<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1997
REGISTRATION NO. 333-40295
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HAWKER PACIFIC AEROSPACE
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 3728 95-3528840
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
------------------------------
11240 SHERMAN WAY
SUN VALLEY, CALIFORNIA 91352
(818) 765-6201
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
DAVID L. LOKKEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HAWKER PACIFIC AEROSPACE
11240 SHERMAN WAY
SUN VALLEY, CALIFORNIA 91352
TEL: (818) 765-6201
FAX: (818) 765-8073
(Name, address and telephone number of agent for service)
------------------------------
COPIES TO:
YVONNE E. CHESTER, ESQ. MARK A. KLEIN, ESQ.
ROBERT E. BENFIELD, ESQ. SUSAN B. KALMAN, ESQ.
TROY & GOULD PROFESSIONAL CORPORATION FRESHMAN, MARANTZ, ORLANSKI, COOPER &
KLEIN
1801 CENTURY PARK EAST, SUITE 1600 9100 WILSHIRE BOULEVARD, 8TH FLOOR
LOS ANGELES, CALIFORNIA 90067 BEVERLY HILLS, CALIFORNIA 90212
TEL. (310) 553-4441 TEL. (310) 273-1870
FAX. (310) 201-4746 FAX. (310) 274-8357
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended ("Securities Act"), check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement of the earlier effective registration statement for the
same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1) REGISTRATION FEE(2)
<S> <C> <C>
Common Stock, no par value........................................... $31,816,670 $9,641.41
Representatives' Warrants(3)(4)...................................... 223 0.07
Common Stock, no par value(4)(5)..................................... 2,227,160 674.90
Total Registration Fee........................................... $10,316.38*
</TABLE>
* Previously paid.
(1) Estimated solely for the purpose of calculating the registration fee, and
based upon a proposed maximum offering price per share of $10.00. Includes
the offering price of up to 415,000 shares that may be purchased at the
option of the Underwriters solely to cover over-allotments, if any.
(2) Computed in accordance with Rule 457(o).
(3) To be issued to the Representatives of the several Underwriters.
(4) Pursuant to Rule 416, there are also being registered such indeterminate
number of shares and warrants as may become issuable pursuant to
antidilution provisions of the Warrants registered hereunder.
(5) Issuable upon the exercise of the Representatives' Warrants at an assumed
maximum exercise price per share of $10.00.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 24, 1997
[LOGO]
2,766,667 SHARES
COMMON STOCK
------------------
Of the 2,766,667 shares of Common Stock offered hereby, 2,600,000 are being
sold by Hawker Pacific Aerospace, a California corporation ("Hawker Pacific" or
the "Company") and 166,667 are being sold by a shareholder of the Company (the
"Selling Shareholder"). See "Principal and Selling Shareholders." The Company
will not receive any proceeds from the sale of shares by the Selling
Shareholder. Prior to this offering (the "Offering"), there has been no public
market for the Common Stock of the Company. It is currently estimated that the
initial public offering price will be in the range of $8 to $10 per share. See
"Underwriting" for information relating to the method of determining the initial
public offering price. Immediately following the Offering, the shareholders of
Unique Investment Corp. will beneficially own in the aggregate approximately
47.5% (or 40.4% if the over-allotment option is exercised in full) of the
Company's outstanding Common Stock, and by virtue of such ownership will have
effective control over all matters requiring a vote of shareholders, including
the election of a majority of directors. See "Risk Factors--Control by Existing
Shareholders and Anti-Takeover Provisions." The Common Stock has been approved
for quotation on the Nasdaq National Market under the symbol "HPAC" subject to
official notice of issuance.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED
BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDER
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
Total(3)......................... $ $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses estimated at $ payable by the Company and
$ payable by the Selling Shareholder.
(3) The Selling Shareholder has granted to the Underwriters a 30-day option to
purchase up to an aggregate of 415,000 additional shares of Common Stock at
the price to the public less underwriting discounts and commissions for the
purpose of covering over-allotments, if any. If the Underwriters exercise
such option in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to the Selling Shareholder will be $ ,
$ and $ , respectively. See "Principal and Selling
Shareholders" and "Underwriting." The Company will not receive any portion
of the proceeds from the sale of the shares by the Selling Shareholder.
------------------------
The shares of Common Stock are offered by the Underwriters named herein,
subject to prior sale, when, as and if issued by the Company and delivered to
and accepted by the Underwriters and subject to certain prior conditions
including the right of the Underwriters to reject any order in whole or in part.
It is expected that delivery of the shares of Common Stock will be made at the
offices of EVEREN Securities, Inc., or through the facilities of The Depository
Trust Company, New York, New York on or about , 1998.
EVEREN SECURITIES, INC. THE SEIDLER COMPANIES
INCORPORATED
The date of this Prospectus is , 1998.
<PAGE>
[ART WORK]
LANDING GEAR
Large air transport landing gear, which are comprised of thousands of
component parts and may stand over seven feet tall and require sophisticated
information systems technology, skilled labor and heavy machinery to complete
the repair and overhaul processes performed by the Company.
THE COMPANY'S BORING MILLS, PERFORMING TIGHT TOLERANCE MACHINING OF A
WIDEBODY LANDING GEAR COMPONENT
PLASTIC MEDIA BLASTING FOR EFFICIENT PAINT REMOVAL
PRECISION TRACKING
The Company utilizes advanced systems including computerized material
requirements planning, bar-coded routing systems and electronic data order
processing.
These systems enable the Company to instantaneously track any job through
all repair operations and provide a direct link between facilities, allowing a
real-time view of work orders and associated material requirements.
DC10 MAIN LANDING GEAR ASSEMBLY, OVERHAULED BY HAWKER PACIFIC
SA365 DAUPHIN MAIN CONTROL
AS332 PUMA LOAD ABSORBING LANDING GEAR SHOCK STRUT
MD-11 WHEEL & TIRE ASSEMBLY
AS332 SUPER PUMA MAIN SERVO CONTROL
HYDROMECHANICS
Hawker Pacific's broad array of services include repair and overhaul of
hydraulic systems, flight controls, constant speed drives and integrated drive
generators for a variety of fixed wing aircraft and helicopters.
WHEELS TIRES & BRAKES
Hawker Pacific's United States facility offers one stop, full service wheel,
tire and brake (steel and carbon) overhaul and repair, Aircraft On the Ground
and technical support for a wide range of commercial and corporate aircraft.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE FINANCIAL STATEMENTS AND RELATED NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN
RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMMON STOCK.
THE COMPANY
Hawker Pacific repairs and overhauls aircraft and helicopter landing gear,
hydromechanical components and wheels, brakes and braking system components for
a diverse international customer base, including commercial airlines, air cargo
operators, domestic government agencies, aircraft leasing companies, aircraft
parts distributors and original equipment manufacturers ("OEMs"). In addition,
the Company distributes and sells new and overhauled spare parts and components
for both fixed wing aircraft and helicopters. During the nine months ended
September 30, 1997, the Company had in excess of 440 customers, several of which
have entered into long-term service contracts with the Company, including
Federal Express Corporation, American Airlines, Inc., the United States Coast
Guard, and US Airways, Inc. In September 1997, the Company entered into a
comprehensive letter of intent to purchase, for approximately L13.0 million
(approximately $21.1 million at September 30, 1997), substantially all of the
assets of British Airways' landing gear repair and overhaul operations. The
Company has entered into a definitive purchase agreement with British Airways
and expects to close the transaction immediately following completion of this
Offering using approximately $10 million of the net proceeds. As part of the BA
Acquisition, the Company and British Airways have agreed to enter into a
seven-year exclusive service agreement to provide landing gear and related
repair and overhaul services to substantially all of the aircraft currently
operated by British Airways. The Company believes that the BA Acquisition will
provide it with a base in the United Kingdom from which to expand its
international repair and overhaul operations significantly and position itself
to become the global leader in its markets. See "Acquisition of Certain Assets
of British Airways" and "Use of Proceeds."
The Company believes it is well positioned to benefit from the following
aviation industry trends that are driving increased demand for third-party
repair, overhaul and spare parts inventory management services: (i) an increase
in worldwide air traffic associated with the addition of new aircraft and more
frequent use of existing aircraft; (ii) the outsourcing by aircraft operators of
services previously handled internally; (iii) the break-up of monopolistic
aircraft maintenance consortiums; and (iv) an increase in regulatory and
customer emphasis on the traceability of aircraft parts.
GROWTH STRATEGY
PURSUE ADDITIONAL INTERNATIONAL GROWTH OPPORTUNITIES. The Company believes
that the international aviation aftermarket presents the greatest potential for
substantial growth. With the hydromechanical repair and overhaul services that
it performs from its Netherlands facility and the large air transport repair and
overhaul operations that it will establish through the BA Acquisition, the
Company believes it will be able to provide customers with a full range of
repair and overhaul services in Europe. In addition, the Company believes that
the break-up of aircraft maintenance consortiums will create opportunities for
the Company to expand its European, Middle Eastern and Asian customer bases.
With facilities located in the United Kingdom and California, the Company
believes that it will be geographically positioned to pursue additional growth
opportunities in both the European and Asian aviation aftermarkets.
FOCUS ON LONG-TERM SERVICE AGREEMENTS. Through increased sales and
marketing efforts, the Company is actively seeking to enter into long-term
service agreements with its existing and potential customers to provide its
services for all of their respective aircraft. A recent example of the Company's
success in this area includes the Company's September 1997 seven-year exclusive
agreement with American Airlines to service landing gear on all Boeing 757
aircraft within its fleet. While long-term agreements are often terminable on
short notice, the Company believes that securing long-term service agreements
with
3
<PAGE>
customers will provide Hawker Pacific with a more predictable and consistent
flow of business and enable it to improve its profit margins from fixed wing
operations.
EXPAND EXISTING OPERATIONS. Hawker Pacific seeks to increase sales, margins
and operating income by marketing its landing gear repair and overhaul services
to new and existing customers and expanding its hydromechanical component
product lines. Boeing projects that the global aircraft fleet will grow from
approximately 11,500 aircraft at the end of 1996 to over 16,000 aircraft in 2006
and 23,000 aircraft in 2016. The Company plans to expand its landing gear repair
and overhaul operations in order to capitalize on this growth trend. The Company
also intends to expand hydromechanical component service offerings particularly
through increased capabilities resulting from the BA Acquisition.
SUPPLEMENT GROWTH THROUGH ACQUISITION. The Company intends to evaluate and
pursue strategically located acquisition prospects with technology, equipment
and inventory that complement or expand the Company's existing operations and
that may enable it to expand into new geographic or product markets.
COMPETITIVE STRENGTHS
- STRONG MARKET POSITION. The Company through its predecessors has been
providing aftermarket products and services to the aviation industry for over 30
years and believes it has gained an international reputation for high quality
and reliability. The Company believes that its customers select Hawker Pacific
based on its superior quality of service, competitive pricing, rapid turnaround
time and extensive industry experience. Using its engineering expertise, the
Company has developed proprietary or specialized repair and overhaul equipment
and techniques, including the ability to manufacture certain replacement parts
in-house, that enable it to reduce costs in providing its customers with repair
and overhaul services.
- EXPERIENCED MANAGEMENT TEAM. The Company's senior executives have on
average over 20 years of industry experience and have served the Company for an
average of seven years. In addition, the Company believes that its customers
highly value the extensive experience of its 15 managers, who have served the
Company on average for 12 years.
- ADVANCED MANAGEMENT INFORMATION SYSTEMS. The Company has developed
proprietary systems to manage and schedule work flow and coordinate many aspects
of operations. The Company believes that its management information systems are
among the most advanced in its industry, permitting the Company to achieve
greater operating efficiencies, offer a higher level of customer service than
its competitors and provide complete traceability of aircraft parts.
Hawker Pacific was incorporated in 1980 in California as a distributor of
aircraft parts and certain other consumer products and began providing aircraft
repair and overhaul services in 1987. In November 1996, BTR Dunlop, Inc. sold
all of the outstanding capital stock of the Company to the Company's current
shareholders. See "Certain Transactions--Acquisition of the Company from BTR."
Unless the context otherwise requires, all references henceforth to the
"Company" or "Hawker Pacific" shall include Hawker Pacific Aerospace Limited, a
wholly-owned United Kingdom subsidiary formed in November 1997. The Company's
principal executive offices are located at 11240 Sherman Way, Sun Valley,
California 91352, and its telephone number is (818) 765-6201.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered:
By the Company.............................................. 2,600,000 shares
By the Selling Shareholder.................................. 166,667 shares
Common Stock Outstanding after the Offering..................... 5,822,222 shares
Use of Proceeds................................................. The net proceeds will be used to finance a
portion of the BA Acquisition, to repay a
portion of certain indebtedness and for working
capital and general corporate purposes. See "Use
of Proceeds."
Risk Factors.................................................... Prospective investors should consider carefully
the factors set forth under "Risk Factors."
Nasdaq National Market Symbol................................... HPAC
</TABLE>
------------------------
UNLESS OTHERWISE INDICATED, ALL REFERENCES TO THE COMPANY ARE TO HAWKER
PACIFIC AEROSPACE ("HAWKER PACIFIC" OR THE "COMPANY"). "BA ASSETS" REFERS TO THE
ASSETS OF BRITISH AIRWAYS PLC'S ("BRITISH AIRWAYS") LANDING GEAR REPAIR AND
OVERHAUL OPERATIONS TO BE ACQUIRED BY THE COMPANY IMMEDIATELY FOLLOWING THE
CLOSING OF THE OFFERING (THE "BA ACQUISITION"). UNLESS OTHERWISE INDICATED, THE
INFORMATION SET FORTH HEREIN (I) REFLECTS A 579.48618 FOR ONE STOCK SPLIT
(ASSUMING AN INITIAL PUBLIC OFFERING PRICE OF $9 PER SHARE) TO BE EFFECTED PRIOR
TO THIS OFFERING, (II) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION, THE REPRESENTATIVES' WARRANTS TO PURCHASE UP TO 222,716 SHARES OF COMMON
STOCK, OR OPTIONS TO PURCHASE UP TO AN AGGREGATE OF 756,888 SHARES OF COMMON
STOCK GRANTED OR RESERVED UNDER THE COMPANY'S 1997 STOCK OPTION PLAN AND
PURSUANT TO MANAGEMENT STOCK OPTIONS GRANTED IN NOVEMBER 1997, AND (III) GIVES
EFFECT TO THE CONVERSION OF ALL OUTSTANDING SHARES OF THE COMPANY'S SERIES A
PREFERRED STOCK (THE "PREFERRED STOCK") INTO 222,222 SHARES OF COMMON STOCK
(ASSUMING AN INITIAL PUBLIC OFFERING PRICE OF $9 PER SHARE).
FORWARD-LOOKING STATEMENTS
When included in this Prospectus, the words "expects," "intends,"
"anticipates," "plans," "projects" and "estimates," and analogous or similar
expressions are intended to identify forward-looking statements. Such
statements, which include statements contained in "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," are inherently subject to a variety of
risks and uncertainties that could cause actual results to differ materially
from those reflected in such forward-looking statements. For a discussion of
certain of such risks, see "Risk Factors." These forward-looking statements
speak only as of the date of this Prospectus. The Company expressly disclaims
any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
5
<PAGE>
SUMMARY FINANCIAL DATA
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
PREDECESSOR(1) SUCCESSOR(1)
-------------------------- -----------------------------------------------------------
YEAR TEN MONTHS TWO MONTHS YEAR NINE MONTHS
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995(2) 1996(3) 1996 1996 1996 1997
------------- ----------- ------------ ---------------- ---------------- ---------
(PRO (PRO
FORMA)(3)(4) FORMA)(3)(4)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ 35,012 $ 32,299 $ 6,705 $ 39,004 $ 29,567 $ 30,060
Cost of revenues............... 28,993 27,027 4,599 31,799 25,157 23,083
------------- ----------- ------------ ---------------- ---------------- ---------
Gross profit................... 6,019 5,272 2,106 7,205 4,410 6,977
Selling, general and
administrative(5)............ 4,837 5,044 1,059 6,161 4,406 4,118
Restructuring charges(3)....... -- 1,196 -- 1,196 1,196 --
------------- ----------- ------------ ---------------- ---------------- ---------
Income (loss) from
operations................... 1,182 (968) 1,047 (152) (1,192) 2,859
Interest expense, net.......... (1,598) (1,609) (196) (2,305) (1,734) (1,802)
Income tax expense
(benefit)(6)................. (680) (971) 382 (934) (1,112) 392
------------- ----------- ------------ ---------------- ---------------- ---------
Net income (loss).............. $ 264 $ (1,606) $ 469 $ (1,523) $ (1,814) $ 665
------------- ----------- ------------ ---------------- ---------------- ---------
------------- ----------- ------------ ---------------- ---------------- ---------
Pro forma net income (loss) per
share........................ $ 0.15 $ (0.43) $ (0.58) $ 0.21
------------ ---------------- ---------------- ---------
Pro forma supplemental net
income per share(7).......... $ (0.14) $ (0.25)
Weighted average shares
outstanding.................. 3,119,627 3,119,627 3,119,627 3,119,811
OPERATING AND OTHER DATA:
Capital expenditures........... $ 4,114 $ 1,199 $ 28,553 $ 1,576
Depreciation and
amortization................. 854 819 200 866
EBITDA(8)...................... 2,036 (149) 1,254 3,727
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------
ACTUAL AS ADJUSTED(9)
--------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................ $ 5,582 $ 21,344
Total assets........................................................................... 39,399 52,518
Total long-term debt (excluding current portion)....................................... 18,063 13,063
Total shareholders' equity............................................................. 3,674 24,936
</TABLE>
- ------------------------------
(1) Predecessor information represents the historical financial data of the
Company when it was owned by BTR Dunlop, Inc. ("BTR"). Successor information
represents the historical financial data after the acquisition of the
Company by its existing shareholders (the "BTR Transaction"). See "Certain
Transactions-- Acquisition of the Company from BTR" and Note 1 of Notes to
Financial Statements.
(2) Fiscal 1995 includes a charge to cost of revenues of $927,000 for disposal
of inventory related to the merger (the "Dunlop Merger") of certain
operations of Dunlop Aviation, Inc., a wholly-owned subsidiary of BTR Dunlop
Holdings, Inc. ("Dunlop Aviation"), which had operations in Chatsworth, CA
("Dunlop Chatsworth") and Miami, FL ("Dunlop Miami"). Fiscal 1995 also
includes a net gain of approximately $300,000 in selling, general and
administrative expenses which represents an operating expense of $700,000
offset by an insurance reimbursement of $1,000,000 related to an
environmental liability incurred by the Company (the "EPA Claim"), for which
it has been fully indemnified by BTR. The estimated total net cost of the
EPA Claim recorded in fiscal 1995 was based on the information available at
that time. See "Business--Environmental Matters and Proceedings" and Notes 1
and 7 of Notes to Financial Statements.
(3) Restructuring charges during the ten months ended October 31, 1996 relate to
costs incurred to shut down discontinued operations of Dunlop Miami. See
Note 10 of Notes to the Financial Statements. In addition, the ten months
ended October 31, 1996, pro forma year ended December 31, 1996 and pro forma
nine months ended September 30, 1996 include a charge of $489,000 to cost of
revenues for the disposal of inventory related to the shutdown of Dunlop
Miami and a charge to cost of revenues of $574,000 for non-productive
inventory of the Company.
(4) The pro forma presentation gives effect to the BTR Transaction as though it
had occurred on January 1, 1996.
(5) Included in selling, general and administrative expenses for the ten months
ended October 31, 1996, the pro forma nine months ended September 30, 1996,
and the pro forma year ended December 31, 1996 are expenditures related to
the EPA Claim of
6
<PAGE>
$947,000. No such costs were incurred during the two months ended December
31, 1996 or the nine months ended September 30, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
(6) Income tax expenses for the two months ended December 31, 1996 and nine
months ended September 30, 1997 include provisions of $382,000 and $391,000,
respectively, resulting from the reduction of deferred tax assets. No tax is
actually payable for such provisions. See Note 4 of Notes to Financial
Statements.
(7) Pro forma supplemental earnings per share reflect what earnings would have
been if the debt retired with the proceeds from the Offering had been
retired at the beginning of the period. The number of shares of Common Stock
to be sold in this Offering, the proceeds from which will be used to retire
debt, are included in this calculation with a corresponding reduction in
interest expense. See Note 1 of Notes to Financial Statements.
(8) EBITDA represents earnings before taking into consideration interest
expense, income tax expense and depreciation and amortization expense and is
not a measurement of income under generally accepted accounting principles
("GAAP"). EBITDA may not provide an accurate comparison among companies
because it is not necessarily computed identically by all companies. The use
of such information is intended only to supplement the conventional income
statement presentation and is not to be considered as an alternative to net
income, cash flows or any other indicator of the Company's operating
performance which is presented in accordance with GAAP.
(9) Adjusted to give effect to the receipt of the net proceeds from the sale by
the Company of 2,600,000 shares of Common Stock to be sold in this Offering
(at an assumed initial public offering price of $9.00 per share) and the
application of the estimated net proceeds to working capital and repayment
of a portion of certain debt. Does not give effect to the BA Acquisition
which is expected to be completed immediately following the Offering. The
Company plans to use $10 million from the proceeds of this Offering and
approximately $12 million from a new credit facility to fund the purchase
price of the BA Assets. See "Acquisition of Certain Assets of British
Airways" and "Use of Proceeds."
7
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS WHEN EVALUATING AN INVESTMENT IN
THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE
COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY
STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE
DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
AVIATION INDUSTRY RISKS
The Company derives all of its sales and operating income from the services
and parts that it provides to its customers in the aviation industry. Therefore,
the Company's business is directly affected by economic factors and other trends
that affect its customers in the aviation industry, including a possible
decrease in aviation activity, a decrease in outsourcing by aircraft operators
or the failure of projected market growth to materialize or continue. When such
economic and other factors adversely affect the aviation industry, they tend to
reduce the overall demand for the Company's products and services, thereby
decreasing the Company's sales and operating income. There can be no assurance
that economic and other factors that might affect the aviation industry will not
adversely affect the Company's results of operations. See "Business--Market and
Industry Overview."
FLUCTUATIONS IN RESULTS OF OPERATIONS
The Company's operating results are affected by a number of factors,
including the timing of orders for the repair and overhaul of landing gear and
fulfillment of such contracts, the timing of expenditures to manufacture parts
and purchase inventory in anticipation of future services and sales, parts
shortages that delay work in progress, general economic conditions and other
factors. Although the Company has secured several long-term agreements to
service multiple aircraft, the Company receives sales under these agreements
only when it actually performs a repair or overhaul. Because the average time
between landing gear overhauls is seven years, the work orders that the Company
receives and the number of repairs or overhauls that the Company performs in
particular periods may vary significantly causing the Company's quarterly sales
and results of operations to fluctuate substantially. The Company is unable to
predict the timing of the actual receipt of such orders and, as a result,
significant variations between forecasts and actual orders will often occur. In
addition, the Company's need to make significant expenditures to support new
aircraft in advance of generating revenues from repairing or overhauling such
aircraft may cause the Company's quarterly operating results to fluctuate.
Furthermore, the rescheduling of the shipment of any large order, or portion
thereof, or any production difficulties or delays by the Company, could have a
material adverse effect on the Company's quarterly operating results.
RISKS RELATING TO ACQUISITION STRATEGY; ESTABLISHMENT OF UNITED KINGDOM
OPERATIONS
Immediately following completion of this Offering, the Company will acquire
the BA Assets using approximately $10 million of the proceeds from this
Offering. See "Acquisition of Certain Assets of British Airways" and "Use of
Proceeds." In the future, the Company may attempt to grow by acquiring other
service and parts providers whose operations or inventories complement or expand
the Company's existing repair and overhaul businesses or whose strategic
locations enable the Company to expand into new geographic markets. The
Company's ability to grow by acquisition depends upon, and may be limited by,
the availability of suitable acquisition candidates and the Company's capital
resources. Acquisitions involve risks that could adversely affect the Company's
operating results, including the assimilation of the operations and personnel of
acquired companies, the potential amortization of acquired intangible assets and
the potential loss of key employees of acquired companies. Although the Company
investigates the operations and assets that it acquires, there may be
liabilities that the Company fails or is unable to
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discover, and for which the Company as a successor owner or operator may be
liable. In addition, costs and charges, including legal and accounting fees and
reserves and write-downs relating to an acquisition, may be incurred by the
Company or may be reported in connection with any such acquisition, including
the BA Acquisition. The Company evaluates acquisition opportunities from time to
time, but the Company has not entered into any commitments or binding agreements
to date, except with respect to the BA Acquisition. There can be no assurance
that the Company will be able to consummate acquisitions on satisfactory terms,
or at all, or that it will be successful in integrating any such acquisitions,
including the BA Acquisition, into its operations. The Company has no history or
experience operating in the United Kingdom. Accordingly, establishing operations
in the United Kingdom will subject the Company to all of the risks inherent in
the establishment of a new business enterprise. The likelihood of the success of
the Company's United Kingdom operations must be considered in light of the
problems, expenses, difficulties, complications and delays frequently
encountered in connection with a new business. These include, without
limitation, the need to establish manufacturing, marketing and administrative
capabilities, the need to implement the Company's management information systems
in its new location, the need to locate and move into a new facility,
unanticipated marketing problems, new competitive pressures and expenses.
RISKS ASSOCIATED WITH EXPANSION OF INTERNATIONAL OPERATIONS
The Company's growth strategy is based in large part on the Company's
ability to expand its international operations, which will require significant
management attention and financial resources. The Company currently has a
division in the Netherlands, and through the BA Acquisition, the Company plans
to expand further its international customer base. There can be no assurance
that the Company's efforts to expand operations internationally, including the
BA Acquisition, will be successful. Failure to increase revenue in international
markets could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, international operations
are subject to a number of risks, including longer receivable collection periods
and greater difficulty in accounts receivable collections, unexpected changes in
regulatory requirements, foreign currency fluctuations, import and export
restrictions and tariffs, difficulties and costs of staffing and managing
foreign operations, potentially adverse tax consequences, political instability,
the burdens of complying with multiple, potentially conflicting laws and the
impact of business cycles and economic instability outside the United States.
Moreover, the Company's operating results could also be adversely affected by
seasonality of international sales, which are typically lower in Asia in the
first calendar quarter and in Europe in the third calendar quarter. In addition,
inflation in such countries could increase the Company's expenses. These
international factors could have a material adverse effect on future sales of
the Company's products to intentional end-users and, consequently, the Company's
business, operating results and financial condition.
The Company's sales are principally denominated in United States dollars and
to some extent in Dutch guilders, and the Company expects to make material sales
in British pounds following the BA Acquisition. The Company makes substantial
inventory purchases in French francs from such suppliers as Messier-Bugatti,
Societe D'Applications Des Machines Motrices ("SAMM") and Eurocopter France. The
Company's Netherlands facility's inventory purchases are primarily United States
dollar denominated while sales and operating expenses are partially denominated
in Dutch guilders. To date, the Company's business has not been significantly
affected by currency fluctuations or inflation. However, the Company conducts
business in the Netherlands and expects to conduct business in the United
Kingdom, and thus fluctuations in currency exchange rates could cause the
Company's products to become relatively more expensive in particular countries,
leading to a reduction in sales in that country. Upon completion of the BA
Acquisition, the Company may engage in additional foreign currency denominated
sales or pay material amounts of expenses in foreign currencies that may
generate gains and losses due to currency fluctuations. The Company's operating
results could be adversely affected by such fluctuations or as result of
inflation in particular countries where material expenses are incurred. The
Company's payment of the purchase price for the BA Acquisition will be
denominated in pounds, and, therefore, the actual purchase
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price may fluctuate depending on the currency conversion factor in effect at the
time the BA Acquisition is consummated.
SUBSTANTIAL COMPETITION
Numerous companies compete with the Company in the aviation services
industry. The Company primarily competes with various repair and overhaul
organizations, which include the service arms of OEMs, the maintenance
departments or divisions of large commercial airlines (some of which also offer
maintenance services to third parties) and independent organizations such as the
Landing Gear Services Division of the B.F. Goodrich Company ("BFG"), the Landing
Gear Division of AAR Corporation ("AAR"), Revima, a company organized and
operating under the laws of France ("Revima") and Dowty Aerospace Aviation
Services ("Dowty"). The Company's major competitors in its hydromechanical
components business include AAR and OEMs such as Sunstrand, Aeroquip Vickers,
Inc. ("Vickers"), Parker-Hannifin Corporation ("Parker-Hannifin"),
Messier-Bugatti and Lucas. The Company expects that competition in its industry
will increase substantially as a result of industry consolidations and alliances
in response to the trend in the aviation industry toward outsourcing of repair
and overhaul services. In addition, as the Company moves into new geographic or
product markets it will encounter new competition.
The Company believes that the primary competitive factors in its marketplace
are quality, price, rapid turnaround time and industry experience. Certain of
the Company's competitors have substantially greater financial, technical,
marketing and other resources than the Company. These competitors may have the
ability to adapt more quickly to changes in customer requirements, may have
stronger customer relationships and greater name recognition and may devote
greater resources to the development, promotion and sale of their products than
the Company. There can be no assurance that competitive pressures will not
materially and adversely affect the Company's business, financial condition or
results of operations. See "Business--Competition."
GOVERNMENT REGULATION
The Company is highly regulated worldwide by the Federal Aviation
Administration ("FAA"), the Joint Airworthiness Authority, a consortium of
European regulatory authorities ("JAA"), and various other foreign regulatory
authorities, including the Dutch Air Agency, which regulates the Company's
Netherlands' operations. Upon completion of the BA Acquisition, the Company's
British operations will be regulated by the Civil Aviation Authority ("CAA").
These regulatory authorities require aircraft to be maintained under continuous
condition monitoring programs and to periodically undergo thorough inspection.
In addition, all parts must be certified by the FAA and equivalent regulatory
agencies in foreign countries and conformed to regulatory standards before they
are installed on an aircraft. The Company is a certified FAA and JAA approved
repair station and has been granted Parts Manufacturer Approvals by the FAA
Manufacturing Inspectors District Office. In addition, the Company's operations
are regularly audited and accredited by the Coordinating Agency for Supplier
Evaluation, formed by commercial airlines to approve FAA approved repair
stations and aviation parts suppliers. If material authorizations or approvals
were revoked or suspended, the Company's operations would be materially and
adversely affected. As the Company attempts to commence operations in countries
in which it has not previously operated, it will need to obtain new
certifications and approvals, and any delay or failure in attaining such
certifications or approvals could have a material adverse effect on the
Company's business, financial conditions and results of operations. In addition,
if in the future new and more stringent regulations are adopted by foreign or
domestic regulatory agencies, the Company's business may be materially and
adversely affected.
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DEPENDENCE ON KEY SUPPLIERS
The Company purchases landing gear spare parts and components for a variety
of fixed wing aircraft and helicopters. The Company has separate 10-year
agreements that each expire in October 2006 with (i) Dunlop Limited, Aviation
Division, (ii) Dunlop Limited, Precision Rubber and (iii) Dunlop Equipment
Division (collectively, "Dunlop"). Under two of these agreements, the Company is
entitled to purchase at a discount from list price Dunlop parts for resale and
for use in the repair and overhaul of a variety of fixed wing aircraft and
helicopters. For the years ended December 31, 1995 and 1996, and the nine months
ended September 30, 1997, the Company's single largest supplier was Dunlop,
accounting for approximately $5,005,000 (22.3%), $5,634,000 (27%) and $2,846,000
(19%), respectively, of the spare parts and components that the Company
purchased in such periods. Failure by any one of these divisions of Dunlop to
renew its agreement on similar terms when it expires could have a material
adverse affect on the Company's business, financial condition and results of
operations. In addition, the Company has agreements with Messier-Bugatti, SAMM
and Eurocopter France that enable the Company to purchase new aircraft parts at
discounts from list price. Many of the Company's supplier agreements, other than
its agreements with Dunlop, are short-term and can be terminated by the
suppliers upon providing 90 days prior written notice. A decision by any one of
these suppliers to terminate their agreements would eliminate the competitive
advantage the Company derives therefrom and could have a material adverse effect
on the Company's business, financial condition and results of operations.
SHORTAGES OF SUPPLY; INVENTORY OBSOLESCENCE
The Company's inventory consists principally of new, overhauled, serviceable
and repairable aircraft landing gear parts and components that it purchases
primarily from OEMs, parts resellers and customers. The Company believes it
maintains a sufficient supply of inventory to meet its current and immediately
foreseeable production schedule. However, the Company may fail to order
sufficient parts in advance to meet its work requirements, a particular part may
be unavailable when the Company needs it from its suppliers or the Company
unexpectedly may receive one or more large orders simultaneously for repair and
overhaul services. As a result, the Company may on occasion face parts shortages
that delay its production schedule and prevent it from meeting required
turnaround times. Any such part shortage could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, regulatory standards may change in the future, causing parts which are
currently included in the Company's inventory to be scrapped or modified.
Aircraft manufacturers may also develop new parts to be used in lieu of parts
already contained in the Company's inventory. In all such cases, to the extent
that the Company has such parts or excess parts in its inventory, their value
will be reduced, which would adversely affect the Company's financial condition.
CUSTOMER CONCENTRATION; CONCENTRATION OF CREDIT RISKS
A small number of customers have historically accounted for a substantial
part of the Company's revenue in any given fiscal period. Sales derived from
sales to Federal Express Corporation ("FedEx") and the United States Coast Guard
(the "USCG") accounted for 18.4%, and 11.2%, respectively, of product sales for
the year ended December 31, 1996 and 18.2% and 7.0%, respectively, of product
sales for the nine months ended September 30, 1997. Some of the Company's
long-term service agreements may be terminated by the customers upon providing
the Company with 90 days prior written notice, and the Company's agreement with
the USCG is subject to termination at any time at the convenience of the
government. In addition, the Company's sales are made primarily on the basis of
purchase orders rather than long-term agreements. The Company expects that a
small number of customers will continue to account for a substantial portion of
its sales for the foreseeable future. As a result, the Company's business,
financial condition and results of operations could be materially adversely
affected by the decision of a single customer to cease using the Company's
products. In addition, there can be no assurance that sales from customers that
have accounted for significant sales in past periods, individually or as a
group, will
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continue, or if continued, will reach or exceed historical levels in any future
period. See "Business-- Customers."
At September 30, 1997, 20.9% and 11.1%, respectively of the Company's total
accounts receivable were associated with two customers, FedEx and United
Airlines, Inc. ("United Airlines"). At December 31, 1996, 7.4% and 9.3%,
respectively of the Company's total accounts receivable were associated with
FedEx and the USCG. Following the BA Acquisition, the Company expects that
British Airways will account for a significant percentage of both its products
sales and accounts receivable. Although the Company has not had any material
difficulties in collecting its accounts receivable during the past three years,
the Company cannot ensure that it will not have difficulty collecting
receivables in the future. Any inability by the Company to collect receivables
under its service agreements would have a material adverse effect on the
Company's business, financial condition and results of operations.
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to extensive and frequently changing
federal, state and local environmental laws and substantial related regulation
by government agencies, including the United States Environmental Protection
Agency ("EPA"), the California Environmental Protection Agency and the United
States Occupational Safety and Health Administration. Among other matters, these
regulatory authorities impose requirements that regulate the operation,
handling, transportation and disposal of hazardous materials generated by the
Company during the normal course of its operations, govern the health and safety
of the Company's employees and require the Company to obtain and maintain
permits in connection with its operations. This extensive regulatory framework
imposes significant compliance burdens and risks on the Company and, as a
result, substantially affects its operational costs. In addition, the Company
may become liable for the costs of removal or remediation of certain hazardous
substances released on or in its facilities without regard to whether or not the
Company knew of, or caused, the release of such substances. The Company believes
that it currently is in material compliance with applicable laws and regulations
and is not aware of any material environmental problem at any of its current or
former facilities. There can be no assurance, however, that its prior activities
did not create a material problem for which the Company could be responsible or
that future uses or conditions (including, without limitation, changes in
applicable environmental laws and regulation, or an increase in the amount of
hazardous substances generated by the Company's operations) will not result in
any material environmental liability to the Company and materially and adversely
affect the Company's financial condition and results of operations. The
Company's plating operations, which use a number of hazardous materials and
generate a significant volume of hazardous waste, increase the Company's
regulatory compliance burden and compound the risk that the Company may
encounter a material environmental problem in the future. Furthermore,
compliance with laws and regulations in foreign countries in which the Company
locates its operations may cause future increases in the Company's operating
costs or otherwise adversely affect the Company's results of operations or
financial condition. See "Business--Environmental Matters and Proceedings."
PRODUCT LIABILITY RISKS
The Company's business exposes it to possible claims for personal injury,
death or property damage which may result from the failure or malfunction of
landing gear, hydromechanical components or aircraft spare parts repaired or
overhauled by the Company. Many factors beyond the Company's control could lead
to liability claims, including the failure of the aircraft on which landing gear
or hydromechanical components overhauled by the Company is installed, the
reliability of the customer's operators of the aircraft and the maintenance of
the aircraft by the customers. The Company currently has in force aviation
products liability and premises insurance, which the Company believes provides
coverage in amounts and on terms that are generally consistent with industry
practice. The Company has not experienced any material product liability claims
related to its products. However, the Company may be subject to a
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material loss to the extent that a claim is made against the Company that is not
covered in whole or in part by insurance and for which any third-party
indemnification is not available. There can be no assurance that the amount of
product liability insurance that the Company carries at the time a product
liability claim may be made will be sufficient to protect the Company. A product
liability claim in excess of the amount of insurance carried by the Company
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, there can be no assurance that
insurance coverages can be maintained in the future at an acceptable cost.
DEPENDENCE ON KEY PERSONNEL
The continued success of the Company depends to a large degree upon the
services of certain of its executive officers and upon the Company's ability to
attract and retain qualified managerial and technical personnel experienced in
the various operations of the Company's business. Loss of the services of such
employees, particularly David Lokken, President and Chief Executive Officer,
Brian Aune, Vice President and Chief Financial Officer, Brian Carr, Managing
Director of Sun Valley Operations, or Michael Riley, Vice
President--Hydromechanical Business Unit, could adversely affect the operations
of the Company. The Company has entered into an employment agreement expiring
October 31, 2001 with Mr. Lokken and into employment agreements expiring October
31, 1999 with Messrs. Aune, Carr and Riley. The Company intends to obtain key
person insurance on the life of Mr. Lokken in the amount of $1,000,000 prior to
the consummation of this Offering. There can be no assurance that the proceeds
of such insurance will be sufficient to compensate the Company in the event that
Mr. Lokken dies. Competition for qualified technical personnel is intense and
from time to time, the Company has experienced difficulty in attracting and
retaining personnel skilled in its repair and overhaul operations. There can be
no assurance that these individuals will continue employment with the Company.
The loss of certain key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Employees and Employee Training" and "Management."
CURRENT DEPENDENCE ON PRIMARY FACILITIES; RISK ASSOCIATED WITH FACILITIES
REORGANIZATION
The Company's ability to manufacture repair parts and components and to
perform its repair and overhaul operations depends upon the use of the Company's
machinery and equipment at its Sun Valley, California, facility. Accordingly,
any material disruption in the operations of its Sun Valley, California facility
would have a material adverse effect on the Company's business, financial
condition and results of operations. Such interruption or disruption could occur
due to malfunctions in machinery or equipment, or to natural disasters, such as
earthquakes or fires.
The Company is in the process of reorganizing and reconfiguring its Sun
Valley facilities to meet its growth needs and increase the efficiency of its
operations. The Company expects to complete its facilities reorganization in
early 1998 and then plans to begin expanding its plating operations, which is
not expected to be completed until the end of 1998. Any failure or delay in
completing the reorganization of its facilities or the expansion of its plating
operations as currently planned, however, could significantly impair the
Company's ability to manage its rapid growth and could have a material adverse
affect on the Company's business, financial condition and results of operations.
See "Business--Facilities."
CONTROL BY EXISTING SHAREHOLDERS AND ANTI-TAKEOVER PROVISIONS
Prior to the Offering, and assuming an initial public offering price of $9
per share, the five shareholders (the "Unique Shareholders") of Unique
Investment Corp. ("Unique") beneficially owned approximately 91% of the
Company's outstanding Common Stock, and the executive officers of the Company
beneficially owned approximately 10.4% of the Company's outstanding Common
Stock, including the vested management options to purchase 116,444 shares of
Common Stock. Upon consummation of the Offering, the Unique Shareholders will
beneficially own in the aggregate approximately 47.5% (or 40.4% if the
overallotment option is exercised in full) of the Company's outstanding Common
Stock, and
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by virtue of such ownership, will have effective control over all matters
requiring a vote of shareholders, including the election of a majority of
directors. The ownership positions of the existing shareholders, together with
the authorization of blank check preferred stock and the implementation, if
certain conditions are met, of a staggered board and elimination of cumulative
voting in the Company's Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws, may have the effect of delaying, deferring or
preventing a change in control of the Company, may discourage bids for the
Company's Common Stock at a premium over the market price of the Common Stock
and may adversely affect the market price of the Common Stock. See "Principal
and Selling Shareholders" and "Description of Capital Stock."
BENEFITS OF OFFERING TO CURRENT SHAREHOLDERS AND MANAGEMENT
As a result of this Offering, assuming an initial public offering price per
share of $9.00, the Company's existing shareholders, including certain members
of the Company's management, will realize an immediate increase of $3.10 in the
net tangible book value per share of their investment in the Company. See
"Dilution." In addition, a portion of the Company's net proceeds of this
Offering will be used to repay a portion of subordinated debt owed to Melanie L.
Bastian, a principal shareholder of the Company and the Selling Shareholder in
this Offering. It is also expected that Ms. Bastian will be released from
certain bank guarantees that she has heretofore provided for the Company. See
"Use of Proceeds," "Certain Transactions" and "Principal and Selling
Shareholders."
ABSENCE OF PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; STOCK PRICE
VOLATILITY
Prior to this Offering there has been no public market for the Common Stock,
and there can be no assurance that an active trading market for the Common Stock
will develop or be sustained after the Offering. The initial public offering
price has been determined by negotiations between the Company and the
representatives of the Underwriters and does not necessarily bear a relationship
to assets, book value, earnings history or other established criteria of value.
See "Underwriting." In addition, in recent years, the stock market has
experienced significant price and volume fluctuations. These fluctuations, which
are often unrelated to the operating performances of specific companies, have
had a substantial effect on the market price of stocks, particularly for many
small capitalization companies. Accordingly, the factors described in this Risk
Factors section or market conditions in general may cause the market price of
the Company's Common Stock to fluctuate, perhaps substantially.
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors in this Offering will experience immediate and substantial
dilution in the net tangible bank value of the shares of Common Stock in this
Offering. At an assumed initial public offering price of $9.00 per share,
purchasers of the Common Stock offered hereby will incur dilution of $4.80 in
the pro forma net tangible book value per share of Common Stock. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, 3,055,555 shares of Common Stock
outstanding prior to this Offering (less any shares sold by the Selling
Shareholder upon exercise of the over-allotment option) will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act. All of
the restricted securities will become available for immediate sale in the public
market following the expiration of lock-up agreements between certain security
holders and the Representatives of the Underwriters beginning 180 days after the
date of this Prospectus, subject in certain cases to the volume, holding period
and other restrictions of Rule 144. Sales of substantial amounts of Common Stock
in the public market following this Offering or even the potential of such sales
could have an adverse effect on the market price of the Common Stock.
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ACQUISITION OF CERTAIN ASSETS OF BRITISH AIRWAYS
On December 20, 1997, the Company signed a definitive acquisition agreement
(the "Acquisition Agreement") with British Airways to purchase the BA Assets,
which consist of substantially all of the assets of British Airways' landing
gear repair and overhaul operations. The Company expects to close the
transaction immediately following completion of this Offering. The Company plans
to use approximately $10 million from the net proceeds of this Offering to fund
a portion of the purchase price for the BA Assets. The balance of the purchase
price will be provided by new bank financing. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The purchase price for the BA Assets is approximately L13.0 million
(approximately $21.1 million at September 30, 1997), subject to adjustment to
reflect certain changes to the quantities and condition of the assets and the
potential exclusion of one landing gear shipset priced at L1.8 million ($2.9
million at September 30, 1997). The BA Acquisition represents the purchase of
assets of British Airways Engineering used to service landing gear primarily on
British Airways' aircraft. The Company is acquiring assets utilized exclusively
to provide general repair and overhaul services for landing gear, flap tracks
and flap carriages, including machining and plating operations. The BA
Acquisition does not include British Airways' facilities or business support
functions, such as purchasing, accounting, human resources, management
information systems, quality assurance, training, transportation, property
management and legal, which are currently provided by British Airways'
centralized departments. As a result, the Company will be required to integrate
its support systems into the BA Assets and provide facilities for its United
Kingdom operations following the BA Acquisition. See "Risk Factors--Risks
Relating to Acquisition Strategy; Establishment of United Kingdom Operations."
The Company will not assume any debt or liabilities of British Airways
except liability for two contracts between British Airways and a supplier and a
third party customer, respectively. Under United Kingdom labor laws,
approximately 130 of British Airways' current employees (the "British Airways
Employees") will become employees of the Company. In addition, the Company has
agreed in the Acquisition Agreement to establish a new pension plan that
provides the British Airways Employees with benefits the same as those they
currently receive under British Airways' pension plan. The Acquisition Agreement
provides that British Airways and the Company will agree to indemnify one
another against certain losses that could arise as a result of the transfer of
the British Airways Employees.
As part of the BA Acquisition, the Company and British Airways have agreed
to enter into an exclusive seven-year Landing Gear Overhaul Services Agreement
(the "Services Agreement") with British Airways pursuant to which the Company
expects to provide British Airways with landing gear, flap track and flap
carriage repair and overhaul services, and related spare parts and component
overhaul services for substantially all of the aircraft currently operated by
British Airways. In exchange for the Company's repair and overhaul services,
British Airways will pay the Company a fixed overhaul fee per individual landing
gear, flap track and flap carriage, and variable fees for "over and above" work
and other services. In addition, the Services Agreement will obligate British
Airways to pay the Company an annual inventory access fee based on the value of
rotable spares which the Company is required to dedicate to the support of
British Airways' fleet, estimated to be L1.8 ($2.9 million at September 30,
1997) in the first year based upon the amount of rotable inventory sold to the
Company pursuant to the Acquisition Agreement, which is expected to fluctuate
over the term of the Services Agreement. Repair and overhaul of spare parts and
components will be separately charged on a time and materials basis. The
Services Agreement provides that British Airways will have the right to
terminate the Services Agreement with respect to a specific type of aircraft or
the entire agreement, in the event that the Company's services fail to meet
certain standard performance and quality criteria. In addition, the Company will
be required to indemnify British Airways against losses arising from material
breaches of the Services Agreement, the Company's failure to comply with certain
United Kingdom regulatory requirements, willful or grossly negligent acts of the
Company and infringement of any intellectual property rights of third parties.
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The Services Agreement provides that the Company will be permitted to occupy
temporarily the premises in which the BA Assets are currently housed while
relocating to a new United Kingdom facility. The Company will be required to
make monthly rental payments aggregating L1.8 million ($2.9 million at September
30, 1997) to British Airways from June 1, 1998 through June 30, 1999, which
amount is payable whether or not the Company continues to occupy the premises
during such period. In addition, rental payments of L8,500 ($13,770 at September
30, 1997) per day from July 1, 1999, through the expiration of the rental term
on December 31, 1999, will be paid by the Company to British Airways if the
Company occupies the premises, which L8,500 per day rental will be
proportionately reduced as the Company returns space to British Airways. The
Company anticipates that it will need to occupy a portion of British Airways'
premises until at least March to June 1999. The Services Agreement provides that
the Company will indemnify British Airways against losses resulting from failure
to comply with any United Kingdom environmental laws or regulations, or any
expenditures required to bring the facilities in compliance with any such laws
or regulations, while it occupies British Airways' premises. It also provides
that British Airways will indemnify the Company against any losses resulting
from any failure by British Airways to comply with such environmental laws or
regulations prior to the closing of the BA Acquisition.
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USE OF PROCEEDS
The net proceeds to the Company from its sale of the 2,600,000 shares of
Common Stock offered hereby at an assumed initial public offering price of $9
per share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company, are estimated to be
approximately $20.8 million. The Company will not receive any proceeds from the
sale of the shares by the Selling Shareholder.
The Company intends to use approximately $10 million of the net proceeds to
fund a portion of the purchase price for the BA Assets, approximately $6 million
to repay a portion of the revolving and term debt outstanding under the
Company's credit facility and $1.5 million to repay a portion of subordinated
debt to the Company's principal shareholder. See "Acquisition of Certain Assets
of British Airways," "Certain Transactions" and "Principal and Selling
Shareholders." The total balance outstanding under the credit facility was $20.3
million as of September 30, 1997. Advances under the revolving portion of the
credit facility bear interest at the Inter-bank Offer Rate ("IBOR") plus 1.5%
(7.51% at September 30, 1997) and on the term debt portion of the credit
facility bear interest at the IBOR plus 1.875% (7.6% at September 30, 1997) and
have been used primarily to fund the BTR Transaction. The total balance
outstanding under the subordinated debt at September 30, 1997, was $6.5 million.
The note bears interest at 11.8% per annum and matures January 1, 2001. The
proceeds of the subordinated debt were used to acquire the Company in the BTR
Transaction. See "Certain Transactions."
The Company is in the process of negotiating a new credit facility to
increase the amount of its available borrowings to $45.5 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Company plans to use $10
million from the proceeds of this Offering and approximately $12 million from
the new credit facility to fund the purchase price of the BA Assets. See
"Acquisition of Certain Assets of British Airways."
The Company intends to use any remaining net proceeds for working capital
and general corporate purposes. Prior to their eventual use, the net proceeds
will be invested in high quality, short-term investment instruments such as
short-term corporate investment grade or United States Government
interest-bearing securities.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock since its
inception and has no current plans to pay dividends on the Common Stock in the
foreseeable future. The Company intends to reinvest future earnings, if any, in
the development and expansion of its business. The Company's current bank credit
facility prohibits the payment of dividends. Any future determination to pay
dividends will depend upon the Company's combined results of operations,
financial condition and capital requirements and such other factors deemed
relevant by the Company's Board of Directors.
17
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the actual short-term debt and
capitalization of the Company as of September 30, 1997; (ii) the pro forma
short-term debt and capitalization of the Company giving effect to the
conversion of the Company's outstanding shares of preferred stock into 222,222
additional shares of Common Stock and the filing of the Amended and Restated
Articles of Incorporation, the receipt of $500,000 in proceeds from the issuance
of Common Stock in October 1997; and (iii) the pro forma capitalization as
adjusted to give effect to the sale of the 2,600,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of $9
per share and the application of the estimated net proceeds from the Offering to
working capital and the repayment of a portion of its bank account.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------
PRO FORMA
AS ADJUSTED
ACTUAL PRO FORMA (1)
--------- ----------- --------------
(IN THOUSANDS, EXCEPT SHARE
INFORMATION)
<S> <C> <C> <C>
Short-term debt.......................................................... $ 8,779 $ 8,779 $ 6,279
--------- ----------- -------
--------- ----------- -------
Long-term debt, less current portion..................................... $ 18,063 $ 18,063 $ 13,063
Shareholders' equity:
Series A Preferred Stock, $2,000,000 liquidation value; 400 shares
authorized; 400 shares issued and outstanding, actual; none issued
and outstanding pro forma and pro forma as adjusted.................. 2,000 -- --
Preferred Stock, no par value; 5,000,000 shares authorized pro forma
and pro forma as adjusted; none issued and outstanding............... -- -- --
Common Stock, no par value; (1) 20,000,000 shares authorized;
20,000,000 shares authorized pro forma and pro forma as adjusted;
2,947,820 shares issued and outstanding, actual; 3,222,222 issued and
outstanding, pro forma; 5,822,222 issued and outstanding, pro forma
as adjusted.......................................................... 540 3,040 23,802
Retained earnings...................................................... 1,134 1,134 1,134
--------- ----------- -------
Total shareholders' equity........................................... 3,674 4,174 24,936
--------- ----------- -------
Total capitalization............................................... $ 21,737 $ 22,237 $ 37,999
--------- ----------- -------
--------- ----------- -------
</TABLE>
- ------------------------
(1) Does not give effect to the BA Acquisition. The Company is in the process of
negotiating a new credit facility to increase the amount of its available
borrowings to $45.5 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." The Company plans to use $10 million from the proceeds of this
Offering and approximately $12 million from the new credit facility to fund
the purchase price of the BA Assets. Total pro forma as adjusted
capitalization as presented above at September 30, 1997, giving effect to
the anticipated new credit facility and the BA Acquisition, would be
increased by approximately $12 million. See "Acquisition of Certain Assets
of British Airways" and "Use of Proceeds."
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at September 30, 1997
(giving effect to the conversion of Preferred Stock outstanding as of September
30, 1997 into 222,222 shares of Common Stock assuming an initial public offering
price of $9.00 per share and the receipt of $500,000 in proceeds from the
issuance of 52,154 shares of Common Stock in October 1997), was $3.5 million or
$1.10 per share. Pro forma net tangible book value per share is determined by
dividing the net tangible book value of the Company (total assets net of
goodwill less total liabilities of the Company) by the number of shares of
Common Stock outstanding (giving effect to the conversion of Preferred Stock
outstanding as of September 30, 1997 into 222,222 shares of Common Stock). After
giving effect to the sale of 2,600,000 shares offered by the Company hereby at
an assumed public offering price of $9 per share (after deduction of estimated
underwriting discounts and commissions and estimated offering expenses), the pro
forma net tangible book value of the Company as of September 30, 1997 would have
been $24.4 million, or $4.20 per share. This represents an immediate increase in
the net tangible book value of $3.10 per share to existing shareholders and an
immediate dilution in pro forma net tangible book value of $4.80 per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price......................................... $ 9.00
Pro forma net tangible book value before this Offering...................... $ 1.10
Increase in net tangible book value attributable to this Offering........... 3.10
---------
Pro forma net tangible book value after this Offering......................... 4.20
---------
Dilution to new investors..................................................... $ 4.80
---------
---------
</TABLE>
The following table sets forth on a pro forma basis as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid, and the average price per share paid by the existing
shareholders and by purchasers of the shares of Common Stock offered hereby
(giving effect to the conversion of Preferred Stock outstanding as of September
30, 1997 into 222,222 shares of Common Stock and assuming the sale of 2,600,000
shares by the Company at an assumed initial public offering price of $9.00 per
share, before deduction of underwriting discounts and commissions and offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............................... 3,222,222 55.3% $ 3,040,000 11.5% $ 0.94
New public investors................................ 2,600,000 44.7 23,400,000 88.5 $ 9.00
---------- ----- ------------- -----
Total............................................. 5,822,222 100.0% $ 26,440,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
19
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth for the periods and the dates indicated
certain financial data which should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included elsewhere herein. For the
years ended December 31, 1993, 1994, 1995 and the ten months ended October 31,
1996 the Company was a wholly owned subsidiary of BTR Dunlop Holdings, Inc. and
is presented below as the "Predecessor" financial data. Effective November 1,
1996, the Company was acquired by the Unique Shareholders and the Company's
executive officers. All financial data subsequent to October 31, 1996 is
presented below as the "Successor" financial data.
The balance sheet data as of December 31, 1995 and 1996 and September 30,
1997 and the statement of operations data for the fiscal year ended December 31,
1995, the ten months ended October 31, 1996, two months ended December 31, 1996
and nine months ended September 30, 1997 are derived from the financial
statements of the Company which have been audited by Ernst & Young LLP,
independent accountants, and are included elsewhere in this Prospectus. The
balance sheet data as of December 31, 1993 and 1994 and the statement of
operations for the year ended December 31, 1993 and 1994 are derived from
unaudited financial statements, which are not presented elsewhere herein. The
pro forma statements of operations data for the nine months ended September 30,
1996 and the year ended December 31, 1996 is derived from the unaudited pro
forma statement of operations included elsewhere herein. The unaudited financial
statements have been prepared by the Company on a basis consistent with the
Company's audited financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring accruals, necessary
for a fair presentation of the Company's results of operations for the period.
The results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of results for the year ending December 31, 1997 or any
other future period.
<TABLE>
<CAPTION>
PREDECESSOR(1) SUCCESSOR(1)
------------------------------------- -------------------------------------------------------
TEN MONTHS NINE MONTHS
ENDED TWO MONTHS ENDED
YEAR ENDED DECEMBER 31, OCTOBER ENDED YEAR SEPTEMBER 30,
------------------------- 31, DECEMBER 31, ENDED --------------------
1993(2) 1994(2) 1995(3) 1996(4) 1996 DECEMBER 31, 1996 1996 1997
------- ------- ------- ---------- ------------ ----------------- --------- ---------
(PRO FORMA)(4)(5) (PRO FORMA)(4)(5)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATION DATA:
Revenues.................... $29,757 $31,743 $35,012 $32,299 $ 6,705 $ 39,004 $ 29,567 $ 30,060
Cost of revenues............ 25,055 24,825 28,993 27,027 4,599 31,799 25,157 23,083
------- ------- ------- ---------- ------------ ----------------- --------- ---------
Gross profit................ 4,702 6,918 6,019 5,272 2,106 7,205 4,410 6,977
Selling, general and
administrative(6)......... 3,861 5,332 4,837 5,044 1,059 6,161 4,406 4,118
Restructuring charges(4).... -- -- -- 1,196 -- 1,196 1,196 --
------- ------- ------- ---------- ------------ ----------------- --------- ---------
Income (loss) from
operations................ 842 1,586 1,182 (968) 1,047 (152) (1,192) 2,859
Interest expense, net....... (1,033) (507) (1,598) (1,609) (196) (2,305) (1,734) (1,802)
------- ------- ------- ---------- ------------ ----------------- --------- ---------
(192) 1,079 (416) (2,577) 851 (2,457) (2,926) 1,057
Income tax expense
(benefit)(7).............. (24) 29 (680) (971) 382 (934) (1,112) 392
------- ------- ------- ---------- ------------ ----------------- --------- ---------
Net income (loss)........... $ 168 $ 1,050 $ 264 $(1,606) $ 469 $ (1,523) $ (1,814) $ 665
------- ------- ------- ---------- ------------ ----------------- --------- ---------
------- ------- ------- ---------- ------------ ----------------- --------- ---------
Pro forma net income (loss)
per share................. $ 0.15 $ (0.43) $ (0.58) $ 0.21
------------ ----------------- --------- ---------
------------ ----------------- --------- ---------
Pro forma supplemental net
income per share(8)....... $ 0.14 $ 0.25
------------ ---------
------------ ---------
Weighted average shares
outstanding............... 3,119,627 3,119,627 3,119,627 3,119,811
OPERATING AND OTHER DATA:
Capital expenditures........ $ 996 $ 4,114 $ 1,199 $ 28,553 $ 1,576
Depreciation and
Amortization.............. 756 854 819 200 866
EBITDA(9)................... 2,342 2,036 (149) 1,254 3,727
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR(1)
-------------------------------
SUCCESSOR(1)
DECEMBER 31, --------------------------
------------------------------- DECEMBER SEPTEMBER 30,
1993 1994 1995 31, 1996 1997
--------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $ 4,070 $ 9,966 $ 13,289 $ 7,225 $ 5,582
Total assets............................................. 22,802 25,865 35,455 35,178 39,399
Total long-term debt (excluding current portion)......... 13,754 21,404 27,310 19,150 18,063
Total shareholders' equity............................... 266 (1,182) (917) 2,509 3,674
</TABLE>
- ------------------------------
(1) Predecessor information represents the historical financial data of the
Company when it was owned by BTR Dunlop, Inc. ("BTR"). Successor information
represents the historical financial data after the BTR Transaction. See
"Certain Transactions-- Acquisition of the Company from BTR" and Note 1 of
Notes to Financial Statements.
(2) Effective January 1, 1994 certain assets, liabilities and operations of
Dunlop Aviation were merged into the Company. The merger was treated
similarly to a pooling of interest for accounting purpose and, accordingly,
the financial data as of and for the year ended December 31, 1993 includes
those assets, liabilities and operations as if the merger occurred on
January 1, 1993. Included in general and administrative expense for the year
ended December 31, 1994 is approximately $501,000 of merger related
expenses.
(3) Fiscal 1995 includes a charge to cost of revenues of $927,000 for disposal
of inventory related to the Dunlop Merger which had operations in
Chatsworth, CA and Miami, FL. Fiscal 1995 also includes a net gain of
approximately $300,000 included in selling, general and administrative
expenses, which represents an operating expense of $700,000 offset by an
insurance reimbursement of $1,000,000 related to the EPA Claim for which it
has been fully indemnified by BTR. The estimated total net cost of the EPA
Claim recorded in fiscal 1995 was based on the information available at that
time. See "Business--Environmental Matters and Proceedings" and Notes 1 and
7 of Notes to Financial Statements.
(4) Restructuring charges during the ten months ended October 31, 1996 relate to
costs incurred to shut down discontinued operations of Dunlop Miami. See
Note 10 of Notes to Financial Statements. In addition, the ten months ended
October 31, 1996, pro forma year ended December 31, 1996 and pro forma nine
months ended September 30, 1996 include a non-recurring charge of $489,000
to cost of revenues for the disposal of inventory related to the shutdown of
Dunlop Miami and a charge to cost of revenues of $574,000 for non-productive
inventory of the Company.
(5) The pro forma presentation gives effect to the BTR Transaction as though it
had occurred on January 1, 1996.
(6) Included in selling, general and administrative expenses for the ten months
ended October 31, 1996, the pro forma nine months ended September 30, 1996
and the pro forma year ended December 31, 1996 are expenditures related to
the EPA Claim of approximately $947,000. For the year ended December 31,
1993 and 1994 selling, general and administrative expenses included $122,000
and $410,000, respectively, for expenditures related to the EPA Claim. No
such costs were incurred during the two months ended December 31, 1996 or
the nine months ended September 30, 1997. See "Management Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations."
(7) Income tax expenses for the two months ended December 31, 1996 and the nine
months ended September 30, 1997 include provisions of $382,000 and $391,000,
respectively, primarily due to changes in deferred tax assets. No tax is
actually payable for such provisions. See Note 4 of Notes to Financial
Statements.
(8) Pro forma supplemental earnings per share reflects what earnings would have
been if the debt retired with the proceeds from the Offering had been
retired at the beginning of the period. The number of shares of Common Stock
to be sold in this Offering, the proceeds from which will be used to retire
debt, are included in this calculation with a corresponding reduction in
interest expense. See Note 1 of Notes to Financial Statements.
(9) EBITDA represents earnings before taking into consideration interest
expense, income tax expense and depreciation and amortization expense and is
not a measurement of income under generally accepted accounting principles
("GAAP"). EBITDA may not provide an accurate comparison among companies
because it is not necessarily computed by all companies in an identical
manner. The use of such information is intended only to supplement the
conventional statement of operations presentation and is not to be
considered as an alternative to net income, cash flows or any other
indicator of the Company's operating performance which is presented in
accordance with GAAP.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO AND THE OTHER FINANCIAL
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. WHEN USED IN THE FOLLOWING
DISCUSSIONS, THE WORDS "BELIEVES", "ANTICIPATES", "INTENDS", "EXPECTS" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED, INCLUDING, BUT NOT
LIMITED TO, THOSE SET FORTH IN "RISK FACTORS." READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE
DATE HEREOF.
OVERVIEW
CORPORATE HISTORY. The Company was organized in August 1980 as a California
corporation to provide aircraft parts distribution and sales to the aviation
industry and began providing repair and overhaul services in 1987. In 1991, BTR,
a United Kingdom company, acquired the Company, and in January 1994, BTR merged
the Company with the operations of another wholly-owned subsidiary of BTR,
Dunlop Aviation, Inc., which had operations in Chatsworth, California and Miami,
Florida. The more profitable operations of Dunlop were absorbed into the
Company's Sun Valley business to achieve economies of scale and full service
capability. The Company closed Dunlop Chatsworth in February 1994 and, as a
result, incurred significant integration expenses during 1994. The Company
incurred inventory obsolescence costs during 1995 and closed Dunlop Miami in
1996 and as a result, incurred restructuring expenses and inventory valuation
charges during 1996. These charges adversely impacted financial results for
1994, 1995 and 1996. In November 1996, BTR sold the Company for $29.8 million to
Aqhawk, Inc., an entity wholly-owned by the Unique Shareholders and the
Company's executive officers ("Aqhawk"). See "Certain Transactions--Acquisition
of the Company from BTR."
EXPANSION INTO WIDE-BODY COMMERCIAL AIRCRAFT. The Company's operating
strategy has been to increase higher margin large air transport landing gear
repair and overhaul services. In that regard, revenue for the years ended
December 31, 1996 (pro forma) and December 31, 1995 increased 51.5% and 30.7%,
respectively, over their respective prior years and 14.5% for the nine months
ended September 30, 1997 over the comparable period in 1996. This increase
resulted from the Company's $6.3 million capital investment program in 1994 and
1995 to expand its landing gear repair and overhaul capabilities to support
wide-body commercial aircraft, such as the Boeing models 747, 757, 767, DC10,
MD10 and MD11, and Airbus models A310 and A320. These expenditures included
expenses for facility improvements, purchase of machinery and equipment to
handle larger landing gear components and the purchase of rotable assets (i.e.,
landing gear shipsets exchanged with customers for an exchange fee).
The Company's efforts to increase its wide-body business have led to a
number of key new contracts. On September 9, 1997, the Company signed a
seven-year exclusive contract with American Airlines to service landing gear on
all Boeing 757 aircraft within its fleet (the "AA Fleet"). Performance under
this new contract is anticipated to begin in February 1998. The Company is in
the process of negotiating an amendment to its existing contract with FedEx to
include support of FedEx's fleet of Airbus A310 aircraft and FedEx's program to
convert DC10 aircraft to MD10 cargo carriers.
As part of the BA Acquisition, the Company and British Airways have agreed
to enter into a seven-year exclusive service agreement to provide landing gear
and related component repair and overhaul services to substantially all of the
aircraft currently operated by British Airways.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statement
of operations data (in thousands) of the Company.
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR -------------------------------------
--------------------
YEAR ENDED
YEAR ENDED DECEMBER NINE MONTHS ENDED
DECEMBER 31, 31, ------------------------
-------------------- ----------- SEPTEMBER SEPTEMBER
1994 1995 1996 30, 1996 30, 1997
--------- --------- ----------- ----------- -----------
(PRO FORMA) (PRO FORMA)
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 31,743 $ 35,012 $ 39,004 $ 29,567 $ 30,060
Cost of revenues......................... 24,825 28,993 31,799 25,157 23,083
--------- --------- ----------- ----------- -----------
Gross profit............................. 6,918 6,019 7,205 4,410 6,977
Selling, general and administrative
expenses............................... 5,332 4,837 6,161 4,406 4,118
Restructuring charges related to closure
of Miami operations.................... -- -- 1,196 1,196 --
--------- --------- ----------- ----------- -----------
Operating income (loss).................. 1,586 1,182 (152) (1,192) 2,859
Interest expense, net.................... (507) (1,598) (2,305) (1,734) (1,802)
--------- --------- ----------- ----------- -----------
Income (loss) before income taxes........ 1,079 (416) (2,457) (2,926) 1,057
Income tax expense (benefit)............. 29 (680) (934) (1,112) 392
--------- --------- ----------- ----------- -----------
Net income (loss)........................ $ 1,050 $ 264 $ (1,523) $ (1,814) $ 665
--------- --------- ----------- ----------- -----------
--------- --------- ----------- ----------- -----------
</TABLE>
The following table sets forth, for the periods indicated, the percentage of
sales represented by certain items in the Company's statement of operations.
<TABLE>
<CAPTION>
SUCCESSOR
------------------------------------------
NINE MONTHS ENDED
PREDECESSOR ----------------------------
---------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1997
---------- ---------- ------------ ------------- -------------
(PRO FORMA) (PRO FORMA)
<S> <C> <C> <C> <C> <C>
Revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.......................... 78.2 82.8 81.5 85.1 76.8
----- ----- ----- ----- -----
Gross profit.............................. 21.8 17.2 18.5 14.9 23.2
Selling, general and administrative
expenses................................ 16.8 13.8 15.8 14.9 13.7
Restructuring charges related to closure
of Miami operations..................... -- -- 3.1 4.0 --
----- ----- ----- ----- -----
Operating income (loss)................... 5.0 3.4 (0.4) (4.0) 9.5
Interest expense, net..................... (1.6) (4.6) (5.9) (5.9) (6.0)
----- ----- ----- ----- -----
Income (loss) before income taxes......... 3.4 (1.2) (6.3) (9.9) 3.5
Income tax expense (benefit).............. 0.1 (1.9) (2.4) (3.8) 1.3
----- ----- ----- ----- -----
Net income (loss)......................... 3.3% 0.7% (3.9)% (6.1)% 2.2%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
23
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO PRO FORMA NINE MONTHS ENDED
SEPTEMBER 30, 1996
REVENUES. Revenues for the nine months ended September 30, 1997 increased
1.7% to $30,060,000 from $29,567,000 for the nine months ended September 30,
1996. Repair and overhaul revenues accounted for 91.1% of sales for the nine
months ended September 30, 1997, as compared to 89.5% for the comparable period
in 1996. Revenues from spare parts distribution and sales accounted for 7.7% of
total revenue for the nine months ended September 30, 1997, as compared to 9.1%
for the comparable period in 1996. This decline was a result of the Company's
decision to close Dunlop Miami and discontinue its low-margin tire distribution
agreement with Dunlop Aircraft Tyres, United Kingdom. Dunlop Miami contributed
$2,048,000 of revenues for the nine months ended September 30, 1996.
Large air transport landing gear repair and overhaul revenue increased 14.5%
to $13,715,000 and accounted for 45.6% of total revenues, as compared to
$11,978,000 or 40.5% of total revenue for the nine months ended September 30,
1996. This increase in landing gear repair and overhaul revenue was attributable
to increases in business from FedEx's MD10 freighter conversion program and new
wide-body repair and overhaul business from British Airways and American
Airlines, Inc. ("American Airlines").
Fixed wing aircraft and helicopter repair and overhaul declined 1.1% to
$9,755,000 or 32.5% of total revenues for the nine months ended September 30,
1997 from $9,859,000 or 33.3% of total revenues for the comparable period in
1996. This decline was attributable to a reduction in helicopter repair and
overhaul business from the USCG, in part due to the modifications performed by
the Company in 1996 and 1997 to extend the time between overhauls for the USCG
fleet of Dauphin II helicopters. Wheels, brakes and braking system component
repair and overhaul increased 14.6% to $3,942,000 or 13.1% of total revenues for
the nine months ended September 30, 1997 from $3,439,000 or 11.6% of total
revenues for the comparable period in 1996.
GROSS PROFIT. Gross profit for the nine months ended September 30, 1997
increased 58.2% to $6,977,000 from $4,410,000 for the nine months ended
September 30, 1996. Gross profit as a percent of sales increased to 23.2% for
the nine months ended September 30, 1997 compared to 14.9% for the comparable
period in the prior year. This increase was primarily due to (i) a 14.5%
increase in revenues from large air transport landing gear repair and overhaul
services, (ii) developing the Company's higher margin fixed wing aircraft and
helicopter hydromechanics products and (iii) discontinuing Dunlop Miami, which
adversely impacted gross profit in 1996 as a result of charges to cost of
revenues for non-productive inventory.
Gross profit for the nine months ended 1996 included a nonrecurring charge
of $489,000 to dispose of certain obsolete and non-productive inventory related
to closing Dunlop Miami and a charge of $574,000 primarily related to other
non-productive inventory at the Company's Sun Valley operations, including
inventory related to Dunlop Aviation. Gross profit, excluding these charges
would have been $5.5 million or 18.5% of revenue for the nine months ended
September 30, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the nine months ended September 30, 1997 decreased
$288,000, or 6.5% to $4,118,000 from $4,406,000 for the nine months ended
September 30, 1996. Selling, general and administrative expense decreased as a
percent of revenues to 13.7% from 14.9% for the comparable period in the prior
year. The decrease was due to approximately $947,000 of costs related to the EPA
Claim included in the pro forma nine months ended September 30, 1996 but not
included in the nine months ended September 30, 1997. BTR indemnified the
Company for costs incurred in connection with the EPA Claim. This decrease was
offset by additional costs incurred during the nine months ended September 30,
1997 resulting from the Company's efforts to expand its international market
presence through overseas representatives in Europe, the Middle East and China,
management fees paid to Unique and for expenses incurred in connection with
developing the Company's relationship with British Airways.
24
<PAGE>
OPERATING INCOME. Operating income for the nine months ended September 30,
1997 increased $4,051,000 to $2,859,000 or 9.5% of total revenues compared to an
operating loss of $1,192,000 for the comparable period in 1996. Operating income
for the nine months ended September 30, 1996 was negatively impacted by
nonrecurring restructuring charges of $1,196,000, charges to cost of revenues of
$1,063,000 related to the closure of Dunlop Miami and approximately $947,000 in
costs related to the EPA Claim. Excluding these charges, pro forma operating
income for the nine months ended September 30, 1996 would have been $2,014,000
or 6.8% of revenues.
NET INTEREST EXPENSE. Net interest expense for the nine months ended
September 30, 1997 increased $68,000, or 4.0%, to $1,802,000 from $1,734,000 for
the nine months ended September 30, 1996. This is a result of increased average
borrowings under the Company's working capital credit facilities as well as
additional indebtedness incurred in connection with the BTR Transaction.
Interest income was not significant in either period.
INCOME TAXES. Income taxes for the nine months ended September 30, 1997
were $392,000 compared to an income tax benefit of $1,112,000 for the comparable
period in the prior year. The effective tax rate for the nine months ended
September 30, 1997 was 37.0% compared to 38.0% for the comparable period in the
prior year. The effective tax rate for the periods differs from the federal
statutory tax rate of 34.0% due to certain nondeductible expenses. At September
30, 1997, the Company had net operating loss carry-forwards of $7,768,000. The
utilization of these operating loss carryforwards is limited due to changes in
the Company's ownership resulting from the BTR Transaction.
NET INCOME. As a result of the factors described above, the net income for
the nine months ended September 30, 1997 of $665,000 represents an increase of
$2,479,000 as compared to the net loss of $1,814,000 for the nine month's ended
September 30, 1996.
PRO FORMA YEAR ENDED DECEMBER 31, 1996 ("FISCAL 1996") COMPARED TO YEAR
ENDED DECEMBER 31, 1995 ("FISCAL 1995")
REVENUES. Revenues for Fiscal 1996 increased 11.4% to $39,004,000 from
$35,012,000 for Fiscal 1995. Repair and overhaul revenues accounted for 90.2% of
revenues for Fiscal 1996 as compared to 84.0% for Fiscal 1995. Revenues from
spare parts distribution and sales accounted for 8.6% of total revenues for
Fiscal 1996, as compared to 13.8% for Fiscal 1995. The increase in repair
revenue and a percentage of total revenue was a result of the Company's decision
to discontinue the low margin Dunlop Miami aircraft tire spare parts and
distribution business in May 1996.
Large air transport landing gear repair and overhaul increased 51.5% to
$15,745,000 or 40.4% of total revenues in Fiscal 1996 compared to $10,394,000 or
29.7% of total revenues for Fiscal 1995. The increase in revenues for landing
gear repair and overhaul was attributable to increases in revenues from the
Company's largest customer, FedEx, and to new wide-body repair and overhaul
business from other customers including US Airways, Inc. ("US Airways"), Air
Canada, Trans World Airlines and American Airlines.
Fixed wing aircraft and helicopter hydromechanics repair and overhaul
increased 12.7% to $13,310,000 or 34.1% of total revenues for Fiscal 1996, as
compared to $11,811,000 or 33.7% of Fiscal 1995 sales. This increase in revenues
was attributable to increases in helicopter repair and overhaul business from
the USCG for Fiscal 1996. The Dunlop Miami operation, which operated at a loss,
was closed in May 1996 and contributed $2,048,000 or 5.3% of total revenues for
Fiscal 1996 compared to $7,404,000 or 21.1% of revenues for Fiscal 1995.
GROSS PROFIT. Gross profit for Fiscal 1996 increased 19.7% to $7,205,000
from $6,019,000 for Fiscal 1995. Gross profit increased as a percent of revenues
to 18.5% for Fiscal 1996 compared to 17.2% for Fiscal 1995. This increase was
primarily due to (i) a 51.5% increase in revenues from large air transport
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landing gear repair and overhaul services, (ii) development of higher margin
fixed wing aircraft and helicopter hydromechanics products and (iii)
discontinuation of Dunlop Miami.
Gross profit for Fiscal 1996 included a nonrecurring charge of $489,000 to
dispose of certain non-productive inventory related to closing the Dunlop Miami
operations and a charge of $574,000 primarily related to other non-productive
inventory related to Dunlop Aviation at the Company's Sun Valley operations.
Excluding these charges, gross profit would have been $8,268,000 or 21.2% of
revenue for Fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for Fiscal 1996 increased $1,324,000 or 27% to
$6,161,000 from $4,837,000 for Fiscal 1995. This was a result of the Company's
efforts to expand its international market presence through overseas
representatives in Europe, the Middle East and China. In addition, Fiscal 1996
includes approximately $947,000 of costs related to the EPA Claim and Fiscal
1995 included a net gain of approximately $300,000 due to an insurance
reimbursement of $1,000,000 for legal defense costs related to the EPA Claim,
for which the Company has been fully indemnified by BTR. Selling, general and
administrative expense increased as a percent of revenues to 15.8% for Fiscal
1996 from 13.8% for Fiscal 1995 as a result of the above items offset by
increased revenues in Fiscal 1996 over Fiscal 1995.
OPERATING INCOME. Operating income for Fiscal 1996 declined $1,334,000 to a
loss of $152,000 or 0.4% of revenues, as compared to an operating income of
$1,182,000 for Fiscal 1995. Operating income for Fiscal 1996 was negatively
impacted by nonrecurring restructuring charges of $1,196,000 and charges to cost
of revenues of $1,063,000 related to the winding down of the Dunlop Miami
operation and approximately $947,000 in costs related to the EPA Claim.
Excluding these charges, pro forma operating income for Fiscal 1996 would have
been $3,054,000 or 7.8% of revenues.
NET INTEREST EXPENSE. Net interest expense for Fiscal 1996 increased by
44.2% to $2,305,000 from $1,598,000 for Fiscal 1995. Interest expense for 1996
has been adjusted, on a pro forma basis, to give effect to the BTR Transaction
as if it happened on January 1, 1996. As a result of this pro forma adjustment,
interest expense was increased to give effect to the Company's existing credit
facilities, which are at higher interest rates than charged to the Company by
BTR for inter-company advances. Interest income was not significant in either
period.
INCOME TAXES. The income tax benefit for Fiscal 1996 was $934,000 compared
to an income tax benefit of $680,000 for Fiscal 1995. The effective tax rate for
Fiscal 1996 was 38% compared to 164% for Fiscal 1995. The effective tax rate for
Fiscal 1995 includes a benefit of $525,000 from the reduction of a deferred tax
valuation allowance that was no longer required in 1995 since the Company was
part of a consolidated group, and the deferred tax assets became recoverable.
NET INCOME. As a result of the factors described above, the net loss for
Fiscal 1996 of $1,523,000 represented a decrease of $1,787,000 from net income
of $264,000 for Fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since the BTR Transaction, the Company's working capital and funds for
capital expenditures have been provided by cash generated from operations,
borrowings under the Company's working capital credit facilities and cash
received from the sale of Common Stock. In November 1996, the Company entered
into a loan agreement with Bank of America National Trust and Savings
Association ("Bank of America") for a $10.0 million revolving line of credit, a
$13.5 million term loan and a $3.0 million capital expenditures facility. A
portion of the credit facility and the entire term loan were used to finance
partially the acquisition of the Company from BTR. At the Company's election,
each of the facilities under the agreement bears interest at a fixed bank
reference rate or variable rate above IBOR. As of September 30, 1997, $7.5
million was outstanding under the revolving credit facility, and $12.9 million
was outstanding under the term loan. The Company has obtained a commitment
letter from Bank of America for a new
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credit facility to increase the amount of its available borrowings to $45.5
million. The Company plans to use $10 million from the proceeds of this Offering
and approximately $12 million from the new credit facility to fund the purchase
price of the BA Assets. See "Acquisition of Certain Assets of British Airways"
and "Use of Proceeds."
As part of the BA Acquisition, the Company and British Airways have agreed
to enter into the Services Agreement which the Company anticipates will result
in substantial revenue from the repair and overhaul services and related spare
parts provided to the aircraft currently operated by British Airways. The
Company also expects to incur additional operating and interest costs as a
result of the BA Acquisition. Such increases in operating costs will include
additional depreciation expense associated with the allocation of the purchase
price to the assets acquired, additional rent expense associated with leasing
facilities in the United Kingdom and additional salary and overhead costs
associated with establishing operations using the BA Assets. In addition,
interest expense will increase due to the initial borrowing to fund the
acquisition of the BA Assets and subsequent borrowings for working capital and
to fund capital expenditures.
Cash (used) by the Company for operating activities amounted to
$(4,223,000), $(230,000) and $(976,000) for fiscal 1995, the ten months ended
October 31, 1996 and the nine months ended September 30, 1997, respectively.
Cash used by the Company for investing activities amounted to $4,114,000,
$1,199,000 and $1,576,000 for fiscal 1995, the ten months ended October 31, 1996
and the nine months ended September 30, 1997, respectively. These activities
were for the purchase of machinery, leasehold improvements and landing gear
rotable assets, net of proceeds received for disposal of equipment and rotable
assets. In September 1997, the Company acquired $3.2 million in Boeing 757
rotable assets and inventory from American Airlines in connection with the
seven-year exclusive contract to support the AA Fleet. A deposit of 10% of the
$3.2 million was made to American Airlines in September 1997. The balance of
$2.8 million was included in accounts payable and is due to American Airlines
when work under the contract commences in February 1998. The Company plans to
pay this balance from additional borrowing under the Company's new credit
facilities. Cash provided by the Company from financing activities in Fiscal
1995 and the ten months ended October 31, 1996 primarily related to additional
borrowings from the Company's parent, BTR, for investments in wide-body Boeing
747 and DC10 landing gear shipsets and working capital. Cash generated from
financing activities in the two months ended December 31, 1996 primarily related
to the borrowings under the current credit facilities and the issuance of
preferred stock for $2.0 million to fund the acquisition of the Company from
BTR. Cash provided from financing activities for the nine months ended September
30, 1997 related to leasehold improvements at a new facility and expenditures to
increase landing gear repair and overhaul capacity.
In April 1997, the Company entered into a 13-year lease for a 77,800 square
foot facility adjacent to its existing location. Occupancy costs under the
Company's existing facilities in Sun Valley, California and in the Netherlands
amount to approximately $1.1 million per year. See Note 7 of Notes to Financial
statements. The Company is seeking to lease or construct a facility in the
United Kingdom in connection with the BA Acquisition, and has identified a
possible construction site. The Services Agreement permits the Company to occupy
the premises in which the BA Assets are currently housed through December 31,
1999. Rent payments aggregating L1.8 million ($2.9 million at September 30,
1997) will be paid to British Airways on a monthly basis from June 1, 1998
through June 30, 1999, whether or not the Company continues to occupy the
premises during such period. Beginning July 1, 1999, rental amounts will
increase to L8,500 ($13,770 at September 30, 1997) per day, which amount will be
proportionately reduced as the Company returns space to British Airways.
Assuming the Company can enter into a lease or begin construction of a new
facility by February 1998, the Company believes it will be able to relocate a
substantial portion of the facilities during the first quarter of 1999, but that
plating operations as well as certain other areas will remain at the British
Airways location through at least the second quarter of 1999. The Company has
budgeted approximately $1.4 million in occupancy expenses for the remainder of
1998 following the BA Acquisition, although there can be no assurance that this
estimate will not be exceeded.
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The Company anticipates making capital expenditures of approximately $4
million during 1998 at its Sun Valley operations for plating shop expansion,
rotable assets, large air transport landing gear handling equipment and
leasehold improvements to expand the Company's repair and overhaul capacity.
This expansion is a continuation of the Company's 1997 facilities expansion,
which included a 70% increase in square footage primarily devoted to landing
gear repair and overhaul in addition to expansion of its Constant Speed Drive
and Integrated Drive Generator Shop. The majority of the expenditure in 1998 and
1999 will be to expand the electro-plating shop capacity at the Sun Valley
operations. This expenditure will be financed from cash flow from operations and
borrowings under new credit facilities.
In connection with the BA Acquisition, the Company anticipates making
approximately $1 million in capital expenditures in 1998 for the purchase of
rotable assets and $2 million in 1999 to relocate the British Airways' landing
gear operations to a new facility, which include expenditures for leasehold
improvements, handling equipment and machinery. Capital expenditures related to
new facility leasehold improvements will be financed by cash flow from
operations and borrowings under new credit facilities.
The Company believes that funds generated from operations, the net proceeds
of the Offering and available borrowings under new credit facilities will be
sufficient to meet operating needs and other capital equipment requirements of
the Company under its existing business plan for at least 12 months following
the Offering.
FOREIGN EXCHANGE
To date, the Company's business has not been significantly affected by
currency fluctuations. However, the Company conducts business in the Netherlands
and will conduct business in the United Kingdom, and thus fluctuations in
currency exchange rate could cause the Company's products to become relatively
more expensive in those countries, leading to a reduction in sales in that
country.
The Company makes substantial inventory purchases in French francs from such
suppliers as Messier-Dowty, SAMM and Eurocopter France. During 1996 and 1997,
the United States dollar has strengthened against the French franc, creating a
favorable exchange rate variance for the Company. The Company's Netherlands
facility's transactions are primarily United States dollar denominated for
inventory purchases and are partially Dutch guilder denominated for sales and
operating expenses. The Company's sales are primarily denominated in United
States dollars and to some extent in Dutch guilders, and the Company expects to
make material sales in British pounds sterling following the BA Acquisition.
The Company has, at times, hedged against currency exchange risks and will
continue to evaluate such options in the future. Upon completion of the BA
Acquisition, the Company may engage in additional foreign currency denominated
sales or pay material amounts of expenses in foreign currencies that may
generate gains and losses due to currency fluctuations. See "Risk Factors--Risks
Associated with Expansion of International Operations."
QUARTERLY SALES FLUCTUATIONS
The Company's operating results are affected by a number of factors,
including the timing of orders for the repair and overhaul of landing gear and
fulfillment of such contracts, the timing of expenditures to manufacture parts
and purchase inventory in anticipation of future services and sales, parts
shortages that delay work in progress, general economic conditions and other
factors. Although the Company has secured several long-term agreements to
service multiple aircraft, the Company receives sales under those agreements
only when it actually performs a repair or overhaul. Because the average time
between landing gear overhauls is seven years, the work orders that the Company
receives and the number of repairs or overhauls that the Company performs in
particular periods may vary significantly causing the Company's quarterly sales
and results of operations to fluctuate substantially. The Company is unable to
predict the timing of the actual receipt of such orders and, as a result,
significant variations between forecasts and actual orders will often occur. In
addition the Company's need to make significant expenditures to support new
aircraft in advance of generating revenues from repairing or overhauling such
aircraft may cause the Company's quarterly operating
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results to fluctuate. Furthermore, the rescheduling of the shipment of any large
order, or portion thereof, or any production difficulties or delays by the
Company, could impact the Company's quarterly operating results.
INFLATION
Although the Company cannot accurately anticipate the effect of inflation on
its operations, the Company does not believe that inflation has had, or is
likely in the foreseeable future to have, a material effect on its results of
operations or financial condition.
YEAR 2000
The Company does not expect a significant disruption in operations or any
significant expenditures as a result of computer software issues related to the
year 2000.
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BUSINESS
GENERAL
Hawker Pacific repairs and overhauls aircraft and helicopter landing gear,
hydromechanical components and wheels, brakes and braking system components for
a diverse international customer base, including commercial airlines, air cargo
operators, domestic government agencies, aircraft leasing companies, aircraft
parts distributors and OEMs. In addition, the Company distributes and sells new
and overhauled spare parts and components for both fixed wing aircraft and
helicopters. During the nine months ended September 30, 1997, the Company had in
excess of 440 customers, several of which have entered into long-term service
contracts with the Company, including FedEx, American Airlines, the USCG, and US
Airways. On December 20, 1997, the Company entered into the Acquisition
Agreement to purchase, for approximately L11.3 million (approximately $18.3
million at September 30, 1997), substantially all of the assets of British
Airways' landing gear repair and overhaul operations. The Company expects to
close the transaction immediately following completion of this Offering using a
substantial portion of the net proceeds. As part of the BA Acquisition, the
Company and British Airways have agreed to enter into a seven-year exclusive
service agreement for the Company to provide landing gear and related repair and
overhaul services to substantially all of the aircraft currently operated by
British Airways. The Company believes that the BA Acquisition will provide it
with a base in the United Kingdom from which to expand its international repair
and overhaul operations significantly and position itself to become the global
leader in its markets. See "Acquisition of Certain Assets of British Airways"
and "Use of Proceeds."
The Company believes it is well positioned to benefit from the following
aviation industry trends that are driving increased demand for third-party
repair, overhaul and spare parts inventory management services: (i) the increase
in worldwide air traffic associated with the addition of new aircraft and more
frequent use of existing aircraft; (ii) the outsourcing by aircraft operators of
services previously handled internally; (iii) the break-up of monopolistic
aircraft maintenance consortiums; and (iv) an increase in regulatory pressure
and consumer emphasis on the traceability of aircraft parts.
MARKET AND INDUSTRY OVERVIEW
The aviation aftermarket consists of the servicing and support of aircraft
after delivery of aircraft to operators by OEMs. Within the aviation
aftermarket, the Company provides landing gear repair and overhaul services and
related spare parts to a variety of customers in the aviation industry. In March
1997, Dillon Read & Co., Inc. ("Dillon Read") estimated the current global
aviation aftermarket to be $47 billion annually and projected that it would grow
to $60 billion by the year 2000.
INCREASED AVIATION ACTIVITY. Boeing's 1997 Current Market Outlook (the
"Boeing Outlook") projects that global air travel will increase by 75% through
the year 2006. Average passenger seat miles flown are also expected to increase
significantly over the next few years. Further, many new airlines are expected
to commence operations in the United States and abroad, especially in China and
other Asian nations where only a small percentage of the population has flown to
date. In order to accommodate growing demand, aircraft operators will be
required to increase the size of their aircraft fleets. The Boeing Outlook
projects that the global fleet of aircraft will grow from 11,500 aircraft at the
end of 1996 to over 16,000 aircraft in 2006 and 23,000 aircraft in 2016.
Increases in passenger travel, air cargo services and the number of aircraft in
service increase the demand for repair and overhaul services. In addition, the
FAA requires aircraft landing gear to be overhauled every seven to ten years. As
a result, the growth in the number of aircraft over the past 15 years is
expected to create immediate and consistent demand for landing gear repair and
overhaul services, which will most likely continue as the number of new aircraft
in service grows. Further, because start-up airlines generally do not invest in
the infrastructure necessary to service their aircraft, such airlines outsource
all or most of their repair and overhaul services.
OUTSOURCING OF REPAIR AND OVERHAUL SERVICES. While the overall air
transportation industry has grown significantly over the past decade, commercial
airlines have not experienced consistent earnings growth over
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the same period. As a result, many aircraft operators have recognized
outsourcing as an opportunity to reduce operating costs, working capital
investment and turnaround time. In March 1997, Dillon Read estimated the
outsourced military and government market to be $9 billion and the third party
market to be $12 billion. Outsourcing allows aircraft operators to benefit from
the expertise of service providers such as the Company who have developed
specialized repair techniques and achieved economies of scale unavailable to
individual operators. Additionally, outsourcing allows aircraft operators to
limit their capital investment in infrastructure and personnel by eliminating
the need for the equipment, sophisticated information systems technology and
inventory required to repair and overhaul landing gear and hydromechanical
components effectively. Dillon Read also estimated in March 1997 that
approximately 40%, 35% and 95%, respectively, of commercial, military and
general aviation functions are currently outsourced. Having recently awarded to
the Company large contracts for outsourcing of repair and overhaul services,
American Airlines and British Airways exemplify this growing trend. As aircraft
operators continue to become more cost and value conscious, the Company expects
the trend toward outsourcing to continue.
BREAK-UP OF MONOPOLISTIC AIRCRAFT MAINTENANCE CONSORTIUMS. Until recently,
European aircraft operators attempted to realize cost savings by forming repair
consortiums to provide maintenance, repair and overhaul services for their
aircraft. The KSSU consortium, formed in the early 1970s, included, KLM, Swiss
Air, SAS and UTA, and the ATLAS consortium included, Alitalia, Lufthansa, Air
France and Sabena. Within each consortium, each member was responsible for
providing the consortium's other members with maintenance, repair and overhaul
services for certain specified aircraft components. Over time, these members
have begun subcontracting their maintenance, repair and overhaul services to
independent service providers whom they subject to a competitive bidding process
to obtain the work. The Company believes that this trend will provide it with
opportunities to expand substantially its European customer base.
GREATER EMPHASIS ON TRACEABILITY. Due to concerns regarding unapproved
aircraft spare parts, regulatory authorities have focused on the level of
documentation which must be maintained on aircraft spare parts. As a result,
aircraft operators increasingly demand that third party service providers
provide complete traceability of all parts used in the repair and overhaul
process. The sophistication required to track the parts histories of an
inventory consisting of thousands of aircraft spare parts is considerable. For
example, an overhaul of a 747 aircraft shipset requires the handling and
tracking of over 2,500 parts. This has required companies to invest heavily in
information systems technology. The Company has developed and maintains a
proprietary management information system that enables it to comply with its
customer's contract specifications and enables its customers to comply with
governmental regulations concerning traceability of spare parts.
COMPANY OPERATIONS
REPAIR AND OVERHAUL
The primary reasons for removing landing gear or hydromechanical components
from an aircraft for servicing are: (i) the number of takeoffs and landings or
years since a landing gear's last overhaul have reached the time between
overhaul limit and it must be overhauled or (ii) the landing gear or
hydromechanical component has been damaged or is not performing optimally. The
cost of servicing landing gear or hydromechanical components that have been
removed varies depending upon the age and type of aircraft and the extent of the
repairs being performed.
Each overhaul of landing gear can involve numerous separate parts and work
orders. For example, the Boeing 737 nose landing gear calls for over 290 parts
and related work orders while the Boeing 747-200 nose gear calls for over 650
parts and related work orders. Generally, the Company performs these overhauls
in approximately six to eight weeks. Hydromechanical component overhauls can
involve 200 or more parts and over 25 separate work orders and are performed in
approximately two to four weeks. In order to achieve this throughput, the
Company must perform many parallel processes and integrate numerous components
just before final assembly. Completing this complex overhaul work within the
time
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constraints set by aircraft operators has led the Company to develop a highly
managed systems-driven process, which is facilitated by its highly specialized
management information systems described in more detail below. The stages of the
overhaul process include the following:
DISASSEMBLY, CLEANING AND INSPECTION. Upon receiving a landing gear shipset
or a hydromechanical component, the Company's technicians disassemble the unit
into its parts, a process which requires special tooling and expertise. Each
part is completely cleaned to allow for comprehensive inspection, testing and
evaluation of part size, structural integrity and material tolerances. The
Company uses a detailed checklist and reporting procedure to create a work order
documenting the state of each part inspected and indicating the extent of repair
or overhaul to be performed. Technicians tag all parts which need to be replaced
or reworked and electronically prepare bills of material and requisitions to the
Company's parts and production departments for inventory and scheduling
purposes. An internal sales order is created concurrently with the work order
for shipping, pricing, billing and delivery purposes. The Company utilizes its
management information system throughout this process to reduce the amount of
detailed inspection time required. See "--Management Information Systems and
Quality Assurance."
The work completed in the disassembly and inspection process enables the
Company to obtain detailed information concerning which parts can be reused or
repaired and which must be replaced, as well as the approximate labor needed to
complete the job. The Company's computer system identifies and tracks the parts
and associated work orders from each landing gear or hydromechanical component
throughout the overhaul process in order to maintain the integrity of the
landing gear or hydromechanical component the Company services. Shop travelers
provide a complete, detailed listing of all repair and overhaul work steps and
processes. Once disassembled, the individual parts are washed, visually
inspected for obvious damage and permanently identified using the internal work
order number assigned to that delivery order. Major and minor parts are then
processed for engineering evaluation and disposition of required repair work
steps.
PARTS REWORK, REPLACEMENT AND REASSEMBLY. The next phase of an overhaul
involves reworking existing parts to specifications set by the Company's
customers. This entails a combination of machining, plating, heat treatment,
metal reshaping, surface finishing and restoration of organic finish. At this
phase, each part is accompanied by the customized bar-coded traveler which
facilitates the computerized prioritization and tracking of a part through the
rework phase. Tight control is maintained over scheduling for each part,
enabling the Company to remain within its required turnaround time. The Company
performs the majority of the repair and overhaul procedures in its facilities
using proprietary or specialized repair techniques. In addition, the Company
utilizes in-house manufacturing capabilities to fabricate certain parts used in
the overhaul process that are otherwise difficult to obtain. If a part cannot be
reclaimed, the Company may install either a new part or a previously-reworked
part from inventory. The Company maintains an inventory of serviceable parts
that it has reworked for this purpose. Overhauling parts or using serviceable
parts from inventory in lieu of new parts generally lowers customer costs and
increases the Company's margins in comparison to an overhaul that consists of
exclusively new spare parts. In addition, these manufacturing and service
capabilities are integral to the Company's competitive position because they
enable the Company to maintain or increase the quality of work performed and
significantly reduce cost and turnaround time relative to its competitors.
INSPECTION AND SHIPPING. After completing the rework phase of the
overhaul/repair process, each part is delivered to the assembly area where the
end unit is assembled, tested and final inspection is completed. Once the end
unit assembly has been accepted through final inspection it is moved to
shipping, where it is packaged and prepared for dispatch.
PRICING. The Company offers its customers different pricing arrangements
for its repair and overhaul services. Pricing generally depends on the volume
and complexity of the work performed, the kind and number of new or
remanufactured spare parts used in the repair or overhaul and the required
turnaround time. For many of its customers, the Company exchanges a previously
overhauled shipset from its
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inventory for an as-removed shipset from customer's aircraft upon which the
Company charges the customer a fixed overhaul fee. Upon completing the overhaul
of the as-removed shipset, the Company charges the customer an additional fee
for spare parts or extra services required to overhaul the landing gear to the
customer's specifications. The Company typically bills a substantial portion of
the repair and overhaul fee to the customer up-front upon receiving its
as-removed shipset and generally receives payment for this portion of the
overhaul fee before completing the overhaul. When the Company overhauls a
shipset without exchanging an overhauled gear assembly from its inventory, the
Company charges one fee, which includes all parts and labor charges, upon
delivering the overhauled shipset to the operator. Pursuant to the Company's
standard payment terms, invoices are due within 30 days after receipt. The
Company typically offers a discount of up to 2% on payment made within 30 days
of receipt of an invoice.
With certain of its customers for whom the Company regularly provides parts
and services on entire fleets or large numbers of aircraft, the Company utilizes
a flat fee fixed price arrangement which it typically sets forth in long-term
service agreements. For the nine months ended September 30, 1997, approximately
$7.4 million, or 54% of the Company's landing gear repair and overhaul sales,
were received under long-term service agreements, which is expected to increase
in 1998 following the BA Acquisition. Pursuant to the Company's service
agreements, the Company performs repair and overhaul services on a scheduled or
as-needed basis. Pricing depends on the volume and type of aircraft landing gear
or hydromechanical component to be serviced and the required turnaround time.
Under its long-term service agreements, the Company is able to plan in advance
for equipment and inventory requirements and can achieve efficiencies in labor
hours and materials usage relative to the estimate on which the contract price
was based.
The following table sets forth: (i) the type of aircraft landing gear the
Company overhauls; (ii) management's estimate of the cost to purchase new
landing gear, which is not commonly purchased separately from an aircraft; (iii)
the typical charge by the Company to overhaul such landing gear; (iv)
management's estimate of the average time between overhauls; and (v) the
Company's primary customers for each type of aircraft:
<TABLE>
<CAPTION>
TYPICAL
ESTIMATED COST COST AVERAGE TIME
TYPE OF OF NEW OF COMPLETE BETWEEN
AIRCRAFT LANDING GEAR OVERHAUL OVERHAULS CUSTOMERS
- --------- ---------------- ----------- ------------ -----------------
<C> <C> <C> <C> <S>
727 Not in $ 165,000 7 yrs. Fed Ex
Production
737 $.9 mil $ 130,000 6-8 yrs. United Airlines
British Airways
747 $7.4 mil $ 500,000 7-9 yrs. Air Canada
Tower Air
British Airways
757 $2.8 mil $ 250,000 7-9 yrs. U.S. Airways
American
British Airways
767 $3.6 mil $ 360,000 7-9 yrs. U.S. Airways
British Airways
MD80 $.8 mil $ 180,000 7-8 yrs. Delta
DC10 $4.5 mil $ 400,000 7-10 yrs. Fed Ex
British Airways
United Airlines
A300 $5.5 mil $ 400,000 8-10 yrs. Fed Ex
A310 $4.5 mil $ 400,000 8-10 yrs. Fed Ex
</TABLE>
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PARTS DISTRIBUTION
GENERAL. Aircraft spare parts are classified within the industry as (i)
factory new, (ii) new surplus, (iii) overhauled, (iv) serviceable, and (v)
as-removed. A factory new or new surplus part is one that has never been
installed or used. Factory new parts are purchased from manufacturers or their
authorized distributors. New surplus parts are purchased from excess stock of
airlines, repairs facilities or other distributors. An overhauled part has been
disassembled, inspected, repaired, reassembled and tested by a licensed repair
facility. An aircraft spare part is classified serviceable if it is repaired by
a licensed repair facility rather than completely disassembled as in an
overhaul. A part may also be classified serviceable if it is removed by the
operator from an aircraft or engine while operating under an approved
maintenance program and is functional and meets any manufacturer or time and
cycle restrictions applicable to the part. A factory new, new surplus,
overhauled or serviceable part designation indicates that the part can be
immediately utilized on an aircraft. A part in as-removed condition requires
functional testing, repair or overhaul by a licensed facility prior to being
returned to service in an aircraft.
PARTS SALES. The Company sells factory new, FAA-approved parts manufactured
by approximately 80 OEMs, including SAMM, Dunlop, Parker Hannifin and
Messier-Bugatti and overhauled aircraft spare parts to a diverse base of
customers in the aviation industry. The Company believes that it provides
customers with value added parts distribution services by offering immediate
availability, broad product lines, technical assistance and additional services.
CUSTOMERS
COMMERCIAL. The Company serves a broad base of over 450 domestic and
international customers in the aviation industry. The Company's customers
include FedEx, American Airlines, US Airways, United Airlines, Continental
Airlines, Inc., Continental Express, Inc. and Westair Commuter Airlines, Inc.
The Company's largest customer, FedEx, accounted for approximately 18.4% of its
sales for the year ended December 31, 1996 and 18.2% for the nine months ended
September 30, 1997. The Company has a five-year agreement with FedEx expiring in
August 1999 to provide spare parts and repair and overhaul services at a fixed
price for most aircraft in FedEx's fleet. The Company is currently negotiating
an amendment to this agreement to extend the term until August 2007 and expand
it to include additional aircraft. The Company also has a seven-year exclusive
agreement with American Airlines to service landing gear on all Boeing 757
aircraft within its fleet on a flat-fee basis expiring in June 30, 2005. The
Company believes that the long-term relationships that it has developed with
many of its customers provide the Company with an ongoing base of business and
an excellent source of new business opportunities.
GOVERNMENT CONTRACTS. Sales to the United States government and its
agencies were approximately $4,491,000 (11.5% of revenues) and $2,163,000 (7.2%
of revenues) in the year ended December 31, 1996 and the nine months ended
September 30, 1997, respectively. The Company's largest government customer has
been the USCG with which the Company has an agreement to provide repair and
overhaul services and spare parts on an as-needed, fixed price basis for the
USCG's Dauphin II helicopters. The agreement is for a one-year term which the
USCG may renew for additional one-year terms through the year 2000. For the year
ended December 31, 1996, and the nine months ended September 30, 1997 sales to
the USCG accounted for approximately 11.2% and 7.0%, respectively, of the
Company's revenues. Because government sales are subject to competitive bidding
and government funding, there can be no assurance that such sales will continue
at previous levels. Although the Company's government contracts are subject to
termination at the election of the government, in the event of such a
termination the Company would be entitled to recover from the government all
allowable costs incurred by the Company through the date of termination.
MATERIAL CUSTOMERS. FedEx and the USCG were the only customers who
accounted for 10% or more of the Company's total revenues for the year ended
December 31, 1996 (pro forma) and FedEx was the only customer who accounted for
10% or more of the Company's total revenues for the nine months ended September
30, 1997. See "Risk Factors--Customer Concentration; Concentration of Credit
Risks."
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MANAGEMENT INFORMATION SYSTEM AND QUALITY ASSURANCE
The Company believes that its management information system are among the
most advanced in its industry. The Company utilizes its system to shorten
turnaround times for customer orders, increase output, improve inventory
management and reduce costs by eliminating duplication of work and reducing
errors in ordering of parts. The system consists of an automated inspection and
routing system, a material resources planning module, a bar-coded shop floor
control module, an inventory control and parts tracing module, a tooling
calibration module and a general accounting module.
The system enables the Company to shorten lead times, increase output and
improve inventory management by allowing the Company to manage and control the
process of detailed parts inspection, materials requisitioning and work order
scheduling and release. The system's database contains much of the information
required to perform landing gear inspection activities, including illustrated
parts catalogues, parts specifications and other technical data. This has
largely eliminated the need to update parts catalogues manually and allows an
inspector using a personal computer located at his workstation to (i) refer to
computer based parts manuals and catalogues to identify needed parts, (ii)
access inventory to check on the availability of needed parts, (iii) requisition
needed parts from inventory and (iv) create and record an audit trail for all
inspected parts and processes. These features of the system have substantially
reduced total detailed inspection time required in the overhaul process.
Using the system, all materials utilized and labor performed in connection
with a work order are recorded using bar code scanners located throughout the
Company's facility. Work order travelers are generated upon commencement of a
repair or overhaul and accompany the separate parts of each landing gear or
hydromechanical component throughout the overhaul process. After each stage of
the process is completed, the employee who performed the work records, using the
bar code system, the date of completion, his or her employee identification
number, critical dimensions and the quantity processed, accepted or rejected.
For each repair or overhaul that it performs, the Company records all essential
operations and tests conducted, inspection data on all components repaired,
overhauled or exchanged for new components and the sources of all materials
issued during the course of the work. This function allows the company to
provide more accurate cost and timing estimates to customers, facilitates faster
and more accurate preparation of customer invoices and forms the basis of the
Company's comprehensive quality assurance program. In addition, shoploading and
material requisition personnel receive more accurate planning data. Using the
system, management can plan for material requirements in advance so that
required materials for a specific unit are on hand in time to facilitate on-time
delivery and based upon sales forecasts and actual orders can optimize daily
manpower and materials utilization.
EQUIPMENT MAINTENANCE AND TOOLING
The Company performs all of the maintenance and repair on the equipment used
in the repair and overhaul process. The Company's maintenance personnel perform
various regularly scheduled maintenance procedures on the Company's equipment on
a weekly, monthly and annual basis, and shift operators perform daily preventive
maintenance. Precision measurement accessories installed on certain machines,
which require periodic calibration, are maintained and serviced by approved
vendors and closely monitored by the Company.
The Company invests significant material and resources to design and
construct tooling and fixtures to support its current product line and improve
the efficiency of the repair and overhaul process. Manufacturer-designed tooling
is typically limited to specialized tools to aid in the disassembly, assembly
and testing of a landing gear assembly, such as spanner wrenches and seal
installation tools. From time to time, the Company's employees may develop
modifications to existing tooling or ideas for new tooling and fixtures in order
to accomplish a specific machining or testing operation or to improve the
performance of the overhaul process. Tooling and fixtures used in machining and
plating operations are conceived, designed and fabricated in-house by the
technical personnel involved in the Company's daily operations to improve the
labor efficiency of a process and reduce the cost of performing a repetitive
process. The
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Company believes that its ability to design and fabricate tooling used in its
operations allows it to maximize efficiencies and enables its customers to
realize cost savings and improved turnaround time.
SUPPLIERS AND PROCUREMENT PRACTICES
The primary sources of parts and components for the Company's overhaul
operations and parts distribution business are domestic and foreign airlines,
OEMs and aircraft leasing companies. The supply of parts and components for the
Company's aftermarket sales is affected by the availability of excess
inventories that typically become available for purchase as a result of new
aircraft purchases by commercial airlines, which reduce the airline's need for
spares supporting the aircraft that have been replaced. Aftermarket supply is
also affected by the availability of new parts from OEMs and the availability of
older, surplus aircraft that can be purchased for the value of the major parts
and components. Although the Company does not have fixed agreements with the
majority of its suppliers, it is frequently able to obtain significant price
discounts from many of its suppliers because of the volume and regularity of its
purchases. Under two of the Company's three ten-year agreements with Dunlop,
however, the Company purchases Dunlop parts at a discount from list price for
resale and for use in the repair and overhaul of a variety of fixed wing
aircraft and helicopters. For the year ended December 31, 1996 and the nine
months ended September 30, 1997, Dunlop accounted for approximately 27% and 19%,
respectively, of the total dollar amount of parts purchased by the Company. The
Company also has agreements with Messier-Bugatti, SAMM and Eurocopter France
that enable the Company to purchase new aircraft parts at discounts from list
price.
Although the Company does not have agreements with many of its suppliers and
competes with other parts distributors for production capacity, the Company
believes that its sources of supply and its relationships with its suppliers are
satisfactory. While the loss of any one supplier could have a material adverse
effect on the Company until alternative suppliers are located and have commenced
providing products, alternative suppliers exist for substantially all of the
parts purchased by the Company. See "Risk Factors--Dependence on Key Suppliers."
The Company has developed procurement practices to ensure that all supplies
received conform to contract specifications. For cost, quality control and
efficiency reasons, the Company generally purchases supplies only from vendors
with whom the Company has on-going relationships and/or whom the Company's
customers have previously approved. The Company has qualified second sources or
has identified alternate sources for all of its supplies. However, the inability
or delay in obtaining needed parts on a timely basis could have a material
adverse effect on the Company. The Company chooses it vendors primarily based on
the quality of the parts supplied and record for on-time performance. The
Company regularly evaluates and audits its approved vendors based on their
performance. Repeated failures to comply with the Company's quality and delivery
requirements may ultimately cause the Company to remove a vendor from its
approved vendor list.
SALES AND MARKETING
The Company's sales and marketing strategy is designed to target commercial
and government customers with large fleets of aircraft that require regular
repair and overhaul of landing gear parts and components. In recent years, the
Company has significantly expanded its direct sales efforts toward the goal of
increasing its sales from its existing customer base as well as attracting new
customers. In particular, the Company focuses its sales efforts on encouraging
its existing and prospective customers to enter into long-term agreements with
the Company for the repair and overhaul of landing gear on all aircraft within a
fleet, or alternatively, to engage the Company to perform repair and overhaul
services on several aircraft at once. In its sales and marketing efforts, the
Company emphasizes its competitive strengths, including its superior quality of
service, competitive pricing, rapid turnaround time and extensive industry
experience.
The Company markets and sells its products and services worldwide both
directly through an in-house sales staff and indirectly through a network of
independent sales representatives which at September 30, 1997 consisted of
approximately five employees and 11 sales representatives, respectively. Air
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Resources, Inc., an aviation sales representative agency ("Air Resources"),
markets and sells the Company's products and services to a number of domestic
airlines in return for a commission on sales made through Air Resources'
efforts. The Company's domestic sales are conducted primarily by Air Resources,
which focuses its efforts on major domestic commercial carriers as well as the
Company's in-house sales force. The Company conducts its international sales and
marketing through a number of independent agencies based worldwide in such
countries as France, Sweden, Mexico and India. Additionally, senior management
plays an active role in marketing several of the Company's product lines. The
Company's President and Chief Executive Officer, David Lokken oversees its sales
activities, while the Company's indirect and direct sales representatives report
directly to Brian Carr, Managing Director of Sun Valley Operations, for landing
gear sales and Michael Riley, Vice President--Hydromechanical Business Unit, for
hydromechanical component sales. The Company's sales staff works closely with
engineering and customer support personnel to provide cost effective solutions
to maintaining landing gear, stressing the Company's repair and overhaul
engineering expertise, turnaround times and component overhauling capabilities.
In addition, the Company actively participates in many of the major aviation
industry gatherings and air shows globally and hosts groups of aircraft
operators at technical and other meetings. In certain instances, the Company
bids on government contracts for certain lines through its government contracts
department, which coordinates with the Company's sales and marketing team.
The Company does not consider backlog meaningful to its business.
GROWTH STRATEGY
The Company seeks to become the leading provider of landing gear repair and
overhaul services to the global aviation industry. The Company's strategies for
accomplishing this objective include the following:
PURSUE ADDITIONAL INTERNATIONAL GROWTH OPPORTUNITIES. The Company believes
that the international aviation aftermarket presents the greatest potential for
substantial growth. With the hydromechanical repair and overhaul services that
it performs from its Netherlands facility and the large air transport repair and
overhaul operations that it will establish through the BA Acquisition, the
Company believes it will be able to provide customers with a full range of
repair and overhaul services in Europe. In addition, the Company believes that
the break-up of aircraft maintenance consortiums will create opportunities for
the Company to expand its European, Middle Eastern and Asian customer bases.
With facilities located in the United Kingdom and California, the Company
believes that it will be geographically positioned to pursue additional growth
opportunities in both the European and Asian aviation aftermarkets.
FOCUS ON LONG-TERM SERVICE AGREEMENTS. Through increased sales and
marketing efforts, the Company is actively seeking to enter into long-term
service agreements with its existing and potential customers to provide its
services for all of their respective aircraft. A recent example of the Company's
success in this area includes the Company's September 1997 seven-year exclusive
agreement with American Airlines to service landing gear on all Boeing 757
aircraft within its fleet. While long-term agreements are often terminable on
short notice, the Company believes that securing long-term service agreements
with customers will provide Hawker Pacific with a more predictable and
consistent flow of business and enable it to improve its profit margins from
fixed wing operations.
EXPAND EXISTING OPERATIONS. Hawker Pacific seeks to increase sales and
operating income by marketing its landing gear repair and overhaul services to
new and existing customers and expanding its hydromechanical component product
lines. Boeing projects that the global fleet of aircraft will grow from 11,500
aircraft at the end of 1996 to over 16,000 in 2006 and 23,000 aircraft in 2016.
The Company plans to expand its landing gear repair and overhaul operations in
order to capitalize on this growth trend. Because the Company believes that
improved profit margins in fixed wing operations are primarily a function of
increased volume, it plans to expand its capacity to perform fixed wing landing
gear repair and overhaul
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services. The Company also intends to expand its hydromechanical component
service offerings particularly through increased capabilities resulting from the
BA Acquisition. The Company recently began to offer repair and overhaul of
constant speed drive-integrated drive generators after having expended minimal
funds to initiate these operations.
ACCELERATE GROWTH THROUGH ACQUISITION. The Company intends to evaluate and
pursue strategically located companies with technology, equipment and inventory
that complement or expand the Company's existing operations and that may enable
it to expand into new geographic or product markets. In particular, the Company
seeks to acquire companies that will enable it to expand its international
operations or to increase its product offerings.
COMPETITIVE STRENGTHS
The Company believes that it is well-positioned to achieve its strategic
objectives because of the following competitive strengths:
STRONG MARKET POSITION. The Company through its predecessors has been
providing aftermarket products and services to the aviation industry for over 30
years and believes it has gained an international reputation for high quality
and reliability. The Company believes that its customers select Hawker Pacific
based on its superior quality of service, competitive pricing, rapid turnaround
time and extensive industry experience. Using its engineering expertise, the
Company has developed proprietary or specialized repair and overhaul equipment
and techniques, including the ability to manufacture certain replacement parts
in-house, that enable it to reduce costs in providing its customers with repair
and overhaul services.
EXPERIENCED MANAGEMENT TEAM. The Company's senior executives have on
average over 20 years industry experience and have served the Company for an
average of seven years. In addition, the Company believes that its customers
highly value the extensive experience of its 15 managers, who have served the
Company on average for 12 years.
ADVANCED MANAGEMENT INFORMATION SYSTEMS. The Company has developed
proprietary systems to manage and schedule work flow and coordinate many aspects
of operations. The Company believes that its management information systems are
among the most advanced in its industry, permitting the Company to achieve
greater operating efficiencies, offer a higher level of customer service than
its competitors and provide complete traceability of aircraft parts.
BROAD ARRAY OF PRODUCTS AND SERVICES. The Company services and sells a
broad array of landing gear and hydromechanical components for fixed wing
aircraft and helicopters. The Company provides services and parts for several
large air transport aircraft, including the full line of Boeing, McDonnell
Douglas, Lockheed and Airbus jets, in addition to a variety of smaller fixed
wing aircraft and helicopters, including Embraer aircraft and Bell, and
Eurocopter helicopters. The Company believes that this breadth of products and
services gives it a competitive advantage in winning business from new customers
and affords an opportunity to expand its business with existing customers. It
also positions the Company to respond to aircraft operators' desire to focus on
a select group of suppliers to control costs, increase quality and enhance
timeliness of delivery.
KEY RELATIONSHIPS. The Company actively seeks to develop close
relationships with its customers and suppliers. The Company has been providing
repair and overhaul services and spare parts to the USCG for its Dauphin II
helicopters since 1979. The Company believes that the long-term relationships
that it has developed with many of its customers provide it with an ongoing base
of business and a source of new business opportunities. In addition, the
Company's relationships with certain key parts suppliers and OEMs enable it to
purchase parts at discounts from list price and, therefore, provide the Company
with a competitive advantage. Under two of the Company's three ten-year
agreements with Dunlop, each of which expires in October 2006, the Company
purchases Dunlop parts at a discount to list price for resale and for use in the
repair and overhaul of a variety of fixed wing aircraft and helicopters. In
addition, the
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Company has agreements with Messier-Bugatti, SAMM and Eurocopter France that
enable the Company to purchase new aircraft parts at discounts from list price.
COMPETITION
Numerous companies compete with the Company in the aviation services
industry. The Company primarily competes with various repair and overhaul
organizations, which include the service arms of OEMs, the maintenance
departments or divisions of large air carriers (some of which also offer
maintenance services to third parties) and independent organizations such as the
Aerospace Division of BFG, the Landing Gear Division of AAR, Revima, and Dowty.
The Company's major competitors in its hydromechanical components business
include AAR and OEMs such as Sunstrand, Vickers, Parker-Hannifin,
Messier-Bugatti and Lucas. The Company expects that competition in its industry
will increase substantially as a result of industry consolidations and alliances
in response to the trend in the aviation industry toward outsourcing of repair
and overhaul services. In addition, as the Company moves into new geographic or
product markets it will encounter new competition.
The Company believes that the primary competitive factors in its marketplace
are quality price, the ability to perform repairs and overhauls within a rapid
and reliable turnaround time and industry experience. Certain of the Company's
competitors have substantially greater financial, technical, marketing and other
resources than the Company. These competitors may have the ability to adapt more
quickly to changes in customer requirements, may have stronger customer
relationships and greater name recognition and may devote greater resources to
the development, promotion and sale of their products than the Company. There
can be no assurance that competitive pressures will not materially and adversely
affect the Company's business, financial condition or results of operations. See
"Risk Factors--Substantial Competition."
GOVERNMENT REGULATION
The Company is highly regulated worldwide by the FAA, the JAA, and various
other foreign regulatory authorities, including the Dutch Air Agency, which
regulates the Company's Netherlands' operations, and the CAA, which will
regulate the Company's United Kingdom operations upon consummation of the BA
Acquisition. These regulatory authorities require all aircraft to be maintained
under continuous condition monitoring programs and to periodically undergo
thorough inspection. In addition, all parts must be certified by the FAA and
equivalent regulatory agencies in foreign countries and conformed to regulatory
standards before they are installed on an aircraft. The Company is a certified
FAA and JAA approved repair station and has been granted Parts Manufacturer
Approvals by the FAA Manufacturing Inspectors District Office. In addition, the
Company's operations are regularly audited and accredited by the Coordinating
Agency for Supplier Evaluation, formed by commercial airlines to approve FAA
approved repair stations and aviation parts suppliers. If material
authorizations or approvals were revoked or suspended, the Company's operations
would be materially and adversely affected. As the Company attempts to commence
operations in countries in which it has not previously operated, it will need to
obtain new certifications and approvals, and any delay or failure in attaining
such certifications or approvals could have a material adverse effect on the
Company's business, financial conditions and results of operations. In addition,
if new and more stringent regulations are adopted by foreign or domestic
regulatory agencies or oversight of the aviation industry is increased in the
future the Company's business may be materially and adversely affected. See
"Risk Factors--Government Regulation."
ENVIRONMENTAL MATTERS AND PROCEEDINGS
The Company's operations are subject to extensive and frequently changing
federal, state and local environmental laws and substantial related regulation
by government agencies, including the United States Environmental Protection
Agency, the California Environmental Protection Agency and the United States
Occupational Safety and Health Administration. Among other matters, these
regulatory authorities impose requirements that regulate the operation,
handling, transportation and disposal of hazardous materials generated by the
Company during the normal course of its operations, govern the health and
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safety of the Company's employees and require the Company to obtain and maintain
permits in connection with its operations. This extensive regulatory framework
imposes significant compliance burdens and risks on the Company and, as a
result, substantially affects its operational costs. In addition, the Company
may become liable for the costs of removal or remediation of certain hazardous
substances released on or in its facilities without regard to whether or not the
Company knew of, or caused, the release of such substances. The Company believes
that it currently is in material compliance with applicable laws and regulations
and is not aware of any material environmental problem at any of its current or
former facilities. There can be no assurance, however, that its prior activities
did not create a material problem for which the Company could be responsible or
that future uses or conditions (including, without limitation, changes in
applicable environmental laws and regulations, or an increase in the amount of
hazardous substances generated by the Company's operations) will not result in
any material environmental liability to the Company and materially and adversely
affect the Company's financial condition and results of operations. The
Company's plating operations, which use a number of hazardous materials and
generate significant hazardous waste, increase the Company's regulatory
compliance burden and compound the risk that the Company may encounter a
material environmental problem in the future. Furthermore, compliance with laws
and regulations in foreign countries in which the Company locates its operations
may cause future increases in the Company's operating costs or otherwise
adversely affect the Company's results of operations or financial condition. See
"Risk Factors--Environmental Regulations."
In October 1993, the United States of America and the State of California
each filed lawsuits in the United States District Court for the Central District
of California, against the Company and the owners (the "Owners") of the
Company's former facility (the "Site"). The lawsuits (the "SFVB Actions")
alleged that the groundwater in the San Fernando Valley Basin ("SFVB") had been
contaminated with volatile organic compounds and other hazardous substances
released from the Site, requiring costly investigation, evaluation and
remediation efforts for which the Company and the Owners were liable. In
February 1997, the Company entered into settlements with the United States of
America and State of California pursuant to which the Company paid the EPA
$382,500 and the State of California $40,950 in June 1997. The Company believes
that it will not be liable for any future costs to the United States government
or the State of California related to this matter, and the California Regional
Water Quality Control Board recently notified the Company of its conclusion that
soil contamination at the Site does not represent a significant threat to
groundwater quality and cannot be determined with certainty. BTR has agreed to
indemnify the Company against any future amounts for which the Company may be
responsible in connection with the SFVB Actions. See "Certain
Transactions--Acquisition of the Company from BTR."
EMPLOYEES AND EMPLOYEE TRAINING
As of September 30, 1997 the Company had 241 employees of whom approximately
16 are in management, 40 are engineering and technical personnel, 141 are direct
labor personnel, 2 are in sales and marketing and 25 are administrative
personnel. The Company is not currently a party to any collective bargaining
agreements; however, in connection with the BA Acquisition, the Company may be
required to enter into collective bargaining agreements in the United Kingdom.
The Company believes that its relationships with its employees are generally
good. Competition for employees in the Company's industry is intense, and the
Company cannot give any assurance that it will be able to attract or retain
highly qualified personnel in the future. See "Risk Factors--Dependence on Key
Employees."
Each of the Company's technical employees receives specific training in the
individual repair and overhaul functions that he or she performs in addition to
comprehensive general training in total quality management procedures,
statistical process control and material resource planning. The Company also
regularly conducts in-house training programs, which the Company's management
designs using standard industry practice manuals, for its technical and
engineering employees on a number of subjects, including materials handling,
corrosion prevention and control, surface tension etch inspection and shot
peening.
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FACILITIES
The Company's principal executive offices and production facilities are
located in Sun Valley, California. The Company occupies the premises, comprising
approximately 193,000 square feet and nine buildings pursuant to various
long-term leases that expire on dates ranging between 2004 and 2010 and require
the Company to make monthly rent payments ranging from $4,560 to $38,200.
The Company also leases a facility comprising approximately 8,000 square
feet near Amsterdam, Netherlands from which it performs hydraulic repairs on
rotor and fixed wing aircraft. The lease expires in 1998 after which the Company
plans to move to new and larger facilities. The Company believes that a facility
will be available on terms acceptable to the Company.
The Company believes that its facilities satisfy its current needs. However,
as part of its internal growth strategy, the Company is in the process of
reorganizing and reconfiguring its Sun Valley, California location to meet its
growth needs and increase the efficiency of its operations, which it expects to
complete in early 1998. Beginning in 1998, the Company plans to expand its
plating operations at this facility. In addition, the Company is currently
looking for a facility in the United Kingdom to house its new United Kingdom
operations. See "Acquisition of Certain Assets of British Airways." Any failure
or delay in completing the reorganization or expansion of plating operations as
currently planned, or locating and organizing a facility in the United Kingdom,
however, could significantly impair the Company's ability to manage its growth
and could have a material adverse affect on the Company's business, financial
condition and results of operations. See "Risk Factors--Risk Associated With
Facilities Reorganization."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following sets forth certain information regarding the Company's
executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------- ----------- --------------------------------------------------------------
<S> <C> <C>
Scott W. Hartman............................ 34 Chairman of the Board(1)(2)
David L. Lokken............................. 51 President, Chief Executive Officer and Director(2)
Brian S. Aune............................... 42 Vice President and Chief Financial Officer
Brian S. Carr............................... 40 Managing Director of Sun Valley Operations
Michael A. Riley............................ 51 Vice President--Hydromechanical Business Unit
Daniel J. Lubeck............................ 35 Secretary and Director(2)
John G. Makoff.............................. 34 Director
Joel F. McIntyre............................ 59 Director Nominee(1)(3)(4)
Daniel C. Toomey, Jr........................ 34 Director Nominee(1)(3)(4)
</TABLE>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Nominating Committee
(3) Member of Audit Committee
(4) Position to be held with the Company following the Offering
SCOTT W. HARTMAN became a director of the Company in December 1996 and
became Chairman of the Board of the Company in March 1997. Since March 1995, Mr.
Hartman has served as Chief Operating Officer of Unique. From December 1993
until he joined Unique, Mr. Hartman served as Chief Executive Officer of Nucor
World Industries, a private holding company. From December 1991 until December
1993, Mr. Hartman served as a Vice President of Business Development for City
National Bank, and from May 1983 until he joined City National Bank, he held
various management positions with Emerson Electric Company. Mr. Hartman earned a
B.S. from Indiana University.
DAVID L. LOKKEN joined the Company in May 1989 as Executive Vice President
and Chief Operating Officer and has served as President and Chief Executive
Officer of the Company since June 1993. From November 1985 until he joined the
Company, Mr. Lokken served a Vice President and General Manager of Cleveland
Pneumatic's Product Service Division. Mr. Lokken holds a B.S. in Electrical
Engineering from North Dakota State University and an M.B.A. from Arizona State
University.
BRIAN S. AUNE joined the Company as Vice President of Finance and
Administration in 1992 and has served as Vice President and Chief Financial
Officer of the Company since August 1994. Before joining the Company, Mr. Aune
held various finance and management positions with Dunlop Aviation, BEI Motion
Systems Electronics and Eastman Kodak. Mr. Aune has a B.A. in Accounting from
Eastern Washington University and an M.B.A. from the University of San Diego.
BRIAN S. CARR became Managing Director of Sun Valley Operations in November
1997 after having served as Vice President--Landing Gear Business Unit since he
joined the Company in January 1993. From 1980 until he joined the Company, Mr.
Carr held various engineering, technical sales and management positions with
Cleveland Pneumatic's Product Service Division and Dowty Aerospace. Mr. Carr
holds a B.S. in Aerospace Engineering Technology from Kent State University.
MICHAEL A. RILEY joined the Company's predecessor as Vice President of
Marketing in October 1989 and has served as Vice President--Hydromechanical
Business Unit since January 1994. From 1982 until he joined the Company, Mr.
Riley held various positions in the aerospace/aircraft industry with Abex
Aerospace and Dunlop Aviation. Mr. Riley served as a helicopter pilot in the
United States Navy and received a B.S. in Engineering from the United States
Naval Academy, Annapolis, Maryland.
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DANIEL J. LUBECK joined the Company as Secretary and a director in December
1996. Since July 1996, Mr. Lubeck has served as President of Unique. From March
1993 until he joined Unique, Mr. Lubeck was an attorney with McIntyre, Borgess &
Burns, a multi-service law firm, after having worked as an attorney with Paul,
Hastings, Janofsky & Walker from 1987 until 1992 and with Manatt, Phelps &
Philips, LLP from 1992 until 1993. Mr. Lubeck earned a J.D. from University of
Southern California and holds a B.A. from University of California San Diego.
JOHN G. MAKOFF became a director of the Company in December 1996. Mr. Makoff
founded Unique in June 1993 and currently serves as its Chief Executive Officer.
From June 1991 until he founded Unique, Mr. Makoff served as Manager for
Computerland of Pasadena, Inc., a computer reseller. Mr. Makoff holds a B.A.
from Lewis & Clark University.
RICHARD ADEY is expected to become the Company's Managing Director of UK
Operations following the BA Acquisition. Since March 1996, Mr. Adey has been a
Senior Manager for British Airways Engineering, in charge of overhauling landing
gear, flap tracks and flap carriages on British Airways' aircraft. From 1994
until he joined British Airways Engineering, Mr. Adey served as Operations
Director for Woodhead Manufacturing Ltd. From 1984 through 1993, Mr. Adey served
as a Senior Consultant with Coopers & Lybrand, specializing in operations
management and process improvement within commercial organizations. Mr. Adey
holds a BSc in Production Engineering and Engineering Management from the
University of Nottingham and an MSc in Manufacturing Technology and Business
Management from Cranfield Institute.
JOEL F. MCINTYRE has been nominated to become a director of the Company
following the Offering. From 1963 through 1993, Mr. McIntrye was an attorney
with the law firm of Paul, Hastings, Janofsky and Walker. In 1993, Mr. McIntyre
founded the law firm of McIntyre, Borges & Burns LLP and currently serves as its
Managing Partner. Mr. McIntyre currently serves on the Board of Directors on
International Aluminum Corporation, a publicly-held company. Mr. McIntyre
received a B.A. from Stanford University in 1960 and J.D. from University of
California, Los Angeles in 1963.
DANIEL C. TOOMEY has been nominated to become a director of the Company
following the Offering. Mr. Toomey has served as Vice President and Chief
Financial Officer of Eltron International, Inc., a publicly-held company
("Eltron"), since October 1992 and as its Secretary since 1993. From 1987 until
he joined Eltron, Mr. Toomey was employed with Arthur Andersen LLP, where he
served as Manager in the Enterprise Division of its Woodland Hills, California
office. In January 1998, Mr. Toomey plans to join a Los Angeles-based venture
capital firm. Mr. Toomey received a B.A. from the University of California, Los
Angeles in 1986.
The Board of Directors has established an Audit Committee and a Compensation
Committee. The functions of the Audit Committee include recommending to the
Board the selection and retention of independent auditors, reviewing the scope
of the annual audit undertaken by the Company's independent auditors and the
progress and results of their work and reviewing the financial statements of the
Company and its internal accounting and auditing procedures. The functions of
the Compensation Committee include establishing the compensation of the Chief
Executive Officer, reviewing and approving executive compensation policies and
practices, reviewing salaries and bonuses for certain executive officers of the
Company, administering the Company's employee stock option plans and considering
such other matters as may from time to time be delegated to the Compensation
Committee by the Board of Directors. The Board of Directors intends to appoint
independent directors to the Audit and Compensation Committees at such time as
such directors join the Board of Directors. The Board of Directors has also
established a nominating committee whose function is to select the slate of
directors to be presented to the shareholders for election at the Annual Meeting
of the shareholders of the Company.
The Company's executive officers are appointed by, and serve at the
discretion of, the Board of Directors of the Company. See
"Management--Employment Agreements." The Company's Directors serve until the
next annual meeting of shareholders or until successors are elected and
qualified.
43
<PAGE>
DIRECTOR COMPENSATION
Following the Offering, each non-employee Director will receive a cash fee
of $1,500 per regular and special Board meeting attended in person and $1,000
per telephonic Board meeting and an additional $500 per month for being a member
of one or more committees of the Board. Each non-employee Director is expected
to receive, as additional director compensation, such number of options as
determined by the Board to purchase shares of Common Stock per year at an
exercise price equal to the fair market value of the Common Stock on the date of
the grant. The Directors are reimbursed for expenses incurred in connection with
the performance of services as Directors.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation earned or accrued during
the years ended December 31, 1994, 1995 and 1996 by the Company's Chief
Executive Officer and the Company's three other most highly compensated
executive officers whose total salary and bonus during such year exceeded
$100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OTHER
- ----------------------------------------------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
David Lokken........................................................... 1996 $ 192,566 $ 67,125 $ 173,220(2)
Chief Executive Officer 1995 184,256 --
1994 178,126 50,790
Brian Aune............................................................. 1996 $ 98,440 $ 28,763
Chief Financial Officer 1995 100,509 --
1994 91,666 15,000
Brian Carr............................................................. 1996 $ 111,258 $ 26,910
Managing Director of Sun Valley Operations 1995 104,785 --
1994 103,178 20,500
Michael Riley.......................................................... 1996 $ 95,584 $ 23,550
Vice President--Hydromechanical Business Unit 1995 93,335 --
1994 83,375 17,000
</TABLE>
- ------------------------
(1) Bonus amounts are shown in the year accrued.
(2) Nonrecurring payment made for services rendered in connection with BTR's
sale of the Company to Unique of which 31% was paid in 1996 and 69% was paid
in 1997.
In November 1996, the Company entered into an employment agreement with
David L. Lokken pursuant to which Mr. Lokken agreed to serve as the Company's
President and Chief Executive Officer. The employment agreement is for an
initial term of five years and as amended in 1997 provides for an annual base
salary of $205,000, a performance bonus to be awarded in accordance with the
terms and conditions of a separate Management Incentive Compensation Plan, and a
monthly automobile allowance of $1,500. Pursuant to the employment agreement,
the Company may terminate Mr. Lokken's employment with or without cause at any
time before its term expires upon providing written notice. In the event the
Company terminates Mr. Lokken's employment without cause, Mr. Lokken would be
entitled to receive a severance amount equal to his annual base salary for the
greater of two years or the balance of the term of his employment agreement and
a bonus for the year of termination. In the event of a termination by reason of
Mr. Lokken's death or permanent disability, his legal representative will be
entitled to receive his annual base salary for the remaining term of his
employment agreement.
In November 1996, the Company also entered into employment agreements with
each of Brian Aune, the Company's Vice President and Chief Financial Officer,
Brian Carr, the Company's Managing Director of Sun Valley Operations, and
Michael Riley, the Company's Vice President--Hydromechanical Business
44
<PAGE>
Unit. The employment agreements are each for an initial term of three years and
as amended in 1997 provide for annual base salaries of $130,000, $130,000 and
$115,000, respectively, performance bonuses to be awarded in accordance with the
terms and conditions of a separate Management Incentive Compensation Plan, and
monthly automobile allowances of $750. In the event the Company terminates their
employment without cause, Messrs. Aune, Carr and Riley would each be entitled to
receive a severance amount equal to his respective annual base salary for the
greater of one year or the balance of the term of his employment agreement and a
bonus for the year of termination. In the event of a termination by reason of
Messrs. Aune's, Carr's or Riley's death or permanent disability, his legal
representative will be entitled to receive his annual base salary for the
remaining term of his employment agreement. Upon consummation of the BA
Acquisition, the Company will enter into an employment agreement with Mr.
Richard Adey to serve as the Company's Managing Director of its UK Operations
which will provide for an annual base salary of $120,000 and otherwise contain
the same terms and conditions as the Company's agreements with Messrs. Aune,
Carr and Riley.
In addition, pursuant to each of their amended employment agreements, in the
event of, or termination following, a change in control of the Company, as
defined in the agreements, Mr. Lokken and each of Messrs. Aune, Carr, Riley, and
Adey would be entitled to receive 18 and 12 months' salary, respectively, based
on the total annual salary then in effect paid according to a schedule to be
determined at the time such event occurs.
MANAGEMENT STOCK OPTIONS
In November 1997, the Board of Directors granted five-year management stock
options to purchase an aggregate of 116,444 shares of Common Stock to David
Lokken, Brian Aune, Brian Carr, and Michael Riley. These options are in addition
to those granted under the 1997 Stock Option Plan described below. All of these
options are vested and are exercisable at the initial public offering price per
share.
STOCK OPTION PLAN
In November 1997, the Board of Directors adopted the Company's 1997 Stock
Option Plan (the "1997 Plan"). The 1997 Plan, which was approved by the
Company's shareholders in November 1997, provides for the grant of options to
directors, officers, other employees and consultants of the Company to purchase
up to an aggregate of 640,444 shares of Common Stock. The purpose of the 1997
Plan is to provide participants with incentives that will encourage them to
acquire a proprietary interest in, and continue to provide services to, the
Company. The 1997 Plan is to be administered by the Board of Directors, or a
committee of the Board, which has discretion to select optionees and to
establish the terms and conditions of each option, subject to the provisions of
the 1997 Plan. Options granted under the 1997 Plan may be "incentive stock
options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or nonqualified options.
The exercise price of incentive stock options may not be less than 100% of
the fair market value of Common Stock as of the date of grant (110% of the fair
market value if the grant is to an employee who owns more than 10% of the total
combined voting power of all classes of capital stock of the Company). The Code
currently limits to $100,000 the aggregate value of Common Stock that may be
acquired in any one year pursuant to incentive stock options under the 1997 Plan
or any other option plan adopted by the Company. Nonqualified options may be
granted under the 1997 Plan at an exercise price of not less than 85% of the
fair market value of the Common Stock on the date of grant. Nonqualified options
may be granted without regard to any restriction on the amount of Common Stock
that may be acquired pursuant to such options in any one year. Options may not
be exercised more than ten years after the date of grant (five years after the
date of grant if the grant is an incentive stock option to an employee who owns
more than 10.0% of the total combined voting power of all classes of capital
stock of the Company). Options granted under the 1997 Plan generally are
nontransferable, but transfers may be permitted under certain circumstances in
the discretion of the administrator. Shares subject to options that expire
unexercised under the 1997 Plan will once again become available for future
grant under the 1997 Plan. The number of options outstanding and the exercise
price thereof are subject to adjustment in the case of certain
45
<PAGE>
transactions such as mergers, recapitalizations, stock splits or stock
dividends. The 1997 Plan is effective for ten years, unless sooner terminated or
suspended.
In November 1997, the Board of Directors of the Company granted six-year
options to purchase 262,000 shares of Common Stock under the 1997 Plan, of which
232,888 were granted to David Lokken, Brian Aune, Brian Carr, Michael Riley and
Richard Adey. All of these options are exercisable at the initial public
offering price per share. The options generally will be subject to vesting and
will become exercisable at a rate of 5% per quarter from the date of grant,
subject to the optionee's continuing employment with the Company. Each of the
option agreements for Messrs. Lokken, Aune, Carr, Riley and Adey provides that
all options will become fully vested and exercisable upon a change in control of
the Company, as defined in the agreements.
In general, upon termination of employment of an optionee, all options
granted to such person which are not exercisable on the date of such termination
will immediately terminate, and any options that are exercisable will terminate
not less than three months (six months in the case of termination by reason of
death or disability) following termination of employment.
To the extent nonqualified options are granted under the 1997 Plan after
this Offering, the Company intends to issue such options with an exercise price
of not less than the market price of the Common Stock on the date of grant.
EMPLOYEE DEFINED BENEFIT PLAN
GENERAL. On January 1, 1997 the Board of Directors adopted the Employee
Defined Benefit Pension Plan (the "Pension Plan") for the benefit of the
eligible employees of the Company. The primary purpose of the Pension Plan is to
provide a retirement benefit for participating employees. All employees of the
Company are eligible to participate in the Pension Plan on the January 1st next
following their date of hire. Employees who are covered by collective bargaining
units and whose retirement benefits are the subject of good faith bargaining,
however, are not eligible to participate in the Pension Plan.
ADMINISTRATION. The Pension Plan is administered by a committee (the "Plan
Committee") whose members are appointed by the Board of Directors of the
Company. The Plan Committee oversees the day-to-day administration of the
Pension Plan and has the authority to take action and make rules and regulations
necessary to carry out the purposes of the Pension Plan.
NORMAL RETIREMENT BENEFITS AND VESTING. The Pension Plan provides for
employer contributions only. Each year, the Company makes a contribution to the
pension plan equal to the minimum funding requirement sufficient to fund for the
benefits being accrued under the Pension Plan for the year. The Pension Plan
provides for a normal retirement benefit payable on a monthly basis for the
lifetime of the participant. The normal retirement benefit is equal to the
participant's credited benefit service (up to a maximum of 35 years) times the
sum of 0.75% of the participant's final average monthly compensation plus 0.65%
of such compensation in excess of the participant's average monthly wage.
However, the benefit actually payable from the Pension Plan will be reduced for
any benefits payable (or paid) with respect to service credited from the Defined
Benefit Pension Plan of the Company's predecessor.
For purposes of calculating a participant's normal retirement benefits,
average monthly compensation is defined in the Pension Plan as average monthly
compensation during the five consecutive plan years of the participant's
employment which yields the highest average compensation.
No maximum monthly benefit payable under the Pension Plan is to exceed the
applicable Internal Revenue Code Section 415 limit ($10,416.67 for 1997)
adjusted actuarially to reflect a participant's retirement age if the retirement
age is other than the social security retirement age. The monthly retirement
benefit payable by the Pension Plan is a benefit payable in the form of a
straight life annuity with no ancillary benefits. For a participant who is to
receive benefits other than in the form of a straight life annuity, the monthly
retirement benefit will be adjusted to an equivalent benefit in the form of a
straight life annuity on an actuarial equivalent basis.
46
<PAGE>
A participant becomes fully vested in his accrued benefits under the Pension
Plan upon attainment of normal retirement age (age 65), permanent disability,
death or the termination of the Pension Plan. If a participant terminates
employment with the Company prior to retirement, death or disability, the vested
interest he has in accrued benefits under the Pension Plan is based on years of
service, with 0% vesting for less than five years of service and 100% vesting
after five or more years of service.
PENSION PLAN INVESTMENTS. The Committee selects vehicles for the investment
of plan assets. The Committee then directs the trustee to invest employer
contributions in the investment option selected by the Committee under the
Pension Plan.
PENSION PLAN AMENDMENT OR TERMINATION. Under the terms of the Pension Plan,
the Company reserves the right to amend or terminate the Pension Plan at any
time and in any manner. No amendment or termination, however, may deprive a
participant of any benefit accrued under the Pension Plan prior to the effective
date of the amendment or termination.
ESTIMATED MONTHLY BENEFITS. The following table sets forth the estimated
monthly benefits under the Pension Plan, without regard to any offsetting
benefit which may be payable from the Defined Benefit Pension Plans of the
Company's predecessors for service prior to January 1, 1997, based on the
current benefit structure and assuming the participant's current age is 50.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ----------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$125,000......................................................... $ 1,743 $ 2,323 $ 2,904 $ 3,485 $ 4,066
150,000......................................................... 2,180 2,907 3,633 4,360 5,087
175,000......................................................... 2,355 3,140 3,925 4,710 5,495
200,000......................................................... 2,355 3,140 3,925 4,710 5,495
225,000......................................................... 2,355 3,140 3,925 4,710 5,495
250,000......................................................... 2,355 3,140 3,925 4,710 5,495
300,000......................................................... 2,355 3,140 3,925 4,710 5,495
400,000......................................................... 2,355 3,140 3,925 4,710 5,495
450,000......................................................... 2,355 3,140 3,925 4,710 5,495
500,000......................................................... 2,355 3,140 3,925 4,710 5,495
</TABLE>
The compensation covered by the Pension Plan includes basic salary or wages,
overtime payments, bonuses, commissions and all other direct current
compensation but does not include contributions by the Company to Social
Security, benefits from stock options (whether qualified or not), contributions
to this or any other retirement plans or programs or the value of any other
fringe benefits provided at the expense of the Company. For benefit calculation
purposes, a "highest five-year" average of compensation is used. Benefits are
paid as straight-life annuities with no subsidies or effects. The compensation
covered by the Pension Plan for all of the Named Executives was limited to
$160,000 in accordance with Section 401(a)(17) of the Internal Revenue Code of
1986, as amended.
The years of credited service for each Named Executive Officer who
participates in the Pension Plan are as follows:
<TABLE>
<CAPTION>
NAME YEARS
- ----------------------------------------------------------------------------------- ---------
<S> <C>
Dave Lokken........................................................................ 9 years
Brian Aune......................................................................... 6 years
Brian Carr......................................................................... 5 years
Michael Riley...................................................................... 8 years
</TABLE>
47
<PAGE>
LIMITATION ON DIRECTORS' LIABILITY
The Company's Amended and Restated Articles of Incorporation ("Amended
Articles") provide that, pursuant to the California Corporations Code, the
liability of the directors of the Company for monetary damages shall be
eliminated to the fullest extent permissible under California law. This is
intended to eliminate the personal liability of a director for monetary damages
in an action brought by, or in the right of, the Company for breach of a
director's duties to the Company or its shareholders. This provision in the
Amended Articles does not eliminate the directors' fiduciary duty and does apply
for certain liabilities: (i) for acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law; (ii) for acts or
omissions that a director believes to be contrary to the best interest of the
Company or its shareholders or that involve the absence of good faith on the
part of the director; (iii) for any transaction from which a director derived an
improper personal benefit; (iv) for acts or omissions that show a reckless
disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Company or its shareholders; (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Company or its shareholders; (vi) with respect to certain
transactions or the approval of transactions in which a director has a material
financial interest; and (vii) expressly imposed by statute for approval of
certain improper distributions to shareholders or certain loans or guarantees.
This provision does not limit or eliminate the rights of the Company or any
shareholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. The Company's Amended and
Restated Bylaws (the "Amended Bylaws") require the Company to indemnify its
officers and directors to the full extent permitted by law, including
circumstances in which indemnification would otherwise be discretionary. Among
other things, the Amended Bylaws require the Company to indemnify directors and
officers against certain liabilities that may arise by reason of their status or
service as directors and officers and allows the Company to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified.
The Company believes that it is the position of the Commission that insofar
as the foregoing provision may be invoked to disclaim liability for damages
arising under the Securities Act, the provision is against public policy as
expressed in the Securities Act and is therefore unenforceable. Such limitation
of liability also does not affect the availability of equitable remedies such as
injunctive relief or rescission.
The Company intends to enter into indemnification agreements
("Indemnification Agreement(s)") with each of its directors and executive
officers prior to the consummation of the Offering. Each such Indemnification
Agreement will provide that the Company will indemnify the indemnitee against
expenses, including reasonable attorneys' fees, judgements, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with any civil or criminal action or administrative proceeding arising out of
the performance of his duties as a director or officer, other than an action
instituted by the director or officer. Such indemnification is available if the
indemnitee acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Company, and, with respect to any
criminal action, had no reasonable cause to believe his conduct was unlawful.
The Indemnification Agreements will also require that the Company indemnify the
director or other party thereto in all cases to the fullest extent permitted by
applicable law. Each Indemnification Agreement will permit the director or
officer that is party thereto to bring suit to seek recovery of amounts due
under the Indemnification Agreement and to recover the expenses of such a suit
if he is successful. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. The Company believes that its Amended Articles and Amended Bylaws
provisions are necessary to attract and retain qualified persons as directors
and officers.
48
<PAGE>
CERTAIN TRANSACTIONS
ACQUISITION OF THE COMPANY FROM BTR
Effective November 1, 1996, Aqhawk, purchased all of the outstanding capital
stock of the company from BTR. The purchase price Aqhawk paid was $29,802,861,
consisting of (i) $18,828,841 obtained through debt financing provided by Bank
of America to the Company (the "Bank of America Loan"), which then loaned such
amount to Aqhawk, (ii) $6,500,000 obtained through a subordinated note (the
"Subordinated Note") provided by Melanie Bastian, a principal shareholder and
the former Chairman of the Company, to Unique which then loaned such amount to
Aqhawk, (iii) $2,000,000 obtained in return for the issuance to Ms. Bastian of
400 shares of Preferred Stock of Aqhawk, and (iv) the remaining amount obtained
through cash provided by the Company. In December 1996, Aqhawk was merged with
the Company. In the merger, each two shares of Common Stock of Aqhawk were
converted into one share of Common Stock of the Company, and each share of
preferred stock was converted into one share of Preferred Stock of the Company.
In connection with the BTR Transaction, BTR Dunlop entered into an
Environmental Indemnity Agreement pursuant to which it agreed to indemnify
Aqhawk and the Company against losses arising from any finding that the Company
or Aqhawk is liable for the handling, storage and disposal of hazardous
substances on, around or originating from the Company's facilities that existed
on or before November 1, 1996, including any future amounts for which the
Company may be responsible in connection with the SFVB Actions. See
"Business--Environmental Matters and Proceedings." BTR and its subsidiary also
agreed not to compete against the Company in the repair and overhaul of aircraft
landing gear for a period of three years following the BTR Transaction. In
addition, BTR granted the Company an exclusive, worldwide, royalty-free license
to use the Hawker Pacific logo and name, for as long as the Company continues to
use such marks, in connection with the repair and overhaul of aircraft landing
gear and a non-exclusive right to use the logo and name for the same period in
connection with all other operations of the Company.
To obtain a portion of the purchase price paid for the Company in connection
with the BTR Transaction, in November 1996, the Company issued the Subordinated
Note in the aggregate principal amount of $6.5 million. The Subordinated Note
bears interest at the rate of 11.8% per annum paid monthly and matures January
1, 2001. A portion of the proceeds of this Offering will be used to repay a
portion of the Subordinated Note. See "Use of Proceeds."
Pursuant to a Limited Guaranty dated as of November 27, 1996 by Melanie L.
Bastian in favor of Bank of America, in connection with the Bank of America
Loan, Ms. Bastian has guaranteed the Company's payment obligations, and the
shareholders of the Company pledged as collateral for the loan all of their
capital stock of the Company. The Company has arranged for Ms. Bastian's
guarantee to be released upon the consummation of this Offering, and the pledges
will be released upon repayment of the Bank of America loan using a portion of
the proceeds of this Offering and funds from a new credit facility.
CONVERSION OF PREFERRED STOCK INTO COMMON STOCK
As of September 30, 1997, all of the Company's issued and outstanding shares
of Preferred Stock were held by Ms. Bastian. Pursuant to the Company's Amended
Articles, all of the outstanding shares of Preferred Stock will upon the closing
of this Offering be converted into such number of shares of Common Stock as
shall equal $2.0 million divided by the initial offering price per share.
Assuming an initial public offering price of $9 per share, the Preferred Stock
will be converted into 222,222 shares of Common Stock. If the initial public
offering price is less than $9, Ms. Bastian will receive a greater number of
shares of Common Stock upon conversion, and the remaining current holders of
Common Stock of the Company will own such number of shares as shall equal
3,222,222 less the number of shares issued upon Ms. Bastian's conversion of
Preferred Stock.
49
<PAGE>
SALES OF COMMON STOCK TO PRINCIPAL SHAREHOLDER
In September and October 1997, Ms. Bastian purchased an aggregate of 102,569
shares of Common Stock for $1,000,000 ($9.75 per share).
AGREEMENTS WITH UNIQUE INVESTMENT CORP.
The Company and Unique entered into a management agreement dated March 1,
1997 (the "Old Management Agreement"), pursuant to which the Company paid Unique
management fees and reimbursable expenses totalling approximately $225,000
during the nine months ended September 30, 1997. In November 1997, the Company
and Unique entered into a new management services agreement (the "Management
Services Agreement") pursuant to which, upon the consummation of this Offering,
the Old Management Agreement will be terminated, and Unique will be entitled to
receive $150,000 per year payable monthly commencing in January 1999 for certain
management services to be rendered to the Company. The Management Services
Agreement will terminate upon the Company's completing an additional
underwritten public offering in which selling shareholders offer 25% or more in
such offering.
The Company also entered into a mergers and acquisitions agreement dated as
of September 2, 1997 with Unique pursuant to which Unique is entitled to receive
$300,000 upon the closing of the BA Acquisition for services provided in
connection with the acquisition.
FUTURE TRANSACTIONS
The Company intends that any future transactions with affiliates of the
Company will be on terms at least as favorable to the Company as those that can
be obtained from nonaffiliated third parties.
50
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth the beneficial ownership of Common Stock as
of November 14, 1997, and as adjusted to reflect the sale of Common Stock
offered hereby (assuming no exercise of the Underwriters' over-allotment
option), by: (i) each person known by the Company to beneficially own 5% or more
of the outstanding shares of Common Stock, (ii) each director of the Company,
(iii) each Named Executive Officer of the Company, (iv) the Selling Shareholder
and (v) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER OFFERING(1)
OFFERING(1)
-------------------------- NUMBER OF -----------------------
NAME AND BENEFICIAL OWNERS NUMBER PERCENT SHARES NUMBER PERCENT
- ------------------------------------------------------- ---------- -------------- OFFERED ---------- -----------
---------
<S> <C> <C> <C> <C> <C>
Melanie L. Bastian(2).................................. 1,527,225 47.4% 166,667 1,360,558 23.4%
Sidney G. Makoff....................................... 289,743 9.0 -- 289,743 5.0
John G. Makoff......................................... 449,102 13.9 -- 449,102 7.7
Daniel J. Lubeck....................................... 333,205 10.3 -- 333,205 5.7
Scott W. Hartman....................................... 333,205 10.3 -- 333,205 5.7
David L. Lokken(3)..................................... 217,651 6.6 -- 217,651 3.7
Brian S. Aune(4)....................................... 43,529 1.3 -- 43,529 *
Brian S. Carr(4)....................................... 43,529 1.3 -- 43,529 *
Michael A. Riley(4).................................... 43,529 1.3 -- 43,529 *
All directors and executive officers as a group
(7 persons).......................................... 1,463,750 43.8 -- 1,463,750 26.65
</TABLE>
- ------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options currently exercisable, or exercisable within 60 days of November
14, 1997, are deemed outstanding for computing the percentage of the person
holding such options but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote and subject
to community property laws where applicable, the persons named in the table
have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.
(2) Ms. Bastian has granted the Underwriters an option to purchase up to 415,000
shares of Common Stock solely to cover over-allotments, if any. In the event
that the over-allotment option is exercised in full, Ms. Bastian will sell
an additional 415,000 shares, reducing her ownership in the Company to
945,558 shares (16.2%) after this Offering.
(3) Includes 72,779 shares issuable upon exercise of vested options to purchase
Common Stock.
(4) Includes 14,555 shares issuable upon exercise of vested options to purchase
Common Stock.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 20,000,000 shares of Common Stock and 5,000,000 shares of
preferred stock.
COMMON STOCK
As of November 14, 1997, 3,222,222 shares of Common Stock were outstanding,
held of record by 11 shareholders. The holders of Common Stock are entitled to
one vote for each share held of record on all matters submitted to a vote of the
shareholders and may cumulate their votes in the election of directors upon
giving notice required by law. Subject to preferences that may be applicable to
any shares of Preferred Stock issued in the future, holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." The
Company's shareholders currently may cumulate their votes for the election of
directors so long as at least one shareholder has given notice at the meeting of
shareholders prior to the voting of that shareholder's desire to cumulate his or
her votes. Cumulative voting means that in any election of directors, each
shareholder may give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of shares held by such
shareholder, or such shareholder may distribute such number of votes among as
many candidates as the shareholder sees fit. Cumulative voting will no longer be
required or permitted under the Amended Articles at such time as (i) the
Company's shares of Common Stock are listed on the Nasdaq National Market and
the Company has at least 800 holders of its equity securities as of the record
date of the Company's most recent annual meeting of shareholders or (ii) the
Company's shares of Common Stock are listed on the New York Stock Exchange or
the American Stock Exchange. At that time, the Company may divide its Board into
two classes of directors. In the event of a liquidation, dissolution or winding
up of the Company, holders of the Common Stock are entitled to share ratably
with the holders of any then outstanding Preferred Stock in all assets remaining
after payment of liabilities and the liquidation preference of any then
outstanding Preferred Stock. Holders of Common Stock have no preemptive rights
and no right to convert their Common Stock into any other securities. There are
no redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock (including the shares to be sold by the
Selling Shareholder) are, and all shares of Common Stock to be issued by the
Company in this Offering will be, fully paid and nonassessable.
PREFERRED STOCK
As of November 14, 1997, 400 shares of Series A Preferred Stock were
outstanding held by one shareholder. Such shares will automatically be converted
into 222,222 shares of Common Stock upon the consummation of this Offering.
The Board of Directors has authority to fix the rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any future vote or action by the shareholders. The rights of the holders of the
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future. The
issuance of preferred stock could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such preferred stock may have other rights, including
economic rights senior to the common stock, and, as a result, the issuance
thereof could have a material adverse effect on the market value of the Common
Stock. The Company has no present plans to issue shares of preferred stock. No
shares of preferred stock are currently outstanding, other than the shares of
preferred stock which shall be automatically converted into Common Stock upon
this Offering.
STOCK TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is U.S.
Stock Transfer Corporation, Glendale, California.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 5,822,222 shares of
Common Stock outstanding. Of these shares, the 2,766,667 shares sold in this
Offering (3,181,667 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction or registration
under the Securities Act, unless they are purchased by "affiliates" of the
Company as that term is defined under Rule 144 adopted under the Securities Act.
The remaining 3,055,555 shares will be "restricted securities" as defined in
Rule 144 ("Restricted Shares"). All such Restricted Shares are subject to
lock-up agreements with the Underwriters. See "Underwriting."
Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices and adversely affect the
Company's ability to raise additional capital in the capital markets at a time
and price favorable to the Company. As a result of the lock-up agreements and
the provisions of Rules 144(k), 144 and 701, additional shares will be available
for sale in the public market as follows: (i) 2,766,667 shares will be eligible
for immediate sale on the date of this Prospectus, and (ii) 3,055,555 shares
(less any shares sold in the over-allotment option) will be eligible for sale
upon expiration of the lock-up agreements 180 days after the date of this
Prospectus, subject to the provisions of Rule 144.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
the Company's Common Stock (approximately 58,222 shares immediately after this
Offering) or the average weekly trading volume during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and availability of current public
information about the Company. A person who is not an affiliate, has not been an
affiliate within three months prior to the sale and has beneficially owned the
Restricted Shares for at least two years is entitled to sell such shares under
Rule 144(k) without regard to any of the limitations described above.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisers between May 20, 1988, the effective
date of Rule 701, and the date the issuer becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Securities and
Exchange Commission has indicated that Rule 701 will apply to typical stock
options granted by an issuer before they become subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of this Prospectus).
Securities issued in reliance on Rule 701 are restricted securities, and,
subject to the contractual restrictions described above, beginning 90 days after
the date of this Prospectus, such securities may be sold (i) by persons other
than Affiliates, subject only to the manner of sale provisions of Rule 144 and
(ii) by Affiliates under Rule 144 without compliance with its two-year minimum
holding period requirements.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register an aggregate of 756,888 shares of Common Stock
reserved for issuance under the 1997 Plan or under management stock options,
thus permitting the resale of shares issued under such plan by non-affiliates in
the public market without restriction under the Securities Act. The registration
statement is expected to be filed after the date of this Prospectus and will
automatically become effective upon filing. 180 days following the date of this
Prospectus, 116,444 shares issuable upon exercise of vested options that are
subject to the lock-up agreements will be eligible for sale pursuant to Rule
701.
Prior to this Offering, there has been no public market for the Common Stock
of the Company, and any sale of substantial amounts of Common Stock in the open
market may adversely affect the market price of Common Stock offered hereby.
53
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom EVEREN Securities, Inc.
and The Seidler Companies Incorporated are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company and the
Selling Shareholder, and the Company and the Selling Shareholder have agreed to
sell to the Underwriters, the respective number of shares of Common Stock set
forth opposite each Underwriter's name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
EVEREN Securities, Inc.....................................................
The Seidler Companies Incorporated.........................................
-----------------
Total.............................................................. 2,766,667
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligation is such that they are committed to purchase and pay for all the
shares of Common Stock if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain securities dealers at such price less a concession not
in excess of $ per share. The Underwriters may allow, and such selected dealers
may reallow, a concession not in excess of $ per share to certain brokers and
dealers. After this Offering, the price to the public, concession, allowance and
reallowance may be changed by the representatives of the Underwriters.
The Selling Shareholder has granted the Underwriters an option, exercisable
during the 30-day period after the date of this Prospectus, to purchase up to
415,000 shares of Common Stock to cover over-allotments, if any, at the same
price per share as the initial 2,766,667 purchased by the Underwriters of the
Company. To the extent that the Underwriters exercise this option, each of the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares of Common Stock in approximately the same proportions as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with this Offering.
At the closing of this Offering, the Company has agreed to pay the
Representatives a non-accountable expense allowance of one percent of the total
offering proceeds, which will include proceeds from the Underwriters' exercise
of the over-allotment option to the extent exercised. The Company has paid
$50,000 to be applied to the non-accountable expense allowance. The
Representatives' expenses in excess of the non-accountable expense allowance
will be borne by the Underwriters.
The Company has agreed to issue to the Representatives warrants (the
"Representatives' Warrants") to purchase up to 222,716 shares of Common Stock,
at an exercise price per share equal to the initial public offering price per
share. The Representatives' Warrants are exercisable for a period of four years,
commencing one year from the effective date (the "Effective Date") of the
Registration Statement of which this Prospectus is a part and expire five years
from the Effective Date. The Representatives' Warrants are not transferrable
prior to the expiration of one year from the Effective Date other than to
officers or partners of the Underwriters and members of the selling group and
their officers and partners. The holders of the Representatives' Warrants will
have no voting, dividend or other shareholders' rights
54
<PAGE>
until the Warrants are exercised. The Company has granted the Representatives
certain demand and piggy-back registration rights related to the
Representatives' Warrants, which are applicable during the period that the
Representatives' Warrants are exercisable and expire five years from the
Effective Date.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
The Company has agreed not to issue, and all the Company's officers and
directors and all of the other shareholders, who in the aggregate hold 100% of
the shares of the Common Stock of the Company outstanding immediately prior to
the completion of this Offering, have agreed not to sell, or otherwise dispose
of, any shares of Common Stock or other equity securities of the Company for 180
days after the date of this Prospectus (other than shares sold pursuant to this
Prospectus) without the prior written consent of the Representatives.
The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act, or to contribute to payments the
Underwriters may be required to make in respect thereof.
Prior to this Offering, there has been no trading market for the Common
Stock. Consequently, the initial public offering price was negotiated among the
Company and the Representatives. Among the factors considered in such
negotiations were the history of, and the prospects for, the Company and the
industry in which it competes, an assessment of the Company's management, the
past earnings of the Company and the trend and future prospects of such
earnings, the present state of the Company's development, the general conditions
of the securities markets at the time of this Offering and the market prices of
publicly-traded common stocks of comparable companies in recent periods. There
can be no assurance that an active trading market will develop for the Common
Stock or that the Common Stock will trade in the public market subsequent to
this Offering at or above the initial public offering price.
The initial public offering price set forth on the cover page of this
Prospectus should not be considered an indication of the actual value of the
Common Stock. Such price is subject to change as a result of market conditions
and other factors. No assurances can be given that Common Stock can be resold at
or above the initial public offering price.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Troy & Gould Professional Corporation, Los Angeles, California.
Freshman, Marantz, Orlanski, Cooper & Klein, a law corporation, Beverly Hills,
California, has acted as counsel to the Underwriters in connection with certain
legal matters related to this Offering.
EXPERTS
The financial statements of the Company at December 31, 1995 and 1996 and
September 30, 1997 and for the year ended December 31, 1995, the ten months
ended October 31, 1996, the two months ended December 31, 1996 and the nine
months ended September 30, 1997, included in this Prospectus and the
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as stated in their report thereon appearing elsewhere herein and in
the Registration Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), in Washington, D.C., a Registration Statement on Form S-1 under
the Securities Act with respect to the Common Stock being offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock
55
<PAGE>
offered hereby, reference is made to the Registration Statement and such
exhibits and schedules. A copy of the Registration Statement and the exhibits
and schedules thereto may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661 and
Seven World Trade Center, 13th Floor, New York, New York 10048, and copies of
all or any part of the Registration Statement may be obtained from such offices
upon payment of the fees prescribed by the Commission. In addition, the
Registration Statement may be accessed at the Commission's site on the World
Wide Web located at http://www.sec.gov. Statements contained in this Prospectus
as to the contents of any contract or other document are not necessarily
complete and, in each instance, reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
------------------------
The Company intends to furnish its shareholders with annual reports
containing consolidated audited financial statements and quarterly reports
containing unaudited consolidated financial data for the first three quarters of
each fiscal year.
56
<PAGE>
HAWKER PACIFIC AEROSPACE
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors....................................................... F-2
Audited Financial Statements
Balance Sheets....................................................................... F-3
Statements of Operations............................................................. F-4
Statements of Changes in Stockholders' Equity........................................ F-5
Statements of Cash Flows............................................................. F-6
Notes to Financial Statements........................................................ F-7
Unaudited Pro Forma Condensed Combining Statements of Operations
For the year ended December 31, 1996 (unaudited)................................... F-24
For the nine months ended September 30, 1996 (unaudited)........................... F-25
Notes to Unaudited Pro Forma Statements of Operations................................ F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Hawker Pacific Aerospace
We have audited the accompanying balance sheet of Hawker Pacific Aerospace,
a wholly owned subsidiary of BTR Dunlop Holdings, Inc. (the "Predecessor") as of
December 31, 1995, and the related statements of operations, and cash flows for
the year ended December 31, 1995 and the ten months ended October 31, 1996. We
have also audited the accompanying balance sheets of Hawker Pacific Aerospace
(the "Successor") as of December 31, 1996 and September 30, 1997 and the related
statements of operations, changes in stockholders' equity and cash flows for the
two months ended December 31, 1996 and the nine months ended September 30, 1997.
These financial statements are the responsibility of the Predecessor's and
Successor's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hawker Pacific Aerospace, as
the Predecessor and Successor companies, at December 31, 1995 and 1996 and
September 30, 1997, and the results of their operations and their cash flows for
the year ended December 31, 1995, the ten months ended October 31, 1996, the two
months ended December 31, 1996, and the nine months ended September 30, 1997, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Woodland Hills, CA
November 7, 1997, except as to Note 14,
as to which the date is November 13, 1997
The foregoing report is in the form that will be signed upon the completion of
the restatement of capital accounts described in Note 14 to the financial
statements.
/s/ ERNST & YOUNG LLP
Woodland Hills, CA
November 13, 1997
F-2
<PAGE>
HAWKER PACIFIC AEROSPACE
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------- -------------------------
DECEMBER DECEMBER SEPTEMBER
31, 1995 31, 1996 30, 1997
----------- ----------- ------------
Current assets:
<S> <C> <C> <C>
Cash........................................................ $ 399,000 $1,055,000 $ 36,000
Accounts receivable, less allowance for doubtful accounts of
$39,000, $67,000 and $100,000 at December 31, 1995,
December 31, 1996 and September 30, 1997, respectively.... 6,392,000 6,336,000 6,852,000
Accounts receivable from affiliates......................... 624,000 -- --
Other receivables........................................... 1,086,000 59,000 19,000
Inventories................................................. 13,446,000 12,950,000 16,000,000
Prepaid expenses and other current assets................... 404,000 344,000 337,000
----------- ----------- ------------
Total current assets.......................................... 22,351,000 20,744,000 23,244,000
Equipment and leasehold improvements, net..................... 4,871,000 4,719,000 4,780,000
Landing gear exchange, less accumulated amortization of
$422,000, $61,000 and $271,000 at December 31, 1995,
December 31, 1996 and September 30, 1997, respectively...... 7,479,000 8,654,000 10,226,000
Goodwill, less accumulated amortization of $17,000 and $24,000
at December 31, 1996 and September 30, 1997, respectively... -- 620,000 227,000
Deferred taxes................................................ 680,000 -- --
Deferred financing costs...................................... -- 325,000 275,000
Deferred offering costs....................................... -- -- 143,000
Other assets.................................................. 74,000 116,000 504,000
----------- ----------- ------------
3$5,455,000 3$5,178,000 $39,399,000
----------- ----------- ------------
----------- ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $2,536,000 $3,806,000 $6,876,000
Accounts payable to affiliates.............................. 1,365,000 -- --
Line of credit.............................................. -- 5,329,000 7,479,000
Deferred revenue............................................ 1,299,000 1,593,000 827,000
Accrued payroll and employee benefits....................... 511,000 809,000 745,000
Environmental remediation................................... 234,000 657,000 --
Accrued expenses and other liabilities...................... 1,012,000 475,000 435,000
Current portion of notes payable............................ 2,105,000 850,000 1,300,000
----------- ----------- ------------
Total current liabilities..................................... 9,062,000 13,519,000 17,662,000
Due to parent and affiliates.................................. 27,310,000 -- --
Notes payable:
Bank note................................................... -- 12,650,000 11,563,000
Related party............................................... -- 6,500,000 6,500,000
----------- ----------- ------------
-- 19,150,000 18,063,000
Commitments and contingencies
Stockholders' equity:
Preferred Stock--Series A, $5,000 per share
liquidation preference, non-voting, 400 shares authorized,
issued and outstanding.................................... -- 2,000,000 2,000,000
Common Stock--20,000,000 shares authorized,
2,897,405 shares and 2,947,820 issued and outstanding at
December 31, 1996 and September 30, 1997, respectively.... 500,000 40,000 540,000
Additional paid-in capital.................................. 4,126,000 -- --
Retained earnings (deficit)................................. (5,543,000) 469,000 1,134,000
----------- ----------- ------------
Total stockholders' equity (deficiency)....................... (917,000) 2,509,000 3,674,000
----------- ----------- ------------
Total liabilities and stockholders' equity (deficiency)....... 3$5,455,000 3$5,178,000 $39,399,000
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
HAWKER PACIFIC AEROSPACE
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SUCCESSOR
PREDECESSOR -----------------------
---------------------- NINE
TEN MONTHS TWO MONTHS MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER OCTOBER DECEMBER SEPTEMBER
31, 1995 31, 1996 31, 1996 30, 1997
---------- ---------- ----------- ----------
Revenues................................... $35,012,000 $32,299,000 $6,705,000 $30,060,000
Cost of revenues........................... 28,993,000 27,027,000 4,599,000 23,083,000
---------- ---------- ----------- ----------
Gross profit............................... 6,019,000 5,272,000 2,106,000 6,977,000
---------- ---------- ----------- ----------
Operating expenses:
Selling expenses......................... 2,858,000 2,248,000 525,000 2,139,000
General and administrative expenses...... 1,979,000 2,796,000 534,000 1,979,000
Restructuring charges.................... -- 1,196,000 -- --
---------- ---------- ----------- ----------
Total operating expenses................... 4,837,000 6,240,000 1,059,000 4,118,000
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Income (loss) from operations.............. 1,182,000 (968,000) 1,047,000 2,859,000
Other (expense) income:
Interest expense......................... (1,598,000) (1,609,000) (203,000) (1,804,000)
Interest income.......................... -- -- 7,000 2,000
---------- ---------- ----------- ----------
Total other (expense) income............... (1,598,000) (1,609,000) (196,000) (1,802,000)
---------- ---------- ----------- ----------
Income (loss) before income tax provision
(benefit)................................ (416,000) (2,577,000) 851,000 1,057,000
Income tax provision (benefit)............. (680,000) (971,000) 382,000 392,000
---------- ---------- ----------- ----------
Net income (loss).......................... $ 264,000 $(1,606,000) $ 469,000 $ 665,000
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Pro forma earnings per common share........ $ 0.15 $ 0.21
----------- ----------
----------- ----------
Weighted average shares outstanding........ 3,119,627 3,119,811
----------- ----------
----------- ----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
HAWKER PACIFIC AEROSPACE
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------------- ---------------------- RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
----------- ------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 1, 1996.......... -- $ -- -- $ -- $ -- $ --
Issuance of Preferred Stock.......... 400 2,000,000 -- -- -- 2,000,000
Issuance of Common Stock to
founders........................... -- -- 2,665,611 -- -- --
Issuance of Common Stock to
management......................... -- -- 231,794 40,000 -- 40,000
Net income for the period............ -- -- -- -- 469,000 469,000
--- ------------ ---------- ---------- ------------ ------------
Balance at December 31, 1996......... 400 2,000,000 2,897,405 40,000 469,000 2,509,000
Issuance of Common Stock............. -- -- 50,415 500,000 -- 500,000
Net income for the period............ -- -- -- -- 665,000 665,000
--- ------------ ---------- ---------- ------------ ------------
Balance at September 30, 1997........ 400 $ 2,000,000 2,947,820 $ 540,000 $ 1,134,000 $ 3,674,000
--- ------------ ---------- ---------- ------------ ------------
--- ------------ ---------- ---------- ------------ ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
HAWKER PACIFIC AEROSPACE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------- ---------------------------
TEN MONTHS TWO MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER 31, OCTOBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1996 1997
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....................................................... $ 264,000 ($1,606,000) $ 469,000 $ 665,000
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Deferred income taxes................................................. (680,000) (971,000) 382,000 391,000
Depreciation.......................................................... 680,000 525,000 183,000 537,000
Amortization.......................................................... 174,000 294,000 17,000 329,000
Non cash restructuring charge......................................... -- 561,000 -- --
Stock compensation.................................................... -- -- 40,000 --
(Gain) loss on the sale of machinery, equipment and landing gear...... 332,000 -- -- (78,000)
Changes in operating assets and liabilities:..........................
Accounts receivable................................................. (1,773,000) 1,771,000 (103,000) (476,000)
Inventory........................................................... (4,433,000) 1,156,000 (901,000) (1,371,000)
Prepaid expenses and other current assets........................... (101,000) (72,000) 21,000 7,000
Accounts payable.................................................... (397,000) (2,681,000) 2,195,000 552,000
Deferred revenue.................................................... 1,029,000 532,000 115,000 (766,000)
Accrued liabilities................................................. 682,000 261,000 (139,000) (766,000)
------------ ----------- ------------ -------------
Cash provided by (used in) operating activities......................... (4,223,000) (230,000) 2,279,000 (976,000)
INVESTING ACTIVITIES
Purchase of equipment, leasehold improvements and landing gear.......... (4,479,000) (1,173,000) (155,000) (1,438,000)
Proceeds from disposals of equipment, leasehold
improvements and landing gear......................................... 350,000 -- -- 250,000
Other assets............................................................ 15,000 (26,000) -- (388,000)
Acquisition of Predecessor.............................................. -- -- (28,398,000) --
------------ ----------- ------------ -------------
Cash used in investing activities....................................... (4,114,000) (1,199,000) (28,553,000) (1,576,000)
FINANCING ACTIVITIES
Borrowing under bank note............................................... -- -- 13,500,000 --
Principal payments on bank note......................................... -- -- -- (637,000)
Borrowing on note payable to related party.............................. -- -- 6,500,000 --
Borrowings/payments on line of credit, net.............................. -- -- (1,287,000) 2,150,000
Initial borrowing under line of credit.................................. -- -- 6,616,000 --
Borrowings/payments on due to Parent and Affiliates (net)............... 8,010,000 2,193,000 -- --
Deferred offering costs................................................. -- -- -- (143,000)
Deferred financing cost................................................. -- -- -- (337,000)
Issuance of preferred stock............................................. -- -- 2,000,000 --
Contributions to capital................................................ -- 242,000 -- 500,000
------------ ----------- ------------ -------------
Cash provided by financing activities................................... 8,010,000 2,435,000 27,329,000 1,533,000
Increase (decrease) in cash............................................. (327,000) 1,006,000 1,055,000 (1,019,000)
Cash, beginning of period............................................... 726,000 399,000 -- 1,055,000
------------ ----------- ------------ -------------
Cash, end of period..................................................... $ 399,000 $1,405,000 $1,055,000 $ 36,000
------------ ----------- ------------ -------------
------------ ----------- ------------ -------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................................ $1,574,000 $1,279,000 $ 193,000 $ 1,745,000
------------ ----------- ------------ -------------
------------ ----------- ------------ -------------
Income taxes........................................................ $ 44,000 $ 20,000 $ -- $ 3,000
------------ ----------- ------------ -------------
------------ ----------- ------------ -------------
Noncash investing and financing activities
Acquisition of Predecessor:
Fair market value of assets acquired.................................. $ -- $ -- $34,973,000 $ --
Fair market value of liabilities assumed.............................. -- -- (5,170,000) --
Less cash received.................................................... -- -- (1,405,000) --
------------ ----------- ------------ -------------
Net cash paid........................................................... $ -- $ -- $28,398,000 $ --
------------ ----------- ------------ -------------
------------ ----------- ------------ -------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Hawker Pacific Aerospace, formerly known as Hawker Pacific, Inc., (the
"Company") is a California Corporation with headquarters in Sun Valley,
California, with satellite facilities in the Netherlands and, through May 31,
1996, Miami, Florida. The Company repairs and overhauls aircraft and helicopter
landing gear, hydromechanical components and wheels, brakes and braking system
components for a diverse international customer base, including commercial
airlines, air cargo operators, domestic government agencies, aircraft leasing
companies, aircraft parts distributors and original equipment manufacturers. In
addition, the Company distributes and sells new and overhauled spare parts and
components for both fixed wing aircraft and helicopters.
ORGANIZATION AND BASIS OF PRESENTATION
The Company operated as a subsidiary of BTR Dunlop Holdings, Inc., a
Delaware corporation, from December 21, 1994 to October 31, 1996. BTR Dunlop
Holdings, Inc. was a subsidiary of BTR plc, a United Kingdom company
(collectively, the "Parent").
Effective January 1, 1994, the Company merged its operations with certain
operations of Dunlop Aviation, Inc., a subsidiary of the Parent. The merger was
a combination of companies under common control and was accounted for similar to
the pooling of interests method of accounting.
Pursuant to an Agreement of Purchase and Sale of Stock, AqHawk, Inc.
purchased all of the Company's outstanding stock from BTR plc effective as of
November 1, 1996 (the "Acquisition"). AqHawk, Inc. was formed as a holding
company for the sole purpose of acquiring the stock of the Company and was
subsequently merged into the Company. The Acquisition has been accounted for
under the purchase accounting method. The aggregate purchase price was
approximately $29,800,000, which includes the cost of the Acquisition. The
aggregate purchase price was allocated to the assets of the Company, based upon
estimates of their respective fair market values. The excess of purchase price
over the fair values of the net assets acquired was $1,019,000 and has been
recorded as goodwill. Goodwill has been subsequently reduced for the reduction
of certain allowances on deferred taxes and amortization.
The financial statements as of December 31, 1995, and for the years ended
December 31, 1994 and 1995 and the ten months ended October 31, 1996, are
presented under the historical cost basis of the Company, as a wholly owned
subsidiary of BTR Dunlop Holdings, Inc., the predecessor Company (the
"Predecessor"). The financial statements as of December 31, 1996, and September
30, 1997, and for the two months ended December 31, 1996, and the nine months
ended September 30, 1997, are presented under the new basis of the successor
company (the "Successor") established in the Acquisition.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma information combines the results of
operations of the Successor and Predecessor as if the Acquisition had occurred
on January 1, 1996 and includes certain pro forma adjustments to the historical
operating results for amortization of goodwill, depreciation and amortization of
fixed assets, interest expense and the removal of approximately $947,000 of
environmental related legal expenses and settlement costs which the parent of
the Predecessor indemnified the Successor and thus would not had been incurred
by the Successor during the period. The pro forma information is presented
F-7
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for illustrative purposes only, and is not necessarily indicative of what the
actual results of operations would have been during such periods or
representative of future operations.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
DECEMBER 31,
1996
-------------
(UNAUDITED)
<S> <C>
Revenues....................................................................... $39,004,000
Net loss....................................................................... (1,523,000)
Net loss per share............................................................. (0.43)
</TABLE>
LANDING GEAR EXCHANGE
Landing gear and other rotable assets are accounted for as fixed assets at
cost and are depreciated over their estimated useful lives to their respective
salvage values. These assets include various airplane, wing, body and nose
landing gear shipsets. Landing gear and other rotable assets are held for
purposes of exchanging the assets for a customer's landing gear or other parts
needing repair or overhaul. As the landing gear is exchanged and the customer is
billed for the cost of the repair, the landing gear or other parts are typically
repaired and overhauled and maintained as property of the Company for future
exchanges. The estimated useful lives range from 10 to 15 years depending on the
age of the aircraft and projected marketability of the exchange gear over time.
Amortization expense is recorded as a component of cost of revenues using the
straight-line amortization method.
RECOGNITION OF REVENUE
The Company generates revenue primarily from repair and overhaul services.
In some cases repair and overhaul services include exchange fees for the
exchange of the Company's landing gear or other parts for the customer's landing
gear or other parts needing repair or overhaul services. The Company also
generates revenues from the sale and distribution of spare parts.
Spare parts sales and exchange fee revenues are each individually less than
10% of total revenues.
Revenues for repair and overhaul services not involving an exchange
transaction are recognized when the job is complete. Deferred revenue is
principally comprised of customer prepayments and progress billings related to
the overhaul and repair of landing gear and other services which are in process.
Revenues from spare parts sales are recognized at the time of shipment. Landing
gear exchange fees are recognized on shipment of the exchanged gear to the
customer. Revenues for repair and overhaul service involving an exchange are
recognized when the cost of repairing the part received from the customer are
known and billable.
CONCENTRATIONS OF RISK
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK--The Company performs
credit evaluations and analysis of amounts due from its customers; however, the
Company generally does not require collateral. Credit losses have been within
management's expectations and an estimate of uncollectible accounts has been
provided for in the financial statements.
F-8
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
One customer accounted for 18.2% of the Company's total revenues for the
nine month period ended September 30, 1997 and represented 20.9% of the accounts
receivable balance at September 30, 1997.
One customer accounted for 13.1% of the Company's total revenues for the two
month period ended December 31, 1996 and represented 7.4% of the accounts
receivable balance at December 31, 1996.
Revenues from two customers, who individually accounted for greater than 10%
of total revenues, were 19.6% and 11.7%, respectively, of the Company's total
revenues for the ten month period ended October 31, 1996.
Revenues from two customers, who individually accounted for greater than 10%
of total revenues, were 17.1% and 10.0%, respectively, of the Company's total
revenues for the year ended December 31, 1995 and accounted for 9.9% and 11.3%,
respectively, of the accounts receivable balance at December 31, 1995.
MAJOR VENDORS--Three vendors accounted for $6,944,000 of the Company's total
purchases during the nine month period ended September 30, 1997.
Three vendors accounted for $1,901,000 of the Company's total purchases for
the two month period ended December 31, 1996.
Two vendors accounted for $7,030,000 of the Company's total purchases during
the ten month period ended October 31, 1996.
One vendor accounted for $5,005,000 of the Company's total purchases for the
year ended December 31, 1995.
INVENTORIES
Inventories are stated at the lower of cost or market. Purchased parts and
assemblies are valued based on the weighted average cost. Work-in-process
inventories include purchased parts, direct labor and factory overhead.
Provisions for potentially obsolete or slow moving inventory are made based on
management's analysis of inventory levels, turnover and future revenue
forecasts.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are recorded at cost. Depreciation
expense is being provided using the straight-line method based on the following
estimated useful lives:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------- ----------------------------------
<S> <C> <C>
Leasehold improvements.............. Lesser of life of lease or asset Lesser of life of lease or asset
Machinery and equipment............. 13.3 years 8 years
Tooling............................. 13.3 years 5 years
Furniture and fixtures.............. 7 years 5 years
Vehicles............................ 5 years 3 years
Computer equipment.................. 5 years 3 years
</TABLE>
Expenditures for repairs are expensed as incurred and additions, renewals
and betterments are capitalized.
F-9
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
In connection with the purchase of Hawker Pacific, Inc. by AqHawk, Inc. as
previously described, the Company recorded goodwill which represents the excess
of the purchase price over the estimated fair value of the net assets acquired.
The Company is amortizing goodwill using the straight-line method over a period
of 15 years. The Company assesses the recoverability of its goodwill whenever
adverse events or changes in circumstances or business climate indicate that
expected future cash flows for the business may not be sufficient to support
recorded goodwill.
At December 31, 1996 and September 30, 1997, goodwill was reduced by
$382,000 and $391,000, respectively, due to the realization of certain deferred
tax assets and the corresponding reduction of the valuation allowance
established in the allocation of the purchase price of the Acquisition.
FOREIGN REVENUES
The Company generated revenues from customers located outside of the United
States of $5,616,000, $4,493,000, $1,517,000 and $7,099,000, of which
$3,368,000, $2,887,000, $1,191,000 and $5,557,000 were revenues generated from
the Company's United States location for the year ended December 31, 1995, the
ten months ended October 31, 1996, and the two months ended December 31, 1996,
and the nine months ended September 30, 1997, respectively.
Realized and unrealized foreign exchange gains (losses) amounted to
$161,000, $33,000, ($3,000) and $200,000 for the year ended December 31, 1995,
the ten months ended October 31, 1996, the two months ended December 31, 1996
and the nine months ended September 30, 1997.
ENVIRONMENTAL EXPENSE AND INSURANCE RECOVERY
Included in general and administrative expense for the years ended December
31, 1995, and the ten months ended October 31, 1996, is $717,000 and $947,000,
respectively, of legal fees and settlement cost associated with investigating,
defending and settling the environmental remediation matter discussed in Note 7.
In addition, for the year ended December 31, 1995, general and administrative
expense has been reduced by insurance recoveries of $1,000,000. There were no
corresponding costs incurred in the two months ended December 31, 1996 or the
nine months ended September 30, 1997.
EARNINGS PER SHARE
Earnings per common share are computed based on the weighted average number
of shares outstanding during each period. The weighted average number of shares
outstanding give effect to the stock split and conversion of preferred stock
discussed in Note 14 as if they had occurred on November 1, 1996.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," ("Statement 128") which is required to be adopted
on December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating earnings per share, the
dilutive effect of stock options will be excluded and the calculation will be
referred to as basic earnings per share. Basic earnings (loss) per share under
Statement 128 would have been the same as primary earnings (loss) per
F-10
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
share for all periods presented because there were no dilutive securities
included in the calculation. The impact of Statement 128 on the calculation of
fully diluted earnings (loss) per share for these periods is also not expected
to be material.
SUPPLEMENTAL EARNINGS PER SHARE
Supplemental earnings per share reflects what earnings would have been under
Accounting Principles Bulletin No. 15 if the debt retired with the proceeds from
the initial public offering (see footnote 14) had been retired at the beginning
of the period. The number of shares of common stock to be sold in this offering,
the proceeds from which will be used to retire debt are included in this
calculation with a corresponding reduction in interest expense.
Supplemental earnings per share for each of the periods presented are set
forth below:
<TABLE>
<CAPTION>
SUCCESSOR
--------------------------------
TWO MONTHS NINE MONTHS
ENDED DECEMBER ENDED SEPTEMBER
31, 1996 30, 1997
--------------- ---------------
<S> <C> <C>
Supplemental earnings per share................................. $ 0.14 $ 0.25
----- -----
----- -----
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments principally consist of accounts
receivable, accounts payable, line of credit, note payable to a bank, and notes
payable to a related party as defined by Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments." The
carrying value of accounts receivable and accounts payable approximate of their
fair value due to the short-term nature of these instruments. The carrying value
of the line of credit and note payable to a bank approximates its fair market
value since these financial instruments carry a floating interest rate. The fair
market value of the note payable to a related party approximated its carrying
value based on current market rates for such debt.
MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results may differ from those estimates.
F-11
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- ----------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Purchased parts and assemblies...................................... $ 10,658,000 $ 9,722,000 $ 12,630,000
Work-in-process..................................................... 2,788,000 3,228,000 3,370,000
------------- ------------- -------------
$ 13,446,000 $ 12,950,000 $ 16,000,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements, at cost, consist of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ---------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Leasehold improvements............................................... $1,331,000 $1,009,000 $ 1,344,000
Machinery and equipment.............................................. 5,354,000 3,202,000 3,308,000
Tooling.............................................................. 641,000 308,000 339,000
Furniture and fixtures............................................... 342,000 72,000 91,000
Vehicles............................................................. 31,000 30,000 30,000
Computer equipment................................................... 1,301,000 209,000 319,000
------------ ------------ -------------
9,000,000 4,830,000 5,431,000
Less: Accumulated depreciation....................................... 4,129,000 111,000 651,000
------------ ------------ -------------
$4,871,000 $4,719,000 $ 4,780,000
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
4. INCOME TAXES
The tax provision of the Predecessor has been computed as if the Predecessor
filed a separate income tax return. For the period ending December 31, 1995, the
taxable income of the Predecessor was included in the consolidated federal and
state tax returns of its Parent. Under a tax sharing arrangement with its
Parent, the Predecessor's deferred tax assets were expected to be recoverable
against the current or future earnings of the Predecessor or its Parent.
Accordingly, the deferred tax valuation allowance for certain deferred taxes
recoverable through the consolidated tax return of the Parent was reduced
resulting in a net deferred tax benefit for the year ended December 31, 1995.
For the two months ended December 31, 1996, and the nine months ended
September 30, 1997, the taxable income will be included in a stand-alone federal
and state tax return of the Successor. A full valuation allowance for the
Successor's net deferred tax assets was provided at the Acquisition date as an
adjustment to goodwill due to future uncertainty concerning the ultimate
realization of the net deferred tax asset. To the extent the deferred tax assets
of the Successor are realized the related reduction in the valuation allowance
will be recorded as a reduction to goodwill until goodwill is eliminated and
then as a reduction of income tax expense.
F-12
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- ----------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................................... $ 3,026,000 $ 1,953,000 $ 2,972,000
Inventory valuation accruals....................................... 942,000 1,449,000 331,000
Accounts receivable valuation accruals............................. 17,000 131,000 22,000
Environmental remediation accruals................................. 102,000 285,000 --
Employee benefits and compensation................................. 135,000 195,000 164,000
Product and service warranties..................................... 109,000 82,000 70,000
State tax credits.................................................. -- -- 126,000
Other items, net................................................... 335,000 351,000 167,000
------------- ------------- -------------
Total deferred tax assets............................................ 4,666,000 4,446,000 3,852,000
Less valuation allowance............................................. (1,824,000) (1,427,000) (761,000)
------------- ------------- -------------
Net deferred tax asset............................................... 2,842,000 3,019,000 3,091,000
Deferred tax liabilities:............................................
Depreciation and amortization methods.............................. 1,977,000 2,474,000 2,583,000
Property, equipment and landing gear exchange asset basis
adjustments...................................................... -- 445,000 445,000
Other items, net................................................... 185,000 100,000 63,000
------------- ------------- -------------
Total deferred tax liabilities....................................... 2,162,000 3,019,000 3,091,000
------------- ------------- -------------
Net deferred tax asset after allowance $ 680,000 $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Significant components of the provision for taxes based on income are as
follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------- ---------------------------
TEN MONTHS TWO MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER 31, OCTOBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1996 1997
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Current:
Federal.............................................. $ -- $ -- $ -- $ --
State................................................ -- -- -- 1,000
------------ ----------- ------------ -------------
-- -- -- 1,000
Deferred:
Federal.............................................. (504,000) (746,000) 277,000 391,000
State................................................ (176,000) (225,000) 105,000 --
------------ ----------- ------------ -------------
(680,000) (971,000) 382,000 391,000
------------ ----------- ------------ -------------
(Benefit) provision for taxes.......................... $ (680,000) $(971,000) $ 382,000 $ 392,000
------------ ----------- ------------ -------------
------------ ----------- ------------ -------------
</TABLE>
F-13
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
The tax provision (benefit) for the year ended December 31, 1995, includes a
benefit of $525,000, resulting from the reduction of the deferred tax valuation
allowance.
For the two months ended December 31, 1996, and the nine months ended
September 30, 1997, reductions of the valuation reserve of approximately
$382,000 and $391,000, respectively, resulted in equivalent reductions of
goodwill. For the nine months ended September 30, 1997 deferred tax assets of
$275,000, were determined not to be realizable and were charged directly against
the valuation allowance.
A reconciliation of the statutory federal income tax rate to the effective
tax rate, as a percentage of income before tax, is as follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------------- --------------------------------
TEN MONTHS TWO MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER 31, OCTOBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1996 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Statutory federal income tax rate................... (34)% (34)% 34% 34%
Nondeductible expenses.............................. 13 2 3 3
State income taxes, net of federal benefit.......... (4) (6) 8 --
Decrease in valuation reserve....................... (139) -- -- --
--- --- --- ---
Other............................................... (164)% (38)% 45% 37%
--- --- --- ---
--- --- --- ---
</TABLE>
The Company has net operating loss carryforwards for federal tax purposes of
$7,768,000 which expire in the years 2007 to 2012. The Company also has state
net operating loss carryforwards of $3,486,000 which expire in the years 1999 to
2002. Utilization of the net operating losses may be limited as a result of
limitations due to changes in ownership.
F-14
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SUCCESSOR LINE OF CREDIT AND SHIPSET PURCHASE LINE
The Company has a revolving line of credit agreement with a bank which
permits borrowings up to the lesser of $10,000,000 or a borrowing base of 85% of
eligible accounts receivable plus the lesser of $6,000,000 or 50% of the value
of acceptable inventory. The line of credit agreement also includes a facility
for up to $2,000,000 in letters of credit. The line of credit expires November
30, 1999, and bears interest at either the "offshore rate" plus 1.5% or the
bank's reference rate, at the option of the Company. The weighted average
interest rate on borrowing outstanding under the line of credit was 7.51% at
September 20, 1997. The Company had available borrowings of $511,000 at
September 30, 1997, under this agreement.
The line of credit agreement contains certain covenants which include, but
are not limited to, quick ratio, fixed charge coverage ratio, profitability, and
dividend and capital investment limitations. The line of credit is
collateralized by all personal property of the Company and guaranteed by a
shareholder of the Company.
The Company also has a shipset purchase line of credit from a bank up to
$3,000,000 to finance a portion of the purchase price for landing gear used in
the ordinary course of business. This line is payable in monthly installments
equal to one eighty-fourth of the initial amount of the loan plus interest at
either the offshore rate plus 1.875% or at the bank's reference rate, subject to
the same terms and conditions as the bank line of credit. The shipset purchase
line of credit matures November 30, 1998. At December 31, 1996 and September 30,
1997, there were no amounts outstanding under the shipset purchase line of
credit.
6. NOTES PAYABLE
The Company's note payable balance consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------- -------------
<S> <C> <C>
Note payable to a bank, payable in quarterly installments increasing from $212,500
in 1997 to $625,000 in 2002, plus interest at either the "offshore rate" plus
1.875% or the bank's reference rate, subject to the same terms and conditions as
the line of credit (Note 5), maturing December 31, 2003. The interest rate in
effect at September 30, 1997, was 7.6%........................................... $ 13,500,000 $ 12,863,000
Note payable to related party, interest accrues monthly at 11.8% per annum,
interest payments due monthly equal to the lesser of the accrued interest or
"excess cash flow" as defined, subordinated to the line of credit (Note 5), term
loan and capital expenditure loan, quarterly principal payments of $700,000
scheduled to begin in January 2004 through December 2006......................... 6,500,000 6,500,000
------------- -------------
20,000,000 19,363,000
Less current portion............................................................... 850,000 1,300,000
------------- -------------
$ 19,150,000 $ 18,063,000
------------- -------------
------------- -------------
</TABLE>
F-15
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE (CONTINUED)
Maturity of notes payable as of September 30, 1997, is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
1998........................................................................... $ 1,300,000
1999........................................................................... 1,637,000
2000........................................................................... 2,113,000
2001........................................................................... 2,250,000
2002........................................................................... 2,438,000
2003 and thereafter............................................................ 9,625,000
-------------
$ 19,363,000
-------------
-------------
</TABLE>
The Company entered into an interest rate swap agreement (the "Swap
Agreement)" to reduce the impact of changes in interest rates in its
floating-rate long term debt. The Swap Agreement dated January 13, 1997 has an
initial notional amount of $6,750,000 reducing to $2,781,000 through the
expiration date of December 31, 2001. The Company is required to pay interest on
the notional amount at the rate of 6.65% and receives from the bank a percentage
of the notional amount based on a floating interest rate. The Swap Agreement
effectively reduces its interest rate exposure to a fixed rate of 6.65% of the
notional amount. The notional amount at September 30, 1997 was $6,537,500. The
floating interest rate in effect under the Swap Agreement at September 30, 1997
was 5.66%. The Swap Agreement had a negative fair market value of $97,000 at
September 30, 1997.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities, certain office equipment and a vehicle
under operating lease agreements, which expire through May 2010 and contain
certain escalation clauses based on various inflation indexes. Future minimum
rental payments as of September 30, 1997, are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
1998........................................................................... $ 1,110,000
1999........................................................................... 1,116,000
2000........................................................................... 1,123,000
2001........................................................................... 1,101,000
2002........................................................................... 1,088,000
2003 and thereafter............................................................ 5,554,000
-------------
$ 11,092,000
-------------
-------------
</TABLE>
The Company entered into a 13-year operating lease for additional office
space and warehouse facilities during July 1997. In addition, significant
leasehold improvement costs were incurred during the nine months ended September
30, 1997.
The Company incurred rent expense of approximately $980,000, $586,000,
$109,000 and $567,000 for the year ended December 31, 1995, the ten months ended
October 31, 1996, the two months ended December 31, 1996, and the nine months
ended September 30, 1997, respectively.
F-16
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
EMPLOYMENT AGREEMENTS
The Company is obligated under certain management employment contracts
through October 31, 2001. Future minimum salary expense related to these
contracts are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
1998............................................................................ $ 575,000
1999............................................................................ 575,000
2000............................................................................ 200,000
2001............................................................................ 200,000
------------
$ 1,550,000
------------
------------
</TABLE>
ENVIRONMENTAL REMEDIATION
During 1993, the Company and other parties became defendants in a United
States Environmental Protection Agency and State of California lawsuit (the
"Plaintiffs") alleging violations of certain environmental regulations related
to the contamination of ground water in the San Fernando Valley Basin that
resulted from the release of hazardous substances. During 1996, the Company
recorded additional reserves related to this matter for total reserves of
$657,000 at October 31, 1996, and December 31, 1996. The Company has been
indemnified by BTR plc for any claims related to this matter in excess of the
amount recorded. The amount recorded at December 31, 1996, represented the
Company's portion of a settlement that was reached with the Plaintiffs during
1997.
LITIGATION
The Company is involved in various lawsuits, claims and inquiries, which the
Company believes are routine to the nature of the business. In the opinion of
management, the resolution of these matters will not have a material adverse
effect on the financial position, results of operations or cash flows of the
Company.
8. RELATED PARTY TRANSACTIONS
SALES AND PURCHASES
The Predecessor generated revenue and purchased goods and services from its
Parent and various subsidiaries of its Parent (collectively, the "Affiliates").
Certain long term purchase agreements with the Affiliates have continued under
the Successor company.
Total revenues for the year ended December 31, 1995, and the ten months
ended October 31, 1996, from the Affiliates were approximately $552,000 and
$331,000, respectively.
Total purchases for the year ended December 31, 1995, and the ten months
ended October 31, 1996, from the Affiliates were approximately $6,820,000 and
$5,437,000, respectively.
In the ordinary course of business, the Successor pays sales commissions to
a company which is also a shareholder of the Successor. During the period from
January 1, 1997 through September 30, 1997, the Successor paid $422,000 of
commissions and reimbursed expenses to this related party.
F-17
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
NOTES PAYABLE TO RELATED PARTY
As more fully described in Note 6, the Successor is subject to a note
payable to a company controlled by shareholders of the Successor for $6,500,000
which is included in notes payable on the balance sheets. Interest expense on
this note payable for the two months ended December 31, 1996, and the nine
months ended September 30, 1997, amounted to $74,000 and $574,000, respectively.
DUE TO PARENT AND AFFILIATES
The Predecessor generally funded its operations through borrowings from the
Parent through October 31, 1996. The Predecessor made payments against such
borrowings based on cash availability although there were no contractual payment
terms. Amounts classified as current in the balance sheet at December 31, 1995,
represent the estimated amount of the borrowing paid from working capital as of
December 31, 1995. During the year ended December 31, 1995, and the ten months
ended October 31, 1996, the weighted average interest rate was 5.6% and 4.9%,
respectively. During the years ended December 31, 1995 and the ten months ended
October 31, 1996, the average borrowings outstanding on the due to Parent and
Affiliates were approximately $28,624,000 and $32,978,000, respectively, and
Company recognized interest expense on borrowings from its Parent and Affiliates
of $1,598,000, and $1,609,000, respectively. All borrowing amounts due to Parent
and Affiliates were settled in connection with the November 1, 1996, acquisition
of the Company.
MANAGEMENT FEE
The Company has an agreement (the "Old Management Agreement") with Unique
Investment Corporation ("UIC") to pay a management fee of $25,000 per month.
Certain shareholders of the Company are related parties to UIC. The Company paid
$50,000 to UIC during the period from November 1, 1996 through December 31,
1996, and $225,000 during the period from January 1, 1997 through September 30,
1997.
In September 1997, the Company and Unique entered into a new management
services agreement (the "New Management Services Agreement") pursuant to which,
upon the consummation of the anticipated Offering, the Old Management Agreement
will be terminated, and Unique will be entitled to receive $150,000 per year
payable monthly commencing in January 1999 for certain management services
rendered to the Company. The New Management Services Agreement will terminate
upon the Company completing an underwritten public offering in which selling
shareholders offer 25% or more of the Common Stock sold in such offering.
In September 1997, the Company also entered into a mergers and acquisitions
agreement with Unique pursuant to which Unique is entitled to receive $300,000
upon the closing of the BA Acquisition for services provided in connection with
the acquisition.
PARENT COMPANY ALLOCATION OF EXPENSES
The Predecessor received a charge from its Parent for certain insurance
(i.e., workers' compensation, product liability, group medical, etc.) and
employee benefit program expenses that were contracted and paid by the Parent
and allocated to the various subsidiaries. Management believes these allocations
approximate the amounts that would have been incurred had the Predecessor
operated on a stand-alone basis. Included in general and administrative expense
and cost of revenues is $436,000 and $1,504,000 for
F-18
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
the year ended December 31, 1995, and the ten months ended October 31, 1996,
respectively, of costs charged to the Predecessor by the Parent for these
programs.
WARRANTY REIMBURSEMENT FROM PARENT
The Predecessor had an arrangement with the Parent whereby certain warranty
costs incurred by the Predecessor for the failure of parts purchased from the
Parent or its affiliates were reimbursed to the Predecessor. For the year ended
December 31, 1995, the Predecessor received $184,000 for reimbursement of
warranty costs incurred by the Predecessor.
9. EMPLOYEE BENEFIT PLANS
Effective January 1, 1997, the Company adopted a defined benefit pension
plan (the "1997 Plan") to provide retirement benefits to its employees. This
non-contributory plan covers substantially all employees of the Company as of
the effective date of the plan. Pursuant to plan provisions, normal monthly
retirement benefits are equal to the participant's credited benefit service (up
to a maximum of 35 years) times the sum of 0.75% of the participant's final
average monthly compensation plus 0.65% of such compensation in excess of the
participant's covered average monthly wage. The plan also provides for early
retirement and certain death and disability benefits. The Company's funding
policy for the plans is to contribute amounts sufficient to meet the minimum
funding requirements of the Employee Retirement Income Security Act of 1974,
plus any additional amounts which the Company may determine to be appropriate.
During the year ended December 31, 1995, the assets and liabilities of the
defined benefit pension plan were transferred to the Parent. For the year ended
December 31, 1995 the Company recorded net periodic pension expense of $166,000.
During the ten months ended October 31, 1996, the Company recorded a net
periodic pension expense of $234,000 as part of the allocated charges from the
Parent.
The net pension cost for Company-sponsored defined benefit pension plans for
the nine months ended September 30, 1997, included the following components:
<TABLE>
<CAPTION>
SUCCESSOR
-------------
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Service cost................................................................... $ 70,000
Interest cost.................................................................. 41,000
Actual gain on plan assets..................................................... --
Net amortization and deferral.................................................. 25,000
-------------
Net pension cost............................................................... $ 136,000
-------------
-------------
</TABLE>
F-19
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The reconciliation of the funded status of the defined benefit pension plan
is as follows:
<TABLE>
<CAPTION>
SUCCESSOR
-------------
SEPTEMBER 30,
1997
-------------
<S> <C>
Actuarial present value of benefits:
Vested benefits.............................................................. $ (111,000)
Nonvested benefits........................................................... (99,000)
-------------
Accumulated benefit obligation................................................. (210,000)
Effect of projected future compensation increases.............................. (680,000)
-------------
Projected benefit obligation................................................... (890,000)
Fair value of plan assets...................................................... --
-------------
Projected benefit obligation in excess of plan assets.......................... (890,000)
Unrecognized net losses........................................................ --
Unrecognized transition obligation............................................. --
Unrecognized prior service cost................................................ 753,000
Minimum pension liability...................................................... (74,000)
-------------
Pension liability.............................................................. $ (211,000)
-------------
-------------
</TABLE>
The Company made no contributions to the Plans during the nine months ended
September 30, 1997.
The assumptions used in the determination of the net pension cost for the
defined benefit pension plan were as follows:
<TABLE>
<CAPTION>
1997
-----
<S> <C>
Discount rate.......................................................................... 7%
Rate of increase in compensation levels................................................ 3%
Expected long-term rate of return on assets............................................ 7%
</TABLE>
Effective January 1, 1997, the Company also adopted a defined contribution
401(k) retirement savings plan which covers substantially all employees of the
Company. Plan participants are allowed to contribute up to 15% of their base
annual compensation and are entitled to receive a company match equal to 50% of
the participant's contribution up to a maximum of 6% of the participant's annual
base compensation. Participant contributions to the plan are immediately fully
vested while company matching contributions are subject to a five-year vesting
period. All contributions to the plan are held in a separate trust account.
During the nine months ended September 30, 1997, the Company's matching
contribution amounted to $105,000. This amount was expensed during the period
and is included in the statement of operations.
10. RESTRUCTURING CHARGES
The Predecessor closed its facility in Miami, Florida during May 1996. This
closure and the transfer of certain fixed assets and inventory to the Sun
Valley, California facility resulted in a nonrecurring restructuring charge of
$1,196,000 in the statement of operations for the ten months ended October 31,
1996. The nonrecurring charge primarily includes costs incurred related to fixed
and other asset write-offs of approximately $600,000, payroll and severance of
approximately $190,000, moving and integration costs
F-20
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. RESTRUCTURING CHARGES (CONTINUED)
of approximately $243,000 and the balance for facility and other charges.
Additionally, the Company recorded Miami related inventory write-offs of
approximately $489,000, which were charged to cost of sales during the ten
months ended October 31, 1996. Revenues and operating income of Miami, Florida
operations which will not be continued were approximately as follows for the
year ended December 31, 1995, and the ten months ended October 31, 1996:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Revenue........................................................... $ 7,404,000 $ 2,049,000
Operating income (loss)........................................... (74,000) (40,000)
</TABLE>
11. STOCKHOLDERS EQUITY
Aqhawk, Inc. was formed on November 1, 1996 with the issuance of 400 shares
of Series A Preferred Stock to an individual for $2,000,000 and the issuance of
5,794,860 shares of Common Stock to the same individual, certain shareholders of
UIC and management of the Company. Effective November 1, 1996 Aqhawk, Inc.
merged with the Company through the issuance of 2,897,430 shares of Common Stock
of the Company in exchange for the 5,794,860 shares of Common Stock of Aqhawk,
Inc. and the issuance of 400 shares of Series A Preferred Stock of the Company
for 400 shares of Preferred Stock of Aqhawk, Inc. A value of $40,000 was
assigned to the 231,794 shares of Common Stock issued to management and such
amount was expensed as compensation expense in the two months ended December 31,
1996. In September 1997 the Company received $500,000 for the issuance of 50,415
shares of the Company's Common Stock. The capital infusion was made pursuant to
an agreement under which the majority shareholder had agreed to provide to the
Company up to $1,000,000 in return for Common Stock. Subsequent to September 30,
1997 the majority shareholder provided an additional $500,000 in exchange for
52,154 shares of Common Stock of the Company.
12. NONMONETARY EXCHANGE TRANSACTION
During the nine months ended September 30, 1997, the Company sold certain
landing gear with a book value of $1,240,000 for a different landing gear valued
at $1,800,000 and cash of $250,000. In connection with the exchange transaction
the Company recognized profit of $78,000 during the nine months ended September
30, 1997, representing the pro rata portion of the gain associated with the cash
received. The landing gear received in the exchange was recorded in the amount
of $1,068,000.
13. ACQUISITION
On September 8, 1997, the Company signed a "letter of intent" related to a
significant purchase of assets for approximately $21.9 million, subject to due
diligence, from British Airways to expand international operations to include
the United Kingdom. The assets to be purchased consist primarily of machinery
and equipment, tooling, inventory and rotable assets. These assets will be
generally located in the United Kingdom and utilized in landing gear, flap track
and carriage overhaul and repair services, related to the British Airways fleet
as well as other customers.
F-21
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. PROPOSED INITIAL PUBLIC OFFERING AND OTHER SUBSEQUENT EVENTS
During 1997, the Company's Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission, relating to
an initial public offering of 2,600,000 shares of the Company's unissued Common
Stock (222,716 additional shares if the underwriters' warrants are exercised)
and up to 415,000 shares of Common Stock held by a selling shareholder. If the
initial public offering is consummated under the terms presently anticipated,
all of the Preferred Stock outstanding will convert into 222,222 shares of
Common stock.
In connection with the initial public offering, the Board of Directors has
approved a 579.48618 for one stock split of the Company's Common Stock which is
to be effected prior to the registration statement going effective. All
references in the accompanying financial statements to the number of shares of
Common Stock, per common share amounts have been retroactively adjusted to
reflect the stock split. In addition, the Company's capital structure was
changed to reflect 20,000,000 shares of Common Stock and 5,000,000 shares of
preferred stock authorized. The Board of Directors has authority to fix the
rights, preferences, privileges and restrictions, including voting rights, of
those shares without any future vote or action by the shareholders.
In November 1997, the Board of Directors adopted the Company's 1997 Stock
Option Plan (the "1997 Plan"). The 1997 Plan, provides for the grant of options
to directors, officers, other employees and consultants of the Company to
purchase up to an aggregate of 640,444 shares of Common Stock. The purpose of
the 1997 Plan is to provide participants with incentives that will encourage
them to acquire a proprietary interest in, and continue to provide services to,
the Company. Options granted under the 1997 Plan may be "incentive stock
options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or nonqualified options.
The exercise price of any incentive stock options granted may not be less
than 100% of the fair market value of Common Stock as of the date of grant (110%
of the fair market value if the grant is to an employee who owns more than 10.0%
of the total combined voting power of all classes of capital stock of the
Company). Nonqualified options may be granted under the 1997 Plan at an exercise
price of not less than 85% of the fair market value of the Common Stock on the
date of grant. Options may not be exercised more than ten years after the date
of grant (five years after the date of grant if the grant is an incentive stock
option to an employee who owns more than 10.0% of the total combined voting
power of all classes of capital stock of the Company). The number of options
outstanding and the exercise price thereof are subject to adjustment in the case
of certain transactions such as mergers, recapitalizations, stock splits or
stock dividends.
In November 1997, the Board of Directors of the Company granted six-year
options to purchase 262,000 shares of Common Stock under the 1997 Plan. All of
these options are exercisable at the initial public offering price per share.
The options generally will be subject to vesting and will become exercisable at
a rate of 5% per quarter from the date of grant, subject to the optionee's
continuing employment with the Company. Certain options become fully vested and
exercisable upon a change in control as defined.
In addition, in November 1997, the Board of Directors granted five-year
management stock options to purchase an aggregate of 116,444 shares of Common
Stock. All of these options are vested and are exercisable at $9 per share or,
in the event of the initial public offering described above, the exercise price
will be changed to the initial public offering price per share.
F-22
<PAGE>
HAWKER PACIFIC AEROSPACE
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Pursuant to an Agreement of Purchase and Sale of Stock, AqHawk, Inc. (the
"Purchase Agreement") purchased all of the Company's outstanding stock from BTR
plc effective as of November 1, 1996 (the "Acquisition"). AqHawk, Inc. was
formed as a holding company for the sole purpose of acquiring the stock of the
Company. Effective December 6, 1996, the assets and liabilities of AqHawk, Inc.
were merged into the Company. The Acquisition has been accounted for under the
purchase accounting method. The aggregate purchase price was approximately
$29,800,000, which includes the cost of the Acquisition. The aggregate purchase
price was allocated to the assets of the Company, based upon estimates of their
respective fair market values. The excess of purchase price over the fair values
of the net assets acquired was initially $1,019,000 and has been recorded as
goodwill.
The following unaudited pro forma condensed combining statements of
operations of Hawker Pacific, Inc. (the "Company") for the year ended December
31, 1996 and the nine months ended September 30, 1996, have been prepared to
illustrate the effect of the Acquisition, as though the Acquisition had occurred
on January 1, 1996, for purposes of the pro forma statements of operations. The
pro forma adjustments and the assumptions on which they are based are described
in the accompanying Notes to the Unaudited Pro Forma Condensed Combining
Statements of Operations.
The pro forma condensed combining statements of operations are presented for
illustrative purposes only and are not necessarily indicative of the results of
operations of the Company that would have been reported had the Acquisition
occurred on January 1, 1996, nor do they represent a forecast of the results of
operations for any future period. The unaudited pro forma condensed combining
statements, including the Notes thereto should be read in conjunction with the
historical consolidated financial statements of the Company and the Predecessor
to the Company, which are, respectively, incorporated herein by reference and
included herein.
F-23
<PAGE>
HAWKER PACIFIC AEROSPACE
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
PREDECESSOR SUCCESSOR PRO FORMA
----------- ------------ COMBINED
TEN MONTHS TWO MONTHS ------------
ENDED ENDED YEAR ENDED
OCTOBER 31, DECEMBER 31, PRO FORMA DECEMBER 31,
1996 1996 ADJUSTMENTS 1996
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues................................................. $ 32,299 $ 6,705 $ -- $ 39,004
Cost of revenues......................................... 27,027 4,599 173(1) 31,799
----------- ------------ ----- ------------
Gross profit............................................. 5,272 2,106 (173) 7,205
Operating expenses:
Selling expenses....................................... 2,248 525 -- 2,773
General and administrative expenses.................... 2,796 534 58 3,388
Restructuring charges.................................. 1,196 -- -- 1,196
----------- ------------ ----- ------------
6,240 1,059 58 7,357
----------- ------------ ----- ------------
Income (loss) from operations............................ (968) 1,047 (231) (152)
Other:
Interest and other income.............................. -- 7 -- 7
Interest expense....................................... (1,609) (203) (500) (2,312)
----------- ------------ ----- ------------
Income (loss) before taxes............................... (2,577) 851 (731) (2,457)
Provision (benefit) for income taxes..................... (971) 382 (345) (934)
----------- ------------ ----- ------------
Net income (loss)........................................ $ (1,606) $ 469 $ (386) $ (1,523)
----------- ------------ ----- ------------
----------- ------------ ----- ------------
Net earnings per share................................... $ 0.15 $ (0.43)
Average shares outstanding............................... 3,119,627 3,119,627
</TABLE>
See accompanying notes to pro forma financial statements.
F-24
<PAGE>
HAWKER PACIFIC AEROSPACE
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL COMBINED
------------- -------------
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, PRO FORMA SEPTEMBER 30,
1996 ADJUSTMENTS 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenues........................................................ $ 29,567 $ -- $ 29,567
Cost of revenues................................................ 25,018 139(1) 25,157
------------- ----- -------------
Gross profit.................................................... 4,549 (139) 4,410
Operating expenses:
Selling expenses, general..................................... 4,346 60(2) 4,406
Restructuring charges......................................... 1,196 -- 1,196
------------- ----- -------------
5,542 60 (5,602)
------------- ----- -------------
Income (loss) from operations................................... (993) (199) (1,192)
Other:
Interest expense (1,449) (285)(3) (1,734)
------------- ----- -------------
Income (loss) before taxes...................................... (2,442) (484) (2,926)
Provision (benefit) for income taxes............................ (928) (184) (1,112)
------------- ----- -------------
Net income (loss)............................................... $ (1,514) $ (300) $ (1,814)
------------- ----- -------------
------------- ----- -------------
Net earnings (loss) per share................................... $ (0.58)
Average shares outstanding...................................... 3,119,627
</TABLE>
See accompanying notes to pro forma financial statements.
F-25
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING
STATEMENTS OF OPERATIONS
The unaudited pro forma combined statements of operations assume that the
Acquisition was completed on January 1, 1996. The unaudited pro forma combined
statement of operations are not necessarily indicative of operating results
which would have been achieved had the Acquisition been consummated as of
January 1, 1996 and should not be construed as representative of future
operations. The allocation of the purchase price amount identifiable tangible
and intangible assets was based on analysis of the estimated fair value of those
assets. The excess of the purchase price over the fair value of the net assets
acquired was allocated to goodwill.
1) Represents the pro forma adjustment for depreciable equipment and leasehold
improvements and amortization of landing gear based on the allocation of the
purchase price to the fair values of those assets and there remaining useful
lives.
2) Pro forma adjustment consist of the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
A -- Depreciation and amortization of equipment,
leasehold improvements $ 9,000 $ 8,000
B -- Amortization of goodwill 51,000 50,000
------- -------
$ 60,000 $ 58,000
------- -------
------- -------
</TABLE>
A -- Represents depreciation and amortization of equipment and leasehold
improvement as described in note 1 above.
B -- Represents the amortization of goodwill calculated as follows.
<TABLE>
<S> <C>
Goodwill $1,019,000
Life 15 years
---------
Annual Amortization $ 68,000
---------
---------
</TABLE>
<TABLE>
<S> <C> <C>
Amortization for nine months = $ 51,000
---------
---------
Amortization for year $ 68,000
Amortization recorded in two months ended
December 31, 1996 (18,000)
---------
50,000 $ 50,000
---------
---------
</TABLE>
General and administrative expense includes $947,000 of expense related to
environmental remediation costs, settlement costs and legal fees related to the
predecessor Company's lawsuit with the United States Environmental Protection
Agency and the State of California in connection with certain alleged violations
of environmental regulations an groundwater contamination. The Company was fully
indemnified by BTR plc in the Purchase Agreement.
F-26
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING
STATEMENTS OF OPERATIONS (CONTINUED)
3) Adjusts interest expense assuming the revolving line of credit, bank and
related party notes which funded the Acquisition were outstanding on January
1, 1996 and that the applicable interest rates on the Acquisition date were
effective on January 1, 1996. Deferred financing costs are being amortized
as a component of interest expense over five years using on a straight-line
basis. Total interest expense include in the unaudited pro forma condensed
combining statement of operations was calculated as follows:
<TABLE>
<CAPTION>
ACQUISITION DATE PRO FORMA
---------------------------- INTEREST
DESCRIPTION BALANCE INTEREST RATE EXPENSE
------------------------------------- ------------- ------------- ---------------
<S> <C> <C> <C>
Revolving line of credit $ 6,615,841 7.13% $ 472,000
Note payable to bank 13,500,000 7.45% 1,006,000
Note payable to related party 6,500,000 11.8% 767,000
Deferred financing costs 337,000 N/A 67,000
---------------
Annual interest expense $ 2,312,000
Interest recorded 1,812,000
---------------
Pro forma adjustment $ 500,000
---------------
---------------
Pro forma interest expense for nine months $ 1,734,000
Interest recorded 1,449,000
---------------
---------------
Pro forma adjustment $ 285,000
---------------
---------------
</TABLE>
4) The income tax expense adjustment relates to the above described pro forma
adjustments and was calculated using the historical effective tax rate of
38% for the ten months ended October 31, 1996.
F-27
<PAGE>
HOLLAND FACILITY
The Company's Netherlands operation extends its services internationally,
providing an advanced hydraulic maintenance facility to service Europe and the
Middle East.
SPARES
Hawker Pacific stocks thousands of different parts to assist operators in
planning and controlling their maintenance budgets.
EXCHANGE POOL SHORTS 3-30 BRAKE ASSEMBLY
A DUNLOP CARBON BRAKE ASSEMBLY FOR THE BAEL AND RJ SERIES AIRCRAFT
MANUFACTURING
Hawker Pacific designs and fabricates its own proprietary components, plus a
variety of build-to-print components and assemblies for aircraft manufacturers
and the military.
CUSTOMER SUPPORT
The Company constantly strives to build on its quality assurance standards,
and decrease overhaul and repair turn times.
AOG SUPPORT
The Company maintains Aircraft On the Ground service 24 hours a day, seven
days a week staffed by personnel who have the experience to solve problems fast.
ALL NON DESTRUCTIVE TESTING PROCESSES ARE PERFORMED ON-SITE BY THE COMPANY'S
TECHNICIANS
IN-HOUSE LAB FACILITIES PROVIDE ALL PLATING BATHS AND SOLUTIONS TO MEET
CUSTOMERS' SPECIFICATIONS
HYDRO-ELECTRIC TESTING OF BRAKE SERVO VALVE
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HERETO.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Acquisition of Certain Assets of British
Airways...................................... 15
Use of Proceeds................................ 17
Dividend Policy................................ 17
Capitalization................................. 18
Dilution....................................... 19
Selected Financial Data........................ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 22
Business....................................... 30
Management..................................... 42
Certain Transactions........................... 49
Principal and Selling Shareholders............. 51
Description of Capital Stock................... 52
Shares Eligible For Future Sale................ 53
Underwriting................................... 54
Legal Matters.................................. 55
Experts........................................ 55
Additional Information......................... 55
Financial Statements........................... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS REQUIREMENT IS ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2,766,667 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
EVEREN SECURITIES, INC.
THE SEIDLER COMPANIES
INCORPORATED
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all expenses to be
incurred in connection with the issuance and distribution of the securities that
are the subject of this Registration Statement other than underwriting discounts
and commissions. The following expenses incurred with respect to the
distribution will be paid by the Company, and such amounts, other than the
Securities and Exchange Commission registration fee and the NASD filing fee, are
estimates only.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 10,316
NASD filing fee................................................. 3,904
Nasdaq National Market System listing fee....................... 32,055
Representative's nonaccountable expense allowance (1%)*......... 234,000
Printing and engraving expenses................................. 125,000
Transfer agent and registrar fees............................... 3,000
Legal fees and expenses......................................... 160,000
Accounting fees and expenses.................................... 267,000
Miscellaneous expenses.......................................... 164,725
---------
Total..................................................... $1,000,000
---------
---------
</TABLE>
- ------------------------
* Assumes an initial public offering price of $9 per share.
The Selling Shareholder shall bear the underwriting discounts and
commissions and nonaccountable expense allowance attributable to the shares sold
by the Selling Shareholder in this Offering.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Articles of Incorporation ("Amended
Articles") provide that, pursuant to the California Corporations Code, the
liability of the directors of the Company for monetary damages shall be
eliminated to the fullest extent permissible under California law. This is
intended to eliminate the personal liability of a director for monetary damages
in an action brought by, or in the right of, the Company for breach of a
director's duties to the Company or its shareholders. This provision in the
Amended Articles does not eliminate the directors' fiduciary duty and does apply
for certain liabilities: (i) for acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law; (ii) for acts or
omissions that a director believes to be contrary to the best interest of the
Company or its shareholders or that involve the absence of good faith on the
part of the director; (iii) for any transaction from which a director derived an
improper personal benefit; (iv) for acts or omissions that show a reckless
disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Company or its shareholders; (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Company or its shareholders; (vi) with respect to certain
transactions or the approval of transactions in which a director has a material
financial interest; and (vii) expressly imposed by statute for approval of
certain improper distributions to shareholders or certain loans or guarantees.
This provision does not limit or eliminate the rights of the Company or any
shareholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. The Company's Amended and
Restated Bylaws (the "Amended Bylaws") require the Company to indemnify its
officers and directors to the full extent permitted by law, including
circumstances in which indemnification would otherwise be discretionary. Among
other things, the Amended Bylaws require the Company to indemnify directors and
officers
II-1
<PAGE>
against certain liabilities that may arise by reason of their status or service
as directors and officers and allows the Company to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified.
Section 317 of the California Corporations Code ("Section 317") provides
that a California corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or proceeding, whether civil, criminal, administrative or investigative (other
than action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee, or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation or enterprise, against expenses, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interest of
the corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Section 317 also provides that a California corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect to any claim, issue or matter as to which
such persons shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 317 provides further that to the extent a director or officer of a
California corporation has been successful in the defense of any action, suit or
proceeding referred to in the previous paragraphs or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification authorized by Section 317 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 317.
In addition, the Company intends to enter into indemnification agreements
("Indemnification Agreement(s)") with each of its directors and executive
officers prior to the consummation of the Offering. Each such Indemnification
Agreement will provide that the Company will indemnify the indemnitee against
expenses, including reasonable attorneys' fees, judgements, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with any civil or criminal action or administrative proceeding arising out of
the performance of his duties as a director or officer, other than an action
instituted by the director or officer. Such indemnification is available if the
indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company, and, with respect to any
criminal action, had no reasonable cause to believe his conduct was unlawful.
The Indemnification Agreements will also require that the Company indemnify the
director or other party thereto in all cases to the fullest extent permitted by
applicable law. Each Indemnification Agreement will permit the director or
officer that is party thereto to bring suit to seek recovery of amounts due
under the Indemnification Agreement and to recover the expenses of such a suit
if he is successful. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. The Company believes that its Amended Articles of
II-2
<PAGE>
Incorporation and Bylaw provisions are necessary to attract and retain qualified
persons as directors and officers. The Company also intends to obtain directors'
and officers' liability insurance.
The Underwriting Agreement to be filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.
The Company believes that it is the position of the Commission that insofar
as the foregoing provisions may be invoked to disclaim liability for damages
arising under the Securities Act, the provision is against public policy as
expressed in the Securities Act and is therefore unenforceable. Such limitation
of liability also does not affect the availability of equitable remedies such as
injunctive relief or rescission.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a table of recent option grants and sales of unregistered
securities:
<TABLE>
<CAPTION>
EFFECTIVE DATE OF ISSUANCE ISSUED TO NUMBER AND TYPE OF SECURITY CONSIDERATION
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
November 1996 Five shareholders of Unique 2,607,688 shares of Common (1)
Investment Corp. ("Unique") Stock
November 1996 Four executive officers 231,794 shares of Common (1)
Stock
November 1996 Two sales representatives 57,948 shares of Common (1)
Stock
November 1997 Four executive officers Options to Purchase 116,444 Services Rendered
shares at $9
IPO date A principal shareholder 222,222 shares of Common Conversion of 400 shares of
Stock Series A Preferred Stock
issued in connection with
the BTR Transaction, for
which Ms. Bastian paid
$2,000,000
November 1997 Employee Stock Options to Options to purchase 262,000 Services rendered
employees, including four shares at IPO price
executive officers
September 30, 1997 A principal shareholder 50,415 shares of Common $500,000
Stock
October 10, 1997 A principal shareholder 52,154 shares of Common $500,000
Stock
</TABLE>
- ------------------------
(1) Effective November 1, 1996, Aqhawk, Inc., ("Aqhawk"), a corporation owned by
the Unique shareholders and management of the Company, purchased all of the
outstanding capital stock of the Company from BTR Dunlop, Inc. ("BTR") (the
"BTR Transaction"). The purchase price Aqhawk paid was approximately
$29,802,861 provided through a combination of bank debt and funds in the
aggregate amount of $8,500,000 provided by Melanie L. Bastian, a principal
shareholder and former director of the Company, consisting of subordinated
debt and $2,000,000 cash in return for the issuance of Preferred Stock. In
December 1996, Aqhawk was merged with the Company. In the
II-3
<PAGE>
merger, each two shares of Common Stock of Aqhawk were converted into one
share of Common Stock of the Company, and each share of preferred stock was
converted into one share of Series A Preferred Stock of the Company,
resulting in the issuance of the shares shown on this chart.
The Company believes that the issuances of securities pursuant to the
foregoing transactions were exempt from registration under the Securities Act of
1933, as amended, by virtue of Section 4(2) thereof as transactions not
involving public offerings. No underwriters were engaged in connection with any
of the foregoing offers or sales of securites and no commissions were paid in
connection with such sales.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits, which are furnished with this Registration
Statement or incorporated herein by reference, are filed as a part of this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement relating to the Sale and Purchase of part of the Business of
British Airways plc dated December 20, 1997 by and among the Company,
Hawker Pacific Aerospace Limited and British Airways plc., and related
Landing Gear Overhaul Services Agreement.+
3.1 Amended and Restated Articles of Incorporation of the Company.(1)
3.2 Amended and Restated Bylaws of the Company.(1)
4.1 Specimen Common Stock Certificate.*
4.2 Representatives' Warrant Agreement.
5.1 Opinion of Troy & Gould Professional Corporation.*
10.1 1997 Stock Option Plan and forms of Stock Option Agreements.(1)
10.2 Employment Agreement dated November 1, 1996 between the Company and David
L. Lokken.(1)
10.2A Amendment No. 1 dated November 14, 1997 to Employment Agreement.*
10.3 Employment Agreement dated November 1, 1996 between the Company and Brian
S. Aune.(1)
10.3A Amendment No. 1 dated November 14, 1997 to Employment Agreement.*
10.4 Employment Agreement dated November 1, 1996 between the Company and Brian
S. Carr.(1)
10.4A Amendment No. 1 dated November 14, 1997 to Employment Agreement.*
10.5 Employment Agreement dated November 1, 1996 between the Company and
Michael A. Riley.(1)
10.5A Amendment No. 1 dated November 14, 1997 to Employment Agreement.*
10.6 Form of Indemnification Agreement for directors and executive officers of
the Company.*
10.7 Business Loan Agreement dated November 27, 1996 between the Company and
Bank of America National Trust and Savings Association.(1)
10.8 Agreement of Purchase and Sale of Stock effective as of November 1, 1996
by and among BTR Dunlop, Inc., BTR, Inc., the Company and Aqhawk,
Inc.(1)
10.9 Repair, Overhaul, Exchange, Warranty and Distribution Agreement dated
November 1, 1996 between the Company and Dunlop Limited, Aviation
Division.(1)+
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.10 Distribution Agreement dated November 1, 1996 between the Company and
Dunlop Limited, Precision Rubber.(1)
10.11 Repair, Overhaul, Exchange, Warranty and Distribution Agreement dated
November 1, 1996 between the Company and Dunlop Equipment Division.+
10.12 Repair Services Agreement dated September 9, 1997 between the Company and
American Airlines, Inc.+*
10.13 Award/Contract dated September 20, 1995 issued by USCG Aircraft Repair and
Supply Center to the Company.(1)+
10.14 Maintenance Services Agreement dated August 19, 1994 between the Company
and Federal Express Corporation.+
10.15 Addendum to Leases dated March 31, 1997 by and between the Company and
Industrial Centers Corp.(1)
10.16 Management Services Agreement dated November 14, 1997 between the Company
and Unique Investment Corp.(1)
10.17 Mergers and Acquisitions Agreement dated September 2, 1997 between the
Company and Unique Investment Corp.(1)
10.18 Subordinated Note for $6,500,000 in favor of Melanie Bastian.*
10.19 First Amendment to Subordinated Promissory Note in favor of Melanie L.
Bastian.*
10.20 Bank of America Loan Amendment.*
10.21 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.
10.22 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.
10.23 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.
10.24 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.
21.1 Subsidiaries of the Company.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit
5.1).*
23.3 Consent of Daniel C. Toomey, Director Nominee.
23.4 Consent of Joel F. McIntyre, Director Nominee.
24.1 Power of Attorney (1)
27.1 Financial Data Schedule(1)
</TABLE>
- ------------------------
+ Portions of exhibits deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidentiality.
* To be filed by amendment.
(1) Previously filed on November 14, 1997.
(b) The following schedules supporting the financial statements are included
herein:
Schedule II--Valuation and Qualifying Accounts
II-5
<PAGE>
All other schedules are omitted, since the required information is not
present in amounts sufficient to require submission of schedules or because the
information required is included in the Registrant's financial statements and
notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers, and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sun Valley,
State of California, on December 24, 1997.
<TABLE>
<S> <C> <C>
HAWKER PACIFIC AEROSPACE
By: /s/ DAVID L. LOKKEN
-----------------------------------------
David L. Lokken
CHIEF EXECUTIVE OFFICER AND PRESIDENT
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David L. Lokken and Scott Hartman, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any Registration Statement and/or
amendment thereto pursuant to Rule 462(b) under the Securities Act of 1933, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ SCOTT W. HARTMAN
- ------------------------------ Chairman of the Board December 24, 1997
Scott W. Hartman
Chief Executive Officer
/s/ DAVID L. LOKKEN (Principal Executive
- ------------------------------ Officer), President and December 24, 1997
David L. Lokken Director
Vice President and Chief
/s/ BRIAN S. AUNE Financial Officer
- ------------------------------ (Principal Financial and December 24, 1997
Brian S. Aune Accounting Officer)
/s/ DANIEL J. LUBECK*
- ------------------------------ Director December 24, 1997
Daniel J. Lubeck
/s/ JOHN G. MAKOFF*
- ------------------------------ Director December 24, 1997
John G. Makoff
*By: /s/ SCOTT W. HARTMAN
- ------------------------------
Scott W. Hartman
ATTORNEY-IN-FACT
II-7
<PAGE>
HAWKER PACIFIC AEROSPACE
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN E
---------- ------------------------ ----------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT
- ------------------------------------------------ BEGINNING COSTS AND OTHER ----------- THE END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------------------ ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
PREDECESSOR
Year Ended December 31, 1995 $ 111,000 $ 50,000 -- $ $(122,000 (a) $ 39,000
Ten Months Ended October 31, 1996 39,000 345,000 -- (188,000 (a) 196,000
SUCCESSOR
Two Months Ended December 31, 1996 196,000 -- -- (129,000 (a) 67,000
Nine Months Ended September 30, 1997 67,000 117,000 -- (84,000 (a) 100,000
</TABLE>
- ------------------------
(a) Represents amounts written-off against the allowance for doubtful accounts,
net of recoveries and reversals.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement relating to the Sale and Purchase of part of the Business of
British Airways plc dated December 20, 1997 by and among the Company,
Hawker Pacific Aerospace Limited and British Airways plc., and related
Landing Gear Overhaul Services Agreement.+
3.1 Amended and Restated Articles of Incorporation of the Company.(1)
3.2 Amended and Restated Bylaws of the Company.(1)
4.1 Specimen Common Stock Certificate.*
4.2 Representatives' Warrant Agreement.
5.1 Opinion of Troy & Gould Professional Corporation.*
10.1 1997 Stock Option Plan and forms of Stock Option Agreements.(1)
10.2 Employment Agreement dated November 1, 1996 between the Company and David
L. Lokken.(1)
10.2A Amendment No. 1 dated November 14, 1997 to Employment Agreement.*
10.3 Employment Agreement dated November 1, 1996 between the Company and Brian
S. Aune.(1)
10.3A Amendment No. 1 dated November 14, 1997 to Employment Agreement.*
10.4 Employment Agreement dated November 1, 1996 between the Company and Brian
S. Carr.(1)
10.4A Amendment No. 1 dated November 14, 1997 to Employment Agreement.*
10.5 Employment Agreement dated November 1, 1996 between the Company and
Michael A. Riley.(1)
10.5A Amendment No. 1 dated November 14, 1997 to Employment Agreement.*
10.6 Form of Indemnification Agreement for directors and executive officers of
the Company.*
10.7 Business Loan Agreement dated November 27, 1996 between the Company and
Bank of America National Trust and Savings Association.(1)
10.8 Agreement of Purchase and Sale of Stock effective as of November 1, 1996
by and among BTR Dunlop, Inc., BTR, Inc., the Company and Aqhawk,
Inc.(1)
10.9 Repair, Overhaul, Exchange, Warranty and Distribution Agreement dated
November 1, 1996 between the Company and Dunlop Limited, Aviation
Division.(1)+
10.10 Distribution Agreement dated November 1, 1996 between the Company and
Dunlop Limited, Precision Rubber.(1)
10.11 Repair, Overhaul, Exchange, Warranty and Distribution Agreement dated
November 1, 1996 between the Company and Dunlop Equipment Division.+
10.12 Repair Services Agreement dated September 9, 1997 between the Company and
American Airlines, Inc.+*
10.13 Award/Contract dated September 20, 1995 issued by USCG Aircraft Repair and
Supply Center to the Company.(1)+
10.14 Maintenance Services Agreement dated August 19, 1994 between the Company
and Federal Express Corporation.+
10.15 Addendum to Leases dated March 31, 1997 by and between the Company and
Industrial Centers Corp.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.16 Management Services Agreement dated November 14, 1997 between the Company
and Unique Investment Corp.(1)
10.17 Mergers and Acquisitions Agreement dated September 2, 1997 between the
Company and Unique Investment Corp.(1)
10.18 Subordinated Note for $6,500,000 in favor of Melanie Bastian.*
10.19 First Amendment to Subordinated Promissory Note in favor of Melanie L.
Bastian.*
10.20 Bank of America Loan Amendment.*
10.21 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.
10.22 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.
10.23 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.
10.24 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.
21.1 Subsidiaries of the Company.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit
5.1).*
23.3 Consent of Daniel C. Toomey, Director Nominee.
23.4 Consent of Joel F. McIntyre, Director Nominee.
24.1 Power of Attorney (1)
27.1 Financial Data Schedule(1)
</TABLE>
- ------------------------
+ Portions of exhibits deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidentiality.
* To be filed by amendment.
(1) Previously filed on November 14, 1997.
(b) The following schedules supporting the financial statements are included
herein:
Schedule II--Valuation and Qualifying Accounts
<PAGE>
2,766,667 Shares
HAWKER PACIFIC AEROSPACE
Common Stock
____________, 1998
UNDERWRITING AGREEMENT
EVEREN Securities, Inc.
The Seidler Companies Incorporated
<PAGE>
2,766,667 Shares
HAWKER PACIFIC AEROSPACE
Common Stock
(no par value)
UNDERWRITING AGREEMENT
________, 1998
EVEREN Securities, Inc.
The Seidler Companies Incorporated
As Representatives of
the Several Underwriters
c/o EVEREN Securities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601-1994
Ladies and Gentlemen:
Hawker Pacific Aerospace, a California corporation (the "COMPANY"), and
Melanie L. Bastian (the "SELLING SHAREHOLDER") confirm their agreements with
each other and the several underwriters listed in Schedule I hereto (the
"UNDERWRITERS"), for whom EVEREN Securities, Inc. and The Seidler Companies
Incorporated (collectively, the "REPRESENTATIVES") have been duly authorized to
act as representatives, as follows:
1. THE SHARES. Subject to the terms and conditions set forth in this
agreement (the "Agreement"), the Company proposes to issue and sell 2,600,000
shares of its authorized but unissued Common Stock, no par value (the "COMMON
STOCK"), to the several Underwriters and the Selling Shareholder proposes to
sell an aggregate of 166,667 shares of the Company's authorized and outstanding
Common Stock to the several Underwriters. The 2,600,000 shares of Common Stock
of the Company to be sold by the Company are hereinafter called the "COMPANY
SHARES" and the 166,667 shares of Common Stock to be sold by the Selling
Shareholder are hereinafter called the "SELLING SHAREHOLDER SHARES." The
Company Shares and the Selling Shareholder Shares are hereinafter collectively
referred to as the "FIRM SHARES."
1
<PAGE>
The Selling Shareholder also proposes to grant to the Underwriters an option to
purchase up to 415,000 additional shares of Common Stock (the "OPTION SHARES")
if requested by the Underwriters as provided in Section 3 hereof. In addition,
the Company proposes to sell to you, individually and not in your capacity as
Representatives, five-year warrants (the "REPRESENTATIVE'S WARRANTS") to
purchase up to 222,716 shares of Common Stock (the "REPRESENTATIVE'S WARRANT
STOCK"), which sale will be consummated in accordance with the terms and
conditions of the Representative's Warrant Agreement (the "REPRESENTATIVE'S
WARRANT AGREEMENT"), the form of which is filed as an exhibit to the
Registration Statement described below. The Firm Shares and the Option Shares
are herein collectively called the "SHARES."
The Company and the Selling Shareholder hereby confirm their respective
agreements with the Underwriters as follows:
2. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and
filed with the Securities and Exchange Commission (the "COMMISSION") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"ACT"), a registration statement on Form S-1 (File No. 333-40295) including a
prospectus, relating to the Shares, that may have been amended; each such
amendment was so prepared and filed. The registration statement, as amended at
the time when it became or becomes effective, including all financial schedules
and exhibits thereto and all of the information (if any) deemed to be part of
the registration statement at the time of its effectiveness pursuant to
Rule 430A under the Act ("RULE 430A"), is hereinafter referred to as the
"REGISTRATION STATEMENT"; any registration statement filed pursuant to Rule
462(b) of under the Act is herein called the "462(b) REGISTRATION STATEMENT,"
and after such filing the term "REGISTRATION STATEMENT" shall include the Rule
462(b) Registration Statement; the prospectus in the form first provided to the
Underwriters by the Company in connection with the offering and sale of the
Shares (whether or not required to be filed pursuant to Rule 424(b) under the
Act ("RULE 424(b)")) is hereinafter referred to as the "PROSPECTUS," except that
if any revised prospectus shall be provided to the Underwriters by the Company
for use in connection with the offering of the Shares that differs from the
Prospectus (whether or not any such revised prospectus is required to be filed
by the Company pursuant to Rule 424(b) under the Act), the term "PROSPECTUS"
shall refer to the revised prospectus from and after the time it is first
provided to the Underwriters for such use; and each preliminary prospectus
included in the Registration Statement prior to the time it became or becomes
effective is herein referred to as a "PRELIMINARY PROSPECTUS."
3. AGREEMENTS TO SELL AND PURCHASE. On the basis of the representations
and warranties contained in this Agreement, and subject to the terms and
conditions hereof, (i) the Company and the Selling Shareholder agree, severally
and not jointly, to sell to the Underwriters, at a price of $_____ per Share
(the "PURCHASE PRICE"), the
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Company Shares and the Selling Shareholder Shares, respectively; and (ii) each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Shareholder, at the Purchase Price, the aggregate number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to the terms and conditions hereof, (i) the Selling
Shareholder agrees to sell to the Underwriters, at the Purchase Price, up to
415,000 Option Shares; and (ii) the Underwriters shall have the right to
purchase, severally and not jointly, from time to time, up to an aggregate of
415,000 Option Shares at the Purchase Price. Option Shares may be purchased as
provided in Section 4 hereof solely for the purpose of covering over-allotments
made in connection with the offering of the Firm Shares. If any Option Shares
are to be purchased, each Underwriter, severally and not jointly, agrees to
purchase the number of Option Shares (subject to such adjustments to eliminate
fractional shares as the Representatives may determine) that bears the same
proportion to the total number of Option Shares to be purchased as the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule I bears
to the total number of Firm Shares.
For a period of 180 days from the date this Agreement becomes effective,
the Company will not, without the prior written consent of EVEREN Securities,
Inc. on behalf of the Underwriters (1) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or (2) enter
into any swap or other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise; PROVIDED, HOWEVER,
that this clause shall not apply to the transactions expressly contemplated
hereby and the granting of options for shares of Common Stock and involving the
Shares the sales of shares of Common Stock to the Company's employees pursuant
to the exercise of options under those employee benefit plans described in the
Prospectus.
For a period of 180 days from the date this Agreement becomes effective,
the Company will not, without the prior written consent of EVEREN Securities,
Inc. on behalf of the Underwriters, file a registration statement relating to
shares of capital stock (including the Common Stock) or securities convertible
into or exercisable or exchangeable for, capital stock or warrants, options or
rights to purchase or acquire, capital stock, with the exception of the filing
of Registration Statements on Form S-8 with respect to the Company's employee
benefit plans described in the Prospectus.
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4. AGREEMENTS OF THE COMPANY AS TO DELIVERY AND PAYMENT. The Company
agrees with each Underwriter that:
(a) Delivery to the Underwriters of and payment for the Firm Shares
shall be made at 10:00 A.M., New York City time, on the third full business
day (such time and date being referred to as the "CLOSING DATE") following
the date of the initial public offering of the Firm Shares as advised to
you by the Company, at such place as you shall designate.
(b) Delivery to the Underwriters of and payment for any Option Shares
to be purchased by the Underwriters shall be made at such place as the
Representatives shall designate, at 10:00 A.M., New York City time, on such
date or dates (individually, an "OPTION CLOSING DATE" and collectively, the
"OPTION CLOSING DATES"), which may be the same as the Closing Date but
shall in no event be earlier than the Closing Date, as shall be specified
in a written notice from the Representatives to the Company of the
Underwriters' determination to purchase a number, specified in said notice,
of Option Shares. Any such notice may be given at any time within 30 days
after the date of this Agreement.
(c) Certificates for the Shares shall be registered in such names and
issued in such denominations as you shall request in writing not later than
two business days prior to the Closing Date or the applicable Option
Closing Date, as the case may be, and shall be made available for
inspection not later than 9:30 A.M., New York City time, on the business
day next preceding the Closing Date or the applicable Option Closing Date,
as the case may be, with any transfer taxes payable upon initial issuance
or the transfer thereof duly paid by the Company for the respective
accounts of the Underwriters against payment of the Purchase Price therefor
by certified or official bank check or checks payable in New York Clearing
House or similar next-day funds to the order of the Company.
5. FURTHER AGREEMENTS OF THE COMPANY. The Company also agrees with each
Underwriter that:
(a) it will, if the Registration Statement has not heretofore become
effective under the Act, file an amendment to the Registration Statement
or, if necessary pursuant to Rule 430A under the Act, a post-effective
amendment to the Registration Statement, as soon as practicable after the
execution and delivery of this Agreement, and will use its best efforts to
cause the Registration Statement or such post-effective amendment to become
effective at the earliest possible time; and the Company will comply fully
and in a timely
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manner with the applicable provisions of Rule 424(b) and Rule 430A under
the Act;
(b) it will advise you promptly and, if requested by you, confirm
such advice in writing, (i) when the Registration Statement has become
effective, if and when the Prospectus is sent for filing pursuant to
Rule 424 under the Act and when any post-effective amendment to the
Registration Statement becomes effective, (ii) of the receipt of any
comments from the Commission that relate to the Registration Statement or
requests by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction, or
the initiation or, to the best knowledge of the Company, threat of any
proceedings for such purpose by the Commission or any state securities
commission or other regulatory authority, and (iv) of the happening of any
event or information becoming known during the period referred to in
paragraph (e) below that makes any statement of a material fact made in the
Registration Statement untrue or that requires the making of any additions
to or changes in the Registration Statement (as amended or supplemented
from time to time) in order to make the statements therein not misleading
or that makes any statement of a material fact made in the Prospectus (as
amended or supplemented from time to time) untrue or that requires the
making of any additions to or changes in the Prospectus (as amended or
supplemented from time to time) in order to make the statements therein,
not misleading; if at any time the Commission shall issue or institute
proceedings (or threaten to institute any such proceedings) to issue any
stop order suspending the effectiveness of the Registration Statement, or
any state securities commission or other regulatory authority shall issue
or institute proceedings (or threaten to institute proceedings) to issue an
order suspending the qualification or exemption of the Shares under any
state securities or Blue Sky laws, the Company shall use its best efforts
to obtain the withdrawal or lifting of such order at the earliest possible
time;
(c) it will furnish to each of the Representatives without charge one
signed copy of the Registration Statement as first filed with the
Commission and of each amendment to it, including all exhibits filed
therewith, and will furnish to you and each Underwriter designated by you
such number of conformed copies of the Registration Statement as so filed
and of each amendment to it, without exhibits, as you may reasonably
request;
(d) it will not file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effective, make
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any filing under Rule 462(b) of the Act or make any amendment or supplement
to the Prospectus of which you shall not previously have been advised and
provided a copy a reasonable period of time prior to the filing thereof or
to which you or your counsel shall reasonably object; and it will prepare
and file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or supplement to the Prospectus
that may be necessary or advisable in connection with the distribution of
the Shares by you in your or your counsel's opinion, and will use its best
efforts to cause the same to become effective as promptly as possible;
(e) promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as a prospectus is required by
the Act to be delivered in connection with the sales by an underwriter or a
dealer (in the opinion of your counsel), it will furnish to each
Underwriter and dealer without charge as many copies of the Prospectus (and
any amendment or supplement of the Prospectus) as such Underwriter or
dealer may reasonably request for the purposes contemplated by the Act; the
Company consents to the use of the Prospectus and any amendment or
supplement thereto by any Underwriter or any dealer, both in connection
with the offering or sale of the Shares and for such period of time
thereafter as the Prospectus is required by the Act to be delivered in
connection therewith;
(f) if during the period specified in paragraph (e) any event shall
occur or information become known as a result of which in the opinion of
your counsel it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in light of the circumstances
existing as of the date the Prospectus is delivered to a purchaser, not
misleading, or it is necessary to amend or supplement the Prospectus to
comply with any law, forthwith to prepare and, subject to paragraph 5(d)
above, it will file with the Commission at the sole expense of the Company
an appropriate amendment or supplement to the Prospectus so that the
statements of any material facts in the Prospectus, as so amended and
supplemented, will not in light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with law
and it will furnish to the Underwriters and to such dealers as the
Underwriters shall specify, at the sole expense of the Company, such number
of copies thereof as such Underwriters or dealers may reasonably request;
(g) prior to any public offering of the Shares, it will cooperate
with you and counsel for the Underwriters in connection with the
registration or qualification of the Shares for offer and sale by the
several Underwriters and by dealers under the state securities or Blue Sky
laws of such jurisdictions as you may request (provided, that the Company
shall not be obligated to qualify as a
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foreign corporation in any jurisdiction in which it is not so qualified or
to take any action which would subject it to general consent to service of
process in any jurisdiction in which it is not now so subject); the Company
will continue such qualification in effect so long as required by law for
the distribution of the Shares and will file such consents to service of
process or other documents as may be necessary in order to effect such
registration or qualification (provided, that the Company shall not be
obligated to take any action that would subject it to general consent to
service of process in any jurisdiction in which it is not now so subject);
(h) it will not, prior to the exercise in full or termination or
expiration of the option to purchase the Option Shares, incur any liability
or obligation, direct or contingent, or enter into any material
transaction, other than in the ordinary course of business, except as
contemplated by the Prospectus;
(i) it will not acquire any capital stock of the Company prior to the
exercise in full or termination or expiration of the option to purchase the
Option Shares nor will the Company declare or pay any dividend or make any
other distribution upon the Common Stock payable to shareholders of record
on a date prior to the exercise in full or termination or expiration of the
option to purchase the Option Shares, except in either case as contemplated
by the Prospectus;
(j) it will mail and make generally available to its security holders
and furnish to the Underwriters as soon as reasonably practicable a
consolidated earnings statement covering a period of at least 12 months
beginning after the "EFFECTIVE DATE" (as defined in Rule 158 under the Act)
of the Registration Statement (but in no event commencing later than 90
days after such date) that will satisfy the provisions of Section 11(a) of
the Act and Rule 158 thereunder and to advise you in writing when such
statement has been made so available;
(k) during the period of five years after the date of this Agreement,
it will furnish to you a copy (i) as soon as practicable after the filing
thereof, of each report filed by the Company with the Commission, any
securities exchange or the National Association of Securities Dealers, Inc.
("NASD"); (ii) as soon as practicable after the release thereof, of each
material press release in respect of the Company; (iii) as soon as
available, of each report of the Company mailed to shareholders; and
(iv) as soon as available, such other publicly available information
concerning the Company as you may reasonably request;
(l) whether or not the transactions contemplated hereby are
consummated or this Agreement becomes effective as to all of its provisions
or is terminated, to pay all costs, fees, expenses and taxes incident to
the
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performance by the Company of its obligations hereunder, including (i) the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including financial statements and exhibits), each
preliminary Prospectus and all amendments and supplements to any of them
prior to or during the period specified in paragraph (e) above of this
Section 5, (ii) the word processing, reproduction and distribution of this
Agreement, the Blue Sky Survey and any other agreements, memoranda,
correspondence and other documents prepared and delivered by the
Underwriters or their counsel in connection with the offering of the Shares
(including in each case any disbursements of counsel for the Underwriters
relating to such preparation and delivery), (iii) the registration or
qualification of the Shares for offer and sale under the securities or Blue
Sky laws of the several states, including in each case the fees and
disbursements of counsel for the Underwriters, relating to such
registration or qualification and memoranda relating thereto, (iv) filings
and clearance with the NASD in connection with the offering and sale of the
Shares, (v) the listing of the Shares on the The Nasdaq National Market
("NMS") (vi) furnishing such copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus and all amendments and supplements
thereto as may be requested for use in connection with the offering or sale
of the Shares by the Underwriters or by dealers to whom the Shares may be
sold, (vii) obtaining the opinions to be provided pursuant to
Sections 8(g), 8(h) and 8(i) of this Agreement and (viii) the performance
by the Company of all of its other obligations under this Agreement;
(m) in addition to the expenses set forth in Section 5(l), the
Company shall, as applicable: (A) on the Closing Date, pay to EVEREN
Securities, Inc. and The Seidler Companies Incorporated individually and
not in their capacities as Representatives, a non-accountable expense
allowance equal to one percent (1%) of the initial public offering price of
the Shares sold pursuant to this Agreement (including any Option Shares
sold pursuant to this Agreement), or (B) (i) if the sale of the Shares
provided for herein is not consummated because the Underwriters exercise
their right to terminate this Agreement pursuant to Section 9 hereof and
any of the following have occurred during the term of this Agreement:
(x) there has been any material adverse change in the condition (financial
or otherwise), earnings, affairs, business or prospects of the Company, or
(y) the Company or the Selling Shareholder shall refuse or be unable to
comply with any provision hereof (except as the result of a breach of this
Agreement by the Underwriters), the Company will promptly reimburse the
Underwriters upon demand for all reasonable out-of-pocket expenses
(including the fees and disbursements of counsel for the Underwriters) that
shall have been incurred by the Underwriters in connection with the
proposed purchase and sale of Shares, or (ii) if the sale of the Shares
provided for herein is not consummated this Agreement is terminated for any
reason other than the reasons set forth set in clause (B) (i) of this
Section
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5(l), the Company shall pay all reasonable out-of-pocket expenses
(including the fees and disbursements of counsel for the Underwriters) that
shall have been incurred by the Underwriters in connection with the
proposed purchase and sale of Shares up to a maximum of $50,000, plus the
Representatives' actual out-of-pocket expenses of travel, food and lodging
in connection with their due dilgence trip to the United Kingdom in
November 1997.
(n) it intends to use the net proceeds received by it from the sale
of the Shares being sold by it in the manner specified in the Prospectus
and it will file such reports with the Commission with respect to the
application of the proceeds therefrom as may be required in accordance with
Rule 463 under the Act;
(o) if, at the time of effectiveness of the Registration Statement,
any information shall have been omitted therefrom in reliance upon
Rule 430A, then immediately following the execution and delivery of this
Agreement, it will prepare, and file or transmit for filing with the
Commission in accordance with such Rule 430A and Rule 424(b), copies of an
amended prospectus, or, if required by such Rule 430A, a post-effective
amendment to the Registration Statement (including an amended prospectus),
containing all information so omitted;
(p) it will cause the Shares to be listed, subject to notice of
issuance or sale, on the NMS; it will comply with all registration, filing
and reporting requirements of the Securities Exchange Act of 1934, as
amended, (the "EXCHANGE ACT") and the NMS;
(q) the Company shall obtain and deliver to you prior to the Closing
Date an agreement from each officer and director of the Company, and each
beneficial owner of Common Stock prior to the date hereof the written
agreement (the "Lock-up Agreements") that for a period of 180 days from the
date this Agreement becomes effective, will not, without the prior written
consent of EVEREN Securities, Inc. on behalf of the Underwriters (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase, or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or (2) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise; PROVIDED, HOWEVER,
that this clause shall not apply to the transactions expressly contemplated
hereby involving the Shares or to transfers of Common Stock to
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partnerships, limited liability companies, trusts or similar entities
organized for the exclusive benefit of family members of the transferor for
financial and estate planning purposes so long as any transferee that
receives Common Stock as a result of such transfer shall agree upon such
transfer to be bound by the terms of this paragraph and shall be capable of
being so bound; and
(r) it will use its best efforts to do and perform all things
required to be done and performed under this Agreement by it prior to or
after the Closing Date or any Option Closing Date, as the case may be, and
to satisfy all conditions precedent to the delivery of the Shares.
6. Representations and Warranties.
(a) the Company and the Selling Shareholder jointly and severally
represent and warrant to each Underwriter as of the date hereof, the
Closing Date and each Option Closing Date that:
(i) the Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus relating to the
proposed offering of the Shares nor instituted or threatened any
proceedings for that purpose. The Registration Statement, on the
date it became or becomes effective, any 462(b) Registration
Statement, on the date it became or becomes effective, each
Preliminary Prospectus, on the date of the filing thereof with the
Commission, and the Prospectus and any amendment or supplement
thereto, on the date of filing thereof with the Commission (or if
not filed, on the date provided by the Company to the Underwriters
in connection with the offering and sale of the Shares) and at the
Closing Date and each Option Closing Date conformed or will conform
with the requirements of the Act and the rules and regulations
promulgated thereunder ("RULES AND REGULATIONS"); the Registration
Statement, on the date it became or becomes effective, and any
462(b) Registration Statement, on the date it became or becomes
effective, did not or will not contain an untrue statement of
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
each Preliminary Prospectus, on the date of the filing thereof with
the Commission, and the Prospectus and any amendment or supplement
thereto, on the date of filing thereof with the Commission (or if
not filed, on the date provided by the Company to the Underwriters
in connection with the offering and sale of the Shares) and at the
Closing Date and each Option Closing Date did not and will not
include an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
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were made, not misleading; the foregoing shall not apply to
statements in or omissions from the Registration Statement and the
Prospectus made or omitted in reliance upon, and in conformity with,
information relating to the Underwriters furnished in writing to the
Company by or on behalf of the Underwriters with your consent
expressly for use therein; the Company and the Selling Shareholder
hereby acknowledge for all purposes under this Agreement that (A)
the statements set forth under the caption "Underwriting" in the
Prospectus and (B) the stabilization legend on the gate-fold of the
Prospectus constitute the only written information furnished to the
Company by or on behalf of the Underwriters for use in the
preparation of the Registration Statement or the Prospectus or any
amendment or supplement thereto;
(ii) the Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of California,
with full corporate power and authority to own or lease its
properties and assets and to conduct its business as described in
the Registration Statement and the Prospectus and is duly qualified
to do business in each jurisdiction in which it owns or leases real
property or in which the conduct of its business or the ownership or
leasing of property requires such qualification, except where the
failure to be so qualified, either individually or in the aggregate,
would not have a material adverse effect on the condition (financial
or otherwise), business, assets, prospects, net worth or results of
operations of the Company taken as a whole (a "MATERIAL ADVERSE
EFFECT");
(iii) the Company has no subsidiaries other than Hawker
Pacific Aerospace, Ltd, a company organized and operating under the
laws of the United Kingdom for the purposes of acquiring the assets
of British Airways plc's landing gear repair and overhaul operations
(the "BA ASSETS") to be acquired by the Company immediately
following the Closing Date (the "BA ACQUISITION"); all issued and
outstanding shares of capital stock or other equity interest of each
such subsidiary of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and were not issued in
violation of or subject to any preemptive right, or other rights to
subscribe for or purchase shares or other equity interest and are
owned by the Company or a subsidiary of the Company free and clear
of any pledge, lien, security interest, encumbrance, claim or
equitable interest.
(iv) the capitalization of the Company is, and upon
consummation of the transactions contemplated hereby and by the
Prospectus will be, as set forth in the Registration Statement and
the
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Prospectus under the caption "Capitalization;" all of the
outstanding shares of capital stock of the Company (including the
shares to be sold by the Selling Shareholder hereunder) have been
duly authorized and are validly issued, are fully paid and
non-assessable and conform to the description thereof in the
Registration Statement and the Prospectus and were not issued in
violation of any preemptive rights or other rights to subscribe for
or purchase securities; and, except as set forth in the Registration
Statement and the Prospectus with respect to the Company's 1997
Stock Option Plan and the conversion of its outstanding Preferred
Stock, no options, warrants or other rights to purchase from the
Company, agreements or other obligations of the Company to issue or
other rights to convert any obligation into, or exchange any
securities for, shares of capital stock of or ownership interests in
the Company are outstanding; the description of the Company's 1997
Stock Option Plan and the other options or rights granted and
exercised thereunder, as set forth in the Registration Statement and
the Prospectus, accurately and fairly presents the information
required to be shown under the Act with respect to such options and
rights;
(v) subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
and except as described therein, (A) the Company has not incurred
any material liabilities or obligations, direct or contingent, or
entered into any material transactions not in the ordinary course of
business, (B) the Company has not purchased any of its outstanding
capital stock or declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock or otherwise and (C)
there has not been any material adverse change in the Company's
condition (financial or otherwise), business, affairs, prospects or
results of operations or any material change in the Company's
capital stock, short-term debt or long-term debt;
(vi) the Company Shares have been duly and validly
authorized and, when issued, delivered and paid for pursuant to this
Agreement, will be validly issued, fully paid and nonassessable, and
will conform to the description thereof contained in the Prospectus;
(vii) each of this Agreement, the Representatives' Warrant
Agreement, the [Agreement(s) under which it is to acquire the BA
Assets] (the "ACQUISITION AGREEMENT") and the [Agreement(s) under
which it is to borrow to fund the balance of the purchase price for
the BA Assets] (the ("New Credit Facility") has been duly authorized,
executed and delivered by the Company and is a legal, valid and
binding agreement of the Company enforceable in accordance with its
terms, except as
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enforceability of the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and by general equity principles;
(viii) the Company is not in violation of its Articles of
Incorporation or by-laws; the Company is not in violation of or in
breach of or in default in (nor has any event occurred that with
notice or lapse of time, or both, would be a breach of or a default
in) the performance of any obligation, agreement or condition
contained in any agreement, lease, contract, permit, license,
franchise agreement, mortgage, loan agreement, debenture, note, deed
of trust, bond, indenture or other evidence of indebtedness or any
other instrument or obligation (collectively, "OBLIGATIONS AND
INSTRUMENTS") to which the Company is a party or by which the
Company or any of its properties or assets is bound or affected
(except for such contravention or default as would not have a
Material Adverse Effect); the Company is not in violation of or in
breach of or in default in (nor has any event occurred that with
notice or lapse of time, or both, would be a breach of or a default
in) the performance of the Acquisition Agreement or the New Credit
Facility (irrespective of whether such contravention or default
would have a Material Adverse Effect); the Company is not in
violation of any statute, judgment, decree, order, Rule or
regulation (collectively, "LAWS") applicable to the Company or any
of its properties or assets that, alone, or together with other
violations of Laws would result in a Material Adverse Effect; to the
best knowledge of the Company, no other party under any contract or
other agreement to which the Company is a party is in material
default thereunder except for such defaults as would not
individually or in the aggregate result in a Material Adverse
Effect; and to the best knowledge of the Company, no other party
under the Acquisition Agreement or the New Credit Facility is in
material default thereunder irrespective of whether such default
would individually or in the aggregate result in a Material Adverse
Effect;
(ix) the execution, delivery and performance of this
Agreement, the Representatives' Warrant Agreement, the Acquisition
Agreement and the New Credit Facility, the delivery of the Shares by
the Company and the Selling Shareholder pursuant to this Agreement
and the delivery of the Representatives' Warrants by the Company
pursuant to the Representatives' Warrant Agreement and compliance by
the Company with all the provisions hereof, of the Representatives'
Warrant Agreement, the Acquisition Agreement and the New Credit
Facility and the consummation of the transactions contemplated
hereby and thereby will not, alone or upon notice or the passage of
time or both (A) to the
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best knowledge of the Company and the Selling Shareholder, after due
inquiry, require any consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other
governmental body or third party (except in the case of the Shares
and Representatives' Warrants, such as may be required under the Act
and the securities or Blue Sky laws of the various states or by the
NASD), (B) result in the creation or imposition of any lien, charge
or encumbrance upon any of the properties or assets of the Company
pursuant to the terms and provisions of any Obligation or
Instrument, (C) conflict with or constitute a breach or default
under any Obligation or Instrument to which the Company is a party
or by which the Company or any of its properties or assets is bound,
(except for such creation, conflict, breach or default as would not
have a Material Adverse Effect or would not interfere with the
consummation of the transactions contemplated by the Acquisition
Agreement), or (D) assuming compliance with the Act and all
applicable state securities or Blue Sky laws, violate or conflict
with any Laws applicable to the Company or any of its subsidiaries
or any of their respective properties or assets (except for such
violation or conflict as could not have a Material Adverse Effect or
would not interfere with the consummation of the transactions
contemplated by the Acquisition Agreement); no action, suit or
proceeding before any court or arbitrator or any governmental body,
agency or official (domestic or foreign) is pending against or, to
the knowledge of the Company, threatened against the Company, that,
if adversely determined, could reasonably be expected to in any
manner invalidate this Agreement, the Representatives' Warrant
Agreement, the Acquisition Agreement or the New Credit Facility;
(x) except as set forth in the Prospectus, there is no
action, suit, proceeding, inquiry or investigation, governmental or
otherwise before any court, arbitrator or governmental agency or
body (collectively, "PROCEEDINGS") pending to which the Company or
any of its subsidiaries is a party or to which any of their
respective properties or assets are subject, that, if determined
adversely to the Company or any of its subsidiaries, as the case may
be, might result in a Material Adverse Effect, or that might
materially and adversely affect the properties or assets thereof, or
that seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance or sale of any of the Shares to be
sold hereunder or the consummation of the transactions contemplated
hereunder, under the Representatives' Warrant Agreement, the
Acquisition Agreement or the New Credit Facility, and, to the best
knowledge of the Company after due inquiry, no such Proceedings are
threatened or contemplated; and (except for such contracts, documents
14
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or agreements for which confidential treatment has been granted by
Commission in accordance with Rule 406 of the Rules and Regulations)
there is no contract, document, agreement or transaction to which
the Company or any of its subsidiaries is a party, or that involved
or involves the Company, any of its subsidiaries or any of their
properties or assets that are required to be described in or filed
as exhibits to the Registration Statement or the Prospectus by the
Act or the Rules and Regulations that have not been so described or
filed; no action has been taken with respect to the Company, and, to
the best knowledge of the Company and the Selling Shareholder, no
statute, Rule or regulation or order has been enacted, adopted or
issued by any governmental agency that suspends the effectiveness of
the Registration Statement, prevents or suspends the use of any
Preliminary Prospectus or the Prospectus, suspends the sale of the
Shares in any jurisdiction or prevents the consummation of the
transactions contemplated by the Acquisition Agreement or the New
Credit Facility; no injunction, restraining order or order of any
nature by a federal or state court of competent jurisdiction has
been issued with respect to the Company that might prevent the
issuance of the Shares, suspend the effectiveness of the
Registration Statement, prevent or suspend the use of any
Preliminary Prospectus or the Prospectus, suspend the sale of the
Shares in any jurisdiction, or prevent the consummation of the
transactions contemplated by the Acquisition Agreement or the New
Credit Facility; and every request of the Commission, or any
securities authority or agency of any jurisdiction, for additional
information (to be included in the Registration Statement or the
Prospectus or otherwise) has been complied with in all material
respects;
(xi) except for such matters against which the Company has
received full indemnification as described in the Registration
Statement and Prospectus, the Company has not violated any foreign,
federal, state or local law or regulation relating to the protection
of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("ENVIRONMENTAL
LAWS"), nor any foreign, Federal, state or local law relating to
discrimination in the hiring, promotion or pay of employees nor any
applicable foreign, Federal or state wages and hours laws, nor any
provisions of the Employee Retirement Income Security Act of 1974,
as amended or the rules and regulations promulgated thereunder or
similar foreign laws, that, in each case or in the aggregate, might
result in a Material Adverse Effect; except for such matters against
which the Company has received full indemnification as described in
the Registration Statement and Prospectus, none of the property
leased by the Company is contaminated with any waste or hazardous
substances, and, to the extent that the
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Company disposes in the ordinary course of its business products
that may be classified as or contain "hazardous substances," the
disposal of such products (A) is in material compliance with all
applicable laws as of the date hereof and (B) has not and will not
result in a Material Adverse Effect;
(xii) the Company has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities or third
parties ("PERMITS"), including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease and
operate its properties and assets and to conduct its businesses and
to own, lease and operate the BA Assets and the business it
contemplates conducting upon consummation of the BA Acquisition,
except where the failure to have any such Permit would not have a
Material Adverse Effect; the Company has fulfilled and performed all
of its material conditions or obligations with respect to such
Permits and no event has occurred that allows, or after notice or
lapse of time, or both would allow, revocation or termination
thereof or result in any other material impairment of the rights of
the holder of any such Permit; and except as described in the
Prospectus, such Permits contain no restrictions that are materially
burdensome to the Company;
(xiii) the Company is not, and does not intend to conduct its
business in a manner in which it would become, an "investment
company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended (the
"INVESTMENT COMPANY ACT");
(xiv) except as otherwise set forth in the Prospectus, the
Company has good and marketable title, free and clear of all liens,
claims, encumbrances and restrictions (except liens for taxes not
yet due and payable) to all property and assets described in the
Registration Statement as being owned by it; all leases to which the
Company is a party are subsisting, valid and binding and no default
of the Company or, as applicable, any of the Selling Shareholder or
their respective affiliates or, to the best knowledge of the Company
and the Selling Shareholder, any other person has occurred or is
continuing thereunder that might result in a Material Adverse
Effect; and the Company enjoys peaceful and undisturbed possession
under all such leases to which the Company is a party as lessee with
such exceptions as do not materially interfere with the use made
thereof by the Company;
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(xv) the Company maintains reasonably adequate insurance
for the conduct of its business in accordance with prudent business
practices with reputable third-party insurers;
(xvi) Ernst & Young LLP, the accounting firm that has
certified or reviewed, or shall certify or review, the financial
statements and supporting schedules filed or to be filed with the
Commission as part of the Registration Statement and the Prospectus,
is an independent public accounting firm with respect to the Company
as required by the Act;
(xvii) the consolidated financial statements of the Company,
together with related notes and schedules of the Company included in
the Registration Statement and the Prospectus, are accurate and
present fairly the financial position, results of operations and
cash flows of the Company at the indicated dates and for the
indicated periods; such financial statements of have been prepared
in accordance with generally accepted accounting principles ("GAAP")
consistently applied throughout the periods involved, and all
adjustments necessary for a fair presentation of results for such
periods have been made and any unaudited financial statements have
been prepared on a basis substantially consistent with that of the
audited operating financial statements included in the Registration
Statement and the Prospectus; and the summary and selected financial
and operating data included in the Registration Statement and the
Prospectus presents fairly the information shown therein and have
been compiled on a basis consistent with the audited and any
unaudited financial statements, as the case may be, included
therein; and the pro forma information included in the Prospectus
present fairly the information shown therein, have been prepared in
accordance with GAAP and the Commission's rules and guidelines with
respect to pro forma financial statements and other pro forma
information, have been properly compiled on the pro forma basis
described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are
appropriate under the circumstances;
(xviii) no holder of any security of the Company has any
right to require inclusion of any such security in the Registration
Statement. There are no preemptive rights with respect to the
offering being made by the Prospectus;
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<PAGE>
(xix) except as disclosed in the Registration Statement and
the Prospectus, no labor dispute with the employees of the Company
exists, or to the best knowledge of the Company after due inquiry,
is imminent, that could result in a Material Adverse Effect; and the
Company has not received notice of any existing or imminent labor
disturbance by the employees of any of its principle suppliers,
customers, manufacturers or contractors that could result in any
Material Adverse Effect;
(xx) the Company has filed or caused to be filed, or has
properly filed extensions for, all foreign, federal, state and local
income, value added and franchise tax returns and has paid all taxes
and assessments shown thereon as due, except for such taxes and
assessments as are disclosed or adequately reserved against and that
are being contested in good faith by appropriate proceedings,
promptly instituted and diligently conducted;
(xxi) the Company owns or possesses, or can acquire on
reasonable terms, the patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented
and or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks and trade names
(collectively, "PATENTS AND PROPRIETARY RIGHTS") currently employed
by it in connection with the business it now operates except where
the failure to so own, possess or acquire such Patents and
Proprietary Rights would not have a Material Adverse Effect; and the
Company has not received any notice and is not otherwise aware of
any infringement of or conflict with asserted rights of others with
respect to any Patent or Proprietary Rights that, if the subject of
any unfavorable decision, ruling or finding, singly or in the
aggregate, could result in a Material Adverse Effect;
(xxii) the Company is conducting and intends to conduct its
business so as to comply in all material respects with applicable
federal, state, local and foreign government Laws, except where the
failure to comply would not have a Material Adverse Effect; and
except as set forth in the Registration Statement and the
Prospectus, the Company is not charged with or, to the Company's
knowledge after due inquiry, under investigation with respect to,
any material violation of any such Laws;
(xxiii) the Company has not taken and will not take, directly
or indirectly, any action designed to or which has constituted or
that might reasonably be expected to cause or result, under the
Exchange Act or
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<PAGE>
otherwise, in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Shares;
(xxiv) neither the Company nor, to the best knowledge of the
Company and the Selling Shareholder, any employee or agent of the
Company has made any payment of funds of the Company or received or
retained any funds in violation of any law, Rule or regulation
(including, without limitation, the Foreign Corrupt Practices Act)
or of a character required to be disclosed in the Prospectus; the
Company has not, at any time during the past five years, (1) made
any unlawful contributions to any candidate for any political
office, or failed fully to disclose any contribution in violation of
law, or (2) made any unlawful payment to state, federal or foreign
government officer or officers, or other person charged with similar
public or quasi-public duty;
(xxv) the Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for inventory is
compared with the existing inventory at reasonable intervals and
appropriate action is taken with respect to any differences;
(xxvi) the Representative's Warrants have been duly and
validly authorized by the Company and upon delivery to you in
accordance with the Representative's Warrant Agreement will be duly
issued and legal, valid and binding obligations of the Company.
(xxvii) the Representative's Warrant Stock have been duly
authorized and reserved for issuance upon the exercise of the
Representative's Warrants and when issued upon payment of the
exercise price therefor will be validly issued, fully paid and
nonassessable shares of Common Stock of the Company.
(xxviii) the Company confirms as of the date hereof that it
is in compliance with all provisions of Section 1 of Florida
Statutes, Section 517.075, AN ACT RELATING TO DISCLOSURE OF DOING
BUSINESS WITH CUBA; the Company further agrees that if it commences
engaging in business with the government of Cuba or with any person
or affiliate located in Cuba after the date the Registration
Statement becomes or has
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<PAGE>
become effective with the Commission or with the Florida Department
of Banking and Finance (the "DEPARTMENT"), whichever date is later,
or if the information reported in the Prospectus, if any, concerning
the Company's business with Cuba or with any person or affiliate
located in Cuba changes in any material way, the Company will
provide the Department notice of such business or change, as
appropriate, in a form acceptable to the Department.
(b) In addition, the Selling Shareholder represents and warrants to
and agrees with each Underwriter and the Company that:
(i) such Selling Shareholder now has and on the Closing Date
and on any date on which Option Shares are purchased, will have
valid marketable title to the Selling Shareholder Shares and the
Option Shares, as the case may be, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest
other than pursuant to this Agreement; and upon delivery of such
Shares hereunder and payment of the purchase price as herein
contemplated, each of the Underwriters will obtain valid marketable
title to the Shares purchased by it from such Selling Shareholder,
free and clear of any pledge, lien, security interest pertaining to
such Selling Shareholder or such Selling Shareholder's property,
encumbrance, claim or equitable interest, including any liability
for estate or inheritance taxes, or any liability to or claims of
any creditor, devisee, legatee or beneficiary of such Selling
Shareholder;
(ii) such Selling Shareholder has duly executed and
delivered, in the form heretofore furnished to the Representatives,
an irrevocable Power of Attorney (the "Power of Attorney")
appointing ___________ and ___________ as attorneys-in-fact
(collectively, the "Attorneys" and individually, an "Attorney") and
a Letter of Transmittal and Custody Agreement (the "Custody
Agreement") with U.S. Stock Transfer Corporation as custodian (the
"Custodian"); the Power of Attorney and the Custody Agreement
constitutes a valid and binding agreement on the part of such
Selling Shareholder, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by
general equitable principles; and each of such Selling Shareholder's
Attorneys, acting alone, is authorized to execute and deliver this
Agreement and the certificate referred to in Section 8(l) hereof on
behalf of such Selling Shareholder, to determine the purchase price
to be paid by the several Underwriters to such Selling Shareholder
as provided in Section __ hereof, to authorize the delivery of the
Option Shares to be sold by such
20
<PAGE>
Selling Shareholder] under this Agreement and to duly endorse (in
blank or otherwise) the certificate or certificates representing
such Shares or a stock power or powers with respect thereto, to
accept payment therefor, and otherwise to act on behalf of such
Selling Shareholder in connection with this Agreement;
(iii) all consents, approvals, authorizations and orders
required for the execution and delivery by the Selling Shareholder
of the Power of Attorney and the Custody Agreement, the execution
and delivery by or on behalf of such Selling Shareholder of this
Agreement and the sale and delivery of the Selling Shareholder
Shares and the Option Shares to be sold by such Selling Shareholder
under this Agreement (other than, at the time of the execution
hereof (if the Registration Statement has not yet been declared
effective by the Commission), the issuance of the order of the
Commission declaring the Registration Statement effective and such
consents, approvals, authorizations or orders as may be necessary
under state or other securities or Blue Sky laws) have been obtained
and are in full force and effect; and such Selling Shareholder has
full legal right, power and authority to enter into and perform its
obligations under this Agreement and such Power of Attorney and
Custody Agreement, and to sell, assign, transfer and deliver the
Shares to be sold by such Selling Shareholder under this Agreement;
(iv) for a period of 180 days from the date this Agreement
becomes effective, the Selling Shareholder will not, without the
prior written consent of EVEREN Securities, Inc. on behalf of the
Underwriters (1) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or (2) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or
otherwise; PROVIDED, HOWEVER, that this clause shall not apply to
the transactions expressly contemplated hereby involving the Shares
or to transfers of Common Stock to partnerships, limited liability
companies, trusts or similar entities organized for the exclusive
benefit of family members of Selling Shareholder for financial and
estate planning purposes so long as any transferee that receives
Common Stock as a result of such transfer shall agree upon such
transfer to be bound by the terms of this paragraph and shall be
capable of being so bound;
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<PAGE>
(v) the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a breach or
violation of any of the terms and provisions of or constitute a
default under any bond, debenture, note or other evidence of
indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or
instrument to which such Selling Shareholder is a party or by which
such Selling Shareholder, or any Option Shares to be sold by such
Selling Shareholder hereunder, may be bound or, to the best of such
Selling Shareholder's knowledge, result in any violation of any law,
order, rule, regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic or
foreign, having jurisdiction over such Selling Shareholder or over
the properties of such Selling Shareholder;
(vi) such Selling Shareholder has not taken and will not
take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale
or resale of the Shares;
(vii) such Selling Shareholder has not distributed and will
not distribute any prospectus or other offering material in
connection with the offering and sale of the Shares;
(viii) all information furnished by or on behalf of such
Selling Shareholder relating to such Selling Shareholder, the
Selling Shareholder Shares and the Option Shares that is contained
in the representations and warranties of such Selling Shareholder in
such Selling Shareholder's Power of Attorney or set forth in the
Registration Statement and the Prospectus is, and at the time the
Registration Statement became or becomes, as the case may be,
effective and at all times subsequent thereto up to and on the
Closing Date, and on any later date on which Option Shares are to be
purchased, was or will be, true, correct and complete, and does not,
and at the time the Registration Statement became or becomes, as the
case may be, effective and at all times subsequent thereto up to and
on the Closing Date and on any later date on which Option Shares are
to be purchased, will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make such information not misleading;
(ix) such Selling Shareholder will review the Prospectus
and will comply with all agreements and satisfy all conditions on
its part to be complied with or satisfied pursuant to this Agreement
on or prior to the
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<PAGE>
Closing Date and on any later date on which Option Shares are to be
purchased, as the case may be, and will advise one of its Attorneys
and EVEREN Securities, Inc. prior to the Closing Date and on any
later date on which any Option Shares are to be purchased, if any
statement to be made on behalf of such Selling Shareholder in the
certificate contemplated by Section 8(l) would be inaccurate if
made as of the date on which Option Shares are to be purchased;
(x) such Selling Shareholder does not have, or has waived
prior to the date hereof, any preemptive right, co-sale right or
right of first refusal or other similar right to purchase any of the
Company Shares; such Selling Shareholder does not have, or has
waived prior to the date hereof, any registration right or other
similar right to participate in the offering made by the Prospectus,
other than such rights of participation as have been satisfied by
the participation of such Selling Shareholder in the transactions to
which this Agreement relates in accordance with the terms of this
Agreement; and such Selling Shareholder does not own any warrants,
options or similar rights to acquire, and does not have any right or
arrangement to acquire, any capital stock, rights, warrants, options
or other securities from the Company, other than those described in
the Registration Statement and the Prospectus.
(c) Any certificate signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty jointly and severally made by the Company and
the Selling Shareholder to each Underwriter as to the matters covered
thereby and shall be deemed incorporated herein in its entirety and shall
be effective as if such representation and warranty were made herein; and
any certificate signed by the Selling Shareholder as such and delivered
to you or to counsel for the Underwriters shall also be deemed a
representation and warranty jointly and severally made by the Company and
the Selling Shareholder to each Underwriter as to the matters covered
thereby and shall also be deemed incorporated herein in its entirety and
shall be effective as if such representation and warranty were made
herein.
7. INDEMNIFICATION.
(a) The Company and the Selling Shareholder, jointly and
severally, agree to indemnify and hold harmless each of the Underwriters
and each person, if any, who controls each of the Underwriters within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act (the
"indemnified parties") from and against any and all losses, claims,
damages, liabilities and judgments caused by, arising out of, related to
or based upon any untrue statement or
23
<PAGE>
alleged untrue statement of a material fact contained in the Registration
Statement (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), including the information deemed
to be part of the Registration Statement at the time of effectiveness
pursuant to Rule 430A, if applicable, or the Prospectus or any
Preliminary Prospectus or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading; PROVIDED, HOWEVER, that
neither the Company nor the Selling Shareholder shall be liable in any
such case to the extent that such losses, claims, damages, liabilities or
judgments are caused by an untrue statement or omission made or omitted
in reliance upon, and in conformity with, information relating to the
Underwriters furnished in writing to the Company by or on behalf of the
Underwriters with your consent expressly for use therein. In addition to
their other obligations under this Section 7(a), the Company and Selling
Shareholder agree that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding arising out of
or based upon any statement or omission, or any alleged statement or
omission, described in this Section 7(a), or any inaccuracy in the
representations and warranties of the Company or the Selling Shareholder
herein or the failure to perform its obligations hereunder, the Company
and the Selling Shareholder will pay each Underwriter on a monthly basis
for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the Company's and
Selling Shareholder's obligation to indemnify hereunder or to pay each
Underwriter for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim payment is so held to
have been improper, the Underwriters shall promptly return such payment
to the Company together with interest, compounded daily, determined on
the basis of the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) listed from time to time in The
Wall Street Journal which represents the base rate on corporate loans
posted by a substantial majority of the nation's thirty (30) largest
banks (the "Prime Rate"). Any such interim reimbursement payments which
are not made to the Underwriters within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request.
(b) In case any action shall be brought against any of the
indemnified parties, based upon any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment or supplement
thereto and with respect to which indemnity may be sought against the
Company and the Selling Shareholder, such indemnified parties shall
promptly notify the Company (and
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<PAGE>
the Selling Shareholder, care of the Company) in writing (but the failure
so to notify shall not relieve the Company or the Selling Shareholder of
any liability that they may otherwise have to such indemnified parties
under this Section 7 (although the Company's and the Selling Shareholder'
liability to an indemnified party may be reduced on a monetary basis to
the extent, but only to the extent, they have been prejudiced by such
failure on the part of such indemnified party) and the Company and the
Selling Shareholder shall promptly assume the defense thereof, including
the employment of counsel satisfactory to such indemnified party and
payment of all fees and expenses. The indemnified parties shall each
have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such indemnified parties unless (i)
the employment of such counsel shall have been specifically authorized by
the Company, (ii) the Company and the Selling Shareholder shall have
failed to assume promptly the defense or to employ counsel reasonably
satisfactory to such indemnified party or (iii) the named parties to any
such action (including any impleaded parties) include both the
indemnified parties and the Company or the Selling Shareholder, and an
indemnified party shall have been advised by counsel that there may be
one or more legal defenses available to one or more of the indemnified
parties that are different from or additional to those available to the
Company or the Selling Shareholder (in which case the Company and the
Selling Shareholder shall not have the right to assume the defense of
such action on behalf of such indemnified party, it being understood,
however, that the Company and the Selling Shareholder shall not, in
connection with any one such action or separate but substantially similar
or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses
of more than one separate firm of attorneys (in addition to any local
counsel) for the indemnified parties, which firm shall be designated in
writing by EVEREN Securities, Inc., and that all such fees and expenses
shall be reimbursed promptly as they are incurred). The Company and the
Selling Shareholder shall not be liable for any settlement of any such
action effected without their written consent, which consent shall not be
unreasonably withheld, but if settled with the written consent of the
Company and the Selling Shareholder, the Company and the Selling
Shareholder agree to indemnify and hold harmless the indemnified parties
from and against any and all loss or liability by reason of such
settlement. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse
the indemnified party for fees and expenses of counsel as contemplated by
the second sentence of this paragraph, the indemnifying party agrees that
it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 10
business days after delivery by registered or certified mail to the
proper address for notice to such indemnifying party of the aforesaid
request (whether or not
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<PAGE>
such delivery is accepted) and (ii) such indemnifying party shall not
have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which
any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional and complete release in writing of
such indemnified party from any and all liability on claims that are the
subject matter of such proceeding, which such settlement shall be in form
and substance satisfactory to the indemnified party. The indemnification
provided in this Section 7 will be in addition to any liability which the
Company and the Selling Shareholder may otherwise have.
(c) The Underwriters agree, severally and not jointly, to
indemnify and hold harmless the Selling Shareholder, the Company, its
directors, its officers who sign the Registration Statement and any
person controlling the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, to the same extent as the
foregoing indemnity from the Company and the Selling Shareholder to the
Underwriters but only with reference to information stated in or omitted
from the Registration Statement, the Prospectus or any Preliminary
Prospectus in reliance upon, and in conformity with, information relating
to the Underwriters furnished in writing to the Company by or on behalf
of the Underwriters with your consent expressly for use therein. In case
any action shall be brought against the Company, the Selling Shareholder,
any of the Company's directors, any such officers or any person
controlling the Company based on the Registration Statement, the
Prospectus or any Preliminary Prospectus and in respect of which
indemnity may be sought against the Underwriters, the Underwriters shall
have the rights and duties given to the Company and the Selling
Shareholder by Section 7(b) hereof (except that if the Company and the
Selling Shareholder shall have assumed the defense thereof, such
Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such Underwriter),
and the Selling Shareholder, the Company, its directors, any such
officers and any person controlling the Company shall have the rights and
duties given to the "indemnified parties" by Section 7(b) hereof. In
addition to their other obligations under this Section 7(c), the
Underwriters severally and not jointly agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(c) hereof, they will reimburse the
Company and the Selling Shareholder on a monthly basis for all reasonable
legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other
proceeding, notwithstanding the absence of a judicial determination as to
the propriety and
26
<PAGE>
enforceability of the Underwriters' obligation to reimburse the Company
and the Selling Shareholder for such expenses and the possibility that
such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Company and the Selling
Shareholder shall promptly return such payment to the Underwriters
together with interest, compounded daily, determined on the basis of the
Prime Rate. Any such interim reimbursement payments which are not made
to the Company within thirty (30) days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request.
(d) If the indemnification provided for in this Section 7 is for
any reason unavailable to an indemnified party or insufficient to hold
such indemnified party harmless in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and judgments (i) in
such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Shareholder on the one hand and
the Underwriters on the other from the offering of the Securities or (ii)
if the allocation provided in clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the
relative fault of the Company and the Selling Shareholder on the one hand
and the Underwriters on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such
losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the
Company and the Selling Shareholder on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total
net proceeds from the offering and sale of the Shares (before deducting
expenses) received by the Company and the Selling Shareholder on the one
hand, and the total underwriting discounts and commissions received by
the Underwriters on the other, bears to the total price to the public of
the Shares, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault of the Company, the Selling
Shareholder and the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or the alleged omission to state a material
fact relates to information supplied by the Company, the Selling
Shareholder or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission.
27
<PAGE>
The Company, the Selling Shareholder and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this
Section 7(d) were determined by PRO RATA allocation (even if the
Underwriters, the Company or the Selling Shareholder were treated as one
entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages, liabilities or judgments referred
to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise paid or been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission, and the
Selling Shareholder shall not be required to contribute, more in the
aggregate than the Maximum Amount (net of all amounts reimbursed, for any
reason, by the Company or insurance policies paid for or held by the
Company). 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. The
Underwriters' obligation in this Section 7(d) to contribute are several in
proportion to the respective amount of Shares purchased hereunder by each
Underwriter and not joint.
(e) It is agreed that any controversy arising out of the
operation of the interim payment arrangements set forth in Sections 7(a)
and 7(c) hereof, including the amounts of any requested payments and method
of determining such amounts, shall be settled by arbitration conducted
under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the National Association of Securities Dealers,
Inc. Any such arbitration shall be commenced by service of a written demand
for arbitration or written notice of intention to arbitrate, therein
electing the arbitration tribunal. In the event the party demanding
arbitration does not make such designation of an arbitration tribunal in
such demand or notice, then the party responding to said demand or notice
is authorized to do so. Such an arbitration shall be limited to the
operation of the interim payment provisions contained in Sections 7(a) and
7(c) hereof and shall not resolve the ultimate propriety or enforceability
of the obligation to indemnify or pay expenses which is created by the
provisions of such Sections 7(a) and 7(c) hereof.
(f) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during
the
28
<PAGE>
negotiations regarding the provisions hereof including, without limitation,
the provisions of this Section 7, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 7
fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required
by the Act and the Exchange Act. The parties are advised that federal or
state public policy, as interpreted by the courts in certain jurisdictions,
may be contrary to certain of the provisions of this Section 7, and the
parties hereto hereby expressly waive and relinquish any right or ability
to assert such public policy as a defense to a claim under this Section 7
and further agree not to attempt to assert any such defense.
8. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of
the several Underwriters to purchase and pay for the Firm Shares on the Closing
Date and the Option Shares on any Option Closing Date are subject to the
fulfillment of each of the following conditions on or prior to the Closing Date
and each Option Closing Date:
(a) All the representations and warranties of the Company and the
Selling Shareholder contained in this Agreement and in any certificate
delivered hereunder shall be true and correct on the Closing Date and each
Option Closing Date with the same force and effect as if made on and as of
the Closing Date or Option Closing Date, as applicable. The Company and
the Selling Shareholder shall not have failed at or prior to the Closing
Date or Option Closing Date, as applicable, to perform or comply in all
respects with any of the agreements herein contained and required to be
performed or complied with by the Company at or prior to the Closing Date.
(b) If the Registration Statement is not effective at the time of the
execution and delivery of this Agreement, the Registration Statement shall
have become effective (or, if a post-effective amendment is required to be
filed pursuant to Rule 430A under the Act, such post-effective amendment
shall have become effective) not later than 9:30 A.M., New York City time,
on the date of this Agreement or such later time as you may approve in
writing or, if the Registration Statement has been declared effective prior
to the execution and delivery hereof in reliance on Rule 430A, the
Prospectus shall have been filed as required hereby, if necessary; and at
the Closing Date and each applicable Option Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been commenced or
shall be pending before or, to the best knowledge of the Underwriters, the
Company or the Selling Shareholder, threatened by the Commission; every
request for additional information on the part of the Commission shall have
been complied with to the Underwriters' satisfaction; no stop order
suspending the sale of the Shares in any jurisdiction
29
<PAGE>
referred to in Section 5(g) shall have been issued and no proceeding for
that purpose shall have been commenced or shall be pending or threatened.
(c) The Shares shall have been qualified for sale under the Blue Sky
laws of such states as shall have been specified by the Representatives.
(d) The legality and sufficiency of the authorization, issuance and
sale or transfer and sale of the Shares hereunder, the validity and form of
the certificates representing the Shares, the execution and delivery of
this Agreement and all corporate proceedings and other legal matters
incident thereto, and the form of the Registration Statement and the
Prospectus (except financial statements) shall have been approved by
counsel for the Underwriters exercising reasonable judgment, and no
Underwriter shall have advised the Company that the Registration Statement
or the Prospectus, or any amendment or supplement thereto, contains an
untrue statement of material fact, or omits to state a fact that in your
opinion is material and is required to be stated therein or is necessary to
make the statements therein not misleading.
(e) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred any material change, or any material development
involving a prospective change, in or affecting particularly the business
or properties of the Company, whether or not arising in the ordinary course
of business, that, in the judgment of the Representatives, makes it
impractical or inadvisable to proceed with the public offering or purchase
of the Shares as contemplated hereby.
(f) You shall have received the Lock-up Agreements specified in
Section 5(p) of this Agreement.
(g) You shall have received an opinion (satisfactory to you and your
counsel) dated the Closing Date or the Option Closing Date, as the case may
be, of Troy & Gould Professional Corporation, counsel for the Company and
the Selling Shareholder, substantially to the effect set forth on Exhibit
A hereto and incorporated herein by this reference.
30
<PAGE>
(h) You shall have received an opinion (satisfactory to you and
your counsel) dated the Closing Date of Troy & Gould Professional
Corporation counsel for the Company substantially to the effect set forth
on Exhibit B hereto and incorporated herein by this reference.
(i) You shall have received on the Closing Date an opinion of
Paris Smith & Randall, counsel to the Company and HPAUK dated the Closing
Date, substantially to the effect set forth on Exhibit C hereto and
incorporated herein by this reference.
(j) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
letter from Ernst & Young LLP addressed to the Company and the
Underwriters, dated the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, confirming that they are
independent certified public accountants with respect to the Company within
the meaning of the Act and the applicable published Rules and Regulations
and based upon the procedures described in such letter delivered to you
concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than five (5)
business days prior to the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, (i) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set
forth in the Original Letter which are necessary to reflect any changes in
the facts described in the Original Letter since the date of such letter,
or to reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise
from that set forth in the Registration Statement or Prospectus, which, in
your sole judgment, is material and adverse and that makes it, in your sole
judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus. The Original Letter from
Ernst & Young LLP shall be addressed to or for the use of the Underwriters
in form and substance satisfactory to the Underwriters and shall
(i) represent, to the extent true, that they are independent certified
public accountants with respect to the Company within the meaning of the
Act and the applicable published Rules and Regulations, (ii) set forth
their opinion with respect to their examination of the balance sheets of
the Company as of December 31, 1995 and 1996 and September 30, 1997, and
related statements of operations, shareholders' equity, and cash flows for
the year ended December 31, 1995, the ten months ended October 31, 1996,
the two months ended December 31, 1996 and the nine months ended September
30, 1997, (iii) state that Ernst & Young LLP has performed the procedure
set out in Statement on Auditing Standards No. 71 ("SAS 71") for a review
of financial information at December 31, 1993 and 1994, and (iv) address
other matters agreed upon by Ernst & Young LLP and you. In addition, you
shall have
31
<PAGE>
received from [Ernst & Young LLP a letter addressed to the Company and made
available to you for the use of the Underwriters stating that their review
of the Company's system of internal accounting controls, to the extent they
deemed necessary in establishing the scope of their examination of the
Company's consolidated financial statements as of September 30, 1997 did
not disclose any weaknesses in internal controls that they considered to be
material weaknesses.
(k) You shall have received from the Company a certificate, signed
by David Lokken and Brian Aune, in their capacities as Chief Executive
Officer and Chief Financial Officer of the Company, respectively, addressed
to the Underwriters and dated the Closing Date or Option Closing Date, as
applicable to the effect that:
(i) such officer does not know of any Proceedings
instituted, threatened or contemplated against the Company of a
character required to be disclosed in the Prospectus that are not so
disclosed; such officer does not know of any material contract
required to be filed as an exhibit to the Registration Statement which
is not so filed;
(ii) such officer has carefully examined the Registration
Statement and the Prospectus and all amendments or supplements thereto
and, in such officer's opinion, such Registration Statement or such
amendment as of its effective date and as of the Closing Date, and the
Prospectus or such supplement as of its date and as of the Closing
Date, did not contain an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading and, in such
officer's opinion, since the effective date of the Registration
Statement, no event has occurred or information become known that
should have been set forth in an amendment to the Registration
Statement or a supplement to the Prospectus which has not been so set
forth in such amendment or supplement;
(iii) the representations and warranties of the Company set
forth in Section 6(a) of this Agreement are true and correct as of the
date of this Agreement and as of the Closing Date or the Option
Closing Date, as the case may be, and the Company has complied with
all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date; and
(iv) the Commission has not issued an order preventing or
suspending the use of the Prospectus or any preliminary prospectus
filed
32
<PAGE>
as a part of the Registration Statement or any amendment thereto; no
stop order suspending the effectiveness of the Registration Statement
has been issued; and, to the best knowledge of the respective signers,
no proceedings for that purpose have been instituted or are pending or
contemplated under the Act; and
(v) each of the Company and HPAUK has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to respective closing dates of the
Loan Documents and the Transaction Documents (except in the case of
the Transaction Documents of the payment of the purchase price for the
BA Assets to British Airways);
(vi) no facts have come to such officer's attention that lead such
officer to believe that the payment of the purchase price for the BA
Assets and consummation of the transactions contemplated by the
Transaction Documents may not occur immediately following the Closing
Date.
The delivery of the certificate provided for in this subparagraph shall be
and constitute a representation and warranty of the Company as to the facts
required in the immediately foregoing clauses (iii) and (iv) of this
subparagraph to be set forth in said certificate.
(l) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, from the Selling
Shareholder or the Attorneys-in Fact for the Selling Shareholder to the
effect that, as of the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, they have not been informed
that:
(i) The representations and warranties made by
such Selling Shareholder herein are not true or correct in any
material respect on the Closing Date or on any later date on
which Option Shares are to be purchased, as the case may be; or
(ii) The Selling Shareholder has not complied with
any obligation or satisfied any condition which is required to
be performed or satisfied on the part of such Selling
Shareholder at or prior to the Closing Date or any later date
on which Option Shares are to be purchased, as the case may be.
(m) You and Freshman, Marantz, Orlanski, Cooper & Klein, a law
corporation, counsel for the Underwriters, shall have received on or before
the
33
<PAGE>
Closing Date or the Option Closing Date, as the case may be, such further
documents, opinions, certificates and schedules or instruments relating to
the business, corporate, legal and financial affairs of the Company as you
and they shall have reasonably requested from the Company.
9. EFFECTIVE DATE OF AGREEMENT, TERMINATION AND DEFAULTS. This
Agreement shall become effective upon, and shall not be deemed delivered
until, the later of (i) execution of this Agreement and (ii) when
notification of the effectiveness of the Registration Statement has been
released by the Commission.
This Agreement may be terminated at any time prior to the Closing Date and
any exercise of the option to purchase Option Shares may be cancelled at any
time prior to any Option Closing Date by the Underwriters by written notice to
the Company if any of the following has occurred: (i) since the respective
dates as of which information is given in the Registration Statement and the
Prospectus, any material adverse change or development involving a prospective
material adverse change in the condition, financial or otherwise, of the Company
or the earnings, affairs, management, or business of the Company, whether or not
arising in the ordinary course of business, that would, in the Representatives'
sole judgment, make it impracticable to market the Shares on the terms and in
the manner contemplated in the Prospectus, (ii) any outbreak or escalation of
hostilities or other national or international calamity or crisis or change in
economic conditions or in the financial markets of the United States that, in
the Representatives' judgment, is material and adverse and would, in the
Representatives' judgment, make it impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus, (iii) the suspension or
material limitation of trading in securities on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq Stock Market or limitation on prices for
securities on either such exchange or the Nasdaq Stock Market, (iv) the
enactment, publication, decree or other promulgation of any federal or state
statute, regulation, Rule or order of any court or other governmental authority
that in the Representatives' opinion materially and adversely affects, or will
materially and adversely affect, the business or operations of the Company,
(v) the declaration of a banking moratorium by either federal or New York or
California state authorities, (vi) the taking of any action by any Federal,
state or local government or agency in respect of its monetary or fiscal affairs
that in the Representatives' opinion has a material adverse effect on the
financial markets in the United States or (vii) there shall be any change in
financial markets or in political, economic or financial conditions which, in
the opinion of the Representatives, either renders it impracticable or
inadvisable to proceed with the offering and sale of the Shares on the terms set
forth in the Prospectus or materially adversely affects the market for the
Shares.
If on the Closing Date or on any Option Closing Date, as the case may be,
any of the Underwriters shall fail or refuse to purchase the Firm Shares or
Option Shares, as the case may be, which it has agreed to purchase hereunder on
such date, and the
34
<PAGE>
aggregate number of Firm Shares or Option Shares, as the case may be, that such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
does not exceed, in the aggregate, 10% of the total number of Shares that all
Underwriters are obligated to purchase on such date, each non-defaulting
Underwriter shall be obligated, in the proportion which the number of Firm
Shares set forth opposite its name in Schedule I hereto bears to the total
number of Firm Shares or Option Shares, as the case may be, that all the
non-defaulting Underwriters have agreed to purchase, or in such other proportion
as you may specify, to purchase the Firm Shares or Option Shares, as the case
may be, that such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date. If, on the Closing Date or on the Option
Closing Date, as the case may be, any of the Underwriters shall fail or refuse
to purchase the Firm Shares or Option Shares, as the case may be, in an amount
that exceeds, in the aggregate, 10% of the total number of the Shares, and
arrangements satisfactory to you and the Company for the purchase of such Shares
are not made within 48 hours after such default, this Agreement shall terminate
without liability on the part of the non-defaulting Underwriters, the Company
and the Selling Shareholder, except as otherwise provided in this Section 9. In
any such case that does not result in termination of this Agreement, either you
or the Company may postpone the Closing Date or the Option Closing Date, as the
case may be, for not longer than seven (7) days, in order that the required
changes, if any, in the Registration Statement and the Prospectus or any other
documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve a defaulting Underwriter from liability in respect
of any default of any such Underwriter under this Agreement.
The indemnity and contribution provisions and other agreements,
representations and warranties of the Company, the Selling Shareholder and the
Company's officers and directors set forth in or made pursuant to this Agreement
shall remain operative and in full force and effect, and will survive delivery
of and payment for the Shares, regardless of (i) any investigation, or statement
as to the results thereof, made by or on behalf of any of the Underwriters or by
or on behalf of the Company or the Selling Shareholder or the officers or
directors of the Company or any controlling person of the Company,
(ii) acceptance of the Shares and payment therefor hereunder or
(iii) termination of this Agreement. Notwithstanding any termination of this
Agreement, the Company shall be liable for and shall pay all expenses it has
agreed to pay pursuant to Section 5(l).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of, and shall be binding upon, the Company, the Selling
Shareholder, the Underwriters, any indemnified person referred to herein and
their respective successors and assigns, all as and to the extent provided in
this Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The terms "SUCCESSORS AND ASSIGNS" shall not include
a purchaser of any of the Shares from any of the several Underwriters merely
because of such purchase.
35
<PAGE>
10. EFFECTIVENESS OF REGISTRATION STATEMENT. You, the Company and the
Selling Shareholder will use your, its and their best efforts to cause the
Registration Statement to become effective, if it has not yet become effective,
and to prevent the issuance of any stop order suspending the effectiveness of
the Registration Statement and, if such stop order be issued, to obtain as soon
as possible the lifting thereof.
11. MISCELLANEOUS. All communications hereunder will be in writing and,
if sent to the Underwriters will be mailed, delivered or telegraphed and
confirmed to you c/o EVEREN Securities, Inc., 77 West Wacker Drive, Chicago,
Illinois 60601-1994, Attention: Syndicate Department, with a copy to EVEREN
Securities, Inc., 1901 Avenue of the Stars, Suite 1460, Los Angeles CA 90067,
Attention: David Enzer, Senior Vice President; if sent to the Company will be
mailed, delivered or telegraphed and confirmed to the Company at Hawker Pacific
Aerospace, 11240 Sherman Way, Sun Valley CA 91352, Attention: David Lokken,
President and Chief Executive Officer; and if sent to the Selling Shareholder
will be mailed, delivered or telegraphed care of the Company, with a copy to, or
in any case to such other address as the person to be notified may have
requested in writing.
The Representatives acknowledge that the sum of $50,000 has already been
paid by the Company to EVEREEN Securities, Inc. to be applied against the
Underwriters reasonable out-of-pocket expenses that shall have been incurred by
the Underwriters in connection with the proposed purchase and sale of Shares. In
the event of the termination of this agreement, EVEREEN Securities, Inc. agrees
to refund any of such of the $50,000 that is in excess of the amount necessary
to pay for the Underwriters' actual out-of-pocket expenses in connection with
the investigation, preparing to market and marketing the Shares, or in
contemplation of performing their obligations hereunder (including the legal
fees and expenses of their counsel), The Company shall not in any event be
liable to any of the Underwriters for loss of anticipated profits from the
transactions covered by this Agreement;
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF ILLINOIS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREOF.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Shareholder and the several Underwriters, including
you.
Very truly yours,
36
<PAGE>
HAWKER PACIFIC AEROSPACE,
a California corporation
By:
-----------------------------------
David L Lokken,
President and Chief Executive Officer
Selling Shareholder:
MELANIE L. BASTIAN
By:
-----------------------------------
--------------------
Attorney-in-Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
EVEREN Securities, Inc.
The Seidler Companies Incorporated
Acting as Representatives of the
several Underwriters named in Schedule I.
By: EVEREN Securities, Inc.
By:
-----------------------------------
Todd Jadwin
37
<PAGE>
SCHEDULE I
NUMBER
OF
UNDERWRITER SHARES
------
EVEREN Securities, Inc. . . . . . . . . . . . . . . . . . . .
The Seidler Companies Incorporated . . . . . . . . . . . . .
---------
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . 2,766,667
---------
---------
38
<PAGE>
EXHIBIT A
Opinion of Troy & Gould Professional Corporation
pursuant to Section 8(g)
[To be provided]
39
<PAGE>
EXHIBIT B
Opinion of Troy & Gould Professional Corporation
pursuant to Section 8(h)
[To be provided]
40
<PAGE>
EXHIBIT C
Opinion of Paris Smith & Randall
pursuant to Section 8(i)
[To be provided]
41
<PAGE>
EXHIBIT 2.1
Dated 20th December 1997
BRITISH AIRWAYS PLC
and
HAWKER PACIFIC AEROSPACE LIMITED
and
HAWKER PACIFIC AEROSPACE
AGREEMENT
relating to
the Sale and Purchase
of part of the Business of
BRITISH AIRWAYS PLC
Linklaters & Paines
One Silk Street
London E02Y 8HQ
Tel: 0171-456 2000
Ref: CXLC
- -------------------------------------------------------------------------------
THE [*] INDICATES THAT PORTIONS OF TEXT HAVE BEEN DELETED AND ARE BEING FILED
UNDER SEPARATE COVER WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
CONTENTS
CLAUSE HEADING PAGE
1 Interpretation . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Subordinate Legislation . . . . . . . . . . . . . . . . . . . 7
1.3 Modification etc. of Statutes . . . . . . . . . . . . . . . . 7
1.4 Companies Act 1985 . . . . . . . . . . . . . . . . . . . . . 7
1.5 Interpretation Act 1978 . . . . . . . . . . . . . . . . . . . 7
1.6 References. . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.7 Information . . . . . . . . . . . . . . . . . . . . . . . . . 7
2 Agreement to sell the Business . . . . . . . . . . . . . . . 7
2.1 Sale and purchase of Business . . . . . . . . . . . . . . . . 7
2.2 Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 Business Intellectual Property and Business Know-How . . . . 9
3 Consideration . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1 Amount and Payment. . . . . . . . . . . . . . . . . . . . . . 9
3.2 Allocation of Consideration . . . . . . . . . . . . . . . . . 9
3.3 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Method of Payment . . . . . . . . . . . . . . . . . . . . . . 9
3.5 VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4 Conditions. . . . . . . . . . . . . . . . . . . . . . . . . .10
4.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . .10
4.2 Responsibility for Satisfaction . . . . . . . . . . . . . . .11
4.3 Non-Satisfaction. . . . . . . . . . . . . . . . . . . . . . .11
5 Action pending completion . . . . . . . . . . . . . . . . . .11
- -------------------------------------------------------------------------------
i
<PAGE>
CONTENTS
CLAUSE HEADING PAGE
5.1 Vendor's General Obligations . . . . . . . . . . . . . . . .11
5.2 Restrictions on the Vendor . . . . . . . . . . . . . . . .. 12
5.3 Purchaser's Obligations . . . . . . . . . . . . . . . . . . 12
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . .12
6 Completion . . . . . . . . . . . . . . . . . . . . . . . . .13
6.1 Date and Place of Completion . . . . . . . . . . . . . . . .13
6.2 Vendor's Obligations . . . . . . . . . . . . . . . . . . . .13
6.3 Purchaser's Obligations . . . . . . . . . . . . . . . . . . .14
6.4 Right to Terminate . . . . . . . . . . . . . . . . . . . . .14
6.5 OEM Warranties . . . . . . . . . . . . . . . . . . . . . . 16
6.6 Title and Risk . . . . . . . . . . . . . . . . . . . . . . .15
6.7 Arrangements in relation to the Property . . . . . . . . . .15
7 Warranties . . . . . . . . . . . . . . . . . . . . . . . . .15
7.1 Incorporation of Schedule 3 . . . . . . . . . . . . . . . .15
7.2 Effect of Events Occurring Prior to Completion . . . . . . .15
7.3 Effect of Completion . . . . . . . . . . . . . . . . . . . .16
7.4 Right of Termination. . . . . . . . . . . . . . . . . . . . .16
7.5 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . .16
8 The Assumed Contracts . . . . . . . . . . . . . . . . . . . .16
8.1 Purchaser to complete Assumed Contracts . . . . . . . . . . .16
8.2 The Vendor's obligations in respect of Assumed Contracts. . .17
8.3 Payments received by the Vendor . . . . . . . . . . . . . . .17
8.4 Prepayments made by the Vendor . . . . . . . . . . . . . . .17
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<PAGE>
CONTENTS
CLAUSE HEADING PAGE
9 Third Party Consents. . . . . . . . . . . . . . . . . . . . .17
9.1 Failure to Obtain Consents. . . . . . . . . . . . . . . . . .17
9.2 Notice to Convey, Transfer, Assign etc. . . . . . . . . . . .18
9.3 Notice to accept Conveyance, Transfer, Assignment etc . . . .18
10 The Relevant Employees . . . . . . . . . . . . . . . . . . .18
10.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . .18
10.2 Transfer Regulations . . . . . . . . . . . . . . . . . . . .18
10.3 Purchaser's Obligations . . . . . . . . . . . . . . . . . . .20
10.4 Purchaser's Indemnity . . . . . . . . . . . . . . . . . . . .21
10.5 Purchaser's Indemnity in respect of Services Employees. . . .21
10.6 Secondment of Vendors Employees . . . . . . . . . . . . . . .22
11 Pensions. . . . . . . . . . . . . . . . . . . . . . . . . . .23
12 Post-Completion Obligations . . . . . . . . . . . . . . . . .23
12.1 Vendor's Continuing Obligations . . . . . . . . . . . . . . .23
12.2 Vendor's General Obligations. . . . . . . . . . . . . . . . .24
12.3 Purchaser's General Obligations . . . . . . . . . . . . . . .24
12.4 Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
12.5 Certain Excluded Contracts . . . . . . . . . . . . . . . . .25
12.6 Certain Rotable Inventories . . . . . . . . . . . . . . . . .25
13 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . .25
14 Other Provisions . . . . . . . . . . . . . . . . . . . . . .26
14.1 Announcements . . . . . . . . . . . . . . . . . . . . . . . .26
14.2 Successors and Assigns . . . . . . . . . . . . . . . . . . .27
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<PAGE>
CONTENTS
CLAUSE HEADING PAGE
14.3 Variation etc.. . . . . . . . . . . . . . . . . . . . . . . .27
14.4 Time of the Essence . . . . . . . . . . . . . . . . . . . . .27
14.5 References to the Expert. . . . . . . . . . . . . . . . . . .27
14.6 Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
14.7 Interest . . . . . . . . . . . . . . . . . . . . . . . . . .28
14.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .28
14.9 Severance . . . . . . . . . . . . . . . . . . . . . . . . . .29
14.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . .29
14.11 Restrictive Trade Practices, . . . . . . . . . . . . . . . 29
14.12 Filings with Regulatory Authorities . . . . . . . . . . . . .29
14.13 Governing Law, Appointment of Process Agents and
Submission to Jurisdiction . . . . . . . . . . . . . . . . .29
Schedule 1
Part 1
The Excluded Contracts. . . . . . . . . . . . . . . . . . . 31
Part 2
The Property . . . . . . . . . . . . . . . . . . . . . . . .32
Schedule 2
Part 1
Allocation of Consideration . . . . . . . . . . . . . . . . .33
Part 2. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
The Completion Statement. . . . . . . . . . . . . . . . . . .34
Schedule 3
Warranties given by the Vendor under Clause 7 . . . . . . . .37
1 Authority and Capacity of the Vendor . . . . . . . . . . . .37
2 Legal Matters . . . . . . . . . . . . . . . . . . . . . . . .37
2.1 Compliance with Laws . . . . . . . . . . . . . . . . . . . .37
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iv
<PAGE>
CONTENTS
CLAUSE HEADING PAGE
2.2 Environment . . . . . . . . . . . . . . . . . . . . . . . . .37
2.3 Licences and Consents . . . . . . . . . . . . . . . . . . . .37
2.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . .38
3 Assumed Contracts . . . . . . . . . . . . . . . . . . . . . .38
3.1 Material Contracts . . . . . . . . . . . . . . . . . . . . 38
3.2 Anti-trust . . . . . . . . . . . . . . . . . . . . . . . . .38
4 Employees . . . . . . . . . . . . . . . . . . . . . . . . . .38
4.1 Employees and Terms of Employment . . . . . . . . . . . . . .38
4.2 Liabilities to and for Employees. . . . . . . . . . . . . . .39
4.3 Trade Disputes. . . . . . . . . . . . . . . . . . . . . . . .39
4.4 Pensions . . . . . . . . . . . . . . . . . . . . . . . . . .40
4.6 Definitions . . . . . . . . . . . . . . . . . . . . . . . . .41
5 Taxation Matters . . . . . . . . . . . . . . . . . . . . . .41
5.1 Records and Returns . . . . . . . . . . . . . . . . . . . . .41
5.2 VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
5.3 Absence of Disputes . . . . . . . . . . . . . . . . . . . . .41
6 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .41
6.1 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
6.2 Intellectual Property . . . . . . . . . . . . . . . . . . . .41
Schedule 4
Limitations on Liability. . . . . . . . . . . . . . . . . . .42
1 Limitation of Liability . . . . . . . . . . . . . . . . . . .42
1.1 Time Limits . . . . . . . . . . . . . . . . . . . . . . . . .42
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<PAGE>
CONTENTS
CLAUSE HEADING PAGE
1.2 Minimum Claims. . . . . . . . . . . . . . . . . . . . . . . .42
1.3 Aggregate Minimum Claims . . . . . . . . . . . . . . . . . .42
1.4 Maximum Claims. . . . . . . . . . . . . . . . . . . . . . . .42
1.5 Contingent Liabilities . . . . . . . . . . . . . . . . . . .42
1.6 Other Matters . . . . . . . . . . . . . . . . . . . . . . . .42
1.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . .43
1.8 Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
2 Mitigation of Loss . . . . . . . . . . . . . . . . . . . . .43
3 Conduct of Claims . . . . . . . . . . . . . . . . . . . . . .43
4 Prior Receipt . . . . . . . . . . . . . . . . . . . . . . . .44
5 Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Schedule 5
Pensions . . . . . . . . . . . . . . . . . . . . . . . . . .45
1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . .45
2 The Purchaser's Pension Scheme . . . . . . . . . . . . . . .45
2.1 Purchaser to set up sections of scheme that reflect
Vendors Pension Schemes . . . . . . . . . . . . . . . . . . .45
2.3 Invitation to Relevant Employees to join sections of
Purchaser's Pension Scheme . . . . . . . . . . . . . . . . .46
3 Transitional period of participation . . . . . . . . . . . .47
4 Transfer payment from Vendor's Pension Schemes . . . . . . .48
5 Calculation and adjustment of amount to be transferred. . . .48
6 Service to be credited by the Purchaser's Pension Scheme in
respect of membership of the Vendor's Pension Schemes . . . .49
7 Voluntary contributions . . . . . . . . . . . . . . . . . . .49
8 Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . .50
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<PAGE>
CONTENTS
CLAUSE HEADING PAGE
9 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . .50
Schedule 6
The Related Agreements . . . . . . . . . . . . . . . . . . .51
Schedule 7
Documents in the Agreed Terms . . . . . . . . . . . . . . . .52
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<PAGE>
AGREEMENT FOR PURCHASE OF BUSINESS
THIS AGREEMENT is made on 20 December 1997
BETWEEN,
(1) BRITISH AIRWAYS PLC whose registered office is at Speedbird House, P.O.
Box 10, Heathrow Airport (London), Hounslow TW6 2JA (the "VENDOR");
(2) HAWKER PACIFIC AEROSPACE LIMITED whose registered office is at Number 1
London Road, Southampton S015 2AE, (the "PURCHASER"); and
(3) HAWKER PACIFIC AEROSPACE whose principal place of business is at 11240
Sherman Way, Sun Valley, CA 91352 United States of America (the
"GUARANTOR").
IT IS AGREED as follows:
1 INTERPRETATION
In this Agreement, including its Schedules, the headings shall not affect
its interpretation and, unless the context otherwise requires, the
provisions in this Clause 1 apply:
1.1 DEFINITIONS
"AGREED TERMS" means in relation to any document such document in the terms
agreed between the parties, signed by or on behalf of the Purchaser and the
Vendor for the purposes of identification and listed in Schedule 7;
"ADDITIONAL ASSETS" means any property, rights and assets, other than the
Assets referred to In Clause 2.1.2(i) to 2.1.2(vii) (inclusive), used in
the Business and which the Vendor may agree to sell and the Purchaser may
agree to buy between the date of this Agreement and Completion;
"ASSETS" means the property, rights and assets agreed to be sold pursuant
to Clause 2.1 of this Agreement;
"ASSUMED CONTRACTS" means the contracts entered into by or on behalf of the
Vendor exclusively in connection with the Business, details of which are
set out in the document in the agreed terms, in each case to the extent
that at Completion the same remain to be completed or performed or remain
in force;
"BUSINESS" means the business carried on by the Vendor (through its
division known as Landing Gears Repair and Overhaul which, at the date
hereof, forms part of the Component Overhaul division within the Vendor's
Engineering Department) of repairing and overhauling Landing Gears, Flap
Tracks and Flap Carriages and in each case associated or related components
and parts at Heathrow Airport, as outlined in general terms in the
Information Memorandum, including the Assets subsisting at Completion but,
for the avoidance of doubt, excluding the business of repairing and
overhauling Landing Gears, Flap Tracks or Flap Carriages in respect of DC10
and ATP aircraft types and excluding the business of repairing and
overhauling Landing Gears in respect of the A320 aircraft type;
"BUSINESS DAY" means a day on which banks are open for business in England
(excluding Saturdays, Sundays and public holidays);
"BUSINESS INTELLECTUAL PROPERTY" means the Intellectual Property owned by
the Vendor and used exclusively in the Business as at Completion;
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1
<PAGE>
"BUSINESS KNOW-HOW" means the Know-How owned by the Vendor and used
exclusively in the Business as at Completion;
"CASH BALANCES" means cash in hand. or credited to any account with a bank;
"CHAPS" means clearing houses automated payment systems;
"CLAIMS" means all rights and claims of the Vendor arising at any time
(whether before or after Completion) out of or in connection with the
Business (whether arising under any warranties, conditions, guarantees,
indemnities, insurance policies, contracts, agreements (in each case
whether express or implied) or otherwise howsoever) insofar as they relate
to the Assets;
"COMPLETION" means the completion of the sale and purchase of the Business
pursuant to Clause 6;
"COMPLETION STATEMENT" means the statement to be drawn up pursuant to Part
2 of Schedule 2 which shall state the Fixed Asset Value and the Rotable
Inventory Value as at the Valuation Date;
"CONDITION" means Serviceable Condition. Non-Serviceable Condition or
Unserviceable Condition, as the case may be;
"DEBTORS" means the book and other debts receivable by or owing to the
Vendor in connection with the Business (and whether or not yet due and
payable) as at Completion (including, without limitation, trade debts,
deposits, prepayments, retrospective rebates and overpayments) and interest
thereon, where appropriate,
"DISCLOSURE LETTER" means the letter in the agreed terms of even date with
this Agreement from the Vendor to the Purchaser disclosing:
(i) information constituting exceptions to the Warranties; and
(ii) details of other matters referred to In this Agreement;
"ENCUMBRANCE" means any claim, charge, mortgage, security, lien, option,
equity, power of sale, hypothecation or other third party rights;
"ENVIRONMENT" means living organisms (including humans) including the
ecological systems of which they form part and the following media (alone
or in combination); air (including air within buildings and the air within
other natural or man-made structures whether above or below the ground):
water (including, without limitation, water under or within land or in
drains or sewers and coastal and inland waters); and land (including land
under water); and in the case of man includes his property;
"ENVIRONMENTAL AUTHORITY" means any legal person (including any government
department or government agency) having regulatory authority under
Environmental Laws or any court of law or tribunal which has jurisdiction
to determine any matter arising under Environmental Laws or relating to the
Environment:
"ENVIRONMENTAL LAWS" means, in each case to the extent they relate to the
protection of the Environment and/or the prevention of and/or the provision
of remedies in respect of harm or damage to or other interference with the
Environment, the following:
(i) any and all laws including European Community or European
Union regulations, directives and decisions, together with
statutes and subordinate legislation in force from time to
time to the extent that the same are enforceable In England;
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2
<PAGE>
(ii) all regulations, orders, ordinances, permits, codes of
practice, circulars, guidance notes and the like issued under
(1) above from time to time to the extent that the same are
enforceable in England;
(iii) common law and equity under English law;
(iv) local laws and bye-laws in force from time to time; and
(v) judgments, decisions, notices, orders, directions, consent
agreements, Instructions or awards by, with or of any
Environmental Authority under (i), (ii), (iii) and (iv) above.
"EXCLUDED CONTRACTS" means those contracts, undertakings, arrangements and
agreements to which the Vendor is a party in connection with the Business
which are not Assumed Contracts, including without limitation those
described in Part 1 of Schedule 1;
"EXPENDABLE INVENTORY" means, in respect of Landing Gears, Flap Tracks
and/or Flap Carriages, items for which no authorised repair procedure
exists and for which (if such items are capable of repair) the cost of
repair would normally exceed that of replacement, which are retained for
use exclusively in the Business as at the Valuation Date, a list of which
(with anticipated quantities) is set out in the document in the agreed
terms;
"EXPERT" means such expert Inventory valuer as the Vendor and the Purchaser
agree to appoint as such or, if the parties do not so agree, as may be
appointed by the President of the Royal Aeronautical Society upon the
request of either the Vendor or the Purchaser;
"FINAL PAYMENT DATE" means the date which is seven Business Days after the
Completion Statement has been agreed by the parties or has been determined
by the Expert, pursuant to Part 2 of Schedule 2;
"FIXED ASSETS" means those identified fixed assets which are owned by the
Vendor and used exclusively in the Business, the list of which is set out
in the document in the agreed terms;
"FIXED ASSET VALUE" means the aggregate value of the Fixed Assets as at the
Valuation Date, namely the sum of L2,192,728 representing the agreed
anticipated value of such Inventory as adjusted in accordance with Part 2
of Schedule 2 to reflect the condition of such Assets at the Valuation
Date;
"FLAP CARRIAGES" means flap carriages In respect of A320, B737, B747, B757,
B767 and L1011 aircraft types which are repaired and overhauled by the
Vendor through the Business immediately prior to Completion;
"FLAP TRACKS" means flap tracks in respect of A320, B737, B747, B757, B767
and L1011 aircraft types which are repaired and overhauled by the Vendor
through the Business immediately prior to Completion;
"GOODWILL" means the exclusive right of the owner of the Business to
represent itself as such and, in the case of the Purchaser, to represent
itself as the successor to the Vendor as the owner of the Business;
"INFORMATION MEMORANDUM" means the document entitled BA Engineering Landing
Gears Repair & Overhaul Activity - Confidential Information Memorandum
produced by the Vendor and sent to the Guarantor under cover of a letter
dated 1 May 1997 relating to the sale of Business;
"INITIAL FIXED ASSETS VALUE" means the value allocated to Fixed Assets as
set out in Part 1 of Schedule 2;
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3
<PAGE>
"INITIAL ROTABLE INVENTORY VALUE" means the value allocated to Rotable
Inventory as set out in Part 1 of Schedule 2;
"INTELLECTUAL PROPERTY" means trade marks, service marks, trade names,
logos, get-up, patents, inventions, registered and unregistered design
rights, copyrights, rights of extraction relating to databases, and all
other similar proprietary rights which may subsist (but excluding Know-How)
including, where such rights are obtained or enhanced by registration, any
registration of such rights and applications and rights to apply for such
registrations;
"INVENTORIES" means the Rotable Inventory and the Expendable Inventory and
"INVENTORY" means any one of them;
"KNOW-HOW" means confidential and proprietary industrial and commercial
information and techniques in any form (including paper, electronically
stored data, magnetic media, film and microfilm) including (without
limiting the foregoing) test results, reports, project reports and testing
manuals and procedures, workshop practices, instruction and training
manuals, tables of operating conditions, market forecasts, quotations and
particulars of suppliers;
"LANDING GEARS" means lending gears In respect of B737, B747, B757, B767
and L1011 aircraft types which are repaired and overhauled by the Vendor
through the Business immediately prior to Completion but, for the avoidance
of doubt, excluding the Quarantine Gear;
"LIABILITIES" means all liabilities, duties and obligations of every
description, whether deriving from contract, common law, statute or
otherwise, whether present or future, actual or contingent, ascertained or
unascertained or disputed and whether owed or incurred severally or jointly
and as principal or surety and "LIABILITY" means any one of them;
"LOCKHEED MANUALS" means the overhaul manuals used exclusively in the
Business which are published by Lockheed Martin and have been adapted by
the Vendor;
"LOSSES" means all losses, liabilities, costs (including without limitation
legal costs), charges, expenses, actions, proceedings, claims and demands;
"MARKS" means the trade marks, service marks, trade names, logos, liveries
and get-up from time to time used by the Vendor in connection with its
business and any registration of such rights and applications and rights to
apply for such registrations;
"NON-SERVICEABLE CONDITION" means, in relation to any item of Rotable
Inventory, that such item is neither in Unserviceable Condition nor
Serviceable Condition and that no Work in Progress is attributable to such
item;
"ORDER" means the Value Added Tax (Special Provisions) Order 1995;
"PAYMENT ACCOUNT DETAILS" means, in relation to any payment to be made
under or pursuant to this Agreement, the name, account number, sort code,
account location and other details specified by the payee and necessary to
effect payment (whether by cheque, banker's draft, telegraphic or other
electronic means of transfer) to the payee;
"PROPERTY" means the property brief details of which are set out in Part 2
of Schedule 1;
"QUARANTINE GEAR" means the B747-400 shipset (excluding nose gear) relating
to aircraft No. G-BNLF and currently consigned to the Guarantor under the
Quarantine Gear Agreement;
"QUARANTINE GEAR AGREEMENT" means the testing, repair and overhaul
agreement dated December 1997 between the Vendor and the Guarantor;
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4
<PAGE>
"RELATED AGREEMENTS" means the agreements listed in Schedule 6, each in the
agreed terms, which are to be entered into at Completion;
"RELEVANT EMPLOYEES" means those employees of the Vendor who are
immediately prior to Completion employed in the Business (other than any
specifically excluded by agreement with the Purchaser, the names of whom
are set out in the document in the agreed terms);
"RETAINED BUSINESS" means all businesses carried on by the Vendor other
than the Business;
"ROTABLE INVENTORY" means, in respect of Landing Gears, Flap Tracks and
Flap Carriages, items (including sub-assemblies) which can economically be
restored to a Serviceable Condition and, in the normal course of
operations, can be repeatedly rehabilitated to a Serviceable Condition,
which are retained for use exclusively in the Business as at the Valuation
Date, a list of which (with anticipated quantities) is set out in the
document in the agreed terms;
"ROTABLE INVENTORY ASSEMBLY" means any assembly identified as such in the
document in the agreed terms and defined by reference to the Vendor's Build
Standard (which shall include, for the avoidance of doubt, any LRUs (as
defined in the Services Agreement) which is/are normally attached to a
Landing Gear, Flap Carriage or Flap Track (as the case may be) at the point
at which such Inventory would be considered by the Vendor to be in
Serviceable Condition);
"ROTABLE INVENTORY SUB-ASSEMBLY" means any item of Rotable Inventory
contained on the list of Rotable Inventory Assemblies and Sub-assemblies in
the agreed terms which is neither Rotable Inventory Assembly nor any
sub-assembly specifically assigned to an Assembly by reference to the
Vendor's stock records of the same as at the Valuation Date;
"ROTABLE INVENTORY VALUE" means the aggregate value of the Rotable
Inventory as at the Valuation Date, namely the sum of L7,247,307
representing the agreed anticipated value of such Inventory as adjusted in
accordance with Part 2 of Schedule 2;
"SENIOR EMPLOYEE" means any employee or consultant employed or engaged by
the Vendor in relation to the Business on an annual cash salary in excess
of L40,000;
"SERVICEABLE CONDITION" in relation to an item of Rotable Inventory means
such item is ready for fitment to an aircraft;
"SERVICES AGREEMENT" means the Landing Gear Overhaul Services Agreement to
be entered into between the Vendor, the Purchaser and the Guarantor in the
agreed terms being the document referred to in paragraph 1 of Schedule 6;
"TAXATION" or "TAX" means all forms of taxation whether direct or indirect
and whether levied by reference to income, profits, gains, net wealth,
asset values, turnover, added value or other reference and statutory,
governmental, state, provincial, local governmental or municipal
impositions, duties, contributions, rates and levies (including without
limitation social security contributions and any other payroll taxes),
whenever and wherever imposed (whether imposed by way of a withholding or
deduction for or on account of tax or otherwise) and in respect of any
person and all penalties, charges, costs and interest relating thereto;
"THIRD PARTY CONSENTS" means all consents, licences, approvals,
authorisations or waivers required from third parties for the operation of
the Business or any part of it and in particular for the transfer,
assignment or novation in favour of the Purchaser of any of the Assets in
terms reasonably acceptable to the Purchaser and "THIRD PARTY CONSENT"
means any one of them;
"TOOLS" means those loose tools and tooling which are owned by the Vendor
and used exclusively in connection with the Business as at Completion, a
list of which is set out in the document in the agreed terms;
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5
<PAGE>
"TRANSFER REGULATIONS" means the Transfer of Undertakings (Protection of
Employment) Regulations 1981;
"UNDERLEASE" means the underlease to be granted pursuant to Clause 6.7 in
the form of the document in the agreed terms or with such amendments as the
Vendor and Purchaser may agree;
"UNSERVICEABLE CONDITION" in relation to an item of Rotable Inventory means
that such Item requires repair/overhaul before it is ready for fitment to
an aircraft and that Work In Progress is attributable to such item;
"VALUATION DATE" means 23.59 hrs on the date on which Completion takes
place pursuant to Clause 6 or such other date as may be agreed between the
Purchaser and the Vendor;
"VAT" means United Kingdom Value Added Tax and "VATA 1994" means the Value
Added Tax Act 1994;
"VENDOR'S BUILD STANDARD" means the build standard contained in the BA
Specification (as defined In the Services Agreement);
"VENDOR'S PENSION SCHEMES" means the pension schemes of the Vendor in force
at the date of this Agreement known as the Airways Pension Scheme and the
New Airways Pension Scheme (which includes the New Airways Pension Scheme
2);
"VENDOR'S SOLICITORS" means Linklaters & Paines of One Silk Street, London
EC2Y 8HQ;
"WARRANTIES" means the warranties and representations contained In Schedule
3 and "WARRANTY" means any one of them;
"WORK IN PROGRESS" means, in relation to any Item of Rotable Inventory, the
work in progress attributable to such item calculated by reference to the
following formula and providing that
LTD+MTD shall not be greater than 1:
---------
LSTD+MSTD
LTD + MTD
L (------------------) x Z
LSTD + MSTD
where:
LSTD means the standard value of labour (calculated at the standard labour
rate of the Business as at the time of Completion) in pounds sterling
required to return any item of Rotable Inventory In Non-Serviceable
Condition to Serviceable Condition as identified in the WIP Report as at
the Valuation Date;
LTD means the value of labour (calculated at the standard labour rate of
the Business as at the time of Completion) in pounds sterling attributable
to any item of Rotable Inventory as shown in the WIP Report as at the
Valuation Date provided that such amount is not greater than LSTD;
MSTD means the standard value of expendable materials in pounds sterling
required to return any item of Rotable Inventory in Non-Serviceable
Condition to Serviceable Condition as identified in the WIP Report as at
the Valuation Date excluding for the avoidance of doubt any Rotable
Inventory Sub-assembly that is scrapped or missing by reference to the
Vendor's Build Standard;
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MTD means the value of materials in pounds sterling attributable to any
item of Rotable Inventory as shown in the WIP Report as at the Valuation
Date provided that such amount is not greater than MSTD; and
Z means the value of such item in Serviceable Condition minus the value of
such item in Non-Serviceable Condition both as shown in the list of Rotable
Inventory Assembly prices in the document in the agreed terms;
"WIP Report" means the report(s) generated by the Vendor from its stock
control systems, which shows at any time the value of materials and labour
attributable to any item of Rotable Inventory.
1.2 SUBORDINATE LEGISLATION
Any reference to a statutory provision shall include any subordinate
legislation made from time to time under that provision except to the
extent that any subordinate legislation made after the date hereof would
increase the liability of the party in question;
1.3 MODIFICATION ETC. OF STATUTES
Any reference to a statutory provision shall include such provision as from
lime to time modified or re-enacted or consolidated whether before or after
the date of this Agreement so far as such modification, re-enactment or
consolidation applies or is capable of applying to any transactions entered
into under this Agreement on or prior to Completion except to the extent
that any modification, re-enactment or consolidation made after the date
hereof would increase the liability of the party in question;
1.4 COMPANIES ACT 1935
The words "subsidiary" and "holding company" shall have the same meanings
in this Agreement as their respective definitions in the Companies Act 1985
and references in this Agreement to a "Group" in relation to the Vendor or
the Purchaser shall mean the Vendor or the Purchaser, as the case may be,
and any undertaking which, at the relevant time, is a group undertaking of
the Vendor or the Purchaser, as the case may be, within the meaning of
Section 259 of that Act;
1.5 INTERPRETATION ACT 1978
The Interpretation Act 1978 shall apply to this Agreement in the same way
as it applies to an enactment;
1.6 REFERENCES
References to this Agreement shall include any Schedules to it and
references to Clauses and Schedules are to Clauses of and Schedules to this
Agreement; and
1.7 INFORMATION
Any reference to books, records or other information means books, records
or other information in any form including paper, electronically stored
data, magnetic media, film and microfilm.
2 AGREEMENT TO SELL THE BUSINESS
2.1 SALE AND PURCHASE OF BUSINESS
2.1.1 With effect from Completion, the Vendor shall sell with full title
guarantee and the Purchaser shall purchase with the benefit of the
several representations, warranties and undertakings contained in
this Agreement free from all Encumbrances as at Completion the
Assets specified in Clause 2.1.2.
2.1.2 Subject to Clause 2.1.3, there shall be included in the sale under
this Agreement the following:
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(i) the Fixed Assets;
(ii) the Rotable Inventory;
(iii) the Expendable Inventory;
(iv) the Goodwill:
(v) the Tools;
(vi) subject to Clause 2.3, the Business Intellectual Property
and the Business Know-How;
(vii) the benefit, subject to the burden, of the Assumed
Contracts, and
(viii) any Additional Assets.
2.1.3 There shall be excluded from the sale under this Agreement the
following:
(i) the Cash Balances and Debtors;
(ii) the benefit and burden of the Excluded Contracts;
(iii) the benefit of any Claims which relate otherwise than to the
Assets or to the Assumed Liabilities and/or to matters which
occur before Completion;
(iv) all interests in real property;
(v) Intellectual Property and Know-How except the Business
Intellectual Property and the Business Know-How;
(vi) data communications, telecommunications and other IT
equipment except as included in Clause 2.1.2; and
(vii) any other assets excluded by the terms of this Agreement.
2.2 INDEMNITIES
2.2.1 Except to the extent that they accrue as a result of any breach by
the Vendor of any obligation prior to Completion and except as may
otherwise be limited or agreed by the parties under the terms of
this or any Related Agreement, the Purchaser shall indemnify and
agrees to keep indemnified the Vendor against:
(i) any Liability assumed or undertaken by the Purchaser under
this Agreement or incurred by the Purchaser in the course of
carrying on the Business after Completion; and
(ii) any Losses which the Vendor may suffer by reason of the
Vendor taking any reasonable action to avoid, resist or
defend against any Liability referred to in Clause 2.2.1
(i),
2.2.2 The Vendor shall indemnify and agrees to keep indemnified the
Purchaser against.
(i) any Liability of the Vendor which is not assumed or
undertaken by the Purchaser under this Agreement, and
(ii) any Losses which the Purchaser may suffer by reason of the
Purchaser taking any reasonable action to avoid, register or
defend against any Liability referred to in Clause 2.2.2(i).
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2.3 BUSINESS INTELLECTUAL PROPERTY AND BUSINESS KNOW-HOW
2.3.1 The Purchaser hereby grants to the Vendor a perpetual,
non-exclusive, royalty free licence effective as at Completion to
use the Business intellectual Property and/or the Business
Know-How. The Purchaser further undertakes that it will promptly
give notice of any improvements, modifications or adaptations to
such Intellectual Property and/or Know-How as are developed by or
on behalf of the Purchaser and to grant a perpetual, non-exclusive
licence to the Vendor of any such improvements, modifications and
adaptions on standard commercial terms.
2.3.2 The Lockheed Manuals shall remain the property of the Vendor and
remain in the Vendor's possession unless and until the Purchaser
has an existing Proprietary Data Agreement with Lockheed Martin
which enables the Purchaser to use and receive amendments for the
Lockheed Manuals, at which time the Vendor shalt deliver or make
available such manuals to the Purchaser.
3 CONSIDERATION
3.1 AMOUNT AND PAYMENT
The consideration for the purchase of the Business shall (subject to
adjustment as provided in Part 2 of Schedule 2) be the amount of
L11,274,095 (calculated as being the aggregate of the agreed value of the
Expendable Inventory, the Goodwill, the Business Intellectual Property, the
Business Know-How and the Tools and the anticipated values of the remaining
Assets as at Completion, subject to adjustment in accordance with Part 2 of
Schedule 2) (the "PURCHASE PRICE") which will (subject to the provisions
contained in Part 2 of Schedule 2) be payable on Completion.
3.2 ALLOCATION OF CONSIDERATION
The Purchase Price shall initially be allocated as set out in Part 1 of
Schedule 2, subject to adjustment, except in relation to Expendable
Inventory, Goodwill, Business Intellectual Property, Business Know-How and
Tools, in accordance with Part 2 of Schedule 2.
3.3 SET-OFF
The amounts (if any) payable by the Purchaser to the Vendor or by the
Vendor to the Purchaser pursuant to Clauses 8.3, 8.4 and/or Part 2 of
Schedule 2 shall be set off against each other so that only any net balance
payable shall be paid on or before the Final Payment Date.
3.4 METHOD OF PAYMENT
Wherever in this Agreement provision is made for the payment by one party
to another, such payment shall be effected by crediting the account
specified in the Payment Account Details of the party entitled to payment
by way of CHAPS on or before the due date for payment unless the payee by
notice to the payer, not later than three Business Days prior to the due
date for payment, elects to be paid by banker's draft drawn on any
international bank reasonably acceptable to the payer and having an office
in London. Payment of such sum shall be a good discharge to the payer of
its obligation to make such payment.
3.5 VAT
3.5.1 GENERAL
The parties intend that the Business shall be sold under this
Agreement as a going concern for VAT purposes and accordingly:
(i) the Vendor and the Purchaser shall (when required to do so)
give notice of such sale to H.M. Customs & Excise pursuant
to paragraph 11 of Schedule 1 VATA 1994
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or paragraph 6 of the Value Added Tax Regulations 1995 or
as otherwise required by law:
(ii) the Vendor shall apply to H.M. Customs & Excise and obtain
a direction that all records referred to in Section 49
VATA 1994 may be retained and the Vendor undertakes to
preserve those records in such a manner and at such
periods as may be required by law and to give to the
Purchaser as from Completion reasonable access during
normal business hours to such records; and
(iii) the Purchaser declares that it is a taxable person for
VAT purposes and holds a certificate registration number
GB 707180353.
3.5.2 GOING CONCERN
(i) The Vendor and the Purchaser shall use all reasonable
endeavors to secure that the sale of the Business is
treated under the Order as neither a supply of goods nor a
supply of services.
(ii) If and to the extent H.M. Customs & Excise has before
Completion expressly indicated that the sale of the
Business cannot be treated in the manner contemplated by
Clause 3.5.2(i) the Purchaser shall (against production of
tax invoices in respect thereof) in addition to any
amounts expressed in this Agreement to be payable by the
Purchaser pay on Completion the amount of any VAT which as
a result of that indication may be chargeable on the sale
of the Business under this Agreement. If no such
indication shall have been given before Completion, then
no amount in respect of VAT shall be paid by the Purchaser
on Completion but, to the extent that VAT shall
subsequently be determined by H.M. Customs & Excise to be
payable on the sale, the Purchaser shall in addition to
any amount expressed in the Agreement to be payable by the
Purchaser pay to the Vendor such VAT and any penalty or
interest incurred by the Vendor for late payment thereof,
such payment by the Purchaser to be made forthwith against
evidence that the due date for payment of such tax has
fallen due or will fall due within seven Business Days or
if later against delivery by the Vendor to the Purchaser
of the appropriate tax invoice.
(iii) Nothing in this Clause 3.5 shall require the Vendor to
make any appeal to any tribunal or court against or
otherwise challenge any determination of H.M. Customs &
Excise that the sale does not fall to be treated as the
transfer of a going concern.
3.5.3 CONTINUITY OF BUSINESS
After Completion the Purchaser shall as required by the Order use the
Assets in carrying on the Business, whether or not as part of any
existing business of the Purchaser, and authorises the Vendor to make
such obligation known to H.M. Customs & Excise in any application seeking
confirmation that Article 5 of the Order shall apply to the sale of the
Business.
4 CONDITIONS
4.1 CONDITIONS PRECEDENT
Completion of this Agreement is conditional upon receipt by the Purchaser
of all necessary approvals from the Civil Aviation Authority, the Federal
Aviation Authority and the Joint Airworthiness Authority to the operation
by the Purchaser of the Business as a separate business from the business
of the Vendor.
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4.2 RESPONSIBILITY FOR SATISFACTION
The Vendor will provide all reasonable assistance to ensure the
satisfaction of the conditions set out in Clause 4.1. Without prejudice
to the foregoing, it is agreed that all requests and enquiries from any
government, governmental, supranational or trade agency, court or other
regulatory body shall be dealt with by the Vendor and the Purchaser in
consultation, to the extent practicable, with each other and the Vendor
and the Purchaser shall promptly co-operate with and provide all
necessary information and assistance reasonably required by such
government, agency, court or body upon being requested to do so by the
other.
4.3 NON-SATISFACTION
The Purchaser shall promptly give notice to the Vendor of the
satisfaction of the conditions set out in Clause 4.1 within two Business
Days of becoming aware of the same through receipt of notification in
writing from a duly authorised person in the Civil Aviation Authority of
approval identified as JAR145 and from a duly authorised person in the
Federal Aviation Authority of approval identified as FAR145. If the
conditions in Clause 4.1 are not satisfied by the Purchaser on or before
26 January 1998 (or such later date as the Vendor and the Purchaser may
in writing agree) then, save as expressly provided herein, this Agreement
shall lapse and no party shall have any claim against any other under it,
save for any claim arising from breach of the undertaking contained in
Clause 4.2.
5 ACTION PENDING COMPLETION
5.1 VENDOR'S GENERAL OBLIGATIONS
The Vendor undertakes to procure that during the period from the date of
this Agreement to Completion:
5.1.1 the Business will be carried on in the ordinary course, save in
so far as agreed in writing by the Purchaser, and, without
limitation, the carrying out or the procuring of the carrying out
of the routine maintenance and repair of Landing Gears, Flap
Tracks and Flap Carriages will be carried on in the same manner
as before the date of this Agreement;
5.1.2 the Vendor will, upon reasonable notice, provide to the Purchaser
and its agents such information and copies of such documents
relating exclusively to the Business as the Purchaser may
reasonably request, provided that the obligations of the Vendor
under this Clause shall not require the Vendor to allow the
Purchaser or its agents access to Information which is reasonably
regarded as confidential to the activities of the Vendor and is
not used exclusively in connection with the Business or to
activities which do not relate exclusively to the Business;
5.1.3 such representatives and advisers as the Purchaser reasonably
requests may be designated by the Purchaser to work with the
Vendor with regard to the management and operations of the
Business. Subject to such representatives and advisers being
available at the appropriate times, the Vendor will consult with
such representatives and advisers with respect to any action
which may materially affect the Business after Completion. The
Vendor will furnish to such representatives and advisers such
information as they may reasonably request for this purpose (but
subject to the same provisos as are set out in Clause 5.1.2); and
5.1.4 the Vendor will not negotiate with any third party for the sale
of the Business.
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5.2 RESTRICTIONS ON THE VENDOR
Without prejudice to the generality of Clause 5.1, the Vendor shall not,
between the date of this Agreement and Completion, without the prior
written consent of the Purchaser (such consent not to be unreasonably
withheld or delayed) and, in each case, exclusively in relation to the
Business:
5.2.1 incur or enter into or amend any agreement or commitment
involving any capital expenditure in excess of L2,500 per item;
5.2.2 make any material amendment to the terms and conditions of
employment of any Relevant Employee (other than minor increases
in the ordinary course of business (which shall, for these
purposes, include any increases arising out of the negotiations
between the Vendor and its recognised Trade Unions which will
take effect from 1 January 1998) which the Vendor shall notify to
the Purchaser as soon as reasonably possible):
5.2.3 settle or compromise any Liability arising prior to Completion on
a basis which results in an obligation on the part of the
Purchaser to make any payment or take any other action after
Completion.
5.3 PURCHASER'S OBLIGATIONS
5.3.1 The Purchaser undertakes that it will use its best endeavors to
obtain authorisation under the Inward Processing Relief ("IPR")
European Community Regulations EEC 2913/192 and EEC 2454/93 prior
to Completion so as to enable the Vendor to transfer any
Inventory subject to such Regulations to the Purchaser without
incurring any duty. The Purchaser further undertakes that, if it
does not obtain such authorisation prior to Completion, it will
pay in addition to the Rotable Inventory Value and/or the
Expendable Inventory Value, as the case may be, an amount equal
to the amount of any duty which, as a result of the Purchaser's
failure to obtain such authorisation, may be chargeable on the
sale of the Business under this Agreement.
5.3.2 The Purchaser undertakes that it will use its best endeavors to
obtain consent from the relevant authorities for the transfers
from the Vendor to the Purchaser of the Part A authorisation
Number A00130 relating to the cadmium electroplating process in
the plating shop and the consent to discharge trade effluent
issued by Thames Water Utilities Limited respectively in each
case with effect from Completion provided always that, for the
avoidance of doubt, the transfer of such consents is not a
condition precedent to Completion. The Vendor undertakes to give
all reasonable assistance to the Purchaser to effect such
transfers.
5.3.3 The Purchaser undertakes that it will use its best endeavors to
obtain the approval identified as JAR21 (or equivalent) from the
Civil Aviation Authority together with any other approvals from
the Civil Aviation Authority, the Federal Aviation Authority and
the Joint Airworthiness Authority which are necessary to the
operation by the Purchaser of the Business as a separate business
from the business of the Vendor as soon as practicable following
Completion and which it has not already obtained pursuant to
Clause 4. The Vendor undertakes to give all reasonable assistance
to the Purchaser to enable the Purchaser to obtain any such
approval.
5.4 CONFIDENTIALITY
Subject to any provisions expressly to the contrary in this Agreement,
each party undertakes to, and to procure that its employees, agents and
contractors, treat as confidential:
5.4.1 any specific provisions of this Agreement and the Related
Agreements or the financial commercial terms reflected therein
and all information obtained from either of the other parties
which by its nature should be treated as confidential or the
disclosing party
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clearly indicates as such which has or may come into its possession or
into the possession of any of its employees, agents or contractors, as a
result of or in connection with this Agreement; and
5.4.2 any and all information which has been or which may be derived or
obtained from any such information described in Clause 5.4.1
(together the "CONFIDENTIAL INFORMATION").
The provisions of this Clause 5.4 do not apply to any Confidential
Information which the receiving party proves:
5.4.3 was in or enters into the public domain other than by breach of
this Clause 5.4;
5.4.4 has been obtained from a third party who is lawfully authorised
to disclose such information to the receiving party;
5.4.5 is required to be disclosed by law, by any rule, regulation or
request of a competent regulatory authority or any stock or
securities exchange on which the securities of the receiving
party are listed, quoted or dealt in or by order of a court of
competent jurisdiction or pursuant to a formal or informal
request of a tax authority;
5.4.6 was already in the possession of the receiving party; and
5.4.7 was developed independently by the receiving party,
provided always that:
5.4.8 the onus shall be on the disclosing party to prove through the
use of documentary evidence that the information was in or has
entered the public domain otherwise than through unauthorised
disclosure by the disclosing party or is required to be
disclosed; and
5.4.9 if either party is required to make a disclosure in accordance
with this Clause 5.4, that party will, if it is not so
prohibited, provide the other with prompt notice of any such
requirement or request to disclose any such confidential
information so that it may seek an appropriate order. The
disclosing party will provide the other with all reasonable
assistance in any action taken by that party to obtain an
appropriate order including an order providing that the
information does not have to be disclosed, an appropriate
protection order or other reliable assurance that confidential
treatment will be accorded the information that the disclosing
party is required to disclose.
6 COMPLETION
6.1 DATE AND PLACE OF COMPLETION
Subject to Clause 4, Completion shall take place at the offices of the
Vendor's Solicitors on 10 February 1998 or, if earlier, the date referred
to in the date of notification by the Purchaser to the Vendor pursuant to
Clause 4.3 of the satisfaction of the conditions set out in Clause 4.1
being no earlier than the third Business Day following the date of such
notification or at such other place, time or date being before 10
February 1998 as may be agreed between the Purchaser and the Vendor.
6.2 VENDOR'S OBLIGATIONS
6.2.1 On the date hereof the Vendor shall deliver or make available to
the Purchaser a certified copy of a resolution of the Board of
the Vendor authorising the signatory of this
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Agreement to enter into this Agreement and the Related Agreements
on behalf of the Vendor;
6.2.2 On Completion the Vendor shall deliver or make available to the
Purchaser:
(i) such transfers and assignments in the agreed terms
together (where appropriate) with the relative documents
of title and such Third Party Consents as the Vendor may
have obtained to vest in the Purchaser with effect from
Completion the full benefit of the Assets (other than
those Assets referred to in paragraph 3.3 of Part 2 of
Schedule 2) and permit the Purchaser to enter into and
take possession of the Business with effect from
Completion;
(ii) duly executed copies of those Related Agreements to which
it or any member of the Vendor's Group is a party; and
6.2.3 deliver or make available to the Purchaser those Assets which are
capable of transfer by delivery (other than those Assets referred
to in Clause 2.3.2 and paragraph 3.3 of Part 2 of Schedule 2);
6.2.4 permit the Purchaser to enter into and take possession of the
Business; and
6.2.5 in each case where the said information is not at the Property,
deliver or make available to the Purchaser (save to the extent the
Vendor is constrained from so doing by reason of any
confidentiality obligations) all books, records and other
information relating exclusively to the Business or to customers,
suppliers, agents and distributors of the Business (including the
Relevant Employees), copies of all consents, permits or licences
from any regulatory authority held by the Vendor in connection
with the Business (except where previously supplied to the
Purchaser or its advisers), and such other information relating
to the Business as the Purchaser may reasonably require.
6.3 PURCHASER'S OBLIGATIONS
Against compliance with the foregoing provisions and the provisions of
Clause 6.5 the Purchaser shall:
6.3.1 on the date hereof deliver to the Vendor a certified copy of a
resolution of the Board of the Purchaser approving the entry into
this Agreement and the Related Agreements by the Purchaser and
authorising the signatory of this Agreement to sign this
Agreement and the Related Agreements on behalf of the Purchaser;
6.3.2 on Completion deliver to the Vendor duly executed copies of those
Related Agreements to which it or any member of the Purchaser's
Group is a party; and
6.3.3 on Completion satisfy the amount payable under Clause 3.1 in the
manner specified in Clause 3.1
6.4 RIGHT TO TERMINATE
If the foregoing provisions of this Clause are not complied with in all
material respects by the Vendor or the Purchaser by or on the date set
for Completion, the Purchaser, in the case of material non-compliance by
the Vendor, or the Vendor, in the case of material non-compliance by the
Purchaser, shall be entitled (in addition to and without prejudice to all
other rights or remedies available to it including the right to claim
damages) by written notice to the Vendor or, as the case may be, the
Purchaser served on such date:
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6.4.1 to elect to terminate this Agreement; or
6.4.1 to effect Completion so far as practicable having regard to the
defaults which have occurred and with such adjustments which the
parties agree are appropriate to reflect such defaults; or
6.4.3 to fix a new date for Completion (not being more than 20 Business
Days after the agreed date for Completion) in which case the
foregoing provisions of this Clause 6.4 shall apply to Completion
as so deferred but provided such deferral may only occur once.
6.5 OEM WARRANTIES
To the extent that the benefit of any express or implied warranties given
by a manufacturer or previous seller of any Item of Rotable Inventory in
favour of the Vendor and relating to merchantable quality or fitness for
purpose or like conditions of sale in respect of such Inventory can
reasonably be assigned to the Purchaser then the Vendor hereby assigns
such benefit to the Purchaser.
6.6 TITLE AND RISK
Title and risk of loss or damage to the Assets transferred on (and, in
relation to loss or damage, occurring after) Completion shall pass to the
Purchaser on Completion and, pending Completion, the Vendor shall
maintain its existing insurance cover in relation to the same.
6.7 ARRANGEMENTS IN RELATION TO THE PROPERTY
Upon Completion the Vendor shall grant to the Purchaser and the Purchaser
shall accept an Underlease in the agreed form for the Prop to take
effect on and from Completion.
7 WARRANTIES
7.1 INCORPORATION OF SCHEDULE 3
7.1.1 The Vendor hereby warrants and represents to and undertakes with
the Purchaser in the terms set out in Schedule 3 subject only to:
(i) any matter which 1s fully and fairly disclosed in or
pursuant to the Disclosure Letter and any matter provided
for under the terms of this Agreement;
(ii) the provisions of Schedule 4 (Limitations on Liability).
7.1.2 The Vendor acknowledges that the Purchaser has entered into this
Agreement in reliance upon, amongst other things, the Warranties.
7.1.3 Where any Warranty refers to the knowledge, information or belief
of the Vendor and such knowledge, information or belief is
qualified by the phrase "so far as the Vendor is aware" the
Vendor acknowledges that it has made due and careful enquiry into
the subject matter of the Warranty.
7.2 EFFECT OF EVENTS OCCURRING PRIOR TO COMPLETION
The Vendor undertakes to and with the Purchaser that if after the signing
of this Agreement and before Completion any event shall occur or matter
shall arise of which the Vendor becomes aware and which if it had
occurred or arisen before the date hereof would have rendered any of the
Warranties untrue, misleading or incorrect in any material respect, the
Vendor shall immediately notify the Purchaser in writing thereof prior to
Completion and the Vendor (at its own cost) shall make any investigation
concerning the event or matter which the Purchaser may reasonably
require. No right to damages or compensation shall arise in favour of the
Purchaser or its successors in title under this Clause 7.2 in consequence
only of an event occurring or matter
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arising after the signing of this Agreement and before Completion which
if it had occurred or arisen before the date hereof would have rendered
any of the Warranties untrue, misleading or incorrect in any material
respect, whether or not this Agreement is terminated in consequence
thereof, if the event or matter in question has been duly notified in
accordance with this Clause 7.2.
7.3 EFFECT OF COMPLETION
The Warranties, and all other provisions of this Agreement in so far as
the same shall not have been performed at Completion, shall not be
extinguished or affected by Completion, or by any other event or matter
whatsoever (including, without limitation, any satisfaction of the
conditions contained in Clause 4.1), except by a specific and duly
authorised written waiver or release by the Purchaser.
7.4 RIGHT OF TERMINATION
If prior to Completion it shall be found that any of the Warranties was,
when given, will or would be, at Completion (if they were to have been
given again at Completion) not complied with in any material respect or
otherwise untrue or misleading in any material effect, and if (but only
if) the effect thereof is or would, in the reasonable opinion of the
Purchaser, be material in the context of the purchase by the Purchaser of
the Business as a whole, the Purchaser shall be entitled (in addition to
and without prejudice to all other rights or remedies available to it
including the right to claim damages) by notice in writing to the Vendor
to terminate this Agreement but failure to exercise this right shall not
constitute a waiver of any other rights of the Purchaser arising out of
any breach of Warranty.
7.5 REMEDIES
7.5.1 This Agreement contains the whole agreement between the parties
relating to the subject matter of this Agreement at the date
hereof to the exclusion of any terms implied by law which may be
excluded by contract. The parties each acknowledge that they have
not been induced to enter this Agreement by and, so far as is
permitted by law and except in the case of fraud, each party
hereby waives any remedy in respect of, any warranties,
representations and undertakings not incorporated into this
Agreement.
7.5.2 So far as is permitted by law and except as otherwise expressly
provided in this Agreement or in the case of fraud, the parties
agree and acknowledge that the only right and remedy which shall
be available to the Purchaser in connection with or arising out
of or related to any of the statements contained in the
Warranties shall be damages in contract for breach of this
Agreement and not rescission of this Agreement, or damages in tort
or under statute (whether under the Misrepresentation Act 1967 or
otherwise), or any other remedy.
7.5.3 Each party to this Agreement confirms it has received independent
legal advice relating to all the matters provided for in this
Agreement, including the provisions of this Clause, and agrees,
having considered the terms of this Clause and the Agreement as a
whole, that the provisions of this Clause are fair and
reasonable.
7.5.4 In Clause 7.5.1 to 7.5.3, "this Agreement" includes the
Disclosure Letter and all documents entered into pursuant to this
Agreement or to be entered into at Completion as provided by
this Agreement.
8 THE ASSUMED CONTRACTS
8.1 PURCHASER TO COMPLETE ASSUMED CONTRACTS
The Purchaser shall procure that with effect from Completion each of the
Assumed Contracts is carried out and, where appropriate, completed (so
far as the Purchaser is lawfully able and
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obligated to do so) and that the Vendor's obligations under the Assumed
Contracts are performed (to the extent that the same have not been
previously carried out or completed) in the ordinary course (where
applicable) in a proper manner and in accordance with their respective
terms and shall indemnify the Vendor against all Losses incurred by the
Vendor in respect of the Assumed Contracts solely by reason of or in
connection with the non-performance or the negligent or defective
performance after Completion by the Purchaser to the extent aforesaid of
the Assumed Contracts.
8.2 THE VENDOR'S OBLIGATIONS IN RESPECT OF ASSUMED CONTRACTS
The Vendor shall procure that up to Completion the Assumed Contracts are
carried out and, where appropriate, completed and that the Vendor's
obligations under the Assumed Contracts are performed in the ordinary
course (where applicable) in a proper and workmanlike manner and in
accordance with their respective terms and shall indemnify the Purchaser
against all Losses incurred by the Purchaser in respect of the Assumed
Contracts by reason of the non-performance or the negligent or defective
performance prior to Completion to the extent aforesaid of the Assumed
Contracts.
8.3 PAYMENTS RECEIVED BY THE VENDOR
8.3.1 To the extent that any payment (other than any payment comprised
in the Debtors, which shall be retained by the Vendor for its own
account) is made to the Vendor in respect of any Assumed Contract
after Completion the Vendor shall receive the same as trustee,
shall place the same in a separate bank account, shall record
such payment separately in its books and shall account to the
Purchaser for the same within 20 Business Days of receipt unless
and to the extent such payment relates to work completed before
Completion.
8.3.2 In determining the liability under Clause 8.3.1 of the Vendor to
account to the Purchaser for amounts received by the Vendor
regard shall be had to any liability of the Vendor to account to
H.M. Customs & Excise for any VAT in respect of the supplies of
goods and/or services (made under any Assumed Contract) to which
such amounts relate, and the liability of the Vendor under Clause
8.3.1 shall be reduced accordingly.
8.4 PREPAYMENTS MADE BY THE VENDOR
8.4.1 Subject to Clause 8.4.2, if and to the extent that the Vendor has
prior to Completion made any payment to suppliers in respect of
any Assumed Contract in respect of goods or services to be
provided or supplied after Completion the Purchaser shall
reimburse to the Vendor the amount thereof within 20 Business
Days of Completion.
8.4.2 In determining the liability under Clause 8.4.1 of the Purchaser
to reimburse the Vendor for amounts paid by the Vendor, regard
shall be had to the extent to which the Vendor has been or is
able to obtain credit or repayment of input tax for VAT purposes
in respect of supplies of goods and/or services to which such
amounts relate, and the liability of the Purchaser under Clause
8.4.1 shall be reduced accordingly.
9 THIRD PARTY CONSENTS
9.1 FAILURE TO OBTAIN CONSENTS
Nothing in this Agreement shall be construed as an attempt to assign any
Assumed Contract which by its terms or by law is not assignable without a
Third Party Consent unless such consent shall have been given. The Vendor
and the Purchaser agree to use their respective reasonable endeavors to
obtain the Third Party Consent in each case where it is required and is
requested by the Purchaser. If any required consent is not obtained before
Completion the Vendor will co-operate with the Purchaser in any reasonable
arrangements designed to provide for the Purchaser the benefits under any
such Assumed Contract, provided that if within six months of
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Completion the Third Party Consent required in relation to any Assumed
Contract shall not have been obtained then the Purchaser shall be
entitled to notify the Vendor in writing that with effect from such date
the relevant contract, undertaking, arrangement or agreement shall no
longer be deemed to be an Assumed Contract and the Purchaser shall not be
responsible for any Liability in relation thereto arising after such
date.
9.2 NOTICE TO CONVOY, TRANSFER, ASSIGN ETC.
Following Completion, the Purchaser may serve notice on the Vendor at any
time after the relevant Third Party Consents are obtained requiring the
Vendor to execute a conveyance, transfer or assignment to, or a novation
in favour of, the Purchaser of any relevant Asset and the Vendor will
arrange for the execution and delivery of such conveyance, transfer,
assignment or novation (together with the relative documents of title) to
the Purchaser not later than five Business Days after the receipt either
of such notice or of the engrossment of such conveyance, transfer,
assignment or novation by the Vendor's Solicitors whichever is the later.
9.3 NOTICE TO ACCEPT CONVEYANCE, TRANSFER, ASSIGNMENT ETC.
The Vendor may by notice to the Purchaser require the Purchaser to accept
a conveyance, transfer or assignment of any relevant Asset at any time
after the relevant Third Party Consents are obtained but prior to the
date falling six months after Completion.
10 THE RELEVANT EMPLOYEES
10.1 DEFINITIONS
For the purposes of this Clause 10 the terms CONTRACT OF EMPLOYMENT,
COLLECTIVE AGREEMENT, RELEVANT TRANSFER and TRADE UNION shall have the
same meanings respectively as in the Transfer Regulations.
10.2 TRANSFER REGULATIONS
The parties accept that this Agreement and the sale of the Business to be
affected by it are governed by the Transfer Regulations and the following
provisions shall apply in connection therewith:
10.2.1 the contract of employment of each of the Relevant Employees
(save insofar as such contract relates to any occupational
pension scheme) shall be transferred to the Purchaser with
effect from Completion which shall be the date of completion of
the relevant transfer under regulation 5(2)(f) of the Transfer
Regulations;
10.2.2 the Vendor shall perform and discharge all its obligations
(whether arising under statute or common law) in respect of all
the Relevant Employees for its own account up to and including
Completion including, without limitation, discharging all costs
and expenses relating to, payable or accruing in respect of the
Relevant Employees up to and including Completion and shall
indemnify the Purchaser and keep the Purchaser Indemnified
against all Losses arising from the Vendor's failure so to
discharge
For the avoidance of doubt, reference to costs and expenses shall
include:
(i) "LIEU DAYS" accrued by each Relevant Employee up to the
date of Completion. To achieve this, the Vendor will pay
to each Relevant Employee who has accrued such lieu days
an amount equal to that employee's basic pay for the
number of lieu days he has accrued up to Completion;
(ii) the "TOTAL HOLIDAY DEFICIT" in respect of the Relevant
Employees. For this purpose, each Relevant Employee's
holiday deficit is calculated as the number of day's
holiday entitlement for that Relevant Employee for the
year ending 31 March 1998 pro-rated up to Completion; less
(b) the total number of day's holiday actually
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taken by that Relevant Employee as at Completion
multiplied by that employee's basic pay per day. "TOTAL
HOLIDAY DEFICIT" is the sum of holiday deficits for all
Relevant Employees;
(iii) the amount of payments made to any Relevant Employees
being sums equal to the profit share such employees would
have received for the Vendor's 1997/98 financial year had
they remained in the Vendor's employment until 31 March
1998 (as described in letter to Relevant Employees in
agreed terms referred to in Clause 10.2.7);
(iv) the amount of any performance related bonus due to any
Relevant Employee who is entitled to such bonus under the
terms of the Vendor's management and senior management
performance pay scheme or any other performance related
bonus scheme operated by the Vendor (pro rated to reflect
the length of the Relevant Employees service with the
Vendor during the Vendor's 1997/98 financial year). For
the avoidance of doubt, the Vendor will complete
performance reviews from which performance ratings will be
determined for each eligible manager prior to Completion.
The amount of each manager's entitlement will be
determined in accordance with the Vendor's Corporate
Mandate which is determined after the announcement of the
Vendor's year end results for the 1997/98 financial year;
10.2.3 the Vendor shall indemnify the Purchaser and keep the Purchaser
indemnified against all Losses which relate to or arise out of
any act or omission by the Vendor or any other event or
occurrence prior to Completion and which the Purchaser may incur
concerning one or more of the Relevant Employees pursuant to the
provisions of the Transfer Regulations or otherwise including,
without limitation, any such matter relating to or arising out
of:
(i) the Vendor's rights, powers, duties and/or liabilities
(including, without limitation, any Taxation) under or in
connection with any such contract of employment or
collective agreement which rights, powers, duties and/or
liabilities (as the case may be) are or will be
transferred to the Purchaser in accordance with the
Transfer Regulations; or
(ii) anything done or omitted before Completion by or in
relation to the Vendor in respect of any such contract of
employment or collective agreement or any Relevant
Employee, which is deemed by the Transfer Regulations to
have been done or omitted by or in relation to the
Purchaser; or
(iii) the Vendor's failure to comply with its obligations to
inform and consult employees pursuant to the Transfer
Regulations except where such failure arises out of the
Purchaser's failure to comply with its obligations under
Clause 10.3.1 of this Agreement;
10.2.4 if any contract of employment or collective agreement not
disclosed in writing to the Purchaser shall have effect as if
originally made between the Purchaser and any employee
("UNDISCLOSED EMPLOYEE") or a trade union as a result of the
provisions of the Transfer Regulations (without prejudice to any
other rights or remedies which may be available to the
Purchaser);
(i) the Purchaser shall upon becoming aware of such operation
of the Transfer Regulations in relation to any such
contract of employment or collective agreement notify the
Vendor in writing thereof. The Vendor may within 14
Business Days of receiving such written notice offer
employment to any Relevant Undisclosed Employee and, if it
makes any such offer, shall notify the Purchaser in
writing of
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such offer. Following the expiry of the period of 28
Business Days from the receipt by the Vendor of the
Purchaser's notice (whether an offer of employment is made
by the Vendor or not) the Purchaser may terminate such
contract or collective agreement immediately; and
(ii) the Vendor shall indemnify the Purchaser and keep the
Purchaser indemnified against all Losses relating to or
arising out of any termination made pursuant to paragraph
(i) above and reimburse the Purchaser for all costs and
expenses (including, without limitation, any Taxation)
incurred in employing such employee in respect of his
employment following Completion until the date of such
termination; and
(iii) the Vendor shall indemnify the Purchaser and keep the
Purchaser indemnified in respect of any Undisclosed
Employee on the same terms MUTATIS MUTANDIS as the Vendor
has indemnified the Purchaser in respect of a Relevant
Employee pursuant to the term of Clauses 10.2.2 and
10.2.3;
10.2.5 the Vendor shall indemnify the Purchaser and keep the Purchaser
indemnified against all Losses which relate to or arise out of
the employment of or any dismissal by the Vendor of any employee
(not being a Relevant Employee) and which the Purchaser may incur
pursuant to the provisions of the Transfer Regulations;
10.2.6 the Vendor shall not take any steps to terminate the contracts of
employment of or collective agreements concerning the Relevant
Employees; and
10.2.7 the Vendor shall on Completion deliver to each of the Relevant
Employees a letter from the Vendor and the Purchaser in the
agreed terms.
10.3 PURCHASER'S OBLIGATIONS
10.3.1 In accordance with its obligations under the Transfer
Regulations, the Purchaser will provide the Vendor in writing
with such information and at such time as will enable the Vendor
to carry out its duties under Regulations 10(2)(d) and 10(6) of
the Transfer Regulations concerning measures envisaged by the
Purchaser in relation to the Relevant Employees.
10.3.2 The Purchaser and the Vendor will comply with the terms of the
Staff Plan contained in the document in the agreed terms (the
"STAFF PLAN").
10.3.3 The parties acknowledge that following termination of the
Services Agreement (either in whole or in part) the services
provided under that agreement may be provided by the Vendor or by
third parties appointed by the Vendor and that as a consequence
of the Vendor or a third party assuming responsibility for
providing such services, employees engaged in providing those
services during the term of this Agreement may transfer to the
Vendor or to such new service providers under the Transfer
Regulations. To facilitate any such transfers the Purchaser will:
(i) at all times while it provides services under the Services
Agreement maintain an information pack containing full and
accurate details of all Services Employees (including
numbers of Services Employees, details of pay and
benefits, terms and conditions of employment, job
descriptions, staff duty allocations and collective
agreements);
(ii) at the request of the Vendor, the Purchaser will make the
information pack referred to in Clause 10.3.3(i)
available to the Vendor or any replacement (or prospective
replacement) service provider nominated by the Vendor; and
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(iii) at the request of the Vendor comply with any obligations
which fall on it pursuant to Regulation 10 of the Transfer
Regulations in respect of the Services Employees (or any
of them).
10.4 PURCHASER'S INDEMNITY
The Purchaser shall indemnify the Vendor and keep the Vendor indemnified
against all Losses (which, for the purposes of this Clause 10.4 shall not
include any sums paid or payable by the Purchaser pursuant to Clause 10.3
above) arising out of or in connection with:
10.4.1 any change in the working conditions of the Relevant Employees or
any of them occurring on or after Completion;
10.4.2 the change of employer occurring by virtue of the Transfer
Regulations and/or this Agreement;
10.4.3 the employment by the Purchaser on or after Completion of any of
the Relevant Employees other than on terms (including terms
relating to any occupational pension scheme) which are not
different from those enjoyed immediately prior to Completion
(provided that the Purchaser shall be under no obligation to
indemnify the Vendor solely by reason of any diminution in
pension rights if the Purchaser has complied with its obligations
under Schedule 5) or (subject to Clause 10.2.3(ii) the
termination of the employment of any of them on or after
Completion; or
10.4.4 any claim by any Relevant Employee (whether in contract or in
tort or under statute (including the Treaty of Rome and any
directives made under the authority of that Treaty) for any
remedy including, without limitation, in respect of unfair
dismissal, redundancy, statutory redundancy, equal pay, sex or
race discrimination) as a result of any act or omission by the
Purchaser after Completion; or
10.4.5 the Purchaser's failure to comply with its obligations under
Clause 10.3.
10.5 PURCHASER'S INDEMNITY IN RESPECT OF SERVICES EMPLOYEES
10.5.1 The Parties accept that on the termination of the Services
Agreement (whether in whole or part and howsoever occasioned) the
Services Employees engaged to provide services under the Services
Agreement or, as the case may be, the part(s) of the Services
Agreement which has/have been terminated may transfer to the
Vendor or to the Purchaser's successor(s) by virtue of the
Transfer Regulations and the following provisions shall apply in
connection therewith:
(i) the Purchaser shall perform and discharge all its
obligations (whether arising under statute or common law)
in respect of those Services Employees for its own account
from Completion up to and including the relevant Transfer
Date including, without limitation, discharging all costs
and expenses relating to, payable or accruing in respect
of those Services Employees up to and including the
relevant Transfer Date and agrees with the Vendor (acting
for itself and as trustee for the Purchaser's successor(s))
that, subject as provided in Clause 10.5.2, it shall
indemnify the Vendor and the Purchaser's successor(s) and
keep the Vendor and the Purchaser's successor(s)
indemnified against all Losses (whether incurred directly
by the Vendor or as a result of any indemnity in respect
thereof (under which the Vendor undertakes to the
Purchaser's successor(s) liabilities which correspond to
but do not exceed those undertaken by the Purchaser to the
Vendor in this Clause 10.5.(i)) given by the Vendor to the
Purchaser's successor(s) arising from the Purchaser's
failure so to discharge;
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(ii) the Purchaser agrees with the Vendor (acting for itself
and as trustee for the Purchaser's successor(s)) that,
subject as provided in Clause 10.5.2, it shall indemnify
the Vendor and the Purchaser's successor(s) directly and
keep the Vendor and the Purchaser's successor(s)
indemnified against all Losses (whether incurred directly
by the Vendor or as a result of any indemnity in respect
thereof (under which the Vendor undertakes to the
Purchaser's successor(s) liabilities which correspond to
but do not exceed those undertaken by the Purchaser to
the Vendor in this Clause 10.5.1(ii)) given by the Vendor
to the Purchaser's successor(s)) which relate to or arise
out of any act or omission by the Purchaser or any other
event or occurrence after Completion but prior to the
relevant Transfer Date and which the Vendor or the
Purchaser's successor(s) may incur in relation to any
contract of employment or collective agreement concerning
any of those Services Employees pursuant to the provisions
of the Transfer Regulations or otherwise including,
without limitation, any such matter relating to or
arising out of:
(a) the Purchaser's rights, powers, duties and/or
liabilities (including, without limitation, any
Taxation) under or in connection with any such
contract of employment or collective agreement,
which rights, powers, duties and/or liabilities
(as the case may be) are or will be transferred to
the Vendor or the Purchasers successor(s) in
accordance with the Transfer Regulations;
(b) anything done or omitted after Completion but
before the relevant Transfer Date by or in
relation to the Purchaser in respect of any such
contract of employment or collective agreement for
any relevant Services Employee, which is deemed by
the Transfer Regulations to have been done or
omitted by or in relation to the Vendor or the
Purchaser's successor(s); or
(c) the Purchaser's failure to comply with its
obligations to inform and consult with those
Services Employees or any of them pursuant to the
Transfer Regulations at any time after the
Valuation Date.
10.5.2 If the Purchaser lawfully terminates the Services Agreement (or
part thereof) by reason of the Vendor's default there shall be
excluded from the indemnity of the Purchaser pursuant to Clause
10.5.1(ii) any Losses which arise as a result of the default or
breach on the part of the Vendor which resulted in such
termination.
For the purposes of this Clause 10:
"SERVICES EMPLOYEE" means any employee employed by the Purchaser at any
time after Completion for the purposes of providing services under the
Services Agreement;
"TRANSFER DATE" means any date on which the Purchaser ceases to provide
services (or any part thereof) under the Services Agreement.
10.6 SECONDMENT OF VENDOR'S EMPLOYEES
10.6.1 The Vendor will second to the Purchaser those employees whose
names are set out below (the "SECONDED EMPLOYEES") until the
dates set out beside their names (in each case, the "SECONDMENT
PERIOD").
------------------------------------------
SECONDED EMPLOYEE SECONDMENT PERIOD
------------------------------------------
------------------------------------------
[ ************ ] 31 January 1998
------------------------------------------
[ ************ ] 31 March 1999
------------------------------------------
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------------------------------------------
SECONDED EMPLOYEE SECONDMENT PERIOD
------------------------------------------
------------------------------------------
[ ************ ] 31 January 1998
------------------------------------------
10.6.2 The Vendor will pay the Seconded Employees' salaries and provide
all contractual benefits during the relevant Secondment Periods
and will be responsible for making appropriate tax and national
insurance deductions from the Seconded Employees' remuneration.
10.6.3 The Purchaser will observe the terms and conditions of employment
of each Seconded Employee as if it were the actual employer of
each of them (and will indemnify the Vendor in respect of any
Losses which the Vendor incurs as a consequence of the Purchaser's
failure to observe such terms and conditions. For these purposes,
if the Vendor incurs liability for any such losses by reason of
any unlawful act on the part of the Purchaser (or any of its
employees, directors, agents or officers) such Losses will
include but not be limited to compensation for unfair dismissal,
sex, race and disability discrimination and damages for wrongful
dismissal).
10.6.4 In the event that the Transfer Regulations apply so that the
contracts of employment of the Seconded Employees are transferred
to the Purchaser, the Vendor agrees to indemnify the Purchaser in
relation to any Losses which the Purchaser incurs as a
consequence of any unlawful act or breach of contract of the
Vendor in relation to any Seconded Employee (including any
unlawful act of the Vendor which by virtue of the Transfer
Regulations is deemed to have been done by the Purchaser (or any
of its employees, directors, agents or officers)) whether
relating to the employment of such Seconded Employee or the
termination of such employment, such Losses to include but not be
limited to compensation for unfair dismissal, sex race and
disability discrimination and damages for wrongful dismissal.
10.6.5 The Purchaser will reimburse the Vendor in full for all amounts
payable to or in respect of the Seconded Employees under their
terms and conditions of employment (including the Seconded
Employees' salary, all tax and national insurance contributions,
employer's pension contributions and health insurance premiums)
during the relevant Secondment Periods.
10.6.6 The Vendor will send to the Purchaser an invoice for the fees due
under Clause 10.6.5 each month, showing VAT payable separately.
The Purchaser will pay the amount due within seven days of
receiving the Vendor's invoice.
10.6.7 In addition to the fees payable under Clause 10.6.6 the Purchaser
is responsible for all reasonable and proper expenses and
disbursements incurred by the Seconded Employees in connection
with their secondment to the Purchaser and will reimburse the
Seconded Employees and/or the Vendor (as appropriate) directly
for these.
11 PENSIONS
The provisions of Schedule 5 shall have effect.
12 POST-COMPLETION OBLIGATIONS
12.1 VENDOR'S CONTINUING OBLIGATIONS
Notwithstanding Completion, the Vendor shall at its own expense:
12.1.1 procure that, if any property, rights or assets acquired by the
Purchaser under this Agreement are not transferred by the Vendor
with effect from Completion, the Vendor
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transfers (without cost to the Purchaser) such property, rights
or assets to the Purchaser immediately after it is discovered
that such property, rights or assets should have been transferred
to the Purchaser at Completion;
12.1.2 continue to give to the Purchaser such information, co-operation
and assistance as the Purchaser may reasonably require relating
to the Business, its employees, customers and suppliers, its
current contracts and engagements, pass on any trade enquiry
which the Vendor receives and provide the Purchaser with access
to such data and records (excluding proprietary, confidential and
unrelated BA business records) of the Vendor as the Purchaser may
reasonably request in connection with the obtaining or renewal of
any consents, permits or licences required by the Purchaser from
any regulatory authority in connection with the Business;
12.1.3 (without prejudice to the provisions of Clause 9) from time to
time execute and perform all such acts, deeds and documents and
afford to the Purchaser such assistance as the Purchaser may
reasonably require without charge by the Vendor:
(i) for the purpose of vesting in the Purchaser the full
benefit of the Business and implementing all the
provisions of this Agreement;
(ii) for the purpose of vesting in the Purchaser or as it may
direct the full benefit of any rights, powers, remedies,
claims or defences (including without limitation rights of
set-off and counterclaim) which the Vendor may have in
relation to any Claim or otherwise ensuring that the same
enure for the benefit of the Purchaser;
(iii) to enable any claim, action, suit, prosecution,
litigation, proceeding, dispute or arbitration to which
the Vendor was a party and which relates to any Claim to
be continued by or against the Purchaser; and
(iv) to enable any judgment or award obtained by the Vendor and
not fully satisfied as at Completion, to the extent to
which it is a Claim enforceable by the Vendor, to be
enforced by the Purchaser, whether by the Purchaser
joining itself as a defendant or by the Purchaser
consenting to any plaintiff concerned joining it as a
defendant or otherwise.
12.2 VENDOR'S GENERAL OBLIGATIONS
If at any time after Completion, the Vendor receives any monies in
respect of any debts relating exclusively to the Business and arising
after Completion, then the Vendor shall pay to the Purchaser as soon as
reasonably practicable the amount recovered less any Taxation which would
not have arisen but for the receipt of such monies.
12.3 PURCHASER'S GENERAL OBLIGATIONS
If at any time after Completion the Purchaser receives any monies
representing Debtors, then the Purchaser shall pay to the Vendor as soon
as reasonably practicable the amount so received less any Taxation which
would not have arisen but for the receipt of such monies.
12.4 MARKS
The Purchaser shall not, and shall procure that each other member of the
Purchaser's Group shall not, after Completion, use in any way whatsoever
any of the Marks otherwise than as specifically provided for in the
Services Agreement. The Purchaser shall procure that as soon as
practicable and in any event not later than three months (or such other
period as the Vendor may agree in writing in any case) after Completion
all such trade marks, logos or other devices shall be removed from all
assets used in the Business.
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12.5 CERTAIN EXCLUDED CONTRACTS
The Vendor and the Purchaser acknowledge that certain of the Excluded
Contracts contain provisions relating to the supply to the Vendor of
goods and/or services which it may be to the advantage of the Purchaser
(and the Vendor) for the Purchaser to receive the benefit of in
connection with the fulfilment of its obligations pursuant to the
Services Agreement. In the event that either the Vendor shall notify the
Purchaser of any such provisions of any Excluded Contract and the
Purchaser shall confirm to the Vendor that it wishes to receive the
benefit of such provisions, or, within 28 days of Completion, the
Purchaser shall notify the Vendor that it wishes to receive the benefit
of any such provisions of any Excluded Contract which relates exclusively
to the supply of materials (including Expendable Inventory), the Vendor
and the Purchaser shall each use their reasonable endeavours to procure
that the counterparty to the relevant Excluded Contract shall consent to
the partial assumption of each contract by the Purchaser or enter into a
new contract or arrangement for the provision of the relevant goods
and/or services direct to the Purchaser or otherwise to provide to the
Purchaser the benefits of the relevant provisions, failing which the
Vendor and the Purchaser shall co-operate in such arrangements as either
the Vendor or the Purchaser may reasonably propose to obtain for the
Purchaser the benefits of the relevant provisions.
12.6 CERTAIN ROTABLE INVENTORIES
If the amounts comprised within the Rotable Inventory Value attributable
to B747-100 and/or L1011 aircraft types owned by the Vendor as at
Completion are in excess of the respective values set out in paragraph
3.2 of Part 2 of Schedule 2, the Vendor shall deliver to the Purchaser on
Completion those items of Rotable Inventory for such aircraft types with
an aggregate value equivalent to such excess ("EXCESS ROTABLE
INVENTORIES") and thereafter the Purchaser shall use all reasonable
endeavours to sell the Excess Rotable Inventories, at the best price
reasonably obtainable and otherwise on arm's length terms, as agent for
and on behalf of the Vendor. The Purchaser shall receive the proceeds of
all such disposals as trustee, shall place the same in a separate bank
account, shall record the payment separately in its books and shall
account to the Vendor for the same within 20 Business Days of receipt.
The Vendor shall pay the Purchaser a fee of 5% of the gross sale price of
any item of Excess Rotable Inventories disposed of pursuant to this
Clause 12.6, which fee the Purchaser shall be entitled to retain (with
any applicable VAT, for which it shall deliver a tax invoice to the
Vendor) when accounting to the Vendor for the sale proceeds of the
relevant item.
13 GUARANTEE
13.1 In part consideration of the Vendor entering into this Agreement at the
request of the Guarantor and in consideration of the sum of L1 (receipt
of which is hereby acknowledged) the Guarantor hereby unconditionally and
irrevocably guarantees the full, prompt and complete performance and
observance by the Purchaser of all its obligations, commitments,
undertakings, warranties and indemnities under or pursuant to this
Agreement and any document entered into pursuant to the terms of this
Agreement (the "GUARANTEED OBLIGATIONS") which are stated to be binding
on the Purchaser including, without limitation, the due and punctual
payment of all sums now or subsequently payable by the Purchaser
hereunder when the same shall become due and the Guarantor undertakes
with the Vendor to indemnify the Vendor against all Losses which the
Vendor may suffer through or arising from any breach by the Purchaser. If
and whenever the Purchaser defaults for any reason whatsoever in the
performance of any of the Guaranteed Obligations the Guarantor shall
forthwith upon demand unconditionally perform (or procure performance of)
and satisfy (or procure the satisfaction of) the Guaranteed Obligations
in regard to which such default has been made in the manner prescribed by
this Agreement and so that the same benefits shall be conferred on the
Vendor as it would have received if the Guaranteed Obligations had been
duly performed and satisfied by the Purchaser.
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13.2 The guarantee contained in Clause 13.1 is a continuing guarantee and
shall remain in force until all the Guaranteed Obligations have been
fully performed and all sums payable by the Purchaser have been fully
paid. This guarantee is in addition to and without prejudice to and not
in substitution for any rights or security which the Vendor may now or
hereafter have or hold for the performance and observance of the
Guaranteed Obligations.
13.3 The obligations of the Guarantor shall not be affected by any act,
omission, matter or thing which, but for this provision, might operate to
release or otherwise exonerate the Guarantor from his obligations or
affect such obligations, including without limitation and whether or not
known to the Guarantor:
13.3.1 any time, indulgence, neglect, delay, waiver or consent at any
time given to the Purchaser or any other person;
13.3.2 any compromise or release of or absentation from perfecting or
enforcing any right or remedies against the Purchaser or any
other person;
13.3.3 any legal limitation, liability, disability, incapacity or other
circumstances relating to the Purchaser or any other person or
any amendment to or variation of the terms of the Guaranteed
Obligations;
13.3.4 any irregularity, unenforceability or invalidity of any
obligations of the Purchaser under this Agreement, or the
dissolution, amalgamation, reconstruction or insolvency of the
Purchaser,
and shall nevertheless be enforceable against and recoverable from the
Guarantor as though the same had been incurred by the Guarantor and the
Guarantor were the sole or principal obligor in respect thereof.
14 OTHER PROVISIONS
14.1 ANNOUNCEMENTS
14.1.1 As soon as practicable following the signing of this Agreement
the Vendor and the Purchaser shall release the announcements in
the agreed terms. Thereafter, and pending Completion, the Vendor
and the Purchaser shall, subject to the requirements of law or
any regulatory body or the rules and regulations of any
recognised stock exchange and so far as practicable in the
circumstances, consult together and agree prior to despatch, as
to the terms of, the timetable for and manner of publication of,
any formal announcement or circular to shareholders, employees,
customers, suppliers, distributors and sub-contractors and to any
recognised stock exchange or other authorities or to the media or
otherwise which either party may desire or be obliged to make
regarding this Agreement and the transactions contemplated by
this Agreement. Any other communication which the Purchaser or
the Vendor may make concerning the foregoing matters shall,
subject to the requirements of law or any regulatory body or the
rules and regulations of any recognised stock exchange, be
consistent with any such formal announcement or circular as
aforesaid.
14.1.2 Subject to Clause 14.1.1, neither the Vendor nor the Purchaser
shall pending Completion make or authorise or issue any formal
announcement or circular or other communication concerning the
subject matter of this Agreement or any transaction referred to
in or contemplated by this Agreement.
14.1.3 If Completion does not take place the Purchaser shall forthwith
deliver up all accounts, records, documents and papers of or
relating to the Vendor which shall have been made available to
either of them and all copies or other records derived from such
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materials and expunge any information derived from such materials
or otherwise concerning the subject matter of this Agreement from
any computer, wordprocessor or other device containing
information, in each case in accordance with the provisions of
the Confidentiality Agreement dated 15 April 1997 between the
Vendor and the Purchaser.
14.2 SUCCESSORS AND ASSIGNS
14.2.1 Subject to Clause 14.2.2, this Agreement is personal to the
parties to it. Accordingly, neither the Purchaser nor the Vendor
may, without the prior written consent of the other parties
hereto, assign the benefit of all or any of the relevant party's
obligations under this Agreement, nor any benefit arising under
or out of this Agreement.
14.2.2 Except as otherwise expressly provided in this Agreement, either
the Vendor or the Purchaser may, without the consent of the
other, assign to a connected company the benefit of all or any of
the other party's obligations under this Agreement provided
however that such assignment shall not be absolute but shall be
expressed to have effect only for so long as the assignee remains
a connected company. For the purposes of this sub-clause a
"CONNECTED COMPANY," is a company which is a subsidiary of the
party concerned or which is a holding company of such party or a
subsidiary of such holding company.
14.3 VARIATION ETC.
14.3.1 No variation of this Agreement shall be effective unless in
writing and signed by or on behalf of each of the parties to this
Agreement.
14.3.2 For the purposes of Section 2 of the Law of Property
(Miscellaneous Provisions) Act 1989 this Agreement shall be
deemed to incorporate all documents directly or indirectly
required to be executed pursuant to it.
14.4 TIME OF THE ESSENCE
Any time, date or period referred to in any provision of this Agreement
may be extended by mutual agreement between the parties but as regards
any time, date or period originally fixed or any time, date or period so
extended time shall be of the essence.
14.5 REFERENCES TO THE EXPERT
Whenever any matter is referred under this Agreement to the decision of
the Expert:
14.5.1 the Expert shall be deemed to act as expert and not as
arbitrator;
14.5.2 the Expert shall have power to allocate his fees and expenses for
payment in whole or in part by either party at his discretion.
Save as aforesaid, if not otherwise allocated the fees and
expenses of the Expert shall be paid as to half by the Vendor and
as to half by the Purchaser;
14.5.3 the Vendor and the Purchaser shall promptly on request supply to
the Expert all such documents and information as he may require
for the purpose of the reference; and
14.5.4 the decision of the Expert shall (in the absence of objection on
the grounds of any error discovered within 10 Business Days of
the issue of his decision) be conclusive and binding and shall
not be the subject of any appeal by way of legal proceeding or
arbitration or otherwise.
14.6 COSTS
The Vendor shall bear all legal, accountancy and other costs and
expenses incurred by it in connection with this Agreement and the sale of
the Business. The Purchaser shall bear all such
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<PAGE>
costs and expenses incurred by it. Subject to Clause 14.5 and Part 2 of
Schedule 2, the costs of the Expert shall be borne by the parties
equally.
14.7 INTEREST
If the Vendor or the Purchaser defaults in the payment when due of any
sum payable under this Agreement (whether determined by agreement or
pursuant to an order of a court or otherwise) the liability of the Vendor
or the Purchaser (as the case may be) shall be increased to include
interest on such sum from the date when such payment is due until the
date of actual payment (as well after as before judgment) at a rate per
annum of 3 per cent above the base rate from time to time of Barclays
Bank PLC. Such interest shall accrue from day to day.
14.8 NOTICES
14.8.1 Any notice or other communication requiring to be given or served
under or in connection with this Agreement shall be in writing
and shall be sufficiently given or served if delivered or sent:
In the case of the Vendor to:
Speedbird House
P.O. Box 10
Heathrow Airport (London)
Hounslow
Middlesex TW6 2JA
Fax: 0181 562 3323
Attention: The Company Secretary
In the case of the Purchaser to:
Number 1 London Road
Southampton
Hampshire
S015 2AE
Fax: 01703 631835
Attention: The Company Secretary
In the case of the Guarantor to:
11240 Sherman Way
Sun Valley
CA 91352
United States of America
Fax: 001 818 765 2416
Attention: Mr. D. Lokken
14.8.2 Any such notice or other communication shall be delivered by hand
or sent by courier, fax or prepaid first class or (as
appropriate) airmail post. If sent by courier or fax such notice
or communication shall conclusively be deemed to have been given
or served at the time of despatch unless the same is given or
served other than before 5 pm on a Business Day in which event
service shall be deemed to take place at 9 am on the Business Day
next following despatch. If sent by post such notice or
communication
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<PAGE>
shall conclusively be deemed to have been received two Business
Days from the time of posting (or four Business Days in the case
of airmail post).
14.9 SEVERANCE
If any term or provision of this Agreement is held to be illegal or
unenforceable, in whole or in part, under any enactment or rule of law,
such term or provision or part shall to that extent be deemed not to form
part of this Agreement but the enforceability of the remainder of this
Agreement shall not be affected.
14.10 COUNTERPARTS
This Agreement may be executed in any number of counterparts each of
which shall be deemed an original, but all the counterparts shall together
constitute one and the same instrument.
14.11 RESTRICTIVE TRADE PRACTICES
Notwithstanding any other provision of this Agreement, no provision of
this Agreement which is of such a nature as to make the Agreement liable
to registration under the Restrictive Trade Practices Act 1976 shall take
effect until the day after that on which particulars thereof have been
duly furnished to the Director General of Fair Trading pursuant to the
said Act. For the purposes of this Clause 14.11, "Agreement" shall
include any agreement forming part of the same arrangement.
14.12 FILINGS WITH REGULATORY AUTHORITIES
The Purchaser shall use its best efforts to obtain confidential treatment
of any provisions reasonably identified by the Vendor as being
commercially sensitive contained in this Agreement, the Related
Agreements and/or any other documents required to be filed with or
submitted to the US Securities and Exchange Commission, any State
securities regulatory body, the National Association of Securities
Dealers, any stock exchange or any other US or other governmental or
regulatory body or any other securities exchange or self-regulatory body
or similar agency, authority or body ("REGULATORY AUTHORITIES") in
connection with a proposed offering of any securities of the Guarantor
and/or the Purchaser. The Purchaser shall consult with the Vendor and/or
its advisers on a timely basis in advance of any such filing or
submission or any such request for such confidential treatment and shall
take into account the Vendor's reasonable comments prior to requesting or
submitting an application to obtain such confidential treatment from any
Regulatory Authority or Regulatory Authorities and in respect of any
related communications with any Regulatory Authority or Regulatory
Authorities.
14.13 GOVERNING LAW, APPOINTMENT OF PROCESS AGENTS AND SUBMISSION TO
JURISDICTION
This Agreement and, save as expressly referred to therein, the documents
to be entered into pursuant to it shall be governed by and construed in
accordance with English law and the parties irrevocably agree that the
courts of England are to have non-exclusive jurisdiction to settle any
disputes which may arise out of or in connection with this Agreement and
such documents.
The Guarantor hereby irrevocably appoints Paris Smith & Randall of Number
1 London Road, Southampton, S015 2AE as its agent for the service of
process in England in relation to any matter arising out of or pursuant
to this Agreement, service upon whom shall be deemed completed whether or
not forwarded to or received by the Guarantor.
The Guarantor undertakes that it will inform the Vendor in writing of any
change in the address of its process agent within 28 days. If such
process agent ceases to have an address in England, the Guarantor
irrevocably agrees to appoint a new process agent acceptable to the
Vendor and to deliver to the Vendor within 14 days a copy of written
acceptance of appointment by its new process agent.
In witness whereof this Agreement has been duly executed.
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29
<PAGE>
SIGNED by Colin Matthews, Director
on behalf of BRITISH AIRWAYS PLC /s/ COLIN MATTHEWS
in the presence of:
/s/ C.L. [ILLEGIBLE]
Solicitor
Linklaters & Paines
London
SIGNED by David Lokken, Director
on behalf of
HAWKER PACIFIC, AEROSPACE LIMITED /s/ DAVID L. LOKKEN
in the presence of:
/s/ [ILLEGIBLE]
Southampton
[ILLEGIBLE]
SIGNED by David Lokken, Director
on behalf of
HAWKER PACIFIC AEROSPACE /s/ DAVID L. LOKKEN
in the presence of:
/s/ [ILLEGIBLE]
as above
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<PAGE>
SCHEDULE 1
PART I
THE EXCLUDED CONTRACTS
1 Any contracts or policies of insurance.
2 Any contracts, undertakings, arrangements or agreements entered into by
or on behalf of the Vendor relating to the Retained Business.
3 Employment and other contracts with Relevant Employees.
4 Any contracts relating to computer software.
5 The contracts or arrangements entered into by the Vendor relating to the
Business which are not Assumed Contracts and any agreements entered into
pursuant to those contracts or arrangements.
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<PAGE>
PART 2
THE PROPERTY
Offices, storage and workshops within Technical Block A, East Base, Heathrow
Airport, London, shown coloured pink, pink hatched black, pink hatched green and
pink cross-hatched black on the plans attached to the Underlease.
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<PAGE>
SCHEDULE 2
PART 1
ALLOCATION OF CONSIDERATION
The consideration for the purchase of the Business shall initially be
allocated as follows (subject to adjustment, except in relation to
Goodwill, Business Intellectual Property/Know-How and Tools in accordance
with Part 2 of Schedule 2):
ITEM AMOUNT
L
1.1 Fixed Assets [ ****** ]
1.2 Rotable Inventory [ ****** ]
1.3 Expendable Inventory [ ****** ]
1.4 Tools [ ****** ]
1.5 Goodwill and Business Intellectual [ ****** ]
Property/Know-How
----------
11,274,095
----------
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<PAGE>
PART 2
THE COMPLETION STATEMENT
1 The Fixed Asset Value and the Rotable Inventory Value as at the Valuation
Date shall be determined according to the principles set out in this
Schedule 2. No account shall be taken of events occurring after the
Valuation Date.
1.1 The Vendor in consultation with the Purchaser shall procure that, as soon
as practicable after the Valuation Date and in any event not later than
one month thereafter, there shall be drawn up a statement showing the
amount of the Fixed Asset Value and the Rotable Inventory Value
respectively.
1.2 The Completion Statement shall be drawn up by a representative(s) of the
Vendor and the Purchaser respectively in the manner described in this
Schedule 2. If the Vendor and the Purchaser's respective representatives
fall to agree the amount of the Fixed Asset Value and the Rotable
Inventory Value within one month of Completion, the matter in dispute
shall be referred to the Expert who shall settle and complete the draft
Completion Statement as soon as practicable and shall determine the
amount of the Fixed Asset Value and/or the Rotable Inventory Value, as
appropriate. Any fees and expenses of the Expert incurred pursuant to
this Schedule 2 shall be paid as to half by the Vendor and as to half by
the Purchaser.
1.3 If the Purchase Price is less than L11,274,095 the Vendor shall pay to
the Purchaser any shortfall due and if such amount exceeds L11,274,095
the Purchaser shall pay to the Vendor any excess due, on the Final
Payment Date, together in either case with interest from the date of
Completion until the Final Payment Date at a rate per annum of 2 per cent
above the base rate from time to time of Barclays Bank PLC (such interest
to accrue from day to day), and the allocation of the consideration in
Part 1 of Schedule 2 shall be adjusted accordingly.
2 The Fixed Asset Value shall be determined by a routine inspection of the
Fixed Assets carried out by a representative of the Vendor and a
representative of the Purchaser prior to the Valuation Date and shall be
the Initial Fixed Asset Value less the agreed cost of repairing or
replacing any Fixed Asset(s) which have become inoperable between 20
December 1997 and the date of such inspection. In the event of any
dispute the matter shall be referred to the Expert.
3 The Rotable Inventory Value shall be determined by calculating the
aggregate value of the Rotable Inventory Assemblies and the Rotable
Inventory Sub-assemblies an the following basis:
3.1.1 any assembled Rotable Inventory Assembly shall be valued at the
relevant price of such Assembly in the relevant Condition as set
out in the document in the agreed terms; and
3.1.2 any unassembled Rotable Inventory Assembly shall be valued at the
aggregate of the Work in Progress attributable to such Assembly
and the value of such item in Non-Serviceable Condition;
provided that if any Sub-assembly or LRU attributable to any Rotable
Inventory Assembly (whether assembled or not) has been scrapped or is
missing by comparison with the Vendor's Build Standard, the value of such
Assembly shall be the aggregate of value of such Assembly in
Non-Serviceable Conditions plus the amount of any Work-in-Progress
attributable thereto and less the value of any such Sub-assembly or LRU
at the relevant price for such Sub-assembly or LRU in Serviceable
Condition as set out in sections b) or c) (as appropriate) of the list of
prices of Rotable Inventory Sub-assemblies in the agreed terms.
3.2 The value attributable to each category of Rotable inventory Sub-assembly
or LRU shall be calculated as follows:
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<PAGE>
3.2.1 the value of any category of Ratable Inventory Sub-assembly or
LRU per aircraft type as set out in section a) of the list of
Rotable Inventory Sub-assembly prices in the agreed terms (the
"CATEGORY PRICE") shall be adjusted where necessary on the basis
that, if there are more Sub-assemblies or LRUs within any given
category than is indicated on the list of Rotable Inventory
Sub-assembly prices in the agreed terms, the value(s) of such
additional items (by reference to sections b) and c) of the list
of Rotable Inventory Sub-assembly prices in the agreed terms)
will be added to the relevant Category Price. If there are fewer
Sub-assemblies or LRUs within any specific category than is
indicated on such list, the values of such item (by reference to
sections b) and c) of the list of Rotable Inventory Sub-assembly
prices in the agreed terms) shall be deducted from the relevant
Category Price. In no event shall any Category Price be less than
Lzero; and
3.2.2 the value of any other Rotable Inventory Sub-assembly components
shall be calculated on the assumption that 50 per cent. Work in
Progress is attributable to each such Sub-assembly and determined
by reference to the relevant percentage of the OEM list price
then in force as set out in section c) of the list of Rotable
Inventory Sub-assembly prices in the agreed terms;
provided that:
3.2.3 in relation to Rotable Inventory for B747-100 and L1011 aircraft
types the Purchaser shall not purchase Rotable Inventory to a
total value (determined as above) in excess of L243,530
(B747-100) and L233,580 (L1011) respectively. Rotable Inventory
for these aircraft types in excess of such values shall be
disposed of by the Purchaser on behalf of the Vendor pursuant to
Clause 12.6; and
3.2.4 where an item of Rotable Inventory can be used on either (i)
B747-100 or B747-200 aircraft types or (ii) B747-200 or B747-400
aircraft types respectively the value of any such item shall
assume that It will be fitted to (i) a B747-100 or (ii) a
B747-200, as the case may be, and shall be determined by
reference to the relevant price as set out in the document in the
agreed terms.
3.3 Title to and risk in any Rotable Inventory Assemblies that are in the
Possession of any third party on Completion and to which the Vendor has
title (a list of which as at Completion will be provided to the Purchaser
by the Vendor) will, for the avoidance of doubt, be acquired by the
Purchaser on Completion and valued on the basis that such items are in
Serviceable Condition and that such Assemblies are assembled and,
notwithstanding the provisions of Clause 6 of this Agreement, such items
will be delivered to the Purchaser in a timely manner following return of
such item to the Vendor by such third party. For the avoidance of doubt,
any charges incurred in overhauling such Inventory shall be the
responsibility of the Vendor.
4 In the event that, during the preparation of the Completion Statement, it
appears to either party that the value of the Work in Progress calculated
as being attributable to any item of Rotable Inventory does not reflect
the Condition of such item and if such disparity amounts to a difference
of more than 20 per cent from (i) the value of labour and materials that
would be expected to have been expended on an item of Rotable Inventory
in the same condition or (ii) the value of such item in the Condition it
is actually in, the Rotable Inventory Value shall be adjusted
accordingly. In the event of any dispute, the matter shall be referred to
the Expert who shall assess the actual Condition of such item and, if he
assesses that the disparity between the value of the Work in Progress
attributable to such item and the value of such item in the Condition it
is actually in amounts to more than 20 per cent he shall adjust the
Rotable Inventory Value accordingly by the difference between the
original value ascribed to such item and its value as ascertained by him
and the provisions of Clause 14.6 and of paragraph 1.2 of this Part 2
shall apply.
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<PAGE>
5 The value of any of the Additional Assets will be such value as is agreed
between the Vendor and the Purchaser.
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<PAGE>
SCHEDULE 3
WARRANTIES GIVEN BY THE VENDOR UNDER CLAUSE 7
1 AUTHORITY AND CAPACITY OF THE VENDOR
1.1 The Vendor is duly incorporated under the laws of England and Wales and
has the legal right and full power and authority to enter into and
perform this Agreement and any other documents to be executed by the
Vendor pursuant to or in connection with this Agreement.
1.2 The Vendor has the legal right and full power and authority to carry on
the Business.
1.3 All corporate action required by the Vendor validly and duly to authorise
the execution and delivery of, and to exercise its rights and perform its
obligations under, this Agreement and any other documents to be executed
by the Vendor pursuant to or in connection with this Agreement has been
duly taken.
2 LEGAL MATTERS
2.1 COMPLIANCE WITH LAWS
The Business is being carried on in compliance in all material respects
with applicable laws, regulations and bye-laws and there is no
investigation or enquiry by, or order, decree, decision or judgment of,
any court, tribunal, arbitrator, governmental agency or regulatory body
outstanding or anticipated against the Vendor in connection with the
Business which, in any such case, has had or may have a material adverse
effect upon the Business, nor has any notice or other communication from
any court, tribunal, arbitrator, governmental agency or regulatory body
been received by the Vendor with respect to an alleged actual or
potential violation and/or failure to comply with any such applicable
law, regulation or bye-law or requiring it to take or omit any action
which, in any such case, may have a material adverse effect upon the
Business.
2.2 ENVIRONMENT
2.2.1 All Environmental Laws relating to the Business have been
compiled with in all material respects and, in particular, the
terms and conditions of all permits, licences and other
authorisations, and all notifications, that are required under
such Environmental Laws have been obtained and complied with in
all material respects, or duly filed.
2.2.2 There is no civil, criminal or administrative action, claim,
investigation or other proceeding of suit pending or threatened
in respect of the Business arising from or relating to
Environmental Laws and so far as the Vendor is aware there are no
circumstances existing which may lead to any such action, claim,
investigation, proceeding or suit.
2.2.3 As far as the Vendor is aware, the Disclosed Documents contain
all reports and correspondence of a material nature concerning
any non-compliance with Environmental Laws by the Vendor for the
period of one year immediately preceding the date of this
Agreement.
2.3 LICENCES AND CONSENTS
2.3.1 All statutory and regulatory licences, consents, authorisations,
orders, certificates, approvals and authorities ("LICENCES")
necessary for the carrying on of the Business as now carried on
(including but not limited to those relating to environmental or
health and safety at work requirements) have been obtained, are
in full force and effect and are being complied with in all
material respects.
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<PAGE>
2.3.2 The Vendor has received no official notice of any investigation,
enquiry or proceeding which is outstanding or anticipated which
is likely to result in the suspension, cancellation, refusal,
material modification or revocation of any such Licences.
2.4 LITIGATION
The Vendor is not involved whether as plaintiff or defendant or other
party in any claim, legal action, proceeding, suit, litigation,
prosecution, investigation, enquiry or arbitration in connection with the
Business in any such case which is material in the context of the
Business (other than as plaintiff in the collection of debts arising in
the ordinary course of business) and so far as the Vendor is aware no
such claim, legal action, proceeding, suit, litigation, prosecution,
investigation, enquiry or arbitration is pending or threatened by or
against the Vendor which may have a material adverse effect upon the
Business.
3 ASSUMED CONTRACTS
3.1 MATERIAL CONTRACTS
3.1.1 The copies of the Assumed Contracts delivered to the Purchaser
are true, accurate and complete in all respects, none of the
Assumed Contracts has been terminated and the Vendor is not aware
of any material breaches or defaults, or alleged material
breaches or defaults, or of any fact that is likely to lead to
any material breach or default, in each case of any Assumed
Contract. None of the Assumed Contracts has been varied in any
material respect by a course of dealings between the parties.
3.1.2 None of the Assumed Contracts has been entered into otherwise
than on an arm's length basis in the ordinary course of business,
in connection with the Business.
3.1.3 The Vendor is not party to any agreement or arrangement which
restricts in any material respect its freedom to carry on the
Business as currently carried on in such manner as it thinks fit.
3.1.4 Other than the Assumed Contracts, the lease of the Property and
the Excluded Contracts the Vendor has not entered into any other
contracts which are material to the Business.
3.2 ANTI-TRUST
The Vendor is not in relation to the Business a party to any agreement,
arrangement or concerted practice nor is carrying on any practice which
in whole or in any material part contravenes or is invalidated by any
anti-trust, fair trading, consumer protection or similar legislation in
the United Kingdom or any similar provision of EC law or in respect of
which any filling, registration or notification is required pursuant to
such legislation and the Vendor has not received notice of any official
investigation or enquiry in respect of any such matters in relation to
the Business.
4 EMPLOYEES
4.1 EMPLOYEES AND TERMS OF EMPLOYMENT
4.1.1 The employees whose details are set out in the document in the
agreed terms attached to the Disclosure Letter, subject to any
additions thereto or deletions therefrom agreed between the
Vendor and the Purchaser to reflect cessations and commencements
of employment between the data of this Agreement and Completion,
will be the only employees transferred to the Purchaser by reason
of the Purchaser acquiring the Business or in respect of whom the
Purchaser will inherit liabilities pursuant to the provisions of
the Transfer Regulations.
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<PAGE>
4.1.2 All such employees are employed by the Vendor and all employees
engaged in connection with the Business within 12 months prior to
the date of this Agreement were employed by the Vendor. All such
employees are employed exclusively in the Business and none is
required to perform employment duties for any other person. None
of such employees has outstanding any material claim against the
Vendor in respect of his or her employment by the Vendor.
4.1.3 The document in the agreed terms attached to the Disclosure
Letter contains full details in relation to the Business of:
(i) the total number of employees (including those who are on
maternity or paternity leave or absent on the grounds of
disability or other long-term leave of absence, and have
or may have a statutory or contractual right to return to
work in the Business):
(ii) the name, date of commencement of employment, period of
continuous employment, location, salary and benefits
(which cannot be ascertained by reference to the
appropriate grade and collective agreement), grade and age
of each of the employees;
(iii) trades unions recognised by the Vendor and other employee
representative bodies;
(iv) the terms of each contract of employment of each of the
employees entitled to salary at a rate, or an average
annual rate over the last three financial years, in excess
of L40,000 a year;
(v) the terms of all consultancy agreements with the Vendor
relating to the Business; and
(vi) all profit-sharing, incentive and bonus arrangements
applicable to any of the employees.
4.1.4 There are no proposals to terminate the employment of any of the
employees of the Vendor referred to in paragraph 4.1.1 or to vary
or amend their terms of employment (whether to their detriment or
benefit) in any material respect and no such variations or
amendments have been made in the six months preceding the date of
this Agreement.
4.2 LIABILITIES TO AND FOR EMPLOYEES
4.2.1 Except as set out in the Disclosure Letter and the Staff Plan, no
material liability has been incurred by the Vendor for breach or
termination of any contract of employment with an employee
engaged in connection with the Business including, without
limitation, redundancy payments, protective awards, compensation
for unfair dismissal or any other compensation awarded by an
Industrial Tribunal including any award of damages for unlawful
discrimination, compensation for wrongful dismissal or otherwise
or for failure to comply with any order for reinstatement or
re-engagement of any employee engaged in connection with the
Business within the 12 months preceding the date of this
Agreement.
4.2.2 Except as stated in the Disclosure Letter, as at the date of this
Agreement the Vendor is not aware of any existing or threatened
material claims against the Vendor by any employee engaged in the
Business.
4.3 TRADE DISPUTES
The Vendor is not in connection with the Business involved in any dispute
or negotiation regarding any material claim by employees of the Business
or the dismissal, suspension,
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<PAGE>
disciplining or varying of terms or conditions of employment of any
present or former employee of the Business with any trade union or
association of trade unions, works council, staff association or other
similar organisation or body of employee.
4.4 PENSIONS
4.4.1 The Vendor's Pension Schemes are the only schemes to which the
Vendor makes payments for providing retirement, death, disability
or life assurance benefits in respect of the Relevant Employees.
No proposal has been announced to establish any other scheme for
providing any such benefits and the Vendor does not provide and
has not promised any such benefits except under the Vendor's
Pension Schemes.
4.4.2 The Vendor's Pension Schemes are exempt approved schemes within
the meaning of Chapter I Part XIV of the Income and Corporation
Taxes Act 1988. Members of the Vendor's Pension Schemes are
contracted-out of the State Earnings Related Pension Scheme. So
far as the Vendor is aware after having made reasonable enquiries
of the trustees of the Vendors Pension Schemes, the Vendor's
Pension Schemes comply with, and have been managed in accordance
with all applicable laws, regulations and requirements and, so
far as the, Vendor is aware, there are no circumstances that
might give rise to the withdrawal or cancellation of such
approval and of such contracted-out status.
4.4.3 There are attached to the Disclosure Letter copies of:
(i) the current trust deeds and rules of the Vendor's Pension
Schemes which apply to the Relevant Employees; and
(ii) all current explanatory booklets and announcements
relating to the Vendor's Pension Schemes which apply to
the Relevant Employees.
These documents contain full details of all benefits payable
under the Vendor's Pension Schemes in respect of the Relevant
Employees and there have been no augmentations of such benefits
which are not reflected in these documents. There are no
established customs for discretionary benefits or increases in
benefits to be awarded under the Vendor's Pension Schemes in
respect of the Relevant Employees other than those detailed in
the Disclosure Letter.
4.4.4 So far as the Vendor is aware after having made reasonable
enquiries of the trustees of the Vendor's Pension Scheme, all
material amounts due to the Vendor's Pension Schemes from and in
respect of the Relevant Employees have been paid.
4.4.5 There are no circumstances which would give rise to a debt being
due from the Purchaser under section 144 of the Pension Schemes
Act 1993 or section 75 of the Pensions Act 1995.
4.4.6 So far as the Vendor is aware, there are no actions, suits or
claims, submissions or referrals, whether to the Pensions
Ombudsman or otherwise, pending or threatened in respect of the
Vendor's Pension Schemes or the benefits payable under the
Vendor's Pension Schemes that would affect the benefit
entitlements of Relevant Employees other than those detailed in
the Disclosure Letter.
4.5 Membership of the Vendor's Pension Schemes has been determined and the
Vendor's Pension Schemes have been operated in accordance with the
requirements of Article 119 of the Treaty of Rome and with domestic law
relating to sex discrimination and equal treatment.
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<PAGE>
4.6 DEFINITIONS
For the purposes of this paragraph 4. "EMPLOYEE" includes any person who
works under a contract of service or apprenticeship or contract
personally to execute any work or labour, or receives any training.
5 TAXATION MATTERS
5.1 RECORDS AND RETURNS
All proper records have been kept for the periods required by law and all
proper returns and payments have been made as required by law for the
purposes of PAYE, National Insurance and VAT in connection with the
Business are accurate in all material respects.
5.2 VAT
5.2.1 None of the Assets are the subject of any security in favour of
H.M. Customs & Excise under paragraph 4 of Schedule 11 to VATA
1994 or Section 157 Customs & Excise Management Act 1979.
5.2.2 There are set out in the Disclosure Letter details of each item
which the Vendor uses in the course or furtherance of its
business, and for the purpose of that business, otherwise than
solely for the purpose of selling the item, being an item to
which Part XV of the Value Added Tax Regulations 1995 applies and
in respect of which the period of adjustment will not have
expired by Completion. Such details are sufficient to enable the
Purchaser (or any group of which it will form part for the
purposes of Section 43 VATA 1994 following Completion) to comply
with its obligations under the said Part.
5.3 ABSENCE OF DISPUTES
The Vendor is not involved in any dispute with the Inland Revenue or H.
M. Customs & Excise concerning any matter which is or is likely to be
material in the context of the Business as a whole.
6 ASSETS
6.1 TITLE
All the Assets are the absolute property of the Vendor and none is the
subject of any assignment or Encumbrance (excepting only liens arising by
operation of law in the normal course of trading) or the subject of any
factoring arrangement, hire-purchase, conditional sale or credit sale
agreement.
6.2 INTELLECTUAL PROPERTY
6.2.1 So far as the Vendor is aware, the Business Intellectual Property
and Business Know-How is not being infringed or attacked or
opposed by any person.
6.2.2 So far as the Vendor is aware, the current conduct of the
Business does not use or infringe any rights in Intellectual
Property or Know-How other than those belonging or licensed to,
or used under the authority of the owner by, the Vendor and no
pending claims of infringement of any Intellectual Property rights
or rights in Know-How have been made by any third party.
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<PAGE>
SCHEDULE 4
LIMITATIONS ON LIABILITY
1 LIMITATION OF LIABILITY
Notwithstanding the provisions of Clauses 7.1 and 7.2. the Vendor shall
not be liable in respect of a warranty claim under this Agreement:
1.1 TIME LIMITS
In respect of any claim unless notice of such claim is given in writing
by the Purchaser to the Vendor setting out reasonable details of the
specific matter in respect of which the claim is made including an
estimate of the amount of such claim, if practicable, by 31 March 2000,
and any such claim shall (if it has not been previously satisfied,
settled or withdrawn) be deemed to be withdrawn nine months after the
relevant time limit set out above unless legal proceedings in respect of
it (i) have been commenced by being both issued and served and (ii) are
being pursued with reasonable diligence;
1.2 MINIMUM CLAIMS
In respect of any claim arising from any single circumstance if the
amount of the claim does not exceed L10,000 (save that claims relating to
a series of connected matters or matters arising out of the same or
substantially the same facts or circumstances shall be aggregated for this
purpose) the Vendor shall not be liable for a claim in excess of that
amount unless the liability determined in respect of any such claim
(excluding interest, costs and expenses) also exceeds that amount;
1.3 AGGREGATE MINIMUM CLAIMS
In respect of any claim unless the aggregate amount of all claims for
which the Vendor would otherwise be liable under this Agreement exceeds
L100,000 (but the Vendor shall be liable for the whole amount of such
claim and not merely the excess);
1.4 MAXIMUM CLAIMS
in respect of any claim to the extent that the aggregate amount of the
liability of the Vendor for all claims made under this Agreement would
exceed the Purchase Price;
1.5 CONTINGENT LIABILITIES
in respect of any liability which is contingent unless and until such
contingent liability becomes an actual liability and is due and payable
but this paragraph shall not operate to avoid a claim made in respect of
a contingent liability within the applicable time limit specified in
paragraph 1.1 above if the requisite details of such claim have been
delivered before the expiry of such period (even if such liability does
not become an actual liability until after the expiry of the relevant
period) and the period of nine months referred to in paragraph 1.1 shall
only commence if and when such contingent liability becomes an actual
liability;
1.6 OTHER MATTERS
in respect of any matter, act, omission or circumstance (or any
combination thereof) (including, for the avoidance of doubt, the
aggravation of a matter or circumstance) to the extent that the same
would not have occurred but for:
1.6.1 CHANGES IN LEGISLATION
the passing of, or any change in, after the date of this
Agreement, any law, rule, regulation or administrative practice
of any government, governmental department, agency or regulatory
body including (without prejudice to the generality of the
foregoing) any increase in the rates of Taxation or any
imposition of Taxation or any
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<PAGE>
withdrawal of relief from Taxation not actually (or
prospectively) in effect at the date of this Agreement; or
1.6.2 ACCOUNTING AND TAXATION CHANGES
any change in accounting or Taxation policy, bases or practice of
the Purchaser introduced or having effect after Completion;
1.7 INSURANCE
in respect of any claim to the extent that any Losses arising from such
claim are recovered by a policy of insurance in force on the date at this
Agreement or would have been so covered had such policy of insurance been
maintained beyond the date of this Agreement;
1.8 FRAUD
None of the limitations contained in this paragraph 1 shall apply to any
claim which arises or is increased, or to the extent to which it arises
or is increased, as the consequence of, or which is delayed as a result
of, fraud by the Vendor or any officer or employee of the Vendor.
2 MITIGATION OF LOSS
Without prejudice to the validity of the claim or the alleged claim in
question, the Purchaser shall procure that all reasonable steps are taken
and all reasonable assistance is given to avoid or mitigate any Losses
which in the absence of mitigation might give rise to a liability in
respect of any claim under this Agreement.
3 CONDUCT OF CLAIMS
3.1 Without prejudice to the validity of the claim or the alleged claim in
question, if the Purchaser becomes aware of any matter that may give rise
to a claim against the Vendor under this Agreement notice of that fact
shall be given as soon as possible to the Vendor.
3.2 Without prejudice to the validity of the claim or alleged claim in
question, the Purchaser shall allow the Vendor and its accountants and
professional advisers to investigate the matter or circumstance alleged
to give rise to such claim and whether and to what extent any amount is
payable in respect of such claim and for such purpose the Purchaser shall
give, subject to its being paid all reasonable costs and expenses, all
such relevant information and reasonable assistance, including access to
premises and personnel on prior reasonable notice and without disruption
of the Purchaser's Business, and the right to examine and copy or
photograph any non proprietary, non confidential assets, accounts,
documents and records, as the Vendor or its accountants or professional
advisers may reasonably request.
3.3 Without prejudice to the validity of the claim or the alleged claim in
question, if the claim in question is a result of or in connection with a
claim by or liability to a third party then provided the Vendor conducts
the matter reasonably:
3.3.1 no admission of liability shall be made by or on behalf of the
Purchaser and the claim shall not be compromised, disposed of or
settled without the consent of the Vendor which shall not be
unreasonably withheld;
3.3.2 the Vendor shall, subject to the Vendor indemnifying the
Purchaser to its reasonable satisfaction against any increased
losses the Purchaser may suffer as a result, be entitled at its
own expense to take such action as it shall reasonably deem
necessary to avoid, dispute, deny, defend, resist, appeal,
compromise or contest such claim or liability (including, without
limitation, making counterclaims or other claims against third
parties) in the name of and on behalf of the Purchaser and to
have the conduct of any related proceedings, negotiations or
appeals;
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<PAGE>
3.3.3 the Purchaser will give, subject to being paid all reasonable
costs and expenses, all such information and assistance,
including access to premises and personnel, and the right to
examine and copy or photograph any assets, accounts, documents
and records, for the purpose of avoiding, disputing, denying,
defending, resisting, appealing, compromising or contesting any
such claim or liability as the Vendor or its professional
advisers reasonably request. The Vendor agrees to keep all such
information confidential and only to use it for such purpose.
4 PRIOR RECEIPT
If the Vendor pays an amount in discharge of any claim under this
Agreement and the Purchaser subsequently recovers (whether by payment,
discount, credit, relief or otherwise) from a third party a sum which is
referable to the subject matter of the claim and which would not
otherwise have been received by the Purchaser, the Purchaser shall pay to
the Vendor an amount equal to (i) the sum recovered from the third party
less any reasonable costs and expenses (including applicable taxes)
incurred in obtaining such recovery or (ii) if less, the amount
previously paid by the Vendor to the Purchaser.
5 TAX
In calculating the liability of the Vendor for any breach of this
Agreement, there shall be taken into account the amount (if any) by which
any Taxation for which the Purchaser would otherwise have been
accountable or liable to be assessed is actually reduced or extinguished
as a result of the matter giving rise to such liability.
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<PAGE>
SCHEDULE 5
PENSIONS
1 DEFINITIONS
"ACTUARY'S LETTER" means the letter from the Vendor's Actuary to the
Purchaser's Actuary (including the Appendix to that letter) in the agreed
terms.
"MEMBERSHIP TRANSFER DATE" means the date [******************].
"PAYMENT DATE" means the date after the Membership Transfer Date which is
10 Business Days after the fulfilment of all of the following conditions:
- the amount to be transferred has been determined and confirmed in
accordance with paragraph 5.1 of this Schedule 5,
- the Inland Revenue has consented to the making of the payment,
- the Purchaser has complied with its obligations in this Schedule,
- the trustees of the Purchaser's Pension Scheme have confirmed that they
will accept the payment on the terms in paragraph 6 of this Schedule
5.
"PURCHASER'S ACTUARY" means N.J.R. Curry Esq. of Lane Clark & Peacock of
St. Paul's Hill, Winchester S022 5AB or another actuary appointed by the
Purchaser for the purposes of this schedule.
"PURCHASER'S PENSION SCHEME" means the pension scheme to be established
or nominated by the Purchaser to meet the requirements of paragraph 2.
"TRANSFERRING MEMBER" means a Relevant Employee who is a member of the
Vendor's Pension Schemes and who consents, in a form satisfactory to the
trustees of the relevant Vendor's Pension Scheme, to a transfer of assets
being made for him to one of the sections in the Purchaser's Pension
Scheme.
"VENDOR'S ACTUARY" means G.R. Alexander Esq. of Watson Wyatt Partners of
Watson House, London Road, Reigate RH2 9PQ or another actuary appointed
by the Vendor for the purposes of this Schedule.
"1998 PAY AWARD" means the increase in pay agreed or to be agreed by the
Vendor for employees for 1998.
2 THE PURCHASER'S PENSION SCHEME
2.1 PURCHASER TO SET UP SECTIONS OF SCHEME THAT REFLECT VENDOR'S PENSION
SCHEMES
The Purchaser will set up two sections of the Purchaser's Pension
Scheme:
2.1.1 one section to provide benefits that are the same as the Benefits
to which Relevant Employees who are members of the Airways
Pension Scheme would have been entitled had they remained members
of that scheme;
2.1.2 one section to provide benefits that are the same as the Benefits
to which Relevant Employees who are members of the New Airways
Pension Scheme would have been entitled had they remained members
of that scheme.
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<PAGE>
Provided that:
2.1.3 the obligations on the Purchaser contained in paragraphs 2.1.1
and 2.1.2 above are subject to any legislative or regulatory
requirements which the Purchaser has to comply with in respect of
the Purchaser's Pension Scheme;
2.1.4 the Purchaser may at any time before the Membership Transfer
Date, with the consent of the Vendor (such content not to be
unreasonably withheld) determine to provide benefits other than
those described in paragraphs 2.1.1 and 2.1.2 above but which are
the same in all material respects as those benefits. Except that
for each Transferring Member the value of any benefits payable
under this paragraph 2.1.4 must not be less than the value of the
benefits described in paragraphs 2.1.1 and 2.1.2 (both values to
be calculated on the basis set out in the Actuary's Letter); and
2.1.5 nothing herein contained shall be construed as to prevent the
Purchaser [********************************************].
"BENEFITS" means benefits guaranteed under the Trust Deed and Rules of
the relevant Vendor's Pension Scheme adjusted in accordance with the
changes to benefits referred to in the Disclosure Letter.
For clarification nothing in this paragraph shall prevent the Purchaser
and/or the trustees of the Purchasers' Pension Scheme from determining
the financial terms for the operation of benefit options in the
Purchasers' Pension Scheme that are intended to be cost neutral, in
accordance with the advice of their own actuary(ies).
The Purchaser's Pension Scheme will contain a provision allowing the
Purchaser and/or the trustees of that scheme to exercise a discretion to
augment benefits to provide additional benefits from time to time, such
discretion being exercisable in the manner determined solely by the
person(s) exercising the discretion.
Nothing in this paragraph requires the Purchaser to amend the Purchaser's
Pension Scheme to incorporate amendments made to the Airways Pension
Scheme or the New Airways Pension Scheme after Completion (other than
amendments in respect of the Benefits as defined in this paragraph 2.1).
2.2 THE PURCHASER'S PENSION SCHEME WILL BE;
2.2.1 a contracted-out scheme and (subject to the proviso below) will
be contracted out on the same basis as the Vendor's Pension
Schemes for a period of at least [*****], provided always that
the Purchaser shall be entitled to change the basis of
contracting-out at any time with the prior written consent of the
Vendor (such consent not to be unreasonably withheld or delayed):
and
2.2.2 an exempt approved scheme or capable of approval as an exempt
approved scheme for the purposes of Chapter 1 Part XIV of the
Income and Corporation Taxes Act 1988.
2.3 INVITATION TO RELEVANT EMPLOYEES TO JOIN SECTIONS OF PURCHASER'S PENSION
SCHEME
The Purchaser will invite each Relevant Employee who is a member of the
Airways Pension Scheme immediately before the Membership Transfer Date to
join the section of the Purchaser's Pension Scheme set up in accordance
with paragraph 2.1.1 on the Membership Transfer Date.
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<PAGE>
The Purchaser will invite each Relevant Employee who is a member of the
New Airways Pension Scheme immediately before the Membership Transfer
Date, to join the part of the section of the Purchaser's Pension Scheme
set up in accordance with paragraph 2.1.2 that corresponds to the part of
the New Airways Pension Scheme of which the employee is a member
immediately before the Membership Transfer Date.
The Purchaser will invite any Relevant Employee who would have become
eligible to join the New Airways Pension Scheme if it had continued to
apply to him or her to join the section of the Purchaser's Pension Scheme
set up in accordance with paragraph 2.1.2 on the later of the Membership
Transfer Date and the date on which that employee would have become
eligible.
2.4 The Purchaser's invitations to the Relevant Employees will give them the
opportunity to transfer their past service to the Purchaser's Pension
Scheme and will be:
2.4.1 in a form prepared by the Purchaser and agreed by the Vendor
(such agreement not to be unreasonably withheld or delayed) and
the trustees of the relevant Vendor's Pension Scheme; and
2.4.2 issued promptly once agreed and at least eight weeks before the
Membership Transfer Date.
2.5 The Purchaser will notify the Relevant Employees that a reply to the
invitation must be given at least seven days before the Membership
Transfer Date.
3 TRANSITIONAL PERIOD OF PARTICIPATION
3.1 Subject to Inland Revenue approval, the Vendor will use all reasonable
endeavours to ensure that the Purchaser may participate in the Vendor's
Pension Schemes (but only in respect of Relevant Employees who were
members of the Vendor's Pension Schemes immediately before Completion or
who join the Vendor's Pension Schemers before the Membership Transfer
Date) from Completion to the day before the Membership Transfer Date. For
this purpose the Vendor and the Purchaser will enter into deeds of
inclusion in the form of the documents in the agreed terms and the Vendor
will use reasonable endeavours to ensure that the trustees of the Vendor's
Pension Schemes execute such deeds.
Provided that the Purchaser has used all reasonable endeavours to assist
the trustees of the Vendor's Pension Schemes in connection with its
participation in those Schemes (including providing any information that
the trustees of the Vendor's Pension Schemes reasonably require), the
Vendor will promptly indemnify the Purchaser in respect of any reasonable
costs, claims, liabilities and expenses which it incurs as a result of
the failure of the trustees of the Vendor's Pension Schemes to execute
such deeds.
3.2 The Purchaser will do everything necessary to enable Relevant Employees
who are members of the Vendor's Pension Schemes to remain contracted-out
by reference to the Vendor's Pension Schemes and to cease to be
contracted-out by reference to the Vendor's Pension Schemes on the day
before the Membership Transfer Date.
3.3 If before the Membership Transfer Date the pay of any Relevant Employee is
increased by the Purchaser by an amount of more than [*] per cent. per
annum, the Purchaser will write and tell the trustees of the relevant
Vendor's Pension Scheme. [************************************]. In this
paragraph "pay" means pay at Completion as increased by the 1998 Pay
Award.
3.4 Except as necessary to comply with all applicable law, regulations and
requirements (including Inland Revenue requirements), the Vendor will
not without the Purchaser's written consent (not to
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<PAGE>
be unreasonably withheld or delayed) make any amendment to the Vendor's
Pension Schemes prior to the Membership Transfer Date which will affect
the benefits payable in respect of Relevant Employees or the amount to be
transferred to the Purchaser's Pension Scheme nor will the Vendor
exercise its discretion prior to the Membership Transfer Date to augment
benefits payable to or in respect of the Relevant Employees without the
Purchaser's written consent (such consent not to be unreasonably withheld
or delayed).
3.5 The Purchaser will not exercise any power or discretion conferred on it
as an employer participating in the Vendor's Pension Schemes which, in
the reasonable opinion of the Vendor, would have the effect of increasing
the amount or value of any benefit to which any person is or may become
entitled under the Vendor's Pension Schemes or the amount of any
contributions due from an employer under those Schemes unless it shall
have been agreed between the Vendor and the Purchaser or unless the
Vendor shall consent (such consent not to be unreasonably withheld)
provided that the Vendor shall procure that the Purchaser may increase
the early retirement benefits to which any Relevant Employee is entitled
under the Vendor's Pension Schemes in accordance with the Vendor's
discretionary practice and the Vendor shall pay the amount of any
contribution due to those Schemes as a result of such increases.
3.6 The Purchaser will pay all contributions and expenses in respect of the
Relevant Employees to the Vendor's Pension Schemes in accordance with the
deeds of inclusion in the agreed terms.
4 TRANSFER PAYMENT FROM VENDOR'S PENSION SCHEMES
Where a Relevant Employee chooses to transfer his or her past service,
the Vendor will use reasonable endeavours to ensure that, on (or within 10
Business Days before) the Payment Date, the trustees of the relevant
Vendor's Pension Scheme transfer an amount equal to the value of the
benefits payable under those schemes in respect of that service
(calculated according to paragraph 5) to the Purchaser's Pension Scheme.
5 CALCULATION AND ADJUSTMENT OF AMOUNT TO BE TRANSFERRED
5.1 The amount described in paragraph 4 will be determined by the Vendor's
Actuary and confirmed by the Purchaser's Actuary in accordance with the
methods and assumptions set out in the Actuary's Letter, with the
adjustments set out in paragraph 5.2 and as if there was no requirement
to equalise guaranteed minimum pensions.
The amount will be determined within three months of the Membership
Transfer Date (or, if later, within two months of receipt by the Vendor's
Actuary of the data required for the purposes of the calculation) and
confirmed by the Purchaser's Actuary within six weeks of the amount being
determined. The Vendor's Actuary will send the Purchaser's Actuary all
data reasonably necessary to confirm the determination promptly and in
any case not later than seven days after the determination of the amount,
The Purchaser's Actuary will notify the Vendor's Actuary whether or not
the Purchaser's Actuary confirms the calculation of the amount.
The amount will be paid in cash.
The Vendor and the Purchaser shall use reasonable endeavours to ensure
that the trustees of the Vendor's Pension Schemes obtain as soon as
reasonably practicable the Inland Revenue's consent to the transfer of
the amount calculated under this paragraph.
5.2 The amount referred to in paragraph 5.1 will be adjusted in line with the
movement of the price of the British Airways Pension Investment Fund
Units between the Membership Transfer Data and the date on which payment
is made to the Purchaser's Pension Scheme.
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<PAGE>
5.3 If the trustees of the Vendor's Pension Schemes do not pay the amount
calculated and adjusted in accordance with paragraphs 5.1 and 5.2 in full
on or before the Payment Date the Vendor will pay to the Purchaser the
amount of the difference reduced by an amount equal to the current rate
of corporation tax on that difference adjusted in line with the movement
of the price of the British Airways Pension Investment Fund Units in
respect of the period from the Payment Date until the date on which
payment is made.
Immediately on receipt of the shortfall payment in accordance with this
paragraph 5.3, the Purchaser will pay the amount of the shortfall payment
to the Purchaser's Pension Scheme.
As soon as the Purchaser's corporation tax liability (if any) has been
determined in respect of the tax year in which the shortfall payment is
paid to the Purchaser's Pension Scheme, to the extent the Purchaser, using
all reasonable endeavours, has not been able to obtain relief from
corporation tax which it would have paid in that tax year in respect of
the payment of the shortfall payment to the Purchaser's Pension Scheme,
the Vendor shall pay to the Purchaser an amount equal to the amount of
corporation tax relief which the Purchaser has been unable to obtain
adjusted in line with the movement of the price of the British Airways
Pension Investment Fund Units in respect of the period from making the
initial shortfall payment to the date of paying the relevant balancing
amount.
5.4 Without prejudice to any party's liability or obligations under this
Schedule if it is determined at any time within one year after the
Payment Date that there was a manifest error in the determination of any
amount to be transferred under paragraph 4 above then there shall be
calculated the difference between the amount transferred on the Payment
Date and what it would have been had no manifest error been made in its
determination. The Vendor shall procure that such difference is paid as
soon as reasonably possible by the Vendor's Pension Schemes to the
Purchaser's Pension Scheme where the amount transferred was less than it
should have been but for the error. The Purchaser shall procure that such
difference shall be paid as soon as reasonably possible by the
Purchaser's Pension Scheme to the Vendor's Pension Schemes where the
amount transferred was greater than it would have been but for the error.
6 SERVICE TO BE CREDITED BY THE PURCHASER'S PENSION SCHEME IN RESPECT OF
MEMBERSHIP OF THE VENDOR'S PENSION SCHEMES
6.1 The obligations in paragraph 6.2 are conditional upon the receipt by the
Purchaser's Pension Scheme of the amount described in paragraph 4 and
calculated according to paragraph 5.
6.2 The Purchaser will use reasonable endeavours to ensure that the
Purchaser's Pension Scheme credits each Transferring Member who chooses
to join that scheme with pensionable service equal to the pensionable
service that Transferring Member had under the relevant Vendor's Pension
Scheme before the Membership Transfer Date and ranking for benefit to the
same extent.
7 VOLUNTARY CONTRIBUTIONS
Nothing previously contained in this Schedule will apply to voluntary
contributions or to benefits secured by them. However, the Vendor will
use reasonable endeavours to ensure that the assets representing a
Transferring Member's voluntary contributions will be transferred to the
Purchaser's Pension Scheme and the Purchaser will ensure that in that
event that scheme provides benefits for the member concerned equal in
value to the value from time to time of the assets transferred.
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<PAGE>
8 DISPUTES
If the amount to be transferred cannot be determined and confirmed by the
Vendor's and Purchaser's Actuaries the question will be referred to an
independent actuary. The independent actuary will be nominated firstly by
the Vendor and Purchaser or failing agreement between them be nominated
by the President of the Institute of Actuaries at the request of the
party first applying to him. The independent actuary shall act as an
expert and not as an arbitrator, his decision shall be final except in
the case of manifest error and his fees shall be paid as he shall direct.
9 INDEMNITY
If a debt becomes due from the Purchaser in respect of its participation
in the Vendor's Pension Schemes under section 144 of the Pension Schemes
Act 1993 or section 75 of the Pensions Act 1995 and the application of
those sections is not due to any act or omission of the Purchaser (other
than an omission to pay contributions in excess of the normal monthly
contributions determined in the manner described in the deeds referred to
in paragraph 3.1, above), the Vendor will indemnify the Purchaser on
demand for the amount of that debt together with interest thereon from
the date the Purchaser pays the debt to the date the Vendor indemnifies
under this paragraph.
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<PAGE>
SCHEDULE 6
THE RELATED AGREEMENTS
1 The Services Agreement
2 Underlease in relation to the Property to be granted by the Vendor to
the Purchaser
3 Consultancy Agreement.
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SCHEDULE 7
DOCUMENTS IN THE AGREED TERMS
1 List of the Fixed Assets
2 List of the Rotable Inventory Assemblies
3 List of the Rotable Inventory Sub-assemblies as contained in the list
attached to the Information Memorandum
4 List of the Expendable Inventory
5 List of the Tools
6 Details of the Assumed Contracts
7 The Related Agreements
8 Letter from the Vendor and the Purchaser to the Relevant Employees
9 The Staff Plan
10 Employees expected as at the date of this Agreement to be transferred or
in respect of whom the Purchaser will inherit liabilities pursuant to the
Transfer Regulations
11 Deeds of inclusion
12 Actuary's Letter (as defined in Schedule 5)
13 The documents containing prices for inventories referred to in Part 2 of
Schedule 2.
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<PAGE>
Dated 1998
BRITISH AIRWAYS PLC
and
HAWKER PACIFIC AEROSPACE LIMITED
and
HAWKER PACIFIC AEROSPACE
LANDING GEAR OVERHAUL SERVICES
AGREEMENT
/s/ DAVID L. LOKKEN
Signature
20 December 1997
/s/ COLIN MATTHEWS
Signature
[logo]
LINKLATERS
LINKLATERS & PAINES
One Silk Street
London EC2Y 8HO
Tel: (+44) 171 456 2000
Ref: JDDW/SAYR
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THE [*] INDICATES THAT PORTIONS OF TEXT HAVE BEEN DELETED AND ARE BEING FILED
UNDER SEPARATE COVER WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
LANDING GEAR OVERHAUL SERVICES AGREEMENT
This agreement is made on 1998
BETWEEN:
(1) BRITISH AIRWAYS PLC whose registered office is at Speedbird House,
London Heathrow Airport, Hounslow TW6 2JA("BA");
(2) HAWKER PACIFIC AEROSPACE LIMITED whose registered office is at
Number One, London Road, Southampton SO15 2AE("HAWKER),"
(3) HAWKER PACIFIC AEROSPACE whose registered office is at 11240 Sherman
Way, Sun Valley, CA 91352 USA ("THE GUARANTOR").
It is agreed as follows:
WHEREAS
(A) Hawker has acquired the Business (as defined in the Sale of Business
Agreement) from BA pursuant to the Sale of Business Agreement.
(B) BA requires, and Hawker has agreed to provide, repair and overhaul
services for landing gear assemblies, flap tracks, flap carriages and
related components pursuant to the terms and conditions of this
Agreement.
(C) It is envisaged by the parties that Hawker will deliver improvements
in the provision of the Services and reductions in the cost to BA of the
Services, with the assistance and co-operation of BA.
(D) Whilst no partnership or agency is created by this Agreement, the
parties intend to conduct their activities under it in close
co-operation in order to maximise the benefit to both parties and to
BA's customers.
1 INTERPRETATION
In this Agreement, including its Schedules, the headings shall not
affect its interpretation and, unless the context otherwise
requires, the provisions in this Clause 1 shall apply:
1.1 DEFINITIONS
ACCOUNTING RECORDS means accounting records to be kept by Hawker in the
form and in accordance with the provisions of Schedule 7;
ADVANCED EXCHANGE means the process whereby Hawker Supplies Serviceable
Inventory to BA which thereupon becomes the property of BA in accordance
with Clause 14.2 and collects from BA Unserviceable Inventory which
thereupon becomes the property of Hawker also in accordance with Clause
14.2;
AFFILIATE means any company or other entity of which BA owns shares
which represent or are convertible into 20% or more of the equity share
capital of that company or entity;
AGREED TERMS means, in relation to any document, such document in the
terms agreed between the parties, signed by or on behalf of BA and
Hawker for the purposes of identification and listed in Schedule 8;
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AIRCRAFT MEANS:
(i) in respect of Flap Tracks and Flap Carriages and related
components, the A320, B737, B747, B757, B767, B777,
L1011 and Concorde aircraft types, and such other
aircraft types as are notified to Hawker pursuant to
Clause 8;
(ii) in respect of Landing Gear and related components, the
B737, B747, B757, B767, B777, L1011 and Concorde
aircraft types, and such other aircraft types as are
notified to Hawker pursuant to Clause 8;
AIRCRAFT MAINTENANCE MANUALS means any technical manuals and other
technical data issued by an aircraft manufacturer relevant to the
operation, maintenance, overhaul and repair of any item of Rotable
Inventory or its installation and attachment to any Aircraft as updated
from time to time;
AIRSIDE PASS means a pass issued by HAL, GAL or other appropriate
authority for airside access;
BAA means BAA plc;
BA PASS means a pass issued by BA for access to BA Property;
BA PROPERTY means any real property from which BA conducts its business;
BA REPRESENTATIVE means the person who is nominated by BA from time to
time pursuant to Clause 17.1 as Hawker's principal point of contact for
matter arising out of or in connection with this Agreement which relate
to the provision of Services;
BA SAFETY OBLIGATIONS means the written statement of health and safety
policy prepared by BA in accordance with Section 2(3) of the Health and
Safety at Work etc Act 1974 and shall include (but not be limited to)
any rules, procedures, arrangements, systems, working practices or codes
of practice determined or adopted by BA whether in accordance with that
policy or with any applicable legal or Regulatory Requirements from time
to time to the extent that they are applicable to the provision of the
Services by Hawker to BA;
BA SPECIFICATION means the technical specification in the agreed terms
with which Serviceable Inventory must be in accordance;
BA SYSTEM means the TIME computer system;
BUSINESS DAY means a day on which banks are open for business in England
(excluding Saturdays, Sundays and public holidays);
CAA means the Civil Aviation Authority;
CHANGE CONTROL PROCEDURE means the procedure by which changes may be
made to the Services pursuant to Clause 7, as set out in Schedule 4 and
CHANGE shall mean a change to the Services resulting from the operation
of the Change Control Procedure;
COMMENCEMENT DATE means the date of this Agreement;
COMPLIANCE PLANS means any plans made pursuant to Clause 5.1 as a result
of a material change in Regulatory Requirements;
COMPONENTS means the constituent sub-assembly units and any parts
thereof which are comprised in any item of Rotable Inventory;
CONCORDE INVENTORY means Serviceable Inventory in respect of the
Concorde aircraft type;
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CONFIDENTIAL INFORMATION MEMORANDUM means the document titled BA
Engineering Landing Gears Repair & Overhaul Activity Confidential
Information Memorandum sent to the Guarantor under cover of a letter
dated 1 May 1997;
CONTAMINATION means any harm or damage or other interference with the
Environment arising on account of the presence, release, seepage, leak
or escape of any Hazardous Materials;
CONTAMINATION LIABILITY means any liability (including liability in
respect of Remedial Action) on the part of BA or Hawker under
Environmental Laws in respect of Contamination;
CONTAMINATION LOSS means actions, proceedings, losses, damages,
liabilities, claims, (including without limitation fines and/or
penalties) and, if reasonably incurred, costs and/or expenses of
Remedial Action and legal and other professional fees which are suffered
by Hawker or BA as the case may be (but excluding loss of profits or
consequential loss or consequential damage of any kind) and which arise
as a direct or indirect result of Contamination;
DISPUTE RESOLUTION PROCEDURE means the procedure by which the parties
will resolve disputes which arise in connection with this Agreement, set
out in Clauses 25, 26, and 27;
DoT means the Department of Transport;
EMPLOYEE means any employee of Hawker involved in the provision of
Services under this Agreement;
ENVIRONMENT means living organisms (including humans) including the
ecological systems of which they form part and the following media
(alone or in combination): air (including air within buildings and the
air within other natural or man-made structures whether above or below
the ground); water (including, without limitation, water under or within
land or in drains or sewers and coastal and inland waters); and land
(including land under water); and in the case of man includes his
property;
ENVIRONMENTAL AGREEMENT means any agreement with an Environmental
Authority which is binding on either BA or Hawker as the case may be but
only to the extent that such agreement relates, either wholly or in
part, to the prevention, remediation or mitigation of Contamination;
ENVIRONMENTAL AUTHORITY means any legal person (including any government
department or government agency) having regulatory authority under
Environmental Laws and or any court of law or tribunal which has
jurisdiction to determine any matter arising under Environmental Laws or
relating to the Environment;
ENVIRONMENTAL LAWS means in each case to the extent that the same are
enforceable in England and relate to the protection of the Environment,
and/or the prevention of and/or the provision of remedies in respect of
harm or damage to or other interference with the Environment, excluding
general planning laws and Safety Laws, other than Safety Laws which
relate to or have as a purpose the prevention of exposure to dangerous
or hazardous materials, but including the following:
(i) any and all laws including European Community or European
Union regulations, directives and decisions, together
with statutes and subordinate legislation in force from
time to time including for the avoidance of doubt Part
IIA of the Environmental Protection Act 1990 and/or
Sections 161A-D of the Water Resources Act 1991 (as
enacted by Section 57 and Schedule 22 paragraph 162
respectively of the Environment Act 1995) and all
notices, codes of practice, guidance notes and all
subordinate legislation made under the above statutory
provisions whether or not these provisions are in force
at the Commencement Date;
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(ii) all regulations, orders, ordinances, Permits, Environmental
Agreements, codes of practice, circulars, guidance notes
and the like issued under (i) above in force from time to
time;
(iii) common law and equity;
(iv) local laws and bye-laws in force from time to time; and
(v) judgments, decisions, notices, orders, directions, consent
agreements, instructions or awards by, with or of any
Environmental Authority under (i), (ii), (iii) and (iv)
above;
EUROPE means United Kingdom, Ireland, Portugal, Spain, France, Belgium,
the Netherlands, Germany, Switzerland, Austria, Luxembourg, Italy, Czech
Republic, Poland, Slovakia, Hungary, Denmark, Norway, Sweden, Finland,
Greece;
EXCHANGE FEE means a one-off fee payable by Hawker to BA where Hawker
uses an item from the Inventory Pool for the provision of Third Party
Services as set out in the list of exchange fees in the agreed terms;
EXISTING EMPLOYEE means any Employee who is employed by BA in the
Business on the day before the Commencement Date;
EXPERT has the meaning set out in Clause 26.1;
EXPENDABLE INVENTORY means in respect of the Aircraft, items comprised
in a Landing Gear, Flap Track or Flap Carriage for which no authorised
repair procedure exists and for which the cost of repair would normally
exceed the cost of replacement;
FAA means the Federal Aviation Authority;
FIXED CHARGES means the charges applicable per aircraft type for the
provision of Overhaul Services as set out in Schedule 3;
FLAP CARRIAGES means flap carriages, or any part thereof, in respect of
the Aircraft which are repaired and overhauled by BA through the
Business immediately prior to the Effective Date and any other flap
carriage added to or substituted for such flap carriages;
FLAP TRACKS means flap tracks, or any part therof, in respect of the
Aircraft which are repaired and overhauled by BA through the Business
immediately prior to the Effective Date and any other flap tracks added
to or substituted for such flap tracks;
GAL means Gatwick Airport Limited;
GOOD INDUSTRY PRACTICE means in relation to any undertaking and any
circumstances, the exercise of such skill as would be expected from a
reasonably skilled and reasonably experienced person engaged in the same
type of undertaking under the same or similar circumstances;
HAL means Heathrow Airport Limited;
HAWKER REPRESENTATIVE means the person nominated by Hawker from time to
time pursuant to Clause 17.2 as BA's principal point of contact for
matters arising out of or in connection with this Agreement which relate
to the provision of Services;
HAWKER SYSTEMS means the computer systems to be implemented by Hawker in
accordance with Clause 20.1;
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HAZARDOUS MATERIALS means wastes, pollutants, contaminants or other
substances (including without limitation, liquids, solids, gases, ions
and noise) that may be harmful to the Environment or interfere with any
ecological system or a nuisance to any person or make the use or ownership
of any affected land more costly;
IMPROVEMENT means any amendment, modification or addition to the
Licensed Intellectual Property or any new Intellectual Property which
Hawker may develop for, or in the course of, the provision of the
Services which enables the Services to be provided more economically or
efficiently;
INITIAL TERM means the period of 7 years commencing on the Commencement
Date;
INTELLECTUAL PROPERTY means trade marks, service marks, trade names,
logos, get-up, patents, inventions, registered and unregistered design
rights, copyrights, rights of extraction relating to databases,
confidential information, know-how, trade secrets and all other similar
proprietary rights which may subsist including, where such rights are
obtained or enhanced by registration, any registration of such rights
and applications and rights to apply for such registrations;
INVENTORY means the Rotable Inventory and the Expendable Inventory;
INVENTORY AVAILABILITY FEE means L1.75 million per annum as amended from
time to time pursuant to Clause 4.4 and 4.5;
INVENTORY POOL means the items of Rotable Inventory held by Hawker for
use in providing the Services to BA pursuant to Clause 4.1;
JOINT VENTURE ENTITY means any entity which is engaged in a joint
venture or similar co-operative arrangement with BA in relation to the
operation of aircraft;
LANDING GEARS means landing gears, or any part thereof, in respect of
the Aircraft which are repaired and overhauled by BA through the
Business immediately prior to the Effective Date and any other landing
gear added to or substituted for such landing gear;
LICENSED INTELLECTUAL PROPERTY means the intellectual property rights
owned by BA listed in Schedule B;
MONTHLY CHARGES means, for any month, the charges set out in Clause 12
applicable to that month;
NOTICE PERIOD means the period between the serving of a notice to
terminate the whole or part of this Agreement and the effective date of
termination of the whole or the relevant part of this Agreement;
OEM means the original equipment manufacturer or any item of inventory
or any Component;
OVERHAUL SERVICES means the Services detailed in Part A of Schedule 1;
OTHER SERVICES means the Services detailed in Part B of Schedule 1;
PARTNER means any alliance partner of BA or any airline to which BA has
granted a franchise or which it has otherwise licensed to use any BA
trade mark;
PERMITS means any and all licenses, consents, permits, authorisations or
the like, made or issued pursuant to or under, or required by,
Environmental Laws in relation to providing the Services;
POSSESSION, in relation to the Inventory, has the following meaning: the
Inventory shall be in the Possession of Hawker if it is physically on
any of Hawker's or its agents' or sub-contractors' premises, or if it is
being handled by or it is under the control of Hawker; and inventory
shall be in
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the Possession of BA in all other circumstances save as otherwise agreed
between BA and Hawker;
PREMISES means the premises to be occupied by Hawker during he
Transitional Period pursuant to the terms of the Underlease;
RATES means the hourly or daily rates to be used to determine the
Variable Charges as set out in Schedule 3;
REGULATORY AUTHORITY means, HAL, GAL, BAA, JAA, CAA, FAA, DoT or any
other competent authority or entity having responsibility for the
regulation or governance of the Services or any part thereof;
REGULATORY REQUIREMENTS means Environmental Laws, Safety Laws and any
other obligations relevant to the Services which are imposed by any
Regulatory Authority from time to time;
REMEDIAL ACTION means any step required by any Environmental Authority
for:
(i) preventing, mitigating, limiting, removing, remedying,
cleaning-up, abating, containing or ameliorating the
presence or effect of any Hazardous Material in the
Environment; or
(ii) carrying out investigative work and obtaining legal and
other professional advice that is reasonably required in
relation to (i);
ROTABLE INVENTORY means in respect of Landing Gear, Flap Tracks and Flap
Carriages, items which at the relevant point in time can economically be
restored to a serviceable condition;
SAFETY LAWS means any duties or obligations relating to the protection
of the health and safety of employees and other persons whilst at work
arising under any applicable law or Regulatory Requirements form time to
time;
SALE OF BUSINESS AGREEMENT means the agreement dated 20 December 1997
between BA and Hawker pursuant to which Hawker purchased the Business
from BA;
SERVICE BULLETINS means any update to the Service Manuals issued from
time to time by an OEM;
SERVICE LEVEL means the level of service required of Hawker in supplying
the Services as set out in paragraph 1 of the SLA;
SERVICE LEVEL AGREEMENT or SLA means the document attached as Schedule 2;
SERVICE MANUALS mean any technical manuals and other technical data
relating to the operation, maintenance, overhaul and repair of the
Rotable Inventory or any Component and issued by an OEM as updated by
Service Bulletins from time to time;
SERVICEABLE INVENTORY means an item of Rotable Inventory which has been
repaired and/or overhauled to the BA Specification in accordance with
this Agreement but not redelivered to BA;
SERVICES means those services detailed in Schedule 1, as amended from
time to time in accordance with the Change Control Procedure, by
agreement between BA and Hawker, and any tasks or services connected
with or ancillary to those set out in Schedule 1;
THIRD PARTY SERVICES means services similar to the Services supplied by
Hawker to parties other than BA;
TRANSFER REGULATIONS means the Transfer of Undertakings (Protection of
Employment) Regulations 1981;
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TRANSITIONAL PERIOD means the period from the Commencement Date until
the Business has been fully relocated to Hawker's premises in accordance
with Clause 6.2 and Hawker has ceased to occupy the Premises;
UNDERLEASE means the lease entered into by the parties pursuant to the
Sale of Business Agreement in respect of the Premises;
UNSERVICEABLE INVENTORY means any item or Rotable Inventory which
requires repair and/or overhaul before it is ready for fitment to an
Aircraft; and
VARIABLE CHARGES means the charges applicable to the provision of Other
Services.
1.2 SUBORDINATE LEGISLATION
Any reference to a statutory provision shall include any subordinate
legislation made from time to time under that provision.
1.3 MODIFICATION ETC. OF STATUTES
Any reference to a statutory provision shall include such provision as
from time to time modified or re-enacted or consolidated whether before
or after the date of this Agreement so far as such modification,
re-enactment or consolidation applies or is capable of applying to any
transactions entered into under this Agreement and (so far as liability
thereunder may exist or can arise) shall include also any past statutory
provision (as from time to time modified, re-enacted or consolidated)
which such provision has directly or indirectly replaced.
1.4 COMPANIES ACT 1985
The words "subsidiary" and "holding company" shall have the same
meanings in this Agreement as their respective definitions in the
Companies Act 1985 and references in this Agreement to a "Group" in
relation to BA or Hawker shall mean BA or Hawker, as the case may be,
and any undertaking which, at the relevant time, is a group undertaking
of BA or Hawker, as the case may be, within the meaning of Section 259
of that Act;
1.5 INTERPRETATION ACT 1978
The Interpretation Act 1978 shall apply to this Agreement in the same
way as it applies to an enactment.
1.6 REFERENCES
References to this Agreement shall include any Schedules to it, and
references to Clauses and Schedules are to Clauses of and Schedules to
this document.
1.7 INFORMATION
Any reference to books, records or other information means books,
records or other information in any form including paper,
electronically stored data, magnetic media, film and microfilm.
1.8 CONFLICT
If there is any conflict in this document (excluding the Schedules) and
the contents of any Schedule, then the provisions of this document shall
prevail to the extent of that conflict.
2 TERM
2.1 This Agreement shall commence on the Commencement Date and continue
until the expiration of the Initial Term unless terminated earlier by
either party pursuant to the terms of this Agreement or otherwise by law
or unless extended by BA pursuant to Clause 2.2.
2.2 BA may, exercisable in its absolute discretion not less than 6
months prior to the expiration of the Initial Period, notify Hawker in
writing that it wishes to extend the term of this Agreement for a
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further period of one year or such other period as is agreed in writing,
in which case the Agreement shall continue in force for an additional
year or such other period unless terminated earlier by either party
pursuant to the terms of this Agreement or otherwise by law. Upon the
giving of such notice the parties shall enter into bona fida
negotiations to agree the Fixed Charges and Rates for such extended term
on a basis commensurate with the Fixed Charges and Rates applicable
during the then current year. If the parties fail to agree such Fixed
Charges and Rates before 30 days prior to the commencement of the
additional period then either party may request determination of the
Charges and Rates by an Expert pursuant to Clause 26 and, pending such
determination the Charges and Rates applicable to the previous year
shall apply.
3 SERVICES
3.1 Hawker shall provide to BA the Services in respect of the Aircraft
with effect from the Commencement Date and for the duration of this
Agreement in accordance with:
3.1.1 the terms and conditions of this Agreement;
3.1.2 Good Industry Practice;
3.1.3 all relevant Regulatory Requirements; and
3.1.4 subject to Clause 3.2, the appropriate BA Specifications,
Service Manuals and Aircraft Maintenance Manuals as
applicable, in each case in force from time to time.
3.2 In the event that there is any conflict between the requirements
set out in the documents referred to in Clause 3.1.4, the terms of those
documents shall prevail to the extent of that conflict in the following
descending order of priority: BA Specifications, Service Manuals and
Aircraft Maintenance Manuals.
3.3 The provisions of the Service Level Agreement shall apply. For
Services which have no performance level specified in the Service Level
Agreement, Hawker shall provide those Services to a standard which
Hawker can reasonably be expected to achieve having regard to Good
Industry Practice and, in any event, at least to the level provided by
BA in the 12 months prior to the execution of the Sale of Business
Agreement.
3.4 Hawker shall ensure that in providing the Services, Hawker and each
item of the Inventory will comply with all applicable Regulatory
Requirements at all times. Hawker shall maintain such records as are
necessary in order to prove compliance, including but not limited to
history and maintenance records and shall promptly make these available
for inspection by such Regulatory Authorities as are entitled to inspect
them.
3.5 If BA determines that the Services are being provided otherwise than
in a manner consistent with the image and reputation of BA, it may give
Hawker notice of the same at the Weekly Meeting (as defined in Schedule
1) and of any reasonable steps it requires Hawker to take to remedy this
inconsistency and, upon receipt of such notice, Hawker shall take such
steps.
3.6 Hawker shall immediately (i) notify the BA Representative of any
damage caused to any aircraft in the course of providing the Services,
and (ii) notify the BA Representative of any incident or circumstance
which materially jeopardises its ability to perform all or any of the
Services in accordance with this Agreement.
3.7 Hawker shall be responsible for the cost of transport of Scheduled
and/or Unscheduled Overhauls (as defined in Schedule 1) within Europe.
For the avoidance of doubt, Hawker shall not be responsible for the cost
of transport required in the performance of AOG Support (as defined in
Schedule 1)(which costs shall be borne by BA).
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3.8 Hawker shall at BA's request on at least 30 days prior written
notice offer to provide the Services in accordance with the Service
Levels to BA Affiliates, Joint Venture Entities and Partners (excluding
American Airlines), offering the same Fixed Charges and Rates as exist
under this Agreement as stipulated in Schedule 3.
3.9 Subject to Clause 21, BA shall during the initial Term and any
extensions thereto pursuant to Clause 2.2 acquire the Services in respect
of the Aircraft (excluding the Concorde aircraft type), exclusively from
Hawker and shall not provide the Services in respect of the Aircraft
itself or through any other person, firm or company.
4 INVENTORY POOL
4.1 In consideration of the payment of the Inventory Availability Fee
in accordance with Clause 12, Hawker shall, subject to Clause 4.2, at
all times retain the number of items or Rotable Inventory acquired by it
pursuant to the Sale of Business Agreement in respect of each Aircraft
(or as otherwise agreed in writing in accordance with Clause 4.5) for
use in providing the Services to BA.
4.2 Hawker shall not use any item of Rotable Inventory held as part of
the Inventory Pool in the provision of Third Party Services without the
prior written consent of BA, which consent shall not be unreasonably
withheld or delayed provided that it shall be unreasonable for BA to
withhold or delay consent if at the date consent is sought there is no
reasonable prospect (according to BA's knowledge at the time) of BA
having a requirement for an Arising (as defined in Schedule 1) at the
same time.
4.3 If Hawker uses any Item held in the Inventory Pool for the
provision of Third Party Services, it shall pay to BA an Exchange Fee.
4.4 If, following a request by BA, Hawker uses in the provision of the
Services an item of Rotable Inventory not forming part of the Inventory
Pool, the provisions of paragraph 2.8.2 of Schedule 1 shall apply. If
such inventory is in respect of the L1011 aircraft type there shall not
be any increase in the Inventory Availability Fee.
4.5 Without prejudice to BA's other rights in this Agreement, either
party may recommend a change to the number of items of Rotable Inventory
held in the Inventory Pool due to a change in the requirements of BA and
if the other party agrees to such change, such agreement not to be
unreasonably withheld or delayed, the Inventory Pool shall be so changed
and the Inventory Availability Fee shall be amended in accordance with
the methodology in the agreed terms, effective from the date of the
change in the Inventory Pool.
5 ONGOING REGULATORY AND TECHNOLOGY REVIEW
5.1 Hawker shall monitor and keep BA advised of material changes in
Regulatory Requirements which are applicable to the Services provided by
Hawker, and shall provide BA with timely plans wherever necessary,
setting out alterations to the Services required to comply with such
material changes and (without compromising the requirement of
compliance) designed to minimise both the resultant cost to BA and any
potential operational disruption. Hawker shall advise BA of cases where
BA must provide any relevant Regulatory Authority with evidence of
compliance, and shall provide BA with the required evidence in good
time. Any changes to the Services which are identified in any Compliance
Plans will be requested by BA or proposed by Hawker in accordance with
the Change Control Procedure.
5.2 Hawker and BA acknowledge that it is in the interests of both
parties to take advantage of improvements in any relevant technology
which will improve the quality and efficiency of the Services or reduce
the cost of providing such Services and which will improve Hawker's
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efficiency and performance under this Agreement. To this end, Hawker shall
review developments in technology applicable to the provision of the
Services and shall recommend to BA any changes utilising new technologies
which it believes will improve the quality or efficiency of the Services
and/or reduce the cost to BA of the provision of the Services. Any proposed
changes in the Services resulting from such implementation shall be in
accordance with the Change Control Procedure.
6 TRANSITIONAL PERIOD
PROPERTY
6.1 BA and Hawker agree that for the Transitional Period Hawker may occupy
the Premises in order to perform the Services and Third Party Services
in accordance with the terms of the Underlease as amended or
supplemented by this Agreement.
6.2 Hawker will relocate the Business to alternate premises in accordance
with the Underlease. Upon the relocation of the Business, Hawker and BA
shall confirm such relocation in writing signed by an authorised
representative of each party. For each day that the Transitional Period
extends beyond a period of 150 days from the signature of the Sale of
Business Agreement, Hawker shall pay to BA the rent stipulated in and in
accordance with the provisions of the Underlease.
6.3 Hawker will vacate the Premises forthwith in the event of termination of
this Agreement during the Transitional Period; or, if no part of the
Premises continues to be used for the purposes of providing the Services
or Third Party Services under this Agreement during the Transitional
Period, Hawker shall have a reasonable right of access to the Premises
following its vacating the Premises in order to recover assets and
equipment.
6.4 BA shall, in accordance with the Underlease or as otherwise agreed by
the Parties, upon vacation of the Premises disconnect the prime services
and utility connections from all equipment, fixtures and fittings acquired
by Hawker pursuant to the Sale of Business Agreement. Hawker shall
disconnect such items from any control consoles that are to remain at
the Property at its own expense, remove or procure the removal of all
such equipment, fixtures and fittings and make good any damage to the
Premises caused by such relocation.
ENVIRONMENT
6.5 It is acknowledged and agreed that BA has for some time carried on the
Services (and other work) at the Premises and that BA is responsible for
all Contamination Liability (whether at the Premises or resulting from
Contamination thereat) arising on or before the Commencement Date for
any reason and BA shall indemnify and keep indemnified Hawker from any loss
(including Contamination Loss) in respect thereof.
6.6 Without prejudice to the other provisions of this Clause 6, during the
Transitional Period and in respect of Hawker's occupation of the Premises
(but not otherwise):
6.6.1 Hawker shall in providing the Services use its reasonable
endeavours to work towards the objectives set out in the BA Annual
Environmental Report 1997 to the extent that such objectives are
applicable to the Services;
6.6.2 BA and Hawker shall promptly notify the other party in writing of
any act, omission, occurrence or state of affairs of which it has
actual knowledge which has resulted in or which may give rise to
any Contamination at the Premises or any other BA Property
adjacent to the Premises and/or to any claim from any third party
in respect thereof;
6.6.3 BA and Hawker shall promptly notify the other of any action taken
by any Environmental Authority in respect of the Premises and
shall permit the other to review any written
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correspondence in relation thereto (save where disclosure would
lead to a breach of legal privilege);
6.6.4 Hawker shall give BA or its agents or representatives access to
the Premises at reasonable times and on reasonable prior written
notice for the purposes of auditing, monitoring, inspecting or
reviewing matters relating to the Environment at the Premises or
other BA Property;
6.6.5 at any time following audit, monitoring, inspection or review by
BA pursuant to Sub-clause 6.6.4, BA may propose in accordance
with the Change Control Procedure that Hawker implement such
changes as BA considers to be necessary to comply with
Environmental Laws; and
6.6.6 Without prejudice to Clause 6.8, Hawker will allow BA to carry
out at its own cost such modifications of the Premises as are
required in order to comply with any new Environmental Law. BA
shall schedule such work so as to minimise any potential
disruption to Hawker's business and the provision of the Services
provided that any such disruption shall constitute a Force Majeure
Event (as set out in Clause 29).
6.7 Unless Hawker and BA shall at any time agree otherwise, waste which is
generated by Hawker in the course of the provision of the Services (and
which is not discharged into a sewer under a trade effluent discharge
consent granted pursuant to Section 118 of the Water Industry Act 1991),
shall be disposed of by a waste contractor or waste contractors appointed
by Hawker at Hawker's cost with the approval of BA which approval shall
not be unreasonably withheld or delayed.
6.8 Hawker shall at its own expense and without any liability on BA's part
procure that the cadmium plating process including vapour degreaser in
the plating shop (workshop W818) which forms part of the Premises shall
be upgraded in accordance with Environmental Laws and to the reasonable
requirements of the relevant Environmental Authority within the time
period specified by the relevant Environmental Authority and
notwithstanding Clause 6.6 Hawker shall indemnify BA for any costs,
expenses, damages, liabilities, claims (including without limitation
fines and/or penalties) incurred by BA whatsoever as a result of
Hawker's failure to comply with this time limit and/or with the
requirements of the relevant Environmental Authority with regard
to the upgrade.
6.9 Subject to Clauses 6.6 and 6.12, Hawker hereby agrees and covenants to
pay to BA an amount equal to any Contamination Liabilities on the part
of BA in respect of Contamination which occurs at the Premises or which
emanates from the Premises during the Transitional Period including but
not limited to the presence of and/or actual or threatened Contamination
on, under or over the Premises, excluding any Contamination Liabilities
arising on account of any incidents, events, states of affairs, conditions,
circumstances, activities, practices or actions existing on or prior to
the Commencement Date except where the Contamination Liability or part
of Contamination Liability is incurred as a result of Hawker during the
Transitional Period continuing to carry out activities, practices or
actions carried out by the existing Business prior to the Commencement
Date which Hawker could reasonably have been expected to discontinue
before the date on which the Contamination Liability was incurred taking
into account any limits on Hawker's discretion to discontinue such
activities, practices or actions in the light of any prescribed policies or
programmes of BA.
6.10 Hawker and BA covenant to pay to the other an amount equal to any
Contamination Liability on the part of BA or Hawker in respect of
Contamination at the Premises caused by the wilful misconduct or
negligent acts or omissions or breach of contract of the other, its
agents, employees and contractors.
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6.11 Upon Hawker vacating the Premises, BA shall be responsible for the
decommissioning of and any clean up works in relation to the plating
shop which forms part of the Premises as well as the rest of the Premises
to comply with all Environmental Laws including any requirements of any
Environmental Authority relating to the plating shop and the activities
undertaken therein and BA shall indemnify Hawker against any liability
in respect of such matters (including the payment of fines and penalties
for failure to do so) and, without prejudice to Clause 6.10, in the
event that material additional work is required or the cost of such work
is otherwise materially increased due to the acts and omissions of
Hawker, its agents, employees and/or contractors the cost of undertaking
the additional work shall be paid for by Hawker or (if BA so elects) the
proper costs incurred by BA and directly or indirectly attributable to the
acts and omissions of Hawker its agents, employees and/or contractors
shall be duly repaid to BA.
6.12 Neither party shall be entitled to use any breach of any of the terms of
this Clause 6 as a breach of this Agreement for the purposes of Clause 21
or otherwise as a reason for terminating or purporting to terminate this
Agreement.
MISCELLANEOUS
6.13 During the four weeks following the Commencement Date, Hawker may
request an item of Inventory from BA and BA shall, where practicable,
supply such item of Inventory to Hawker. Hawker shall pay BA for the
supply of such item of Inventory the OEM list price plus 10% (due upon
receipt of the Inventory), such amounts to be deducted from the Monthly
Charges for the month in which they fall.
7 CHANGE CONTROL PROCEDURE
7.1 At any time either BA or Hawker may recommend a change to the Services
which shall be dealt with in accordance with the Change Control Procedure
provided that BA shall be entitled to refuse any change so proposed at
its absolute discretion except where such change is required to comply
with applicable Regulatory Requirements.
7.2 Any Change required to comply with Regulatory Requirements shall be
implemented in accordance with Hawker's notice in writing to BA.
7.3 This Agreement shall be deemed amended in accordance with any agreed
change from the date such change is agreed to be implemented and
thereafter the Services shall be performed on the basis of this
Agreement as so amended, but until then Hawker shall continue to perform
the Services on the previous basis, unless otherwise required by any
Regulatory Requirement.
7.4 The Change Control Procedure is without prejudice to BA and Hawker's
rights to terminate all or part of this Agreement under Clause 21.
8 NEW AIRCRAFT TYPES
8.1 BA may, by not less than 6 months prior written notice to Hawker,
require Hawker to offer to provide the Services to BA or its Joint
Venture Partners, Affiliates or Partners in respect of any new aircraft
type notified in such request and Hawker shall (following signature of an
agreement with such Joint Venture Partner, Affiliates or Partners on
substantially the same terms as this Agreement including same or better
pricing terms) provide such Services from the expiry of such notice
(except where the relevant OEM requires a longer lead time to supply the
relevant inventory, in which case from the expiration of that lead time).
8.2 The relevant parties shall agree amounts to be charged by Hawker and if
the parties fail to agree before 30 days prior to the expiration of the
notice then either party may request the determination of the Fixed
Charges by an Expert pursuant to Clause 26.
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9 MEASUREMENT OF PERFORMANCE
9.1 The performance of Hawker in providing the Services shall be monitored
and recorded by reference to the Service Levels according to the
procedure set out in Schedule 5. Hawker shall be responsible for
implementing and operating this procedure and shall provide BA with
regular reports in the form described in Schedule 5.
9.2 Hawker shall provide BA with access to or copies of any information on
which the reports on the performance of the Services made by Hawker are
based in order to confirm the validity and accuracy of such reports and
to ensure that the reports on the performance of the Services made by
Hawker reconcile with any records of the performance of the Services
maintained by BA.
9.3 BA shall be entitled to challenge the validity and/or accuracy of the
records maintained by Hawker pursuant to this Clause 9 within 12 months
of the dates to which the records relate and any disputes arising out of
or in connection with this Clause 9 shall be received in accordance with
the Dispute Resolution Procedure.
10 FAILURE TO MEET SERVICE LEVELS
10.1 Without prejudice to BA's rights under Clause 21, on each occasion on
which Hawker fails to meet the Service Levels in providing the Services,
BA may within 12 months from the date of the Performance Review (as
defined in Schedule 5) identifying such failure require Hawker to, in
which case Hawker shall, grant to BA a credit in an amount as stipulated
in Schedule 2 in relation to the Service Level which Hawker has failed
to meet and BA agrees, that Hawker shall not be liable for any other
loss or liability of any kind (whether in contract, tort for negligence
or otherwise howsoever arising) relating to such failure to meet such
Service Levels.
10.2 Hawker acknowledges and agrees that the amounts stipulated in Schedule 2
are a reasonable and fair estimate of the damages likely to be suffered
by BA as a result of a failure by Hawker to meet the relevant Service
Level.
10.3 The credits granted by Hawker pursuant to this Clause 10 shall be
payable by way of a reduction in the Monthly Charges in the month
immediately following the month in which the credits are agreed in a
Performance Review or, if not so agreed, at the conclusion of the
Dispute Resolution Procedure as set out in Schedule 5.
10.4 Without prejudice to BA's rights under Clause 21, if BA reasonably
anticipates that Hawker will be unable to provide any item of inventory
at the time required by BA or as otherwise set out in the Service Levels
from the inventory held by Hawker and provided that BA has complied with
its obligations contained in Schedule 1;
10.4.1 BA may serve a notice on Hawker requiring Hawker to obtain the
item of inventory from a third party at Hawker's own cost; and
10.4.2 if after BA gives such a notice and Hawker informs BA that it
will be unable to obtain the necessary inventory from a third
party, or if BA reasonably suspects that this will be the case,
BA may itself elect to obtain the item of inventory from a third
party and charge to Hawker all costs incurred by itself in doing
so.
11 EMPLOYEES
11.1 Hawker shall ensure that all Employees are suitably skilled and
competent to undertake the tasks assigned to them and that they meet
airside and/or BA Safety Obligations, as applicable, and all legal
requirements and Regulatory Requirements.
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11.2 BA shall be entitled to require Hawker to remove from performance of the
Services any Employee whom BA reasonably believes has breached BA Safety
Obligations.
11.3 Hawker shall be responsible for any and all taxation and payroll tax
liabilities in respect of the Employees which may arise under any
legislation as a result of or in connection with this Agreement. Hawker
hereby indemnifies BA in relation to claims, liabilities and costs which
BA may incur as a result of any such transaction and payroll tax
liabilities.
12 PRICE/CHARGES
12.1 The Monthly Charges for the Services shall comprise the following:
12.1.1 one twelfth of the Inventory Availability Fee adjusted by the
amount of any Exchange Fees falling due within the relevant month
pursuant to Clauses 4.3 and 4.4 or otherwise; and
12.1.2 the Fixed Charges accruing during the month; and
12.1.3 the Variable Charges accruing during that month.
12.2 The Rates shall remain fixed for a period of 3 years from the
Commencement Date. Thereafter Hawker may vary the Rates by 90 days prior
written notice to BA but shall not increase the Rates more than once in
any 12 month period nor by more than the equivalent percentage increase
in the UK Manufacturing Average Hourly Earnings Index published by the
Office of National Statistics over a corresponding period.
12.3 The provision of all Services relating to Concorde aircraft will
initially be deemed to be Other Services and charged on the basis of the
Rates. The parties will review the basis of pricing the services for
Concorde with a view to agreeing Fixed Charges within 18 months from the
Commencement Date.
13 PAYMENT
13.1 Hawker shall invoice BA in pounds sterling for the Monthly Charges
monthly or, where it deems it appropriate, weekly. BA shall, subject to
Clause 12 and this Clause 13, pay all invoices by way of bank transfer
by the end of the month following the month in which they were received.
13.2 With each invoice delivered pursuant to Clause 13.1, Hawker shall
provide to BA details of the relevant Services and how the charges
contained in the invoice have been calculated. For the avoidance of
doubt, if a repair or overhaul takes place over two periods to which
different pricing applies pursuant to Schedule 3, the charge shall be
that applicable at the time the invoice for the repair or overhaul may
be submitted.
13.3 For Advanced Exchanges Hawker shall be entitled to submit an invoice to
BA for the provision of Overhaul Services on the relevant Rotable
inventory at any time after the expiration of 4 weeks after collection
by Hawker of that inventory.
13.4 For Repair and Return (as defined in Schedule 1) Hawker may only submit
an invoice to BA for the provision of Overhaul Services once the
relevant Serviceable inventory has been returned to BA.
13.5 If any sums are due to BA from Hawker, as agreed by BA and Hawker or as
determined by an Expert pursuant to the Dispute Resolution Procedure,
whether in respect of reductions in Monthly Charges, previous
overpayments or othewise, BA shall be entitled to set these off against
any sums owed to Hawker under this Agreement.
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13.6 The Monthly Charges and any other payments due under this Agreement
shall be exclusive of any VAT (or any replacement or similar tax) which,
subject to the provisions of this Clause 13 and the provision of a
proper VAT or other appropriate invoice, shall be paid by BA.
13.7 If BA disagrees with any amount invoiced for any reason or requires any
further information with respect to any amount invoiced, it shall notify
Hawker of the reason(s) for such disagreement or request such further
information within 20 Business Days of receiving the invoice, giving a
breakdown of the amount which it believes should have been invoiced and
an explanation for the discrepancy or, as the case may be, giving an
explanation of the further information required. If the disagreement
over the amount has not been resolved, or the required information has
not been provided, by the due date for payment of the invoice, BA shall
pay such sum as is not in dispute or question and may withhold payment
of the amount in dispute or question. If Hawker disputes that BA is
entitled to any reduction in or to withhold the invoiced amount or the
amount of any such reduction, then the dispute shall be resolved in
accordance with the Dispute Resolution Procedure.
13.8 BA and Hawker shall promptly pay the other party any amounts which are
agreed or determined pursuant to the Dispute Resolution Procedure as
being due to the other party following the agreement or determination as
appropriate. Any invoices relating thereto which are required to be
raised shall bear the notation "Per dispute resolution of (date)" or
"Per agreement of (date)", as the case may be.
13.9 The costs of any Expert to whom any disputes arising under this
Clause 13 are referred shall be borne by BA only if the Expert
determines that additional amounts are due to Hawker or that Hawker was
entitled to the amount withheld by BA, and shall be borne by Hawker in
all other cases.
13.10 If any amount payable by one party to the other under this Agreement is
outstanding after the due date for payment, the other party may
(whether or not the outstanding amount is the subject of a dispute
pursuant to Clause 13.7) charge the first party interest on the
outstanding amount at the rate of 2% above Barclays Bank Plc's base
rate from the due date to be compounded monthly until payment of the
amount in full.
14 TITLE IN THE ROTABLE INVENTORY
14.1 Subject to Clause 14.5, with effect from the Commencement Date, title in
the Rotable Inventory in Hawker's Possession shall reside with Hawker
and title in the Rotable Inventory in BA's Possession shall reside with
BA.
14.2 Subject to Clauses 14.5 and 14.6, if as part of the Services Hawker is
required to deliver an item of Serviceable Inventory and collect an item
of Unserviceable Inventory then title in the Rotable Inventory being
delivered shall pass to BA upon delivery to the requested location.
Title in the Rotable Inventory being collected shall pass to Hawker upon
collection. If the parties agree that BA has no immediate requirement
for an item of Rotable Inventory which has been delivered by Hawker as
part of an Advanced Exchange, Hawker may, collect such item and title in
that item shall pass to Hawker upon collection.
14.3 If as part of the Services Hawker is required to Repair and Return (as
defined in Schedule 1) an item of Rotable Inventory, without being
required to deliver a replacement, then title in that item shall remain
with BA at all times.
14.4 Hawker shall keep a record of all Rotable Inventory subject to this
Agreement and in whose possession each item is and in whom the title in
each Unit resides from time to time. Hawker shall permit BA upon
reasonable notice to view and take copies of the record from time to
time.
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14.5 Notwithstanding anything to the contrary in this Agreement, title in all
Concorde Inventory and all A320 Landing Gear shall remain at all times
with BA or the relevant third party.
14.6 Where as part of the Services the location for delivery of any item of
Rotable Inventory is outside the United Kingdom, BA may and if so
requested by Hawker shall in order to comply with the customs or import
regulations of any country, acquire that item from Hawker prior to
such delivery and arrange for the delivery (either using Hawker or a
third party) at its own cost. In this case title in the item of Rotable
Inventory shall pass to BA upon receipt of notification by Hawker that
BA is acquiring the item pursuant to this Clause 14.6.
15 RISK AND DAMAGE TO THE INVENTORY
Risk of loss or damage to an item of inventory shall be borne by
the party in Possession of that item at the time the loss or damage
occurred. Without limiting the generality of the foregoing Hawker shall
be responsible for Concorde Inventory, A320 Landing Gear and any other
Landing Gear, Flap Tracks and Flap Carriages (and associated
components) owned by BA which BA requests Hawker to maintain in its
Possession and shall maintain in force appropriate insurance over such
Rotable Inventory.
16 THIRD PARTY SERVICES
Hawker is entitled to provide services equivalent or similar to the
Services to third parties and undertakes to do so only on the terms
that such services shall not adversely affect the provision of the
Services to BA.
17 PARTIES' REPRESENTATIVES
17.1 BA shall from time to time notify Hawker of the identity of the persons
nominated as the BA Representative. The BA Representative shall be the
principal point of contact for Hawker in respect of the provision of
the Services.
17.2 Hawker shall from time to time notify BA of the identity of the person
nominated as the Hawker Representative. The Hawker Representative shall
be the principal point of contact for BA in respect of the provision of
the Services.
17.3 The BA and Hawker Representatives may from time to time by written notice
to their counterpart at Hawker or BA (as appropriate) delegate all or
any part of their responsibilities in connection with this Agreement
to an alternate.
17.4 The BA Representative and Hawker Representative shall have day to day
responsibility for the implementation and provision of the Services
which they shall manage and administer by meeting and otherwise
communicating with each other as often as may reasonably be necessary,
keeping minutes of such meeting or communications wherever appropriate.
17.5 The BA Representative and the Hawker Representative are each authorised
representatives of BA and Hawker respectively and are each empowered to
act on behalf of them in connection with the provision of Services to
BA under this Agreement, except in respect of matters which are
expressly reserved to any other person or group of persons. Any notice,
information, instruction or other communication given or made to either
of them is deemed to have been given or made to BA or Hawker as the
case may be.
18 SECURITY
18.1 AIRSIDE PASSES
18.1.1 Hawker shall ensure that:
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(i) all Airside Passes held by Existing Employees in the name
of BA are terminated and re-issued in Hawker's name as
appropriate within three months after Commencement Date;
and
(ii) all Employees are issued with Airside Passes, in the name
of Hawker to the extent necessary to enable the Employees
to carry out the Services. Hawker will use its best
endeavours to supply the relevant airport authorities
promptly with all information which they request to
enable them to issue the Airside Passes,
and BA shall give Hawker such co-operation as is reasonably
necessary to enable Hawker to fulfil these obligations.
18.1.2 Hawker shall procure that all Employees shall be required to and
shall comply with all terms and conditions in force from time to
time applicable to the holders of Airside Passes.
18.2 BA PASSES
18.2.1 All Employees who require access to BA Property for the purpose
of providing the Services must hold a BA pass and must comply
with all terms and conditions in force from time to time
applicable to the holders of BA Passes.
18.2.2 BA and Hawker shall co-operate to ensure that such passes are
issued promptly to all relevant Employees.
18.2.3 BA shall be entitled to withdraw BA Passes from Employees at any
time upon reasonable grounds and (except in emergencies) on
reasonable notice and shall provide Hawker with written notice
of such grounds within twenty four hours of any such withdrawal.
18.3 COMPUTER SECURITY
18.3.1 During such time as there are any communications links between
Hawker's computer systems or any other system used by Hawker
and any of BA's computer systems, Hawker shall permit BA or its
nominated representative to conduct such security audits of
those systems as are necessary to ensure that any risk to the
security or integrity of the software or data comprising or
contained in the relevant Hawker Systems is minimised. Such
security audits shall be conducted in such a way as to minimise
any disruption to Hawker's business within normal business
hours and on reasonable notice no more than twice in any year,
save that a breach of computer security has occurred as a
result of the activities of Hawker or any of its employees or
the connections with its systems.
18.3.2 For the avoidance of doubt, in conducting the audit reviews
provided for in Schedule 7, BA and its designated auditors and
other agents shall be given such reasonable access to the
Hawker's computer systems and any other relevant computer
system used by Hawker in connection with the provision of the
Services as is reasonably necessary to enable BA to satisfy
itself that the Accounting Records reflect a true and accurate
picture of the conduct of and charges for the Services.BA
Security Regulations.
18.3.3 Hawker shall ensure that all Employees, agents or
sub-contractors who are required to enter or leave any BA
Property are aware that BA or persons authorised on BA's behalf
may challenge persons who do not visibly display any proof of
identity or who behave suspiciously and may stop and search any
person, their vehicle and any articles they may be carrying
with them to ascertain whether they are carrying unauthorised
items.
18.3.4 In the event that any Employee involved in the performance of
the Services:
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(i) is convicted of any offence involving drugs, violence,
dishonesty or smuggling goods through customs; or
(ii) is reasonably suspected by BA or Hawker of being involved
in any such offence or in any form of dishonesty or in
taking drugs; or
(iii) is reasonably suspected by BA or Hawker to be a person
who might enable or allow others to commit any such
offence or any acts of dishonesty or taking drugs; or
(iv) causes, or BA or Hawker reasonably believes might cause
Loss or damage to BA or to its reputation; or
(v) fails to submit to a BA security search; or
(vi) breaches BA's security procedures or security regulations
or any generally applicable rules or procedures in force
at BA Property of which Hawker has notice from time to
time.
BA may request that any such person be removed from the
performance of the Services and Hawker shall remove the person and
replace him as necessary.
18.3.5 BA and Hawker shall use their best endeavours to minimise any
disruption or adverse effect on the Services resulting from the
removal or replacement of any person performing the Services
pursuant to Clause 18.4.2. For the avoidance of doubt, the
removal or replacement of any person pursuant to Clause
18.4.2 shall not affect the obligation on Hawker to continue to
provide the Services in accordance with the Service Level
Agreement.
18.3.6 The parties shall consult together regularly about the nature
and level of their security arrangements and policies aimed at
reducing losses arising from dishonesty or misconduct.
18.4 SECURITY AUDITS
Hawker shall give BA access to its premises and its computer systems at
reasonable times and on reasonable written notice for the purposes of
auditing, inspecting or reviewing Hawker's security arrangements,
records and documents, and confirming that the security measures taken
by Hawker in order to comply with this Clause 18 are fully adequate. BA
shall have the right to conduct such audit or inspection at least once
per year and more frequently where BA has reasonable belief that such
audit or inspection is necessary.
19 INTELLECTUAL PROPERTY
19.1 BA hereby grants to Hawker, its agents and sub-contractors appointed
pursuant to Clause 33 a non-exclusive, non-assignable, royalty-free
licence to use the Licensed Intellectual Property provided that Hawker
shall, and shall ensure that its agents and sub-contractors shall, only
use the Licensed Intellectual Property in connection with the provision
of the Services, and any Third Party Services which be provided by
Hawker pursuant to Clause 16, and as permitted by this Agreement.
19.2 To the extent that any of the Licensed Intellectual Property includes
copyright works and/or designs, and pursuant to the licence granted in
Clause 19.1 above, BA also grants a non-exclusive royalty-free licence
to copy, reproduce and adapt such copyright and design material and to
use the copyright works and designs in reports, instruction manuals and
the like solely for the purpose of providing the Services and any Third
Party Services which BA has agreed or may from time to time be provided
by Hawker pursuant to Clause 16.
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19.3 Hawker shall disclose to BA all Improvements which it puts into practice
in the provision of the Services to BA. BA shall have the perpetual
non-exclusive right to use and sub-license without payment any
Improvements disclosed to it pursuant to this Clause 19.43 and such right
shall survive termination of this Agreement for any reason in respect of
Improvements developed or invented during the term of this Agreement.
19.4 Hawker shall promptly notify BA of any material unauthorised use of the
Licensed Intellectual Property of which it becomes aware during the term
of this Agreement. BA shall have the exclusive right to take and conduct
whatever action it deems appropriate in its absolute discretion to prevent
such unauthorised use and Hawker shall give BA such assistance as it may
reasonably require (such as the provision of witnesses or documents) in
taking such action subject to the payment by BA of Hawker's reasonable
expenses in the provision of such assistance.
20 INFORMATION SYSTEMS
20.1 Hawker shall from the Commencement Date and throughout the term of this
Agreement, implement and use computer systems for use in the Business in
substitution for the existing computer systems (except the BA System).
20.2 The Hawker Systems shall provide comprehensive management information to
support the provision of the Services and will have at least the
functionality of the existing computer systems based on the description of
BA's systems in the Confidential Information Memorandum.
20.3 BA shall procure that the BA System will be available for access by
Hawker to the extent reasonably necessary to allow Hawker to provide the
Services to BA subject to security measures put in place by BA from time
to time.
20.4 Hawker shall access the BA System solely in connection with the
provision of Services to BA and for no other purpose.
20.5 Hawker shall not be liable for breach of any of its obligations under
this Agreement to the extent that such breach arises as a result of any
failure of the BA System which is not caused by Hawker or as a result of
BA failing to make the BA System available for Hawker to access in
connection with the Services (but only to the extent that it was available
to the existing Business prior to the Commencement Date).
20.6 Hawker shall by the Commencement Date have in place via an external
telecommunications link an e-mail system which will enable the parties to
correspond electronically. The implementation and maintenance of such
telecommunications link will be the responsibility and at the cost
of Hawker.
20.7 Hawker shall allow BA access to the Hawker Systems at all reasonable
times save in case of emergency in order to report accidents, breakdowns
and faults, track the status of each item of Rotable Inventory through
the workshops, ascertain the overall status of all Rotable Inventory
and compare these with operational requirements and check the accuracy
of the reports provided by Hawker under Clause 9.1.
20.8 Hawker will ensure that there will be no disruption or delay in the
provision of the Services in accordance with the Service Levels as a
result of the Hawker Systems being affected by the change of date on
its computers, on and from, 1 January 2000, including accepting date
input, providing date output and performing calculations on dates or
particulars of dates.
20.9 Hawker shall not and shall ensure that no Employee, agent or
sub-contractor shall gain or attempt to gain access to or interfere
with any BA network, data, computer systems or software of BA in respect
of which it has not been given specific written authority from BA to
access.
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21 TERMINATION
21.1 Either party may terminate this Agreement in whole (but not in part)
with immediate effect by notice in writing to the other party if the
other is unable to pay its debts or enters into liquidation (except for
the purposes of a solvent amalgamation or re-construction on terms
previously approved in writing by the other party) or makes an
arrangement with its creditors or becomes subject to an administration
order or a receiver or administrative receiver is appointed over all or
any of its assets or it takes or suffers to be taken any similar action
in consequence of a debt or ceases or threatens to cease trading or is
dissolved or any equivalent procedure in any other jurisdiction occurs.
21.2 BA or Hawker may terminate this Agreement (either in it's entirety or by
reference to one or more specific aircraft types to which the default
relates) with immediate effect by notice in writing to the other if:
21.2.1 the other commits a material breach of this Agreement which is
not remedied within 30 days of written notice of the breach from
the first party;
21.2.2 the other commits a series of three or more similar unremedied
breaches within a rolling period of three months which together
amount to a material breach and which are not remedied within
30 days of written notice from the other requiring remedy of such
breaches (which shall be fairly described therein) or the other
reasonably considers that the breaches are not capable of remedy
within 30 days. The other shall be entitled within 10 Business
Days of the receipt of such notice to refer to Expert's Decision
pursuant to Clause 26 the question of whether or not the series
of breaches referred to in the notice reasonably together amount
to a material breach of this Agreement.
21.3 BA may terminate this Agreement (either in it's entirety or by reference
to one or more specific aircraft types to which the default relates) with
immediate effect by notice in writing to the other if:
21.3.1 from the date of service by BA on Hawker of written notice in
the event that Hawker has failed during any period of 3 months
to provide the Services in accordance with the requirements of
the Service Level Agreement in excess of 10% of occasions in
any 3 month period;
21.3.2 it becomes clear for any reason that Hawker will be unable to
continue to supply the Services including, without limitation,
loss of CAA/JAA/FAA certification; or
21.3.3 at BA's reasonable discretion, upon a change of 51% of
ownership of the capital stock of Hawker or the Guarantor
(as defined within Section 840 of the Income and Corporation
Taxes Act 1988)
21.4 Either party shall be entitled to utilise the Dispute Resolution
Procedure to challenge any termination.
21.5 If the term of this Agreement is not extended pursuant to Clause 2.2, it
shall terminate automatically on the seventh anniversary of the
Commencement Date. If the term of this Agreement is extended pursuant to
Clause 2.2 it shall terminate automatically at the end of the period to
which it is extended pursuant to Clause 2.2.
21.6 If BA has the right to terminate this Agreement, (in whole or in part)
BA may, as an alternative to termination, and at its complete discretion,
either;
21.6.1 suspend the Agreement (in whole or by reference to specific
aircraft types(s)) for a period of up to 3 months while Hawker
tries to improve the quality of the Services to the correct level.
During any such period of suspension BA shall not be liable to pay
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Monthly Charges to Hawker (in respect, where the Agreement is
suspended by reference to specific aircraft types(s), to those
aircraft types) and Hawker shall pay to BA any additional costs
incurred by BA in obtaining the relevant Services from third
parties; or
21.6.2 require Hawker to utilise such resources or to do or omit from
doing anything stipulated by BA which is required to raise the
quality and performance of the Services to the levels stipulated
or as are otherwise acceptable to BA.
22 CONSEQUENCES OF TERMINATION
22.1 Termination of this Agreement for whatever reason shall not affect the
rights of either party which have accrued due on or prior to termination
including the right to claim damages or be indemnified as a result of a
breach of this Agreement.
22.2 The provisions of Clauses 22, 25, 26, 27, 28 and 30 shall survive the
termination of this Agreement.
22.3 Immediately upon termination of this Agreement Hawker shall deliver up
to BA or at BA's option, destroy all BA Confidential Information (as
defined in Clause 30.1) then in the possession or control of Hawker,
the Guarantor or any member of the Guarantor's group of companies, and
in the case of destruction, shall certify in writing that this has taken
place.
22.4 If this Agreement is terminated for any reason, BA may, exercisable by
notice in writing to Hawker on or before termination, require Hawker to:
22.4.1 continue to provide the Services on the terms and conditions of
this Agreement until;
(i) BA notifies Hawker by not less than 30 days notice in
writing to expire not later than 18 months after
termination that it no longer requires the provision of
the Services;
(ii) BA notifies Hawker by not less than 30 days notice in
writing that it wishes to exercise the option set out
Sub-clause 22.4.2 below; or
(iii) the expiration of 18 months from the date of termination;
or
22.4.2 for a period of 18 months after the date of termination, make
available to BA, or a third party nominated by BA, at the then
current market value for the leasing of Inventory, such Inventory
(whether Serviceable or Unserviceable) as contained in the
Schedule of Requirements (and for this purpose the provisions of
paragraph 2.7 of Schedule 1 shall continue to apply).
22.4.3 provide to BA (or to any contractor or contractors nominated by
BA) such information as is reasonably required by BA relevant to
the potential employment liabilities of BA or any new contractor
arising under the Transfer Regulations including but not limited
to information on the following:
(a) the names of the Existing Employees who are then
employed by Hawker, their salaries and other
conditions of employment, ages and length of service;
(b) the method of organisation of the relevant Existing
Employees and documentary evidence relating to such
organisation; and
(c) the proposals for consultation with affected Existing
Employees; and
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22.4.4 provide to BA (subject to the provisions of any applicable
confidentiality obligations) such information as BA may
reasonably request about any sub-contractors involved in
providing any Services that are to be terminated and to enter
into novation agreements with such sub-contractors and BA or a
third party nominated by BA.
22.5 Hawker shall provide full cooperation with the intent that the Services
continue to be supplied in compliance with the Service Levels and the
terms of this Agreement to BA during the Notice Period and, subject to
appropriate security and confidentiality arrangements, shall allow BA
representatives to be involved in the running of the existing Business
during the Notice Period.
22.6 BA may, upon giving Hawker notice of termination in any of the
circumstances described in Clause 21, or within 20 Business Days after
receiving notice of termination from Hawker in any such circumstances,
notify Hawker that the Notice Period in relation to any or all of the
Services being terminated shall be longer than that specified in the
relevant provision of Clause 21, such extension to be for the length of
time that BA and Hawker may agree in any particular case, provided that
if BA and Hawker fail to agree the length of the extension in any case
then the Notice Period shall be the period specified by BA up to a
maximum of six months.
22.7 The licences of Intellectual Property granted under Clause 19 shall
terminate in relation to any intellectual Property of BA which is not
required by Hawker to provide Services to BA or continuing Third Party
Services following termination of this Agreement.
23 REPRESENTATIONS AND WARRANTIES
23.1 Each party warrants, represents and undertakes to the other that:
23.1.1 it has full power and authority to execute, deliver and perform its
obligations under this Agreement;
23.1.2 there are no existing agreements or arrangements with third parties
the terms of which prevent it from entering into this Agreement
or would materially impede the performance by it of its
obligations under this Agreement;
23.1.3 it is not and nor is any of its directors a party to any litigation,
proceedings or disputes which will have a material adverse affect
its ability to perform its obligations under this Agreement.
23.2 Hawker warrants, represents and undertakes to BA that all Rotable
Inventory provided by Hawker as Serviceable Inventory will comply with all
relevant regulations and standards including CAA/JAA/FAA requirements and
safety standards.
23.3 Subject to Clause 23.6, Hawker warrants the workmanship of any Services
and any materials provided in respect of a particular item of Rotable
Inventory for each Aircraft for the duration set out in Part 3 of
Schedule 2 (unless Hawker has the benefit of any greater duration of
warranty from the relevant OEM in respect of any part, in which case
such greater duration). Upon failure of the item of Rotable Inventory
due to such workmanship or materials Hawker shall undertake the relevant
action stipulated in paragraph 2.1 of the SLA, the costs of which shall
be borne as stipulated in paragraph 2.1 of the SLA.
23.4 If an item of Rotable Inventory, or part thereof, in the possession of BA
which is not covered in the warranty referred to in Clause 23.3 fails
Hawker shall undertake the relevant action stipulated in paragraph 2.2
of the SLA, the costs of which shall be borne as stipulated in
paragraph 2.2 of the SLA.
23.5 For the avoidance of doubt, Hawker does not warrant the workmanship or
materials of any item of inventory fitted to an Aircraft as at the
Commencement Date until title in such item passes to
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Hawker pursuant to this Agreement. In addition, if any item of Inventory
has a mandatory life duration or time between Overhauls set by any
Regulatory Authority, OEM or BA, the warranty provided by Hawker
pursuant to Clause 23.3 shall be limited to the duration of such life or
time between Overhauls.
23.6 Notwithstanding any other provision of this Agreement, under no
circumstances shall Hawker be liable for any consequential losses or
damages.
24 INDEMNITIES
24.1 Subject to Clauses 23.6 and 24.2, Hawker is liable for and will indemnify
BA from and against all losses arising out of or in connection with;
24.1.1 a material breach by Hawker of clauses 18.1, 18.3, 18.4, 20.8,
20.9 and 28;
24.1.2 any item of Rotable Inventory failing to comply with all
relevant regulations and standards including CAA/JAA/FAA
requirements and safety standards as required by Clause 3;
24.1.3 the willful misconduct or grossly negligent acts or omissions of
Hawker, its agents, Employees or contractors in connection
with this Agreement; or
24.1.4 claims that BA has infringed any Intellectual Property rights of
a third party as a result of the acts or omissions of Hawker, its
agents, Employees or contractors in providing the Services under
this Agreement.
24.2 Hawkers' liability and indemnities arising under this Clause 24 do not
affect any other rights which BA may have against Hawker under this
Agreement.
25 DISPUTE RESOLUTION PROCEDURE
25.1 Any question or difference which may arise concerning the construction,
meaning or effect of this Agreement and any dispute arising out of or in
connection with this Agreement shall in the first instance be considered
internally by an appropriate officer who, in the case of BA, shall be
the General Manager Aircraft Maintenance Purchasing and, in the case of
Hawker, shall be the Managing Director. If the appropriate officers are
unable to resolve the matter within 30 days it may be referred for
decision by an Expert or by arbitration as the parties shall agree.
Expert's Decision pursuant to Clause 26 shall be used if the dispute
arises out of Clauses 3.1.3, 3.1.4, 3.3, 5.20 and 23.2 and arbitration
pursuant to Clause 27 if arising as a result of any other reason.
25.2 Subject to the terms of this Agreement, while the Dispute Resolution
Procedure is being followed, both BA and Hawker shall be obliged to
fulfil in full their respective obligations under this Agreement. In
particular, but without limitation, Hawker shall continue to supply the
Services to BA in accordance with this Agreement and BA shall pay all
amounts owing to Hawker under this Agreement (other than any amount the
subject of the Dispute Resolution Procedure).
26 EXPERT'S DECISION
26.1 Any matter or dispute to be determined by Expert's Decision shall be
referred for determination to the President of the Royal Aeronautical
Society and the person to which BA or Hawker may apply in the absence of
agreement shall be the then President of the Royal Aeronautical Society;
26.2 BA and Hawker agree:
26.2.1 to supply the Expert with the assistance, documents and
information he requires for the purposes of his determination; and
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26.2.2 that in all cases the terms of appointment of the Expert shall
include a requirement on the Expert to give his determination
within 15 Business Days or such other period as may be agreed,
to hold professional indemnity insurance both at the time of
his appointment and for 3 years following the date of his
determination, and to establish his own reasonable procedures
to enable him to give his determination.
26.3 Any decision by the Expert (an "EXPERT'S DECISION") shall be
final and binding on the parties in the absence of negligence, manifest
error or bad faith. The Expert shall act as an expert and not an
arbitrator; the Expert's Decision shall not be a quasi-judicial
procedure. Save as provided elsewhere in this Agreement, each party
shall bear its own costs and the costs of the Experts shall be borne
equally between the parties.
27 ARBITRATION
Any matter referred to arbitration pursuant to Clause 25 shall be
referred to and finally resolved by arbitration in London by a single
arbitrator to be appointed by agreement between BA and Hawker or, if
such agreement is not reached within 10 Business Days of the date on
which the name of a proposed arbitrator shall have been submitted by
either BA or Hawker for the purpose of the reference, to be appointed by
the President or in his absence the Vice-President for the time being of
The Law Society of England and Wales. The arbitration shall be conducted
pursuant to the Rules of the London Court of International Arbitration
which apply at the date of the dispute, save if and to the extent that
they are inconsistent with any provision of this Agreement. Save as
provided elsewhere in this Agreement, each party shall bear its own
costs and the costs of the arbitrator shall be borne equally between the
parties. The arbitrator's award shall be final and binding on the
parties and may be entered as a judgment by the successful party at the
English High Court.
28 INSURANCE
28.1 BA and Hawker will maintain adequate insurance in respect of loss or of
damage to the inventory from time to time whilst it is in their
Possession.
28.2 BA and Hawker will be responsible for the administration of insurance
claims made under their respective policies and will provide the other
with any information necessary to do so. Hawker will be responsible for
ensuring that all Rotable Inventory repairs approved following or during
an insurance claim are carried out without delay.
28.3 Hawker will maintain insurance in respect of:
28.3.1 general third party, public and product legal liability insurance
for risks arising out of or in connection with this Agreement
for US$500 million (or such higher or lower amount as BA and
Hawker may from time to time agree) for any one accident
and/or occurrence (and in the aggregate in respect of product
liability); and
28.3.2 any other insurance policy providing third party cover required
by any relevant airport operator or other regulatory authority,
to the extent required by such operator or authority.
28.4 Hawker will upon request provide BA with suitable evidence of all insurance
policies and will notify BA immediately of any cancellation, material
alteration or non payment of premiums.
29 FORCE MAJEURE
29.1 For the purposes of this Agreement, a Force Majeure Event in relation to
BA or Hawker means acts of God, riots, war, terrorist activities,
strikes, lock-outs or other industrial disputes (except
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strikes, lock-outs or other industrial disputes solely in relation to
its own employees, agents or sub-contractors), epidemics, governmental
restraints, act of legislature and a directive or requirement of a
competent authority governing BA or Hawker, as the case may be, beyond
the reasonable control of (and not reasonably foreseen and planned for
by) the party liable to effect performance, and provided that neither
lack of funds nor manpower nor default or misconduct by any third party
employed or engaged as an independent contractor by BA or Hawker, as the
case may be, shall be interpreted as a cause beyond the reasonable
control of that party.
29.2 Neither BA nor Hawker shall be liable for failure to perform, or
delay in performing, any of its obligations under this Agreement in so
far (but only insofar) as the performance of such obligations is
prevented by a Force Majeure Event in relation to it.
29.3 BA or Hawker, as the case may be, shall notify the other of the
occurrence of such a Force Majeure Event in relation to it and shall use
all reasonable endeavours to continue to perform its obligations
hereunder for the duration of such Force Majeure Event. In the event
that a Force Majeure Event prevents BA or Hawker, as the case may be,
from performing some only, but not all, of its obligations hereunder, BA
or Hawker, as the case may be, shall not be relieved from the
performance of such of its obligations hereunder as are not affected by
such Force Majeure Event.
29.4 If any such Force Majeure Event prevents a party from performing
all its obligations hereunder for a period of more than 3 months, the
other party may terminate this Agreement by notice in writing. In the
event that a Force Majeure Event prevents Hawker from performing all its
obligations hereunder with respect to any one or more Aircraft, but not
all Aircraft, for a period of more than 3 months, BA may in addition,
and without prejudice to its rights pursuant to the preceding sentence,
terminate this Agreement by notice in writing to Hawker only in relation
to those Aircraft affected by such Force Majeure Event.
29.5 If any such Force Majeure Event prevents Hawker from performing
its obligations hereunder for a period of more than 24 hours, BA may
serve a notice on Hawker suspending this Agreement in respect of those
obligations affected or, if such obligations are incapable of being
separately contracted for by BA, in whole until Hawker notifies BA that
the Force Majeure Event has ended and BA may during such suspension
arrange for such part of the Services as are specified in the notice to
be carried out by its own employees or any other person.
29.6 BA shall not be required to pay the Monthly Charges whilst, and to
the extent that, the provision of the Services is affected by a Force
Majeure event.
30 CONFIDENTIALITY
30.1 Subject to Clause 30.2, each party undertakes to, and to procure
that its employees, agents and contractors, treat as confidential:
30.1.1 any and all information obtained from either of the other
parties which by its nature should be treated as confidential
or is marked as such which may come into its possession or into
the possession of any of its employees, agents or contractors,
as a result of or in connection with this Agreement; and
30.1.2 any and all information which has been or which may be derived or
obtained from any such information described in Clause 30.1.1
(together the "Confidential Information").
30.2 The provisions of Clause 30.1 do not apply to any Confidential
Information which the receiving party proves:
30.2.1 is in or enters into the public domain other than by breach of
Clause 30.1;
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30.2.2 has been obtained from a third party who is lawfully authorised
to disclose such information to the receiving party; or
30.2.3 is required to be disclosed by law, by any rule, regulation or
request of a competent regulatory authority or any stock or
securities exchange on which the securities of the receiving
party are listed, quoted or dealt in or by order of a court of
competent jurisdiction or pursuant to a formal or informal
request of a tax authority,
provided always that:
30.2.4 the onus shall be on the disclosing party to prove through
the use of documentary evidence that the information was in or has
entered the public domain otherwise than through unauthorised
disclosure by the disclosing party or is required to be disclosed;
and
30.2.5 if either party is required to make a disclosure in
accordance with Clause 30.2.3, that party will, if it is not so
prohibited, provide the other with prompt notice of any such
requirement or request to disclose any such confidential
information so that it may seek an appropriate order. The
disclosing party will provide the other with all reasonable
assistance in any action taken by that party to obtain an
appropriate order including an order providing that the
information does not have to be disclosed, an appropriate
protection order or other reliable assurance that confidential
treatment will be accorded the information that the disclosing
party is required to disclose.
30.3 Independently of the foregoing provisions of this Clause 30, BA
shall not use or disclose any information obtained by BA in carrying out
any audit of Hawker pursuant to this Agreement for any purpose other
than the relevant audit and any follow-up report or discussions relating
to it.
31 PARENT COMPANY GUARANTEE
31.1 In part consideration of BA entering into this Agreement at the request
of the Guarantor and in consideration of the sum of L1 (receipt of which
is hereby acknowledged) the Guarantor hereby unconditionally and
irrevocably guarantees the full, prompt and complete performance and
observance by Hawker of all its obligations, commitments, undertakings,
warranties and indemnities under or pursuant to this Agreement and any
document entered into pursuant to the terms of this Agreement (the
"Guaranteed Obligations") which are stated to be binding on Hawker
including, without limitation, the due and punctual payment of all sums
now or subsequently payable by Hawker hereunder when the same shall
become due and the Guarantor undertakes with BA to indemnify BA against
all losses which BA may suffer through or arising from any breach by
Hawker. If and whenever Hawker defaults for any reason whatsoever in the
performance of any of the Guaranteed Obligations the Guarantor shall
forthwith upon demand unconditionally perform (or procure performance
of) and satisfy (or procure the satisfaction of) the Guaranteed
Obligations in regard to which such default has been made in the manner
prescribed by this Agreement and so that the same benefits shall be
conferred on BA as it would have received if the Guaranteed Obligations
had been duly performed and satisfied by Hawker.
31.2 The guarantee contained in Clause 31.1 is a continuing guarantee
and shall remain in force until all the Guaranteed Obligations have been
fully performed and all sums payable by Hawker have been fully paid.
This guarantee is in addition to and without prejudice to and not in
substitution for any rights or security which BA may now or hereafter have
or hold for the performance and observance of the Guaranteed Obligations.
31.3 The obligations of the Guarantor shall not be affected by any act,
omission, matter or thing which, but for this provision, might operate
to release or otherwise exonerate the Guarantor from his
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obligations or affect such obligations, including without limitation and
whether or not known to the Guarantor:
31.3.1 any time, indulgence, neglect, delay, waiver or consent at
any time given to Hawker or any other person;
31.3.2 any compromise or release of or absentation from perfecting
or enforcing any right or remedies against Hawker or any other
person;
31.3.3 any legal limitation, liability, disability, incapacity or
other circumstances relating to Hawker or any other person or any
amendment to or variation of the terms of the Guaranteed
Obligations;
31.3.4 any irregularity, unenforceability or invalidity of any
obligations of Hawker under this Agreement, or the dissolution,
amalgamation, reconstruction or insolvency of Hawker,
and shall nevertheless be enforceable against and recoverable from the
Guarantor as though the same had been incurred by the Guarantor and
the Guarantor were the sole or principal obligor in respect thereof.
32 WHOLE AGREEMENT
32.1 This Agreement supersedes any previous written or oral agreement
between the parties in relation to the matters dealt with in this
Agreement and, together with the Sale of Business Agreement, the Related
Agreements (as defined in the Sale of Business Agreement) and the
documents in the agreed terms, contains the whole agreement between the
parties relating to the subject matter of this Agreement at the
Commencement Date to the exclusion of any terms implied by law which are
not otherwise excluded by this Agreement and which may be excluded by
contract. Each party acknowledges that it has not been induced to enter
into this Agreement by any representation, warranty or undertaking not
previously incorporated into it.
32.2 Subject to the specific limitations set out in this Agreement, no remedy
conferred by any provision of this Agreement is intended to be exclusive
of any other remedy except as expressly provided in this Agreement and
each and every remedy shall be cumulative and shall be in addition to
every other remedy given thereunder or existing at law, in equity, by
statute or otherwise.
33 ASSIGNMENT, NOVATION, SUB-CONTRACTING AND OUTSOURCING
33.1 Subject to Clause 33.2 neither BA nor Hawker shall be entitled to
nor shall assign the benefit or obligations under this Agreement in
whole or in part without the other's prior written consent.
33.2 BA shall be entitled to assign the benefit of or novate this
Agreement at any time and from time to time in whole or in part, to any
other member of the BA Group.
33.3 Hawker shall not be permitted to enter into sub-contracting
arrangements in respect of any of its obligations pursuant to Clause 3
without the prior written consent of BA such consent not to be
unreasonably withheld or delayed. Hawker shall be responsible for acts,
omissions and neglects of its sub-contractors as if they were its own
acts, omissions or neglects and its obligations under this Agreement and
Hawker's liability to BA shall not be in any way affected or reduced as
a consequence of any sub-contract into which it enters.
34 WAIVER
No failure of any party to exercise, and no delay by exercising, any
right, power or remedy in connection with this Agreement (each being a
Right) will operate as a waiver thereof, nor will any
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single or partial exercise of any Right preclude any other or further
exercise of such Right or the exercise of any other Right. Any express
waiver of any breach of this Agreement shall not be deemed to be a
waiver of any subsequent breach.
35 FURTHER ASSURANCE
At any time after the date of this Agreement each party shall, and
shall use its best endeavours to procure that any necessary third party
shall, at the cost of that party execute such documents and do such
acts or things as the other party may reasonably require for the
purpose of giving to the other party the full benefit of this Agreement.
36 PARTNERSHIP/AGENCY
36.1 Nothing in this Agreement shall be construed as constituting a
partnership between BA and Hawker or, except as otherwise expressly
agreed between the parties, as constituting either BA or Hawker as the
agent of the other. Otherwise than as expressly provided herein,
neither BA nor Hawker has the authority to act or incur obligations on
behalf of the other and neither BA nor Hawker has any responsibility
for the acts or omissions of the other. BA and Hawker shall each ensure
that its employees, agents, delegates or sub-contractors do not hold
themselves out as employees or agents of the other.
36.2 BA and Hawker shall not and shall ensure that their employees,
agents, delegates and subcontractors do not enter or attempt or purport
to enter into any contractual arrangement or agreement, or borrowing
arrangement, or pledge credit on behalf of the other or any member of
the other's Group.
36.3 Notwithstanding Clause 36.1 and Clause 36.2 BA and Hawker may
from time to time agree in writing that the other may procure items,
such as inventory, and administer warranty claims and other contractual
rights of BA, on its behalf as agents when it is to the parties' mutual
benefit to do so.
37 MEDIA RELEASES
37.1 All media releases, public announcements and public disclosures
by BA, Hawker or their employees or agents relating to this Agreement
or its subject matter, including promotional or marketing materials,
shall be co-ordinated between and approved by BA and Hawker prior to
release.
37.2 The above restriction does not apply to any disclosure required
by any rule, regulation or request of a competent regulatory authority
or any stock or securities exchange on which the securities of BA or
Hawker are listed, quoted or dealt in.
37.3 If either BA or Hawker is required to make a disclosure in
accordance with Clause 37.2 it will, if it is not so prohibited,
provide the other with prompt notice of any such requirement or
request, to disclose any such confidential information so that the
other may seek an appropriate order. The party being required to make
the disclosure will provide the other with all necessary assistance in
any action taken by the other to obtain an appropriate order including
an order providing that the information does not have to be disclosed,
an appropriate protection order or other reliable assurance that
confidential treatment will be accorded the information that party is
required to disclose.
38 VALUE ADDED TAX AND INTEREST
Where under this Agreement one party has agreed to reimburse or
indemnify the other in respect of any payment made or cost incurred by
the other than the first party shall also reimburse any
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Value Added Tax paid by the other which forms part of its payment or
cost incurred to the extent that such Value Added Tax is not available
for credit for the other under Sections 25 and 26 of the Value Added
Tax Act 1994.
39 TIME OF THE ESSENCE
Any time, date or period referred to in any provision of this Agreement
may be extended by mutual agreement between the parties but as regards
any time, date or period originally fixed or any time, date or period
so extended time shall be of the essence.
40 COSTS
Each party shall bear its own legal, accountancy and other costs and
expenses incurred by it in connection with the preparation and
negotiation of this Agreement.
41 NOTICES
41.1 Save where otherwise provided for in this Agreement, any notice
or other communication requiring to be given or served under or in
connection with this Agreement shall be in writing and shall be
sufficiently given or served if delivered or sent:
In the case of BA to:
British Airways Plc
Speedbird House
PO Box 10
Heathrow Airport (London)
Hounslow
TW6 2JA
Fax: 0181-562 3323
Attention: General Manager, Aircraft Maintenance
Purchasing
In the case of Hawker to:
Hawker Pacific Aerospace Limited
Number One
London Road
Southampton S015 2AE
Fax: 01703 631 835
Attention: The Company Secretary
In the case of Hawker Pacific Aerospace to:
Hawker Pacific Aerospace
11240 Sherman Way
Sun Valley
CA 91352 USA
Fax: 001 818 765 2416
Attention: Mr. David Lokken
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41.2 Any such notice or other communication shall be delivered by hand
or sent by courier, fax or prepaid first class airmail post. If sent by
courier or fax such notice or communication shall conclusively be
deemed to have been given or served at the time of receipt unless the
same is on a non Business Day or after 5pm on a Business Day in which
event service shall be deemed to take place at 9am on the Business Day
next following receipt. If sent by post such notice or communication
shall conclusively be deemed to have been received two Business Days
from the time of posting.
42 SEVERANCE
If any term or provision of this Agreement is held to be illegal
or unenforceable, in whole or in part, under any enactment or rule of
law, such term or provision or part shall to that extent be deemed not
to form part of this Agreement but the enforceability of the remainder
of this Agreement shall not be affected.
43 COUNTERPARTS
This Agreement may be executed in any number of counterparts each of
which shall be deemed an original, but all the counterparts shall
together constitute one and the same instrument.
44 RESTRICTIVE TRADE PRACTICES
Notwithstanding any other provision of this Agreement, no provision of
this Agreement which is of such a nature as to make this Agreement
liable to registration under the Restrictive Trade Practices Act 1976
shall take effect until the day after that on which particulars thereof
have been duly furnished to the Director General of Fair Trading
pursuant to the said Act. For the purposes of this Clause 44, the
expression "this Agreement" shall include any agreement forming part of
the same arrangement.
45 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
English law.
46 APPOINTMENT OF PROCESS AGENT
The Guarantor hereby irrevocably appoints Paris Smith & Randall of
Number 1, London Road, Southampton, Hampshire S015 2AE as its agent to
accept service of process in England in any legal action or proceedings
arising out of or in connection with this agreement, service upon whom
shall be deemed completed whether or not forwarded to or received by
the individual parties. If such process agent ceases to act as such or
to have an address in England, the Guarantor irrevocably agrees to
appoint a new process agent in England acceptable to BA and to deliver
to BA within 14 days a copy of a written acceptance of appointment by
the process agent. Nothing in this Agreement shall affect the right to
serve process in any other matter permitted by law.
In witness whereof this Agreement has been duly executed.
SIGNED by
---------------------------------
Director, on behalf of British Airways Plc
in the presence of:
----------------------------------
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SIGNED by
---------------------------------
Director, on behalf of Hawker Pacific Aerospace
Limited
in the presence of:
----------------------------------
SIGNED by
---------------------------------
Director, on behalf of Hawker Pacific
Aerospace
in the presence of:
----------------------------------
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SCHEDULE 1
THE SERVICES
GENERAL
1 INTERPRETATION
1.1 In this Agreement the following terms and expressions shall, unless the
context requires otherwise, have the following meanings:
AIRCRAFT ON GROUND or AOG means a critical operational status involving
the actual or likely grounding of an aircraft due to the failure or
non-availability of a part governed by this Agreement and AOG Support
means the provision of landing gear, flap track and flap carriage repair
and overhaul services in respect of an AOG;
ARISING means a requirement for the performance of the Services in
relation to an individual event;
COLLECTION means a collection of Unserviceable inventory from BA in
accordance with paragraph 6.2 of this Schedule and Collect shall be
construed accordingly;
DELIVERY means the delivery of Serviceable inventory to the appropriate BA
employee in accordance with paragraph 6.3 of this Schedule 1 and Deliver
shall be construed accordingly;
FORECAST OF REQUIREMENTS means a broad indication of BA's requirements
for Serviceable Inventory for a period of 18 months from the date of the
forecast;
FTC means a Flap Track or a Flap Carriage;
LINE REPLACEABLE UNIT or LRU means any inventory or part thereof which is
replaceable on the ramp in the ordinary course of providing repair and
overhaul services;
NDT means non-destructive testing;
OVERHAUL means in respect of an item of inventory to:
(i) make necessary modifications to Rotable Inventory comprised
in the item;
(ii) replace as necessary Expandable Inventory comprised in the
item;
(iii) assemble all Components comprised in the item;
(iv) test the strength, composition, durability, functionality of
the item, to ensure it complies with all applicable
Regulatory Requirements, BA Specifications, Service Manuals
and Aircraft Maintenance Manuals or such other specifications
and requirements as are agreed between the parties from time
to time; and
(v) return all items to the condition required in the BA
Specification;
POSTPONEMENT means a postponement of an Arising by BA pursuant to
paragraph 2.7.3 of this Schedule by more than 6 months from the date
originally scheduled;
PROCESSING means the processing of Serviceable Inventory in accordance
with paragraph 6.1 of this Schedule 1 in preparation for Delivery to BA
and Process shall be construed accordingly;
REPAIR AND RETURN means the Collection, Overhaul, Processing and Delivery
of an item of inventory not owned by Hawker without replacing that item
with an item of Serviceable Inventory;
32
<PAGE>
SUB-CONTRACT ADVICE NOTE or SCAN means a note which details the nature of
the Overhaul to be undertaken by Hawker and the time by which it is to be
completed;
SCHEDULE OF REQUIREMENTS means a detailed schedule of Arisings in respect
of each Aircraft for a period of 26 weeks from the date of the schedule;
SERVICEABLE means in respect of any item, that it is in accordance with
the BA Specification and ready for fitment to an aircraft;
STRUCTURAL LANDING GEAR PARTS means any Landing Gear parts but excluding
LRUs:
TRT or TURNAROUND TIME means the time between the Collection of an item
of Unserviceable Inventory and the Delivery of that item as Serviceable
Inventory (for the avoidance of doubt, TRT shall commence 3 days after
notification by BA of the availability of the item or upon Collection,
whichever occurs first, with the exception of Other Services, in which
case TRT will commence on delivery to Hawker);
UNSCHEDULED OVERHAUL has the meaning given to it in paragraph 2.8 of this
Schedule;
UNSERVICEABLE means, in respect of any item, that it is not Serviceable
and to which there has been no WIP attributable; and
WEEKLY MEETINGS means the weekly meetings to take place pursuant to
paragraph 2.1 of this Schedule.
A OVERHAUL SERVICES
2 MANAGEMENT OF CONTRACTS
WEEKLY MEETING
2.1 From the Commencement Date a weekly management meeting will take place
between the BA Representative and the Hawker Representative.
2.2 At each Weekly Meeting:-
2.2.1 BA will provide Hawker;
(i) a Schedule of Requirements in accordance with paragraphs 2.6
to 2.9 of this Schedule including any changes to the
Schedule of Requirements agreed in accordance with the
procedures set out in paragraph 2.7;
(ii) dates of the Arisings;
(iii) delivery location of Arisings;
(iv) whether each Arising is to be supplied by means of an
Advanced Exchange or Repair and Return; and
(v) Unscheduled Overhauls.
2.2.2 Hawker shall provide to BA in writing in the agreed terms a draft
workshop schedule which will detail the availability of Rotable
Inventory up to and including 26 weeks from the date of the Weekly
Meeting;
2.2.3 once included within the Schedule of Requirements, Arisings can
only be moved in accordance with the procedure set out in
paragraph 2.7;
33
<PAGE>
2.2.4 the Schedule of Requirements will, when agreed, bear the
signatures of the BA Representative and Hawker Representative and
shall be binding on both BA and Hawker and shall be updated weekly
in accordance with paragraph 2.7;
and the parties shall discuss any other matters affecting the day to day
provision of the Services.
MONTHLY MANAGEMENT MEETING
2.3 From the Commencement Date a monthly meeting is to take place at which
the BA Representative shall provide to Hawker in writing in the agreed
terms an 18 month Forecast of Requirements when available. The Forecast
of Requirements is intended to be indicative only and not contractually
binding. The parties shall also undertake a review of:-
2.3.1 Hawker's operational performance
2.3.2 price performance of the contract
2.3.3 warranty and indemnity claims
2.3.4 new business opportunities
2.3.5 changes to specification/contract
2.3.6 availability of Rotable Inventory
and discuss any other matters relating to Hawker's and BA's performance
under and compliance with this Agreement.
COMMITMENT BY HAWKER
2.4 Hawker commits to Processing and Delivery (in accordance with the terms
of this Agreement) of 100% of the Arisings listed in the Schedule of
Requirements.
2.5 Hawker shall also accommodate any Unscheduled Overhaul (pursuant to
paragraph 3.5 of this Schedule).
THE SCHEDULE OF REQUIREMENTS - CHANGES
2.6 The Schedule of Requirements will be updated weekly.
2.7 Arisings may be varied by BA at no additional cost in accordance with the
following conditions:
2.7.1 at any time up to 12 weeks prior to the delivery date contained in
the Schedule BA may bring forward any Arising by up to 35 days from
that originally scheduled;
2.7.2 at any time up to the delivery date (as may have been amended
pursuant to paragraph 2.7.1 above) BA may bring forward any Arising
by and up to a further 21 days:
2.7.3 subject to the paragraph immediately below BA may at any time up
to the delivery date (as may have been amended pursuant to
paragraphs 2.7.1 or 2.7.2 above) postpone any Arising by up to six
months from the date the Arising first appeared in the Schedule of
Requirements;
BA shall have the right in respect of individual Landing Gears, to
require 12 Postponements in any 12 month period and, in respect of
individual Flap Track and individual Flap Carriages require up to 16
Postponements in any 12 month period at no extra cost.
2.8 Any Arisings:
34
<PAGE>
2.8.1 not included in the Schedule of Requirements will be classed as
an "Unscheduled Overhaul" (see paragraph 3.5 below) and delivery
date and time will be subject to mutual agreement. In the event
that the Arising can be met using existing Hawker Inventory
(including the Inventory Pool) the Fixed Charges shall apply. In
the event that an alternative source of Inventory is used to
meet the Arising, Hawker may charge BA at the cost of acquisition
with no mark-up.
2.8.2 which cannot be matched with the Inventory Pool but which are
included in the Schedule of Requirements shall be defined as
"Extraordinary Arising" and the following sequence of events
shall be followed:
(i) BA and Hawker shall use reasonable endeavours to ensure
that such Arising can be covered using existing Hawker
Inventory in which case the Fixed Charges shall apply;
(ii) Hawker will use reasonable endeavours to rearrange internal
production schedules to accommodate the Arising using
existing Hawker Inventory, which, for the avoidance of
doubt, shall be charged for at Fixed Charges;
(iii) Hawker will use best endeavours to locate an alternate
source at minimum cost and will notify such cost to BA
and, upon BA's acceptance of this cost, Hawker may charge
BA the amount of such cost with a mark-up of 15%;
(iv) in the absence of BA's acceptance such further action
shall be subject to mutual agreement.
2.9 The Schedule of Requirements will only be used for BA's
requirements for the Overhaul of Landing Gear/ Flap Track/ Flap
Carriages. Delivery dates for all other processes contained in this
Service Level Agreement shall be decided by reference to the agreed
TRT for each part or by mutual agreement.
3 OVERHAUL OF LANDING GEARS, FLAP TRACKS, FLAP CARRIAGES AND
ASSOCIATED PARTS
Hawker and BA will follow the following processes in meeting the
Schedule of Requirements.
3.1 LANDING GEARS (INCLUDING STRUTS) - ADVANCED EXCHANGE
PROCESS FOR DELIVERY OF SERVICEABLE LANDING GEAR TO BA
- Hawker will Process the Serviceable Landing Gear prior to it
leaving Hawker's premises.
- Hawker will declare the Landing Gear Serviceable and update TIME
with workshop history and life declaration in respect of all
Serviceable Inventory of such Landing Gear
- The Landing Gear will conform to the relevant BA Specification
contained in Schedule 8
- Hawker will Deliver the Serviceable Landing Gear in accordance
with the dates, locations and times in the Schedule of
Requirements unless notified otherwise pursuant to paragraph 2.7
of this Schedule at an earlier Weekly Meeting.
PROCESS FOR COLLECTION OF UNSERVICEABLE LANDING GEAR
- BA will notify Hawker that the Unserviceable Landing Gear is
ready for Collection from the specified location. Notification
will take place no longer than 5 days after the removal of the
Unserviceable Landing Gear from the aircraft.
- Hawker shall Collect the Unserviceable Landing Gear from the
specified location within 3 days of notification by BA that the
Unserviceable Landing Gear is ready for Collection.
35
<PAGE>
Collection will take place between the times of 0900 and 1600 (at
the place of collection) unless otherwise agreed.
- Hawker will Overhaul the Unserviceable Landing Gear.
3.2 LANDING GEARS (INCLUDING STRUTS) - REPAIR AND RETURN
If the Schedule of Requirements specifies and Overhaul of Landing
Gear by Repair and Return then the following process shall apply:
- Hawker shall Collect the Unserviceable Landing Gear in
accordance with the Schedule of Requirements and the latest
return delivery date shall be calculated in accordance with the
maximum TRT for each Landing Gear type as set out below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
747-100/200/300/400 737-200/400 Concorde
747-SP (nose only)
757
767-200/300ER
777
Tristar-1/50/100/500
1st 6 months 70 DAYS 50 DAYS 140 DAYS
2nd 6 months 60 DAYS 40 DAYS 128 DAYS
Year 1+ 55 DAYS 38 DAYS 112 DAYS
Year 2+ 50 DAYS 30 DAYS 100 DAYS
</TABLE>
- BA may notify Hawker of any extensions to the specified delivery
date.
- Hawker will Overhaul the Unserviceable Landing Gear.
- Hawker will declare the Landing Gear Serviceable and update TIME
with workshop history and life declaration in respect of all
serviceable parts.
- For parts other than Assemblies (as defined in the Sale of
Business Agreement) it will be the responsibility of BA to
deliver the Repair and Return part to Hawker's premises.
- Once the Landing Gear has been Overhauled, Hawker will notify
the BA Representative that Overhaul is complete.
- BA will advise a date, location and time for delivery of the
Serviceable Landing Gear to BA (to take place before the latest
date and time specified unless extended by BA pursuant to this
paragraph 3.2) and Hawker will Deliver the Serviceable Landing
Gear in accordance with such dates and time and at the locations
stipulated by BA.
- Hawker shall then Deliver the Serviceable Landing Gear during
business hours to the location stipulated by BA at the relevant
Weekly Meeting.
3.3 FLAP TRACKS AND FLAP CARRIAGES - ADVANCED EXCHANGE
If the Schedule of Requirements specifies that a Flap Track or Flap
Carriage is to be Overhauled by Advanced Exchange, the following
process shall apply:
PROCESS FOR DELIVERY OF SERVICEABLE TO FTC TO BA
- Hawker will Process the Serviceable FTC following Overhaul prior
to it leaving Hawker's premises.
36
<PAGE>
- Hawker will ensure that the required FTC is Overhauled to the BA
Specification unless otherwise agreed.
- Hawker will declare the FTC Serviceable and update TIME with
workshop history and life declaration in respect of Serviceable
parts of such FTC.
- Hawker will Deliver the Serviceable FTC in accordance with the
dates, locations and times specified in the Schedule of
Requirements as amended pursuant to paragraph 2.7 of this
Schedule at an earlier Weekly Meeting.
PROCESS FOR COLLECTION OF UNSERVICEABLE FTC
- BA will notify Hawker that the Unserviceable FTC is ready for
Collection from the specified location. Notification will take
place no longer than 5 days after the removal of the
Unserviceable FTC from the aircraft.
- Hawker shall Collect the Unserviceable FTC from the specified
location within 3 days of notification by BA that the
Unserviceable FTC is ready for Collection. Collection will take
place between the times of 0900 and 1600 unless otherwise agreed.
3.4 FLAP TRACKS AND FLAP CARRIAGES - REPAIR AND RETURN
If the Schedule of Requirements specifies that an FTC is to be
Overhauled by Repair and Return, then the following process shall
apply:
- Hawker will Collect the Unserviceable FTC in accordance with the
Schedule of Requirements.
The latest return delivery date shall be calculated in accordance
with the following maximum TRTs for each FTC type.
<TABLE>
<CAPTION>
FLAP TRACKS:
<S> <C> <C>
737-200/300/400 747-100/200/400
757
767
777
A320
DC10
1st 6 months 35 DAYS 40 DAYS
2nd 6 months 30 DAYS 36 DAYS
1 year + 28 DAYS 32 DAYS
2 year + 27 DAYS 30 DAYS
FLAP CARRIAGES:
<S> <C> <C>
737-200 747-100/200/400
1st 6 months 40 DAYS 40 DAYS
2nd 6 months 35 DAYS 36 DAYS
1 year + 30 DAYS 32 DAYS
2 year + 28 DAYS 30 DAYS
</TABLE>
37
<PAGE>
- Hawker will Overhaul the Unserviceable FTC unless otherwise agreed
between the parties.
- Hawker will declare the FTC Serviceable and update TIME with
workshop history and life declaration in respect of all serviceable
parts.
- Once the FTC has been Overhauled, Hawker will notify the BA
Representative that Overhaul is complete.
- BA will advise Hawker of the dates, locations and times for
Delivery of the Serviceable FTC to BA (to take place before the
latest date and time specified in the above table).
- Hawker will Deliver the Serviceable FTC in accordance with such
dates and times and to the locations stipulated by BA.
- Hawker will invoice all charges in accordance with Schedule 3 on
delivery of the Serviceable Inventory to BA.
3.5 LANDING GEARS, FLAP TRACKS AND FLAP CARRIAGES - UNSCHEDULED OVERHAULS
BA will advise Hawker of any Unscheduled Overhaul requirements as soon
as they are identified. In the case where there is a requirement for an
Unscheduled Overhaul, BA will advise whether this is to be completed by
the Advanced Exchange or Repair & Return method of Overhaul at the Weekly
Meeting.
- If Repair & Return is required then the process in paragraphs 3.2
or 3.4 of this Schedule, as appropriate, should be followed and BA
shall pay the standard pricing for the item concerned contained in
Schedule 3.
- If Advanced Exchange is required then provided that Hawker has
sufficient inventory to service the requirement, then the process
in paragraphs 3.1 or 3.3 of this Schedule, as appropriate, should
be followed and BA shall pay at the prices contained in Schedule 3.
- If Hawker does not have available inventory for the Unscheduled
Overhaul, Hawker will use best endeavours to find an alternative
supply for the Landing Gear/FTC required to be charged at Hawker's
cost with no markup.
B OTHER SERVICES
4 LRU'S, AD HOC, ON-WING AND QUARANTINE OVERHAULS
4.1 LINE REPLACEABLE UNITS (LRUs)
The process for the overhaul of LRU's will be as follows:
- BA will send the Unserviceable LRU to Hawker with a SCAN attached
which will advise:
(i) the nature of the overhaul required by BA;
(ii) the unique SCAN number applicable to that LRU;
(iii) the date in accordance with relevant TRTs and location
of delivery of the LRU back to BA.
- Hawker shall complete the required recertification, repair or
overhaul on the LRU and Process the LRU.
- The return delivery shall be calculated in accordance with the
following TRTs:
(TRTs as agreed in the agreed terms)
38
<PAGE>
- Hawker will Deliver the Serviceable LRU on the date and time and to
the location specified by BA on the SCAN.
- Hawker will invoice all charges in accordance with Schedule 3 after
Delivery of the overhauled LRU has been completed.
4.2 AD-HOC MACHINING, PLATING OR NDT
PART PROCESS
- BA may from time to time advise Hawker that any item requires
machining, plating or NDT and BA shall deliver such item to
Hawker. For the avoidance of doubt, if BA requests part
process of a full assembly landing gear or FTC Hawker will be
responsible for the collection of such inventory.
- On Delivery to or Collection by Hawker, as the case may be, of
Unserviceable Inventory, BA will provide Hawker with
worksheets detailing the work which Hawker is required to
complete.
- Hawker will perform the required work to specification
provided by BA at the time of Collection of the part by BA.
- Hawker will complete the workscope and update TIME with
workshop history and life declaration on Serviceable parts of
the Rotable Inventory.
- Hawker will Deliver the inventory on the date and time and to
the location specified in the SCAN (unless advised otherwise).
- Hawker will invoice all charges in accordance with Schedule 3
after Delivery.
FULL PROCESS
- BA will send the Unserviceable Inventory to Hawker with a SCAN
attached which will advise:
(i) the nature of the work required by BA;
(ii) the unique SCAN number applicable to that inventory;
(iii) the date and location of delivery of the
inventory/ back to BA.
- The date for return of the Serviceable Inventory will be
agreed at the time of Collection between Hawker and BA
depending on the level of work that is required.
- Hawker will complete the required work on the Inventory and
Process the Inventory.
- Hawker will Deliver the Serviceable Inventory on the date and
time and to the location specified by BA on the SCAN unless
told otherwise.
- Hawker will invoice all charges after delivery of the
Serviceable Inventory has been completed.
4.3 QUARANTINED INVENTORY
Where BA may require Rotable Inventory to be quarantined for a
period of time BA will advise Hawker of its requirements at
the Weekly Meetings and the following process will be followed:
- Hawker will provide a Serviceable Inventory to the BA
Specification and Collect the Unserviceable Inventory to be
quarantined on an Advanced Exchange basis.
- In consultation with BA, Hawker will liaise with the OEM to
determine what work, repair, testing or other requirements
need to be carried out on the Unserviceable Inventory by
39
<PAGE>
Hawker, such work, repair or testing to be carried out by
Hawker and priced at the Rates (unless otherwise agreed
between the parties).
In the event that it is necessary to quarantine a part BA and Hawker
will enter into discussions to re-imburse Hawker for loss of use of
Hawker's exchange asset.
4.4 ON-WING / AOG SUPPORT
Hawker will provide at BA's request from time to time AOG Support. If BA
require On-Wing/AOG Support BA will contact Hawker giving details of the
location of the Aircraft and the support requirement(s).
- Hawker shall make sufficient adequately qualified and experienced
personnel (the "AOG Team") available 24 hours a day, 7 days a week
to assist BA worldwide with unscheduled aircraft problems relating
to the items covered by this Agreement including providing AOG
Support.
- Hawker's AOG Team will arrive at the location specified above with
necessary equipment within the following performance measures:
Heathrow Airport/Gatwick Airport WITHIN 3 HOURS OF CALL OUT BY
BA (OR ITS REPRESENTATIVE)
Other United Kingdom and Europe WITHIN 24 HOURS OF CALL OUT BY
BA (OR ITS REPRESENTATIVE)
Rest of the world WITHIN 48 HOURS OF CALL OUT BY
BA (OR ITS REPRESENTATIVE)
- If Hawker does not have the necessary part in stock, Hawker shall
use best endeavours to obtain the part from an alternative source
to satisfy BA's requirement.
- Where required, Hawker will Deliver Advanced Exchange Inventory, or
part thereof, in accordance with paragraph 3.5 of this Schedule,
and will Collect the Unserviceable Inventory, or part thereof, from
the location.
- Where applicable, Hawker will investigate reasons why an early
failure of the part had occurred and provide to BA a report within
a mutually agreed time period of the Collection of the Inventory
setting out its conclusions and findings.
- After each occasion on which AOG Support is provided, Hawker and BA
will undertake a joint review to establish the effectiveness of the
process.
- Hawker will ensure that any replacement item, including inventory,
that is fitted to an Aircraft as part of the provision of AOG
Support will have approximately the same remaining overhaul life as
the defective inventory.
- Where the replacement inventory has a lower remaining overhaul life
than the removed inventory, Hawker will ensure that an appropriate
replacement inventory is temporarily fitted to the Aircraft while
the defective part is being Overhauled using the Repair & Return
method.
- Hawker will fit the equivalent life inventory to the Aircraft, to
replace the temporary replacement at an appropriate time agreed in
advance between the parties.
- BA and Hawker shall agree the remedial action associated with any
removed inventory (Repair or Overhaul) before work commences. In
the event that Hawker sources inventory and/or services from any
third party in support of Unscheduled Overhaul or On-Wing/AOG
40
<PAGE>
requirements where the removed inventory is not covered by Hawker's
warranty in Clause 23 then Hawker will charge BA for the cost of
such Inventory or services without additional mark-up.
* Labour and material prices in respect of the above shall be charged
at the Rates in Schedule 3. There will be no charge for the
availability of the AOG Support Team. The time spent travelling to
and from the location of the AOG incident shall be charged at the
labour rate in Schedule 3 and reasonable incidental expenses shall
be charged without any additional mark-up.
OVERHAUL
- Removed Inventory which requires Overhaul, shall be charged in accordance
with the Overhaul pricing contained in Schedule 3.
REPAIR
Inventory which requires repair to return it to a Serviceable condition,
shall be charged in accordance with the Rates.
4.5 OTHER
At BA's request, Hawker shall use its reasonable endeavours to provide
overhaul services in respect of one-off Inventory Arisings for aircraft
types other than the Aircraft (but excluding B777s) and BA shall pay
exchange fees and overhaul charges for such services at the then
current market rate.
Hawker shall provide such other services related to the Services as
BA may reasonably request from time to time.
5 MISCELLANEOUS MATTERS
5.1 WARRANTY ADMINISTRATION
Hawker shall manage all warranty claims against third parties including
claims for inventory and/or services (including new purchase items).
BA shall provide Hawker with any information and assistance necessary
in support of a claim.
If a warranty claim with any third party results in a benefit
(financial or otherwise) to BA then Hawker will pass on all of this
benefit back to BA via a credit note or other mutually agreed process.
5.2 MISSING PARTS
Hawker will use reasonable endeavours to highlight any missing parts in
relation to the BA Build Standard (contained in the BA Specification)
to the BA Representative within 14 days of Collection by Hawker of the
Unserviceable Inventory.
BA will promptly verify such missing parts, and will promptly supply
the missing part or a replacement part or give Hawker authority to
supply a replacement to be charged in accordance with Schedule 3,
paragraph 2.3.1.
5.3 MISCELLANEOUS SUPPORT
Hawker will provide the following support;
TECHNICAL SUPPORT
Hawker will provide to BA upon request technical support within its
capability related to all parts covered by this Agreement, 24 hours per
day, 365 days per year.
- -------------------------------------------------------------------------------
41
<PAGE>
SPECIAL HANGAR CHECKS
Hawker shall provide personnel to support special hangar checks.
SAMPLES
Hawker shall provide technical support for any sampling programmes.
5.4 AMENDMENTS TO BA SPECIFICATIONS
From time to time BA will request that the BA Specification for a
particular item of Inventory should be amended (and Hawker will be
notified of the amendment at the Weekly Meeting in accordance with
paragraph 2.1) in which case:
* Hawker will from the date of such Weekly Meeting provide the Services
in accordance with the BA Specification.
* Hawker may Overhaul Inventory which are part way through Overhaul
when notification is given to the previous BA specification.
* Hawker shall incorporate all mandatory/non-mandatory service
bulletins, modifications, Airworthiness Directives that do not impact
on the prices contained in Schedule 3.
* In the event of mandatory changes being made to build standards
contained in the BA Specification, Hawker will ensure that
compensation for the changes is recovered from the OEM and, where
necessary, passed back to BA.
* Once the amendment has been agreed the parties shall follow the
Change Control Procedure.
6 COLLECTION, PROCESSING AND DELIVERY
6.1 PROCESS TO BE FOLLOWED PRIOR TO DELIVERY OF ANY SERVICEABLE INVENTORY
TO BA
Hawker is to declare the part Serviceable and complete the following
paperwork (as applicable) before the Serviceable Inventory leaves
Hawker's premises:
* Provide a JAR Form 1/FAA 8130-5 with all Components supplied to BA.
* A serviceable TIME tag, if BA agrees to such a facility.
* A condition report for all Unserviceable Component provided to BA.
* Hawker shall retain a record of all work undertaken on Components
provided to BA and should be able to furnish these at reasonable
notice.
* Hawker shall provide a report of all parts fitted to an Item of
Inventory, including part number, serial number, CSN (cycle since
new), CSO (cycle since overhaul), TSN (time since new) and TSO
(time since overhaul) where appropriate.
* Hawker shall provide a manufacturer's certificate in the event of a
new part being fitted to an item of Inventory.
* Hawker shall provide Audit paperwork and reports on life extension
or accident/incident reports or specified Components.
* Hawker shall supply a list of any missing Components from an item
of Inventory by part number and description.
* In respect of Landing Gear only:
- -------------------------------------------------------------------------------
42
<PAGE>
* Before Delivery Hawker shall label appropriate parts with the
BA/SA number. In respect of outer cylinders this label shall be
positioned above the name plate. In respect of drag struts the
label shall be positioned on the side of the strut in a clearly
visible location. Each label shall have black lettering on a
white background and shall be approximately 3/4 inch high. Once
the label is attached to the cylinder or strut a clear coat of
varnish shall be applied over the label.
* Hawker shall ensure that the Landing Gear is packaged in
suitable packaging in accordance with the ATA 300 packaging
standard or in accordance with normal BA procedures existing
after the Commencement Date.
* Hawker will store all paperwork described above in fireproof cabinet
in Hawker's facility. BA will be allowed access to this paperwork in
accordance with Schedule 7.
* Hawker will unload all parts from the delivery vehicle.
6.2 PROCEDURE TO BE FOLLOWED ON COLLECTION OF ANY PART
* Hawker shall be responsible for loading the Unserviceable Inventory
on to the delivery vehicle.
* BA will package the part ready for Collection on the collection
date for Advanced Exchange using, for Landing Gear and FTC, the
packaging from the relevant exchange item and for Repair and Return
Hawker will provide adequate packaging and if requested will
provide this 3 days before collection date. If such packaging
supplied by Hawker is damaged in transit, BA shall promptly advise
Hawker and Hawker shall supply adequate replacement packaging 3
days before collection is to take place.
* Hawker will sign (sight unseen and not inspected) for collection of
Unserviceable Inventory by the Hawker Representative authorised to
confirm collection of an item of Unserviceable Inventory as
notified to BA from time to time.
6.3 PROCEDURE FOR DELIVERY OF ANY INVENTORY TO BA PREMISES
* Delivery shall take place between 0800 and 1700 local time or other
time agreed with BA.
* If BA deems packaging to be unsatisfactory on Delivery of the
Serviceable Inventory to BA, Hawker will provide additional
suitable packaging on Collection of the Unserviceable Inventory.
* Responsibility for unloading the Serviceable Inventory from the
delivery vehicle will be Hawker's. For Gatwick and Heathrow
airports (and such other locations as agreed from time to time by
BA and Hawker) Hawker will provide the means by which Landing Gear
can be moved around the hangar.
* Hawker will provide the BA Representative a copy of JAA Form 1 for
each item of Serviceable Inventory delivered.
* The BA representative authorised to accept delivery of an item of
Serviceable Inventory as notified to Hawker from time to time will
sign for Delivery of the Serviceable Inventory.
* It shall be the responsibility of BA to provide access to BA
Property and to use its reasonable endeavours to provide access to
any other areas to Hawker to allow Delivery and Collection of item
of Inventory in accordance with the terms of this Agreement.
- -------------------------------------------------------------------------------
43
<PAGE>
7 MISCELLANEOUS
7.1 INVOICING PROCEDURE
7.1.1 Invoices shall be sent to the following address:
Purchase Ledger
British Airways Plc
9th Floor Technical Block C (s102)
PO Box 10
Heathrow (London) Airport
Hounslow
Middlesex TW6 2JA
7.1.2 All invoices will contain the following information:
(i) BA Purchase Order Number or SCAN Numbers
(ii) The number of the part
(iii) The quantity
(iv) The serial number of the part
(v) Main pricing elements
- -------------------------------------------------------------------------------
44
<PAGE>
SCHEDULE 2
SERVICE LEVEL AGREEMENT
1 PERFORMANCE SHORTFALL
In the event of failure by Hawker in breach of its obligations under this
Agreement to deliver to the agreed delivery dates in circumstances where BA
has suffered disruption or delay as result of its failure the following
credits if requested by BA shall apply:
<TABLE>
<CAPTION>
<S> <C> <C>
- ----------------------------------------------------------------------------------------
SERVICE SERVICE LEVELS CREDITS
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Landing Gears Delivery of Serviceable Landing Gear in L[****] per day
(including struts) accordance with the Schedule of
Advanced Exchange Requirements
- ----------------------------------------------------------------------------------------
Landing Gears Delivery of Serviceable Landing Gear in L[****] per day
(including Struts) accordance with the maximum TRT as
Repair and Return set out in paragraph 3.2 of Schedule 1
- ----------------------------------------------------------------------------------------
Flap Tracks and Delivery of Serviceable FTC in L[****] per day
Flap Carriages accordance with the the Schedule of
Advanced Exchange Requirements
- ----------------------------------------------------------------------------------------
Flap Tracks and Delivery of Serviceable FTC in L[****] per day
Flap Carriages accordance with the maximum TRT set
Repair or Return out in paragraph 3.4 of Schedule 1
- ----------------------------------------------------------------------------------------
Landing Gears, As agreed between the parties as set out L[****] per day
Flap Tracks and in paragraph 3.5 of Schedule 1
Carriages Unscheduled
Overhauls
- ----------------------------------------------------------------------------------------
LRUs Delivery in accordance with the SCAN L[****] per day
and TRT's set out in the document in the
agreed terms.
- ----------------------------------------------------------------------------------------
Ad hoc Machining, PART PROCESS: L[****] per day
Plating, or NDT and Collection and Delivery as agreed
LRUs between the parties, in accordance with
the SCAN
- ----------------------------------------------------------------------------------------
FULL PROCESS; L[****] per day
Delivery in accordance with the SCAN
- ----------------------------------------------------------------------------------------
On Wing Support/ Arrival of AOG support team as set out L[****] per hour
Aircraft on Ground in paragraph 4.4 of Schedule 1,
performance of service in accordance
with relevant procedure listed above.
- ----------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
45
<PAGE>
2 QUALITY LAPSE
2.1 FAILURE OF PARTS UNDER WARRANTY
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------------------------------------
PART ACTION COSTS
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Landing Gear, FTC or Hawker immediately provides a If quality failure is not covered
component resulting in replacement part and AOG by Hawker's warranty than
AOG Support support, if requested. follow the process in
accordance with paragraph 3.5
of Schedule 1.
If quality failure is covered by
Hawker's warranty (i) Hawker
makes good the failure and (ii)
[******************]
-------------------------------------------------------------------------------------------
Quality lapse in LRU/ Hawker immediately replaces If quality failure is covered by
Process Part/Ad Hoc LRU, if requested. Hawker's warranty (i) Hawker
work makes good the failure and (ii)
[*****************************].
If quality failure is not covered
by Hawker's warranty, charges
for the part are invoiced in
accordance with paragraph 3.5
of Schedule 1.
-------------------------------------------------------------------------------------------
2.2 FAILURE OF PARTS NOT UNDER WARRANTY
-------------------------------------------------------------------------------------------
PART ACTION COSTS
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Landing Gear/FTC or Hawker immediately sends an If quality failure is not the fault
component part AOG Support team and of Hawker, follow process in
resulting in AOG replaces the part following accordance with paragraph 3.5
support procedure in paragraph 3.5, of Schedule 1.
Schedule 1, if requested, If quality failure is fault of
Hawker investigates the reason Hawker (i) Hawker makes good
for failure in consultation the failure and (ii) [***********]
with BA and retains the part
for inspection.
-------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
46
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------------------------------------
PART ACTION COSTS
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
LRU/Process Parts/Ad BA highlights quality issue with If quality failure is not
Hoc Work Hawker following removal of the fault of Hawker, follow
part. Hawker shall re-do any work process in accordance with
if requested. Hawker investigates paragraph 4.1 of Schedule 1.
reasons for failure and submits If quality failure is fault
report to BA. Hawker retains the of Hawker (i) Hawker makes
part for inspection by BA. good the failure and (ii)
[************************]
-------------------------------------------------------------------------------------------
3 WARRANTY PERIODS
3.1 Hawker shall provide the following warranties:
-------------------------------------------------------------------------------------------
PART LENGTH OF WARRANTY PROVIDED BY HAWKER
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Flap Tracks 5 years
-------------------------------------------------------------------------------------------
Flap Carriages 5 years
-------------------------------------------------------------------------------------------
LRU's 1 year (subject to Clause 23.5)
-------------------------------------------------------------------------------------------
Ad hoc Machining, Plating and Part 6 months
Processing
-------------------------------------------------------------------------------------------
Structural Landing Gear parts The length of time between overhauls as
stipulated by the relevant OEM
-------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
47
<PAGE>
SCHEDULE 3
PRICE
The Monthly Charges for the Services will comprise the elements set out
below:
1 FIXED CHARGES
1.1 A Fixed Charge will be payable for Overhaul of each Landing Gear
and FTC in accordance with the table contained in this Schedule.
1.2 FIXED CHARGES INCLUDE THE FOLLOWING MATERIALS:
* - 100% bushing replacement
* - SRL (Standard Replacement List) as per CMM
* - Any parts required for mandatory/agreed service bulletin
* - Incorporation or repairs
* - Scrapped parts with an individual then current OEM list
* - price of materials up to $20,0000 USD
Note: an item is classed as BER (beyond economic repair) at 70%+ of list
price
1.3 FIXED CHARGES DO NOT INCLUDE THE FOLLOWING MATERIALS:
* - Incident related parts
* - Scrapped parts (including parts that have reached their ultimate
fatigue life as specified by the OEM) with a then current OEM list
price greater than $20,000 USD.
* - Missing parts
* - Misused parts (other than parts misused by Hawker)
N.B. Expendable Inventory for Concorde is owned by BA and shall not be
charged to BA.
1.4 LABOUR INCLUDED IN FIXED CHARGES:
All labour involved in the provision of the Overhaul Services, including
out of scope activities and labour required for any repair schemes and
service bulletin (SB) incorporation (both current repair schemes/SB's
and any repair schemes/SB's subsequently developed/required, either
mandatory or discretionary).
2 VARIABLE CHARGES
Variable charges will be payable based on:
2.1 "out of scope activities" for materials listed in paragraph 1.3
above but not any labour associated therewith. Materials to be charged
at Hawker's cost plus 10% (up to a maximum of US$1,500 per item);
2.2 "AOG Support", on a man-hour basis (including travel time). Reasonable
incidental expenses shall be charged separately with no mark-up (provided
that there shall be no charge where AOG Support is provided as a result
of a failure of an item under warranty);
- -------------------------------------------------------------------------------
48
<PAGE>
2.3 for matters not covered by paragraph 2.1 or 2.2 any other services
not covered by the Fixed Charge will be charged on a time (based on
Rates) and materials basis, where:
2.3.1 a material mark-up of [**]% shall be applied to the purchase of the
material by Hawker (not to exceed USD [***] per item) (except for an
Extraordinary Arising where the mark-up is [**]%);
2.3.2 labour shall be charged at the rate of L[*****] per hour ("Rate");
2.3.3 ad hoc expenses associated with AOG Support shall be charged at
Hawker's cost plus [**]% mark-up (applied to the specific service
only)
2.4 and any other employee costs not covered by the Fixed Charge, the
amount of such costs to be agreed between the parties from time to time.
- -------------------------------------------------------------------------------
49
<PAGE>
SERVICE PRICING - FIXED CHARGES
ADVANCED EXCHANGE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YR 1 YR 2 YR 3 YR 4 YR 5 YR 6 YR 7
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B737-200 NLG [********] [********] [********] [********] [********] [********] [********]
MLG [********] [********] [********] [********] [********] [********] [********]
B737-400 NLG [********] [********] [********] [********] [********] [********] [********]
MLG [********] [********] [********] [********] [********] [********] [********]
B747-100 NLG [********] [********] [********] [********] [********] [********] [********]
BLG [********] [********] [********] [********] [********] [********] [********]
WLG [********] [********] [********] [********] [********] [********] [********]
B747-200 NLG [********] [********] [********] [********] [********] [********] [********]
BLG [********] [********] [********] [********] [********] [********] [********]
WLG [********] [********] [********] [********] [********] [********] [********]
B747-400 NLG [********] [********] [********] [********] [********] [********] [********]
BLG [********] [********] [********] [********] [********] [********] [********]
WLG [********] [********] [********] [********] [********] [********] [********]
B757-200 NLG [********] [********] [********] [********] [********] [********] [********]
MLG [********] [********] [********] [********] [********] [********] [********]
B767-300 NLG [********] [********] [********] [********] [********] [********] [********]
MLG [********] [********] [********] [********] [********] [********] [********]
B777 NLG [********] [********] [********] [********] [********] [********] [********]
MLG [********] [********] [********] [********] [********] [********] [********]
L1011 NLG [********] [********] [********] [********] [********] [********] [********]
MLG [********] [********] [********] [********] [********] [********] [********]
- -----------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------
50
<PAGE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YR 1 YR 2 YR 3 YR 4 YR 5 YR 6 YR 7
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TRACKS B737 [********] [********] [********] [********] [********] [********] [********]
B747 [********] [********] [********] [********] [********] [********] [********]
B757-200 [********] [********] [********] [********] [********] [********] [********]
B767-300 [********] [********] [********] [********] [********] [********] [********]
B777 [********] [********] [********] [********] [********] [********] [********]
CARRIAGES B737 [********] [********] [********] [********] [********] [********] [********]
B747 [********] [********] [********] [********] [********] [********] [********]
B757-200 [********] [********] [********] [********] [********] [********] [********]
B767-300 [********] [********] [********] [********] [********] [********] [********]
B777 [********] [********] [********] [********] [********] [********] [********]
- -----------------------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------------------------------------
51
<PAGE>
SCHEDULE 4
CHANGE CONTROL PROCEDURE
1 CHANGES
1.1 BA may request a Change by giving notice in writing to Hawker setting
out the reasons for and details of the proposed change, including the
proposed date of implementation.
Subject to paragraph 2.1 Hawker will as soon as practicable provide BA
with an evaluation report on the proposed Change which will cover
feasibility, impact on Services, resource requirement, likely
implementation date and the change in the amounts payable by BA to Hawker.
If an evaluation report cannot be provided within 15 Business Days of
receipt of the request for a Change, Hawker will give BA, within 10
Business Days of receiving the request for a change, a written
acknowledgement of the request and an indication of when the report will
be available (which shall be within a reasonable time).
BA will consider Hawker's evaluation report and will notify Hawker in
writing, within 15 Business Days of receipt of the report, of BA's decision
whether or not to request Hawker to proceed with the Change in accordance
with the evaluation report (subject to any amendments thereto agreed
between BA and Hawker).
If BA requests Hawker to proceed, the change shall be implemented by the
nominated BA or Hawker Representative signing the notice of the proposed
Change and the Services shall be amended accordingly. If BA does not
consider that Hawker's proposal as set out in the evaluation report is
acceptable, it shall notify Hawker in writing within 10 Business Days of
receipt of the report of this opinion and provide Hawker with a proposal
considered by BA to be reasonable.
The relevant BA and Hawker Representative will then attempt to agree the
proposal.
1.2 If the proposal is not agreed within 15 Business Days of the receipt by
Hawker of the proposal from BA, either party may refer the matter to be
dealt with pursuant to the Dispute Resolution Procedure.
1.3 Within 10 Business Days of a final decision under the Dispute Resolution
Procedure, BA will notify Hawker in writing of its decision whether or not
to request Hawker to proceed with the Change in accordance with the
evaluation report (as amended, if such be the case, by Expert's Decision as
appropriate). If BA requests Hawker to proceed, then the Change shall be
implemented by the relevant BA or Hawker Representative countersigning the
notice of the proposed Change (as amended if appropriate) and the Services
shall be amended accordingly.
2 REFUSAL TO IMPLEMENT AND/OR EVALUATE
2.1 Hawker may refuse to implement a Change and/or provide BA with an
evaluation report in respect of any request for a change only where the
change should not be implemented because of Regulatory Requirements or
other valid legal reasons.
2.2 If Hawker so refuses to implement a Change and/or provide BA with an
evaluation report in respect of a request for change, Hawker will give
written notice of this decision to BA promptly after such decision is made
and shall specify the reason for such refusal in full detail.
3 CHANGES PROPOSED BY HAWKER
Hawker may also propose changes to the Services by giving notice in writing
to BA together with an evaluation report as described in paragraph 1 above.
Upon receipt of such notice and report the provisions of paragraph 1.1
above shall apply mutatis mutandis provided that BA shall be
- -------------------------------------------------------------------------------
52
<PAGE>
entitled to refuse any change proposed by Hawker in its discretion, except
in the case of changes required to prevent non-compliance with a Regulatory
Requirement.
4 PRICE ADJUSTMENTS
4.1 Charges for implementing Changes in accordance with this Schedule 4
which are agreed to be changes to the Other Services, or determined
pursuant to the Dispute Resolution Procedure, to be within the category
of Other Services shall be included in the Monthly Charges as Variable
Charges. Charges for changes which are agreed to be changes to the Overhaul
Services, or determined pursuant to the Dispute Resolution Procedure, to
be within the category of Overhaul Services shall be effected by an
adjustment to the relevant Fixed Charges provided that if any change to
the BA Specifications proposed by Hawker pursuant to clause 7.1 results
in a reduction in the cost to Hawker of providing any of the Overhaul
Services, the Overhaul Charges shall be reduced to reflect half such
reduction (in order to encourage Hawker to propose cost efficient changes
to the BA Specifications).
- -------------------------------------------------------------------------------
53
<PAGE>
SCHEDULE 5
MONITORING PERFORMANCE
1 MONITORING AND REPORTING
1.1 Hawker shall monitor its provision of the Services with reference to the
Service Levels and shall within 14 days after the end of each calendar
month prepare and submit to BA monthly progress reports and financial
statements based on the Accounting Records, in a form to be agreed between
BA and Hawker.
1.2 The monitoring shall, inter alia record how Hawker has performed with
respect to the Service Levels.
2 PERFORMANCE REVIEWS
2.1 The Hawker Representative and the BA Representative will meet to conduct
a performance review as often as shall reasonably be requested by either
party, but at least monthly, to review Hawker's performance of the Services
(PERFORMANCE REVIEW).
2.2 The Hawker Representative in each case shall keep written minutes of
such meetings and give copies of these to the BA Representative who shall
agree their content or, in the case of disagreement, set out in a separate
document his version of the minutes.
2.3 If any Performance Review carried out pursuant to paragraph 2.1 of this
Schedule concludes that Hawker's performance is not in accordance with the
Service Levels, and/or the terms of this Agreement and/or BA's performance
is not in accordance with the terms of this Agreement the parties shall
agree an action plan specifying appropriate measures by which Hawker's or
BA's performance (as the case may be) shall be improved and the timetable
for achievement of the improvements and the party in question shall
implement the action plan in accordance with the timetable. The party in
question will be responsible for the costs and expenses incurred in
carrying out the action plan.
2.4 If Hawker or BA disputes the findings of any Performance Review or
assessment, Hawker shall be entitled to resolve the matter through the
Dispute Resolution Procedure.
- -------------------------------------------------------------------------------
54
<PAGE>
SCHEDULE 6
THE LICENSED IP
Any Intellectual Property rights resulting from the following projects:
1 [******************************]
2 [******************************]
3 [******************************]
4 [******************************]
55
<PAGE>
SCHEDULE 7
ACCOUNTING RECORDS
Open book policy, rights of audit
1 Hawker shall maintain books of account in relation to the provision of the
Services to BA in a form to be agreed between the parties (ACCOUNTING
RECORDS). Hawker shall adopt open book accounting in relation to the
provision of the Services to BA.
2 BA shall be permitted to carry out audit reviews (whether by BA or BA's
auditors) of these Accounting Records at BA's expense for the purpose of (and
only of) satisfying itself that Hawker is complying with the terms of
paragraph 1 above and Hawker shall allow BA access to them on reasonable
prior notice and, for this purpose, to Hawker's Premises, subject to
appropriate restrictions to protect the confidentiality of any information
relating to any Third Party Services.
3 Hawker shall provide BA with such financial and other management information
regarding the provision of the Services as BA may from time to time
reasonably require to support BA's monthly forecasting and accruals and its
annual budgeting and business planning processes.
4 Upon reasonable notice, Hawker shall provide BA and such auditors and
employees as BA may from time to time designate in writing to Hawker with a
right of reasonable access to Hawker's Premises for the purposes of
ascertaining that the information which has been provided to BA under this
Schedule is accurate and in accordance with the stated intention of the
Schedule.
5 BA, its auditors and other agents so designated shall have the right to take
copies of the Accounting Records, financial books and other records relating
to the Services that they reasonably require and Hawker shall provide all
reasonable available facilities free of charge.
6 Such audits shall be conducted by an internal BA auditor or an independent
auditor appointed by BA, at BA's expense.
7 Hawker may require BA's auditors and other agents involved in carrying out
any audit hereunder to enter into confidentiality agreements.
56
<PAGE>
SCHEDULE 8
DOCUMENTS IN THE AGREED TERMS
1 BA's Specification;
2 Methodology for permanent variations to the Inventory Availability
Fee;Exchange Fee Methodology; andLRU TRTs.
57
<PAGE>
THE BA SPECIFICATION
REFERS TO LANDING GEAR OVERHAUL SERVICES AGREEMENT BETWEEN
BRITISH AIRWAYS AND HAWKER PACIFIC
<PAGE>
TECHNICAL SPECIFICATION AND CONTROL FOR THE LANDING GEAR OVERHAUL SERVICES
AGREEMENT BETWEEN BRITISH AIRWAYS AND HAWKER PACIFIC
LANDING GEAR/FLAP TRACKS/FLAP CARRIAGES
This document highlights the main areas of the BA Specification. The BA
Specification per item of Rotable Inventory is defined in the relevant CMM
manuals as amended by BA. All work completed under this agreement must comply
with these manuals.
GENERAL POLICY
The goal is a Safe and Reliable operation. Therefore every effort must be made
to achieve the following targets:-
No inservice structural failures
No inservice failures due to assembly deficiencies
No treadsheds due to manufacturing defects
No unscheduled removals due to Quality Control issues
LIFE CONTROL
Life control of Landing Gear is defined in the British Airways Approved
Maintenance Schedule (AMS) for the particular aircraft type. These life
controls/maintenance requirements must be adhered to and maybe varied by
British Airways Systems Group from time to time.
POOLING OF LANDING GEAR
The list of critical parts defined are considered exclusive to BA and pooling
is not permitted without approval by British Airways Systems Group. All other
parts fitted to BA components must have been reworked in accordance with this
document.
TECHNICAL RECORDS
Technical Records must be maintained on Assemblies so that any component can be
readily identified by part number and serial number. These records must
contain any modification/repair references, time since new, time since overhaul
data. Technical records must retained for the life of the relevant fleet of
aircraft plus two years and in accordance with JAR-OPS 1.920.
NOTE:- CAA Fatigue Life Limitations are more restrictive than the FAA
and therefore FAA Approved Fatigue Lives cannot be read across on
to British Registered Aircraft Components.
1
<PAGE>
MODIFICATIONS/SPECIAL CHECKS
British Airways Systems Engineering and the Overhaul Vendor will agree
workscopes, modification standards, embodiment schedules, refurbishment and the
repair specifications for the Landing Gear.
All CAA/FAA Airworthiness Directives/Notices and Mandatory modifications must
be complied with. British Airways will supply a copy of the documentation.
Specific NDT Inspections/Requirements will be controlled through British
Airways Technical Publications :-ATP588 Volume 2, ATP1447 and ATPE10602 or
equivalents as approved by British Airways Systems Group
OVERHAUL/RECTIFICATION
Overhaul/rectification to be carried out in accordance with the OEM's CMM as
amended by British Airways, plus any conditions specified herein. Future
changes would be by consultation
Process specifications as agreed by British Airways Systems Group/Overhaul
Vendor
The Overhaul Vendor must maintain a significant defect register which is open
to inspection by British Airways Systems Engineering and any defect that meets
CAP382 Mandatory Occurrence Reporting Procedures criteria must be reported to
the CAA, copy to BA..
Strip reports to be provided on request by British Airways.
Any component advised by British Airways that is subjected to an
incident/accident investigation must not be reworked until written clearance by
BA Systems Group.
Overhaul Vendor to support British Airways life optimisation programmes as
required.
British Airways reserves the right to update and amend any CMM manual at any
time.
REPAIRS/PARTS CONTROL
All Non OEM Repair Schemes i.e. those raised by companies other than those
which hold the design data for the component, must be approved by British
Airways Systems Group before being applied to British Airways Landing Gear.
NOTE: FAA DER Approval does not constitute the right to repair/fit/fly
on passenger revenue, on British registered aircraft. All repair
schemes must be CAA Approved.
Any Non OEM Repair Schemes carried out on principal structural elements or
critical parts must be supported by a No Technical Objection (NTO) statement
from the OEM. Again these must be CAA Approved. Copy of scheme sent to
British Airways Systems
No PMA (Parts Manufacture Approval) parts to be used on BA Landing Gear without
written agreement by British Airways Systems Group.
New materials not obtained directly from Landing Gear manufacturer may only be
obtained from a BA approved supplier and shall be issued with documentary
evidence of traceability back to the OEM and supplied with a CAA Authorised
Release Certificate or FAA 8130-3 Authorised Release Certificate or a JAA form
1 Authorised Release Certificate. All materials obtained in this way must be
readily traceable as to the source of those materials and be readily audited
technically as to their approved source by BA.
2
<PAGE>
CRITICAL PARTS
While every effort must be made to turnround British Airways parts, the
following list are considered exclusive and substitution is not permitted.
This list is subject to change on written notification by British Airways
Systems Group
B767 MLG centre torque rod bolt
B767 Brake Piston housing brake rod attachment pin
PAINT STRIPPING
No plastic media or similar shall be used for the stripping of paint from ANY
hydraulic components without specific approval by part number by British
Airways QSD Systems department.
SURFACE FINISH
Control of surface finish of chrome plated surfaces which are wiped by
dynamic seals, I.e. Inner Cylinders. The finish shall be maintained within
the range of 12 to 16 microinch CLA unless otherwise noted.
HYDRAULIC HOSES ON OVERHAULED LANDING GEAR LEGS
All flexible hoses fitted on Landing Gear Assemblies are to be replaced with
new at each overhaul. (Refer to requirements of JAR - OPS para 4.1.4).
All references above also apply to Flap Carriages, Flap Tracks and Landing
Gears.
3
<PAGE>
VARIATIONS TO INVENTORY AVAILABILITY FEE
----------------------------------------
REFERS TO LANDING GEAR OVERHAUL SERVICES AGREEMENT BETWEEN
BRITISH AIRWAYS AND HAWKER PACIFIC
<PAGE>
VARIATIONS TO INVENTORY AVAILABILITY FEE
----------------------------------------
The numbers contained on on this matrix are to be used in order to
reduce the Inventory Availability Fee on occasions where there is a
permanent reduction in the amount of BA inventory.
INVENTORY AVAILABILITY FEE PER ITEM
B737-200 NLG L 9,822
MLG L 10,804
Nose Drag Strut L 982
Main Drag Strut L 1,473
B737-400 NLG L 17,679
MLG L 14,733
Nose Drag Strut L 982
Main Drag Strut L 1,964
B747-100 WLG L 6,875
BLG L 5,893
NLG L 3,928
Wing Side Strut L 392
Body Side Strut L 392
Nose Drag Strut L 196
B747-200 WLG L 9,822
BLG L 8,840
NLG L 4,911
Wing Side Strut L 3,929
Body Side Strut L 3,929
Nose Drag Strut L 1,964
B747-400 WLG L 73,665
BLG L 68,754
NLO L 34,377
Wing Side Strut L 2,456
Body Side Strut L 2,456
Body Drag Strut L 1,964
B757-200 NLG L 29,466
MLG L 54,021
Side Strut L 2,455
Nose Drag Strut L 1,473
B767-300 NLG L 39,288
MLG L 73,666
Side Strut L 4,911
Nose Drag Strut L 2,455
B737 Flap Track L 982
B747 Flap Track L 1,670
B737-200 Flap Carriage L 295
B737-400 Flap Carriage L 688
B747 Flap Carriage L 982
BREAKDOWN FOR INITIAL L1,75M CHARGE
LANDING GEAR FLAP TRACKS FLAP CARRIAGES TOTAL
B737-200 L 126,705 L 12,769 L 2,357 L 141,831
B737-400 L 69,737 L L 2,750 L 72,487
B747-100 L 35,752 L L 35,752
B747-200 L 116,293 L 18,367 L 62,870 L 197,530
B747-400 L 662,001 L L 662,001
B757-200 L 431,680 L L 431,680
B767-300 L 208,719 L L 208,719
L 160,887 L 31,136 L 67,977 L 1,750,000
INVENTORY AVAILABILITY FEE PER SHIPSET
LANDING GEAR FLAP TRACKS FLAP CARRIAGES
B737-200 L 35,000 L 8,000 L 2,500
B737-400 L 52,000 L L 5,500
B747-100 L 31,000 L
B747-200 L 44,000 L 13,500 L 8,000
B747-400 L 331,000 L
B757-200 L 144,000 L
B767-300 L 209,000 L
<PAGE>
EXCHANGE FEES
REFERS TO LANDING GEAR OVERHAUL SERVICES AGREEMENT BETWEEN
BRITISH AIRWAYS AND HAWKER PACIFIC
<PAGE>
EXCHANGE FEES (L)
- -----------------------------------------------------------------------------
B737-200 NLG (minus drag brace) 4,000
- -----------------------------------------------------------------------------
NLG drag brace 800
- -----------------------------------------------------------------------------
MLG (minus side strut) 5,000
- -----------------------------------------------------------------------------
MLG side strut 1,000
- -----------------------------------------------------------------------------
B737-400 NLG (minus drag brace) 4,000
- -----------------------------------------------------------------------------
NLG drag brace 800
- -----------------------------------------------------------------------------
MLG (minus side strut) 6,000
- -----------------------------------------------------------------------------
MLG side strut 1,500
- -----------------------------------------------------------------------------
B747-100 NLG (minus drag brace) N/A
- -----------------------------------------------------------------------------
NLG drag brace N/A
- -----------------------------------------------------------------------------
BLG (minus side strut) N/A
- -----------------------------------------------------------------------------
BLG side strut N/A
- -----------------------------------------------------------------------------
WLG (minus side strut) N/A
- -----------------------------------------------------------------------------
WLG side strut N/A
- -----------------------------------------------------------------------------
B747-200 NLG (minus drag brace) 5,000
- -----------------------------------------------------------------------------
NLG drag brace 1,500
- -----------------------------------------------------------------------------
BLG (minus side strut) 7,000
- -----------------------------------------------------------------------------
BLG side strut 2,000
- -----------------------------------------------------------------------------
WLG (minus side strut) 8,000
- -----------------------------------------------------------------------------
WLG side strut 2,000
- -----------------------------------------------------------------------------
B747-400 NLG (minus drag brace) 10,000
- -----------------------------------------------------------------------------
NLG drag brace 2,000
- -----------------------------------------------------------------------------
BLG (minus side strut) 12,000
- -----------------------------------------------------------------------------
BLG side strut 2,500
- -----------------------------------------------------------------------------
WLG (minus side strut) 14,500
- -----------------------------------------------------------------------------
WLG side strut 2,500
- -----------------------------------------------------------------------------
B757-200 NLG (minus drag brace) 6,000
- -----------------------------------------------------------------------------
NLG drag brace 1,800
- -----------------------------------------------------------------------------
MLG (minus side strut) 8,000
- -----------------------------------------------------------------------------
MLG side strut 2,000
- -----------------------------------------------------------------------------
B767-300 NLG (minus drag brace) 7,800
- -----------------------------------------------------------------------------
NLG drag brace 1,800
- -----------------------------------------------------------------------------
MLG (minus side strut & drag brace) 9,600
- -----------------------------------------------------------------------------
MLG side strut 2,000
- -----------------------------------------------------------------------------
MLG drag brace 2,000
- -----------------------------------------------------------------------------
B777 NLG (minus drag brace) 55,000
- -----------------------------------------------------------------------------
NLG drag brace 5,000
- -----------------------------------------------------------------------------
MLG (minus side strut & drag brace) 80,000
- -----------------------------------------------------------------------------
MLG side strut 5,000
- -----------------------------------------------------------------------------
MLG drag brace 5,000
- -----------------------------------------------------------------------------
SSC NLG N/A
- -----------------------------------------------------------------------------
MLG N/A
- -----------------------------------------------------------------------------
L1011 NLG N/A
- -----------------------------------------------------------------------------
MLG N/A
- -----------------------------------------------------------------------------
B737 TRACKS 2,000
- -----------------------------------------------------------------------------
B737 CARRIAGES 1,500
- -----------------------------------------------------------------------------
B747 TRACKS 4,890
- -----------------------------------------------------------------------------
B747 CARRIAGES 2,550
- -----------------------------------------------------------------------------
<PAGE>
LINE REPLACEABLE UNITS - TURNAROUND TIMES (TRT's)
This document refers to the Agreement between British Airways and Hawker Pacific
for the supply of Landing Gear (and related component) Overhaul Services.
Contained in the following pages of this document are a non-exhaustive list of
Line Replaceable Units for which Hawker Pacific agree to overhaul on a Repair
and Return basis within the following Turnaround Times:
1. TRT'S FOR ALL LRU'S WITH THE EXCEPTION OF THOSE HIGHLIGHTED IN 2 AND 3
BELOW
- --------------------------------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Years 5 to 7
- --------------------------------------------------------------------------------
28 days 26 days 24 days 21 days Reduction subject to mutual agreement
- --------------------------------------------------------------------------------
2. TRT's FOR:
Description Part Number
Steering Plate 1523354-117
Steering N/G Collar 65-46203-20
Steering Collar 65-46203-24
Inner BLG Cylinder 65B01439-3
- --------------------------------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Years 5 to 7
- --------------------------------------------------------------------------------
55 days 53 days 50 days 46 days Reduction subject to mutual agreement
- --------------------------------------------------------------------------------
3. TRT's FOR:
Description Part Number
Assembly Beam 162T5000-3
HP Cylinder 201355632
MLG Actuator Beam 65-46108-3
- --------------------------------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Years 5 to 7
- --------------------------------------------------------------------------------
45 days 43 days 40 days 36 days Reduction subject to mutual agreement
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Matplan Workshop Part Number Keyword Description Wac
- ------- -------- ------------ -------- ---------------- ---
<S> <C> <C> <C> <C> <C> <C>
60 775 421388 1 TRANSDCR NLG LN
801 65-46461-37 0 CARRIAGE ASSEMBLY WING O/ LN
65-46461-41 0 CARRIAGE ASSEMBLY WING O/ LN
65-46461-42 0 CARRIAGE ASSEMBLY WING R/ LN
65-50539-6 0 GIMBAL FLAP GIMBAL LN
65-51822-14 0 GIMBAL - LN
65-51822-5 0 GIMBAL 737 FLAP GIMBAL LN
65-51822-6 0 GIMBAL - LN
65808032-1D 0 BOGIE ASSY-AFT LN
65808032-7 0 BOGIE ASSY-AFT LN
65808032-8 0 BOGIE ASSY-AFT LN
65808032-9 0 BOGIE AFT LN
803 AB91N28423-24 0 LINER RETAINING LN
AB91N28425-25 0 LINER RETAINING LN
AB91N28427-26 0 LINER RETAINING LN
AB91N28429-30 0 LINER RETAINING LN
AB91N28443-44 0 LINER RETAINER LN
AB91N28445-488A 0 LINER RETAINING LN
AQ43A6 0 STAY SIDE (UPPER) LN
ARQ7054-508 0 VALVE REBOUND CHECK LN
BAC830LJ20CD43 0 BOLT HEX, 1-1/4, STD. 95 LN
BAC830LJ20CD46 0 BOLT HEX, 1-1/4, STD. 95 LN
BAC830LJ20CD48 1 BOLT HEX, 1-1/4, STD. 95 LN
BAC830NG23-134 0 BOLT 12PT. 1-3/8, STD. 1 LN
C22836-2-3 0 ARM ASSY LN
D73278100 0 FITTING TOWING LN
EBC53790-21 0 PIN TORQUE LINK LN
EZ43A4MK2 0 ABSORBER SHOCK LN
EZ44A13 0 ABSORBER SHOCK LN
G15T1433-12 0 ROD BRAKE LN
113N1000-1 0 BOLT MLG FWD TRUNNION LN
113N1138-1 0 BOLT MLG FWD TRUNNION LN
1523015-101 0 ARM TORQ ASS LWR M/G LN
1523054-101 0 PIN RETRACTION LOWER LN
1523146-107 0 BEARING ASSY LWR MLG LN
1523216-103 0 PIN RETRACTION UPPER LN
1523331-108 0 COLLAR DC LN
1523333-101 0 PIN TRUNION DRAG BRC LN
1523335-105 0 PIN STEERING-ACT LN
1523337-103 0 PIN STEERING COLLAR LN
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
M&1plan Workshop Part Number Keyword Description Wac
- ------- -------- ------------ -------- ---------------- ---
<S> <C> <C> <C> <C> <C> <C>
80 603 1523341-103 0 PIN TORQ ARM LWR N/G LN
1523353-101 0 PIN TOW LN
1523353-103 0 PIN TORQ ARM UPP N/G LN
1523354-117 0 PLATE ASSY-STEERING LN
1523383-101 0 NUT UPP TORQ ARM N/G LN
1523384-102 0 ASSY STABILISER, NLG J LN
1523431-103 0 PIN TRUNNION N/G LN
1523435-101 0 PIN STEERING PLATE N LN
1523478-101 0 CLEVIS ASSY LN
1523467-103 0 PIN FUSELAGE-NLG LN
1535821-101 0 SLEEVE NLG SHOCK STRT LN
160U0100-11 0 SENSOR LOAD BRAKE ROD W LN
161N1632-1 0 SPACER WHEEL LN
161N1632-2 0 SPACER MLG LN
161N1806-1 0 PIN BRAKE ROD INBD LN
161N1806-2 0 PIN BRAKE ROD INBD LN
161N1807-1 0 PIN BRAKE ROD OUTBD LN
161N1809-3 0 PIN ASSY LN
161N2511-1 0 PIN REACT-LINK LN
161N4001-1 0 PIN RETRACT ACTUATOR LN
161T1010-1 0 PIN BRAKE LN
161T1025-1 0 PIN KEEPER PIN LN
161T3336-15 0 RODAY BRAKE MLG LN
161T1136-16 0 ROD BRAKE LN
161T1149-1 0 SLEEVE BRAKE LN
161T1180-3 0 DONOTUSE OC PART LN
181T1180-4 0 BOLT BRAKE ROD LN
161T1201-1 0 PINAY BRAKE ATTACHMENT LN
161T1201-3 0 PIN BRAKE ATTACHMENT LN
161T1202-1 0 SPACER AXLE MLG LN
161T5000-2 0 BOLT RETRACT ACTR WL LN
181W1213-1 0 PIN ASSY. LOCK CENTE LN
181W3016-1 0 PIN APEX SIDE STRUT LN
181W3016-2 0 PIN APEX SIDE STRUT LN
1613264-101 0 ADAPTER BEARING MLG LN
162N1133-1 0 LINK TORSION UPPER LN
162N1134-1 0 LINK TORSION LOWER LN
162N1134-7 0 LINK TORSION LOWER LN
162N1137-1 0 PIN TORSN LINK APEX LN
162N1137-2 0 PIN TORSN LINK APEX LN
162N1220-1 0 SPACER ASSY NLG WHEEL LN
162T1118-4 0 LINK ASSY-TORQUE UPR LN
162T1118-1 0 PIN TORSION LINK-UPR LN
162T1998-2 0 PIN TORSION LINK LOW LN
162T1301-1 0 FITTING TOW LN
162T1817-3 0 LINK ASSY TWR TORSION LN
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Matplan Workshop Part Number Keyword Description Wac
- ------- -------- ------------ -------- ---------------- ---
<S> <C> <C> <C> <C> <C> <C>
80 803 162T5000-3 0 BEAM ASST MN
162T5005-2 0 PIN ACTUATOR BEAM AF LN
162T5007-3 0 PIN RETRACT ACT. UPP LN
162T5007-4 0 PIN RETRACT ACT. LOW LN
1642699-101 0 PIN ASSY MLG RETRACT LN
1648024-103 0 WRONG USE ID 3 LN
1648024-103 3 ARM UPPER TORQUE LN
1648024-106 0 ARM TORQ ASS, LOWER, N LN
201385832 0 CYLINDER HF LN
212N3051-8 0 DUCT DUCT LN
257T4335-1 0 COVER STEERING DRUM LN
275N2055-2 0 QUADRANT ASSY, NLO STEERI LN
284N1756-990 0 BOX ASSY R/H LN
3-40088-3 0 ARM ACTUATOR BEAM, AR LN
300-889-804-0 0 PENASSY PIN LN
35-491-1001 0 LINK BRAKE TRQ AFT LN
35-491-1002 0 LINK BRAKE TRQ FWD LN
35-491-1003 0 LINK BRAKE TRQ AFT LN
60810033-1 0 GAUGE PRESSURE LN
60940048-16 0 COMPNSTR FUEL LN
60840049-16 1 COMPNSTR COMPNSTR LN
65-45103-33 0 LINK LWR TORSION M/G LN
65-46106-10 0 LINK SEE - 6 ASSEMBLY LN
65-46106-9 0 ASSY UNIVERSAL LN
65-46106-3 0 BEAM MLG ACTUATOR LN
65-46108-8 0 BEAM MLG ACTUATOR LN
65-46108-14 0 ARM ACTUATOR BEAM, AR LN
65-46108-8 0 ARM DC ACTUATOR BEAM LN
65-46112-19 0 LINK MLG ACT BEAM LN
65-46112-22 0 LINK MLG ACT BEAM LN
65-48112-26 0 LINK MLG ACT BEAM LN
65-48112-31 0 LINK MLG ACT BEAM LN
65-46113-12RAXXX 0 PIN TRUNNION M/G MN
65-48141-11 0 UPLOCK MLG L/H LN
65-48141-12 0 UPLOCK MLG R/H LN
65-48141-15 0 UPLOCK MLG L/H LN
65-48141-18 0 UPLOCK MLG R/H LN
65-48140-4 0 SHAFT UPLOCK LN
65-48202-8 0 LINK UPPER TORSION NG LN
65-46203-30 0 COLLAR STEERING N/G LN
65-46203-24 0 COLLAR STEERING COLLAR LN
65-46288-11 0 LINK ASSY. TORSION-NLG LN
65-46288-13 0 LINK ASSY. TORSION-NLG LN
65-50588-9 0 GIMBAL - LN
65801290-10 0 ASSEMBLY UPLOCK R/H NLG LN
65801291-5 0 UPLOCK ASSY LH & RH NLG LN
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Matplan Workshop Part Number Keyword Description Wac
- ------- -------- ------------ -------- ---------------- ---
<S> <C> <C> <C> <C> <C> <C>
80 803 65BO1331-14 0 SPTAY UPLOCK WING L.G. LN
65BG1331-6 0 SUPPORT ASSY UPLOCK ATTA LN
65BD1332-8 0 SPTAY UPLOCK WING L.G. LN
65BO1438-3 0 CYLINDER INNER BLG M AB
65BO1443-1 0 SPACER ASSY WHEEL BEARI LN
65BO4488-6 0 ROD BRAKE ASSY LN
65BO5102-2 0 LINK UPPER TORSION LN
65BO5102-3 0 LINK UPPER TORSION LN
65BO5104-1 0 LINK LOWER TORSION LO
65BO5167-5 0 UPLOCK ASSY LH.RH BLG LN
65BO5182-7 0 LINK UPPER TORSION LN
65BO5183-3 0 SLEEVE AXLE-MLG LN
65BO5195-1 0 SLEEVE AXLE SLEEVE LN
65BO3247-1 0 LINK LOWER TORSION AB
65BO5254-1 0 ROD ASS. BRAKE LN
65BO5317-25 0 GAUGE BLG PRESSURE GAU LN
65BO5342-2 0 LINK LOWER TORSION LN
65BO5428-13 0 SPACER ASSY MLG AXLE LN
65BO5428-14 O SPACER ASSY MLG AXLE LN
65BO5470-2 O WASHER TAND-AXLE LN
65BO5475-3 0 BOLT BRAKE LN
65BO5478-4 0 BOLT BRAKE LN
65BO5481-3 0 BOLT SPECIAL LN
65BO7788-1 I 0 TRUNNION HOUSING ASSY LN
65BO7709-2 INS 0 TRUNNION HOUSING ASSY LN
65BO8807-3 0 INSERT ASSY LUBRICATION LN
65BO8807-9 0 INSERT ASSY LUBRICATION LN
65BO8854-10 0 BEARING ASSY WLG TRUNNIO LN
65BO8854-11 0 RACE INNER WLG TRUNNI LN
65BO8854-7 0 RACE RACE LN
65BO8882-3 0 INSERT ASSY LN
65BO8885-4 0 RING ASSY TRUNNION BR LN
65BO9829-2 0 TUBE LN
65B11135-17 0 BRKE OLEO STRUT AFT M LN
65B70287-111 0 CONDUIT ASSY LN
65B70287-175 0 CONDUIT ASSY LH WLG LN
65B70287-176 0 CONDUIT ASSY RH WLG LN
69-21227-3 0 LIGHT ASSY WLG LN
69-35391-1 0 PIN LN
69-35391-2 0 PIN LN
69-39484-3 0 BOLT MLG ACT BEAM LN
69-39464-4 0 BOLT MLG ACT. BEAM LN
69-41278-3 0 FITTING TOW LN
69-42187-1 0 ROLLER UPLOCK LN
69-51838-2 0 COLLAR BELLCRANK LN
69-61755-0 0 BEARING ASSY LN
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
M&1plan Workshop Part Number Keyword Description Wac
- ------- -------- ------------ -------- ---------------- ---
<S> <C> <C> <C> <C> <C> <C>
80 803 69-72023-3 0 PIN TORSION LINK LN
69-72098-3 0 PIN TORSION LINK. N. LN
69804030-3 0 ROLLER ASSY UPLOCK LN
69804053-1 0 BOLT SEE STY LN
69812970-10 0 LUG ASSY RH LN
69812970-12 0 LUG ASSY LN
69813972-3 0 STRUT ACTUATOR OLEO ST LN
6905-778 0 GAUGE PRESSURE LN
738763 0 PIN UNIVSL ATTACH LN
74739-1 0 BEARING ASSY LN
748250 0 SLEEVE SLEEVE LN
760582 0 FITTING END LN
784067-1 0 LINK ASSY TORQUE MLG LN
784725-0-8 0 STRUT ASSY SHOCK-MLG LG
83289-22-134 0 BOLT LN
9544023 0 COMPNSTR ASSY LN
807 77245580 0 CASE OUTER LN
81001-15001 0 LENS LENS ASSY-LH LN
814 05754103200200 0 BEAM BEAM ASSY-FLAP T LN
823 747580-4 0 SWITCH OVER PRESSURE LN
824 AC64050 0 VALVE IF-COMP BLEED LN
AC65054 0 VALVE HP3 BLEED LN
AC65106 0 VALVE SOLENOID BLEED LN
AC65128 0 VALVE HP BLEED LN
AC65130 0 VALVE HP3 BLEED LN
AC65420 0 REVERSER THRUST RAM LOCK LN
AC65422 0 REVERSER THRUST RAM PRMRY LN
AC86148 0 HOUSING SEQUENCE LN
AC55586 0 VALVE HP3 BLEED LN
AC60870 0 VALVE HP3 BLEED LN
AC67314 0 VALVE ASSY. HANDLING-H.P. LN
AC67540 0 VALVE 1P3 BLEED LN
AC67755 0 SOLENOID HP3 BLEED H/SET LN
AC69178 0 SOLENOID HP3 BLEED LN
A3008-103 0 VALVE CHECK-RELIEF LN
800A210251A 0 SEPARATR WATER *V LN
800214254A 0 VALVE EJECTOR *V LN
800214258A 0 VALVE TEMP CONTROL *V LN
800A214280A 0 VALVE NON RETURN LN
800A214785A 0 VALVE WATER DRAIN LN
800A214288A 0 VALVE CABIN ISOLATION LN
800A214255A 0 VALVE MASS FLOW LN
</TABLE>
<PAGE>
----------------------------------------------------------
HAWKER PACIFIC AEROSPACE
and
EVEREN SECURITIES, INC.
THE SEIDLER COMPANIES INCORPORATED
---------------
REPRESENTATIVES' WARRANT AGREEMENT
Dated as of , 1998
----------------------------------------------------------
<PAGE>
REPRESENTATIVES' WARRANT AGREEMENT
THIS REPRESENTATIVES' WARRANT AGREEMENT (the "Agreement"), dated as of
____________, 1998 is made and entered into by and between HAWKER PACIFIC
AEROSPACE, a California corporation (the "Company") and EVEREN SECURITIES, INC.
and THE SEIDLER COMPANIES INCORPORATED (the "Warrantholder" and collectively the
"Warrantholders").
The Company agrees to issue and sell, to the Warrantholders, and the
Warrantholders agree to purchase, for the price of $223, warrants, as
hereinafter described (the "Warrants") to purchase up to an aggregate of 222,716
shares (the "Shares") of the Company's Common Stock, no par value (the "Common
Stock"), in connection with a public offering (the "Public Offering") by the
Company of 2,766,667 shares of Common Stock pursuant to an underwriting
agreement (the "Underwriting Agreement"), dated as of ___________, 1998 between
and among the Company, Melanie L. Bastian (the "Selling Stockholder") and the
Warrantholders, as the representatives of the underwriters (the "Underwriters")
in the Underwriting Agreement. The number of Shares purchasable upon exercise
of these Warrants shall be reduced by an amount equal to the product of 29,050
multiplied by a fraction, the numerator or which is equal to the difference
between 415,000 and the number of Shares issued upon exercise of the
Underwriters' over-allotment option pursuant to the second paragraph of section
3 and section 4(b) of the Underwriting Agreement, and the denominator of which
is 415,000 (and then rounding down to the nearest whole number). The purchase
and sale of the Warrants shall occur on the Closing Date, as defined in the
Underwriting Agreement, and be subject to the conditions to the Underwriters'
obligations to purchase Common Stock thereunder and the performance of such
obligations by the Underwriters.
In consideration of the foregoing and for the purpose of defining the terms
and provisions of the Warrants and the respective rights and obligations
thereunder, the Company and the Warrantholders, for value received, hereby agree
as follows:
Section 1. Transferability and Form of Warrants.
1.1 Registration. The Warrants shall be numbered and shall be
registered on the books of the Company when issued.
1.2 Transfer. The Warrants shall be transferable only on the books
of the Company maintained at its principal office in Sun Valley, California, or
wherever its principal office may then be located, upon delivery thereof duly
endorsed by the Warrantholder or by its duly authorized attorney or
representative, accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration of transfer, the Company shall
execute and deliver new Warrants to the person entitled thereto.
1.3 Limitations on Transfer of the Warrants. Subject to the
provisions of Section 11, the Warrants shall not be sold, transferred, assigned
or hypothecated by the Warrantholders until _________, 1999, except (i) to an
officer or partner of the transferring Warrantholder, another Underwriter or
member of the selling group or officer or partner of any of them; (ii) a
successor to the transferring Warrantholder in merger or consolidation; (iii) a
purchaser of all or substantially all of the transferring Warrantholder's
assets; or (iv) any person receiving the Warrants from one or more of the
persons listed in this subsection 1.3 at such person's or persons' death
pursuant to will, trust or the laws of intestate succession. The Warrants may
be divided or combined, upon request to the Company by the Warrantholder, into a
certificate or certificates representing the right to purchase the same
aggregate number of Shares. Unless the context indicates otherwise, the terms
"Warrantholder" or "Warrantholders" shall include any transferee or transferees
of the Warrants pursuant to this subsection 1.3, and the term "Warrants" shall
include any and all warrants outstanding pursuant to this Agreement,
<PAGE>
including those evidenced by a certificate or certificates issued upon
division, exchange, substitution or transfer pursuant to this Agreement.
1.4 Form of Warrants. The text of the Warrants and of the form of
election to purchase Shares shall be substantially as set forth in Exhibit A
attached hereto. The number of Shares issuable upon exercise of the Warrants is
subject to adjustment upon the occurrence of certain events, all as hereinafter
provided. The Warrants shall be executed on behalf of the Company by its
President or by a Vice President, attested to by its Secretary or an Assistant
Secretary. A Warrant bearing the signature of an individual who was at any time
the proper officer of the Company shall bind the Company, notwithstanding that
such individual shall have ceased to hold such office prior to the delivery of
such Warrant or did not hold such office on the date of this Agreement.
The Warrants shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5 Legend on Shares. Each certificate for Shares initially issued
upon exercise of the Warrants shall bear the following legend, unless, at the
time of exercise, such Shares are subject to a currently effective Registration
Statement under the Securities Act of 1933, as amended (the "Act"):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS AND MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED OR TRANSFERRED IN
ANY MANNER EXCEPT IN COMPLIANCE WITH SECTION 11 OF THE AGREEMENT
PURSUANT TO WHICH THEY WERE ISSUED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the Act, of
the securities represented thereby) shall also bear the above legend unless, in
the opinion of the Company's counsel, the securities represented thereby need no
longer be subject to such restrictions.
Section 2. Exchange of Warrant Certificate. Any Warrant certificate may
be exchanged for another certificate or certificates entitling the Warrantholder
to purchase a like aggregate number of Shares as the certificate or certificates
surrendered then entitled such Warrantholder to purchase. Any Warrantholder
desiring to exchange a Warrant certificate shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, with
signatures guaranteed, the certificate evidencing the Warrant to be so
exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Warrant certificate as so requested.
Section 3. Term of Warrants; Exercise of Warrants.
(a) Subject to the terms of this Agreement, the Warrantholders shall
have the right, at any time during the period commencing at 9:00 a.m.,
California Time, on ___________, 1999 and ending at 5:00 p.m., California Time,
on ___________, 2003 (the "Termination Date"), to purchase from the Company up
to the number of fully paid and nonassessable Shares to which the Warrantholder
may at the time be entitled to purchase pursuant to this Agreement, upon
surrender to the Company, at its principal office, of the certificate evidencing
the Warrants to be exercised, together with the purchase form on the reverse
thereof duly filled in and signed, with signatures guaranteed, and upon payment
to the Company of the Warrant Price (as defined in and determined in accordance
with the provisions of this section 3 and sections 7 and 8 hereof), for the
number of Shares in respect
-2-
<PAGE>
of which such Warrants are then exercised, but in no event for less than 100
Shares (unless less than an aggregate of 100 Shares are then purchasable under
all outstanding Warrants held by a Warrantholder).
(b) Payment of the aggregate Warrant Price shall be made in cash, by
wire transfer, by certified or official bank check or through the use of
Appreciation Currency (as defined below), or any combination thereof. Upon such
surrender of the Warrants and payment of such Warrant Price as aforesaid, the
Company shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the Warrantholder and in the name or names of the
Warrantholder or, subject to compliance with the provisions of Section 11(a), in
such name or names as the Warrantholder may designate, a certificate or
certificates for the number of full Shares so purchased upon the exercise of the
Warrant, together with cash, as provided in Section 9 hereof, in respect of any
fractional Shares otherwise issuable upon such surrender. Such certificate or
certificates shall be deemed to have been issued and any person so designated to
be named therein shall be deemed to have become a holder of record of such
securities as of the date of surrender of the Warrants and payment of the
Warrant Price, as aforesaid, notwithstanding that the certificate or
certificates representing such securities shall not actually have been delivered
or that the stock transfer books of the Company shall then be closed. The
Warrants shall be exercisable, at the election of the Warrantholder, either in
full or from time to time in part and, in the event that a certificate
evidencing the Warrants is exercised in respect of less than all of the Shares
specified therein at any time prior to the Termination Date, a new certificate
evidencing the remaining portion of the Warrants will be issued by the Company.
(c) As used herein, "Appreciation Currency" shall mean the
consideration given by the surrender of Warrants in exchange for Shares. The
number of Shares to which the holder shall be entitled upon such surrender of
Warrants ("X") shall be determined by applying the following formula: X = N
MULTIPLIED BY (($S - $W)DIVIDED BY$S), where "N" is the number of Shares that
would be received if the Warrants surrendered were instead exercised for
cash, "$S" is the Current Market Price (as defined in section 9) per share of
Common Stock and "$W" is the Warrant Price defined in section 7 as adjusted
and readjusted as set forth in Section 8.
Section 4. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants or the
securities comprising the Shares; provided, however, the Company shall not be
required to pay any tax which may be payable in respect of any secondary
transfer of the Warrants or the securities comprising the Shares.
Section 5. MUTILATED OR MISSING WARRANTS. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction of such Warrant and a bond of indemnity, if
requested, also satisfactory in form and amount at the applicant's cost.
Applicants for such substitute Warrants certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
Section 6. RESERVATION OF SHARES. There has been reserved, and the Company
shall at all times keep reserved so long as the Warrants remain outstanding, out
of its authorized Common Stock, such number of shares of Common Stock as shall
be subject to purchase under the Warrants. The Company will supply every
transfer agent for the Common Stock and other securities of the Company issuable
upon the exercise of the Warrants with
-3-
<PAGE>
duly executed stock and other certificates, as appropriate, for such purpose and
will provide or otherwise make available any cash which may be payable as
provided in Section 9 hereof.
Section 7. WARRANT PRICE. The price per Share at which Shares shall be
purchasable upon the exercise of the Warrants (the "Warrant Price") shall be
$______ [insert initial public offering price per Share] subject to further
adjustment pursuant to Section 8 hereof.
Section 8. ADJUSTMENT OF NUMBER OF SHARES. The number and kind of
securities purchasable upon the exercise of the Warrants and the Warrant Price
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
8.1 ADJUSTMENTS. The number of Shares purchasable upon the exercise
of the Warrants shall be subject to adjustment as follows: In case the Company
shall (i) pay a dividend in Common Stock or make a distribution in Common Stock,
(ii) subdivide its outstanding Common Stock, (iii) combine its outstanding
Common Stock into a smaller number of shares of Common Stock, or (iv) issue by
reclassification of its Common Stock other securities of the Company, the
Warrant Price and the number of Shares purchasable upon exercise of the Warrants
immediately prior thereto shall be proportionately adjusted so that the
Warrantholder shall be entitled to receive the kind and number of Shares or
other securities of the Company which it would have owned or would have been
entitled to receive immediately after the happening of any of the events
described above, had the Warrants been exercised at the Warrant Price
immediately prior to the happening of such event or any record date with respect
thereto. Any adjustment made pursuant to this subsection 8.1 shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.
For the purpose of this subsection 8.1, the term "Common Stock" shall
mean (i) the class of stock designated as the Common Stock of the Company at the
date of this Agreement, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value.
8.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in subsection
8.1, no adjustment in respect of any dividends or distributions out of earnings
shall be made during the term of the Warrants or upon the exercise of the
Warrants.
8.3 CERTIFICATE OF ADJUSTMENT. Whenever the number of Shares
purchasable upon the exercise of the Warrants is adjusted as herein provided,
the Company shall cause to be promptly mailed to the Warrantholder by first
class mail, postage prepaid, notice of such adjustment and a certificate of the
chief financial officer of the Company setting forth the number of Shares
purchasable upon the exercise of the Warrants after such adjustment, a brief
statement of the facts requiring such adjustment and the computation by which
such adjustment was made.
8.4 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute with the Warrantholder
an agreement that the Warrantholder shall have the right thereafter upon payment
of the Warrant Price in effect immediately prior to such action to purchase,
upon exercise of the Warrants, the kind and amount of shares and other
securities and property which it would have owned or have been entitled to
receive after the happening of such consolidation, merger, sale or conveyance
had the Warrants been exercised immediately prior to such action. In the event
of a merger described in Section 368(a)(2)(E) of the Internal
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Revenue Code of 1986, in which the Company is the surviving corporation, the
right to purchase Shares under the Warrants shall terminate on the date of such
merger and thereupon the Warrants shall become null and void, but only if the
controlling corporation shall agree to substitute for the Warrants its warrant
which entitles the holder thereof to purchase upon its exercise the kind and
amount of shares and other securities and property which it would have owned or
been entitled to receive had the Warrants been exercised immediately prior to
such merger. Any such agreements referred to in this subsection 8.4 shall
provide for adjustments, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in Section 8 hereof. The provisions
of this subsection 8.4 shall similarly apply to successive consolidations,
mergers, sales or conveyances.
8.5 PAR VALUE OF SHARES OF COMMON STOCK. Before taking any action
which would cause an adjustment effectively reducing the portion of the Warrant
Price allocable to each Share below the then par value per share of the Common
Stock issuable upon exercise of the Warrants, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Common Stock upon exercise of the Warrants.
8.6 INDEPENDENT PUBLIC ACCOUNTANTS. The Company may retain a firm
of independent public accountants of recognized national standing (which may be
any such firm regularly employed by the Company) to make any computation
required under this Section 8, and a certificate signed by such firm shall be
conclusive evidence of the correctness of any computation made under this
Section 8.
8.7 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any
adjustments in the number of securities issuable upon exercise of Warrants,
Warrant certificates theretofore or thereafter issued may continue to express
the same number of securities as are stated in the similar Warrant certificates
initially issuable pursuant to this Agreement. However, the Company may, at any
time in its sole discretion (which shall be conclusive), make any change in the
form of Warrant certificate that it may deem appropriate and that does not
affect the substance thereof; and any Warrant certificate thereafter issued,
whether upon registration of transfer of, or in exchange or substitution for, an
outstanding Warrant certificate, may be in the form so changed.
Section 9. FRACTIONAL INTERESTS; CURRENT MARKET PRICE. The Company shall
not be required to issue fractional Shares on the exercise of the Warrants. If
any fraction of a Share would, except for the provisions of this Section 9, be
issuable on the exercise of the Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the then Current Market Price per
share of Common Stock multiplied by such fraction.
For purposes of this Agreement, the term "Current Market Price" shall
mean (i) if the Common Stock is in the over-the-counter market and not in The
Nasdaq National Market nor on any national securities exchange, the average
of the per share closing bid price on the 30 consecutive trading days
immediately preceding the date in question, as reported by The Nasdaq Small
Cap Market (or an equivalent generally accepted reporting service if
quotations are not reported on The Nasdaq Small Cap Market), or (ii) if the
Common Stock is traded in The Nasdaq National Market or on a national
securities exchange, the average for the 30 consecutive trading days
immediately preceding the date in question of the daily per share closing
prices in The Nasdaq National Market or on the principal stock exchange on
which it is listed, as the case may be. For purposes of clause (i) above, if
trading in the Common Stock is not reported by The Nasdaq Small Cap Market,
the applicable bid price referred to in said clause shall be the lowest bid
price as reported in The Nasdaq Electronic Bulletin Board or, if not reported
thereon, as reported in the "pink sheets" published by National Quotation
Bureau, Incorporated, and, if such securities are not so reported, shall be
the price of a share of Common Stock determined by the Company's Board of
Directors in good faith. The closing price referred to in clause (ii) above
shall be the last reported sale price or, in case no such reported sale takes
place on such
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day, the average of the reported closing bid and asked prices, in either case
in The Nasdaq National Market or on the national securities exchange on which
the Common Stock is then listed.
Section 10. NO RIGHTS AS SHAREHOLDER; NOTICES TO WARRANTHOLDER. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon the Warrantholder or its transferees any rights as a shareholder of the
Company, including the right to vote, receive dividends, consent or receive
notices as a shareholder in respect of any meeting of shareholders for the
election of directors of the Company or any other matter. If, however, at any
time prior to the expiration of the Warrants and prior to their exercise, any
one or more of the following events shall occur:
(a) any action which would require an adjustment pursuant to Section
8.1; or
(b) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger or sale of its property, assets
and business as an entirety or substantially as an entirety) shall be proposed;
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 14 hereof, at least 20 days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to any relevant dividend,
distribution, subscription rights or other rights or for the determination of
shareholders entitled to vote on such proposed dissolution, liquidation or
winding up. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to mail or receive such notice
or any defect therein shall not affect the validity of any action taken with
respect thereto.
Section 11. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
(a) The Warrantholder agrees that prior to making any disposition of
the Warrants or the Shares, including without limitation, to persons or entities
identified in clauses (i) through (vi), inclusive, of Section 1.3 other than
pursuant to a registration statement or other notification or post-effective
amendment thereto (hereinafter collectively a "Registration Statement") filed by
the Company with, and declared effective, by, the Securities and Exchange
Commission (the "Commission"), the Warrantholder shall give written notice to
the Company describing briefly the manner in which any such proposed disposition
is to be made and shall provide such other information as may reasonably be
required by the Company and counsel familiar with securities matter to conclude
that no Registration Statement under the Act is required with respect to such
disposition, and no such disposition shall be made if the Company has notified
the Warrantholder that in the opinion of counsel reasonably satisfactory to the
Warrantholder a Registration Statement under the Act is required with respect to
such disposition and no such Registration Statement has been filed by the
Company with, and declared effective, if necessary, by, the Commission.
(b)(i) Whenever during the four-year period beginning on _________,
1999 and ending on_______, 2003, the Company proposes to file with the
Commission a Registration Statement (other than as to securities issued pursuant
to an employee benefit plan or as to a transaction subject to Rule 145
promulgated under the Act or for which a Form S-4 Registration Statement could
be used), it shall, at least 30 days prior to each such filing, give written
notice of such proposed filing to the Warrantholder and each holder of Shares,
at their respective addresses as they appear on the records of the Company, and
shall offer to include and shall include in such filing any proposed disposition
of the Warrants and Shares upon receipt by the Company, not less than 10 days
prior to the proposed filing date, of a request therefor setting forth the facts
with respect to such proposed disposition and all other information with respect
to such person reasonably necessary to be included in such
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Registration Statement. In the event that the managing underwriter for said
offering advises the Company in writing that the inclusion of such securities in
the offering would be detrimental to the offering, such securities shall
nevertheless be included in the Registration Statement, provided that the
Warrantholder and each holder of Warrants and Shares, desiring to have such
securities included in the Registration Statement agrees in writing, for a
period of 90 days following such offering, not to sell or otherwise dispose of
such securities pursuant to such Registration Statement, which Registration
Statement the Company shall keep effective for a period of at least nine months
following the expiration of such 90-day period.
(ii) In addition to any Registration Statement pursuant to
subparagraph (i) above, during the four-year period beginning on ________, 1999
and ending on___________, 2003 the Company will, as promptly as practicable (but
in any event within 60 days), after written request (the "Request") by EVEREN
Securities, Inc., or by a person or persons holding (or having the right to
acquire by virtue of holding the Warrants) at least 50% of the shares of Common
Stock which have been (or may be) issued upon exercise of the Warrants, prepare
and file at its own expense a Registration Statement with the Commission and
appropriate Blue Sky authorities sufficient to permit the public offering of the
Warrants and Shares, and will use its best efforts at its own expense through
its officers, directors, auditors and counsel, in all matters necessary or
advisable, to cause such Registration Statement to become effective as promptly
as practicable and to maintain such effectiveness so as to permit resale of the
Shares covered by the Request until the earlier of the time that all such Shares
have been sold or the expiration of one hundred twenty (120) days from the
effective date of the Registration Statement; provided, however, that the
Company shall only be obligated to file one such Registration Statement under
this Section 11(b)(ii).
(c) All fees, disbursements and out-of-pocket expenses (other than
Warrantholders' and holders' of Shares brokerage fees and commissions and legal
fees of counsel to the Warrantholder and holders of Shares, if any) in
connection with the filing of any Registration Statement under Section 11 (b)
(or obtaining the opinion of counsel and any no-action position of the
Commission with respect to sales under Rule 144) and in complying with
applicable securities and Blue Sky laws shall be borne by the Company. The
Company at its expense will supply any Warrantholder and any holder of Shares
with copies of such Registration Statement and the prospectus included therein
and other related documents any opinions and no-action letters in such
quantities as may be reasonably requested by the Warrantholder or holder of
Shares.
(d) The Company shall not be required by this Section 11 to file such
Registration Statement if, in the opinion of counsel for the Warrantholders and
holders of Shares and the Company (or, should they not agree, in the opinion of
another counsel experienced in securities law matters acceptable to counsel for
such holders and the Company), the proposed public offering or other transfer as
to which such Registration Statement is requested is exempt from applicable
federal and state securities laws and would result in all purchasers or
transferees obtaining securities which are not "restricted securities," as
defined in Rule 144 under the Act.
(e) The provisions of this Section 11 and Section 12 hereof shall
apply to the extent as provided herein if the Company chooses to file an
Offering Statement under Regulation A promulgated under the Act.
(f) The Company agrees that until all Shares have been sold under a
Registration Statement or pursuant to Rule 144 under the Act, it will use its
best efforts to keep current in filing all materials required to be filed with
the Commission in order to permit the holders of such securities to sell the
same under Rule 144.
Section 12. Indemnification.
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(a) In the event of the filing of any Registration Statement with
respect to the Shares pursuant to Section 11 hereof, the Company agrees to
indemnify and hold harmless the Warrantholder or any holder of such Shares and
each person, if any, who controls the Warrantholder or any holder of such Shares
within the meaning of the Act, against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
reasonable attorneys' fees), to which the Warrantholder or any holder of such
Shares or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such Registration
Statement, or any related preliminary prospectus, final prospectus, or amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such Registration Statement, preliminary prospectus, final prospectus or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by such Warrantholder or the holder
of such Shares or any person who controls the Warrantholder or any holder of
such Shares within the meaning of the Act specifically for use in the
preparation thereof. This indemnity will be in addition to any liability which
the Company may otherwise have.
(b) The Warrantholders and the holders of the Shares agree that they
will indemnify and hold harmless the Company, each other person referred to in
subparts (1), (2) and (3) of Section 11(a) of the Act in respect of the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Act, against any losses, claims, damages or liabilities
(which shall, for all purposes of this Agreement, include but not be limited to,
all costs of defense and investigation and all attorneys' fees) to which the
Company or any such director, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such Registration Statement, or any related preliminary prospectus, final
prospectus or amendment or supplement thereto, or arise out of or are based upon
the omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such Registration
Statement, preliminary prospectus, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by the Warrantholder or such holder of Shares specifically for
use in the preparation thereof. This indemnity agreement will be in addition to
any liability which the Warrantholder or such holder of Shares may otherwise
have.
(c) Promptly after receipt by an indemnified party under this Section
12 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 12, notify the indemnifying party in writing of the commencement
thereof but the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party otherwise than
under this Section 12. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it shall elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have
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the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying party
to such indemnified party of the indemnifying party's election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 12 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 12(a)
or 12(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnification could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such proceeding.
Section 13. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) a Warrantholder or any
holder of the Shares or controlling person makes a claim for indemnification
pursuant to Section 12 hereof but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of Section 12 hereof provide for indemnification in such
case or (ii) contribution under the Act may be required on the part of any
Warrantholder or any holder of the Shares or controlling person, then the
Company and any Warrantholder or any such holder of the Shares or controlling
person shall contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), in either such case (after contribution from others) on the
basis of relative fault as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or a Warrantholder or holder of Shares
or controlling person on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and such holders of such securities and such controlling
persons agree that it would not be just and equitable if contribution pursuant
to this Section 13 were determined by pro rata allocation or by any other method
which does not take account of the equitable considerations referred to in this
Section 13. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this Section 13 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. 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.
Section 14. Notices. Any notice pursuant to this Agreement by the Company
or by a Warrantholder or a holder of Shares shall be in writing and shall be
deemed to have been duly given if delivered or mailed by certified mail, return
receipt requested:
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(a) If to a Warrantholder or a holder of Shares addressed to EVEREN
Securities, Inc., 1901 Avenue of the Stars, Suite 1460, Los Angeles, California
90067, 77 West Wacker Drive, Chicago, Illinois 60601, Attention: Corporate
Finance Department, and to The Seidler Companies, 515 South Figueroa Street,
11th Floor, Los Angeles, California 90071, Attention: Corporate Finance
Department.
(b) If to the Company addressed to it at 11240 Sherman Way, Sun
Valley, California 91352, Attention: David Lokken, President and Chief Executive
Officer.
Each party may from time to time change the address to which notices to it are
to be delivered or mailed hereunder by notice in accordance herewith to the
other party.
Section 15. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company, the Warrantholders, or the
holders of Shares shall bind and inure to the benefit of their respective
successors and permitted assigns hereunder.
Section 16. Merger or Consolidation of the Company. The Company will not
merge or consolidate with or into any other corporation or sell all or
substantially all of its property to another corporation, unless the provisions
of Section 8.4 are complied with.
Section 17. Survival of Representations and Warranties. All statements
contained in any schedule, exhibit, certificate or other instrument delivered by
or on behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf of
the parties to this Agreement, all representations, warranties and agreements
made by the parties to this Agreement or pursuant hereto shall survive.
Section 18. Applicable Law. This Agreement shall be deemed to be a
contract made under the laws of the State of California and for all purposes
shall be construed in accordance with the laws of said State.
Section 19. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrantholders and the holders of Shares any legal or equitable right, remedy or
claim under this Agreement. This Agreement shall be for the sole and exclusive
benefit of the Company, the Warrantholders and the holders of Shares.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
HAWKER PACIFIC AEROSPACE.
By
------------------------------------------------
EVEREN SECURITIES, INC.
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REPAIR, OVERHAUL, EXCHANGE, WARRANTY
AND
DISTRIBUTION AGREEMENT
BETWEEN
DUNLOP EQUIPMENT DIVISION
AND
HAWKER PACIFIC, INC.
- -------------------------------------------------------------------------------
THE [*] INDICATES THAT PORTIONS OF TEXT HAVE BEEN DELETED AND ARE BEING FILED
UNDER SEPARATE COVER WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
REPAIR, OVERHAUL, EXCHANGE, WARRANTY AND DISTRIBUTION AGREEMENT
This Repair, Overhaul, Exchange, Warranty and Distribution Agreement
("Agreement") is made and effective as if this 1st day of November, 1996 by
and between;
DUNLOP EQUIPMENT DIVISION, a Company existing and organized under the laws
of England and having a place of business at Holbrook Lane, Coventry CV6
4AA, England, hereinafter referred to as "Equipment Division,"
represented by P.G. SMITH, Director and General Manager
and
HAWKER PACIFIC, INC., a Company existing and organized under the laws of
the State of California and having a place of business at 11310 Sherman
Way, Sun Valley, CA 91352 - USA, hereinafter referred to as "Hawker,"
represented by David L. LOKKEN, President and Chief Executive Officer,
herein collectively referred to as the "Parties'' or individually as a
"Party".
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REPAIR, OVERHAUL, EXCHANGE, WARRANTY AND DISTRIBUTION AGREEMENT
CONTENTS
THE PARTIES
page
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CONTENTS
WITNESSETH
1. SUBJECT AND SCOPE 6
2. EQUIPMENT DIVISION'S OBLIGATIONS 6
2.1 Technical and Logistics Support 6
2.3 Special Tooling and Test Benches 7
2.4 Sole Rights 8
3. HAWKER'S OBLIGATIONS 9
3.1 Quality Requirements 9
3.2 Technical and Logistics Support 9
3.3 Non-Competition 10
4. PIECE PARTS AND END ITEMS 10
4.5 Manufacture and Distribution 10
4.6 Initial Provisioning 10
4.7 Price Catalogues 10
4.8 Discounts 11
4.9 Special Pricing 11
4.10 Priority 11
5. CONDITIONS OF DELIVERY, INVOICES AND PAYMENT 11
6. WARRANTIES 11
6.1 Equipment Division Vendor Standard Warranty 11
7. LIABILITY 14
7.1 Hawker's Indemnification 14
7.2 Equipment Division's Indemnification 14
8. EXCUSABLE DELAY 14
9. TERM OF AGREEMENT AND TERMINATION 15
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10. NOTICES 15
11. APPLICABLE LAW AND LITIGATION 16
12. SURVIVORSHIP 16
13. ASSIGNMENT 17
14. INVENTORY BUY BACK 17
15. MISCELLANEOUS 17
16. WAIVER 18
17. VOID PROVISIONS 18
18. AMENDMENTS 19
19. INSPECTION VISITS 19
20. ENTIRE AGREEMENT 19
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WITNESSETH
WHEREAS, Equipment Division, is an Original Equipment Manufacturer (O.E.M.), and
seller of various helicopter and fixed wing equipment and provides for certain
repair, overhaul and exchange services in connection therewith,
WHEREAS, Hawker heretofore provided such services for Equipment Division as well
as distribution for same,
WHEREAS, in connection with the Sale of Hawker, the Parties wish to enter into
this Agreement providing for the continuation of such services and distribution
upon the terms and conditions herein,
NOW THEREFORE, in consideration of the mutual convenants contained herein, the
Parties agree as follows:
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1 SUBJECT AND SCOPE
Equipment Division hereby appoints Hawker as its sole source for all
repair, overhaul and exchange work whether warranty or otherwise
(hereinafter collectively referred to as the "Work") of all Equipment
Division manufactured equipment (hereinafter collectively referred to as
the "Equipment"). Hawker's sole rights pursuant to this Article 1 shall be
for aircraft operated only in the territories of North, Central and South
America, including the Caribbean (hereinafter referred to as the
"Territory").
Further, subject to the terms and conditions contained herein, Equipment
Division hereby appoints Hawker as the sole distributor and sole source for
Equipment in the Territory.
2 EQUIPMENT DIVISION'S OBLIGATIONS
2.1 TECHNICAL AND LOGISTICS SUPPORT
In order to give Hawker all required qualifications for support of
the Equipment, Equipment Division shall provide the following to
Hawker:
A. Documentation (Free of Charge)
- Components Maintenance Manuals (CMM) and their revisions
- Service Bulletins, Service Newsletters and technical instructions
- General procedures
- Tooling and other drawings (as required)
- Material Specification Data Sheets (MSDS)
- Price lists of end-items and piece parts
B. Training
As and when agreed by the Parties, Equipment Division shall train a
reasonable number of Hawker technicians in Equipment Division's
and/or Hawker's facilities for familiarization with:
1. Overhaul and maintenance procedures
2. All technical data relating to the operational characteristics of
such Equipment including for example load limits, service lives
etc.
As consideration for such services, Hawker shall pay a basic training
fee to be agreed by the Parties. In addition, reasonable and
ordinary travel, food and lodging expenses incurred by Equipment
Division employees or agents connected with the training of
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Hawker personnel at Hawker's facility shall be reimbursed by Hawker
upon receipt of proper evidential matter.
Hawker's personnel will be required to meet any requirements of
regulatory authorities having jurisdiction relating to security
matters before being allowed to enter Equipment Division
facilities. All costs and expenses incurred by Hawker personnel in
connection with such training shall be borne by Hawker.
C. Quality and Technical Assistance
Equipment Division shall have the right from time to time to
perform quality audits with no less than 48 hours prior written
notice. Reasonable corrective actions shall be applied by Hawker
as recommended by Equipment Division in relation thereto.
D. Technical Support
Equipment Division shall provide technical support to Hawker by way
of promptly answering technical queries raised by Hawker relating
to the repair, overhaul, exchange and warranty of the Equipment in
order that Hawker will be in good position to meet its commitments
to its customers with Mean Time To Repair ("MTTR") consistent with
market standards. Equipment Division's answers shall include
technical opinions and repair and servicing solutions and
procedures.
Equipment Division will also provide technical personnel for
assistance in Hawker field support visits, when deemed necessary by
both Parties.
Equipment Division and Hawker will exchange visit reports that
include sufficient information regarding Equipment Division product
performance, technical issues and data collection for operator
visits conducted in Hawker territory.
All services and information described in this Section D shall be
provided by Equipment Division at no charge to Hawker.
E. Operator Support
To the extent it is aware of the same, Equipment Division will keep
Hawker appraised of any and all operator conferences, meetings,
vendor liaison, cost-of-ownership programs, etc. that concern, or
involve, operators in the Territory.
2.2 SPECIAL TOOLING AND TEST BENCHES
The specific tooling and test benches necessary to repair and overhaul the
Equipment shall be provided by Equipment Division, if required, subject to
Hawker's acceptance of Equipment Division's quotation.
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Subject to the reasonable approval of Equipment Division quality
personnel, Hawker may adapt at its own expense its test benches so as
to perform the tests required in the Equipment Division CMM's.
2.3 SOLE RIGHTS
In recognition of Hawker's sole rights hereunder Equipment Division
covenants and agrees as follows;
A. Equipment Division shall instruct its authorized repair
entities, including but not limited to Dunlop Aviation Services
(hereinafter referred to as "DAS"), to not knowingly in any
manner, directly or indirectly, solicit, accept or otherwise
conduct any Work on Aircraft operating only in the Territory.
Equipment Division shall instruct its authorized repair entities
including DAS to refer all inquiries for Work in or originating
from the Territory to Hawker.
B. Equipment Division shall not distribute or sell in any manner,
directly or indirectly, piece parts or end-item spares for
Equipment on aircraft operating only in the Territory.
Equipment Division shall refer all inquiries for Equipment
spares sales in or originating from the Territory to Hawker.
C. Equipment Division shall not appoint any other facility as an
"approved" Equipment Division repair, overhaul, exchange and/or
warranty facility located in or providing service to or Work on
aircraft operated only in the Territory, nor consent or agree
for any such facility to represent itself as "approved" by
Equipment Division.
D. Notwithstanding the foregoing, nothing herein shall prevent
Equipment Division from:
(iv) entering into agreements otherwise prohibited pursuant to
this Section 2.3 but only in order to obtain or retain
sole source status on an aircraft from the aircraft
constructor or subcontractor thereof;
(v) distributing or selling piece parts and end-item spares
for Equipment on Aircraft operated in the Territory only
if Equipment Division has an existing long term
contractual obligation to do so or must do so to obtain or
retain sole source status on an aircraft from the aircraft
constructor or subcontractor thereof.
E. The foregoing provisions in this Section 2.3 shall be deemed to
bind Equipment Division and all of its affiliates and a breach of
said provisions by any such affiliate shall be deemed to be a
breach by Equipment Division.
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<PAGE>
3 HAWKER'S OBLIGATIONS
Hawker commits itself to repair and overhaul the Equipment within MTTR
consistent with prevailing market standards and in a manner that will not
materially prejudice Equipment Division's market position and reputation.
3.1 QUALITY REQUIREMENTS
Hawker's capacity to comply satisfactorily with Equipment Division's
quality standards shall be audited by Equipment Division at timely
intervals. Any audit of Hawker's facilities by Equipment Division shall be
done consistent with Section 2.1.C hereof.
Hawker shall employ technicians and quality assurance personnel fully
competent to perform the work required by this Agreement and, in compliance
with all regulatory authorities having jurisdiction.
It is mutually agreed and understood that neither Equipment Division's
appointment of Hawker as its sole source for repair, overhaul and warranty
work, nor Equipment Division's quality approval will, in any way, be
construed as a guarantee by Equipment Division of Hawker performance.
3.2 TECHNICAL AND LOGISTICS SUPPORT
Hawker shall use all technical information given by Equipment Division for
the sole purpose of providing qualified repairs, and shall not use such
data (such as drawings, etc.) for the manufacture of parts without
Equipment Division's written permission. Similarly, Hawker shall not
publish this technical information nor disclose it to third parties.
All such information and data (including but not limited to, any and all
copies and reproductions thereof in whole or in part) shall remain the
property of Equipment Division and shall be promptly returned to Equipment
Division at the expiration of this Agreement.
In conjunction with Equipment Division, Hawker agrees to provide all
aircraft operators in the Territory with Equipment Division equipped
aircraft with technical support for maintenance of Equipment. This support
will include, but not be limited to:
A. Operator contact and product performance monitoring and feedback.
B. Coordinated technical visits with Equipment Division technical personnel
where deemed appropriate by Equipment Division.
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C. Hawker will provide comprehensive visit reports that include sufficient
information regarding Equipment Division product performance, technical
issues and data collection for warranty adjudication.
3.3 NON-COMPETITION
Hawker agrees not to knowingly solicit or accept any repair, overhaul,
exchange or warranty business, directly or indirectly, generated outside
the Territory.
Hawker agrees not to knowingly distribute directly or indirectly any
Equipment outside the Territory.
4 PIECE PARTS AND END-ITEMS
4.1 MANUFACTURE AND DISTRIBUTION
The manufacture of Equipment piece parts and end items are the
responsibility of Equipment Division, while the distribution of same
in the Territory is the sole responsibility of Hawker.
Hawker shall utilize published lead times as noted in Equipment
Division's current year price list for provisioning of said parts. In
addition, where Equipment Division takes advance action to provision
spare part manufacture in support of Aircraft operators, Hawker shall
receive the benefit of identical provisioned lead times to the extent
Equipment Division's capacity allows.
Both Equipment Division and Hawker acknowledge that certain
modifications or equipment failures can result in unexpected piece
parts consumption by operators. In view of that fact, Equipment
Division agrees to exert reasonable commercial efforts so that
Equipment Division can give reasonable priority to deliver piece parts
ordered by Hawker so as to protect Hawker and the operators from long
lead time exposures.
4.2 INITIAL PROVISIONING
Hawker shall issue purchase orders for the provisioning of an initial
piece parts inventory based on the CMM's sent by Equipment Division.
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<PAGE>
4.3 PRICE CATALOGUES
Following Equipment Division announcement of a spares price increase
(for which normally 90 days will be given), Equipment Division will
provide Hawker annually with at least one (1) printed copy and one (1)
diskette copy (Lotus 123 or Excel format) of all revised list price
catalogues in UK Pounds for the Equipment. The Parties anticipate
that, under normal circumstances, prices will be maintained for a 12
month period commencing January 1 each year.
4.4 DISCOUNTS
The sales prices for all Equipment purchased by Hawker from Equipment
Division, whether piece parts or end items, shall be priced to Hawker
at a discount from the list prices set forth in the appropriate
Catalogue. Such discount, shall be [*] percent.
4.5 SPECIAL PRICING
In the event the Parties identify additional circumstances and market
pressure which necessitate special pricing for certain Equipment, then
the Parties shall jointly agree to additional or revised special
pricing. No special pricing exists as of the commencement of the
Agreement.
4.6 PRIORITY
Subject to timely ordering in accordance with published leadtimes,
Hawker shall receive equivalent delivery priority with respect to
piece part and end item orders as given to Equipment Division's
operator customers.
5 CONDITIONS OF DELIVERY, INVOICES AND PAYMENT
Prices charged Hawker by Equipment Division shall be established in
accordance with Section 4 herein and are to be those existing on order
date. All other delivery conditions shall be as indicated in the
price catalogues.
Invoices by Equipment Division to Hawker shall be in UK Pounds.
Payment terms shall be net thirty (30) days from receipt of the
material.
6 WARRANTIES
6.1 EQUIPMENT DIVISION VENDOR STANDARD WARRANTY
Equipment Division warrants all materials supplied to be:
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<PAGE>
In compliance with applicable regulations and with approved drawings,
as well as with agreed specifications and test procedures included in
the order.
Free from defects in material, workmanship and operation, and from
faults inherent in design and manufacture.
Unless otherwise agreed in agreements between Equipment Division and
aircraft constructors and subsequent flow down to Aircraft operators
(details of which shall be supplied to Hawker), the duration of the
warranty for Equipment Division components is as follows:
- standard manufacturer's warranty after delivery to the operator of
the Equipment in which the item is incorporated, or standard
manufacturer's warranty after delivery of the Equipment to Hawker, as
the case may be.
The warranty covers the repair or replacement (at Equipment Division's
option) of the defective Equipment at no charge to the customer.
The warranty covers expenses actually incurred which are related to
transportation and customs, inward and outward, from the operator base
to Hawker's plant.
The warranty does not cover labor expenses related to installation,
removal, or tests by operator, and does not include any indemnity
either for possible use of an alternate piece of Equipment or for
unserviceability.
In no event shall Equipment Division be liable for incidental or
consequential losses or damages. The warranties of merchantability and
fitness for a particular use or purpose, and all other warranties,
express or implied, are disclaimed.
The warranty does not apply to failures caused by the improper use,
handling, installation, operation or maintenance.
Unauthorized opening, altering, tampering or modification of a piece
of Equipment or of a spare part are considered as improper use.
The components of the Equipment or spare parts which are not
manufactured by Equipment Division and can be considered as vendor
parts cannot be guaranteed beyond the warranty period given by their
respective vendor.
The operator must be capable of proving that the operation time
covered by the warranty has not expired. The operator must also
provide all necessary documentary evidence to substantiate his claim.
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<PAGE>
No defective piece of Equipment or spare part is to be returned to
Equipment Division except with the written consent of one of Equipment
Division's authorized representatives.
The return of any piece of Equipment or spare part will be made in
accordance with Equipment Division shipping instructions.
The warranty obligation only exists if Equipment Division or one of
its authorized representatives is informed of the failure within sixty
(60) days of its discovery.
Equipment or spare parts repaired or replaced under warranty shall be
re-warranted for the remaining portion of the effective warranty.
Hawker will comply with the agreed warranty claim procedure effective
as of the date of signature of this Agreement, or, as may be amended
from time to time by mutual consent between the Parties, including the
filing of a report which sets forth the reasons for acceptance or
rejection of any warranty claim.
Hawker is not responsible for placing an advance order for the stock
necessary for warranty work. Upon Hawker's request the parts which are
not available at Hawker will be shipped by Equipment Division on an
expedited basis.
- WORK PERFORMED IN CONNECTION WITH WARRANTY CLAIMS:
The work performed in connection with warranty claims which are
accepted by Hawker and which may require prior approval by Equipment
Division as described below shall be invoiced by Hawker to Equipment
Division in the following manner:
a) Replacement piece parts shall be invoiced by Hawker at their
actual "landed" cost to Hawker (i.e. the full cost purchase price
plus provisioning costs) incurred by Hawker to have parts entered
into its inventory).
b) Direct man hours expended by Hawker for test, disassembly,
repair, calibration, re-assembly, inspection and final tests
shall be invoiced at the current agreed billing rate in effect on
the date the work is performed. The agreed billing rate is
sixty (60.00) US Dollars per manhour for 1996. The Parties will
reasonably revise the agreed billing rate annually.
c) Subcontracting incurred by Hawker in fulfillment of these
warranty claims shall with prior agreement of Equipment Division
be invoiced by Hawker to Equipment Division at reasonable actual
and substantiated incurred costs.
d) Terms of payment accepted by Equipment Division for these
warranty charge-backs are net thirty (30) days in US Dollars,
wire transferred to Hawker's USA bank account.
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<PAGE>
Hawker is authorized to accept or to reject the validity of any
routine warranty claim by operators and to proceed with the accepted
warranty repair.
Hawker shall notify Equipment Division at the end of each month of the
receipt of all warranty claims. Hawker shall attach to any claim and
related notification a shop findings report and a technical opinion
summary. After repair, Hawker shall send a complete report to
Equipment Division.
Equipment Division reserves the right, at its option, in case of the
repeated and unusual failure of any Equipment, or in other specific
cases (modification programs, or special investigation possibly
necessitating a fleet-wide rework), either to delegate the work to
Hawker, if Hawker accepts to perform this activity, or to carry out
needed repair and/or modification and/or investigation at Equipment
Division's facility if Hawker declines.
7 LIABILITY
7.1 HAWKER'S INDEMNIFICATION
Hawker shall be solely liable for and hereby agrees to defend, indemnify
and hold harmless Equipment Division and its affiliates and their officers,
directors, shareholders, agents and employees, from and against any and all
liabilities, losses, damages, claims, costs and expenses for all injuries
or death to persons and for all damages, losses of or loss of use of
property caused by or arising out of the improper performance by Hawker of
services pursuant to this Agreement.
7.2 EQUIPMENT DIVISION'S INDEMNIFICATION
Equipment Division shall be solely liable for and hereby agrees to defend,
indemnify and hold harmless Hawker, and its affiliates and their officers,
directors, shareholders, agents and employees, from and against any and all
liabilities, losses, damages, claims, costs and expenses for all injuries
or death to persons and for all damages, losses of or loss of use of
property caused by or arising out of the improper performance by Equipment
Division of any obligation hereunder and/or defective Equipment supplied by
Equipment Division.
8 EXCUSABLE DELAY
Equipment Division shall not be liable for any delay in delivery or failure
in performance herein due to causes beyond Equipment Division's reasonable
control including acts of God, acts of civil or military authorities,
fires, strikes, floods, epidemics, war, civil disorder, riot, or other
causes beyond Equipment Division's reasonable control and not due to
Equipment Division's fault or negligence.
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In the event of any such delay, the date of delivery shall be extended for
a period equal to the time lost by reason of the delay. This provision
shall not, however, relieve Equipment Division from using reasonable
efforts to continue prompt delivery performance while such causes exist and
whenever such causes are removed. Equipment Division promptly shall notify
Hawker when such delays occur and shall continue to advise it of new
shipping schedules and/or changes thereto.
9 TERM OF AGREEMENT AND TERMINATION
This Agreement shall become effective as of November 1, 1996 and shall
remain in effect for a period of ten (10) years. It is to be automatically
renewed thereafter for subsequent one (1)-year periods unless either Party
provides the other Party with a six (6) month prior written notice not to
renew.
However, this Agreement may be terminated immediately:
a)by either Party upon written notice to the other Party if:
1) The other party commits a material breach under this Agreement,
and fails to remedy such material breach in a reasonable amount
of time after receipt of written notice thereof or
2) a receiver is appointed for the whole or any substantial part of
the other Party's assets, or
3) the other Party enters into liquidation whether voluntary or
compulsory, or
b) by Equipment Division upon written notice to Hawker, if:
1) Hawker consistently fails to reasonably maintain Equipment
Division's existing required standards of quality in Hawker's
performance of services pursuant to this Agreement, or
2) Hawker ceases, on a permanent basis, to hold a valid certificate
from the relevant authorities as referred to in Article 3.1
"Quality requirements".
10 NOTICES
10.1 Notices under this Agreement shall be addressed to the respective
Parties as follows:
1. The President and Chief Executive Officer
HAWKER PACIFIC, INC.
11310 Sherman Way
Sun Valley, CA 91352-USA
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2 The General Manager
DUNLOP EQUIPMENT DIVISION
Holbrook Lane Coventry
CV6 4AA England
10.2 All communication under this agreement shall be given in writing
either by personal delivery, by reputable air courier or by
electronic transmission. The effective date for any such
communication shall be deemed to be the date on which it is
received by the addressee, unless later effectivity is specified
therein.
11 APPLICABLE LAW AND LITIGATION
11.1 The validity, construction and performance of this Agreement shall
be governed by and interpreted in accordance with the laws of the
State of New York.
11.2 The Parties shall endeavor in good faith to mutually resolve any
disputes between them involving the interpretation, application or
performance of this Agreement. Any such dispute which cannot be so
resolved shall be settled under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by one or more
arbitrators appointed in accordance with said Rules. The place of
arbitration shall be Winnipeg, Manitoba or other mutually agreeable
location.
11.3 In the event of any dispute resolved pursuant to paragraph 11.2
above, all expenses (including reasonable attorney's fees and
costs) shall be apportioned as determined by the arbitrator(s).
12 SURVIVORSHIP
12.1 In the event of termination or expiration of this Agreement, the
rights and obligations of the Parties up to the date of such
termination or expiration shall be honored by the Parties unless
otherwise mutually agreed, and appropriate settlement of accounts
shall be made.
12.2 In any event, the rights and obligations of the Parties under the
following Articles of this Agreement shall survive any expiration
or termination of this Agreement:
Article 3.2 Technical and Logistics Support
Article 7 Liability
Article 11 Applicable Law and Litigation
Article 14 Inventory Buy Back
Article 15 Miscellaneous
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<PAGE>
13 ASSIGNMENT
Hawker shall not assign any rights or obligations arising under this
Agreement without the prior written consent of Equipment Division and/or
its successors. However, in the event that Hawker may be sold (whether by
stock or asset sale or merger), this Agreement shall be assigned and
transferred in its entirety to the Buyer of Hawker without the need for
Equipment Division's prior written consent and shall remain fully
enforceable thereafter. Notwithstanding the foregoing, under no
circumstances shall any rights under this Agreement be transferred
(whether by sale of Hawker, operation of law, assignment or other
arrangement) to a competitor of Equipment Division.
Equipment Division shall not assign any rights or obligations arising
under this Agreement without the prior written consent of Hawker and/or
its successors. However, in the event that Equipment Division may be sold
(whether by stock or asset sale or merger), this Agreement shall be
assigned and transferred in its entirety to the Buyer of Equipment
Division without the need for Hawker's prior written consent and shall
remain fully enforceable thereafter.
14 INVENTORY BUY BACK
14.1 Subject to Section 14.3 Equipment Division shall buy back from
Hawker all provisioned parts which become obsolete only as a result
of mandatory modifications ordered by regulatory authorities or
Equipment Division. Equipment Division will not be obligated to buy
back obsolete parts where the Parties agree that Hawker has
overprovisioned.
14.2 For all parts that become surplus to Hawker's requirements, Hawker
shall offer Equipment Division the right of refusal to purchase the
same and, if Equipment Division declines, Hawker may sell the same
to other parties.
14.3 All parts bought back by Equipment Division shall be in new
condition, free from shocks or marks. Equipment Division will
credit Hawker upon receipt and inspection of parts bought back by
Equipment Division at an amount equal to Hawker's cost of
acquisition for such parts.
15 MISCELLANEOUS
15.1 Hawker is an independent contractor and shall be solely responsible
under any contract or agreement it enters into for the provision of
the services contemplated to be provided by Hawker hereunder.
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15.2 Without limiting Section 15.1 hereof, Hawker, its employees, agents,
subsidiaries and affiliates are not to be construed as being the
legal representatives of Equipment Division for any purpose
whatsoever and have no right or authority to endeavor or create, in
writing or in any other ways, any obligation of any kind, expressed
or implied, in the name of or on behalf of Equipment Division.
15.3 The rights herein granted and this Agreement are for the benefit of
the Parties hereto and not for the benefit of any third person, firm
or corporation, and nothing contained herein shall be construed to
create any right of any third parties under, as a result of, or in
connection with, this Agreement.
15.4 The term "Equipment Division" throughout this Agreement includes,
and this Agreement shall be binding upon all subsidiaries,
affiliates and other entities owned or controlled by Equipment
Division or its parent.
16 WAIVER
The failure of either Party to enforce any of the provisions of this
Agreement or to require at any time performance by the other Party of any
provisions hereof, shall in no way affect the validity of this Agreement or
any part thereof, or the right thereafter to enforce each and every such
provision.
The waiver of an express condition or requirement of this Agreement shall
not constitute a waiver of any future obligation to comply with such
provision, condition or requirement.
Anything done by either Party before this Agreement becomes effective,
which would be in fulfillment of an obligation thereunder, shall, after
this Agreement becomes effective, be treated as being in fulfillment of
such obligation under this Agreement.
17 VOID PROVISIONS
If any provision of this Agreement is determined to be void by any court of
competent jurisdiction, than such determination shall not affect any other
provision of this Agreement, and all such other provisions shall remain in
full force and effect. It is the intention of the Parties that if any of
the provisions of this Agreement are capable of two constructions, one of
which would render the provision void and the other of which would render
the provision valid, then the provision shall have the meaning which
renders it valid.
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18 AMENDMENTS
No modification, extension, waiver or amendment of this Agreement, or any
of the provisions herein contained, shall be binding upon the Party against
whom enforcement of such modification, extension, waiver or amendment is
sought, unless it is made in writing and signed by an officer of such
Party. Either Party may, by appropriate written notice, designate other
individuals to whom the foregoing authority has been delegated.
19 INSPECTION VISITS
At its sole expense, Equipment Division shall have the right to send
technical, engineering and commercial representatives to Hawker's
facilities for the purpose of conducting inspections during the term of
this Agreement. All inspections shall be conducted during Hawker's normal
business hours, and persons conducting such inspections shall coordinate
their visits with Hawker's personnel prior to their arrival.
20 ENTIRE AGREEMENT
This Agreement is the entire Agreement of the Parties and shall supersede
any previously executed agreements or oral understandings between the
Parties which relate to the subject matter of this Agreement.
In WITNESS WHEREOF, the Parties have executed this Agreement by their duly
authorized representatives on the date indicated.
For:
DUNLOP EQUIPMENT DIVISION HAWKER PACIFIC, INC.
/s/ P.G. SMITH /s/ DAVID L. LOKKEN
----------------------------- -----------------------------
P.G. SMITH David L. LOKKEN
Director and General Manager President and CEO
Date: 21 November 1996 Date: 1 November 1996
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AMENDMENT
THIS AMENDMENT, made as of the 23rd day of January, 1995, between FEDERAL
EXPRESS CORPORATION ("Federal") and HAWKER PACIFIC, INC ("Hawker").
RECITALS
1. Federal and Hawker entered into a Maintenance Services Agreement dated
August 14, 1994 (the Agreement").
2. Federal and Hawker now desire to amend the Agreement.
FOR AND IN CONSIDERATION of the mutual covenants contained in this
Amendment, Federal and Hawker (the "parties") agree as follows:
1. Paragraphs 1 and 3 of Exhibit 2 to the Agreement are hereby deleted in
their entirety and the paragraphs 1 and 3 on the attached Schedule 1 are
substituted in lieu thereof.
2. Except as otherwise provided in this Amendment, all words and
definitions used in this Amendment shall have the same meaning in this Amendment
as in the Agreement.
3. Other than as provided in this Amendment, all terms and provisions of
the Agreement are hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereby execute this Amendment on the day
and year first above written.
APPROVED
AS TO LEGAL FORM FEDERAL EXPRESS CORPORATION
[Illegible] By: [Illegible]
-------------------- -------------------------------------
LEGAL DEPT Title: [Illegible]
----------------------------------
("Federal")
HAWKER PACIFIC, INC
[Illegible]
------------------------- By: [Illegible]
CONCURRENCE -------------------------------------
MANAGING DIRECTOR Title: [Illegible]
----------------------------------
("Hawker")
THE [*] INDICATES THAT PORTIONS OF TEXT HAVE BEEN DELETED AND ARE BEING FILED
UNDER SEPARATE COVER WITH THE SECURITIES EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
SCHEDULE 1 TO AMENDMENT
PRICING SCHEDULE
1. The fixed labor costs for Standard Overhaul Service including:
B727-100. B727-200. DC10-1O and DC 1O-30.
------------------------------------------------------------
ASSEMBLY 727-100 727-200
------------------------------------------------------------
------------------------------------------------------------
A. NLG ASSY $ [*] $ [*]
------------------------------------------------------------
B. NLG DRAG BRACE ASSY $ [*] $ [*]
------------------------------------------------------------
C. NLG DRAG PIN ASSY $ [*] $ [*]
------------------------------------------------------------
D. MLG ASSY L/H $ [*] $ [*]
------------------------------------------------------------
E. MLG S/S ASSY L/H $ [*] $ [*]
------------------------------------------------------------
F. MLG FWD TRN BRG ASSY L/H $ [*] $ [*]
------------------------------------------------------------
G. MLG ACT BEAM L/H $ [*] $ [*]
------------------------------------------------------------
H. MLG ASSY R/H $ [*] $ [*]
------------------------------------------------------------
I. MLG S/S ASSY R/H $ [*] $ [*]
------------------------------------------------------------
J. MLG FWD TRN BRG ASSY R/H $ [*] $ [*]
------------------------------------------------------------
K. MLG ACT BEAM R/H $ [*] $ [*]
------------------------------------------------------------
------------------------------------------------------------
LABOR TOTALS $ [*] $ [*]
------------------------------------------------------------
------------------------------------------------------------
ASSEMBLY DC10-10 DC10-30
------------------------------------------------------------
------------------------------------------------------------
A. NLG ASSY $ [*] $ [*]
------------------------------------------------------------
B. NLG DRAG BRACE ASSY $ [*] $ [*]
------------------------------------------------------------
C. MLG ASSY L/H $ [*] $ [*]
------------------------------------------------------------
D. MLG SIDE STGRUT ASSY L/H $ [*] $ [*]
------------------------------------------------------------
E. MLG ASSY R/H $ [*] $ [*]
------------------------------------------------------------
F. MLG SIDE STRUT ASSY L/H $ [*] $ [*]
------------------------------------------------------------
G. CLG ASSY $ [*]
------------------------------------------------------------
H. CLG DRAG BRACE ASSY $ [*]
------------------------------------------------------------
------------------------------------------------------------
LABOR TOTALS $ [*] $ [*]
------------------------------------------------------------
<PAGE>
3. Not To Exceed cost for Services for 727-100 and 727-200
------------------------------------------------------------
ASSEMBLY 727-100 727-200
------------------------------------------------------------
------------------------------------------------------------
A. NLG ASSY $ [*] $ [*]
------------------------------------------------------------
B. NLG DRAG BRACE ASSY $ [*] $ [*]
------------------------------------------------------------
C. NLG DRAG PIN ASSY $ [*] $ [*]
------------------------------------------------------------
D. MLG ASSY L/H $ [*] $ [*]
------------------------------------------------------------
E. MLG S/S ASSY L/H $ [*] $ [*]
------------------------------------------------------------
F. MLG FWD TRN BRG ASSY L/H $ [*] $ [*]
------------------------------------------------------------
G. MLG ACT BEAM L/H $ [*] $ [*]
------------------------------------------------------------
H. MLG ASSY R/H $ [*] $ [*]
------------------------------------------------------------
I. MLG S/S ASSY R/H $ [*] $ [*]
------------------------------------------------------------
J. MLG FWD TRN BRG ASSY R/H $ [*] $ [*]
------------------------------------------------------------
K. MLG ACT BEAM R/H $ [*] $ [*]
------------------------------------------------------------
------------------------------------------------------------
LABOR TOTALS $ [*] $ [*]
------------------------------------------------------------
Not To Exceed cost for Services for DC10-10 and DC10-30.
------------------------------------------------------------
ASSEMBLY DC10-10 DC10-30
------------------------------------------------------------
------------------------------------------------------------
A. NLG ASSY $ [*] $ [*]
------------------------------------------------------------
B. NLG DRAG BRACE ASSY $ [*] $ [*]
------------------------------------------------------------
C. MLG ASSY L/H $ [*] $ [*]
------------------------------------------------------------
D. MLG SIDR STRUT ASSY L/H $ [*] $ [*]
------------------------------------------------------------
E. MLG ASSY R/H $ [*] $ [*]
------------------------------------------------------------
F. MLG SIDE STRUT ASSY L/H $ [*] $ [*]
------------------------------------------------------------
G. CLG ASSY $ [*]
------------------------------------------------------------
H. CLG DRAG BRACE ASSY $ [*]
------------------------------------------------------------
------------------------------------------------------------
LABOR TOTALS $ [*] $ [*]
------------------------------------------------------------
<PAGE>
[LETTERHEAD]
[LOGO]
August 22, 1994
Mr. Brian Carr
Vice President Landing Gear Unit
Hawker Pacific Inc.
11310 Sherman Way
Sun Valley CA 91352
Dear: Brian
Enclosed you will find one copy of the original completely executed contract
between Federal Express and Hawker Pacific.
The enclosed copy is for your files. We thank you for your cooperation and
participation in finalizing this agreement with Federal Express. We look
forward to the success of this long term program and with other projects that we
may have an opportunity to work together on in the future.
If you should have any questions, please give me a call at 901-369-2851.
Sincerely,
FEDERAL EXPRESS CORPORATION
/s/ William W. Richard
William W. Richard
Procurement Project Administrator,
Aviation Material & Services Contracting
Enclosures (1)
<PAGE>
FEC Contract No. 95-0102
MAINTENANCE SERVICES AGREEMENT
THIS MAINTENANCE SERVICES AGREEMENT (the "Agreement"), made the 19th day of
August, 1994, by FEDERAL EXPRESS CORPORATION, a Delaware corporation
("Federal") and HAWKER PACIFIC, INC., a California corporation ("Hawker").
RECITALS
1. Federal is an all-cargo carrier with a fleet of Boeing 747-200,
727-100, 727-200, McDonnell Douglas DC10-10, DC10-30, MD-11, Airbus Industries
A300-600F and A310-200 aircraft equipped with landing gear assemblies.
2. Federal desires to engage the services of a vendor to furnish
facilities, labor, fixtures, equipment, material and tools to perform
maintenance and overhaul services on Federal's Equipment (hereinafter defined),
in accordance with the terms and subject to the provisions of this Agreement.
3. Hawker maintains and operates facilities for the repair, maintenance,
and functional testing of the Equipment.
4. Hawker is ready, willing and able to perform the services described in
this Agreement in accordance with and subject to the terms of this Agreement.
FOR AND IN CONSIDERATION of the mutual covenants contained in this
Agreement, Federal and Hawker (the "parties") agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. PRIMARY DEFINITIONS. In addition to words and terms
elsewhere defined in this Agreement, the following words and terms as used in
this Agreement shall have the following meaning:
<PAGE>
2
ACCEPTANCE: Federal's acceptance of the Equipment upon redelivery to
Federal by Hawker in accordance with Article 8.
APPLICABLE MANUALS: Original Equipment Manufacturer ("OEM") Component
Maintenance Manuals ("CMM") and supplements and Federal Engineering Reports.
COMPONENT: A constituent part of a unit of Equipment having no function
apart from the unit.
CONSIGNED PARTS: Parts placed by Federal at Hawker's facility for use in
Hawker's performance of the Services.
DATE OF COMPLETION: The day upon which Hawker notifies Federal that
Equipment is serviceable and ready for shipment to Federal.
DATE OF DELIVERY: The working day on which Federal's Workscope and
Equipment are received at Hawker's maintenance facility.
DELIVERY: Delivery of the Equipment to Hawker at Hawker's Facility in Sun
Valley, California.
DIRECT DAMAGE: Damage to a component or part attributable to defective
Services on the damaged part or component.
DIRECT MATERIAL: All parts, supplies and materials which are incorporated
into the Equipment as part of an assembly, accessory, or component.
EQUIPMENT: The individual and collective description of Federal's landing
gear assemblies, and their respective parts, components and accessories, as more
particularly described in Exhibit 1.
FAA: The United States Federal Aviation Administration, or any successor.
FIELD REPAIR SERVICES: Repair services as requested by Federal which are
performed by Hawker at locations other than Hawker's facility in Sun Valley,
California.
FUNCTIONAL TEST OR TESTS: A test or check of Equipment in its operating
(or functioning) environment, using test equipment, procedures, and limits
specified in Federal's Specifications, as may be amended from time to time by
Federal.
INDIRECT MATERIAL: All supplies and materials which do not become an
integral part of a basic assembly, accessory, component or other item of
Equipment, such as, for example, lubricants, solvents, wiping rags, emery cloths
or abrasives, and integrated items which have no part number, such as, for
example, safety wire, plating materials, and minor hardware.
INSPECTION: The thorough and searching examination of all items, major and
minor assemblies, and components to determine identity, serviceability and
proper installation.
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3
LANDING GEAR MAINTENANCE AND OVERHAUL PROGRAM: The maintenance and
modification program developed by Federal's Engineering Division specifying the
work to be performed on the Equipment to increase the overall product
reliability of the Equipment and to assure its long-term integrity.
MAINTENANCE: Those tasks necessary to restore, preserve or improve the
Equipment's physical condition to a specified level, including but not limited
to operational checks, Inspections, disassembly, cleaning, repair, rework,
measurement, replacement of parts, reassembly, testing, lubricating, adjusting,
etc., as more fully described in Federal's Specifications.
MATERIAL: All items used during the performance of the Services or entered
into and made a part of the Equipment.
MODIFICATION: Alterations to the delivery configurations of the Equipment
which cause it to conform to the redelivery configuration and conditions of the
Equipment required by Federal's Specifications.
NON-REPAIRABLE: The classification of an item which is not serviceable at
the time of removal by repair in accordance with Federal's or the manufacturer's
then current specifications.
OUT-OF-SCOPE SERVICES: Services related to the Standard Overhaul Services,
but which require unique operations or tooling and are accomplished outside the
scope of specifications and applicable manuals (in effect as of the date of this
Agreement).
OUTSIDE SERVICES OR SUB-CONTRACT SERVICES: Services performed for Hawker by
contractors subject to approval by Federal.
PART: One piece, or two or more pieces joined together which are not
normally subject to disassembly without destruction of designed use. The term
"part" is also sometimes used in this Agreement to describe all components,
parts, supplies, containers and materials required for the performance of the
Service on the Equipment.
PRICING SCHEDULE: The schedule of charges for the performance of the
Services as set forth in Exhibit 2.
REDELIVERY: Redelivery of the Equipment to Federal at Hawker's Facility in
Sun Valley, California.
REPAIR: The restoration of a Part or item of Equipment to a serviceable
condition.
REPAIRABLE: The classification of an item which can be made serviceable by
rework, in accordance with Federal's Specifications, the OEM's current CMM or
Federal's supplement to the OEM's CMM.
REPRESENTATIVES: On-site personnel from time to time assigned by Federal to
inspect or assess Hawkers performance of the Services at
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4
Hawker's facility in Sun Valley, California or at other locations where Field
Repair Services are conducted.
SCHEDULE: A schedule setting forth Federal's forecast for the delivery of
Equipment by Federal to Hawker, which schedule shall be amended by Federal from
time to time throughout the term of this Agreement.
SCRAP: Discarded Parts or Equipment having no value except for the
intrinsic value of the reprocessed material composing the Parts or Equipment.
SERVICEABLE: An item that meets all specified standards for airworthiness
following completion of the Services, as defined by applicable Federal Aviation
Regulations ("FAR") and Federal's Specifications, and has no known defects which
would render it unfit for its intended use.
SERVICES: All of the tasks to be performed by Hawker as described in this
Agreement and the Specifications, or otherwise agreed to in writing by Hawker
and Federal. As used in this Agreement, Services shall include, but not be
limited to, Repair, Maintenance, Standard Overhaul Services, Out-of-Scope
Services, Additional Services, Field Repair Services, Engineering Services, Lab
Analysis Services, Sub-Contract Services and all other tasks which are the
responsibility of Hawker pursuant to this Agreement.
SHOP WORK DOCUMENT: A document used by Hawker to record all Services of
any type, and post disassembly inspection results accomplished on the Equipment.
SPECIFICATIONS: Federal's written instructions for the performance of the
Services including, but not limited to, the following:
(i) ENGINEERING AUTHORIZATION ("EA") - A document issued by Federal's
Engineering Division providing immediate and specific instruction
and authorization for: (1) one-time major or minor repair; (2)
one-time major or minor modification; (3) one-time material
substitution; or (4)immediate revision of technical manuals.
(ii) ENGINEERING ORDERS ("EO") - A document issued by Federal's
Engineering Division that: (1) provides the rationale, instruction,
and authorization necessary to effect modifications, special
inspections and repairs to the Equipment; (2) authorizes the
accomplishment of the service evaluations, Airworthiness
Directives or manufacturers' Service Bulletins and (3) controls
and documents the modification, inspection, and repair processes
in lieu of F.A.A. Form 337.
(iii) MAINTENANCE PROGRAM - A document issued by the Maintenance and
Engineering Divisions detailing the Maintenance Services to be
performed on Federal's Equipment.
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5
(iv) COMPONENT MAINTENANCE MANUAL - A document issued by the OEM
describing the procedure and requirements for the performance of
maintenance services on Federal's Equipment.
(v) SERVICE ORDER - A document issued by Federal authorizing the
Services to be performed on Federal's Equipment.
(vi) WORKSCOPE - A document issued by Federal describing the Services to
be performed on the Equipment.
(vii) LANDING GEAR OVERHAUL SPECIFICATIONS - A document issued as
Federal's Engineering Report Nos. 83-005, 89-047 and 94-025 (Latest
Revisions), from time to time, describing the Overhaul and
Maintenance Services to be performed on Federal's Equipment as part
of the Landing Gear Maintenance and Overhaul Program.
(viii) COMPONENT POLICY SHEET, OSA, CAR. - Component Maintenance
Specification Policy Sheets, Overhaul Specifications Amendments
and Component Approved Repairs are documents issued by Federal
detailing specific overhaul procedures for components.
Federal may at any time, by written order, (copies of which shall be promptly
provided to Hawker) make changes within the general scope of this Agreement in
any one or more of the following requirements:
(1) Federal drawings, designs or specifications when the Services are
to be performed for Federal in accordance with those drawings,
designs or specifications, including but not limited to the
Maintenance Program, the Component Maintenance Manual, the
Workscope and the Landing Gear Overhaul Specifications;
(2) Method of shipping or packing;
(3) Place of delivery.
If any such change causes an increase or decrease in the cost of, or the time
required for, performance of any part of the Services under this Agreement,
whether or not changed by the Agreement, Federal and Hawker shall agree to make
an equitable adjustment in the contract price, the delivery schedule, or both,
and shall modify the Agreement. Failure to agree to any adjustment shall be a
dispute between the parties. However, nothing in this clause shall excuse
Hawker from proceeding with the Agreement as ordered by Federal.
STANDARD OVERHAUL SERVICES: The maintenance and repair performed by Hawker
on the Equipment, pursuant to this Agreement. Such Services shall include but
are not limited to the following: (1) receipt, inspection, identification and
recording of parts and serial numbers (2) disassembly; (3) removal of all
bushings; (4) inspection; (5) nondestructive testing; (6) dimensioning; (7)
engineering evaluation; (8) removal of all car corrosion, scores and abrasions;
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6
(9) all machining required and approved by applicable manuals; (10) all repair
schemes required and approved by applicable manuals; (11) stress relief; (12)
bushing installation; (13) reassembly; (14) testing; (15) painting; and (16)
final inspection. All Standard Overhaul Services shall be performed in
accordance with Federal's Specifications, the OEM's CMM and Federal's supplement
to the OEM's CMM.
All consumable items, including but not limited to, grease, sealants,
paint, and hydraulic fluid, shall be included in the Standard Overhaul Services.
In addition, certain repairs which are beyond CMM limits and special repairs
shall be included as part of the Standard Overhaul services. Such repairs
would include, for example, lug hole machining (corrosion removal) which
require exceeding CMM limits but is approved by Federal at the time of execution
of this Agreement and are deemed a continuation of an approved CMM repair.
SUBCONTRACTORS: Hawker's suppliers and contractors who perform any part of
the Services or provide any parts to Hawker for its performance of Services,
which Subcontractors shall be approved by Federal, which approval shall not be
unreasonably withheld.
TURNTIME: The number of calendar days from the working day following the
Date of Delivery of the Equipment to Hawker to the Date of Completion, the Date
of Completion inclusive.
USED-SERVICEABLE-ZERO-TIME-SINCE-OVERHAULED PARTS (OTHER THAN LIFE LIMITED
PARTS): Serviceable parts that have not been used since their last overhaul
and which have been restored to a condition meeting established overhaul
tolerances and limits, which parts may, upon mutual agreement, be exchanged for
Federal's like repairable parts.
USED SERVICEABLE LIFE-LIMITED PARTS: Serviceable parts, designated by the
OEM or Federal as having limited life in use (either in hours, cycles or
calendar time), which are unused since their last overhaul or which are
restored to a condition meeting established overhaul tolerance and limits, and
whose installations on the Equipment is subject to the prior approval by
Federal.
WORKING DAY: Hawker's normal business days (Mon - Fri).
ARTICLE 2
SCOPE OF THE SERVICES
SECTION 2.01. STANDARD OVERHAUL SERVICES AND OUT-OF-SCOPE SERVICES
PROVIDED: ADDITIONAL SERVICES. (a) When requested in writing by Federal, Hawker
shall, for the charges set forth in this Agreement, provide labor, facilities,
materials, equipment, fixtures production control, technical planning,
inspection, tooling and all other services necessary to perform the Services in
accordance with the provisions of this Agreement. Any Services or Additional
Services shall be specifically requested in writing by Federal and performed by
Hawker pursuant to Section 2.03 and 2.04 respectively.
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7
(b) Parts which require repairs in excess of fifty percent (50%) of the
replacement cost, as determined based on the OEM catalog prices, will not be
repaired unless authorized by Federal in writing within 5 working days of
Federal's receipt of notice from Hawker.
(c) As part of the Services, Hawker also shall perform all Inspections
and Modifications required by the Specifications, Component Policy Sheets,
Engineering Reports, or as otherwise requested by Federal, and, at Federal's
convenience and specific request, Field Repair Services on Federal's Equipment.
(d) Hawker will verify the actual Service Bulletin status of each Part
sent to Hawker for Service to determine whether any further Service to any Part
is necessary due to a revision, amendment or modification to any Service
Bulletin.
(e) Federal may have Services on the Equipment performed in-house or by
a third party at any time without liability or obligation to Hawker. It is
Federal's intent, however, that no more than one (1) ship set of landing gear
assemblies per calendar quarter will be serviced by a vendor other than Hawker,
exclusive of ship sets upon which Hawker is unable to perform Services within
the time periods provided herein, and subject to the provisions of this
Agreement.
SECTION 2.02. APPLICATION OF SPECIFICATIONS. Hawker shall perform the
Services in accordance with applicable portions of the Specifications and all
current Equipment OEM CMM (as revised from time to time by Federal's Engineering
Division) and all applicable FAR's unless specifically requested by Federal in
writing to perform such other Services pursuant to Section 2.04. Copies of
revisions to the Specifications and Federal's supplement to the OEM CMM will be
promptly provided to Hawker.
SECTION 2.03. ENGINEERING SERVICES. (a) As part of the Services and at no
additional cost to Federal, Hawker shall perform all engineering services
("Engineering Services") necessary for performance of the Services including,
but not limited to, engineering required for the coordination of the
Specifications with Hawker's maintenance procedures, analyses of tests and
inspections, development of required repair, maintenance or modification
Services, and any other Engineering Services related to support of the Services.
(b) Hawker shall perform all other Engineering Services specifically
requested in writing by Federal pursuant to Section 2.04 for the charges set
forth in this Agreement.
SECTION 2.04. ADDITIONAL SERVICES. In addition to the Services, provided
by Hawker pursuant to this Agreement, Hawker shall perform cost analyses and
repair analyses on Federal's Equipment and other maintenance and modification
services requested by Federal in writing and agreed to by Hawker and Federal
which are not a part of the Services (the "Additional Services"). Any request by
Federal for Additional Services shall set forth in detail the particular
<PAGE>
8
additions required to the Workscope. As soon as practicable, but in no event
later than four (4) business days following Federal's request for Additional
Services, Hawker shall advise Federal of the charges and the Turntime required
by Hawker for performance of such Additional Services, which charges and
Turntime shall be subject to Federal's approval prior to commencement of the
Additional Services by Hawker.
SECTION 2.05. REQUIRED APPROVALS. It is a condition of this Agreement
that all of the Services performed by Hawker shall be in compliance with all
applicable FAR's and all other requirements of the FAA and any other agency or
governmental body having jurisdiction over the Services and that, at all times
during the term of this Agreement, Hawker shall meet the technical and
operational requirements of an FAA certified repair station authorized to
perform the Services and be approved by Federal's Quality Assurance department.
SECTION 2.06. AIRBUS, MD-11 AND 747. It is agreed that the parties will
negotiate terms and prices for Services to be performed by Hawker on Federal's
MD-11, Airbus A300-600F, Airbus 310-200 and Boeing B747-200 aircraft at a later
date.
ARTICLE 3
TERM OF AGREEMENT AND CANCELLATION OF SERVICES
SECTION 3.01. TERM OF AGREEMENT AND CANCELLATION OF SERVICES.
(a) The term of this Agreement shall be for five (5) years, commencing
upon execution of this agreement (the "Commencement Date") and expiring five
(5) years thereafter.
(b) Federal shall be entitled to renew this Agreement annually by
written Amendment after the initial [*] year term, upon providing written
notice at least sixty (60) days prior to the expiration of the initial term or
any renewal term of this Agreement. Charges for performance of the Services for
any renewal term shall be agreed to by the parties in writing prior to
commencement of such renewal term.
SECTION 3.02. CANCELLATION OF SERVICES. In the event a qualified supplier
other than Hawker makes a genuine, bona fide offer to provide substantially the
same Services and Equipment as provided under this Agreement and Federal desires
to negotiate with such third party, then Federal agrees to promptly notify
Hawker of certain terms of the alternative proposal. Specifically, the
notification will set forth the economic and performance value of the
alternative service, including but not limited to price, turn times, performance
guarantees, warranties, and period of service. Hawker will then be afforded the
opportunity to match the offer prior to Federal's acceptance of such an offer.
In the event Hawker has not notified Federal that it will match the terms of the
offer set forth in Federal's notification within sixty (60) days of
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9
Hawker's receipt of such notification, then Federal shall be permitted, at its
option, to terminate this Agreement. Notwithstanding the foregoing, it is agreed
by Federal, that Federal shall not be permitted to terminate this Agreement
pursuant to this Section 3.02 during the first [*] years of the term of
this Agreement. In the event Federal does so cancel this Agreement, and if
Hawker shall then be in the process of performing any Services hereunder, Hawker
shall be entitled to receive payment from Federal in accordance with the charges
set forth in Exhibit 2 for labor and materials with respect to the Services
actually performed prior to the date of cancellation, less any proceeds from
Hawker's disposition of Parts, materials, or supplies procured with respect to
such canceled Services. Hawker shall immediately redeliver to Federal all
Equipment, Parts and Components upon which any such partial Services have been
performed.
SECTION 3.03. If Federal elects to cancel this Agreement as provided in
Section 3.02, Federal will purchase from Hawker, not more than six (6) months
after Federal's cancellation of this Agreement, mutually agreed quantities of
landing gear parts that had been purchased by Hawker to perform the Services for
Federal, at Hawker's purchase price not to exceed Airline Catalog List Price of
such parts as of the date of purchase by Federal. Federal shall not be required
to purchase obsolete or unserviceable material or parts.
ARTICLE 4
PARTS, MATERIALS, SUPPLIES
SECTION 4.01. PROVISION OF PARTS BY HAWKER. (a) Unless otherwise provided
in this Agreement, Hawker shall provide all Parts necessary for the performance
of the Services. If requested, Federal shall cooperate with Hawker in its
efforts to procure Parts, but Federal shall have no obligation to provide Parts.
(b) In addition to the Parts required by Section 4.01(a), at all times
during the term of this Agreement, Hawker will provide a rotable spare inventory
of Equipment and Parts, in numbers sufficient to support an exchange program and
provide AOG support for all of Federal's aircraft which are no longer under the
OEM's warranty period and fox which Federal does not have serviceable rotable
spares available.
SECTION 4.02. INABILITY TO PROCURE PARTS. If Hawker is unable to procure
any Parts, Hawker shall notify Federal and Federal shall use its best efforts to
provide the Parts to Hawker.
SECTION 4.03. FEDERAL-SUPPLIED PARTS. Federal reserves the right, at its
sole discretion, to furnish to Hawker for the performance of the Services, any
nonstandard replacement parts ("Federal-Supplied Parts"). Federal will not
supply standard replacement parts required for the performance of the Services,
as specified in the Workscope. Federal-Supplied Parts will be delivered to
Hawker within ten (10) days after Federal's receipt of written request from
Hawker. Hawker will not change Federal, and Federal shall have no obligation to
pay, any "handling", "stocking" or other
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10
charges associated with Federal Supplied Parts provided to Hawker under Section
4.02 or 4.03 hereof.
SECTION 4.04. REPAIRABLE PARTS EXCHANGE. (a) If an exchange or purchase
of Parts becomes necessary, Hawker shall furnish the agreed upon Parts on the
basis of either a sale or exchange as mutually agreed by Federal and Hawker, and
under the terms, conditions and prices contained in this Agreement and set forth
in Exhibit 2.
(b) Title to Parts purchased shall pass to Federal immediately upon
Hawker's delivery of such Part for installation into the Equipment. In the event
of an exchange of Parts, title to any exchanged Part(s) shall pass between
Hawker and Federal immediately upon delivery of such Part(s). Such Parts shall
be free of all liens and encumbrances at the time of purchase or exchange.
(c) Should Parts exchanged by Federal, and which become the property of
Hawker be deemed, by mutual written agreement between Federal and Hawker, to be
scrap and/or have reduced service life below the monetary value of said Part, a
serviceable Part will be substituted by Federal, or, at Federal's option,
additional funds to offset the reduced service life will be provided by Federal
to Hawker. In determining the monetary value of an exchanged Part, Federal's
Engineering Department shall review the scope of repairs for all required
Repairs that are not within the CMM limits. Federal and Hawker shall mutually
agree on the extent of repairs.
SECTION 4.05. HANDLING, STORAGE AND DISPOSITION OF PARTS.
(a) Hawker shall maintain a material management system adequately
staffed with qualified personnel to handle the receiving, inventory,
warehousing, quality control, inspection, storage, transportation, packaging,
issuance and disposition of Parts. Hawker shall deliver the Parts in the same
packaging in which such Parts were shipped by Federal to Hawker. If requested by
Federal, Hawker shall repair, or cause to be repaired, any damage to Federal's
packaging. Federal shall reimburse Hawker for the cost of such repairs. If
requested by Federal, Hawker shall ship the Parts in packaging which meets ATA
300 specification requirements or other packaging as requested by Federal;
provided, however, that Federal shall either provide such packaging to Hawker,
or Hawker shall obtain such packaging and Federal shall promptly reimburse
Hawker for the costs of such packaging.
(b) Hawker shall tag as unserviceable, accumulate and store in a
designated holding area all Non-repairable Parts and Parts which are beyond
economical repair exclusive of the Parts listed in Exhibit 3, for review by
Federal's Representative after receiving written notification from Hawker that
such Parts are being stored. Federal shall determine and inform Hawker in
writing as to the disposition of such Parts. The Parts will be returned to
Federal or to a location designated by Federal.
(c) Hawker shall maintain an inventory of Federal-supplied Parts. Such
Parts shall not be removed from the holding area without
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11
the written approval of Federal which shall not be unreasonably withheld. Hawker
shall provide, subject to mutual agreement, ample, secured warehouse space for
all Federal-Supplied Parts and for Federal's unserviceable Parts, if any.
Federal-Supplied Parts shall be isolated from Hawker's parts and Hawker shall
insure limited access to and maximum security for Federal-Supplied Parts. Hawker
assumes responsibility for the handling and storage of Federal-Supplied Parts in
accordance with all FAR's including FAR 121 and shall use all reasonable
measures and precautions to protect them from damage or deterioration, including
storage in a manned or locked storeroom that is dry and ventilated, and insured
under Hawker's blanket insurance policy.
SECTION 4.06. FAA COMPLIANCE. In providing the Services, Hawker shall
utilize only FAA-approved procedures and Parts which have been certified to an
AN, MS or other comparable U.S. Aeronautical Standard and which conform to the
Specifications and all provisions of the FAA and this Agreement. Parts shall be
secured only from sources that can trace their origin to the FAA approved
original equipment manufacturer. Overhaul/serviceable parts, with appropriate
overhaul records meeting the requirements specified in FAR 121.380, will be
obtained only from FAA approved repair facilities.
SECTION 4.07. CONFIGURATION AND CONDITION OF PARTS PROVIDED BY HAWKER.
(a) Parts used by Hawker shall be of a part number and modification status
equal to or later than the Part removed. Any deviations must be agreed to by
Federal in writing. Hawker shall replace all Non-repairable Parts identified
in the Component Maintenance Program Specification with Serviceable-Zero-Time-
Since-Overhauled Parts.
(b) Hawker shall attach serviceable tags certifying the performance of
Services to all bench-tested, overhauled or repaired Components removed from the
Equipment. Hawker's or its Subcontractor's serviceable parts tag shall be
completed and signed by Hawker or its Subcontractor as applicable. In addition,
Hawker will supply all necessary documentation and tear down data and testing
reports related to the overhaul and repair of Components.
ARTICLE 5
EQUIPMENT EXCHANGE
SECTION 5.01. AGREEMENT TO LEASE OR EXCHANGE EQUIPMENT. When Hawker has
in its possession certain landing gear inventory including, but not limited to,
the inventory maintained by Hawker pursuant to Section 4.01(b) hereof, this
inventory shall be made available at all times for exchange with Federal's
Equipment upon request by Federal and in connection with performance of this
Agreement. Exchange fees will be in accordance with Exhibit 2.
ARTICLE 6 OUTSIDE SERVICES
SECTION 6.01. USE OF SUBCONTRACTORS. Subject to prior written approval by
Federal of each Subcontractor to be used by Hawker in its
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12
performance of the Services, which approval shall not be unreasonably withheld,
Hawker may have any of the Services performed by Subcontractors.
SECTION 6.02. SUBCONTRACTOR RELATIONSHIP. Nothing in this Agreement or
otherwise shall create any contractual relationship between Federal and any
Subcontractor of Hawker and no Sub-Contract shall relieve Hawker of its
obligations should the Subcontractor fail to perform in a satisfactory manner.
Hawker shall be responsible to Federal for all acts and omissions of persons
directly or indirectly employed by Hawker in connection with the performance of
the Services, including its Subcontractors, and Hawker shall insure the
cooperation of all such persons with Federal for the expeditious, correct and
satisfactory performance of the Services.
SECTION 6.03. PAYMENT TO SUBCONTRACTORS. (a) Hawker's obligation to pay
its Subcontractors is an independent obligation from Federal's obligation to pay
Hawker and, notwithstanding any provision contained in this Agreement, Federal
shall have no obligation to pay or to see to the payment of any Monies to any
Subcontractor. Federal's withholding of payments in accordance with this
Agreement shall not be grounds for Hawker to withhold payments properly due its
Subcontractors.
(b) Federal reserves the right to make payment directly to any
Subcontractor (or jointly to the Subcontractor and Hawker) in such amount as
Federal determines necessary to protect Federal from claims arising out of
Services performed or Parts provided by the Subcontractor for which Hawker has
failed to pay, provided Federal has notified Hawker of the Subcontractor's claim
and has given Hawker a reasonable opportunity to settle the claim. If Federal
exercises its rights under this subparagraph (b) to pay a Subcontractor's claim,
the amount owed Hawker shall be reduced by the amount of any such payment by
Federal.
SECTION 6.04. OUTSIDE SERVICES OR SUB-CONTRACT SERVICES REQUIREMENT. It
is a condition of this Agreement that all Outside Services or Sub-Contract
Services shall be performed in compliance with the requirements of this
Agreement, the FAA and any other agency or governmental body having jurisdiction
over the Outside Services or Sub-Contract Services and that at all times during
the term of this Agreement all Subcontractors shall meet the technical and
operational requirements of an FAA certified repair station authorized to
perform such Outside Services or Sub-Contract Services.
ARTICLE 7
SCHEDULING AND FORECASTING
SECTION 7.01. SCHEDULES AND FORECASTS. (a) Federal shall furnish the
Schedule to Hawker, throughout the term of this Agreement, which Schedule shall
provide a six-month forecasting of the Standard Overhaul Services of Federal's
Equipment based on Federal's best estimates. Federal shall have the right to
amend and periodically update the Schedule and to add any Services to the
Schedule at any time. It is expressly agreed and understood that such
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13
Schedule is only an estimate, and Federal may, in its sole discretion, delete
any item of Services contained in the Schedule, or delay or cancel Delivery of
any Equipment for Services upon written notice to Hawker, without obligation or
penalty.
(b) Hawker shall provide to Federal's Procurement and Component Vendor
Management Departments a weekly status report of the current Schedule which
shall provide current information concerning all of the Services provided by
Hawker during the week preceding such status report.
ARTICLE 8
TESTING, ACCEPTANCE AND DELIVERY
SECTION 8.01. INSPECTIONS AND TESTS. Hawker shall conduct Inspections of
the Equipment and perform Tests ("Tests") on repaired Equipment sufficient to
determine the conformity of the Equipment with Federal's Specifications and this
Agreement. Federal shall have the right to observe Hawker's performance of the
Inspections and Tests at Hawker's maintenance facility. Federal's observance of
Hawker's performance shall not constitute an Acceptance of the Services, nor
shall it relieve Hawker of its obligations to render the Services required in
this Agreement.
SECTION 8.02. TERMS OF DELIVERY AND REDELIVERY. (a) Federal shall deliver
the Equipment to be serviced to Hawker F.0.B. Hawker's maintenance facility in
Sun Valley, California. Within five (5) working days after the Date of Delivery
for Components shipped separately from a landing gear assembly, and ten (10)
working days from Date of Delivery for a landing gear assembly (or assemblies),
Hawker shall provide to Federal an estimate of the repair/overhaul cost, if
applicable, and an estimate of the Date of Completion. Hawker shall notify
Federal's designated department three days prior to Redelivery of Equipment.
Upon the Date of Completion of the Services, Hawker shall Redeliver the
Equipment to Federal in Memphis, Tennessee (or other location as designated by
Federal in writing) F.O.B. Hawker's maintenance facility in Sun Valley,
California.
(b) Hawker shall perform the Services so that the Equipment Turntime
does not exceed forty-five (45) calendar days from Date of Delivery unless
otherwise agreed to by Federal (excluding Additional Services). Hawker shall
maintain a Parts and Component exchange capability or have sufficient access to
Parts and Components to support such forty-five (45) day Turntime commitment.
(c) Any Component redelivered to Federal by Hawker must be accompanied
by Hawker's serviceable tag.
SECTION 8.03. ACCEPTANCE AND DELIVERY. Federal's Acceptance of Services
shall not affect Federal's right to reject such Services during the warranty
period described in Section 10.01 in the event it discovers defects not
discoverable by the Inspections and Tests performed by Hawker. Federal shall be
afforded such additional time as is necessary to confirm that all defects have
been eliminated and that the Services are acceptable to Federal and conform to
the
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14
Agreement and the Specifications. Federal shall promptly notify Hawker in
writing when it becomes aware of a defect in any of the Services. Hawker shall
promptly correct all such defects.
SECTION 8.04. TITLE AND RISK OF LOSS. All Equipment, Parts, and
Components delivered by Federal to Hawker shall remain the property of Federal.
Risk of Loss with respect thereto shall shift to Hawker upon Delivery by
Federal, and shall remain with Hawker until Redelivery by Hawker.
ARTICLE 9
PAYMENTS AND CHARGES
SECTION 9.01. BASIS OF CHARGES. Hawker's charges to Federal for the
Services shall be determined in accordance with the Pricing Schedule set forth
on Exhibit 2.
SECTION 9.02. TERMS OF PAYMENT. (a) At or following the Date of
Completion, Hawker shall submit an invoice to Federal for all charges associated
with the performance of the Services on the Equipment.
(b) The original of each invoice shall be submitted to the following
address:
Federal Express Corporation
Attn.: Manager - Component Vendor Mgmt.
3101 Tchulahoma
Memphis, Tennessee 38118-5440
(c) Payments to Hawker shall be in U.S. Dollars, paid within thirty (30)
days of Federal's receipt of Hawker's invoices that comply with Section 9.03.
Hawker shall provide to Federal a discount of [*] percent [*] invoices
if such invoices are paid by Federal within ten (10) business days of receipt of
such invoice by Federal.
(d) No payment by Federal shall be deemed an Acceptance of the Services
or any portion of the Services by Federal. Federal shall have the right to
recover any amounts previously paid in error or to withhold monies from future
payments equal to the charges associated with Services not performed in
accordance with this Agreement.
SECTION 9.03. INVOICING. (a) All invoices submitted by Hawker to Federal
shall include the following information (and Federal shall have no obligation to
pay any invoices not so documented):
(I) An identification of the Service Order ("SO") provided by Federal
authorizing the Services performed by Hawker;
(ii) A separate identification of the Services performed on the
Equipment, Hawker's (or its Subcontractor's) job number, the part
number and serial number of the Equipment on which the Services we e
performed and the Date of Delivery and the Date of Completion of the
Equipment;
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15
(iii) An identification of all Parts used in performing the Services,
including nomenclature, part number and serial number (if
serialized);
(iv) A separate, itemized account of all charges associated with
performance of the Services, including direct labor (not associated
with fixed prices), man-hours expended, materials and fees;
(v) An itemized account of charges associated with any other Services
performed by Hawker in accordance with the terms of this Agreement,
including direct labor and travel, the date(s) the Services were
performed, the name of the employee performing the Services, the
nature of the Services performed, the location at which the Services
were performed, and Federal's written authorization therefor; and
(vi) Any additional items agreed upon by Federal and Hawker during the
term of the Agreement.
(b) If any invoices submitted by Hawker to Federal are improperly
documented and do not include the foregoing information, Federal shall promptly
notify Hawker within five (5) business days of receipt by Federal.
SECTION 9.04. RIGHT OF AUDIT. Hawker shall keep full and accurate records
of Services performed in connection with this Agreement. All pertinent records
required to document Hawker's performance under this agreement shall be open to
audit by Federal or any authorized representative of Federal, for the period of
time between overhaul for each Part and/or Equipment upon which Services are
performed. In addition, Hawker shall make it a condition of all Sub-Contracts
entered into in connection with this Agreement, that any and all Subcontractors
will keep accurate records of costs incurred in connection. with the
Sub-Contract, and the records shall be open to audit by Federal or Hawker, or
their authorized representatives, during the course of the Subcontractor's work
and for the period of time between overhaul for each Part and/or Equipment upon
which Services are performed.
ARTICLE 10
HAWKER'S WARRANTIES
SECTION 10.01. HAWKER'S WARRANTIES. Hawker warrants that the Equipment
and Parts shall be free from defects due to faulty workmanship or material
furnished by Hawker or its Subcontractor for the first one-half (1/2) of the
period of time between overhauls; provided, however, that if such Parts and/or
Equipment are not installed on Federal's Aircraft within twelve (12) months of
the date of Re-delivery of such Parts and/or Equipment, then the warranty set
forth in this Section 10.01 shall be exclusive of all elastomers and seals
contained in such Parts and/or Equipment.
Federal shall maintain adequate records to confirm the date of first usage.
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16
SECTION 10.02. CONDITION OF WARRANTIES. Except as otherwise provided,
Hawker shall have no obligation under this Article 10 unless Federal shall have:
(i) following Redelivery, operated and maintained the warranted item in
accordance with applicable FAR's and Federal's Specifications;
(ii) following Redelivery, used the warranted item under normal operating
conditions and not subjected it to misuse, abuse, improper
installation or application, improper maintenance or repair,
alteration, accident or negligence in use, storage, transportation
or handling by anyone other than Hawker; and
(iii) Notified Hawker within thirty (30) days of its discovery of the
defect in the warranted item of Equipment.
SECTION 10.03. WARRANTY REPAIRS BY HAWKER. (a) Hawker's liability under
the warranties set forth in Section 10.01 shall be limited to the replacement or
repair, subject to Federal's approval, and at Hawker's expense, of any warranted
Part or Equipment or the correction of all or any portion of the Services, and
to the repair or replacement of any other item of Parts or Equipment which has
been returned to Hawker and, in the reasonable determination of Federal, has
suffered damage as a result of defective Services, Parts or Components. Hawker
shall be responsible for any reasonable transportation charges incurred by
Federal for return of defective Parts or Equipment, or otherwise in connection
with a defect in the Services.
(b) Hawker's obligations under Article 10 do not include any warranty
for Federal-Supplied Parts used by Hawker in performing the Services.
(c) Hawker's sole responsibility under Article 10 shall be as stated
herein. In no event shall Hawker be liable to Federal for consequential damages.
THE WARRANTIES MADE BY HAWKER AS SET FORTH IN ARTICLE 10 ARE IN LIEU OF ALL
OTHER WARRANTIES, EXPRESS OR IMPLIED, AND ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
SECTION 10.04. FEDERAL'S WARRANTY REPAIRS. To expedite the return to
service of defective Parts and Equipment which Hawker is obligated to repair or
replace pursuant to Section 10.03 ("Federal's Warranty Repairs"), Hawker and
Federal agree that such repairs or replacements may be performed by Federal or
Federal's authorized vendor, at Federal's option if Federal determines that
Hawker cannot perform the warranty repair as conveniently as necessary for the
operation of Federal's business.
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17
SECTION 10.05. REIMBURSEMENT FOR FEDERAL'S WARRANTY REPAIRS.
(a) Upon receipt of Federal's claim for reimbursement with respect to
Federal's Warranty Repairs, Hawker shall promptly reimburse Federal for the
reasonable costs invoiced to Federal for all parts and materials incorporated in
such repair or replacement (excluding any modification kits, parts and materials
which may be furnished to Federal by Hawker at no charge to Federal), plus all
reasonable direct labor costs, determined in accordance with the Pricing
Schedule, and reasonable transportation costs incurred in the performance of
Federal's Warranty Repairs.
(b) Federal's claims for reimbursement shall be submitted in writing to
Hawker. All claims shall include the following information:
(i) the identity of the Part involved, including serial number,
nomenclature and the quantity claimed to be defective;
(ii) the identity of the Equipment from which the defective Part was
removed;
(iii) the date the claimed defect became apparent to Federal;
(iv) a description of the claimed defect and circumstances;
(v) the date repair or replacement was completed;
(vi) an itemized account of the direct labor hours expended in performing
the repair or replacement; and
(vii) an itemized account of the Parts incorporated in the repair or
replacement.
(c) Hawker shall reimburse to Federal within thirty (30) days from the
date of receipt of Federal's claim, any amounts properly claimed by Federal
pursuant to this Section 10.05.
(d) It is agreed by Federal and Hawker that Hawker retains the right to
provide the required Parts used in Federal's warranty repairs, as long as Hawker
provides such Part(s) to Federal within the time periods set forth herein.
Federal will notify Hawker of all required Parts and Hawker will have them
delivered to the designated address within the (10) calendar days after written
notice by Federal. In the case of an AOG situation, Federal shall be under no
obligation to obtain any Parts from Hawker, but rather Federal may obtain such
Parts from any source but at Hawker's expense as provided herein. It is also
agreed by Federal and Hawker that Hawker retains the right of review of the
labor hours and charges for Federal's Warranty Repairs and will be liable only
for costs associated with Federal's Warranty Repairs which are reasonable under
airline industry standards.
SECTION 10.06. ASSIGNMENT OF WARRANTIES. (a) For all Parts and Equipment
which Hawker has re-delivered to Federal, Hawker assigns to
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18
Federal any and all assignable warranties, service life policies and patent
indemnities of manufacturers, suppliers and Subcontractors other than Hawker,
and, upon Federal's request, Hawker shall give Federal reasonable assistance in
enforcing Federal's rights under such warranties, service life policies and
patent indemnities. Upon Federal's request, Hawker shall give notice to any such
manufacturers, suppliers and Subcontractors of the assignment of such
warranties, service life policies and patent indemnities.
(b) The identification and processing of warranty claims against
manufacturers, suppliers and Subcontractors shall be Hawker's responsibility.
Federal shall assist Hawker in warranty identification, but in no event shall
Federal's failure to identify warranty claims relieve Hawker of its
responsibility to do so.
ARTICLE 11
AFFIRMATIVE ACTION AND DRUG TESTING PROGRAM
SECTION 11.01. COMPLIANCE WITH LAWS. (a) To the extent applicable to
Hawker, it agrees to comply with the affirmative action requirements applicable
to contracts with U.S. government contractors as set forth in Title 41 of the
Code of Federal Regulations. The provisions of said regulations are incorporated
by reference into this Agreement. Hawker hereby further agrees to employ only
persons who are legally authorized to work in the United States and to have an
I-9 employment authorization form, if required, for each person employed by it.
(b) Prior to performance of the services, Hawker shall provide evidence
satisfactory to Federal that Hawker has in place an Anti-Drug Program for its
employees or subcontractors who perform safety-sensitive or security related
services in compliance with 14 C.F.R. Section 121.429, 121.455, 121.457 and
Appendix I (the "Appendix"). If Federal has reason to believe that any
Subcontractor is not in compliance with such Regulation, Hawker shall provide
prompt written confirmation and evidence of compliance with respect to such
Subcontractor. If Federal discovers at any time during the term of this
Agreement that Hawker, its employees or subcontractors are not in full
compliance with 14 C.F.R. Section 121.429, 121.455, 121.457 and the Appendix,
Federal shall have the right, in addition to any and all other remedies at law
or in equity, to immediately terminate the Agreement with no further obligations
or liabilities to Hawker. Hawker acknowledges that Federal has entered into this
Agreement in reliance on Hawker's representation that it is in compliance with
the requirements of the Federal Aviation Administration's drug testing
requirements for the aviation industry and Hawker agrees that it will comply
with such requirements at all times during the term of this Agreement.
(c) Hawker agrees to indemnify, defend and hold harmless Federal, its
officers, directors and employees from and against any and all claims,
liabilities, losses and expenses (including reasonable attorneys' fees) arising
in connection with Hawker, its employees or Subcontractor's failure to comply
with the provisions of this Section.
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ARTICLE 12
EMPLOYEES
SECTION 12.01. EMPLOYEES. Each party represents that it has or will obtain
appropriate agreements with its employees or others whose services it may
require, sufficient to enable it to comply with all the provisions of this
Agreement. The parties intend that an independent contractor relationship will
be created by this Agreement. Hawker is an independent contractor and personnel
used or supplied by Hawker in the performance of this Agreement shall be and
remain employees or agents of Hawker, and under no circumstances are such
personnel to be considered employees or agents of Federal. Hawker shall have the
sole responsibility for supervision and control of its personnel, and for
payment of all employment related taxes. Hawker shall be solely responsible for
any liability to third parties resulting from the negligent or intentional acts
or omissions of Hawker, its agents, employees or subcontractors arising from or
occurring in the course of Hawker's performance under this Agreement.
ARTICLE 13
INSURANCE
SECTION 13.01. HAWKER'S INSURANCE. (a) Throughout the term of this
Agreement, Hawker shall maintain in force at its expense insurance as required
in this Article 13 and shall furnish to Federal a certificate from all insurance
carriers showing the expiration dates and the required limits of liability.
Hawker shall furnish to Federal underwriter's certificates certifying that such
policies of insurance are in full force and effect, and that Federal shall be
given thirty (30) days' prior notice by the insurers in the event that either
the insurers or Hawker desire to cancel or materially change such policies of
insurance. The certificate of insurance holder shall be in the following name
and address:
Federal Express Corporation
3101 Tchulahoma
Memphis, Tennessee 38118
Attn.: Manager
Component Vendor Management
Comat 5440
(b) Subject to the following terms and conditions, Hawker agrees to
maintain in full force the following insurance in the amounts and with the
endorsements specified below:
(i) Aircraft Product Liability Insurance, including contractual coverage
in the amount not less than $25,000,000 (U.S.)per occurrence and
shall extend for a period of three (3) years following the
termination of this Agreement;
(ii) Property Insurance covering all risks and covering all property
other than the Aircraft, in Hawker custody and control. Said
property insurance shall be carried on a "replacement cost" basis;
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20
(iii) Workmen's Compensation Insurance and Employee's Liability Insurance
with statutory limits.
(c) Hawker represents and warrants that the Property Insurance provided
by Hawker pursuant to Section 13(b) (ii) will, subject to and in accordance with
its terms and conditions (1) cover losses to the property as described in
Section 13(b) (ii) while in Hawker custody and control, and (2) be payable as
the party's interest may appear.
(d) The certificate furnished relative to the insurance described in
Section 13(b) (i) will certify that such insurance covers all obligations
assumed by Hawker under this Agreement including, but not limited to, the
obligations assumed by Hawker under Section 13.03 of this Agreement.
(e) Hawker shall assume the risk of loss or damage to the Equipment,
caused by the negligence or intentional acts of an agent, servant or employee of
Hawker for the period beginning with Delivery and ending with the Redelivery of
such Equipment at Hawker facility. The risk of loss or damage to the Equipment
in all other cases remains with Federal.
SECTION 13.02. FEDERAL'S INSURANCE. Federal agrees to obtain workmen's
compensation and employer's liability insurance in amounts adequate to protect
its employees and agents at all times while on the premises of Hawker.
SECTION 13.03. HAWKER'S INDEMNITY. Hawker agrees to indemnify, defend and
hold harmless Federal, its directors, officers, agents and employees from any
and all liabilities, damages, losses, expenses, demands, claims, suits or
judgments, including reasonable attorneys' fees and expenses, in connection with
the death of or bodily injury to any person and for the loss of, damage to or
destruction of any property to the extent attributable to the negligent or
intentional acts or omissions of Hawker, its agents, employees or any person for
whose acts or omissions Hawker, its agents, employees, servants or
subcontractors may be responsible.
SECTION 13.04. FEDERAL'S INDEMNITY. Federal agrees to indemnify, defend
and hold harmless Hawker, its directors, officers, agents and employees from
any and all liabilities, damages, losses, expenses, demands, claims, suits or
judgments, including reasonable attorneys' fees and expenses, in connection with
the death of or bodily injury to any person and for the loss of, damage to or
destruction of any property to the extent attributable to the negligent or
intentional acts or omissions of Federal, its agents, employees or any person
for whose acts or omissions Federal, its agents, employees, servants or
subcontractors may be responsible.
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ARTICLE 14
DEFAULT AND REMEDIES
SECTION 14.01. EVENTS OF DEFAULT. Except as otherwise provided in this
Agreement, if any one or more of the following events of default (the "Events of
Default") shall happen, then this Agreement may, in addition to the remedies set
forth below, be terminated at the option of the party not in default, provided
that the non-defaulting party's option to terminate shall not be deemed an
election of remedies:
(i) If either party shall fail in the performance of any of the material
obligations contained in this Agreement, which failure shall
continue uncured for a period of thirty (30) days following written
notice from the other party;
(ii) If either party becomes insolvent; or
(iii) If any representation or warranty made by any party herein or made
in any statement or certificate furnished or required hereunder, or
in connection with the execution and delivery of this Agreement
proves untrue in any material respect as of the date of the issuance
or making thereof.
SECTION 14.02. REMEDIES. (a) Upon the occurrence of an Event of Default
by either Hawker or Federal, either party shall be entitled to all remedies
available at law or in equity in addition to those set forth in this Agreement,
which remedies shall be cumulative and not exclusive, and which shall include,
but not be limited to, the right to immediately terminate this Agreement.
ARTICLE 15
FEDERAL'S RIGHTS
SECTION 15.01. FEDERAL'S RIGHTS. (a) In the event that Hawker is unable
to perform the Services and supply the Equipment required by this Agreement
utilizing it's own facilities and resources, Hawker shall make suitable
arrangements with other sources to ensure that its obligations to supply
Equipment and Services under this Agreement are satisfied as set forth in this
agreement. Federal's cost for such arrangements shall be in accordance with the
prices set forth in Exhibit 2 hereof and Hawker shall be responsible for the
difference in prices charged, if any.
(b) If for reasons not caused by Federal, Hawker is unable to perform
its obligations under this Agreement Federal may perform or have performed
elsewhere such obligations during the period of Hawker inability to perform. In
the event Federal is faced with an "aircraft-on-ground" situation by reason of
any such non-performance by Hawker and elects to take over performance of the
services pursuant to this Section 15.01, then Hawker shall reimburse Federal for
all costs which are actually incurred by Federal as a direct result of such
non-performance, such as the cost of substituted landing gear repair and
overhaul services; provided, however, that,
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22
in no event shall Hawker be liable for special, incidental, or consequential
damages.
(c) For the purpose of avoiding confusion, it is agreed by the parties
hereto that this is not an exclusive agreement and that Federal reserves the
right to obtain the Services from any other vendor and under any terms and
conditions.
ARTICLE 16
EXCUSABLE DELAY
SECTION 16.01. EXCUSABLE DELAY BY HAWKER. Hawker shall be excused from
performance of the Services to the extent that such performance is actually
delayed by an Act of God, or force majeure, delays caused by Federal, such as,
but not limited to, the late delivery of the Equipment, the delivery of
Federal-Supplied Parts in an unusable or unserviceable condition or in
insufficient quantities, or the late delivery of documents such as, but not
limited to, approvals required from Federal's engineering staff to proceed with
repairs that Federal is required to furnish prior to the performance of the
Services ("Excusable Delays") and not caused by the fault or negligence of
Hawker. Local strikes, local lock-outs and non-availability of local labor will
not be considered cause for Excusable Delays.
SECTION 16.02. NOTICE OF DELAY. Hawker shall promptly notify Federal upon
the occurrence of any delay,. Excusable or otherwise, specifying the cause of
delay and, to the extent practicable, estimating the duration of the delay.
Hawker shall use its best efforts to resume the performance of the Services as
soon as reasonably possible following the cessation of an event of delay or
Excusable Delay.
ARTICLE 17
RIGHTS IN DATA
SECTION 17.01. RIGHTS IN DATA. Federal and Hawker agree to keep
confidential all drawings, programs, engineering specifications, manuals and
other technical data furnished by the other. Hawker and Federal reserve in
perpetuity all rights in their respective data and further expressly covenant
that such data of the other shall not be furnished or disclosed to any other
person, firm or corporation without the express written consent of the owner of
such data, and that Federal and Hawker shall not reproduce the other's data
except for essential copies and for internal use; provided, however, that
Federal shall have the right to disclose data pertaining to the Services as well
as any FAA Supplemental Type Certificate developed hereby to any bona fide third
party vendor of Federal for use in modifying other equipment owned or operated
or that will be owned or operated, by Federal, and (ii) Hawker shall have the
right to disclose data pertaining to the Parts, Equipment and Services to any of
its bona fide Subcontractors or suppliers to the extent necessary to obtain
approved Parts or Services or rework of such Parts or Services for the
performance of this Agreement, provided that Hawker shall have in each instance
obtained the written agreement of any
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23
such third party vendor not to disclose further such data but to use it only in
the performance of services for Federal.
SECTION 17.02. FEDERAL'S RIGHT TO USE DOCUMENTATION. Federal shall, for
the purposes of the use, sale, lease or other transfer of the Equipment, have
the royalty-free right to use and disclose the written documentation and
information contained in such documentation which is required for use in
operation and maintenance of the Equipment. Federal shall also have the
unlimited right to duplicate such written documentation for the purposes set
forth above; provided, however, that if any of the written documentation is
copyrighted, Hawker agrees to and does hereby grant to Federal the unlimited
right to make copies of such copyrighted materials without payment of additional
compensation to Hawker to the extent that Hawker now has or hereafter acquires
the authority to grant such right to make copies for others. With respect to all
written documentation that is copyrighted, Federal shall apply an appropriate
copyright notice to all copies thereof.
SECTION 17.03. TRANSFER OF RIGHTS IN DOCUMENTATION. In the event Hawker
does not proceed with the performance of the Services for any reason solely
attributable to Hawker, Hawker shall, immediately upon Federal's request,
provide to Federal's designated vendor or vendors on reasonable terms and
conditions, all data and documentation which Hawker has the right to transfer
and which is required to have the Services performed by such other vendor or
vendors designated by Federal, as well as rights to disclose, reproduce or use
for purposes of having such Services performed all data and documentation
delivered in accordance with this Section.
ARTICLE 18
TAXES
SECTION 18.01. TAXES. (a) Federal shall be solely responsible for paying
any and all taxes, excises, duties, and assessments ("Taxes"), except for income
and franchise taxes, arising out of Hawker's performance of the Services in any
manner levied, assessed or imposed by any government or agency having
jurisdiction.
(b) Federal shall promptly pay and discharge when due, unless the
validity or application to the Services is being contested in good faith, any
and all Taxes, together with any interest and penalties, the responsibility and
liability for which is assumed by Federal pursuant to Section 18.01(a). If any
such taxes are levied, assessed or imposed upon Hawker, Hawker shall notify
Federal and Federal shall promptly pay and discharge the Taxes, but upon the
written request and at the expense of Federal, Hawker shall assist Federal in
contesting the validity or application of such Taxes. If Hawker receives a
refund of all or any part of any Taxes (including a refund of interest or
penalties), the amount refunded to Hawker shall promptly be remitted to Federal,
less any expenses of Hawker associated with contesting the Taxes not previously
reimbursed by Federal to Hawker.
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ARTICLE 19
QUALITY AND STANDARDS
SECTION 19.01. QUALITY ASSURANCE. Hawker shall establish a plan for and
shall maintain quality assurance procedures necessary to insure that Hawker's
standards of workmanship and materials are in accordance with applicable FAR's
and Federal's Specifications. Hawker shall be responsible for notifying
Federal's Engineering Department and Maintenance Operations Control Center
(MOCC) of items reportable under FAR requirement 121.703 Service Difficulty
Reports ("SDR").
(a) Additionally, at Federal's Option, Hawker shall develop with Federal
a Quality Improvement Program (the "Program") that assures that the Equipment
and Services conform to all of the terms of this Agreement and that improvements
in productivity are pursued.
(b) The Program may include, but shall not be limited to, functional
parameters, surveys, audits, in-progress monitoring, correction procedures,
audit trails, written work station procedures and signoffs, test plans,
communication paths, information exchange and remedies for nonconformance.
(c) The Program will be instituted thirty (30) days from Federal's
notice to Hawker exercising its option to institute the Program and within such
thirty (30) day period Hawker and Federal will each designate a Program
Representative.
SECTION 19.02. TECHNICAL MEETINGS. Hawker shall notify and offer Federal
the opportunity to participate with Hawker in industry technical meetings and
Equipment manufacturers' engineering coordination meetings, provided the
meetings relate to Federal's Equipment or the Services provided by Hawker.
ARTICLE 20
RECORDS
SECTION 20.01. RECORD KEEPING BY HAWKER. (a) Hawker shall maintain the
following records on the Services and shall provide to Federal such records on
forms supplied by Federal or in a format developed by Hawker and approved by
Federal:
(i) Tear down findings report;
(ii) FAA Form 337 - including modification status and Airworthiness
Directives compliance; or a serviceable tag and maintenance release
completed in accordance with the applicable FAR's;
(iii) Rotable/repairable parts disposition and usage;
(iv) Test and Inspection data;
(v) Photographs of unusual conditions or catastrophic failures;
(vi) Service Bulletin audit sheet;
(vii) Workscope sign-off;
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(viii) Turntime for all Equipment on which Hawker has performed Services;
(ix) Warranty tag; and
(x) Record of production man-hours, by task, expended in performance of
Additional Services for each landing gear.
(xi) Life limited or items specified by the Engineering Reports.
(b) Hawker shall supply Federal with a copy of the records necessary for
the operation and installation of the Equipment at the date of completion of the
Services on the Equipment. In addition, Hawker shall provide to Federal, Shop
Work Documents in a format acceptable to Federal.
(i) The Shop Work Documents shall include all the work steps required to
accomplish the landing gear overhaul and Federal Engineering Orders
and/or Service Bulletin accomplishment. The Shop Work Documents
shall also list the post-disassembly inspection results, including
all dimensions measured as required by Federal's Specification and
contain Part numbers and serial number of Parts included in the
Services.
(ii) Individual step signoff's and production personnel signature or
operator number stamps are required on all Shop Work Documents.
Personnel initials are unacceptable unless a current historical
master signature sheet is maintained by Hawker. If signatures are
used, signatures must be legible. Inspection stamps are required.
Signatures are unacceptable in lieu of an inspection stamp.
(iii) Hawker shall provide post-inspection reports that will include
dimensions measured as required by Federal's Specification as
mutually agreed upon by Federal and Hawker.
(c) Upon termination of this Agreement, Hawker shall retain all original
records and documents related to the Services performed under this Agreement in
accordance with the requirements of Section 9.04 of this Agreement.
SECTION 20.02. RECORDS. Federal shall supply to Hawker all records in
Federal's possession that will assist Hawker's historical documentation of the
Services performed on the Equipment.
SECTION 20.03. INVENTORY RECORDS. Hawker shall maintain a current
inventory record of all Federal-Supplied Parts for review by Federal upon
request.
SECTION 20.04. PRODUCTION MAN-HOURS. By no later than fifteen (15) days
of request by Federal, Hawker shall provide Federal with records of production
man-hours, by task, which are expended in performance of the Services.
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ARTICLE 21
FEDERAL'S REPRESENTATIVES
SECTION 21.01. FEDERAL'S ON-SITE PERSONNEL. Federal shall have the
right to place from time to time during the term of this Agreement
and with reasonable notice to Hawker, on-site personnel at Hawker's facility
to inspect or assess Hawker's performance of the Services.
ARTICLE 22
CHANGE IN CONTROL
SECTION 22.01. CHANGE IN CONTROL: In addition to such other rights
as Federal may have, Federal shall have the right to immediately
terminate this Agreement, in Federal's reasonable discretion, upon any
change in the ownership or voting control of fifty-one percent (51%) or more
of the capital stock or assets of Hawker or a change of Senior Management.
Hawker shall notify Federal in writing at least thirty (30) days before any
such change in the ultimate control of the capital stock, business, assets of
Hawker or such change of Senior Management.
ARTICLE 23
MISCELLANEOUS
SECTION 23.01. NOTICES. All notices and requests in connection with this
Agreement shall be given in writing and shall be given by air mail, telegram,
cable telex, teletype, facsimile, Federal Express service or any other customary
means of communication addressed as follows:
If to Federal: Federal Express Corporation
Attn.: Manager - Aircraft Component
Vendor Management
3101 Tchulahoma
Memphis, Tennessee 38118-5440
If to Hawker: Hawker Pacific, Inc.
Attn.: Landing Gear Business Unit
Sales Manager
11310 Sherman Way
Sun Valley, CA 91352
With a copy to: Federal Express Corporation
Attn.: Manager, Aviation Procurement
Material & Service Contracts
3101 Tchulahoma
Memphis, Tennessee 38118-5450
or to such other persons or addresses as may be specified by either party. The
effective date of any notice or request given in connection with this
Agreement shall be the date on which it is received by the addressee.
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SECTION 23.02. ASSIGNMENT. This Agreement shall inure to the benefit
of and be binding upon each of the parties and their respective
successors and assigns, but neither the rights nor the duties of either
party under this Agreement may be voluntarily assigned, in whole or in
part, without the prior written consent of the other party, which consent shall
not be unreasonably withheld, provided that Federal may, without consent, assign
this Agreement to any of its affiliates or subsidiaries.
SECTION 23.03. SECTION HEADINGS AND CAUTIONS. All section headings
and captions used in this Agreement are for convenient reference and
shall not affect the interpretation of this Agreement.
SECTION 23.04. EXHIBITS. All Exhibits described in this Agreement
shall be deemed to be incorporated herein and made a part of this Agreement,
except that if there is any inconsistency between this Agreement and the
provisions of any Exhibit, the provisions of this Agreement shall control.
SECTION 23.05. APPLICABLE LAW AND DISPUTE RESOLUTION. This
Agreement shall be deemed entered into within and shall be governed by and
interpreted in accordance with the laws of the State of Tennessee.
SECTION 23.06. AMENDMENTS. Except as otherwise specifically provided,
this Agreement shall not be modified except by written agreement signed on
behalf of Federal and Hawker by their respective authorized representatives.
SECTION 23.07. ENTIRE AGREEMENT. This Agreement supersedes all prior
understandings, representations negotiations and correspondence between the
parties and constitutes the entire Agreement between the parties with respect to
the transaction contemplated herein and shall not in any manner be supplemented,
amended or modified by any course of dealing, course of performance or usage of
trade or by any other means except by a written instrument executed on
behalf of the parties by their duly authorized officers.
SECTION 23.08. LEGALITY OF PROVISIONS. If any provision of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 23.09. NO WAIVER. The failure of either party at any time to
require performance by the other of any provision of this Agreement shall in no
way affect that party's right thereafter to enforce such provisions, nor shall
the waiver by either party of any breach of any provision of this Agreement be
taken or held to be a waiver of any further breach of the same provision
or any other provision.
SECTION 23.10. VALIDITY OF AGREEMENT. This Agreement shall not be valid
nor binding upon Federal or Hawker unless it shall have been executed by an
officer of Federal and Hawker and legally approved as
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28
evidenced by the signature of Federal's attorney in the space provided.
SECTION 23.11. FINANCIAL INFORMATION. Hawker agrees to provide to
Federal, upon request by Federal, within one hundred twenty (120) days after
the end of each fiscal year of Hawker, a financial statement, prepared in
accordance with generally accepted accounting principles and audited by an
independent, certified public accountant. In addition, Hawker agrees to
provide to Federal, from time to time, any other financial information as
Federal may reasonably request.
SECTION 23.12. NOTIFICATION OF RELOCATION Hawker agrees to notify
Federal within thirty (30) days after making a decision to relocate its
facilities.
SECTION 23.13. SALE OF MATERIALS TO HAWKER. Hawker may purchase from
Federal, by no later than twelve (12) months after the execution date of this
Agreement, all landing gear parts and assemblies offered for sale by Federal.
Price and quantity will be negotiated at the time of purchase. Federal will
provide to Hawker all records for the material being offered for sale, including
traceability back to the OEM and total times and cycles since new for
all life limited components, prior to the purchase of any of the material from
Federal by Hawker. Hawker will not purchase obsolete or unserviceable
material or parts. FURTHER, ALL SALES MADE UNDER THIS SECTION 23.13 SHALL BE
"WHERE IS, AS IS" WITH NO WARRANTIES WHATSOEVER, EITHER EXPRESS OR IMPLIED
(EXCEPT AS TO TITLE), AND FEDERAL EXPRESSLY DISCLAIMS ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
IN WITNESS WHEREOF, the parties do hereby execute this Agreement as of the
day and year first above written.
HAWKER PACIFIC, INC. FEDERAL EXPRESS CORPORATION
BY: /s/ DAVID L. LOKKEN BY: [Illegible]
----------------------------- ---------------------------
TITLE: President TITLE: VP-Aircraft Maintenance
-------------------------- ------------------------
("Hawker") ("Federal")
APPROVED
AS TO LEGAL FORM
[Illegible] 8/4/94
------------------
LEGAL DEPT.
[Illegible]
--------------------
Concurrence & Title
Managing Director
Vendor Maintenance
Operator
<PAGE>
1
EXHIBIT 1
to that certain
Maintenance Services Agreement
between
Federal Express Corporation
('Federal')
and
Hawker Pacific Inc.
('Hawker')
Dated ________ 1994
- -------------------------------------------------------------------------------
DESCRIPTION OF EQUIPMENT
A) 727-100 161LB Landing Gear Assembly, consisting of:
NOMENCLATURE PART NUMBER
NLG Assy B27-32-014-01
NLG Drag Brace Assy B27-32-012-01
NLG Drag Brace Pin Assy B27-32-013-01
RH/MLG Gear Assy B27-32-017-06
RH/MLG Side Strut Assy B27-32-015-02
RH/MLG FWD Trunnion Bearing Assy B27-32-016-02
RH/MLG Actuator Beam Assy 65-57153-13
LH/MLG Gear Assy B27-32-017-05
LH/MLG Side Strut Assy B27-32-015-01
LH/MLG FWD Trunnion Bearing Assy B27-32-016-01
LH/MLG Actuator Beam Assy 65-57153-13
B) 727-100 170LB Landing Gear Assembly, consisting of:
NOMENCLATURE PART NUMBER
NLG Assy B27-32-014-01
NLG Drag Brace Assy B27-32-012-01
NLG Drag Brace Pin Assy B27-32-013-01
RH/MLG Gear Assy B27-32-017-02
RH/MLG Side Strut Assy B27-32-015-02
RH/MLG FWD Trunnion Bearing Assy B27-32-016-02
RH/MLG Actuator Beam Assy 65-57153-13
LH/MLG Gear Assy B27-32-017-01
LH/MLG Side Strut Assy B27-32-015-01
LH/MLG FWD Trunnion Bearing Assy B27-32-016-01
LH/MLG Actuator Beam Assy 65-57153-13
C) 727-2OO 191LB Landing Gear Assembly, consisting of:
NOMENCLATURE PART NUMBER
NLG Assy B27-32-014-01
NLG Drag Brace Assy B27-32-012-01
<PAGE>
2
NLG Drag Brace Pin Assy B27-32-013-01
RH/MLG Gear Assy B27-32-017-08
RH/MLG Side Strut Assy B27-32-015-06
RH/MLG FWD Trunnion Bearing Assy B27-32-016-04
RH/MLG Actuator Beam Assy 65-57153-13
LH/MLG Gear Assy B27-32-017-07
LH/MLG Side Strut Assy B27-32-015-05
LH/MLG FWD Trunnion Bearing Assy B27-32-016-03
LH/MLG Actuator Beam Assy 65-57153-13
D) 727-200 210LB Landing Gear Assembly, consisting of;
NOMENCLATURE PART NUMBER
NLG Assy B27-32-014-01
NLG Drag Brace Assy B27-32-012-01
NLG Drag Brace Pin Assy B27-32-013-01
RH/MLG Gear Assy B27-32-017-04
RH/MLG Side Strut Assy B27-32-015-04
RH/MLG FWD Trunnion Bearing Assy B27-32-016-04
RH/MLG Actuator Beam Assy 65-57153-13
LH/MLG Gear Assy B27-32-017-03
LH/MLG Side Strut Assy B27-32-015-03
LH/MLG FWD Trunnion Bearing Assy B27-32-016-03
LH/MLG Actuator Beam Assy 65-57153-13
E) DC10-10 Landing Gear Assembly, consisting of:
NOMENCLATURE PART NUMBER
NLG Assy D10-32-005-01
NLG Drag Brace Assy D10-32-006-01
LH/MLG Gear Assy D10-32-001-01
LH/MLG Side Brace Assy D10-32-002-01
RH/MLG Assy D10-32-001-02
RH/MLG Side Brace Assy D10-32-002-02
F) DC10-30 Landing Gear Assembly, consisting of:
NOMENCLATURE PART NUMBER
NLG Assy D10-32-005-02
NLG Drag Brace Assy D10-32-006-02
LH/MLG Gear Assy D10-32-001-03
LH/MLG Side Brace Assy D10-32-002-03
RH/MLG Assy D10-32-001-04
RH/MLG Side Brace Assy D10-32-002-04
CLG Assy D10-32-003-01
CLG Drag Brace Assy D10-32-004-01
<PAGE>
1
EXHIBIT 2
to that certain
Maintenance Services Agreement
between
Federal Express Corporation
('Federal')
and
Hawker Pacific Inc.
('Hawker')
Dated________ 1994
- -------------------------------------------------------------------------------
PRICING SCHEDULE
1. The fixed labor costs for Standard Overhaul Service including:
B727-100, B727-200, DC10-10 and DC10-30.
ASSEMBLY 727-100 727-200
A. NLG ASSY $ [*] $ [*]
B. NLG DRAG BRACE ASSY $ [*] $ [*]
C. NLG DRAG PIN ASSY $ [*] $ [*]
D. MLG ASSY L/H $ [*] $ [*]
E. MLG S/S ASSY L/H $ [*] $ [*]
F. MLG FWD TRN BRG ASSY L/H $ [*] $ [*]
G. MLG ACT BEAM L/H $ [*] $ [*]
H. MLG ASSY R/H $ [*] $ [*]
I. MLG S/S ASSY R/H $ [*] $ [*]
J. MLG FWD TRN BRG ASSY R/H $ [*] $ [*]
K. MLG ACT BEAM R/H $ [*] $ [*]
LABOR TOTALS $ [*] $ [*]
DC10-10 DC 10-30
ASSEMBLY
A. NLG ASSY $ [*] $ [*]
B. NLG DRAG BRACE ASSY $ [*] $ [*]
C. MLG ASSY, L/H $ [*] $ [*]
D. MLG SIDE STRUT ASSY, L/H $ [*] $ [*]
E. MLG ASSY, R/H $ [*] $ [*]
F. MLG SIDE STRUT ASSY, L/H $ [*] $ [*]
G. CLG ASSY $ [*]
H. CLG DRAG BRACE ASSY $ [*]
LABOR TOTALS $ [*] $ [*]
<PAGE>
2
2. The fixed labor costs for B727 Service Bulletins/Engineering Orders listed
in FEC Engineering Report 89-049 and DC10 Service Bulletins/Engineering
Orders listed in Engineering Report 94-025 are included in Attachment 1 &
2. It is understood that for the fixed labor cost will apply only if the
Service Bulletin/Engineering Order is accomplished and was not otherwise
previously complied with.
3. Not To Exceed costs for Services for 727-100 and 727-200.
ASSEMBLY 727-100 727-200
A. NLG ASSY $ [*] $ [*]
B. NLG DRAG BRACE ASSY $ [*] $ [*]
C. NLG DRAG PIN ASSY $ [*] $ [*]
D. MLG ASSY L/H $ [*] $ [*]
E. MLG S/S ASSY L/H $ [*] $ [*]
F. MLG FWD TRN BRG ASSY L/H $ [*] $ [*]
G. MLG ACT BEAM L/H $ [*] $ [*]
H. MLG ASSY R/H $ [*] $ [*]
I. MLG S/S ASSY R/H $ [*] $ [*]
J. MLG FWD TRN BRG ASSY R/H $ [*] $ [*]
K. MLG ACT BEAM R/H $ [*] $ [*]
LABOR TOTALS $ [*] $ [*]
Not To Exceed costs for Services for DC10-10 and DC10-30.
ASSEMBLY DC10-10 DC10-30
A. NLG ASSY $ [*] $ [*]
B. NLG DRAG BRACE ASSY $ [*] $ [*]
C. MLG ASSY, L/H $ [*] $ [*]
D. MLG SIDE STRUT ASSY, L/H $ [*] $ [*]
E. MLG ASSY, R/H $ [*] $ [*]
F. MLG SIDE STRUT ASSY, L/H $ [*] $ [*]
G. CLG ASSY $ [*]
H. CLG DRAG BRACE ASSY $ [*]
LABOR TOTALS $ [*] $ [*]
4. B727-100
A.) Bushings - Boeing Part Number Bushings will be priced at the
Boeing spare parts catalog price less [*] percent [*]
discount.
B.) Standard Replacement Parts (SRPs) and Additive Material(s) will be
priced at Hawker's purchase order or contract price plus [*] percent
[*] handling charge but not to exceed the Manufacturer's Catalog
price unless authorized by Federal Express. A line item cap of $[*]
will apply to all material markups
<PAGE>
3
noted herein. Federal Express shall pay all extraordinary freight
charges as mutually agreed to (including insurance, customs,
taxes, etc.) for components approved for purchase price
exceeds.$[*].
C.) Pricing Cap (Not to Exceed) per Landing Gear Shipset - Hawker shall
cap the invoice price of a B727-100 series Landing Gear shipset at
$[*]. The pricing cap shall be inclusive of all labor and
material charges, EXCLUDING: all parts which have a catalog unit price
of more than $[*] and also excludes:
1.) Replacement of obsolete components required to comply with
airworthiness directives, mandatory service bulletins and Federal
Express Engineering Specifications, excluding SRP items (that
would have been otherwise repairable) and;
2.) Replacement of missing or damaged components (not received
with the gear assembly) and required per Federal Build
Specification, excluding SRP items.
3.) Material required to support out-of-scope repair performed
at subcontractors will be priced at invoice plus ten percent
(10%) with a line item cap of $[*] on markup. Material required
for Service Bulletin compliance will be priced at acquisition
cost, not to exceed manufacturer's catalog price unless
authorized by Federal, plus [*] percent [*], except for Boeing
Part Number bushings which will be priced in accordance with
paragraph A. A line item cap of $[*] will apply to all
material markups noted herein.
Note: Should Hawker elect to perform Out-of Scope repairs on
those parts under $[*], those cost exceeding the Pricing Cap
will not be charged to Federal.
D.) Pricing Cap (Not to Exceed) per Landing Gear Leg - Hawker shall cap
the invoice price of Nose and Main Landing Gear Legs for B727-100
aircraft as follows:
1.) Nose Landing Gear Leg is comprised of the Nose Landing Gear
Assembly, NLG Drag Brace Assembly and NLG Drag Brace Pin Assembly and
will be capped at $[*].
a.) NLG Drag Brace Pin $[*]
b.) NLG Drag Brace Assembly $[*]
c.) NLG Assembly $[*]
2.) Main Landing Gear Leg is comprised of the Main Landing Gear
Assembly, MLG Side Strut Assembly, MLG Actuator Beam Assembly, MLG FWD
Trunnion Bearing Support and will be capped at $[*]
a.) MLG Actuator Beam $[*]
b.) MLG Trunnion Fitting $[*]
c.) MLG Side Strut Assembly $[*]
d.) MLG Assembly $[*]
5. B727-200
A.) Bushings - Boeing Part Number Bushings will be priced at the Boeing
spare parts catalog price less [*] percent [*] discount.
<PAGE>
4
B.) Standard Replacement Parts (SRPs) and Additive Material(s) will be
priced at Hawker's purchase order or contract price plus [*] percent
[*] handling charge but not to exceed the Manufacturer's Catalog
price unless authorized by Federal Express. A line item cap of $[*]
will apply to all material markups noted herein. Federal Express shall
pay all extraordinary freight charges as mutually agreed to (including
insurance, customs, taxes, etc.) for components approved for purchase
price exceeds $[*].
C.) Pricing Cap (Not to Exceed) per Landing gear Shipset - Hawker shall
cap the invoice price of a B727-200 series Landing Gear shipset at
$[*]. The pricing cap shall be inclusive of all labor and
material charges, EXCLUDING: all parts which have a catalog unit price
of more than $[*] and also excludes:
1.) Replacement of obsolete components required to comply with
airworthiness directives, mandatory service bulletins and Federal
Express Engineering Specifications, excluding SRP items (that would
have been otherwise repairable) and;
2.) Replacement of missing or damaged components (not received with
the gear assembly) and required per Federal Build Specification,
excluding SRP items.
3.) Material required to support out-of-scope repair performed at
subcontractors will be priced at invoice plus [*] percent [*] with a
line item cap of $[*] on markup. Material required for Service
Bulletin compliance will be priced at acquisition cost, not to exceed
manufacturer's catalog price unless authorized by Federal, plus [*]
percent [*], except for Boeing Part Number bushings which will be
priced in accordance with paragraph A. A line item cap of $[*] will
apply to all material markups noted herein.
Note: Should Hawker elect to perform Out-of Scope repairs on those
parts under $[*], those cost exceeding the Pricing Cap will not
be charged to Federal.
D.) Pricing Cap (Not to Exceed) per Landing Gear Leg - Hawker shall cap
the invoice price of Nose and Main Landing Gear Legs for B727-200
aircraft as follows:
1.) Nose Landing Gear Leg is comprised of the Nose Landing Gear
Assembly, NLG Drag Brace Assembly and NLG Drag Brace Pin Assembly and
will be capped at $[*].
a.) NLG Drag Brace Pin $[*]
b.) NLG Drag Brace Assembly $[*]
c.) NLG Assembly $[*]
2.) Main Landing Gear Leg is comprised of the Main Landing Gear
Assembly, MLG side Strut Assembly, MLG Actuator Beam Assembly, MLG FWD
Trunnion Bearing Support and will be capped at $[*].
a.) MLG Actuator Beam $[*]
b.) MLG Trunnion Support $[*]
c.) MLG Side Strut Assembly $[*]
<PAGE>
5
d.) MLG Assembly $[*]
6. DC10-10
A.) Bushings - Douglas Part Number Bushings will be priced at the
Douglas spare parts catalog price less [*] percent [*]
discount.
B.) Standard Replacement Parts (SRPs) and Additive Material(s) will be
priced at Hawker's purchase order or contract price plus [*] percent
[*] handling charge but not to exceed the Manufacturer's Catalog
price unless authorized by Federal Express. A line item cap of
$[*] will apply to all material markups noted herein. Federal
Express shall pay all extraordinary freight charges as mutually agreed
to (including insurance, customs, taxes, etc.) for components approved
for purchase price exceeds $[*].
C.) Pricing Cap (Not to Exceed) per Landing Gear Shipset - Hawker shall
cap the invoice price of a DC10-10 Landing Gear shipset at
$[*]. The pricing cap shall be inclusive of all labor and
material charges, EXCLUDING: all parts which have a catalog unit price
of more than $[*] and also excludes:
1.) Replacement of obsolete components required to comply with
airworthiness directives, mandatory service bulletins and Federal
Express Engineering Specifications, excluding SRP items (that would
have been otherwise repairable) and;
2.) Replacement of missing or damaged components (not received with
the gear assembly) and required per Federal Build Specification,
excluding SRP items.
3.) Material required to support out-of-scope repair performed at
subcontractors will be priced at invoice plus [*] percent [*] with a
line item cap of $[*] on markup. Material required for Service
Bulletin compliance will be priced at acquisition cost, not to exceed
manufacturer's catalog price unless authorized by Federal, plus [*]
percent [*], except for Douglas Part Number bushings which will be
priced in accordance with paragraph A. A line item cap of $[*] will
apply to all material markups noted herein.
Note: Should Hawker elect to perform Out-of Scope repairs on those
parts under $[*], those cost exceeding the Pricing Cap will not
be charged to Federal.
D.) Pricing Cap (Not to Exceed) per Landing Gear Leg - Hawker shall
cap the invoice price of Nose and Main Landing Gear Legs for
DC10-10 aircraft as follows:
1.) Nose Landing Gear Leg is comprised of the Nose Landing Gear
Assembly and NLG Drag Brace Assembly and will be capped at $[*]
a.) NLG Drag Brace Assembly $[*]
b.) NLG Assembly $[*]
2.) Main Landing Gear Leg is comprised of the Main Landing Gear
Assembly and MLG Side Brace Assembly and will be capped at $[*]
<PAGE>
6
a.) MLG Side Brace Assembly $[*]
b.) MLG Assembly $[*]
7. DC10-30
A.) Bushings - Douglas Part Number Bushings will be priced at the Douglas
spare parts catalog price less [*] percent [*] discount.
B.) Standard Replacement Parts (SRPs) and Additive Material(s) will be
priced at Hawker's purchase order or contract price plus [*] percent
[*] handling charge but not to exceed the Manufacturer's Catalog
price unless authorized by Federal Express. A line item cap of
$[*] will apply to all material markups noted herein. Federal
Express shall pay all extraordinary freight charges as mutually agreed
to (including insurance, customs, taxes, etc.) for components approved
for purchase price exceeds $[*].
C.) Pricing Cap (Not to Exceed) per Landing Gear Shipset - Hawker shall
cap the invoice price of a DC10-30 Landing Gear shipset at
$[*]. The pricing cap shall be inclusive of all labor and
material charges, EXCLUDING: all parts which have a catalog unit price
of more than $[*] and also excludes:
1.) Replacement of obsolete components required to comply with
airworthiness directives, mandatory service bulletins and Federal
Express Engineering Specifications, excluding SRP items (that would
have been otherwise repairable) and;
2.) Replacement of missing or damaged components (not received with
the gear assembly) and required per Federal Build Specification,
excluding SRP items.
3.) Material required to support out-of-scope repair performed at
subcontractors will be priced at invoice plus [*] percent [*] with a
line item cap of $[*] on markup. Material required for Service
Bulletin compliance will be priced at acquisition cost, not to exceed
manufacturer's catalog price unless authorized by Federal, plus [*]
percent [*], except for Douglas Part Number bushings which will be
priced in accordance with paragraph A. A line item cap of $[*] will
apply to all material markups noted herein.
Note: Should Hawker elect to perform Out-of Scope repairs on those
parts under $[*], those cost exceeding the Pricing Cap will not
be charged to Federal.
D.) Pricing Cap (Not to Exceed) per Landing Gear Leg - Hawker shall cap
the invoice price of Nose, Center and Main Landing Gear Legs for
DC10-30 aircraft as follows:
1.) Nose Landing Gear Leg is comprised of the Nose Landing Gear
Assembly and NLG Drag Brace Assembly and will be capped at $[*]
a.) NLG Drag Brace Assembly $[*]
b.) NLG Assembly $[*]
<PAGE>
7
2.) Center Landing Gear Leg is comprised of the Center Landing Gear
Assembly and CLG Drag Brace Assembly and will be capped at $[*].
a.) CLG Drag Brace Assembly $[*]
b.) CLG Assembly $[*]
3.) Main Landing Gear Leg is comprised of the Main Landing Gear
Assembly and MLG Side Brace Assembly and will be capped at $[*].
a.) MLG Side Brace Assembly $[*]
b.) MLG Assembly $[*]
8. Hawker will provide to Federal [*] volume discount on all labor over
$[*] per year.
9. Hawker will provide to Federal $[*] in credit at contract execution. A
credit memo will be issued at contract execution for application against
all outstanding and forthcoming invoices until the total credit is
consumed. The credit will be applicable to both the labor and material
portions of the invoice.
10. Hawker will provide to Federal $[*] in credits January 1, 1996. A
credit memo will be issued January 1, 1996 for application against all
outstanding and forthcoming invoices until the total credit is consumed.
The credit will be applicable to both the labor and material portions of
the invoice.
11. Worked performed on hydraulic and accessory components at either Hawker or
Dunlop facilities will be billable to Federal at $[*]/hr. Accessory
components are those components, excluding landing gear structural
components (e.g., inner and outer cylinders, truck assemblies, brace
members, etc.) which are mechanical, electro-mechanical, hydro-mechanical,
or pneumatics in nature and are not identified in Federal's Engineering
Report 83-005.
12. Labor prices are subject to review on an annual basis, but no sooner than
thirty days prior to the anniversary date of the contract. Labor price
changes will be mutually agreed to and limited to no greater than the
annual change posted in the "Producer Price Index, Table 5, Aircraft parts
and auxiliary equipment SIC 3728, Aircraft landing gear for civilian
aircraft product code 3728-242" for the period one year prior to the
anniversary of this agreement.
13. Hawker will provide a complete data package with the Standard Overhaul
Services and such package is included within the fixed prices set forth
above.
14. All Parts delivered to Federal in the State of California shall be subject
to current sales tax. The prices for Parts set forth above are inclusive of
taxes from all other jurisdictions.
15. Field Repair Services and additional Services shall be performed at a labor
rate of $[*] per hour for the duration of this agreement.
16. It is agreed by Federal and Hawker that while every effort has been made to
clearly identify all required SRPs and Bushings, that the final
determination of those requirements will be based on the configuration of
the Equipment provided by Federal. Hawker will provide Federal with an
exact listing of all parts used in meeting the requirements of the stated
Attachments.
<PAGE>
8
17. Hawker will not charge Federal any exchange fees associated with the
exchange of B727 or DC10 Equipment, Components, or Parts for the duration
of this Agreement.
18. Hawker will extend to Federal like pricing for labor and material markup
charges for MD11 overhauls and repairs as offered for the DC10-30. The Not
To Exceed guarantee will not apply until mutually agreed upon.
19. Non scheduled work for A300 and A310 aircraft will be invoiced at $[*]
per hour and the material markup will be at a mutually agreed to rate.
<PAGE>
ATTACHMENT 1
[LOGO]
AIRCRAFT LANDING GEAR
MAINTENANCE / OVERHAUL PROGRAM
EXHIBIT E - ITEM 4
SERVICE BULLETIN LABOR COST
FEC ENG REPORT 89-049 (B727)
Prepared Especially for
FEDERAL EXPRESS CORP.
by
HAWKER PACIFIC, INC.
SUBMITTAL DATE - OCTOBER 27, 1993
VOLUME 6 OF 9
<PAGE>
EXHIBIT E
PARAGRAPH 4
B727 SERVICE BULLETINS
FEC Eng Report 89-040
BULLETIN NUMBER PART/BULLETIN DESCRIPTION LABOR COST
B727 MLG ASSEMBLY - ACCOMPLISH FULLY
A. SPOILER LOCKOUT CRANK
32-39 Fabricate Channel/Finger $ [*]
32-185 Not Accomplished-Attrition only NOT QUOTED
32-226 Replace Crank P/N 65-56407-6 $ [*]
B. TRUNNION LINK
32-21 Superseded by SB 32-114 NOT QUOTED
32-114 Install AI-Ni-Bronze Bushings-100 INCLUDED IN O/H
32-191 Install AI-Ni-Bronze Bushings-200 INCLUDED IN O/H
32-194 Spline rework-only as required $ [*]
32-239 Drag Strut lug inspection-N/0 INCLUDED IN O/H
C. OUTER CYLINDER
32-153 Inspect Trunnion Support O.D. INCLUDED IN 0/H
32-179 Machine Lube Fitting Hole $ [*]
32-214 Inspect Trunnion Support O.D. INCLUDED IN 0/H
32-230 Inspect Trunnion Support O.D. INCLUDED IN 0/H
32-260 Nickel Plate Metering Pin Hole INCLUDED IN 0/H
32-287 Requires FEC Eng Approval NOT QUOTED
E. SHOCK STRUT INTERNAL PARTS
32-1 Drill Metering Pin-3 Places $ [*]
32-108 Modify Metering Pin Piston $ [*]
32-148 Normal Overhaul INCLUDED IN 0/H
32-156 Normal Overhaul INCLUDED IN 0/H
32-243 Machine Grooves /split bearing $ [*]
32-260 Fabricate-Segment, P/N EAL327-8060 $ [*]
F. DRAG STRUT AND ATTACH
32-145 Install Nameplate-N/0 INCLUDED IN O/H
32-150 Nickel Plate Trunnion Lug faces INCLUDED IN 0/H
32-165 Do Not Accomplish NOT QUOTED
32-258 Replace Fuse Bolt-N/O INCLUDED IN 0/H
Page 1 of 9
<PAGE>
EXHIBIT E
Paragraph 4
B727 SERVICE BULLETINS
FEC Eng Report 89-049
B727 MLG ASSEMBLY - ACCOMPLISH FULLY
G. HYDRAULIC INSTL
32-35 Do Not Accomplish NOT QUOTED
32-66 Normal Overhaul INCLUDED IN O/H
31-71 Normal Overhaul INCLUDED IN O/H
32-80 Replace Hose INCLUDED IN O/H
32-149 Normal Overhaul INCLUDED IN O/H
32-233 On attrition only NOT QUOTED
H. ELECTRICAL INSTL
32-28 Not Applicable NOT QUOTED
32-48 Normal Overhaul INCLUDED IN O/H
32-81 Not Required NOT QUOTED
I. MISCELLANEOUS
32-15 Not Required NOT QUOTED
32-59 Not Required NOT QUOTED
32-107 Not Required NOT QUOTED
32-193 Not Required NOT QUOTED
32-236 Do Not Accomplish NOT QUOTED
32-250 Inspect/Modify Rod $ [*]
32-273 Verify Serial Numbers INCLUDED IN O/H
32-274 Machine Lube Fitting holes-Pin Assy $ [*]
32-285 Not Required-Not applicable to FEC A/C NOT QUOTED
32-291 Wing Door Act Rod $ [*]
32-297 Inspect Axle Sleeves-N/0 INCLUDED IN O/H
32-304 Not Required NOT QUOTED
page 2 of 9
<PAGE>
EXHIBIT E
Paragraph 4
B727 SERVICE BULLETINS
FEC Eng Report 89-049
B727 MLG SIDE BRACE - ACCOMPLISH FULLY
A. MLG SIDE BRACE ASSEMBLY
32-79 Modify Lwr Segment-Replace Plug $ [*]
32-123 Install Placard INCLUDED IN O/H
32-130 Superseded by SB 32-157 NOT QUOTED
32-157 Install Lube Fitting INCLUDED IN O/H
32-237 Install Fibroid Bushings INCLUDED IN O/H
32-268 Install Placard on Universal INCLUDED IN O/H
32-274 Install Lube Fittings-Upr Segment/Nut $ [*]
32-308 Verify Serial Number-P/N 69-15357 INCLUDED IN O/H
32 338 Only when required-See FEC OHM $ [*]
32-341 Ref: FEC EO 7-3210-7-4308 INCLUDED IN O/H
Page 3 of 9
<PAGE>
EXHIBIT E
Paragraph 4
B727 SERVICE BULLETINS
FEC Eng Report 89-049
B727 MLG FWD BRG ASSY - ACCOMPLISH FULLY
A. MLG FWD TRUNNION BRNG ASSY
57-42 Superseded by SB 57-132 NOT QUOTED
57-61 Normal Overhaul INCLUDED IN O/H
57-86 Superseded by SB 57-132 NOT QUOTED
57-74 Normal Overhaul INCLUDED IN O/H
57-129 Do Not Accomplish NOT QUOTED
57-132 Normal Overhaul INCLUDED IN 0/H
Page 4 of 9
<PAGE>
EXHIBIT E
Paragraph 4
B77 SERVICE BULLETINS
FEC Eng Report 89-049
B727 MLG ACTUATOR -- BEAM ACCOMPLISH FULLY
A. MLG ACTUATOR BEAM ASSEMBLY
32-169 Machine Chamfer-C-Attach Lug $ [*]
32-274 Chrome Plate Faces-Install Bushings INCLUDED IN O/H
32-321 Install Bushings INCLUDED IN O/H
Page 5 of 9
<PAGE>
EXHIBIT E
Paragraph 4
B727 SERVICE BULLETINS
FEC Eng Report 89-049
B727 NLG Assembly - ACCOMPLISH FULLY
A. STEERING CYLINDERS AND ATTACH
32-49 Inspect-Normal Overhaul INCLUDED IN O/H
32-88 Ultrasonic Inspection not required INCLUDED IN O/H
32-124 Bearing replacement-Normal Overhaul INCLUDED IN O/H
32-135 On attrition only INCLUDED IN O/H
32-141 Inspect-Normal Overhaul INCLUDED IN O/H
32-255 Install VTB01 580 INCLUDED IN O/H
B. STEERING METERING VALVE
32-84 Bypass Valve Installation INCLUDED IN O/H
32-88 Swivel Installation INCLUDED IN O/H
32-198 Lap Assy replacement-if necessary NOT QUOTED
32-244 Not Required-Return as Received INCLUDED IN O/H
C. TORQUE LINK AND ATTACH
32-16 Replace Rivet & Cam $ [*]
32-58 Replace Locking Cam $ [*]
32-69 Normal Overhaul INCLUDED IN O/H
32-70 Normal Overhaul INCLUDED IN O/H
32-126 Normal Overhaul INCLUDED IN O/H
32-199 Normal Overhaul INCLUDED IN O/H
32-282 Not Required NOT QUOTED
D. DOOR OPERATOR HARDWARE
32-12 Not Applicable to FEC A/C NOT QUOTED
32-36 Not Applicable to FEC A/C NOT QUOTED
32-119 Not Required NOT QUOTED
32-278 Drill Lube Fitting holes $ [*]
E. NLG STEERING COLLAR
32-63 Modify Lube Fitting Holes $ [*]
32-70 Normal Overhaul INCLUDED IN O/H
32-154 N/A-Light Weight Collar Only NOT QUOTED
Page 6 of 9
<PAGE>
EXHIBIT E
PARAGRAPH 4
B727 SERVICE BULLETINS
FEC ENG REPORT 89-049
B727 NLG ASSEMBLY - ACCOMPLISH FULLY (CONT.)
F. ELECTRICAL HARNESS
32-31 Replace Bracket INCLUDED IN O/H
32-47 Remove Centering Switch INCLUDED IN O/H
32-78 Superseded by SB 32-110 NOT QUOTED
32-110 Normal Overhaul INCLUDED IN O/H
32-174 Normal Overhaul INCLUDED IN O/H
32-259 Normal Overhaul INCLUDED IN O/H
32-310 Normal Overhaul INCLUDED IN O/H
G. MISCELLANEOUS
32-13 Normal Overhaul INCLUDED IN O/H
32-24 Normal Overhaul INCLUDED IN O/H
32-27 Normal Overhaul INCLUDED IN O/H
32-40 Machine Slots in Upper Cam $ [*]
32-59 Do Not Accomplish NOT QUOTED
32-65 Normal Overhaul INCLUDED IN O/H
32-72 Machine Slots in Upper Nut $ [*]
32-77 Normal Overhaul INCLUDED IN O/H
32-89 Normal Overhaul INCLUDED IN O/H
32-113 Normal Overhaul INCLUDED IN O/H
32-133 Normal Overhaul INCLUDED IN O/H
32-148 Normal Overhaul INCLUDED IN O/H
32-174 Normal Overhaul INCLUDED IN O/H
32-273 Normal Overhaul INCLUDED IN O/H
32-278 Normal Overhaul INCLUDED IN O/H
32-310 Normal Overhaul INCLUDED IN O/H
32-344 Normal Overhaul INCLUDED IN O/H
Page 7 of 9
<PAGE>
EXHIBIT E
PARAGRAPH 4
B727 SERVICE BULLETINS
FEC ENG REPORT 89-049
B727 NLG DRAG BRACE ASSY - ACCOMPLISH FULLY
A. NLG DRAG BRACE ASSEMBLY
32-105 Normal Overhaul INCLUDED IN O/H
32-162 Inspect for clearance $ [*]
32-173 Normal Overhaul INCLUDED IN O/H
32-186 Normal Overhaul INCLUDED IN O/H
32-210 Not Required NOT QUOTED
32-225 Machine lube fitting holes-Pin Assy $ [*]
32-270 Normal Overhaul INCLUDED IN O/H
32-276 Assembly Parts Replacement $ [*]
Page 8 of 9
<PAGE>
EXHIBIT E
PARAGRAPH 4
B727 SERVICE BULLETINS
FEC ENG REPORT 89-049
B727 NLG DRAG BRACE PIN - ACCOMPLISH FULLY
A. NLG DRAG BRACE PIN-ASSEMBLY
32-210 Normal Overhaul INCLUDED IN O/H
32-223 Inspect for clearance NOT QUOTED
Charges applicable only if Service Bulletins are required
Page 9 of 9
<PAGE>
ATTACHMENT 2
[LOGO]
HAWKER PACIFIC
AIRCRAFT LANDING GEAR
MAINTENANCE / OVERHAUL PROGRAM
EXHIBIT E - ITEM 4
SERVICE BULLETIN LABOR COST
FEC ENG REPORT 94-025 (DC10)
Prepared especially for
FEDERAL EXPRESS CORP.
by
HAWKER PACIFIC, INC.
SUBMITTAL DATE - OCTOBER 27, 1993
VOLUME 9 OF 9
<PAGE>
EXHIBIT E
PARAGRAPH 4
DC10-10/30 SERVICE BULLETINS
FEC ENG REPORT 94-025
BULLETIN NUMBER PART/BULLETIN DESCRIPTION LABOR COST
DC10-10 MLG SHOCK STRUT - ACCOMPLISH FULLY
32-30 REF ONLY NOT QUOTED
32-60 REBOUND VALVE $ [*]
32-116 CYLINDER LUBE FITTING NOT QUOTED
32-147 MLG LOWER BEARING HOUSING $ [*]
32-161 MLG LOWER BEARING $ [*]
32-182 RETAINER BOLT $ [*]
32-191 REBOUND VALVE $ [*]
DC10-30 MLG SHOCK STRUT - ACCOMPLISH FULLY
32-60 REBOUND VALVE $ [*]
32-110 UPPER BEARING INCLUDED IN O/H
32-147 LOWER BEARING HOUSING $ [*]
32-161 LOWER BEARING $ [*]
32-182 RETAINER BOLT $ [*]
32-191 UPPER BEARING $ [*]
32-200 PISTON INSPECT INCLUDED IN 0/H
32-207 - DO NOT INCORPORATE - NOT QUOTED
DC10-10 MLG TRUCK BEAM ASSY - ACCOMPLISH FULLY
32-7 AXLE SLEEVE & NUT NOT QUOTED
32-45 TRIM CYL REPLACE INCLUDED IN O/H
32-48 TRIM CYL TORQUE NOT QUOTED
32-118 AXLE SLEEVE $ [*]
32-127 TRIM CYL (ALL) $ [*]
32-135 TRUCK BEAM (REF) NOT QUOTED
32-137 TRUCK BEAM (MANDATORY) $ [*]
DC10-30 MLG TRUCK BEAM ASSY - ACCOMPLISH FULLY
32-118 AXLE SLEEVE $ [*]
32-124 AXLE BUSHING RETAINER $ [*]
32-127 TRIM CYL $ [*]
32-136 TRUCK BEAM (REF) NOT QUOTED
32-137 TRUCK BEAM (MANDATORY) $ [*]
Page 1 of 7
<PAGE>
EXHIBIT E
PARAGRAPH 4
DC10-10/30 SERVICE BULLETINS
FEC ENG REPORT 94-025
BULLETIN NUMBER PART/BULLETIN DESCRIPTION LABOR COST
DC10-10 MLG ELECTRICAL CONDUIT - ACCOMPLISH FULLY
32-5 RE-ROUTE "AS" WIRING NOT QUOTED
32-34 CONDUIT CHAFE GUARD NOT QUOTED
32-63 CONDUIT CHAFING NOT QUOTED
32-138 RELOCATE CLAMPS NO CHARGE
32-153 CONDUIT REPLACE NO CHARGE
32-163 BRACKET REPLACE NOT QUOTED
32-186 BRAKE TEMP/TIRE MONITER SYSTEM NOT QUOTED
DC10-30 MLG ELECTRICAL CONDUIT - ACCOMPLISH FULLY
32-63 CONDUIT CHAFFING $ [*]
32-138 RELOCATE CLAMPS NO CHARGE
32-153 CONDUIT REPLACE NO CHARGE
32-163 BRACKET REPLACE NOT QUOTED
32-186 BRAKE TEMP/TIRE MONITER SYSTEM NOT QUOTED
DC10-10 MLG HYDRAULIC (LESS TRIM CYL) - ACCOMPLISH FULLY
32-4 RELOCATE BRAKE HOSE NOT QUOTED
32-27 MODIFY SWIVEL GLAND NOT QUOTED
32-50 MODIFY BRAKE HOSE NOT QUOTED
32-66 INSTALL BRAKE RETURN ACCUMULATORS TBD
32-113 SHIELD TRIM CYLINDER NO CHARGE
32-134 AS MANIFOLD SHIELD NO CHARGE
32-143 PIPE SHIELD $ [*]
32-174 REMOVE BRAKE RET ACCUM $ [*]
DC10-30 MLG HYDRAULIC (LESS TRIM CYL) - ACCOMPLISH FULLY
32-50 MODIFY BRAKE HOSE NOT QUOTED
32-113 SHIELD TRIM CYLINDER NO CHARGE
32-134 AS MANIFOLD SHIELD NO CHARGE
32-143 PIPE SHIELD $ [*]
32-180 INSTALL PHASE IV "AS" SYSTEM NOT QUOTED
32-180 INSTALL PHASE IV "AS" SYSTEM NOT QUOTED
Page 2 of 7
<PAGE>
EXHIBIT E
PARAGRAPH 4
DC10-10/30 SERVICE BULLETINS
FEC ENG REPORT 94-025
BULLETIN NUMBER PART/BULLETIN DESCRIPTION LABOR COST
DC10-10 MLG MISC - ACCOMPLISH FULLY
32-77 BUMPER PAD NOT QUOTED
32-188 TRUNNION SPACER $ [*]
57-78 FWD TRUNNION BOLT NO CHARGE
DC10-30 MLG MISC - ACCOMPLISH FULLY
31-77 BUMPER PAD $ [*]
32-188 TRUNNION SPACER $ [*]
57-82 FWD TRUNNION BOLT NO CHARGE
Page 3 of 7
<PAGE>
EXHIBIT E
PARAGRAPH 4
DC10-10/30 SERVICE BULLETINS
FEC ENG REPORT 94-025
BULLETIN NUMBER PART/BULLETIN DESCRIPTION LABOR COST
DC10-10 NLG SHOCK STRUT - ACCOMPLISH FULLY
32-15 LOWER STATIC SEAL NOT QUOTED
32-17 LOWER BEARING SEAL GROOVE NOT QUOTED
32-28 SHOCK STRUT CYLINDER NOT QUOTED
32-47 ID PLATE REPLACEMENT NOT QUOTED
32-99 UPPER & LOWER BEARING TBD
32-85 GLAND NUT RETNR PLATE NO CHARGE
32-114 STEERING CAMS $ [*]
DC10-30 NLG SHOCK STRUT - ACCOMPLISH FULLY
32-99 UPPER & LOWER BEARING TBD
32-85 GLAND NUT RETNR PLATE NO CHARGE
32-114 STEERING CAMS $ [*]
DC10-30 NLG ELECTRICAL - ACCOMPLISH FULLY
23-21 INSTALL FLIGHT INTERPHONE JACK NOT QUOTED
23-29 RELOCATE NLG INT PHONE JK TBD
DC10-30/30 NLG HYDRAULIC - ACCOMPLISH FULLY
32-14 STEERING GLAND SEALS (-10 ONLY) NOT QUOTED
32-112 STEERING CYL COVER NO CHARGE
32-142 STEERING CYL CAP (-30 ONLY) NO CHARGE
32-154 STEERING CYL GLANDS/PINS NO CHARGE
DC10-10/30 NLG MISC - ACCOMPLISH FULLY
32-8 STEERING GUARD CABLE NOT QUOTED
32-25 UPPER TORQUE LINK NOT QUOTED
32-36 NLG PARTS (NOT HEAT TREATED PROPERLY) NOT QUOTED
32-43 GROUND SENSOR STRUT NOT QUOTED
32-69 STEERING CABLE ROUTING TBD
32-104 STEERING COLLAR CLAMP-UP BUSHING TBD
32-105 STEERING CABLE TBD
32-146 STEERING COLLAR PIN TBD
32-197 STEERING CYLINDER ROD END BOLT TBD
Page 4 of 7
<PAGE>
EXHIBIT E
PARAGRAPH 4
DC10-10/30 SERVICE BULLETINS
FEC ENG REPORT 94-025
BULLETIN NUMBER PART/BULLETIN DESCRIPTION LABOR COST
DC10-10 NLG DRAG BRACE - ACCOMPLISH FULLY
32-3 LOWER DRAG LINK NOT QUOTED
32-9 UPPER DRAG LINK NOT QUOTED
32-10 UPPER LOCK LINK NOT QUOTED
32-51 UPPER DRAG LINK NOT QUOTED
32-62 UPPER DRAG LINK NOT QUOTED
DC10-30 NLG DRAG BRACE - ACCOMPLISH FULLY
32-31 UPPER LOCK LINK TBD
Page 5 of 7
<PAGE>
EXHIBIT E
PARAGRAPH 4
DC10-10/30 SERVICE BULLETINS
FEC ENG REPORT 94-025
BULLETIN NUMBER PART/BULLETIN DESCRIPTION LABOR COST
DC10-10 MLG SIDE BRACE - ACCOMPLISH FULLY
32-44 DOWNLOCK ACTUATOR BRACKET $ [*]
32-108 DOWNLOCK SPRING & ARM $ [*]
32-199 UPPER SIDE BRACE & FITTING $ [*]
DC10-30 MLG SIDE BRACE - ACCOMPLISH FULLY
32-44 DOWNLOCK ACTUATOR BRACKET $ [*]
32-108 DOWNLOCK SPRING & ARM $ [*]
32-165 UPPER SIDE BRACE $ [*]
32-199 UPPER SIDE BRACE & FITTING $ [*]
Page 6 of 7
<PAGE>
EXHIBIT E
PARAGRAPH 4
DC10-10/30 SERVICE BULLETINS
FEC ENG REPORT 94-025
BULLETIN NUMBER PART/BULLETIN DESCRIPTION LABOR COST
DC10-30 CLG SHOCK STRUT - ACCOMPLISH FULLY
32-32 SHOCK STRUT PRESSURE GAGE NOT QUOTED
32-39 UPPER & LOWER BEARING & ADAPTER NOT QUOTED
32-73 PRESSURE GAGE LABEL NO CHARGE
32-100 GRAVEL SHIELD NO CHARGE
32-107 UPPER & LOWER BRNG ADAPT $ [*]
32-123 PRESS GAGE MANIFOLD NO CHARGE
32-144 PRESS GAGE RELOCATE NO CHARGE
32-157 REPLACE PRESS GAGE MANIFOLD NO CHARGE
32-160 LOWER BEARING REPLACE NO CHARGE
32-189 LOWER BEARING MOD $ [*]
32-192 CYL INSPECT/RPL UPR BRG $ [*]
DC10-30 CLG HYDRAULIC - ACCOMPLISH FULLY
32-87 BRAKE HOSE IDENTIFICATION NO CHARGE
32-144 PIPE RELOCATION NO CHARGE
DC10-30 CLG ELECTRICAL - ACCOMPLISH FULLY
32-186 BRAKE TEMP MONITER NOT QUOTED
Page 7 of 7
<PAGE>
1
EXHIBIT 3
to that certain
Maintenance Services Agreement
between
Federal Express Corporation
('Federal')
and
Hawker Pacific Inc.
('Hawker')
Dated 1994
---------------
- --------------------------------------------------------------------------------
EXHIBIT 3 shall consist of the following 100% Replacement Parts and Standard
Bushings List:
Aircraft Type: Volume:
- ------------- ------
B727-161K VOLUME 2 OF 9
B727-170K VOLUME 3 OF 9
B727-191K VOLUME 4 OF 9
B727-210K VOLUME 5 OF 9
DC10-10 VOLUME 7 OF 9
DC10-30 VOLUME 8 OF 9
<PAGE>
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISION ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
July 28, 1994, is made by and between INDUSTRIAL BOWLING CORP. ("LESSOR") and
HAWKER PACIFIC, INC. ("LESSEE"), (collectively the "PARTIES," or individually
a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known by the street address of 11260 Back, Sherman Way, Sun Valley,
located in the County of LOS ANGELES, State of CA, and generally described as
(describe briefly the nature of the property) 12,000 SQ. FT. ("PREMISES").
(See Paragraph 2 for further provisions.)
1.3 TERM: 10 years and 0 months ("ORIGINAL TERM") commencing SEPTEMBER
1, 1994 ("COMMENCEMENT DATE") and ending AUGUST 31, 2004 ("EXPIRATION DATE").
(See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: ALREADY OCCUPIED ("Early Possession Date"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $4,560.00 per month ("BASE RENT"), payable on the 1st
day of each month commencing SEPTEMBER 1, 1994 (See Paragraph 4 for further
provisions.) /X/ If this box is checked, there are provisions in this Lease
for the Base Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ N/A as Base Rent for the period.
1.7 SECURITY DEPOSIT: $1,950.00 paid in prior lease ("SECURITY
DEPOSIT"). (See Paragraph 5 for further provisions.)
1.8 PERMITTED USE: LEGAL USAGE FOR M-2 ZONING (See Paragraph 6 for
further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
N/A represents
___________________________________________________________________________
/ / Lessor exclusively ("LESSOR'S BROKER"); / / both Lessor and Lessee, and
___________________________________________________________________________
/ / Lessee exclusively ("LESSEE'S BROKER"); / / both Lessee and Lessor.
(See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by _____________________________________________ ("GUARANTOR").
(See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 50 and Exhibits____ N/A _________________all of which
constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which
Lessor and Lessee agree is reasonable and the rental based thereon is not
subject to revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, fire sprinkler system, lighting, air conditioning,
heating, and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the obligation
of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the Improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or
to be made by Lessee. If the Premises do not comply with said warranty,
Lessor shall, except as otherwise provided in this Lease, promptly after
receipt of written notice from Lessee setting forth with specificity the
nature and extent of such non-compliance, rectify the same at Lessor's
expense. If Lessee does not give Lessor written notice of a non-compliance
with this warranty within six (6) months following the Commencement Date,
correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and
fire sprinkler systems, security, environmental aspects, compliance with
Applicable Law, as defined in Paragraph 6.3) and the present and future
suitability of the Premises for Lessee's intended use, (b) that Lessee has
made such investigation as it deems necessary with reference to such
matters and assumes all responsibility therefor as the same relate to
Lessee's occupancy of the Premises and/or the term of this Lease, and (c)
that neither Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to the said matters other than as
set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises.
In such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent
shall be abated for the period of such early possession. All other terms of
this Lease, however, (including but not limited to the obligations to pay
Real Property Taxes and insurance premiums and to maintain the Premises)
shall be in effect during such period. Any such early possession shall not
affect nor advance the Expiration Date of the Original Term.
NET Initials BH
--------
DL
--------
PAGE 1
<PAGE>
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether proper notice thereof is given Lessee), or
(iii) during the time Lessee is in Breach of this Lease, or (iv) in the event
that Lessor has given to Lessee three (3) or more notices of Default under
Paragraph 13.1, whether or not the Defaults are cured, during the twelve (12)
month period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of Default under Paragraph
13.1 during any twelve (12) month period, whether or not the Defaults are
cured, or (iii) if Lessee commits a Breach of this Lease.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of
third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time,
to grant, with the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of
such entity represents and warrants that he or she is duly authorized to
execute and deliver this lease on its behalf.
45. CONFLICT. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee,
the obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE ON THE TRANSACTION TO WHICH IT RELATES: THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE; IF THE SUBJECT PROPERTY IS
LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE
WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates
specified above to their respective signatures.
Executed at BURBANK, CA. Executed at BURBANK, CA.
on____________________________________ on____________________________________
by LESSOR: by LESSEE:
INDUSTRIAL BOWLING CORP. HAWKER PACIFIC, INC.
By /s/ BRADLEY D. HOWARD By /s/ DAVID L. LOKKEN
_____________________________________ ____________________________________
Name Printed: BRADLEY D. HOWARD Name Printed: DAVID L. LOKKEN
Title: VICE PRESIDENT Title : PRESIDENT AND CHIEF
EXECUTIVE OFFICER
By By
_____________________________________ ____________________________________
Name Printed: _________________________ Name Printed: ________________________
Title: ________________________________ Title: _______________________________
Address: 1819 W. OLIVE AVE. Address: 11310 SHERMAN WAY
_______________________________ _______________________________
BURBANK, CA. 91506 SUN VALLEY, CA 91352
_______________________________________ _______________________________________
Tel. No. (213) 849-2401 Tel. No. ( )
______________ _________________
Fax No. (213) 849-1721 Fax No. ( )
_______________ __________________
NET
PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA
90071, (213) 687-8777 Fax. No. (213) 687-8616.
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[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISION ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
July 28, 1994, is made by and between INDUSTRIAL BOWLING CORP. ("LESSOR") and
HAWKER PACIFIC, INC. ("LESSEE"), (collectively the "PARTIES," or individually
a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known by the street address of 11252 Sherman Way, Sun Valley,
located in the County of LOS ANGELES, State of CA, and generally described as
(describe briefly the nature of the property) APPROXIMATELY 17,800 SQ. FT.
("PREMISES"). (See Paragraph 2 for further provisions.)
1.3 TERM: 10 years and 0 months ("ORIGINAL TERM") commencing SEPTEMBER
1, 1994 ("COMMENCEMENT DATE") and ending AUGUST 31, 2004 ("EXPIRATION DATE").
(See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: ALREADY OCCUPIED ("Early Possession Date"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $9,347.00 per month ("BASE RENT"), payable on the 1st
day of each month commencing SEPTEMBER 1, 1994 (See Paragraph 4 for further
provisions.) /X/ If this box is checked, there are provisions in this Lease
for the Base Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ N/A as Base Rent for the period.
1.7 SECURITY DEPOSIT: $11,036.00 paid in prior lease ("SECURITY
DEPOSIT"). (See Paragraph 5 for further provisions.)
1.8 PERMITTED USE: LEGAL USAGE FOR M-2 ZONING (See Paragraph 6 for
further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
N/A represents
___________________________________________________________________________
/ / Lessor exclusively ("LESSOR'S BROKER"); / / both Lessor and Lessee, and
___________________________________________________________________________
/ / Lessee exclusively ("LESSEE'S BROKER"); / / both Lessee and Lessor.
(See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by _____________________________________________ ("GUARANTOR").
(See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 62 and Exhibits____ N/A _________________all of which
constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee,and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which
Lessor and Lessee agree is reasonable and the rental based thereon is not
subject to revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, fire sprinkler system, lighting, air conditioning,
heating, and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the obligation
of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or
to be made by Lessee. If the Premises do not comply with said warranty,
Lessor shall, except as otherwise provided in this Lease, promptly after
receipt of written notice from Lessee setting forth with specificity the
nature and extent of such non-compliance, rectify the same at Lessor's
expense. If Lessee does not give Lessor written notice of a non-compliance
with this warranty within six (6) months following the Commencement Date,
correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and
fire sprinkler systems, security, environmental aspects, compliance with
Applicable Law, as defined in Paragraph 6.3) and the present and future
suitability of the Premises for Lessee's intended use, (b) that Lessee has
made such investigation as it deems necessary with reference to such
matters and assumes all responsibility therefor as the same relate to
Lessee's occupancy of the Premises and/or the term of this Lease, and (c)
that neither Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to the said matters other than as
set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises.
In such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent
shall be abated for the period of such early possession. All other terms of
this Lease, however, (including but not limited to the obligations to pay
Real Property Taxes and insurance premiums and to maintain the Premises)
shall be in effect during such period. Any such possession shall not affect
nor advance the Expiration Date of the Original Term.
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3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease,
or the obligations of Lessee hereunder, or extend the term hereof, but in
such case, Lessee shall not, except as otherwise provided herein, be
obligated to pay rent or perform any other obligation of Lessee under the
terms of this Lease until Lessor delivers possession of the Premises to
Lessee. If possession of the Premises is not delivered to Lessee within sixty
(60) days after the Commencement Date, Lessee may, at its option, by notice
in writing to Lessor within ten (10) days thereafter, cancel this Lease, in
which event the Parties shall be discharged from any obligations hereunder;
provided, however, that if such written notice by Lessee is not received by
Lessor within said ten (10) day period, Lessee's right to cancel this Lease
shall terminate and be of no further force or effect. Except as may be
otherwise provided, and regardless of when the term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee
does not terminate this Lease, as aforesaid, the period free of the obligation
to pay Base Rent, if any, that Lessee would otherwise have enjoyed shall run
from the date of delivery of possession and continue for a period equal to
what Lessee would otherwise have enjoyed under the terms hereof, but minus
any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent
or charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on
or before the day on which it is due under the terms of this Lease. Base Rent
and all other rent and charges for any period during the term hereof which is
for less than one (1) full calendar month shall be prorated based upon the
actual number of days of the calendar month involved. Payment of Base Rent
and other charges shall be made to Lessor at its address stated herein or to
such other persons or at such other addressees as Lessor may from time to time
designate in writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor
may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all
or any portion of said Security Deposit, Lessee shall within ten (10) days
after written request therefor deposit moneys with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease.
Lessor shall not be required to keep all or any part of the Security Deposit
separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee,if
any, of Lessee's interest herein), that portion of the Security Deposit not
used or applied by Lessor. Unless otherwise expressly agreed in writing by
Lessor, no part of the Security Deposit shall be considered to be held in
trust, to bear interest or other increment for its use, or to be prepayment
for any moneys to be paid by Lessee under this Lease.
6. USE
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises
in a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any
written request by Lessee, Lessees assignees or subtenants, and by
prospective assignees and subtenants of the Lessee, its assignees and
subtenants, for a modification of said permitted purpose for which the
premises may be used or occupied, so long as the same will not impair
structural integrity of the improvements on the Premises, the mechanical or
electrical systems therein, is not significantly more burdensome to the
Premises and the improvements thereon, and is otherwise permissible pursuant
to this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall
within five (5) business days give a written notification of the same, which
notice shall include an explanation of Lessor's reasonable objections to the
change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises,
is either; (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or
fractions thereof. Lessee shall not engage in any activity in, on or about
the Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 6.3). "REPORTABLE USE" shall mean
(i) the installation or use of any above or below ground storage tank, (ii)
the generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but in compliance with all Applicable Law, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of Lessee's business permitted on the Premises, so long as such use is
not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor
to any liability therefor. In addition, Lessor may (but without any
obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion,
deems necessary to protect itself, the public, the Premises and the
environment against damage, contamination or injury and/or liability
therefrom or therefor, including, but not limited to, the installation (and
removal on or before Lease expiration or earlier termination) of reasonably
necessary protective modifications to the Premises (such as concrete
encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than
as previously consented to by Lessor, Lessee shall immediately give written
notice of such fact to Lessor. Lessee shall also immediately give Lessor a
copy of any statement, report, notice, registration, application, permit,
business plan license, claim, action or proceeding given to, or received
from, any governmental authority or private party, or persons entering or
occupying the Premises, concerning the presence, spill, release, discharge of,
or exposure to, any Hazardous Substance or contamination in, on, or about the
Premises, including but not limited to all such documents as may be involved
in any Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgements, costs, claims, liens, expenses, penalties, permits
and attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include,
but not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein Involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage tanks,
unless specifically so agreed by Lessor in writing at the time of such
agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently
and in a timely manner, comply with all "APPLICABLE LAW," which term is used
in this Lease to include all laws, rules, regulations, ordinances,
directives, covenants, easements, and restrictions of record, permits in
effect during the Term relating in any manner to the Premises including but
not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil
and groundwater conditions, and (iii) the use, generation, manufacture,
production, installation, maintenance, removal, transportation, storage,
spill or release of any Hazardous Substance or storage tank), now in effect
or which may hereafter come into effect, and whether or not reflecting a
change in policy from any previously existing policy. Lessee shall, within
five (5) days after receipt of Lessor's written request, provide Lessor with
copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor,
and shall immediately upon receipt, notify Lessor in writing (with copies of
any documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or
the Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in
the case of an emergency, and otherwise at reasonable times, upon three (3)
days notice to Lessee and so long as it does not unreasonably interfere with
the conduct of Lessee's business, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Lessee with this Lease and
all Applicable Laws (as defined in Paragraph 6.3), and to employ experts
and/or consultants in connection therewith and/or to advise Lessor with
respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to
exist or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent
violation or contamination. In any such case, Lessee shall upon request
reimburse Lessor or Lessor's Lender, as the case may be, for the costs and
expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenants, etc), 7.3
(Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep its Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises required repairs, or the means of repairing the same, are reasonably
or readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result
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Lessee's use, any prior use, the elements or the age of such portion of the
Premises), including, without limiting the generality of the forgoing, all
equipment or facilities serving the Premises, such as plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities, boilers, fired or
unfired pressure vessels fire sprinkler and/or standpipe and hose or other
automatic fire extinguishing system, including fire alarm and/or smoke
detection systems and equipment, fire hydrants, fixtures, walls (interior and
exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass,
skylights, landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be
spilled or released in, on, under or about the Premises (including through
the plumbing or sanitary sewer system) and shall promptly, at Lessee's
expense, take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for the cleanup of
and contamination of, and for the maintenance, security and/or monitoring of
the Premises, the elements surrounding same, or neighboring properties, that
was caused or materially contributed to by Lessee, or pertaining to or
involving any Hazardous Substance and/or storage tank brought onto the
Premises by or for Lessee or under its control, Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance
for, and with contractors specializing and experienced in the inspection,
maintenance and service of the following equipment and improvements, If any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire
sprinkler and/or standpipe and hose or other automatic fire extinguishing
systems, including fire alarm and/or smoke detection, (iv) landscaping and
irrigation systems, (v) roof covering and drain maintenance and (vi) asphalt
and parking lot maintenance.
7.2 Lessor's Obligations. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises),
2.3 (relating to compliance with covenants, restrictions and building code),
9 (relating to destruction of the Premises) and 14 (relating to condemnation
of the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises,
the improvements located thereon, or the equipment therein, whether
structural or non structural, all of which obligations are intended to be
that of the Lessee under Paragraph 7.1 hereof. It is the intention of the
Parties that the terms of this Lease govern the respective obligations of the
Parties as to maintenance and repair of the Premises. Lessee and Lessor
expressly waive the benefit of any statute now or hereafter in effect to the
extent it is inconsistent with the terms of this Lease with respect to, or
which affords Lessee the right to make repairs at the expense of Lessor or to
terminate this Lease by reason of, any needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises.
The term "Trade Fixtures" shall mean Leases's machinery and equipment that
can be removed without doing material damage to the Premises. The term
"Alternations" shall mean any modification of the Improvements on the
Premises from that which are provided by Lessor under the terms of this
Lease, other than Utility installations or Trade Fixtures, whether by
addition or deletion. "Lessee Owned Alterations and/or Utility Installations"
are defined as Alterations and/or Utility Installations made by Lessee that
are not yet owned by Lessor as defined in Paragraph 7.4(a). Lessee shall not
make any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises
(excluding the roof), as long as they are not visible from the outside, do
not involve puncturing, relocating or removing the roof or any existing
walls, and the cumulative cost thereof during the term of this Lease as
extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All
consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by
subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's
acquiring all applicable permits required by governmental authorities, (ii)
the furnishing of copies of such permits together with a copy of the plans
and specifications for the Alteration or Utility Installation to Lessor prior
to commencement of the work thereon, and (iii) the compliance by Lessee with
all conditions of said permits in a prompt and expeditious manner. Any
Alterations or Utility Installations by Lessee during the term of this Lease
shall be done in a good and workmanlike manner, with good and sufficient
materials, and in compliance with all Applicable Law.
(c) Indemnification. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by
any mechanics' or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and Premises against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof against the Lessor or the Premises. If Lessor
shall require, Lessee shall furnish to Lessor a surety bond satisfactory to
Lessor in an amount equal to one and one-half times the amount of such
contested lien claim or demand, indemnifying Lessor against liability for the
same, as required by law for the holding of the Premises free from the effect
of such lien or claim. In addition, Lessor may require Lessee to pay
Lessor's attorney's fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. All Alterations and Utility Additions made to the
Premises by Lessee shall be the property of and owned by Lessee.
(c) Surrender/Restoration. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date,
with all of the improvements, parts and surfaces thereof clean and free of
debris and in good operating order, condition and state of repair, ordinary
wear and tear excepted except to the extent Lessor is obligated to maintain
or repair the Premises. "Ordinary wear and tear" shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease.
Except as otherwise agreed or specified in writing by Lessor, the Premises,
as surrendered, shall include the Utility Installations. The obligation of
Lessee shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment,
and Alterations and/or Utility Installations, as well as the removal of any
storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all
as may then be required by Applicable Law and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. Insurance; Indemnity.
8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums
for policy periods commencing prior to or extending beyond the Lease term
shall be prorated to correspond to the Lease term. Payment shall be made by
Lessee to Lessor within ten (10) days following receipt of an invoice for any
amount due.
8.2 Liability Insurance.
(a) Carried by Lessee. Lease shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional Insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $1,000,000
per occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any Intra-Insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or as carried by Lessee shall not, however, limit the liability of
Lessee nor relieve Lessee of any obligation hereunder. All Insurance to be
carried by Lessee shall be primary to and not contributory with any similar
insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) Carried By Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the Insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lender(s)"), insuring loss
or
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damage to the Premises. The amount of such Insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value thereof if, by reason
of the unique nature or age of the Improvements involved, such latter amount
is less than full replacement cost. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations shall be insured by Lessee
under Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all
risks or direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance of law regulating the
reconstruction or replacement of any undamaged sections of the Premises
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered cause of
loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property
insurance coverage amount by a factor of not less than the adjusted U.S.
Department of Labor Consumer Price Index for All Urban Consumers for the city
nearest to where the Premises are located.
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of
the full rental and other charges payable by Lessee to Lessor under this
Lease for one (1) year (including all real estate taxes, insurance costs, and
any scheduled rental increases). Said Insurance shall provide that in the
event the Lease is terminated by reason of an insured loss, the period of
Indemnity for such coverage shall be extended beyond the date of the
completion of repairs or replacement of the Premises, to provide for one full
year's loss of rental revenues from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any coinsurance
clause, and the amount of coverage shall be adjusted annually to reflect the
projected rental income, property taxes, insurance premium costs and other
expenses, if any, otherwise payable by Lessee, for the next twelve (12) month
period. Lessee shall be liable for any deductible amount in the event of such
loss.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned
Alterations and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option by endorsement to a policy already carried, maintain
insurance coverage on all of Lessee's personal property, Lessee Owned
Alterations and Utility Installations in, on, or about the Premises similar
in coverage to that carried by the Insuring Party under Paragraph 8.3. Such
insurance shall be full replacement cost coverage. The proceeds from any such
insurance shall be used by Lessee for the replacement of personal property or
the restoration of Lessee Owned Alterations and Utility Installations. If the
Premises are restored after a casualty, Lessee shall be the insuring Party
with respect to the insurance required by this Paragraph 8.4 and shall
provide Lessor with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+.V. as set forth in the most current issue of "Best's
Insurance Guide." Lessee shall not do or permit to be done anything which
shall invalidate the insurance Policies referred to in this Paragaraph 8. If
Lessee is the Insuring Party. Lessee shall cuase to be delivered to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of such insurance with the insureds and loss payable
clauses as required by this Lease. No such policy shall be cancellable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of
such policies, furnish Lessor with evidence of renewals or "insurance
binders" evidencing renewal thereof, or Lessor may order such insurance and
charge the cost thereof to Lessee, which amount shall be payable by Lessee to
Lessor upon demand. If the Insuring Party shall fail to procure and maintain
the Insurance required to be carried by the Insuring Party under this
Paragraph 8, the other Party may, but shall not be required to procure and
maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("Waiving Party") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in
contract or in tort) against the other, for loss of or damage to the Waiving
Party's property arising out of or incident to the perils required to be
insured against under Paragraph 8. The effect of such releases and waivers of
the right to recover damages shall not be limited by the amount of insurance
carried or required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence or willful acts or
omissions and/or breach of express warranties, Lessee shall indemnify,
protect, defend and hold harmless the Premises, Lessor and its agents,
Lessor's master or ground lessor, partners and Lenders, from and against any
and all claims, loss of rents and/or damages, costs, liens, judgements,
penalties, permits, attorney's and consultant's fees, expenses and/or
liabilities arising out of, involving, or in dealing with, the occupancy of
the Premises by Lessee, the conduct of Lessee's business, any act, omission
or neglect of Lessee, its agents, contractors, employees or invitees, and out
of any Default of Breach by Lessee in the performance in a timely manner of
any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in
the case of claims made against Lessor) litigated and/or reduced to judgment,
and whether well founded or not. In case any action or proceeding be brought
against Lessor by reason of any of the foregoing matters, Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such
defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by
or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, destruction or other defects of pipes, fire sprinklers,
wires appliances, plumbing, air conditioning or lighting fixtures, or from
any other cause, whether the said injury or damage results from conditions
arising upon the Premises or upon other portions of the building of which the
Premises are a part, or from other sources or places, and regardless of
whether the cause of such damage or injury or the means of repairing the same
is accessible or not. Lessor shall not be liable for any damages arising from
any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's
negligence or breach of this Lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
Damage or Destruction.
9.1 Definitions.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to
such damage or destruction, excluding from such calculation the value of the
land and Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to Improvements
on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
Insurance described in Paragraph 8.3(a), irrespective of any deductible
amounts or average limits involved.
(d) "REPLACEMENTS COST" shall mean the cost to repair or rebuild
the Improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) within 180 days and this Lease shall continue in full
force and effect; provided, however, that Lessee shall, at Lessor's election,
make the repair of any damage or destruction the total cost to repair of
which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or
the insurance proceeds are not sufficient to effect such repair, the Insuring
Party shall promptly contribute the shortage in proceeds (except as to the
deductible which is Lessee's responsibility) as and when required to complete
said repairs. In the event, however, the shortage in proceeds was due to the
fact that, by reason of the unique nature of the improvements, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in
insurance proceeds or to fully restore the unique aspects of the Premises
unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice
of such shortage and request therefor. If Lessor receives said funds or
adequate assurance thereof within said ten (10) day period, the party
responsible making the repairs shall complete them within 180 days and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by
written notice to Lessee within ten (10) days thereafter to make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect. If in such case Lessor does not so elect, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right
to reimbursement from Lessor for any funds contributed by Lessee to repair
any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subjected to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net
proceeds of any such insurance shall be made available for the repairs if
made by either Party.
<PAGE>
9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused a by a willful act Leasee (in
which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect, but subject to Lessor's right under
Paragraph 13), Lessor may at Lessor's option, alter: (I) repair such damage
as soon as reasonably possible at Lessor's expense, in which event the Lease
shall continue in full force and effect, or (II) give written notice to
Leasee within ten (10) days after receipt by Lessor of knowledge of the
occurance of such damage of Lessor's desire to terminate this Lease as of the
date of the Partial Damage. In the event lessor elects to give such notice of
Lessor's intention to terminate this Lease, Lessee shall have the right
within ten (10) days after the receipt of such notice to give written notice
to Lessor of Lessee's commitment to pay for the repair of such damage totally
at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof
within thirty (30) days following Lessee's said commitment. In such event
this Lease shall continue in full force and effect, and Lessor shall proceed
to make such repairs as soon as reasonably possible and the required funds
are available. If Lessor does not give such notice and provide the funds or
assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
a Premises Total Destruction occurs (including any destruction required by
any authorized public authority), this Lease shall terminate as of the date
of such Premises Total Desctruction, whether or not the damage or destruction
is an Insured Loss or was caused by a negligent or willful act of Lessee. In
the event, however, that the damage or destruction was caused by Lessee,
Lessor shall have the right to recover Lessor's damages from Lessee except as
released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last (6) months
of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor
may, at Lessor's option, terminate this Lease effective sixty (60) days
following the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the date of
occurrence of such damage. Provided, however, if Lessee at that time has an
exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by, within twenty (20) days following the
occurrence of the damage, or before the expiration of the time provided in
such option for its exercise, whichever is earlier ("Exercise Period"), (i)
exercising such option and (ii) providing Lessor with any shortage in
insurance proceeds (or adequate assurance thereof) needed to make the
repairs. If Lessee duly exercises such option during said Exercise Period
and provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such
damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee duly exercises such option during said Exercise
Period and provides Lessor with funds (or adequate assurance thereof) to
cover any shortage in Insurance proceeds, Lessor shall, at Lessor's expense
repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
and provide such funds or assurance during said Exercise Period, then Lessor
may at Lessor's option terminate this Lease as of the the occurrence of such
damage by giving written notice to Lessee of Lessor's election to do so
within ten (10) days after the expiration of the Exercise Period,
notwithstanding any term or provision in the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2, 9.3, 9.4 or
9.5, whether or not Lessor or Lessee repairs or restores the Premises the Base
Rent, Real Property Taxes, insurance premiums, and other charges, if any,
payable by Lessee hereunder for the period during which such damage its
repair or the restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for
abatement of Base Rent, Real Property Taxes, Insurance Premiums, and other
charges, if any, as aforesaid, all other obligations of Lessee hereunder
shall be performed by Lessee, and Lessee shall have no claim against Lessor
for any damage suffered by reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at
any time prior to the commencement of such repair or restoration, give
written notice to Lessor and to any Lenders of which Lessee has actual notice
of Lessee's election to terminate this Lease on a date not less than sixty
(60) days following the giving of such notice. If Lessee gives such notice
to Lessor and such Lenders and such repair or restoration is not commenced
within thirty (30) days after receipt of such notice, this Lease shall
terminate as of the date specified in said notice if Lessor or a Lender
commences the repair or restoration of the Premises within thirty (30) days
after receipt of such notice, this Lease shall continue in full force and
effect. "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Appicable
Law and this Lease shall continue in full force and effect, but subject to
Lessor's rights under Paragraph 13), Lessor may at Lessor's option either (i)
investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Lessor's expense, in which event this Lease
shall continue in full force and effect, or (ii) if the estimated cost to
investigate and remediate such condition exceeds twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater, give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the giving of
such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten
(10) days after the receipt of such notice to give written notice to Lessor
of Lessee's commitment to pay for the investigation and remediation of such
Hazardous Substance Condition totally at Lessee's expense and without
reimbursement from Lessor except to the extent of an amount equal to twelve
(12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such investigation and remediation as soon as
reasonably possible and the required funds are available. If Lessee does not
give such notice and provide the required funds or assurance thereof within the
times specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination. If a Hazardous Substance Condition occurs for
which Lessee is not legally responsible there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided in Paragraph
9.6(a) for a period of not to exceed twelve (12) months.
9.8 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security
Deposit as has not been, or is not then required to be, used by Lessor under
the terms of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject in Paragraph 10.1(b), all such payments shall be made prior to
the delinquency date of the applicable installment. Lessee shall promptly
furnish Lessor with satisfactory evidence that such taxes have been paid. If
any such taxes to be paid by Lessee shall cover any period of time prior to
or after the expiration or earlier termination of the term hereof, Lessee's
share of such taxes shall be equitably prorated to cover only the period of
time within the tax fiscal year this Lease is in effect, and Lessor shall
reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by
Lessee, Lessor shall have the right to pay the same, and Lessee shall
reimburse Lessor therefor upon demand.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of real estate tax or
assessment, general, special, ordinary or extraordinary, and any license fee,
commercial rental tax, improvement bond or bonds, levy or tax (other than
inheritance, personal income or estate taxes) imposed upon the Premises by
any authority having the direct or indirect power to tax, including any city,
state or federal government, or any school, agricultural, sanitary, fire,
street, drainage or other improvement district thereof, levied against any
legal or equitable interest of Lessor in the Premises or in the real
property of which the Premises are a part, Lessor's right to rent or other
income therefrom, and/or Lessor's business of Leasing the Premises. The term
"Real Property Taxes" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occuring, or
changes in applicable law taking effect, during the term of this Lease,
including but not limited to a change in the ownership of the Premises or in
the improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
<PAGE>
10.4 Personal Property Taxes. Lease shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Alterations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
[cut off] its Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of
Lessor. If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property or, at Lessor's option, as
provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or
in the Premises without Lessor's prior written consent given under and
subject to the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. This [illegible] a cumulative basis,
of twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction or
sales of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a
formal assignment of hypothecation of this Lease or Lessee's assets occurs,
which results or will result in a reduction of the Net Worth of Lessee, as
hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor at
the time of the execution by Lessor of this Lease or at the time of the most
recent assignment to which Lessor has consented, or as it exists immediately
prior to said transaction or transactions constituting such reduction, at
whichever time said Net Worth of Lessee was or is greater, shall be
considered an assignment of this Lease by Lessee to which Lessor may
reasonable withhold its consent. "NET WORTH OF LESSEE" for purposes of this
Lease shall be the net worth of Lessee (excluding any guarantors) established
under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to
treat such unconsented to assignment or subletting as a noncurable Breach,
Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon
thirty (30) days written notice ("Lessor's Notice"). Increase the monthly
Base Rent to fair market rental value or one hundred ten percent (110%) of
the Base Rent then in effect, whichever is greater. Pending determination of
the new fair market rental value, if disputed by Lessee, Lessee shall pay the
amount set forth in Lessor's Notice, with any overpayment credited against
the next installment(s) of Base Rent coming due, and any underpayment for the
period retroactively to the effective date of the adjustment being due and
payable immediately upon the determination thereof. Further, in the event of
such Breach and market value adjustment, (i) the purchase price of any option
to purchase the Premises held by Lessee shall be subject to similar
adjustment to the then fair market value (without the Lease being considered
an encumbrance or any deduction for depreciation or obsolescence, and
considering the Premises at its highest and best use and in good condition),
or one hundred ten percent (110%) of the price previously in effect, whichever
is greater, (ii) any index-oriented rental or price adjustment formulas
contained in this Lease shall be adjusted to require that the base index be
determined with reference to the index applicable to the time of such
adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the
market value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent or performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this
Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee
or to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee
or anyone else liable on the Lease or sublease and without obtaining their
consent, and such action shall not relieve such persons from liability under
this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors
or any one else responsible for the performance of the Lessee's obligations
under this Lease, including the sublessee, without first exhausting Lessor's
remedies against any other person or entity responsible therefor to Lessor,
or any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination
as to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but n not limited to the intended
use and/or required modification of the Premises, if any. Lessee agrees to
provide Lessor with such other or additional information and/or documentation
as may be reasonable requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be
deemed, for the benefit of Lessor, to have assumed and agreed to conform and
comply with each and every term, covenant, condition and obligation herein
to be observed or performed by Lessee during the term of said assignment or
sublease, other than such obligations as are contrary to or inconsistent
with provisions of an assignment or sublease to which Lessor has specifically
consented in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a
portion of the Premises heretofore or hereafter made by Lessee, and Lessor
may collect such rent and income and apply same toward Lessee's obligations
under this Lease; provided, however, that until a Breach (as defined in
Paragraph 13.1) shall occur in the performance of Lessee's obligations under
this Lease, Lessee may, except as otherwise provided in this Lease, receive,
collect and enjoy the rents accruing under such sublease. Lessor shall not,
by reason of this or any other assignment of such sublease to Lessor, not by
reason of the collection of the rents from a sublessee, be deemed liable to
the sublessee for any failure of Lessee to perform and comply with any of
Lessee's obligations to such sublessee under such sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists int he performance of
Lessee's obligations under this Lease, to pay to Lessor the rents and other
charges due and to become due under the sublease. Sublessee shall rely upon
any such statement and request from Lessor and shall pay such rents and other
charges to Lessor without any obligation or right to inquire as to whether
such Breach exists and notwithstanding any notice from or claim from Lessee
to the contrary. Lessee shall have no right or clasim against said sublessee,
or, until the Breach has been cured, against Lessor, for any such rents and
other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercises of said option to the expiration of
such sublease; provided, however, Lessor shall not be liable for any prepaid
rents or security deposit paid by such sublessee to such sublessor or for
any other prior Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset form and against
Lessee for any such Defaults cured by the subleasee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee
agree that if an attorney is consulted by Lessor in connection with an
adjudicated Lessee Default or Breach (as hereinafter defined), $350.00 is a
reasonable minimum sum per such occurrence for legal services and costs in
the preparation and service of a notice of Default, and that Lessor may
include the cost of such services and costs in said notice as rent due and
payable to cure said Default. A "DEFAULT" is defined as a failure by the
Lessee to observe, comply with or perform any of the terms, covenants,
conditions or rules applicable to Lessee under this Lease. A "BREACH" is
defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure
by Lessee to cure such Default prior to the expiration of the applicable
grace period, shall entitle Lessor to pursue the remedies set forth in
Paragraphs 13.2 and/or 13.3:
Initials DL
---------
[illegible]
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<PAGE>
(b) Except as expressly otherwise provided in that Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary
payment required to be made by Lessee hereunder, whether to Lessor or to a
third party, within six (6) days of when due, the failure by Lessee to
provide Lessor with reasonable evidence of insurance or surely bond required
under this Lease, or the failure of Lessee is fulfill any obligation under
this Lease which endangers life or property, where such failure continues for
a period of three (3) days following written notice thereof by or on behalf
of Lessor to Lessee; provided, however, that it shall not be an instance of
default or breach if Lessee has commenced actions to fulfill such obligations
within three (3) days after receiving written notice thereof and in good
faith pursues the completion of such obligations thereafter.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonably written evidence (in duly
execute original form, if applicable) of (i) compliance with Applicable Law
per Paragraph 6.3, (ii) the inspection, maintenance and service contracts
required under Paragraph 7.1(b), (iii) the recision of an unauthorized
assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per
Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease
pre Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation information which Lessor may reasonably require of
Lessor under the terms of this Lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 10 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or
on behalf of Lessor to Lessee, provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) are reasonably required
for its cure, then it shall not be deemed to be a Breach of this Lease by
Lessee if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events; (i) The making
by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in the U.S.C. Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all
of Lessee's assets located at the Premises or of Lessee's interest in this
Lease where possession is not restored to Lessee within thirty (30) days; or
(iv) the attachment, execution or other judicial seizure of substantially all
of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days provided,
however, in the event that any provision of this subparagraph (e) is contrary
to any applicable law, such provision shall be or no force or effect, as not
to affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a guarantor's becoming insolvent or
the subject of a bankruptcy filing (iv) a guarantor's refusal to honor the
guaranty, or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurance of security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the guarantor that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to commence to perform any affirmative
duty or obligation of Lessee under this Lease, within thirty (30) days after
written notice to Lessee (or in case of an emergency, without notice), Lessor
may at its option (but without obligation to do so), perform such duty or
obligation on Lessee's behalf including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses,
permits or approvals. The costs and expenses of any such performance by
Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. If
any check given to Lessor by Lessee shall not be honored by the bank upon
which it is drawn, Lessor, at its option, may require all future payments to
be made under this Lease by Lessee to be made only by cashier's check. In the
event of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, with
or without further notice or demand, and without limiting Lessor in the
exercise of any right or remedy which Lessor may have by reason of such
Breach, Lessor may, so long as such remedy complies with California law:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor.
In such event Lessor shall be entitled to recover from Lessee: (i) the worth
at the time of the award of the unpaid rent which had been earned at the time
or termination: (ii) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that the Lessee proves could
have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, and that portion of the leasing commission paid by Lessor applicable to
the unexpired term of the Lease. The worth at the time of award of the amount
referred to in provision (iii) of the prior sentence shall be computed by
discounting such amount at the discount rate of the Federal REserve Bank of
San Francisco at the time of award plus on percent (1%). Efforts by Lessor to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph. If termination
of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding the
unpaid rent and damages as are recoverable therein, or Lessor may reserve
therein the right to recover all or any part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay
rent or quit, or to perform or quit, or to perform or quit, as the case may
be, given to Lessee under any statute authorizing the forfeiture of leases
for unlawful detainer shall also constitute the applicable notice for grace
period purposes required by subparagraphs 13.1(b), (c) or (d), in such case,
the applicable grace period under subparagraphs 13.1 (b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful
detainer and a Breach of this Lease entitling Lessor to the remedies provided
for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's
Breach and abandonment and recover the rent as it becomes due, provided Lessee
has the right to sublet or assign, subject only to reasonable limitations Sub
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver
to protect the Lessor's interest under the Lease shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's
occupancy of the Premises.
[13.3 & 4 eliminated]
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed, provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Lessor shall
not be in breach of this Lease if performance is commenced within such thirty
(30) day period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than ten percent
(10%) of the floor area of the Premises, or more than twenty-five percent
(25%) of the land area not occupied by any building, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing
within ten (10) days after Lessor shall have given Lessee written notice of
such taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession.
<PAGE>
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion
of the Premises remaining, except that the Base Rent shall be reduced in the
same proportion as the rentable floor area of the Premises taken bears to the
total rentable floor area of the building located on the Premises. No
reduction of Base Rent shall occur if the only portion of the Premises taken
is land on which there is no building. Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made a compensation for diminution in value of
the leasehold or for the taking of the fee, or as severance damages;
provided, however, that Lessee shall be entitled to any compensation
separately awarded to Lessee for Lessee's relocation expenses and/or loss of
Lessee's Trade Fixtures. In the event that this Lease is not terminated by
reason of such condemnation, Lessor shall to the extent of its net severance
damages received, over and above the legal and other expense incurred by
Lessor in the condemnation matter, repair any damage to the Premises caused
by such condemnation, except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall be responsible for the
payment of any amount in excess of such net severance damage required to
complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of
this Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually
designate in writing, a fee as set forth in a separate written agreement
between Lessor and said Brokers (or in the event there is no separate written
agreement between Lessor and said Brokers, the sum of $ N/A) for brokerage
services rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) or any Option subsequently granted which is substantially
similar to an Option granted to Lessee in this Lease, or (b) if Lessee
acquired any rights to the Premises or other premises described in this Lease
which are substantially similar to what Lessee would have acquired had an
Option herein granted to Lessee been exercised, or (c) if Lessee remains in
possession of the Premises, with the consent of Lessor, after the expiration
of the term of this Lease after having failed to exercise an Option, or (d)
if said Brokers are the procuring cause of any other lease or sale entered
into between the Parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, or (e) if Base Rent is increased,
whether by agreement or operation of an escalation clause herein, then as to
any of said transactions, Lessor shall pay said Brokers a fee in accordance
with the schedule of said Brokers in effect at the time of the execution of
this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease,
whether such transfer is by agreement or by operation of law, shall be deemed
to have assumed Lessor's obligation under this Paragraph 15. Each Broker
shall be a third party beneficiary of the provisions of this Paragraph 15 to
the extent of its interest in any commission arising from this Lease and may
enforce that right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it
has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) In connection with the negotiation
of this Lease and/or the consummation of the transaction contemplated hereby,
and that no broker or the person, firm or entity other than said named
Brokers is entitled to any commission or finders fee in connection with said
transaction. Lessee and Lessor do each hereby agree to indemnify, project,
defend and hold the other harmless from and against liability for
compensation or changes which may be claimed by any such unnamed broker,
finder to other similar party by reason of any dealings or actions of the
indemnifying Party, including any costs, expenses, attorneys' fees reasonably
incurred with respect thereto. *(See bottom of page)
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or,
if this is a sublease, of the Lessee's interest in the prior lease. In the
event of a transfer of Lessor's title or interest in the Premises or in this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such
transfer or assignment. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid,
the prior Lessor shall be relieved of all liability with respect to the
obligations and/or convenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligations and/or covenants in this
Lease to be performed by the Lessor shall be binding only upon the Lessor as
hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jursdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty
(30) days following the date on which it was due, shall bear interest from
the thirty-first (31st) day after it was due at the prime rate, but not
exceeding the maximum rate allowed by law.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENT; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective.
23. NOTICE.
23.1 All notices required or permitted by this Lease shall be in
writing and may be delivered in person (by hand or by messenger or courier
service) or may be sent by certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by overnight courier and shall
be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this
Lease shall be that Party's address for delivery or mailing of notice
purposes. Either Party may by written notice to the other specify a different
address for notice purposes. A copy of all notices required or permitted to
be given to Lessor hereunder shall be concurrently transmitted to such party
or parties at such addresses as Lessor may from time to time hereafter
designate by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. Notices
delivered by United States Express Mail or overnight courier that guarantees
next day delivery shall be deemed given twenty-four (24) hours after delivery
of the same to the United States Postal Service or courier. If notice is
received on a Saturday, Sunday or legal holiday, it shall be deemed received
on the next business day.
24. WAIVERS. No waiver by either party of the Default or Breach of any
term, covenant or condition hereof by the other party shall be deemed a
waiver of any other term, covenant or condition hereof, or of any subsequent
Default of Breach of the same or of any other term, covenant or condition
hereof. A party's consent to, or approval of, any act shall not be deemed to
render unnecessary the obtaining of that party's consent to, or approval of,
any subsequent or similar knowledge of a Default or Breach at the time of
accepting rent, the acceptance of rent by Lessor shall not be a waiver of any
preceding Default or Breach by Lessee of any provision hereof, other than the
failure of Lessee to pay the particular rent so accepted. Any payment given
Lessor by Lessee may be accepted by Lessor on account of moneys or damages
due Lessor, notwithstanding any qualifying statements or conditions made by
Lessee in connection therewith, which such statements and/or co conditions
shall be of no force or effect whatsoever unless specifically agreed to in
writing by Lessor at or before the time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
* Lessor specifically agrees to indemnify, protect, defend, and hold
harmless Lessee from and against all claims, liabilities, and costs,
including attorneys' fees, in connection with claims made by a broker who
received or was entitled to receive payment or commission under the Business
Property Lease between Lessor and Lessee dated August 1, 1987.
<PAGE>
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "Security Device"), now
or hereafter placed by Lessor upon the real property of which the Premises
are a part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor
under this Lease, but that in the event of Lessor's default with respect to
any such obligation, Lessee will give any Lender whose name and address have
been furnished Lessee in writing for such purpose notice of Lessor's default
and allow such Lender thirty (30) days following receipt of such notice for
the cure of said default before invoking any remedies Lessee may have by
reason thereof. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such Security Device, notwithstanding the relative dates of
the documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device,
and that in the event of such foreclosure, such new owner shall not: (i) be
liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets
or defenses which Lessee might have against any prior lessor, or (iii) be
bound by prepayment of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving assurance ("a non-disturbance agreement")
from the Lender that Lessee's possession and this Lease, including any
options to extend the term hereof, will not be disturbed so long as Lessee is
not in Breach hereof and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided,
however, that, upon written request from the Lessor or a Lender in connection
with a sale, financing or refinancing of the Premises, Lessee and Lessor
shall execute such further writings as may be reasonably required to
separately document any such subordination or non-subordination, attornment
and/or non-disturbance agreement as is provided for herein.
31. Attorney's Fees.
If any Party or Broker brings an action or proceeding to enforce the terms
hereof or declare rights hereunder, the Prevailing Party (as hereafter
defined) or Broker in any such proceeding, action, or appeal thereon, shall
be entitled to reasonable attorneys' fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgement. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially
obtains or defeats the relief sought, as the case may be, whether by
compromise, settlement, judgement, or the abandonment by the other Party or
Broker of its claim or defense. The attorney's fees award shall not be
computed in accordance with any court fee schedule, but shall be such as to
fully reimburse all attorneys' fees reasonably incurred. Lessor shall be
entitled to attorney's fees, costs and expenses incurred in the preparation
and service of notices of Default and consultations in connection therewith,
whether or not a legal action is subsequently commenced in connection with
such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part, as Lessor may reasonably deem necessary,
provided Lessee's use of the Premises is not diminished thereby. Lessor may
at any time place on or about the Premises or building any ordinary "For
Sale" signs and Lessee may at any time during the last one hundred twenty
(120) days of the term hereof place on or about the Premises any ordinary
"For Lease" signs. All such activities of Lessor shall be without abatement
of rent or liability to Lessee.
[33. eliminated]
34. Signs. Lessee may place any lawful sign upon the Premises.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one
or all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by
written notice to the holder of any such lesser interest, shall constitute
Lessor's election to have such event constitute the termination of such
interest.
36 Consents.
(a) Wherever in this Lease the consent of a Party is required to an act
by or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys;, engineers; or other consultants' fees)
incurred in the consideration of or response to a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, Including but not
limited to consents to an assignment, a subletting or the presence or use of
a Hazardous Substance, practice or storage tank, shall be paid by Lessee to
Lessor upon receipt of an invoice and supporting documentation therefor.
Subject to Paragraph 12.2(e) (applicable to assignment or subletting),
Lessor may, as a condition to considering any such request by Lessee, require
that Lessee deposit with Lessor an amount of money (in addition to the
Security Deposit held under Paragraph 5) reasonably calculated by Lessor to
represent the cost Lessor will incur in considering and responding to
Lessee's request. Except as otherwise provided, any unused portion of said
deposit shall be refunded to Lessee without interest. Lessor's consent to any
act, assignment of this Lease or subletting of the Premises by Lessee shall
not constitute an acknowledgement that no Default or Breach by Lessee of this
Lease exists, nor shall such consent be deemed a waiver of any then existing
Default or Breach, except as may be otherwise specifically stated in writing
by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performande of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property
of Lessor; (b) the right of first refusal to lease the Premises or the right
of first offer to lease the Premises or the right of first refusal to lease
other property of Lessor or the right of first offer to lease other property
of Lessor; (c) the right to purchase the Premises, or the right of first
refusal to purchase the Premises, or the right of first offer to purchase the
Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchsase other property of Lessor, or the right of first
offer to purchase other property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1
hereof, and cannot be voluntarily or involuntarily assigned or exercised by
any person or entity other than said original Lessee while the original
Lessee is in full and actual possession of the Premises and without the
intention fo thereafter assigning or subletting. The Options, if any, herein
granted to Lessee are not assignable, either as a part of an assignment of
this Lease or separately or apart therefrom, and no Option may be separated
from this Lease in any manner, by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any Multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
<PAGE>
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of
time any monetary obligation due Lessor from Lessee is unpaid (without regard
to whether proper notice thereof is given Lessee),or (iii) during the time
Lessor is in Breach of this Lease, or (iv) in the event that Lessor has given
to Lessee three (3) or more proper notices of Default under Paragraph 13.1,
whether or not the Defaults are cured, during the twelve (12) month period
immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of Default under Paragraph
13.1 during any twelve (12) month period, whether or not the Defaults are
cured, or (iii) if Lessee commits a Breach of this Lease.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of
third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time,
to grant, with the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of
such entity represents and warrants that he or she is duly authorized to
execute and deliver this lease on its behalf.
45. CONFLICT. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee,
the obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE ON THE TRANSACTION TO WHICH IT RELATES: THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE; IF THE SUBJECT PROPERTY IS
LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE
WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates
specified above to their respective signatures.
Executed at BURBANK, CA. Executed at BURBANK, CA.
on____________________________________ on____________________________________
by LESSOR: by LESSEE:
INDUSTRIAL BOWLING CORP. HAWKER PACIFIC, INC.
By /s/ BRADLEY D. HOWARD By /s/ DAVID L. LOKKEN
_____________________________________ ____________________________________
Name Printed: BRADLEY D. HOWARD Name Printed: DAVID L. LOKKEN
Title: VICE PRESIDENT Title : PRESIDENT AND CHIEF
EXECUTIVE OFFICER
By By
_____________________________________ ____________________________________
Name Printed: _________________________ Name Printed: ________________________
Title: ________________________________ Title: _______________________________
Address: 1819 W. OLIVE AVE. Address: 11310 SHERMAN WAY
_______________________________ _______________________________
BURBANK, CA. 91506 SUN VALLEY, CA 91352
_______________________________________ _______________________________________
Tel. No. (213) 849-2401 Tel. No. ( )
______________ _________________
Fax No. (213) 849-1721 Fax No. ( )
_______________ __________________
NET
PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA
90071, (213) 687-8777 Fax. No. (213) 687-8616.
<PAGE>
[LOGO]
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
DATED July 28, 1994
-------------------------------------
BY AND BETWEEN INDUSTRIAL BOWLING CORP.
----------------------------
and HAWKER PACIFIC, INC.
------------------------------------------
49. RENT ESCALATIONS
- -----
(a) On September 1, annually commencing 1995 for the term of the lease
----------------------------------------------------------------
and any options. the monthly rent payable under paragraph 4 of the attached
- ---------------
Lease shall be adjusted by the increase, if any, from the date this Lease
commenced, in the consumer Price Index of the Bureau of Labor Statistics of
the U.S. Department of Labor for Urban Wage Earners and Clerical Workers, Los
Angeles-Long Beach-Anaheim, California (1967=100), "All Items", herein
referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph (a) of this
Addendum shall be calculated as follows: the rent payable for the first month
of the term of this Lease, as set forth in paragraph 4 of the attached Lease,
shall be multiplied by a fraction the numerator of which shall be the C.P.I.
of the calendar month during which the adjustment is to take effect, and the
denominator of which shall be the C.P.I. for the calendar month in which the
original Lease term commences. The sum so calculated shall constitute the new
monthly rent hereunder, but in no event, shall such new monthly rent be less
than the rent payable for the month immediately preceding the date for rent
adjustment.
(c) Pending receipt of the required C.P.I. and determination of the
actual adjustment, Lessee shall pay an estimated adjusted rental, as
reasonably determined by Lessor by reference to the then available C.P.I.
information. Upon notification of the actual adjustment after publication of
the required C.P.I., any overpayment shall be credited against the next
installment of rent due, and any underpayment shall be immediately due and
payable by Lessee. Lessor's failure to request payment of an estimated or
actual rent adjustment shall not constitute a waiver of the right to any
adjustment provided for in the Lease or this addendum.
(d) In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the C.P.I.
shall be used to make such calculation. In the event that Lessor and Lessee
cannot agree on such alternative index, then the matter shall be submitted
for decision to the American Arbitration Association in accordance with the
then rules of said association and the decision of the arbitrators shall be
binding upon the parties. The cost of said Arbitrators shall be paid equally
by Lessor and Lessee.
By American Industrial Real Estate Association. All rights reserved. No part
of these wards may be reproduced in any form without permission in writing.
Initials DL
---------
---------
<PAGE>
[LOGO]
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
Dated July 28, 1994
-----------------------------------
By and Between INDUSTRIAL BOWLING CORP.
--------------------------
and HAWKER PACIFIC, INC.
-----------------------------------------
50. OPTION TO EXTEND
A. Lessor hereby grants to Lessee the option to extend the term of this Lease
for a 5 year period commencing when the prior term expires upon each and all
of the following terms and conditions:
(i) Lessee gives to Lessor, and Lessor actually receives, on a date
which is prior to the date that the option period would commence (if
exercised) by at least six (6) months, a written notice of the exercise of
the option to extend this lease for said additional term, time being of the
essence. If said notification of the exercise of said option is not so given
and received, this option shall automatically expire;
(ii) The provisions of paragraph 39, including the provision relating to
default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease except where
specifically modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be based
on market rates, but, in no event, shall the rent be less than the rent
payable for the month immediately preceding the commencement of the option
period.
Initials: BH Initials: DL
------- -------
------- -------
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
DATED JULY 28, 1994, BY AND BETWEEN INDUSTRIAL BOWLING CORP., A
CALIFORNIA CORPORATION (LESSOR), AND HAWKER PACIFIC, INC., A CALIFORNIA
CORPORATION (LESSEE), FOR 11258 SHERMAN WAY, SUN VALLEY, CALIFORNIA
51. To the extent that any provision(s) in this Addendum
conflict(s) with any provision(s) in this Lease, the provision(s) of this
Addendum shall be superior to the provision(s) of this Lease, and every
effort shall be made to interpret this Lease and Addendum so as to give
effect to the provisions of this Addendum, even if such interpretation
conflicts with any provision(s) of this Lease.
52. Lessor agrees to take all action required by any Applicable
Law (as defined in the Lease) so that the improvements on the Premises, other
than any improvement made by Lessee, will comply with all Applicable Laws
which take effect after the Commencement Date and that such action shall be
performed within the tie frame set forth in the Applicable Law. Lessee shall
not be required to make alterations to the Premises to conform with an
Applicable Law unless Lessee's particular use of the Premises shall cause the
Premises to be in non-conformance with the Applicable Law. However, Lessor is
not obligated to take any action hereunder to the extent that the requirement
of any Applicable Law is imposed by reason of any act or omission of Lessee,
including but not limited to Lessee's Utility Installations and Alternations
of the Premises. Lessor hereby represents and warrants to Lessee that Lessor
has received no actual notices of violations of any Applicable Law with
respect to the Premises.
53. Lessee may make non-structural Alterations and Utility
Installations to the interior of the Premises (excluding the roof), provided
the same are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing exterior walls.
54. Lessee may, at its option, upon the expiration or termination
of this Lease, remove all Alterations or Utility Installations effected by
Lessee provided that the Premises are returned to Lessor in substantially the
same condition as when Lessee initially took possession thereof.
55. To the extent that any act or omission of Lessee shall result
in the increase of any insurance premiums regarding the Premises, said act or
omission shall not constitute a Breach of this Lease or paragraph 8.5 hereof
provided Lessee pays any such increase in premiums within 30 days after
receiving notice of said increase or sooner if required by the insuring
entity.
56. Any repairs required of Lessor under Paragraphs 9.2, 9.3, 9.4
and 9.5 of the Lease shall be commenced and reasonably proceeding no later
than 60 days following the date of such Partial Damage and shall be
substantially complete within 180 days following the date of such Partial
Damage except as to those matters not materially affecting Lessee's use of
the Premises and, as to those matters, Lessor shall diligently complete
repairs as soon as is reasonably possible. If said repairs are not commenced
and reasonably proceeding or, as to matters materially affecting Lessee's use
of the Premises, substantially completed as set forth above, Lessee shall
have the option of terminating the Lease.
57. Notwithstanding anything to the contrary contained in
paragraph 12.2(a) of the Lease, Lessee may assign or sublet this Lease upon
the sale of substantially all of Lessee's assets located at the Premises or
Lessee's stock, provided that the assignee executes and agreement assuming
Lessee's obligations under the Lease. Lessee may also assign this Lease to an
DL
<PAGE>
affiliate provided that said assignment will not relieve Lessee of its
obligations under this Lease.
58. Notwithstanding anything to the contrary contained in
paragraph 12.2(b) of this Lease, Lessor's failure to approve or disapprove a
proposed assignment or sublease within ten (10) working days of Lessee's
written request for consent to the assignment or sublease and receipt by
Lessor of all information reasonably requested by it pertaining to the
proposed assignment or sublease, shall be deemed to be an approval of same by
the Lessor.
59. In the event of a breach by Lessor described in paragraph
13.5, Lessee may require performance is required by any governmental entity,
is recommended by a licensed structural engineer, or in the event that
Lessee's property is being damaged as a result of said breach. In the event
that Lessor cannot reasonably complete its performance within 30 days, Lessor
shall in all events substantially complete said performance within 190 days
after Lessor's receipt of written notice of the breach from use of the
Premises and as to those matters, Lessor shall diligently complete its
performance as soon as is reasonably possible.
60. All notices required or permitted to be given to Lessee under
this Lease shall be given to Lessee at the Premises with copies to:
(i) BTR, Inc.
750 Main Street
Stamford, CT 06902
Attn: Edgar P. DeVylder Jr., Esq.
(ii) Paul R. Diamond, Esq.
Holleb & Coff
55 East Monroe Street, Suite 4100
Chicago, IL 60603
61. Notwithstanding anything to the contrary contained in
paragraph 30 of this Lease, Lessee's agreements thereunder are expressly
conditioned upon receipt by Lessee of a satisfactory form of non-disturbance
agreement signed by the party requesting said subordination or attornment.
62. Notwithstanding anything in this Lease to the contrary, Lessee
shall have the right, in the ordinary course of its business, to generate,
possess, store, use, transport, or dispose of a Hazardous Substance so long
as Lessee's generation, possession, storage, use, transportation or disposal
of a Hazardous Substance does not violate Applicable Law. Similarly, Lessee
shall have the right, in the ordinary course of its business, to install or
use any above or below ground storage tank so long as such installation or
use does not violate Applicable Law, and Lessee shall be permitted to dispose
of any Hazardous Substance (including through the plumbing or sanitary sewer
system) so long as such disposal does not violate Applicable Law. Lessee
shall hold Lessor harmless from any and all liabilities, obligations, claims,
damages, penalties, causes of action, cost or expenses arising out of its
activities conducted pursuant to this provision, and Lessee further agrees to
remove all installations done by it pursuant done by its pursuant to this
provision, at its sole cost and expense.
BH DL
<PAGE>
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISION ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
July 28, 1994, is made by and between INDUSTRIAL BOWLING CORP. ("LESSOR") and
HAWKER PACIFIC, INC. ("LESSEE"), (collectively the "PARTIES," or individually
a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known by the street address of 11258 Sherman Way, Sun Valley,
located in the County of LOS ANGELES, State of CA, and generally described as
(describe briefly the nature of the property) 12,000 SQ. FT. ("PREMISES").
(See Paragraph 2 for further provisions.)
1.3 TERM: 10 years and 0 months ("ORIGINAL TERM") commencing SEPTEMBER
1, 1994 ("COMMENCEMENT DATE") and ending AUGUST 31, 2004 ("EXPIRATION DATE").
(See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: ALREADY OCCUPIED ("Early Possession Date"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $4,560.00 per month ("BASE RENT"), payable on the 1st
day of each month commencing SEPTEMBER 1, 1994 (See Paragraph 4 for further
provisions.) /X/ If this box is checked, there are provisions in this Lease
for the Base Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ N/A as Base Rent for the period.
1.7 SECURITY DEPOSIT: $4,200.00 paid in prior lease ("SECURITY
DEPOSIT"). (See Paragraph 5 for further provisions.)
1.8 PERMITTED USE: LEGAL USAGE FOR M-2 ZONING (See Paragraph 6 for
further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
N/A represents
___________________________________________________________________________
/ / Lessor exclusively ("LESSOR'S BROKER"); / / both Lessor and Lessee, and
___________________________________________________________________________
/ / Lessee exclusively ("LESSEE'S BROKER"); / / both Lessee and Lessor.
(See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by _____________________________________________ ("GUARANTOR").
(See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 50 and Exhibits____ N/A _________________all of which
constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee,and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which
Lessor and Lessee agree is reasonable and the rental based thereon is not
subject to revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, fire sprinkler system, lighting, air conditioning,
heating, and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the obligation
of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or
to be made by Lessee. If the Premises do not comply with said warranty,
Lessor shall, except as otherwise provided in this Lease,promptly after
receipt of written notice from Lessee setting forth with specificity the
nature and extent of such non-compliance, rectify the same at Lessor's
expense. If Lessee does not give Lessor written notice of a non-compliance
with this warranty within six (6) months following the Commencement Date,
correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and
fire sprinkler systems, security, environmental aspects, compliance with
Applicable Law, as defined in Paragraph 6.3) and the present and future
suitability of the Premises for Lessee's intended use, (b) that Lessee has
made such investigation as it deems necessary with reference to such
matters and assumes all responsibility therefor as the same relate to
Lessee's occupancy of the Premises and/or the term of this Lease, and (c)
that neither Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to the said matters other than as
set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises.
In such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent
shall be abated for the period of such early possession. All other terms of
this Lease, however, (including but not limited to the obligations to pay
Real Property Taxes and insurance premiums and to maintain the Premises)
shall be in effect during such period. Any such early possession shall not
affect nor advance the Expiration Date of the Original Term.
NET Initials DL
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BH
PAGE 1
<PAGE>
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether proper notice thereof is given Lessee),or
(iii) during the time Lessor is in Breach of this Lease, or (iv) in the event
that Lessor has given to Lessee three (3) or more notices of Default under
Paragraph 13.1, whether or not the Defaults are cured, during the twelve (12)
month period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of Default under Paragraph
13.1 during any twelve (12) month period, whether or not the Defaults are
cured, or (iii) if Lessee commits a Breach of this Lease.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of
third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time,
to grant, with the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of
such entity represents and warrants that he or she is duly authorized to
execute and deliver this lease on its behalf.
45. CONFLICT. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee,
the obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES: THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE; IF THE SUBJECT PROPERTY IS
LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE
WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates
specified above to their respective signatures.
Executed at BURBANK, CA. Executed at BURBANK, CA.
on____________________________________ on____________________________________
by LESSOR: by LESSEE:
INDUSTRIAL BOWLING CORP. HAWKER PACIFIC, INC.
By /s/ BRADLEY D. HOWARD By /s/ DAVID L. LOKKEN
_____________________________________ ____________________________________
Name Printed: BRADLEY D. HOWARD Name Printed: DAVID L. LOKKEN
Title: VICE PRESIDENT Title : PRESIDENT AND CHIEF
EXECUTIVE OFFICER
By By
_____________________________________ ____________________________________
Name Printed: _________________________ Name Printed: ________________________
Title: ________________________________ Title: _______________________________
Address: 1819 W. OLIVE AVE. Address: 11310 SHERMAN WAY
_______________________________ _______________________________
BURBANK, CA. 91506 SUN VALLEY, CA 91352
_______________________________________ _______________________________________
Tel. No. (213) 849-2401 Tel. No. ( )
______________ _________________
Fax No. (213) 849-1721 Fax No. ( )
_______________ __________________
NET
PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA
90071, (213) 687-8777 Fax. No. (213) 687-8616.
<PAGE>
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
July 28, 1994, is made by and between INDUSTRIAL BOWLING CORP. ("LESSOR") and
HAWKER PACIFIC, INC. ("LESSEE"), (collectively the "PARTIES," or individually
a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known by the street address of 11260 Front, Sherman Way, Sun Valley,
located in the County of LOS ANGELES, State of CA, and generally described as
(describe briefly the nature of the property) 12,000 SQ. FT. ("PREMISES").
(See Paragraph 2 for further provisions.)
1.3 TERM: 10 years and 0 months ("ORIGINAL TERM") commencing SEPTEMBER
1, 1994 ("COMMENCEMENT DATE") and ending AUGUST 31, 2004 ("EXPIRATION DATE").
(See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: ALREADY OCCUPIED ("Early Possession Date"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $4,560.00 per month ("BASE RENT"), payable on the 1st
day of each month commencing SEPTEMBER 1, 1994 (See Paragraph 4 for further
provisions.) /X/ If this box is checked, there are provisions in this Lease
for the Base Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ N/A as Base Rent for the period.
1.7 SECURITY DEPOSIT: $3,900.00 paid on prior lease ("SECURITY
DEPOSIT"). (See Paragraph 5 for further provisions.)
1.8 PERMITTED USE: LEGAL USAGE FOR M-2 ZONING (See Paragraph 6 for
further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
N/A represents
___________________________________________________________________________
/ / Lessor exclusively ("LESSOR'S BROKER"); / / both Lessor and Lessee, and
___________________________________________________________________________
/ / Lessee exclusively ("LESSEE'S BROKER"); / / both Lessee and Lessor.
(See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by _____________________________________________ ("GUARANTOR").
(See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 50 and Exhibits____ N/A _________________all of which
constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee,and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which
Lessor and Lessee agree is reasonable and the rental based thereon is not
subject to revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, fire sprinkler system, lighting, air conditioning,
heating, and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the obligation
of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or
to be made by Lessee. If the Premises do not comply with said warranty,
Lessor shall, except as otherwise provided in this Lease, promptly after
receipt of written notice from Lessee setting forth with specificity the
nature and extent of such non-compliance, rectify the same at Lessor's
expense. If Lessee does not give Lessor written notice of a non-compliance
with this warranty within six (6) months following the Commencement Date,
correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and
fire sprinkler systems, security, environmental aspects, compliance with
Applicable Law, as defined in Paragraph 6.3) and the present and future
suitability of the Premises for Lessee's intended use, (b) that Lessee has
made such investigation as it deems necessary with reference to such
matters and assumes all responsibility therefor as the same relate to
Lessee's occupancy of the Premises and/or the term of this Lease, and (c)
that neither Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to the said matters other than as
set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises.
In such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent
shall be abated for the period of such early possession. All other terms of
this Lease, however, (including but not limited to the obligations to pay
Real Property Taxes and insurance premiums and to maintain the Premises)
shall be in effect during such period. Any such possession shall not affect
nor advance the Expiration Date of the Original Term.
NET Initials BH
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PAGE 1
<PAGE>
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether proper notice thereof is given Lessee), or
(iii) during the time Lessee is in Breach of this Lease, or (iv) in the event
that Lessor has given to Lessee three (3) or more notices of Default under
Paragraph 13.1, whether or not the Defaults are cured, during the twelve (12)
month period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of Default under Paragraph
13.1 during any twelve (12) month period, whether or not the Defaults are
cured, or (iii) if Lessee commits a Breach of this Lease.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of
third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time,
to grant, with the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of
such entity represents and warrants that he or she is duly authorized to
execute and deliver this lease on its behalf.
45. CONFLICT. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee,
the obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES: THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE; IF THE SUBJECT PROPERTY IS
LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE
WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates
specified above to their respective signatures.
Executed at BURBANK, CA. Executed at BURBANK, CA.
on____________________________________ on____________________________________
by LESSOR: by LESSEE:
INDUSTRIAL BOWLING CORP. HAWKER PACIFIC, INC.
By /s/ BRADLEY D. HOWARD By /s/ DAVID L. LOKKEN
_____________________________________ ____________________________________
Name Printed: BRADLEY D. HOWARD Name Printed: DAVID L. LOKKEN
Title: VICE PRESIDENT Title : PRESIDENT AND CHIEF
EXECUTIVE OFFICER
By By
_____________________________________ ____________________________________
Name Printed: _________________________ Name Printed: ________________________
Title: ________________________________ Title: _______________________________
Address: 1819 W. OLIVE AVE. Address: 11310 SHERMAN WAY
_______________________________ _______________________________
BURBANK, CA. 91506 SUN VALLEY, CA 91352
_______________________________________ _______________________________________
Tel. No. (213) 849-2401 Tel. No. ( )
______________ _________________
Fax No. (213) 849-1721 Fax No. ( )
_______________ __________________
NET
PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA
90071, (213) 687-8777 Fax. No. (213) 687-8616.
DL/BH
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITOR
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated November 7, 1997
(except Note 14, as to which the date is November 13, 1997), in the Registration
Statement Form S-1 and related Prospectus (the Registration Statement) of Hawker
Pacific Aerospace for the registration of 2,766,667 shares of its Common Stock.
Our audit also included the financial statement schedule of Hawker Pacific
Aerospace listed in Item 16(b). The schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audit. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Woodland Hills, CA
The foregoing consent is in the form that will be signed upon the completion of
the restatement of capital accounts described in Note 14 to the financial
statements.
/s/ ERNST & YOUNG LLP
Woodland Hills, CA
December 23, 1997
<PAGE>
CONSENT TO BE NAMED AS DIRECTOR NOMINEE
December 22, 1997
In connection with Hawker Pacific Aerospace's (the "Company") initial
public offering, I, Daniel C. Toomey, hereby consent to be named as a
director nominee in the Company's Registration Statement on Form S-1
(file #: 333-40295).
Very truly yours
/s/ Daniel C. Toomey
--------------------------
Daniel C. Toomey
<PAGE>
CONSENT TO BE NAMED AS DIRECTOR NOMINEE
December 22, 1997
In connection with Hawker Pacific Aerospace's (the "Company") initial
public offering, I, Joel F. McIntyre, hereby consent to be named as a
director nominee in the Company's Registration Statement on Form S-1
(file #: 333-40295).
Very truly yours
/s/ Joel F. McIntyre
--------------------------
Joel F. McIntyre
