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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): DECEMBER 1, 2000
KELLSTROM INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 0-23764 13-3753725
(State or Other Jurisdiction of (Commission File Number) (IRS Employer
Identification No.) Incorporation)
1100 INTERNATIONAL PARKWAY
SUNRISE, FLORIDA 33323
(Address of Principal Executive Offices)
(954) 845-0427
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changed since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
ASSET PURCHASE AGREEMENT WITH AVIATION SALES COMPANY
On December 1, 2000, Kellstrom Industries, Inc. ("Kellstrom")
acquired (the "Asset Purchase") the aircraft and engine parts resale business
of Aviation Sales Company ("AVS") which had been operated through AVS'
Aviation Sales Distribution Services Company ("AVSDC") subsidiary. In
connection with the transaction, Kellstrom acquired a portion of AVSDC's
non-inventory assets and assumed a portion of AVSDC"s accounts payable and
accrued expenses. The aggregate purchase price (net of assumed liabilities)
paid by Kellstrom to AVSDC for the assets was approximately $21.5 million
(which included $13.7 million for a subordinated note issued by the JV, which
is hereinafter defined), subject to post-closing adjustment. As part of the
transaction, Kellstrom hired approximately 200 former AVSDC employees.
Kellstrom expects to consolidate the operations of the AVSDC business with
its Solair and Commercial Engine Divisions.
LEASE OF FF&E
In connection with the Asset Purchase, Kellstrom entered into a
lease with AVSDC pursuant to which Kellstrom agreed to lease certain
furniture, fixtures and equipment of AVSDC ("FF&E") for a period of one year
at a monthly rental rate of approximately $77,000. Kellstrom has the option
to purchase the FF&E at any time during the term and for a period of sixty
days thereafter and AVSDC may require Kellstrom to purchase the FF&E at any
time during the sixty days following the term, in each case, for a purchase
price of approximately $9 million. Kellstrom may defer its obligation to
purchase the FF&E (and extend the term of the lease) for up to six months
under certain circumstances.
LEASES OF REAL PROPERTY
In connection with the Asset Purchase, Kellstrom agreed to
sublease AVS 545,000 square foot facility in Miramar, Florida, where it is in
the process of relocating and consolidating its Solair and Commercial Engine
Divisions. The sublease provides for an initial term of five years and a
monthly rental equal to the lesser of approximately $384,000 or the actual
monthly lease payments paid by AVS on the facility. Kellstrom has the option
to renew the term of the lease for five consecutive five year periods, at the
then fair market rental rate.
Kellstrom also agreed to lease AVS' parts distribution facility
in Pearland, Texas. The lease provides for a term of one year at a monthly
rental of approximately $16,000. During the term of the lease and for a
period of sixty days thereafter, Kellstrom may purchase the facility and
AVSDC may require Kellstrom to purchase the facility at any time during the
sixty days following the term for a purchase price of approximately $1.6
million. Kellstrom may defer its obligation to purchase the facility (and
extend the term of the lease) for up to six months under certain
circumstances.
INVENTORY PURCHASE AGREEMENT BETWEEN JOINT VENTURE AND AVIATION SALES
DISTRIBUTION SERVICES COMPANY
In connection with the Asset Purchase, Kellstrom and AVS
established an off-balance sheet joint venture ("JV") which acquired
substantially all of the inventory of AVSDC (the "Inventory Purchase") for an
aggregate purchase price of approximately $148.6 million, of which
approximately $105.5 million was paid in cash, $27.4 million was paid by
delivery of two 14% five-year senior subordinated notes (each in the original
principal amount of $13.7 million) and approximately $15.7 million was paid
by delivery of a 14% five-year subordinated note. One of the $13.7 million
senior subordinated notes was purchased by Kellstrom as part of the Asset
Purchase.
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EXCLUSIVE CONSIGNMENT ARRANGEMENT
In connection with the Inventory Purchase, the JV entered into
an exclusive arrangement with Kellstrom pursuant to which Kellstrom will have
the right to sell the inventory acquired by the JV (the "Consignment
Agreement"). The Consignment Agreement provides for a consignment fee to
Kellstrom of 20% of sales until all amounts outstanding under the JV's senior
credit facility and the senior subordinated notes issued by the JV in
connection with the Inventory Purchase have been paid, and 35% thereafter.
The Consignment Agreement generally terminates on the later to occur of
December 1, 2005 or the date on which all amounts outstanding under the JV's
senior credit facility and the subordinated notes issued by the JV in
connection with the Inventory Purchase have been paid.
SUPPLY ARRANGEMENTS
Pursuant to the terms of a Cooperation Agreement entered into in
connection with the Asset Purchase and Inventory Purchase, Kellstrom and AVS
entered into a supply arrangement pursuant to which AVS will purchase parts
inventory for its maintenance repair and overhaul operations through
Kellstrom and will sell any excess parts inventory through Kellstrom.
Pursuant to the terms of a Non-Competition Agreement entered into in
connection therewith, AVS is restricted for up to five years from engaging in
the business of purchasing for resale, exchange or lease aircraft for
disassembly, aircraft engines, aircraft parts and aircraft engine parts.
FINANCING
The Inventory Purchase was funded by the JV through a senior
credit facility provided by Bank of America, N.A. and through
seller-financing. Each of AVS and Kellstrom have agreed to share equally the
operational expenses of the JV beyond the amount which the JV is permitted to
pay under its senior credit facility. AVS and Kellstrom posted letters of
credit in favor of Bank of America, N.A., as agent under the JV senior credit
facility, in the amounts of $8.5 million and $6.5 million, respectively. The
letters of credit may be drawn upon by Bank of America if there shall occur
an event of default under the JV senior credit facility.
The Asset Purchase and Kellstrom's investment in the JV and
other transaction costs were financed by Kellstrom through a combination of
funding from its current revolving credit facility and the Key Investment (as
described below).
NEW MEZZANINE FINANCING FROM KEY PRINCIPAL PARTNERS, L.L.C.
Effective November 13, 2000, Kellstrom sold $30.0 million of
senior subordinated notes and warrants to Key Principal Partners, L.L.C., an
affiliate of Key Corporation of Cleveland, Ohio (the "Key Investment"). The
notes are due on November 13, 2007, bear interest at 13% and are subordinated
to Kellstrom's senior credit facility. In connection with the sale of the
notes, Kellstrom issued warrants to purchase 693,232 shares of Kellstrom's
common stock for $0.01 per share, of which warrants to purchase 324,851
shares terminated upon the closing of the Asset Purchase and Inventory
Purchase. The warrants which have not terminated are immediately exercisable
and expire on November 13, 2007.
Until the repayment of the notes, a representative of Key
Principal Partners, or subsequent purchasers of the notes, will be entitled
to attend all meetings of Kellstrom's Board of Directors and to receive all
information distributed to Board members.
Approximately $12.7 million of the proceeds from the sale of the
notes and warrants was used to prepay Kellstrom's 11 3/4% senior subordinated
notes held by The Equitable Life Assurance Society, of which $5.0 million in
principal was due in January 2002, $5.0 million in principal was due in
January 2003 and $1.25
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million in principal was due in January 2004. The balance of the proceeds
initially will be used to pay down the senior credit facility as well as to
finance future growth.
The sale of the notes and warrants to Key Principal Partners was
previously reported by Kellstrom in a Form 8-K dated November 16, 2000.
LETTER OF CREDIT FACILITY
To provide Kellstrom with greater flexibility in connection with
the integration of the AVSDC business, four investors (the "LOC Lenders")
posted letters of credit in the aggregate amount of $8.0 million for the
benefit of Bank of America, N.A., as agent under Kellstrom's senior credit
facility. Bank of America may draw upon the letters of credit in the event
that Kellstrom defaults under its senior credit facility. The amounts of any
such draws are deemed term loans from the LOC Lenders to Kellstrom and bear
interest at the rate of 18% per annum until paid. Such term loans mature upon
the earlier to occur of December 1, 2001 or the sale by Kellstrom of its
headquarters facility in Sunrise, Florida; provided, however, that Kellstrom
is not obligated to repay the principal of any such term loans until the sale
of its Sunrise facility is completed. In the event that a sale of the
headquarters facility is not completed by the time a draw has been made on
the letters of credit, the LOC Lenders have the right to acquire Kellstrom's
Sunrise facility and lease such facility to Kellstrom.
The LOC Lenders are entitled to receive warrants to purchase
20,000 shares of common stock of Kellstrom for each month that the letters of
credit remain outstanding up to an aggregate of 120,000 shares. The exercise
price of such warrants will be the higher of (i) the unweighted average of
the closing price per share for the twenty consecutive trading days prior to
the date of issuance, and (ii) the closing price of the Kellstrom common
stock on the date of issuance. All warrants issued to the LOC Lenders are
exercisable at any time within five years after the applicable date of
issuance.
TENTH AMENDMENT TO KELLSTROM'S SENIOR CREDIT FACILITY
Contemporaneous with the consummation of the Asset Purchase and
the Inventory Purchase, Kellstrom entered into an amendment to its senior
credit facility with Bank of America, N.A., as agent. The amendment modified
certain financial covenants and made certain other adjustments that were
necessary to complete the transactions and establish the LOC Facility.
GENERAL
The foregoing is a summary of the information contained in the
agreements relating to the Asset Purchase. Reference is made to the more
detailed information contained therein and attached hereto as Exhibits 2.1
through 10.11.
On the Closing Date, Kellstrom issued a press release announcing
the completion of the Asset Purchase and Inventory Purchase. A copy of
Kellstrom's press release is attached to this Form 8-K as Exhibit 99.1.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
It is currently not feasible to provide the required financial
statements. Accordingly, pursuant to the provisions of (a)(4) of Item 7 of
Form 8-K, the Registrant intends to file by amendment the required financial
information as soon as practical, but no later than 60 days after this Form
8-K is required to be filed.
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(b) PRO FORMA FINANCIAL INFORMATION.
It is currently not feasible to provide the required pro forma
financial information. Accordingly, pursuant to the provisions of (a)(4) of
Item 7 of Form 8-K, the Registrant intends to file by amendment the required
financial information as soon as practical, but no later than 60 days after
this Form 8-K is required to be filed.
(c) EXHIBITS.
The Exhibits to this Form 8-K are listed on the Exhibit Index
and are incorporated herein by reference.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: December 18, 2000 KELLSTROM INDUSTRIES, INC.
By: /s/ Zivi R. Nedivi
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Zivi R. Nedivi
President
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EXHIBIT INDEX
Exhibit No. Description
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2.1 Asset Purchase Agreement dated September 20, 2000 among
Kellstrom Industries, Inc., Aviation Sales Company and
Aviation Sales Distribution Services Company
2.2 Letter Agreement dated December 1, 2000 among Kellstrom
Industries, Inc., Aviation Sales Company and Aviation Sales
Distribution Services Company modifying the terms of the Asset
Purchase Agreement
2.3 Inventory Purchase Agreement dated September 20, 2000 among
KAV Inventory, LLC, Aviation Sales Company and Aviation Sales
Distribution Services Company
2.4 Letter Agreement dated December 1, 2000 among KAV Inventory,
LLC, Aviation Sales Company and Aviation Sales Distribution
Services Company modifying the terms of the Inventory Purchase
Agreement
4.1 Warrant issued to James Ventures, L.P.
4.2 Warrant issued to LJH Corporation
4.3 Warrant issued to Robert Belfer
4.4 Warrant issued to Don A. Sanders
10.1 Operating Agreement of KAV Inventory, LLC dated September 20,
2000
10.2 Letter Agreement dated December 1, 2000 between Kellstrom
Industries, Inc., Aviation Sales Company and Bank of America,
N.A. regarding payment of expenses of KAV Inventory, LLC
10.3 Consignment Agreement dated December 1, 2000 between Kellstrom
Industries, Inc. and KAV Inventory, LLC
10.4 Cooperation Agreement dated December 1, 2000 among Kellstrom
Industries, Inc., Aviation Sales Company and Aviation Sales
Distribution Services Company
10.5 Non-Competition Agreement dated December 1, 2000 among
Kellstrom Industries, Inc., KAV Inventory, LLC, Aviation Sales
Company and Aviation Sales Distribution Services Company
10.6 Equipment Lease Agreement dated December 1, 2000 among
Aviation Sales Company, Aviation Sales Distribution Services
Company and Kellstrom Industries, Inc.
10.7 Letter Agreement dated December 1, 2000 among Aviation Sales
Company, Aviation Sales Distribution Services Company and
Kellstrom Industries, Inc. regarding the equipment leased
pursuant to the Equipment Lease dated December 1, 2000 among
such parties
10.8 Lease dated December 1, 2000 between Kellstrom Industries,
Inc. and Aviation Sales Company regarding the Miramar, Florida
facility
10.9 Lease dated December 1, 2000 between Kellstrom Industries,
Inc. and Aviation Sales Distribution Services Company
regarding the Pearland, TX facility
10.10 Letter Agreement dated December 1, 2000 among Aviation Sales
Company, Aviation Sales Distribution Services Company and
Kellstrom Industries, Inc. regarding the Pearland, TX facility
10.11 Agreement with respect to Standby Letter of Credit dated
December 1, 2000 by and among Kellstrom Industries, Inc.,
James Ventures, L.P., LJH Corporation, Robert Belfer and Don
A. Sanders
99.1 Press Release dated December 3, 2000 regarding the transaction
between Kellstrom Industries, Inc. Aviation Sales Company,
Aviation Sales Distribution Services Company and KAV
Inventory, LLC
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