the adoption of SFAS No. 133 on the Company's
consolidated financial position, results of operations or cash flows.
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<PAGE> 28
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's exposure to market risk is limited primarily to the
fluctuating interest rates associated with variable rate indebtedness
outstanding under the Company's $256.7 million bank credit facility. The bank
credit facility, which expires in 2003, bears interest at the bank's prime rate
plus 0-50 basis points or, at the Company's option, LIBOR plus 150-250 basis
points. These variable interest rates are subject to interest rate changes in
the United States and Eurodollar markets. The Company does not currently use,
and has not historically used, derivative financial instruments to hedge against
such market interest rate risk. At December 31, 1999, the Company had
approximately $172.4 million in variable rate indebtedness outstanding under the
credit facility, representing approximately 53% of the Company's total debt
outstanding, at an interest rate of 8.75% as of December 31, 1999. An increase
in interest rates by 1% would not have a material impact on the financial
condition, results of operations or cash flows of the Company.
28
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated financial statements for the years ended
December 31, 1999, 1998 and 1997, and the respective notes thereto, are set
forth elsewhere in this report. An index of these financial statements appears
in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
29
<PAGE> 30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, their ages and
their position with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Yoav Stern 46 Chairman
Zivi R. Nedivi 41 President, Chief Executive Officer and Director
John S. Gleason 50 Executive Vice President
Fred von Husen 55 Executive Vice President
Robert V. Hogan 45 Senior Vice President
Moti Markowicz 46 Senior Vice President
Michael Navon 39 Senior Vice President
Paul F. Steele 40 Senior Vice President
Ami Zelcer 51 Senior Vice President
Oscar E. Torres 29 Chief Financial Officer
Lance Berberian 37 Chief Information Officer
William J. Crowe, Jr. 75 Director
Niv Harizman 35 Director
William J. Lyon 76 Director
David Jan Mitchell 38 Director
</TABLE>
YOAV STERN is the Chairman of the Board of Directors and an executive
officer of the Company. From the Company's inception until June 1995, Mr. Stern
was the Co-Chief Executive Officer and Co-President of the Company. Mr. Stern
was a founder of the Company, and has served as a director of the Company since
its inception. Since August 1995, Mr. Stern has served as a director and member
of the executive committee of Bogen Communication International, Inc. ("Bogen"),
a company engaged in the digital voice processing business whose shares are
traded on the Nasdaq National Market, and since November 1997, Mr. Stern has
30
<PAGE> 31
served as Co-Chairman of Bogen. Prior to August 1995, Mr. Stern was a Co-Chief
Executive Officer of Bogen's predecessor company. Earlier, until 1994, Mr. Stern
was President and a director of WordStar International, Inc. (NYSE: TLC), and
Vice President of Business Development of Elron Electronic Industries Ltd.
(NASDAQ: ELRNF). He also served as a director of Random Access, Inc. Mr. Stern
previously served in the Israeli Air Force for ten years as an F-15, A-4, Mirage
and Kfir fighter pilot, avionic systems officer, commander of Operational
Training Unit and a Deputy Squadron Commander. Mr. Stern earned a Practical
Engineering Diploma (MAGNA CUM LAUDE) in advance mechanics and automation from
ORT Technological College, Israel, graduated from the Israel Air Force Academy
and earned a B.S. degree (MAGNA CUM LAUDE) in mathematics and computer science
from Tel Aviv University.
ZIVI R. NEDIVI has been the Chief Executive Officer, President and a
director of the Company since June 1995. Mr. Nedivi was the founder, President
and Chief Executive Officer of the predecessor of the Company, an indirectly
wholly-owned subsidiary of Rada Electronic Industries Ltd. ("Rada"), from its
establishment in 1990 until June 1995. From September 1994 until June 1995, Mr.
Nedivi also served as Corporate Vice President of Rada, a public company traded
on the Nasdaq National Market which is engaged in the business of avionics for
the commercial and military aviation industries. From October 1984 to September
1990, Mr. Nedivi was co-founder and General Manager of Maakav Ltd., a private
aviation management company based in Israel. Maakav represented certain American
companies in Israel, including companies active in the distribution of aircraft
parts. In 1988 and 1989, Mr. Nedivi was also co-founder and director of NBC
Aviation Inc., a private company based in Texas active in the sale of commercial
jet engines and related components. Mr. Nedivi also serves as a director of
Bogen Communication International, Inc. A graduate of the Israel Air Force
Academy, Mr. Nedivi served in the Israel Air Force as an F-15 fighter pilot for
seven years and held the rank of Major. He also served as a Human Engineering
Consultant to Israel Aircraft Industries Ltd. on the Lavi fighter aircraft
program.
JOHN S. GLEASON has served as Executive Vice President of the Company
since January 1997. From July 1997 until March 1999, Mr. Gleason served as a
director of the Company, and from July 1995 until October 1997, Mr. Gleason
served as Chief Financial Officer of the Company. From October 1997 until March
1999, Mr. Gleason served as President of Kellstrom Commercial Aircraft, Inc., a
wholly owned subsidiary of the Company. From January 1986 until July 1995, Mr.
Gleason served as the Vice President of Finance of International Aircraft
Support L.P. ("IASI"), a seller of new and used aircraft engine parts. Mr.
Gleason was also responsible for buying, selling and leasing IASI's commercial
jet engines on a worldwide basis, as well as the procurement of jet engine
inventory consignment arrangements. The company acquired the assets of IASI in
January 1997. Mr. Gleason is a Certified Public Accountant and earned a B.B.A.
degree from Florida Atlantic University in 1971.
FRED VON HUSEN joined the Company in January 1997 as its Executive Vice
President. From 1987 to January 1997, Mr. von Husen was IASI's President and
Chief Executive Officer. Mr. von Husen has 34 years of experience in the
aviation industry, primarily in engine and aircraft maintenance and financial
and organization management. Prior to joining IASI, he served as Vice President
31
<PAGE> 32
of Operations and earlier as Vice President of Technical Services at AirCal, a
passenger airline based in California. Mr. von Husen also spent 17 years at
United Airlines in various positions including engine maintenance, engineering,
and corporate planning. Mr. von Husen received a B.S.B.A. degree in organization
management and finance from the College of Notre Dame.
ROBERT V. HOGAN has served as a Senior Vice President of the Company
and General Manager of the Company's Commercial Engine Parts Division since
October 1999. From 1995 to 1999, Mr. Hogan held various positions with AAR
Corporation including Vice President of P&W Large Commercial Products. Prior to
joining AAR, Mr. Hogan spent 15 years with Pratt & Whitney at various positions
including Manager of P&W's High Thrust Engine Product Line. Hr. Hogan also
served in the U.S. Navy and logged nearly 2,000 flight hours in P3-B & C
aircraft and is a Vietnam era veteran. Mr. Hogan holds an associate in science
degree in business management from Post College and a Bachelor of Science degree
from Teikyo Post University. Mr. Hogan attended the Hartford Graduate Center's
Executive Masters degree Program (EMP) for his master of science in management.
MOTI MARKOWICZ has served as a Senior Vice President of the Company
since January 1999, and as a General Manager of the Company's Certified Division
since April 1999. From September 1997 until January 1999, Mr. Markowicz served
as an Executive Vice President of Aero Support Holdings, Inc., a wholly owned
subsidiary of the Company, and from 1985 until September 1997, as an Executive
Vice President of Aero Support USA Inc. ("Aero Support"). The assets of Aero
Support were acquired by the Company in September 1997. Mr. Markowicz received a
B.S. in Electrical Engineering from Polytechnic University and an M.B.A. from
New York Institute of Technology.
MICHAEL NAVON has served as a Senior Vice President of the Company
since January 1999, and as a General Manager of the Company's Certified Division
since April 1999. From September 1997 until January 1999, Mr. Navon served as an
Executive Vice President of Aero Support Holdings Inc., and from 1989 until
September 1997, Mr. Navon served in various positions with Aero Support. Mr.
Navon received a B.S. in Marketing and an M.B.A.from Baruch.
PAUL F. STEELE has been a Senior Vice President of the Company since
1997. From 1995 until 1997, Mr. Steele was a Vice President of the Company. From
1994 until 1995, Mr. Steele was the Vice President of Purchasing for the
predecessor of the Company, and from 1993 until 1994, Mr. Steele served as a
Director of Operations of such company. Prior to 1993, Mr. Steele held the
position of Vice President of Technical Sales at The AGES Group, a subsidiary of
Volvo Flygmotor and supplier of commercial aircraft engines. Mr. Steele
graduated from Bolton Street College, Dublin.
AMI ZELCER has been a Senior Vice President of the Company since
February, 1999. From 1996 until 1999, Mr. Zelcer was President of AAR Aircraft
Component Services. From 1991 until 1995, Mr. Zelcer was the Vice President of
Marketing with TAT Technologies in Israel. From 1976 to 1991, Mr. Zelcer held
various positions with Vickers Incorporated, Sundstrand Corporation, Urdan
Corporation (in Israel) and Speco Corporation. Mr. Zelcer received a Bachelor's
Degree in Mechanical Engineering and a Master's degree in Mechanical Engineering
from Ohio State University.
OSCAR TORRES has served as Chief Financial Officer of the Company since
February 2000. From January 1999 until February 2000, Mr. Torres served as Vice
President of Finance and Corporate Controller of the Company. Prior to joining
the Company, Mr. Torres was a Manager at KPMG LLP at which he held various
positions since July 1993. Mr. Torres is a Certified Public Accountant licensed
in Florida and earned his undergraduate degree in Accounting from Florida
International University in 1991 and an M.B.A. from the University of Miami in
1992.
32
<PAGE> 33
LANCE BERBERIAN has served as Senior Vice President and Chief
Information Officer of the Company since January 2000. From 1997 to 1999, Mr.
Berberian was Chief Information Officer at Interim Healthcare. Prior to joining
Interim, Mr. Berberian also spent 3 years at Corning Clinical Laboratories as
Chief Information Officer. Mr. Berberian received a B.A. degree in Business
Administration from Thomas Edison State College in New Jersey.
ADMIRAL WILLIAM J. CROWE, JR. has served as a director of the Company
since March 1999. From 1985 until 1989, Admiral Crowe held the position of
Chairman of the Joint Chiefs of Staff under President Reagan. After retirement
from the military in 1989, Admiral Crowe was a Counselor at the Center for
Strategic and International Studies in Washington and a Professor of Geopolitics
at the University of Oklahoma. He served as Chairman of the President's Foreign
Intelligence Advisory Board from 1993 to 1994, and from 1994 until 1997, Admiral
Crowe served as U.S. Ambassador to the United Kingdom and Northern Ireland.
Admiral Crowe has previously served as a director of several public companies,
including Merrill Lynch, Texaco and General Dynamics, and currently serves as a
director of several private companies. From 1997 until 1999, Admiral Crowe
served as a part-time professor at George Washington University. Admiral Crowe
currently serves as a part-time professor at the United States Naval Academy,
and as a senior advisor to Global Options L.L.C. Admiral Crowe is a graduate of
the United State Naval Academy, and received an M.A. in education from Stanford
University and a Ph.D. in politics from Princeton University.
NIV HARIZMAN has served as a director of the Company since December
1997. From January 1998 until the present, Mr. Harizman has served as a
Principal with BT Alex.Brown Incorporated ("BT Alex. Brown"), the investment
banking subsidiary of Bankers Trust New York Corporation. From June 1996 until
January 1998, Mr. Harizman was a Vice President with BT Alex. Brown. He started
with BT Alex. Brown in 1995. While at BT Alex. Brown, he has advised companies
in a broad range of manufacturing and service industries in their merger and
acquisitions activities and helped clients finance targeted acquisitions. Prior
to working at BT Alex. Brown, from 1994 until 1995, Mr. Harizman was a member of
the mergers and acquisitions group at the investment banking firm of Wasserstein
Perella & Co., where he performed comprehensive strategic advisory assignments
including financial restructuring, leveraged buyouts, recapitalizations,
acquisitions, and divestitures. Prior to working at Wasserstein, Mr. Harizman
was an investment analyst for Henry Crown and Company in Chicago, where he was
involved in transactions in the cellular, media, manufacturing, entertainment
and agricultural industries. Mr. Harizman also worked at the Chicago Board
Options Exchange in equity and index options trading. Mr. Harizman received a
B.B.A. in Finance from the College of Business Administration at the University
of Texas at Austin, and an M.B.A. with a specialization in Finance from the
University of Chicago Graduate School of Business.
GENERAL WILLIAM LYON has served as a director of the Company since
October 1998. General Lyon is Chairman of the Board, President and Chief
33
<PAGE> 34
Executive Officer of William Lyon Homes, Inc. General Lyon also serves as
Chairman of the Board of The Presley Companies, a public company traded on the
New York Stock Exchange which is engaged in the home design, construction and
sales business. General Lyon has previously served as Chairman, President and
Chief Executive and Operating Officer of AirCal, a Southern California-based
regional airline which was sold to American Airlines in 1987. From 1987 until
1995, General Lyon served on the Board of Directors of American Airlines. In
1989, General Lyon established Air/Lyon, Inc., a private company which provides
ground service to airlines and aircraft maintenance services. General Lyon is a
retired United States Air Force General, and has received 17 awards and
decorations including the Distinguished Service Medal Legion of Merit, the
Distinguished Flying Cross, the Air Medal with two oak leaf clusters and the
Presidential Unit Citation. From 1975 through 1979, General Lyon served as Chief
of the U.S. Air Force Reserve. General Lyon currently serves as a director of
Board of Fidelity National Financial, Inc., and is a Life Member of the
University of Southern California Board of Trustees. In addition, General Lyon
is Chairman of the Falcon Foundation, which provides scholarships to youths
hoping to attend the Air Force Academy, and is Chairman of the Academy of the
Research and Development Institute, also at the Air Force Academy. General Lyon
attended the University of Southern California and Dallas Aviation School and
Air College.
DAVID JAN MITCHELL has served as a director of the Company since
December 1993. Since January 1991, Mr. Mitchell has been the President of
Mitchell & Co., Ltd., a New York-based merchant banking company founded by him
which is engaged in venture capital investments and financing. Mr. Mitchell is a
director of Moto Guzzi, a publicly traded Italian motorcycle company. Mr.
Mitchell is also Chairman and President of North Atlantic Acquisition
Corporation, a publicly traded acquisitions company, and since March 1998, Mr.
Mitchell has served as the Chairman of Direct Furniture and Empire Card
MasterCard. Since March 1995, Mr. Mitchell has served as a director of Bogen
Communication International, Inc. Mr. Mitchell serves as a director of several
private companies, including Madah-Com Inc., a company involved in sound
transmission, and SoftCom, Inc., a developer of interactive video technology to
be used over the Internet.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Exchange Act requires the Company's executive officers, directors
and beneficial owners of more than 10% of a class of the Company's equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "Commission"). Based solely upon a
review of Forms 3, 4 and 5, and amendments thereto, furnished to the Company
during its most recent fiscal year, except for one report disclosing no
transactions filed by Robert Hogan and one report disclosing one transaction
filed by William J. Crowe, the Company believes that during the year ended
December 31, 1999, all reporting persons timely complied with all filing
requirements applicable to them.
34
<PAGE> 35
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee, which was formed in 1998,
consists of Niv Harizman and David Jan Mitchell. There were no interlocks with
other companies within the meaning of the SEC's proxy rules during 1999.
COMPENSATION TABLES
The following table summarizes the aggregate compensation paid during
each of the years ended December 31, 1997, 1998 and 1999 to the Company's Chief
Executive Officer (the "CEO") and the Company's four most highly compensated
executive officers other than the CEO in 1999. The CEO and such other executive
officers are sometimes referred to herein as the "Named Executives."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- ---------------
SECURITIES
NAME AND UNDERLYING ALL OTHER COMPEN-
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) SATION ($)
------------------ ---- ---------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Zivi R. Nedivi (1), 1997 240,000 345,600 421,000 9,095(2)
Chief Executive 1998 480,000 720,000 283,000(3) 8,057(4)
Officer, President and 1999 480,000 157,736 -- 8,095(4)
Director
Yoav Stern (1)(5), Chairman 1997 -- -- 421,000 1,000(6)
1998 -- -- 283,000(3) --
1999 320,000 157,736 -- --
John S. Gleason, 1997 190,000 129,600 165,000 1,262(6)
Executive 1998 225,000 187,500 115,000(7) 11,250(8)
Vice President 1999 240,000 41,077 -- 12,000(8)
Fred von Husen(9), 1997 190,000 129,600 75,000 1,333(6)
Executive Vice President 1998 200,000 150,000 55,000 10,000(8)
1999 220,000 36,148 -- 10,008(8)
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- ------------
SECURITIES
NAME AND UNDERLYING ALL OTHER COMPEN-
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) SATION ($)
------------------ ---- ---------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Gideon Vaisman (10), 1997 -- -- -- --
Senior Vice President 1998 200,000 112,500 150,000 2,292(11)
1999 200,000 32,862 -- 16,000(8)
</TABLE>
(1) Until its dissolution in August 1999, Messrs. Nedivi and Stern owned
interests in Helix Management Company II, L.L.C., which until March 30,
1999, provided certain merger, acquisition and financial advisory services
to the Company pursuant to an engagement letter agreement under which it
received a retainer and was entitled to certain transaction fees under
certain circumstances. Amounts reported exclude amounts paid to Helix
Management Company II, L.L.C. See "Certain Relationships and Related
Transactions."
(2) Consisting of a $8,095 life insurance premium and a $1,000 holiday bonus.
(3) Includes an option to purchase 176,000 shares, originally granted in 1997
and repriced (and vesting schedule extended) as of October 8, 1998.
(4) Consisting of a life insurance premium.
(5) Mr. Stern became an executive officer of the Company in March 1999.
(6) Consisting of a holiday bonus.
(7) Includes an option to purchase 65,000 shares, originally granted in 1997
and repriced (and vesting schedule extended) as of October 8, 1998.
(8) Consisting of a contribution to an employee-directed investment fund.
(9) Mr. von Husen joined the Company in January 1997.
(10) Mr. Vaisman joined the Company in April 1998.
(11) Consisting of the Company's matching contribution to its 401(k) Savings
Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No options or stock appreciation rights were granted to the Named
Executives in the fiscal year ended December 31, 1999.
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<PAGE> 37
The following table sets forth information concerning the value
realized by the Named Executives upon exercise of stock options during the
fiscal year ended December 31, 1999, and the value of unexercised stock options
held by the Named Executives at December 31, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES (1)
<TABLE>
<CAPTION>
SHARES VALUE NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED ON REALIZED UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
NAME EXERCISE (#) ($) YEAR-END (#) FISCAL YEAR-END ($)
- ---- ------------ --------- ----------------------------- ------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Zivi R. Nedivi -- -- 589,000 88,000 534,150 --
Yoav Stern -- -- 589,000 88,000 534,150 --
John S. Gleason 120,000 1,412,707 98,332 76,668 57,200 --
Fred von Husen -- -- 61,666 73,334 52,333 26,167
Gideon Vaisman -- -- 50,000 100,000 -- --
</TABLE>
- -----------------
(1) No stock appreciation rights are held by any of the Named Executives.
COMPENSATION OF DIRECTORS
All directors are reimbursed for out-of-pocket expenses incurred in
attending Board meetings or for otherwise acting on behalf of the Company.
Messrs. Nedivi and Stern did not receive any compensation for service as
directors of the Company beyond that paid to them under their respective
Employment Agreements on account of their services as executive officers of the
Company. During 1999, the other directors each received stock options on account
of their service as directors of the Company to purchase 30,000 shares each at
an exercise price of $19.00 per share.
The options granted to the Company's directors in 1999 were granted
under the Company's 1998 Stock Option Plan. During 1999, this Plan was
administered by the Board and by the Compensation Committee. Under the Company's
1998 Stock Option Plan, options are granted by the Board or the Compensation
Committee on such terms and at such prices as may be determined by the Board or
the Compensation Committee, except that the exercise price per share of stock
options may not be less than the fair market value of a share of Common Stock at
the time of grant. Each option is for a term of not more than 10 years and vests
at such time or times and during such period as determined by the Board or the
Compensation Committee. Under the terms of the Company's 1998 Plan, in the event
of a change in control of the Company (as defined in such plans), unless
37
<PAGE> 38
otherwise determined by the Board, the purchaser of the Company's assets or
stock may, in its sole discretion, deliver the same consideration as is
delivered to the stockholders of the Company as a result of such transaction or
the Board may cancel all outstanding options in exchange for cash or other
consideration equal in value to the value of the consideration that the option
holder would have received had the option been exercised (to the extent then
exercisable) prior to such transaction, less the exercise price therefor. Upon
any such transaction, the Plan provides that all outstanding options generally
become immediately exercisable in full.
EMPLOYMENT AGREEMENTS
NEDIVI EMPLOYMENT AGREEMENT. The Company entered into an Employment
Agreement with Mr. Nedivi, effective as of March 30, 1999 and amended as of
December 27, 1999, pursuant to which Mr. Nedivi is employed as President and
Chief Executive Officer of the Company. The Employment Agreement provides for
the employment of Mr. Nedivi through December 31, 2004, at an annual base salary
of $480,000, subject to annual review and upward adjustment, and a bonus of
between $0 and an amount equal to 150% of the then-current salary, based upon
the Company's net income during each calendar year in relation to the Company's
target net income, as determined in advance by the Compensation Committee, for
such year. In addition, the Employment Agreement provides that Mr. Nedivi will
be paid severance equal to two years of the then-current base salary, plus an
amount equal to the bonus paid to Mr. Nedivi on account of each of the two
then-preceding calendar years, if employment is terminated without cause. Under
the Employment Agreement, Mr. Nedivi may not compete with the Company during the
term of the Agreement or for three years following termination other than
involuntary termination or termination by Mr. Nedivi for good reason (as defined
therein). Under the terms of the Employment Agreement, the Company continues to
pay the premium on a life insurance policy on the life of Mr. Nedivi which had
been maintained by the Company and transferred to Mr. Nedivi.
STERN EMPLOYMENT AGREEMENT. The Company entered into an Employment
Agreement with Mr. Stern, effective as of March 30, 1999 and amended as of March
31, 1999 and December 27, 1999, pursuant to which Mr. Stern is employed as
Chairman of the Company through December 31, 2004, on substantially the same
terms as those included in the Employment Agreement with Mr. Nedivi. Under the
terms of such Employment Agreement, Mr. Stern is responsible for the development
and implementation of the strategic plans for the growth and development of the
Company's business and operations, including overseeing all aspects of the
Company's mergers and acquisitions activities (including, without limitation,
analyzing, structuring, negotiating and effecting acquisitions and integrating
newly acquired businesses with the business and operations of the Company).
GLEASON EMPLOYMENT AGREEMENT. The Company entered into an Employment
Agreement with Mr. Gleason, effective as of May 18, 1995 and amended as of
February 14, 1997 and December 27, 1999, pursuant to which Mr. Gleason is
employed as an executive officer of the Company. The agreement, as amended,
provides for the employment of Mr. Gleason through July 1, 2000, at an annual
base salary of $190,000, subject to annual review and upward adjustment, and a
bonus of between $0 and $135,000, based upon the net income of the Company and
of the Company's Kellcad division during each calendar year in relation to the
38
<PAGE> 39
target net incomes of the Company and the Kellcad division, respectively, as
determined in advance by the Compensation Committee, for such year. If Mr.
Gleason's employment is terminated without cause, the employment agreement
provides that Mr. Gleason will be paid a severance payment equal to four months
of his base salary, provided that if termination is in connection with a change
of control, Mr. Gleason will be paid an amount equal to twelve months of his
base salary. A change of control is defined in the agreement as (i) any
transaction which results in the stockholders of the Company immediately before
the transaction ceasing to own at least 51% of the voting stock of the Company
or of the entity which results from the transaction, (ii) a merger,
consolidation or other transaction where the Company is not the surviving entity
or (iii) a disposition of all or substantially all of the assets of the Company.
Under the Employment Agreement, Mr. Gleason may not compete with the Company
during the term of the Employment Agreement or for two years following
termination other than involuntary termination or termination by Mr. Gleason for
good reason (as defined therein). Under the terms of the Employment Agreement,
the Company maintains a life insurance policy on the life of Mr. Gleason in the
amount of $2 million, and transferred such policy without consideration to Mr.
Gleason in January 1999 pursuant to the terms of the Employment Agreement.
VON HUSEN EMPLOYMENT AGREEMENT. The Company entered into an Employment
Agreement with Mr. von Husen, effective as of October 25, 1996 and amended as of
December 27, 1999, pursuant to which Mr. von Husen is employed as an executive
officer of the Company. The agreement provides for the employment of Mr. von
Husen through January 15, 2002, at an annual base salary of $190,000, subject to
annual review and upward adjustment, and a bonus of between $0 and $135,000,
based upon the Company's net income during each calendar year in relation to the
Company's target net income, as determined in advance by the Compensation
Committee, for such year. If Mr. von Husen's employment is terminated without
cause, the Employment Agreement provides that Mr. von Husen will be paid
severance payment equal to four months of his base salary, provided that if
termination is in connection with a change of control (as previously defined),
Mr. von Husen will be paid an amount equal to eight months of his base salary.
Under the Employment Agreement, Mr. von Husen may not compete with the Company
during the term of the Agreement or for two years following termination other
than involuntary termination (in which case the non-compete period expires one
year after termination), termination in the event of a change of control (in
which case the non-compete period expires six months after termination) or
termination by Mr. von Husen for good reason (as defined therein).
VAISMAN EMPLOYMENT AGREEMENT. The Company (through its wholly-owned
subsidiary, Integrated Technology Holdings Corp.) entered into an Employment
Agreement with Mr. Vaisman, effective as of February 27, 1998 and amended as of
September 15, 1998, pursuant to which Mr. Vaisman was employed as an executive
officer of the Company through January 1, 2000. The agreement, as amended,
originally provided for the employment of Mr. Vaisman through April 1, 2001, at
an annual base salary of $200,000, subject to annual review and upward
adjustment, and a bonus of between $0 and $150,000. Mr. Vaisman was also granted
options to purchase 150,000 shares of Common Stock pursuant to the Employment
Agreement. Under the Employment Agreement, unless the Company is determined to
be in default of its obligation to make certain payments under the Purchase
39
<PAGE> 40
Agreement pursuant to which the Company purchased the assets of Integrated
Technologies Corp., Mr. Vaisman may not compete with the Company during the term
of the Agreement or for two years following termination other than termination
by Mr. Vaisman for good reason (as defined therein). Effective as of January 1,
2000, the Company and Mr. Vaisman entered into an agreement pursuant to which
the Employment Agreement was terminated, and Mr. Vaisman was retained by the
Company as a consultant for a period of three months. In connection with the
termination of the Employment Agreement, the stock options previously granted to
Mr. Vaisman were also terminated. The restrictions on competition by Mr. Vaisman
under the Employment Agreement remain in effect in accordance with their
original terms.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of March 1, 2000
regarding the beneficial ownership of Common Stock by (i) each stockholder known
to the Company to beneficially own more than five percent (5%) of the
outstanding shares of Common Stock; (ii) each director of the Company; (iii)
each executive officer of the Company named in the Summary Compensation Table
which appears in Item 11; and (iv) all directors and executive officers as a
group. The percentage of beneficial ownership for each person or entity in the
table is based on 11,910,981 shares of Common Stock outstanding as of March 1,
2000, including for each person or entity any shares of Common Stock which may
be acquired by such person or entity within 60 days upon exercise of outstanding
options, warrants or other rights to acquire shares of Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER PERCENT
- ------------------------------------ ------ -------
<S> <C> <C>
Yoav Stern(2)(3) 793,035 6.2%
Zivi R. Nedivi(2)(4) 782,535 6.2%
David Jan Mitchell(5) 185,787 1.5%
John S. Gleason(6) 114,332 *
Niv Harizman(7) 46,000 *
Gideon Vaisman -- *
Fred von Husen(8) 89,333 *
General William Lyon(9) 35,000 *
Admiral William J. Crowe, Jr.(10) 33,000 *
All executive officers and directors as a group (16 persons)(11) 2,284,361 16.1%
</TABLE>
* Less than 1%
40
<PAGE> 41
(1) The address of each person named is 1100 International Parkway, Sunrise,
Florida 33323.
(2) Excludes certain shares of Common Stock that may be deemed to be
beneficially owned as a member of a "group" for the purposes of Section
13(d) under the Exchange Act by virtue of a Stockholders Agreement, dated
August 24, 1995, as amended, between Messrs. Stern and Nedivi. Each party
thereto agreed not to sell, encumber or otherwise dispose of any shares of
Common Stock beneficially owned by him except in accordance with the terms
of said agreement. In addition, each party thereto agreed to vote all
shares of Common Stock beneficially owned by him as directed by a majority
of such parties. As a result, each of Messrs. Stern and Nedivi may be
deemed to share voting and dispositive power, and therefore to beneficially
own, the shares of Common Stock beneficially owned by the other.
(3) Includes 589,000 shares issuable upon the exercise of options to purchase
Common Stock, which options are exercisable within 60 days, and 6,636
shares issuable upon the exercise of warrants which are currently
exercisable.
(4) Includes 589,000 shares issuable upon the exercise of options to purchase
Common Stock, which options are exercisable within 60 days, and 6,636
shares issuable upon the exercise of warrants which are currently
exercisable.
(5) Includes 104,750 shares issuable upon the exercise of options to purchase
Common Stock, which options are exercisable within 60 days.
(6) Includes 98,332 shares issuable upon the exercise of options to purchase
Common Stock, which options are exercisable within 60 days.
(7) Includes 45,000 shares issuable upon the exercise of options to purchase
Common Stock, which options are exercisable within 60 days.
(8) Includes 88,333 shares issuable upon the exercise of options to purchase
Common Stock, which options are exercisable within 60 days.
(9) Consists of 35,000 shares issuable upon the exercise of options to purchase
Common Stock, which options are exercisable within 60 days.
(10) Includes 30,000 shares issuable upon the exercise of options to purchase
Common Stock, which options are exercisable within 60 days.
(11) Includes 1,681,082 shares issuable upon the exercise of options to purchase
Common Stock, which options are exercisable within 60 days, and 96,772
shares issuable upon the exercise of warrants which are currently
exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The following is a summary of certain agreements and transactions
between or among the Company and certain related parties. It is the Company's
policy to enter into transactions with related parties on terms that, on the
whole, are no less favorable than those that would be available from
unaffiliated parties. It is also the Company's policy to submit any such
proposed transactions to the Independent Committee for review and approval.
Based on the Company's experience in the industries in which it operates and the
terms of its transactions with unaffiliated parties, it is the Company's belief
41
<PAGE> 42
that all of the transactions described below involving the Company met that
standard at the time such transactions were effected.
The Company has previously engaged Helix Management Company II, L.L.C.
("Helix"), a company which had been controlled by Messrs. Stern and Nedivi, to
act as the Company's exclusive financial advisor with respect to merger and
acquisition transactions and as principal financial adviser with respect to
other transactions for a term that commenced effective January 1, 1997. The
Company and Helix terminated the agreement effective as of March 30, 1999,
pursuant to a Termination Agreement (the "Helix Termination Agreement"). Under
the terms of the original agreement with Helix, entered into as of March 28,
1997, Helix received a monthly retainer of $25,000 and a success fee that was
determined by the Company and Helix on a per transaction basis, but not less
than 2% of the aggregate consideration paid in connection with the applicable
transaction. Payments under the agreement with Helix by the Company were in lieu
of any fees payable to Mr. Stern as Chairman of the Board. A significant portion
of the retainer was paid by Helix to Mr. Stern, who as Chairman of the Board of
the Company actively participates in leading business development efforts and
the strategic growth and direction of the Company. As a result of ownership
interests held by Messrs. Stern and Nedivi in Helix, a portion of the
transaction fees paid by the Company to Helix were distributed by Helix to
Messrs. Stern and Nedivi during 1999. The Company paid Helix $1.5 million in
connection with certain merger and acquisition transactions that occurred during
1999. Under the terms of the Helix Termination Agreement, the Company was
required to pay Helix success fees only in those transactions procured by Helix
which had either been consummated or signed prior to the date of termination.
Helix waived all other fees to which it may have been entitled, including
monthly retainer fees on account of the ninety day period following termination
and success fees on account of any transactions procured by Helix and undertaken
by the Company within one year of termination. Helix also agreed to provide, for
no additional consideration, the Company such assistance (including access to
its members and employees and copies of its records and files) as necessary to
assure an orderly transition in the services previously provided by Helix.
Until March 30, 1999, the Company was a party to a management agreement
with East Shore Ventures, Inc. ("East Shore"), an entity wholly owned by Mr.
Nedivi, pursuant to which Mr. Nedivi provided the services of Chief Executive
Officer to the Company. The Management Agreement provided for an annual base fee
of $240,000, subject to annual review and upward adjustment, and a bonus of
between $0 and $360,000, depending solely on the profitability of the Company.
Under the terms of the Management Agreement, the Company maintained a life
insurance policy on the life of Mr. Nedivi in the amount of $4 million, which
policy was transferred without consideration to Mr. Nedivi in January 1999
pursuant to the terms of such Management Agreement. The Company entered into a
Termination Agreement with East Shore effective as of March 30, 1999, pursuant
42
<PAGE> 43
to which the parties agreed to terminate the Management Agreement and agreed
that East Shore would only be paid management fees and related benefits prorated
through the date of termination.
The Company has from time to time loaned money to certain of its
executive officers and directors for the purpose of purchasing shares of Common
Stock in the open market (including loans pursuant to the Company's 1998 Stock
Purchase Plan which was approved by the Company's stockholders at the 1998
Annual Meeting of Stockholders), or pursuant to the terms of employment
agreements between the Company and its executive officers. The following table
sets forth, with respect to each executive officer or director who was indebted
to the Company in an amount in excess of $60,000 at any time since January 1,
1999, the largest aggregate amount of indebtedness outstanding at any time
during such period, the date such indebtedness was incurred, the amount thereof
outstanding as of March 1, 2000, the rate of interest charged thereon and the
nature of the loan.
<TABLE>
<CAPTION>
LARGEST AGGREGATE
AMOUNT OUTSTANDING AMOUNT OUTSTANDING AS OF INTEREST RATE
NAME ($) DATE INCURRED MARCH 1, 2000 ($) (%)
---- -------------------- ------------- ------------------------- ---------------
<S> <C> <C> <C> <C>
Zivi R. Nedivi(1)......... 135,000 7/24/97 120,000 6.54%
President 250,000 6/15/98 225,000 5.69%
80,400 8/05/98 72,360 5.69%
55,500 8/10/98 49,950 5.69%
------- ------
Total................. 520,900 467,310
Yoav Stern(1)............. 135,000 2/28/97 120,000 6.10%
Chairman 250,000 6/15/98 225,000 5.69%
134,000 8/05/98 120,600 5.69%
------- ------
Total............. 519,000 465,600
John Gleason(1)........... 45,000 4/02/97 40,000 6.10%
Executive Vice 98,861 6/15/98 88,975 5.69%
President 100,000 9/28/98 90,000 5.47%
------- ------
Total............. 243,861 218,975
Michael Wallace(1)........ 100,000 6/15/98 70,000 5.69%
Former Chief
Financial Officer
Ami Zelcer................ 100,000(1) 8/23/99 100,000 5.87%
Senior Vice 75,000(2) 2/17/99 75,000 4.66%
President 75,000(2) 5/28/99 75,000 5.15%
------- ------
Total............. 250,000 250,000
Robert Hogan(3)........... 150,000 10/05/99 150,000 5.35%
Senior Vice President
David Mitchell(1)......... 83,633 8/25/99 83,638 5.87%
</TABLE>
43
<PAGE> 44
- ------------------------
(1) These loans were granted for the purpose of purchasing shares of Common
Stock on the open market. Such loans are payable over four years for
employees or five years for directors at an interest rate based on the
"Applicable Federal Rate" at the time of the loan. Accrued interest is
to be paid annually in arrears beginning on the first anniversary of
the date of the loan. The loans provide for mandatory prepayment if the
officer or director sells any shares of the Company's Common Stock.
While the loans are unsecured, officers and directors are obligated to
repay such loans in full regardless of the market value of the Common
Stock upon any such sale.
(2) These loans were granted pursuant to the terms of the Employment
Agreement between the Company and Mr. Zelcer dated February 1, 1999.
Such loans are payable in three equal installments on each of the
third, fourth and fifth yearly anniversaries of the grant dates, at an
interest rate based on the "Applicable Federal Rate" at the time of the
loan. The Employment Agreement provides that in the event of the
termination of the Employment Agreement prior to the end of the
Employment Period (as defined therein), the full principal amount of
the loans then outstanding, together with all accrued interest thereon,
will be immediately due and payable.
(3) This loan was granted pursuant to the terms of the Employment Agreement
between the Company and Mr. Hogan dated October 6, 1999. Interest
accrues on the loan at an interest rate based on the "Applicable
Federal Rate" at the time of the loan. The Employment Agreement
provides that at the end of each of the first, second and third yearly
anniversaries of the commencement of Mr. Hogan's employment under the
Employment Agreement, provided that Mr. Hogan is then employed by the
Company, $50,000 of the principal amount of the loan will be forgiven,
together with any interest which shall have accrued on the loan during
such year. The Employment Agreement further provides that in the event
of the termination of the Employment Agreement prior to the end of the
Employment Period (as defined therein), the full principal amount of
the loans then outstanding, together with all accrued interest thereon,
will be immediately due and payable.
44
<PAGE> 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) The following consolidated financial statements are filed as part of this
Form 10-K:
Kellstrom Industries, Inc. Consolidated Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Earnings for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
(2) The following financial statement schedule is filed as part of this Form
10-K:
Schedule II - Valuation and Qualifying Accounts
(3) See Index of Exhibits included elsewhere herein.
(b) Reports on Form 8-K:
None
45
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: March 30, 2000 KELLSTROM INDUSTRIES, INC.
(Registrant)
By: /s/ ZIVI R. NEDIVI
--------------------------------
Title: Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ ZIVI R. NEDIVI President and Chief Executive March 30, 2000
- --------------------------------- Officer and Director
Zivi R. Nedivi (principal executive officer)
/s/ YOAV STERN Chairman of the Board of Directors March 30, 2000
- ---------------------------------
Yoav Stern
/s/ OSCAR E. TORRES Chief Financial Officer March 30, 2000
- --------------------------------- (principal financial and
Oscar E. Torres accounting officer)
/s/ DAVID JAN MITCHELL Director March 30, 2000
- ---------------------------------
David Jan Mitchell
/s/ NIV HARIZMAN Director March 30, 2000
- ---------------------------------
Niv Harizman
Director
- ---------------------------------
General William Lyon
Director
- ---------------------------------
Admiral William J. Crowe, Jr.
</TABLE>
46
<PAGE> 47
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 The Company's Restated Certificate of Incorporation, as amended
(incorporated by reference to the Current Report on Form 8-K filed with
the Commission on June 22, 1995).
3.2 The Company's By-laws, as amended (incorporated by reference to the
Current Report on Form 8-K filed with the Commission on June 22, 1995).
3.3 Form of Certificate of Designations setting forth the terms of the
Series A Junior Participating Cumulative Preferred Stock, par value
$.001 per share (incorporated by reference to Exhibit 1 to the
Registration Statement on Form 8-A filed with the Commission on January
16, 1997).
4.1 Indenture dated as of October 10, 1997 by and between the Company and
First Union National Bank (incorporated by reference to the Quarterly
Report on Form 10-QSB filed with the Commission on November 12, 1997).
4.2 Form of Note (included in Exhibit 4.1).
4.3 Registration Rights Agreement dated as of October 10, 1997 by and
between the Company and BT Alex. Brown Incorporated (incorporated by
reference to the Quarterly Report on Form 10-QSB filed with the
Commission on November 11, 1997).
4.4 Indenture dated June 17, 1998 by and between the Company and First
Union National Bank (incorporated by reference to Amendment No. 2 to
Registration Statement on Form S-3, Number 333-52917 filed with the
Commission on June 11, 1998).
4.5 Form of Note (included in Exhibit 4.4)
4.6 Indenture of Trust dated as of February 1, 1999 between the Company and
Norwest Bank Minnesota, N.A., as Trustee (incorporated by reference to
the Annual Report on Form 10-K filed with the Commission on March 31,
1999).
4.7 Form of Note (included in Exhibit 4.6).
4.8 Form of Warrant dated August 31, 1999 between the Company and Zivi
Nedivi, Yoav Stern and Yehuda Perry (filed herewith).
4.9 Form of Warrant dated August 31, 1999 between the Company and Zivi
Nedivi, Yoav Stern and Yehuda Perry (filed herewith).
4.10 Form of Warrant dated August 31, 1999 between the Company and Zivi
Nedivi, Yoav Stern and Yehuda Perry (filed herewith).
4.11 Form of Warrant dated August 31, 1999 between the Company and Zivi
Nedivi, Yoav Stern and Yehuda Perry (filed herewith).
10.1 Letter Agreement among each of the Stockholders of the Company, the
Company, and GKN Securities Corp. (without schedules) (incorporated by
reference to Registration Statement on Form S-1, Number 33- 75750,
filed with the Commission on February 25, 1994).
10.2 Asset Purchase Agreement dated February 15, 1995 among ITAC, Rada
Electronic Industries Limited, Tasco Electronics Inc. and the Company
(incorporated by reference to the Current Report on Form 8-K/A filed
with the Commission on March 14, 1994).
47
<PAGE> 48
10.3* Employment Agreement dated January 1, 1996 between Paul F. Steele and
the Company (incorporated by reference to the Annual Report on Form
10-KSB filed with the Commission on March 31, 1997).
10.4* Employment Agreement dated May 18, 1995 between John Gleason and the
Company (incorporated by reference to the Annual Report on Form 10-KSB
filed with the Commission on March 30, 1996).
10.5* Employment Agreement dated October 25, 1996 between Fred von Husen and
the Company (incorporated by reference to the Annual Report on Form
10-KSB filed with the Commission on March 31, 1997).
10.6* Amendment No. 1 to Employment Agreement dated February 14, 1997 between
John Gleason and the Company (incorporated by reference to the Annual
Report on Form 10-KSB filed with the Commission on March 31, 1997).
10.7* Employment Agreement dated March 30, 1999 between Zivi R. Nedivi and
the Company (incorporated by reference to the Annual Report on Form
10-K filed with the Commission on March 31, 1999).
10.8* Employment Agreement dated March 30, 1999 between Yoav Stern and the
Company (incorporated by reference to the Annual Report on Form
10-K filed with the Commission on March 31, 1999).
10.9 Stockholders Agreement dated August 24, 1995 between Zivi R. Nedivi and
Yoav Stern (incorporated by reference to the Annual Report on Form
10-KSB filed with the Commission on March 30, 1996).
10.10 Amendment, dated January 15, 1996, to Stockholders Agreement dated
August 24, 1995 between Zivi R. Nedivi and Yoav Stern (incorporated by
reference to the Annual Report on Form 10-KSB filed with the Commission
on March 31, 1997).
10.11 Asset Purchase Agreement dated October 28, 1996 by and among the
Company, a wholly owned subsidiary of the Company and IASI
(incorporated by reference to the Quarterly Report on Form 10-QSB filed
with the Commission on November 14, 1996).
10.12 Securities Purchase Agreement dated as of January 15, 1997 between the
Company and The Equitable Life Assurance Society of the United States
(incorporated by reference to the Annual Report on Form 10-KSB filed
with the Commission on March 31, 1997).
10.13 Amendment No. 1 to Securities Purchase Agreement dated February 14,
1997 between the Company and The Equitable Life Assurance Society of
the United States (incorporated by reference to the Annual Report on
Form 10-KSB filed with the Commission on March 31, 1997).
10.14 Warrant dated January 15, 1997 between the Company and The Equitable
Life Assurance Society of the United States (incorporated by reference
to the Annual Report on Form 10-KSB filed with the Commission on March
31, 1997).
10.15 Note Purchase Agreement dated as of January 9, 1997 by and among the
Company and the Purchasers listed on Schedule I thereto (incorporated
by reference to the Annual Report on Form 10-KSB filed with the
Commission on March 31, 1997).
10.16 Amendment No. 1 to the Note Purchase Agreement dated January 15, 1997
by and among the Company and the Purchasers listed on Schedule I
thereto (incorporated by reference to the Annual Report on Form 10-KSB
filed with the Commission on March 31, 1997).
10.17 Form of Warrant between the Company and the Purchasers listed on
Schedule I to the Note Purchase Agreement (incorporated by reference to
the Annual Report on Form 10-KSB filed with the Commission on March 31,
1997).
48
<PAGE> 49
10.18 Amended and Restated Loan and Security Agreement dated as of December
14, 1998 among the Company, certain of its subsidiaries, the lenders
party thereto, from time to time, Bank of America, N.A. (as successor
to NationsBank, N.A.), as agent for the lenders, and NationsBanc
Montgomery Securities, LLC, as syndication agent (incorporated by
reference to the Annual Report on Form 10-K filed with the Commission
on March 31, 1999).
10.19 Form of Revolving Credit Note (incorporated by reference to the Annual
Report on Form 10-K filed with the Commission on March 31, 1999).
10.20 Rights Agreement, dated January 14, 1997, by and between the Company
and Continental Stock Transfer and Trust Company (incorporated by
reference to the Registration Statement on Form 8-A filed with the
Commission on January 16, 1997).
10.21 Amendment No. 1, dated February 27, 1997, to Rights Agreement dated
January 14, 1997 by and between the Company and Continental Stock
Transfer and Trust Company (incorporated by reference to the Current
Report on Form 8-K/A filed with the Commission on March 7, 1997).
10.22* 1995 Stock Option Plan of the Company (incorporated by reference to the
Proxy Statement of the Company filed with the Commission on May 15,
1995).
10.23* 1996 Stock Option Plan of the Company, as amended (incorporated by
reference to the Annual Report on Form 10-K filed with the Commission
on March 31, 1999).
10.24* 1997 Stock Option Plan of the Company, as amended (incorporated by
reference to the Annual Report on Form 10-K filed with the Commission
on March 31, 1999).
10.25* 1998 Stock Option Plan of the Company (incorporated by reference to the
Annual Report on Form 10-K filed with the Commission on March 31,
1999).
10.26 Asset Purchase Agreement, dated September 10, 1997, by and among
Kellstrom Industries, Inc. and Aero Support Holdings, Inc., on the one
hand and Aero Support, U.S.A. Inc. Zvi Bar-On, Mordechai Markowicz and
Michael Navon, on the other hand. (incorporated by reference to the
Current Report on Form 8-K filed with the Commission on September 24,
1997).
10.27 Form of Warrant between the Company and Aero Support, USA, Inc.
(incorporated by reference to the Quarterly Report on Form 10-QSB filed
with the Commission on November 11, 1997).
10.28 Asset Purchase Agreement dated as of February 27, 1998 among the
Company, Integrated Technology Holdings Corp., Integrated Technology
Corp. and Gideon Vaisman (incorporated by reference to the Current
Report on Form 8-K filed with the Commission on April 14, 1998).
10.29 Amendment No. 1, dated as of March 13, 1998, to the Asset Purchase
Agreement dated as of February 27, 1998 among the Company, Integrated
Technology Holdings Corp., Integrated Technology Corp. and Gideon
Vaisman (incorporated by reference to the Quarterly Report on Form 10-Q
filed with the Commission on November 12, 1998).
10.30 Amendment No. 2, dated as of September 15, 1998, to the Asset Purchase
Agreement dated as of February 27, 1998 among the Company, Integrated
Technology Holdings Corp., Integrated Technology Corp. and Gideon
Vaisman (incorporated by reference to the Quarterly Report on Form 10-Q
filed with the Commission on November 12, 1998).
10.31* Employment Agreement dated February 27, 1998 between Gideon Vaisman and
the company (incorporated by reference to the Annual Report on Form
10-K filed with the Commission on March 31, 1999).
10.32* Amendment No. 1, dated as of September 15, 1998, to the Employment
Agreement dated February 27, 1998 between Gideon Vaisman and the
Company (incorporated by reference to the Quarterly Report on Form 10-Q
filed with the Commission on November 12, 1998).
49
<PAGE> 50
10.33 Stock Purchase Agreement dated as of May 6, 1998 among the Company,
Aerocar Parts, Inc., Aerocar Aviation Corp., Rosa Shashua and Carmel
Shashua (incorporated by reference to the Current Report on Form 8-K
filed with the Commission on May 18, 1998).
10.34 Warrant dated June 17, 1998 between the Company and Carmel Shashua
(incorporated by reference to the Current Report on Form 8-K filed with
the Commission on August 11, 1998).
10.35 Warrant dated June 17, 1998 between the Company and Rosa Shashua
(incorporated by reference to the Current Report on Form 8-K filed with
the Commission on August 11, 1998).
10.36 Warrant dated December 18, 1998 between the Company and Helix
Management Company II, LLC (incorporated by reference to the Annual
Report on Form 10-K filed with the Commission on March 31, 1999).
10.37 Stock Purchase Agreement dated as of December 5, 1998, by and between
the Company, Solair, Inc. and Banner Aerospace, Inc. (incorporated by
reference to the Current Report on Form 8-K filed with the Commission
on January 14, 1999).
10.38 Warrant dated December 31, 1998 between the Company and Banner
Aerospace, Inc. (incorporated by reference to the Current Report on
Form 8-K/A filed with the Commission on March 16, 1999).
10.39 Stock Purchase Agreement dated March 27, 1999 among the Company,
Certified Aircraft Parts, Inc., R. Dean Stickler and Donald E. Marshall
(incorporated by reference to the Annual Report on Form 10-K filed with
the Commission on March 31, 1999).
10.40 Joinder Agreement dated January 15, 1999 between Solair, Inc., the
Company and NationsBank, N.A., as agent for the lenders party thereto
(incorporated by reference to the Annual Report on Form 10-K filed with
the Commission on March 31, 1999).
10.41 Letter of Credit Reimbursement Agreement dated as of February 1, 1999
between the Company and NationsBank, N.A. (incorporated by reference to
the Annual Report on Form 10-K filed with the Commission on March 31,
1999).
10.42* Amendment to Employment Agreement dated December 27, 1999 between
Kellstrom and Zivi R. Nedivi (filed herewith).
10.43* Amendment to Employment Agreement dated December 27, 1999 between
Kellstrom and John S. Gleason (filed herewith).
10.44* Employment Agreement dated October 6, 1999 between Kellstrom and Robert
V. Hogan (filed herewith).
10.45* Employment Agreement dated December 17, 1998 between Kellstrom and
Oscar Torres (filed herewith).
10.46* Amendment to Employment Agreement dated December 27, 1999 between
Kellstrom and Oscar Torres (filed herewith).
10.47* Amendment No. 1 to Employment Agreement dated March 31, 1999 between
Kellstrom and Yoav Stern (filed herewith).
10.48* Amendment to Employment Agreement dated December 27, 1999 between
Kellstrom and Yoav Stern (filed herewith).
10.49* Employment Agreement dated September 10, 1997 between Aero Support
Holdings, Inc. and Mordechai Markowicz (filed herewith).
10.50* Amendment to Employment Agreement dated December 27, 1999 between
Kellstrom and Mordechai Markowicz (filed herewith).
50
<PAGE> 51
10.51* Employment Agreement dated September 10, 1997 between Aero Support
Holdings, Inc. and Michael Navon (filed herewith).
10.52* Amendment to Employment Agreement dated December 27, 1999 between
Kellstrom and Michael Navon (filed herewith).
10.53* Employment Agreement dated February 1, 1999 between Kellstrom and Ami
Zelcer (filed herewith).
10.54* Amendment to Employment Agreement dated December 27, 1999 between
Kellstrom and Ami Zelcer (filed herewith).
10.55* Amendment to Employment Agreement dated December 27, 1999 bewteen the
Company and Fred von Husen (filed herewith)
10.56 Joinder Agreement dated May 13, 1999 between Certified Aircraft Parts,
Inc., the Company and NationsBank, N.A., as agent for the lenders party
thereto (filed herewith).
10.57 Letter agreement dated September 16, 1999 among the Company,
Integrated Technology Holdings Corp., Gideon Vaisman and Integrated
Technology Corp. (filed herewith).
21 Subsidiaries of the Registrant (filed herewith).
23 Consent of KPMG LLP (filed herewith).
27 Financial Data Schedule (filed herewith).
* Compensatory plan or agreement.
51
<PAGE> 52
Kellstrom Industries, Inc.
Schedule II - Valuation and Qualifying Accounts
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
ADDITIONS - DEDUCTIONS -
BALANCE AT CHARGED TO ADDITIONS - UNCOLLECTIBLE BALANCE AT
BEGINNING COSTS AND DUE TO ACCOUNTS END
DESCRIPTION OF PERIOD EXPENSES ACQUISITIONS WRITTEN OFF OF PERIOD
- ----------- ---------- ---------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
1999
Allowance for returns and
doubtful accounts $5,417,996 $4,211,707 $1,054,019 $8,575,684
Accumulated amortization - goodwill 3,782,525 3,165,302 -- 6,947,827
1998
Allowance for returns and
doubtful accounts $ 335,786 $ 830,914 $4,296,755 $ 45,459 $5,417,996
Accumulated amortization - goodwill 1,555,526 2,226,999 -- -- 3,782,525
1997
Allowance for returns and
doubtful accounts $ 150,000 $ 35,592 $ 167,990 $ 17,796 $ 335,786
Accumulated amortization - goodwill 409,863 1,145,663 -- -- 1,555,526
</TABLE>
52
<PAGE> 53
The following Consolidated Financial Statements are attached hereto:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Kellstrom Industries, Inc. Consolidated Financial Statements:
Independent Auditors' Report F-1
Consolidated Balance Sheets at December 31, 1999 and 1998 F-2
Consolidated Statements of Earnings for the years ended December 31, 1999,
1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for the years ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997 F-5
Notes to Consolidated Financial Statements F-7
</TABLE>
<PAGE> 54
Independent Auditors' Report
The Board of Directors and Stockholders
Kellstrom Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Kellstrom
Industries, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of earnings, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three year
period ended December 31, 1999. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule of valuation and qualifying accounts for the years ended December 31,
1999, 1998 and 1997. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Kellstrom
Industries, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1999, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Ft. Lauderdale, Florida
February 18, 2000
F-1
<PAGE> 55
ITEM I. FINANCIAL STATEMENTS
KELLSTROM INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1999 1998
--------------- ----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 272,140 $ 1,107,102
Trade receivables, net of allowances for returns and
doubtful accounts of $8,575,684 and $5,417,996
for 1999 and 1998, respectively 60,674,708 31,367,337
Inventories, net (Note 3) 194,490,995 149,957,320
Equipment under short-term operating leases (Note 4) 92,135,910 77,201,289
Prepaid expenses 5,199,429 3,166,158
Deferred tax assets (Note 11) 8,280,101 9,730,577
--------------- ----------------
Total current assets 361,053,283 272,529,783
Equipment under long-term operating leases, net (Note 4) 58,001,190 63,323,008
Property, plant and equipment, net (Note 5) 25,339,940 16,755,185
Goodwill, net 87,825,058 71,501,153
Other assets 9,225,952 9,941,367
--------------- ----------------
Total Assets $ 541,445,423 $ 434,050,496
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable (Note 8) $ 2,145,920 $ 2,317,982
Current maturities of long-term debt (Note 8) 200,000 --
Accounts payable 17,713,220 13,333,709
Accrued expenses (Note 7) 18,133,718 25,715,518
Income taxes payable -- 779,972
--------------- ----------------
Total current liabilities 38,192,858 42,147,181
Long-term debt, less current maturities (Note 8) 183,493,805 97,336,821
Convertible subordinated notes (Note 9) 140,250,000 140,250,000
Deferred tax liabilities (Note 11) 8,295,682 4,557,256
--------------- ----------------
Total Liabilities 370,232,345 284,291,258
Stockholders' Equity: (Note 12)
Common stock, $ .001 par value; 50,000,000 shares authorized; 11,910,981
shares and 11,762,015 shares issued and outstanding
in 1999 and 1998, respectively 11,911 11,762
Additional paid-in capital 121,103,653 120,007,268
Retained earnings 51,668,184 31,133,280
Accumulated other comprehensive income 2,060 --
Loans receivable from directors and officers (1,572,730) (1,393,072)
--------------- ----------------
Total Stockholders' Equity 171,213,078 149,759,238
--------------- ----------------
Total Liabilities and Stockholders' Equity $ 541,445,423 $ 434,050,496
=============== ================
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE> 56
KELLSTROM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998 1997
----------------- ---------------- -----------------
<S> <C> <C> <C>
Sales revenues, net $ 288,912,304 $ 148,901,686 $ 71,534,539
Rental revenues 42,031,720 31,147,123 7,904,610
----------------- ---------------- -----------------
Total revenues 330,944,024 180,048,809 79,439,149
Cost of goods sold (200,888,797) (100,221,300) (46,800,589)
Depreciation of equipment under operating leases (27,114,198) (16,688,141) (4,594,399)
Selling, general and administrative expenses (41,149,634) (19,051,869) (8,877,598)
Depreciation and amortization (5,398,198) (3,057,847) (1,555,673)
Other non-recurring expenses (Note 16) (2,200,000) -- --
----------------- ---------------- -----------------
Total operating expenses (276,750,827) (139,019,157) (61,828,259)
Operating income 54,193,197 41,029,652 17,610,890
Interest expense (22,009,229) (10,259,749) (4,390,384)
Interest income 740,872 486,857 399,172
----------------- ---------------- -----------------
Income before income taxes 32,924,840 31,256,760 13,619,678
Income taxes (Note 11) (12,389,936) (11,678,641) (5,077,159)
----------------- ---------------- -----------------
Net income $ 20,534,904 $ 19,578,119 $ 8,542,519
================= ================ =================
Earnings per common share - basic $ 1.73 $ 1.94 $ 1.18
================= ================ =================
Earnings per common share - diluted $ 1.48 $ 1.53 $ 0.95
================= ================ =================
Weighted average number of common shares outstanding - basic 11,855,483 10,086,875 7,266,534
================= ================ =================
Weighted average number of common shares outstanding - diluted 16,674,000 15,060,512 9,394,439
================= ================ =================
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 57
KELLSTROM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
LOANS
RECEIVABLE
COMMON STOCK RETAINED FROM ACCUMULATED
------------------- ADDITIONAL EARNINGS/ DIRECTORS OTHER TOTAL
OMPREHENSIVE NUMBER PAID-IN (ACCUMULATED AND COMPREHENSIVE STOCKHOLDERS'
INCOME OF SHARES AMOUNT CAPITAL DEFICIT) OFFICERS INCOME EQUITY
------------- --------- ------ --------- ------------ --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,1996 3,315,308 $ 3,315 $ 14,871,559 $ 3,012,642 -- $ 273,225 $ 18,160,741
Exercise of warrants 4,564,048 4,564 20,771,856 -- -- -- 20,776,420
Issuance of warrants related
to the IASI and Aero
Support acquisitions -- -- 1,853,192 -- -- -- 1,853,192
Issuance of warrants in lieu of
financing fees provided with
respect to IASI acquisition -- -- 1,530,446 -- -- -- 1,530,446
Net income $ 8,542,519 -- -- -- 8,542,519 -- -- 8,542,519
Unrealized loss on investment
securities, net
of reclassification
adjustments (net of taxes
of $346,817) (588,983) -- -- -- -- -- (588,983) (588,983)
-----------
Comprehensive income $ 7,953,536
===========
Borrowings on loans receivable -- -- -- -- (362,415) -- (362,415)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1997 7,879,356 7,879 39,027,053 11,555,161 (362,415) (315,758) 49,911,920
Issuance of common stock 3,882,659 3,883 78,423,642 -- -- -- 78,427,525
Issuance of warrants related
to the Aerocar and Solair
acquisition -- -- 2,556,573 -- -- -- 2,556,573
Net income $19,578,119 -- -- -- 19,578,119 -- -- 19,578,119
Unrealized gain on investment
securities, net of
reclassification adjustments
(net of taxes of $190,506) 315,758 -- -- -- -- -- 315,758 315,758
-----------
Comprehensive income $19,893,877
===========
Borrowings on loans receivable -- -- -- -- (1,030,657) -- (1,030,657)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1998 11,762,015 11,762 120,007,268 31,133,280 (1,393,072) -- 149,759,238
Issuance of common stock 148,966 149 1,096,385 -- -- -- 1,096,534
Net income $20,534,904 -- -- -- 20,534,904 -- -- 20,534,904
Cumulative translation
adjustment 2,060 2,060 2,060
-----------
Comprehensive income $20,536,964
===========
Borrowings on loans receivable -- -- -- -- (179,658) -- (179,658)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1999 11,910,981 $11,911 $121,103,653 $51,668,184 $(1,572,730) $ 2,060 $171,213,078
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 58
KELLSTROM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1999 1998 1997
----------------- --------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,534,904 $ 19,578,119 $ 8,542,519
Adjustments to reconcile net income to net cash
Used in operating activities:
Depreciation of equipment under operating leases 27,114,198 16,688,141 4,594,399
Depreciation and amortization 5,398,198 3,057,847 1,555,673
Amortization of deferred financing costs 2,042,492 1,376,807 760,019
Deferred income taxes 891,937 1,722,246 80,631
Loss on sales of investment securities -- 119,472 38,051
Gain on sales of property, plant and equipment -- (102,145) --
Changes in operating assets and liabilities:
Increase in trade receivables, net (25,108,652) (2,922,492) (2,392,056)
(Increase) decrease in inventories (33,213,134) (46,121,637) 8,768,582
Increase in equipment under operating leases (36,727,001) (91,947,589) (41,862,819)
Increase in prepaid expenses (1,579,410) (308,659) (3,042,546)
(Increase) decrease in other assets (950,713) 2,492,539 330,878
Decrease in accounts payable (278,739) (5,114,524) (2,748,832)
(Decrease) increase in accrued expenses (5,513,892) 11,175,219 3,706,570
(Decrease) increase in income taxes payable (1,203,407) 1,311,734 (687,551)
------------ ------------- ------------
Net cash used in operating activities (48,593,219) (88,994,922) (22,356,482)
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities -- 812,553 428,499
Purchase of property, plant and equipment (11,065,188) (10,729,964) (2,418,677)
Proceeds from sales of property, plant and equipment 72,461 104,607 744,744
Acquisitions, net of cash acquired (20,090,330) (120,252,474) (27,709,430)
Acquisition earn-out payments (5,058,887) -- --
Other -- (24,321) 2,115
------------ ------------- ------------
Net cash used in investing activities (36,141,944) (130,089,599) (28,952,749)
------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit agreement 88,494,390 79,878,811 1,086,699
Proceeds from the issuance of debt -- -- 21,000,000
Proceeds from the issuance of subordinated debentures -- 86,250,000 54,000,000
Debt repayment (5,036,692) (18,679,625) (40,450,696)
Proceeds from the issuance of common stock 1,096,534 78,427,525 20,776,420
Loans to directors and officers (179,658) (1,030,657) (362,415)
Payment of deferred financing costs (474,373) (5,117,107) (4,432,355)
------------ ------------- ------------
Net cash provided by financing activities 83,900,201 219,728,947 51,617,653
------------ ------------- ------------
NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS (834,962) 644,426 308,422
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 1,107,102 462,676 154,254
------------ ------------- ------------
CASH & CASH EQUIVALENTS, END OF PERIOD $ 272,140 $ 1,107,102 $ 462,676
============ ============= ============
</TABLE>
(continued)
See accompanying notes to consolidated financial statements
F-5
<PAGE> 59
KELLSTROM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Supplemental disclosures of non-cash investing and financing activities:
Aerocar assets acquired for warrants $ -- $ 1,405,000 $ --
=========== ============ ============
Solair assets acquired for warrants $ -- $ 1,151,573 $ --
=========== ============ ============
IASI assets acquired for warrants $ -- $ -- $ 1,173,134
=========== ============ ============
Aero Support assets acquired for warrants $ -- $ -- $ 680,058
=========== ============ ============
Deferred financing costs paid through the issuance of warrants $ -- $ -- $ 1,530,446
=========== ============ ============
Unrealized gain/(loss) on investment securities, net $ -- $ 315,758 $ (588,983)
=========== ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $19,198,091 $ 8,481,524 $ 2,436,209
=========== ============ ============
Income taxes $13,789,408 $ 8,644,661 $ 5,685,502
=========== ============ ============
Supplemental disclosures of fair value of assets acquired and
liabilities assumed in connection with acquisitions:
Cash $ -- $ 1,068,867 $ 463,638
Receivables 3,570,615 18,255,763 3,773,728
Inventory 13,014,566 68,021,060 32,366,924
Prepaid expenses and other assets 453,861 210,870 1,491,653
Equipment under operating leases -- 25,332,461 --
Property, plant and equipment -- 1,597,434 112,791
Deferred tax asset -- 4,519,663 --
Goodwill 13,329,754 40,887,719 27,253,726
Other assets 85,280 158,703 1,110,191
----------- ------------ ------------
Total assets $30,454,076 $160,052,540 $ 66,572,651
=========== ============ ============
Accrued expenses $ 368,219 $ 4,543,338 $ 2,589,083
Accounts payable 4,658,250 12,264,471 4,692,106
Income taxes payable 423,435 -- --
Notes payable 2,727,224 19,366,817 17,577,335
Deferred tax liabilities 2,186,618 -- --
----------- ------------ ------------
Total liabilities $10,363,746 $ 36,174,626 $ 24,858,524
=========== ============ ============
Net acquisition cost 20,090,330 123,877,914 41,714,127
Less warrants issued to seller -- 2,556,573 1,853,192
Less notes payable to sellers -- -- 11,687,867
----------- ------------ ------------
Cash paid to seller at closing 20,090,330 121,321,341 28,173,068
Less cash acquired -- 1,068,867 463,638
----------- ------------ ------------
Net cash used in acquisition $20,090,330 $120,252,474 $ 27,709,430
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 60
KELLSTROM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Kellstrom Industries, Inc.'s (the "Company") principal business is the
purchasing, overhauling (through subcontractors), reselling and leasing of
aircraft, avionics and aircraft rotables, and engines and engine parts. The
Company's customers include major domestic and international airlines, engine
manufacturers, engine part distributors and dealers and overhaul service
suppliers throughout the world. The Company's business enables customers to
reduce their engine maintenance costs by providing Federal Aviation
Administration approved engine parts on a timely basis and at competitive
prices.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions have
been eliminated.
REVENUE RECOGNITION
Revenue is recognized upon shipment of the product to the customer net of an
estimated allowance for sales returns. Revenue from equipment under operating
leases is recognized as rental revenue on a straight-line basis over the lease
term.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is primarily
determined using the specific identification method for individual part
purchases and whole engines and on an allocated cost basis for dismantled
engines and aircraft and bulk inventory purchases. Inventories are made up
primarily of new, refurbished and as removed engines, engine parts, rotables and
expendables.
INVESTMENT IN SECURITIES
Unrealized holding gains and losses, net of the related tax effect, on available
for sale securities are excluded from earnings and are reported as a separate
component of stockholders' equity until realized. Realized gains and losses from
the sale of available for sale securities are determined on a specific
identification basis.
A decline in the market value of any available for sale security below cost that
is deemed to be other than temporary results in a reduction in carrying amount
to fair value. The impairment is charged to earnings and a new cost basis for
the security is established. Dividend and interest income are recognized when
earned.
F-7
<PAGE> 61
EQUIPMENT UNDER OPERATING LEASES
The cost of equipment under operating leases is the original purchase price plus
overhaul costs. Depreciation of the cost is computed based on a usage-variable
method, which adjusts straight-line depreciation to reflect the usage levels of
the equipment.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation on property,
plant and equipment is calculated on the straight-line method over the following
estimated useful lives: building and improvements - 25 years, machinery and
equipment - 3 to 10 years and furniture and fixtures - 7 years.
GOODWILL
Goodwill represents the excess of purchase price over fair value of net assets
acquired, which is amortized on a straight-line basis over the expected periods
to be benefited, generally 15 to 35 years. Amortization expense of goodwill was
$3.2 million, $2.2 million and $1.1 million for the years ended December 31,
1999, 1998 and 1997, respectively. The Company assesses the recoverability of
the carrying value of goodwill by determining whether the carrying value can be
recovered through undiscounted future operating cash flows. The amount of
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved. Accumulated amortization of
goodwill was $7.0 million and $3.8 million at December 31, 1999 and 1998,
respectively.
DEFERRED FINANCING COSTS
Deferred financing costs are capitalized and amortized on a straight-line basis
over the life of the related debt, which currently approximates one to seven
years. Amortization expense was $2.0 million, $1.4 million, and $0.8 million for
the years ended December 31, 1999, 1998 and 1997, respectively.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments, consisting of cash and cash
equivalents, trade accounts receivables, other current assets, equipment under
operating leases, trade accounts payables, accrued expenses, and notes payable
to banks, is based on the short maturity of these instruments which approximates
book value at December 31, 1999 and 1998. The fair value of the convertible
subordinated debt is estimated by discounting the future cash flows of each
instrument at rates currently offered to the Company for similar debt
instruments of comparable maturities by the Company's bankers which were as
follows at December 31, 1999:
5 1/2% Convertible Subordinated Notes
Recorded value.................................... $86,250,000
Fair value........................................ $73,325,000
5 3/4% Convertible Subordinated Notes
Recorded value.................................... $54,000,000
Fair value........................................ $47,229,000
F-8
<PAGE> 62
COMMITMENTS AND CONTINGENCIES
The Company records liabilities for loss contingencies, including those arising
from claims, assessments, litigation, fines and penalties, and other sources
when it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
EARNINGS PER SHARE
The Company computes earnings per share in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 established standards for computing and presenting basic
and diluted earnings per share and applies to entities with publicly held common
stock or potential common stock. Basic earnings per share ("EPS") is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Common equivalent
shares assume the exercise of all dilutive stock options and warrants. Quarterly
and year-to-date computations of per share amounts are made independently;
therefore, the sum of per share amounts for the quarters may not equal per share
amounts for the year.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets, including intangible assets, used in the Company's operations
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
STOCK-BASED COMPENSATION
Stock-based compensation is recognized in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. As such, compensation expense is
recorded on the date of grant only if the current market price of the underlying
stock exceeds the exercise price. For disclosure purposes, pro forma net income
and pro forma earnings per share are provided as if the fair value based method
defined in SFAS No. 123, "Accounting for Stock-Based Compensation," had been
applied.
F-9
<PAGE> 63
ACCOUNTING CHANGES
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (FAS) No. 130, "Reporting Comprehensive Income." Comprehensive income
presents a measure of all changes in shareholders' equity except for changes
resulting from transactions with shareholders in their capacity as shareholders.
The Company's total comprehensive income in 1998 consisted of net income and
unrealized gain/(loss) on investment securities. The Company's total
comprehensive income in 1999 consists of net income and translation adjustment.
The statement also requires the separate presentation of the accumulated balance
of comprehensive income other than net earnings in the Consolidated Balance
Sheets.
Effective December 31, 1998, the Company adopted FAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement establishes
standards for reporting information about a company's operating segments and
related disclosures about its products, services, geographic areas of operations
and major customers. Adoption of this statement did not impact the Company's
results of operations or financial position. The "Segment Reporting" note
provides further information.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" which amended SFAS 133 to change the effective date to fiscal
quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 requires
companies to recognize all derivative contracts as either assets or liabilities
in the balance sheet and to measure them at fair value. Management does not
anticipate a significant impact of the adoption of SFAS No. 133 on the Company's
consolidated financial position, results of operations or cash flows.
RECLASSIFICATIONS
Certain 1998 financial statement amounts have been reclassified to conform with
the 1999 presentation.
2. ACQUISITIONS
On January 15, 1997, the Company, through a wholly-owned subsidiary, completed
the acquisition of substantially all of the assets and assumed certain of the
liabilities of International Aircraft Support, L.P. ("IASI") for $25.1 million
in cash and warrants to purchase an aggregate of 500,000 shares of the Company's
common stock, exercisable at $9.25 per share, expiring on January 15, 1999.
On September 10, 1997, the Company, through a wholly-owned subsidiary, completed
the acquisition of substantially all of the assets and liabilities of Aero
Support USA, Inc. ("Aero Support") for approximately $2.7 million in cash, a
promissory note in the aggregate principal amount of $9.0 million, which matured
and was fully repaid on September 17, 1997, two promissory notes in the
aggregate principal amount of $2.7 million, which matured and were fully repaid
on January 15, 1998, and three warrants. One warrant is for the purchase of
75,000 shares of common stock at an exercise price of $22.00 per share, expiring
on September 9, 2000. The other two warrants are for the purchase of an
aggregate 175,000 shares of common stock at an exercise price of $19.00 per
share, expiring on September 9, 2002. Up to an additional $5,000,000 cash
consideration may be paid in the form of an earn-out payable over three years
based on certain specified criteria, of which $1.3 million and $1.7 million was
earned during 1999 and 1998, respectively.
On April 1, 1998, the Company, through a wholly-owned subsidiary, completed the
acquisition of substantially all of the assets and assumed certain liabilities
of Integrated Technology Corp. ("ITC") for $20.5 million in cash, plus up to
$10.0 million cash consideration which may be paid in the form of an earn-out
payable over three years based on certain specified criteria, of which $1.1
million and $3.3 million was earned during 1999 and 1998, respectively. In
addition, the Company received a three-year option to purchase a 49% interest in
a related FAA-approved overhaul facility.
On June 17, 1998, the Company completed the acquisition of the outstanding
capital stock of Aerocar Aviation Corp. ("Aerocar Aviation") and Aerocar Parts,
Inc. ("Aerocar Parts," and together with Aerocar Aviation, "Aerocar") for $42.3
million in cash, warrants to purchase an aggregate of 250,000 shares of the
Company's common stock, exercisable at $26.00 per share, expiring on June 17,
F-10
<PAGE> 64
2001 plus an additional $5.0 million note payable within a two-year period after
closing, either in cash, or at the option of the Company, in shares of common
stock having an equivalent value as of the date of acquisition.
On December 31, 1998, the Company acquired all of the outstanding capital stock
of Solair, Inc. ("Solair"), a wholly-owned subsidiary of Banner Aerospace, Inc.
for $57.4 million in cash and a warrant to purchase 300,000 shares of common
stock at an exercise price of $27.50 per share, expiring on December 31, 2002.
On April 29, 1999, the Company acquired all of the outstanding capital stock of
Certified Aircraft Parts, Inc. ("Certified") for $16.7 million in cash and
assumed $2.7 million in debt.
Each of the companies acquired are in the business of purchasing, overhauling
(through subcontractors), reselling or leasing of aircraft, avionics and
aircraft rotables, or engines and engine parts. Each of these acquisitions were
accounted for using the purchase method of accounting for business combinations
and accordingly, the consolidated financial statements reflect the results of
operations of the acquired businesses from the dates of acquisition. Unaudited
pro forma consolidated statements of earnings have been provided in Note 18(b)
to report the results of operations for the years ended December 31, 1999 and
1998 as though the acquisitions had occurred at the beginning of the period
being reported.
3. INVENTORIES
At December 31, 1999 and 1998, inventories consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Engine parts $ 122,092,545 $ 99,325,400
Whole engines 8,849,052 9,260,316
Airframe avionics and aircraft rotables 63,549,398 41,371,604
------------------ ------------------
$ 194,490,995 $ 149,957,320
================== ==================
</TABLE>
4. EQUIPMENT UNDER OPERATING LEASES, NET
At December 31, 1999 and 1998, equipment under operating leases, primarily
aircraft and engines, consists of the following:
<TABLE>
<CAPTION>
1999 1998
----- ----
<S> <C> <C>
Equipment under operating leases $ 179,609,590 $ 153,365,577
Accumulated depreciation (29,472,490) (12,841,280)
------------- -------------
150,137,100 140,524,297
Equipment under short-term operating leases 92,135,910 77,201,289
------------- -------------
Equipment under long-term operating leases $ 58,001,190 $ 63,323,008
============= =============
</TABLE>
Equipment under long-term operating leases represents equipment under lease
agreements with an original term greater than one year.
5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment at December 31, 1999 and 1998 consists of the
following:
1999 1998
---- ----
Land $ 5,260,644 $ 2,140,140
Building and Improvements 13,920,526 11,316,046
Machinery and Equipment 7,206,146 3,089,800
Furniture and Fixtures 3,299,448 3,213,401
------------ ------------
29,686,764 19,759,387
Accumulated Depreciation (4,401,965) (3,004,202)
------------ ------------
25,284,799 16,755,185
Construction in Progress 55,141 --
------------ ------------
$ 25,339,940 $ 16,755,185
============ ============
F-11
<PAGE> 65
6. INVESTMENT IN SECURITIES
Upon consummation of the acquisition of the assets of KST, the Company received
warrants to purchase 400,000 shares of common stock of Rada (the "Rada
Warrants") at $3.00 per share, commencing on July 1, 1995 and expiring on or
before July 1, 2000. The Rada Warrants were originally recorded at their fair
value on the date of the acquisition. The Company classifies these warrants as
"available for sale." In December 1996, the Company exercised the Rada Warrants
upon payment of $1,200,000. As a result of certain antidilution provisions
contained in the Rada Warrant, the Company received 464,643 shares of Rada,
representing 5.6% of the outstanding shares of Rada at the time of exercise. The
Company classifies the shares of Rada as "available for sale." As of December
31, 1997, the Company's ownership of Rada common stock was 309,643 shares,
representing approximately 3.7% of the then current outstanding shares. During
the year ended December 31, 1998, the Company sold all the remaining shares of
its investment in Rada for $812,553 and recorded a realized loss of $119,472.
Reclassification adjustments related to the investment in Rada included in
comprehensive income for the years ended December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Unrealized holding gains (losses) arising during the year $386,795 $(973,851)
Plus: reclassification adjustment for losses included in
net income 119,472 38,051
-------- ---------
Net unrealized gains (losses) on securities $506,267 $(935,800)
======== =========
</TABLE>
7. ACCRUED EXPENSES
Accrued expenses at December 31, 1999 and 1998 consists of the following:
1999 1998
---- ----
Employee bonuses $ 1,255,137 $ 2,140,914
Acquisition costs and earn-out payments 3,087,863 6,978,417
Accrued interest 2,529,572 1,760,926
Customer deposits 4,666,174 6,659,814
Commissions 306,870 1,103,562
Deferred income 15,795 1,598,721
Other 6,272,307 5,473,164
----------- -----------
$18,133,718 $25,715,518
=========== ===========
F-12
<PAGE> 66
8. LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Senior subordinated debt due 2002 - 2004 at 11.75% $ 11,250,000 $ 11,250,000
Senior secured revolving credit facility expiring 2003 at 8.75% and
7.75% as of December 31, 1999 and 1998, respectively 165,773,805 83,949,415
Notes payable due 1999 - 2000 at 8.25% 2,145,920 4,455,388
Notes payable - variable rate demand note at 6.25% in 1999 6,670,000 --
------------- ------------
Total debt obligations 185,839,725 99,654,803
Less short-term notes payable (2,145,920) (2,317,982)
Less current maturities on long-term debt (200,000) --
------------- ------------
Long-term debt less current maturities 183,493,805 97,336,821
============= ============
</TABLE>
The Company may, at its option, redeem up to an additional $750,000 (along with
a prepayment penalty of 1%) of principal amount of the senior subordinated debt
concurrently or within five days after the occurrence of any public offering of
the Company's common stock as long as the principal balance is not reduced below
$10.5 million.
In December 1998, the Company entered into a five-year, $256.7 million
syndicated credit facility consisting of a $250.0 million revolving credit
facility and a letter of credit in the amount of up to $6.7 million, with an
option by the Company to increase the revolving credit facility by an additional
$50.0 million, subject to approval from the agent bank and the satisfaction of
certain conditions, for a total of $306.7 million. The credit facility bears
interest ranging from the banks prime rate plus 0 to 50 basis points, or at the
Company's option, LIBOR plus 150 to 250 basis points and is secured by
substantially all of the Company's assets. The total amount available to the
Company under the revolving credit facility is determined by applying certain
advance rate factors to eligible receivables, inventories and equipment under
operating leases. The letter of credit component of the $256.7 million
syndicated credit facility was specifically committed to the permanent financing
of the Company's new headquarters. The $6.7 million financing was completed by
the Company in February 1999. No compensating balances are required under the
revolving credit facility but the agreement contains restrictions on the
Company's ability to pay dividends. At December 31, 1999, borrowings of $172.4
million were outstanding under the revolving credit facility and the Company had
$36.6 million available under the agreement.
Debt maturities for each of the five years subsequent to December 31, 1999 are
as follows: 2000, $2,345,920; 2001, $0; 2002, $3,750,000; 2003, $169,523,805;
2004, $3,750,000; and thereafter $6,470,000.
9. CONVERTIBLE SUBORDINATED NOTES
During October 1997, the Company completed the offering and sale in a private
placement transaction of $50.0 million of 5 3/4% Convertible Subordinated Notes
(the "5 3/4% Notes") maturing in October 2002. In November 1997, the
underwriters of the 5 3/4% Notes exercised their over-allotment option for $4.0
million. The principal amount is convertible into shares of common stock at the
option of the holders at a conversion price equal to $27.50, subject to
adjustment in certain events. In addition, the Company may at any time on or
after October 2000, 2001, and 2002 redeem all or any part of the 5 3/4% Notes at
prices (expressed in percentages of the principal amount) of 102.30%, 101.15%,
and 100%, respectively. Interest on the 5 3/4% Notes is payable semi-annually.
During June 1998, the Company completed a public offering of $75.0 million of 5
1/2% Convertible Subordinated Notes (the "5 1/2% Notes") maturing in June 2003.
In July 1998, the underwriters of the 5 1/2% Notes exercised their
over-allotment option for $11.3 million. The principal amount is convertible
into shares of common stock at the option of the holders at a conversion price
equal to $32.50, subject to adjustment in certain events. In addition, the
Company may at any time on or after June 2000, 2001, and 2002 redeem all or any
part of the 5 1/2% Notes at prices (expressed in percentages of the principal
amount) of 102.30%, 101.15%, and 100%, respectively. Interest on the
5 1/2% Notes is payable semi-annually.
F-13
<PAGE> 67
10. LEASES
OPERATING LEASES AS LESSOR. One of the Company's product offerings is the
leasing of aircraft and engines. These lease agreements have typical lease terms
of 3 to 60 months and provide for a fixed time charge plus a usage charge based
on flight hours and cycles. Contingent rentals included in income during 1999,
1998 and 1997 were $10.8 million, $8.3 million and $2.5 million, respectively.
OPERATING LEASES AS LESSEE. The Company has several operating leases, primarily
for transportation equipment and facilities that expire over the next five
years. These leases generally require the Company to pay all executory costs
such as maintenance and insurance and provide for early termination at
stipulated values. Total rent expense for all operating leases for the years
ended December 31, 1999, 1998 and 1997 amounted to $1.5 million, $0.6 million
and $0.3 million, respectively.
LEASE PAYMENTS. At December 31, 1999, future minimum lease payments are as
follows:
OPERATING LEASES
-------------------------------------------
AS LESSOR AS LESSEE
----------------- ------------------
2000 $15,782,680 $1,171,962
2001 6,956,380 864,629
2002 1,201,916 809,322
2003 402,982 298,116
2004 235,020 215,347
Thereafter -- 1,059,322
----------- ----------
$24,578,978 $4,418,698
=========== ==========
The amounts in the previous table are based upon the assumption that equipment
under operating leases will remain on lease for the length of time specified by
the respective lease agreements. This is not a projection of future lease
revenue; no effect has been given to renewals, new business, cancellations,
contingent rentals, sales of equipment under lease or future rate changes.
11. INCOME TAXES
Income tax expense for the years ended December 31, 1999, 1998 and 1997 is
summarized as follows:
1999 1998 1997
---- ---- ----
Current:
Federal $10,471,028 $ 8,795,142 $4,393,569
State and local 1,026,971 1,161,253 602,959
----------- ----------- ----------
11,497,999 9,956,395 4,996,528
Deferred 891,937 1,722,246 80,631
----------- ----------- ----------
Provision for income taxes $12,389,936 $11,678,641 $5,077,159
=========== =========== ==========
The actual tax expense differs from the "expected" tax expense for the years
ended December 31, 1999, 1998 and 1997 (computed by applying the U.S. federal
corporate tax rate of 35% for the year ended December 31, 1999 and 1998 and 34%
for the year ended December 31, 1997, to income before income taxes), as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 11,508,900 $ 10,939,866 $ 4,630,691
State income tax, net of federal benefit 848,543 845,960 573,245
Foreign sales corporation benefit (257,625) (155,255) (123,771)
Other 290,118 48,070 (3,006)
------------ ------------ -----------
Actual tax expense $ 12,389,936 $ 11,678,641 $ 5,077,159
============ ============ ===========
</TABLE>
Total income tax expense for the years ended December 31, 1999, 1998 and 1997
was allocated as follows:
F-14
<PAGE> 68
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income from continuing operations $12,389,936 $11,678,641 $ 5,077,159
Stockholders' equity, for unrealized
gain/(loss) on investment securities -- 190,506 (346,817)
----------- ----------- -----------
$12,389,936 $11,869,147 $ 4,730,342
=========== =========== ===========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1999 and
1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts 3,184,395 3,841,131
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the Tax
Reform Act of 1986 4,165,408 4,381,547
Accrued liabilities, principally for financial reporting
Purposes 309,930 602,990
Deferred rental and leasing revenue 738,719 599,520
State net operating losses 364,743 561,979
Other 13,700 13,810
----------- ------------
Total gross deferred tax assets 8,776,895 10,000,977
Less valuation allowance -- --
----------- ------------
Deferred tax assets 8,776,895 10,000,977
Deferred tax liabilities:
Property, plant and equipment (222,167) (2,465)
Equipment under operating leases (7,403,404) (4,550,455)
Intangible assets (1,166,906) (274,736)
----------- ------------
Deferred tax liabilities (8,792,477) (4,827,656)
----------- ------------
Net deferred tax (liabilities) assets $ (15,582) $ 5,173,321
=========== ============
</TABLE>
The Company's management believes that it is more likely than not that the
results of future operations will generate sufficient taxable income to realize
the deferred tax asset. As such, no valuation allowance has been established. On
December 31, 1998 and April 29, 1999, the Company acquired all of the
outstanding stock of Solair, Inc. and Certified Aircraft Parts, Inc.,
respectively. The Company files a consolidated income tax return which will
include both Solair and Certified. Thus, deferred taxes were calculated on a
consolidated basis as of the acquisition dates. Therefore, the Company, as a
result of the acquisitions, has recognized net deferred tax assets of $4,519,663
from Solair in 1998 and net deferred tax liabilities of $2,186,618 from
Certified in 1999 which are included in the consolidated net deferred tax
liabilities position of $15,582.
12. STOCKHOLDERS' EQUITY
The Company is authorized to issue 1,000,000 shares of preferred stock with such
designations, voting and other rights and preferences as may be determined from
time to time by the Board of Directors.
The Company is authorized to issue 50,000,000 shares of common stock, $.001 par
value. In June 1998, the Company completed a secondary public offering of
2,750,000 shares of common stock at $26.00 per share, resulting in net proceeds
of $67.4 million. In July 1998, the Company's underwriters exercised their
over-allotment option to purchase an additional 412,500 shares of common stock
at $26.00, resulting in additional net proceeds of $10.2 million. The Company
had 11,910,981 and 11,762,015 shares of common stock outstanding at December 31,
1999 and 1998, respectively.
F-15
<PAGE> 69
In January 1997, the Company's Board of Directors declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share of common
stock. Each right entitles the registered holder to purchase from the Company
one one-hundredth of a share of Series A Junior Participating Cumulative
Preferred Stock ("Series Preferred Stock") at an exercise price of $80.00.
The Rights are not exercisable, or transferable apart from the common stock,
until the earlier to occur of (i) ten days following a public announcement that
a person or group of affiliated or associated persons have acquired beneficial
ownership of 20% or more of the outstanding common stock of the Company or (ii)
ten business days (or such later date, as defined) following the commencement
of, or announcement of an intention to make, a tender offer or exchange offer,
the consummation of which would result in the beneficial ownership by a person
or group of 19% or more of the outstanding common stock of the Company.
Furthermore, if the Company enters into a consolidation, merger, or other
business combination, as defined, each Right would entitle the holder upon
exercise to receive, in lieu of shares of Series A Preferred Stock, that number
of shares of common stock of the acquiring company having a value of two times
the exercise price of the Right, as defined. The Rights contain antidilutive
provisions, are redeemable at the Company's option, subject to certain defined
restrictions, for $.01 per Right, and expire in January 2007.
As a result of the Rights dividend, the Board designated 200,000 shares of
preferred stock as Series A Preferred Stock. Series A Preferred Stockholders
will be entitled to a preferential cumulative quarterly dividend of the greater
of $1.00 per share or 100 times the per share dividend declared on the Company's
common stock. The Series A Preferred Stock has a liquidation preference, as
defined. In addition, each share will have 100 votes and will vote together with
the shares of common stock.
During 1999 and 1998, the Board of Directors of the Company approved loans in
the aggregate amount of $0.3 million and $1.1 million, respectively, to certain
officers and directors of the Company for the purposes of purchasing shares of
common stock. The loans will be unsecured and payable over four years for
employees or five years for directors at an interest rate based on the
applicable federal rate, as defined by the agreement, at the time of the loan.
The average interest rate for these loans at December 31, 1999 and 1998 was 5.9%
and 5.8%, respectively. Interest will be paid annually by officers and will
accrue and be paid at maturity by directors. As of December 31, 1999 and 1998,
the outstanding balance on the loans receivable was $1.6 million and $1.4
million, respectively.
Upon consummation of the acquisitions of Aero Support, Aerocar and Solair, the
Company issued warrants to purchase an aggregate of 800,000 shares of the
Company's common stock at stated prices of $19.00-$27.50, expiring three to five
years from the dates of issuance. The amounts recorded by the Company as a
result of the issuance of the warrants was determined based on the fair value of
the warrants on the closing date of the acquisitions.
In February 1997 the Company called its publicly traded warrants pursuant to
their terms. The Company received proceeds of $22,961,950 from the exercise of
these warrants during the period from October 1996 to March 1997.
The Company had 1,147,030 warrants outstanding at December 31, 1999 and 1998.
Each warrant entitles the holder to the purchase of one share of the Company's
common stock at an average stated price of $19.15. These warrants are
exercisable at various times principally commencing in June 1995 and expiring on
or before December 2002. The Company has reserved 5.0 million common shares for
the exercise of these warrants.
13. EMPLOYEE STOCK OPTION PLANS
The 1995 Stock Option Plan provides for the granting of stock options to
purchase up to 250,000 shares of common stock to key employees, with no
individual granted options to purchase more than 100,000 shares of common stock
during the ten-year period commencing on June 22, 1995, at a price which will
not be less than the fair market value of common stock on the date of grant.
These options will be exercisable at such times, in such amounts and during such
F-16
<PAGE> 70
intervals as determined on the date of grant. However, no option will be
exercisable during the first six months after the date of grant or more than 10
years after the date of grant. In 1995 the Company granted 235,000 stock options
at an exercise price of $5.00; all of which provide that such options fully vest
over a period of three years from the date of grant.
The 1996 Stock Option Plan (the "1996 Plan") provides for the granting of
incentive stock options to purchase shares of common stock at not less than the
fair market value on the date of the option grant or the granting of
nonqualified options and stock appreciation rights ("SARs") with any exercise
price. SARs granted in tandem with an option have the same exercise price as the
related option. The total number of shares with respect to which options and
SARs may be granted under the 1996 Plan is currently 1,100,000. No option or SAR
may be granted under the 1996 Plan after July 9, 2006, and no option or SAR may
be outstanding for more than ten years after its grant.
The 1997 Stock Option Plan (the "1997 Plan") provides for the granting of
incentive stock options to purchase shares of common stock at not less than the
fair market value on the date of the option grant and the granting of
nonqualified options. The total number of shares with respect to which options
may be granted under the 1997 Plan is currently 1,000,000. No option may be
granted under the 1997 Plan after October 27, 2007, and no option may be
outstanding for more than ten years after its grant.
The 1998 Stock Option Plan (the "1998 Plan") provides for the granting of stock
options to purchase shares of common stock at not less than the fair market
value on the date of the option grant. The total number of shares with respect
to which options may be granted under the 1998 Plan is 175,000. No option may be
granted under the 1998 Plan after November 15, 2008, and no option may be
outstanding for more than ten years after its grant. The Company intends to only
grant options under the 1998 Plan to newly hired executives and employees as an
inducement to enter into employment arrangements with the Company, and to
outside members of the Board, in lieu of cash compensation, as an incentive for
their service on the Board.
In October 1998, the Company's Board of Directors approved the extension of the
vesting schedule and repricing of all outstanding employee stock options with an
exercise price above $10.125. Employees who accepted the Company's repricing
offer were subject to, in general, a 50% extension to the vesting term for that
option. All other terms of the existing options remained unchanged. As a result,
1,170,998 employee stock options were cancelled and reissued by the Company at
the new exercise price of $10.125. The new exercise price was determined based
on the closing market price of the Company's common stock on October 8, 1998.
The following table summarizes the status of the Company's stock option plans:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE OPTION
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Outstanding at December 31, 1996 608,000 6.61
Granted 1,542,000 12.66
Exercised (5,499) 5.00
Expired or Canceled (81,000) 6.94
---------- --------
Outstanding at December 31, 1997 2,063,501 11.12
Granted 1,819,412 15.33
Exercised (80,147) 7.46
Expired or Canceled (1,180,998) 21.47
---------- --------
Outstanding at December 31, 1998 2,621,768 9.51
Granted 407,250 18.74
Exercised (148,966) 7.38
Expired or Canceled (6,334) 21.37
---------- --------
Outstanding at December 31, 1999 2,873,718 10.90
========== ========
At December 31, 1999:
Exercisable options 1,854,719 9.66
Shares Available for Future Grant 55,000 --
</TABLE>
The following table summarizes the status of stock options outstanding and
exercisable as of December 31, 1999, by range of exercise price:
F-17
<PAGE> 71
<TABLE>
<CAPTION>
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF EXERCISE OPTIONS TERM EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
- --------------------- --------------- -------------- -------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
$5.00 - $8.00 475,352 6.3 $6.80 465,362 $6.78
$8.01 - $12.00 1,906,032 7.6 $9.50 1,192,700 $9.20
$12.01 - $20.00 302,834 9.0 $17.92 165,001 $18.48
$20.01 - $25.75 189,500 8.5 $24.11 31,667 $23.30
--------------- ------------------
2,873,718 1,854,730
=============== ==================
</TABLE>
The weighted average per share fair values of options granted under the
Company's stock option plans during 1999, 1998 and 1997 were $14.11, $18.13 and
$12.66, respectively. Had the fair value of the grants under these plans been
recognized as compensation expense over the vesting period of the awards, the
Company's net earnings and earnings per share would have reflected the pro forma
amounts shown below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ---------------- ----------------
<S> <C> <C> <C>
Net earnings:
As reported $ 20,534,904 $ 19,578,119 $ 8,542,519
Pro forma 14,594,402 15,052,692 7,193,698
Earnings per share - basic:
As reported 1.73 1.94 1.18
Pro forma 1.23 1.49 0.99
Earnings per share - diluted:
As reported 1.48 1.53 0.95
Pro forma 0.89 1.02 0.77
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: dividend yield of 0% in 1999, 1998 and 1997; expected volatility of
80% in 1999 and 59% in 1998 and 20% in 1997; a risk-free interest rate of 5.35%
in 1999 and 1998 and 6.59% in 1997; and an expected holding period of 10
years. Increased pro forma compensation expense in 1999 is the result of the
additional options granted and further vesting of 1995, 1996, 1997 and 1998
grants during 1999. Pro forma expense for 2000 is expected to increase over 1999
for the same reasons.
14. EARNINGS PER SHARE
Diluted earnings per share for the years ended December 31, 1999, 1998 and 1997
were calculated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ---------------- ----------------
<S> <C> <C> <C>
Net income $ 20,534,904 $ 19,578,119 $ 8,542,519
Income adjustment relating to reduction of debt based
on the if converted method 4,155,590 3,423,047 405,921
------------------ ---------------- ----------------
Net income available to common and common equivalent
shares 24,690,494 23,001,166 8,948,440
================== ================ ================
Weighted average number of common shares outstanding -
basic 11,855,483 10,086,875 7,266,534
Dilutive common stock equivalents from stock options
and warrants based on the treasury stock method 864,496 3,542,904 1,712,196
Dilutive convertible subordinated notes based on the if
converted method 3,954,021 1,430,733 415,709
------------------ ---------------- ----------------
Weighted average number of common shares outstanding -
diluted 16,674,000 15,060,512 9,394,439
================== ================ ================
</TABLE>
F-18
<PAGE> 72
At December 31, 1997, 1998 and 1999, options and warrants to purchase 726,000,
726,167 and 2,807,492 shares of common stock, respectively were outstanding but
were not included in the computation of diluted EPS because their exercise price
was greater than the average market price of the common shares during the
period.
15. SEGMENT REPORTING
The Company is organized based on the products that it offers. Under this
organizational structure, the Company has four reportable segments: (i)
Commercial Engine Parts, (ii) Defense, (iii) Whole Engine and Aircraft and (iv)
Airframe Avionics and Rotables. The Commercial Engine Parts segment is involved
in the business of purchasing, overhauling (primarily through subcontractors),
reselling and leasing of engine parts for large turbo-fan engines manufactured
by CFM International, General Electric, Pratt & Whitney and Rolls Royce. The
Defense segment is an after-market reseller of aircraft parts and turbojet
engines and engine parts for helicopters and large transport aircraft. The
segment's primary focus is on the Lockheed Martin C-130 Hercules aircraft, a
widely used military transport aircraft, the Allison (Rolls Royce) T56/501
engine, which powers this aircraft and the Allison 250, with approximately
16,000 units actively in use by helicopters. The Company entered the small
engine segment in 1997 with the acquisition of Aero Support. The acquisition of
Certified on April 29, 1999 enhanced the Company's presence in this market
segment. The Whole Engine and Aircraft segment leases and resells whole engines
and aircraft. The Airframe Avionics and Rotables segment is engaged in the sale
of a wide variety of aircraft rotables and expendable components including
flight data recorders, electrical and mechanical equipment and radar and
navigation systems. The Company entered the avionics and rotables segment in
1998 with the acquisition of Solair.
The Company's reportable segments are managed separately because each business
requires different technology and marketing strategies. The Company has not
historically allocated selling, general and administrative expenses,
depreciation and amortization, interest expense or income taxes to its business
segments. Rather, the Company has evaluated performance of the business segments
based on revenue and gross margins. The accounting policies of the segments are
the same as those described in the summary of significant accounting policies.
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ---------------- ----------------
<S> <C> <C> <C>
REVENUES
Commercial Engine Parts $75,021,184 $ 41,529,164 $ 37,026,607
Defense 47,977,353 24,185,460 6,817,932
Whole Engine and Aircraft 153,903,720 114,334,185 35,594,610
Airframe Avionics and Rotables 54,041,767 -- --
------------------ ---------------- ----------------
Total revenue $330,944,024 $ 180,048,809 $79,439,149
================== ================ ================
GROSS MARGIN
Commercial Engine Parts $25,576,962 $14,424,598 $ 13,095,159
Defense 16,998,409 8,388,648 2,702,402
Whole Engine and Aircraft 46,600,079 40,326,122 12,246,600
Airframe Avionics and Rotables 13,765,579 -- --
------------------ ---------------- ----------------
Total gross margin $102,941,029 $63,139,368 $28,044,161
================== ================ ================
INVENTORIES AND EQUIPMENT UNDER LEASE
Commercial Engine Parts $108,512,892 $ 84,277,674 $27,495,671
Defense 40,594,349 19,870,137 8,469,705
Whole Engine and Aircraft 150,137,099 144,962,202 39,932,388
Airframe Avionics and Rotables 45,383,755 41,371,604 --
------------------ ---------------- ----------------
Total inventories $344,628,095 $ 290,481,617 $75,897,764
================== ================ ================
GEOGRAPHIC REVENUE INFORMATION
Revenue from domestic customers 210,911,226 120,632,702 62,756,928
Revenue from international customers 120,032,798 59,416,107 16,682,221
------------------ ---------------- ----------------
Total revenue $330,944,024 $ 180,048,809 $79,439,149
================== ================ ================
</TABLE>
F-19
<PAGE> 73
For the years ended December 31, 1999, 1998 and 1997, the Company's five largest
customers collectively accounted for approximately 36%, 42% and 38%,
respectively, of the Company's consolidated revenues.
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 Company estimates an allowance for doubtful accounts based on the credit
worthiness of its customers as well as general economic conditions.
Consequently, an adverse change in those factors could affect the Company's
estimate of its bad debts.
16. OTHER MATTERS
On July 7, 1999, the Company settled a lawsuit brought by the Estate of the late
Mr. Joram Rosenfeld (a former Director of the Company) with respect to, among
other things, a claim alleging entitlement to a stock option grant in late 1996.
The settlement was entered into in order to limit the expense of litigating the
suit as well as the protracted use of management's time and related corporate
resources. The Company recorded a one-time pre-tax charge of approximately $2.2
million during the second quarter of 1999 to fulfill its obligation under the
settlement and for accrued legal expenses.
At December 31, 1999 there were no other material legal proceedings pending
against the Company or any of its property. However, the Company may become
party to various claims, legal actions and complaints arising in the ordinary
course of business or otherwise. The Company cannot determine whether such
actions would have a material impact on the financial condition, results of
operations or cash flows of the Company.
The Company has certain employment agreements with officers with terms of up to
five years. The employment agreement provides that such officers may earn
bonuses, based on the Company achieving certain target net income levels.
Further, each of the employment agreements provide that in the event of
termination without cause, the employment agreement shall be terminable by the
mutual agreement between the Company and the officers, or by either party upon
sixty days notice and provides for certain levels of severance compensation.
In February 1998, the Company established a defined contribution savings plan
that covers substantially all eligible employees. Company contributions to the
plan are based on employee contributions and the level of company match. Company
contributions to the plan totaled approximately $172,277 in 1999.
F-20
<PAGE> 74
17. RELATED PARTY TRANSACTIONS
In March 1997, the Company engaged Helix Management Company II, LLC ("Helix"), a
company owned by Yoav Stern, Chairman of the Company's Board of Directors, and
Zivi Nedivi, President, Chief Executive Officer and a Director of the Company,
to act as the Company's exclusive financial advisor with respect to merger and
acquisition transactions and as principal financial advisor with respect to
other transactions for an initial term of eighteen months beginning January 1,
1997, renewable for additional 12 month terms (as amended, the "Helix Engagement
Agreement"). As discussed below, on March 24, 1999, the Company entered into a
termination agreement with Helix, pursuant to which the Company agreed to
terminate the Helix Engagement Agreement.
Under the terms of the agreement, Helix received a monthly retainer of $25,000.
In addition, under the terms of the agreement, a success fee was to be paid by
the Company on a per transaction basis, based upon the aggregate consideration
in connection with the applicable transaction. During the years ended December
31, 1999, 1998 and 1997, the Company paid $1.5 million, $2.0 million and $0.5
million, respectively, and issued warrants for the purchase of 7,500 shares in
1997 and 7,250 shares in 1998 of the Company's common stock at exercise prices
between $19.00 and $27.50 per share, expiring in three to five years, to Helix
relating to such agreement.
On March 24, 1999, the Company entered into a Termination Agreement (the "Helix
Termination Agreement") with Helix, pursuant to which the Company agreed to
terminate the Helix Engagement Agreement dated as of March 28, 1997. Under the
terms of the Helix Termination Agreement, the Company will only be required to
pay Helix success fees on those transactions procured by Helix which have either
been consummated or signed prior to the date of termination. Helix has waived
all other fees which it is entitled to under the terms of the Helix Engagement
Agreement, including monthly retainer fees on account of the ninety-day period
following termination and success fees on account of transactions procured by
Helix which are undertaken by the Company within one year of termination. Helix
has also agreed that it will, for no additional consideration, provide the
Company such assistance (including access to its members and employees and
copies of its records and files) as is necessary to assure an orderly transition
in the services provided by Helix.
18. SUPPLEMENTAL FINANCIAL DATA
(A) QUARTERLY DATA - UNAUDITED
<TABLE>
<CAPTION>
QUARTERS
-------------------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Total revenues:
1999 $79,056,009 $88,226,899 $70,730,702 $92,930,414
1998 $29,090,571 $38,063,117 $52,806,517 $60,088,604
Earnings from continuing operations:
1999 $7,148,328 $6,032,995 $3,411,352 $3,942,229
1998 $2,941,610 $3,681,064 $6,203,317 $6,752,128
Net earnings:
1999 $7,148,328 $6,032,995 $3,411,352 $3,942,229
1998 $2,941,610 $3,681,064 $6,203,317 $6,752,128
Earnings from continuing operations per common share - diluted:
1999 $0.47 $0.41 $0.27 $0.31
1998 $0.29 $0.34 $0.42 $0.45
Net earnings per common share - diluted:
1999 $0.47 $0.41 $0.27 $0.31
1998 $0.29 $0.34 $0.42 $0.45
</TABLE>
F-21
<PAGE> 75
(B) PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
The condensed consolidated statement of earnings of the Company for the 12
months ended December 31, 1999 are the Company's actual results, as they reflect
the operations of ITC, Aerocar and Solair for the entire period being presented.
The pro forma consolidated statements of earnings for the year ended December
31, 1998 is based on historical financial statements of the Company and have
been adjusted to reflect the acquisitions of ITC, 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, 1998 reflects the effect of the Company's secondary public offering of
common stock and convertible subordinated notes as though it had occurred at the
beginning of the period being reported.
F-22
<PAGE> 76
KELLSTROM INDUSTRIES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998
------------ ------------
ACTUAL PRO FORMA
<S> <C> <C>
Sales revenue, net $288,912,304 $230,047,078
Rental revenues 42,031,720 35,139,470
------------ ------------
Total revenues 330,944,024 265,186,548
Cost of goods sold (200,888,797) (161,522,112)
Inventory write-down (see below) -- (5,628,643)
Depreciation of equipment under operating leases (27,114,198) (17,735,353)
Selling, general and administrative expenses (41,149,634) (37,208,774)
Depreciation and amortization (5,398,198) (4,137,877)
Other non-recurring expenses (2,200,000) --
------------ ------------
Total operating expenses (276,750,827) (226,232,759)
Operating income 54,193,197 38,953,789
Interest expense, net of interest income (21,268,357) (16,032,522)
------------ ------------
Income before income taxes 32,924,840 22,921,267
Income taxes (12,389,936) (8,571,664)
============ ============
Net income $ 20,534,904 $ 14,349,603
============ ============
Earnings per common share -- basic $ 1.73 $ 1.24
============ ============
Earnings per common share -- diluted $ 1.48 $ 0.87
============ ============
Weighted average number of common shares outstanding -- basic 11,855,483 11,550,779
============ ============
Weighted average number of common shares
outstanding -- diluted 16,674,000 16,524,416
============ ============
</TABLE>
Solair's historical results for the year ended December 31, 1998 reflects
charges to income of $5.6 million for the write-down of inventory. If these
charges were excluded from the pro forma statements of earnings, net income and
earnings per share on a basic and diluted basis would be $17.9, $1.55 and $1.08,
respectively for the years ended December 31, 1998.
Unaudited -- See accompanying notes to pro forma consolidated statements of
earnings.
F-23
<PAGE> 77
KELLSTROM INDUSTRIES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
-----------------------------------------------------------
HISTORICAL
KELLSTROM ITC AEROCAR SOLAIR
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales revenues, net $148,901,686 $ 8,036,576 $ 3,458,512 $ 69,650,304
Rental revenues 31,147,123 538,306 3,454,041 --
------------- ------------- ------------- -------------
Total revenues 180,048,809 8,574,882 6,912,553 69,650,304
Cost of goods sold (100,221,300) (4,997,742) (1,724,577) (54,578,493)
Inventory write-down -- -- -- (5,628,643)
Depreciation of equipment under operating
leases (16,688,141) (289,317) (757,895) --
Selling, general and administrative expenses (19,051,869) (640,591) (1,443,646) (16,787,829)
Depreciation and amortization (3,057,847) (3,498) -- (480,545)
------------- ------------- ------------- -------------
Total operating expenses (139,019,157) (5,931,148) (3,926,118) (77,475,510)
Operating income 41,029,652 2,643,734 2,986,435 (7,825,206)
Interest expense, net of interest income (9,772,892) (160,492) (87,257) (5,289,158)
------------- ------------- ------------- -------------
Income before income taxes 31,256,760 2,483,242 2,899,178 (13,114,364)
Income taxes (11,678,641) -- -- --
------------- ------------- ------------- -------------
Net income $ 19,578,119 $ 2,483,242 $ 2,899,178 $(13,114,364)
============= ============= ============= =============
Earnings per common share - basic $ 1.94
=============
Earnings per common share - diluted $ 1.53
=============
Weighted average number of common shares
outstanding - basic 10,086,875
=============
Weighted average number of common shares
outstanding - diluted 15,060,512
=============
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS (A) ADJUSTMENTS (B) ADJUSTMENTS (C) COMBINED
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales revenues, net -- -- -- $ 230,047,078
Rental revenues -- -- -- 35,139,470
--------------- --------------- --------------- ---------------
Total revenues -- -- -- 265,186,548
Cost of goods sold -- -- -- (161,522,112)
Inventory write-down -- -- -- (5,628,643)
Depreciation of equipment under operating
leases -- -- -- (17,735,353)
Selling, general and administrative expenses 43,161 132,000 540,000 (37,208,774)
Depreciation and amortization (52,963) (431,194) (111,830) (4,137,877)
--------------- --------------- --------------- ---------------
Total operating expenses (9,802) (299,194) 428,170 (226,232,759)
Operating income (9,802) (299,194) 428,170 38,953,789
Interest expense, net of interest income 160,492 219,633 5,479,680 (16,032,522)
(532,331) (2,061,530) (3,988,667)
--------------- --------------- --------------- ---------------
Income before income taxes (381,641) (2,141,091) 1,919,183 22,921,267
Income taxes (785,233) (283,248) 4,175,458 (8,571,664)
--------------- --------------- --------------- ---------------
Net income $ (1,166,874) $ (2,424,339) $ 6,094,641 $ 14,349,603
=============== =============== =============== ===============
Earnings per common share - basic $ 1.24
===============
Earnings per common share - diluted $ 0.87
===============
Weighted average number of common shares
outstanding - basic 11,550,779
===============
Weighted average number of common shares
outstanding - diluted 16,524,416
===============
</TABLE>
Unaudited - See accompanying notes to pro forma consolidated statement of
earnings.
F-24
<PAGE> 78
KELLSTROM INDUSTRIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(A) For the purpose of presenting the pro forma consolidated statements of
earnings, the following adjustments have been made for the ITC acquisition:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Increase (decrease) in income:
Reduction in selling, general and administrative expense due to elimination of pension expense $ 43,161
Amortization of goodwill and non-compete agreement related to ITC acquisition (52,963)
Reduction in interest expense due to pay-off of debt on ITC line of credit 160,492
Interest expense on acquisition debt and debt incurred to repay existing ITC line of credit (532,331)
----------------
(381,641)
Tax effect of pro forma adjustments and impact of acquisition on the provision for income taxes (785,233)
----------------
Net adjustment $ (1,166,874)
================
</TABLE>
(B) For the purpose of presenting the pro forma consolidated statements of
earnings, the following adjustments have been made for the Aerocar Aviation and
Aerocar Parts acquisitions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 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 (283,248)
----------------
Net adjustments $ (2,424,339)
================
</TABLE>
(C) For the purpose of presenting the pro forma consolidated statements of
earnings, the statement of operations of Solair for the twelve months ended
December 31, 1998 has been used and the following adjustments have been made for
the Solair acquisition:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Increase (decrease) in income:
Reduction in selling, general and administrative expenses for elimination of Banner management fees $ 540,000
Amortization of goodwill related to Solair acquisition (111,830)
Reduction in interest expense due to pay-off of Solair debt 5,479,680
Increase in interest expense from acquisition debt (3,988,667)
----------------
1,919,183
Tax effect of pro forma adjustments and impact of acquisition on the provision for income taxes 4,175,458
----------------
Net adjustment $ 6,094,641
================
</TABLE>
F-25
<PAGE> 1
Exhibit 4.8
KELLSTROM INDUSTRIES, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. ASA-__ _____ Shares
FOR VALUE RECEIVED, Kellstrom Industries, Inc., a Delaware corporation
(the "Company"), hereby certifies that ____________ or his permitted assigns, is
entitled to purchase from the Company, at any time or from time to time
commencing on August 31, 1999, (the "Commencement Date") and prior to 5:00 P.M.,
New York City time, on September 9, 2000 (the "Exercise Period"),
________________ (____), subject to adjustment as hereinafter provided, fully
paid and non-assessable shares of the common stock, $.001 par value per share,
of the Company for an aggregate purchase price of $____________ (computed on the
basis of $22.00 per share). (Hereinafter, (i) said common stock, together with
any other equity securities which may be issued by the Company with respect
thereto or in substitution therefor, is referred to as the "Common Stock,"(ii)
the shares of the Common Stock purchasable hereunder or under any other Warrant
(as hereinafter defined) are referred to individually as a "Warrant Share" and
collectively as the "Warrant Shares," (iii) the aggregate purchase price payable
for the Warrant Shares hereunder is referred to as the "Aggregate Warrant
Price,"(iv) the price payable for each of the Warrant Shares hereunder is
referred to as the "Per Share Warrant Price,"(v) this Warrant, all similar
Warrants issued on the date hereof to Zivi R. Nedivi, Yoav Stern or Yehuda
Perry, and all Warrants hereafter issued in exchange or substitution for this
Warrant or such similar Warrants are referred to as the "Warrants" and (vi) the
holder of this Warrant is referred to as the "Holder" and the holder of this
Warrant and all other Warrants or Warrant Shares issued upon the exercise of any
Warrant are referred to as the "Holders.") The Aggregate Warrant Price is not
subject to adjustment. The Per Share Warrant Price is subject to adjustment as
hereinafter provided; in the event of any such adjustment, the number of Warrant
Shares shall be adjusted by dividing the Aggregate Warrant Price by the Per
Share Warrant Price in effect immediately after such adjustment.
1. EXERCISE OF WARRANT.
(a) This Warrant may be exercised in whole at any time or in
part from time to time, beginning on the Commencement Date and prior to 5:00
P.M., New York City time, on September 9, 2000, by the Holder by the surrender
of this Warrant (with the subscription form or the cashless exercise notice, as
applicable, at the end hereof, or a reasonable facsimile thereof, duly executed)
at the address set forth in Subsection 10(a) hereof, together with proper
payment of the Aggregate Warrant Price, or the proportionate part hereof if this
Warrant is exercised in part. Payment for Warrant Shares shall be made at the
election of the Holder, either (i) by certified or official bank check payable
to the order of the Company or (ii) with a Cashless Exercise Form annexed hereto
(or a reasonable facsimile thereof) duly executed (a "Cashless Exercise").
Presentation of the Cashless Exercise Form and surrender of this Warrant shall
be deemed a waiver of the Holder's obligation to pay all of the Aggregate
Warrant Price, or the applicable portion thereof with respect to a partial
exercise. In the event of a Cashless Exercise, the Holder shall exchange its
Warrant for the number of shares of Common Stock determined by multiplying the
number of
<PAGE> 2
Warrant Shares being exercised by a fraction, the numerator of which shall be
the difference between the then current market price per share of the Common
Stock and the Per Share Warrant Price, and the denominator of which shall be the
then current market price per share of Common Stock. For purposes of any
computation under this Section 1(a)(ii), the then current market price per share
of Common Stock at any date shall be deemed to be the average for the five
consecutive business days immediately prior to the Cashless Exercise of the
daily closing prices of the Common Stock on the principal national securities
exchange on which the Common Stock is admitted to trading or listed, or if not
listed or admitted to trading on any such exchange, the closing prices as
reported by the Nasdaq National Market, or if not then listed on the Nasdaq
National Market, the average of the highest reported bid and lowest reported
asked prices as reported by the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") or if not then publicly traded, the fair
market price of the Common Stock as determined by the Board of Directors.
(b) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock, and the Holder is
entitled to receive a new Warrant covering the Warrant Shares which have not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon such surrender of this Warrant,
the Company will, as promptly as practicable, (a) issue a certificate or
certificates in the name of Holder (or any designee of the Holder to whom the
Warrant is transferred in accordance with Section 6 hereof) for the largest
number of whole shares of the Common Stock to which the Holder shall be entitled
and, if this Warrant is exercised in whole, in lieu of any fractional share of
the Common Stock to which the Holder shall be entitled, pay to the Holder cash
in an amount equal to the fair value of such fractional share (determined in
such reasonable manner as the Board of Directors of the Company shall
determine), and (b) deliver the other securities and properties receivable upon
the exercise of this Warrant, or the proportionate part thereof if this Warrant
is exercised in part, pursuant to the provisions of this Warrant.
2. RESERVATION OF WARRANT SHARES; LISTING. The Company agrees that,
prior to the expiration of this Warrant, the Company will at all times (a) have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer and free and clear of all preemptive rights and rights of first refusal
and (b) if the Company hereafter lists its Common Stock on any national
securities exchange, keep the shares of the Common Stock receivable upon the
exercise of this Warrant authorized for listing on such exchange upon notice of
issuance.
3. PROTECTION AGAINST DILUTION.
(a) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the Per Share Warrant Price shall be
adjusted so that the Holder upon the exercise hereof shall be entitled to
receive the number of shares of Common Stock or other capital stock of the
Company which he would have owned immediately following such action had such
2
<PAGE> 3
Warrant been exercised immediately prior thereto. An adjustment made pursuant to
this Subsection 3(a) shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(b) If, at any time or from time to time after the date of
this Warrant, the Company shall issue or distribute to the holders of shares of
Common Stock evidences of its indebtedness, any other securities of the Company
or any cash, property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common Stock,
referred to in Subsection 3(a), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor if the full
amount thereof, together with the value of other dividends and distributions
made substantially concurrently therewith or pursuant to a plan which includes
payment thereof, is equivalent to not more than a cumulative amount equal to 15%
of the Company's net worth) (any such nonexcluded event being herein called a
"Special Dividend"), the Per Share Warrant Price shall be adjusted by
multiplying the Per Share Warrant Price then in effect by a fraction, the
numerator of which shall be the then current market price (as defined above) of
the Common Stock less the fair market value (as determined in good faith by the
Company's Board of Directors) of the evidences of indebtedness, cash, securities
or property, or other assets issued or distributed in such Special Dividend
applicable to one share of Common Stock and the denominator of which shall be
such then current market price per share of Common Stock. An adjustment made
pursuant to this Subsection 3(b) shall become effective immediately after the
record date of any such Special Dividend.
(c) In case of any capital reorganization or reclassification,
or any consolidation or merger to which the Company is a party other than a
merger or consolidation in which the Company is the continuing corporation, or
in case of any sale or conveyance to another entity of the property of the
Company as an entirety or substantially as an entirety, or in the case of any
statutory exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third corporation into the
Company), the Holder of this Warrant shall have the right thereafter to receive
on the exercise of this Warrant the kind and amount of securities, cash or other
property which the Holder would have owned or have been entitled to receive
immediately after such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had this Warrant been exercised
immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3 with respect to the
rights and interests thereafter of the Holder of this Warrant to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The above provisions of this Subsection 3(c) shall similarly apply
to successive reorganizations, reclassifications, consolidations, mergers,
statutory exchanges, sales or conveyances. The issuer of any shares of stock or
other securities or property thereafter deliverable on the exercise of this
Warrant shall be responsible for all of the agreements and obligations of the
Company hereunder. Notice of any such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance and of said
provisions so proposed to be made, shall be mailed to the Holders of the
Warrants not less than 15 days prior to such event.
3
<PAGE> 4
(d) No adjustment in the Per Share Warrant Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.05 per share of Common Stock; PROVIDED, HOWEVER, that any adjustments
which by reason of this Subsection 3(d) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment; PROVIDED
FURTHER, however, that adjustments shall be required and made in accordance with
the provisions of this Section 3 (other than this Subsection 3(d)) not later
than such time as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Common Stock issuable upon
exercise hereof. All calculations under this Section 3 shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be. Anything
in this Section 3 to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the Per Share Warrant Price, in addition to those
required by this Section 3, as it in its discretion shall deem to be advisable
in order that any stock dividend, subdivision of shares or distribution of
rights to purchase stock or securities convertible or exchangeable for stock
hereafter made by the Company to its stockholders shall not be taxable.
(e) If the Board of Directors of the Company shall (i) declare
any dividend or other distribution with respect to the Common Stock, other than
a cash dividend subject to the first parenthetical in Subsection 3(b), (ii)
offer to the holders of shares of Common Stock any additional shares of Common
Stock, any securities convertible into or exercisable for shares of Common Stock
or any rights to subscribe thereto, or (iii) propose a dissolution, liquidation
or winding up of the Company, the Company shall mail notice thereof to the
Holders of the Warrants not less than 15 days prior to the record date fixed for
determining stockholders entitled to participate in such dividend, distribution,
offer or subscription right or to vote on such dissolution, liquidation or
winding up.
(f) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after such adjustment)
shall in good faith determine the allocation of the adjusted Per Share Warrant
Price between or among shares or such classes of capital stock or shares of
Common Stock and other capital stock.
(g) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the rights of the Holder
of Warrants in accordance with this Section 3, the Company shall promptly cause
its Chief Financial Officer to provide a notice to the Holder setting forth the
Per Share Warrant Price and the number of Warrant Shares after such adjustment
or the effect of such modification, a brief statement of the facts requiring
such adjustment or modification and the manner of computing the same.
4. FULLY PAID STOCK; TAXES. The Company agrees that the shares of the
Common Stock, or any other capital stock, represented by each and every
certificate for Warrant Shares delivered on
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<PAGE> 5
the exercise of this Warrant shall, at the time of such delivery, be validly
issued and outstanding, fully paid and nonassessable, and not subject to
preemptive rights or rights of first refusal, and the Company will take all such
actions as may be necessary to assure that the par value or stated value, if
any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. The Company further covenants and agrees that it
will pay, when due and payable, any and all Federal and state stamp, original
issue or similar taxes which may be payable in respect of the issue of any
Warrant Share or certificate therefor.
5. REGISTRATION UNDER SECURITIES ACT OF 1933.
(a) The Company agrees that if, at any time during the period
beginning on the Commencement Date and ending on the third anniversary of the
date the Warrants are exercised in full, the Holder and/or the Holders of any
other Warrants and/or Warrant Shares who or which shall hold not less than 50%
of the Warrants and/or Warrant Shares outstanding at such time and not
previously sold pursuant to this Section 5 shall request that the Company file,
under the Securities Act of 1933 (the "Act"), a registration statement under the
Act covering not less than 50% of the Warrant Shares issued or issuable upon the
exercise of all of the Warrants and not so previously sold, the Company will (i)
promptly notify each Holder of the Warrants and each holder of Warrant Shares
not so previously sold that such registration statement will be filed and that
the Warrant Shares which are than 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(a) on one occasion only, it being
agreed that a registration pursuant to this Subsection 5(a) shall not be deemed
to have been effected unless a registration statement with respect thereto has
become effective; PROVIDED THAT if such registration statement failed to become
effective as a result of the decision of the Holder not to consummate, or the
failure of the Holder to satisfy the conditions to, the sale of the Warrant
Shares pursuant to such registration statement, the Company shall have no
further obligation to effect a registration pursuant to this Section 5(a).
Notwithstanding the foregoing, if the Holder exercises its right to request that
a registration statement be filed pursuant to this Subsection 5(a) at a time
when the Company in good faith as evidenced by a Board resolution believes that
a public offering of Common Stock would materially impair a pending financing or
other material transaction of the Company, the Company shall have the right to
defer filing a Registration Statement hereunder for a period not to exceed 90
days.
(b) The Company agrees that if (without any obligation to do
so), at any time and from time to time during the period beginning on the
Commencement Date and ending on the third anniversary of the date the Warrants
are exercised in full, the Board of Directors of the Company
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<PAGE> 6
shall authorize the filing of a registration statement (any such registration
statement being hereinafter called a "Subsequent Registration Statement") under
the Act (otherwise than pursuant to Subsection 5(a) hereof, or other than a
registration statement on Form S-4 or Form S-8 or other form which does not
include substantially the same information as would be required in a form for
the general registration of securities) in connection with the proposed offer of
any of its securities by it or any of its stockholders, the Company will (i)
promptly notify the Holder and each of the Holders, if any, of other Warrants
and/or Warrant Shares not previously sold pursuant to this Section 5 that such
Subsequent Registration Statement will be filed and that the Warrant Shares
which are then held, and/or which may be acquired upon the exercise of the
Warrants, by the Holder and such Holders, will, at the Holder's and such
Holder's request, be included in such Subsequent Registration Statement, (ii)
upon the written request of a Holder made within 15 days after the giving of
such notice by the Company, include in the securities covered by such Subsequent
Registration Statement all Warrant Shares which it has been so requested to
include, and (iii) take all other action necessary under any Federal or state
law or regulation of any governmental authority to permit all Warrant Shares
which it has been so requested to include in such Subsequent Registration
Statement to be sold or otherwise disposed of, and will maintain such compliance
with each such Federal and state law and regulation of any governmental
authority for the period necessary for the Holder and such Holders to effect the
proposed sale or other disposition. Notwithstanding the foregoing, the Company
shall be under no obligation to cause such Subsequent Registration Statement to
become effective.
(c) Whenever the Company is required pursuant to the
provisions of this Section 5 to include Warrant Shares in a registration
statement, the Company shall (i) furnish each Holder of any such Warrant Shares
and each underwriter of such Warrant Shares with such copies of the prospectus,
including the preliminary prospectus, conforming to the Act (and such other
documents as each such Holder or each such underwriter may reasonably request)
in order to facilitate the sale or distribution of the Warrant Shares, (ii) use
its best efforts to register or qualify such Warrant Shares under the blue sky
laws (to the extent applicable ) of such jurisdiction or laws (to the extent
applicable) of such jurisdiction or jurisdictions as the Holders of any such
Warrant Shares and each underwriter of Warrant Shares being sold by such Holders
shall reasonably request and (iii) take such other actions as may be reasonably
necessary or advisable to enable such Holders and such underwriters to
consummate the sale or distribution in such jurisdiction or jurisdictions in
which such Holders shall have reasonably requested that the Warrant Shares be
sold.
(d) The Company shall pay all expenses incurred in connection
with any registration statement or other action pursuant to the provisions of
this Section 5, other than underwriting discounts, applicable transfer taxes
relating to the Warrant Shares and the fees and expenses of counsel for the
Holders of the Warrant Shares.
(e) In connection with any public offering by the Company
involving an underwriting of its securities effected pursuant to Section 5(b)
hereof, the Company shall not be required to include in such registration any
Warrant Shares held by the Holder unless the Holder agrees to the terms of the
underwriting agreement between the Company and the managing underwriter of such
offering, which agreement may require that the Warrant Shares be withheld from
the market by the Holders for a certain period after the effective date of the
registration statement
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<PAGE> 7
by which such public offering is being effected. Furthermore, the Company shall
be obligated to include in such registration only the quantity of Warrant
Shares, if any, as will not, in the opinion of the managing underwriter,
jeopardize the success of the offering by the Company. If the managing
underwriter for the offering advises the Company in writing that the total
amount of securities sought to be registered by the Holders and other
shareholders or warrantholders of the Company having similar registration rights
(collectively, the "Kellstrom Shareholders") exceeds the amount of securities
that can be offered without adversely affecting the offering by the Company or
the Company's stockholders which had initially been included in such Subsequent
Registration Statement, then the Company may reduce the number of shares to be
registered by the Company for the Kellstrom Shareholders, including Warrant
Shares, to a number satisfactory to such managing underwriter. Any such
reduction shall be pro rata, based upon the total number of shares held by each
Kellstrom Shareholder.
(f) The Company will indemnify and hold harmless the Holder
and any person or entity engaged by the Holder to sell the Holder's Warrant
Shares, and each person, if any, who controls such persons or entities within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act") (collectively, a "Holder Indemnitee"), against any losses, claims,
damages, liabilities or expenses (or actions, proceedings, or settlements in
respect thereof) (joint or several) to which a Holder Indemnitee may become
subject under the Act, the 1934 Act, or other federal or state law, insofar as
such losses, claims, damages, liabilities or expenses (or actions, proceedings
or settlements in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; or (iii) the employment by the Company of
any device, scheme or artifice to defraud or the engagement by the Company in
any act, practice or course of business which operates or would operate as a
fraud or deceit upon the purchasers of its securities pursuant to such
registration statement. The Company will also reimburse each Holder Indemnitee
in connection with investigating, defending, and settling any such loss, claim,
damage, liability, or action.
The indemnity agreement contained in this Subsection 5(f)
shall not apply to amounts paid in settlement of any loss, claim, damage,
liability, or action is such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld, delayed or
conditioned, nor shall the Company be liable to any Holder Indemnitee for any
loss, claim, damage, liability or action (i) to the extent that it arises solely
out of or is based solely upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by or on behalf of the Holder or any agent of the Holder,
which consent shall not be unreasonably withheld, or controlling person of
either; or (ii) in the case of a sale directly by the Holder (including a sale
of such Warrant Shares through any underwriter retained by such Holder to engage
in a distribution solely on behalf of such Holder), such untrue statement or
alleged untrue statement or omission or alleged omission was contained in a
preliminary prospectus and corrected in a final or amended prospectus, and the
Holder failed to deliver a copy of the final or amended prospectus at or prior
to the confirmation of the sale of the Warrant Shares
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<PAGE> 8
to the person asserting any such loss, claim, damage or liability in any case
where such delivery is required by the Act.
(g) The Holder will indemnify and hold harmless the Company,
each of its employees, officers, directors or persons who control the Company
within the meaning of the Act or the 1934 Act, and each agent or underwriter for
the Company or any other person or entity engaged by the Company to sell the
Company's securities offered in the registration statement, or any of their
respective directors, officers, partners, agents, employees or control persons
(collectively, a "Company Indemnitee") against any losses, claims, damages,
liabilities or expenses (joint or several) to which the Company or any such
Company Indemnitee may become subject under the Act, the 1934 Act, or other
federal or state law, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereto) arise solely out of or are based solely
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.
Notwithstanding the above, the amount of any losses, claims, damages,
liabilities, legal fees and expenses to be paid by any Holder shall not exceed
the amount of the proceeds received by the Holder from the sale of its Warrant
Shares.
The indemnity agreement contained in this Subsection 5(g)
shall not apply to amounts paid in settlement of any loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
indemnifying Holder, which consent shall not be unreasonably withheld, delayed
or conditioned, nor, in the case of a sale directly by the Company of its
securities (including a sale of such securities through any underwriter retained
by the Company to engage in a distribution solely on behalf of the Company),
shall the Holder be liable to the Company in any case in which such untrue
statement or alleged untrue statement or omission or alleged omission was
contained in a preliminary prospectus and corrected in a final or amended
prospectus, and the Company failed to deliver a copy of the final or amended
prospectus at or prior to the confirmation of the sale of the securities to the
person asserting any such loss, claim, damage or liability in any case where
such delivery is required by the Act.
(h) (i) Promptly after receipt by an indemnified party under
Subsections 5(f) and (g) of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying 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 the
an indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests (as reasonably
determined by either party) between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if
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<PAGE> 9
actually prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under Subsection
5(f) or (g), respectively, to the extent of such actual prejudice, but the
failure to so deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under Subsection 5(f) or (g), respectively.
(ii) The obligations of the Company and the Holders
under Subsections 5(f) and (g), respectively, shall survive the completion of
any offering of Warrant Shares made pursuant to a registration under this
Agreement.
(iii) The amount paid or payable by a party as a
result of the losses, claims, damages, or liabilities (or actions or proceedings
in respect thereof) referred to in Subsections 5(f) and (g) shall include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
(i) If the indemnification provided for in the preceding
subsections 5(f) or (g) is unavailable to an indemnified party in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall be
entitled to contribution, except to the extent that contribution is not
permitted under Section 11(f) of the Act. In determining the amount of
contribution to which the respective parties are entitled, there shall be
considered the parties' relative knowledge and access to information concerning
the matter with respect to which the claim was asserted, the opportunity to
correct and prevent any statement or omission, and any other equitable
considerations appropriate under the circumstances. Notwithstanding the
provisions of this paragraph, the Holder shall not be required to contribute any
amount in excess of the net proceeds received by the Holder from the sale of
Warrant Shares. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(j) The Holder, in addition to being entitled to exercise all
rights provided in this Section 5, including recovery of damages, will be
entitled to specific performance of its rights hereunder. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Section 5 and hereby
agrees to waive the defense in any action for specific performance that a remedy
at law would be adequate.
(k) The Company shall not be obligated to register any Warrant
Shares pursuant to this Section 5 at any time when the resale provisions of Rule
144 promulgated under the Act are available to the Holder with respect to the
Warrant Shares without limitation as to volume; provided, however, that the
Company shall file all reports required to be filed under the Act and the 1934
Act as set forth in paragraph (c) of Rule 144.
6. LIMITED TRANSFERABILITY. This Warrant may not be sold, transferred,
assigned or hypothecated by the Holder except in compliance with the provisions
of the Act, and is so transferable only upon the books of the Company which it
shall cause to be maintained for the purpose; provided, that the Company will
cooperate with the Holder in the event that the Holder
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<PAGE> 10
desires to effect a private placement of the Warrant. The Company may treat the
registered Holder of this Warrant as he or it appears on the Company's books at
any time as the Holder for all purposes. The Company shall permit any Holder of
a Warrant or his duly authorized attorney, upon written request during ordinary
business hours, to inspect and copy or make extracts from its books showing the
registered holders of Warrants. All Warrants issued upon the transfer or
assignment of this Warrant will be dated the same date as this Warrant, and all
rights of the Holder thereof shall be identical to those of the Holder.
7. LOSS, ETC., OF WARRANT. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
8. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a stockholder, prior
to the exercise hereof.
9. INFORMATION TO HOLDER. The Company agrees that it shall from time to
time deliver to the Holder promptly after their becoming available copies of all
financial statements, reports and proxy statements which the Company shall have
sent to its stockholders generally.
10. NOTICES. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or by facsimile transmission, or sent by
recognized overnight courier or by certified mail, return receipt requested,
postage paid, to the parties hereto as follows:
(a) if to the Company at 1100 International Parkway, Sunrise,
Florida 33323, Attn.: 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 __________________________, or such
other address or facsimile number as the Holder has designated in
writing to the Company.
11. HEADINGS. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
12. APPLICABLE LAW. This Warrant shall be governed by and construed in
accordance with the law of the State of Delaware without giving effect to the
principles of conflicts of law thereof.
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<PAGE> 11
IN WITNESS WHEREOF, Kellstrom Industries, Inc. has caused this Warrant
to be signed by its Chief Financial Officer and its corporate seal to be
hereunder affixed and attested by its Secretary as of the 31st day of August,
1999.
KELLSTROM INDUSTRIES, INC.
By: /s/ Michael W. Wallace
-----------------------------------
Michael W. Wallace
Chief Financial Officer
ATTEST:
/s/ Anthony Motisi
- ---------------------------------------
Anthony Motisi
Secretary
11
<PAGE> 12
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> 13
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant pursuant to Section 1(a)(i))
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
__________________ shares of Common Stock, as provided for in Section 1(a)(i),
and tenders herewith payment of the purchase price in full in the form of cash
or a certified or official bank check in the amount of $________.
Please issue a certificate or certificates 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
previously delivered to the Company.
Date:_________________________________________________
And if said number of shares shall not be all the shares purchasable
under the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
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<PAGE> 14
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 1(a)(ii))
The undersigned hereby irrevocably elects to surrender ______________
shares purchasable under this Warrant for such shares of Common Stock issuable
in exchange therefor pursuant to the Cashless Exercise provisions of the within
Warrant, as provided for in Section 1(a)(ii) of such Warrant.
Please issue a certificate or certificates 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
previously delivered to the Company.
Date:_________________________________________________
And if said number of shares shall not be all the shares exchangeable
or purchasable under the within Warrant, a new Warrant is to be issued in the
name of the undersigned for the balance remaining of the shares purchasable
thereunder.
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<PAGE> 1
Exhibit 4.9
KELLSTROM INDUSTRIES, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. ASB-__ ______ Shares
FOR VALUE RECEIVED, Kellstrom Industries, Inc., a Delaware corporation
(the "Company"), hereby certifies that _____________ or his permitted assigns,
is entitled to purchase from the Company, at any time or from time to time
commencing on August 31, 1999, (the "Commencement Date") and prior to 5:00 P.M.,
New York City time, on September 9, 2002 (the "Exercise Period"),
__________________ (_____), subject to adjustment as hereinafter provided, fully
paid and non-assessable shares of the common stock, $.001 par value per share,
of the Company for an aggregate purchase price of $______ (computed on the basis
of $19.00 per share). (Hereinafter, (i) said common stock, together with any
other equity securities which may be issued by the Company with respect thereto
or in substitution therefor, is referred to as the "Common Stock,"(ii) the
shares of the Common Stock purchasable hereunder or under any other Warrant (as
hereinafter defined) are referred to individually as a "Warrant Share" and
collectively as the "Warrant Shares," (iii) the aggregate purchase price payable
for the Warrant Shares hereunder is referred to as the "Aggregate Warrant
Price,"(iv) the price payable for each of the Warrant Shares hereunder is
referred to as the "Per Share Warrant Price,"(v) this Warrant, all similar
Warrants issued on the date hereof to Zivi R. Nedivi, Yoav Stern or Yehuda
Perry, and all Warrants hereafter issued in exchange or substitution for this
Warrant or such similar Warrants are referred to as the "Warrants" and (vi) the
holder of this Warrant is referred to as the "Holder" and the holder of this
Warrant and all other Warrants or Warrant Shares issued upon the exercise of any
Warrant are referred to as the "Holders.") The Aggregate Warrant Price is not
subject to adjustment. The Per Share Warrant Price is subject to adjustment as
hereinafter provided; in the event of any such adjustment, the number of Warrant
Shares shall be adjusted by dividing the Aggregate Warrant Price by the Per
Share Warrant Price in effect immediately after such adjustment.
1. EXERCISE OF WARRANT.
(a) This Warrant may be exercised in whole at any time or in
part from time to time, beginning on the Commencement Date and prior to 5:00
P.M., New York City time, on September 9, 2002, by the Holder by the surrender
of this Warrant (with the subscription form or the cashless exercise notice, as
applicable, at the end hereof, or a reasonable facsimile thereof, duly executed)
at the address set forth in Subsection 10(a) hereof, together with proper
payment of the Aggregate Warrant Price, or the proportionate part hereof if this
Warrant is exercised in part. Payment for Warrant Shares shall be made at the
election of the Holder, either (i) by certified or official bank check payable
to the order of the Company or (ii) with a Cashless Exercise Form annexed hereto
(or a reasonable facsimile thereof) duly executed (a "Cashless Exercise").
Presentation of the Cashless Exercise Form and surrender of this Warrant shall
be deemed a waiver of the Holder's obligation to pay all of the Aggregate
Warrant Price, or the applicable portion thereof with respect to a partial
exercise. In the event of a Cashless Exercise, the Holder shall exchange its
Warrant for the number of shares of Common Stock determined by multiplying the
number of
<PAGE> 2
Warrant Shares being exercised by a fraction, the numerator of which shall be
the difference between the then current market price per share of the Common
Stock and the Per Share Warrant Price, and the denominator of which shall be the
then current market price per share of Common Stock. For purposes of any
computation under this Section 1(a)(ii), the then current market price per share
of Common Stock at any date shall be deemed to be the average for the five
consecutive business days immediately prior to the Cashless Exercise of the
daily closing prices of the Common Stock on the principal national securities
exchange on which the Common Stock is admitted to trading or listed, or if not
listed or admitted to trading on any such exchange, the closing prices as
reported by the Nasdaq National Market, or if not then listed on the Nasdaq
National Market, the average of the highest reported bid and lowest reported
asked prices as reported by the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") or if not then publicly traded, the fair
market price of the Common Stock as determined by the Board of Directors.
(b) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock, and the Holder is
entitled to receive a new Warrant covering the Warrant Shares which have not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon such surrender of this Warrant,
the Company will, as promptly as practicable, (a) issue a certificate or
certificates in the name of Holder (or any designee of the Holder to whom the
Warrant is transferred in accordance with Section 6 hereof) for the largest
number of whole shares of the Common Stock to which the Holder shall be entitled
and, if this Warrant is exercised in whole, in lieu of any fractional share of
the Common Stock to which the Holder shall be entitled, pay to the Holder cash
in an amount equal to the fair value of such fractional share (determined in
such reasonable manner as the Board of Directors of the Company shall
determine), and (b) deliver the other securities and properties receivable upon
the exercise of this Warrant, or the proportionate part thereof if this Warrant
is exercised in part, pursuant to the provisions of this Warrant.
2. RESERVATION OF WARRANT SHARES; LISTING. The Company agrees that,
prior to the expiration of this Warrant, the Company will at all times (a) have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer and free and clear of all preemptive rights and rights of first refusal
and (b) if the Company hereafter lists its Common Stock on any national
securities exchange, keep the shares of the Common Stock receivable upon the
exercise of this Warrant authorized for listing on such exchange upon notice of
issuance.
3. PROTECTION AGAINST DILUTION.
(a) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the Per Share Warrant Price shall be
adjusted so that the Holder upon the exercise hereof shall be entitled to
receive the number of shares of Common Stock or other capital stock of the
Company which he would have owned immediately following such action had such
2
<PAGE> 3
Warrant been exercised immediately prior thereto. An adjustment made pursuant to
this Subsection 3(a) shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(b) If, at any time or from time to time after the date of
this Warrant, the Company shall issue or distribute to the holders of shares of
Common Stock evidences of its indebtedness, any other securities of the Company
or any cash, property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common Stock,
referred to in Subsection 3(a), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor if the full
amount thereof, together with the value of other dividends and distributions
made substantially concurrently therewith or pursuant to a plan which includes
payment thereof, is equivalent to not more than a cumulative amount equal to 15%
of the Company's net worth) (any such nonexcluded event being herein called a
"Special Dividend"), the Per Share Warrant Price shall be adjusted by
multiplying the Per Share Warrant Price then in effect by a fraction, the
numerator of which shall be the then current market price (as defined above) of
the Common Stock less the fair market value (as determined in good faith by the
Company's Board of Directors) of the evidences of indebtedness, cash, securities
or property, or other assets issued or distributed in such Special Dividend
applicable to one share of Common Stock and the denominator of which shall be
such then current market price per share of Common Stock. An adjustment made
pursuant to this Subsection 3(b) shall become effective immediately after the
record date of any such Special Dividend.
(c) In case of any capital reorganization or reclassification,
or any consolidation or merger to which the Company is a party other than a
merger or consolidation in which the Company is the continuing corporation, or
in case of any sale or conveyance to another entity of the property of the
Company as an entirety or substantially as an entirety, or in the case of any
statutory exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third corporation into the
Company), the Holder of this Warrant shall have the right thereafter to receive
on the exercise of this Warrant the kind and amount of securities, cash or other
property which the Holder would have owned or have been entitled to receive
immediately after such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had this Warrant been exercised
immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3 with respect to the
rights and interests thereafter of the Holder of this Warrant to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The above provisions of this Subsection 3(c) shall similarly apply
to successive reorganizations, reclassifications, consolidations, mergers,
statutory exchanges, sales or conveyances. The issuer of any shares of stock or
other securities or property thereafter deliverable on the exercise of this
Warrant shall be responsible for all of the agreements and obligations of the
Company hereunder. Notice of any such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance and of said
provisions
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<PAGE> 4
so proposed to be made, shall be mailed to the Holders of the Warrants not less
than 15 days prior to such event.
(d) No adjustment in the Per Share Warrant Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.05 per share of Common Stock; PROVIDED, HOWEVER, that any adjustments
which by reason of this Subsection 3(d) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment; PROVIDED
FURTHER, however, that adjustments shall be required and made in accordance with
the provisions of this Section 3 (other than this Subsection 3(d)) not later
than such time as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Common Stock issuable upon
exercise hereof. All calculations under this Section 3 shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be. Anything
in this Section 3 to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the Per Share Warrant Price, in addition to those
required by this Section 3, as it in its discretion shall deem to be advisable
in order that any stock dividend, subdivision of shares or distribution of
rights to purchase stock or securities convertible or exchangeable for stock
hereafter made by the Company to its stockholders shall not be taxable.
(e) If the Board of Directors of the Company shall (i) declare
any dividend or other distribution with respect to the Common Stock, other than
a cash dividend subject to the first parenthetical in Subsection 3(b), (ii)
offer to the holders of shares of Common Stock any additional shares of Common
Stock, any securities convertible into or exercisable for shares of Common Stock
or any rights to subscribe thereto, or (iii) propose a dissolution, liquidation
or winding up of the Company, the Company shall mail notice thereof to the
Holders of the Warrants not less than 15 days prior to the record date fixed for
determining stockholders entitled to participate in such dividend, distribution,
offer or subscription right or to vote on such dissolution, liquidation or
winding up.
(f) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after such adjustment)
shall in good faith determine the allocation of the adjusted Per Share Warrant
Price between or among shares or such classes of capital stock or shares of
Common Stock and other capital stock.
(g) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the rights of the Holder
of Warrants in accordance with this Section 3, the Company shall promptly cause
its Chief Financial Officer to provide a notice to the Holder setting forth the
Per Share Warrant Price and the number of Warrant Shares after such adjustment
or the effect of such modification, a brief statement of the facts requiring
such adjustment or modification and the manner of computing the same.
4. FULLY PAID STOCK; TAXES. The Company agrees that the shares of the
Common Stock, or any other capital stock, represented by each and every
certificate for Warrant Shares delivered on
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<PAGE> 5
the exercise of this Warrant shall, at the time of such delivery, be validly
issued and outstanding, fully paid and nonassessable, and not subject to
preemptive rights or rights of first refusal, and the Company will take all such
actions as may be necessary to assure that the par value or stated value, if
any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. The Company further covenants and agrees that it
will pay, when due and payable, any and all Federal and state stamp, original
issue or similar taxes which may be payable in respect of the issue of any
Warrant Share or certificate therefor.
5. REGISTRATION UNDER SECURITIES ACT OF 1933.
(a) The Company agrees that if, at any time during the period
beginning on the Commencement Date and ending on the third anniversary of the
date the Warrants are exercised in full, the Holder and/or the Holders of any
other Warrants and/or Warrant Shares who or which shall hold not less than 50%
of the Warrants and/or Warrant Shares outstanding at such time and not
previously sold pursuant to this Section 5 shall request that the Company file,
under the Securities Act of 1933 (the "Act"), a registration statement under the
Act covering not less than 50% of the Warrant Shares issued or issuable upon the
exercise of all of the Warrants and not so previously sold, the Company will (i)
promptly notify each Holder of the Warrants and each holder of Warrant Shares
not so previously sold that such registration statement will be filed and that
the Warrant Shares which are than 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(a) on one occasion only, it being
agreed that a registration pursuant to this Subsection 5(a) shall not be deemed
to have been effected unless a registration statement with respect thereto has
become effective; PROVIDED THAT if such registration statement failed to become
effective as a result of the decision of the Holder not to consummate, or the
failure of the Holder to satisfy the conditions to, the sale of the Warrant
Shares pursuant to such registration statement, the Company shall have no
further obligation to effect a registration pursuant to this Section 5(a).
Notwithstanding the foregoing, if the Holder exercises its right to request that
a registration statement be filed pursuant to this Subsection 5(a) at a time
when the Company in good faith as evidenced by a Board resolution believes that
a public offering of Common Stock would materially impair a pending financing or
other material transaction of the Company, the Company shall have the right to
defer filing a Registration Statement hereunder for a period not to exceed 90
days.
(b) The Company agrees that if (without any obligation to do
so), at any time and from time to time during the period beginning on the
Commencement Date and ending on the third anniversary of the date the Warrants
are exercised in full, the Board of Directors of the Company
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<PAGE> 6
shall authorize the filing of a registration statement (any such registration
statement being hereinafter called a "Subsequent Registration Statement") under
the Act (otherwise than pursuant to Subsection 5(a) hereof, or other than a
registration statement on Form S-4 or Form S-8 or other form which does not
include substantially the same information as would be required in a form for
the general registration of securities) in connection with the proposed offer of
any of its securities by it or any of its stockholders, the Company will (i)
promptly notify the Holder and each of the Holders, if any, of other Warrants
and/or Warrant Shares not previously sold pursuant to this Section 5 that such
Subsequent Registration Statement will be filed and that the Warrant Shares
which are then held, and/or which may be acquired upon the exercise of the
Warrants, by the Holder and such Holders, will, at the Holder's and such
Holder's request, be included in such Subsequent Registration Statement, (ii)
upon the written request of a Holder made within 15 days after the giving of
such notice by the Company, include in the securities covered by such Subsequent
Registration Statement all Warrant Shares which it has been so requested to
include, and (iii) take all other action necessary under any Federal or state
law or regulation of any governmental authority to permit all Warrant Shares
which it has been so requested to include in such Subsequent Registration
Statement to be sold or otherwise disposed of, and will maintain such compliance
with each such Federal and state law and regulation of any governmental
authority for the period necessary for the Holder and such Holders to effect the
proposed sale or other disposition. Notwithstanding the foregoing, the Company
shall be under no obligation to cause such Subsequent Registration Statement to
become effective.
(c) Whenever the Company is required pursuant to the
provisions of this Section 5 to include Warrant Shares in a registration
statement, the Company shall (i) furnish each Holder of any such Warrant Shares
and each underwriter of such Warrant Shares with such copies of the prospectus,
including the preliminary prospectus, conforming to the Act (and such other
documents as each such Holder or each such underwriter may reasonably request)
in order to facilitate the sale or distribution of the Warrant Shares, (ii) use
its best efforts to register or qualify such Warrant Shares under the blue sky
laws (to the extent applicable ) of such jurisdiction or laws (to the extent
applicable) of such jurisdiction or jurisdictions as the Holders of any such
Warrant Shares and each underwriter of Warrant Shares being sold by such Holders
shall reasonably request and (iii) take such other actions as may be reasonably
necessary or advisable to enable such Holders and such underwriters to
consummate the sale or distribution in such jurisdiction or jurisdictions in
which such Holders shall have reasonably requested that the Warrant Shares be
sold.
(d) The Company shall pay all expenses incurred in connection
with any registration statement or other action pursuant to the provisions of
this Section 5, other than underwriting discounts, applicable transfer taxes
relating to the Warrant Shares and the fees and expenses of counsel for the
Holders of the Warrant Shares.
(e) In connection with any public offering by the Company
involving an underwriting of its securities effected pursuant to Section 5(b)
hereof, the Company shall not be required to include in such registration any
Warrant Shares held by the Holder unless the Holder agrees to the terms of the
underwriting agreement between the Company and the managing underwriter of such
offering, which agreement may require that the Warrant Shares be withheld from
the market by the Holders for a certain period after the effective date of the
registration statement
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<PAGE> 7
by which such public offering is being effected. Furthermore, the Company shall
be obligated to include in such registration only the quantity of Warrant
Shares, if any, as will not, in the opinion of the managing underwriter,
jeopardize the success of the offering by the Company. If the managing
underwriter for the offering advises the Company in writing that the total
amount of securities sought to be registered by the Holders and other
shareholders or warrantholders of the Company having similar registration rights
(collectively, the "Kellstrom Shareholders") exceeds the amount of securities
that can be offered without adversely affecting the offering by the Company or
the Company's stockholders which had initially been included in such Subsequent
Registration Statement, then the Company may reduce the number of shares to be
registered by the Company for the Kellstrom Shareholders, including Warrant
Shares, to a number satisfactory to such managing underwriter. Any such
reduction shall be pro rata, based upon the total number of shares held by each
Kellstrom Shareholder.
(f) The Company will indemnify and hold harmless the Holder
and any person or entity engaged by the Holder to sell the Holder's Warrant
Shares, and each person, if any, who controls such persons or entities within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act") (collectively, a "Holder Indemnitee"), against any losses, claims,
damages, liabilities or expenses (or actions, proceedings, or settlements in
respect thereof) (joint or several) to which a Holder Indemnitee may become
subject under the Act, the 1934 Act, or other federal or state law, insofar as
such losses, claims, damages, liabilities or expenses (or actions, proceedings
or settlements in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; or (iii) the employment by the Company of
any device, scheme or artifice to defraud or the engagement by the Company in
any act, practice or course of business which operates or would operate as a
fraud or deceit upon the purchasers of its securities pursuant to such
registration statement. The Company will also reimburse each Holder Indemnitee
in connection with investigating, defending, and settling any such loss, claim,
damage, liability, or action.
The indemnity agreement contained in this Subsection 5(f)
shall not apply to amounts paid in settlement of any loss, claim, damage,
liability, or action is such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld, delayed or
conditioned, nor shall the Company be liable to any Holder Indemnitee for any
loss, claim, damage, liability or action (i) to the extent that it arises solely
out of or is based solely upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by or on behalf of the Holder or any agent of the Holder,
which consent shall not be unreasonably withheld, or controlling person of
either; or (ii) in the case of a sale directly by the Holder (including a sale
of such Warrant Shares through any underwriter retained by such Holder to engage
in a distribution solely on behalf of such Holder), such untrue statement or
alleged untrue statement or omission or alleged omission was contained in a
preliminary prospectus and corrected in a final or amended prospectus, and the
Holder failed to deliver a copy of the final or amended prospectus at or prior
to the confirmation of the sale of the Warrant Shares
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<PAGE> 8
to the person asserting any such loss, claim, damage or liability in any case
where such delivery is required by the Act.
(g) The Holder will indemnify and hold harmless the Company,
each of its employees, officers, directors or persons who control the Company
within the meaning of the Act or the 1934 Act, and each agent or underwriter for
the Company or any other person or entity engaged by the Company to sell the
Company's securities offered in the registration statement, or any of their
respective directors, officers, partners, agents, employees or control persons
(collectively, a "Company Indemnitee") against any losses, claims, damages,
liabilities or expenses (joint or several) to which the Company or any such
Company Indemnitee may become subject under the Act, the 1934 Act, or other
federal or state law, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereto) arise solely out of or are based solely
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.
Notwithstanding the above, the amount of any losses, claims, damages,
liabilities, legal fees and expenses to be paid by any Holder shall not exceed
the amount of the proceeds received by the Holder from the sale of its Warrant
Shares.
The indemnity agreement contained in this Subsection 5(g)
shall not apply to amounts paid in settlement of any loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
indemnifying Holder, which consent shall not be unreasonably withheld, delayed
or conditioned, nor, in the case of a sale directly by the Company of its
securities (including a sale of such securities through any underwriter retained
by the Company to engage in a distribution solely on behalf of the Company),
shall the Holder be liable to the Company in any case in which such untrue
statement or alleged untrue statement or omission or alleged omission was
contained in a preliminary prospectus and corrected in a final or amended
prospectus, and the Company failed to deliver a copy of the final or amended
prospectus at or prior to the confirmation of the sale of the securities to the
person asserting any such loss, claim, damage or liability in any case where
such delivery is required by the Act.
(h) (i) Promptly after receipt by an indemnified party under
Subsections 5(f) and (g) of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying 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 the
an indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests (as reasonably
determined by either party) between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if
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<PAGE> 9
actually prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under Subsection
5(f) or (g), respectively, to the extent of such actual prejudice, but the
failure to so deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under Subsection 5(f) or (g), respectively.
(ii) The obligations of the Company and the Holders
under Subsections 5(f) and (g), respectively, shall survive the completion of
any offering of Warrant Shares made pursuant to a registration under this
Agreement.
(iii) The amount paid or payable by a party as a
result of the losses, claims, damages, or liabilities (or actions or proceedings
in respect thereof) referred to in Subsections 5(f) and (g) shall include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
(i) If the indemnification provided for in the preceding
subsections 5(f) or (g) is unavailable to an indemnified party in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall be
entitled to contribution, except to the extent that contribution is not
permitted under Section 11(f) of the Act. In determining the amount of
contribution to which the respective parties are entitled, there shall be
considered the parties' relative knowledge and access to information concerning
the matter with respect to which the claim was asserted, the opportunity to
correct and prevent any statement or omission, and any other equitable
considerations appropriate under the circumstances. Notwithstanding the
provisions of this paragraph, the Holder shall not be required to contribute any
amount in excess of the net proceeds received by the Holder from the sale of
Warrant Shares. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(j) The Holder, in addition to being entitled to exercise all
rights provided in this Section 5, including recovery of damages, will be
entitled to specific performance of its rights hereunder. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Section 5 and hereby
agrees to waive the defense in any action for specific performance that a remedy
at law would be adequate.
(k) The Company shall not be obligated to register any Warrant
Shares pursuant to this Section 5 at any time when the resale provisions of Rule
144 promulgated under the Act are available to the Holder with respect to the
Warrant Shares without limitation as to volume; provided, however, that the
Company shall file all reports required to be filed under the Act and the 1934
Act as set forth in paragraph (c) of Rule 144.
6. LIMITED TRANSFERABILITY. This Warrant may not be sold, transferred,
assigned or hypothecated by the Holder except in compliance with the provisions
of the Act, and is so transferable only upon the books of the Company which it
shall cause to be maintained for the purpose; provided, that the Company will
cooperate with the Holder in the event that the Holder
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<PAGE> 10
desires to effect a private placement of the Warrant. The Company may treat the
registered Holder of this Warrant as he or it appears on the Company's books at
any time as the Holder for all purposes. The Company shall permit any Holder of
a Warrant or his duly authorized attorney, upon written request during ordinary
business hours, to inspect and copy or make extracts from its books showing the
registered holders of Warrants. All Warrants issued upon the transfer or
assignment of this Warrant will be dated the same date as this Warrant, and all
rights of the Holder thereof shall be identical to those of the Holder.
7. LOSS, ETC., OF WARRANT. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
8. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a stockholder, prior
to the exercise hereof.
9. INFORMATION TO HOLDER. The Company agrees that it shall from time to
time deliver to the Holder promptly after their becoming available copies of all
financial statements, reports and proxy statements which the Company shall have
sent to its stockholders generally.
10. NOTICES. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or by facsimile transmission, or sent by
recognized overnight courier or by certified mail, return receipt requested,
postage paid, to the parties hereto as follows:
(a) if to the Company at 1100 International Parkway, Sunrise,
Florida 33323, Attn.: 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 _________________________________, or
such other address or facsimile number as the Holder has designated in
writing to the Company.
11. HEADINGS. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
12. APPLICABLE LAW. This Warrant shall be governed by and construed in
accordance with the law of the State of Delaware without giving effect to the
principles of conflicts of law thereof.
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IN WITNESS WHEREOF, Kellstrom Industries, Inc. has caused this Warrant
to be signed by its Chief Financial Officer and its corporate seal to be
hereunder affixed and attested by its Secretary as of the 31st day of August,
1999.
KELLSTROM INDUSTRIES, INC.
By: /s/ Michael W. Wallace
--------------------------------
Michael W. Wallace
Chief Financial Officer
ATTEST:
/s/ Anthony Motisi
- -----------------------------
Anthony Motisi
Secretary
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ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby sells, assigns and
transfers unto __________________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
__________________________, attorney, to transfer said Warrant on the books of
Kellstrom Industries, Inc.
Dated:__________________________ Signature:_________________________________
Address: __________________________
__________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby assigns and
transfers unto __________________________ the right to purchase __________
shares of Common Stock of ___________________________ covered by the foregoing
Warrant, and a proportionate part of said Warrant and the rights evidenced
thereby, and does irrevocably constitute and appoint __________________________,
attorney, to transfer that part of said Warrant on the books of Kellstrom
Industries, Inc.
Dated:__________________________ Signature:_________________________________
Address: __________________________
__________________________
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SUBSCRIPTION FORM
(To be executed upon exercise of Warrant pursuant to Section 1(a)(i))
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
__________________ shares of Common Stock, as provided for in Section 1(a)(i),
and tenders herewith payment of the purchase price in full in the form of cash
or a certified or official bank check in the amount of $________.
Please issue a certificate or certificates 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
previously delivered to the Company.
Date:_________________________________________________
And if said number of shares shall not be all the shares purchasable
under the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
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CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 1(a)(ii))
The undersigned hereby irrevocably elects to surrender ______________
shares purchasable under this Warrant for such shares of Common Stock issuable
in exchange therefor pursuant to the Cashless Exercise provisions of the within
Warrant, as provided for in Section 1(a)(ii) of such Warrant.
Please issue a certificate or certificates 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
previously delivered to the Company.
Date:_________________________________________________
And if said number of shares shall not be all the shares exchangeable
or purchasable under the within Warrant, a new Warrant is to be issued in the
name of the undersigned for the balance remaining of the shares purchasable
thereunder.
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Exhibit 4.10
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. AC-__ ______ Shares
FOR VALUE RECEIVED, Kellstrom Industries, Inc., a Delaware corporation
(the "Company"), hereby certifies that ______________ (the "Purchaser") or his
permitted assigns, is entitled to purchase from the Company, at any time or from
time to time commencing on the date hereof (the "Commencement Date") and prior
to 5:00 P.M., New York City time, on June 17, 2001, ______________________
(_____) fully paid and non-assessable shares of the common stock, $.001 par
value per share, of the Company for an aggregate purchase price of $_____
(computed on the basis of $26.00 per share). (Hereinafter, (i) said common
stock, together with any other equity securities which may be issued by the
Company with respect thereto or in substitution therefor, is referred to as the
"Common Stock," (ii) the shares of the Common Stock purchasable hereunder or
under any other Warrant (as hereinafter defined) are referred to individually as
a "Warrant Share" and collectively as the "Warrant Shares," (iii) the aggregate
purchase price payable for the Warrant Shares hereunder is referred to as the
"Aggregate Warrant Price," (iv) the price payable for each of the Warrant Shares
hereunder is referred to as the "Per Share Warrant Price," (v) this Warrant, all
similar Warrants issued on the date hereof to the Purchaser, ________ or
_________, and all Warrants hereafter issued in exchange or substitution for
this Warrant or such similar Warrants are referred to as the "Warrants" and (vi)
the holder of this Warrant is referred to as the "Holder" and the holder of this
Warrant and all other Warrants or Warrant Shares issued upon the exercise of any
Warrant are referred to as the "Holders.") The Aggregate Warrant Price is not
subject to adjustment. The Per Share Warrant Price is subject to adjustment as
hereinafter provided; in the event of any such adjustment, the number of Warrant
Shares shall be adjusted by dividing the Aggregate Warrant Price by the Per
Share Warrant Price in effect immediately after such adjustment.
1. EXERCISE OF WARRANT. This Warrant may be exercised in whole at any
time or in part from time to time, beginning on the Commencement Date and prior
to 5:00 P.M., New York City time, on June 17, 2001. Exercise of this Warrant by
the Holder shall be made by the surrender of this Warrant (with the subscription
form at the end hereof, or a reasonable facsimile thereof, duly executed) at the
address set forth in Subsection 11(a) hereof, together with proper payment of
the
<PAGE> 2
Aggregate Warrant Price, or the proportionate part thereof if this Warrant is
exercised in part. Payment for Warrant Shares shall be made by certified or
official bank check payable to the order of the Company. If this Warrant is
exercised in part, this Warrant must be exercised for a number of whole shares
of the Common Stock, and the Holder is entitled to receive a new Warrant
covering the Warrant Shares which have not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of Holder (or any designee of the Holder
to whom the Warrant is transferred in accordance with Section 6 hereof) for the
largest number of whole shares of the Common Stock to which the Holder shall be
entitled and, if this Warrant is exercised in whole, in lieu of any fractional
share of the Common Stock to which the Holder shall be entitled, pay to the
Holder cash in an amount equal to the fair value of such fractional share
(determined in such reasonable manner as the Board of Directors of the Company
shall determine), and (b) deliver the other securities and properties receivable
upon the exercise of this Warrant, or the proportionate part thereof if this
Warrant is exercised in part, pursuant to the provisions of this Warrant.
2. RESERVATION OF WARRANT SHARES; LISTING. The Company agrees that,
prior to the expiration of this Warrant, the Company will at all times (a) have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of Common Stock and other
securities and properties as from time to time shall be receivable upon the
exercise of this Warrant, free and clear of all restrictions on sale or transfer
and free and clear of all preemptive rights and rights of first refusal and (b)
if the Company hereafter lists its Common Stock on any national securities
exchange, keep the shares of the Common Stock receivable upon the exercise of
this Warrant authorized for listing on such exchange upon notice of issuance.
3. PROTECTION AGAINST DILUTION. (a) In case the Company shall hereafter
(i) pay a dividend or make a distribution on its capital stock in shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares or (iv) issue by reclassification of its Common
Stock any shares of capital stock of the Company, the Per Share Warrant Price
shall be adjusted so that the Holder upon the exercise hereof shall be entitled
to receive the number of shares of Common Stock or other capital stock of the
Company which 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,
together with the value of other dividends and distributions made substantially
concurrently therewith or pursuant to a plan which includes payment thereof, is
equivalent to not more than a cumulative amount equal to 15% of the Company's
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<PAGE> 3
net worth) (any such nonexcluded event being herein called a "Special
Dividend"), the Per Share Warrant Price shall be adjusted by multiplying the Per
Share Warrant Price then in effect by a fraction, the numerator of which shall
be the then current market price of the Common Stock (defined as the average for
the thirty consecutive business days immediately prior to the record date of the
daily closing price of the Common Stock as reported by the national securities
exchange upon which the Common Stock is then listed or if not listed on any such
exchange, the average of the closing prices as reported by Nasdaq National
Market, or if not then listed on the Nasdaq National Market, the average of the
highest reported bid and lowest reported asked prices as reported by NASDAQ, or
if not then publicly traded, the fair market price as determined by the
Company's Board of Directors) less the fair market value (as determined in good
faith by the Company's Board of Directors) of the evidences of indebtedness,
cash, securities or property, or other assets issued or distributed in such
Special Dividend applicable to one share of Common Stock and the denominator of
which shall be such then current market price per share of Common Stock. An
adjustment made pursuant to this Subsection 3(b) shall become effective
immediately after the record date of any such Special Dividend.
(c) In case of any capital reorganization or reclassification,
or any consolidation or merger to which the Company is a party other than a
merger or consolidation in which the Company is the continuing corporation, or
in case of any sale or conveyance to another entity of the property of the
Company as an entirety or substantially as an entirety, or in the case of any
statutory exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third corporation into the
Company), the Holder of this Warrant shall have the right thereafter to receive
on the exercise of this Warrant the kind and amount of securities, cash or other
property which the Holder would have owned or have been entitled to receive
immediately after such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had this Warrant been exercised
immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3 with respect to the
rights and interests thereafter of the Holder of this Warrant to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The above provisions of this Subsection 3(c) shall similarly apply
to successive reorganizations, reclassifications, consolidations, mergers,
statutory exchanges, sales or conveyances. The issuer of any shares of stock or
other securities or property thereafter deliverable on the exercise of this
Warrant shall be responsible for all of the agreements and obligations of the
Company hereunder. Notice of any such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance and of said
provisions so proposed to be made, shall be mailed to the Holder of the Warrants
not less than 15 days prior to such event. A sale of all or substantially all of
the assets of the Company for a consideration consisting primarily of securities
shall be deemed a consolidation or merger for the foregoing purposes.
(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
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<PAGE> 4
FURTHER, however, that adjustments shall be required and made in accordance with
the provisions of this Section 3 (other than this Subsection 3(d)) not later
than such time as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Common Stock issuable upon
exercise hereof. All calculations under this Section 3 shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be. Anything
in this Section 3 to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the Per Share Warrant Price, in addition to those
required by this Section 3, as it in its discretion shall deem to be advisable
in order that any stock dividend, subdivision of shares or distribution of
rights to purchase stock or securities convertible or exchangeable for stock
hereafter made by the Company to its stockholders shall not be taxable.
(e) If the Board of Directors of the Company shall (i) declare
any dividend or other distribution with respect to the Common Stock, other than
a cash dividend subject to the first parenthetical in Subsection 3(b), (ii)
offer to the holders of shares of Common Stock any additional shares of Common
Stock, any securities convertible into or exercisable for shares of Common Stock
or any rights to subscribe thereto, or (iii) propose a dissolution, liquidation
or winding up of the Company, the Company shall mail notice thereof to the
Holders of the Warrants not less than 15 days prior to the record distribution,
offer or subscription right or to vote on such dissolution, liquidation or
winding up.
(f) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant, thereafter surrendered for exercise shall
become entitled to receive shares or two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after such adjustment)
shall in good faith determine the allocation of the adjusted Per Share Warrant
Price between or among shares or such classes of capital stock or shares of
Common Stock and other capital stock.
(g) If at any time or from time to time the Company shall take
any action affecting its Common Stock or any other capital stock of the Company,
not otherwise described in any of the foregoing subsections of this Section 3,
then, if the failure to make any adjustment would in the reasonable opinion of
the Board of Directors of the Company have a materially adverse effect upon the
rights of the Holder of the Warrant, the number of shares of Common Stock or
other stock comprising a Warrant Share, or the Per Share Warrant Price, shall be
adjusted in such manner and at such time as the Board of Directors of the
Company may in good faith determined to be equitable under the circumstances.
(h) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the rights of the Holder
of Warrants in accordance with this Section 3, the Company shall promptly cause
its Chief Financial Officer to provide a notice to the Holder setting forth the
Per Share Warrant Price and the number of Warrant Shares after such adjustment
or the effect of such modification, a brief statement of the facts requiring
such adjustment or modification and the manner of computing the same.
4. FULLY PAID STOCK; TAXES. The Company agrees that the shares of the
Common Stock, or any other capital stock, represented by each and every
certificate for Warrant Shares delivered on
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<PAGE> 5
the exercise of this Warrant shall, at the time of such delivery, be validly
issued and outstanding, fully paid and nonassessable, and not subject to
preemptive rights or rights of first refusal, and the Company will take all such
actions as may be necessary to assure that the par value or stated value, if
any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. The Company further covenants and agrees that it
will pay, when due and payable, any and all Federal and state stamp, original
issue or similar taxes which may be payable in respect of the issue of any
Warrant Share or certificate therefor.
5. REGISTRATION UNDER SECURITIES ACT OF 1933.
(a) The Company agrees that if, at any time and from time to
time during the period beginning on the Commencement Date and ending on the
second anniversary of the date the Warrants are exercised in full, the Board of
Directors of the Company shall authorize the filing of a registration statement
(any such registration statement being hereinafter called a "Registration
Statement") under the Act (other than a registration statement on Form S-4 or
Form S-8 or other form which does not include substantially the same information
as would be required in a form for the general registration of securities) in
connection with the proposed offer of any of its securities by the Company or
any of its stockholders, the Company will (i) promptly notify the Holder and
each of the Holders, if any, of other Warrants and/or Warrant Shares not
previously sold pursuant to this Section 5 that such Registration Statement will
be filed and that the Warrant Shares which are then held, and/or which may be
acquired upon the exercise of the Warrants, by the Holder and such Holders,
will, at the Holder's and such Holder's request, be included in such
Registration Statement, (ii) upon the written request of a Holder made within 15
days after the giving of such notice by the Company, include in the securities
covered by such Registration Statement all Warrant Shares which it has been so
requested to include, (iii) use its best efforts to cause such Registration
Statement to become effective as soon as practicable and (iv) take all other
action necessary under any Federal or state law or regulation of any
governmental authority to permit all Warrant Shares which it has been so
requested to include in such Registration Statement to be sold or otherwise
disposed of, and will maintain such compliance with each such Federal and state
law and regulation of any governmental authority for the period necessary for
the Holder and such Holders to effect the proposed sale or other disposition.
(b) The Company agrees that if the Company shall not have
authorized the filing of a Registration Statement pursuant to Subsection 5(a)
hereof within one (1) year after the Commencement Date, then at any time
thereafter during the period ending on the second anniversary of the date the
Warrants are exercised in full, if the Holder and/or the Holders of Warrants
and/or Warrant Shares who or which shall hold not less than 50% of the aggregate
number of Warrants and Warrant Shares outstanding at such time and not
previously sold (the "Covered Warrant Shares") pursuant to this Section 5 shall
request that the Company file a registration statement under the Act covering
not less than 50% of the Covered Warrant Shares, the Company will (i) promptly
notify each Holder of the Warrants and each Holder of Warrant Shares not so
previously sold that such registration statement will be filed and that the
Warrant Shares which are then held, and /or may be acquired upon exercise of the
Warrants by the Holder and such Holders, will be included in such registration
statement at the Holder's and such Holders' request, (ii) cause such
registration statement to be filed with the Securities and Exchange Commission
(the "Commission") as soon as possible following such request and to cover all
Warrant Shares which it has been so requested to
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<PAGE> 6
include, (iii) use its best efforts to cause such registration statement to
become effective as soon as practicable and (iv) take all other action necessary
under any Federal or state law or regulation of any governmental authority to
permit all Warrant Shares which it has been so requested to include in such
registration statement to be sold or otherwise disposed of, and will maintain
such compliance with each such Federal and state law and regulation of any
government authority for the period necessary for such Holder to effect the
proposed sale or other disposition. The Company shall be required to effect a
registration or qualification pursuant to this Subsection 5(b) on one occasion
only; provided that a request for registration shall not be deemed to constitute
a registration pursuant to this Subsection 5(b) if: (i) the conditions to
closing specified in the purchase agreement or underwriting agreement entered
into in connection with such registration are not satisfied other than by reason
of some act or omission by the Holder; (ii) the Company voluntarily takes any
action that would result in the Holder not being able to sell such Warrant
Shares covered thereby; (iii) the Holder determines not to proceed following any
delay imposed hereunder by the Company; PROVIDED, HOWEVER, that prior to such
delay, the Holder shall not have sold more than ninety percent (90%) of the
Warrant Shares included in such registration; or (iv) other than by action of
the Holder, such registration does not remain effective for ninety (90) days or
more. Notwithstanding the foregoing, (a) if the Holder exercises its right to
request that a registration statement be filed pursuant to this Subsection 5(b)
at a time when the Company in good faith as evidenced by a Board resolution
believes that a public offering of Common Stock would materially impair a
pending financing or other material transaction of the Company, the Company
shall have the right to defer filing a Registration Statement hereunder for a
period not to exceed 90 days or (b) in lieu of causing a registration statement
to be filed under this Section 5(b), the Company may elect, by providing written
notice (the "Repurchase Notice") to the Holder or Holders requesting
registration within ten (10) days of the Company's receiving such request, to
repurchase from the requesting Holder or Holders either (x) the Warrants
relating to the Warrant Shares requested to be registered, at a price per
Warrant equal to the difference between the Market Price per share of the Common
Stock (as defined below) and the Per Share Warrant Price or (y) if the Warrants
relating to the Warrant Shares requested to be registered had already been
exercised, such Warrant Shares at a price per Warrant Share equal to the Market
Price per share of the Common Stock. As used in this Section 5(b), the "Market
Price per share of the Common Stock" shall mean the average of the last sale
price of the Common Stock, or if no last sale price is reported, the average of
the asked and bid prices of the Common Stock, on the Nasdaq National Market or
Nasdaq Small Cap Market, as applicable, for the 20 consecutive trading days
ending on the day prior to the delivery by the Holder or Holders of the request
for a registration statement pursuant to this Section 5(b). Any repurchase of
the Warrants or the Warrant Shares under this Section 5(b) shall be made within
30 days of the delivery by the Company of the Repurchase Notice.
(c) Whenever the Company is required pursuant to the
provisions of this Section 5 to include Warrant Shares in a registration
statement, the Company shall (i) furnish each Holder of any such Warrant Shares
and each underwriter of such Warrant Shares with such copies of the prospectus,
including the preliminary prospectus, conforming to the Act (and such other
documents as each such Holder or each such underwriter may reasonably request)
in order to facilitate the sale or distribution of the Warrant Shares, (ii) use
its best efforts to register or qualify such Warrant Shares under the blue sky
laws (to the extent applicable ) of such jurisdiction or laws (to the extent
applicable) of such jurisdiction or jurisdictions as the Holders of any such
Warrant Shares and each underwriter of Warrant Shares being sold by such Holders
shall reasonably request and (iii) take
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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.
(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
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<PAGE> 8
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 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
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<PAGE> 9
(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, provide the
an indemnified part shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests (as reasonably
determined by either party) between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
Subsection 5(h) or (i), respectively, to the extent of such prejudice, but the
failure to so deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under Subsection 5(h) or (i), respectively.
(ii) The obligations of the Company and the Holders
under Subsections 5(h) and (i), respectively, shall survive the completion of
any offering of Warrant Shares made pursuant to a registration under this
Agreement.
(iii) The amount paid or payable by a party as a
result of the losses, claims, damages, or liabilities (or actions or proceedings
in respect thereof) referred to in Subsections 5(h)
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and (i) shall include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim.
(k) If the indemnification provided for in the preceding
Subsections 5(h) or (i) is unavailable to an indemnified party in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall be
entitled to contribution, except to the extent that contribution is not
permitted under Section 11(f) of the Act. In determining the amount of
contribution to which the respective parties are entitled, there shall be
considered the parties' relative knowledge and access to information concerning
the matter with respect to which the claim was asserted, the opportunity correct
and prevent any statement or omission, and any other equitable considerations
appropriate under the circumstances. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(l) The Holder, in addition to being entitled to exercise all
rights provided in this Section 5, including recovery of damages, will be
entitled to specific performance of its rights hereunder. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Section 5 and hereby
agrees to waive the defense in any action for specific performance that a remedy
at law would be adequate.
(m) In connection with the Company's obligations to effect a
registration under Section 5, the Company will:
(i) cooperate and assist in any filings required to
be made with the National Association of Securities Dealers, Inc., and before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to counsel selected by Holder copies of all
such documents proposed to be filed, which documents will be subject to their
review and comments;
(ii) cause the prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Act;
(iii) notify the Holder promptly (A) when the
prospectus or any prospectus supplement or post-effective amendment has been
filed, and with respect to the registration statement or any post-effective
amendment, when the same has become effective; (B) of any request by the
Commission for any amendments or supplements to the registration statement or
the prospectus or for additional information; (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for the purpose; (D) if, at any
time prior to the closing contemplated by an underwriting agreement entered into
in connection with such registration statement, that the representations and
warranties of the Company contained in such agreement cease to be true and
correct in any material respect; (E) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the Warrant
Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and (F) of the happening of any event which makes
any statement made in the registration statement, the prospectus of or any
document incorporated therein by reference untrue
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<PAGE> 11
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 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
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<PAGE> 12
(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:
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.
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<PAGE> 13
9. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a stockholder, prior
to the exercise hereof.
10. INFORMATION TO HOLDER. The Company agrees that it shall deliver to
the Holder promptly after their becoming available copies of all financial
statements, reports and proxy statements which the Company shall have sent to
its stockholders generally.
11. NOTICES. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or by facsimile transmission, or sent by
recognized overnight courier or by certified mail, return receipt requested,
postage paid, to the parties hereto as follows:
(a) if to the Company at 1100 International Parkway, Sunrise,
Florida 33323, Attn: 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 _____________________________, or such
other address as the Holder has designated in writing to the Company.
12. HEADINGS. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
13. APPLICABLE LAW. This Warrant shall be governed by and construed in
accordance with the law of the State of Delaware without giving effect to the
principles of conflicts of law thereof. Venue shall be in Broward County,
Florida.
IN WITNESS WHEREOF, Kellstrom Industries, Inc. has caused this Warrant
to be signed by its Chief Financial Officer and its corporate seal to be
hereunder affixed and attested by its Secretary as of the 31th day of August,
1999.
KELLSTROM INDUSTRIES, INC.
By: /s/ Michael W. Wallace
-------------------------------------------
Michael W. Wallace, Chief Financial Officer
ATTEST:
/s/ Anthony Motisi
- ---------------------------
Anthony Motisi, Secretary
[Corporate Seal]
13
<PAGE> 14
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:
-------------------------
14
<PAGE> 15
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
previously delivered to the Company.
Date:_________________________________________________
And if said number of shares shall not be all the shares purchasable
under the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
15
<PAGE> 1
Exhibit 4.11
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. SI-___ _______ Shares
FOR VALUE RECEIVED, Kellstrom Industries, Inc., a Delaware corporation
(the "Company"), hereby certifies that __________ (the "Purchaser") or his
permitted assigns, is entitled to purchase from the Company, at any time or from
time to time commencing on the date hereof (the "Commencement Date") and prior
to 5:00 P.M., New York City time, on December 31, 2002, ____________ (____)
fully paid and non-assessable shares of the common stock, $.001 par value per
share, of the Company for an aggregate purchase price of $______ (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, all similar
Warrants issued on the date hereof to the Purchaser, _________ or __________,
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
<PAGE> 2
thereof, duly executed) at the address set forth in Subsection 12(a) hereof,
together with proper payment of the Aggregate Warrant Price, or the
proportionate part hereof if this Warrant is exercised in part. Payment for
Warrant Shares shall be made by certified or official bank check payable to the
order of the Company. If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock, and the Holder is
entitled to receive a new Warrant covering the Warrant Shares which have not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon such surrender of this Warrant,
the Company will (a) issue a certificate or certificates in the name of Holder
(or any designee of the Holder to whom the Warrant is transferred in accordance
with Section 6 hereof) for the largest number of whole shares of the Common
Stock to which the Holder shall be entitled and, if this Warrant is exercised in
whole, in lieu of any fractional share of the Common Stock to which the Holder
shall be entitled, pay to the Holder cash in an amount equal to the fair value
of such fractional share (determined in such reasonable manner as the Board of
Directors of the Company shall determine), and (b) deliver the other securities
and properties receivable upon the exercise of this Warrant, or the
proportionate part thereof if this Warrant is exercised in part, pursuant to the
provisions of this Warrant.
(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
2
<PAGE> 3
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.
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
3
<PAGE> 4
property which the Holder would have owned or have been entitled to receive
immediately after such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had this Warrant been exercised
immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3 with respect to the
rights and interests thereafter of the Holder of this Warrant to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The above provisions of this Subsection 3(c) shall similarly apply
to successive reorganizations, reclassifications, consolidations, mergers,
statutory exchanges, sales or conveyances. The issuer of any shares of stock or
other securities or property thereafter deliverable on the exercise of this
Warrant shall be responsible for all of the agreements and obligations of the
Company hereunder. Notice of any such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance and of said
provisions so proposed to be made, shall be mailed to the Holder of the Warrants
not less than 15 days prior to such event. A sale of all or substantially all of
the assets of the Company for a consideration consisting primarily of securities
shall be deemed a consolidation or merger for the foregoing purposes.
(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
4
<PAGE> 5
more classes of capital stock or shares of Common Stock and other capital stock
of the Company, the Board of Directors (whose determination shall be conclusive
and shall be described in a written notice to the Holder of any Warrant promptly
after such adjustment) shall in good faith determine the allocation of the
adjusted Per Share Warrant Price between or among shares or such classes of
capital stock or shares of Common Stock and other capital stock.
(g) If at any time or from time to time the Company shall take
any action affecting its Common Stock or any other capital stock of the Company,
not otherwise described in any of the foregoing subsections of this Section 3,
then, if the failure to make any adjustment would in the reasonable opinion of
the Board of Directors of the Company have a materially adverse effect upon the
rights of the Holder of the Warrant, the number of shares of Common Stock or
other stock comprising a Warrant Share, or the Per Share Warrant Price, shall be
adjusted in such manner and at such time as the Board of Directors of the
Company may in good faith determined to be equitable under the circumstances.
(h) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the rights of the Holder
of Warrants in accordance with this Section 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,
5
<PAGE> 6
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 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
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<PAGE> 7
of any governmental authority for the period necessary for the Holder and such
Holders to effect the proposed sale or other disposition.
(b) The Company agrees that if, 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
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<PAGE> 8
the average of the last sale price of the Common Stock, or if no last sale price
is reported, the average of the asked and bid prices of the Common Stock, on the
Nasdaq National Market or Nasdaq Small Cap Market, as applicable, for the 20
consecutive trading days ending on the day prior to the delivery by the Holder
or Holders of the request for a registration statement pursuant to this Section
5(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
8
<PAGE> 9
underwriting discounts, applicable transfer taxes relating to the Warrant Shares
and the fees and expenses of counsel for the Holders of the Warrant Shares.
(g) In connection with any public offering by the Company
involving an underwriting of its securities effected pursuant to Section 5(a)
hereof, the Company shall not be required to include in such registration any
Warrant Shares held by the Holder unless the Holder agrees to the terms of the
underwriting agreement between the Company and the managing underwriter of such
offering, which agreement may require that the Warrant Shares be withheld from
the market by the Holders for a period of up to 180 days after the effective
date of the registration statement by which such public offering is being
effected (or such longer period as may be requested by any securities exchange
upon which the Common Stock is then listed). Furthermore, the Company shall be
obligated to include in such registration only the quantity of Warrant Shares,
if any, as will not, in the opinion of the managing underwriter, jeopardize the
success of the offering by the Company. If the managing underwriter for the
offering advises the Company in writing that the total amount of securities
sought to be registered by the Holders and other shareholders of the Company
having similar registration rights as of the date thereof (collectively, the
"Kellstrom Shareholders") exceeds the amount of securities that can be offered
without adversely affecting the offering by the Company, then the Company may
reduce the number of shares to be registered by the Company for the Kellstrom
Shareholders, including Warrant Shares, to a number satisfactory to such
managing underwriter. Any such reduction shall be pro rata, based upon the total
number of shares held by each Kellstrom Shareholder.
(h) The Company will indemnify and hold harmless the Holder
and any person or entity engaged by the Holder to sell the Holder's Warrant
Shares, and each person, if any, who controls such persons or entities within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act") (collectively, a "Holder Indemnitee"), against any losses, claims,
damages, liabilities or expenses (or actions, proceedings, or settlements in
respect thereof) (joint or several) to which a Holder Indemnitee may become
subject under the Act, the 1934 Act, or other federal or state law, insofar as
such losses, claims, damages, liabilities or expenses (or actions, proceedings
or settlements in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; or (iii) the employment by the Company of
any device, scheme or artifice to defraud or the engagement by the Company in
any act, practice or course of business which operates or would operate as a
fraud or deceit upon the purchasers of its securities pursuant to such
registration statement. The Company will also reimburse each Holder Indemnitee
for any legal or other expenses reasonably incurred by such Holder Indemnitee in
connection with investigating, defending, and settling any such loss, claim,
damage, liability, or action.
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
9
<PAGE> 10
be liable to any Holder Indemnitee of any loss, claim, damage, liability or
action (i) to the extent that it arises solely out of or is based solely upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
or on behalf of the Holder or any agent of the Holder, which consent shall not
be unreasonably withheld, or controlling person of either; or (ii) in the case
of a sale directly by the Holder (including a sale of such Warrant Shares
through any underwriter retained by such Holder to engage in a distribution
solely on behalf of such Holder), such untrue statement or alleged untrue
statement or omission or alleged omission was contained in a preliminary
prospectus and corrected in a final or amended prospectus, and the Holder failed
to deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the Warrant Shares to the person asserting any such
loss, claim, damage or liability in any case where such delivery is required by
the Act.
(i) The Holder will indemnify and hold harmless the Company,
each of its employees, officers, directors or persons who control the Company
within the meaning of the Act or the 1934 Act, and each agent or underwriter for
the Company or any other person or entity engaged by the Company to sell the
Company's securities offered in the registration statement, or any of their
respective directors, officers, partners, agents, employees or control persons
(collectively, a "Company Indemnitee"), against any losses, claims, damages,
liabilities or expenses (joint or several) to which the Company or any such
Company Indemnitee may become subject under the Act, the 1934 Act, or other
federal or state law, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereto) arise solely out of or are based solely
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by or on behalf of the Holder expressly for use in
connection with such registration; and each Holder will reimburse any legal or
other expenses reasonably incurred by a Company Indemnitee in connection with
investigating or defending any such loss, claim, damage, liability, or action.
The indemnity agreement contained in this Subsection 5(i) shall not
apply to amounts paid in settlement of any loss, claim, damage, liability, or
action if such settlement is effected without the consent of the indemnifying
Holder, which consent shall not be unreasonably withheld, nor, in the case of a
sale directly by the Company of its securities (including a sale of such
securities through any underwriter retained by the Company to engage in a
distribution solely on behalf of the Company), shall the Holder be liable to the
Company in any case in which such untrue statement or alleged untrue statement
or omission or alleged omission was contained in a preliminary prospectus and
corrected in a final or amended prospectus, and the Company failed to deliver a
copy of the final or amended prospectus at or prior to the confirmation of the
sale of the securities to the person asserting any such loss, claim, damage or
liability in any case where such delivery is required by the Act.
(j) Promptly after receipt by an indemnified party under
Subsections 5(h) or (i) of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying part so desires, jointly with any other indemnifying party
similarly noticed, to assume and control the defense thereof with counsel
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<PAGE> 11
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 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:
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<PAGE> 12
(i) cooperate and assist in any filings required to
be made with the National Association of Securities Dealers, Inc., and before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to counsel selected by Holder copies of all
such documents proposed to be filed, which documents will be subject to their
review and comments;
(ii) cause the prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Act;
(iii) notify the Holder promptly (A) when the
prospectus or any prospectus supplement or post-effective amendment has been
filed, and with respect to the registration statement or any post-effective
amendment, when the same has become effective; (B) of any request by the
Commission for any amendments or supplements to the registration statement or
the prospectus or for additional information; (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for the purpose; (D) if, at any
time prior to the closing contemplated by an underwriting agreement entered into
in connection with such registration statement, that the representations and
warranties of the Company contained in such agreement cease to be true and
correct in any material respect; (E) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the Warrant
Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and (F) of the happening of any event which makes
any statement made in the registration statement, the prospectus of or any
document incorporated therein by reference untrue in any material respect and
which requires the making of any changes in the registration statement, the
prospectus or any document incorporated therein by reference in order to make
the statement therein not materially misleading;
(iv) make commercially reasonable efforts to obtain
the withdrawal of any order suspending the effectiveness of the registration
statement;
(v) if required, prepare a supplement or
post-effective amendment to the registration statement, the related prospectus
or any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Warrant
Shares, the prospectus will not contain an untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein not
misleading;
(vi) cause all Warrant Shares covered by the
registration statement to be listed on each securities exchange on which
identical securities issued by the Company are then listed if requested by the
Holder or the managing underwriters, if any;
(vii) provide and cause to be maintained a transfer
agent and registrar for all Warrant Shares covered by such registration
statement from and after a date not later than the effective date of such
registration statement;
(viii) use its best efforts to provide a CUSIP number
for the Warrant Shares, not later than the effective date of the registration
statement;
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<PAGE> 13
(ix) make available for inspection, in connection
with the preparation of a registration statement pursuant to this Agreement, by
the Holder, and any attorney or accountant retained by the Holder, all financial
and other records and pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representative, attorney or
accountant in connection with such registration; PROVIDED, HOWEVER, that any
records, information or documents that are designated by the Company in writing
as confidential shall be kept confidential by such persons unless disclosure of
such records, information or documents is required by court or administrative
order;
(x) if so required by the managing underwriter, not
sell, make any short sale of, loan, grant any option for the purpose of, effect
any public sale or distribution of or otherwise dispose of its equity securities
or securities convertible into or exchangeable or exercisable for any of such
securities during the ten days prior to and the 90 days after any underwritten
registration pursuant hereto has become effective, except as part of such
underwritten registration and except pursuant to registrations on Form S-4 or
S-8 or any successor or similar forms thereto, except that the Company may make
grants of options under its stock option plans and may issue securities issuable
upon the exercise or conversion of outstanding convertible securities, stock
options and other options, warrants and rights of the Company; and
(xi) otherwise use its best effort to comply with all
applicable rules and regulations of the Commission and make available to its
security holders as soon as reasonably practicable, an earnings statement which
satisfies the provision of Section 11(a) of the Act.
(n) The Company shall not be obligated to register any Warrant
Shares pursuant to this Section 5 at any time when the resale provisions of Rule
144 promulgated under the Act are available to the Holder without limitation as
to volume.
(o) The Company will use its reasonable best efforts to file
with the Commission all information required to be filed under Section 13 or
15(d) of the 1934 Act.
6. LIMITED TRANSFERABILITY. This Warrant may not be offered, sold,
transferred, assigned, hypothecated or otherwise disposed of by the Holder
except pursuant to an effective registration statement under the Act and/or
applicable state securities laws or an exemption from registration under the Act
and such laws which, in the opinion of counsel for the Holder, which counsel and
opinion are reasonably satisfactory to the Company, is available. The Company
may treat the registered Holder of this Warrant as he or it appears on the
Company's books at any time as the Holder for all purposes. The Company shall
permit any Holder of a Warrant or his or her duly authorized attorney, upon
written request during ordinary business hours, to inspect and copy or make
extracts from its books showing the registered holders of Warrants. All Warrants
issued upon 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
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<PAGE> 14
exercise of this Warrant, in part or in whole, the certificates representing the
Warrant Shares and any of the other securities issuable upon exercise of this
Warrant shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE OR SECURITIES LAWS AND NEITHER THE
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH
SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL
FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
8. LOSS, ETC., OF WARRANT. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
9. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a stockholder, prior
to the exercise hereof.
10. INFORMATION TO HOLDER. The Company agrees that it shall deliver to
the Holder promptly after their becoming available copies of all financial
statements, reports and proxy statements which the Company shall have sent to
its stockholders generally.
11. 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
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<PAGE> 15
(b) if to the Holder at ______________________________, or
such other address as the Holder has designated in writing to the Company.
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 Chief Financial Officer and its corporate seal to be
hereunder affixed and attested by its Secretary as of the 31st day of August,
1999.
KELLSTROM INDUSTRIES, INC.
By: /s/ Michael W. Wallace
------------------------------------
Michael W. Wallace
Chief Financial Officer
ATTEST:
/s/ Anthony Motisi
- --------------------------------
Anthony Motisi, Secretary
[Corporate Seal]
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ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby sells, assigns and
transfers unto __________________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
__________________________, attorney, to transfer said Warrant on the books of
Kellstrom Industries, Inc.
Dated: _____________________________
Signature: __________________________
Address: __________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby assigns and
transfers unto __________________________ the right to purchase __________
shares of Common Stock of ___________________________ covered by the foregoing
Warrant, and a proportionate part of said Warrant and the rights evidenced
thereby, and does irrevocably constitute and appoint __________________________,
attorney, to transfer that part of said Warrant on the books of Kellstrom
Industries, Inc.
Dated: _____________________________
Signature:___________________________
Address: __________________________
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SUBSCRIPTION FORM
(To be executed upon exercise of Warrant pursuant to Section 1)
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
previously delivered to the Company.
Date:_________________________________________________
And if said number of shares shall not be all the shares purchasable
under the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
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<PAGE> 1
Exhibit 10.42
AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is entered
into as of December 27, 1999, between Kellstrom Industries, Inc., a Delaware
corporation (the "Company"), and Zivi R. Nedivi, an individual (the "Employee").
RECITALS
The Company and the Employee are parties to that certain Employment
Agreement entered into as of March 30, 1999 (the "Employment Agreement"),
pursuant to which the Employee is employed as President and Chief Executive
Officer of the Company. The Company and the Employee desire to amend the
Employment Agreement on the terms and conditions set forth in this Amendment.
TERMS OF AGREEMENT
In consideration of the above recitals and the mutual promises herein
contained, the Company and the Employee hereby agree as follows:
1. Effective as of January 1, 2000, Section 3(c)(ii) of the Employment
Agreement is amended in its entirety by deleting such section and substituting
the following:
"(ii) ANNUAL COMPANY BONUS. For each calendar year commencing
with the year ending December 31, 2000, at the end of which year the
Employee is employed by the Company:
(A) If the Net Income (as hereinafter defined) of the
Company for such year is an amount equal to the Company's target net
income as determined in the sole discretion of the Board (or the
Executive Committee) for such year (the "Target"), the Employee shall
be entitled to a bonus in an amount equal to the Salary of the Employee
as of December 31 of such year (the "Target Bonus"). For purposes of
this Agreement, "Net Income" shall mean actual net income, as
determined by the Company in its sole discretion in accordance with
GAAP.
(B) If the Net Income of the Company for such year is
more than the Target and less than 125% of the Target, the Employee
shall be entitled to a bonus as calculated below:
<PAGE> 2
B = Target Bonus + [Target Bonus x 2 x (NI - T)]
------------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the Net Income of the Company for such year.
(C) If the Net Income of the Company for such year is
equal to or greater than 125% of the Target, the Employee shall be
entitled to a bonus in an amount equal to 150% of the Target Bonus.
(D) If the Net Income of the Company for such year is
greater than 75% of the Target but less than the Target, the Employee
shall be entitled to a bonus as calculated below:
B = Target Bonus - [Target Bonus x 4 x (T - NI)]
------------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the Net Income of the Company for such year.
(E) If the Net Income of the Company for such year is
equal to or less than 75% of the Target, the Employee shall not be
entitled to a bonus."
2. Except as expressly amended hereby, all of the terms and conditions
of the Employment Agreement shall continue in full force and effect.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of Florida. This Amendment may be executed in any number
of counterparts, each of which shall be an original but all of which taken
together shall constitute one and the same instrument.
[SIGNATURES ON FOLLOWING PAGE]
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the day and year first above written.
KELLSTROM INDUSTRIES, INC.
By: /s/ W. Penny
---------------------------------------
Name: W. Penny
Title: VP HR
EMPLOYEE
/s/ Zivi R. Nedivi
-------------------------------------------
Zivi R. Nedivi
3
<PAGE> 1
Exhibit 10.43
AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is entered
into as of December 27, 1999, between Kellstrom Industries, Inc., a Delaware
corporation (the "Company"), and John S. Gleason, an individual (the
"Employee").
RECITALS
The Company and the Employee are parties to that certain Employment
Agreement entered into as of May 18, 1995, as amended (the "Employment
Agreement"), pursuant to which the Employee is employed as an Executive Vice
President of the Company. The Company and the Employee desire to amend the
Employment Agreement on the terms and conditions set forth in this Amendment.
TERMS OF AGREEMENT
In consideration of the above recitals and the mutual promises herein
contained, the Company and the Employee hereby agree as follows:
1. Section 1 of the Employment Agreement is hereby amended by adding
the following additional definitions:
The Company Target shall mean, with respect to any period,
the target net income of the Company for such period as determined in
the sole discretion of the Board (or the "Executive Committee").
The Division shall mean the Kellcad division of the Company,
as determined by the Board in its sole discretion.
The Division Target shall mean, with respect to any period,
the target net income of the Division, before taxes and corporate
overhead allocations, for such period as determined in the sole
discretion of the Board (or the "Executive Committee").
Divisional Net Income shall mean, with respect to any
period, the actual net income, before taxes and corporate overhead
allocations, of the Division for such period as determined by the
Company in its sole discretion.
Net Income shall mean, with respect to any period, actual
net income for such period as determined by the Company in its sole
discretion in accordance with GAAP.
<PAGE> 2
2. Section 3(a) of the Employment Agreement is hereby amended to
reflect that the Employee is employed as an Executive Vice President of the
Company.
3. Effective as of January 1, 2000, Section 3(b)(ii) of the Employment
Agreement is amended in its entirety by deleting such section and substituting
the following:
"(ii) ANNUAL BONUS. For each calendar year during the
Employment Period commencing with the year ending December 31, 2000, at
the end of which year the Employee is employed by the Company, the
Company shall be eligible to be paid a bonus, a portion of which shall
be computed based upon the Company's Net Income as compared to the
Company Target for such year (the "Company Bonus"), and a portion of
which shall be computed based upon Divisional Net Income as compared to
the Division Target for such year (the "Division Bonus"). The bonus
payable, if any, with respect to any calendar year shall be the sum of
the Company Bonus and the Division Bonus payable for such year.
(A) COMPANY BONUS. The Company Bonus, if any, payable
on account of any calendar year shall be computed as follows:
(i) if the Net Income of the Company for
such year is an amount equal to the Company Target for such year, the
Employee shall be entitled to a Company Bonus in the amount of $45,000.
(ii) if the Net Income of the Company for
such year is more than the Company Target and less than 125% of the
Company Target, the Employee shall be entitled to a Company Bonus as
calculated below:
CB = $45,000 + [$45,000 x 2 x (NI - CT)]
-------------
CT
where:
CB = the Company Bonus earned in such year.
CT = the Company Target for such year.
NI = the Net Income of the Company for such year.
(iii) If the Net Income of the Company for
such year is equal to or greater than 125% of the Company Target, the
Employee shall be entitled to a Company Bonus in the amount of $67,500.
(iv) If the Net Income of the Company for
such year is greater than 75% of the Company Target but less than the
Company Target, the Employee shall be entitled to a Company Bonus as
calculated below:
2
<PAGE> 3
CB = $45,000 - [$45,000 x 4 x (CT - NI)]
-------------
CT
where:
CB = the Company Bonus earned in such year.
CT = the Company Target for such year.
NI = the Net Income of the Company for such year.
(v) If the Net Income of the Company for
such year is equal to or less than 75% of the Company Target, the
Employee shall not be entitled to a Company Bonus.
(B) DIVISION BONUS. The Division Bonus, if any, payable on
account of any calendar year shall be computed as follows:
(i) if the Divisional Net Income for such
year is an amount equal to the Division Target for such year, the
Employee shall be entitled to a Division Bonus in the amount of
$45,000.
(ii) if the Divisional Net Income for such
year is more than the Division Target and less than 125% of the
Division Target, the Employee shall be entitled to a Division Bonus as
calculated below:
DB = $45,000 + [$45,000 x 2 x (NI - DT)]
-------------
DT
where:
DB = the Division Bonus earned in such year.
DT = the Division Target for such year.
NI = Divisional Net Income for such year.
(iii) If the Divisional Net Income for such
year is equal to or greater than 125% of the Division Target, the
Employee shall be entitled to a Division Bonus in the amount of
$67,500.
(iv) If the Divisional Net Income for such
year is greater than 75% of the Division Target but less than the
Division Target, the Employee shall be entitled to a Division Bonus as
calculated below:
3
<PAGE> 4
DB = $45,000 - [$45,000 x 4 x (DT - NI)]
-------------
DT
where:
DB = the Division Bonus earned in such year.
DT = the Division Target for such year.
NI = Divisional Net Income for such year.
(v) If the Divisional Net Income for such
year is equal to or less than 75% of the Division Target, the Employee
shall not be entitled to a Division Bonus."
4. Except as expressly amended hereby, all of the terms and conditions
of the Employment Agreement shall continue in full force and effect.
5. This Amendment shall be governed by and construed in accordance with
the laws of the State of Florida. This Amendment may be executed in any number
of counterparts, each of which shall be an original but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the day and year first above written.
KELLSTROM INDUSTRIES, INC.
By: /s/ W. Penny
------------------------------------
Name: W. Penny
Title: VP HR
EMPLOYEE
/s/ John S. Gleason
----------------------------------------
John S. Gleason
4
<PAGE> 1
Exhibit 10.44
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
October 6, 1999, between Kellstrom Industries, Inc., a Delaware corporation
having its principal place of business at 1100 International Parkway, Sunrise,
Florida 33323 (the "Company"), and Robert V. Hogan, an individual residing at
(the "Employee").
RECITALS
The Company desires to employ the Employee, and the Employee desires to
accept such employment, on the terms and subject to the conditions set forth in
this Agreement.
TERMS OF AGREEMENT
In consideration of the above recitals and the mutual promises herein
contained, the Company and the Employee hereby agree as follows:
1. DEFINITIONS.
(a) The "Board" shall mean the Board of Directors of the
Company.
(b) The "Company Target" shall mean, with respect to any
period, the target net income of the Company for such period as determined in
the sole discretion of the Board (or the Executive Committee).
(c) The "Division" shall mean the Commercial Spare Parts
division of the Company.
(d) "Divisional Net Income" shall mean, with respect to any
period, the actual net income, before taxes and corporate overhead allocations,
of the Division for such period as determined by the Company in its sole
discretion.
(e) The "Division Target" shall mean, with respect to any
period, the target net income of the Division, before taxes and corporate
overhead allocations, for such period as determined in the sole discretion of
the Board (or the Executive Committee).
(f) The "Effective Date" shall mean October 6, 1999.
(g) The "Employment Period" shall mean the period commencing
on the Effective Date and continuing until the fifth year anniversary the
Effective Date, unless earlier terminated in accordance with the terms of this
Agreement.
<PAGE> 2
(h) The "Executive Committee" shall mean the Executive
Committee of the Board of Directors of the Company.
(i) "GAAP" shall mean generally accepted accounting principles
in the United States of America as in effect from time to time.
(j) "Net Income" shall mean, with respect to any period, the
actual net income of the Company for such period as determined by the Company in
its sole discretion in accordance with GAAP.
2. EMPLOYMENT PERIOD. The Company hereby agrees to employ the Employee,
and the Employee hereby agrees to be employed by the Company, for the duration
of the Employment Period and pursuant to the other terms and conditions provided
herein. This Agreement shall terminate at the end of the Employment Period,
unless earlier terminated under Section 5 below.
3. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES. During the Employment Period the
Employee shall serve as Senior Vice President and General Manager - Commercial
Spare Parts of the Company. The Employee shall perform such duties as the Board
or the Chief Executive Officer or other senior officers of the Company shall
from time to time determine. In the performance of his duties, the Employee
shall comply with the stated policies of the Company.
(b) LOCATION. The principal place of employment of the
Employee shall be the principal offices of the Company in Sunrise, Florida.
(c) COMPENSATION.
(1) BASE SALARY. The Employee's annual salary (the
"Salary") shall be at the rate of $180,000 per annum for the duration of the
Employee's employment hereunder. During the Employment Period, the Employee's
salary may be reviewed and changed by the Board in its sole discretion,
provided, however, that the Company shall not pay the Employee a Salary less
than such amount. Any Salary payable hereunder shall be paid in regular
intervals in accordance with the Company's payroll practices.
(2) ANNUAL COMPANY BONUS. Subject to subsection (C)
below, for each calendar year during the Employment Period commencing with the
year ending December 31, 2000, at the end of which year the Employee is employed
by the Company, the Company shall be eligible to be paid a bonus (the "Bonus"),
one-half of which shall be computed based upon the Company's Net Income as
compared to the Company Target for such year (the "Company Bonus"), and one-half
of which shall be computed based upon Divisional Net Income as compared to the
Division Target for such year (the "Division Bonus"). The Bonus payable, if any,
with respect to any calendar year shall be the sum of the Company Bonus and the
Division Bonus.
2
<PAGE> 3
(A) Company Bonus. The Company Bonus, if any, payable on
account of any calendar year shall be computed as follows:
i. if the Company has Net Income for such year in an
amount equal to the Company Target for such year, the Employee shall be entitled
to a Company Bonus in the amount of $50,000.
ii. if the Company has Net Income for such year in an
amount that is more than the Company Target and less than 125% of the Company
Target, the Employee shall be entitled to a Company Bonus as calculated below:
CB = $50,000 + [$50,000 x 2 x (NI - CT)]
-------------
CT
where:
CB = the Company Bonus earned in such year.
CT = the Company Target for such year.
NI = Net Income for such year.
iii. if the Company has Net Income for such year in
an amount equal to 125% or more of the Company Target, the Employee shall be
entitled to a Company Bonus in the amount of $75,000.
iv. if the Company has Net Income for such year in an
amount that is equal to or less than 75% of the Company Target, the Employee
shall not be entitled to a Company Bonus.
v. if the Company has Net Income for such year in an amount that is greater than
75% of the Company Target but less than the Company Target, the Employee shall
be entitled to a Company Bonus as calculated below:
CB = $50,000 - [$50,000 x 4 x (CT - NI)]
---------------
CT
where:
CB = the Company Bonus earned in such year.
CT = the Company Target for such year.
NI = Net Income for such year.
3
<PAGE> 4
(B) DIVISION BONUS. The Division Bonus, if any, payable on
account of any calendar year shall be computed as follows:
i. if the Divisional Net Income for such year is
equal to the Division Target for such year, the Employee shall be entitled to a
Division Bonus in the amount of $50,000.
ii. if the Divisional Net Income for such year is
more than the Division Target and less than 125% of the Division Target, the
Employee shall be entitled to a Division Bonus as calculated below:
DB = $50,000 + [$50,000 x 2 x (NI - DT)]
---------------
DT
where:
DB = the Division Bonus earned in such year.
DT = the Division Target for such year.
NI = Divisional Net Income for such year.
iii. if the Divisional Net Income for such year equal
to 125% or more of the Division Target, the Employee shall be entitled to a
Division Bonus of $75,000.
iv. if the Divisional Net Income for such year is
equal to or less than 75% of the Division Target, the Employee shall not be
entitled to a Division Bonus.
v. if the Divisional Net Income for such year is
greater than 75% of the Division Target but less than the Division Target, the
Employee shall be entitled to a Division Bonus as calculated below:
DB = $50,000 - [$50,000 x 4 x (DT - NI)]
---------------
DT
where:
DB = the Division Bonus earned in such year.
DT = the Division Target for such year.
NI = Divisional Net Income for such year.
(C) for any calendar year regarding which the Employee is
entitled to a Bonus under the foregoing provisions of this subsection (2) but
during which year the Employee did not work the entire calendar year, unless
otherwise provided herein, the Employee
4
<PAGE> 5
shall be entitled to a bonus equal to the product of the Bonus, as calculated
under the foregoing provisions, multiplied by a fraction, the numerator of which
is the number of months during such calendar year that the Employee was employed
by the Company and the denominator of which is twelve.
(3) 1999 BONUS. Provided that the Employee is employed by the Company
as of December 31, 1999, the Employee shall be entitled to a bonus in the amount
of $37,500.
(4) SIGNING BONUS. The Employee shall be entitled to a bonus of $50,000
payable upon the execution of this Agreement by both parties, and an additional
$50,000 upon the Employee's sale of his residence in the State of Illinois, as
evidenced by written documentation thereof reasonably satisfactory to the
Company. Any amounts which shall have been paid to the Employee prior to the
Effective Date pursuant to the previous sentence shall be immediately repaid to
the Company by the Employee in the event that the Employee fails for any reason
(other than the willful misconduct of the Company) to commence employment for
the Company on the Effective Date in accordance with the terms and conditions of
this Agreement.
(5) STOCK OPTIONS. Simultaneously with the commencement of the
Employment Period, the Company shall cause to be granted to the Employee a
non-qualified stock option to purchase 40,000 shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), at an exercise price per
share equal to the fair market value of the Common Stock on the date of the
grant, pursuant to the Company's standard form of option agreement to be
executed by the Company and the Employee. Such option shall vest as to one-third
(1/3) of the shares subject thereto on each of the first, second and third
yearly anniversaries of the Effective Date.
(d) BENEFITS. In addition to the compensation payable to the
Employee as set forth in Section 3(c) above, during the Employment Period the
Employee shall be eligible for similar incentive, stock option grants, savings,
welfare (including without limitation medical and dental insurance) plans,
practices, policies and programs applicable on or after the Effective Date to
other employees of the Company as determined in the discretion of the Board (or
the Executive Committee). As of the date of the Agreement, such benefits include
the following.
(i) Health care: The Company offers health insurance
for the Employee, his spouse and eligible dependnents pursuant to such plans as
the Company provides from time to time. The Employee shall be responsible for a
portion of the entire insurance package, plus all deductible, co-insurance and
co-payment amounts due according to the plans. Upon termination the Employee
will be subject to any continuation of the plan(s) as required by law and/or the
plan documents. These plans are presently offered the first of the month after 3
months of service.
(ii) 401k Plan: The Employee is encouraged to and
may, at his discretion, participate in the Company-offered 401k Plan. The
Company may, at its sole discretion also contribute a match. A Summary Plan
Description containing more information regarding this plan will be made
available to the Employee prior to enrolling in this benefit, which is offered
the first quarterly enrollment after 90 days of service.
5
<PAGE> 6
(e) VACATION. During the Employment Period, the Employee shall
be entitled to paid vacation in accordance with the policies and practices
applicable on or after the Effective Date to other employees of the Company,
provided that the Employee shall be entitled to a minimum of three (3) weeks of
paid vacation per full calendar year (pro rated if the Employee serves for less
than the full calendar year). Vacation accrued but unused at the end of a
calendar year may be carried over into the following calendar year or years,
PROVIDED that unused vacation days shall be accrued up to a maximum of four
weeks.
(f) HOLIDAYS AND SICK LEAVE. The Employee shall be entitled to
paid holidays and paid sick leave in accordance with the policies and practices
applicable on or after the Effective Date to other officers of the Company, as
may be determined by the Company from time to time.
(g) EXPENSES. The Company shall pay or reimburse the Employee
for reasonable expenses incurred or paid by him during the Employment Period in
the performance of his services under this Agreement upon presentation of
expense statements or such other supporting information as may be required for
other officers of the Company in accordance with the Company's policies.
(h) AUTOMOBILE. During the Employment Period, the Company
shall provide to the Employee an allowance for an automobile of $900 per month,
to include insurance, for use by the Employee in connection with the performance
of his duties hereunder. The Company shall pay or reimburse the Employee for all
reasonable, documented expenses of maintenance and operation of such automobile.
The Company shall also reimburse any documented "up-front" (e.g. security
deposits) expenses not to exceed a total of $3,000.
(i) RELOCATION EXPENSES. The Company shall reimburse the
Employee for reasonable, documented expenses incurred by the Employee to move
himself, his family and his personal belongings to Florida in connection with
the commencement of his employment hereunder, in accordance with the Company's
policies, PROVIDED that in no event shall the total amount of such expenses for
which the Company shall be responsible exceed $15,000.
(j) LOAN. The Company shall, on the Effective Date, loan to
the Employee the sum of $150,000 (the "Loan"), which Loan shall be evidenced by
a Promissory Note, in form and substance satisfactory to the Company, to be
executed by the Employee. The Loan shall accrue interest at the applicable
Federal rate in effect on the Effective Date under ss.1274 of the Internal
Revenue Code of the United States, as amended. At the end of each of the first,
second and third yearly anniversaries of the Effective Date, provided that the
Employee is then employed by the Company, $50,000.00 of the Loan shall be
forgiven, together with any interest on the Loan which shall have accrued during
such year, and the Company shall reimburse the Employee for any Federal, state
and/or local income taxes paid or payable by the Employee on account of such
forgiveness. Any such amounts payable by the Company shall be paid at the same
time as the
6
<PAGE> 7
Bonus for such year, if any, payable pursuant to Section 3(c)(2) hereunder. In
the event of the termination of this Agreement at any time prior to the end of
the Employment Period, the full principal amount of the Loan then outstanding,
together with all accrued interest thereon, shall be immediately due and
payable.
4. EMPLOYEE'S OBLIGATIONS AND REPRESENTATIONS.
(a) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Employee is entitled, the Employee agrees
to devote substantially all of his attention and time during normal business
hours to the business and affairs of the Company and to perform faithfully and
efficiently the responsibilities assigned to the Employee by the Company.
(b) The Employee represents and warrants to the Company that
there are no agreements or arrangements, whether written or oral, in effect
which would prevent the Employee from rendering the services required of him
hereunder to the Company during the Employment Period. The Employee further
represents, warrants and agrees with the Company that as of the Effective Date
he has not made and will not make during the Employment Period any commitment or
do any act in conflict with this Agreement, or take any action that might divert
from the Company any opportunity which would be in the scope of any present or
future business of the Company or any subsidiary or affiliate thereof.
5. TERMINATION.
(a) DEATH. This Agreement shall terminate automatically upon
the Employee's death. If the Employee's employment is terminated by reason of
the Employee's death, the Company shall have no further obligations to the
Employee's legal representatives under this Agreement, other than those
obligations accrued, earned or vested by the Employee as of the date of his
death.
(b) DISABILITY. If the Company determines in good faith that
the Employee has a "disability" (as defined below), it may give the Employee
written notice of its intention to terminate the Employee's employment. In such
event, the Employee's employment with the Company shall terminate effective on
the 30th day after receipt by the Employee of such notice. No such notice of
termination by reason of disability shall be given until the Employee has
experienced a period of two (2) consecutive months of disability and the
disability is continuing. The notice of termination shall not be effective if
the Employee returns to full-time performance of his duties prior to the
expiration of the 30-day notice period. For purposes of this Agreement,
"disability" shall mean a physical or mental condition which, two months after
its commencement, is determined by a physician selected by the Company to be a
total and permanent condition which substantially prevents the Employee from
performing the services to be provided by him hereunder. The Employee shall be
entitled to all compensation and benefits provided for under this Agreement
during the two-month waiting period for the disability determination and during
7
<PAGE> 8
the 30-day notice of termination period. In the event that the Company provides
long-term disability benefits for the Employee, such benefits shall not commence
until after the employment of the Employee has been terminated and the Company
has ceased paying the Employee compensation pursuant to the foregoing sentence.
If the Employee's employment is terminated by reason of the Employee's
disability, this Agreement shall terminate without further obligations to the
Employee or the Employee's legal representatives under this Agreement, other
than those obligations accrued, earned or vested by the Employee as of the date
of the termination.
(c) CAUSE. During the Employment Period, the Company may
terminate the Employee's employment for "cause", as determined by the Board and
as defined below. For purposes of this Agreement, "cause" shall mean:
(1) an act or acts of fraud, embezzlement or any
other act by the Employee that would constitute a felony under the laws of the
State of Florida;
(2) repeated violations by the Employee of his
obligations under Section 4(a) of this Agreement or a breach by the Employee of
his representations or obligations under any of Sections 3(a), 4(b), 6, 7 or 8
of this Agreement;
(3) the indictment of the Employee of a crime, where
the Company reasonably believes it would impair the Employee's ability to
perform his services under this Agreement;
(4) willful and gross misconduct by the Employee in
the performance of his duties hereunder; or
(5) the commission by the Employee of an act (other
than good faith exercise of business judgment in the exercise of his
responsibilities pursuant to this Agreement) resulting in material damage to the
Company.
If the Employee's employment is terminated for cause, this Agreement shall
terminate without further obligations to the Employee under this Agreement,
other than those obligations accrued, earned or vested by the Employee as of the
date of the termination. The Employee shall not be entitled to any Bonus in
respect of the year of termination in the event the Employee's employment is
terminated for cause pursuant to this Section 5(c). In addition, in the event
such termination occurs prior to the one year anniversary of the Effective Date,
the Employee shall immediately repay to the Company any amounts paid to the
Employee pursuant to Section 3(c)(4) of this Agreement.
(d) INVOLUNTARY TERMINATION. Notwithstanding anything herein
to the contrary, the Company shall have the right, at any time upon notice to
the Employee, to terminate the Employee's employment. If during the Employment
Period the Company terminates the
8
<PAGE> 9
Employee's employment other than for cause or disability it shall be deemed to
be an involuntary termination and the Company shall pay to the Employee the
following amounts:
(1) to the extent not theretofore paid, the Company
shall pay the Employee's Salary through the date of such involuntary termination
and, when calculated, the pro-rated Bonus (if any) as set forth in Section
3(c)(2)(C) above, in each case payable as and when such Salary and Bonus (if
any) would otherwise have been paid to the Employee; and
(2) the Company shall pay the Employee on the date of
such involuntary termination an amount equal to three (3) months of the
Employee's base Salary as severance pay.
(e) VOLUNTARY TERMINATION. The Employee agrees to provide the
Company with thirty (30) days' notice prior to voluntarily terminating his
employment. At the end of such 30-day period, this Agreement shall terminate
automatically and the Company shall have no further obligations to the Employee
under this Agreement, other than those obligations accrued, earned or vested by
the Employee as of the date of the termination. The Employee shall not be
entitled to any Bonus in respect of the year of termination in the event the
Employee's employment is terminated pursuant to this Section 5(e). In addition,
in the event such termination occurs prior to the one year anniversary of the
Effective Date, the Employee shall immediately repay to the Company any amounts
paid to the Employee pursuant to Section 3(c)(4) of this Agreement.
6. CONFIDENTIALITY.
(a) ACKNOWLEDGMENT AND PURPOSES. The Employee acknowledges
that he has learned, developed and had access to and during the Employment
Period, he will learn, develop and have access to Confidential Information
relating to the business and affairs of the Company and its affiliates. As used
in this Agreement, "Confidential Information" shall mean any and all trade
secrets and other confidential information concerning the Company and its
affiliates including, without limitation, information regarding the operations,
future plans, projected and historical sales, marketing, costs, production,
growth and distribution, any customer lists, customer information, information
relating to governmental relations and information relating to the products or
services, in each case whether patentable or not.
The Company is engaged in a highly competitive business; its
competitive position depends in great measure upon its ability to develop or
acquire and maintain the confidentiality of Confidential Information; and it may
have expended and is likely to continue to expend considerable efforts and
resources in the development or acquisition of Confidential Information. Based
upon the foregoing, the Employee recognizes that the unauthorized disclosure of
Confidential Information in violation of the terms hereof is likely to result in
serious and irrevocable harm to the Company.
9
<PAGE> 10
(b) RESTRICTIONS ON THE USE OF CONFIDENTIAL INFORMATION. The
Employee agrees and covenants as follows:
(i) All documents and other materials made or
compiled by or made available to the Employee prior to the date hereof or during
the Employment Period by the Company or any of its affiliates and any copies
thereof, whether or not containing Confidential Information, are and shall be
the property of the Company and shall, at the request of the Company be
delivered to the Company by the Employee immediately upon the conclusion of his
engagement as an Employee. Except as required in connection with the services to
be performed hereunder, the Employee agrees not to remove from the Company's
premises, without permission, any and all papers or drawings belonging to the
Company, including those prepared or worked on by him. The Employee will treat
as trade secrets all Confidential Information acquired by him prior to the date
hereof or during the Employment Period and shall not at any time use any
Confidential Information for his own benefit nor disclose it or any part of it
to any other person, firm or corporation not connected with the Company (i)
without the prior written consent of the Company or (ii) unless such disclosure
is required by law or in response to a legal order or (iii) unless such
Confidential Information has become generally available to the public other than
through the breach the Employee of the terms hereof.
(ii) All ideas, reports, and other creative works
conceived by the Employee during the Employment Period and relating to
Confidential Information, shall be disclosed to the Company and shall be the
sole property of the Company.
7. NON-COMPETITION.
(a) The Employee agrees that during the Employment Period and
for two (2) years thereafter (or, in the case of termination of the Employee's
employment pursuant to Section 5.(a) hereof and subject to Section 7(b) below,
for 6 months thereafter) (the "Non Compete Period") he will not, anywhere in the
world, directly or indirectly, engage or participate or make any financial
investments in or become employed by or render advisory or other services to or
for any person, firm or corporation, or in connection with any business activity
which directly or indirectly is in competition with any of the business
operations or activities of the Company or its affiliates as of the date of
termination of his employment or for any time prior thereto. Nothing herein
contained, however, shall restrict the Employee from making any investments in
any company (but without otherwise participating in the activities of such
company) whose stock is listed on a national securities exchange or actively
traded in the over-the-counter market, as long as such investment does not give
him the right to control or influence the policy decisions of any such business
or enterprise which is or might be directly or indirectly in competition with
any of such business operations or activities of the Company or its affiliates.
10
<PAGE> 11
(b) Notwithstanding Section 7(a) above, in the event that the
Employee's employment is terminated pursuant to Section 5(d) hereof, Kellstrom
shall have the right, in its sole discretion, to increase the term of the Non
Compete Period for up to an additional six (6) months, by paying the Employee an
amount equal to the Employee's base Salary that would be payable for such number
of additional months of the Non Compete Period. If Kellstrom intends to exercise
such option, it shall notify the Employee in writing of such intention within
thirty (30) days after the expiration or termination of this Agreement, which
notice shall specify the number of additional months of exclusivity that
Kellstrom intends to purchase pursuant to this Section 7(b).
8. RESTRICTION ON SOLICITATION. The Employee agrees that during the
Employment Period and for two (2) years thereafter he will not:
(i) directly or indirectly solicit, raid, entice or induce any
employee of the Company to become an employee of any person, firm or corporation
which is, directly or indirectly, in competition with the business or activities
of the Company or any of its affiliates or;
(ii) directly or indirectly approach any such employee for
these purposes;
(iii) authorize or knowingly approve the taking of such
actions by other persons on behalf of any such person, firm or corporation, or
assist any such person, firm or corporation in taking such action; or
(iv) directly or indirectly solicit, raid, entice or induce
any person, firm or corporation who or which on the date hereof is, or at the
time during his employment with the Company shall be, a customer of the Company
to become a customer for the same or similar products which it purchased from
the Company, of any other person, firm or corporation, and the Employee shall
not approach any such customer for such purpose or authorize or knowingly
approve the taking of such actions by any other person.
9. REMEDIES; OTHER ACKNOWLEDGMENTS. The Employee hereby acknowledges
that in the event of a breach or threatened breach by him of the provisions of
Sections 6, 7 or 8 of this Agreement, the Company would suffer irreparable harm
for which there would be no adequate remedy at law. Accordingly, the Employee
agrees that in such event, in addition to any other remedies which the Company
may have in law or in equity for money damages or other relief, the Company
shall be entitled to temporary and/or injunctive relief, without the necessity
of proving damages, to enforce the provisions hereof. In addition, the parties
hereto agree and acknowledge if any provision of Section 6, 7 or 8 as applied to
any party or to any circumstance is adjudged by a court to be invalid or
unenforceable, the same shall in no way affect any other circumstance or the
validity or enforceability of any other provision of this Agreement. If any such
provision, or
11
<PAGE> 12
any part thereof, is held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to reduce the duration and/or area of
such provision, and/or to delete specific words or phrases, and in its reduced
form, such provision shall then be enforceable and shall be enforced.
10. SUCCESSORS. This Agreement is personal to the Employee and without
the prior written consent of the Company may not be assigned by the Employee.
The Company may assign its rights and obligations hereunder, provided that the
Company will require the assignee to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such assignment had taken place.
11. BINDING ARBITRATION. In the event that the Company and the Employee
cannot agree on an interpretation of any provision of this Agreement, or in the
event that either of the parties fails to make any payments or otherwise fulfill
any obligations required by the terms of this Agreement, the Company and the
Employee agree to resolve any such dispute through arbitration in Broward
County, Florida, under the rules then obtaining of the American Arbitration
Association in the State of Florida. For the purposes of confirming any such
award and entering judgment thereon each party hereby submits to the exclusive
jurisdiction and venue of the state and federal courts located in Broward
County, Florida.
12. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, without regard to its
principles of conflict of laws.
(b) The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(c) All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been given if sent by
facsimile transmission, delivered by overnight or other carrier service, or
mailed, certified first class mail, postage prepaid, return receipt requested,
to the parties hereto at the following addresses:
If to the Company, to:
Kellstrom Industries, Inc.
1100 International Parkway
Sunrise, Florida 33323
Attn: Chief Executive Officer
12
<PAGE> 13
If to the Employee, to:
Robert V. Hogan
or to such other address as either party shall have furnished to the other in
accordance herewith.
(d) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(e) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(f) A party's failure to insist upon strict compliance with
any provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
(g) This Agreement embodies the entire agreement between the
Company and the Employee and supersedes all prior agreements and understandings,
oral or written, with respect to the subject matter hereof.
(h) This Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which, together, shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the Company and the Employee have caused
this Agreement to be executed and delivered as of the day and year first above
written.
KELLSTROM INDUSTRIES, INC.
By: /s/ Zivi R. Nedivi
---------------------------------------
Zivi R. Nedivi, President & CEO
/s/ Robert V. Hogan
---------------------------------------
Robert V. Hogan
13
<PAGE> 1
EXHIBIT 10.45
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
December 17, 1998, between Kellstrom Industries, Inc., a Delaware corporation,
having its principal place of business at 1100 International Parkway, Sunrise,
Florida 33323 (the "Company"), and Oscar Torres, an individual (the "Employee").
W I T N E S S E T H :
WHEREAS, the Company desires to provide for the employment of the
Employee, and the Employee desires to accept such employment, on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Company and the Employee hereby agree as follows:
1. Definitions.
(a) The "Board" shall mean the Board of Directors of the Company.
(b) The "Effective Date" shall mean January 4, 1999.
(c) The "Employment Period" shall mean the period commencing on the
Effective Date and continuing until the third year anniversary of the Effective
Date, unless earlier terminated in accordance with the terms of this Agreement.
(d) "GAAP" shall mean generally accepted accounting principles in the
United States as in effect from time to time.
(e) The "Executive Committee" shall mean the Executive Committee of the
Board of Directors of the Company.
2. Employment Period. The Company hereby agrees to employ the Employee,
and the Employee hereby agrees to be employed by the Company, for the duration
of the Employment Period and pursuant to the other terms and conditions provided
herein. This Agreement shall terminate at the end of the Employment Period,
unless earlier terminated under Section 5 below.
3. Terms of Employment.
(a) Position and Duties. During the Employment Period the Employee
shall serve as Director of Finance of the Company. The Employee shall perform
such duties as the Board of Directors, Chief Executive Officer and senior
officers of the Company shall from time to time determine. In the performance of
his duties, the Employee shall comply with the stated policies of the Company.
<PAGE> 2
(b) Location. The principal place of employment of the Employee shall
be the principal offices of the Company in Sunrise, Florida.
(c) Compensation.
(1) Base Salary. The Employee's annual salary (the "Salary") shall
be at the rate of $100,000 per annum, payable twice monthly, for the duration of
the Employee's employment hereunder.
(2) Regular Annual Company Bonus. Subject to paragraph (F) below,
for each calendar year commencing with the year ending December 31, 1999, during
which the Employee is employed by the Company:
(A) if the Company has Net Income (as hereinafter defined) for such
year of an amount equal to the Company's target net income as determined in the
sole discretion of the Board for such year (the "Target"), the Employee shall be
entitled to a bonus in the amount equal to $20,000.
(B) if the Company has Net Income for such year more than the
Target and less than 150% of the Target, the Employee shall be entitled to a
bonus as calculated below:
B = $20,000 + [$20,000 x (NI - T)]
---------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income of the Company for such year as
determined in accordance with GAAP.
(C) if the Company has Net Income for such year of 150% of the
Target or more, the Employee shall be entitled to a bonus of $30,000.
(D) if the Company has Net Income for such year of less than 50% of
the Target, the Employee shall not be entitled to a bonus.
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<PAGE> 3
(E) if the Company has Net Income for such year of at least 50% of
the Target but less than the Target, the Employee shall be entitled to a bonus
as calculated below:
B = $20,000 - [$20,000 x 2 x (T- NI)]
-----------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income of the Company for such year as
determined in accordance with GAAP.
(F) for any calendar year regarding which the Employee is entitled
to a Bonus under the foregoing provisions of this clause (ii) but during which
year the Employee did not work the entire calendar year, unless otherwise
provided herein, the Employee shall be entitled to a Bonus equal to the product
of the Bonus, as calculated under the foregoing provisions, multiplied by a
fraction, the numerator of which is the number of months during such calendar
year that the Employee was employed with the Company and the denominator of
which is twelve.
(3) Stock Options. Simultaneously with the commencement of the
Employment Period, the Company shall cause to be granted to the Employee an
option to purchase 20,000 shares of the common stock of Kellstrom Industries,
Inc., par value $.001 per share, of the Company at an exercise price per share
equal to the fair market value of the common stock on the date of the grant,
pursuant to an option agreement to be executed by the Company and the Employee.
(d) Benefits. In addition to the compensation payable to the Employee
as set forth in Section 3(c) above, during the Employment Period the Employee
shall be eligible for the following:
(i) Health Insurance. The Company shall provide health insurance
for the Employee and his dependents pursuant to such plans, if any, as
the Company provides to its contract employees generally. The provision
of the health insurance shall be subject to acceptance by the insurance
company of the Employee and his dependents to the Company's current
program or whatever other program the Board may decide to elect. The
Employee shall be solely responsible for all deductible and copayment
amounts due according to the health insurance. Upon termination of this
Agreement, all payments under this Section 3(d)(i) shall cease,
provided, however that the Employee shall be entitled to payments for
periods prior to the date of the termination and for which the Employee
has not yet been paid.
(ii) Other Benefits. The Employee shall be eligible for similar
incentive, stock option grants, 401(k), savings, welfare (including
without limitation medical and dental insurance) plans, practices,
policies and programs applicable on or after the Effective Date to
other contract employees of the Company as determined in the discretion
of the Board.
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<PAGE> 4
(e) Vacation. During the Employment Period, the Employee shall be
entitled to paid vacation in accordance with the policies and practices
applicable on or after the Effective Date to other officers of the Company,
provided that the Employee shall be entitled to a minimum of two (2) weeks of
paid vacation per full calendar year (pro rated if the Employee serves for less
than the full calendar year). Vacation accrued but unused at the end of a
calendar year may be carried over into the following calendar year or years,
provided that unused vacation days shall be accrued up to a maximum of six
weeks.
(f) Holidays and Sick Leave. The Employee shall be entitled to all
holidays that are prescribed by the Company's policies and practices. The
Employee shall be entitled to seven (7) days paid sick leave per year (pro rated
if the Employee serves for less than the full calendar year). Unused sick leave
days may not be carried over to the following calendar year or years.
(g) Expenses. The Company shall pay or reimburse the Employee for
reasonable expenses incurred or paid by him during the Employment Period in the
performance of his services under this Agreement upon presentation of expense
statements or such other supporting information as may be required for other
officers of the Company in accordance with the Company's policy.
4. Employee's Obligations and Representations; Indemnity.
(a) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Employee is entitled, the Employee agrees to devote
substantially all of his attention and time during normal business hours to the
business and affairs of the Company and to perform faithfully and efficiently
the responsibilities assigned to the Employee by the Company.
(b) The Employee represents and warrants to the Company that there are
no agreements or arrangements, whether written or oral, in effect which would
prevent the Employee from rendering exclusive service to the Company during the
Employment Period. The Employee further represents, warrants and agrees with the
Company that as of the Effective Date he has not made and will not make during
the Employment Period any commitment or do any act in conflict with this
Agreement, or take any action that might divert from the Company any opportunity
which would be in the scope of any present or future business of Kellstrom, the
Company or any subsidiary thereof.
(c) The Company shall indemnify and hold harmless the Employee from all
claims, losses, liabilities, damages and causes of action relating to or arising
out of the Employee's performance, duties and responsibilities to, for, or on
behalf of the Company to the extent provided by the Company's certificate of
incorporation and by-laws.
5. Termination.
(a) Death. This Agreement shall terminate automatically upon the
Employee's death. If the Employee's employment is terminated by reason of the
Employee's death, the Company shall have no further obligations to the
Employee's legal representatives under this Agreement, other than those
obligations accrued, earned or vested by the Employee as of the date
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<PAGE> 5
of his death.
(b) Disability. If the Company determines in good faith that the
Employee has a "disability" (as defined below), it may give the Employee written
notice of its intention to terminate the Employee's employment. In such event,
the Employee's employment with the Company shall terminate effective on the 30th
day after receipt by the Employee of such notice. No such notice of termination
by reason of disability shall be given until the Employee has experienced a
period of two consecutive months of disability and the disability is continuing.
The notice of termination shall not be effective if the Employee returns to
full-time performance of his duties prior to the expiration of the 30-day notice
period. For purposes of this Agreement, "disability" shall mean a physical or
mental condition which, two months after its commencement, is determined to be
total and permanent by a physician selected by the Company. The Employee shall
be entitled to all compensation and benefits provided for under this Agreement
during the two-month waiting period for the disability determination and during
the 30-day notice of termination period. In the event that the Company provides
long-term disability benefits for the Employee, such benefits shall not commence
until after the employment of the Employee has been terminated and the Company
has ceased paying the Employee compensation pursuant to the foregoing sentence.
If the Employee's employment is terminated by reason of the Employee's
disability, this Agreement shall terminate without further obligations to the
Employee or the Employee's legal representatives under this Agreement, other
than those obligations accrued, earned or vested by the Employee as of the date
of the termination. In addition, the Employee and the Employee's family shall be
entitled to receive benefits, including without limitation disability benefits,
at least equal to the most favorable benefits provided by the Company to other
contract employees of the Company based on the terms of the benefit plans
referenced in Section 3(d) of this Agreement as in effect on the date the
Employee's disability commenced.
(c) Cause. During the Employment Period, the Company may terminate the
Employee's employment for "cause", as determined by the Board and as defined
below. For purposes of this Agreement, "cause" shall mean:
(i) an act or acts of fraud, embezzlement or any other act that
would constitute a felony under the laws of the State of Florida taken by the
Employee;
(ii) repeated violations by the Employee of his obligations under
Section 4(a) of this Agreement which are not remedied within a reasonable period
of time after receipt of written notice from the Company of such violations or a
breach by the Employee of his representations or obligations under any of
Sections 3(a), 4(b), 7, 8 or 9 of this Agreement; or
(iii) the indictment of the Employee of a crime, where the Company
reasonably believes it would impair the Employee's ability to perform his
services under this Agreement.
If the Employee's employment is terminated for cause, this Agreement shall
terminate without further obligations to the Employee under this Agreement,
other than those obligations accrued, earned or vested by the Employee as of the
date of the termination. The Employee shall not be entitled to any bonus in
respect of the year of termination in the event the Employee's employment is
terminated for cause pursuant to this Section 5(c).
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<PAGE> 6
(d) Involuntary Termination. Notwithstanding anything herein to the
contrary, the Company shall have the right, at any time upon 30 days' prior
notice to the Employee, to terminate the Employment. If during the Employment
Period the Company terminates the Employee's employment other than for cause or
disability it shall be deemed to be an involuntary termination and the Company
shall pay to the Employee the following amounts:
(i) to the extent not theretofore paid, the Company shall pay the
Employee's Salary through the date of such involuntary termination and, when
calculated, the pro-rated Bonus as set forth in Section 3(c)(F) above; and
(ii) the Company shall pay the Employee on the date of such
involuntary termination an amount equal to two months of the Employee's Base
Salary and an amount equal to six months of the Employee's Base Salary in the
event of termination following a Change of Control; and
(iii) the Company shall pay in one cash lump sum any vacation days
accrued but unused as of the date of termination to be paid within 30 days of
such involuntary termination.
(e) Voluntary Termination. The Employee agrees to provide the Company
with 30 days notice prior to voluntarily terminating his employment. At the end
of such 30-day period, this Agreement shall terminate automatically and the
Company shall have no further obligations to the Employee under this Agreement,
other than those obligations accrued, earned or vested by the Employee as of the
date of the termination. The Employee shall not be entitled to any bonus in
respect of the year of termination in the event the Employee's employment is
terminated pursuant to this Section 5(e). The Employee acknowledges that he is
an integral and valuable employee to the Company and that the Company has
expended considerable time and effort in recruiting him and engaging him as an
employee of the Company.
6. Notice of Termination. Any notice of termination by the Company for
any reason or by the Employee for any reason shall be communicated by a written
notice which indicates (i) the specific termination provision in this Agreement
relied upon, (ii) the facts and circumstances claimed to provide a basis for
such termination, and (iii) the date or proposed date of termination.
7. Confidentiality
(a) Acknowledgement and Purposes. The Employee acknowledges that he has
learned, developed and had access to and during the Employment Period, he will
learn, develop and have access to Confidential Information relating to the
business and affairs of the Company and its affiliates. As used in this
Agreement, "Confidential Information" shall mean all trade secrets and other
confidential information concerning the Company and its affiliates including,
without limitation, information regarding the operations, future plans,
projected and historical sales, marketing, costs, production, growth and
distribution, any customer lists, customer information, information relating to
governmental relations, information relating to the products or services,
whether patentable or not.
-6-
<PAGE> 7
The Company is engaged in a highly competitive business; its
competitive position depends in great measure upon its ability to develop or
acquire and maintain the confidentiality of Confidential Information; and it may
have expended and is likely to continue to expend considerable efforts and
resources in the development or acquisition of Confidential Information.
Based upon the foregoing, the Employee recognizes that the unauthorized
disclosure of Confidential Information in violation of the terms hereof is
likely to result in serious and irrevocable harm to the Company.
(b) Restrictions on the Use of Confidential Information. The Employee
agrees and covenants as follows:
(i) All documents and other materials made or compiled by or made
available to the Employee prior to the date hereof or during the Employment
Period by the Company or any of its affiliates and any copies thereof, whether
or not containing Confidential Information, are and shall be the property of the
Company and shall, at the request of the Company be delivered to the Company by
the Employee immediately upon the conclusion of his engagement as an Employee.
Except as required in connection with the services to be performed hereunder,
the Employee agrees not to remove from the Company's premises, without
permission, any and all papers or drawings belonging to the Company, including
those prepared or worked on by him. The Employee will treat as trade secrets all
Confidential Information acquired by him prior to the date hereof or during the
Employment Period and shall not at any time use any Confidential Information for
his own benefit nor disclose it or any part of it to any other person, firm or
corporation not connected with the Company (i) without the prior written consent
of the Company or (ii) unless such disclosure is required by law or in response
to a legal order or (iii) unless such Confidential Information has become
generally available to the public other than through the breach the Employee of
the terms hereof.
(ii) All ideas, reports, and other creative works conceived by the
Employee during the Employment Period and relating to Confidential Information,
shall be disclosed to the Company and shall be the sole property of the Company.
8. Non-Competition. The Employee agrees that (a) during the Employment
Period and (b) unless the employment is terminated under Section 5(d) for two
(2) years thereafter he will not, anywhere in the world, directly or indirectly,
engage or participate or make any financial investments in or become employed by
or render advisory or other services to or for any person, firm or corporation,
or in connection with any business activity which directly or indirectly is in
competition with any of the business operations or activities of the Company or
its affiliates as of the date of termination of his employment or for any time
prior thereto. Nothing herein contained, however, shall restrict the Employee
from making any investments in any company (but without otherwise participating
in the activities of such company) whose stock is listed on a national
securities exchange or actively traded in the over-the-counter market, as long
as such investment does not give him the right to control or influence the
policy decisions of any such business or enterprise which is or might be
directly or indirectly in competition with any of such business operations or
activities of the Company or its affiliates.
-7-
<PAGE> 8
9. Restriction on Solicitation. The Employee agrees that during the
Employment Period and for two (2) years thereafter he will not:
(i) directly or indirectly solicit, raid, entice or induce any
employee of the Company to become an employee of any person, firm or corporation
which is, directly or indirectly, in competition with the business or activities
of the Company or,
(ii) directly or indirectly approach any such employee for these
purposes;
(iii) authorize or knowingly approve the taking of such actions by
other persons on behalf of any such person, firm or corporation, or assist any
such person, firm or corporation in taking such action; or
(iv) directly or indirectly solicit, raid, entice or induce any
person, firm or corporation who or which on the date hereof is, or at the time
during his employment with the Company shall be, a customer of the Company to
become a customer for the same or similar products which it purchased from the
Company, of any other person, firm or corporation, and the Employee shall not
approach any such customer for such purpose or authorize or knowingly approve
the taking of such actions by any other person.
10. Remedies. The Employee hereby acknowledges that in the event of a
breach or threatened breach by him of the provisions of Sections 7, 8 or 9 of
this Agreement, the Company would suffer irreparable harm for which there would
be no adequate remedy at law. Accordingly, the Employee agrees that in such
event, in addition to any other remedies which the Company may have in law or in
equity for money damages or other relief, the Company shall be entitled to
temporary and/or injunctive relief, without the necessity of proving damages, to
enforce the provisions hereof.
11. Successors. This Agreement is personal to the Employee and without
the prior written consent of the Company shall not be assignable by the
Employee. The Company may assign its rights and obligations hereunder, provided
that the Company will require the assignee to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such assignment had taken place.
12. Binding Arbitration. In the event that the Company and the Employee
cannot agree on an interpretation of any provision of this Agreement, or in the
event that either of the parties fails to make any payments or otherwise fulfill
any obligations required by the terms of this Agreement, the Company and the
Employee agree to resolve any such dispute through arbitration in Broward
County, Florida, under the rules then obtaining of the American Arbitration
Association in the State of Florida.
-8-
<PAGE> 9
13. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida.
(b) The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(c) All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been given if sent by
facsimile transmission, delivered by overnight or other carrier service, or
mailed, certified first class mail, postage prepaid, return receipt requested,
to the parties hereto at the following addresses:
If to the Company, to:
Kellstrom Industries, Inc.
1100 International Parkway
Sunrise, Florida 33323
Attn: Chief Executive Officer
If to the Employee, to:
Oscar Torres
or to such other address as either party shall have furnished to the other in
accordance herewith.
(d) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(e) The Company may withhold from any amounts payable under this
Agreement such federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(f) A party's failure to insist upon strict Compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
(g) This Agreement embodies the entire agreement between the Company
and the Employee and supersedes all prior agreements and understandings, oral or
written, with respect to the subject matter hereof.
(h) This Agreement may be executed in counterparts, each of which shall
be deemed an original and all of which, together, shall constitute one and the
same instrument.
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<PAGE> 10
IN WITNESS WHEREOF, the Employee has hereunto set his hand and,
pursuant to the authorization from the Board, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first above written.
KELLSTROM INDUSTRIES, INC.
By: /s/ Michael W. Wallace
-------------------------------------------
Michael W. Wallace, Chief Financial Officer
OSCAR TORRES
/s/ Oscar Torres
----------------------------------------------
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<PAGE> 1
Exhibit 10.46
AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is entered
into as of December 27, 1999, between Kellstrom Industries, Inc., a Delaware
corporation (the "Company"), and Oscar Torres, an individual (the "Employee").
RECITALS
The Company and the Employee are parties to that certain Employment
Agreement entered into as of December 17, 1998 (the "Employment Agreement"),
pursuant to which the Employee is employed as Vice President of Finance of the
Company. The Company and the Employee desire to amend the Employment Agreement
on the terms and conditions set forth in this Amendment.
TERMS OF AGREEMENT
In consideration of the above recitals and the mutual promises herein
contained, the Company and the Employee hereby agree as follows:
1. Effective as of January 1, 2000, Section 3(c)(2) of the Employment
Agreement is amended in its entirety by deleting such section and substituting
the following:
"(2) ANNUAL COMPANY BONUS. Subject to subparagraph (F) below,
for each calendar year commencing with the year ending December 31,
2000, at the end of which year the Employee is employed by the Company:
(A) If the Net Income (as hereinafter defined) of the
Company for such year is an amount equal to the Company's target net
income as determined in the sole discretion of the Board (or the
Executive Committee) for such year (the "Target"), the Employee shall
be entitled to a bonus in an amount of $20,000. For purposes of this
Agreement, "Net Income" shall mean actual net income, as determined by
the Company in its sole discretion in accordance with GAAP.
(B) If the Net Income of the Company for such year is
more than the Target and less than 125% of the Target, the Employee
shall be entitled to a bonus as calculated below:
<PAGE> 2
B = $20,000. + [$20,000. x 2 x (NI - T)]
------------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the Net Income of the Company for such year.
(C) If the Net Income of the Company for such year is
equal to or greater than 125% of the Target, the Employee shall be
entitled to a bonus in an amount of $30,000.
(D) If the Net Income of the Company for such year is
greater than 75% of the Target but less than the Target, the Employee
shall be entitled to a bonus as calculated below:
B = $20,000. - [$20,000. x 4 x (T - NI)]
------------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the Net Income of the Company for such year.
(E) If the Net Income of the Company for such year is
equal to or less than 75% of the Target, the Employee shall not be
entitled to a bonus.
(F) for any calendar year regarding which the
Employee is entitled to a bonus under the foregoing provisions of this
clause (2) but during which year the Employee did not work the entire
calendar year, unless otherwise provided herein, the Employee shall be
entitled to a bonus equal to the product of the bonus, as calculated
under the foregoing provisions, multiplied by a fraction, the
numerator of which is the number of months during such calendar year
that the Employee was employed with the Company and the denominator of
which is twelve."
2. Except as expressly amended hereby, all of the terms and conditions
of the Employment Agreement shall continue in full force and effect.
2
<PAGE> 3
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of Florida. This Amendment may be executed in any number
of counterparts, each of which shall be an original but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the day and year first above written.
KELLSTROM INDUSTRIES, INC.
By: /s/ W. Penny
---------------------------------------
Name: W. Penny
Title: VP HR
EMPLOYEE
/s/ Oscar E. Torres
-------------------------------------------
Oscar E. Torres
3
<PAGE> 1
Exhibit 10.47
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement (the "Amendment") is
entered into and effective as of March 31, 1999, between Kellstrom Industries,
Inc., a Delaware corporation (the "Company"), and Yoav Stern, an individual (the
"Employee").
RECITALS
The Company and the Employee are parties to that certain Employment
Agreement entered into as of March 30, 1999 (the "Employment Agreement")
pursuant to which the Employee is employed as Chairman of the Company. The
Company and the Employee have agreed to change the Employee's principal place of
employment, and desire to amend the Employment Agreement on the terms and
conditions set forth in this Amendment.
TERMS OF AGREEMENT
In consideration of the above recitals and the mutual promises herein
contained, the Company and the Employee hereby agree as follows:
1. Section 3(b) of the Employment Agreement is amended in its entirety
by deleting such section and substituting the following:
"(b) LOCATION. The principal place of employment of the
Employee shall be in Sunrise, Florida; PROVIDED, HOWEVER, that the
Employee will be required to spend a substantial portion of his time in
New York, New York, when, as and to the extent necessary or advisable
to fulfill his obligations hereunder."
2. Except as expressly amended hereby, all of the terms and conditions
of the Employment Agreement shall continue in full force and effect.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York. This Amendment may be executed in any number
of counterparts, each of which shall be an original but all of which taken
together shall constitute one and the same instrument.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the day and year first above written.
KELLSTROM INDUSTRIES, INC.
By: /s/ Michael W. Wallace
---------------------------------------
Michael W. Wallace
Chief Financial Officer
EMPLOYEE
/s/ Yoav Stern
-------------------------------------------
Yoav Stern
2
<PAGE> 1
Exhibit 10.48
AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is entered
into as of December 27, 1999, between Kellstrom Industries, Inc., a Delaware
corporation (the "Company"), and Yoav Stern, an individual (the "Employee").
RECITALS
The Company and the Employee are parties to that certain Employment
Agreement entered into as of March 30, 1999 (the "Employment Agreement"),
pursuant to which the Employee is employed as Chairman of the Company. The
Company and the Employee desire to amend the Employment Agreement on the terms
and conditions set forth in this Amendment.
TERMS OF AGREEMENT
In consideration of the above recitals and the mutual promises herein
contained, the Company and the Employee hereby agree as follows:
1. Effective as of January 1, 2000, Section 3(c)(ii) of the Employment
Agreement is amended in its entirety by deleting such section and substituting
the following:
"(ii) ANNUAL COMPANY BONUS. For each calendar year commencing
with the year ending December 31, 2000, at the end of which year the
Employee is employed by the Company:
(A) If the Net Income (as hereinafter defined) of the
Company for such year is an amount equal to the Company's target net
income as determined in the sole discretion of the Board (or the
Executive Committee) for such year (the "Target"), the Employee shall
be entitled to a bonus in an amount equal to the Salary of the Employee
as of December 31 of such year (the "Target Bonus"). For purposes of
this Agreement, "Net Income" shall mean actual net income, as
determined by the Company in its sole discretion in accordance with
GAAP.
(B) If the Net Income of the Company for such year is
more than the Target and less than 125% of the Target, the Employee
shall be entitled to a bonus as calculated below:
<PAGE> 2
B = Target Bonus + [Target Bonus x 2 x (NI - T)]
------------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the Net Income of the Company for such year.
(C) If the Net Income of the Company for such year is
equal to or greater than 125% of the Target, the Employee shall be
entitled to a bonus in an amount equal to 150% of the Target Bonus.
(D) If the Net Income of the Company for such year is
greater than 75% of the Target but less than the Target, the Employee
shall be entitled to a bonus as calculated below:
B = Target Bonus - [Target Bonus x 4 x (T - NI)]
------------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the Net Income of the Company for such year.
(E) If the Net Income of the Company for such year is
equal to or less than 75% of the Target, the Employee shall not be
entitled to a bonus."
2. Except as expressly amended hereby, all of the terms and conditions
of the Employment Agreement shall continue in full force and effect.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of Florida. This Amendment may be executed in any number
of counterparts, each of which shall be an original but all of which taken
together shall constitute one and the same instrument.
[SIGNATURES ON FOLLOWING PAGE]
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the day and year first above written.
KELLSTROM INDUSTRIES, INC.
By: /s/ W. Penny
---------------------------------------
Name: W. Penny
Title: VP HR
EMPLOYEE
/s/ Yoav Stern
-------------------------------------------
Yoav Stern
3
<PAGE> 1
EXHIBIT 10.49
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
September 10, 1997, between Aero Support Holdings, Inc., a Delaware corporation,
having its principal place of business at 44 Hudson Street, New York, New York
10013 (the "Company"), and Mordechai Markowicz, an individual (the "Employee").
W I T N E S S E T H :
WHEREAS, Aero Support USA Inc. ("Aero"), a New York corporation, and
the Employee, Zvi BAR-ON AND MICHAEL Navon, the owners of all the outstanding
capital stock of Aero (the "Principals"), on the one hand, and Kellstrom
Industries, Inc. ("Kellstrom"), a Delaware corporation, having its principal
place of business at 14000 Northwest 4th Street, Sunrise, Florida 33325, and the
Company, a wholly-owned subsidiary of Kellstrom., on the other hand, have
entered into a Purchase Agreement, dated as of September 10, 1997 (the "Purchase
Agreement"), pursuant to which Kellstrom has agreed to acquire, through the
Company, substantially all of the assets of Aero;
WHEREAS, the Employee is a principal executive of Aero with unique and
special skills, and as a material inducement to Kellstrom to enter into the
Purchase Agreement, the Employee has agreed to be employed by the Company
pursuant to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Company and the Employee hereby agree as follows:
1. Definitions.
(a) The "Board" shall mean the Board of Directors of the Company.
(b) The "Effective Date" shall mean September 10, 1997.
(c) The "Employment Period" shall mean the period commencing on the
Effective Date and ending on the third anniversary of the Effective Date.
(d) The "Executive Committee" shall mean the Executive Committee of the
Board of Directors of Kellstrom.
(e) "GAAP" Shall mean generally accepted accounting principles in the
United States as in effect from time to time.
<PAGE> 2
2. Employment Period. The Company hereby agrees to employ the Employee,
and the Employee hereby agrees to be employed by the Company, for the duration
of the Employment Period and pursuant to the other terms and conditions provided
herein. This Agreement shall terminate at the end of the Employment Period,
unless earlier terminated under Section 5 below.
3. Terms of Employment.
(a) Position and Duties,. During the Employment Period the Employee
shall serve as an Executive Vice President of the Company. The Employee shall
perform such duties as the Board or Chief Executive Officer of the Company shall
from time to time determine, consistent with Employee's duties in respect of his
employment with the Company through the date hereof and with his position as an
Executive Vice President. In the performance of his duties, the Employee shall
comply with the stated policies of the Company.
(b) Relocation. The principal place of employment of the Employee shall
be the principal offices of the Company, which shall be maintained in New York
City until at least June 30, 1998. Following such date, the Company may relocate
the Employee to a location of Kellstrom in Florida, in which case, it shall
reimburse the Employee for reasonable moving expenses actually incurred up to
$10,000.
(c) Compensation.
(i) Base Salary. The Employee's annual salary (the "Salary") shall
be at the rate of $140,000 per annum, payable twice monthly, for the duration of
the Employee's employment hereunder. During the Employment Period, the
Employee's Salary may be reviewed and changed by the Board of Directors;
however, the Company shall not pay the Employee a Salary less than such amount
during the Employment Period.
(ii) Annual Company Bonus . Subject to paragraph (F) below, for
each calendar year commencing with the year ending December 31, 1998, during
which the Employee is employed by the Company:
(A) if Kellstrom has Net Income (as hereinafter defined) for such
year of an amount equal to Kellstrom's target net income as determined in the
sole discretion of THE BOARD OF DIRECTORS of Kellstrom (or the Executive
Committee) for such year, which target shall be no higher than the target
established for Kellstrom's other officers (the "Target"), the Employee shall be
entitled to a bonus in the amount equal to $100,000.
-2-
<PAGE> 3
(B) if Kellstrom has Net Income for such year more than the Target
and less than 150% of the Target, the Employee shall be entitled to a bonus as
calculated below:
B $100,000 + ($100,000 x (NI-T)]
-----
T
where:
13 = the bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income of Kellstrom for such year as determined
in accordance with GAAP.
(C) if Kelstrom has Net Income for -such year of 150% of the Target
or more, the Employee shall be entitled to a bonus of $150,000.
(D) if Kellstrom has Net Income for such year of less than 50% of
the Target, the Employee shall not be entitled to a bonus.
(E) if Kellstrom has Net Income for such year of at least 50% of
the Target but less than the Target, the Employee shall be entitled to a bonus
as calculated below:
B $100,000 - [$100,000 x 2 x(T-N1)]
-----
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income of Kellstrom for such year as determined
in accordance with GAAP.
(F) for any calendar year regarding which the Employee is entitled
to a Bonus UNDER THE FOREGOING PROVISIONS of this clause (ii) but during which
year the Employee did not work the entire calendar year, the Employee shall be
entitled to a Bonus equal to the product of the Bonus, as calculated under the
foregoing provisions, multiplied by a fraction, the numerator of which is the
number of months during such calendar year that the Employee was employed with
the Company and the denominator of which is twelve. For purposes of calculating
the Bonus, if any, of Employee for the year ending December 31, 1998 (and for no
other purposes) the Employee shall be deemed to have commenced employment
hereunder on September 10, 1998.
-3-
<PAGE> 4
(d) Benefits. In addition to the compensation payable to the Employee
as set forth in Section 3(b) above, during the Employment Period the Employee
shall be eligible, if so determined in the sole discretion of the Board of
Directors of Kellstrom (or the Executive Committee), for similar health
insurance, pension plan, incentive, stock option grants, savings, welfare
(including without limitation medical and dental insurance) plans, practices,
policies and programs on or after the Effective Date applicable generally to
employees of Kellstrom or such plans, practices, policies and programs
applicable generally to employees of Aero prior to the Effective Date, or a
combination thereof Exhibit , annexed hereto, includes a list of those benefit
plans or programs applicable generally to employees of Kellstrom, and in which,
so long as such plans (as they may from time to time be amended, modified or
replaced) are maintained, the Employee shall be entitled to participate.
(e) Vacation . During the Employment Period, the Employee shall be
entitled to paid vacation in accordance with the policies and practices
applicable on or after the Effective Date to other officers of the Company,
provided hat the Employee shall be entitled to a minimum of three (3) weeks of
paid vacation per full calendar year (pro rated if the Employee serves for less
than the full calendar year). Vacation accrued but unused at the end of a
calendar year may be carried over into the following calendar year or years
provided that unused vacation days shall be accrued up to a maximum of six
weeks.
(f) Holidays and Sick Leave. The Employee shall be entitled to all,
holidays that are prescribed by the Company's policies and practices. The
Employee shall be entitled to 6 days paid sick leave per year. Unused sick leave
days may not be carried over to the following calendar year or years.
(g) automobile. During the Employment Period, the Company shall make
available to the Employee an automobile similar to the automobiles currently
made available to other officers of Kellstrom with similar seniority, and the
Company shall pay or reimburse the Employee for 0 expenses of insurance,
maintenance and operation of such automobile, it being understood that the
current Lexus automobile being leased by Employee complies with the foregoing
specifications and the Company shall reimburse Employee for payments under the
lease for such automobile during the Employment Period. In the event that the
Employee's employment is terminated under Section 5(d) or 5(e) prior to the end
of the Employment Period, the Company shall continue to reimburse Employee for
payments under the automobile lease described above THROUGH THE THIRD
ANNIVERSARY of the Effective Date.
(h) EXPENSES. The Company shall pay or reimburse the Employee for
reasonable expenses incurred or paid by him during the Employment Period in the
performance of his services under this Agreement upon presentation of expense
statements or such other supporting information as may be required for other
officers of Kellstrom in accordance with Kellstrom's policy.
-4-
<PAGE> 5
(i) Life Insurance. The Company shall assume and maintain the life
insurance policy with The Equitable Life Assurance Society of, the United States
on the life of the Employee in the amount of $1,000,000 and will pay the premium
on such policy during the Employment Period.
4. Employees Obligations and Representations Indemnity.
(a) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Employee is entitled, the Employee agrees to devote
substantially all of his attention and time during normal business hours to the
business and affairs of the Company and to perform faithfully and efficiently
the responsibilities assigned to the Employee by the Company.
(b) The Employee represents and warrants to the Company that there are
no agreements or arrangements, whether written or oral, in effect which would
prevent the Employee from rendering exclusive service to the Company during the
Employment Period. The Employee further represents, warrants and agrees with the
Company that as of the Effective Date he has not made and will not make during
the Employment Period any commitment or do any act in conflict with this
Agreement, or take any action that might divert from the Company any opportunity
which would be in the scope of any present or future business of the Company or
any subsidiary thereof.
(c) The Company shall indemnify and hold harmless the Employee from
all I claims, losses, liabilities, damages and causes of action relating to or
arising out of the Employee's performance, duties and responsibilities to, for,
or on behalf of the Company to the extent provided by the Company's certificate
of incorporation and by laws.
5. Termination.
(a) Death. This Agreement shall terminate automatically upon the
Employee's death. If the Employee's employment is terminated by reason of the
Employee's death, the Employee's legal representative shall be entitled to
receive W the Employee's full Salary through the last day of the month in which
his death occurs, payable as and when such Salary would otherwise have been
payable to the Employee, and (ii) an amount equal to the Employee's Annual
Company Bonus, pro rated through the date of the Employee's death in accordance
with Section 3(c)(ii)(F), payable when such bonus would otherwise have been paid
to the Employee.
(b) DISABILITY If the Company determines in good faith that the
Employee has a "disability" (as defined below), it may give the Employee written
notice of its intention to terminate the Employee's employment. In such event,
the Employee's employment with the Company shall terminate effective on the 30th
day after receipt by the Employee of such notice. No such notice of termination
by reason of disability shall be given until the Employee has experienced a
period of two consecutive months of disability and the disability is continuing.
The notice of termination shall not be
-5-
<PAGE> 6
effective if the Employee returns to full-time performance of his duties prior
to the expiration of the 30-day notice period. For purposes of this Agreement,
"disability' shall mean a physical or mental condition which, two months after
its commencement, is determined by a physician selected by the Company to be a
total and permanent condition which substantially prevents Employee from
performing the services to be provided by him hereunder. The Employee shall be
entitled to all compensation and benefits provided for under this Agreement
during the two-month waiting period for the disability determination and during
the 30-day notice of termination period. In the event that the Company provides
long-term disability benefits for the Employee, such benefits shall not commence
until after the employment of the Employee has been terminated and the Company
has ceased paying the Employee compensation pursuant to the foregoing sentence.
If the Employee's employment is terminated by reason of the Employee's
disability, this Agreement shall terminate without further obligations to the
Employee or the Employee's legal representatives under this Agreement, other
than those obligations accrued, earned or vested by the Employee as of the date
of the termination, including, without limitation, an amount equal to the
Employee's Annual Company bonus, pro rated through the date of termination in
accordance with Section 3(c)(ii)(F), payable when such bonus would otherwise
have been paid to the Employee.
(c) Cause. During the Employment Period, the Company may terminate the
Employee's employment for "cause", as determined by Kellstrom's Board of
Directors (or the Executive Committee) and as defined below. For purposes of
this Agreement, "cause" shall mean:
(i) an act or acts of fraud, embezzlement or any other act that
would constitute a felony under the laws of the state of New York taken by the
Employee;
(ii) repeated violations by the Employee of his obligations under
Section 4(a) of this Agreement which are not remedied within a reasonable period
of time after receipt of written notice from the Company of such violations or a
breach by the Employee of his representations or obligations under any of
Section 4(b), 6, 7 or 8 of this Agreement; or
(iii) the indictment of the Employee of a crime, where the Company
reasonably believes it would impair the Employee's ability to perform his
services under this Agreement.
If the Employee's employment is terminated for cause, this Agreement shall
terminate without further obligations to the Employee under this Agreement,
other than those obligations accrued, earned or vested by the Employee as of the
date of the termination. The Employee shall not be entitled to any Bonus in
respect of the year of termination in the event the Employee's employment is
terminated for cause pursuant to this Section 5(c).
(d) Involuntary Termination Notwithstanding anything herein to the
contrary, the Company shall have the right, at any time upon NOTICE TO the
Employee,
-6-
<PAGE> 7
to terminate the Employment. If during the Employment Period the Company
terminates the Employee's employment other than for cause or disability it shall
be deemed to be an involuntary termination and the Company shall pay to the
Employee the following amounts:
(i) to the extent not theretofore paid, the Company shall pay the
Employee's Salary through the date of such involuntary termination;
(ii) the Company shall pay the Employee an amount equal to the
Employee's Annual Company Bonus, pro rated through the date of such involuntary
termination in accordance with Section 3(c)(ii)(F), payable when such bonus
would otherwise have been paid to the Employee;
(iii) the Company shall pay the Employee on the date of such
involuntary termination an amount equal to one month of the Employee's Salary
for every 12 months that the Employee was employed under this Agreement; and
(iv) the Company shall pay cash in a lump sum as compensation for
any vacation days accrued but unused as of the date of termination to be paid
within 30 days of such involuntary termination.
(e) Good Reason. During the Employment Period, the Employee may
terminate his employment for "good reason" as defined below. For purposes of
this Agreement, "good reason" shall mean:
(i) the assignment to the Employee of any duties materially
inconsistent in any respect with Employee's position, duties and
responsibilities as set forth in Section 3(a) of this Agreement or any action by
the Company which materially results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose any isolated,
insubstantial and inadvertent action by the Company which is not taken in bad
faith and which is remedied by the Company promptly after receipt of notice
thereof given by the Employee; or
(ii) any failure by the Company to comply with any of the
provisions of Sections 3(b) through 3(h) of this Agreement regarding the
Employee's compensation, benefits, vacation, holidays and sick leave other than
an isolated, INSUBSTANTIAL AND INADVERTENT action by the Company which is not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Employee; or
(iii) the Company requiring the Employee to be based at any
office or location other than that described in Section 3(b) of this Agreement,
except for travel reasonably required in the performance of Employee's
responsibilities.
-7-
<PAGE> 8
In the event that the Employee terminates his employment for good reason as
defined in this Section 5(e), it shall be deemed to be an "involuntary
termination" as set forth in Section 5(d) above and the Employee shall be
entitled to (i) all payments and obligations set forth in Sections 5(d)(i)
through 5(d)(iv) of this Agreement as if the Employee's employment had been
involuntarily terminated.
(f) Voluntary Terminated The Employee agrees to provide the Company
with 15 days notice prior to voluntarily terminating his employment (other than
for "good reason" as defined in Section 5(e) above). At the end of such 15-day
period, this Agreement shall terminate automatically and the Company shall have
no further obligations to the Employee under this Agreement, other than those
obligations accrued, earned or vested by the Employee as of the date of the
termination. The Employee shall not be entitled to any Bonus in respect of the
year of termination in the event the Employee's employment is terminated
pursuant to this Section 5(f).
(g) Additional Payments under Purchase Agreement. Anything contained in
this Agreement to the contrary notwithstanding, the termination of this
Agreement for any reason, whether pursuant to the terms and conditions of this
Agreement or otherwise at law or in equity, prior to its expiration by its terms
shall not affect the Employee's right to receive and retain all Additional
Payments to which he is entitled under the Purchase Agreement, except to the
extent specifically set forth therein.
6. Confidential
(a) Acknowledgement and Purposes. The Employee acknowledges that, with
respect to Aero, he has learned, developed and had access to, and with respect
to the Company and Kellstrom during the Employment Period, he will learn,
develop and have access to Confidential Information relating to the business and
affairs of the Company and Kellstrom. As used in this Agreement, "Confidential
Information" shall mean all trade secrets and other confidential information
concerning the business and affairs of Aero, the Company and Kellstrom
including, without limitation, information regarding the operations, future
plans, projected and historical sales, marketing, costs, production, growth and
distribution, any customer lists, customer information, information relating to
governmental relations, information relating to the products or services,
whether patentable or not.
The Company, Aero and Kellstrom are engaged in a highly competitive
business; their competitive position depends in great measure upon the ability
to develop or acquire and maintain the confidentiality of Confidential
Information; and they may have EXPENDED AND ARE likely to continue to expend
considerable efforts and resources in the development or acquisition of
Confidential Information. Based upon the foregoing, the Employee recognizes that
the unauthorized disclosure of Confidential Information in violation of the
terms hereof is likely to result in serious and irrevocable harm to the Company,
Aero and Kellstrom.
-8-
<PAGE> 9
(b) Restrictions on the Use of Confidential information. The Employee
agrees and covenants as follows:
(i) All documents and other materials made or compiled by or made
available to the Employee prior to the date hereof by Aero or during the
Employment Period by the Company and Kellstrom and any copies thereof, whether
or not containing confidential Information, are and shall be the property of the
Company and Kellstrom, respectively and shall, at the request of the Company or
Kellstrom, be delivered to the Company or Kellstrom by the Employee immediately
upon the conclusion of his engagement as an Employee. Except as required in
connection with the services to be performed hereunder, the Employee agrees not
to remove from the Company's premises, without permission, any and all papers or
drawings belonging to the Company, including those prepared or worked on by him.
The Employee will treat as trade secrets all Confidential Information acquired
by him prior to the date hereof with respect to Aero or during the Employment
Period with respect to the Company and Kellstrom, and shall not at any time use
any Confidential Information for his own benefit nor disclose it or any part of
it to any other person, firm or corporation not connected with the Company (i)
without the prior written consent of the Company or (ii) unless such disclosure
is required by law or in response to a legal order or (iii) unless such
Confidential Information has become generally available to the public other than
through the breach the Employee of the terms hereof
(ii) All ideas, reports, and other creative works conceived by the
Employee during the Employment Period and relating to Confidential Information',
shall be disclosed to the Company and shall be the sole property of the Company.
7. Non-Competition. The Employee agrees that (a) during the Employment
Period and (b) unless the employment is terminated under Section 5(d) or 5(e),
for two (2) years thereafter (or, in the case of termination under Section 5(d)
or 5(e), for 6 months thereafter) he will not, anywhere in the world, directly
or indirectly, engage or participate or make any financial investments in or
become employed by or render advisory or other services to or for any person,
firm or corporation, or in connection with any business activity which directly
or indirectly is in competition with any of the business operations or
activities of the Company or Kellstrom as of the date of termination of his
employment, or of the Company, Kellstrom or Aero for any time prior thereto.
Nothing herein contained, however, shall restrict the Employee from making any
investments in any company (but without otherwise participating in the
activities of such company) whose stock is listed on a national securities
exchange or actively traded in the over-the-counter market, as long as such
investment does not give him the right to control or influence the policy
decisions of any such business or enterprise which is or might be directly or
indirectly in competition with any of such business operations or activities of
the Company or Kellstrom.
Termination of this Agreement or the provisions of this Section 7 shall
in no way affect or diminish the obligations of the Employee pursuant to the
non-competition requirements contained in the Purchase Agreement.
-9-
<PAGE> 10
8. Restriction on Solicitation. The Employee agrees that (a) during the
Employment Period and (b) unless the employment is terminated Under Sections
5(d) or 5(e), for two (2) years thereafter (or, in the case of termination under
Section 5(d) or 5(e), for 6 months thereafter) he will not:
(i) directly or indirectly solicit, raid, entice or induce any
employee of the Company or Kellstrom to become an employee of any person, firm.
or corporation which is, directly or indirectly, in competition with the
business or activities of Aero, the Company or Kellstrom;
(ii) directly or indirectly approach any such employee for these
purposes;
(iii) authorize or knowingly approve the taking of such actions by
other persons on behalf of any such person, firm or corporation, or assist any
such person, firm or corporation in taking such action; or
(iv) directly or indirectly solicit, raid, entice or induce any
person, firm or corporation who or which on the date hereof is, or at the time
During his employment with the Company or Kellstrom shall be, a customer of the
Company or Kellstrom. to become a customer for the same or similar products
which it purchased from the Company or Kellstrom, of any other person, firm or
corporation, and the Employee shall not approach any such customer for such
purpose or authorize or knowingly approve the taking of such actions by any
other person.
9. Remedies. The Employee hereby acknowledges that in the event of a
breach or threatened breach by him of the provisions of Section 6, 7 or 8 of
this Agreement, the Company or Kellstrom would suffer irreparable harm for which
there would be no adequate remedy at law. Accordingly, the Employee agrees that
In such event, in addition to any other remedies which the Company or Kellstrom
may have in law or in equity for money damages or other relief, the Company or
Kellstrom shall be entitled to temporary and/or injunctive relief, without the
necessity of proving damages to enforce the provisions hereof
10. Successors. This Agreement is personal to the Employee and without
the prior written consent of the Company shall not be assignable by the
Employee. The COMPANY MAY ASSIGN ITS RIGHTS and obligations hereunder, provided
that the Company will require the assignee to assume expressly and agree to
perform this Agreement in the SAME MANNER AND TO THE same extent that the
Company would be required to perform if no such assignment had taken place.
11. Binding Arbitration. In the event that the Company and the Employee
cannot agree on an interpretation of any provision of this Agreement, or in the
event that either of the parties fails to make any payments or otherwise fulfill
any obligations required by the terms of this Agreement, the Company and the
Employee agree to
-10-
<PAGE> 11
resolve any such dispute through arbitration in Broward County, Florida, under
the rules then obtaining of the American Arbitration Association in the State of
Florida.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
(b) The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(c) All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been given if sent by facsimile
transmission, delivered by overnight or other carrier service, or mailed,
certified first class mail, postage prepaid, return receipt requested, to the
parties hereto at the following addresses:
If to the Company, to:
Aero Support Holdings, Inc.
44 Hudson Street
New York, New York 10013
Attn: Chief Executive Officer Telecopier:
If to the Employee, to:
Mordechai Markowicz
or to such other address as either party shall have furnished to the other in
accordance herewith.
(d) The invalidity or enforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(e) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
-11-
<PAGE> 12
(f) A party's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
(g) This Agreement embodies the entire agreement between the Company
and the Employee and supersedes all prior agreements and understandings, oral or
written, with respect to the subject matter hereof.
(h) This Agreement has been duly authorized by all required action on
behalf of the Company, is a valid and binding obligation of the Company, is
enforceable against the Company in accordance with its terms, and does not
violate the Company's Certificate of Incorporation, by-laws, or any material
agreement to which the Company is a party or by which it may be bound, or any
laws or regulations applicable to the Company.
(i) This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which, together, shall constitute one and
the same instrument.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the Employee has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its NAME ON its behalf, all as of the
day and year first above written.
AERO SUPPORT HOLDINGS, INC.
By: /s/ Zivi R. Nedivi
-------------------------------------
Zivi R. Nedivi
President
EMPLOYE
/s/ Mordechai Markowicz
-----------------------------------------
Mordechai Markowicz
The undersigned, Kellstrom Industries, Inc., hereby guarantees all
payments and obligations of the Company and its assignees under this Agreement,
and hereby waives, to the extent permitted by applicable law, any circumstance
which might constitute a legal or equitable discharge, release or defense of a
guarantor or surety, or which might otherwise limit recourse against Kellstrom
(it being understood that the obligations of Kellstrom hereunder shall, not be
discharged except by payment or performance as herein provided). Nothing herein
shall constitute a waiver by Kellstrom of any defense that the Company may have
as a result of a breach by the Employee of his obligations under the Employment
Agreement.
KELLSTROM IND STRIES, INC.
By: /S/ Zivi R. Nedivi
-------------------------------------
Zivi R. Nedivi
President
<PAGE> 14
Exhibit A
KELLSTROM INDUSTRIES, INC.
BENEFITS
(i) Automobile and related expenses of automobile insurance, maintenance
and operation
(ii) Fully paid medical and dental insurance (iii) All business travel
expenses:
(A) Employee may retain frequent flyer mileage and hotel points
(B) Employee may fly business class for international travel
(C) Employee may fly coach class for domestic travel but the
Company will pay for "upgrade stickers"
(iv) Participation in future employee stock option plans
(V) Cellular phones and related expenses
(vi) Participation in 401K plan, if any (anticipated for 1998)
-14-
<PAGE> 1
Exhibit 10.50
AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is entered
into as of December 27, 1999, between Kellstrom Industries, Inc., a Delaware
corporation (the "Company"), and Mordechai Markowicz, an individual (the
"Employee").
RECITALS
The Company (as successor-in-interest to Aero Support Holdings, Inc., a
Delaware corporation) and the Employee are parties to that certain Employment
Agreement entered into as of September 10, 1997 (the "Employment Agreement"),
pursuant to which the Employee is employed as a Senior Vice President of the
Company. The Company and the Employee desire to amend the Employment Agreement
on the terms and conditions set forth in this Amendment.
TERMS OF AGREEMENT
In consideration of the above recitals and the mutual promises herein
contained, the Company and the Employee hereby agree as follows:
1. Section 1 of the Employment Agreement is hereby amended by adding
the following additional definitions:
"The Company Target shall mean, with respect to any period,
the target net income of the Company for such period as determined in
the sole discretion of the Board (or the Executive Committee).
The Division shall mean the Certified division of the Company,
as determined by the Board in its sole discretion.
The Division Target shall mean, with respect to any period,
the target net income of the Division, before taxes and corporate
overhead allocations, for such period as determined in the sole
discretion of the Board (or the Executive Committee).
Divisional Net Income shall mean, with respect to any
period, the actual net income, before taxes and corporate overhead
allocations, of the Division for such period as determined by the
Company in its sole discretion.
<PAGE> 2
Net Income shall mean, with respect to any period, actual
net income for such period as determined by the Company in its sole
discretion in accordance with GAAP.
2. Section 3(a) of the Employment Agreement is hereby amended to
reflect that the Employee is employed as a Senior Vice President of the Company.
3. Section 3(c)(i) of the Employment Agreement is hereby amended to
reflect that, effective as of January 1, 2000, the Employee's Salary shall be
$165,000 per annum.
4. Effective as of January 1, 2000, Section 3(c)(ii) of the Employment
Agreement is amended in its entirety by deleting such section and substituting
the following:
"(ii) ANNUAL BONUS. Subject to subsection (C) below, for each
calendar year during the Employment Period commencing with the year
ending December 31, 2000, at the end of which year the Employee is
employed by the Company, the Company shall be eligible to be paid a
bonus, a portion of which shall be computed based upon the Company's
Net Income as compared to the Company Target for such year (the
"Company Bonus"), and a portion of which shall be computed based upon
Divisional Net Income as compared to the Division Target for such year
(the "Division Bonus"). The bonus payable, if any, with respect to any
calendar year shall be the sum of the Company Bonus and the Division
Bonus payable for such year.
(A) COMPANY BONUS. The Company Bonus, if any, payable
on account of any calendar year shall be computed as follows:
(i) if the Net Income of the Company for
such year is an amount equal to the Company Target for such year, the Employee
shall be entitled to a Company Bonus in the amount of $37,500.
(ii) if the Net Income of the Company for
such year is more than the Company Target and less than 125% of the Company
Target, the Employee shall be entitled to a Company Bonus as calculated below:
CB = $37,500 + [$37,500 x 2 x (NI - CT)]
------------
CT
where:
CB = the Company Bonus earned in such year.
CT = the Company Target for such year.
NI = the Net Income of the Company for such year.
2
<PAGE> 3
(iii) If the Net Income of the Company for
such year is equal to or greater than 125% of the Company Target, the Employee
shall be entitled to a Company Bonus in the amount of $56,250.
(iv) If the Net Income of the Company for
such year is greater than 75% of the Company Target but less than the Company
Target, the Employee shall be entitled to a Company Bonus as calculated below:
CB = $37,500 - [$37,500 x 4 x (CT - NI)]
------------
CT
where:
CB = the Company Bonus earned in such year.
CT = the Company Target for such year.
NI = the Net Income of the Company for such year.
(v) If the Net Income of the Company for
such year is equal to or less than 75% of the Company Target, the Employee shall
not be entitled to a Company Bonus.
(B) DIVISION BONUS. The Division Bonus, if any,
payable on account of any calendar year shall be computed as follows:
(i) if the Divisional Net Income for such
year is an amount equal to the Division Target for such year, the Employee shall
be entitled to a Division Bonus in the amount of $37,500.
(ii) if the Divisional Net Income for such
year is more than the Division Target and less than 125% of the Division Target,
the Employee shall be entitled to a Division Bonus as calculated below:
DB = $37,500 + [$37,500 x 2 x (NI - DT)]
-------------
DT
where:
DB = the Division Bonus earned in such year.
DT = the Division Target for such year.
NI = Divisional Net Income for such year.
3
<PAGE> 4
(iii) If the Divisional Net Income for such
year is equal to or greater than 125% of the Division Target, the Employee shall
be entitled to a Division Bonus in the amount of $56,250.
(iv) If the Divisional Net Income for such
year is greater than 75% of the Division Target but less than the Division
Target, the Employee shall be entitled to a Division Bonus as calculated below:
DB = $37,500 - [$37,500 x 4 x (DT - NI)]
------------
DT
where:
DB = the Division Bonus earned in such year.
DT = the Division Target for such year.
NI = Divisional Net Income for such year.
(v) If the Divisional Net Income for such
year is equal to or less than 75% of the Division Target, the Employee shall not
be entitled to a Division Bonus.
(C) For any calendar year regarding which the Employee is
entitled to a bonus under the foregoing provisions of this subsection (2) but
during which year the Employee did not work the entire calendar year, unless
otherwise provided herein, the Employee shall be entitled to a bonus equal to
the product of the bonus, as calculated under the foregoing provisions,
multiplied by a fraction, the numerator of which is the number of months during
such calendar year that the Employee was employed by the Company and the
denominator of which is twelve."
5. Except as expressly amended hereby, all of the terms and conditions
of the Employment Agreement shall continue in full force and effect.
6. This Amendment shall be governed by and construed in accordance with
the laws of the State of Florida. This Amendment may be executed in any number
of counterparts, each of which shall be an original but all of which taken
together shall constitute one and the same instrument.
[SIGNATURES ON FOLLOWING PAGE]
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the day and year first above written.
KELLSTROM INDUSTRIES, INC.
By: /s/ W. Penny
---------------------------------------
Name: W. Penny
Title: VP HR
EMPLOYEE
/s/ Mordechai Markowicz
-------------------------------------------
Mordechai Markowicz
5
<PAGE> 1
Exhibit 10.51
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
September 10, 1997, between Aero Support Holdings, Inc., a Delaware corporation,
having its principal place of business at 44 Hudson Street, New York, New York
10013 (the "Company"), and Michael Navon, an individual (the "Employee").
W I T N E S S E T H :
WHEREAS, Aero Support USA Inc. ("Aero"), a New York corporation, and
the Employee, Zvi Bar-On and Mordechai Markowicz, the owners of all the
outstanding capital stock of Aero (the "Principals"), on the one hand, and
Kellstrom Industries, Inc. ("Kellstrom"), a Delaware corporation, having its
principal place of business at 14000 Northwest 4th Street, Sunrise, Florida
33325, and the Company, a wholly-owned subsidiary of Kellstrom, on the other
hand, have entered into a Purchase Agreement, dated as of September 10, 1997
(the "Purchase Agreement"), pursuant to which Kellstrom. has agreed to acquire,
through the Company, substantially all of the assets of Aero;
WHEREAS, the Employee is a principal executive of Aero with unique and
special skills, and as a material inducement to Kellstrom to enter into the
Purchase Agreement, the Employee has agreed to be employed by the Company
pursuant to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Company and the Employee hereby agree as follows:
1. Definitions.
(a) The "Board" shall mean the Board of Directors of the Company.
(b) The "Effective Date" shall mean September 10, 1997.
(c) The "Employment Period" shall mean the period commencing on the
Effective Date and ending on the third anniversary of the Effective Date.
(d) The "Executive Committee" shall mean the Executive Committee of the
Board of Directors of Kellstrom.
(e) "GAAP" shall mean generally accepted accounting principles in the
United States as in effect from time to time.
<PAGE> 2
2. Employment Period. The Company hereby agrees to employ the Employee,
and the Employee hereby agrees to be employed by the Company, for the duration
of the Employment Period and pursuant to the other terms and conditions provided
herein. This Agreement shall terminate at the end of the Employment Period,
unless earlier terminated under Section 5 below.
3. Terms of Employment.
(a) Position and Duties. During the Employment Period the Employee
shall serve as an Executive Vice President of the Company. The Employee shall
perform such duties as the Board or Chief Executive Officer of the Company shall
from time to time determine, consistent with Employee's duties in respect of his
employment with the Company through the date hereof and with his position as an
Executive Vice President. In the performance of his duties, the Employee shall
comply with the stated policies of the Company.
(b) Relocation. The principal place of employment of the Employee shall
be the principal offices of the Company, which shall be maintained in New York
City until at least June 30, 1998. Following such date, the Company may relocate
the Employee to a location of Kellstrom in Florida, in which case, it shall
reimburse the Employee for reasonable moving expenses actually incurred up to
$10,000.
(c) Compensation.
(i) Base Salary. The Employee's annual salary (the "Salary") shall
be at the rate of $140,000 per annum, payable twice monthly, for the duration of
the Employee's employment hereunder. During the Employment Period, the
Employee's Salary may be reviewed and changed by the Board of Directors;
however, the Company shall not pay the Employee a Salary less than such amount
during the Employment Period.
(ii) Annual Company Bonus. Subject to paragraph (F) below, for each
calendar year commencing with the year ending December 31, 1998, during which
the Employee is employed by the Company:
(A) if Kellstrom has Net Income (as hereinafter defined) for such
year of an amount equal to Kellstrom's target net income as determined in the
sole discretion of the Board of Directors of Kellstrom (or the Executive
Committee) for such year, which target shall be no higher than the target
established for Kellstrom's other officers (the "Target"), the Employee shall be
entitled to a bonus in the amount equal to $100,000.
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<PAGE> 3
(B) if Kellstrom has Net Income for such year more than the Target
and less than 150% of the Target, the Employee shall be entitled to a bonus as
calculated below:
B = $100,000 + [$100,000 x (NI-T)]
------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income of Kellstrom. for such year as
determined in accordance with GAAP.
(C) if Kellstrom has Net Income for such year of 150% of the Target
or more, the Employee shall be entitled to a bonus of $150,000.
(D) if Kellstrom. has Net Income for such year of less than 50% of
the Target, the Employee shall not be entitled to a bonus.
(E) if Kellstrom has Net Income for such year of at least 50% of
the Target but less than the Target, the Employee shall be entitled to a bonus
as calculated below:
B = $100,000 - [$100,000 x 2 x(T-NI)]
------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income of Kellstrom for such year as determined
in accordance with GAAP.
(F) for any calendar year regarding which the Employee is entitled
to a Bonus under the foregoing provisions of this clause (ii) but during which
year the Employee did not work the entire calendar year, the Employee shall be
entitled to a Bonus equal to the product of the Bonus, as calculated under the
foregoing provisions, multiplied by a fraction, the numerator of which is the
number of months during such calendar year that the Employee was employed with
the Company and the denominator of which is twelve. For purposes of calculating
the Bonus, if any, of Employee for the year ending December 31, 1998 (and for no
other purposes) the Employee shall be deemed to have commenced employment
hereunder on September 10, 1998.
-3-
<PAGE> 4
(d) Benefits. In addition to the compensation payable to the Employee
as set forth in Section 3(b) above, during the Employment Period the Employee
shall be eligible, if so determined in the sole discretion of the Board of
Directors of Kellstrom (or the Executive Committee), for similar health
insurance, pension plan, incentive, stock option grants, savings, welfare
(including without limitation medical and dental insurance) plans, practices,
policies and programs on or after the Effective Date applicable generally to
employees of Kellstrom or such plans, practices, policies and programs
applicable generally to employees of Aero prior to the Effective Date, or a
combination thereof. Exhibit A, annexed hereto, includes a list of those benefit
plans or programs applicable generally to employees of Kellstrom, and in which,
so long as such plans (as they may from time to time be amended, modified or
replaced) are maintained, the Employee shall be entitled to participate.
(e) Vacation. During the Employment Period, the Employee shall be
entitled to paid vacation in accordance with the policies and practices
applicable on or after the Effective Date to other officers of the Company,
provided that the Employee shall be entitled to a minimum of three (3) weeks of
paid vacation per full calendar year (pro rated if the Employee serves for less
than the full calendar year). Vacation accrued but unused at the end of a
calendar year may be carried over into the following calendar year or years,
provided that unused vacation days shall be accrued up to a maximum of six
weeks.
(f) Holidays and Sick Leave. The Employee shall be entitled to all
holidays' that are prescribed by the Company's policies and practices. The
Employee shall be entitled to 6 days paid sick leave per year. Unused sick leave
days may not be carried over to the following calendar year or years.
(g) Automobile. During the Employment Period, the Company shall make
available to the Employee an automobile similar to the automobiles currently
made available to other officers of Kellstrom with similar seniority, and the
Company shall pay or reimburse the Employee for all expenses of insurance,
maintenance and operation of such automobile, it being understood that the
Toyota Land Cruiser owned by the Company complies with the foregoing
specifications and the Company shall continue to make such automobile available
to Employee and pay the related expenses set forth above during the Employment
Period.
(h) Expenses. The Company shall pay or reimburse the Employee for
reasonable expenses incurred or paid by him during the Employment Period in the
performance of his services under this Agreement upon presentation of expense
statements or such other supporting information as may be required for other
officers of Kellstrom in accordance with Kellstrom's policy.
(i) Life Insurance. The Company shall assume and maintain the life
insurance policy with The Equitable Life Assurance Society of the United States
on the life of the Employee in the amount of $1,000,000 and will pay the premium
on such policy during the Employment Period.
-4-
<PAGE> 5
4. Employee's Obligations and Representations; Indemnity.
(a) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Employee is entitled, the Employee agrees to devote
substantially all of his attention and time during normal business hours to the
business and affairs of the Company and to perform faithfully and efficiently
the responsibilities assigned to the Employee by the Company.
(b) The Employee represents and warrants to the Company that there are
no agreements or arrangements, whether written or oral, in effect which would
prevent the Employee from rendering exclusive service to the Company during the
Employment Period. The Employee further represents, warrants and agrees with the
Company that as of the Effective Date he has not made and will not make during
the Employment Period any commitment or do any act in conflict with this
Agreement, or take any action that might divert from the Company any opportunity
which would be in the scope of any present or future business of the Company or
any subsidiary thereof.
(c) The Company shall indemnify and hold harmless the Employee from all
claims, losses, liabilities, damages and causes of action relating to or arising
out of the Employee's performance, duties and responsibilities to, for, or on
behalf of the Company to the extent provided by the Company's certificate of
incorporation and bylaws.
5. Termination.
(a) Death. This Agreement shall terminate automatically upon the
Employee's death. If the Employee's employment is terminated by reason of the
Employee's death, the Employee's legal representative shall be entitled to
receive (i) the Employee's full Salary through the last day of the month in
which his death occurs, payable as and when such Salary would otherwise have
been payable to the Employee, and (ii) an amount equal to the Employee's Annual
Company Bonus, pro rated through the date of the Employee's death in accordance
with Section 3(c)(ii)(F), payable when such bonus would otherwise have been paid
to the Employee.
(b) Disability. If the Company determines in good faith that the
Employee has a "disability" (as defined below), it may give the Employee written
notice of its intention to terminate the Employee's employment. In such event,
the Employee's employment with the Company shall terminate effective on the 30th
day after receipt by the Employee of such notice. No such notice of termination
by reason of disability shall be given until the Employee has experienced a
period of two consecutive months of disability and the disability is continuing.
The notice of termination shall not be effective if the Employee returns to
full-time performance of his duties prior to the expiration of the 30-day notice
period. For purposes of this Agreement, "disability" shall mean a physical or
mental condition which, two months after its commencement, is determined by a
physician selected by the Company to be a total and permanent condition which
substantially prevents Employee from performing the services to be
-5-
<PAGE> 6
provided by him hereunder. The Employee shall be entitled to all compensation
and benefits provided for under this Agreement during the two-month waiting
period for the disability determination and during the 30-day notice of
termination period. In the event that the Company provides long-term disability
benefits for the Employee, such benefits shall not commence until after the
employment of the Employee has been terminated and the Company has ceased paying
the Employee compensation pursuant to the foregoing sentence. If the Employee's
employment is terminated by reason of the Employee's disability, this Agreement
shall terminate without further obligations to the Employee or the Employee's
legal representatives under this Agreement, other than those obligations
accrued, earned or vested by the Employee as of the date of the termination,
including, without limitation, an amount equal to the Employee's Annual Company
bonus, pro rated through the date of termination in accordance with Section
3(c)(ii)(F), payable when such bonus would otherwise have been paid to the
Employee.
(c) Cause. During the Employment Period, the Company may terminate the
Employee's employment for "cause", as determined by Kellstrom's Board of
Directors (or the Executive Committee) and as defined below. For purposes of
this Agreement, "cause" shall mean:
(i) an act or acts of fraud, embezzlement or any other act that
would constitute a felony under the laws of the state of New York taken by the
Employee;
(ii) repeated violations by the Employee of his obligations under
Section 4(a) of this Agreement which are not remedied within a reasonable period
of time after receipt of written notice from the Company of such violations or a
breach by the Employee of his representations or obligations under any of
Section 4(b), 6, 7 or 8 of this Agreement; or
(iii) the indictment of the Employee of a crime, where the Company
reasonably believes it would impair the Employee's ability to perform his
services under this Agreement.
If the Employee's employment is terminated for cause, this Agreement shall
terminate without further obligations to the Employee under this Agreement,
other than those obligations accrued, earned or vested by the Employee as of the
date of the termination. The Employee shall not be entitled to any Bonus in
respect of the year of termination in the event the Employee's employment is
terminated for cause pursuant to this Section 5(c).
(d) Involuntary Termination. Notwithstanding anything herein to the
contrary, the Company shall have the right, at any time upon notice to the
Employee, to terminate the Employment. If during the Employment Period the
Company terminates the Employee's employment other than for cause or disability
it shall be deemed to be an involuntary termination and the Company shall pay to
the Employee the following amounts:
-6-
<PAGE> 7
(i) to the extent not theretofore paid, the Company shall pay the
Employee's Salary through the date of such involuntary termination;
(ii) the Company shall pay the Employee an amount equal to the
Employee's Annual Company Bonus, pro rated through the date of such involuntary
termination in accordance with Section 3(c)(ii)(F), payable when such bonus
would otherwise have been paid to the Employee;
(iii) the Company shall pay the Employee on the date of such
involuntary termination an amount equal to one month of the Employee's Salary
for every 12 months that the Employee was employed under this Agreement; and
(iv) the Company shall pay cash in a lump sum as compensation for
any vacation days accrued but unused as of the date of termination to be paid
within 30 days of such involuntary termination.
(e) Good Reason. During the Employment Period, the Employee may
terminate his employment for "good reason" as defined below. For purposes of
this Agreement, "good reason" shall mean:
(i) the assignment to the Employee of any duties materially
inconsistent in any respect with Employee's position, duties and
responsibilities as set forth in Section 3(a) of this Agreement or any action by
the Company which materially results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose any isolated,
insubstantial and inadvertent action by the Company which is not taken in bad
faith and which is remedied by the Company promptly after receipt of notice
thereof given by the Employee; or
(ii) any failure by the Company to comply with any of the
provisions of Sections 3(b) through 3(h) of this Agreement regarding the
Employee's compensation, benefits, vacation, holidays and sick leave other than
an isolated, insubstantial and inadvertent action by the Company which is not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Employee; or
(iii) the Company requiring the Employee to be based at any office
or location other than that described in Section 3(b) of this Agreement, except
for travel reasonably required in the performance of Employee's
responsibilities.
In the event that the Employee terminates his employment for good reason as
defined in this Section 5(e), it shall be deemed to be an "involuntary
termination" as set forth in Section 5(d) above and the Employee shall be
entitled to (i) all payments and obligations set forth in Sections 5(d)(i)
through 5(d)(iv) of this Agreement as if the Employee's employment had been
involuntarily terminated.
-7-
<PAGE> 8
(f) Voluntary Termination. The Employee agrees to provide the Company
with 15 days notice prior to voluntarily terminating his employment (other than
for "good reason" as defined in Section 5(e) above). At the end of such 15-day
period, this Agreement shall terminate automatically and the Company shall have
no further obligations to the Employee under this Agreement, other than those
obligations accrued, earned or vested by the Employee as of the date of the
termination. The Employee shall not be entitled to any Bonus in respect of the
year of termination in the event the Employee's employment is terminated
pursuant to this Section 5(f).
(g) Additional Payments under Purchase Agreement. Anything contained in
this Agreement to the contrary notwithstanding, the termination of this
Agreement for any reason, whether pursuant to the terms and conditions of this
Agreement or otherwise at law or in equity, prior to its expiration by its terms
shall not affect the Employee's right to receive and retain all Additional
Payments to which he is entitled under the Purchase Agreement, except to the
extent specifically set forth therein.
6. Confidentiality.
(a) Acknowledgement and Purposes. The Employee acknowledges that, with
respect to Aero, he has learned, developed and had access to, and with respect
to the Company and Kellstrom during the Employment Period, he will learn,
develop and have access to Confidential Information relating to the business and
affairs of the Company and Kellstrom. As used in this Agreement, "Confidential
Information" shall mean all trade secrets and other confidential information
concerning the business and affairs of Aero, the Company and Kellstrom
including, without limitation, information regarding the operations, future
plans, projected and historical sales, marketing, costs, production, growth and
distribution, any customer lists, customer information, information relating to
governmental relations, information relating to the products or services,
whether patentable or not.
The Company, Aero and Kellstrom are engaged in a highly competitive
business; their competitive position depends in great measure upon the ability
to develop or acquire and maintain the confidentiality of Confidential
Information; and they may have expended and are likely to continue to expend
considerable efforts and resources in the development or acquisition of
Confidential Information. Based upon the foregoing, the Employee recognizes that
the unauthorized disclosure of Confidential Information in violation of the
terms hereof is likely to result in serious and irrevocable harm to the Company,
Aero and Kellstrom.
(b) Restrictions on the Use of Confidential Information. The Employee
agrees and covenants as follows:
(i) All documents and other materials made or compiled by or made
available to the Employee prior to the date hereof by Aero or during the
Employment Period by the Company and Kellstrom and any copies thereof, whether
or not' containing Confidential Information, are and shall be the property of
the Company and
-8-
<PAGE> 9
Kellstrom, respectively and shall, at the request of the Company or Kellstrom,
be delivered to the Company or Kellstrom by the Employee immediately upon the
conclusion of his engagement as an Employee. Except as required in connection
with the services to be performed hereunder, the Employee agrees not to remove
from the Company's premises, without permission, any and all papers or drawings
belonging to the Company, including those prepared or worked on by him. The
Employee will treat as trade secrets all Confidential Information acquired by
him prior to the date hereof with respect to Aero or during the Employment
Period with respect to the Company and Kellstrom, and shall not at any time use
any Confidential Information for his own benefit nor disclose it or any part of
it to any other person, firm or corporation not connected with the Company (i)
without the prior written consent of the Company or (ii) unless such disclosure
is required by law or in response to a legal order or (iii) unless such
Confidential Information has become generally available to the public other than
through the breach the Employee of the terms hereof.
(ii) All ideas, reports, and other creative works conceived by the
Employee during the Employment Period and relating to Confidential Information,
shall be disclosed to the Company and shall be the sole property of the Company.
7. Non-Competition. The Employee agrees that (a) during the Employment
Period and (b) unless the employment is terminated under Section 5(d) or 5(e),
for two (2) years thereafter (or, in the case of termination under Section 5(d)
or 5(e), for 6 months thereafter) he will not, anywhere in the world, directly
or indirectly, engage or participate or make any financial investments in or
become employed by or render advisory or other services to or for any person,
firm or corporation, or in connection with any business activity which directly
or indirectly is in competition with any of the business operations or
activities of the Company or Kellstrom as of the date of termination of his
employment, or of the Company, Kellstrom or Aero for any time prior thereto.
Nothing herein contained, however, shall restrict the Employee from making any
investments in any company (but without otherwise participating in the
activities of such company) whose stock is listed on a national securities
exchange or actively traded in the over-the-counter market, as long as such
investment does not give him the right to control or influence the policy
decisions of any such business or enterprise which is or might be directly or
indirectly in competition with any of such business operations or activities of
the Company or Kellstrom.
Termination of this Agreement or the provisions of this Section 7 shall
in no way affect or diminish the obligations of the Employee pursuant to the
non-competition requirements contained in the Purchase Agreement.
8. Restriction on Solicitation. The Employee agrees that (a) during
the Employment Period and (b) unless the employment is terminated under Section
5(d) or 5(e), for two (2) years thereafter (or, in the case of termination under
Section 5(d) or 5(e), for 6 months thereafter) he will not:
-9-
<PAGE> 10
(i) directly or indirectly solicit, raid, entice or induce any
employee of the Company or Kellstrom to become an employee of any person, firm
or corporation which is, directly or indirectly, in competition with the
business or activities of Aero, the Company or Kellstrom;
(ii) directly or indirectly approach any such employee for these
purposes;
(iii) authorize or knowingly approve the taking of such actions by
other persons on behalf of any such person, firm or corporation, or assist any
such person, firm or corporation in taking such action; or
(iv) directly or indirectly solicit, raid, entice or induce any
person, firm or corporation who or which on the date hereof is, or at the time
during his employment with the Company or Kellstrom shall be, a customer of the
Company or Kellstrom to become a customer for the same or similar products which
it purchased from the Company or Kellstrom, of any other person, firm or
corporation, and the Employee shall not approach any such customer for such
purpose or authorize or knowingly approve the taking of such actions by any
other person.
9. Remedies. The Employee hereby acknowledges that in the event of a
breach or threatened breach by him of the provisions of Section 6, 7 or 8 of
this Agreement, the Company or Kellstrom would suffer irreparable harm for which
there would be no adequate remedy at law. Accordingly, the Employee agrees that
in such event, in addition to any other remedies which the Company or Kellstrom
may have in law or in equity for money damages or other relief, the Company or
Kellstrom shall be entitled to temporary and/or injunctive relief, without the
necessity of proving damages, to enforce the provisions hereof.
10. Successors. This Agreement is personal to the Employee and without
the prior written consent of the Company shall not be assignable by the
Employee. The Company may assign its rights and obligations hereunder, provided
that the Company will require the assignee to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such assignment had taken place.
11. Binding Arbitration. In the event that the Company and the Employee
cannot agree on an interpretation of any provision of this Agreement, or in the
event that either of the parties fails to make any payments or otherwise fulfill
any obligations required by the terms of this Agreement, the Company and the
Employee agree to resolve any such dispute through arbitration in Broward
County, Florida, under the rules then obtaining of the American Arbitration
Association in the State of Florida.
-10-
<PAGE> 11
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
(b) The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(c) All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been given if sent by facsimile
transmission, delivered by overnight or other carrier service, or mailed,
certified first class mail, postage prepaid, return receipt requested, to the
parties hereto at the following addresses:
If to the Company, to:
Aero Support Holdings, Inc.
44 Hudson Street
New York, New York 10013
Attn: Chief Executive Officer Telecopier:
If to the Employee, to:
Michael Navon
or to such other address as either party shall have furnished to the other in
accordance herewith.
(d) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(e) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(f) A party's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
-11-
<PAGE> 12
(g) This Agreement embodies the entire agreement between the Company
and the Employee and supersedes all prior agreements and understandings, oral or
written, with respect to the subject matter hereof.
(h) This Agreement has been duly authorized by all required action on
behalf of the Company, is a valid and binding obligation of the Company, is
enforceable against the Company in accordance with its terms, and does not
violate the Company's Certificate of Incorporation, by-laws, or any material
agreement to which the Company is a party or by which it may be bound, or any
laws or regulations applicable to the Company.
(i) This Agreement may be executed in counterparts, each of which shall
be deemed an original and all of which, together, shall constitute one and the
same instrument.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the Employee has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
AERO SUPPORT HOLDINGS, INC.
By: /S/ Zivi R. Nedivi
-------------------------------------
Zivi R. Nedivi
President
EMPLOYEE
/s/ Michael Navon
-----------------------------------------
Michael Navon
The undersigned, Kellstrom Industries, Inc., hereby guarantees all
payments and obligations of the Company and its assignees under this Agreement,
and hereby waives, to the extent permitted by applicable law, any circumstance
which might constitute a legal or equitable discharge, release or defense of a
guarantor or surety, or which might otherwise limit recourse against Kellstrom
(it being understood that the obligations of Kellstrom hereunder shall not be
discharged except by payment or performance as herein provided). Nothing herein
shall constitute a waiver by Kellstrom of any defense that the Company may have
as a result of a breach by the Employee of his obligations under the Employment
Agreement.
KELLSTROM INDUSTRIES, INC.
By: /S/ Zivi R. Nedivi
-------------------------------------
Zivi R. Nedivi
President
<PAGE> 14
Exhibit A
KELLSTROM INDUSTRIES, INC.
BENEFITS
(i) Automobile and related expenses of automobile insurance, maintenance
and operation
(ii) Fully paid medical and dental insurance
(iii) All business travel expenses:
(A) Employee may retain frequent flyer mileage and hotel points
(B) Employee may fly business class for international travel
(C) Employee may fly coach class for domestic travel but the
Company will pay for "upgrade stickers"
(iv) Participation in future employee stock option plans
(v) Cellular phones and related expenses
(vi) Participation in 401K plan, if any (anticipated for 1998)
-14-
<PAGE> 1
Exhibit 10.52
AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is entered
into as of December 27, 1999, between Kellstrom Industries, Inc., a Delaware
corporation (the "Company"), and Michael Navon, an individual (the "Employee").
RECITALS
The Company (as successor-in-interest to Aero Support Holdings, Inc., a
Delaware corporation) and the Employee are parties to that certain Employment
Agreement entered into as of September 10, 1997 (the "Employment Agreement"),
pursuant to which the Employee is employed as a Senior Vice President of the
Company. The Company and the Employee desire to amend the Employment Agreement
on the terms and conditions set forth in this Amendment.
TERMS OF AGREEMENT
In consideration of the above recitals and the mutual promises herein
contained, the Company and the Employee hereby agree as follows:
1. Section 1 of the Employment Agreement is hereby amended by adding
the following additional definitions:
"The Company Target shall mean, with respect to any period,
the target net income of the Company for such period as determined in
the sole discretion of the Board (or the Executive Committee).
The Division shall mean the Certified division of the Company,
as determined by the Board in its sole discretion.
The Division Target shall mean, with respect to any period,
the target net income of the Division, before taxes and corporate
overhead allocations, for such period as determined in the sole
discretion of the Board (or the "Executive Committee").
Divisional Net Income shall mean, with respect to any
period, the actual net income, before taxes and corporate overhead
allocations, of the Division for such period as determined by the
Company in its sole discretion.
<PAGE> 2
Net Income shall mean, with respect to any period, actual
net income for such period as determined by the Company in its sole
discretion in accordance with GAAP."
2. Section 3(a) of the Employment Agreement is hereby amended to
reflect that the Employee is employed as a Senior Vice President of the Company.
3. Section 3(c)(i) of the Employment Agreement is hereby amended to
reflect that, effective as of January 1, 1999, the Employee's Salary was
increased to $160,000 per annum, and effective as of January 1, 2000, the
Employee's Salary shall be $180,000 per annum.
4. The parties acknowledge and agree that, in consideration for the
increases in the Employee's Salary described in Section 3, effective as of
January 1, 1999, all references in Section 3(c)(ii) of the Employment Agreement
to the dollar amount of $100,000 were changed to $90,000. In addition, effective
as of January 1, 2000, Section 3(c)(ii) of the Employment Agreement is amended
in its entirety by deleting such section and substituting the following:
"(ii) ANNUAL BONUS. Subject to subsection (C) below, for each
calendar year during the Employment Period commencing with the year
ending December 31, 2000, at the end of which year the Employee is
employed by the Company, the Company shall be eligible to be paid a
bonus, a portion of which shall be computed based upon the Company's
Net Income as compared to the Company Target for such year (the
"Company Bonus"), and a portion of which shall be computed based upon
Divisional Net Income as compared to the Division Target for such year
(the "Division Bonus"). The bonus payable, if any, with respect to any
calendar year shall be the sum of the Company Bonus and the Division
Bonus payable for such year.
(A) COMPANY BONUS. The Company Bonus, if any, payable
on account of any calendar year shall be computed as follows:
(i) if the Net Income of the Company for
such year is an amount equal to the Company Target for such year, the
Employee shall be entitled to a Company Bonus in the amount of $35,000.
(ii) if the Net Income of the Company for
such year is more than the Company Target and less than 125% of the
Company Target, the Employee shall be entitled to a Company Bonus as
calculated below:
CB = $35,000 + [$35,000 x 2 x (NI - CT)]
-------------
CT
where:
CB = the Company Bonus earned in such year.
2
<PAGE> 3
CT = the Company Target for such year.
NI = the Net Income of the Company for such year.
(iii) If the Net Income of the Company for
such year is equal to or greater than 125% of the Company Target, the
Employee shall be entitled to a Company Bonus in the amount of $52,500.
(iv) If the Net Income of the Company for
such year is greater than 75% of the Company Target but less than the
Company Target, the Employee shall be entitled to a Company Bonus as
calculated below:
CB = $35,000 - [$35,000 x 4 x (CT - NI)]
------------
CT
where:
CB = the Company Bonus earned in such year.
CT = the Company Target for such year.
NI = the Net Income of the Company for such year.
(v) If the Net Income of the Company for
such year is equal to or less than 75% of the Company Target, the
Employee shall not be entitled to a Company Bonus.
(B) DIVISION BONUS. The Division Bonus, if any,
payable on account of any calendar year shall be computed as follows:
(i) if the Divisional Net Income for such
year is an amount equal to the Division Target for such year, the
Employee shall be entitled to a Division Bonus in the amount of
$35,000.
(ii) if the Divisional Net Income for such
year is more than the Division Target and less than 125% of the
Division Target, the Employee shall be entitled to a Division Bonus as
calculated below:
DB = $35,000 + [$35,000 x 2 x (NI - DT)]
-------------
DT
where:
DB = the Division Bonus earned in such year.
DT = the Division Target for such year.
NI = Divisional Net Income for such year.
3
<PAGE> 4
(iii) If the Divisional Net Income for such
year is equal to or greater than 125% of the Division Target, the
Employee shall be entitled to a Division Bonus in the amount of
$52,500.
(iv) If the Divisional Net Income for such
year is greater than 75% of the Division Target but less than the
Division Target, the Employee shall be entitled to a Division Bonus as
calculated below:
DB = $35,000 - [$35,000 x 4 x (DT - NI)]
------------
DT
where:
DB = the Division Bonus earned in such year.
DT = the Division Target for such year.
NI = Divisional Net Income for such year.
(v) If the Divisional Net Income for such
year is equal to or less than 75% of the Division Target, the Employee
shall not be entitled to a Division Bonus.
(C) For any calendar year regarding which the Employee is
entitled to a bonus under the foregoing provisions of this subsection
(2) but during which year the Employee did not work the entire calendar
year, unless otherwise provided herein, the Employee shall be entitled
to a bonus equal to the product of the bonus, as calculated under the
foregoing provisions, multiplied by a fraction, the numerator of which
is the number of months during such calendar year that the Employee was
employed by the Company and the denominator of which is twelve."
5. Except as expressly amended hereby, all of the terms and conditions
of the Employment Agreement shall continue in full force and effect.
6. This Amendment shall be governed by and construed in accordance with
the laws of the State of Florida. This Amendment may be executed in any number
of counterparts, each of which shall be an original but all of which taken
together shall constitute one and the same instrument.
[SIGNATURES ON FOLLOWING PAGE]
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the day and year first above written.
KELLSTROM INDUSTRIES, INC.
By: /s/ W. Penny
--------------------------------------
Name: W. Penny
Title: VP HR
EMPLOYEE
/s/ Michael Navon
------------------------------------
Michael Navon
5
<PAGE> 1
Exhibit 10.53
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
February 1, 1999, between Kellstrom Industries, Inc., a Delaware corporation,
having its principal place of business at 1100 International Parkway, Sunrise,
FL 33323 (the "Company"), and Ami Zelcer, an individual (the "Employee").
RECITALS
The Company desires to provide for the employment of the Employee, and
the Employee desires to accept such employment, on the terms and conditions set
forth herein.
TERMS OF AGREEMENT
In consideration of the above recitals and the mutual promises herein
contained, the Company and the Employee hereby agree as follows:
1. DEFINITIONS.
a. The "Board" shall mean the Board of Directors of the
Company.
b. The "Effective Date" shall mean February 1, 1999.
c. The "Employment Period" shall mean the period commencing on
the Effective Date and continuing until the four year anniversary of the
Effective Date, unless earlier terminated in accordance with the terms of this
Agreement.
d. The "Executive Committee" shall mean the Executive
Committee of the Board of Directors of the Company.
e. "GAAP" shall mean generally accepted accounting principles
in the United States as in effect from time to time.
2. EMPLOYMENT PERIOD. The Company hereby agrees to employ the Employee,
and the Employee hereby agrees to be employed by the Company, for the duration
of the Employment Period and pursuant to the other terms and conditions provided
herein. This Agreement shall terminate at the end of the Employment Period,
unless earlier terminated under Section 5 below.
3. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES. During the Employment Period the
Employee shall serve as Vice President and General Manager -Rotables and
Accessories Division of the Company. The Employee shall perform such duties as
the Board or the Chief Executive Officer or other senior officers of the Company
shall from time to time determine. In the performance of his duties, the
Employee shall comply with the stated policies of the Company.
<PAGE> 2
(b) LOCATION. The principal place of employment of the
Employee shall be the principal offices of the Company in Sunrise, Florida.
(c) COMPENSATION.
(1) BASE SALARY. The Employee's annual salary (the
"Salary") shall be at the rate of $180,000 per annum for the duration of the
Employee's employment hereunder. During the Employment Period, the Employee's
salary may be reviewed and changed by the Board in its sole discretion,
provided, however, that the Company shall not pay the Employee a Salary less
than such amount. Any Salary payable hereunder shall be paid in regular
intervals in accordance with the Company's payroll practices.
(2) ANNUAL COMPANY BONUS. Subject to subparagraph (F)
below, for each calendar year commencing with the year ending December 31, 1999,
during which the Employee is employed by the Company:
(A) if the Company has Net Income (as
hereinafter defined) for such year of an amount equal to the Company's target
net income as determined in the sole discretion of the Board (or the Executive
Committee) for such year (the "Target"), the Employee shall be entitled to a
bonus in the amount equal to $80,000.
(B) if the Company has Net Income for such
year more than the Target and less than 150% of the Target, the Employee shall
be entitled to a bonus as calculated below:
B = $80,000 + [$80,000 x (NI - T)]
--------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income of the Company for such year as
determined in accordance with GAAP.
(C) if the Company has Net Income for such
year of 150% of the Target or more, the Employee shall be entitled to a bonus of
$120,000.
(D) if the Company has Net Income for such
year of less than 50% of the Target, the Employee shall not be entitled to a
bonus.
(E) if the Company has Net Income for such
year of at least 50% of the Target but less than the Target, the Employee shall
be entitled to a bonus as calculated below:
B = $80,000 - [$80,000 x 2 x (T - NI)]
------------
T
where:
2
<PAGE> 3
B = the bonus earned in such year.
T = the Target for such year.
NI = the actual Net Income of the Company for such year as
determined in accordance with GAAP.
(F) for any calendar year regarding which
the Employee is entitled to a bonus under the foregoing provisions of this
clause (2) but during which year the Employee did not work the entire calendar
year, unless otherwise provided herein, the Employee shall be entitled to a
bonus equal to the product of the bonus, as calculated under the foregoing
provisions, multiplied by a fraction, the numerator of which is the number of
months during such calendar year that the Employee was employed with the Company
and the denominator of which is twelve.
(3) SIGNING BONUS. The Employee shall be entitled to
a bonus of $50,000 payable upon the execution of this Agreement by both parties,
and an additional $50,000 upon the Employee's sale of his residence in the State
of New York, as evidenced by written documentation thereof reasonably
satisfactory to the Company. Any amounts which shall have been paid to the
Employee prior to the Effective Date pursuant to the previous sentence shall be
immediately repaid to the Company by the Employee in the event that the Employee
fails for any reason (other than the willful misconduct of the Company) to
commence employment for the Company on the Effective Date in accordance with the
terms and conditions of this Agreement.
(4) WITHHOLDING, ETC. The payment of any Salary and
bonus to the Employee shall be subject to all applicable withholding and payroll
taxes, and such other deductions as may be required under the Company's employee
benefit plans.
(d) STOCK OPTIONS. Upon the commencement of the Employment
Period, the Company shall cause to be granted to the Employee a non-qualified
stock option to purchase 40,000 shares of the common stock, $.001 par value per
share, of the Company (the "Common Stock"), at an exercise price per share equal
to the fair market value of the Common Stock on the date of the grant, pursuant
to an option agreement to be executed by the Company and the Employee. Such
option shall vest as to 10,000 shares upon the Effective Date, and as to an
additional 10,000 shares on each of the first, second and third yearly
anniversaries of the Effective Date.
(e) BENEFITS. In addition to the compensation payable to the
Employee as set forth in Section 3c above, during the Employment Period the
Employee shall be eligible for similar incentive, stock option grants, savings,
welfare (including without limitation medical and dental insurance) plans,
practices, policies and programs applicable on or after the Effective Date to
other employees of the Company as determined in the discretion of the Board (or
the Executive Committee).
(f) VACATION. During the Employment Period, the Employee shall
be entitled to paid vacation in accordance with the policies and practices
applicable on or after the Effective Date to other employees of the Company,
PROVIDED that the Employee shall be entitled to a minimum of three (3) weeks of
paid vacation per full calendar year (pro rated if the Employee
3
<PAGE> 4
serves for less than the full calendar year). Vacation accrued but unused at the
end of a calendar year may be carried over into the following calendar year or
years, PROVIDED that unused vacation days shall be accrued up to a maximum of
four weeks.
(g) HOLIDAYS AND SICK LEAVE. The Employee shall be entitled to
all holidays that are prescribed by the Company's policies and practices. The
Employee shall be entitled to six (6) days paid sick leave per year (pro rated
if the Employee serves for less than the full calendar year). Unused sick leave
days may not be carried over to the following calendar year or years.
(h) AUTOMOBILE. During the Employment Period, the Company
shall make available to the Employee an automobile, or shall provide to the
Employee an allowance for an automobile, in either case of a type or in the
amount, as applicable, to be determined in the sole discretion of the Board (or
the Executive Committee) for use by the Employee in connection with the
performance of his duties hereunder. The Company shall pay or reimburse the
Employee for all reasonable, documented expenses of insurance, maintenance and
operation of such automobile.
(i) EXPENSES. The Company shall pay or reimburse the Employee
for reasonable expenses incurred or paid by him during the Employment Period in
the performance of his services under this Agreement upon presentation of
expense statements or such other supporting information as may be required for
other employees of the Company in accordance with the Company's policy.
(j) RELOCATION EXPENSES. The Company shall reimburse the
Employee for reasonable, documented expenses incurred by the Employee to move
himself, his family and his personal belongings to Florida in connection with
the commencement of his employment hereunder, PROVIDED that in no event shall
the total amount of such expenses for which the Company shall be responsible
exceed $15,000.
(k) LOAN. The Company shall, on the Effective Date, loan to
the Employee the sum of $150,000 (the "Loan"), which Loan shall be evidenced by
a Promissory Note to be executed by the Employee. The Loan shall accrue interest
at the applicable Federal rate in effect on the Effective Date under ss.1274 of
the Internal Revenue Code of the United States, as amended. In the event of the
termination of this Agreement at any time prior to the end of the Employment
Period, the full principal amount of the Loan then outstanding, together with
all accrued interest thereon, shall be immediately due and payable.
4. EMPLOYEE'S OBLIGATIONS AND REPRESENTATIONS.
(a) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Employee is entitled, the Employee agrees
to devote substantially all of his attention and time during normal business
hours to the business and affairs of the Company and to perform faithfully and
efficiently the responsibilities assigned to the Employee by the Company.
(b) The Employee represents and warrants to the Company that
there are no agreements or arrangements, whether written or oral, in effect
which would prevent the Employee from rendering the service required of him
hereunder to the Company during the Employment Period. The Employee further
represents, warrants and agrees with the Company
4
<PAGE> 5
that as of the Effective Date he has not made and will not make during the
Employment Period any commitment or do any act in conflict with this Agreement,
or take any action that might divert from the Company any opportunity which
would be in the scope of any present or future business of the Company or any
subsidiary thereof.
5 TERMINATION.
(a) DEATH. This Agreement shall terminate automatically upon
the Employee's death. If the Employee's employment is terminated by reason of
the Employee's death, the Company shall have no further obligations to the
Employee's legal representatives under this Agreement, other than those
obligations accrued, earned or vested by the Employee as of the date of his
death.
(b) DISABILITY. If the Company determines in good faith that
the Employee has a "disability" (as defined below), it may give the Employee
written notice of its intention to terminate the Employee's employment. In such
event, the Employee's employment with the Company shall terminate effective on
the 30th day after receipt by the Employee of such notice. No such notice of
termination by reason of disability shall be given until the Employee has
experienced a period of two (2) consecutive months of disability and the
disability is continuing. The notice of termination shall not be effective if
the Employee returns to full-time performance of his duties prior to the
expiration of the 30 day notice period. For purposes of this Agreement,
"disability" shall mean a physical or mental condition which, two months after
its commencement, is determined by a physician selected by the Company to be a
total and permanent condition which substantially prevents the Employee from
performing the services to be provided by him hereunder. The Employee shall be
entitled to all compensation and benefits provided for under this Agreement
during the two month waiting period for the disability determination and during
the 30 day notice of termination period. In the event that the Company provides
long-term disability benefits for the Employee, such benefits shall not commence
until after the employment of the Employee has been terminated and the Company
has ceased paying the Employee compensation pursuant to the foregoing sentence.
If the Employee's employment is terminated by reason of the Employee's
disability, this Agreement shall terminate without further obligations to the
Employee or the Employee's legal representatives under this Agreement, other
than those obligations accrued, earned or vested by the Employee as of the date
of the termination.
(c) CAUSE. During the Employment Period, the Company may
terminate the Employee's employment for "cause", as determined by the Board (or
the Executive Committee) and as defined below. For purposes of this Agreement,
"cause" shall mean:
(i) an act or acts of fraud, embezzlement or any
other act by the Employee that would constitute a felony under the laws of the
State of Florida;
(ii) repeated violations by the Employee of his
obligations under Section 4a of this Agreement or a breach by the Employee of
his representations or obligations under any of Sections 3a, 4b, 6, 7 or 8 of
this Agreement;
(iii) the indictment of the Employee of a crime, if
the Company reasonably believes such indictment would impair the Employee's
ability to perform his services under this Agreement;
5
<PAGE> 6
(iv) willful and gross misconduct by the Employee in
the performance of his duties hereunder; or
(v) the commission by the Employee of an act (other
than good faith exercise of business judgment in the exercise of his
responsibilities pursuant to this Agreement) resulting in material damage to the
Company.
If the Employee's employment is terminated for cause, this Agreement shall
terminate without further obligations to the Employee under this Agreement,
other than those obligations accrued, earned or vested by the Employee as of the
date of the termination. The Employee shall not be entitled to any bonus in
respect of the year of termination in the event the Employee's employment is
terminated for cause pursuant to this Section 5c.
(d) INVOLUNTARY TERMINATION. Notwithstanding anything herein
to the contrary, the Company shall have the right, at any time upon notice to
the Employee, to terminate the Employee's employment. If during the Employment
Period the Company terminates the Employee's employment other than for cause or
disability it shall be deemed to be an involuntary termination and the Company
shall pay to the Employee the following amounts:
(i) to the extent not theretofore paid, the Company
shall pay the Employee's Salary through the date of such involuntary termination
and, when calculated, the pro-rated bonus (if any) as set forth in Section
3c(2)(F) above, in each case payable as and when such Salary and bonus (if any)
would otherwise have been paid to the Employee; and
(ii) the Company shall pay in one cash lump sum an
amount equal to six (6) months salary as severance pay.
(e) GOOD REASON. During the Employment Period, the Employee
may terminate his employment for "good reason" as defined below. For purposes of
this Agreement, "good reason" shall mean:
(i) the assignment to the Employee of any duties
materially inconsistent with Employee's position, duties and responsibilities as
set forth in Section 3a of this Agreement or any action by the Company which
results in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose (x) any isolated, insubstantial and
inadvertent action by the Company which is not taken in bad faith, (y) the
relocation of the Company after the Effective Date and (z) any action by the
Company or any circumstances which are remedied by the Company within sixty (60)
days of receiving written notice thereof by the Employee particularly describing
the actions or circumstances; or
(ii) any failure by the Company to comply with any of
the provisions of Sections 3c through 3k of this Agreement regarding the
Employee's compensation, benefits, vacation, holidays and sick leave other than
an isolated, insubstantial and inadvertent action by the Company which is not
taken in bad faith or any action of the Company or any circumstances which are
remedied by the Company within sixty (60) days of receiving written notice
thereof by the Employee particularly describing the actions or circumstances.
In the event that the Employee terminates his employment for good reason as
defined in this Section 5e, the Employee shall be entitled to all payments and
obligations set forth in Sections
6
<PAGE> 7
5d(1) and 5d(2) of this Agreement as if the Employee's employment had been
involuntary terminated.
(f) VOLUNTARY TERMINATION. The Employee agrees to provide the
Company with fifteen (15) days' written notice prior to voluntarily terminating
his employment (other than for "good reason" as defined in Section 5e above). At
the end of such 15 day period, this Agreement shall terminate automatically and
the Company shall have no further obligations to the Employee under this
Agreement, other than those obligations accrued, earned or vested by the
Employee as of the date of the termination. The Employee shall not be entitled
to any bonus in respect of the year of termination in the event the Employee's
employment is terminated pursuant to this Section 5f. In addition, in the event
that the Employee voluntarily terminates his employment hereunder prior to the
one year anniversary of the Effective Date, the Employee shall immediately repay
to the Company any amounts paid to the Employee pursuant to Section 3c(3) of
this Agreement.
6. CONFIDENTIALITY.
(a) ACKNOWLEDGMENT AND PURPOSES. The Employee acknowledges
that during the Employment Period he will learn, develop and have access to
Confidential Information relating to the business and affairs of the Company and
its affiliates. As used in this Agreement, "Confidential Information" shall mean
any and all trade secrets and other confidential information concerning the
Company and/or its affiliates including, without limitation, information
regarding the operations, future plans, projected and historical sales,
marketing, costs, production, growth and distribution, customer lists, customer
information, information relating to governmental relations and information
relating to products or services of such companies, in each case whether
patentable or not.
The Company is engaged in a highly competitive business; its
competitive position depends in great measure upon the ability to develop or
acquire and maintain the confidentiality of Confidential Information; and it may
have expended and is likely to continue to expend considerable efforts and
resources in the development or acquisition of Confidential Information. Based
upon the foregoing, the Employee recognizes that the unauthorized disclosure of
Confidential Information in violation of the terms hereof is likely to result in
serious and irrevocable harm to the Company.
(b) RESTRICTIONS ON THE USE OF CONFIDENTIAL INFORMATION. The
Employee agrees and covenants as follows:
(i) All documents and other materials made or
compiled by or made available to the Employee prior to the date hereof or at any
time hereafter, including during the Employment Period, by the Company or any of
its affiliates and any copies thereof, whether or not containing Confidential
Information, are and shall be the property of the Company or its affiliates and
shall, at the request of the Company or its affiliates, be delivered to the
Company or by the Employee immediately upon the conclusion of his engagement as
an employee. Except as required in connection with the services to be performed
hereunder, the Employee agrees not to remove from the premises of the Company or
any of its affiliates, without permission, any papers or drawings belonging to
the Company or its affiliates, including those prepared or worked on by him. The
Employee will treat as trade secrets all Confidential Information acquired by
him prior to the date hereof or at any time hereafter, including during the
Employment Period, and shall not at any time use any Confidential Information
for his own
7
<PAGE> 8
benefit nor disclose it or any part of it to any other person, firm or
corporation not connected with the Company or its affiliates (a) without the
prior written consent of the Company or (b) unless such disclosure is required
by law or in response to a legal order or (c) unless such Confidential
Information has become generally available to the public other than through the
breach the Employee of the terms hereof.
(ii) All ideas, reports, and other creative works
conceived by the Employee during the Employment Period and relating to
Confidential Information, shall be disclosed to the Company and shall be the
sole property of the Company.
7. NON-COMPETITION. The Employee agrees that during the Employment
Period and for two (2) years thereafter (or, in the event of an involuntary
termination by the Company pursuant to Section 5d of this Agreement, for one (1)
year thereafter) he will not, anywhere in the world, directly or indirectly,
engage or participate or make any financial investments in or become employed by
or render advisory or other services to or for any person, firm or corporation,
or in connection with any business activity which directly or indirectly is in
competition with any of the business operations or activities of the Company or
any of its affiliates as of the date of termination of his employment, or which
shall have been in competition with the Company or any of its affiliates during
any time prior thereto. Nothing herein contained, however, shall restrict the
Employee from making any investments in any company (but without otherwise
participating in the activities of such company) whose stock is listed on a
national securities exchange or actively traded in the over-the-counter market,
as long as such investment does not give him the right to control or influence
the policy decisions of any such business or enterprise which is or might be
directly or indirectly in competition with any of such business operations or
activities of the Company or its affiliates.
8. RESTRICTION ON SOLICITATION. The Employee agrees that during the
Employment Period and for two (2) years thereafter he will not:
(i) directly or indirectly solicit, raid, entice or induce any
employee of the Company or any of its affiliates to become an employee of any
person, firm or corporation which is, directly or indirectly, in competition
with the business or activities of the Company or any of its affiliates or;
(ii) directly or indirectly approach any such employee for
these purposes;
(iii) authorize or knowingly approve the taking of such
actions by other persons on behalf of any such person, firm or corporation, or
assist any such person, firm or corporation in taking such action; or
(iv) directly or indirectly solicit, raid, entice or induce
any person, firm or corporation who or which on the date hereof is, or at the
time during his employment with the Company or any of its affiliates shall be, a
customer of the Company or any of its affiliates, to become a customer for the
same or similar products which it purchased from the Company or any of its
affiliates, of any other person, firm or corporation, and the Employee shall not
approach any such customer for such purpose or authorize or knowingly approve
the taking of such actions by any other person.
9. REMEDIES. The Employee hereby acknowledges that in the event of a
breach or threatened breach by him of the provisions of Sections 6, 7 or 8 of
this Agreement, the Company
8
<PAGE> 9
would suffer irreparable harm for which there would be no adequate remedy at
law. Accordingly, the Employee agrees that in such event, in addition to any
other remedies which the Company may have in law or in equity for money damages
or other relief, the Company shall be entitled to temporary and/or injunctive
relief, without the necessity of proving damages, to enforce the provisions
hereof.
10. SUCCESSORS. This Agreement is personal to the Employee and without
the prior written consent of the Company shall not be assignable by the
Employee. The Company may assign its rights and obligations hereunder, provided
that the Company will require the assignee to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such assignment had taken place.
11. BINDING ARBITRATION. In the event that the Company and the Employee
cannot agree on an interpretation of any provision of this Agreement, or in the
event that either of the parties fails to make any payments or otherwise fulfill
any obligations required by the terms of this Agreement, the Company and the
Employee agree to resolve any such dispute through arbitration in Broward
County, Florida, under the then-current rules of the American Arbitration
Association in the State of Florida.
12. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
(b) The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(c) All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been given if sent by
facsimile transmission, delivered by overnight or other carrier service, or
mailed, certified first class mail, postage prepaid, return receipt requested,
to the parties hereto at the following addresses:
If to the Company, to:
Kellstrom Industries, Inc.
1100 International Parkway
Sunrise, Florida 33323
Attn: Chief Executive Officer
Telecopier: (954) 858-2449
If to the Employee, to:
Ami Zelcer
Kellstrom Industries, Inc.
1100 International Parkway
Sunrise, Florida 33323
or to such other address as either party shall have furnished to the other in
accordance herewith.
9
<PAGE> 10
(d) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(e) A party's failure to insist upon strict compliance with
any provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
(f) This Agreement embodies the entire agreement between the
Company and the Employee and supersedes all prior agreements and understandings,
oral or written, with respect to the subject matter hereof.
This Agreement may be executed in counterparts, each of which shall be
deemed an original and all of which, together, shall constitute one and the same
instrument.
[signatures on following page]
10
<PAGE> 11
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
KELLSTROM INDUSTRIES, INC.
By: /s/ Zivi R. Nedivi
-----------------------------------------
Name: Zivi R. Nedivi
Title: President
EMPLOYEE
/s/ Ami Zelcer
--------------------------------------------
Ami Zelcer
11
<PAGE> 1
Exhibit 10.54
AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is entered
into as of December 27, 1999, between Kellstrom Industries, Inc., a Delaware
corporation (the "Company"), and Ami Zelcer, an individual (the "Employee").
RECITALS
The Company and the Employee are parties to that certain Employment
Agreement entered into as of February 1, 1999 (the "Employment Agreement"),
pursuant to which the Employee is employed as a Senior Vice President of the
Company. The Company and the Employee desire to amend the Employment Agreement
on the terms and conditions set forth in this Amendment.
TERMS OF AGREEMENT
In consideration of the above recitals and the mutual promises herein
contained, the Company and the Employee hereby agree as follows:
1. Section 1 of the Employment Agreement is hereby amended by adding
the following additional definitions:
"The Company Target shall mean, with respect to any period,
the target net income of the Company for such period as determined in
the sole discretion of the Board (or the Executive Committee).
The Division shall mean the Solair division of the Company, as
determined by the Board in its sole discretion.
The Division Target shall mean, with respect to any period,
the target net income of the Division, before taxes and corporate
overhead allocations, for such period as determined in the sole
discretion of the Board (or the Executive Committee).
Divisional Net Income shall mean, with respect to any period,
the actual net income, before taxes and corporate overhead allocations,
of the Division for such period as determined by the Company in its
sole discretion.
Net Income shall mean, with respect to any period, actual net
income for such period as determined by the Company in its sole
discretion in accordance with GAAP."
<PAGE> 2
2. Effective as of January 1, 2000, Section 3(c)(2) of the Employment
Agreement is amended in its entirety by deleting such section and substituting
the following:
"(2) ANNUAL BONUS. Subject to subsection (C) below, for each
calendar year during the Employment Period commencing with the year
ending December 31, 2000, at the end of which year the Employee is
employed by the Company, the Company shall be eligible to be paid a
bonus, a portion of which shall be computed based upon the Company's
Net Income as compared to the Company Target for such year (the
"Company Bonus"), and a portion of which shall be computed based upon
Divisional Net Income as compared to the Division Target for such year
(the "Division Bonus"). The bonus payable, if any, with respect to any
calendar year shall be the sum of the Company Bonus and the Division
Bonus payable for such year.
(A) COMPANY BONUS. The Company Bonus, if any, payable
on account of any calendar year shall be computed as follows:
(i) if the Net Income of the Company for
such year is an amount equal to the Company Target for such year, the
Employee shall be entitled to a Company Bonus in the amount of $40,000.
(ii) if the Net Income of the Company for
such year is more than the Company Target and less than 125% of the
Company Target, the Employee shall be entitled to a Company Bonus as
calculated below:
CB = $40,000 + [$40,000 x 2 x (NI - CT)]
------------
CT
where:
CB = the Company Bonus earned in such year.
CT = the Company Target for such year.
NI = the Net Income of the Company for such year.
(iii) If the Net Income of the Company for
such year is equal to or greater than 125% of the Company Target, the
Employee shall be entitled to a Company Bonus in the amount of $60,000.
(iv) If the Net Income of the Company for
such year is greater than 75% of the Company Target but less than the
Company Target, the Employee shall be entitled to a Company Bonus as
calculated below:
CB = $40,000 - [$40,000 x 4 x (CT - NI)]
------------
CT
2
<PAGE> 3
where:
CB = the Company Bonus earned in such year.
CT = the Company Target for such year.
NI = the Net Income of the Company for such year.
(v) If the Net Income of the Company for
such year is equal to or less than 75% of the Company Target, the
Employee shall not be entitled to a Company Bonus.
(B) DIVISION BONUS. The Division Bonus, if any, payable on
account of any calendar year shall be computed as follows:
(i) if the Divisional Net Income for such
year is an amount equal to the Division Target for such year, the
Employee shall be entitled to a Division Bonus in the amount of
$40,000.
(ii) if the Divisional Net Income for such
year is more than the Division Target and less than 125% of the
Division Target, the Employee shall be entitled to a Division Bonus as
calculated below:
DB = $40,000 + [$40,000 x 2 x (NI - DT)]
------------
DT
where:
DB = the Division Bonus earned in such year.
DT = the Division Target for such year.
NI = Divisional Net Income for such year.
(iii) If the Divisional Net Income for such
year is equal to or greater than 125% of the Division Target, the
Employee shall be entitled to a Division Bonus in the amount of
$60,000.
(iv) If the Divisional Net Income for such
year is greater than 75% of the Division Target but less than the
Division Target, the Employee shall be entitled to a Division Bonus as
calculated below:
DB = $40,000 - [$40,000 x 4 x (DT - NI)]
------------
DT
where:
3
<PAGE> 4
DB = the Division Bonus earned in such year.
DT = the Division Target for such year.
NI = Divisional Net Income for such year.
(v) If the Divisional Net Income for such
year is equal to or less than 75% of the Division Target, the Employee
shall not be entitled to a Division Bonus.
(C) For any calendar year regarding which the Employee is
entitled to a bonus under the foregoing provisions of this subsection
(2) but during which year the Employee did not work the entire calendar
year, unless otherwise provided herein, the Employee shall be entitled
to a bonus equal to the product of the bonus, as calculated under the
foregoing provisions, multiplied by a fraction, the numerator of which
is the number of months during such calendar year that the Employee was
employed by the Company and the denominator of which is twelve.@
3. Except as expressly amended hereby, all of the terms and conditions
of the Employment Agreement shall continue in full force and effect.
4. This Amendment shall be governed by and construed in accordance with
the laws of the State of Florida. This Amendment may be executed in any number
of counterparts, each of which shall be an original but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the day and year first above written.
KELLSTROM INDUSTRIES, INC.
By: /s/ W. Penny
---------------------------------------
Name: W. Penny
Title: VP HR
EMPLOYEE
/s/ Ami Zelcer
------------------------------------
Ami Zelcer
4
<PAGE> 1
Exhibit 10.55
AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is entered
into as of December 27, 1999, between Kellstrom Industries, Inc., a Delaware
corporation (the "Company"), and Fred von Husen, an individual (the "Employee").
RECITALS
The Company and the Employee are parties to that certain Employment
Agreement entered into as of October 25, 1996 (the "Employment Agreement"),
pursuant to which the Employee is employed as an Executive Vice President of the
Company. The Company and the Employee desire to amend the Employment Agreement
on the terms and conditions set forth in this Amendment.
TERMS OF AGREEMENT
In consideration of the above recitals and the mutual promises herein
contained, the Company and the Employee hereby agree as follows:
1. Effective as of January 1, 2000, Section 3(b)(ii) of the Employment
Agreement is amended in its entirety by deleting such section and substituting
the following:
"(ii) ANNUAL COMPANY BONUS. For each calendar year commencing
with the year ending December 31, 2000, at the end of which year the
Employee is employed by the Company:
(A) If the Net Income (as hereinafter defined) of the
Company for such year is an amount equal to the Company's target net
income as determined in the sole discretion of the Board (or the
Executive Committee) for such year (the "Target"), the Employee shall
be entitled to a bonus in an amount of $90,000. For purposes of this
Agreement, "Net Income" shall mean actual net income, as determined by
the Company in its sole discretion in accordance with GAAP.
(B) If the Net Income of the Company for such year is
more than the Target and less than 125% of the Target, the Employee
shall be entitled to a bonus as calculated below:
B = $90,000 + [$90,000 x 2 x (NI - T)]
------------
T
<PAGE> 2
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the Net Income of the Company for such year.
(C) If the Net Income of the Company for such year is
equal to or greater than 125% of the Target, the Employee shall be
entitled to a bonus in the amount of $135,000.
(D) If the Net Income of the Company for such year is
greater than 75% of the Target but less than the Target, the Employee
shall be entitled to a bonus as calculated below:
B = $90,000 - [$90,000 x 4 x (T - NI)]
------------
T
where:
B = the bonus earned in such year.
T = the Target for such year.
NI = the Net Income of the Company for such year.
(E) If the Net Income of the Company for such year is
equal to or less than 75% of the Target, the Employee shall not be
entitled to a bonus."
2. Except as expressly amended hereby, all of the terms and conditions
of the Employment Agreement shall continue in full force and effect.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of Florida. This Amendment may be executed in any number
of counterparts, each of which shall be an original but all of which taken
together shall constitute one and the same instrument.
[SIGNATURES ON FOLLOWING PAGE]
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the day and year first above written.
KELLSTROM INDUSTRIES, INC.
By: /s/ W. Penny
----------------------------------------
Name: W. Penny
Title: VP HR
EMPLOYEE
/s/ Fred von Husen
--------------------------------------------
Fred von Husen
3
<PAGE> 1
Exhibit 10.56
JOINDER AGREEMENT
(CERTIFIED AIRCRAFT PARTS, INC. ACQUISITION)
THIS JOINDER AGREEMENT (the "AGREEMENT"), dated as of May 13, 1999, is
by and between CERTIFIED AIRCRAFT PARTS, INC., a Florida corporation (the
"APPLICANT BORROWER"), KELLSTROM INDUSTRIES, INC., a Delaware corporation, as
agent for the Borrowers ("KELLSTROM") , the financial institutions party from
time to time to the below-referenced Loan Agreement, and NATIONSBANK, N.A., as
agent for the Lenders (the "AGENT"), under that certain Amended and Restated
Loan and Security Agreement (as amended and modified, the "LOAN AGREEMENT"),
dated as of December 14, 1998, by and among Kellstrom and certain related
borrowing entities (the "Borrowers"), the Lenders and the Agent. All of the
defined terms in the Loan Agreement are incorporated herein by reference.
The Applicant Borrower has indicated its desire to become a Borrower
pursuant to the terms of the Loan Agreement.
Accordingly, the Applicant Borrower hereby agrees as follows with the
Agent and the Lenders:
1. The Applicant Borrower hereby acknowledges, agrees and confirms
that, by its execution of this Agreement, the Applicant Borrower will be deemed
to be a party to the Loan Agreement and a "Borrower" for all purposes of the
Loan Agreement and the other Loan Documents and a co-maker of each of the Notes,
and shall have all of the obligations of a Borrower thereunder as if it had
executed the Loan Agreement and the other Loan Documents. The Applicant Borrower
hereby ratifies, as of the date hereof, and agrees to be bound by, all of the
terms, provisions and conditions contained in the Loan Agreement and in the Loan
Documents which are binding upon the Borrowers, including, without limitation
(a) all of the representations and warranties of the Borrowers set forth in
Article 6 of the Loan Agreement, as supplemented from time to time in accordance
with the terms thereof, and (b) all of the covenants set forth in Articles 7, 8,
9, 10 and 11 of the Loan Agreement.
2. Without limiting the generality of the foregoing terms of paragraph
1, the Applicant Borrower hereby grants to the Agent for the benefit of the
Secured Parties a continuing security interest in, and a right of set off
against, any and all right, title and interest of the Applicant Borrower in and
to the Collateral (as such term is defined in Section 1.1 of the Loan Agreement)
of the Applicant Borrower.
<PAGE> 2
3. The Applicant Borrower acknowledges and confirms that it has
received a copy of the Loan Agreement and the Schedules and Exhibits thereto.
The Schedules to the Loan Agreement are amended to include the information shown
on the attached SCHEDULE A.
4. Kellstrom confirms that all of the other Borrowers' obligations
under the Loan Agreement are, and upon the Applicant Borrower becoming a
Borrower shall continue to be, in full force and effect. Kellstrom further
confirms that immediately upon the Applicant Borrower becoming a Borrower the
term "Secured Obligations", as used in the Loan Agreement, shall include all
Secured Obligations of such Applicant Borrower under the Loan Agreement and
under each other Loan Document.
5. Each of Kellstrom and the Applicant Borrower agrees that at any time
and from time to time, upon the written request of the Agent, it will execute
and deliver such further documents and do such further acts and things as the
Agent may reasonably request in order to effect the purposes of this Agreement.
6. This Agreement may be executed in two or more counterparts, each of
which shall constitute an original but all of which when taken together shall
constitute one contract.
7. This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of Georgia.
IN WITNESS WHEREOF, each of Kellstrom and the Applicant Borrower has
caused this Agreement to be duly executed by its authorized officers, and the
Agent has caused the same to be accepted by its authorized officer, as of the
day and year first above written.
CERTIFIED AIRCRAFT PARTS, INC.
By: /s/ Michael Arciola
-------------------------------------
Name: Michael Arciola
Title: Assistant Secretary
KELLSTROM INDUSTRIES, INC., for itself
and for the other Borrowers
By: /s/ Michael Arciola
-------------------------------------
Name: Michael Arciola
Title: Assistant Secretary
(Signatures Continued on Next Page)
-2-
<PAGE> 3
NATIONSBANK, N.A., as Agent for itself
and for the other Lenders
By: /s/ Robert Walker
-------------------------------------
Name: Robert Walker
Title: Vice President
-3-
<PAGE> 4
SCHEDULE A
<PAGE> 5
NOTARY JURAT FOR EXECUTION OF
WRITTEN OBLIGATIONS TO PAY MONEY
BY FLORIDA BORROWERS
On this the ____ day of _____________, 199_, before me, the
undersigned, a Notary Public in and for the State of _______________, County of
_____________, _________________ personally appeared, personally known to me or
proved to me on the basis of satisfactory evidence to be the _________________
of Certified Aircraft Parts, Inc., a Florida corporation, who, being by me first
duly sworn, stated that:
1. He executed the foregoing Joinder Agreement on behalf of Certified
Aircraft Parts, Inc. pursuant to its by-laws or a resolution of its
board of directors, said execution taking place in the State of
_______________, County of _____________; and
2. He has this day delivered the foregoing instrument to NationsBank,
N.A., as agent for the Lenders, at Fulton County, Georgia.
Signature of Borrower's Officer:
By:
-----------------------------------
Name:
----------------------------------
Sworn to and subscribed before me this
___ day of _____________, 199_:
- ----------------------------------
Notary Signature
My Commission Expires:
- ---------------------------------
[Affix Notarial Seal]
<PAGE> 6
NOTARY JURAT FOR EXECUTION OF
WRITTEN OBLIGATIONS TO PAY MONEY
BY FLORIDA BORROWERS
On this the ____ day of ____________, 199_, before me, the undersigned,
a Notary Public in and for the State of _______________, County of
_____________, Michael W. Wallace, personally known to me or proved to me on the
basis of satisfactory evidence to be the Chief Financial Officer of Kellstrom
Industries, Inc., a Delaware corporation, who, being by me first duly sworn,
stated that:
1. He executed the foregoing Joinder Agreement on behalf of Kellstrom
Industries, Inc., as agent for the Borrowers, pursuant to its by-laws
or a resolution of its board of directors, said execution taking place
in the State of _______________, County of _____________; and
2. He has this day delivered the foregoing instrument to NationsBank,
N.A., as agent for the Lenders, at Fulton County, Georgia.
Signature of Borrower's Officer:
By:
-----------------------------------
Michael W. Wallace
Sworn to and subscribed before me this ___ day of _____________, 199_:
- ----------------------------------
Notary Signature
My Commission Expires:
- ---------------------------------
[Affix Notarial Seal]
<PAGE> 7
AFFIDAVIT REGARDING DELIVERY
On this the ____ day of ______________, 199_, before me, the
undersigned, a Notary Public in and for the State of Georgia, County of Cobb,
_________________ personally appeared, personally known to me or proved to me on
the basis of satisfactory evidence to be a ______________ of NationsBank, N.A.,
who, being by me first duly sworn, stated that NationsBank, N.A. has received
delivery of the foregoing Joinder Agreement in the State of Georgia, County of
Fulton.
-----------------------------------------
Signature of Officer of NationsBank, N.A.
Sworn to and subscribed before me this ___ day of ________________, 1999:
- ----------------------------------
Notary Signature
My Commission Expires:
- ---------------------------------
[Affix Notarial Seal]
<PAGE> 1
Exhibit 10.57
KELLSTROM
INDUSTRIES, INC.
September 16, 1999
Gideon Vaisman
22 Woodland Park Drive
Tenafly, New Jersey 07670
Dear Mr. Vaisman:
Reference is made to the asset purchase agreement, dated as of February 7, 1998,
among Kellstrom Industries, Inc., a Delaware corporation ("Kellstrom"),
Integrated Technology Holdings Corp., a Delaware corporation and a wholly-owned
subsidiary of Kellstrom ("Kellstrom Subsidiary"), Integrated Technology Corp.,
a New Jersey corporation (the "Company"), and Gideon Vaisman. The asset purchase
agreement has been amended by Amendment No. 1, dated as of March 13, 1998, and
amendment No. 2, dated as of September 15, 1998 (as so amended, the "Asset
Purchase Agreement").
Section 7.02(b) of the Asset Purchase Agreement requires that $5
million of the Purchase Price (as defined therein) be allocated to goodwill.
This letter agreement and release will constitute the agreement of the
parties hereto as follows:
1. Section 7.02(b) of the Asset Purchase Agreement is hereby amended
by replacing the term "$5 million" with the term "$3,185,878".
2. Except as amended herein, the Asset Purchase Agreement shall remain
in full force and effect.
3. Kellstrom will make a payment to you in the amount of $474,315
simultaneously with the signing of this letter agreement and release.
4. The consideration set forth in paragraph 3 of this letter agreement
and release is intended to compensate you and the Company for any and all
damages, costs, liabilities, losses and expenses arising out of or related to
the amendment to the Asset Purchase Agreement set forth herein. Accordingly,
you and the Company and your respective heirs, successors and assigns, their
respective subsidiaries, affiliated entities and persons, and their respective
officers, directors, employees and agents, as applicable a (the "ITC Parties")
hereby release and discharge Kellstrom, Kellstrom Subsidiary and their
respective successors and assigns, their respective subsidiaries, affiliated
entities and persons, and their respective officers, directors, employees and
agents (collectively, the "Kellstrom Parties") from any and all claims, causes
of action and demands of all kinds, arising at law or in equity, whether known
or unknown, which any ITC Party has, ever has had, and ever in the future may
have, against any of them, arising out of or relating to the amendment to the
Asset Purchase Agreement set forth herein. You and the Company, on behalf of
the ITC Parties, also agree not to initiate any legal action, charge or
complaint against any Kellstrom Party in any forum whatsoever to the extent
that such legal action, charge or complaint would relate to the matters covered
or contemplated by this letter agreement and release or which is based on the
foregoing. In the event any such actions, charges or complaints are asserted in
the future by or on behalf of any ITC Party, a breach of this letter agreement
and release shall be deemed to have occurred, entitling Kellstrom to the return
of the consideration set forth in paragraph 3 of this letter agreement and
release, as well as the attorneys' fees and expenses incurred by Kellstrom
Party in defending such action, charge or complaint.
5. The Kellstrom Parties hereby release and discharge the ITC Parties
from any and all claims, causes of action and demands of all kinds, arising at
law or in equity, whether known or unknown, which any Kellstrom Party has, ever
has had, and ever in the future may have, against any of them, arising out of
or relating to the amendment to the Asset Purchase Agreement set forth herein.
Kellstrom and Kellstrom Subsidiary, on behalf of the Kellstrom
1100 INTERNATIONAL PARKWAY o SUNRISE, FLORIDA 33323
TEL.: 954 845 0427 o FAX: 954 858 2449
<PAGE> 2
Gideon Vaisman
September 16, 1999
Page 2
Parties, also agree not to initiate any legal action, charge or complaint
against any ITC Party in any forum whatsoever to the extent that such legal
action, charge or complaint would relate to the matters covered or contemplated
by this letter agreement and release or which is based on the foregoing. In the
event any such actions, charges or complaints are asserted in the future by or
on behalf of any Kellstrom Party, a breach of this letter agreement and release
shall be deemed to have occurred, entitling you to the attorneys' fees and
expenses incurred by any ITC Party in defending such action, charge or
complaint.
6. This letter agreement and release shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to its conflicts of laws provisions.
7. This letter agreement and release may not be changed except by a
writing signed by you and an officer of Kellstrom.
If you agree to the foregoing terms, please sign and return to us the
enclosed copy of this letter agreement and release, which will then be a
binding agreement between us.
KELLSTROM INDUSTRIES, INC.
By: /s/ Zivi R. Nedivi
-------------------------------
Zivi R. Nedivi, President and
Chief Executive Officer
INTEGRATED TECHNOLOGY HOLDINGS
CORP.
By: /s/ Zivi R. Nedivi
-------------------------------
Zivi R. Nedivi, President
Agreed to September , 1999
/s/ Gideon Vaisman
- -------------------------------
Gideon Vaisman
INTEGRATED TECHNOLOGY CORP.
By: /s/ Gideon Vaisman
-------------------------------
Gideon Vaisman, President
<PAGE> 1
Exhibit 21
Subsidiaries of the Registrant
Kellstrom Commercial Aircraft, Inc. Delaware
Solair, Inc. Florida
Certified Aircraft Parts, Inc. Florida
Kellstrom International Sales Corporation U.S. Virgin Islands
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Kellstrom Industries, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-20727, No. 333-41159, No. 333-62247 and No. 333-80015) on Form S-8 and in
the registration statements (No. 333-10313, No. 333-44019 and No. 333-52917) on
Form S-3 of Kellstrom Industries, Inc. and subsidiaries of our report dated
February 18, 2000, relating to the consolidated balance sheets of Kellstrom
Industries, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of earnings, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1999, and the related financial statement schedule,
which report appears in the December 31, 1999 annual report on Form 10-K of
Kellstrom Industries, Inc. and subsidiaries.
Fort Lauderdale, Florida
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
KELLSTROM INDUSTRIES, INC. BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE YEAR
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 272,140
<SECURITIES> 0
<RECEIVABLES> 69,250,392
<ALLOWANCES> 8,575,684
<INVENTORY> 194,490,995
<CURRENT-ASSETS> 361,053,283
<PP&E> 29,741,905
<DEPRECIATION> 4,401,965
<TOTAL-ASSETS> 541,445,423
<CURRENT-LIABILITIES> 38,192,858
<BONDS> 323,743,805
0
0
<COMMON> 11,911
<OTHER-SE> 171,201,167
<TOTAL-LIABILITY-AND-EQUITY> 541,445,423
<SALES> 288,912,304
<TOTAL-REVENUES> 330,944,024
<CGS> 200,888,797
<TOTAL-COSTS> 276,750,827
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,009,229
<INCOME-PRETAX> 32,924,840
<INCOME-TAX> 12,389,936
<INCOME-CONTINUING> 20,534,904
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,534,904
<EPS-BASIC> 1.73
<EPS-DILUTED> 1.48
</TABLE>
