<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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
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>
(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 NOVEMBER 14, 1997
HAWKER PACIFIC AEROSPACE
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. The Company has applied to include the Common Stock on
the Nasdaq National Market under the symbol "HPAC."
------------------------
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
<PAGE>
The date of this Prospectus is , 1998.
<PAGE>
<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.
------------------------
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.
------------------------
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. The Company has in excess of 450
customers, several of which have entered into long-term service contracts with
the Company, including Federal Express, American Airlines, the United States
Coast Guard, and US Airways. In September 1997, the Company entered into a
comprehensive letter of intent to purchase, for approximately L13.5 million
(approximately $21.9 million at September 30, 1997), substantially all of the
assets of British Airways' landing gear repair and overhaul operations. The
Company expects to enter into a definitive purchase agreement with British
Airways prior to this Offering and to close the transaction immediately
following completion of this Offering using a substantial portion of the net
proceeds. In connection with the BA Acquisition, the Company expects to enter
into a seven-year exclusive service agreement ("Supply Agreement") to provide
landing gear and related repair and overhaul services to substantially all of
the jet aircraft in British Airways' fleet. 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 9, 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 estimates that the global aircraft fleet grew from 5,000
in 1984 to nearly 12,000 in 1996, and annual worldwide landing gear repair and
overhaul service revenue will exceed $600 million in 2005 from $258 million in
1995. 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 14 managers, who have served the
Company on average for 13 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.
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."
Proposed 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(5)
------------- ----------- ------------ ---------------- ---------------- ---------
(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............... 4,837 5,044 1,059 5,214 3,459 4,118
Restructuring charges(3)....... -- 1,196 -- 1,196 1,196 --
------------- ----------- ------------ ---------------- ---------------- ---------
Income (loss) from
operations................... 1,182 (968) 1,047 795 (245) 2,859
Interest expense, net.......... (1,598) (1,609) (196) (2,305) (1,734) (1,802)
Income tax expense
(benefit)(5)................. (680) (971) 382 (573) (752) 392
------------- ----------- ------------ ---------------- ---------------- ---------
Net income (loss).............. $ 264 $ (1,606) $ 469 $ (937) $ (1,227) $ 665
------------- ----------- ------------ ---------------- ---------------- ---------
------------- ----------- ------------ ---------------- ---------------- ---------
Pro forma net income (loss) per
share........................ $ 0.16 $ (0.32) $ (0.42) $ 0.23
------------ ---------------- ---------------- ---------
Weighted average shares
outstanding.................. 2,897,430 2,897,430 2,897,430 2,897,615
OPERATING AND OTHER DATA:
Capital expenditures........... $ 4,114 $ 1,199 $ 28,553 $ 1,576
Depreciation and
amortization................. 854 819 200 866
EBITDA(6)...................... 2,036 (149) 1,254 3,727
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------
ACTUAL AS ADJUSTED(7)
--------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................ $ 5,582
Total assets........................................................................... 39,399
Total long-term debt (excluding current portion)....................................... 18,063
Total shareholders' equity............................................................. 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 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 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. 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 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 above gives effect to the BTR Transaction as
though it had occurred on January 1, 1996. Such presentation excludes an
operating expense of $947,000 related to the EPA Claim, for which the
Company has been fully indemnified, and includes additional amortization of
goodwill, and increased depreciation and interest expenses.
(5) 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.
6
<PAGE>
(6) EBITDA represents earnings before taking into consideration interest
expense, income tax expense and depreciation and amortization expense and is
not a generally accepted accounting principle ("GAAP") measurement of
income. 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.
(7) 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 a substantial portion 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
8
<PAGE>
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
9
<PAGE>
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
Aerospace 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 ("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, 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.
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 the
10
<PAGE>
Aviation Division, Equipment Division and Precision Rubber Division of Dunlop
Limited (collectively, "Dunlop"). Under 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. 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 ("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. Many of the Company's long-term
service agreements, including its agreements with FedEx and US Airways, 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 continue, or if continued, will
reach or exceed historical levels in any future period. See
"Business--Customers."
11
<PAGE>
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. 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 receivables. The
Company's inability to collect any such significant receivables 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 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,
12
<PAGE>
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
November 1, 2001 with Mr. Lokken and into employment agreements expiring
November 1, 1999 with Messrs. Aune, Carr and Riley. The Company has applied to
obtain key person insurance on the life of Mr. Lokken in the amount of
$1,000,000. 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 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
13
<PAGE>
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."
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
lower 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.
14
<PAGE>
ACQUISITION OF CERTAIN ASSETS OF BRITISH AIRWAYS
On September 11, 1997, the Company signed a comprehensive letter of intent
(the "Letter of Intent") 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. In October 1997, the Company formed Hawker
Pacific Aerospace, Ltd., a company organized and operating under the laws of the
United Kingdom ("HPAUK"), for the purpose of acquiring the BA Assets. The
Company expects to enter into a definitive agreement (the "Acquisition
Agreement") with British Airways prior to this Offering and 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 L13,500,000
(approximately $21,870,000 at September 30, 1997), subject to adjustment to
reflect certain changes to the condition of the assets. The Company will not
assume any debt or liabilities of British Airways except liability for certain
nominal capital expenditures commitments and certain specified contracts between
British Airways and its suppliers. The Letter of Intent 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.
In the event that the Company continues to occupy the premises for more than 135
days after the date the Acquisition Agreement is signed, the Company will be
required to make rental payments of L8,500 per day ($13,770 at September 30,
1997), which amount 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 for at least 12 months following the
closing of the BA Acquisition. The Letter of Intent 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. In addition, the
Company has agreed in the Letter of Intent to take certain actions to enable
British Airways to comply with United Kingdom labor regulations, including
hiring up to 145 of British Airways' current employees (the "British Airways'
Employees") and establishing a new pension plan that provides the British
Airways' Employees with benefits substantially equivalent to those they
currently receive under British Airways' pension plan. The Letter of Intent
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.
In connection with the BA Acquisition, the Company expects to enter into an
exclusive seven-year service agreement (the "Supply 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 components for substantially all of the jet aircraft in
British Airways' fleet. In exchange for the Company's repair and overhaul
services, British Airways will pay the Company a fixed overhaul fee per landing
gear shipset, variable fees for "over and above" work and miscellaneous fees for
other services. The fixed overhaul fee to the Company under the Supply Agreement
will be in the range of L69,935 to L297,500 (approximately $113,295 to $481,950
at September 30, 1997), depending on the type of aircraft serviced. In addition,
the Supply Agreement will obligate British Airways to pay the Company an
inventory access fee based on the value of rotable spares the Company has
dedicated to the support of British Airways' fleet, estimated to be L1,750,000
($2,835,000 at September 30, 1997) in the first year based upon the current
estimate of the amount of inventory required during the first year, which is
expected to fluctuate over the term of the Supply Agreement. Repair and overhaul
of spare parts and components will be separately charged on a time and materials
basis. The Letter of Intent provides that British Airways will have the right to
terminate the Supply Agreement with respect to a specific type of aircraft or
the entire agreement, in the event that the quality of the Company's services
fails to meet certain standard
15
<PAGE>
performance criteria. In addition, the Company will be required to indemnify
British Airways against losses arising from material breaches of the Supply
Agreement, the Company's failure to comply with certain United Kingdom
regulatory requirements, willful or negligent acts of the Company and
infringement of any intellectual property rights of British Airways.
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 $41 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.
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<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
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 $
--------- ----------- -------
--------- ----------- -------
</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 $41 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."
17
<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 11.5% $ 0.94
-----
New public investors.................................... 2,600,000 44.7 $ 23,400 88.5 $ 9.00
---------- ----- --------- -----
Total................................................. 5,822,222 100.0% 24,037 100.0%
---------- ----- --------- -----
---------- ----- --------- -----
</TABLE>
18
<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(8)
------- ------- ------- ---------- ------------ ----------------- --------- ---------
(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............ 3,861 5,332 4,837 5,044 1,059 5,214 3,459 4,118
Restructuring charges(4).... -- -- -- 1,196 -- 1,196 1,196 --
------- ------- ------- ---------- ------------ ----------------- --------- ---------
Income (loss) from
operations................ 842 1,586 1,182 (968) 1,047 795 (245) 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 (1,510) (1,979) 1,057
Income tax expense
(benefit)(6).............. (24) 29 (680) (971) 382 (573) (752) 392
------- ------- ------- ---------- ------------ ----------------- --------- ---------
Net income (loss)........... $ 168 $ 1,050 $ 264 $(1,606) $ 469 $ (937) $ (1,227) $ 665
------- ------- ------- ---------- ------------ ----------------- --------- ---------
------- ------- ------- ---------- ------------ ----------------- --------- ---------
Pro forma net income (loss)
per share................. $ 0.16 $ (0.32) $ (0.42) $ 0.23
------------ ----------------- --------- ---------
------------ ----------------- --------- ---------
Weighted average shares
outstanding............... 2,897,430 2,897,430 2,897,430 2,897,615
OPERATING AND OTHER DATA:
Capital expenditures........ $ 996 $ 4,114 $ 1,199 $ 28,553 $ 1,576
Depreciation and
Amortization.............. 756 854 819 200 866
EBITDA(7)................... 2,342 2,036 (149) 1,254 3,727
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR(1)
-------------------------------
SUCCESSOR(1)
DECEMBER 31, ------------------------
------------------------------- DECEMBER SEPTEMBER
1993 1994 1995 31, 1996 30, 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, 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. 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 nine months
ended September 30, 1996 includes 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 above gives effect to the BTR Transaction as
though it had occurred on January 1, 1996. Such presentation excludes an
operating expense of $947,000 related to the EPA Claim, for which the
Company has been fully indemnified, and includes additional amortization of
goodwill, and increased depreciation and interest expenses.
(6) 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.
(7) EBITDA represents earnings before taking into consideration interest
expense, income tax expense and depreciation and amortization expense and is
not a generally accepted accounting principle ("GAAP") measurement of
income. 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.
(8) 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 soon 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."
20
<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
"C" corporation to provide aircraft parts distribution and sales to the aviation
industry. In 1987, the Company acquired Flight Accessory Services, a landing
gear and aircraft component repair and overhaul operation. In 1991, BTR, a
United Kingdom company, acquired the Company.
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 amending its existing contract with FedEx to include additional
wide-body landing gear repair and overhaul services to support FedEx's fleet of
Airbus A310 aircraft and FedEx's program to convert DC10 aircraft to MD10 cargo
carriers.
The Company expects to enter into a seven-year exclusive service agreement
with British Airways in connection with the BA Acquisition to provide landing
gear and related component repair and overhaul services to substantially all of
the jet aircraft in British Airways' fleet.
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statement
of operations data of the Company.
<TABLE>
<CAPTION>
(dollars in thousands)
SUCCESSOR
-------------------------------------
NINE MONTHS ENDED
PREDECESSOR ------------------------
-------------------- 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 5,214 3,459 4,118
Restructuring charges related to
closure of Miami operations......... -- -- 1,196 1,196 --
--------- --------- ----------- ----------- -----------
Operating income (loss)............... 1,586 1,182 795 (245) 2,859
Interest expense, net................. (507) (1,598) (2,305) (1,734) (1,802)
--------- --------- ----------- ----------- -----------
Income (loss) before income taxes..... 1,079 (416) (1,510) (1,979) 1,057
Income tax expense (benefit).......... 29 (680) (573) (752) 392
--------- --------- ----------- ----------- -----------
Net income (loss)..................... $ 1,050 $ 264 $ (937) $ (1,227) $ 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 13.4 11.7 13.7
Restructuring charges related to
closure of Miami operations.......... -- -- 3.1 4.0 --
----- ----- ----- ----- -----
Operating income (loss)................ 5.0 3.4 2.0 (0.8) 9.5
Interest expense, net.................. (1.6) (4.6) (5.9) (5.9) (6.0)
----- ----- ----- ----- -----
Income (loss) before income taxes...... 3.4 (1.2) (3.9) (6.7) 3.5
Income tax expense (benefit)........... 0.1 (1.9) (1.5) (2.5) 1.3
----- ----- ----- ----- -----
Net income (loss)...................... 3.3% 0.7% (2.4)% (4.2)% 2.2%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
22
<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.
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 increased
$659,000, or 19.1% to $4,118,000 from $3,459,000 for the nine months ended
September 30, 1996. Selling, general and administrative expense increased as a
percent of revenues to 13.7% from 11.7% for the comparable period in the prior
year. The increases were a result of 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.
OPERATING INCOME. Operating income for the nine months ended September 30,
1997 increased $3,104,000 to $2,859,000 or 9.5% of total revenues compared to an
operating loss of $245,000 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 and charges to cost of revenues
of
23
<PAGE>
$1,063,000 related to the closure of Dunlop Miami. 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 ($752,000) 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
$1,892,000 from the net loss of $1,227,000 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, 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
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.
24
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for Fiscal 1996 increased $377,000 or 7.8% to $5,214,000
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 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 decreased
as a percent of revenues to 13.4% for Fiscal 1996 from 13.8% for Fiscal 1995 as
a result of increased revenues in Fiscal 1996 over Fiscal 1995.
OPERATING INCOME. Operating income for Fiscal 1996 declined $387,000 to
$795,000 or 2.0% 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.
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 ($573,000)
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 $(937,000) represented a decrease of $1,201,000 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 is negotiating a new credit
facility with a financial institution to increase the amount of its available
borrowings to $41 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 expects to enter into the Supply
Agreement which it anticipates will result in substantial revenue from the
repair and overhaul services and related spare parts provided to British
Airways' fleet of aircraft. 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
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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 July 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 a facility in the United Kingdom in
connection with the BA Acquisition, and has identified a possible site. Although
the Letter of Intent permits the Company to occupy temporarily the premises in
which the BA Assets are currently housed, beginning 136 days after the date the
Acquisition Agreement is signed, the Company will be required to make rental
payments of L8,500 per day ($13,770 at September 30, 1997), which amount will be
proportionately reduced as the Company returns space to British Airways.
Assuming it can enter into a lease for a new facility by January 1998, the
Company believes it will be able to relocate a substantial portion of the
facilities within the first 135 day period, but that plating operations as well
as certain other areas will remain at the British Airways location for at least
12 months. The Company has budgeted approximately $1.4 million in occupancy
expenses for the first 12 months after the BA Acquisition, although there can be
no assurance that this estimate will not be exceeded. The Company believes sales
from the BA Supply Agreement will be more than sufficient to cover occupancy
costs.
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
capital expenditures of approximately $2 million to relocate the British
Airways' landing gear operations to a new facility, which includes 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.
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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 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. The Company has in excess of 450 customers, several of which have
entered into long-term service contracts with the Company, including FedEx,
American Airlines, the USCG, and US Airways. In September 1997, the Company
entered into a comprehensive letter of intent to purchase, for approximately
L13.5 million (approximately $21.9 million at September 30, 1997), substantially
all of the assets of British Airways' landing gear repair and overhaul
operations. The Company expects to enter into a definitive purchase agreement
with British Airways prior to this Offering and to close the transaction
immediately following completion of this Offering using a substantial portion of
the net proceeds. In connection with the BA Acquisition, the Company expects 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 jet aircraft in British Airways' fleet. 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
August 1997, an industry analyst 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 70% through
the year 2005. 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 grew from 4,948 in 1984 to
approximately 11,500 in 1996 and will grow from 11,500 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.
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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 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 August 1997, an industry analyst estimated outsourced military and
government markets and third party markets to be $9 billion and $12 billion,
respectively. 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. Industry analysts also estimated in August 1997 that
approximately 40%, 35% and 95%, respectively, of commercial, military and
general aviation functions are currently outsourced. Having recently awarded to
the Company their first 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 nose landing gear 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
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<PAGE>
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 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.
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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 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.
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The following table sets forth: (i) the type of aircraft landing gear the
Company overhauls; (ii) the estimated cost to purchase new landing gear from the
OEM; (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.
Production Federal Express
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. Federal Express
British Airways
United Airlines
A300 $5.5 mil $ 400,000 8-10 yrs. Federal Express
A310 $4.5 mil $ 400,000 8-10 yrs. Federal Express
</TABLE>
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 90 OEMs, including Abex, Dunlop, Boeing, Lockheed, Parker
Hannifin, Messier-Bugatti and Intertechnique, 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.
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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, British Midlands, United Airlines,
Continental Airlines, Continental Express and Westair. 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's agreement with FedEx may be terminated
by FedEx upon providing the Company with 60 days' prior written notice. See
"Risk Factors--Customer Concentration; Concentration of Credit Risks." 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
automatically renews through the year 2000 unless terminated by the USCG. 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."
MANAGEMENT INFORMATION SYSTEMS AND QUALITY ASSURANCE
The Company believes that its management information systems are among the
most advanced in its industry. The Company developed its system in 1992 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
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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 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. The Company, however, does have separate 10-year agreements that each
expire in October 2006 with Dunlop pursuant to which, among other things, the
Company purchases Dunlop parts at a
34
<PAGE>
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
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, the United Kingdom, the Peoples' Republic of China and
Peru. 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.
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<PAGE>
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 is 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 9, 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 estimates that the world aircraft fleet grew from 5,000 in 1984 to
nearly 12,000 in 1996, and annual worldwide landing gear repair and overhaul
service revenue will exceed $600 million in 2005 from $258 million in 1995. 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 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.
36
<PAGE>
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 14 managers, who have served the
Company on average for 13 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, Sikorsky 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. The Company has separate 10-year agreements each
of which expire in October 2006 with three divisions of Dunlop pursuant to
which, among other things, 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 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,
37
<PAGE>
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 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
38
<PAGE>
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 234 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.
FACILITIES
The Company's principal executive offices and production facilities are
located in Sun Valley, California. The Company occupies the premises, comprising
approximately 196,000 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
39
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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
</TABLE>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Nominating Committee
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 analytical and management positions with Dunlop Aviation, BEI
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 in charge of the Company's Landing
Gear Division since he joined the Company in January 1993. From 1985 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 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.
DANIEL J. LUBECK joined the Company as Secretary and a director in December
1996. Since March 1995, 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 &
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<PAGE>
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 1990 until he founded Unique, Mr. Makoff served as Vice President of
Sales for Computerland of Pasadena, Inc., a computer reseller. Mr. Makoff holds
a B.A. from Lewis & Clark University.
The Board of Directors intends to establish an Audit Committee and a
Compensation Committee. The functions of the Audit Committee will 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 will 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 (who have not been selected) join the
Board of Directors. The Board of Directors also intends to establish a
nominating committee whose function will be 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.
FUTURE KEY EMPLOYEE
RICHARD ADEY is expected to become the Company's Managing Director of UK
Operations following the BA Acquisition. Since 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.
DIRECTOR COMPENSATION
Following the Offering, each non-employee Director will receive a cash fee
of $1,500 per Board meeting attended in person and $1,000 per telephonic Board
meeting and an additional $500 per month for each committee which such Director
is a member. Each non-employee Director is expected to receive, as additional
director compensation, options 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
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<PAGE>
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 50% was paid in 1996 and 50% 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 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
43
<PAGE>
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 six-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 $9 per share or, in the event of an
initial public offering, the exercise price will be changed to 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 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
222,222 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
44
<PAGE>
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 who continue in the
employ of the Company until their retirement. 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 is responsible for making determinations on questions of
administration, interpretation and application of Pension Plan terms, including
questions of eligibility, service and distribution of plan benefits to
participants.
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 plan will be reduced for any
benefits payable (or paid) from the Defined Benefit Pension Plan of the
Company's predecessors with respect to service credited under this plan.
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.
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
45
<PAGE>
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>
46
<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.
47
<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 approximately
$29.8 million provided through a combination of bank debt and funds in the
aggregate amount of $8.5 million provided by Melanie L. Bastian, a principal
shareholder and former director of the Company, consisting of subordinated debt
and cash in return for the issuance of Preferred Stock. 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, Aqhawk issued to Ms. Bastian a
subordinated promissory note (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."
In addition, pursuant to a Limited Guaranty dated as of November 27, 1996 by
Melanie L. Bastian in favor of Bank of America, in consideration of the debt
financing provided by Bank of America to the Company in connection with the BTR
Transaction, Ms. Bastian has guaranteed the Company's payment obligations. The
Company has arranged for Ms. Bastian's guarantee to be released upon the
consummation of this Offering.
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.
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).
48
<PAGE>
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.
49
<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.
50
<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.
51
<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.
52
<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 five years
commencing one year from the date of this Prospectus. The holders of the
Representatives' Warrants will have no voting, dividend or other shareholders'
rights until the Warrants are exercised. The Company has granted the
Representatives certain registration rights related to the Representatives'
Warrants.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
53
<PAGE>
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 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
54
<PAGE>
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.
55
<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-25
For the nine months ended September 30, 1996 (unaudited)............................ F-26
Notes to Unaudited Pro Forma Statements of Operations................................. F-27
</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........ $ 0.16 $ 0.23
----------- ----------
----------- ----------
Weighted average shares outstanding........ 2,897,430 2,897,615
----------- ----------
----------- ----------
</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.................................. $ -- $ -- $35,056,000 $ --
Fair market value of liabilities assumed.............................. -- -- (5,253,000) --
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....................................................................... (937,000)
Net loss per share............................................................. (0.32)
</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 weighted average number of shares of common stock whose
presumed proceeds are to 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................................. $ 0.24 $ 0.17
----- -----
----- -----
</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.
F-21
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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
F-22
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. PROPOSED INITIAL PUBLIC OFFERING AND OTHER SUBSEQUENT EVENTS (CONTINUED)
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-23
<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-24
<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 (889)(2) 2,441
Restructuring charges.................................. 1,196 -- -- 1,196
----------- ------------ ----------- ------------
6,240 1,059 (889) 6,410
----------- ------------ ----------- ------------
Income (loss) from operations............................ (968) 1,047 716 795
Other:
Interest and other income.............................. -- 7 -- 7
Interest expense....................................... (1,609) (203) (500) 2,312
----------- ------------ ----------- ------------
Income (loss) before taxes............................... (2,577) 851 216 (1,510)
Provision (benefit) for income taxes..................... (971) 382 16(4) (573)
----------- ------------ ----------- ------------
Net income (loss)........................................ $ (1,606) $ 469 $ 200 $ (937)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
Net earnings per share................................... $ 0.16 $ (0.32)
Average shares outstanding............................... 2,897,430 2,897,430
</TABLE>
See accompanying notes to pro forma financial statements.
F-25
<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 (887 (2) 3,459
Restructuring charges........................................ 1,196 -- 1,196
------------- ------------ -------------
5,542 (887) 4,655
------------- ------------ -------------
Income (loss) from operations.................................. (993) 748 (245)
Other:
Interest expense (1,449) (285 (3) (1,734)
------------- ------------ -------------
Income (loss) before taxes..................................... (2,442) 463 (1,979)
Provision (benefit) for income taxes........................... (928) 176(4) (752)
------------- ------------ -------------
Net income (loss).............................................. $ (1,514) $ 287 $ (1,227)
------------- ------------ -------------
------------- ------------ -------------
Net earnings (loss) per share.................................. $ (0.42)
Average shares outstanding..................................... 2,897,430
</TABLE>
See accompanying notes to pro forma financial statements.
F-26
<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
C -- Environmental remediation cost (947,000) (947,000)
---------- -----------------
$ (887,000) $ (889,000)
---------- -----------------
---------- -----------------
</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>
C -- Amount includes an adjustment of $947,000 to remove all 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 and would not have incurred any of the described costs
had the acquisition occurred on January 1, 1996.
F-27
<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. In addition, the adjustment includes $56,084
of amortization related to total deferred financing costs of $336,500, which
were capitalized in connection with the financing of the Acquisition. Such
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-28
<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................................ 16
Dividend Policy................................ 16
Capitalization................................. 17
Dilution....................................... 18
Selected Financial Data........................ 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 21
Business....................................... 28
Management..................................... 41
Certain Transactions........................... 48
Principal and Selling Shareholders............. 50
Description of Capital Stock................... 51
Shares Eligible For Future Sale................ 52
Underwriting................................... 53
Legal Matters.................................. 54
Experts........................................ 54
Additional Information......................... 54
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
HAWKER PACIFIC AEROSPACE
[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....................... 40,000
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.......................................... 156,780
----------
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.*
3.1 Amended and Restated Articles of Incorporation of the Company.
3.2 Amended and Restated Bylaws of the Company.
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.
10.2 Employment Agreement dated November 1, 1996 between the Company and David
L. Lokken.
10.3 Employment Agreement dated November 1, 1996 between the Company and Brian
S. Aune.
10.4 Employment Agreement dated November 1, 1996 between the Company and Brian
S. Carr.
10.5 Employment Agreement dated November 1, 1996 between the Company and
Michael A. Riley.
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.
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.
10.9 Repair, Overhaul, Exchange, Warranty and Distribution Agreement dated
November 1, 1996 between the Company and Dunlop Limited, Aviation
Division.+
10.10 Distribution Agreement dated November 1, 1996 between the Company and
Dunlop Limited, Precision Rubber.
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.+
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
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.
10.16 Management Services Agreement dated November 14, 1997 between the Company
and Unique Investment Corp.
10.17 Mergers and Acquisitions Agreement dated September 2, 1997 between the
Company and Unique Investment Corp.
10.18 Subordinated Note for $6,500,000 in favor of Melanie Bastian.*
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).*
24.1 Power of Attorney (contained in Part II).
27.1 Financial Data Schedule
</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.
(b) The following schedules supporting the financial statements are included
herein:
Schedule II--Valuation and Qualifying Accounts
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
II-5
<PAGE>
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 Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sun Valley, State of
California, on November 14, 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
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 November 14, 1997
Scott W. Hartman
Chief Executive Officer
/s/ DAVID L. LOKKEN (Principal Executive
- ------------------------------ Officer), President and November 14, 1997
David L. Lokken Director
Vice President and Chief
/s/ BRIAN S. AUNE Financial Officer
- ------------------------------ (Principal Financial and November 14, 1997
Brian S. Aune Accounting Officer)
/s/ DANIEL J. LUBECK
- ------------------------------ Director November 14, 1997
Daniel J. Lubeck
/s/ JOHN G. MAKOFF
- ------------------------------ Director November 14, 1997
John G. Makoff
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.*
3.1 Amended and Restated Articles of Incorporation of the Company.
3.2 Amended and Restated Bylaws of the Company.
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.
10.2 Employment Agreement dated November 1, 1996 between the Company and David
L. Lokken.
10.3 Employment Agreement dated November 1, 1996 between the Company and Brian
S. Aune.
10.4 Employment Agreement dated November 1, 1996 between the Company and Brian
S. Carr.
10.5 Employment Agreement dated November 1, 1996 between the Company and
Michael A. Riley.
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.
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.
10.9 Repair, Overhaul, Exchange, Warranty and Distribution Agreement dated
November 1, 1996 between the Company and Dunlop Limited, Aviation
Division.+
10.10 Distribution Agreement dated November 1, 1996 between the Company and
Dunlop Limited, Precision Rubber.
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.+
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.
10.16 Management Services Agreement dated November 14, 1997 between the Company
and Unique Investment Corp.
10.17 Mergers and Acquisitions Agreement dated September 2, 1997 between the
Company and Unique Investment Corp.
10.18 Subordinated Note for $6,500,000 in favor of Melanie Bastian.*
21.1 Subsidiaries of the Company.*
23.1 Consent of Ernst & Young LLP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit
5.1).*
24.1 Power of Attorney (contained in Part II).
27.1 Financial Data Schedule
</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.
<PAGE>
CERTIFICATE OF AMENDMENT AND
RESTATEMENT OF
ARTICLES OF INCORPORATION
OF
HAWKER PACIFIC, INC.
David Lokken and Daniel Lubeck certify that:
They are the duly appointed and acting President and Secretary,
respectively, of Hawker Pacific Inc., a California corporation (the
"Corporation").
The Articles of Incorporation of the Corporation are hereby amended
and restated in their entirety as set forth on Exhibit A attached hereto.
The amendments and restatement herein set forth have been duly
approved by the Board of Directors.
The amendments herein set forth have been duly approved by the
required vote of the shareholders in accordance with Sections 902 and 903 of
the California Corporations Code. The Corporation has 5,177 shares of Common
Stock and 400 shares of Series A Preferred Stock Outstanding. The number of
shares voting in favor of the amendments equaled or exceeded the vote
required. The percentage vote required was a majority of the voting power of
the outstanding shares of Common Stock and a majority of the voting power of
the outstanding shares of Preferred Stock.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Dated: November 13, 1997
/s/ DAVID LOKKEN
-----------------------
David Lokken, President
/s/ DANIEL LUBECK
------------------------
Daniel Lubeck, Secretary
<PAGE>
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
HAWKER PACIFIC AEROSPACE
I.
The name of this corporation is Hawker Pacific Aerospace.
II.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be incorporated
by the California Corporations Code.
III.
A. The total number of shares of stock which this corporation shall
have authority to issue is 25,000,000, consisting of 20,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock.
B. Each share of Common Stock outstanding as of the effective date
of filing of this Amended and Restated Articles of Incorporation shall, upon
the filing of this Amended and Restated Articles of Incorporation,
automatically and without further action be split into 579.48618 outstanding
shares of Common Stock.
C. The corporation currently has one series of Preferred Stock
outstanding entitled "Series A Preferred Stock," of which 400 shares are
issued and outstanding. The Series A Preferred Stock shall be nonvoting,
shall have no mandatory redemption provision, and have a liquidation
preference in any bankruptcy proceeding, as defined in California Corporation
Code Section 172. All shares of Series A Preferred Stock issued and
outstanding shall, upon the closing of a bona fide underwritten public
offering of Common Stock of the corporation registered under the Securities
Act of 1933, as amended, automatically and without further action be
converted into an aggregate of 222,222 outstanding shares of Common Stock.
D. No fractional shares shall be issued.
2.
<PAGE>
E. The Board of Directors is hereby empowered, by resolution or
resolutions adopted from time to time, to authorize the issuance of one or
more series of Preferred Stock, to fix the number of shares of any series of
Preferred Stock, and to determine the designation of any such series of
Preferred Stock. The Board of Directors is also authorized to determine or
alter the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and, within the
limits and restrictions stated in any resolution or resolutions of the Board
of Directors originally fixing the number of shares constituting any series,
to increase or decrease (but not below the number of shares of such series
then outstanding) the number of shares of any such series subsequent to the
issuance of shares of that series.
IV
A. This Article FOUR shall become effective only when this
corporation becomes a listed corporation within the meaning of Section 301.5
of the California General Corporations Law ("California Law"), which section
provides that a listed corporation means a corporation with outstanding
shares listed on the New York Stock Exchange or the American Stock Exchange
or a corporation with outstanding securities designated as qualified for
trading as a national market system security on the National Association of
Securities Dealers Automatic Quotation System (or any successor national
market system) if the corporation has at least 800 holders of its equity
securities as of the record date of the corporation's most recent annual
meeting of shareholders.
B. Upon the effectiveness of this Article FOUR, the Board of
Directors shall be classified into two classes, as nearly equal in numbers as
the then total number of directors constituting the entire Board of Directors
permits, the members of each class to serve for a term of two years. If the
number of directors is not divisible by two, the extra director shall be
assigned to the first class of directors.
C. Upon the effectiveness of this Article FOUR, the election of
directors by the shareholders shall not be by cumulative voting. At each
election of directors, each shareholder entitled to vote may vote all the
shares held by that shareholder for each of several nominees for director up
to the number of directors to be elected. The shareholder may not cast more
votes for any single nominee than the number of shares held by the
shareholder.
D. At the first annual meeting of shareholders held after the
effectiveness of this Article FOUR, directors of
3.
<PAGE>
the first class shall be elected to hold office for a term expiring at the
next succeeding annual meeting of shareholders, and directors of the second
class shall be elected to hold office for a term expiring at the second
succeeding annual meeting of shareholders. At each subsequent annual meeting
of shareholders, the successors to the class of directors whose term shall
then expire shall be elected to hold office for a term expiring at the second
succeeding annual meeting of shareholders.
E. If at any time this corporation ceases to be a listed corporation
as defined in Section 301.5 of the California Law, at each succeeding annual
meeting of shareholders where the existing term of a class of directors is
expiring, the directors of each such class shall then be elected for a term
expiring in one year until all directors are elected for one year terms. The
election of all directors at the annual meeting of shareholders for a term of
one year shall continue until the corporation once again qualifies as a
listed corporation within the meaning of Section 301.5 of the California Law,
and the foregoing provisions of this Article FOUR shall be reinstated.
V.
Upon the completion of a bona fide underwritten public offering of
Common Stock of this corporation registered under the Securities Act of 1933,
as amended, no action required to be taken or which may be taken at any
annual or special meeting of shareholders of the corporation may be taken by
written consent of shareholders.
VI.
The liability of the directors of this corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
VII.
This corporation is authorized to indemnify the agents (as defined in
Section 317 of the Corporations Code) of this corporation to the fullest
extent permissible under California law. Any amendment, repeal or
modification of any provision of this Article VII shall not adversely affect
the right or protection of an agent of this corporation existing at the time
of such amendment, repeal or modification.
4.
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
HAWKER PACIFIC AEROSPACE
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES. The board of directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office
is located outside this state, and the corporation has one or more business
offices in this state, the board of directors shall fix and designate a
principal business office in the State of California.
Section 2. OTHER OFFICES. The board of directors or officers of
the corporation may at any time establish branch or subordinate offices at
any place or places where the corporation is qualified to do business.
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be
held at any place within or outside the State of California designated by the
board of directors. In the absence of any such designation, shareholders'
meetings shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING. The annual meeting of shareholders
shall be held each year on a date and at a time designated by the board of
directors. At each annual meeting directors shall be elected, and any other
proper business may be transacted.
Section 3. SPECIAL MEETING. A special meeting of the shareholders
may be called at any time by the board of directors, or by the chairman of
the board, or by the president, or by one or more shareholders holding shares
in the aggregate entitled to cast not less than 10% of the votes at that
meeting.
1.
<PAGE>
If a special meeting is called by any person or persons other than
the board of directors, the request shall be in writing, specifying the time
of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the chairman of the board,
the president, any vice president, or the secretary of the corporation. The
officer receiving the request shall cause notice to be promptly given to the
shareholders entitled to vote, in accordance with the provisions of Sections
4 and 5 of this Article II, that a meeting will be held at the time requested
by the person or persons calling the meeting, not less than thirty-five (35)
nor more than sixty (60) days after the receipt of the request. If the
notice is not given within twenty (20) days after receipt of the request, the
person or persons requesting the meeting may give the notice. Nothing
contained in this paragraph of this section 3 shall be construed as limiting,
fixing or affecting the time when a meeting of shareholders called by action
of the board of directors may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of
meetings of shareholders shall be sent or otherwise given in accordance with
Section 5 of this Article II not less than ten (10) nor more than sixty (60)
days before the date of the meeting. The notice shall specify the place,
date and hour of the meeting and (i) in the case of a special meeting, the
general nature of the business to be transacted, or (ii) in the case of the
annual meeting, those matters which the board of directors, at the time of
giving the notice, intends to present for action by the shareholders. The
notice of any meeting at which directors are to be elected shall include the
name of any nominee or nominees whom, at the time of the notice, management
intends to present for election.
If action is proposed to be taken at any meeting for approval of
(i) a contract or transaction in which a director has a direct or indirect
financial interest, pursuant to Section 310 of the Corporations Code of
California, (ii) an amendment of the articles of incorporation, pursuant to
Section 902 of that Code, (iii) a reorganization of the corporation, pursuant
to Section 1201 of that Code, (iv) a voluntary dissolution of the
corporation, pursuant to Section 1900 of that Code, or (v) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of that Code, the notice shall also state
the general nature of that proposal.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of
any meeting of shareholders shall be given either personally or by
first-class mail or telegraphic or other written communication, charges
prepaid, addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice; PROVIDED HOWEVER, if the corporation's
outstanding shares are held of record by 500 or more persons on
2.
<PAGE>
the record date for the shareholders' meeting, such notice may be sent by
third class mail. If no such address appears on the corporation's books or
is given, notice shall be deemed to have been given if sent to that
shareholder by first-class mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least
once in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by telegram or other
means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the
shareholder at that address, all future notices or reports shall be deemed to
have been duly given without further mailing if these shall be available to
the shareholder on written demand of the shareholder at the principal
executive office of the corporation for a period of one year from the date of
the giving of the notice.
An affidavit of the mailing or other means of giving any notice of
any shareholders' meeting shall be executed by the secretary, assistant
secretary, or any transfer agent of the corporation giving the notice, and
shall be filed and maintained in the minute book of the corporation.
Section 6. QUORUM. The presence in person or by proxy of the
holders of a majority of the shares entitled to vote at any meeting of
shareholders shall constitute a quorum for the transaction of business. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the
shares required to constitute a quorum.
Section 7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of the majority of the shares represented at that
meeting, either in person or by proxy, but in the absence of a quorum, no
other business may be transacted at that meeting, except as provided in
Section 6 of this Article II.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than forty-five (45) days from
the date set for the original meeting, in which case the board of directors
shall set a new record date. Notice of any such adjourned meeting shall be
given to each shareholder of record entitled to vote at the
3.
<PAGE>
adjourned meeting in accordance with the provisions of Sections 4 and 5 of
this Article II. At any adjourned meeting the corporation may transact any
business which might have been transacted at the original meeting.
Section 8. VOTING. The shareholders entitled to vote at any
meeting of shareholders shall be determined in accordance with the provisions
of Section 11 of this Article II, subject to the provisions of Sections 702
to 704, inclusive, of the Corporations Code of California (relating to voting
shares held by a fiduciary, in the name of a corporation, or in joint
ownership). The shareholders' vote may be by voice vote or by ballot;
PROVIDED, HOWEVER, that any election for directors must be by ballot if
demanded by any shareholder before the voting has begun. On any matter other
than elections of directors, any shareholder may vote part of the shares in
favor of the proposal and refrain from voting the remaining shares or vote
them against the proposal, but, if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect
to all shares that the shareholder is entitled to vote. If a quorum is
present, the affirmative vote of the majority of the shares represented at
the meeting and entitled to vote on any matter (other than the election of
directors) shall be the act of the shareholders, unless the vote of a greater
number of voting by classes is required by California General Corporation Law
or by the articles of incorporation.
Except as otherwise provided in the Amended and Restated Articles
of Incorporation or as set forth in this Section 8, each outstanding share of
the capital stock of the corporation, regardless of class, shall be entitled
to one vote on each matter submitted to a vote of shareholders. Except as
otherwise provided in Article FOUR of the Amended and Restated Articles of
Incorporation and Article III, Section 3, below, at any election of
directors, every shareholder complying with this Section 8 and entitled to
vote may cumulate his or her votes and give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of
votes to which the shareholder's shares are entitled, or distribute the
shareholder's votes on the same principal among as many candidates as the
shareholder thinks fit. No shareholder shall be entitled to cumulate votes
(I.E., cast for any one or more candidates a number of votes greater than the
number of the shareholder's shares) unless the candidates' names have been
properly placed in nomination prior to commencement of the voting and a
shareholder has given notice prior to commencement of the voting of the
shareholder's intention to cumulate votes. If any shareholder has given such
a notice, then every shareholder entitled to vote may cumulate votes for
candidates in nomination. The candidates receiving the highest number of
votes, up to the number of directors to be elected, shall be elected.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of shareholders, either
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annual or special, however called and noticed, and wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if
a quorum be present either in person or by proxy, and if, either before or
after the meeting, each person entitled to vote, who was not present in
person or by proxy, signs a written waiver of notice or a consent to a
holding of the meeting, or an approval of the minutes. The waiver of notice
or consent need not specify either the business to be transacted or the
purpose of any annual or special meeting of shareholders, except that if
action is taken or proposed to be taken for approval of any of those matters
specified in the second paragraph of Section 4 of this Article II, the waiver
of notice or consent shall state the general nature of the proposal. All
such waivers, consents or approvals shall be filed with the corporate records
or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver
of notice of that meeting, except when the person objects, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at the meeting.
Section 10. Intentionally Omitted.
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of
any meeting or to vote the board of directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10)
days before the date of any such meeting, and in this event only shareholders
of record on the date so fixed are entitled to notice and to vote,
notwithstanding any transfer of any shares on the books of the corporation
after the record date, except as otherwise provided in the California General
Corporation Law.
If the board of directors does not so fix a record date, the record
date for determining shareholders entitled to notice of or to vote at a
meeting of shareholders shall be at the close of business on the business day
next preceding the day on which notice is given or, if notice is waived, at
the close of business on the business day next preceding the day on which the
meeting is held.
Section 12. PROXIES. Every person entitled to vote for directors
or on any other matter shall have the right to do so either in person or by
one or more agents authorized by a written proxy signed by the person and
filed with the secretary of the corporation. A proxy shall be deemed signed
if the shareholder's name is placed on the proxy (whether by manual
signature, typewriting, telegraphic transmission, or otherwise) by the
shareholder or the shareholder's attorney-in-fact. A validly executed proxy
which does not state that it is irrevocable shall
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continue in full force and effect unless (i) revoked by the person executing
it, before the vote pursuant to that proxy, by a writing delivered to the
corporation stating that the proxy is revoked, or by a subsequent proxy
executed by, or attendance at the meeting and voting in person by, the person
executing the proxy; or (ii) written notice of the death or incapacity of the
maker of that proxy is received by the corporation before the vote pursuant
to that proxy is counted; PROVIDED, HOWEVER, that no proxy shall be valid
after the expiration of eleven (11) months from the date of the proxy, unless
otherwise provided in the proxy. The revocability of a proxy that states on
its face that is irrevocable shall be governed by the provisions of Sections
705(e) and 705(f) of the Corporations Code of California.
Section 13. INSPECTORS OF ELECTION. Before any meeting of
shareholders, the board of directors may appoint any persons other than
nominees for office to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the chairman of
the meeting may, and on the request of any shareholder or a shareholder's
proxy shall, appoint inspectors of election at the meeting. The number of
inspectors shall be either one (l) or three (3). If inspectors are appointed
at a meeting on the request of one or more shareholders or proxies, the
holders of a majority of shares or their proxies present at the meeting shall
determine whether one (l) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
the chairman of the meeting may, and upon the request of any shareholder or a
shareholder's proxy shall, appoint a person to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) (Determine the result; and
(g) Do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
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Section 14. NOMINATIONS FOR DIRECTOR; SHAREHOLDER PROPOSALS.
(a) NOMINATION OF DIRECTORS. Nominations for election of
members of the board of directors may be made by the board of directors or by
any shareholder of any outstanding class of voting stock of the corporation
entitled to vote for the election of directors in accordance with this
Section 14.
(b) OTHER PROPOSALS. Any shareholder of the corporation
entitled to vote at any annual or special meeting of shareholders may make
nominations for the election of directors and other proposals for inclusion
on the agenda of any such meeting provided such shareholder complies with the
timely notice provisions set forth in this Section 14 (as well as any
additional requirements under any applicable law or regulation).
(c) TIMELY NOTICE BY SHAREHOLDERS. A shareholder's notice
shall be delivered to or mailed and received at the principal executive
offices of the corporation (i) in the case of any special meeting and of the
first annual meeting held after the effective date of these Amended and
Restated Bylaws, not less than thirty (30) days nor more than sixty (60) days
prior to the meeting date specified in the notice of such meeting; PROVIDED,
HOWEVER, that if less than forty (40) days' notice or prior public disclosure
of the date of such meeting is given or made to shareholders, notice by
shareholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date
of such meeting was mailed or such public disclosure was made, and (ii) in
the case of any subsequent annual meeting, not less than ninety (90) days
prior to the day and month on which, in the immediately preceding year, the
annual meeting for such year had been held. Such shareholder's notice shall
set forth (A) as to each person whom the shareholder proposes to nominate for
election or re-election as a director, (i) the name, age, business address
and residence address of such person, (ii) the principal occupation or
employment of such person, the class and number of shares of the corporation
which are beneficially owned by such person that are required to be disclosed
in solicitations of the proxies with respect to nominees for election as
directors, pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including, without limitation, such person's written
consent to being named in the proxy statement as a nominee and to serving as
a director, if elected); (B) as to each action item required to be included
on the agenda, a description, in sufficient detail, of the purpose and effect
of the proposal to the extent necessary to properly inform all shareholders
entitled to vote thereon prior to any such vote; and (C) as to the
shareholder giving the notice, (i) the name and address, as they appear on
the corporation's books, of such shareholder and (ii) the class and number of
shares of the corporation which are beneficially owned by such shareholder.
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(d) FAILURE TO PROVIDE TIMELY NOTICE, ETC. No person
nominated by a shareholder shall be elected as a director of the corporation
unless nominated in accordance with the procedures set forth in this Section
14. The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination or other proposal by a shareholder
was not properly brought before the meeting, and, if the Chairman shall so
determine, he shall so declare to the meeting and such nomination or other
proposal shall be disregarded.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the California
General Corporation Law and any limitations in the articles of incorporation
as then in effect and these Amended and Restated Bylaws relating to action
required to be approved by the shareholders or by the outstanding shares, the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
Without prejudice to these general powers, and subject to the same
limitations, the directors shall have the power to:
(a) Select and remove all officers, agents, and employees of
the corporation; prescribe any powers and duties for them that are consistent
with law, with the articles of incorporation, and with these bylaws; fix
their compensation; and require from them security for faithful service.
(b) Change the principal executive office or the principal
business office in the State of California from one location to another;
cause the corporation to be qualified to do business in any other state,
territory, dependency, or country and conduct business within or without the
State of California; and designate any place within or without the State of
California for the holding of any shareholders' meeting, or meetings,
including annual meetings.
(c) Adopt, make and use a corporation seal; prescribe the
forms of certificates of stock; and alter the form of the seal and
certificates.
(d) Authorize the issuance of shares of stock of the
corporation on any lawful terms, in consideration of money paid, labor done,
services actually rendered, debts or securities canceled, or tangible or
intangible property actually received.
(e) Borrow money and incur indebtedness on behalf of the
corporation, and cause to be executed and delivered for the corporation's
purposes, in the corporate name, promissory notes, bonds, debentures, deeds
of trust, mortgages, pledges,
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hypothecations, and other evidences of debt and securities.
Section 2. NUMBER OF DIRECTORS.
(a) The authorized number of directors shall be not less than
five nor more than nine. The exact number of directors shall be fixed from
time to time by resolution of the Board of Directors.
(b) The maximum or minimum authorized number of directors may
only be changed by an amendment of this Section approved by the vote of a
majority of the outstanding shares entitled to vote; PROVIDED, HOWEVER, that
an amendment reducing the minimum number to a number less than five shall not
be adopted if the votes cast against its adoption at a meeting exceed 16-2/3%
of such outstanding shares; and provided further, that in no case shall the
stated maximum authorized number of directors exceed two times the stated
minimum number of authorized directors minus one.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS.
(a) Except as expressly set forth in this Section 3, directors
shall be elected at each annual meeting of the shareholders to hold office
until the next annual meeting. Each director, including a director elected
to fill a vacancy, shall hold office until the expiration of the term for
which elected and until a successor has been elected and qualified.
(b) Upon the effectiveness of Article FOUR of the
corporation's Amended and Restated Articles of Incorporation, the board of
directors shall be classified into two classes, as nearly equal in numbers as
the then total number of directors constituting the entire board of directors
permits the members of each class to serve for a term of two years. If the
number of directors is not divisible by two, the extra director shall be
assigned to the first class of directors.
(c) Upon the effectiveness of Article FOUR of the Amended and
Restated Articles of Incorporation, the election of directors by the
shareholders shall not be by cumulative voting. At each election of
directors, each shareholder entitled to vote may vote all the shares held by
that shareholder for each of several nominees for director up to the number
of directors to be elected. The shareholder may not cast more votes for any
single nominee than the number of shares held by that shareholder.
(d) At the first annual meeting of shareholders held after the
effectiveness Article FOUR of the Amended and Restated Articles of
Incorporation, directors of the first class shall be elected to hold office
for a term expiring at the next succeeding annual meeting of shareholders,
and directors of the second class shall be elected to hold office for a term
expiring at the second succeeding annual meeting of shareholders. At each
subsequent annual meeting of shareholders, the successors to the class of
directors whose term shall then expire shall be elected to hold
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office for a term expiring at the second succeeding annual meeting of
shareholders.
(e) If at any time the corporation ceases to be a listed
corporation defined in Section 301.5 of the California Law, at each
succeeding annual meeting of shareholders where the existing term of a class
of directors is expiring, the directors of each such class shall then be
elected for a term expiring in one year until all directors are elected for
one year terms. The election of all directors at the annual meeting of
shareholders for a term of one year shall continue until the corporation once
again qualifies as listed corporation within the meaning of Section 301.5 of
the California Law, and the foregoing provisions of Article FOUR of the
Amended and Restated Articles of Incorporation can be reinstated.
Section 4. VACANCIES. Vacancies in the board of directors may be
filled by a majority of the remaining directors, though less than a quorum,
or by a sole remaining director, except that a vacancy created by the removal
of a director by the vote of the shareholders, or by court order may be
filled only by the vote of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum is present. Each
director so elected shall hold office until the next annual meeting of the
shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist in the event of the death, resignation, or removal of any director, or
if the board of directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or
convicted of a felony, or if the authorized number of directors is increased,
or if the shareholders fail, at any meeting of shareholders at which any
director or directors are elected, to elect the number of directors to be
voted for at that meeting.
The shareholders may elect a director or directors at any time to
fill any vacancy or vacancies not filled by the directors.
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary, or the board of
directors, unless the notice specifies a later time for that resignation to
become effective. If the resignation of a director is effective at a future
time, the board of directors may elect a successor to take office when the
resignation becomes effective.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
Section 5. PLACE OF MEETING AND MEETINGS BY TELEPHONE. Regular
meetings of the board of directors may be held at any place within or outside
the State of California that has been designated from time to time by
resolution of the board. In the
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absence of such a designation, regular meetings shall be held at the
principal executive office of the corporation. Special meetings of the board
shall be held at any place within or outside the State of California that has
been designated in the notice of the meeting or, if not stated in the notice
or there is no notice, at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in
the meeting can hear one another, and all such directors shall be deemed to
be present in person at the meeting.
Section 6. ANNUAL MEETING. Immediately following each annual
meeting of shareholders, the board of directors shall hold a regular meeting
for the purpose of organization, any desired election of officers, and the
transaction of other business. Notice of this meeting shall not be required.
Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the
board of directors shall be held without call at such time as shall from time
to time be fixed by the board of directors. Such regular meetings may be
held without notice.
Section 8. SPECIAL MEETINGS. Special meetings of the board of
directors for any purpose or purposes may be called at any time by the
chairman of the board or the president or any vice president or the secretary
or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. In case the notice
is mailed, it shall be deposited in the United States mail at least four (4)
days before the time of the holding of the meeting. In case the notice is
delivered personally, or by telephone or telegram, it shall be delivered
personally or by telephone or to the telegraph company at least forty-eight
(48) hours before the time of the holding of the meeting. Any oral notice
given personally or by telephone may be communicated either to the director
or to a person at the office of the director who the person giving the notice
has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose of the meeting nor the place if the
meeting is to be held at the principal executive office of the corporation.
Section 9. QUORUM. A majority of the authorized number of
directors shall constitute a quorum for the transaction of business, except
to adjourn as provided in Section 11 of this Article III. Every act or
decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the
board of directors, subject to the provisions of Section 310 of the
Corporations Code of California (as to approval of contracts or transactions
in which a director has a direct or indirect material financial interest),
Section 311 of that Code (as to appointment of
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committees), and Section 317(e) of that Code (as to indemnification of
directors). A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
Section 10. WAIVER OF NOTICE. The transaction of any meeting of
the board of directors, however called and noticed or wherever held, shall be
as valid as though had at a meeting duly held after regular call and notice
if a quorum is present and if, either before or after the meeting, each of
the directors not present signs a written waiver of notice, a consent to
holding the meeting or an approval of the minutes. The waiver of notice or
consent need not specify the purpose of the meeting. All such waivers,
consents, and approvals shall be filed with the corporate records or made a
part of the minutes of the meeting. Notice of a meeting shall also be deemed
given to any director who attends the meeting without protesting, before or
at its commencement, the lack of notice to that director.
Section 11. ADJOURNMENT. A majority of the directors present,
whether or not constituting a quorum, may adjourn any meeting to another time
and place.
Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given, unless the meeting is
adjourned for more than twenty-four (24) hours, in which case notice of the
time and place shall be given before the time of the adjourned meeting, in
the manner specified in Section 8 of this Article III, to the directors who
were not present at the time of the adjournment.
Section 13. ACTION WITHOUT MEETING. Any action required or
permitted to be taken by the board of directors may be taken without a
meeting, if all members of the board shall individually or collectively
consent in writing to that action. Such action by written consent shall have
the same force and effect as a unanimous vote of the board of directors.
Such written consent or consents shall be filed with the minutes of the
proceedings of the board.
Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and
members of committees may receive such compensation, if any, for their
services, and such reimbursement of expenses, as may be fixed or determined
by resolution of the board of directors. This Section 14 shall not be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee, or otherwise, and receiving
compensation for those services.
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ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors,
to serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any committee, to the extent
provided in the resolution of the board, shall have all the authority of the
board, except with respect to:
(a) the approval of any action which, under the General
Corporation Law of California, also requires shareholder's approval or
approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in
any committee;
(c) the fixing of compensation of the directors for serving on
the board or on any committee;
(d) the amendment or repeal of bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation,
except at a rate or in a periodic amount or within a price range determined
by the board of directors; or
(g) the appointment of any other committees of the board of
directors or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action
of committees shall be governed by, and held and taken in accordance with,
the provisions of Article III of these bylaws, Sections 5 (place of
meetings), 7 (regular meetings), 8 (special meetings and notice), 9 (quorum),
10 (waiver of notice), 11 (adjournment), 12 (notice of adjournment), and 13
(action without meeting), with such changes in the context of those bylaws as
are necessary to substitute the committee and its members for the board of
directors and its members, except that the time of regular meetings of
committees may be determined either by resolution of the board of directors
or by resolution of the committee; special meetings of the committees may
also be called by resolution of the board of directors; and notice of special
meetings of committees shall also be given to all alternate members, who
shall have the right to attend all meetings of the committee. The board of
directors may adopt rules for the government of any committee not
inconsistent with the provisions
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of these bylaws.
ARTICLE V
OFFICERS AND EMPLOYEES
Section 1. OFFICERS. The officers of the corporation shall be a
chief executive officer, a president, a secretary, and a chief financial
officer. The corporation may also have, at the discretion of the board of
directors, a chairman of the board, one or more vice presidents, one or more
assistant secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3
of this Article V. Any number of offices may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article V, shall be chosen by the board of
directors, and each shall serve at the pleasure of the board, subject to the
rights, if any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The board of directors may
appoint, and may empower the president to appoint, such other officers as the
business of the corporation may require, each of whom shall hold office for
such period, have such authority and perform such duties as are provided in
the bylaws or as a board of directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the
rights, if any, of an officer under any contract of employment, any officer
may be removed, either with or without cause, by the board of directors, at
any regular or special meeting of the board, or, except in case of an officer
chosen by the board of directors, by an officer upon whom such power of
removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without prejudice
to the rights, if any, of the corporation under any contract to which the
officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because
of death, resignation, removal, disqualification or any other cause shall be
filled in the manner prescribed in these bylaws for regular appointments to
that office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if
such an officer be elected, shall preside at meetings of the board of
directors and exercise and perform such other powers and
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duties as from time to time may be assigned to him by the board of directors
or prescribed by these bylaws. If there is no president, the chairman of the
board shall in addition be the chief executive officer of the corporation and
shall have the powers and duties prescribed in Section 7 of this Article V.
Section 7. PRESIDENT. Subject to such supervisory powers, if any,
as may be given by the board of directors to the chairman of the board, if
there be such an officer, the president shall be the chief executive officer
of the corporation and shall, subject to the control of the board of
directors, have general supervision, direction, and control of the business
and the officers of the corporation. He shall preside at all meetings of the
shareholders and, in the absence of the chairman of the board, or if there be
none, at all meetings of the board of directors. He shall have the general
powers and duties of management usually vested in the office of president of
a corporation, and shall have such other powers and duties as may be
prescribed by the board of directors or the bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by
the board of directors or, if not ranked, a vice president designated by the
board of directors, shall perform all the duties of the president, and when
so acting shall have all the powers of, and be subject to all the
restrictions upon, the president. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed
for them respectively by the board of directors, the chairman of the board,
the president or the bylaws.
Section 9. SECRETARY. The secretary shall keep or cause to be
kept, at the principal executive office or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and shareholders, with the time and place
of holding, whether regular or special, and, if special, how authorized, the
notice given, the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all
shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates issued for the same, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the shareholders and of the board of directors required by the
bylaws or by law to be given, and he shall keep the seal of the corporation
if one be adopted, in safe custody, and shall have such other powers and
perform such other duties as
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may be prescribed by the board of directors or by the bylaws.
Section 10. CHIEF FINANCIAL OFFICER. The chief financial officer
shall keep and maintain, or cause to be kept and maintained, adequate and
correct books and records of accounts of the properties and business
transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained
earnings, and shares. The books of account shall at all reasonable times be
open to inspection by any directors.
The chief financial officer shall deposit all monies and other
valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the board of directors. He shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all of his transactions as chief financial officer and of
the financial condition of the corporation, and shall have other powers and
perform such other duties as may be prescribed by the board of directors or
the bylaws.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS, AND EXPENSES. For the purposes of
this Article, "agent" means any person who is or was a director, officer,
employee, or other agent of this corporation, or is or was serving at the
request of this corporation as a director, officer, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise, or was a director, officer, employee, or agent of a foreign
or domestic corporation which was a predecessor corporation of this
corporation or of another enterprise at the request of such predecessor
corporation; "proceeding" means any threatened, pending or completed action
or proceeding, whether civil, criminal, administrative, or investigative; and
"expenses" includes, without limitation, attorneys' fees and any expenses of
establishing a right to indemnification under Section 4 or Section 5(c) of
this Article.
Section 2. ACTIONS OTHER THAN BY THE CORPORATION. Subject to the
provisions of Section 5, Section 8 and Section 9 of this Article, this
corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, to any proceeding (other than an action by or
in the right of this corporation) by reason of the fact that such person is
or was an agent of this corporation, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceeding if that person acted in good faith and in a manner that
person reasonably believed to be in the best interests of
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this corporation and, in the case of a criminal proceeding, had no reasonable
cause to believe the conduct of that person was unlawful. The termination of
any proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which the person
reasonably believed to be in the best interests of this corporation or that
the person had reasonable cause to believe that the person's conduct was
unlawful.
Section 3. ACTIONS BY THE CORPORATION. Subject to the provisions
of Section 5, Section 8 and Section 9 of this Article, this corporation shall
indemnify any person who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed action by or in the right of
this corporation to procure a judgment in its favor by reason of the fact
that person is or was an agent of this corporation, against expenses actually
and reasonably incurred by that person in connection with the defense or
settlement of that action if that person acted in good faith, in a manner
that person believed to be in the best interests of this corporation and with
such care, including reasonable inquiry, as an ordinarily prudent person in a
like position would use under similar circumstances. No indemnification
shall be made under this Section 3:
(a) In respect of any claim, issue or matter as to which that
person shall have been adjudged to be liable to this corporation in the
performance of that person's duty to this corporation, unless and only to the
extent that the court in which that action was brought shall determine upon
application that, in view of all the circumstances of the case, that person
is fairly and reasonably entitled to indemnity for the expenses which the
court shall determine;
(b) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, without court approval; or
(c) Of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposed of without court approval.
Section 4. SUCCESSFUL DEFENSE BY AGENT. To the extent that an
agent of this corporation has been successful on the merits in defense of any
proceeding referred to in Sections 2 or 3 of this Article, or in defense of
any claim, issue, or matter therein, the agent shall be indemnified against
expenses actually and reasonably incurred by the agent in connection
therewith.
Section 5. REQUIRED APPROVAL. Except as provided in Section 4 of
this Article, any indemnification under this Article shall be made by this
corporation only if authorized in the specific case on a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Sections 2 or 3 of
this Article, by:
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(a) A majority vote of a quorum consisting of directors who
are not parties to the proceeding;
(b) Approval by the affirmative vote of a majority of the
shares of this corporation entitled to vote represented at a duly held
meeting at which a quorum is present. For this purpose, the shares owned by
the person to be indemnified shall not be considered outstanding or entitled
to vote thereon; or
(c) The court in which the proceeding is or was pending, on
application made by this corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney, or other person is opposed by this
corporation.
Section 6. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this corporation before the final disposition
of the proceeding on receipt of an undertaking by or on behalf of the agent
to repay the amount if it shall be determined ultimately that the agent is
not entitled to be indemnified as authorized in this Article.
Section 7. OTHER CONTRACTUAL RIGHTS. Nothing contained in this
Article shall affect any right to indemnification to which persons other than
directors and officers of this corporation or any subsidiary hereof may be
entitled by contract or otherwise.
Section 8. LIMITATIONS. No indemnification or advance shall be
made under this Article, except as provided in Section 4 or Section 5(c), in
any circumstance where it appears:
(a) That it would be inconsistent with a provision of the
articles, a resolution of the shareholders, or an agreement in effect at the
time of the accrual of the alleged cause of action asserted in the proceeding
in which the expenses were incurred or other amounts were paid, which
prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 9. INSURANCE. Upon and in the event of a determination by
the board of directors of this corporation to purchase such insurance, this
corporation shall purchase and maintain insurance on behalf of any agent of
the corporation against any liability asserted against or insured by the
agent in such capacity or arising out of the agent's status as such whether
or not this corporation would have the power to indemnify the agent against
that liability under the provisions of this section.
Section 10. FIDUCIARIES OF CORPORATION EMPLOYEE BENEFIT PLAN. This
Article does not apply to any proceeding against any trustee, investment
manager, or other fiduciary of an employee benefit plan in that person's
capacity as such, even though that
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person may also be an agent of the corporation as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a trustee, investment manager, or other
fiduciary may be entitled by contract or otherwise, which shall be
enforceable to the extent permitted by applicable law other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed and as determined by
resolution of the board of directors, a record of its shareholders, giving
the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and share holdings during usual business hours on five (5) days
prior written demand on the corporation and (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such
transfer agent's usual charges for such list, a list of the shareholders'
names and addresses, who are entitled to vote for the election of directors,
and their share holdings, as of the most recent record date for which that
list has been compiled or as of a date specified by the shareholder after the
date of demand. This list shall be made available to any such shareholder by
the transfer agent on or before the later of five (5) days after the demand
is received or the date specified in the demand as the date as of which the
list is to be compiled. The record of shareholders shall also be open to
inspection on the written demand of any shareholder or holder of a voting
trust certificate, at any time during usual business hours, for a purpose
reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. Any inspection and copying under this
Section 1 may be made in person or by an agent or attorney of the shareholder
or holder of a voting trust certificate making the demand.
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Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation
shall keep at its principal executive office, or if its principal executive
office is not in the State of California, at its principal business office in
this state, the original or a copy of the bylaws as amended to date, which
shall be open to inspection by the shareholders at all reasonable times
during office hours. If the principal executive office of the corporation is
outside the State of California and the corporation has no principal business
office in this state, the Secretary shall, upon the written request of any
shareholder, furnish to that shareholder a copy of the bylaws as amended to
date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
The accounting books and records and minutes of proceedings of the
shareholders and the board of directors and any committee or committees of
the board of directors shall be kept at such place or places designated by
the board of directors, or, in the absence of such designation, at the
principal executive office of the corporation. The minutes shall be kept in
written form and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into written
form. The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as
the holder of a voting trust certificate. The inspection may be made in
person or by an agent or attorney, and shall include the right to copy and
make extracts. These rights of inspection shall extend to the records of
each subsidiary corporation of the corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records and
documents of every kind and the physical properties of the corporation and
each of its subsidiary corporations. This inspection by a director may be
made in person or by an agent or attorney and the right of inspection
includes the right to copy and make extracts of documents.
Section 5. ANNUAL REPORT TO SHAREHOLDERS. The annual report to
shareholders referred to in Section 1501 of the California General
Corporation Law is expressly dispensed with, but nothing herein shall be
interpreted as prohibiting the board of directors from issuing annual or
other periodic reports to the shareholders of the corporation as they
consider appropriate.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial
statement and any income statement of the corporation for each quarterly
period of each fiscal year, and any accompanying balance sheet of the
corporation as of the end of each period, that has been prepared by the
corporation shall be kept on file in the principal executive office of the
corporation for twelve (12) months and each such statement shall be exhibited
at all reasonable times to any shareholder demanding an
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examination of any such statement or a copy shall be mailed to any such
shareholder.
If a shareholder or shareholders holding at least five percent (5%)
of the outstanding shares of any class of stock of the corporation makes a
written request to the corporation for an income statement of the corporation
for the three-month, six-month or nine-month period of the then current
fiscal year ended more than thirty (30) days before the date of the request,
and a balance sheet of the corporation as of the end of that period, the
chief financial officer shall cause that statement to be prepared, if not
already prepared, and shall deliver personally or mail that statement or
statements to the person making the request within thirty (30) days after the
receipt of the request. If the corporation has not sent to the shareholders
its annual report for the last fiscal year, this report shall likewise be
delivered or mailed to the shareholder or shareholders within thirty (30)
days after the request.
The corporation shall also, on the written request of any
shareholder, mail to the shareholder a copy of the last annual, semi-annual,
or quarterly income statement which it has prepared, and a balance sheet as
of the end of that period.
The quarterly income statements and balance sheets referred to in
this section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared
without audit from the books and records of the corporation.
Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION. The
corporation shall, within the statutorily required time period, file with the
Secretary of State of the State of California, on the prescribed form, a
statement setting forth the authorized number of directors, the names and
complete business or residence addresses of all incumbent directors, the
names and complete business or residence addresses of the chief executive
officer, secretary, and chief financial officer, the street address of its
principal executive office or principal business office in this state, and
the general type of business constituting the principal business activity of
the corporation, together with a designation of the agent of the corporation
for the purpose of service of process, all in compliance with Section 1502 of
the Corporations Code of California.
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ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, the board of
directors may fix, in advance, a record date, which shall not be more than
sixty (60) days before any such action, and in that case only shareholders of
record on the date so fixed are entitled to receive the dividend,
distribution, or allotment of rights or to exercise the rights, as the case
may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date so fixed, except as otherwise provided in
the California General Corporation Law.
If the board of directors does not so fix a record date, the record
date for determining shareholders for any such purpose shall be at the close
of business on the day on which the board adopts the applicable resolution or
the sixtieth (60) day before the date of that action, whichever is later.
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes, or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time
to time, shall be determined by resolution of the board of directors.
Section 3. CORPORATION CONTRACTS AND INSTRUMENTS; HOW EXECUTED.
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation, and this authority may be general or confined to specific
instances; and, unless so authorized or ratified by the board of directors or
within the agency power of an officer, no officer, agent, or employee shall
have the power or authority to bind the corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or
for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates
for shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares are fully paid, and the board of
directors may authorize the issuance of certificates or shares as partly paid
provided that these certificates shall state the amount of the consideration
to be paid for them and the amount paid. All certificates shall be signed in
the name of the corporation by the chairman of the board or vice chairman of
the board or the president or vice president and by the chief financial
officer or an assistant treasurer or the secretary or any assistant
secretary, certifying the number of shares and the class or series of shares
owned by the shareholder. Any or all of the signatures on the certificate
may be facsimile.
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In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed on a certificate shall have ceased to be
that officer, transfer agent, or registrar before that certificate is issued,
it may be issued by the corporation with the same effect as if that person
were an officer, transfer agent, or registrar at the date of issuance.
Section 5. LOST CERTIFICATES. Except as provided in this Section
5, no new certificates for shares shall be issued to replace an old
certificate unless the latter is surrendered to the corporation and canceled
at the same time. The board of directors may, in case any share certificate
or certificate for any other security is lost, stolen, or destroyed,
authorize the issuance of a replacement certificate on such terms and
conditions as the board may require, including provision for indemnification
of the corporation secured by a bond or other adequate security sufficient to
protect the corporation against any claim that may be made against it,
including any expense or liability, on account of the alleged loss, theft, or
destruction of the certificate or the issuance of the replacement certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
chairman of the board, the president, or any vice president, or any other
person authorized by resolution of the board of directors or by any of the
foregoing designated officers, is authorized to vote on behalf of the
corporation any and all shares of any other corporation or corporations,
foreign or domestic, standing in the name of the corporation. The authority
granted to these officers to vote or represent on behalf of the corporation
any and all shares held by the corporation in any other corporation or
corporations may be exercised by any of these officers in person or by any
person authorized to do so by a proxy duly executed by these officers.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context
requires otherwise, the general provisions, rules of construction, and
definitions in the California General Corporation Law shall govern the
construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and
a natural person.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or
these bylaws may be amended or repealed by the vote of holders of a majority
of the outstanding shares entitled to vote except as otherwise provided by
law or by the Amended and Restated Articles of Incorporation.
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
shareholders as provided in Section I of this Article IX,
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bylaws, other than a bylaw or an amendment of a bylaw changing the authorized
number of directors, may be adopted, amended, or repealed by the board of
directors.
ARTICLE X
LOANS TO OFFICERS
Section 1. CALIFORNIA SECTION 315 LOANS TO OFFICERS. The
Corporation may make such loans and/or guaranties to its officers and/or
directors as may be properly approved by the Board of Directors.
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1997 STOCK OPTION PLAN
OF
HAWKER PACIFIC AEROSPACE
1. PURPOSES OF THE PLAN
The purposes of the 1997 Stock Option Plan (the "Plan") of Hawker Pacific
Aerospace, a California corporation (the "Company"), are to:
(a) Encourage selected employees, directors and consultants to
improve operations and increase profits of the Company;
(b) Encourage selected employees, directors and consultants to
accept or continue employment or association with the Company or its Affiliates;
and
(c) Increase the interest of selected employees, directors and
consultants in the Company's welfare through participation in the growth in
value of the common stock of the Company (the "Common Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder (the
"Code"), or "nonqualified options" ("NQOs").
2. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is an employee of the
Company or of any Affiliate (as defined below) of the Company is eligible to
receive NQOs or ISOs under this Plan. Every person who at the date of grant is
a consultant to, or non-employee director of, the Company or any Affiliate (as
defined below) of the Company is eligible to receive NQOs under this Plan. The
term "Affiliate" as used in the Plan means a parent or subsidiary corporation as
defined in the applicable provisions (currently Sections 424(e) and (f),
respectively) of the Code. The term "employee" includes an officer or director
who is an employee of the Company. The term "consultant" includes persons
employed by, or otherwise affiliated with, a consultant.
3. STOCK SUBJECT TO THIS PLAN; MAXIMUM NUMBER OF GRANTS
Subject to the provisions of Section 6.1.1 of the Plan, the total number of
shares of stock which may be issued under Options granted pursuant to this Plan
shall not exceed 640,444 shares of Common Stock (which gives effect to a
579.48618-for-1 stock split of the Common Stock (the "Stock Split") to be
effected in November 1997). The shares
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covered by the portion of any grant under the Plan which expire unexercised
shall become available again for grants under the Plan.
4. ADMINISTRATION
(a) The Plan shall be administered by the Board of Directors of
the Company (the "Board") or by a committee (the "Committee") to which
administration of the Plan, or of part of the Plan, is delegated by the Board
(in either case, the "Administrator"). The Board shall appoint and remove
members of the Committee in its discretion in accordance with applicable laws.
If necessary in order to comply with Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Section 162(m) of the Code,
the Committee shall, in the Board's discretion, be comprised solely of
"non-employee directors" within the meaning of said Rule 16b-3 and "outside
directors" within the meaning of Section 162(m) of the Code. The foregoing
notwithstanding, the Administrator may delegate nondiscretionary administrative
duties to such employees of the Company as it deems proper, and the Board, in
its absolute discretion, may at any time and from time to time exercise any and
all rights and duties of the Administrator under the Plan.
(b) Subject to the other provisions of this Plan, the
Administrator shall have the authority, in its discretion to: (i) grant Options;
(ii) determine the fair market value of the Common Stock subject to Options;
(iii) determine the exercise price of Options granted; (iv) determine the
persons to whom, and the time or times at which, Options shall be granted, and
the number of shares subject to each Option; (v) interpret this Plan; (vi)
prescribe, amend, and rescind rules and regulations relating to this Plan; (vii)
determine the terms and provisions of each Option granted (which need not be
identical), including but not limited to, the time or times at which Options
shall be exercisable; (viii) modify or amend any Option with the consent of the
optionee; (ix) defer (with the consent of the optionee) the exercise date of any
Option, (x) authorize any person to execute on behalf of the Company any
instrument evidencing the grant of an Option; and (xi) make all other
determinations deemed necessary or advisable for the administration of this
Plan. The Administrator may delegate nondiscretionary administrative duties to
such employees of the Company as it deems proper.
(c) All questions of interpretation, implementation, and
application of this Plan shall be determined by the Administrator. Such
determinations shall be final and binding on all persons.
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5. GRANTING OF OPTIONS; OPTION AGREEMENT
(a) No Options shall be granted under this Plan after ten years
from the date the Board adopts this Plan.
(b) Each Option shall be evidenced by a written stock option
agreement, in form satisfactory to the Administrator, executed by the Company
and the person to whom such Option is granted.
(c) The stock option agreement shall specify whether each Option
it evidences is an NQO or an ISO.
(d) Subject to Section 6.3.3 with respect to ISOs, the
Administrator may approve the grant of Options under this Plan to persons who
are expected to become employees, directors or consultants of the Company, but
are not employees, directors or consultants at the date of approval, and the
date of approval shall be deemed to be the date of grant unless otherwise
specified by the Administrator.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be subject to the terms and
conditions set forth in Section 6.1. NQOs shall be also subject to the terms
and conditions set forth in Section 6.2 but not those set forth in Section 6.3.
ISOs shall also be subject to the terms and conditions set forth in Section 6.3
but not those set forth in Section 6.2.
6.1 TERMS AND CONDITIONS TO WHICH ALL OPTIONS ARE SUBJECT. All Options
granted under this Plan shall be subject to the following terms and conditions:
6.1.1 CHANGES IN CAPITAL STRUCTURE. Subject to Section 6.1.2, if
the stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, or recapitalization, combination or reclassification,
appropriate adjustments shall be made by the Board in (a) the number and class
of shares of stock subject to this Plan and each Option outstanding under this
Plan, and (b) the exercise price of each outstanding Option; PROVIDED, HOWEVER,
that the Company shall not be required to issue fractional shares as a result of
any such adjustments. Each such adjustment shall be subject to approval by the
Board in its sole discretion.
6.1.2 CORPORATE TRANSACTIONS. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
optionee at least 30 days prior to such proposed action. To the extent not
previously exercised, all Options will terminate immediately prior to the
consummation of such proposed action; PROVIDED, HOWEVER, that the Administrator,
in the exercise of its sole discretion, may permit exercise of any Options prior
to their termination, even if such Options were not otherwise exercisable. In
the event of a merger or consolidation of the Company with or
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into another corporation or entity in which the Company does not survive, or in
the event of a sale of all or substantially all of the assets of the Company in
which the shareholders of the Company receive securities of the acquiring entity
or an affiliate thereof, all Options shall be assumed or equivalent options
shall be substituted by the successor corporation (or other entity) or a parent
or subsidiary of such successor corporation (or other entity); PROVIDED,
HOWEVER, that if such successor does not agree to assume the Options or to
substitute equivalent options therefor, the Administrator, in the exercise of
its sole discretion, may permit the exercise of any of the Options prior to
consummation of such event, even if such Options were not otherwise exercisable.
6.1.3 TIME OF OPTION EXERCISE. Subject to Section 5 and Section
6.3.4, Options granted under this Plan shall be exercisable (a) in accordance
with a schedule as may be set by the Administrator (in any case, the "Vesting
Base Date") and specified in the written stock option agreement relating to such
Option, or (b) if no such schedule is set forth in the written stock option
agreement, immediately as of the effective date of the stock option agreement
granting the Option. In any case, no Option shall be exercisable until a
written stock option agreement in form satisfactory to the Company is executed
by the Company and the optionee.
6.1.4 OPTION GRANT DATE. The date of grant of an Option under
this Plan shall be the date as of which the Administrator approves the grant.
6.1.5 NONTRANSFERABILITY OF OPTION RIGHTS. Except with the
express written approval of the Administrator which approval the Administrator
is authorized to give only with respect to NQOs, no Option granted under this
Plan shall be assignable or otherwise transferable by the optionee except by
will or by the laws of descent and distribution. During the life of the
optionee, an Option shall be exercisable only by the optionee.
6.1.6 PAYMENT. Except as provided below, payment in full, in
cash, shall be made for all stock purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. The Administrator, in the exercise of
its absolute discretion after considering any tax, accounting and financial
consequences, may authorize any one or more of the following additional methods
of payment:
(a) Acceptance of the optionee's full recourse promissory note
for all or part of the Option price, payable on such terms and bearing such
interest rate as determined by the Administrator (but in no event less than the
minimum interest rate specified under the Code at which no additional interest
would be imputed), which promissory note may be either secured or unsecured in
such manner as the Administrator shall approve (including, without limitation,
by a security interest in the shares of the Company);
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(b) Subject to the discretion of the Administrator and the terms
of the stock option agreement granting the Option, delivery by the optionee of
shares of Common Stock already owned by the optionee for all or part of the
Option price, provided the fair market value (determined as set forth in Section
6.1.10) of such shares of Common Stock is equal on the date of exercise to the
Option price, or such portion thereof as the optionee is authorized to pay by
delivery of such stock; and
(c) Subject to the discretion of the Administrator, through the
surrender of shares of Common Stock then issuable upon exercise of the Option,
provided the fair market value (determined as set forth in Section 6.1.10) of
such shares of Common Stock is equal on the date of exercise to the Option
price, or such portion thereof as the optionee is authorized to pay by surrender
of such stock.
(d) By means of so-called cashless exercises as permitted under
applicable rules and regulations of the Securities and Exchange Commission and
the Federal Reserve Board.
6.1.7 TERMINATION OF EMPLOYMENT. If for any reason other than
death or permanent and total disability, an optionee ceases to be employed by
the Company or any of its Affiliates (such event being called a "Termination"),
Options held at the date of Termination (to the extent then exercisable) may be
exercised in whole or in part at any time within three months of the date of
such Termination, or such other period of not less than 30 days after the date
of such Termination as is specified in the Option Agreement or by amendment
thereof (but in no event after the Expiration Date); PROVIDED, HOWEVER, that if
such exercise of the Option would result in liability for the optionee under
Section 16(b) of the Exchange Act, then such three-month period automatically
shall be extended until the tenth day following the last date upon which
optionee has any liability under Section 16(b) (but in no event after the
Expiration Date). If an optionee dies or becomes permanently and totally
disabled (within the meaning of Section 22(e)(3) of the Code) while employed by
the Company or an Affiliate or within the period that the Option remains
exercisable after Termination, Options then held (to the extent then
exercisable) may be exercised, in whole or in part, by the optionee, by the
optionee's personal representative or by the person to whom the Option is
transferred by devise or the laws of descent and distribution, at any time
within six months after the death or six months after the permanent and total
disability of the optionee or any longer period specified in the Option
Agreement or by amendment thereof (but in no event after the Expiration Date).
For purposes of this Section 6.1.7, "employment" includes service as a director
or as a consultant. For purposes of this Section 6.1.7, an optionee's
employment shall not be deemed to terminate by reason of sick leave, military
leave or other leave of absence approved by the Administrator, if the period of
any such leave does not exceed 90 days or, if longer, if the optionee's right to
reemployment by the Company or any Affiliate is guaranteed either contractually
or by statute.
5.
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6.1.8 WITHHOLDING AND EMPLOYMENT TAXES. At the time of exercise
of an Option and as a condition thereto, or at such other time as the amount of
such obligation becomes determinable (the "Tax Date"), the optionee shall remit
to the Company in cash all applicable federal and state withholding and
employment taxes. Such obligation to remit may be satisfied, if authorized by
the Administrator in its sole discretion, after considering any tax, accounting
and financial consequences, by the optionee's (i) delivery of a promissory note
in the required amount on such terms as the Administrator deems appropriate,
(ii) tendering to the Company previously owned shares of Stock or other
securities of the Company with a fair market value equal to the required amount,
or (iii) agreeing to have shares of Common Stock (with a fair market value equal
to the required amount) which are acquired upon exercise of the Option withheld
by the Company.
6.1.9 OTHER PROVISIONS. Each Option granted under this Plan may
contain such other terms, provisions, and conditions not inconsistent with this
Plan as may be determined by the Administrator, and each ISO granted under this
Plan shall include such provisions and conditions as are necessary to qualify
the Option as an "incentive stock option" within the meaning of Section 422 of
the Code.
6.1.10 DETERMINATION OF VALUE. For purposes of the Plan, the fair
market value of Common Stock or other securities of the Company shall be
determined as follows:
(a) If the stock of the Company is regularly quoted by a
recognized securities dealer, and selling prices are reported, its fair market
value shall be the closing price of such stock on the date the value is to be
determined, but if selling prices are not reported, its fair market value shall
be the mean between the high bid and low asked prices for such stock on the date
the value is to be determined (or if there are no quoted prices for the date of
grant, then for the last preceding business day on which there were quoted
prices).
(b) In the absence of an established market for the stock, the
fair market value thereof shall be determined in good faith by the
Administrator, with reference to the Company's net worth, prospective earning
power, dividend-paying capacity, and other relevant factors, including the
goodwill of the Company, the economic outlook in the Company's industry, the
Company's position in the industry, the Company's management, and the values of
stock of other corporations in the same or a similar line of business.
6.1.11 OPTION TERM. Subject to Section 6.3.4, no Option shall be
exercisable more than ten years after the date of grant, or such lesser period
of time as is set forth in the stock option agreement relating to such Option
(the end of the maximum exercise period stated in the stock option agreement is
referred to in this Plan as the "Expiration Date").
6.
<PAGE>
6.2 TERMS AND CONDITIONS TO WHICH ONLY NQOS ARE SUBJECT. The exercise
price of Options granted under this Plan which are designated as NQOs shall not
less than 85% of the fair market value (determined in accordance with Section
6.1.10) of the stock subject to the Option on the date of grant.
6.3 TERMS AND CONDITIONS TO WHICH ONLY ISOS ARE SUBJECT. Options granted
under this Plan which are designated as ISOs shall be subject to the following
terms and conditions:
6.3.1 EXERCISE PRICE. (a) Except as set forth in Section 6.3.1(b),
the exercise price of an ISO shall be determined in accordance with the
applicable provisions of the Code and shall in no event be less than the fair
market value (determined in accordance with Section 6.1.10) of the stock covered
by the Option at the time the Option is granted.
(b) The exercise price of an ISO granted to any Ten Percent
Shareholder shall in no event be less than 110% of the fair market value
(determined in accordance with Section 6.1.10) of the stock covered by the
Option at the time the Option is granted.
6.3.2 DISQUALIFYING DISPOSITIONS. If stock acquired by exercise
of an ISO granted pursuant to this Plan is disposed of in a "disqualifying
disposition" within the meaning of Section 422 of the Code (a disposition within
two years from the date of grant of the Option or within one year after the
receipt of such stock on exercise of the Option), the holder of the stock
immediately before the disposition shall promptly notify the Company in writing
of the date and terms of the disposition and shall provide such other
information regarding the Option as the Company may reasonably require.
6.3.3 GRANT DATE. If an ISO is granted in anticipation of
employment as provided in Section 5(d), the Option shall be deemed granted,
without further approval, on the date the grantee assumes the employment
relationship forming the basis for such grant, and, in addition, satisfies all
requirements of this Plan for Options granted on that date.
6.3.4 TERM. Notwithstanding Section 6.1.11, no ISO granted to any
Ten Percent Shareholder shall be exercisable more than five years after the date
of grant.
7. MANNER OF EXERCISE
(a) An optionee wishing to exercise an Option shall give written
notice to the Company at its principal executive office, to the attention of the
officer of the Company designated by the Administrator, accompanied by payment
of the exercise price and withholding taxes as provided in Sections 6.1.6 and
6.1.8. The date the
7.
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Company receives written notice of an exercise hereunder accompanied by payment
of the exercise price will be considered as the date such Option was exercised.
(b) Promptly after receipt of written notice of exercise of an
Option and the payments called for by Section 7(a), the Company shall, without
stock issue or transfer taxes to the optionee or other person entitled to
exercise the Option, deliver to the optionee or such other person a certificate
or certificates for the requisite number of shares of stock. An optionee or
permitted transferee of the Option shall not have any privileges as a
shareholder with respect to any shares of stock covered by the Option until the
date of issuance (as evidenced by the appropriate entry on the books of the
Company or a duly authorized transfer agent) of such shares.
8. EMPLOYMENT OR CONSULTING RELATIONSHIP
Nothing in this Plan or any Option granted hereunder shall interfere with
or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment or consulting at any time, nor confer upon
any optionee any right to continue in the employ of, or consult with, the
Company or any of its Affiliates.
9. CONDITIONS UPON ISSUANCE OF SHARES
Shares of Common Stock shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended (the
"Securities Act").
10. NONEXCLUSIVITY OF THE PLAN
The adoption of the Plan shall not be construed as creating any limitations
on the power of the Company to adopt such other incentive arrangements as it may
deem desirable, including, without limitation, the granting of stock options
other than under the Plan.
11. MARKET STANDOFF
Each optionee, if so requested by the Company or any representative of the
underwriters in connection with any registration of the offering of any
securities of the Company under the Securities Act, shall not sell or otherwise
transfer any shares of Common Stock acquired upon exercise of Options during the
180-day period following the effective date of a registration statement of the
Company filed under the Securities Act; PROVIDED, HOWEVER, that such restriction
shall apply only to registration statements of the Company to become effective
under the Securities Act after the date of adoption of this Plan which includes
securities to be sold on behalf of the Company to the public in an underwritten
public offering under the Securities Act. The Company may impose stop-
8.
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transfer instructions with respect to securities subject to the foregoing
restriction until the end of such 180-day period.
12. AMENDMENTS TO PLAN
The Board may at any time amend, alter, suspend or discontinue this Plan.
Without the consent of an optionee, no amendment, alteration, suspension or
discontinuance may adversely affect outstanding Options except to conform this
Plan and ISOs granted under this Plan to the requirements of federal or other
tax laws relating to incentive stock options. No amendment, alteration,
suspension or discontinuance shall require shareholder approval unless (a)
shareholder approval is required to preserve incentive stock option treatment
for federal income tax purposes or (b) the Board otherwise concludes that
shareholder approval is advisable.
13. EFFECTIVE DATE OF PLAN; TERMINATION
This Plan shall become effective upon adoption by the Board PROVIDED,
HOWEVER, that no Option shall be exercisable unless and until written consent of
the shareholders of the Company, or approval of shareholders of the Company
voting at a validly called shareholders' meeting, is obtained within twelve
months after adoption by the Board. If such shareholder approval is not
obtained within such time, Options granted hereunder shall terminate and be of
no force and effect from and after expiration of such twelve-month period.
Options may be granted and exercised under this Plan only after there has been
compliance with all applicable federal and state securities laws. This Plan
(but not Options previously granted under this Plan) shall terminate within ten
years from the date of its adoption by the Board.
14. DELIVERY OF FINANCIAL STATEMENTS
To the extent required by applicable laws, rules and regulations, the
Company shall deliver to each optionee financial statements of the Company at
least annually while such optionee holds an outstanding Option.
9.
<PAGE>
HAWKER PACIFIC AEROSPACE
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Agreement") is made as of the
___ day of _________ 19__ by and between Hawker Pacific Aerospace, a California
corporation (the "Company"), and __________________________ ("Optionee").
R E C I T A L
Pursuant to the 1997 Stock Option Plan (the "Plan") of the Company, the
Board of Directors of the Company or a committee to which administration of the
Plan is delegated by the Board of Directors (in either case, the
"Administrator") has authorized the granting to Optionee of an incentive stock
option to purchase the number of shares of Common Stock of the Company specified
in Paragraph 1 hereof at the price specified therein, such option to be for the
term and upon the terms and conditions hereinafter stated.
A G R E E M E N T
NOW, THEREFORE, in consideration of the promises and of the undertakings of
the parties hereto contained herein, it is hereby agreed:
1. NUMBER OF SHARES; OPTION PRICE. Pursuant to said action of the
Administrator, the Company hereby grants to Optionee the option ("Option") to
purchase, upon and subject to the terms and conditions of the Plan, 640,444
shares of Common Stock of the Company ("Shares") at the price of $_________ per
share. The number of Shares and the exercise price of the Option stated herein
gives effect to a 579.48618-for-1 stock split of the Company's Common Stock to
be effected in November 1997.
2. TERM. This Option shall expire on the day before the sixth
anniversary of the date hereof (the "Expiration Date") unless such Option shall
have been terminated prior to that date in accordance with the provisions of the
Plan or this Agreement.
3. SHARES SUBJECT TO EXERCISE. Shares subject to exercise shall be 5% of
such Shares at the end of each three months after the date hereof, so that all
of the Shares may be purchased on or after the date which is five years from the
date hereof. All Shares shall thereafter remain subject to exercise for the
term specified in Paragraph 2 hereof, provided that Optionee is then and has
continuously been in the employ of the Company, or its Affiliate, subject,
however, to the provisions of Paragraph 6 hereof. The term "Affiliate" as
used herein shall have the meaning as set forth in the Plan.
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4. METHOD AND TIME OF EXERCISE. The Option may be exercised by written
notice delivered to the Company at its principal executive office stating the
number of shares with respect to which the Option is being exercised, together
with:
(A) a check or money order made payable to the Company in the amount
of the exercise price and any withholding tax, as provided under Paragraph 5
hereof; or
(B) if expressly authorized in writing by the Administrator, in its
sole discretion, at the time of the Option exercise, the tender to the Company
of shares of the Company's Common Stock owned by Optionee having a fair market
value, as determined by the Administrator, not less than the exercise price,
plus the amount of applicable federal, state and local withholding taxes; or
(C) if expressly authorized in writing by the Administrator, in its
sole discretion, at the time of the Option exercise, the Optionee's full
recourse promissory note in a form approved by the Company; or
(D) if any other method such as cashless exercise is expressly
authorized in writing by the Administrator, in its sole discretion, at the time
of the Option exercise, the tender of such consideration having a fair market
value, as determined by the Administrator, not less than the exercise price,
plus the amount of applicable federal, state and local withholding taxes.
Not less than 100 shares may be purchased at any one time unless the number
purchased is the total number purchasable under such Option at the time. Only
whole shares may be purchased.
5. TAX WITHHOLDING. In the event that this Option shall lose its
qualification as an incentive stock option, as a condition to exercise of this
Option, the Company may require Optionee to pay over to the Company all
applicable federal, state and local taxes that the Company is required to
withhold with respect to the exercise of this Option. At the discretion of the
Administrator and upon the request of Optionee, the minimum statutory
withholding tax requirements may be satisfied by the withholding of shares of
Common Stock of the Company otherwise issuable to Optionee upon the exercise of
this Option.
6. EXERCISE ON TERMINATION OF EMPLOYMENT. If for any reason other than
death or permanent and total disability, Optionee ceases to be employed by the
Company or any of its Affiliates (such event being called a "Termination"), this
Option (to the extent then exercisable) may be exercised in whole or in part at
any time within 30 days of the date of such Termination unless a written
extension for up to three months is generated by the Administrator, but in no
event after the Expiration Date; PROVIDED, HOWEVER, that if such exercise of
this Option would result in liability for Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, then such three-month period
automatically shall be extended until the tenth day following the last date upon
which Optionee has any liability under Section 16(b), but in no event after the
Expiration Date. If Optionee dies or becomes permanently and totally disabled
(as defined in the Plan) while employed by the Company or an Affiliate or within
the period that this Option remains exercisable after
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<PAGE>
Termination, this Option (to the extent then exercisable) may be exercised, in
whole or in part, by Optionee, by Optionee's personal representative or by the
person to whom this Option is transferred by devise or the laws of descent and
distribution, at any time within six months after the death or six months after
the permanent and total disability of Optionee, but in no event after the
Expiration Date. In the event this Option is treated as a nonqualified stock
option, then and to that extent, "employment" would include service as a
director or as a consultant. For purposes of this Paragraph 6, Optionee's
employment shall not be deemed to terminate by reason of sick leave, military
leave or other leave of absence approved by the Administrator, if the period of
any such leave does not exceed 90 days or, if longer, if Optionee's right to
reemployment by the Company or any Affiliate is guaranteed either contractually
or by statute.
7. NONTRANSFERABILITY. This Option may not be assigned or transferred
except by will or by the laws of descent and distribution, and may be exercised
only by Optionee during his lifetime and after his death, by his personal
representative or by the person entitled thereto under his will or the laws of
intestate succession.
8. OPTIONEE NOT A SHAREHOLDER. Optionee shall have no rights as a
shareholder with respect to the Common Stock of the Company covered by this
Option until the date of issuance of a stock certificate or stock certificates
to him upon exercise of this Option. No adjustment will be made for dividends
or other rights for which the record date is prior to the date such stock
certificate or certificates are issued.
9. NO RIGHT TO EMPLOYMENT. Nothing in the Option granted hereby shall
interfere with or limit in any way the right of the Company or of any of its
Affiliates to terminate Optionee's employment or consulting at any time, nor
confer upon Optionee any right to continue in the employ of, or consult with,
the Company or any of its Affiliates.
10. MODIFICATION AND TERMINATION. The rights of Optionee are subject to
modification and termination in certain events as provided in Sections 6.1 and
6.3 of the Plan.
11. RESTRICTIONS ON SALE OF SHARES. Optionee represents and agrees that,
upon his exercise of this Option, in whole or in part, unless there is in effect
at that time under the Securities Act of 1933, as amended (the "Securities
Act"), a registration statement relating to the Shares issued to him, he will
acquire the Shares issuable upon exercise of this Option for the purpose of
investment and not with a view to their resale or further distribution, and that
upon each exercise thereof he shall furnish to the Company a written statement
to such effect, satisfactory to the Company in form and substance. Optionee
agrees that any certificates issued upon exercise of this Option may bear a
legend indicating that their transferability is restricted in accordance with
applicable state or federal securities law. Any person or persons entitled to
exercise this Option under the provisions of Paragraphs 5 and 6 hereof shall,
upon each exercise of this Option under circumstances in which Optionee would be
required to furnish such a written statement, also furnish to the Company a
written statement to the same effect, satisfactory to the Company in form and
substance.
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<PAGE>
12. PLAN GOVERNS. This Agreement and the Option evidenced hereby are made
and granted pursuant to the Plan and are in all respects limited by and subject
to the express terms and provisions of the Plan, as it may be construed by the
Administrator. It is intended that this Option shall qualify as an incentive
stock option as defined by Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and this Agreement shall be construed in a manner which
will enable this Option to be so qualified. Optionee hereby acknowledges
receipt of a copy of the Plan.
13. NOTICES. All notices to the Company shall be addressed to the Chief
Financial Officer at the principal executive office of the Company at 11240
Sherman Way, Sun Valley, California 91352, and all notices to Optionee shall be
addressed to Optionee at the address of Optionee on file with the Company or its
subsidiary, or to such other address as either may designate to the other in
writing. A notice shall be deemed to be duly given if and when enclosed in a
properly addressed sealed envelope deposited, postage prepaid, with the United
States Postal Service. In lieu of giving notice by mail as aforesaid, written
notices under this Agreement may be given by personal delivery to Optionee or to
the Chief Financial Officer (as the case may be).
14. SALE OR OTHER DISPOSITION. Optionee understands that, under current
law, beneficial tax treatment resulting from the exercise of this Option will be
available only if certain requirements of the Code are satisfied, including
without limitation, the requirement that no disposition of Shares acquired
pursuant to exercise of this Option be made within two years from the grant date
or within one year after the transfer of Shares to him or her. If Optionee at
any time contemplates the disposition (whether by sale, gift, exchange, or other
form of transfer) of any such Shares, he or she will first notify the Company in
writing of such proposed disposition and cooperate with the Company in complying
with all applicable requirements of law, which, in the judgment of the Company,
must be satisfied prior to such disposition. In addition to the foregoing,
Optionee hereby agrees that before Optionee disposes (whether by sale, exchange,
gift, or otherwise) of any Shares acquired by exercise of this Option within two
years of the grant date or within one year after the transfer of such Shares to
Optionee upon exercise of this Option, Optionee shall promptly notify the
Company in writing of the date and terms of the proposed disposition and shall
provide such other information regarding the Option as the Company may
reasonably require immediately before such disposition. Said written notice
shall state the date of such proposed disposition, and the type and amount of
the consideration to be received for such Share or Shares by Optionee in
connection therewith. In the event of any such disposition, the Company shall
have the right to require Optionee to immediately pay the Company the amount of
taxes (if any) which the Company is required to withhold under federal and/or
state law as a result of the granting or exercise of the Option and the
disposition of the Shares.
15. MARKET STANDOFF. The Optionee, if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, shall not
sell or otherwise transfer any shares of Common Stock acquired upon exercise of
Options during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; PROVIDED, HOWEVER, that
such restriction shall apply only to registration statements of the Company to
become effective under the Securities Act after the date of adoption of this
Plan which includes securities to be sold on behalf
4
<PAGE>
of the Company to the public in an underwritten public offering under the
Securities Act. The Company may impose stop-transfer instructions with respect
to securities subject to the foregoing restriction until the end of such 180-day
period.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
HAWKER PACIFIC AEROSPACE
By
------------------------
Name:
Title:
OPTIONEE
---------------------------
Name:
Address:
---------------------------
---------------------------
---------------------------
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<PAGE>
HAWKER PACIFIC AEROSPACE
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made as of
the _____ day of ______________, 19___ by and between Hawker Pacific Aerospace,
a California corporation (the "Company"), and ____________________ ("Optionee").
R E C I T A L
Pursuant to the 1997 Stock Option Plan (the "Plan") of the Company, the
Board of Directors of the Company or a committee to which administration of the
Plan is delegated by the Board of Directors (in either case, the
"Administrator") has authorized the granting to Optionee of a nonqualified stock
option to purchase the number of shares of Common Stock of the Company specified
in Paragraph 1 hereof at the price specified therein, such option to be for the
term and upon the terms and conditions hereinafter stated.
A G R E E M E N T
NOW, THEREFORE, in consideration of the promises and of the undertakings of
the parties hereto contained herein, it is hereby agreed:
1. NUMBER OF SHARES; OPTION PRICE. Pursuant to said action of the
Administrator, the Company hereby grants to Optionee the option ("Option") to
purchase, upon and subject to the terms and conditions of the Plan, 640,444
shares of Common Stock of the Company ("Shares") at the price of $________ per
share. The number of Shares and the exercise price of the Option stated herein
gives effect to a 579.48618-for-1 stock split of the Company's Common Stock to
be effected in November 1997.
2. TERM. This Option shall expire on the day before the fifth
anniversary of the date hereof (the "Expiration Date") unless such Option shall
have been terminated prior to that date in accordance with the provisions of the
Plan or this Agreement.
3. SHARES SUBJECT TO EXERCISE. Shares subject to exercise shall be 5% of
such Shares at the end of each 3 months after the date hereof, so that all of
the Shares may be purchased on or after the date which is 5 years from the date
hereof. All Shares shall thereafter remain subject to exercise for the term
specified in Paragraph 2 hereof, provided that Optionee is then and has
continuously been in the employ of or providing services to the Company, or its
Affiliate, subject, however, to the provisions of Paragraph 6 hereof. The term
"Affiliate" as used herein shall have the meaning as set forth in the Plan.
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<PAGE>
4. METHOD AND TIME OF EXERCISE. The Option may be exercised by written
notice delivered to the Company at its principal executive office stating the
number of shares with respect to which the Option is being exercised, together
with:
(A) a check or money order made payable to the Company in the amount
of the exercise price and any withholding tax, as provided under Paragraph 5
hereof; or
(B) if expressly authorized in writing by the Administrator, in its
sole discretion, at the time of the Option exercise, the tender to the Company
of shares of the Company's Common Stock owned by Optionee having a fair market
value, as determined by the Administrator, not less than the exercise price,
plus the amount of applicable federal, state and local withholding taxes; or
(C) if expressly authorized in writing by the Administrator, in its
sole discretion, at the time of the Option exercise, the Optionee's full
recourse promissory note in a form approved by the Company; or
(D) if any other method such as cashless exercise is expressly
authorized in writing by the Administrator, in its sole discretion, at the time
of the Option exercise, the tender of such consideration having a fair market
value, as determined by the Administrator, not less than the exercise price,
plus the amount of applicable federal, state and local withholding taxes.
Not less than 100 shares may be purchased at any one time unless the number
purchased is the total number purchasable under such Option at the time. Only
whole shares may be purchased.
5. TAX WITHHOLDING. As a condition to exercise of this Option, the
Company may require Optionee to pay over to the Company all applicable federal,
state and local taxes that the Company is required to withhold with respect to
the exercise of this Option. At the discretion of the Administrator and upon the
request of Optionee, the minimum statutory withholding tax requirements may be
satisfied by the withholding of shares of Common Stock of the Company otherwise
issuable to Optionee upon the exercise of this Option.
6. EXERCISE ON TERMINATION OF EMPLOYMENT. If for any reason other than
death or permanent and total disability, Optionee ceases to be employed by the
Company or any of its Affiliates (such event being called a "Termination"), this
Option (to the extent then exercisable) may be exercised in whole or in part at
any time within 30 days of the date of such Termination unless a written
extension for up to three months is granted by the Administrator, but in no
event after the Expiration Date; PROVIDED, HOWEVER, that if such exercise of
this Option would result in liability for Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, then such three-month period
automatically shall be extended until the tenth day following the last date upon
which Optionee has any liability under Section 16(b), but in no event after the
Expiration Date. If Optionee dies or becomes permanently and totally disabled
(as defined in the
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<PAGE>
Plan) while employed by the Company or an Affiliate or within the period that
this Option remains exercisable after Termination, this Option (to the extent
then exercisable) may be exercised, in whole or in part, by Optionee, by
Optionee's personal representative or by the person to whom this Option is
transferred by devise or the laws of descent and distribution, at any time
within six months after the death or six months after the permanent and total
disability of Optionee, but in no event after the Expiration Date. For purposes
of this Paragraph 6, "employment" includes service as a director or as a
consultant. For purposes of this Paragraph 6, Optionee's employment shall not
be deemed to terminate by reason of sick leave, military leave or other leave of
absence approved by the Administrator, if the period of any such leave does not
exceed 90 days or, if longer, if Optionee's right to reemployment by the Company
or any Affiliate is guaranteed either contractually or by statute.
7. NONTRANSFERABILITY. Except with the express written approval of the
Administrator, this Option may not be assigned or transferred except by will or
by the laws of descent and distribution, and may be exercised only by Optionee
during his lifetime and after his death, by his personal representative or by
the person entitled thereto under his will or the laws of intestate succession.
8. OPTIONEE NOT A SHAREHOLDER. Optionee shall have no rights as a
shareholder with respect to the Common Stock of the Company covered by this
Option until the date of issuance of a stock certificate or stock certificates
to him upon exercise of this Option. No adjustment will be made for dividends
or other rights for which the record date is prior to the date such stock
certificate or certificates are issued.
9. NO RIGHT TO EMPLOYMENT. Nothing in the Option granted hereby shall
interfere with or limit in any way the right of the Company or of any of its
Affiliates to terminate Optionee's employment or consulting at any time, nor
confer upon Optionee any right to continue in the employ of, or consult with,
the Company or any of its Affiliates.
10. MODIFICATION AND TERMINATION. The rights of Optionee are subject to
modification and termination in certain events as provided in Sections 6.1 and
6.2 of the Plan.
11. RESTRICTIONS ON SALE OF SHARES. Optionee represents and agrees that
upon his exercise of this Option, in whole or in part, unless there is in effect
at that time under the Securities Act of 1933, as amended (the "Securities
Act"), a registration statement relating to the Shares issued to him, he will
acquire the Shares issuable upon exercise of this Option for the purpose of
investment and not with a view to their resale or further distribution, and that
upon such exercise thereof he will furnish to the Company a written statement to
such effect, satisfactory to the Company in form and substance. Optionee agrees
that any certificates issued upon exercise of this Option may bear a legend
indicating that their transferability is restricted in accordance with
applicable state and federal securities law. Any person or persons entitled to
exercise this Option under the provisions of Paragraphs 5 and 6 hereof shall,
upon each exercise
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<PAGE>
of this Option under circumstances in which Optionee would be required to
furnish such a written statement, also furnish to the Company a written
statement to the same effect, satisfactory to the Company in form and substance.
12. PLAN GOVERNS. This Agreement and the Option evidenced hereby are made
and granted pursuant to the Plan and are in all respects limited by and subject
to the express terms and provisions of the Plan, as it may be construed by the
Administrator. Optionee hereby acknowledges receipt of a copy of the Plan.
13. NOTICES. All notices to the Company shall be addressed to the Chief
Financial Officer at the principal executive offices of the Company at 11240
Sherman Way, Sun Valley, California 91352, and all notices to Optionee shall be
addressed to Optionee at the address of Optionee on file with the Company or its
subsidiary, or to such other address as either may designate to the other in
writing. A notice shall be deemed to be duly given if and when enclosed in a
properly addressed sealed envelope deposited, postage prepaid, with the United
States Postal Service. In lieu of giving notice by mail as aforesaid, written
notices under this Agreement may be given by personal delivery to Optionee or to
the Chief Financial Officer (as the case may be).
14. SALE OR OTHER DISPOSITION. If Optionee at any time contemplates the
disposition (whether by sale, gift, exchange, or other form or transfer) of any
Shares acquired by exercise of this Option, he or she shall first notify the
Company in writing of such proposed disposition and cooperate with the Company
in complying with all applicable requirements of law, which, in the judgment of
the Company, must be satisfied prior to such disposition.
15. MARKET STANDOFF. The Optionee, if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, shall not
sell or otherwise transfer any shares of Common Stock acquired upon exercise of
Options during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; PROVIDED, HOWEVER, that
such restriction shall apply only to registration statements of the Company to
become effective under the Securities Act after the date of adoption of this
Plan which includes securities to be sold on behalf of the Company to the public
in an underwritten public offering under the Securities Act. The Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restriction until the end of such 180-day period.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
HAWKER PACIFIC AEROSPACE
By
--------------------------
Name:
Title:
OPTIONEE
By
--------------------------
Name:
Address:
----------------------------
----------------------------
----------------------------
5
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") is dated November 1st, 1996 BETWEEN HAWKER
PACIFIC, INC. ("HPI") having its principal place of business at 11310 Sherman
Way, Sun Valley, California 91352 AND DAVID L. LOKKEN ("Employee") of 48-571
Shady View Drive, Palm Desert, California 92260
1. RECITALS. HPI desires to continue to benefit from Employee in
his capacity as President and Chief Executive Officer of HPI;
and Employee will serve as President and Chief Executive
Officer of HPI on the agreements set forth below and for other
consideration, HPI and Employee agree that Employee will be
employed by HPI in accordance with the terms of this Agreement.
2. SERVICES. During the term of his employment, Employee shall be
responsible for effectively performing the duties of his position and
such other duties assigned to him which are consistent with his
position and such other duties assigned to him which are consistent
with his position. Employee will utilize HPI's resources as
appropriate to best fulfill his responsibilities. Employee agrees to
devote his entire productive time, ability and attention to the
business of HPI. During the term of his employment, Employee also
agrees that he shall not directly or indirectly perform any services
of a business, commercial or professional nature for any person or
organization, whether for compensation or otherwise, without HPI's
prior written consent.
3. PLACE OF PERFORMANCE. HPI shall provide Employee with an appropriate
office at its offices, and all supplies, equipment, and office
personnel reasonably necessary to perform Employee's duties and
services.
4. COMPENSATION AND BENEFITS. As compensation and benefits for
Employee's services, HPI shall provide the following compensation and
benefits to Employee during the term of employment and upon
termination of his employment as provided by this Agreement:
4.1 BASE SALARY HPI shall pay Employee a base salary of $179,000
(one hundred seventy nine thousand dollars) per year or at such
higher rate as HPI may from time to time determine, payable in
equal installments at HPI's regular payroll periods.
4.2 BONUS. Employee shall be eligible for a periodic bonus on the
terms and conditions of a separate Executive Bonus Plan
Agreement between Employee and HPI. Such Executive Bonus Plan
Agreement shall address bonus based on HPI's performance. The
foregoing notwithstanding, the bonus calculation for 1996 will
be in accordance with the BTR plan and payable in February 1997
subsequent to confirmation of results by external audit and
approval by Unique Investment Corporation.
4.3 BENEFITS. Employee shall be entitled to such fringe benefits
and perquisites as are generally made available to similarly
contracted employees of HPI, whether such benefits are presently
in effect or come into effect during the term of this Agreement,
and such other fringe benefits as may be determined by HPI in
its sole discretion, except that Employee's benefits shall not
be reduced from those benefits specifically provided in this
Agreement.
4.4 VACATIONS. Employee shall be entitled to a vacation period of
four (4) weeks per year. Administration of Employee's vacation
and vacation year to year carry over will
Page 1 of 5
<PAGE>
be in accordance with the applicable HPI Policies and Procedures.
Upon termination of his employment with HPI for any reason,
Employee shall be paid for all unused, accrued vacation time.
4.5 HOLIDAYS. Employee shall receive paid holidays in accordance
with applicable HPI Policies and Procedures.
4.6 SICK LEAVE. Employee shall be entitled to sick leave without
any loss in compensation.
4.7 INSURANCE. HPI shall provide to Employee paid health, dental,
disability and life insurance benefits in accordance with HPI
established plans. HPI shall reimburse Employee for insurance
premiums, deductibles and any other expenses not paid by the
Company Plan and for one comprehensive physical examination
annually.
4.8 PENSION PLAN(S). Employee will be eligible to participate in
HPI's Pension and 401k Plans in accordance with HPI Policies and
Procedures.
4.9 AUTOMOBILE. During the term of this Agreement, HPI will pay
Employee a $1,500 (one thousand five hundred dollars) per month
automobile allowance.
4.10 BUSINESS EXPENSES. HPI shall reimburse Employee for all
business expenses reasonably incurred by Employee in connection
with the performance of his duties under this Agreement
provided that Employee furnishes HPI with adequate records or
other evidence respecting such expenditures. HPI shall
reimburse Employee, or shall pay directly, all reasonable
entertainment, promotion, telephone and other expenses incurred
in connection with the performance of Employee's duties under
this Agreement as well as all reasonable travel and living
expenses while traveling business related. HPI shall reimburse
Employee or shall pay directly, rent expenses for
accommodations in close proximity to HPI headquarters.
4.11 EQUITY PARTICIPATION. Employee will acquire equity in HPI in
accordance with terms and conditions of a separate Executive
Equity Plan Agreement between Employee and HPI.
5. TERM AND TERMINATION.
5.1 TERM OF AGREEMENT. The term of Employee's employment with HPI
shall commence on November 1, 1996 and shall end on October 31,
2001 the ("Termination Date"), unless terminated earlier in
accordance with the terms of this Agreement or unless extended
in accordance with paragraph 5.2 below.
5.2 TERMINATION. Either party shall give at least three months
prior written notice to the other prior to the Termination Date
to terminate this Agreement or the Agreement shall be extended
for an additional year under the same terms and conditions of
this Agreement. For purposes of this Agreement, the "Term of
this Agreement" shall mean the full term of the Agreement,
including subsequent terms, and not only the initial term.
Page 2 of 5
<PAGE>
5.3 RIGHTS OF EMPLOYEE UPON TERMINATION.
(A) HPI may terminate Employee "Without Cause" at any time upon
giving written notice to Employee. HPI shall then pay
Employee "Severance Pay" equal to Employee's Base Salary
and benefits in accordance with the paragraphs of Article 4
above for the remaining term of this Agreement until the
Termination Date or for two years whichever period is
longer. "Severance Pay" shall include a calendar based
pro-rata bonus for the year of termination. Severance pay
shall be paid in equal installments on HPI's normal payment
schedule or in lump sum(s) at Employer's option.
Additionally, the Employee shall receive "Severance Pay" as
described above if at any time the Employee's duties or
terms of employment materially change and Employee elects
to leave the employ of HPI as a result of such change.
(B) HPI may terminate Employee for "Cause" at any time, with or
without advance notice upon giving written notice to
Employee, if Employee has: (i) committed fraud,
misappropriation or theft; (ii) engaged in gross
misconduct in the performance of his duties; (iii) engaged
in unlawful conduct which has a material adverse effect on
HPI; or (iv) been convicted of a felony.
If Employee is terminated for "Cause" he shall have no rights
whatsoever pursuant to this Agreement except as provided for
in the Executive Equity Plan Agreement. This Employment
Agreement shall terminate immediately upon such written
notice to Employee.
5.4 DEATH OR DISABILITY.
(A) Upon Employee's death, Employee's Base Salary and all
benefits payable to Employee shall be paid to his heirs
under the terms of this Agreement through the Termination
Date. Such amount to be reduced by proceeds of life
insurance paid by HPI.
(B) Upon Employee's "permanent disability", Employee's Base
Salary and fringe benefits payable shall be paid through
the Termination Date reduced by any disability insurance
proceeds received by him from any policy paid for by HPI
and any State disability insurance. "Permanent disability"
means Employee's inability to substantially perform his
duties for any physical, mental, emotional or other reason
for 90 consecutive days or more.
6. MISCELLANEOUS PROVISIONS.
6.1 NOTICES. All notices, demands and other communications,
provided for in this Agreement ("Notice") shall be in writing
and shall be given to such party at its address as set forth
below or such address as such party may specify of the purpose
by Notice to the other party listed below. Each Notice shall
be deemed delivered to the party to whom it is addressed on the
next business day following its actual delivery at the address
specified in this paragraph.
Page 3 of 5
<PAGE>
TO: Hawker Pacific, Inc.
11310 Sherman Way
Sun Valley, CA 91352
Attn: CFO
TO: David L. Lokken
48-571 Shady View Drive
Palm Desert, CA 92260
6.2 NO ASSIGNMENT. This Agreement may not be assigned by any party
without the prior written consent of the other party.
6.3 INTERPRETATION. The resolution of ambiguities against the
drafting party shall not apply in the enforcement and
interpretation of this Agreement, and this Agreement shall be
given a fair and reasonable construction in accordance with the
intent of the parties.
6.4 GOVERNING LAW. This Agreement shall be governed by,
interpreted under, construed and enforced in accordance with
the laws of the State of California.
6.5 PARTIAL INVALIDITY. If any term or provision of this Agreement
or the application thereof shall, to any extent, be invalid or
unenforceable, then the remainder of this Agreement, or the
application of such term or provision other than those as to
which it is held invalid or unenforceable, shall not be
affected and shall be valid and enforceable to the fullest
extent permitted by law.
6.6 COUNTERPARTS AND PHOTOCOPIES. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument. Photocopies of this Agreement shall also
be given the same effect as the original.
6.7 ENTIRE AGREEMENT. This Agreement is the final expression of,
and contains the entire agreement between, the parties with
respect to the subject matter of this Agreement and supersedes
all prior negotiations, understandings and agreements. No
statements, promises or representations have been made by any
party to any other, or relied upon, and no consideration has
been offered, promised, expected or held out other than
expressly provided in this Agreement. This Agreement may not be
modified, changed, amended, supplemented or terminated, except
by a written instrument signed by the party to be charged or by
its duly authorized agent.
6.8 WAIVERS. The waiver by either party of the breach of any term,
provision, covenant or condition contained in this Agreement,
or the failure or either party to insist on strict performance
by the other, shall not be deemed to be a waiver of such term,
provision, covenant or condition contained in this Agreement.
The acceptance of performance by either party shall not be
deemed to be a waiver of any breach or default by the other
party, regardless of the non-defaulting party's knowledge of
such breach or default at the time of acceptance of
performance.
Page 4 of 5
<PAGE>
6.9 ATTORNEY'S FEES. If any action is commenced to enforce any of
the provisions of this Agreement or to enforce a judgment, the
unsuccessful party shall pay all costs incurred by the
prevailing party, including reasonable attorneys' fees and
costs, arbitration fees and costs, court costs and
reimbursements for any other expenses.
6.10 CAPTIONS. The paragraph and section headings in this Agreement
are solely for convenience of reference and are not a part of
an are not intended to govern, limit or aid in the construction
of any term provision of this Agreement.
6.11 FURTHER ASSURANCES. The parties agree, without any additional
consideration or any unreasonable delay, to execute all such
other instruments and documents and to take all actions as may
be reasonably necessary or desirable to further implement the
provisions of this Agreement.
7. ARBITRATION. All claims, disputes or other matters in question
arising out of, or relating to, this Agreement or the breach of this
Agreement shall be decided in accordance with the then current
California Employment Resolution Dispute Rules of the American
Arbitration Association. Arbitration shall be held in Los Angeles,
California. The award of the arbitrator shall be final and binding
upon the parties, and judgment may be entered upon it in accordance
with applicable law in any court having jurisdiction. This agreement
to arbitrate shall be self-executing without the necessity of filing
any action in any court and shall be specifically enforceable under
the prevailing arbitration law.
The parties execute this Agreement on the date set forth above.
HAWKER PACIFIC, INC.
By: /s/ SCOTT HARTMAN
------------------------------
Its: C.O.O.
------------------------------
Date: 27 November 1996
------------------------------
DAVID L. LOKKEN
------------------------------
Date: 27 November 1996
------------------------------
Page 5 of 5
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") is dated November 1st, 1996 BETWEEN HAWKER
PACIFIC, INC. ("HPI") having its principal place of business at 11310 Sherman
Way, Sun Valley, California 91352 AND BRIAN S. AUNE ("Employee") of 25665 N.
Shaw Place, Stevenson Ranch, California, 91381.
1. RECITALS. HPI desires to continue to benefit from Employee in his
capacity as Vice President, Finance & Administration and Chief
Financial Officer of HPI; and Employee will serve as Vice President,
Finance & Administration and Chief Financial Officer of HPI on the
agreements set forth below and for other consideration, HPI and
Employee agree that Employee will be employed by HPI in accordance
with the terms of this Agreement.
2. SERVICES. During the term of his employment, Employee shall be
responsible for effectively performing the duties of his position and
such other duties assigned to him which are consistent with his
position and such other duties assigned to him which are consistent
with his position. Employee will utilize HPI's resources as
appropriate to best fulfill his responsibilities. Employee agrees to
devote his entire productive time, ability and attention to the
business of HPI. During the term of his employment, Employee also
agrees that he shall not directly or indirectly perform any services
of a business, commercial or professional nature for any person or
organization, whether for compensation or otherwise, without HPI's
prior written consent.
3. PLACE OF PERFORMANCE. HPI shall provide Employee with an appropriate
office at its offices, and all supplies, equipment, and office
personnel reasonably necessary to perform Employee's duties and
services.
4. COMPENSATION AND BENEFITS. As compensation and benefits for
Employee's services, HPI shall provide the following compensation and
benefits to Employee during the term of employment and upon
termination of his employment as provided by this Agreement:
4.1 BASE SALARY HPI shall pay Employee a base salary of $95,050
(ninety five thousand fifty dollars) per year or at such
higher rate as HPI may from time to time determine, payable
in equal installments at HPI's regular payroll periods.
4.2 BONUS. Employee shall be eligible for a periodic bonus on
the terms and conditions of a separate Executive Bonus Plan
Agreement between Employee and HPI. Such Executive Bonus
Plan Agreement shall address bonus based on HPI's
performance. The foregoing notwithstanding, the bonus
calculation for 1996 will be in accordance with the BTR plan
and payable in February 1997 subsequent to confirmation of
results by external audit and approval by Unique Investment
Corporation.
4.3 BENEFITS. Employee shall be entitled to such fringe
benefits and perquisites as are generally made available to
similarly contracted employees of HPI, whether such benefits
are presently in effect or come into effect during the term
of this Agreement, and such other fringe benefits as may be
determined by HPI in its sole discretion, except that
Employee's benefits shall not be reduced from those benefits
specifically provided in this Agreement.
4.4 VACATIONS. Employee shall be entitled to a vacation period
of three (3) weeks per year. Administration of Employee's
vacation and vacation year to year carry over will
Page 1 of 5
<PAGE>
be in accordance with the applicable HPI Policies and
Procedures. Upon termination of his employment with HPI for
any reason, Employee shall be paid for all unused, accrued
vacation time.
4.5 HOLIDAYS. Employee shall receive paid holidays in accordance
with applicable HPI Policies and Procedures.
4.6 SICK LEAVE. Employee shall be entitled to sick leave without
any loss in compensation.
4.7 INSURANCE. HPI shall provide to Employee paid health, dental,
disability and life insurance benefits in accordance with HPI
established plans. HPI shall reimburse Employee for insurance
premiums, deductibles and any other expenses not paid by the
Company Plan and for one comprehensive physical examination
annually.
4.8 PENSION PLAN(S). Employee will be eligible to participate in
HPI's Pension and 401k Plans in accordance with HPI Policies
and Procedures.
4.9 AUTOMOBILE. During the term of this Agreement, HPI will pay
Employee a $750 (seven hundred fifty dollars) per month
automobile allowance.
4.10 BUSINESS EXPENSES. HPI shall reimburse Employee for all
business expenses reasonably incurred by Employee in
connection with the performance of his duties under this
Agreement provided that Employee furnishes HPI with adequate
records or other evidence respecting such expenditures. HPI
shall reimburse Employee, or shall pay directly, all
reasonable entertainment, promotion, telephone and other
expenses incurred in connection with the performance of
Employee's duties under this Agreement as well as all
reasonable travel and living expenses while traveling business
related.
4.11 EQUITY PARTICIPATION. Employee will acquire equity in HPI in
accordance with terms and conditions of a separate Executive
Equity Plan Agreement between Employee and HPI.
5. TERM AND TERMINATION.
5.1 TERM OF AGREEMENT. The term of Employee's employment with HPI
shall commence on November 1, 1996 and shall end on October
31, 1999 the ("Termination Date"), unless terminated earlier
in accordance with the terms of this Agreement or unless
extended in accordance with paragraph 5.2 below.
5.2 TERMINATION. Either party shall give at least three months
prior written notice to the other prior to the Termination
Date to terminate this Agreement or the Agreement shall be
extended for an additional year under the same terms and
conditions of this Agreement. For purposes of this Agreement,
the "Term of this Agreement" shall mean the full term of the
Agreement, including subsequent terms, and not only the
initial term.
Page 2 of 5
<PAGE>
5.3 RIGHTS OF EMPLOYEE UPON TERMINATION.
(A) HPI may terminate Employee "Without Cause" at any time
upon giving written notice to Employee. HPI shall then
pay Employee "Severance Pay" equal to Employee's Base
Salary and benefits in accordance with the paragraphs of
Article 4 above for the remaining term of this Agreement
until the Termination Date or for one year whichever
period is longer. "Severance Pay" shall include a
calendar based pro-rata bonus for the year of termination.
Severance pay shall be paid in equal installments on
HPI's normal payment schedule or in lump sum(s) at
Employer's option. Additionally, the Employee shall
receive "Severance Pay" as described above if at any time
the Employee's duties or terms of employment materially
change and Employee elects to leave the employ of HPI as a
result of such change.
(B) HPI may terminate Employee for "Cause" at any time, with
or without advance notice upon giving written notice to
Employee, if Employee has: (i) committed fraud,
misappropriation or theft; ( ii) engaged in gross
misconduct in the performance of his duties; (iii) engaged
in unlawful conduct which has a material adverse effect on
HPI; or (iv) been convicted of a felony.
If Employee is terminated for "Cause" he shall have no
rights whatsoever pursuant to this Agreement except as
provided for in the Executive Equity Plan Agreement. This
Employment Agreement shall terminate immediately upon such
written notice to Employee.
5.4 DEATH OR DISABILITY.
(A) Upon Employee's death, Employee's Base Salary and all
benefits payable to Employee shall be paid to his heirs
under the terms of this Agreement through the Termination
Date. Such amount to be reduced by proceeds of life
insurance paid by HPI.
(B) Upon Employee's "permanent disability", Employee's Base
Salary and fringe benefits payable shall be paid through
the Termination Date reduced by any disability insurance
proceeds received by him from any policy paid for by HPI
and any State disability insurance. "Permanent
disability" means Employee's inability to substantially
perform his duties for any physical, mental, emotional or
other reason for 90 consecutive days or more.
6. MISCELLANEOUS PROVISIONS.
6.1 NOTICES. All notices, demands and other communications,
provided for in this Agreement ("Notice") shall be in writing
and shall be given to such party at its address as set forth
below or such address as such party may specify of the purpose
by Notice to the other party listed below. Each Notice shall be
deemed delivered to the party to whom it is addressed on the
next business day following its actual delivery at the address
specified in this paragraph.
Page 3 of 5
<PAGE>
TO: Hawker Pacific, Inc.
11310 Sherman Way
Sun Valley, CA 91352
Attn: CFO
TO: Brian S. Aune
25665 N. Shaw Place
Stevenson Ranch, CA 91381
6.2 NO ASSIGNMENT. This Agreement may not be assigned by any party
without the prior written consent of the other party.
6.3 INTERPRETATION. The resolution of ambiguities against the
drafting party shall not apply in the enforcement and
interpretation of this Agreement, and this Agreement shall be
given a fair and reasonable construction in accordance with the
intent of the parties.
6.4 GOVERNING LAW. This Agreement shall be governed by, interpreted
under, construed and enforced in accordance with the laws of the
State of California.
6.5 PARTIAL INVALIDITY. If any term or provision of this Agreement
or the application thereof shall, to any extent, be invalid or
unenforceable, then the remainder of this Agreement, or the
application of such term or provision other than those as to
which it is held invalid or unenforceable, shall not be affected
and shall be valid and enforceable to the fullest extent
permitted by law.
6.6 COUNTERPARTS AND PHOTOCOPIES. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument. Photocopies of this Agreement shall also be
given the same effect as the original.
6.7 ENTIRE AGREEMENT. This Agreement is the final expression of,
and contains the entire agreement between, the parties with
respect to the subject matter of this Agreement and supersedes
all prior negotiations, understandings and agreements. No
statements, promises or representations have been made by any
party to any other, or relied upon, and no consideration has
been offered, promised, expected or held out other than
expressly provided in this Agreement. This Agreement may not be
modified, changed, amended, supplemented or terminated, except
by a written instrument signed by the party to be charged or by
its duly authorized agent.
6.8 WAIVERS. The waiver by either party of the breach of any term,
provision, covenant or condition contained in this Agreement, or
the failure or either party to insist on strict performance by
the other, shall not be deemed to be a waiver of such term,
provision, covenant or condition contained in this Agreement.
The acceptance of performance by either party shall not be
deemed to be a waiver of any breach or default by the other
party, regardless of the non-defaulting party's knowledge of
such breach or default at the time of acceptance of performance.
Page 4 of 5
<PAGE>
6.9 ATTORNEY'S FEES. If any action is commenced to enforce any of
the provisions of this Agreement or to enforce a judgment, the
unsuccessful party shall pay all costs incurred by the
prevailing party, including reasonable attorneys' fees and
costs, arbitration fees and costs, court costs and
reimbursements for any other expenses.
6.10 CAPTIONS. The paragraph and section headings in this Agreement
are solely for convenience of reference and are not a part of an
are not intended to govern, limit or aid in the construction of
any term provision of this Agreement.
6.11 FURTHER ASSURANCES. The parties agree, without any additional
consideration or any unreasonable delay, to execute all such
other instruments and documents and to take all actions as may
be reasonably necessary or desirable to further implement the
provisions of this Agreement.
7. ARBITRATION. All claims, disputes or other matters in question arising
out of, or relating to, this Agreement or the breach of this Agreement
shall be decided in accordance with the then current California
Employment Resolution Dispute Rules of the American Arbitration
Association. Arbitration shall be held in Los Angeles, California. The
award of the arbitrator shall be final and binding upon the parties, and
judgment may be entered upon it in accordance with applicable law in any
court having jurisdiction. This agreement to arbitrate shall be
self-executing without the necessity of filing any action in any court
and shall be specifically enforceable under the prevailing arbitration
law.
The parties execute this Agreement on the date set forth above.
HAWKER PACIFIC, INC.
By: /s/ D. LOKKEN
--------------------------------
Its: President
--------------------------------
Date: 27 November 1996
--------------------------------
BRIAN S. AUNE
--------------------------------
Date: 27 November 1996
--------------------------------
Page 5 of 5
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") is dated November 1st, 1996 BETWEEN HAWKER
PACIFIC, INC. ("HPI") having its principal place of business at 11310 Sherman
Way, Sun Valley, California 91352 AND BRIAN S. CARR ("Employee") of 12178 Cherry
Grove Street, Moorpark, California, 93021.
1. RECITALS. HPI desires to continue to benefit from Employee in
his capacity as Vice President, Landing Gear & Manufacturing of HPI; and
Employee will serve as Vice President, Landing Gear and Manufacturing of
HPI on the agreements set forth below and for other consideration, HPI
and Employee agree that Employee will be employed by HPI in accordance
with the terms of this Agreement.
2. SERVICES. During the term of his employment, Employee shall be
responsible for effectively performing the duties of his position and
such other duties assigned to him which are consistent with his position
and such other duties assigned to him which are consistent with his
position. Employee will utilize HPI's resources as appropriate to best
fulfill his responsibilities. Employee agrees to devote his entire
productive time, ability and attention to the business of HPI. During
the term of his employment, Employee also agrees that he shall not
directly or indirectly perform any services of a business, commercial or
professional nature for any person or organization, whether for
compensation or otherwise, without HPI's prior written consent.
3. PLACE OF PERFORMANCE. HPI shall provide Employee with an
appropriate office at its offices, and all supplies, equipment, and
office personnel reasonably necessary to perform Employee's duties and
services.
4. COMPENSATION AND BENEFITS. As compensation and benefits for
Employee's services, HPI shall provide the following compensation and
benefits to Employee during the term of employment and upon termination
of his employment as provided by this Agreement:
4.1 BASE SALARY HPI shall pay Employee a base salary of $107,640
(one hundred seven thousand, six hundred forty dollars) per
year or at such higher rate as HPI may from time to time
determine, payable in equal installments at HPI's regular
payroll periods.
4.2 BONUS. Employee shall be eligible for a periodic bonus on the
terms and conditions of a separate Executive Bonus Plan
Agreement between Employee and HPI. Such Executive Bonus Plan
Agreement shall address bonus based on HPI's performance. The
foregoing notwithstanding, the bonus calculation for 1996 will
be in accordance with the BTR plan and payable in February 1997
subsequent to confirmation of results by external audit and
approval by Unique Investment Corporation.
4.3 BENEFITS. Employee shall be entitled to such fringe benefits
and perquisites as are generally made available to similarly
contracted employees of HPI, whether such benefits are
presently in effect or come into effect during the term of this
Agreement, and such other fringe benefits as may be determined
by HPI in its sole discretion, except that Employee's benefits
shall not be reduced from those benefits specifically provided
in this Agreement.
Page 1 of 5
<PAGE>
4.4 VACATIONS. Employee shall be entitled to a vacation period of
three (3) weeks per year. Administration of Employee's
vacation and vacation year to year carry over will be in
accordance with the applicable HPI Policies and Procedures.
Upon termination of his employment with HPI for any reason,
Employee shall be paid for all unused, accrued vacation time.
4.5 HOLIDAYS. Employee shall receive paid holidays in accordance with
applicable HPI Policies and Procedures.
4.6 SICK LEAVE. Employee shall be entitled to sick leave without any
loss in compensation.
4.7 INSURANCE. HPI shall provide to Employee paid health, dental,
disability and life insurance benefits in accordance with HPI
established plans. HPI shall reimburse Employee for insurance
premiums, deductibles and any other expenses not paid by the
Company Plan and for one comprehensive physical examination
annually.
4.8 PENSION PLAN(S). Employee will be eligible to participate in HPI's
Pension and 401k Plans in accordance with HPI Policies and
Procedures.
4.9 AUTOMOBILE. During the term of this Agreement, HPI will pay
Employee a $750 (seven hundred fifty dollars) per month
automobile allowance.
4.10 BUSINESS EXPENSES. HPI shall reimburse Employee for all
business expenses reasonably incurred by Employee in connection
with the performance of his duties under this Agreement
provided that Employee furnishes HPI with adequate records or
other evidence respecting such expenditures. HPI shall
reimburse Employee, or shall pay directly, all reasonable
entertainment, promotion, telephone and other expenses incurred
in connection with the performance of Employee's duties under
this Agreement as well as all reasonable travel and living
expenses while traveling business related.
4.11 EQUITY PARTICIPATION. Employee will acquire equity in HPI in
accordance with terms and conditions of a separate Executive
Equity Plan Agreement between Employee and HPI.
5. TERM AND TERMINATION.
5.1 TERM OF AGREEMENT. The term of Employee's employment with HPI
shall commence on November 1, 1996 and shall end on October 31,
1999 the ("Termination Date"), unless terminated earlier in
accordance with the terms of this Agreement or unless extended
in accordance with paragraph 5.2 below.
5.2 TERMINATION. Either party shall give at least three months
prior written notice to the other prior to the Termination Date
to terminate this Agreement or the Agreement shall be extended
for an additional year under the same terms and conditions of
this Agreement. For purposes of this Agreement, the "Term of
this Agreement" shall mean the full term of the Agreement,
including subsequent terms, and not only the initial term.
page 2 of 5
<PAGE>
5.3 RIGHTS OF EMPLOYEE UPON TERMINATION.
(A) HPI may terminate Employee "Without Cause" at any time upon
giving written notice to Employee. HPI shall then pay
Employee "Severance Pay" equal to Employee's Base Salary and
benefits in accordance with the paragraphs of Article 4 above
for the remaining term of this Agreement until the Termination
Date or for one year whichever period is longer. "Severance
Pay" shall include a calendar based pro-rata bonus for the year
of termination. Severance pay shall be paid in equal
installments on HPI's normal payment schedule or in lump sum(s)
at Employer's option. Additionally, the Employee shall receive
"Severance Pay" as described above if at any time the
Employee's duties or terms of employment materially change and
Employee elects to leave the employ of HPI as a result of such
change.
(B) HPI may terminate Employee for "Cause" at any time, with or
without advance notice upon giving written notice to Employee,
if Employee has: (i) committed fraud, misappropriation or
theft; ( ii) engaged in gross misconduct in the performance
of his duties; (iii) engaged in unlawful conduct which has a
material adverse effect on HPI; or (iv) been convicted of a
felony.
If Employee is terminated for "Cause" he shall have no rights
whatsoever pursuant to this Agreement except as provided for
in the Executive Equity Plan Agreement. This Employment
Agreement shall terminate immediately upon such written notice
to Employee.
5.4 DEATH OR DISABILITY.
(A) Upon Employee's death, Employee's Base Salary and all benefits
payable to Employee shall be paid to his heirs under the terms
of this Agreement through the Termination Date. Such amount
to be reduced by proceeds of life insurance paid by HPI.
(B) Upon Employee's "permanent disability", Employee's Base Salary
and fringe benefits payable shall be paid through the
Termination Date reduced by any disability insurance proceeds
received by him from any policy paid for by HPI and any State
disability insurance. "Permanent disability" means Employee's
inability to substantially perform his duties for any
physical, mental, emotional or other reason for 90 consecutive
days or more.
6. MISCELLANEOUS PROVISIONS.
6.1 NOTICES. All notices, demands and other communications,
provided for in this Agreement ("Notice") shall be in writing
and shall be given to such party at its address as set forth
below or such address as such party may specify of the purpose
by Notice to the other party listed below. Each Notice shall
be deemed delivered to the party to whom it is addressed on the
next business day following its actual delivery at the address
specified in this paragraph.
Page 3 of 5
<PAGE>
TO: Hawker Pacific, Inc.
11310 Sherman Way
Sun Valley, CA 91352
Attn: CFO
TO: Brian S. Carr
12178 Cherry Grove Street
Moorpark, CA 93021
6.2 NO ASSIGNMENT. This Agreement may not be assigned by any party
without the prior written consent of the other party.
6.3 INTERPRETATION. The resolution of ambiguities against the
drafting party shall not apply in the enforcement and
interpretation of this Agreement, and this Agreement shall be
given a fair and reasonable construction in accordance with the
intent of the parties.
6.4 GOVERNING LAW. This Agreement shall be governed by,
interpreted under, construed and enforced in accordance with
the laws of the State of California.
6.5 PARTIAL INVALIDITY. If any term or provision of this Agreement
or the application thereof shall, to any extent, be invalid or
unenforceable, then the remainder of this Agreement, or the
application of such term or provision other than those as to
which it is held invalid or unenforceable, shall not be
affected and shall be valid and enforceable to the fullest
extent permitted by law.
6.6 COUNTERPARTS AND PHOTOCOPIES. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument. Photocopies of this Agreement shall also
be given the same effect as the original.
6.7 ENTIRE AGREEMENT. This Agreement is the final expression of,
and contains the entire agreement between, the parties with
respect to the subject matter of this Agreement and supersedes
all prior negotiations, understandings and agreements. No
statements, promises or representations have been made by any
party to any other, or relied upon, and no consideration has
been offered, promised, expected or held out other than
expressly provided in this Agreement. This Agreement may not be
modified, changed, amended, supplemented or terminated, except
by a written instrument signed by the party to be charged or by
its duly authorized agent.
6.8 WAIVERS. The waiver by either party of the breach of any term,
provision, covenant or condition contained in this Agreement, or
the failure or either party to insist on strict performance by
the other, shall not be deemed to be a waiver of such term,
provision, covenant or condition contained in this Agreement.
The acceptance of performance by either party shall not be deemed
to be a waiver of any breach or default by the other party,
regardless of the non-defaulting party's knowledge of such breach
or default at the time of acceptance of performance.
Page 4 of 5
<PAGE>
6.9 ATTORNEY'S FEES. If any action is commenced to enforce any of
the provisions of this Agreement or to enforce a judgment, the
unsuccessful party shall pay all costs incurred by the prevailing
party, including reasonable attorneys' fees and costs,
arbitration fees and costs, court costs and reimbursements for
any other expenses.
6.10 CAPTIONS. The paragraph and section headings in this Agreement
are solely for convenience of reference and are not a part of an
are not intended to govern, limit or aid in the construction of
any term provision of this Agreement.
6.11 FURTHER ASSURANCES. The parties agree, without any additional
consideration or any unreasonable delay, to execute all such other
instruments and documents and to take all actions as may be
reasonably necessary or desirable to further implement the
provisions of this Agreement.
7. ARBITRATION. All claims, disputes or other matters in question
arising out of, or relating to, this Agreement or the breach of this
Agreement shall be decided in accordance with the then current
California Employment Resolution Dispute Rules of the American
Arbitration Association. Arbitration shall be held in Los Angeles,
California. The award of the arbitrator shall be final and binding upon
the parties, and judgment may be entered upon it in accordance with
applicable law in any court having jurisdiction. This agreement to
arbitrate shall be self-executing without the necessity of filing any
action in any court and shall be specifically enforceable under the
prevailing arbitration law.
The parties execute this Agreement on the date set forth above.
HAWKER PACIFIC, INC.
By: /s/ D. LOKKEN
------------------------------
Its: President
------------------------------
Date: 27 November 1996
------------------------------
BRIAN S. CARR
------------------------------
Date: 27 November 1996
------------------------------
Page 5 of 5
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") is dated November 1st, 1996 BETWEEN
HAWKER PACIFIC, INC. ("HPI") having its principal place of business at 11310
Sherman Way, Sun Valley, California 91352 AND MICHAEL A. RILEY ("Employee")
of 1735 Coronado Court, Camarillo, California, 93010.
1. RECITALS. HPI desires to continue to benefit from Employee
in his capacity as Vice President, Hydromechanics of HPI; and
Employee will serve as Vice President, Hydromechanics of HPI on the
agreements set forth below and for other consideration, HPI and
Employee agree that Employee will be employed by HPI in accordance
with the terms of this Agreement.
2. SERVICES. During the term of his employment, Employee shall be
responsible for effectively performing the duties of his position
and such other duties assigned to him which are consistent with his
position and such other duties assigned to him which are consistent
with his position. Employee will utilize HPI's resources as
appropriate to best fulfill his responsibilities. Employee agrees
to devote his entire productive time, ability and attention to the
business of HPI. During the term of his employment, Employee also
agrees that he shall not directly or indirectly perform any
services of a business, commercial or professional nature for any
person or organization, whether for compensation or otherwise,
without HPI's prior written consent.
3. PLACE OF PERFORMANCE. HPI shall provide Employee with an appropriate
office at its offices, and all supplies, equipment, and office
personnel reasonably necessary to perform Employee's duties and
services.
4. COMPENSATION AND BENEFITS. As compensation and benefits for Employee's
services, HPI shall provide the following compensation and benefits
to Employee during the term of employment and upon termination of
his employment as provided by this Agreement:
4.1 BASE SALARY HPI shall pay Employee a base salary of $94,200
(ninety four thousand two hundred dollars) per year or at such
higher rate as HPI may from time to time determine, payable in
equal installments at HPI's regular payroll periods.
4.2 BONUS. Employee shall be eligible for a periodic bonus on the
terms and conditions of a separate Executive Bonus Plan
Agreement between Employee and HPI. Such Executive Bonus Plan
Agreement shall address bonus based on HPI's performance. The
foregoing notwithstanding, the bonus calculation for 1996 will
be in accordance with the BTR plan and payable in February 1997
subsequent to confirmation of results by external audit and
approval by Unique Investment Corporation.
4.3 BENEFITS. Employee shall be entitled to such fringe benefits
and perquisites as are generally made available to similarly
contracted employees of HPI, whether such benefits are
presently in effect or come into effect during the term of this
Agreement, and such other fringe benefits as may be determined
by HPI in its sole discretion, except that Employee's benefits
shall not be reduced from those benefits specifically provided
in this Agreement.
4.4 VACATIONS. Employee shall be entitled to a vacation period of
three (3) weeks per year. Administration of Employee's
vacation and vacation year to year carry over will
Page 1 of 5
<PAGE>
be in accordance with the applicable HPI Policies and
Procedures. Upon termination of his employment with HPI for
any reason, Employee shall be paid for all unused, accrued
vacation time.
4.5 HOLIDAYS. Employee shall receive paid holidays in accordance
with applicable HPI Policies and Procedures.
4.6 SICK LEAVE. Employee shall be entitled to sick leave without
any loss in compensation.
4.7 INSURANCE. HPI shall provide to Employee paid health, dental,
disability and life insurance benefits in accordance with HPI
established plans. HPI shall reimburse Employee for insurance
premiums, deductibles and any other expenses not paid by the
Company Plan and for one comprehensive physical examination
annually.
4.8 PENSION PLAN(S). Employee will be eligible to participate in
HPI's Pension and 401k Plans in accordance with HPI Policies
and Procedures.
4.9 AUTOMOBILE. During the term of this Agreement, HPI will pay
Employee a $750 (seven hundred fifty dollars) per month
automobile allowance.
4.10 BUSINESS EXPENSES. HPI shall reimburse Employee for all
business expenses reasonably incurred by Employee in connection
with the performance of his duties under this Agreement
provided that Employee furnishes HPI with adequate records or
other evidence respecting such expenditures. HPI shall
reimburse Employee, or shall pay directly, all reasonable
entertainment, promotion, telephone and other expenses incurred
in connection with the performance of Employee's duties under
this Agreement as well as all reasonable travel and living
expenses while traveling business related.
4.11 EQUITY PARTICIPATION. Employee will acquire equity in HPI in
accordance with terms and conditions of a separate Executive
Equity Plan Agreement between Employee and HPI.
5. TERM AND TERMINATION.
5.1 TERM OF AGREEMENT. The term of Employee's employment with HPI
shall commence on November 1, 1996 and shall end on October 31,
1999 the ("Termination Date"), unless terminated earlier in
accordance with the terms of this Agreement or unless extended
in accordance with paragraph 5.2 below.
5.2 TERMINATION. Either party shall give at least three months
prior written notice to the other prior to the Termination Date
to terminate this Agreement or the Agreement shall be extended
for an additional year under the same terms and conditions of
this Agreement. For purposes of this Agreement, the "Term of
this Agreement" shall mean the full term of the Agreement,
including subsequent terms, and not only the initial term.
Page 2 of 5
<PAGE>
5.3 RIGHTS OF EMPLOYEE UPON TERMINATION.
(A) HPI may terminate Employee "Without Cause" at any time upon
giving written notice to Employee. HPI shall then pay Employee
"Severance Pay" equal to Employee's Base Salary and benefits in
accordance with the paragraphs of Article 4 above for the
remaining term of this Agreement until the Termination Date or
for one year whichever period is longer. "Severance Pay" shall
include a calendar based pro-rata bonus for the year of
termination. Severance pay shall be paid in equal installments
on HPI's normal payment schedule or in lump sum(s) at
Employer's option. Additionally, the Employee shall receive
"Severance Pay" as described above if at any time the
Employee's duties or terms of employment materially change and
Employee elects to leave the employ of HPI as a result of such
change.
(B) HPI may terminate Employee for "Cause" at any time, with or
without advance notice upon giving written notice to Employee,
if Employee has: (i) committed fraud, misappropriation or
theft; ( ii) engaged in gross misconduct in the performance of
his duties; (iii) engaged in unlawful conduct which has a
material adverse effect on HPI; or (iv) been convicted of a
felony.
If Employee is terminated for "Cause" he shall have no rights
whatsoever pursuant to this Agreement except as provided for in
the Executive Equity Plan Agreement. This Employment Agreement
shall terminate immediately upon such written notice to
Employee.
5.4 DEATH OR DISABILITY.
(A) Upon Employee's death, Employee's Base Salary and all benefits
payable to Employee shall be paid to his heirs under the terms
of this Agreement through the Termination Date. Such amount to
be reduced by proceeds of life insurance paid by HPI.
(B) Upon Employee's "permanent disability", Employee's Base Salary
and fringe benefits payable shall be paid through the
Termination Date reduced by any disability insurance proceeds
received by him from any policy paid for by HPI and any State
disability insurance. "Permanent disability" means Employee's
inability to substantially perform his duties for any physical,
mental, emotional or other reason for 90 consecutive days or
more.
6. MISCELLANEOUS PROVISIONS.
6.1 NOTICES. All notices, demands and other communications,
provided for in this Agreement ("Notice") shall be in writing
and shall be given to such party at its address as set forth
below or such address as such party may specify of the purpose
by Notice to the other party listed below. Each Notice shall
be deemed delivered to the party to whom it is addressed on the
next business day following its actual delivery at the address
specified in this paragraph.
Page 3 of 5
<PAGE>
TO: Hawker Pacific, Inc.
11310 Sherman Way
Sun Valley, CA 91352
Attn: CFO
TO: Michael A. Riley
1735 Coronado Court
Camarillo, CA 93010
6.2 NO ASSIGNMENT. This Agreement may not be assigned by any party
without the prior written consent of the other party.
6.3 INTERPRETATION. The resolution of ambiguities against the
drafting party shall not apply in the enforcement and
interpretation of this Agreement, and this Agreement shall be
given a fair and reasonable construction in accordance with the
intent of the parties.
6.4 GOVERNING LAW. This Agreement shall be governed by,
interpreted under, construed and enforced in accordance with
the laws of the State of California.
6.5 PARTIAL INVALIDITY. If any term or provision of this Agreement
or the application thereof shall, to any extent, be invalid or
unenforceable, then the remainder of this Agreement, or the
application of such term or provision other than those as to
which it is held invalid or unenforceable, shall not be
affected and shall be valid and enforceable to the fullest
extent permitted by law.
6.6 COUNTERPARTS AND PHOTOCOPIES. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument. Photocopies of this Agreement shall also
be given the same effect as the original.
6.7 ENTIRE AGREEMENT. This Agreement is the final expression of,
and contains the entire agreement between, the parties with
respect to the subject matter of this Agreement and supersedes
all prior negotiations, understandings and agreements. No
statements, promises or representations have been made by any
party to any other, or relied upon, and no consideration has
been offered, promised, expected or held out other than
expressly provided in this Agreement. This Agreement may not be
modified, changed, amended, supplemented or terminated, except
by a written instrument signed by the party to be charged or by
its duly authorized agent.
6.8 WAIVERS. The waiver by either party of the breach of any term,
provision, covenant or condition contained in this Agreement,
or the failure or either party to insist on strict performance
by the other, shall not be deemed to be a waiver of such term,
provision, covenant or condition contained in this Agreement.
The acceptance of performance by either party shall not be
deemed to be a waiver of any breach or default by the other
party, regardless of the non-defaulting party's knowledge of
such breach or default at the time of acceptance of
performance.
Page 4 of 5
<PAGE>
6.9 ATTORNEY'S FEES. If any action is commenced to enforce any of
the provisions of this Agreement or to enforce a judgment, the
unsuccessful party shall pay all costs incurred by the
prevailing party, including reasonable attorneys' fees and
costs, arbitration fees and costs, court costs and
reimbursements for any other expenses.
6.10 CAPTIONS. The paragraph and section headings in this Agreement
are solely for convenience of reference and are not a part of
an are not intended to govern, limit or aid in the construction
of any term provision of this Agreement.
6.11 FURTHER ASSURANCES. The parties agree, without any additional
consideration or any unreasonable delay, to execute all such
other instruments and documents and to take all actions as may
be reasonably necessary or desirable to further implement the
provisions of this Agreement.
7. ARBITRATION. All claims, disputes or other matters in question arising
out of, or relating to, this Agreement or the breach of this Agreement
shall be decided in accordance with the then current California
Employment Resolution Dispute Rules of the American Arbitration
Association. Arbitration shall be held in Los Angeles, California.
The award of the arbitrator shall be final and binding upon the
parties, and judgment may be entered upon it in accordance with
applicable law in any court having jurisdiction. This agreement to
arbitrate shall be self-executing without the necessity of filing any
action in any court and shall be specifically enforceable under the
prevailing arbitration law.
The parties execute this Agreement on the date set forth above.
HAWKER PACIFIC, INC.
By: /s/ D. LOKKEN
------------------------------
Its: President
------------------------------
Date: 27 November 1996
------------------------------
MICHAEL A. RILEY
------------------------------
Date: 27 November 1996
------------------------------
Page 5 of 5
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BUSINESS LOAN AGREEMENT
November 27, 1996
between
HAWKER PACIFIC, INC., a California corporation,
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS............................................................1
2. LINE OF CREDIT (FACILITY NO. 1).......................................10
2.1 Line of Credit Amount.....................................................10
2.2 Availability Period.......................................................10
2.3 Purpose...................................................................11
2.4 Interest Rate.............................................................11
2.5 Repayment Terms...........................................................11
2.6 Letters of Credit.........................................................12
3. TERM LOAN (FACILITY NO. 2)............................................13
3.1 Loan Amount...............................................................13
3.2 Availability..............................................................13
3.3 Purpose ..................................................................13
3.4 Interest Rate.............................................................14
3.5 Repayment Terms...........................................................14
3.6 Mandatory Prepayments.....................................................15
4. CAPITAL EXPENDITURE FACILITY (FACILITY NO. 3).........................15
4.1 Capital Expenditure Loans.................................................15
5. OPTIONAL INTEREST RATE................................................17
5.1 Optional Rate.............................................................17
5.2 Offshore Rate.............................................................17
6. FEES, EXPENSES........................................................19
6.l Fees......................................................................19
6.2 Expenses..................................................................20
6.3 Reimbursement Costs.......................................................20
7. COLLATERAL............................................................21
7.1 Personal Property.........................................................21
7.2 Guarantees; Personal Property Supporting Guarantees.......................21
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<PAGE>
7.3 Subordination.............................................................21
8. DISBURSEMENTS, PAYMENTS AND COSTS.....................................21
8.1 Requests for Credit.......................................................21
8.2 Disbursements and Payments................................................22
8.3 Telephone and Telefax Authorization.......................................22
8.4 Direct Debit..............................................................23
8.5 Direct Debit (Line of Credit).............................................23
8.6 Banking Days..............................................................23
8.7 Taxes.....................................................................24
8.8 Additional Costs..........................................................24
8.9 Interest Calculation......................................................24
8.10 Default Rate.............................................................24
8.11 Overdrafts...............................................................24
8.12 Collections on Accounts Receivable.......................................25
9. CONDITIONS............................................................25
9.1 Authorizations............................................................25
9.2 Incumbency Certificates; Governing Documents..............................26
9.3 Security Agreements, Etc..................................................26
9.4 Evidence of Priority......................................................26
9.5 Consent to Removal........................................................26
9.6 Insurance.................................................................26
9.7 Business Interruption Insurance...........................................26
9.8 Guaranties................................................................26
9.9 Subordination Agreement...................................................26
9.10 Equity Infusion..........................................................26
9.11 Subordinated Debt........................................................27
9.12 Acquisition..............................................................27
9.13 Legal Opinion............................................................27
9.14 Solvency Certificate.....................................................27
9.15 Payment of Fees..........................................................27
9.16 Superfund Letter.........................................................27
9.17 Employment Agreements and Material Contracts.............................28
9.18 Consents.................................................................28
9.19 Certain Financial Information............................................28
9.20 Liquidity................................................................29
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<PAGE>
9.21 Other Items.............................................................29
10. REPRESENTATIONS AND WARRANT...........................................29
10.1 Organization of Borrower and AqHawk.....................................29
10.2 Authorization...........................................................29
10.3 Enforceable Agreement...................................................29
10.4 Good Standing...........................................................29
10.5 No Conflicts............................................................29
10.6 Financial Information...................................................30
10.7 Lawsuits................................................................30
10.8 Collateral..............................................................30
10.9 Permits, Franchises.....................................................30
10.10 Other Obligations.......................................................30
10.11 Income Tax Returns......................................................30
10.12 No Event of Default.....................................................31
10.13 Merchantable Inventory..................................................31
10.14 ERISA Plans.............................................................31
10.15 Location of Borrower....................................................32
10.16 Certain Collateral......................................................32
10.17 The Acquisition.........................................................32
10.18 Environmental...........................................................32
10.19 Governmental Regulation.................................................32
10.20 Copyrights, Patents, Trademarks and Licenses, etc.......................33
10.21 Subsidiaries............................................................33
10.22 Contracts...............................................................33
11. COVENANTS.............................................................33
11.1 Use of Proceeds..........................................................33
11.2 Use of Proceeds: Ineligible Securities...................................33
11.3 Financial Information....................................................34
11.4 Quick Ratio..............................................................37
11.5 Fixed Charge Coverage Ratio..............................................37
11.6 Profitability............................................................37
11.7 Other Debts..............................................................38
11.8 Other Liens..............................................................38
11.9 Capital Expenditures for Shipsets........................................39
11.10 Capital Expenditures for 1996...........................................39
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<PAGE>
11.11 Capital Expenditures for Other Assets...................................39
11.12 Leases..................................................................39
11.13 Dividends and Other Payments............................................39
11.14 Loans to Officers.......................................................40
11.15 Notices to Bank.........................................................40
11.16 Books and Records.......................................................40
11.17 Audits..................................................................40
11.18 Compliance with Laws....................................................41
11.19 Preservation of Rights..................................................41
11.20 Maintenance of Properties...............................................41
11.21 Perfection of Liens.....................................................41
11.22 Places of Business......................................................41
11.23 Cooperation.............................................................41
11.24 Insurance...............................................................42
(a) Insurance Covering Collateral........................................42
(b) General Business Insurance...........................................42
(c) Evidence of Insurance................................................42
11.25 Additional Negative Covenants...........................................42
11.26 ERISA Plans.............................................................43
11.27 Inspection of Property and Books and Records............................43
11.28 Environmental Laws......................................................44
11.29 Sabena Shipset..........................................................44
11.30 Swap Agreements.........................................................44
11.31 Collection of Accounts..................................................44
11.32 AqHawk..................................................................44
11.33 Liquidity...............................................................44
11.34 Amendment to the BTR Environmental Indemnity............................45
12. DEFAULT...............................................................45
12.1 Failure to Pay...........................................................45
12.2 Lien Priority............................................................45
12.3 Loan Documents...........................................................45
12.4 False Information........................................................45
12.5 Death....................................................................45
12.6 Bankruptcy...............................................................45
12.7 Receivers................................................................46
12.8 Judgments................................................................46
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<PAGE>
12.9 Government Action........................................................46
12.10 Material Adverse Change.................................................46
12.11 Cross-default...........................................................46
12.12 Other Bank Agreements...................................................47
12.13 ERISA Plans.............................................................47
12.14 Environmental Indemnnity Breach.........................................47
12.15 Change in Control or Management.........................................47
12.16 Subordination...........................................................48
12.17 Balance Sheet...........................................................48
12.18 Other Breach Under Agreement............................................48
13. ENFORCING THIS AGREEMENT; MISCELLANEOUS...............................48
13.1 GAAP.....................................................................48
13.2 California Law...........................................................48
13.3 Successors and Assigns...................................................49
13.4 Arbitration..............................................................49
13.5 Severability; Waivers....................................................51
13.6 Administration Costs.....................................................51
13.7 Attorneys' Fees..........................................................51
13.8 One Agreement............................................................52
13.9 Disposition of Schedules, Reports, Etc. Delivered by Borrower............52
13.10 Returned Merchandise....................................................52
13.11 Verification of Receivables.............................................53
13.12 Indemnification.........................................................53
13.13 Notices.................................................................53
13.14 Headings................................................................53
13.15 Counterparts............................................................54
v
<PAGE>
BUSINESS LOAN AGREEMENT
This Business Loan Agreement (this "Agreement") dated as of November
27, 1996 is made between BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
("BANK") and HAWKER PACIFIC, INC., a California corporation ("BORROWER").
Borrower and Bank hereby agree as follows:
1. DEFINITIONS
In addition to the terms defined elsewhere in this Agreement, the following
terms have the meanings indicated for the purposes of this Agreement:
"ACCEPTABLE RECEIVABLE" means an account receivable which satisfies the
following requirements:
(a) The account has resulted from the sale of goods or the
performance of services by Borrower in the ordinary course of Borrower's
business.
(b) There are no conditions which must be satisfied before
Borrower is entitled to receive payment of the account. Accounts arising
from COD sales, consignments or guaranteed sales are not acceptable.
(c) The debtor upon the account does not claim any defense to
payment and has not asserted any counterclaims or offsets against Borrower.
To the extent any credit balances exist in favor of the debtor, such credit
balances shall be deducted from the account balance.
(d) The account represents a genuine obligation of the debtor
for goods sold and accepted by the debtor, or for services performed for
and accepted by the debtor.
(e) Borrower has sent an invoice to the debtor in the amount of
the account.
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<PAGE>
(f) The account is owned by Borrower free of any title defects
or any liens or interests of others except the security interest in favor
of Bank.
(g) The debtor upon the account is not any of the following:
(i) an employee, affiliate, parent or subsidiary of
Borrower, or an entity which has common officers or directors with
Borrower.
(ii) the U.S. government or any agency or department of
the U.S. government other than the Coast Guard Contract (and then only
to the extent that Borrower has, prior to January 31, 1997, caused an
effective assignment of the Coast Guard Contract to occur under the
Federal Assignment of Claims Act assigning the interest of Bank in the
Coast Guard Contract, to the satisfaction of Bank), and any other
contract with the United States of America or its agencies and
instrumentalities which is reasonably acceptable to Bank and as to
which such a filing has been completed.
(iii) any state, county, city, town or municipality.
(iv) any person or entity located in a foreign country
(other than the Canadian provinces of Quebec, Ontario, British
Columbia, Saskatchewan and Manitoba) unless the account is
supported by a letter of credit issued by a bank acceptable to Bank or
by FCIA insurance or other credit insurance acceptable to Bank in its
sole discretion.
(v) any person or entity to whom Borrower is obligated
for goods purchased by Borrower for services performed for Borrower
(but only to the extent of such obligation).
(h) The account is not in default. An account will be considered in
default if any of the following occur:
(i) The account is not paid within the 90 day period
starting on its original invoice date (it being understood that the
entire amount of such accounts which is 90 days overdue shall be
excluded from
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Borrower's gross accounts receivable balance without regard to any
credit balances due to the account debtor with respect to any such
account);
(ii) The debtor obligated upon the account suspends
business, makes a general assignment for the benefit of creditors, or
fails to pay its debts generally as they come due; or
(iii) Any petition is filed by or against the debtor
obligated upon the account under any bankruptcy law or any other law
or laws for the relief of debtors;
(i) The account is not the obligation of a debtor who is in default
(as defined in (h) above) on 25% or more of the accounts upon which
such debtor is obligated.
(j) The account does not arise from the sale of goods which remain in
Borrower's possession or under Borrower's control.
(k) The account is not evidenced by a promissory note or chattel
paper.
(l) The account is otherwise acceptable to Bank.
In addition to the foregoing limitations, the dollar amount of accounts
included as Acceptable Receivables which are the obligations of a single
debtor shall not exceed 20% of the total amount of Borrower's gross
accounts receivable at that time, provided that such concentration limit
for Federal Express will be 40% unless and until 15% of the gross accounts
receivable of Borrower from Federal Express remain unpaid for 90 days past
their respective original invoice dates. To the extent the total accounts
owed by any debtor exceeds that debtor's concentration limit pursuant to
this paragraph, the amount of any such excess shall be excluded.
"ACCEPTABLE INVENTORY" means inventory which satisfies the following
requirements:
(a) The inventory is owned by Borrower free of any title defects
or any liens or interests of others except the security interest in favor
of Bank.
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(b) The inventory is permanently located at United States
domestic locations of Borrower which Borrower has disclosed to Bank, as to
which Bank has an appropriate Uniform Commercial Code financing statement
on file, and which are otherwise acceptable to Bank. If the inventory is
covered by a negotiable document of title (such as a warehouse receipt) that
document must be delivered to Bank. Inventory which is in transit
(including but not limited to any used exchange parts shipped from
Borrower's customer but which have not reached the United States domestic
locations of Borrower) is not acceptable unless it is covered by a
commercial Letter of Credit issued by Bank and the seller of the inventory
is required to present shipping or title documents to Bank as a condition
to obtaining payment.
(c) The inventory is held for sale in the ordinary course of
Borrower's business and is of good and merchantable quality. Inventory
which is obsolete, unsalable, damaged, defective, discontinued, slow-moving
or excess inventory, or which has been returned by the buyer, is not
acceptable. For purposes of this clause (c), inventory shall be considered
slow moving if Borrower has not sold inventory or otherwise dealt in of
that type within a 12 month period. Inventory shall be considered "excess
inventory" if Borrower's supply of inventory of that type is in excess of
the amount which is salable within a 24 month period, as determined by Bank
given Borrower's historical sales information. Work-in-process, display
items, and packing and shipping materials and supplies are not acceptable
inventory and are excluded.
(d) The inventory is not placed on consignment or otherwise
placed with the customer or on the customer's premises.
(f) The inventory does not consist of freight or duty.
(g) The inventory consists of property other than Shipsets.
(h) The inventory is otherwise acceptable to Bank.
"ACQUISITION" means the acquisition by AqHawk of Borrower on the Closing
Date pursuant to the Acquisition Agreement.
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"ACQUISITION AGREEMENT" means that certain Agreement of Purchase and Sale
of Stock by and among BTR Dunlop, Inc., a Delaware corporation, BTR, Inc.,
a Delaware corporation, Borrower and AqHawk, of even date herewith and
effective as of November 1, 1996, as in effect on the date of this
Agreement.
"AQHAWK" means AqHawk, Inc., a California corporation, which, concurrently
with the execution of this Agreement, will acquire Borrower pursuant to the
Acquisition Agreement.
"AQHAWK GUARANTY" means the unlimited continuing guaranty of the
obligations of Borrower under this Agreement and the other Loan Documents
issued by AqHawk on the Closing Date, as at any time amended.
"BASTIAN" means Melanie L. Bastian, an individual residing in Orem, Utah.
"BASTIAN LIMITED GUARANTY" means the limited continuing guaranty of the
obligations of Borrower under this Agreement and the other Loan Documents
issued by Bastian on the Closing Date, as at any time amended.
"BORROWER" means Hawker Pacific, Inc., and its successors and assigns,
including Hawker Pacific, Inc., as survivor of the proposed merger of
Hawker Pacific, Inc. and AqHawk.
"BORROWER SECURITY AGREEMENT" means that certain Borrower Security
Agreement of even date herewith made by Borrower in favor of Bank, as at
any time amended.
"BORROWING BASE" means the sum of:
(a) 85% of the balance due on Acceptable Receivables; and
(b) The lesser of Six Million Dollars ($6,000,000) or 50% of the
value of Acceptable Inventory. In determining the value of Acceptable
Inventory to be included in the Borrowing Base, Bank will use the lowest of
(i) Borrower's cost, (ii) Borrower's estimated market value, or (iii) Bank's
independent determination of the resale value of such inventory in such
quantities and on such terms as Bank deems appropriate.
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"CAPITAL EXPENDITURE LOAN UNUSED AMOUNT" means, as of each date of
determination, the excess, if any, as of that date of $3,000,000 over the
aggregate amount of Capital Expenditure Loans made through and including
such date.
"CAPITAL EXPENDITURE LOANS" means loans to Borrower made pursuant to
Facility No. 3, as described in Section 4.
"CASH FLOW" means, for any fiscal period, the sum, without duplication, of
Borrower's net income, plus income tax expense, plus gross interest
expense, plus depreciation and amortization, minus extraordinary income and
gains, minus gains (or plus losses) on sales of fixed assets, minus
capital expenditures (net of purchase money financing, which shall include
the amount of Capital Expenditure Loans made during that period), minus
cash taxes paid or payable, plus the amount of any EPA Payments to the
extent that such EPA Payments reduce net income, in each case for that
period, determined in accordance with generally accepted accounting
principles, consistently applied.
"CLOSING DATE" means the date upon which each of the conditions precedent
set forth in Section 9 of this Agreement are satisfied or waived in writing
by Bank and the initial loans under this Agreement are funded.
"COAST GUARD CONTRACT" means that certain Contract No. DTCG38-95-D-20018
dated September 20, 1995, between Borrower and the United States Coast
Guard Aircraft Repair and Supply Center, as amended from time to time.
"DEFAULT" means any event or circumstance which, with the giving of notice
or the passage of time, or both, would constitute an Event of Default.
"EPA PAYMENTS" means payments in an aggregate amount not to exceed $658,000
made by Borrower pursuant to (i) the Settlement Agreement and Limited
Release dated as of November 21, 1994 among Borrower, Gordon N. Wagner,
Peggy M. Wagner, The Wagner Living Trust, Joseph W. Basinger and Viola
Basinger, and the Addendum thereto and (ii) the proposed Agreement and
Limited Release to be entered into among Borrower, Gordon N. Wagner, Peggy
M. Wagner, The Wagner Living Trust, Joseph W. Basinger, Viola Basinger,
Parker Hannefin Corporation, and Inchcape, Inc. (which remains unexecuted
by the parties thereto), and (iii) the
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<PAGE>
proposed Consent Decree among the United States of America, the State of
California, Allied Signal, Inc. et al (which is currently approved by the
litigants but not yet by the court).
"ENVIRONMENTAL CLAIMS" means all claims, however asserted, by any
governmental authority or other person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or
injury to the environment.
"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with
all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any governmental
authorities, in each case relating to environmental, health, safety and
land use matters.
"EVENT OF DEFAULT" means any of the circumstances or events constituting
defaults hereunder and listed in Section 12.
"EXCESS CASH FLOW" means, for any fiscal period of Borrower, the sum,
without duplication during that fiscal period, of Borrower's net income,
plus income tax expense, plus interest expense, plus amortization and
depreciation expense, minus gains (or plus losses) on sales of fixed
assets, plus non-cash extraordinary losses, minus non-cash extraordinary
income minus capital expenditures (net of the amount of any associated
purchase money financing) minus 75% of the increase (or plus 75% of the
decrease) in working capital, minus cash income taxes paid or payable,
minus interest payments (including that portion of capital lease payments
construed as interest), minus scheduled payments of principal with respect
to indebtedness for borrowed money and capital leases, and minus voluntary
prepayments of Facility No. 2 and Facility No. 3.
"FACILITY NO. 1 UNUSED AMOUNT" means, as of each date of determination, the
difference between (i) the Facility No. 1 Commitment, and (ii) the Facility
No.1 Outstanding Amount.
"FIXED CHARGES" is defined as the sum of gross interest expense paid or
payable by Borrower in cash (but excluding interest on the Subordinated
Note), plus scheduled principal payments on indebtedness for borrowed money
and capital leases.
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"INELIGIBLE SECURITIES" means securities which may not be underwritten or
dealt in by member banks of the Federal Reserve System under Section 16 of
Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended.
"INTERCOMPANY NOTE" means the $19,178,841 promissory note of even date
herewith made by AqHawk in favor of Borrower and pledged to Bank.
"LETTER OF CREDIT" means any of the standby or commercial letters of credit
issued by Bank for the account of Borrower pursuant to Section 2.6.
"LIQUIDITY" means, as of each date of determination, the sum of the
Facility No. 1 Unused Amount as of that date, PLUS Borrower's cash balances
on that date.
"LOAN DOCUMENTS" means this Agreement, the Borrower Security Agreement, the
AqHawk Guaranty, the Bastian Limited Guaranty, the Lockbox Agreement, the
Intercompany Note, each Letter of Credit, the Pledge Agreement - Borrower,
the Pledge Agreement - AqHawk, and each other instrument, document and
agreement now or hereafter executed by Borrower, AqHawk, Bastian, or any of
their respective shareholders or affiliates in connection with this
Agreement.
"LOCKBOX" means a post office box established by Borrower pursuant to the
Lockbox Agreement.
"LOCKBOX ACCOUNT" means a blocked bank deposit account subject to the first
priority lien of Bank into which remittances to a Lockbox are deposited on
a daily basis.
"LOCKBOX AGREEMENT" means each agreement establishing a Lockbox and Lockbox
Account, in any event providing for (i) the deposit of all remittances with
respect to accounts receivable of Borrower to the Lockbox, (ii) the deposit
of remittances received in the Lockbox to a Lockbox Account, and (iii) a
first priority lien in favor of Bank with respect to the contents of the
Lockbox and Lockbox Account.
"PERMITTED MANAGEMENT FEES" means fees payable to Unique, in equal
installments and not less frequently than quarterly, in an annual amount
not to exceed $300,000.
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"PLEDGE AGREEMENT - AqHAWK" means the Pledge Agreement of even date
herewith made by the shareholders in AqHawk in favor of Bank to secure the
obligations of Borrower hereunder (on a non-recourse basis), pursuant to
which such shareholders have pledged 100% of the capital stock of AqHawk to
Bank, as at any time amended.
"PLEDGE AGREEMENT - BORROWER" means the Pledge Agreement of even date
herewith made by AqHawk in favor of Bank to secure the AqHawk Guaranty,
pursuant to which AqHawk has pledged 100% of the capital stock of Borrower
to Bank, as at any time amended.
"QUICK ASSETS" means cash, cash balances, short-term cash investments (but
only to the extent that the foregoing exceed the then outstanding balance
under Facility No. 1), net trade receivables and marketable securities not
classified as long-term investments.
"REFERENCE RATE" is the rate of interest publicly announced from time to
time by Bank in San Francisco, California, as its Reference Rate. The
Reference Rate is set by Bank based on various factors, including Bank's
costs and desired return, general economic conditions and other factors,
and is used as a reference point for pricing some loans. Bank may price
loans to its customers at, above, or below the Reference Rate. Any change
in the Reference Rate shall take effect at the opening of business on the
day specified in the public announcement of a change in Bank's Reference
Rate.
"SABENA SHIPSET" means a Shipset for a Boeing 747-400 owned by Borrower as
of the Closing Date and further described on Schedule 2.
"SHIPSET" means a landing gear core set for a fixed wing or rotar equipped
aircraft.
"SUBORDINATED NOTE" means that certain $6,500,000 Subordinated Promissory
Note of even date herewith made by AqHawk in favor of Unique, as at any
time amended.
"SUBORDINATION AGREEMENT" means that certain Subordination Agreement of
even date herewith executed by Bastian, Unique, AqHawk, Borrower and Bank,
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pursuant to which all obligations of AqHawk and Borrower to Bastian and
Unique have been subordinated to the Intercompany Note and the Loan
Documents.
"UNIQUE" means Unique Investment Corporation, a Utah, its successors and
assigns.
2. LINE OF CREDIT (FACILITY NO. 1)
2.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, Bank will
provide a line of credit ("FACILITY NO. 1") to Borrower. The maximum amount
of the line of credit (the "FACILITY NO. 1 COMMITMENT") is equal to the
lesser of (i) $10,000,000 or (ii) the Borrowing Base.
(b) This is a revolving line of credit for advances with a
within-line facility for Letters of Credit (the maximum effective amount of
which shall not exceed $2,000,000 at any time). During the availability
period, Borrower may repay principal amounts and reborrow them, to the
extent of the excess from time to time of (i) the Facility No. 1 Commitment
over (ii) the outstanding principal balance of the line of credit under
Facility No. 1 Plus the outstanding amounts of any Letters of Credit,
including amounts drawn on Letters of Credit and not yet reimbursed (such
aggregate amount being the "FACILITY NO. 1 OUTSTANDING AMOUNT").
(c) Each advance must be for at least $100,000 or, if less, for
the Facility No. 1 Unused Amount.
(d) Borrower agrees not to permit the Facility No. 1 Outstanding
Amount to at any time exceed the Facility No. 1 Commitment. If Borrower
exceeds this limit, Borrower will immediately pay the excess to Bank upon
Bank's demand.
2.2 AVAILABILITY PERIOD. The line of credit is available between the
date of this Agreement and November 30, 1999 (the "FACILITY NO. 1 EXPIRATION
DATE"), provided that Bank will not be required to make any advances or issue
any Letters of
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Credit under Facility No. 1 if any Default or Event of Default exists under this
Agreement.
2.3 PURPOSE. The line of credit shall be used to partially finance the
Acquisition (by means of an advance under the Intercompany Note), and for
working capital for operations of Borrower and for the issuance of Letters of
Credit thereafter.
2.4 INTEREST RATE
(a) Unless Borrower elects an optional interest rate in the
manner described in Section 5, loans under Facility No. 1 shall bear
interest at Bank's Reference Rate.
(b) Borrower may prepay the loans under Facility No. 1 in full
or in part at any time in an amount not less than $10,000 (or the remaining
principal balance under Facility No. 1), subject to the limits set forth in
Section 5.
2.5 REPAYMENT TERMS
(a) Borrower will pay all accrued unpaid interest on the last
business day of each calendar month commencing on December 31, 1996 and
upon the termination of the Facility No. 1 Commitment.
(b) Borrower will repay in full all principal and any unpaid
interest or other charges outstanding under this line of credit no later
than the Facility No. 1 Expiration Date. Interest on any amount bearing
interest at an Offshore Rate (as defined in Section 5) shall be paid on the
earliest of the last day of each calendar month, at the end of the
applicable interest period, and in any event on the Facility No. 1
Expiration Date.
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2.6 LETTERS OF CREDIT. The Facility No. 1 line of credit may be used
for the issuance of Letters of Credit, provided that the aggregate effective
face amount of all outstanding Letters of Credit PLUS the amount of any unpaid
reimbursement obligations of Borrower thereunder shall not exceed $2,000,000 at
any time. The within line amount for Letters of Credit shall be used for the
issuance of:
(i) commercial Letters of Credit in a form and having
beneficiaries acceptable to Bank. Each such Letter of Credit shall have a
maximum maturity of 180 days but in any event shall not extend beyond the
Facility No. 1 Expiration Date. Each commercial Letter of Credit will
require drafts payable at sight;
(ii) standby Letters of Credit having beneficiaries and terms
acceptable to Bank with a maximum maturity of 365 days but not to extend
beyond the Facility No. 1 Expiration Date, PROVIDED that standby Letters of
Credit in support of workers compensation obligations shall not exceed
$750,000 at any time. Standby Letters of Credit may contain provisions
allowing for their automatic extension unless Bank is notified, within
thirty days of their scheduled expiration, of their non-renewal, provided
that they shall in no event extend beyond the Facility No. 1 Expiration
Date.
Borrower agrees:
(a) any sum drawn under a Letter of Credit may, at the option of
Bank, be added to the principal amount outstanding under Facility No. 1.
The amount will bear interest at the Reference Rate and shall be payable
upon demand.
(b) if an Event of Default exists, to pay to Bank an amount
equal to the aggregate effective face amount of all outstanding Letters of
Credit, and all amounts which remain unreimbursed with respect to Letters
of Credit to be applied to such unreimbursed amounts or held as cash
collateral for the obligations of Borrower under such Letters of Credit.
(c) the issuance of any Letter of Credit and any amendment to a
Letter of Credit is subject to Bank's written approval and must be in form
and substance acceptable to Bank and in favor of a beneficiary acceptable
to Bank.
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(d) to sign Bank's form Application and Agreement for Commercial
Letter of Credit or Application and Agreement for Standby Letter of Credit,
as applicable.
(e) to pay a letter of credit fee with respect to each standby
Letter of Credit in an amount equal to the greater of (i) $1000 per annum
(or, if higher, then Bank's generally applicable minimum issuance fee for
standby letters of credit), or (ii) 1.50% per annum calculated on the face
amount thereof, in each case payable upon issuance and thereafter quarterly
in advance, provided that, if there is a Default or Event of Default exists
under this Agreement, at Bank's option, the amount of the fee shall be
increased to 4.5% per annum.
(f) to pay any issuance fees with respect to commercial Letters
of Credit, and any amendment and/or other fees with respect to commercial
Letters of Credit and/or standby Letters of Credit that Bank notifies
Borrower will be charged for issuing and processing Letters of Credit for
Borrower, in accordance with Bank's typical schedule of fees.
(g) to allow Bank to automatically charge its checking account
or other deposit accounts for applicable fees, discounts, and other
charges.
3. TERM LOAN (FACILITY NO. 2).
3.1 LOAN AMOUNT. Subject to the fulfillment of the conditions
precedent set forth in Section 9, Bank agrees to provide a term loan ("FACILITY
NO. 2") to Borrower in the amount of Thirteen Million Five Hundred Thousand
Dollars ($13,500,000) on the Closing Date.
3.2 AVAILABILITY. The Facility No. 2 term loan will be made in a
single disbursement on the Closing Date.
3.3 PURPOSE. The proceeds of the Facility No. 2 term loan shall be
loaned by Borrower to AqHawk via the Intercompany Note and shall be used to
partially finance the Acquisition.
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3.4 INTEREST RATE
(a) Unless Borrower elects an optional interest rate in the
manner described in Section 5, loans under Facility No. 2 shall bear
interest rate at Bank's Reference Rate.
(b) Borrower may voluntarily prepay the loan in full or in part
at any time in amounts which are not less than $100,000 (subject to its
concurrent payment of applicable termination fees described in Section 5).
Each such prepayment will be applied to the most remote installment of
principal outstanding under Facility No. 2.
3.5 REPAYMENT TERMS
(a) Borrower will pay all accrued unpaid interest on December
31, 1996, and then monthly on the last business day of each calendar month
thereafter and upon any payment of all or part of the principal of the loan
with respect to the amount being paid. Interest on any amount bearing
interest with respect to an Offshore Rate shall be paid on the earlier of
the last day of each calendar month, at the end of the applicable interest
period, and in any event on the December 31, 2003.
(b) Borrower will repay principal in successive quarterly
installments beginning on March 31, 1997 and on the last calendar day of
each successive June, September, December and March in the following
amounts:
Year during
which due Amount of each installment
----------- ---------------------------
1997 $ 212,500
1998 362,500
1999 425,000
2000 562,500
2001 562,500
2002 625,000
2003 625,000
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On December 31, 2003 Borrower will repay all principal and any unpaid
interest or other charges then remaining outstanding under Facility No. 2.
3.6 MANDATORY PREPAYMENTS. In addition to the other scheduled
payments of principal required hereunder, Borrower shall repay an amount of
principal outstanding under Facility No. 2 equal to 100% of the net after-tax
cash proceeds received or receivable from any sale of equipment or other fixed
assets of Borrower, on the date of receipt thereof, which amount shall be
applied to the outstanding installments of Facility No. 2 in inverse order of
their maturity; PROVIDED THAT, if no Default or Event of Default exists, only
the first $2,500,000 of such net after tax proceeds from the sale of Sabena
Shipset pursuant to Section 11.31 shall be subject to the prepayment requirement
of this Section if such sale takes place prior to January 1, 1998. To the extent
that Facility No. 2 has been repaid in full, Borrower shall instead make like
prepayments of any outstanding obligations under Facility No. 3, to be applied
to installments due under Facility No. 3 in the inverse order of their maturity.
4. CAPITAL EXPENDITURE FACILITY (FACILITY NO.3).
4.1 CAPITAL EXPENDITURE LOANS.
(a) In addition to the other credit provided under this
Agreement, during the availability period set forth below, unless a Default
or Event of Default exists under this Agreement, Borrower may request
Capital Expenditure Loans from Bank in an aggregate principal amount not to
exceed Three Million Dollars ($3,000,000). The availability period for such
loans is from the date of this Agreement through November 30, 1998. Any
amount repaid with respect to Capital Expenditure Loans may not be
reborrowed.
(b) Unless Borrower elects an optional interest rate for Capital
Expenditure Loans in the manner described in Section 5, Capital Expenditure
Loans shall bear interest at Bank's Reference Rate. Interest on Capital
Expenditure Loans will be paid at the times set forth herein as applicable
to interest due in respect of Facility No. 2.
(c) Each Capital Expenditure Loan shall be used to finance a
portion of the purchase price for Shipsets for use in the ordinary course
of
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Borrower's business. All Shipsets acquired with the proceeds of Capital
Expenditure Loans shall be free and clear of any security interests, liens,
encumbrances or rights of others except the security interests of Bank
under any security agreements required under this Agreement. Each request
for a Capital Expenditure Loan shall be accompanied by either (i) a copy of
the purchase order or invoice for the equipment to be purchased with the
proceeds of the advance, or (ii) a detailed cost schedule for the Shipset
constructed and such other information as Bank may reasonably require. The
amount of each Capital Expenditure Loan shall not exceed the lesser of (x)
the cash purchase price or cost to construct the Shipset or (y) 70% of:
(i) if Bank in its discretion requests an appraisal, the
appraised value of the related Shipset (as determined by a qualified
independent appraiser approved by Bank); or
(ii) if Bank waives the requirement of such an appraisal,
the purchase price paid by Borrower for the related Shipset.
(d) As conditions precedent to each Capital Expenditure Loan:
(i) Borrower will deliver to Bank evidence acceptable to
Bank of its compliance with all of the terms of this Agreement.
(ii) Borrower shall have delivered to Bank (and Bank shall
have completed its review of, and shall have approved) each of the
following:
(x) pro forma financial statements in form and substance
acceptable to Bank demonstrating the pro forma effect of the
proposed capital expenditure, the proposed Capital Expenditure
Loan and other projected new financings, projected revenues and
working capital requirements related thereto demonstrating
projected compliance with all terms of this Agreement; and
(y) the contract entered into by Borrower which requires the
purchase or assembly of additional Shipsets.
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(e) Borrower will repay principal of each Capital Expenditure
Loan made hereunder in successive equal quarterly installments beginning on
the March 31, June 30, September 30 or December 31 next following the
making of such loan, with all remaining principal and any unpaid interest
and charges then remaining outstanding under Facility No. 3 in any event
being due and payable on December 31, 2003. Each quarterly installment
payment due under this clause (e) with respect to each Capital Expenditure
Loan shall be equal to one eighty-fourth of the initial amount of the
related Capital Expenditure Loan.
5. OPTIONAL INTEREST RATE
5.1 OPTIONAL RATE. Provided that no Default or Event of Default
exists, Borrower may elect that Portions (as defined in Section 5.2(b)) of
the loans hereunder will bear interest at the Offshore Rate in accordance with
this Section 5. The Offshore Rate is a rate per annum based upon a year of 360
days and the actual number of days elapsed. Interest will be paid on the last
day of each interest period, and, if the interest period is longer than one
month, then on the last business day of each calendar month during the interest
period. At the end of any interest period, the interest rate will revert to the
Reference Rate, unless Borrower has designated another optional interest rate
for the Portion. Subject to Section 8.10, no Portion will be converted to a
different interest rate during the applicable interest period. Upon the
occurrence of a Default or Event of Default under this Agreement, Bank may
terminate the availability of optional interest rates for interest periods
commencing after a Default or Event of Default occurs.
5.2 OFFSHORE RATE. The election of the Offshore Rate shall be subject
to the following terms and requirements:
(a) Borrower may select interest periods for Offshore Rate loans
which have durations of 1, 2, 3, 6, 9 or 12 months, provided that no such
interest period may be selected which would extend beyond the maturity of
the related facility or which would result in Borrower being unable to make
a scheduled payment of principal required hereunder without prepayment of
the related Portion (as defined below). The last day of the interest period
will be determined by Bank using the practices of the offshore dollar
inter-bank market.
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(b) Any principal amount bearing interest at an optional rate
under this Agreement is referred to as a "PORTION". Each Offshore Rate
Portion will be for an amount not less than $500,000.
The "OFFSHORE RATE" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts
in the calculation will be determined by Bank as of the first day of the
interest period.)
Offshore Rate = 0ffshore Base Rate + Margin
-------------------------
(1.00 - Reserve Percentage)
Where:
(i) "OFFSHORE BASE RATE" means the interest rate (rounded
upward to the nearest 1/16th of one percent) at which Bank's Grand
Cayman Branch, Grand Cayman, British West Indies or another branch
office of Bank selected by Bank, would offer U.S. dollar deposits for
the applicable interest period to other major banks in the offshore
dollar interbank market.
(ii) "RESERVE PERCENTAGE" means the total of the maximum
reserve percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D, rounded
upward to the nearest 1/100 of one percent. The percentage will be
expressed as a decimal, and will include, but not be limited to,
marginal, emergency, supplemental, special, and other reserve
percentages.
(iii) "MARGIN" means (x) for any amount under Facility No.
1, 1.5% per annum, and (y) for any amount outstanding under Facility
No. 2 or any Facility No. 3 Capital Expenditure Loan, 1.875% per
annum.
(c) Subject to Section 5, Borrower may voluntarily prepay any
Offshore Rate Portion upon three banking days' advance written notice
delivered to Bank. Each prepayment of an Offshore Rate Portion, whether
voluntary, by reason of acceleration or otherwise, must be accompanied by
the amount of accrued interest on the amount prepaid, and a prepayment fee
as described below.
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A "PREPAYMENT" is a payment of an amount on a date earlier than the
scheduled payment date for such amount as required by this Agreement. The
prepayment fee shall be equal to the amount (if any) by which:
(i) the additional interest which would have been payable
during the interest period on the amount prepaid had it not been
prepaid, exceeds
(ii) the interest which would have been recoverable by Bank
by placing the amount prepaid on deposit in the offshore dollar market
for a period starting on the date on which it was prepaid and ending
on the last day of the interest period for such Portion (or the
scheduled payment date for the amount prepaid, if earlier).
(d) Bank will have no obligation to accept an election for an
Offshore Rate Portion if any of the following described events has occurred
and is continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of an Offshore Rate Portion are
not available in the offshore Dollar inter-bank market; or
(ii) the Offshore Rate does not accurately reflect the cost
of an Offshore Rate Portion.
6. FEES, EXPENSES
6.1 FEES
(a) FACILITY FEE. On the Closing Date, Borrower shall pay a
facility fee of $185,500 to Bank (net of any credits then applicable
thereto).
(b) FACILITY NO. 1 UNUSED FEE. Borrower agrees to pay to Bank
0.50% per annum of the average daily difference between $10,000,000 and the
Facility No. 1 Outstanding Amount, quarterly in arrears on the last day of
each calendar quarter.
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(c) CAPITAL EXPENDITURE LOAN UNUSED FEE. Borrower agrees to pay
to Bank 0.50% per annum of the Capital Expenditure Loan Unused Amount,
quarterly in arrears on the last day of each calendar quarter.
(d) EARLY TERMINATION FEE. In the event that Borrower prepays
any portion of the principal outstanding under the Facility No. 2 term
loan, or terminates Facility No. 1 or Facility No. 3 prior to the date when
due or their termination dates (other than as a result of mandatory
prepayments of Facility No. 2 and Facility No. 3 made in accordance with
Section 3.6 or voluntarily prepayments made out of Borrower's operating
cash flow), then Borrower will concurrently pay to Bank an early
termination fee in an amount equal to (i) until the first anniversary of
the Closing Date, 0.75% of the amount of the Facilities so repaid or
terminated, and (ii) thereafter through the second anniversary of the
Closing Date, 0.50% of the Facilities so repaid or terminated.
6.2 EXPENSES.
Borrower agrees to immediately repay Bank for expenses that
include, but are not limited to, filing, recording and search fees,
appraisal fees, title report fees, documentation fees, environmental review
and audit expenses.
6.3 REIMBURSEMENT COSTS.
(a) Borrower agrees to reimburse Bank for any expenses it incurs
in the preparation, closing and enforcement of this Agreement and any
agreement or instrument required by this Agreement, and by reason of the
due diligence conducted by Bank and its agents and experts in connection
herewith or therewith, and any proposed amendment or waiver of the terms
hereof or thereof. Expenses include, but are not limited to, reasonable
attorneys' fees, including any allocated costs of Bank's in-house counsel.
(b) Borrower agrees to reimburse Bank for the cost of periodic
audits and appraisals of the property collateral securing this Agreement,
at such intervals as Bank may reasonably require. These audits and
appraisals may be performed by employees of Bank or by independent
appraisers.
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7. COLLATERAL
7.1 PERSONAL PROPERTY. Borrower's obligations to Bank under this
Agreement will be secured by all personal property Borrower now owns or will own
in the future. The collateral is further defined in Borrower Security
Agreement. All personal property collateral securing any other present or future
obligations of Borrower to Bank shall also secure this Agreement.
7.2 GUARANTEES: PERSONAL PROPERTY SUPPORTING GUARANTEES. The
obligations of Borrower under this Agreement and the Loan Documents are
guaranteed by AqHawk pursuant to the AqHawk Guaranty and by Bastian pursuant to
the Bastian Limited Guaranty. The obligations of AqHawk under the AqHawk
Guaranty are secured by a pledge of 100% of the issued and outstanding capital
stock of Borrower, together with all proceeds thereof and rights relating
thereto, pursuant to the Pledge Agreement - Borrower. In addition to the
foregoing, the obligations evidenced hereby are secured by a pledge of the stock
of AqHawk entered into by each of the owners of capital stock of AqHawk shall
pursuant to the Pledge Agreement - AqHawk.
7.3 SUBORDINATION. The obligations of Borrower and AqHawk to Bastian
and Unique shall be subordinate and junior in right of payment to the
obligations of Borrower and AqHawk to Bank, in the manner and to the extent set
forth in the Subordination Agreement.
8. DISBURSEMENTS, PAYMENTS AND COSTS
8.1 REQUESTS FOR CREDIT. Each request for an extension of credit will
be made in writing in a manner acceptable to Bank, or by another means
acceptable to Bank. By requesting any extension of credit under this Agreement,
Borrower shall be deemed to have reaffirmed that each representation and
warranty set forth in this Agreement and the other Loan Documents (other than
those which expressly relate only to a specific date) is true and correct as of
the date of the making of the requested loan or the issuance of the requested
Letter of Credit, and that no Default or Event of Default exists, in each case
after giving effect to the making or issuance thereof. If requested by Bank,
Borrower will provide written assurances to Bank of the accuracy of each such
representation and warranty prior to the making of any requested Loan or the
issuance of any requested Letter of Credit.
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8.2 DISBURSEMENTS AND PAYMENTS.. Each disbursement by Bank and each
payment by Borrower will be:
(a) made through Bank's South Orange County Regional Commercial
Banking Office in Costa Mesa, California or other branch location selected
by Bank from time to time;
(b) made for the account of Bank's branch selected by Bank from
time to time;
(c) evidenced by records kept by Bank. In addition, Bank may, at
its discretion, require Borrower to sign one or more promissory notes.
8.3 TELEPHONE AND TELEFAX AUTHORIZATION
(a) Bank may honor telephone or telefax instructions for
advances or repayments or for the designation of optional interest rates or
the issuance of Letters of Credit given by any one of the individual
signers of this Agreement or a person or persons authorized by any one of
the individuals signing this Agreement on behalf of Borrower.
(b) Advances will be deposited in and repayments will be
withdrawn from Borrower's account number 1458126057, or such other accounts
of Borrower with Bank as designated in writing by Borrower.
(c) Borrower will provide written confirmation to Bank of any
telephone or telefax instructions within one business day. If there is a
discrepancy and Bank has already acted on the instructions, the telephone
or telefax instructions will prevail over the written confirmation.
(d) Borrower indemnifies and excuses Bank (including its
officers, employees, and agents) from all liability, loss, and costs in
connection with any act resulting from telephone or telefax instructions it
reasonably believes are made by any individual authorized by Borrower to
give such instructions. This indemnity and excuse will survive the
termination of this Agreement.
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8.4 DIRECT DEBIT
(a) Borrower agrees that interest and principal payments and
fees will be deducted automatically on the due date from Borrower's account
number 1458126057, or such other of Borrower's accounts with Bank as
designated in writing by Borrower.
(b) Bank will debit the account on the dates the payments become
due. If a due date does not fall on a banking day, Bank will debit the
account on the first banking day following the due date.
(c) Borrower will maintain sufficient funds in the account on
the dates Bank enters debits authorized by this Agreement. If there are
insufficient funds in the account on the date Bank enters any debit
authorized by this Agreement, the debit will be reversed.
8.5 DIRECT DEBIT (LINE OF CREDIT)
(a) Borrower agrees that Bank may create advances under the line
of credit to pay interest, principal payments, and any fees that are due
under this Agreement.
(b) Bank will create any such advances on the dates the payments
become due. If a due date does not fall on a banking day, Bank will create
the advance on the first banking day following the due date.
(c) If the creation of an advance under the line of credit
causes the total amount of credit outstanding under the line to exceed the
limitations set forth in this Agreement, Borrower will immediately pay the
excess to Bank upon Bank's demand.
8.6 BANKING DAYS. Unless otherwise provided in this Agreement, a
banking day is a day other than a Saturday or a Sunday on which Bank is open for
business in California. For amounts bearing interest at the Offshore Rate
described in Section 5, a banking day is a day other than a Saturday or a Sunday
on which Bank is open for business in California and dealing in offshore
dollars. All payments and disbursements which would be due on a day which is not
a banking day will be due on
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the next banking day. All payments received on a day which is not a banking day
will be applied to the credit on the next banking day.
8.7 TAXES. If any payments to Bank under this Agreement are made from
outside the United States, Borrower will not deduct any foreign taxes from any
payments it makes to Bank. If any such taxes are imposed on any payments made by
Borrower (including payments under this Section), Borrower will pay the taxes
and will also pay to Bank, at the time interest is paid, any additional amount
which Bank specifies as necessary to preserve the after-tax yield Bank would
have received if such taxes had not been imposed. Borrower will confirm that it
has paid the taxes by giving Bank official tax receipts (or notarized copies)
within 30 days after the due date.
8.8 ADDITIONAL COSTS. Borrower will pay Bank, on demand, for Bank's
costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks. The costs and losses will be allocated to the
loan in a manner determined by Bank, using any reasonable method. The costs
include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to Bank's assets and
commitments for credit.
8.9 INTEREST CALCULATION. All interest and fees under this Agreement
will be computed on the basis of a 360-day year and the actual number of days
elapsed. This results in more interest or a higher fee than if a 365-day year is
used.
8.10 DEFAULT RATE. Upon the occurrence and during the continuation of
any Default or Event of Default under this Agreement, advances under this
Agreement will at the sole option of Bank bear interest at a rate (the "DEFAULT
RATE") which is 3.0 percentage points per annum higher than the rate of interest
otherwise provided under this Agreement. The Default Rate shall apply not only
to principal but to payments of interest and fees which are not paid when due.
This may result in a compounding of interest. The imposition of the Default Rate
by Bank will not constitute a waiver of any default.
8.11 OVERDRAFTS. At Bank's sole option in each instance, Bank may do
one of the following:
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(a) Bank may make advances under this Agreement to prevent or
cover an overdraft on any account of Borrower with Bank. Each such advance
will accrue interest from the date of the advance or the date on which the
account is overdrawn, whichever occurs first, at the interest rate
described in this Agreement.
(b) Bank may reduce the amount of credit otherwise available
under this Agreement by the amount of any overdraft on any account of
Borrower with Bank.
This Section shall not be deemed to authorize Borrower to create overdrafts on
any of Borrower's accounts with Bank.
8.12 COLLECTIONS ON ACCOUNTS RECEIVABLE. Prior to the occurrence of any
Default or Event of Default, all proceeds of collections of Borrower's accounts
receivable received in the Lockbox shall be collected by Bank and deposited into
a the Lockbox Account. Prior to the occurrence of any Default or Event of
Default, Bank shall remit any funds collected in the Lockbox Account to
Borrower's checking account or other deposit accounts maintained by Borrower in
accordance with the terms of the Lockbox Agreement. Upon the occurrence and
during the continuance of any Default or Event of Default, collections in the
Lockbox Account shall be credited to interest, principal, and other sums owed to
Bank under this Agreement in the order and proportion determined by Bank in its
sole discretion. All such credits will be conditioned upon collection and any
returned items may, at Bank's option, be charged to Borrower.
9. CONDITIONS
Bank must receive the following items, in form and substance
acceptable to Bank, before it is required to make the initial loans or issue the
initial Letters of Credit under this Agreement:
9.1 AUTHORIZATIONS. Evidence that the execution, delivery and
performance by Borrower and AqHawk of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
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9.2 INCUMBENCY CERTIFICATES; GOVERNING DOCUMENTS. Incumbency
certificates for Borrower and for AqHawk, together with true, correct and
complete copy of Borrower's and AqHawk's articles of incorporation and bylaws,
and certificates of good standing with respect to Borrower and AqHawk issued by
the California Secretary of State's office and the California Franchise Tax
Board.
9.3 SECURITY AGREEMENTS, ETC. Borrower Security Agreement, the
Pledge Agreement - Borrower and the Pledge Agreement - AqHawk, and the Lockbox
Agreement, each duly executed by Borrower, AqHawk and the shareholders in AqHawk
as appropriate, together with the collateral pledged thereunder and such other
assignments, instruments, financing statements and fixture filings as Bank
requires.
9.4 EVIDENCE OF PRIORITY. Evidence that all security interests and
liens to be established in favor of Bank pursuant hereto are valid, enforceable,
and prior to all others' rights and interests (other than the purchase money
liens disclosed on the UCC search provided to Bank), except those to which Bank
explicitly consents in writing.
9.5 CONSENT TO REMOVAL. A Landlord's Consent from the owner of each
parcel of real property leased by Borrower.
9.6 INSURANCE. Evidence of insurance coverage, as required in
Section 11.24 of this Agreement.
9.7 BUSINESS INTERRUPTION INSURANCE. Evidence of a business
interruption insurance policy for at least Two Million Five Hundred Thousand
Dollars ($2,500,000) with an insurer acceptable to Bank, and with Bank named as
an additional loss payee.
9.8 GUARANTIES. The AqHawk Guaranty and the Bastian Limited
Guaranty.
9.9 SUBORDINATION AGREEMENT. The Subordination Agreement shall have
been executed by all parties thereto.
9.10 EQUITY INFUSION. Evidence acceptable to Bank of the completion
of a cash equity contribution to AqHawk by Bastian in the form of common stock
and\or paid-in-kind preferred stock in a minimum amount of $2,000,000, on terms
and conditions acceptable to Bank, together with correct and complete copies of
all
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subscription agreements, share certificates, statements of rights and
preferences if any, and all other documentation thereof, certified as correct
and complete by an officer of Borrower.
9.11 SUBORDINATED DEBT. Evidence acceptable to Bank of the completion
and funding of a subordinated term loan to AqHawk by Bastian in a minimum amount
of $6,500,000, on terms and conditions acceptable to Bank and in compliance with
the terms of this Agreement, together with copies of all credit agreements,
notes and other documentation thereof, certified as correct and complete by an
officer of Borrower.
9.12 ACQUISITION. A certificate executed by a senior officer of
Borrower certifying that the attached copies of the Acquisition Agreement and
the BTR Environmental Indemnity are true, correct and complete, together with
evidence that the Acquisition is in a position to concurrently close in
accordance with the Acquisition Agreement and all applicable laws and in a
manner acceptable to Bank.
9.13 LEGAL OPINION. A written opinion from Borrower's legal counsel,
covering such matters as Bank may require, including the organization, authority
and good standing of Borrower and AqHawk, the due execution and delivery of all
Loan Documents, the valid, binding and enforceable nature of the Loan Documents
against Borrower, AqHawk and Bastian, and the possession by Borrower of all
necessary certificates, permits and licenses which are required to conduct its
business as presently conducted.
9.14 SOLVENCY CERTIFICATE. Borrower's chief financial officer shall
have issued a solvency certificate to Bank certifying as to the solvency and
continued solvency of Borrower (after giving effect to the transactions
contemplated by this Agreement) and its continued ability to meet its
obligations as they come due.
9.15 PAYMENT OF FEES. Payment of all accrued and unpaid expenses
incurred by Bank as required by Sections 6.2 and 6.3.
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9.16 SUPERFUND LETTER. A letter prepared by an accounting firm
acceptable to Bank validating to the satisfaction of Bank, the tax treatment of
the EPA Payments.
9.17 EMPLOYMENT AGREEMENTS AND MATERIAL CONTRACTS. A Certificate of a
senior officer of Borrower certifying that the attached copies of management
agreements entered into with senior management, Borrower's contracts with
Federal Express, Inc. and BTR Dunlop, Inc. and its affiliates and the Coast
Guard Contract are true, correct and complete.
9.18 CONSENTS. Executed consents and agreements in form and substance
acceptable to Bank from (a) each party whose agreement or consent to the
Acquisition or any other transaction contemplated hereby is required by any
material agreement to which Borrower is a party, (b) each party to any material
contract allowing termination upon any change in control of Borrower, and (c)
which are otherwise deemed necessary by Bank.
9.19 CERTAIN FINANCIAL INFORMATION.
(a) Consolidated financial statements of Borrower for the
current fiscal year through October 31, 1996.
(b) Audited financial statements of Borrower with an "Agreed
Upon Procedures" report in form and substance acceptable to Bank, for the
fiscal year of Borrower ending in 1995 prepared by Ernst & Young.
(c) A certificate of an officer of Borrower setting forth all
revisions (if any) that have been made to the five year annual financial
projections for Borrower previously delivered to Bank.
(d) Pro forma pre-closing and post-closing balance sheets
reflecting all adjustments necessary or desirable to reflect the effects of
the Acquisition.
(e) A final sources and uses statement with respect to the
Acquisition.
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9.20 LIQUIDITY. After giving effect to the initial advances under
Facility No. 1 and the consummation of the Acquisition, on the Closing Date,
Liquidity shall not be less than $1,000,000.
9.21 OTHER ITEMS. Any other items that Bank reasonably requires.
10. REPRESENTATIONS AND WARRANTIES
When Borrower signs this Agreement, and until Bank is repaid in full,
Borrower makes the following representations and warranties. Each request for an
extension of credit hereunder constitutes a renewed representation:
10.1 ORGANIZATION OF BORROWER AND AQHAWK. Borrower and AqHawk are
corporations duly formed, existing and in good standing under the laws of the
State of California. Each of the persons owning interests in Borrower and AqHawk
as of the Closing Date (and after giving effect to the transactions contemplated
by the Acquisition Agreement) are correctly detailed on Schedule 1 hereto.
10.2 AUTHORIZATION. This Agreement, the Loan Documents and any
instrument or agreement required hereunder or thereunder, are within Borrower's
and AqHawk's powers, have been duly authorized, and do not conflict with any of
their respective organizational papers.
10.3 ENFORCEABLE AGREEMENT. This Agreement and the other Loan
Documents are the legal, valid and binding agreements of Borrower and each other
party thereto, enforceable against Borrower and each such other party in
accordance with their respective terms, and any instrument or agreement required
hereunder, when executed and delivered, will be similarly legal, valid, binding
and enforceable.
10.4 GOOD STANDING In each state in which Borrower does business, it
is properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
10.5 NO CONFLICTS. This Agreement and the other Loan Documents do not
conflict with any law, agreement, or obligation by which Borrower, AqHawk or any
of their affiliates are bound.
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10.6 FINANCIAL INFORMATION. All financial and other information that
has been or will be supplied to Bank, including pursuant to Section 9 of this
Agreement, is:
(a) sufficiently complete to give Bank accurate knowledge of
Borrower's, AqHawk's and Bastian's respective financial conditions.
(b) in compliance with all government regulations that apply.
Since the date of the financial statements of Borrower delivered pursuant
hereto for the period ending October 31, 1996, there has been no material
adverse change in the assets, financial condition, business or prospects of
Borrower. Each of the projections delivered by Borrower to Bank are, to the best
knowledge of Borrower, based upon assumptions which are reasonable and
internally consistent, and are consistent with all facts known to Borrower
(subject to the uncertainties inherent in all projections).
10.7 LAWSUITS. There is no lawsuit, tax claim or other dispute
pending or threatened against Borrower or AqHawk which, if adversely decided,
would impair Borrower's or AqHawk's financial condition or ability to repay the
loan.
10.8 COLLATERAL. All collateral required in this Agreement is owned
by the grantor of the security interest free of any title defects or any liens
or interests of others, except those which have been explicitly approved by Bank
in writing.
10.9 PERMITS, FRANCHISES. Borrower possesses all permits,
memberships, franchises, contracts and licenses required and all trademark
rights, trade name rights, patent rights and fictitious name rights necessary to
enable it to conduct the business in which it is now engaged.
10.10 OTHER OBLIGATIONS. Borrower is not in default on any obligation
for borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
10.11 INCOME TAX RETURNS. Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year, except as have been
disclosed in writing to Bank.
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10.12 NO EVENT OF DEFAULT. There is no event which is, or with notice
or lapse of time or both would be, a Default under this Agreement.
10.13 MERCHANTABLE INVENTORY. All inventory which is included in the
Borrowing Base is of good and merchantable quality and free from material
defects.
10 14 ERISA PLANS.
(a) Borrower has fulfilled its obligations, if any, under the
minimum funding standards of ERISA and the Code with respect to each Plan
and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and has not incurred any liability with
respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of
ERISA for which the PBGC requires 30 day notice.
(c) No action by Borrower to terminate or withdraw from any
Plan has been taken and no notice of intent to terminate a Plan has been
filed under Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan
under Section 4042 of ERISA, and no event has occurred or condition exists
which might constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for
purposes of this Agreement:
(i) "CODE" means the Internal Revenue Code of 1986, as
amended from time to time.
(ii) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
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(iv) "PLAN" means any employee pension benefit plan
maintained or contributed to by any Borrower and insured by the
Pension Benefit Guaranty Corporation under Title IV of ERISA.
10.15 LOCATION OF BORROWER. Borrower's only place of business (other
than its location in the Netherlands) and chief executive office is located at
the address listed under Borrower's signature on this Agreement.
10.16 CERTAIN COLLATERAL.
(a) Each deposit account maintained by Borrower or AqHawk as of
the Closing Date is described on Schedule 1 hereto. Borrower has notified
Bank in writing of each deposit account opening by Borrower or AqHawk
following the Closing Date.
(b) Borrower does not own any patents, trademarks or other
intellectual property which is not described on Schedule 1 hereto.
(c) Each Shipset which Borrower has received in exchange from
one of its customers is Borrower's sole property, free and clear of all
liens and rights of others, including without limitation any and all liens
and other rights of lenders to customers of Borrower which whom such
Shipsets have been exchanged.
10.17 THE ACQUISITION. The Acquisition has been consummated in
accordance with the Acquisition Agreement and all applicable laws.
10.18 ENVIRONMENTAL. Borrower and its operations are in material
compliance with all Environmental Laws. Borrower has no knowledge of any
Environmental Claims that, either individually or in the aggregate, could
reasonably be expected to have a material adverse effect upon its condition or
its ability to repay the obligations evidenced by this Agreement and the other
Loan Documents. Since August 1, 1996, there has been no material or adverse
development in the negotiations relating to the proposed settlements referred to
in the definition of "EPA Payments."
10.19 GOVERNMENTAL REGULATION. Neither Borrower nor any person
controlling Borrower is an "Investment Company" within the meaning of the
Investment Company Act of 1940. Borrower is not subject to regulation under the
Public Utility
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Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act,
any state public utilities code, or any other Federal or state statute or
regulation limiting its ability to incur indebtedness.
10.20 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. Borrower owns
or is licensed or otherwise has the right to use all of the patents, trademarks,
service marks, trade names, copyrights, contractual franchises, authorizations
and other rights that are reasonably necessary for the operation of its
business, without conflict with the rights of any other person.
10.21 SUBSIDIARIES. Borrower has no subsidiaries.
10.22 CONTRACTS. Borrower has not entered into any material contracts
during the three month period immediately preceding the Closing Date which have
not been disclosed to Bank in writing.
11. COVENANTS
Borrower agrees, so long as credit is available under this Agreement
and is repaid in full, unless Bank otherwise agrees in writing:
11.1 USE OF PROCEEDS. To use the proceeds of the credit only for the
financing of the Acquisition (by means of the loan to AqHawk evidenced by the
Intercompany Note) and thereafter for the working capital needs of Borrower, for
Letters of Credit, and, in the case of the Capital Expenditure Loans, only for
the purposes approved in connection with each such loan.
11.2 USE OF PROCEEDS: INELIGIBLE SECURITIES. Not to use, directly or
indirectly, any portion of the proceeds of the credit (including any Letters of
Credit) for any of the following purposes:
(a) knowingly to purchase Ineligible Securities from BA
Securities, Inc. (the "ARRANGER") during any period in which the Arranger
makes a market in such Ineligible Securities; or
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(b) knowingly to purchase during the underwriting or placement
period Ineligible Securities being underwritten or privately placed by the
Arranger; or
(c) to make payments of principal, interest or dividends on
Ineligible Securities underwritten or privately placed by the Arranger and
issued by or for the benefit of any Borrower or any affiliate of any
Borrower.
11.3 FINANCIAL INFORMATION. To provide the following financial
information and statements and other information:
(a) Within 120 days of Borrower's fiscal year end, Borrower's
consolidated annual financial statements. These financial statements must
be audited (with an unqualified opinion) by McGladrey & Pullen or another
firm of independent public accountants reasonably acceptable to Bank and
must be accompanied by a management letter prepared by such auditors,
provided that the audited financial statements with respect to Borrower's
fiscal year ending December 31, 1996 and the related management letter must
be prepared by Ernst & Young LLP, together with unaudited consolidating
annual financial statements for Borrower.
(b) Within 30 days of the period's end (including the last
calendar month in any fiscal year), Borrower's monthly consolidated and
consolidating financial statements showing results for that month and for a
year to date basis. These financial statements may be Borrower prepared,
and shall include a comparison to plan and prior year on a monthly and year
to date basis.
(c) If requested by Bank, copies of Borrower's federal income
tax return, promptly and in any event within 15 days of filing, and copies
of any extensions of the filing date.
(d) Within the periods provided in (a) and (b) above and for
each such period, a compliance certificate signed by an authorized
financial officer of Borrower (i) setting forth Borrower's calculation of
year to date Excess Cash Flow as of the end of such period, and (ii) the
information and computations (in sufficient detail) to establish (x) that
Borrower is in compliance with all financial covenants at the end of the
period covered by the financial statements then being
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furnished, and (y) whether there existed as of the date of such financial
statements and whether there exists as of the date of the certificate, any
Default or Event of Default under this Agreement and, (iii) if any such
Default or Event of Default exists, specifying the nature thereof and the
action Borrower is taking and propose to take with respect thereto.
(e) A borrowing base certificate ("Borrowing Base Certificate")
setting forth the respective amounts of Acceptable Receivables and
Acceptable Inventory and a calculation of the Borrowing Base as of the last
day of each month within 20 days after month end and, if requested by Bank
copies of the invoices or the record of invoices from each Borrower's sales
journal for such Acceptable Receivables, copies of the delivery receipts,
purchase orders, shipping instructions, bills of lading and other
documentation pertaining to such Acceptable Receivables. Alternatively,
Borrower may submit to Bank a collateral certificate (a "Collateral
Certificate") summarizing Borrower's accounts receivable and inventory as
of the last day of each month within 10 days after month end, together with
copies of the invoices or the record of invoices from Borrower's sales
journal for such accounts and a listing of the names and addresses of the
debtors obligated thereunder, and copies of the delivery receipts, purchase
orders, shipping instructions, bills of lading and other documentation
pertaining to such accounts. If Borrower elects to submit a Collateral
Certificate in lieu of a Borrowing Base Certificate, then (i) the Borrowing
Base will be calculated by Bank upon receipt of the Collateral Certificate
and all supporting documentation required under this Agreement, (ii) Bank
will provide a Borrowing Base Certificate to Borrower setting forth its
determination of the Borrowing Base, which certificate will be conclusive
and binding in the absence of manifest error, and (iii) the Borrowing Base
as determined by Bank will become effective upon calculation by Bank and
will remain in effect until a new Borrowing Base is calculated by Bank in
accordance with this Agreement.
(f) Statements showing an aging and reconciliation of
Borrower's receivables within 20 days after the end of each month.
(g) A statement showing an aging of accounts payable within 20
days after the end of each month.
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(h) If Bank requires Borrower to deliver the proceeds of
accounts receivable to Bank upon collection by Borrower, a schedule of the
amounts so collected and delivered to Bank.
(i) An inventory summary report and listing within 20 days
after the end of each month, including a description of the inventory, its
location and cost, and such other information and collateral reports as
Bank may require.
(j) A listing of the names and addresses of all debtors
obligated upon Borrower's accounts receivable semi-annually within 20 days
following the last day of the second and fourth fiscal quarters in each of
Borrower's fiscal years.
(k) 30 days prior to each fiscal year end, updated annual
financial projections for Borrower through December 31, 2003, and monthly
financial projections through the subsequent fiscal year.
(l) While the Bastian Limited Guaranty is in effect, (i)
Bastian's annual financial statements in form acceptable to Bank, as soon
as available after the preparation hereof and in any case no later than 120
days after the end of each calendar year and (ii) Bastian's federal income
tax return, together with any associated schedules and Forms K-1 requested
by Bank, within 15 days of filing, provided that the materials required by
this clause (l) shall not be required for so long as Bastian remains a
borrower in good standing with Bank's private banking group.
(m) Within 60 days following the Closing Date, an audited
opening balance sheet of Borrower prepared by Ernst & Young LLP.
(n) Promptly upon Bank's request, such other statements, lists
of property and accounts, budgets, forecasts or reports as to Borrower as
Bank may reasonably request.
(o) Annually and in any event not later than January 1 of each
year, commencing with January 1, 1998, an environmental compliance audit
prepared by consultants acceptable to Bank, which audit shall (i) be
prepared at the sole cost and expense of Borrower and (ii) detail areas of
environmental noncompliance, types of environmental permits and licenses
required and held by
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Borrower, and upgrades to programs, permits and licenses required or to be
considered by Borrower due to changes in environmental regulations. The
environmental compliance audit shall identify, to a degree of certainty
"more likely than not" any conditions or operations that meet the foregoing
criteria.
(p) Promptly upon Bank's request, such other information as
Bank may reasonably request.
11.4 QUICK RATIO. As of the last day of each calendar month ending
during a period described below, to maintain a ratio of (a) Quick Assets to (b)
current liabilities (excluding the current portion of long term debt, and
capital leases, but including advances and commercial Letters of Credit
outstanding under Facility No. 1 to the extent that the same exceed Borrower's
aggregate cash, cash balances, and short term cash investments) which is not
less than the ratio set forth opposite that calendar month:
Period Ratio
------ -----
Closing Date through
November 30, 1997 .45 to 1.00
December 1, 1997 through
November 30, 1999 .50 to 1.00
December 1, 1999 and
Thereafter .55 to 1.00.
11.5 FIXED CHARGE COVERAGE RATIO. As of the last day of each calendar
month during the term of this Agreement, to maintain a ratio of (a) Cash Flow to
(b) Fixed Charges of at least 1.20 to 1.00, calculated monthly on a year to date
basis during the first twelve months following the Closing Date and on a rolling
twelve month basis thereafter.
11.6 PROFITABILITY. To maintain a positive net income before taxes
and extraordinary income (excluding however, the effects of any EPA Payments) on
a cumulative basis for each period of six calendar months ending on the last day
of each calendar month following the Closing Date.
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11.7 OTHER DEBTS. Not to have outstanding or incur any direct or
contingent liabilities of any kind or lease obligations or swap or similar hedge
agreement obligations (other than to Bank), or become liable for the liabilities
of others, without Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade
credit.
(b) Endorsing negotiable instruments received in the usual
course of business.
(c) Obtaining surety bonds in the usual course of business.
(d) Debts and leases in existence on the date of this Agreement
disclosed in writing to Bank on Schedule 1.
(e) Additional debts and lease obligations for the acquisition
of fixed or capital assets in the ordinary course of Borrower's business,
in an aggregate amount not to exceed $500,000 at any one time outstanding.
(f) the unsecured subordinated debt of $6,500,000 to Bastian
evidenced by the Subordinated Note, as in effect on the date of this
Agreement.
11.8 OTHER LIENS. Not to create, assume, or allow any security
interest, encumbrance or judicial or other lien (each a "LIEN") on property
Borrower now or later owns, except:
(a) Liens in favor of Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement and
disclosed in writing to Bank on Schedule 1.
(d) Additional purchase money security interests in personal
property acquired using indebtedness of the type described in Section
11.7(e).
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11.9 CAPITAL EXPENDITURES FOR SHIPSETS. Not to make or commit to make
capital expenditures (including any amount expended with respect to capital
leases) for the purchase or lease of Shipsets during 1997 or any subsequent
fiscal year which are in excess of $2,000,000, during any such period.
11.10 CAPITAL EXPENDITURES FOR 1996. Not to make or commit to make
capital expenditures (for assets of any type) in excess of $2,900,000 during
Borrower's fiscal year ending December 31, 1996.
11.11 CAPITAL EXPENDITURES FOR OTHER ASSETS. Not to make or commit to
make capital expenditures (including any amount expended with respect to capital
leases) for any assets which are not Shipsets which are in an amount, during any
fiscal year, which exceeds the limitation set forth below opposite that fiscal
year:
Fiscal Year Amount
----------- ------
1997 1,200,000
1998 and each subsequent
fiscal year 1,000,000.
11.12 LEASES. Not to permit the aggregate payments due in any fiscal
year under all leases (including capital and operating leases for real or
personal property) to exceed $1,000,000.
11.13 DIVIDENDS AND OTHER PAYMENTS. Not to declare or pay any
dividends or other distributions on any of Borrower's shares, or make any loan
or investment having the effect of making any such dividend or distribution, and
not to purchase, redeem or otherwise acquire for value any of Borrower's shares,
or create any sinking fund in relation thereto, and not to make other payments
to AqHawk, Unique, Bastian or their respective affiliates, including without
limitation management fees, except that:
(a) prior to the merger of Borrower and AqHawk Borrower may
make the loan to AqHawk evidenced by the Intercompany Note;
(b) Borrower may pay Permitted Management Fees when no Default
or Event of Default exists or would result therefrom; and
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(c) Following the proposed merger of Borrower and AqHawk,
Borrower may pay interest with respect to the Subordinated Note out of its
Excess Cash Flow in accordance with the terms of the Subordination
Agreement.
11.14 LOANS TO OFFICERS. Not to make any loans, advances or other
extensions of credit to Borrower's executives, officers, or directors or
shareholders (or any relatives of any of the foregoing), other than amounts
which do not exceed $10,000, in the aggregate, at any time.
11.15 NOTICES TO BANK. To promptly notify Bank in writing of:
(a) any lawsuit over $100,000 against Borrower or AqHawk.
(b) any substantial dispute between Borrower or AqHawk and any
government authority.
(c) any known failure to comply with this Agreement.
(d) any material adverse change in Borrower's or AqHawk's
financial condition or operations.
(e) any change in Borrower's name, legal structure, place of
business, or chief executive office if Borrower has more than one place of
business.
(f) any pending or threatened environmental investigation or
proceeding not previously disclosed to Bank in writing involving Borrower
or the real property upon which Borrower's operations are located.
11.16 BOOKS AND RECORDS. To maintain adequate books and records.
11.17 AUDITS. To allow Bank and its agents to inspect Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time, provided that if no Default or Event of Default exists, Bank
will provide prior verbal or written notice of its intention to exercise its
rights under this Section not later than the business day prior to its exercise
and, if requested by Borrower, will provide written confirmation of any such
verbal notice. If any of Borrower's properties, books or
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records are in the possession of a third party, Borrower authorizes that third
party to permit Bank or its agents to have access to perform inspections or
audits and to respond to Bank's requests for information concerning such
properties, books and records. Bank has no duty to inspect Borrower's properties
or to examine, audit or copy books and records and Bank shall not incur any
obligation or liability by reason of not making any such inspection or inquiry.
In the event that Bank inspects Borrower's properties or examines, audits or
copies books and records, Bank will be acting solely for the purposes of
protecting Bank's security and preserving Bank's rights under this Agreement.
Neither Borrower nor any other party is entitled to rely on any inspection or
other inquiry by Bank. Bank owes no duty of care to protect Borrower or any
other party against, or to inform Borrower or any other party of, any adverse
condition that may be observed as affecting Borrower's properties or premises,
or Borrower's business. Bank may in its discretion disclose to Borrower or any
other party any findings made as a result of, or in connection with, any
inspection of Borrower's properties.
11.18 COMPLIANCE WITH LAWS. To comply with the laws (including any
fictitious name statute), regulations, and orders of any government body with
authority over Borrower's business.
11.19 PRESERVATION OF RIGHTS. To use commercially reasonable efforts
to maintain and preserve all rights, privileges, and franchises Borrower now
has.
11.20 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or
replacements to Borrower's properties which are necessary to keep the same in
good working condition.
11.21 PERFECTION OF LIENS. To help Bank perfect and protect its
security interests and liens, and reimburse it for related costs it incurs to
protect its security interests and liens.
11.22 PLACES OF BUSINESS. Not to open additional business locations or
store property having a value in excess of $10,000 at any location not disclosed
to Bank in writing.
11.23 COOPERATION. To take any action reasonably requested by Bank to
carry out the intent of this Agreement.
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11.24 INSURANCE.
(a) INSURANCE COVERING COLLATERAL. To maintain all risk
property damage insurance policies covering the tangible property
comprising the collateral. Each insurance policy must be for the full
replacement cost of the collateral and include a replacement cost
endorsement. The insurance must be issued by an insurance company
acceptable to Bank and must include a lender's loss payable endorsement in
favor of Bank in a form acceptable to Bank.
(b) GENERAL BUSINESS INSURANCE. To maintain insurance
acceptable to Bank as to amount, nature and carrier covering property
damage (including loss of use and occupancy) to any of Borrower's
properties, public liability insurance including coverage for contractual
liability, product liability and workers' compensation, and any other
insurance which is usual for Borrower's business.
(c) EVIDENCE OF INSURANCE. Upon the request of Bank, to
deliver to Bank a copy of each insurance policy, or, if permitted by Bank,
a certificate of insurance listing all insurance in force.
11.25 ADDITIONAL NEGATIVE COVENANTS. Not to, without Bank's written
consent:
(a) engage in any business activities substantially different
from Borrower's present business.
(b) liquidate or dissolve Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture,
syndicate, or other combination (except for the proposed merger with
AqHawk, with Borrower to be the survivor).
(d) lease, or dispose of any assets of Borrower which have an
aggregate value in excess of $100,000 in any year (other than the sale of
the Sabena Shipset in accordance Section 11.29), other than sales and
leases of inventory in the ordinary course of business.
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(e) acquire or purchase a business or its assets.
(f) sell or otherwise dispose of any assets for less than fair
market value or enter into any sale and leaseback agreement covering any of
Borrower's fixed or capital assets.
(g) voluntarily suspend Borrower's business for any period.
11.26 ERISA PLANS. To give prompt written notice to Bank of:
(a) The occurrence of any reportable event under Section
4043(b) of ERISA for which the PBGC requires 30 day notice.
(b) Any action by Borrower to terminate or withdraw from a
Plan or the filing of any notice of intent to terminate under Section 4041
of ERISA.
(c) Any notice of noncompliance made with respect to a Plan
under Section 4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan
under Section 4042 of ERISA.
11.27 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. To maintain proper
books of record and account, in which full, true and correct entries
consistently applied shall be made of all financial transactions and matters
involving the assets and business of Borrower. The financial statements of
Borrower shall, in addition, be in conformity with generally accepted accounting
principles, consistently applied. Borrower shall permit representatives and
independent contractors of Bank to visit and inspect any of its properties, to
examine its corporate, financial and operating records, and make copies thereof
or abstracts therefrom, and to discuss its affairs, finances and accounts with
its respective directors, officers, and independent public accountants, all
without unreasonably interfering with the normal operations of Borrower, and all
at such times during normal business hours and as often as may be reasonably
desired, provided that if no Default or Event of Default exists, Bank will
provide prior verbal or written notice of its intention to exercise its rights
under this Section not later than the business day prior to its exercise and, if
requested by Borrower, will provide written confirmation of any such verbal
notice.
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11.28 ENVIRONMENTAL LAWS. To conduct its operations and keep and maintain
its property in compliance with all Environmental Laws. Borrower will maintain
all required records and procedures in relation to its environmental compliance
programs.
11.29 SABENA SHIPSET. Without Bank's prior written consent, not to sell,
lease (outside the ordinary course of business) or otherwise dispose of the
Sabena Shipset after December 31, 1997 or in any transaction which yields a net
after tax cash price to Borrower of less than $2,500,000.
11.30 SWAP AGREEMENTS. Prior to January 15, 1997, to enter into contracts
for interest rate protection for Borrower with respect to not less than 50% of
the projected outstanding principal balance of Facility No. 2 for a period of
not less than five years, and with other terms, conditions and counterparties
reasonably acceptable to Bank.
11.31 COLLECTION OF ACCOUNTS. To instruct all account debtors with respect
to accounts owed to Borrower to remit their payments to the Lockbox. All amounts
remitted to the Lockbox shall be credited to the Lockbox Account after allowing
for the number of clearance days specified by the agreements establishing the
Lockbox. Borrower shall also:
(a) Cause all collections which are received by Borrower,
whether in cash or otherwise, to be deposited by Borrower as and when
received in kind (except for any endorsement necessary to vest title to any
instrument in Bank) into the Lockbox Account;
(b) unless otherwise agreed by Bank, either (i) maintain all
of Borrower's deposit account relationships with Bank, or (ii) cause the
granting of perfected first priority liens in all depositary accounts
maintained by Borrowers pursuant to documents acceptable to Bank.
11.32 AQHAWK. Borrower will cause AqHawk to be a pure holding company,
11.33 LIQUIDITY. To insure that, as of December 31, 1996, Liquidity shall
not be less than $1,200,000.
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11.34 AMENDMENT TO THE BTR ENVIRONMENTAL INDEMNITY. Not to amend or
modify the BTR Environmental Indemnity in any respect without the prior written
consent of Bank.
12. DEFAULT
If any of the following events occur, Bank may declare Borrower in
default, stop making any additional credit available to Borrower, require
Borrower to repay their entire debt immediately and without prior notice, or any
combination of the foregoing. If an event described in Section 12.6, occurs with
respect to Borrower or AqHawk, then the entire debt outstanding under this
Agreement will automatically be due immediately.
12.1 FAILURE TO PAY. Borrower, AqHawk or Bastian fails to make a
payment under this Agreement or the other Loan Documents when due.
12.2 LIEN PRIORITY. Bank fails to have an enforceable first lien
(except for any prior liens to which Bank has consented in writing) on or
security interest in any property given as security for this loan.
12.3 LOAN DOCUMENTS. Any party to any Loan Document seeks to
terminate, revoke or rescind its liability thereunder, or asserts in writing
that its liability is terminated, revoked or rescinded, or any Loan Document
ceases to be in full force and effect (except in accordance with its express
terms) or is declared by a court of competent jurisdiction to be null and void,
invalid or unenforceable in any respect.
12.4 FALSE INFORMATION. Borrower, AqHawk, Bastian or Unique has
furnished to Bank false, materially incorrect or misleading information or
representations, including any information which omits any fact which is
required to make the information not materially misleading.
12.5 DEATH. Bastian dies and her estate fails to reaffirm in writing
the Bastian Limited Guaranty (to the extent in effect immediately prior to her
death) and the Subordination Agreement within 30 days.
12.6 BANKRUPTCY. Borrower, AqHawk or (for so long as the Bastian
Limited Guaranty is in effect) Bastian files a bankruptcy petition, a bankruptcy
petition is filed against Borrower, AqHawk or Bastian (with the same limitation
as to Bastian), or
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Borrower, AqHawk or Bastian (with the same limitation as to Bastian) makes a
general assignment for the benefit of creditors. An Event of Default under this
Section 12.6 will be deemed cured if any such bankruptcy petition filed is
dismissed within a period of 60 days after the filing; PROVIDED. HOWEVER, that
Bank will not be obligated to extend any additional credit to Borrower during
that period.
12.7 RECEIVERS. A receiver or similar official is appointed for
Borrower's or AqHawk's business, or the business is terminated.
12.8 JUDGMENTS. Any judgments or arbitration awards are entered
against Borrower or AqHawk, or Borrower or AqHawk enters into any settlement
agreements with respect to any litigation or arbitration (other than the
proposed settlements of environmental disputes described in the definition of
EPA Payments), which are either (i) in an aggregate amount of $500,000 or more
in excess of any insurance coverage, or (ii) absent procurement of a stay of
execution, such judgments or arbitration awards remain unsatisfied for thirty
calendar days after the date of the entry thereof, or in any event later than
five days prior to the date of any proposed sale thereunder.
12.9 GOVERNMENT ACTION. Any government authority takes action that
Bank believes materially adversely affects Borrower's or AqHawk's financial
condition or ability to repay its obligations.
12.10 MATERIAL ADVERSE CHANGE. There occurs any material adverse
change occurs in Borrower's or AqHawk's financial condition, properties or
prospects, or ability to repay its obligations. Borrower acknowledges that
termination of Borrower's contracts or relationships with Federal Express, the
United States Coast Guard, Messier, American Airlines or Dunlop Aviation may be
considered to be such material adverse effect depending on the factual context
then in existence.
12.11 CROSS-DEFAULT. Borrower or AqHawk (a) fails to make any payment
in respect of any indebtedness, capital lease or contingent obligation when due
(whether by scheduled maturity, required prepayment, acceleration, demand, or
otherwise); or (b) fails to perform or observe any other condition or covenant,
or any other event shall occur or condition exist, under any agreement or
instrument relating to any indebtedness, capital lease or contingent obligation,
in each case if the effect of such failure, event or condition is to cause, or
to permit the holder or holders of any
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indebtedness, capital lease or contingent obligation (or a trustee or agent on
behalf of such holder or holders) to cause indebtedness or capital leases in an
amount which exceeds $100,000 to be declared to be due and payable prior to
their stated maturity, or any such contingent obligation to become payable or
cash collateral in respect thereof in an amount in excess of $100,000 to be
demanded.
12.12 OTHER BANK AGREEMENTS. Borrower, AqHawk or Bastian fails to meet
the conditions of, or fails to perform any obligation under any other agreement
it has with Bank or any affiliate of Bank in any material respect.
12.13 ERISA PLANS. The occurrence of any one or more of the following
events with respect to Borrower, provided such event or events could reasonably
be expected, in the judgment of Bank, to subject Borrower to any tax, penalty or
liability (or any combination of the foregoing) which, in the aggregate, could
have a material adverse effect on the financial condition of Borrower with
respect to a Plan:
(a) A reportable event shall occur with respect to a Plan
which is, in the reasonable judgment of Bank likely to result in the
termination of such Plan for purposes of Title IV of ERISA.
(b) Any Plan termination (or commencement of proceedings to
terminate a Plan) or Borrower's full or partial withdrawal from a Plan.
12.14 ENVIRONMENTAL INDEMNITY BREACH. BTR Dunlop, Inc. fails to honor
within 15 days of written request therefor received by BTR Dunlop, Inc. any
obligation payable by Borrower which is within the scope of the Environmental
Indemnity Agreement and which requires the immediate payment by Borrower of an
amount in excess of $500,000.
12.15 CHANGE IN CONTROL OR MANAGEMENT. Any of the following occurs
(a) Bastian fails to own, beneficially and of record directly or
indirectly, and control the power to vote, at least 40% of the equity
interests in Borrower; or
(b) At any time prior to the merger of Borrower and AqHawk, AqHawk
fails to own 100% of the equity interests in Borrower; or
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(c) The individuals owning equity interests in AqHawk, as described
in Schedule 1 (or, after the merger of Borrower and AqHawk, owning equity
interests in Borrower) collectively sell, assign or otherwise transfer,
either beneficially or of record, more than 10% of the total equity
interests in AqHawk (and/or Borrower), other than to members of their
immediate families or trusts for the benefit of members of their immediate
families; or
(d) David Lokken ceases to be actively involved on a full time
basis as an executive level employee of Borrower at any time during the two
year period following the Closing Date and a replacement acceptable to Bank
is not appointed (or another plan for replacement which is acceptable to
the Bank is not in place) within 90 days.
12.16 SUBORDINATION. Bastian, AqHawk or Borrower asserts in
writing that the Subordinated Note is not subordinated in accordance with the
terms of the Subordination Agreement.
12.17 BALANCE SHEET. The audited opening balance sheet prepared by
Ernst & Young and delivered pursuant to Section 11.3(m) varies, in any material
respect, from the unaudited opening balance sheet submitted to Bank prior to the
Closing Date.
12.18 OTHER BREACH UNDER AGREEMENT. Borrower, AqHawk or Bastian fail
to meet the conditions of, or fails to perform any obligation under, any term of
this Agreement or the other Loan Documents not specifically referred to in this
Article.
12.19 LICENCES. CERTIFICATES, PERMITS AND OTHER AUTHORIZATIONS.
Borrower ceases to hold any license, certificate, permit or other authorization
from any governmental or quasi-governmental authority which is necessary for the
effective conduct of its business as presently or properly conducted.
13. ENFORCING THIS AGREEMENT; MISCELLANEOUS
13.1 GAAP. Except as otherwise stated in this Agreement, all
financial information provided to Bank and all financial covenants will be made
under generally accepted accounting principles, consistently applied.
13.2 CALIFORNIA LAW. This Agreement is governed by California law.
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13.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on Borrower's
and Bank's successors and assignees. Borrower agrees that it may not assign this
Agreement without Bank's prior consent. Bank may sell participations in or
assign this loan, PROVIDED that when no Default or Event of Default exists, Bank
will obtain the Borrower's prior written consent to any such assignment or
participation, not to be unreasonably withheld. In furtherance of its rights
under this Section, Bank may exchange financial information about Borrower with
actual or potential participants or assignees. If a participation is sold or the
loan is assigned, the purchaser will have the right of set-off against Borrower.
13.4 ARBITRATION.
(a) This Section concerns the resolution of any controversies
or claims between the one or more of Borrower and Bank, including but not
limited to those that arise from:
(i) This Agreement (including any renewals, extensions
or modifications of this Agreement);
(ii) Any document, agreement or procedure related to or
delivered in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business
conducted between Borrower and Bank, including claims for injury to
persons, property or business interests (torts).
(b) At the request of Borrower or Bank, any such controversies
or claims will be settled by arbitration in accordance with the United
States Arbitration Act. The United States Arbitration Act will apply even
though this Agreement provides that it is governed by California law.
(c) Arbitration proceedings will be administered by the
American Arbitration Association and will be subject to its commercial
rules of arbitration and will be conducted within Los Angeles County,
California.
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(d) For purposes of the application of the statute of
limitations, the filing of an arbitration pursuant to this Section is the
equivalent of the filing of a lawsuit, and any claim or controversy which
may be arbitrated under this Section is subject to any applicable statute
of limitations. The arbitrators will have the authority to decide whether
any such claim or controversy is barred by the statute of limitations and,
if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is
arbitrable, the arbitrators will have the authority to resolve any such
dispute.
(f) The decision that results from an arbitration proceeding
may be submitted to any authorized court of law to be confirmed and
enforced.
(g) The procedure described above will not apply if the
controversy or claim, at the time of the proposed submission to
arbitration, arises from or relates to an obligation to Bank secured by
real property located in California. In this case, both Borrower and Bank
must consent to submission of the claim or controversy to arbitration. If
all parties do not consent to arbitration, the controversy or claim will be
settled as follows:
(i) Borrower and Bank will designate a referee (or a
panel of referees) selected under the auspices of the American
Arbitration Association in the same manner as arbitrators are selected
in Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees)
will be appointed by a court as provided in California Code of Civil
Procedure Section 638 and the following related sections;
(iii) The referee (or the presiding referee of the panel)
will be an active attorney or a retired judge; and
(iv) The award that results from the decision of the
referee (or the panel) will be entered as a judgment in the court that
appointed the referee, in accordance with the provisions of California
Code of Civil Procedure Sections 644 and 645.
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(h) This provision does not limit the right of Borrower or
Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal
property collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(iv) The pursuit of or a successful action for interim,
additional or supplementary remedies, or the filing of a court action,
does not constitute a waiver of the right of Borrower or Bank,
including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit. However, if the
controversy or claim arises from or relates to an obligation to Bank
which is secured by real property located in California at the time of
the proposed submission to arbitration, this right is limited
according to the provision above requiring the consent of both
Borrower and Bank to seek resolution through arbitration.
13.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. Bank retains all rights,
even if it makes a loan after Default or Event of Default. If Bank waives a
Default or event of Default, it may enforce a later Default or Event of Default.
Any consent or waiver under this Agreement must be in writing.
13.6 ADMINISTRATION COSTS. Borrower shall pay Bank for all
reasonable costs incurred by Bank in connection with administering this
Agreement.
13.7 ATTORNEYS' FEES. Borrower shall reimburse Bank for any
reasonable costs and attorneys' fees incurred by Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and including
any amendment, waiver,
51
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"workout" or restructuring under this Agreement. In the event of a lawsuit or
arbitration proceeding, the prevailing party is entitled to recover costs and
reasonable attorneys' fees incurred in connection with the lawsuit or
arbitration proceeding, as determined by the court or arbitrator. As used in
this Section, "attorneys' fees" includes the allocated costs of Bank's in-house
counsel.
13.8 ONE AGREEMENT. This Agreement and any security or other
agreements referred to in this Agreement, collectively:
(a) represent the sum of the understandings and agreements
between Bank and Borrower concerning this credit;
(b) replace any prior oral or written agreements between Bank
and Borrower concerning this credit; and
(c) are intended by Bank and Borrower as the final, complete
and exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
13.9 DISPOSITION OF SCHEDULES, REPORTS, ETC. DELIVERED BY BORROWER.
Bank will not be obligated to return any schedules, invoices, statements,
budgets, forecasts, reports or other papers delivered by Borrower. Bank will
destroy or otherwise dispose of such materials at such time as Bank, in its
discretion, deems appropriate.
13.10 RETURNED MERCHANDISE. Until Bank exercises its rights to
collect the accounts receivable as provided under any security agreement
required under this Agreement, Borrower may continue its present policies for
resumed merchandise and adjustments. Credit adjustments with respect to returned
merchandise shall be made immediately upon receipt of the merchandise by
Borrower or upon such other disposition of the merchandise by the debtor in
accordance with Borrower's instructions. If a credit adjustment is made with
respect to any Acceptable Receivable, the amount of such adjustment shall no
longer be included in the amount of such Acceptable Receivable in computing the
Borrowing Base.
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13.11 VERIFICATION OF RECEIVABLES. Bank may at any time, either
orally or in writing, request confirmation from any debtor of the current amount
and status of the accounts receivable upon which such debtor is obligated.
13.12 INDEMNIFICATION. Borrower shall defend and indemnify the Bank
and its officers, directors, employees and agents (each, an "Indemnified
Person"), against all claims, damages, liabilities and expenses which may be
incurred by or asserted against any of them (except by Borrower) in connection
with this Agreement, the other Loan Documents and the transactions contemplated
herein, in the other Loan Documents and in the Acquisition Agreement, or which
are related thereto, and for any reasonable legal or other expenses incurred in
connection with investigating, defending or participating in any such loss,
claim, damage, liability or action or other proceeding, whether commenced or
threatened (including without limitation the allocated cost of in-house
attorneys and staff), or in any way relating to the extension of the financing
contemplated by this Agreement or from any use or intended use of any of the
proceeds thereof except, in the case of any Indemnified Person, to the extent
any such loss, claim, damage or liability results from the gross negligence or
willful misconduct of such Indemnified Person. Without limitation on the
foregoing, Borrower will indemnify and hold harmless Bank and each other
Indemnified Person from any loss, or liability directly or indirectly arising
out of the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence of any materials which
described as "hazardous" or "toxic" under or which are governed by any
Environmental Laws, irrespective of whether such materials are on, under or
about Borrower's premises. The indemnities under this Section will survive the
termination of this Agreement and the repayment of all obligations of Borrower
hereunder.
13.13 NOTICES. All notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, to the
addresses on the signature page of this Agreement, or to such other addresses as
Bank and Borrower may specify from time to time in writing.
13.14 HEADINGS. Article and Section headings are for reference only
and shall not affect the interpretation or meaning of any provisions of this
Agreement.
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13.15 COUNTERPARTS. This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.
This Agreement is executed as of the date stated at the top of the first page
hereof.
BANK OF AMERICA NATIONAL HAWKER PACIFIC, INC., a
TRUST AND SAVINGS ASSOCIATION California corporation
By [ILLEGIBLE] By /s/ DAVID L. LOKKEN
----------------------------- -------------------------
Title Vice President Title President/CEO
------------------------- -------------------------
By [ILLEGIBLE] By /s/ BRIAN AUNE
----------------------------- -------------------------
Title Vice President Title Vice President & CFO
------------------------- -------------------------
Address where notices to Address where notices to
Bank are to be sent: Borrower is to be sent:
3233 Park Centre Drive Hawker Pacific, Inc.
Costa Mesa, California 92626 11310 Sherman Way
Attention: Deborah Miller, Vice Sun Valley, California 91352
President Attention: David Lokken
With copy to:
Unique Investment
Corporation
1831 South Ritchey Street
Santa Ana, California 92705
Attention: Daniel J. Lubeck
54
<PAGE>
Schedule 1 to Business Loan Agreement
Deposit Accounts
BANK ACCOUNT NO.
Intellectual Property
PATENTS
TRADEMARKS
COPYRIGHTS
Persons owning interests in Borrower and AqHawk
NAME PERCENTAGE OWNERSHIP NO. OF SHARES
EXISTING DEBTS, CONTINGENT OBLIGATIONS AND LEASES.
EXISTING LIENS.
55
<PAGE>
Schedule 2 - Sabena Shipset Description
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<PAGE>
Hawker Pacific, Inc.
Lease Property and Assets
REAL PROPERTY
Sun Valley California 91352
Building # 1, 2, & 3 11310 Sherman Way Annual Rent: $209,388
Building # 4 11258 Sherman Way Annual Rent: $ 55,476
Building # 5 11260 Sherman Way, Back Annual Rent: $ 55,476
Building # 6 11260 Sherman Way, Front Annual Rent: $ 55,476
Building # 7 11252 Sherman Way Annual Rent: $113,700
Building # 8 7100 Case Avenue Annual Rent: $192,000
Miami Inv. Location Sun Valley Storage Annual Rent: $ 3,600
10991 Roscoe Blvd.
Burbank, California 91504
CEO's Apartment 301 Bethany Rd. #302 Annual Rent: $ 12,600
Holland
Nooderfreef 80, 2153 LL Nieuw-Vennep Annual Rent: $ 9,000
The Netherlands
PERSONAL PROPERTY
Vehicles Annual Lease: $15,660
Office Equipment Annual Lease: $25,710
<PAGE>
Hawker Pacific, Inc.
Listing of HPI Bank Accounts
US Operations:
Bank of America 09498-02086 Receipts Account Sun Valley, California
Bank of America 09497-08611 Disbursements Account Sun Valley, California
Bank of America 09499-4650 Payroll Account Sun Valley, California
Bank of America 09495-08877 Training Reimb. Acct. Sun Valley, California
All of the above accounts require any two signatures from the following four
individuals for withdraw.
David Lokken, Brian Aune, Brian Carr, Jodene Jonte
Holland Operations:
ABNB 56254.37.089 General Expense Acct. Holland
ABNB 56.55.17.600 Dutch Guilders Acct. Holland
ABNB 62.64.04.460 US Dollar Account Holland
All of the above require signature from one of the following individuals for
transfer or withdraw.
David Lokken, Brian Aune, Ed Lepelaar
<PAGE>
Hawker Pacific, Inc.
Contingent Liabilities
Currently Hawker Pacific, Inc. is aware of one contingent liability. It is for
the vendor demanded upgrade of our MFG/PRO software license such that our
license properly represents our current hardware platform and number of software
system users. The vendor is QAD, Inc. of Cupertino, California. There initial
request to upgrade our system was an expense of $188,000. They have recently
amended their demand downward to approximately $125,000.
<PAGE>
Hawker Pacific, Inc.
"Sabena" Shipset Description
For purpose of identifying the referenced "Sabena" shipset utilize the
following:
The "Sabena" shipset is a Boeing 747-400 Landing Gear Rotable Asset received
from Sabena Airline of Belgium in September 1996 on an exchange contract. The
shipset includes two main landing gears, two body landing gears and one nose
landing gear.
<PAGE>
INTELLECTUAL PROPERTY
None
OWNERSHIP
Hawker Pacific is 100% owned by AqHawk with 5000 common shares
outstanding
AqHawk is owned by the following:
Melanie Bastian - 4150 Common Shares
Melanie Bastain - 400 Preferred Shares
John G. Makoff- 1550 Common Shares
Daniel J. Lubeck - 1150 Common Shares
Scott W. Hartman - 1150 Common Shares
Sidney G. Makoff- 1000 Common Shares
David L. Lokken - 500 Common Shares
Jim Yoder - 100 Common Shares
Air Resources, Inc. - 100 Common Shares
Brian S. Aune - 100 Common Shares
Brian Carr- 100 Common Shares
Michael Riley - 100 Common Shares
EXISTING LIENS
Lease assets only
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT ("Agreement"), dated as of November _, 1996,
is made by HAWKER PACIFIC, INC., a California corporation ("Grantor"), in favor
of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as the Bank under the
Loan Agreement referred to below ("Secured Party"). Terms defined in the Loan
Agreement (as hereinafter defined) and not otherwise defined in this Agreement
are used herein with the same meanings.
RECITALS
A. Pursuant to the Business Loan Agreement dated as of November __,
1996 by and among Grantor, as Borrower, and Secured Party, as Bank (as such
agreement may from time to time be amended, extended, renewed, supplemented
or otherwise modified, the "Loan Agreement"), Secured Party has agreed to
extend certain credit facilities to Grantor.
B. The Loan Agreement provides, as a condition of the availability of
such credit facilities on the Closing Date, that Grantor shall enter into this
Agreement and shall grant security interests to Secured Party as herein
provided.
AGREEMENT
NOW, THEREFORE, in order to induce Bank to extend the aforementioned
credit facilities, and for other good and valuable consideration, the receipt
and adequacy of which hereby is acknowledged, Grantor hereby represents,
warrants, covenants, agrees, assigns and grants as follows:
1. DEFINITIONS. This Agreement is the Security Agreement referred to
in the Loan Agreement. This Agreement is one of the Loan Documents referred to
in the Loan Agreement. Terms defined in the California Uniform Commercial Code
and not otherwise defined in this Agreement or in the Loan Agreement shall have
the meanings defined for those terms in the California Uniform Commercial Code.
As used in this Agreement, the following terms shall have the meanings
respectively set forth after each:
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"ADVANCE" means any advance made or to be made by Bank to Grantor as
provided in ARTICLE 2, and INCLUDES advances made under Facility No. 1, Facility
No. 2, and any Capital Loan.
"AFFILIATE" means, as to any Person, any other Person which indirectly
controls, or is under common control with, or is controlled by, such Person. As
used in this definition, "control" (and the correlative terms, "controlled by"
and "under common control with") shall mean possession, directly or indirectly,
of power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise); PROVIDED that, in any event, any Person that owns,
directly or indirectly, 10% or more of the securities having ordinary voting
power for the election of directors or other governing body of a corporation
that has more than 100 record holders of such securities, or 10% or more of the
partnership or other ownership interests of any other Person that has more than
100 record holders of such interests, will be deemed to control such corporation
or other Person.
"COLLATERAL" means and includes all present and future right, title
and interest of Grantor, in or to any Property or assets whatsoever, and all
rights and powers of Grantor to transfer any interest in or to any Property or
assets whatsoever, INCLUDING, without limitation, any and all of the following
property:
(a) All present and future accounts, accounts receivable,
agreements, contracts, leases, contract rights, rights to payment,
instruments, documents, chattel paper, security agreements, guaranties,
letters of credit, undertakings, surety bonds, insurance policies (whether
or not required by the terms of the Loan Documents), notes and drafts, and
all forms of obligations owing to Grantor or in which Grantor may have any
interest, however created or arising and whether or not earned by
performance;
(b) All present and future general intangibles, all tax refunds
of every kind and nature to which Grantor now or hereafter may become
entitled, however arising, all other refunds, and all deposits, reserves,
loans, royalties, cost savings, deferred payments, goodwill, choses in
action, liquidated damages, rights to indemnification, trade secrets,
computer programs, software, customer lists, trademarks, trade names,
patents, licenses, copyrights, technology, processes, proprietary
information and insurance proceeds of which Grantor is a beneficiary;
(c) All present and future deposit accounts of Grantor,
INCLUDING, without limitation, any demand, time, savings, passbook or like
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<PAGE>
account maintained by Grantor with any bank, savings and loan association,
credit union or like organization, and all cash and cash equivalents of
Grantor, whether or not deposited in any such deposit account;
(d) All present and future books and records, INCLUDING, without
limitation, books of account and ledgers of every kind and nature, all
electronically recorded data relating to Grantor or the business thereof,
all receptacles and containers for such records, and all files and
correspondence;
(e) All present and future goods, INCLUDING, without limitation,
all consumer goods, farm products, inventory, equipment, gaming devices and
associated equipment, machinery, tools, molds, dies, furniture,
furnishings, fixtures, trade fixtures, motor vehicles and all other goods
used in connection with or in the conduct of Grantor's business;
(f) All present and future inventory and merchandise, INCLUDING.
without limitation, all present and future goods held for sale or lease or
to be furnished under a contract of service, all raw materials, work in
process and finished goods, all packing materials, supplies and containers
relating to or used in connection with any of the foregoing, and all bills
of lading, warehouse receipts or documents of title relating to any of the
foregoing;
(g) All present and future stocks, bonds, debentures,
securities, subscription rights, options, warrants, puts, calls,
certificates, partnership interests, limited liability company interests,
joint venture interests, investments and/or brokerage accounts and all
rights, preferences, privileges, dividends, distributions, redemption
payments, or liquidation payments with respect thereto;
(h) All present and future accessions, appurtenances,
components, repairs, repair parts, spare parts, replacements,
substitutions, additions, issue and/or improvements to or of or with
respect to any of the foregoing;
(i) All other tangible and intangible property of Grantor;
(j) All rights, remedies, powers and/or privileges of Grantor
with respect to any of the foregoing; and
(k) Any and all proceeds and products of any of the foregoing,
INCLUDING, without limitation, all money, accounts, general intangibles,
deposit
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<PAGE>
accounts, documents, instruments, chattel paper, goods, insurance proceeds,
and any other tangible or intangible property received upon the sale or
disposition of any of the foregoing;
PROVIDED that the term "COLLATERAL", as used in this Agreement, shall NOT
include the following: (i) interests pledged pursuant to the Pledge Agreement;
or (ii) real property or any interest therein.
"GOVERNMENTAL AGENCY" means (a) any international, foreign, federal,
state, county or municipal government, or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau, commission,
department, instrumentality or public body, or (c) any court or administrative
tribunal.
"LAWS" means, collectively, all international, foreign, federal, state
and local statutes, treaties, rules, regulations, ordinances, codes and
administrative or judicial precedents.
"LOAN" means the aggregate of the Advances made at any one time by
Bank pursuant to ARTICLE 2.
"PERSON" means any entity, whether an individual, trustee,
corporation, general partnership, limited partnership, joint stock company,
trust, estate, unincorporated organization, business association, firm, joint
venture, Governmental Agency, or otherwise.
"PROPERTY" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"SECURED OBLIGATIONS" means any and all present and future obligations
of any type or nature of Grantor to Secured Party arising under or relating to
(a) the Loan Agreement and the other Loan Documents including all obligations
with respect to Loans or Letters of Credit made under the Loan Agreement and
obligations under the Loan Documents executed in connection therewith, (b)
interest rate swaps and other hedging arrangements entered into by Bank and
Grantor, (c) the documents governing each other credit facility hereafter made
available to Grantor or guarantied by Grantor, whether due or to become due,
matured or unmatured, liquidated or unliquidated, or contingent or
noncontingent, INCLUDING obligations of performance as well as obligations of
payment, and INCLUDING interest that accrues after the commencement of any
bankruptcy or insolvency proceeding by or against Grantor.
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<PAGE>
2. FURTHER ASSURANCES. At any time and from time to time at the
request of Secured Party, Grantor shall execute and deliver to Secured Party all
such financing statements and other instruments and documents in form and
substance satisfactory to Secured Party as shall be necessary or desirable to
fully perfect, when filed and/or recorded, Secured Party's security interests
granted pursuant to SECTION 3 of this Agreement. At any time and from time to
time, Secured Party shall be entitled to file and/or record any or all such
financing statements, instruments and documents held by it, and any or all such
further financing statements, documents and instruments, and to take all such
other actions, as Secured Party may deem appropriate to perfect and to maintain
perfected the security interests granted in SECTION 3 of this Agreement. Before
and after the occurrence of any Event of Default, at Secured Party's request,
Grantor shall execute all such further financing statements, instruments and
documents, and shall do all such further acts and things, as may be deemed
necessary or desirable by Secured Party to create and perfect, and to continue
and preserve, an indefeasible security interest in the Collateral in favor of
Secured Party, or the priority thereof. With respect to any Collateral
consisting of certificated securities, instruments, documents, certificates of
title or the like, as to which Secured Party's security interest need be
perfected by, or the priority thereof need be assured by, possession of such
Collateral, Grantor will upon demand of Secured Party deliver possession of same
in pledge to Secured Party. With respect to any Collateral consisting of
securities, instruments, partnership, joint venture or limited liability company
interests or the like, Grantor hereby consents and agrees that the issuers of,
or obligors on, any such Collateral, or any registrar or transfer agent or
trustee for any such Collateral, shall be entitled to accept the provisions of
this Agreement as conclusive evidence of the right of Secured Party to effect
any transfer or exercise any right hereunder or with respect to any such
Collateral, notwithstanding any other notice or direction to the contrary
heretofore or hereafter given by Grantor or any other Person to such issuers or
such obligors or to any such registrar or transfer agent or trustee.
3. SECURITY AGREEMENT. For valuable consideration, Grantor hereby
assigns and pledges to Secured Party, and grants to Secured Party a security
interest in, all presently existing and hereafter acquired Collateral, as
security for the timely payment and performance of the Secured Obligations, and
each of them. This Agreement is a continuing and irrevocable agreement and all
the rights, powers, privileges and remedies hereunder shall apply to any and all
Secured Obligations, including those arising under successive transactions which
shall either continue the Secured Obligations, increase or decrease them and
notwithstanding the bankruptcy of any Grantor or any other Person or any other
event or proceeding affecting any Person.
-5-
<PAGE>
4. GRANTOR'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS. EXCEPT as
otherwise disclosed to Secured Party in writing concurrently herewith, Grantor
represents, warrants and agrees that: (a) Grantor will pay, prior to
delinquency, all taxes, charges, Liens and assessments against the Collateral,
EXCEPT such as are timely contested in good faith, and upon its failure to pay
or so contest such taxes, charges, Liens and assessments, Secured Party, after
an Event of Default, at its option may pay any of them, and Secured Party shall
be the sole judge of the legality or validity thereof and the amount necessary
to discharge the same; (b) the Collateral will not be used for any unlawful
purpose or in violation of any Laws in any material respect, nor used in any way
that will void or impair any insurance required to be carried in connection
therewith; (c) Grantor will, to the extent consistent with good business
practice, keep the portion of the Collateral owned by it in reasonably good
repair, working order and condition, and from time to time make all needful and
proper repairs, renewals, replacements, additions and improvements thereto and,
as appropriate and applicable, will otherwise deal with such portion of the
Collateral in all such ways as are considered good practice by owners of like
Property; (d) Grantor will take all reasonable steps to preserve and protect the
Collateral; (e) Grantor will maintain, with responsible insurance companies,
insurance covering the Collateral against such insurable losses as is required
by the Loan Agreement, and will cause Secured Party to be designated as an
additional insured and loss payee with respect to all insurance (whether or not
required by the Loan Agreement), will obtain the written agreement of the
insurers that such insurance shall not be canceled, terminated or materially
modified to the detriment of Secured Party without at least 30 days prior
written notice to Secured Party, and will furnish copies of such insurance
policies or certificates to Secured Party promptly upon request therefor; (f)
Grantor will promptly notify Secured Party in writing in the event of any
substantial or material damage to the Collateral (considered as a whole) from
any source whatsoever, and, EXCEPT for the disposition of collections and other
proceeds of the Collateral permitted by SECTION 7 hereof, Grantor will not
remove or permit to be removed any part of the Collateral from its places of
business without the prior written consent of Secured Party, EXCEPT for such
items of the Collateral as are removed in the ordinary course of business or in
connection with any transaction or disposition otherwise permitted by the Loan
Documents; and (g) in the event Grantor changes its name or its address as
either are set forth herein or in the Loan Agreement, Grantor will notify
Secured Party of such name and/or address change promptly, but in any event,
within five (5) days.
5. SECURED PARTY'S RIGHTS RE COLLATERAL. At any time (whether or not
an Event of Default has occurred), without notice or demand and at the expense
of Grantor with regard to the portion of the Collateral owned by it, Secured
Party may, to the extent it may be necessary or desirable to protect the
security hereunder, but Secured Party shall not be obligated to: (a) at all
reasonable times on reasonable
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<PAGE>
notice, provided that if no Default or Event of Default exists, Bank will
provide one (1) business day prior written or verbal notice of its intention to
exercise its rights, and, if requested by Borrower, will provide written
confirmation of any such verbal notice, enter upon any premises on which
Collateral is situated and examine the same or (b) perform any obligation of
Grantor under this Agreement or any obligation of any other Person under the
Loan Documents. At any time and from time to time, at the expense of Grantor,
Secured Party may, to the extent it may be necessary or desirable to protect the
security hereunder, but Secured Party shall not be obligated to: (i) after an
Event of Default, notify obligor on the Collateral that the Collateral has been
assigned to Secured Party; and (ii) at any time and from time to time request
from obligors on the Collateral, in the name of Grantor or in the name of
Secured Party, information concerning the Collateral and the amounts owing
thereon, PROVIDED, HOWEVER, that any such action which involves communicating
with customers of Grantor shall be carried out by Secured Party through such
Grantor's independent auditors unless Secured Party shall then have the right
directly to notify obligors on the Collateral as provided in SECTION 9. Grantor
shall maintain books and records pertaining to the Collateral in such detail,
form and scope as Secured Party shall reasonably require consistent with Secured
Party's interests hereunder. Grantor shall at any time at Secured Party's
request mark the Collateral and/or Grantor's ledger cards, books of account and
other records relating to the Collateral with appropriate notations reasonably
satisfactory to Secured Party disclosing that they are subject to Secured
Party's security interests. Secured Party shall be under no duty or obligation
whatsoever to take any action to preserve any rights of or against any prior or
other parties in connection with the Collateral, to exercise any voting rights
or managerial rights with respect to any Collateral, whether or not an Event of
Default shall have occurred, or to make or give any presentments, demands for
performance, notices of non-performance, protests, notices of protests, notices
of dishonor or notices of any other nature whatsoever in connection with the
Collateral or the Secured Obligations. Secured Party shall be under no duty or
obligation whatsoever to take any action to protect or preserve the Collateral
or any rights of Grantor therein, or to make collections or enforce payment
thereon, or to participate in any foreclosure or other proceeding in connection
therewith.
6. COLLECTIONS ON THE COLLATERAL. EXCEPT as otherwise provided in
any Loan Document, Grantor shall have the right to use and to continue to make
collections on and receive dividends and other proceeds of all of the Collateral
in the ordinary course of business so long as no Event of Default shall have
occurred and be continuing. Upon the occurrence and during the continuance of an
Event of Default, at the option of Secured Party, Grantor's right to make
collections on and receive dividends and other proceeds of the Collateral and to
use or dispose of such collections and proceeds shall terminate, and any and all
dividends, proceeds and collections,
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<PAGE>
including all partial or total prepayments, then held or thereafter received on
or on account of the Collateral will be held or received by Grantor in trust for
Secured Party and immediately delivered in kind to Secured Party. Any remittance
received by Grantor from any Person shall be presumed to relate to the
Collateral and to be subject to Secured Party's security interests. Upon the
occurrence and during the continuance of an Event of Default, Secured Party
shall have the right at all times to receive, receipt for, endorse, assign, and
deliver, in the name of Secured Party or in the name of Grantor, any and all
checks, notes, drafts and other instruments for the payment of money
constituting proceeds of or otherwise relating to the Collateral; and Grantor
hereby authorizes Secured Party to affix, by facsimile signature or otherwise,
the general or special endorsement of it, in such manner as Secured Party shall
deem advisable, to any such instrument in the event the same has been delivered
to or obtained by Secured Party without appropriate endorsement, and Secured
Party and any collecting bank are hereby authorized to consider such endorsement
to be a sufficient, valid and effective endorsement by Grantor, to the same
extent as though it were manually executed by the duly authorized officer of
Grantor, regardless of by whom or under what circumstances or by what authority
such facsimile signature or other endorsement actually is affixed, without duty
of inquiry or responsibility as to such matters, and Grantor hereby expressly
waives demand, presentment, protest and notice of protest or dishonor and all
other notices of every kind and nature with respect to any such instrument.
7. POSSESSION OF COLLATERAL BY SECURED PARTY. All the Collateral
now, heretofore or hereafter delivered to Secured Party shall be held by Secured
Party in its possession, custody and control. Any or all of the Collateral
delivered to Secured Party shall be held in an interest-bearing account, which
is in the form of cash or cash equivalent, and Secured Party shall apply any
such interest to payment of the Secured Obligations. Nothing herein shall
obligate Secured Party to obtain any particular return on the Collateral. Upon
the occurrence and during the continuance of an Event of Default, whenever any
of the Collateral is in Secured Party's possession, custody or control, Secured
Party may use, operate and consume the Collateral, whether for the purpose of
preserving and/or protecting the Collateral, or for the purpose of performing
any of Grantor's obligations with respect thereto, or otherwise. Secured Party
may at any time deliver or redeliver the Collateral or any part thereof to
Grantor, and the receipt of any of the same by Grantor shall be complete and
full acquittance for the Collateral so delivered, and Secured Party thereafter
shall be discharged from any liability or responsibility therefor. So long as
Secured Party exercises reasonable care with respect to any Collateral in its
possession, custody or control, Secured Party shall have no liability for any
loss of or damage to such Collateral, and in no event shall Secured Party have
liability for any diminution in value of Collateral occasioned by economic or
market conditions or events. Secured
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<PAGE>
Party shall be deemed to have exercised reasonable care within the meaning of
the preceding sentence if the Collateral in the possession, custody or control
of Secured Party is accorded treatment substantially equal to that which Secured
Party accords its own property, it being understood that Secured Party shall not
have any responsibility for (a) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relating to
any Collateral, whether or not Secured Party has or is deemed to have knowledge
of such matters, or (b) taking any necessary steps to preserve rights against
any Person with respect to any Collateral.
8. EVENTS OF DEFAULT. There shall be an Event of Default hereunder
upon the occurrence and during the continuance of an Event of Default under the
Loan Agreement.
9. RIGHTS UPON EVENT OF DEFAULT. Upon the occurrence and during the
continuance of an Event of Default, Secured Party shall have, in any
jurisdiction where enforcement hereof is sought, in addition to all other rights
and remedies that Secured Party may have under applicable Law or in equity or
under this Agreement (INCLUDING, without limitation, all rights set forth in
SECTION 5 hereof) or under any other Loan Document, all rights and remedies of a
secured party under the Uniform Commercial Code as enacted in California and, in
addition, the following rights and remedies, all of which may be exercised with
or without notice to Grantor and without affecting the Secured Obligations of
Grantor hereunder or under any other Loan Document, or the enforceability of the
Liens created hereby: (a) to foreclose the Liens created hereunder or under any
other agreement relating to any Collateral by any available judicial procedure
or without judicial process; (b) to enter any premises where any Collateral may
be located for the purpose of securing, protecting, inventorying, appraising,
inspecting, repairing, preserving, storing, preparing, processing, taking
possession of or removing the same; (c) to sell, assign, lease or otherwise
dispose of any Collateral or any part thereof, either at public or private sale
or at any broker's board, in lot or in bulk, for cash, on credit or otherwise,
with or without representations or warranties and upon such terms as shall be
acceptable to Secured Party; (d) to notify obligors on the Collateral that the
Collateral has been assigned to Secured Party and that all payments thereon are
to be made directly and exclusively to Secured Party; (e) to collect by legal
proceedings or otherwise all dividends, distributions, interest, principal or
other sums now or hereafter payable upon or on account of the Collateral; (f) to
cause the Collateral to be registered in the name of Secured Party, as legal
owner; (g) to enter into any extension, reorganization, deposit, merger or
consolidation agreement, or any other agreement relating to or affecting the
Collateral, and in connection therewith Secured Party may deposit or surrender
control of the Collateral and/or accept other Property in exchange for the
Collateral; (h) to settle, compromise or release, on terms acceptable to Secured
Party,
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in whole or in part, any amounts owing on the Collateral and/or any disputes
with respect thereto; (i) to extend the time of payment, make allowances and
adjustments and issue credits in connection with the Collateral in the name of
Secured Party or in the name of Grantor; (j) to enforce payment and prosecute
any action or proceeding with respect to any or all of the Collateral and take
or bring, in the name of Secured Party or in the name of Grantor, any and all
steps, actions, suits or proceedings deemed by Secured Party necessary or
desirable to effect collection of or to realize upon the Collateral, INCLUDING
any judicial or nonjudicial foreclosure thereof or thereon, and Grantor
specifically consents to any nonjudicial foreclosure of any or all of the
Collateral or any other action taken by Secured Party which may release any
obligor from personal liability on any of the Collateral, and Grantor waives any
right not expressly provided for in this Agreement to receive notice of any
public or private judicial or nonjudicial sale or foreclosure of any security or
any of the Collateral; and any money or other Property received by Secured Party
in exchange for or on account of the Collateral, whether representing
collections or proceeds of Collateral, and whether resulting from voluntary
payments or foreclosure proceedings or other legal action taken by Secured Party
or Grantor may be applied by Secured Party without notice to Grantor to the
Secured Obligations in such order and manner as Secured Party in its sole
discretion shall determine; (k) to insure, process and preserve the Collateral;
(l) to exercise all rights, remedies, powers or privileges provided under any of
the Loan Documents; (m) to remove, from any premises where the same may be
located, the Collateral and any and all documents, instruments, files and
records, and any receptacles and cabinets containing the same, relating to the
Collateral, and Secured Party may, at the cost and expense of Grantor, use such
of its supplies, equipment, facilities and space at its places of business as
may be necessary or appropriate to properly administer, process, store, control,
prepare for sale or disposition and/or sell or dispose of the Collateral or to
properly administer and control the handling of collections and realizations
thereon, and Secured Party shall be deemed to have a rent-free tenancy of any
premises of Grantor for such purposes and for such periods of time as reasonably
required by Secured Party; (n) to receive, open and dispose of all mail
addressed to Grantor and notify postal authorities to change the address for
delivery thereof to such address as Secured Party may designate; PROVIDED that
Secured Party agrees that it will promptly deliver over to Grantor such opened
mail as does not relate to the Collateral; and (o) to exercise all other rights,
powers, privileges and remedies of an owner of the Collateral; all at Secured
Party's sole option and as Secured Party in its sole discretion may deem
advisable. Grantor will, at Secured Party's request, assemble the Collateral and
make it available to Secured Party at places which Secured Party may reasonably
designate, whether at the premises of Grantor or elsewhere, and will make
available to Secured Party, free of cost, all premises, equipment and facilities
of Grantor for the purpose of Secured Party's taking
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possession of the Collateral or storing same or removing or putting the
Collateral in salable form or selling or disposing of same.
Upon the occurrence and during the continuance of an Event of Default,
Secured Party also shall have the right, without notice or demand, either in
person, by agent or by a receiver to be appointed by a court (and Grantor hereby
expressly consents upon the occurrence and during continuance of an Event of
Default to the appointment of such a receiver), and without regard to the
adequacy of any security for the Secured Obligations, to take possession of the
Collateral or any part thereof and to collect and receive the rents, issues,
profits, income and proceeds thereof. Taking possession of the Collateral shall
not cure or waive any Event of Default or notice thereof or invalidate any act
done pursuant to such notice. The rights, remedies and powers of any receiver
appointed by a court shall be as ordered by said court.
Any public or private sale or other disposition of the Collateral may
be held at any office of Secured Party, or at Grantor's place of business, or at
any other place permitted by applicable Law, and without the necessity of the
Collateral's being within the view of prospective purchasers. Secured Party may
direct the order and manner of sale of the Collateral, or portions thereof, as
it in its sole and absolute discretion may determine, and Grantor expressly
waives any right to direct the order and manner of sale of any Collateral.
Secured Party or any Person on Secured Party's behalf may bid and purchase at
any such sale or other disposition. The net cash proceeds resulting from the
collection, liquidation, sale, lease or other disposition of the Collateral
shall be applied, first, to the expenses (including reasonable attorneys' fees
and disbursements) of retaking, holding, storing, processing and preparing for
sale or lease, selling, leasing, collecting, liquidating and the like, and then
to the satisfaction of the Secured Obligations in such order as shall be
determined by Secured Party in its sole and absolute discretion. Grantor and any
other Person then obligated therefor shall pay to Secured Party on demand any
deficiency with regard thereto which may remain after such sale, disposition,
collection or liquidation of the Collateral.
Unless the Collateral is perishable or threatens to decline speedily
in value or is of a type customarily sold on a recognized market, Secured Party
will send or otherwise make available to Grantor reasonable notice of the time
and place of any public sale thereof or of the time on or after which any
private sale thereof is to be made. The requirement of sending reasonable notice
conclusively shall be met if such notice is mailed, first class mail, postage
prepaid, to Grantor at its address set forth in the Loan Agreement, or delivered
or otherwise sent to Grantor, at least five (5) days before the date of the
sale.
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With respect to any Collateral consisting of securities, partnership
interests, joint venture interests, limited liability company interests,
Investments or the like, and whether or not any of such Collateral has been
effectively registered under the Securities Act of 1933, as amended, or other
applicable Laws, Secured Party may, in its sole and absolute discretion, sell
all or any part of such Collateral at private sale in such manner and under such
circumstances as Secured Party may deem necessary or advisable in order that the
sale may be lawfully conducted. Without limiting the foregoing, Secured Party
may (i) approach and negotiate with a limited number of potential purchasers,
and (ii) restrict the prospective bidders or purchasers to persons who will
represent and agree that they are purchasing such Collateral for their own
account for investment and not with a view to the distribution or resale
thereof. In the event that any such Collateral is sold at private sale, Grantor
agrees that if such Collateral is sold for a price which Secured Party in good
faith believes to be reasonable under the circumstances then existing, then (a)
the sale shall be not be deemed to be commercially unreasonable by reason of
price, (b) Grantor shall not be entitled to a credit against the Secured
Obligations in an amount in excess of the purchase price, and (c) Secured Party
shall not incur any liability or responsibility to Grantor in connection
therewith, notwithstanding the possibility that a substantially higher price
might have been realized at a public sale. Grantor recognizes that a ready
market may not exist for such Collateral if it is not regularly traded on a
recognized securities exchange, and that a sale by Secured Party of any such
Collateral for an amount substantially less than a pro rata share of the fair
market value of the issuer's assets minus liabilities may be commercially
reasonable in view of the difficulties that may be encountered in attempting to
sell a large amount of such Collateral or Collateral that is privately traded.
Upon consummation of any sale of Collateral hereunder, Secured Party
shall have the right to assign, transfer and deliver to the purchaser or
purchasers thereof the Collateral so sold. Each such purchaser at any such sale
shall hold the Collateral so sold absolutely free from any claim or right upon
the part of Grantor or any other Person, and Grantor hereby waives (to the
extent permitted by applicable Laws) all rights of redemption, stay and
appraisal which it now has or may at any time in the future have under any rule
of Law or statute now existing or hereafter enacted.
10. ATTORNEY-IN-FACT. Grantor hereby irrevocably nominates and
appoints Secured Party as their attorney-in-fact for the following purposes: (a)
to do all acts and things which Secured Party may deem necessary or advisable to
perfect and continue perfected the security interests created by this Agreement
and, upon the occurrence and during the continuance of an Event of Default, to
preserve, process, develop, maintain and protect the Collateral; (b) upon the
occurrence and during the continuance of an Event of Default, to do any and
every act which Grantor is obligated
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to do under this Agreement, at the expense of the Grantor and without any
obligation to do so; (c) to prepare, sign, file and/or record, for Grantor, in
the name of Grantor, any financing statement, application for registration, or
like paper, and to take any other action deemed by Secured Party necessary or
desirable in order to perfect or maintain perfected the security interests
granted hereby; and (d) upon the occurrence and during the continuance of an
Event of Default, to execute any and all papers and instruments and do all other
things necessary or desirable to preserve and protect the Collateral and to
protect Secured Party's security interests therein; PROVIDED, HOWEVER, that
Secured Party shall be under no obligation whatsoever to take any of the
foregoing actions, and, absent bad faith or actual malice, Secured Party shall
have no liability or responsibility for any act taken or omission with respect
thereto (other than Secured Party's own gross negligence or willful misconduct).
11. COSTS AND EXPENSES. Grantor agrees to pay to Secured Party all
costs and expenses (INCLUDING, without limitation, reasonable attorneys' fees
and disbursements, including allocated costs of in-house counsel), incurred
by Secured Party in the enforcement or attempted enforcement of this
Agreement, whether or not an action is filed in connection therewith, and in
connection with any waiver or amendment of any term or provision hereof. All
advances, charges, costs and expenses, INCLUDING reasonable attorneys' fees
and disbursements, incurred or paid by Secured Party in exercising any right,
privilege, power or remedy conferred by this Agreement (INCLUDING, without
limitation, the right to perform any Secured Obligation of Grantor under the
Loan Documents), or in the enforcement or attempted enforcement thereof,
shall be secured hereby and shall become a part of the Secured Obligations
and shall be paid to Secured Party by Grantor, immediately upon demand,
together with interest thereon at the Default Rate.
12. STATUTE OF LIMITATIONS AND OTHER LAWS. Until the Secured
Obligations shall have been paid and performed in full, the power of sale and
all other rights, privileges, powers and remedies granted to Secured Party
hereunder shall continue to exist and may be exercised by Secured Party at any
time and from time to time irrespective of the fact that any of the Secured
Obligations may have become barred by any statute of limitations. Grantor
expressly waives the benefit of any and all statutes of limitation, and any and
all Laws providing for exemption of property from execution or for valuation and
appraisal upon foreclosure, to the maximum extent permitted by applicable Law.
13. OTHER AGREEMENTS. Nothing herein shall in any way modify or limit
the effect of terms or conditions set forth in any other security or other
agreement executed by Grantor or in connection with the Secured Obligations, but
each and every term and condition hereof shall be in addition thereto. All
provisions contained in the
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Loan Agreement or any other Loan Document that apply to Loan Documents generally
are fully applicable to this Agreement and are incorporated herein by this
reference.
14. CONTINUING EFFECT. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Grantor for liquidation or reorganization, should Grantor become insolvent or
make an assignment for the benefit of creditors or should a receiver or trustee
be appointed for all or any significant part of Grantor's assets.
15. RELEASE OF GRANTOR. This Agreement and all Secured Obligations of
Grantor hereunder shall be released when all Secured Obligations have been paid
in full in cash or otherwise performed in full and when no portion of the
Commitments remain outstanding. Upon such release of Grantor's Secured
Obligations hereunder, Secured Party shall return any pledged Collateral to
Grantor, or to the Person or Persons legally entitled thereto, and shall
endorse, execute, deliver, record and file all instruments and documents, and do
all other acts and things, reasonably required for the return of the Collateral
to Grantor, or to the Person or Persons legally entitled thereto, and to
evidence or document the release of Secured Party's interests arising under this
Agreement, all as reasonably requested by, and at the sole expense of, Grantor.
16. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the local laws of the State of California.
17. ATTORNEY'S FEES. In any action to enforce this Agreement, the
prevailing party shall be entitled to receive, in addition to any other relief
awarded by the tribunal, its attorney's fees and costs (including the allocated
fees and costs of internal counsel).
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IN WITNESS WHEREOF, Grantor has executed this Agreement by its duly
authorized offer as of the date first written above.
"Grantor"
HAWKER PACIFIC, INC., a California corporation
By: /s/ David L. Lokken
----------------------------
David L. Lokken, President & CEO
----------------------------------
[Name and Title]
ACCEPTED AND AGREED
AS OF THE DATE FIRST
ABOVE WRITTEN:
"Secured Party"
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
as Secured Party
By: [illegible]
-----------------------
Title:
--------------------
<PAGE>
AGREEMENT OF PURCHASE AND SALE OF STOCK
by and among
BTR DUNLOP, INC.
a Delaware Corporation
BTR, INC.
a Delaware corporation
HAWKER PACIFIC, INC.
a California corporation
and
AQHAWK, INC.
a California corporation
Effective as of November 1, 1996
<PAGE>
INDEX
1. PURCHASE AND SALE OF SHARES...............................................1
1.1 SALE AND TRANSFER OF SHARES..........................................1
1.2 CONSIDERATION FROM BUYER AT CLOSING..................................1
2. REPRESENTATIONS AND WARRANTIES --.........................................1
2.1 ORGANIZATION.........................................................2
2.2 STOCK OF CORPORATION.................................................2
2.3 SUBSIDIARIES.........................................................2
2.4 FINANCIAL STATEMENTS.................................................2
2.5 ABSENCE OF SPECIFIED CHANGES.........................................3
2.6 ABSENCE OF UNDISCLOSED LIABILITIES...................................4
2.7 TAX RETURNS, AUDITS AND TAXES........................................4
2.8 ASSETS OF BUSINESS...................................................5
2.9 TITLE TO ASSETS......................................................6
2.10 CUSTOMERS AND SALES..................................................7
2.11 INSURANCE POLICIES...................................................7
2.12 OTHER CONTRACTS......................................................7
2.13 COMPLIANCE WITH LAWS.................................................7
2.14 LITIGATION...........................................................8
2.15 AGREEMENT WILL NOT CAUSE BREACH OR VIOLATION.........................9
2.16 AUTHORITY AND CONSENTS...............................................9
2.17 RELATED INTERESTS....................................................9
2.18 CORPORATE DOCUMENTS..................................................9
2.19 PERSONNEL...........................................................10
2.20 AUTHORITY...........................................................10
2.21 FULL DISCLOSURE.....................................................10
3. REPRESENTATIONS AND WARRANTIES - BUYER...................................11
3.1 ORGANIZATION........................................................11
3.2 CONSENTS............................................................11
3.3 INVESTMENT PURPOSES.................................................11
4. SELLING PARTIES' OBLIGATIONS BEFORE CLOSING..............................11
4.1 BUYER'S ACCESS......................................................11
4.2 CONDUCT OF BUSINESS.................................................11
4.3 CORPORATE MATTERS...................................................11
4.4 EMPLOYEES AND COMPENSATION..........................................12
4.5 NEW TRANSACTIONS....................................................12
4.6 DIVIDENDS, DISTRIBUTIONS, AND ACQUISITIONS..........................12
4.7 PAYMENT OF LIABILITIES AND WAIVER OF CLAIMS.........................12
4.8 EXISTING AGREEMENTS.................................................12
4.9 CONSENTS OF OTHERS..................................................12
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5. INFORMATION TO BE HELD IN CONFIDENCE.....................................13
6. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE..............................13
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES..........................13
6.2 PERFORMANCE BV SELLING PARTIES......................................13
6.3 NO MATERIAL ADVERSE CHANGE..........................................13
6.4 ABSENCE OF LITIGATION...............................................14
6.5 FINANCIAL POSITION .................................................14
6.6 SHAREHOLDER APPROVAL ...............................................14
6.7 CONSENTS............................................................14
6.8 APPROVAL OF DOCUMENTATION...........................................14
6.9 RESIGNATIONS........................................................14
6.10 DELIVERIES..........................................................14
7. CONDITIONS PRECEDENT TO SELLING PARTIES'.................................14
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES..........................15
7.2 BUYER'S PERFORMANCE.................................................15
7.3 BUYER'S CORPORATE APPROVAL..........................................15
7.4 ABSENCE OF LITIGATION...............................................15
7.5 DELIVERIES..........................................................15
8. THE CLOSING..............................................................15
8.1 TIME AND PLACE......................................................15
8.2 EFFECTIVE DATE......................................................15
8.3 SELLING PARTIES' OBLIGATIONS AT CLOSING.............................15
8.4 BUYER'S OBLIGATIONS AT CLOSING......................................16
9. OBLIGATIONS AFTER CLOSING................................................16
9.1 SELLER'S INDEMNITY..................................................16
9.2 INDEMNITY OF SHAREHOLDER............................................17
9.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS...............17
9.4 CLAIMS..............................................................17
9.5 LIMITATIONS.........................................................18
10. PUBLICITY................................................................19
11. COSTS....................................................................19
11.1 FINDER'S OR BROKER'S FEES...........................................19
11.2 EXPENSES............................................................19
12. REMEDIES.................................................................19
12.1 SPECIFIC PERFORMANCE AND WAIVER.....................................19
12.2 TERMINATION.........................................................19
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13. GENERAL PROVISIONS.......................................................20
13.1 NOTICES............................................................20
13.2 TIME...............................................................20
13.3 ENTIRE AGREEMENT...................................................20
13.4 SURVIVAL...........................................................20
13.5 APPLICABLE LAW.....................................................20
13.6 ATTORNEYS FEES.....................................................21
13.7 FURTHER ASSURANCES.................................................21
13.8 COUNTERPARTS.......................................................21
13.9 HEADINGS AND GENDER................................................22
13.10 SUCCESSORS.........................................................23
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TABLE OF DEFINED TERMS
Agreement.................................................................1
BTR.......................................................................1
Buyer.....................................................................1
Closing..................................................................15
Closing Date.............................................................15
Consents.................................................................12
Corporation...............................................................1
Effective Date...........................................................15
Indemnified Party........................................................17
Indemnifying Party.......................................................17
Indemnity................................................................16
Laws......................................................................8
Losses...................................................................16
Shareholder...............................................................1
Shares....................................................................1
Third Party Claim........................................................18
Trademarks................................................................6
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<PAGE>
TABLE OF EXHIBITS
EXHIBIT DESCRIPTION PAGE NO.
- --------------------------------------------------------------------------------
A-1 Hawker Financial Statements: 12/31/93, '94, '95 2
A-2 Hawker Financial Statements: 1/96 through 10/96 2
B Absence of Specified Changes 2
C Description of Real Property 4
D Tangible Personal Property 4
E Accounts Receivable Aging as of October 31, 1996 5
F Trade Names, Trademarks and Copyrights 5
F-1 Trademark License Agreement 5
G Title to Assets 5
G-1 Encumbered Assets 5
H Customers and Sales 5
I Insurance Policies 5
J Other Contracts (including Dunlop Agreements) 6
K Compliance with Laws 6
L Pending Litigation 7
M Breach or Violations, Required Consents 7
N Related Interests 7
O Employee Information 8
P Employment Contracts and Related Agreements 8
Q Severance Agreements 8
R Powers of Attorney, Bank Information 8
S Normal Compensation Increases 9
T Opinion from Peter M. Kent, Esq. 12
U BTR Noncompetition Agreement 12
V Environmental Indemnity Agreement 12
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<PAGE>
AGREEMENT OF PURCHASE AND SALE OF STOCK
THIS AGREEMENT OF PURCHASE AND SALE OF STOCK (the "Agreement") is
made and effective as of the 27th day of November, 1996 by and among BTR Dunlop,
Inc., a Delaware corporation ("BTR"), BTR, INC., a Delaware corporation
("Shareholder"), AQHAWK, INC., a California corporation ("Buyer"), and HAWKER
PACIFIC, INC., a California corporation ("Corporation"). Shareholder and
Corporation are sometimes collectively referred to in this Agreement as "Selling
Parties".
RECITALS
A. Shares
Shareholder holds one hundred percent (100%) of the issued and
outstanding stock (collectively, the "Shares") of Corporation.
B. Intentions
Pursuant to the terms and conditions hereof, Buyer desires to
purchase and acquire from Shareholder, and Shareholder desires to sell, assign,
transfer, convey and deliver to Buyer, the Shares.
NOW, THEREFORE, for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged and agreed to, the parties hereto
agree as follows:
1. PURCHASE AND SALE OF SHARES
1.1 SALE AND TRANSFER OF SHARES. Pursuant to the terms and
conditions hereof, on the Closing Date (defined in Paragraph 8.1 hereof),
Shareholder shall sell, assign, transfer, convey and deliver the Shares to
Buyer, and Buyer shall purchase and acquire the Shares from Shareholder.
1.2 CONSIDERATION FROM BUYER AT CLOSING. As payment for the
transfer of the Shares by Shareholder to Buyer, Buyer shall deliver at the
Closing (defined in Paragraph 8.1 hereof) in accordance with the provisions of
Paragraph 8.3 hereof by wire transfer to an account designated by Shareholder
the sum of Twenty-Nine Million Eight Hundred Two Thousand Eight Hundred
Sixty-One Dollars ($29,802,861) as payment in full for the Shares.
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2. REPRESENTATIONS AND WARRANTIES -- SHAREHOLDER
As a material inducement to Buyer's entering into this Agreement
and consummating the transaction set forth herein, Shareholder represents and
warrants as of the date hereof that:
2.1 ORGANIZATION. Corporation is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
California, and has all necessary corporate powers to own its properties and to
operate its business as now owned and operated by it.
2.2 STOCK OF CORPORATION
a. CAPITAL STRUCTURE. The authorized capital stock of
Corporation consists of ten thousand (10,000) shares of common stock, with par
value of One Hundred Dollars ($100) per share, five thousand (5,000) of which
are issued and outstanding and comprise the Shares. All the Shares are validly
issued, fully paid, and nonassessable, and were issued in full compliance with
all federal and state securities laws. There are no outstanding subscriptions,
options, rights, warrants, convertible securities, preferred shares or other
agreements or commitments obligating Corporation to issue or to transfer from
treasury any additional shares of its capital stock of any class.
b. TITLE TO SHARES. Shareholder is the owner,
beneficially and of record, of the Shares free and clear of all liens,
encumbrances, security agreements, equities, options, claims, charges, and
restrictions. Shareholder has full power to transfer the Shares to Buyer without
obtaining the consent or approval of any other person, entity or governmental
authority.
2.3 SUBSIDIARIES. Corporation does not own, directly or
indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, business, trust, or other entity.
2.4 FINANCIAL STATEMENTS. Exhibit "A-1" to this Agreement
consists of the reviewed balance sheets of Corporation as of December 31, 1993,
1994 and 1995; and the related statements of income and retained earnings for
the three years ending on those dates. Exhibit "A-2" to this Agreement consists
of unaudited balance sheets of Corporation as of August 31, 1996, September 30,
1996 and October 31, 1996, together with related statements of income and
retained earnings for the one (1) month periods ending on those dates, which
unaudited statements accurately present Corporation's financial condition for
those periods and all information normally reported to Corporation's independent
public accountants for the preparation of Corporation's financial statements.
The financial statements in Exhibits "A-1" and "A-2" are collectively referred
to herein as the "Financial Statements". The Financial Statements have been
prepared in accordance with generally accepted accounting principles
consistently followed by Corporation throughout the periods indicated, and
accurately present the financial position of Corporation as of the respective
dates of the balance sheets included in the Financial Statements, and the
results of Corporation's operations for the respective periods to which the
Financial Statements apply; provided, however, that the parties
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hereto agree that the purchase price set forth in Paragraph 1.2 hereof accounts
for (i) slow and non-moving, surplus and obsolete inventory, (ii) the inclusion
of freight costs in inventory, (iii) work-in-progress overhead included in
inventory, (iv) prepaid insurance for which Buyer will not be able to realize
any benefit, (v) deferred learning costs, (vi) the market value of Corporation's
machinery and equipment, (vii) any liability relating to the discount granted to
Federal Express, (viii) a currency exchange adjustment and a tax liability
relating to Corporation's Dutch operations in the amounts of $35,000 and $55,000
respectively, and (ix) a doubtful account receivable from Tristar in the amount
of $166,000 and a claim in the amount of $188,000 from QAD, Inc. for royalty
payments pursuant to a license agreement and arrangement between Corporation and
QAD, Inc. Accordingly, Buyer shall have no claim under Paragraph 2.4 hereof or
any other provision of this Agreement, and the purchase price shall not be
subject to any adjustment, for the matters set forth in clauses (i) through (ix)
of this Paragraph 2.4.
2.5 ABSENCE OF SPECIFIED CHANGES. Except as set forth in
Exhibit "B" attached hereto, since August 31, 1996, there has not been any:
a. Transaction by Corporation except in the ordinary
course of business as conducted on that date;
b. Capital expenditure by Corporation exceeding
$100,000;
c. Material adverse change in the financial
condition, liabilities, assets, receivables, business, or prospects of
Corporation;
d. Destruction, damage to, or loss of any asset of
Corporation (whether or not covered by insurance) that adversely affects the
financial condition, business, or prospects of Corporation;
e. Change in accounting methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) by Corporation;
f. Revaluation by Corporation of any of its assets;
g. Declaration, setting aside, or payment of a
dividend or other distribution relating to the capital stock of Corporation, or
any direct or indirect redemption, purchase, or other acquisition by Corporation
of any of its shares of capital stock;
h. Collection of receivables, or incurrence or
payment of trade payables by Corporation inconsistent with historical practices;
i. Increase in the salary or other compensation
payable or to become payable by Corporation to any of its officers, directors,
or employees, or the declaration, payment, or commitment or obligation of any
kind for the payment, by Corporation, of a bonus or other additional salary or
compensation to any such person;
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j. Sale or transfer of any asset of Corporation,
except in the ordinary course of business;
k. Amendment or termination of any contract,
agreement, or license to which Corporation is a party, except in the ordinary
course of business;
l. Loan by Corporation to any person or entity, or
guaranty by Corporation of any loan;
m. Mortgage, pledge, or other encumbrance of any
asset of Corporation;
n. Waiver or release of any right or claim of
Corporation, except in the ordinary course of business;
o. Commencement or notice or threat of commencement
of any civil litigation or any governmental proceeding against or investigation
of Corporation or its affairs;
p. Threat of strike, walkout or other labor action,
or claim of wrongful discharge or other unlawful labor practice or action
against Corporation;
q. Issuance or sale by Corporation of any shares of
its capital stock of any class, or of any other of its securities, or any right
to purchase any of same;
r. Agreement by Corporation to do any of the things
described in the preceding Paragraphs 2.5.a through 2.5.q; or
s. Any other event or condition of any nature, kind
or character that has, had or might have a material adverse effect on the
financial condition, business, assets, receivables, liabilities, and/or
prospects of Corporation.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Corporation does
not have any debt, liability, or obligation of any nature, whether accrued,
absolute, contingent, or otherwise, and whether due or to become due, that is
not reflected or reserved against in Corporation's balance sheet dated as of
October 31, 1996, included in the Financial Statements, except for (i) those
that may have been incurred by Corporation after the date of said balance sheet
and, to the extent not incurred in the ordinary course of business, have been
disclosed to Buyer in writing, (ii) those that are not required by generally
accepted accounting principles to be included in a balance sheet, and which were
incurred in the ordinary course of Corporation's business and are usual and
normal in kind and amount both individually and in the aggregate, and (iii) the
matters described in the proviso to the penultimate sentence of Paragraph 2.4
hereof.
2.7 TAX RETURNS, AUDITS AND TAXES. Within the times and in
the manner prescribed by law, Corporation has filed all federal, state, and
local tax returns
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required by law and has paid all taxes, assessments, and penalties due and
payable. The federal income tax and California income and franchise tax returns
of Corporation have not been audited within ten (10) years from the date hereof.
Corporation has no present or pending disputes regarding taxes of any nature
with any taxing authority Corporation has never filed, and will not file on or
before the Closing Date, any consent under Section 341(f) of the Internal
Revenue Code. Corporation and Shareholder have paid any and all taxes due under
applicable federal, state and local laws, including all income and sales taxes,
for or in relation to Corporation's operations up to the Effective Date (defined
in Paragraph 8.2 hereof), except for employee related and sales taxes which
Corporation has paid through the Closing Date.
2.8 ASSETS OF BUSINESS
a. REAL PROPERTY
(1) DESCRIPTION. Exhibit "C" to this Agreement
contains a brief description (including address, lot size, number of buildings,
leased or owned, etc.), as of the Effective Date, of each location from which
Corporation conducts any of its operations, and/or in which any of Corporation's
assets are located. Exhibit "C" to this Agreement contains true and complete
copies of all leases, as amended to date, for said real properties. There does
not exist any default or event that, with notice or lapse of time or both, would
constitute a default under any said leases.
(2) ZONING. Corporation has received no notice of,
and Shareholder otherwise has no knowledge that, the zoning of each parcel of
real property described in Exhibit "C" does not in any way permit the presently
existing improvements and the continuation of the business presently being
conducted on such real property by Corporation.
b. INVENTORY. All items described as inventory on the
balance sheet of Corporation as of October 31, 1996 are located on the real
property described in Exhibit "C" hereof, except for sales made in the ordinary
course of business since the date of said balance sheet. For each said sale,
either the purchaser has made full payment or the purchaser's liability to make
payment is reflected in the books of Corporation. No items included in the
Inventories have been pledged as collateral or are held by Corporation on
consignment from others.
c. OTHER TANGIBLE PERSONAL PROPERTY. Exhibit "D" to
this Agreement is a complete and accurate schedule describing, and specifying
the location of, all trucks, automobiles, machinery, equipment, furniture,
supplies, tools, dies, rigs, molds, patterns, drawings, and all other tangible
personal property owned by, in the possession of, or used by Corporation in any
way valued in excess of $25,000, except for Corporation's inventories. The
property listed in Exhibit "D" constitutes all such tangible personal property
necessary for the conduct by Corporation of it business as now conducted. All
the motor vehicles listed in Exhibit "D", if any, are in operating condition and
repair and have current smog certifications. Except as stated in Exhibit "D", no
personal property used by Corporation in connection with its business is held
under any lease, security agreement,
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conditional sales contract, or other title retention or security arrangement, or
is located other than on or in the real property described in Exhibit "D"
hereto.
d. ACCOUNTS RECEIVABLE. Exhibit "E" to this Agreement
is a complete and accurate schedule of the accounts receivable of Corporation as
of October 31, 1996, reflected in the balance sheet as of that date, included in
the Financial Statements, together with an accurate aging thereof. Those
accounts receivable, and all accounts receivable of Corporation created after
that date, arose from valid sales in the ordinary course of business.
e. TRADE NAMES. TRADEMARKS. AND COPYRIGHTS. Exhibit
"F" to this Agreement is a list of all trade names, trademarks, service marks,
and copyrights (collectively, "Trademarks") and their registrations, if any,
owned or in any way used by Corporation, or in which Corporation has any rights
or licenses, together with a brief description of each. Corporation owns, or to
Selling Parties' knowledge, is entitled to use all Trademarks and, to Selling
Parties' knowledge, its use thereof does not, and will not, conflict with,
infringe on, or otherwise violate any rights of others. Selling Parties have no
knowledge of any infringement or alleged infringement by others of any
Trademarks. To Selling Parties' knowledge, Corporation has not infringed, and is
not now infringing, on any trade name, trademark, service mark, or copyright
belonging to any other person or entity. Except as set forth in Exhibit "F",
Corporation is not a party to any license, agreement, or arrangement, whether as
licensor, licensee, franchiser, franchisee, or otherwise, with respect to any
Trademarks, or applications therefor. Corporation's continued right to use the
Trademarks after the Closing shall be subject to a license agreement, in form
and substance as attached hereto as Exhibit "F-1"
f. PATENTS AND PATENT RIGHTS. Corporation holds no,
and, as applicable, is not a party to any (i) patents, (ii) rights, licenses,
covenants not to sue or similar immunities from prosecution. To Selling Parties'
knowledge, no aspect of Corporation's operations infringes on any patent or
violates in any material way any other proprietary, protected or personal right
of any person or entity.
2.9 TITLE TO ASSETS. Except as set forth in Exhibit "G"
hereto which lists leased assets, financed assets and assets used in the
provision to Corporation of central services by BTR, Inc., a Delaware
corporation, Corporation has good and marketable title to all its assets and
interests in assets, whether real, personal, mixed, tangible, or intangible,
which constitute all the assets and interests in assets that are used or related
to the business or operations of Corporation. Except as listed on Exhibit "G-1",
all such assets are free and clear of (i) restrictions on or conditions to
transfer or assignment, and (ii) mortgages, liens, pledges, charges,
encumbrances, equities, claims, easements, rights of way, covenants, conditions,
or restrictions, except for (a) those disclosed in Corporation's balance sheet
dated as of October 31, 1996, included in the Financial Statements, and (b) the
lien of current taxes not yet due and payable. Corporation is not in default or
in arrears in any material respect under any lease. Taken as a whole, all real
property and tangible personal property of Corporation are in good operating
condition and repair, ordinary wear and tear excepted. Corporation occupies all
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premises leased to it from others. Neither Shareholder, nor any officer,
director, or employee of Corporation, nor any spouse, child, or other relative
of any of these persons, owns, or has any interest, directly or indirectly, in
any of the real or personal property owned by or leased to Corporation, or any
Trademarks or trade secrets licensed by Corporation or otherwise used by
Corporation in relation to its operations.
2.10 CUSTOMERS AND SALES. Exhibit "H" to this Agreement is a
correct and current list of the top one hundred (100) customers of Corporation
by 1995 sales, together with summaries of the sales made to each customer year
to date for Corporation's current fiscal year and its 1995 fiscal year. Except
as indicated in Exhibit "H", neither Corporation nor Shareholder has any
information, or is aware of any facts, indicating that any of these customers
intend to cease doing business with Corporation or materially decrease the
amount of business they are presently doing with Corporation.
2.11 INSURANCE POLICIES. Exhibit "I" to this Agreement is a
description of all insurance policies held by Corporation related to its
operations and properties. All said policies are in the respective coverage
amounts set forth in Exhibit "I". Corporation has maintained and now maintains
(i) insurance on all their assets and businesses of a type customarily insured,
covering property damage and loss of income by fire or other casualty, (ii)
insurance in a customary amount against all liabilities, claims, and risks
against which it is customary to insure and (iii) the appropriate amount of
workmen's compensation insurance. Corporation is not in default with respect to
payment of premiums on any such policy. Except as set forth in Exhibit "I", no
claim by Corporation is pending under any such policy. All such insurance is
provided to Corporation under blanket insurance policies obtained by BTR, plc,
and will terminate as of the Closing, unless otherwise agreed in writing by
Shareholder and Company.
2.12 OTHER CONTRACTS. Except for the agreements listed in
Exhibit "J" hereto, copies of which have been furnished or made available to
Buyer, Corporation is not a party to, nor is the property of Corporation bound
by, any distributor's or manufacturer's representative or agency agreement; any
output or requirements agreement; any agreement not entered into in the ordinary
course of business; any indenture, mortgage, deed of trust, or lease; or any
agreement that is not customary in nature, duration, or amount (including any
agreement requiring the performance by Corporation of any obligation for a
period of time extending beyond one year from Closing Date or calling for
consideration of more than $2,500). Except as set forth in Exhibit "J" to this
Agreement, there is no default or event that, with notice or lapse of time or
both, would constitute a default by Corporation, or to the best of Selling
Parties' knowledge, by any other party to any of said agreements. Corporation
has not received notice that any party to any of said agreements intends to
cancel or terminate any of said agreements or to exercise or not exercise any
options under any of said agreements. Corporation is not a party to, nor is
Corporation's property bound by, any agreement that is materially adverse to the
business, operations, properties, or financial condition of Corporation.
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2.13 COMPLIANCE WITH LAWS.
a. ENVIRONMENTAL. Except as set forth in Exhibit "K"
hereto, to the best of Selling Parties' knowledge, (i) there are no underground
storage tanks located on the real property described in Exhibit "D" in which any
Hazardous Substance (defined below) has been or is being stored, nor has there
been any spill, disposal, discharge, or release of any Hazardous Material into,
upon, from, or over any part of said real property or into or upon ground or
surface water on any part of said real property and (ii) there are no
asbestos-containing materials incorporated into the building or interior
improvements that are part of said real property, or into other assets of
Corporation, nor any electrical transformer or other equipment owned by
Corporation containing PCBs, in violation of any applicable federal, state or
local law, regulation, code or ordinance in effect on the date hereof
(collectively, the "Laws"). Except as set forth in Exhibit "K" hereto,
Corporation has complied in all respects with all environmental protection,
clean-up and/or control laws, and has not been cited at any time for any
violation thereof. There is no pending audit known to Selling Parties or any of
their officers by any federal, state, or local governmental authority with
respect to any groundwater, soil, or air monitoring; the storage, burial,
release, transportation, use or disposal of any Hazardous Substances; or the use
of underground storage tanks by Corporation or otherwise relating to the
facilities or operations of Corporation. Corporation has no agreement with any
third party or federal, state, or local governmental authority relating to any
such environmental matter or any environmental cleanup. For purposes of this
Agreement, a "Hazardous Substance" is any substance regulated, controlled,
defined as hazardous, or which otherwise falls within the scope of any
environmental Laws, or other Laws regarding the public health and safety.
b. OSHA. Corporation has complied in all respects
with all requirements of the Occupational Safety and Health Act and its
California equivalents, and all regulations promulgated under any such
legislation, the consequences of a violation of which could have a material
adverse effect on Corporation's operations, and with all orders, judgments, and
decrees of any tribunal under such legislation that apply to Corporation's
business, operations or facilities.
c. FOREIGN. Corporation is not in violation of any
provision of the Export Administration Amendments of 1977 or the Foreign Corrupt
Practices Act of 1977. Corporation has not directly or indirectly paid or
delivered any fee, commission, or other money or property, however
characterized, to any finder, agent, government official, or other party, in the
United States or any other country, that is in any manner related to the
business or operations of Corporation that Shareholder or Corporation knows or
has reason to believe to have been illegal or not accurately reflected on the
books and records of Corporation.
d. GENERAL. Corporation has complied in all material
respects with, and is not in violation of, any other laws (including any
applicable building, zoning, or health and safety laws).
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2.14 LITIGATION. Except as set forth in Exhibit "L", there
is not pending, or, to the best knowledge of Selling Parties, threatened, any
suit, action, arbitration, or legal, administrative, or other proceeding, or
governmental investigation against or affecting Corporation or any of its
business, assets, operations or financial condition. The matters set forth in
Exhibit "L", if decided adversely to Corporation, will not result in a material
adverse change in the business, assets, operations or financial condition of
Corporation. Selling Parties have furnished or made available to Buyer copies of
all relevant court papers and other documents relating to the matters set forth
in Exhibit "L". Corporation is not in default with respect to any order, writ,
injunction, or decree of any federal, state, local, or foreign court,
department, agency, or instrumentality. Except as set forth in Exhibit "L",
neither Corporation nor Shareholder presently is engaged in any legal action to
recover monies due to or damages sustained by Corporation.
2.15 AGREEMENT WILL NOT CAUSE BREACH OR VIOLATION. Except as
set forth in Exhibit "M" to this Agreement, the consummation of the transactions
contemplated by this Agreement will not result in or constitute: (i) a breach of
any term or provision of this Agreement; (ii) a default or an event that, with
notice or lapse of time or both, would be a default, breach, or violation of the
articles of incorporation or bylaws of Corporation or any lease, license,
promissory note, sales contract, conditional sales contract, commitment,
indenture, security agreement, mortgage, deed of trust, or other agreement,
instrument, or arrangement to which Shareholder or Corporation is a party or by
which either of them or the property of either of them is bound, (iii) an event
that would permit any party to terminate any agreement or to accelerate the
maturity of any indebtedness or other obligation of Corporation; or (iv) the
creation or imposition of any lien, charge, or encumbrance on any of
Corporation's properties or other assets.
2.16 AUTHORITY AND CONSENTS. Selling Parties have the right,
power, legal capacity, and authority to enter into, and perform their respective
obligations under, this Agreement. No approvals or consents of any persons other
than Selling Parties are necessary in connection therewith. The execution and
delivery of this Agreement by Corporation has been duly authorized by all
necessary corporate action.
2.17 RELATED INTERESTS. Except as set forth in Exhibit "N",
neither Shareholder, nor any officer, director, or employee of Shareholder or
Corporation, nor any spouse or child of any of them has any direct or indirect
interest in any competitor, supplier, or customer of Corporation, or in any
person from whom or to whom Corporation leases any real or personal property, or
in any other person with whom Corporation is doing business.
2.18 CORPORATE DOCUMENTS. Selling Parties have furnished to
Buyer for its examination (i) copies of the articles of incorporation and bylaws
of Corporation; (ii) the minute books of Corporation containing all records
required to be set forth of all proceedings, consents, actions, and meetings of
the shareholders and board of directors of Corporation; (iii) all permits,
orders, and consents issued by the California Commissioner of Corporations with
respect to Corporation, or any securities of Corporation, and all applications
for such permits,
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orders, and consents; and (iv) the stock transfer books of Corporation setting
forth all transfers of any capital stock and copies of all share certificates
representing shares currently issued and outstanding.
2.19 PERSONNEL.
a. IDENTIFICATION AND COMPENSATION. Exhibit "O" is a
list of the names and addresses of all officers, directors, key employees,
agents, and manufacturer's representatives of Corporation, stating the rates of
compensation payable to each and their respective benefit packages, if any.
b. EMPLOYMENT CONTRACTS AND BENEFITS. Exhibit "P" to
this Agreement is a list of all employment contracts and collective bargaining
agreements, and all pension, bonus, profit-sharing, stock option, or other
agreements or arrangements providing for employee remuneration or benefits to
which Corporation is a party or by which Corporation is bound. All said
contracts and arrangements are in full force and effect, and neither Corporation
nor any other party is in default under any of them. There have been no claims
of defaults and, to the best knowledge of Selling Parties, there are no facts or
conditions that if continued, or on delivery of notice, would result in a
default under said contracts or arrangements. There is no pending or, to Selling
Parties' knowledge, threatened labor dispute, strike, or work stoppage affecting
Corporation's business or operations. Corporation's employees are not unionized,
and to Selling Parties' knowledge, none of Corporation's employees are seeking
unionization. Corporation has complied with all applicable laws for each of
their respective employee benefit plans, including the provisions of the
Employee Retirement Income Security Act (ERISA) if and to the extent applicable.
There are no threatened or pending claims by or on behalf of any such benefit
plan, by or on behalf of any employee covered under any such plan, or otherwise
involving any such benefit plan, that allege a breach of fiduciary duties or
violation of other applicable state or federal law; nor is there, to Selling
Parties' knowledge, any basis for such a claim. Except as set forth in Exhibit
"Q", Corporation has not entered into any severance or similar arrangement in
respect of any present or former employee that will result in any obligation,
absolute or contingent, of Buyer or Corporation to make any payment to any
present or former employee following termination of employment.
2.20 AUTHORITY. Exhibit "R" lists (i) the names and
addresses of all persons holding a power of attorney on behalf of Corporation,
and (ii) the names and addresses of all banks or other financial institutions in
which Corporation has an account, deposit, or safe deposit box, along with the
names of all persons authorized to draw on said accounts or deposits or to have
access to said boxes.
2.21 FULL DISCLOSURE. None of the representations and
warranties made by Shareholder and/or Corporation, or made in any certificate or
memorandum furnished or to be furnished to Buyer by Shareholder and/or
Corporation pursuant to an express provision of this Agreement, contains or will
contain any untrue statement of a material fact, or omits or will omit any fact
or facts necessary to make the statements made, in light of the circumstances
under which they were made, not misleading.
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3. REPRESENTATIONS AND WARRANTIES - BUYER
As a material inducement to Selling Parties' entering into this
Agreement and consummating the transaction set forth herein, Buyer represents
and warrants that:
3.1 ORGANIZATION. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
California. The execution and delivery of this Agreement, and the consummation
of the transactions set forth herein, by Buyer have been duly authorized, and no
further corporate authorization is necessary on the part of Buyer.
3.2 CONSENTS. No consent, approval, or authorization of, or
declaration, filing, or registration with, any federal or state governmental or
regulatory authority is required to be made or obtained by Buyer in connection
with the execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement.
3.3 INVESTMENT PURPOSES. Buyer is purchasing the Shares for
investment purposes only, and not with any present intention of reselling or
distributing the Shares.
4. SELLING PARTIES' OBLIGATIONS BEFORE CLOSING
Selling Parties covenant that from the date of this Agreement
until the Closing:
4.1 BUYER'S ACCESS. Buyer and its counsel, accountants, and
other representatives shall have full access during normal business hours to all
properties, books, accounts, records, contracts, and documents of or relating to
Corporation. Selling Parties shall furnish or cause to be furnished to Buyer and
its representatives all data and information concerning the business, finances,
and properties of Corporation which may be requested by Buyer. Buyer reasonably
shall cooperate with Shareholder in its exercise of its rights under this
Paragraph 4.1 so as to minimize any interference with the operations of
Corporation.
4.2 CONDUCT OF BUSINESS. Selling Parties shall (i) carry on
Corporation's business and operations diligently and in the same manner as prior
to the date hereof, (ii) not make or institute any unusual or novel methods of
manufacture, purchase, sale, lease, management, accounting, bidding or operation
that vary from those historically used by Corporation, (iii) not collect any of
Corporation's receivables in a manner inconsistent with historical practices,
and (iv) preserve Corporation's relationships with suppliers, customers, and all
others with whom Corporation does business. Selling Parties shall continue to
act and perform as set forth in the prior sentence up to and through the Closing
Date.
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4.3 CORPORATE MATTERS. Corporation shall not (i) amend its
articles of incorporation or bylaws; (ii) issue any shares of its capital stock;
(iii) issue or create any warrants, obligations, subscriptions, options,
convertible securities, or other commitments under which any additional shares
of its capital stock of any class might be directly or indirectly authorized or
issued; or (iv) agree to do any of the acts listed above.
4.4 EMPLOYEES AND COMPENSATION. Corporation shall not do,
nor agree to do, any of the following acts: (i) change any compensation payable
or to become payable to any officer, employee, sales agent, or representative of
Corporation, except for compensation increases pursuant to Corporation's normal
schedules as set forth on Exhibit "S" hereto; (ii) make any change in benefits
payable to any officer, employee, sales agent, or representative under any
benefit, bonus or pension plan or other contract or commitment; or (iii) modify
any collective bargaining agreement to which Corporation is a party or by which
it may be bound.
4.5 NEW TRANSACTIONS. Corporation shall not do or agree to
do, without Buyer's prior written consent, any of the following acts:
(a) Enter into any contract, commitment, or
transaction not in the usual and ordinary course of its business, or which has a
duration in excess of six months, and which obligates Corporation to pay an
aggregate amount in excess of $25,000, or to produce its products at a margin
that is below the margin historically realized by Corporation for sales to the
same or similar customers for the same or similar products;
(b) Make any capital expenditures in excess of $10,000
for any single item or $50,000 in the aggregate, or enter into any leases of
capital equipment or property under which the annual lease charge is in excess
of $25,000; or
(c) Sell or dispose of any capital assets with a net
book value exceeding $5,000, individually, or $25,000 in the aggregate.
4.6 DIVIDENDS, DISTRIBUTIONS, AND ACQUISITIONS. Corporation
shall not: (i) declare, set aside, or pay any dividend or make any distribution
in respect of its capital stock; (ii) directly or indirectly purchase, redeem,
or otherwise acquire any shares of its capital stock; or (iii) enter into any
agreement obligating it to do any of the foregoing.
4.7 PAYMENT OF LIABILITIES AND WAIVER OF CLAIMS.
Corporation shall not do, or agree to do, any of the following: (i) pay any
obligation or liability, fixed or contingent, other than current liabilities,
(ii) waive or compromise any right or claim; or (iii) cancel, reduce or extend
the time for payment or performance of any note, loan, or other obligation owing
to Corporation.
4.8 EXISTING AGREEMENTS. Corporation shall not modify,
amend, cancel, or terminate any of its existing contracts or agreements, or
agree to do any of those acts.
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4.9 CONSENTS OF OTHERS. As soon as reasonably practical
after the execution and delivery of this Agreement, and in any event on or
before the Closing Date, Selling Parties shall obtain all consents
(collectively, the "Consents") required to consummate the transactions set forth
herein in compliance with all applicable laws, rules and regulations, this
Agreement and all other agreements, contracts and leases to which Corporation
and/or Shareholder is a party (including all change of control provisions).
Selling Parties will furnish to Buyer executed copies of the Consents. Buyer
shall use its best efforts promptly to execute and deliver any documents and
instruments that may be reasonably required in order to assist Selling Parties
in obtaining such consents; provided, however, that Buyer shall not be obligated
under this Paragraph 4.9 to execute any guaranty, assumption of liability, or
other document or instrument requiring it to assume obligations not contemplated
by this Agreement.
5. INFORMATION TO BE HELD IN CONFIDENCE
Buyer agrees that unless and until the Closing, Buyer and its
officers, directors, and other representatives will hold in strict confidence,
and will not use to the detriment of Shareholder or Corporation any confidential
information regarding Corporation or its operations obtained by Buyer in
connection with this Agreement or the transaction contemplated herein. If the
transactions contemplated herein are not ultimately consummated, Buyer will
return to Selling Parties all copies of information provided by Selling Parties
to Buyers, and will continue to hold all information derived therefrom in
confidence and refrain from using such information and knowledge to the
detriment of the Selling Parties.
6. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
The obligations of Buyer to purchase the Shares under this
Agreement are subject to the satisfaction, at or before the Closing, of all the
conditions set forth below in this Paragraph 6. Buyer may waive any or all of
these conditions in whole or in part without prior notice; provided, however,
that no such waiver of a condition shall constitute a waiver by Buyer of any of
its other rights or remedies, at law or in equity, if Shareholder or Corporation
shall be in default of any of their respective or joint representations,
warranties, or covenants under this Agreement.
6.l ACCURACY OF REPRESENTATIONS AND WARRANTIES. Except as
otherwise permitted by this Agreement, all representations and warranties by
each or both of Selling Parties in this Agreement, or in any written statement
that shall be delivered to Buyer by either of them under this Agreement, shall
be true on and as of the Closing Date.
6.2 PERFORMANCE BY SELLING PARTIES. Selling Parties each
shall have performed, satisfied, and complied with all covenants, agreements,
and conditions required by this Agreement to be performed or complied with by
either or both of them on or before the Closing Date.
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6.3 NO MATERIAL ADVERSE CHANGE. Since July 31, 1996, there
shall not have been any adverse change in the financial condition or the
operations of Corporation, and Corporation shall not have sustained any material
loss or damage to its business or assets, whether or not insured.
6.4 ABSENCE OF LITIGATION. No action, suit, or proceeding
before any court or any governmental body or authority, pertaining to this
Agreement and the transaction set forth herein, or to its consummation, or
against you, Corporation or any assets of Corporation shall have been instituted
or threatened on or before the Closing Date.
6.5 FINANCIAL POSITION. Corporation's financial position as
reflected on its balance sheet dated July 31, 1996, of the Financial Statements
shall not have suffered any material adverse change, or change outside of
Corporation's ordinary course of business, prior to the Closing Date.
6.6 SHAREHOLDER APPROVAL. The execution, delivery and
performance of this Agreement by Shareholder shall have been duly authorized by
all necessary corporate action, and Buyer shall have received copies of all
resolutions pertaining to that authorization, certified by the secretary of
Shareholder.
6.7 CONSENTS. Selling Parties shall have obtained the
Consents and delivered to Buyer copies thereof.
6.8 APPROVAL OF DOCUMENTATION. The form and substance of
all certificates, instruments, opinions, and other documents delivered to Buyer
under this Agreement shall be satisfactory to Buyer and its counsel.
6.9 RESIGNATIONS. Selling Parties shall have delivered to
Buyer written resignations of all officers and directors of Corporation
requested by Buyer, and shall have caused any other action to be taken with
respect to said resignations that Buyer reasonably may request.
6.10 DELIVERIES. Shareholder shall have made the deliveries
set forth in Paragraph 8.3 hereof.
7. CONDITIONS PRECEDENT TO SELLING PARTIES' PERFORMANCE
The obligations of Shareholder to sell and transfer the Shares,
and of Corporation to perform its obligations, under this Agreement are subject
to the satisfaction, at or before the Closing, of all the following conditions.
Shareholder may waive any or all of these conditions in whole or in part without
prior notice; provided, however, that no such waiver of a condition shall
constitute a waiver by Shareholder of any of its other rights or
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remedies, at law or in equity, if Buyer should be in default of any of its
representations, warranties, or covenants under this Agreement.
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties by Buyer contained in this Agreement or in any
written statement delivered by Buyer under this Agreement shall be true on and
as of the Closing Date as though such representations and warranties were made
on and as of that date.
7.2 BUYER'S PERFORMANCE. Buyer shall have performed and
complied with all of its covenants and agreements, and satisfied all of its
conditions, set forth in this Agreement that it is required by this Agreement to
perform, comply with, or satisfy on or before the Closing.
7.3 BUYER'S CORPORATE APPROVAL. The execution, delivery and
performance of this Agreement by Buyer shall have been duly authorized by all
necessary corporate action.
7.4 ABSENCE OF LITIGATION. No action, suit, or proceeding
before any court or any governmental body or authority, pertaining to this
Agreement or the transactions set forth herein or the consummation thereof,
shall have been instituted or threatened on or before the Closing Date.
7.5 DELIVERIES. Buyer shall have made the deliveries set
forth in Paragraph 8.4 hereof.
8. THE CLOSING
8.1 TIME AND PLACE. The transfer of the Shares by
Shareholder to Buyer, and of all other documents and monies required to be
transferred pursuant to the terms hereof (the "Closing"), shall take place at
Hawker Pacific's Sun Valley offices at 12:00 noon local time, on November 25,
1996, or at such other time and place as the parties may agree (the "Closing
Date").
8.2 EFFECTIVE DATE. Regardless of the Closing Date, the
Closing shall be effective as of November 1, 1996 (the "Effective Date"). Upon
the Closing, all of Corporations operations on and after the Effective Date
shall be considered for all purposes as though the transaction set forth herein
had been consummated at 12:01 a.m. on the Effective Date, except as specifically
stated to the contrary in this Agreement.
8.3 SELLING PARTIES' OBLIGATIONS AT CLOSING. At the
Closing, Shareholder shall deliver to Buyer the following instruments, in form
and substance satisfactory to Buyer and its counsel:
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(a) A certificate or certificates representing the
Shares, registered in the name of Shareholder, duly endorsed by Shareholder for
transfer or accompanied by an assignment of the Shares duly executed by
Shareholder. On submission of that certificate or certificates to Corporation
for transfer, Corporation shall issue to Buyer a certificate representing the
Shares, registered in Buyer's name;
(b) The stock books, stock ledgers, minute books, and
corporate seals of Corporation;
(c) An opinion of Selling Parties' counsel, Peter M.
Kent, dated as of the Closing Date, in form and substance as attached hereto as
Exhibit "T";
(d) a noncompetition agreement executed by
Shareholder, in form and substance as attached hereto as Exhibit "U";
(e) The written resignations of all officers and
directors of Corporation pursuant to Paragraph 6.9 hereof;
(f) An Environmental Indemnity Agreement (the
"Indemnity") executed by BTR, in form and substance as attached hereto as
Exhibit "V", dated as of the Closing Date; and
(g) Certified resolutions of Shareholder's board of
directors, in form satisfactory to counsel for Buyer, authorizing the execution
and performance of this Agreement and all actions to be taken by Buyer under
this Agreement.
8.4 BUYER'S OBLIGATIONS AT CLOSING. At the Closing, Buyer
shall deliver to Shareholder the following:
(a) A wire transfer or transfers in the aggregate
amount of Twenty-Nine Million Two Thousand Eight Hundred Sixty-One Dollars and
00/100 ($29,002,861.00) to an account designated by Shareholder (Shareholder
hereby acknowledges receipt of Eight Hundred Thousand Dollars ($800,000)
previously disbursed to Shareholder by Buyer); and
(b) Certified resolutions of Buyer's board of
directors, in form satisfactory to counsel for Selling Parties, authorizing the
execution and performance of this Agreement and all actions to be taken by Buyer
under this Agreement.
9. OBLIGATIONS AFTER CLOSING
9.1 SELLER'S INDEMNITY. Subject to Paragraph 9.3 hereof,
Shareholder and BTR jointly and severally shall indemnify, defend, and hold
harmless Corporation and Buyer against and in relation to any and all claims,
demands, actions, causes of action, losses, costs, expenses, obligations,
liabilities, damages, recoveries, and deficiencies, including
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interest, penalties, and reasonable attorneys' fees and costs (collectively, the
"Losses"), that either or both may incur or suffer, which arise, result from, or
relate to (i) any breach by Shareholder of any of its representations or
warranties, and/or the failure of either or both of Selling Parties to perform
any of their respective covenants or agreements, set forth in this Agreement or
in any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by Selling Parties under this Agreement, (ii) without in any way
limiting the foregoing, (a) any tax, employment or other governmental audit or
investigation of Corporation in relation to its activities and operations prior
to the Closing Date, and/or any non-payment or improper payment by either of
Selling Parties of any taxes or fees owed by Corporation or Shareholder prior to
the Closing Date, and/or (b) any litigation existing prior to the Closing Date,
or arising in relation to matters which occurred prior to the Closing Date. Any
amounts due Buyer pursuant to this Paragraph 9.3 promptly shall be paid by
Shareholder.
9.2 INDEMNITY OF SHAREHOLDER. Buyer and Corporation jointly and
severally shall indemnify, defend, and hold harmless Shareholder against and in
relation to any and all Losses that Shareholder may incur as a result of (i)
Corporation's operations after the Closing, (ii) Buyer's failure to perform any
covenant or agreement set forth herein, (iii) Corporation's failure to pay after
the Closing Date any liabilities included in Corporation's balance sheet dated
as of October 31, 1996, or any other liabilities of Corporation existing on or
after the Closing date, unless specifically agreed to be paid by Shareholder
pursuant to this Agreement, the Indemnity or any other agreement referenced
herein or (iv) Buyer's breach of its representations and warranties set forth
herein. Any Losses arising in relation to Shareholder's negligence or willful
misconduct are excluded from Shareholder's indemnity coverage under this
Paragraph 9.4.
9.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
Except for Shareholder's representations and warranties in Paragraph 2.13.a.
hereof, each of the representations and warranties made by Shareholder and Buyer
in this Agreement shall survive for a period of three (3) years after the
Closing Date, on which date they shall terminate. Notwithstanding anything in
this Agreement to the contrary, no action of any type for indemnification or
otherwise with respect to breach of any representation or warranty may be
brought, and the party making such representation or warranty shall have no
obligation with respect thereto, unless written notice thereof specifying with
reasonable particularity the claimed breach shall have been delivered to the
indemnifying party on or before the expiration of the above specified survival
period.
9.4 CLAIMS
a. Either party hereto shall request indemnification for
any particular claim (with respect to such claim, the "Indemnified Party") by
giving the party from whom indemnification is requested (with respect to such
claim, the "Indemnifying Party") written notice within thirty (30) days after
the Indemnified party received notice or knowledge of the matter that gives or
could give rise to a right of indemnification under this Agreement. Such notice
shall state the amount of Losses, if known, and the method of computation
thereof, all with reasonable particularity, and shall contain a reference to the
provisions of this Agreement pursuant to which indemnification is claimed.
Failure of the Indemnified Party to
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give notice within said thirty (30) day period shall not be deemed a waiver of
its rights hereunder except to the extent such failure shall have actually
prejudiced the Indemnifying Party or caused it to incur additional costs,
expenses or liabilities; provided, however, that nothing herein shall extend the
limitations period set forth in Paragraph 9.3 hereof.
b. With respect to any Losses arising from any third party
claim (a "Third Party Claim"), the Indemnified Party shall give the Indemnifying
Party written notice thereof within thirty (30) days after receiving notice of
any Third Party Claim. The Indemnifying Party shall be permitted, at its option,
to participate with counsel of its own choosing and at its expense in the
defense of any such Third Party Claim conducted by the Indemnified Party. If,
however, the Indemnifying Party acknowledges in writing its obligation to
indemnify the Indemnified Party against any Losses that may result from any
Third Party Claim, then the Indemnifying Party shall be entitled, at its option,
to assume and control the defense of such Third Party Claim at its expense and
through counsel of its choice upon giving the Indemnified Party written notice
of its intention to do so, and so long as (i) the Indemnifying Party defends the
Third Party Claim in a continuous, diligent and reasonable manner in light of
the potential consequences thereof on the indemnified party, and (ii) the
Indemnified Party and its operations will not be impacted adversely thereby,
except to the extent necessary to implement a commercially reasonable settlement
with respect to a Third Party Claim (and if said impact is in excess of $5,000,
it shall be considered a part of Losses). If the Indemnifying Party exercises
said right, the Indemnified Party shall make available to the Indemnifying Party
all pertinent records, materials and information in its possession or under its
control as reasonably requested by the Indemnifying Party. Similarly, if the
Indemnified Party is, directly or indirectly, conducting the defense of any
Third Party Claim, the Indemnifying party shall cooperate with the Indemnified
Party and make available to it all such records, materials and information in
the Indemnifying Party's possession or under its control as reasonably requested
by the Indemnified Party. No Third Party Claim may be settled by the
Indemnifying Party without the written consent of the Indemnified Party, not to
be unreasonably withheld; provided, however, that if such settlement involves
the payment of money only and the Indemnified Party is totally indemnified for
such payment and will not suffer any precedential or other adverse effects
therefrom, and the Indemnified Party refuses to consent thereto, the
Indemnifying Party shall cease to be obligated with respect to such Third Party
Claim. The Indemnified Party shall not settle any Third Party Claim which is
being defended in good faith by the Indemnifying Party.
9.5 LIMITATIONS.
9.5.1 DEDUCTIBLE; CEILING. Notwithstanding anything
contained in Sections 9.1 and 9.2 to the contrary, the Indemnified Party shall
not be entitled to bring a claim for any Losses until such time that the Losses,
either individually or in the aggregate, equal or exceed Two Hundred Thousand
Dollars ($200,000). Said limitation shall not apply to (a) Buyer's indemnity
obligation pursuant to clause (iii) of Paragraph 9.2 hereof, or (b)
Shareholder's and BTR's indemnity obligation pursuant to clause (i) of Paragraph
9.1 hereof in relation to the representation and warranty in 2.13.a. hereof. In
no event shall the Indemnifying Party have an obligation to indemnify the
Indemnified Party for any Losses by the Indemnified Party in excess of the
purchase price set forth in Paragraph 1.2 hereof.
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9.5.2 CALCULATION OF LOSSES. The parties shall account
for tax benefits in determining the amount of Losses for purposes of this
Paragraph 9, but not for the purposes of determining whether the threshold has
been met pursuant to Paragraph 9.5.1 hereof.
10. PUBLICITY
All notices and announcements (both written and verbal) to third
parties, including to customers and vendors of Corporation, and all other
publicity concerning the transactions set forth in this Agreement, shall be
jointly planned and mutually agreed to by Buyer and Selling Parties. No party
shall unreasonably withhold its consent to any such notices or announcements.
11. COSTS
11.1 FINDER'S OR BROKER'S FEES. Each party represents that
it has dealt with no broker or finder in connection with this Agreement or the
transactions set forth herein, and no broker or other person is entitled to any
commission or finder's fee in connection with any of these transactions. Selling
Parties and Buyer each shall indemnify, hold harmless and defend the other
against any loss, liabilities, damages, costs, claim, actions, causes of actions
or other expenses incurred by reason of any brokerage, commission, or finder's
fee alleged to be payable because of any act, omission, or statement of the
indemnifying party.
11.2 EXPENSES. Except as set forth in this Agreement to the
contrary, each party hereto shall pay all costs and expenses incurred or to be
incurred by it in negotiating and preparing this Agreement and in negotiating
and consummating the transactions set forth herein.
12. REMEDIES
12.1 SPECIFIC PERFORMANCE AND WAIVER. Each party's
obligation under this Agreement is unique. If any party should default in its
obligations under this Agreement, the parties each acknowledge that it would be
extremely impracticable to measure the resulting damages; accordingly, the
nondefaulting party or parties, in addition to any other available rights or
remedies, may sue in equity for specific performance, and the parties each
expressly waive the defense that a remedy in damages will be adequate.
12.2 TERMINATION. If either Buyer or Selling Parties
default in the due and timely performance of any of its or their
representations, warranties, covenants, or agreements set forth in this
Agreement, the nondefaulting party or parties may on the Closing
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Date give notice of termination of this Agreement, in the manner provided in
Paragraph 13.1 hereof. Said notice shall specify with particularity the default
or defaults on which the notice is based. Such termination shall be effective
upon receipt thereof by the defaulting party or parties.
13. GENERAL PROVISIONS
13.1 NOTICES. All notices and other communications
pertaining hereto shall be in writing and shall be deemed to have been given
when delivered personally, or one day after being sent by facsimile machine,
with printed receipt of confirmation, or two days after being sent overnight
courier, postage prepaid, to the following addresses or to such other address or
addresses as any of the parties hereto may from to time in writing designate
hereunder:
To Shareholder:
BTR, Inc.
333 Ludlow Street
Stamford, Connecticut 06902
Attention: Peter M. Kent, Esq.
To Buyer:
c/o Unique Investment Corporation
1831 South Ritchey Street
Santa Ana, California 92705
Facsimile: (714) 258-2040
Attention: Daniel J. Lubeck
13.2 TIME. Time is the essence in this Agreement with
respect to every provision in which time is a factor.
13.3 ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties hereto pertaining to the subject matter hereof, fully
supersedes all prior agreements, understandings or discussions between the
parties hereto pertaining to the subject matter hereof, and no change in,
modification of or addition, amendment or supplement hereto shall be valid
unless set forth in writing signed and dated by each of the parties hereto
following the signing of this Agreement. None of the parties hereto has executed
this Agreement in reliance upon any promise, representation, warranty, covenant
or agreement not expressly set forth in this Agreement.
13.4 SURVIVAL. All statements contained in this Agreement;
exhibits to this Agreement; instruments, certificates and opinion provided in
relation to this Agreement; shall be deemed incorporated into this Agreement
and, as applicable, to be representations and warranties under this Agreement.
All representations and warranties made in relation to this
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Agreement shall be true and correct as of the Effective Date and Closing Date,
and shall survive the Closing. All indemnity obligations and other covenants and
agreements of the parties hereto shall survive the Closing and shall be
continuing, valid and enforceable obligations after the Closing.
13.5 APPLICABLE LAW. The existence, validity, construction
and operational effect of this Agreement, and the respective rights and
obligations of each of the parties hereto, shall be determined in accordance
with the laws of the State of California. In addition:
a. INVALIDITY. In the event any provision of this
Agreement is found to be prohibited by law or is otherwise held invalid, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and shall not invalidate or otherwise render ineffective any or all
of the remaining provisions of this Agreement.
b. EQUAL DRAFTING. This Agreement shall be construed
as if equally drafted by each of the parties hereto.
c. NO PARTNERSHIP RELATIONSHIPS. Neither this
Agreement nor any other document shall be construed as creating a partnership
relationship between or among the parties hereto.
d. NO IMPLIED WAIVERS. The failure of any of the
parties hereto to insist at any time upon the strict performance of any
provision of this Agreement or to act upon or exercise any right or remedy
available or possibly available to such party or parties, whether hereunder,
under any other document, at law or in equity, shall not be interpreted as a
waiver or a relinquishment of any such provision, right or remedy unless
specifically expressed in writing signed by such party or parties and no payment
hereunder or otherwise shall constitute any such writing.
e. PARTIES. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the parties hereto and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
party to this Agreement, nor shall any provision hereof give any third persons
any right of subrogation or action over or against any party to this Agreement.
13.6 ATTORNEYS FEES. In the event of any dispute or
disagreement between the parties hereto concerning the subject matter hereof,
including the interpretation of any provision or term hereof and the
determination of whether a dispute exists hereunder, any and all expenses,
including attorneys' and accountants' fees and costs, reasonably incurred by the
prevailing party in relation to such dispute or disagreement shall be paid by
the nonprevailing party.
13.7 FURTHER ASSURANCES. Except as otherwise expressly
provided hereunder, each of the parties hereto, without further consideration,
does hereby covenant and
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13.10 SUCCESSORS. This Agreement shall be binding upon and
shall inure to the benefit of the successors and assigns of the parties hereto.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on
the 27th day of November, 1996.
BTR DUNLOP, INC.
a Delaware corporation
By: illegible
-----------------------------------------------
Name:
----------------------------------------
Its:
--------------------------------------
BTR, INC.
a Delaware corporation
By: illegible
-----------------------------------------------
Name:
----------------------------------------
Its:
--------------------------------------
HAWKER PACIFIC, INC.
a California corporation
By: /s/ David L. Lokken
-----------------------------------------------
David L. Lokken
President
AQHAWK, INC.
a California corporation
By: /s/ Daniel J. Lubeck
-----------------------------------------------
Daniel J. Lubeck
President
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ENVIRONMENTAL INDEMNITY AGREEMENT
THIS ENVIRONMENTAL INDEMNITY AGREEMENT (the "Agreement") is made
and effective as of this 27 day of November, 1996 by and among BTR DUNLOP, INC.,
a Delaware corporation ("Indemnitor"), AQHAWK, INC., a California corporation
("Indemnitee"), and HAWKER PACIFIC, INC. a California corporation ("Company").
RECITALS
WHEREAS, pursuant to that certain Agreement for the Purchase and
Sale of Stock (the "Purchase Agreement") dated as of the date hereof by and
among the parties hereto, Indemnitee purchased one hundred percent (100%) of the
issued and outstanding stock of Company. Said stock purchase was effective as of
12:01 a.m. November 1, 1996 (the "Effective Date").
WHEREAS, as a material part of the consideration and value
delivered by Indemnitor in said stock purchase, and as a material inducement to
Indemnitee to enter into the Purchase Agreement and consummate said stock
purchase, Indemnitor desires to indemnify, defend and hold harmless Indemnitee
and Company as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged and agreed to, the parties hereto
agree as follows:
1. Indemnity
Indemnitor shall indemnify, defend, and hold harmless Indemnitee
and Company, and their respective officers, directors, shareholders, employees
and agents from, against and in relation to any and all claims, demands,
actions, causes of action, losses of any type or nature, costs, expenses,
obligations, liabilities, damages, recoveries, and deficiencies, including
interest, penalties and reasonable attorneys', accountants' and other
professionals' fees and costs, (collectively, the "Losses") that either or both
may suffer or incur which arise, result from, or relate in any way to any third
party Claim (as defined below) arising, resulting from or in any way relating to
the existence, manufacture, processing, distribution, use, treatment, storage
(whether in underground storage tanks or otherwise), disposal, transport,
handling, emission, discharge, or release of any Hazardous Materials (as defined
below) on, around, in or originating in whole or part from any property upon
which any of Company's operations are or at any time were located, or for which
Company or Indemnitee otherwise could be found liable or responsible in any way.
As used herein, the term "Hazardous Materials" shall mean any substance or
material (i) the presence of which requires investigation or remediation under
any applicable law; (ii) that is defined as a "hazardous waste" or "hazardous
substance" under any applicable law; (iii) that is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous, or registered as such by any applicable authority; (iv) the presence
of which causes a nuisance to adjacent properties or poses a threat to the
health or safety of others; (v) the presence of which on adjacent properties
constitutes a trespass; and/or (vi) that is or contains gasoline, diesel fuel or
other petroleum hydrocarbons, polychlorinated biphenols or asbestos.
Indemnitor's obligations pursuant to this Paragraph 1 shall be limited to Losses
arising, resulting from or in
<PAGE>
any way relating to Hazardous Materials which, as they existed on or prior to
the Effective Date, could give rise to a Claim. For purposes of this Agreement,
"Claim" shall mean any private, public, governmental, regulatory or
administrative claim, action, suit, investigation and/or other proceeding
initiated by any entity not affiliated with Indemnitee or Company or their
predecessors in interest.
2. San Fernando Valley Basin Actions
The parties hereto acknowledge and agree that there currently are
various actions (collectively, the "SFVB Actions") relating to contamination
located in the San Fernando Valley Basin; including actions filed in or about
October 1993 by the United States of America and the State of California naming
Company and other defendants. Indemnitor acknowledges and agrees that the SFVB
Actions and all matters related thereto are fully covered within the scope of
Paragraph 1 hereof. Without otherwise limiting in any way Indemnitor's
obligations under Paragraph 1 hereof, Company agrees to pay those certain
existing and known settlement payments for SFVB Actions described in Exhibit "A"
hereto (collectively, the "Settlements") in an aggregate amount not to exceed
Six Hundred Fifty-Seven Thousand Dollars ($657,000), plus an additional One
Hundred Seventy-Four Thousand Five Hundred Dollars ($174,500). Should Company's
payment obligations in relation to the Settlements exceed said maximum amount,
Indemnitor shall be responsible for such excess. Except for Company's payment of
the Settlements, nothing in this Paragraph 2 is intended to nor shall be
interpreted as limiting any other obligations of Indemnitor in relation to the
Settlements, the SFVB Actions or otherwise, including the ongoing timely payment
of attorneys' fees and costs pursuant to Paragraph 3 below.
3. Thresholds
Indemnitee and/or Company may assert claims of any size under
Paragraph 1 hereof in relation to any matters known to have existed on or prior
to the Effective Date, including the SFVB Actions. Any other claims asserted by
Indemnitee or Company hereunder must be in an amount not less than Ten Thousand
Dollars ($10,000), but may be comprised of two or more claims which individually
are less than said amount. Notwithstanding the foregoing, to the extent any
claim asserted under Paragraph 1 hereof will require the retention and ongoing
use of attorneys and/or other professionals, then Indemnitor promptly shall
retain and timely shall pay the invoices of said attorneys and/or other
professionals regardless of whether any invoice thereof meets the minimum amount
required under this Paragraph 3.
4. Mechanics
a. If either of the indemnified parties hereunder receives
notice of any threatened or pending Claim which may give rise to a claim for
indemnification hereunder then the indemnified party promptly shall notify
Indemnitor thereof in writing; provided, however, that no delay on the part
of the indemnified party in so notifying shall relieve Indemnitor from
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any obligation hereunder unless, and solely to the extent that, Indemnitor is
prejudiced by such delay.
b. Indemnitor shall have the right to chose counsel for and
manage the defense of any Claim so long as (I) Indemnitor notifies the
indemnified party or parties in writing, within fifteen (15) days after
Indemnitor's receipt of notice of the Claim, that Indemnitor fully will
indemnify the indemnified party pursuant to the terms hereof, and (ii)
Indemnitor manages defense of the Claim actively, diligently and in a reasonable
manner in light of the potential consequences thereof on the indemnified party.
c. So long as Indemnitor is conducting the defense of any Claim
in accordance with Paragraph 4.b. above, neither Indemnitor nor the indemnified
party shall consent to the entry of any judgment nor enter into any settlement
with respect to any Claim without the prior written consent of the other, not to
be unreasonably withheld or delayed.
d. In the event Indemnitor fails to satisfy any of the conditions
set forth in Paragraph 4.b. above, then the indemnified party may defend against
the subject Claim with counsel of its choice, and consent to the entry of any
judgment or enter into any settlement with respect to said Claim as it
reasonably may deem appropriate.
e. Indemnitor timely shall pay all obligations hereunder,
including attorneys' and other professionals' fees and costs, on an ongoing
basis consistent with Paragraph 3 above. To the extent Indemnitor fails timely
to pay any amounts required hereunder, either indemnified party, at its option,
shall have the right to pay the amounts on behalf of Indemnitor. In such event,
the amounts so advanced shall be obligations of Indemnitor hereunder to the
paying indemnified party, and shall bear interest at a rate equal to the lesser
of fifteen percent (15%) per annum or the highest rate allowed by law.
f. The indemnified parties reasonably will cooperate with
Indemnitor in the defense of any Claim and in connection with any settlement or
other action that might be required in relation thereto.
5. Insurance Coverage
Indemnitor shall have the first right to seek and collect
reimbursement under any applicable insurance in relation to any Claim. Said
right of Indemnitor shall include payment for amounts paid by Company pursuant
to Paragraph 2 hereof; provided, however, that (i) in the event Indemnitor
elects in writing not to pursue any such reimbursement or coverage and
Indemnitor shall not be prejudiced thereby, either of the indemnified parties
shall have the right to do so at its own expense, and to retain any proceeds
collected therefrom, and (ii) in the event (x) Indemnitor is fully reimbursed
for all losses incurred in connection with the SFVB Actions, or is fully
reimbursed except for an amount not in excess of $174,500, and (y) Company has
paid more than $657,000 in connection with the SFVB Actions, then Indemnitor
shall pay Company the lesser of (A) $174,500, (B) $174,500 minus the amount for
which Indemnitor was not reimbursed, or (C) the amount in excess of $657,000
paid by Company. Company and Indemnitor covenant and agree reasonably to assist
each other in relation to
3
<PAGE>
collecting under any insurance policy, including providing any information the
other may have and assigning the subject claim if assignable and deemed
necessary or helpful.
6. Miscellaneous
6.1 NOTICES. All notices and other communications pertaining
hereto shall be in writing and shall be deemed to have been given when delivered
personally, or one day after being sent by facsimile machine, with printed
receipt of confirmation, or two days after being sent overnight courier, postage
prepaid, to the following addresses or to such other address or addresses as any
of the parties hereto may from to time in writing designate hereunder:
To Company:
11310 Sherman Way
Sun Valley, California 91352
Facsimile: (818) 765-2416
Attention: David L. Lokken, President
To Indemnitee:
c/o Unique Investment Corporation
1831 South Ritchey Street
Santa Ana, California 92705
Facsimile: (714) 258-2040
Attention: Daniel J. Lubeck, President
To Indemnitor:
333 Ludlow Street
Stamford, Connecticut 06902
Facsimile: (203) 324-0503
Attention: Peter M. Kent, Esq.
with a copy to:
BTR Aerospace Group
200-1780 Wellington Avenue
Winnipeg, MB Canada R3H 1B3
Facsimile: (204) 786-8610
Attention: Robert Hamaberg
6.2 TIME. Time is the essence in this Agreement with respect to
every provision in which time is a factor.
6.3 ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties hereto pertaining to the subject matter hereof, fully
supersedes all prior
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agreements, understandings or discussions between the parties hereto pertaining
to the subject matter hereof, and no change in, modification of or addition,
amendment or supplement hereto shall be valid unless set forth in writing signed
and dated by each of the parties hereto following the signing of this Agreement.
None of the parties hereto has executed this Agreement in reliance upon any
promise, representation, warranty, covenant or agreement not expressly set forth
in this Agreement.
6.4 SURVIVAL. The obligations of Indemnitor herein shall survive
and continue indefinitely.
6.5 SEPARATE OBLIGATION. Indemnitor acknowledges and agrees (I)
that this Agreement is wholly separate from the Purchase Agreement and (ii) that
Indemnitor cannot in any way use or assert any event or breach of any type under
or related to the Purchase Agreement as a defense to performing its obligations
hereunder, and if such a right does exist, that it hereby is wholly waived by
Indemnitor.
6.6 CONSIDERATION/ASSETS
6.6.1 CONSIDERATION. Indemnitor acknowledges and agrees that
it has received full and adequate consideration for its commitment and
performance hereunder regardless of the amount that Indemnitor ultimately may be
required to pay hereunder, and that under no circumstances can Indemnitor use or
assert inadequate consideration as a defense to preforming its obligations
hereunder.
6.6.2 ASSETS. Indemnitor covenants and agrees that it shall
not engage in or be the subject of any reorganization or transaction that
results in the disposition of a substantial portion of its assets not in the
ordinary course of business, unless Indemnitor shall, upon documentation
reasonably acceptable to the indemnified parties and their counsel, substitute
one of its affiliates as Indemnitor hereunder; provided, however, that such
substituted affiliate shall have a tangible net worth not less than that of
Indemnitor immediately prior to such reorganization or transaction.
6.7 APPLICABLE LAW. The existence, validity, construction and
operational effect of this Agreement, and the respective rights and obligations
of each of the parties hereto, shall be determined in accordance with the laws
of the State of California. In addition:
(a) INVALIDITY. In the event any provision of this
Agreement is found to be prohibited by law or is otherwise held invalid, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and shall not invalidate or otherwise render ineffective any or all
of the remaining provisions of this Agreement.
(b) EQUAL DRAFTING. This Agreement shall be construed as if
equally drafted by each of the parties hereto.
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(c) NO PARTNERSHIP RELATIONSHIPS. Neither this Agreement
nor any other document shall be construed as creating a partnership relationship
between or among the parties hereto.
(d) NO IMPLIED WAIVERS. The failure of any of the parties
hereto to insist at any time upon the strict performance of any provision of
this Agreement or to act upon or exercise any right or remedy available or
possibly available to such party or parties, whether hereunder, under any other
document, at law or in equity, shall not be interpreted as a waiver or a
relinquishment of any such provision, right or remedy unless specifically
expressed in writing signed by such party or parties and no payment hereunder or
otherwise shall constitute any such writing.
(e) PARTIES. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties hereto and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision hereof give any third persons any right of
subrogation or action over or against any party to this Agreement.
6.8 ATTORNEYS FEES\JURISDICTION. In the event of any dispute or
disagreement between the parties hereto concerning the subject matter hereof,
including the interpretation of any provision or term hereof, any and all
expenses, including attorneys' and accountants' fees and costs, reasonably
incurred by the prevailing party in relation to such dispute or disagreement
shall be paid by the nonprevailing party. Any such dispute shall be resolved in
Los Angeles, California regardless of the forum.
6.9 FURTHER ASSURANCES. Except as otherwise expressly provided
hereunder, each of the parties hereto, without further consideration, does
hereby covenant and agree to execute such documents, and to take such further
action, as may be necessary to further the purposes of this Agreement and to
otherwise act in good faith and deal fairly hereunder.
6.10 COUNTERPARTS. This Agreement may be executed in several
counterparts and all such executed counterparts together shall constitute one
(1) agreement binding on all of the parties.
6.11 HEADINGS AND GENDER. The section headings used in this
Agreement are intended solely for reference and shall not in any way or manner
amplify, limit, modify or otherwise be used in the interpretation of any of the
provisions hereof. The masculine, feminine and neuter gender, and the singular
or plural number, shall be deemed to include the others whenever the context so
indicates or requires. The term "knowledge" as it applies to a Corporation shall
mean the knowledge of the corporation's officers, directors and key employees.
The term "including" shall be deemed to mean "including, without limitation".
-6-
<PAGE>
6.12 ASSIGNMENT. Indemnitee and Company shall have the right to
assign or otherwise transfer their right, title and interests under this
Agreement. Indemnitor shall not have the right to assign or otherwise transfer
its obligations under this Agreement without the prior written consent of
Indemnitee and Company, which consent shall not be unreasonably withheld or
delayed.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
BTR DUNLOP, INC.
a Delaware corporation
By: /s/ J. S. Thompson
-------------------------------------
Name: J. S. Thompson
------------------------------
Title: President
---------------------------
HAWKER PACIFIC, INC.
a California corporation
By: /s/ David L. Lokken
------------------------------------------
David L. Lokken
President
AQHAWK, INC.
a California corporation
By: /s/ Daniel J. Lubeck
------------------------------------------
Daniel J. Lubeck
President
-7-
<PAGE>
TRADEMARK LICENSE AGREEMENT
This Agreement is dated as of November 27, 1996 between BTR, Inc., a
Delaware corporation ("Licensor"), Aqhawk, Inc., a California corporation
("Aqhawk"), and Hawker Pacific, Inc., a California corporation ("the Company").
WHEREAS, Licensor is the owner, or is an affiliate of the owner, of the
trademark and tradename set forth on SCHEDULE A, as well as various common law
rights in those marks (hereinafter "the Marks"); and
WHEREAS, Licensor and Aqhawk are parties to an Agreement of Purchase and
Sale of Stock of even date herewith (the "Stock Purchase Agreement") whereby
Licensor sold, transferred and assigned to Licensee, and Licensee purchased and
acquired from Licensor all of the issued and outstanding common stock of the
Company; and.
WHEREAS, in accordance with the Stock Purchase Agreement, Licensor desires
to grant to Aqhawk and the Company (collectively the "Licensee"), and Licensee
desires to acquire from Licensor, the sole right and license to use the Marks in
connection with the sale of the products and services identified in SCHEDULE B
hereto (hereinafter the "Covered Products").
NOW, THEREFORE, and in consideration of the mutual promises and covenants
hereinafter contained, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Licensor and Licensee hereby
agree as follows:
I. GRANT OF LICENSE
A. Licensor grants to Licensee, subject to the limitations set forth in
this Agreement, the sole and exclusive, royalty free right and license to use
the Marks in connection with the Covered Products and the non-exclusive right
and license to use the Marks in connection with all other operations of Company.
Licensor and its affiliates retain the non-exclusive right to use the Marks for
all other purposes and to the extent being used on the date hereof other than by
the Company in connection with the Covered Products.
II. USE OF THE MARK
A. Licensee shall use the Hawker name only in conjunction with the word
Pacific (i.e. "Hawker Pacific") and will seek on that basis to distinguish the
products and services sold by Licensee from products and services sold by
Licensor's affiliate Hawker Pacific PTY Limited.
<PAGE>
B. Licensee acknowledges that Licensor or its affiliates own the Marks,
agrees that it will do nothing inconsistent with such ownership and agrees to
reasonably assist Licensor in recording this Agreement with appropriate
government authorities. Licensee agrees that nothing in this License shall give
Licensee any right, title or interest in the Marks other than the right to use
the Marks in accordance with this License and Licensee agrees that it will not
attack the title of Licensor to the Marks or attack the validity of this
License.
C. Licensee shall comply with all applicable laws and regulations and
obtain all appropriate government approvals pertaining to the sale, distribution
and advertising of the Covered Products. Licensee agrees to cooperate with
Licensor in assuring such goods shall conform to such standards.
III. DURATION AND GEOGRAPHIC SCOPE OF LICENSE
A. This License shall be effective as of the date first written above,
(the "Commencement Date"), and shall remain in effect until the date Licensee is
terminated in accordance with this Section III.
B. Should Licensee ever discontinue the use of any Mark with the intent
not to resume such use, this License may be terminated by Licensor upon ninety
(90) days written notice with respect to such Mark, if Licensee shall not have
resumed use of the Mark within such ninety day period. Such intent not to resume
use shall be presumed if the Mark is not used by Licensee for a period of at
least twelve (12) months.
C. Licensor shall have the right to terminate this License with respect
to any Mark upon sixty days written notice to Licensee in the event of any
breach of any provisions of this Agreement with respect to such Mark by
Licensee, if such breach shall be continuing at the end of such sixty day
period.
D. Upon the termination of this Agreement with respect to a Mark or the
termination of this Agreement, Licensee agrees to immediately discontinue all
use of such Mark or Marks, as the case may be, provided however, that in the
event of a termination other than due to a default by Licensee, Licensee may
continue to use the Marks on existing inventory and, to the extent already
marked, on work in progress.
E. The geographic scope of the license granted herein shall be worldwide.
IV. INDEMNIFICATION AND PROTECTION OF THE MARK
A. At the request of Licensee, Licensor shall apply to register any
unregistered marks in the name of Licensor for the Covered Products. Licensor
shall use reasonable commercial efforts to obtain registrations thereof, and
shall maintain such registrations in full force and effect. Licensee shall
cooperate with Licensor to obtain and maintain said registrations. The cost of
obtaining and maintaining said registrations made at Licensee's
2
<PAGE>
request shall be borne by Licensee. Licensor shall only be required to make such
applications if Marks, when used with respect to the Covered Products, are not
adequately protected, as reasonably determined by Licensor, by existing
registrations of Marks. In no event shall Licensee attempt to register any Mark
as used in conjunction with its own name.
B. Licensee shall promptly notify Licensor of any and all infringements,
imitations, simulations or other illegal use or misuse of the Marks which come
to Licensee's attention. As sole owner of the Marks, Licensor shall determine
whether to take any action in the courts, administrative agencies or otherwise
to prevent the infringement, imitation, simulation or other illegal use or
misuse of the Marks; provided that if Licensor elects not to take such action
with respect to the Marks, Licensee shall have the right to take such action at
its expense. In this event, Licensor shall cooperate in such action with
Licensee, at Licensee's expense, and Licensee shall be entitled to any money
damages awarded in connection therewith or, to the extent practicable, the
benefit of any other remedy awarded in connection therewith.
C. Licensee shall, upon request, reasonably assist Licensor in connection
with any matter pertaining to the protection of Marks licensed to Licensee
whether in the courts, administrative or quasi-judicial agencies, or otherwise.
V. REPRESENTATIONS OF LICENSOR
Licensor represents as follows:
A. To its actual knowledge, the Marks do not infringe any rights owned or
possessed by any third party nor, to its actual knowledge, is any third party
infringing the rights of Licensor with respect to the Marks.
B. It has not previously granted rights in the Marks inconsistent with
this Agreement.
C. It has the right and authority to license the use of the Marks as set
forth herein.
VI. AMENDMENT OF AGREEMENT
No Modifications, changes, or additions to this Agreement shall be
effective except by Written amendment executed by both parties hereto.
VII. FORCE MAJEURE
Neither party hereto shall be liable to perform any duty or obligation that
either may have under this Agreement where such failure has resulted from any
act of God, fire, labor dispute or any other cause outside the reasonable
control of the party who had the duty to perform.
3
<PAGE>
VIII. SEVERABILITY
The invalidity of any provision of this Agreement shall not affect the
enforceability of any other provisions of this Agreement. The invalidity of any
provision of this Agreement shall merely render such invalid provision
ineffective.
IX JOINT AND SEVERAL LIABILITY
The Company and Aqhawk shall be jointly and severally liable for the
obligations of Licensee hereunder.
X CERTAIN TRANSITIONAL AND OTHER RIGHTS.
Licensor recognizes that certain inventory and labels and containers
therefor, as well as promotional material relating to such inventory owned by
the Company on the date hereof will bear the trademarks "BTR" and "Hawker
Siddeley" and their respective logos, which are not being licensed to the
Licensee after the date hereof (the "Excluded Marks"). Licensor agrees that
Licensee will be permitted to use such inventory and such labels, containers and
promotional material for a reasonable period not to exceed eighteen (l8) months
after the Closing. Except for the limited right to use the Excluded Marks as
provided herein, Licensee shall have no right to use such marks. Licensee shall
have no rights whatsoever to use the trademark and tradename Dunlop, the Dunlop
logo or any derivations thereof except in connection with and as expressly
provided pursuant to the Repair, Overhaul, Exchange, Warranty and Distribution
Agreement between Dunlop Limited, Aviation Division and Hawker Pacific, Inc.
dated November 1, 1996 or otherwise agreed to in writing by the appropriate
Dunlop entity.
XI. Attorneys Fees
In the event of any dispute or disagreement between the parties hereto
concerning the subject matter hereof, including the interpretation of any
provision or term hereof and the determination of whether a dispute exists
hereunder, any and all expenses, including attorneys' and accountants' fee and
costs, reasonably incurred by the prevailing party in relation to such dispute
or disagreement shall be paid by the nonprevailing party.
XII. Indemnity
Licensor shall indemnify, defend and hold harmless Licensee from, against
and in relation to any and all claims, demands, actions, causes of action,
losses of any type or nature, costs, expenses, obligations, liabilities,
damages, recoveries, and deficiencies, including interest, penalties and
reasonable attorneys', accountants' and other professionals' fees and costs,
(collectively, the "Losses") that Licensee may suffer or incur in relation to
any breach of Licensor hereunder.
4
<PAGE>
SCHEDULE A
----------
1. Hawker Pacific
2.
[LOGO]
HAWKER PACIFIC INC.
6
<PAGE>
SCHEDULE B
----------
Repair and overhaul of aircraft landing gear.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first above written.
LICENSOR: LICENSEE:
BTR, INC. AQHAWK, INC.
By: [ILLEGIBLE] By: /s/ DANIEL LUBECK
---------------------- --------------------------
Its: President Its: President
---------------------- --------------------------
5
<PAGE>
AGREEMENT NOT TO COMPETE
THIS AGREEMENT NOT TO COMPETE (the "Agreement") is made and effective
as of the 27th day of November, 1996 by and between BTR, INC., a Delaware
corporation ("Seller"), BTR DUNLOP, INC., a Delaware corporation ("BTR
Dunlop"), on behalf of AQHAWK, INC., a California corporation ("Buyer").
RECITALS
A. Pursuant to the terms of that certain Agreement of Purchase and
Sale of Stock (the "Stock Agreement") of even date herewith by and among Seller,
BTR Dunlop, Buyer, and Hawker Pacific, Inc., a California corporation
("Company"), Buyer is buying from Seller one hundred percent of the issued and
outstanding stock of Company. All capitalized terms used herein shall be defined
as set forth in the Stock Agreement unless specifically defined herein.
B. It is a condition to the consummation, and a material part, of
the transactions set forth in the Stock Agreement that Seller and BTR Dunlop
(collectively, "BTR") enter into this Agreement and be bound by its terms.
C. BTR desires to accept such consideration and to execute and be
bound by the terms hereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged and agreed to, BTR and Buyer hereby
agree as follows:
1. Covenant Not To Compete.
BTR hereby covenants and agrees that neither entity nor any affiliate,
parent, subsidiary thereof (collectively, the "BTR Parties") shall directly or
indirectly, acting alone, as a member of a partnership or other business entity
or as a holder of any security or any class of securities issued by a
corporation or other business entity or as a consultant, agent or representative
of any corporation, partnership or any other business entity:
a. Engage now or in the future in any business, trade or any
other enterprise substantially similar to, or directly or indirectly in
competition with Company's repair and overhaul of aircraft landing gear business
(the "Core Business") as conducted on the date hereof; or extend or assist in
arranging credit to establish or conduct any such business or permit its or
their name(s), reputation or affiliations to be used in connection with any such
business; or
b. Request, induce or attempt to influence any current, future
or prospective customer or supplier of Company regarding its Core Business to
limit, curtail, cancel or otherwise affect any of its business with Company.
<PAGE>
c. Notwithstanding the foregoing, the BTR Parties shall not be
in violation of this Agreement solely by reason of investing in stock, bonds or
other securities of any business that otherwise would be a violation hereof (but
without otherwise participating in such company) so long as (i) such stock bonds
or other securities are listed on any national securities exchange or have been
registered under Section 12(g) of the Securities Exchange Act of 1934, and (ii)
such investment does not exceed, in the case of any class of the capital stock
of any one issuer, 5% of the issued and outstanding shares of such capital
stock, or, in the case of bonds or other securities, 5% of the aggregate
principal amount thereof issued and outstanding. In addition, any BTR Party may
acquire an interest in any entity which carries on the Core Business provided
that (1) the Core Business is not a principal business of the entity acquired,
and (2) the applicable BTR Party sells or disposes of such Core Business as soon
as reasonably practicable (having regard to relevant market factors and the
interests of the group of companies of which BTR is a part), but in any event
within one (1) year after its acquisition. Nothing herein shall require BTR to
divest an existing BTR Party.
2. Term
The term of this Agreement shall be three (3) years commencing on the
date hereof; provided, however, that said term shall be extended by any period
of time during which a breach exists hereunder.
3. Remedy For Breach
BTR acknowledges and agrees that Paragraphs l.a and b and hereof are
separate and distinct commitments independent of each other; that said
Paragraphs are reasonable and necessary to protect the legitimate interests of
Buyer; and that Buyer has no adequate remedy at law for any breach or threatened
or attempted breach by BTR thereof. Accordingly, BTR agrees that Buyer may, in
addition to any and all other remedies that may be available to Buyer hereunder
or at law, commence proceedings in equity for an injunction temporarily or
permanently enjoining any BTR Party from breaching or threatening or attempting
any breach hereunder, and to command specific performance by said breaching
party. For purposes of any such proceeding in equity, it shall be presumed and
it is hereby agreed by the parties hereto that the remedies at law available to
Buyer would be inadequate, and that Buyer would suffer immediate and irreparable
harm as a result of the violation of any provision hereof.
4. Legal Fees.
In the event of any dispute or disagreement between the parties hereto
regarding or arising in relation to this Agreement or the enforcement hereof,
the prevailing party or parties
-2-
<PAGE>
in any such dispute or disagreement, including any proceeding in equity pursuant
to Paragraph 2 hereof, shall be entitled to recover from the nonprevailing party
or parties, in addition to any other award to which such party or parties may be
entitled, all fees, costs and expenses (including all attorney fees and costs)
incurred by the prevailing party or parties in connection with such dispute or
proceeding and any appeals therefrom.
5. Consent to Partial Enforcement; Severability
The Parties hereto intend that the provisions of Paragraph 1 hereof
shall be enforced to the fullest extent permitted in each jurisdiction in which
enforcement is sought. If any of the provisions set forth in Paragraph 1 hereof
are deemed by any court, or other authority with jurisdiction, to be invalid,
unenforceable or overly broad, said court or other authority may reduce, amend
or reform such provisions to a scope which it deems reasonable under the
circumstances. If any one or more provisions hereof are held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions and
portions hereof shall not be affected thereby. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of California,
exclusive of the laws concerning conflicts of laws.
6. Independent of Other Agreements
No course of dealing among Buyer and any BTR Party, and no delay by
Buyer in exercising any right, power or remedy hereunder, in equity or at law,
shall constitute a waiver of, or otherwise prejudice, any such right, power or
remedy of Buyer.
7. Knowledge; Advise of Counsel
BTR represents and warrants to Buyer that each has read and
understands each of the provisions of this Agreement, and that each has sought
and obtained legal counsel before agreeing to be bound by the terms hereof. BTR
acknowledges and agrees that Buyer would not have entered into the Stock
Agreement or paid the consideration called for therein or herein but for the
execution, delivery and performance by BTR of this Agreement.
8. Adequate Consideration
BTR acknowledges and agrees that it has received full and adequate
consideration for its commitment and performance hereunder, and that under no
circumstances can Indemnitor use or assert inadequate consideration as a defense
to preforming its obligations hereunder.
-3-
<PAGE>
9. Miscellaneous.
This Agreement constitutes the entire Agreement and supersedes all
prior and contemporaneous agreements and understandings, written and oral, among
the parties hereto regarding the subject matter hereof. This Agreement is not
intended to confer upon any person or entity any rights or remedies hereunder or
with respect to the subject matter hereof except as expressly set forth herein
and shall inure to the benefit of and be enforceable by the successors, assigns
and designees of Buyer. In the event Buyer merges into and becomes part of
Company, all benefits of Buyer hereunder shall be fully assigned to and
transferred to Company.
IN WITNESS WHEREOF, this Agreement is executed by the parties hereto
as of the date first above written.
BTR DUNLOP, INC.
a Delaware corporation
By:
------------------------------------------
Name:
------------------------------
Title:
------------------------------
BTR, INC.
a Delaware corporation
By:
------------------------------------------
Name:
-----------------------------
Title:
-----------------------------
AQHAWK, INC.
a California corporation
By:
------------------------------------------
Daniel J. Lubeck
President
-4-
<PAGE>
PROMISSORY NOTE
DATED AS OF: NOVEMBER 27,1996
PRINCIPAL AMOUNT: $19,178,841.00
FOR VALUE RECEIVED, the undersigned, AQHAWK, INC., a California
corporation ("Maker"), promises to pay to the order of HAWKER PACIFIC, INC., a
California corporation ("Lender") the Principal Amount set forth above together
with interest accrued thereon from the date hereof, until this Promissory Note.
1. MATURITY. This Promissory Note is payable on demand by the holder, and
in any event on December 31, 2003.
2. INTEREST. Maker promises to pay interest on the unpaid Principal Amount
of this Promissory Note from the date first written above, until all amounts due
hereunder are paid in full, at the lower of the following (such rate being the
"Interest Rate"):
(i) the blended rate of interest paid or payable by Lender to Bank of
America National Trust and Savings Association pursuant to the Business
Loan Agreement referred to below; or
(ii) the maximum rate of interest permitted by applicable law.
It is the intention of the Maker that the obligations hereunder
strictly comply with all applicable usury laws and, accordingly, any amount of
interest paid hereunder which is in excess of that permitted by applicable laws
shall be applied first to principal and, if all principal has been repaid,
remitted to the Maker upon demand.
Reference is made to the Business Loan Agreement of even date herewith
between Lender and Bank of America National Trust and Savings Association. This
Promissory Note is the Intercompany Note referred to therein.
3. DEFAULT INTEREST. If any amount payable under this Promissory Note is
not paid in full when due then, subject to the limitation set forth in Section
2, Maker agrees to pay interest on demand on the unpaid amount at the per annum
interest rate equal to the Interest Rate plus 3%, from the date such amount was
due until payment of such amount in full.
-1-
<PAGE>
4. PREPAYMENT. Maker may, at its option and without premium or penalty,
prepay the Principal Amount, either in whole or in part, in such amount as it
shall determine, together with interest on the amount prepaid.
5. METHOD OF PAYMENT.
a. All sums payable to the Lender under this Promissory Note shall be
payable in United States Dollars in same day funds not later than 10:00 a.m.
Los Angeles time on the day in question to the account of the Lender as
specified by the Lender to Maker.
b. All payments by Maker hereunder shall be made without set-off or
counterclaim and free and clear of and without deduction for any and all
taxes, levies, imposts, deductions or withholdings whatsoever.
6. COSTS AND EXPENSES. Maker agrees to pay on demand all losses, costs and
expenses (including counsel fees, disbursements and expenses) incurred in
connection with the enforcement of this Promissory Note, including losses, costs
and expenses sustained by the Lender as a result of a default hereunder.
7. GOVERNING LAW. This Promissory Note shall be governed by and interpreted
in accordance with the laws of the State of California
AQHAWK, INC.,
a California corporation
By: /s/ Daniel J. Lubeck
----------------------------------------
Daniel J. Lubeck, President
PAY TO THE ORDER OF
----------------------------------------------
HAWKER PACIFIC, INC.
By: /s/ Daniel L. Lubeck
-----------------------
Title: President/CEO
-----------------------
-2-
<PAGE>
REPAIR, OVERHAUL, EXCHANGE, WARRANTY
AND
DISTRIBUTION AGREEMENT
BETWEEN
DUNLOP LIMITED, AVIATION DIVISION
AND
HAWKER PACIFIC, INC.
NOVEMBER 1, 1996
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>
REPAIR, OVERHAUL, EXCHANGE, WARRANTY AND DISTRIBUTION AGREEMENT
This Repair, Overhaul, Exchange, Warranty and Distribution Agreement
("Agreement") is made and effective as of this 1st day of November 1996 by and
between:
DUNLOP LIMITED, AVIATION 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 "Dunlop",
represented by Piet WALTON-KNIGHT, Managing Director
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".
2 OF 25
<PAGE>
REPAIR, OVERHAUL, EXCHANGE, WARRANTY AND DISTRIBUTION
AGREEMENT
CONTENTS
THE PARTIES
page
----
CONTENTS
WITNESSETH
1. SUBJECT AND SCOPE 6
2. DUNLOP'S OBLIGATIONS 6
2.1 Technical and Logistics Support 6
2.2 Special Tooling and Test Benches 8
2.3 Sole Rights 8
3. HAWKER'S OBLIGATIONS 9
3.1 Quality Requirements 10
3.2 Technical and Logistics Support 10
3.3 Non-Competition 11
4. JOINT COMMERCIAL MARKETING PROGRAMS 11
5. PIECE PARTS AND END ITEMS 11
5.1 Manufacture and Distribution 11
5.2 Purchase of End-Items 12
5.3 Initial Provisioning 12
5.4 Price Catalogues 12
5.5 Discounts 13
5.6 Special Pricing 13
5.7 Priority 13
6. CONDITIONS OF DELIVERY, INVOICES AND PAYMENT 13
7. WARRANTIES 14
7.1 Dunlop Vendor Standard Warranty 14
8. LIABILITY 16
8.1 Hawker's Indemnification 16
8.2 Dunlop's Indemnification 16
9. EXCUSABLE DELAY 16
3 OF 25
<PAGE>
page
----
10. TERM OF AGREEMENT AND TERMINATION 17
11. NOTICES 17
12. APPLICABLE LAW AND LITIGATION 18
13. SURVIVORSHIP 18
14. ASSIGNMENT 19
15. INVENTORY BUY BACK 19
16. MISCELLANEOUS 19
17. WAIVER 20
18. VOID PROVISIONS 20
19. AMENDMENTS 20
20. INSPECTION VISITS 21
21. ENTIRE AGREEMENT 21
Appendix 1: Discount Structure by Aircraft Type 22
Appendix 2: Record of Joint CBL Guarantee Agreements 23
Appendix 3: Memorandum of Agreement 24,25,26
Appendix 4: Special Pricing 27
Appendix 5: DANA List Pricing (1996) 28
4 OF 25
<PAGE>
WITNESSETH
WHEREAS, Dunlop, is an Original Equipment Manufacturer (O.E.M.) and seller of
various wheel, brake, brake management system and ice protection equipment and
provides certain repair, overhaul and exchange services in connection therewith,
WHEREAS, Hawker heretofore provided such aforementioned services for Dunlop as
well as distribution for Dunlop brake management equipment,
WHEREAS, in connection with the sale of Hawker, the Parties wish to enter into
this Agreement providing for the continuation of such services upon the terms
and conditions contained herein,
NOW THEREFORE, in consideration of the mutual convenants contained herein, the
Parties agree as follows:
5 OF 25
<PAGE>
1 SUBJECT AND SCOPE
Subject to the terms and conditions contained herein, Dunlop 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 Dunlop manufactured wheel, brake, brake management system
equipment (hereinafter collectively referred to as the "Equipment") fitted
to the aircraft types as noted in Appendix 1 hereto (hereinafter referred
to as the "Aircraft"). 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, Dunlop
hereby appoints Hawker as the sole distributor for all brake management
system piece parts and end-items for the Aircraft in the Territory.
2 DUNLOP'S OBLIGATIONS
2.1 TECHNICAL AND LOGISTICS SUPPORT
In order to give Hawker all required qualifications for support
of the Equipment, Dunlop 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, Dunlop shall train a
reasonable number of Hawker technicians in Dunlop'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
6 OF 25
<PAGE>
incurred by Dunlop employees or agents connected with the
training of 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 Dunlop facilities.
All costs and expenses incurred by Hawker personnel in connection
with such training shall be borne by Hawker.
C. Quality and Technical Assistance
Dunlop 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 Dunlop in relation thereto.
D. Technical Support
Dunlop 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. Dunlop's answers shall include
technical opinions and repair and servicing solutions and
procedures.
Dunlop will also provide technical personnel for assistance in
Hawker field support visits, when deemed necessary by both
Parties.
Dunlop and Hawker will exchange visit reports that include
sufficient information regarding Dunlop 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 Dunlop at no charge to Hawker.
E. Operator Support
To the extent it is aware of the same, Dunlop will keep Hawker
appraised of any and all operator conferences, meetings, vendor
liaison, cost-of-ownership programs, etc. that concern, or
involve, Aircraft operators in the Territory.
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2.2 SPECIAL TOOLING AND TEST BENCHES
The specific tooling and test benches necessary to repair and overhaul
the Equipment shall be provided by Dunlop, if required subject to
Hawker acceptance of Dunlop's quotation.
Subject to the reasonable approval of Dunlop quality personnel, Hawker
may adapt at its own expense its test benches so as to perform the
tests required in the Dunlop CMM's.
2.3 SOLE RIGHTS
In recognition of Hawker's sole rights hereunder Dunlop covenants and
agrees as follows;
A. Dunlop shall not in any manner, directly or indirectly, solicit,
accept or otherwise conduct any Work on Aircraft operated only in
the Territory. Dunlop specifically shall not enter into any cost
per brake landing (CBL) type agreements relating to Aircraft
operated only in the Territory without Hawker's participation and
agreement. Excluded from this requirement shall be agreements
currently in force between Dunlop and Delta Airlines and cost of
ownership guarantees between Dunlop and Aircraft constructors
that are assignable by the constructor to operators. Dunlop
shall refer all inquiries for Work in or originating from the
Territory to Hawker.
B. Dunlop shall not distribute or sell in any manner, directly or
indirectly, piece parts or end-item spares for brake management
systems Equipment for Aircraft operated only in the Territory.
C. Dunlop shall not appoint any other facility as an "approved"
Dunlop 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 Dunlop.
D. The Parties recognize that Hawker has a repair, overhaul,
exchange, warranty and distribution agreement with Dunlop
Equipment Division (hereinafter referred to as "DEQ") that is
also exclusive to the Territory. Further, the Parties recognize
that a division of Dunlop, Dunlop Aviation Services (hereinafter
referred to as "DAS"), performs, in the United Kingdom, repair,
overhaul and warranty services on DEQ products as an approved
repair source. Therefore, in recognition of the exclusivity of
Hawker's agreement with DEQ, DAS shall not in any manner,
directly or indirectly, solicit, accept or otherwise conduct
repair, overhaul, exchange or warranty services on DEQ products
in or originating from the Territory. DAS and/or Dunlop shall
refer all inquiries for DEQ related business in or originating
from the Territory to Hawker.
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<PAGE>
E. Notwithstanding the foregoing, nothing herein shall prevent Dunlop
from:
(i) selling wheel and brake piece parts and end items directly to
any operator of Aircraft operated in the Territory;
(ii) entering into agreements otherwise prohibited pursuant to this
Section 2.3 if it becomes essential to do so in order to
obtain or retain sole source status on an Aircraft from the
Aircraft constructor thereof providing Dunlop and Hawker have
thoroughly discussed such a necessity in a timely manner
before Dunlop consummates any such agreements;
(iii) distributing or selling piece parts and end item spares for
brake management systems Equipment on Aircraft operated only
in the Territory if Dunlop has an existing contractual
obligation to do so or if it becomes essential to do so to
obtain or retain sole source status on an Aircraft from the
Aircraft constructor thereof providing Dunlop and Hawker have
thoroughly discussed such a necessity in a timely manner
before such changes in distribution and selling arrangements
are consummated;
(iv) dealing directly with OEM constructors with respect to
aircraft production and new product development together with
technology development, transfer or counter trade within the
Territory.
(v) dealing directly with those customers within the Territory who
insist upon transacting repairs, overhauls or exchanges with
Dunlop by virtue of it's position as OEM designer and
manufacturer of the Equipment or where such Work is an
extension of an agreement made and principally operated
outside the Territory (eg Canada 3000). Dunlop shall not seek
to develop repair, overhaul and exchange Work for Aircraft
within the Territory and shall refer all customers to Hawker
in the first instance. Dunlop shall notify Hawker of any
instances where direct Work for Aircraft is undertaken.
F. The foregoing provisions in this Section 2.3 shall be deemed to bind
Dunlop and all of its affiliates and a breach of said provisions by
any such affiliate shall be deemed to be a breach by Dunlop.
3 HAWKER'S OBLIGATIONS
Hawker commits itself to repair and overhaul the Equipment within MTTR
consistent with prevailing standards and in a manner that will not
materially prejudice Dunlop's
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<PAGE>
market position and reputation. Hawker further commits to deliver service
quality (workmanship) at industry standards and to price such services at
reasonable levels.
3.1 QUALITY REQUIREMENTS
Hawker's capacity to comply satisfactorily with Dunlop's quality
standards shall be audited by Dunlop at timely intervals. Any audit
of Hawker's facilities by Dunlop 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 Dunlop's appointment
of Hawker as its sole source for repair, overhaul, exchange and
warranty work, nor Dunlop's quality approval will, in any way, be
construed as a guarantee by Dunlop of Hawker performance.
3.2 TECHNICAL AND LOGISTICS SUPPORT
Hawker shall use all technical information given by Dunlop for the
sole purpose of providing qualified repairs, and shall not use such
data (such as drawings, etc.) for the manufacture of parts without
Dunlop'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 Dunlop and shall be promptly returned to Dunlop at the
expiration of this Agreement.
In conjunction with Dunlop, Hawker agrees to provide all Aircraft
operators 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 Dunlop technical personnel
where deemed appropriate by Dunlop.
C. Hawker will provide comprehensive visit reports that include
sufficient information regarding Dunlop product performance,
technical issues and data collection for warranty adjudication.
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<PAGE>
3.3 NON-COMPETITION
Hawker agrees not to solicit or accept any repair, overhaul, exchange
or warranty business, directly or indirectly, generated outside the
Territory.
Hawker agrees not to distribute directly or indirectly any brake
management or ice protection Equipment outside the Territory.
Furthermore, Hawker under the Agreement is prohibited from and agrees
not to manufacture and not to distribute, directly or indirectly,
Dunlop wheel and brake piece parts or end-items in or outside the
Territory.
Hawker shall refer all inquiries on Dunlop related business outside
the Territory to Dunlop. Further, Hawker shall refer all inquiries
for wheel and brake distribution within the Territory to Dunlop.
4 JOINT COMMERCIAL MARKETING PROGRAMS
4.1 Where, as mutually defined, a commercial policy for Equipment for
an Aircraft operated only in the Territory are to be covered by
specific, individual operator agreements (service support,
price/cost guarantees, etc.) then the Parties reasonably shall
agree on the basis upon which the Parties jointly or severally
shall establish and administer such agreements. A record of said
existing agreements in force as of the date of this Agreement
appears in Appendix 2 hereto.
4.2 Memorandum of Agreement referenced DABS/HPI/MOA executed on 20
March 1996 defines the basic principals under which the Parties
shall combine to enter into such agreement (see Appendix 3
hereto).
4.3 The basis of sharing cost or reduced revenues between the Parties
shall be reasonably agreed upon between the Parties before any
binding agreement is made to the customer.
5 PIECE PARTS AND END-ITEMS
5.1 MANUFACTURE AND DISTRIBUTION
The manufacture and distribution (including initial provisioning by
new operators) of wheel and brake piece parts and end-items are the
responsibility of Dunlop.
The manufacture of braking systems and ice protection piece parts and
end items are the responsibility of Dunlop while the distribution of
braking systems piece parts and end
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<PAGE>
items (including initial provisioning by new operators) of same in the
Territory is the sole responsibility of Hawker.
Hawker shall utilize published lead times as noted in Dunlop's current
year price list for provisioning of said parts. In addition, where
Dunlop 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 Dunlop's capacity
allows.
Both Dunlop and Hawker acknowledge that certain modifications or
equipment failures can result in unexpected piece parts consumption by
operators. In view of that fact, Dunlop agrees to exert reasonable
commercial efforts so that Dunlop can give reasonable priority to
deliver piece parts ordered by Hawker so as to protect Hawker and the
operator from long lead time exposures. These reasonable commercial
efforts may include affording Hawker the opportunity to purchase parts
directly from Dunlop Aviation North America (DANA) an affiliate of
Dunlop, for the same price which Hawker would pay Dunlop.
5.2 PURCHASE OF END-ITEMS
The Parties recognize that in order to fulfill Hawker's unit exchange
program objectives under the Agreement, that Hawker must, from time to
time, purchase wheel and brake end-items (for example, Line
Replaceable Units) from Dunlop to facilitate such exchanges. Dunlop
hereby agrees to sell same end-items to Hawker for said purpose and,
in turn, Hawker agrees not to sell the same to operators. Hawker
shall purchase such items at the discounts set forth in Appendices 1
and/or 4 as appropriate.
5.3 INITIAL PROVISIONING
Hawker shall issue purchase orders for the provisioning of an initial
piece parts inventory based on the CMM's sent by Dunlop. It will then
be Hawker's responsibility to replenish such inventory according to
its expected consumption.
Dunlop will provide, on request, recommendations of spares arising for
its products which will include bills of materials and "100 off
lists".
5.4 PRICE CATALOGUES
Following Dunlop announcement of a spares price increase (for which
normally 90 days noticed will be given) Dunlop will provide Hawker
with at least one (1) printed copy of the price catalogue in US
Dollars (the identical catalogue provided to DANA) and one (1)
diskette copy (Lotus 123 or Excel format). The Parties anticipate
that, under normal circumstances, prices will be maintained for a 12
month period commencing January 1 each year. Prices for items
scheduled to be delivered within 90
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days of order shall be those set forth in the current price list less
the applicable discount established pursuant to Section 5.5. Prices
for items scheduled to be delivered more than 90 days after the date
of order shall be priced in accordance with the price list in effect
at the date of scheduled delivery, less the applicable discount.
5.5 DISCOUNTS
The sales prices for all Equipment purchased by Hawker from Dunlop,
whether piece parts or end items, shall be priced to Hawker at a
discount from the list prices set forth in the appropriate US Dollar
price Catalogue. For the first three years from the date of the
Agreement, such discount, shall be the percentage set forth in
Appendix 1 hereto. From time to time thereafter, Dunlop may change
the discount but only in a manner that, together with the discounts
made available to and mark ups charged to other customers of Dunlop,
will maintain Hawker's competitive position embodied in the discount
amount set forth in Appendix 1 and the pricing formulae in Appendix 5.
Dunlop shall provide Hawker at least 90 days notice before such change
in discount.
5.6 SPECIAL PRICING
Prior to the date hereof, the Parties identified circumstances and
market pressures which necessitated special pricing for certain
Equipment, as set forth in Appendix 4 hereto, which special pricing
superseded the prices obtained using the Hawker discount described in
Section 5.5 hereof. Under normal circumstances, Hawker shall be given
at least 90 days notice of any revision to such special pricing. In
any event, any revision must be made in a manner that, together with
discounts made available to and mark ups charged to other customers of
Dunlop, will maintain Hawker's competitive position embodied in the
special pricing set forth in Appendix 4 and the pricing formulae in
Appendix 5. The Parties anticipate that Special Pricing will be
reflected in the US Dollar Price Catalogue.
5.7 PRIORITY
Subject to timely ordering in accordance with published lead times,
Hawker shall receive equivalent delivery priority with respect to
piece part and end item orders as given to Dunlop's operator
customers.
6. CONDITIONS OF DELIVERY, INVOICES AND PAYMENT
Prices charged Hawker by Dunlop shall be established in accordance
with Section 5. All other delivery conditions shall be as indicated
in the price catalogue then in effect.
All prices including Special prices shall be established in dollars.
Payment terms shall be net forty-five (45) days from date of invoice,
which shall be the date of dispatch from Dunlop.
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7. WARRANTIES
7.1 DUNLOP VENDOR STANDARD WARRANTY
Dunlop warrants all materials supplied to be:
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 Dunlop and aircraft
constructors and subsequent flow down to Aircraft operators (details
of which shall be supplied to Hawker) the duration of the warranty for
Dunlop components is as follows:
- twelve (12) months after delivery to the operator of the aircraft in
which the item is incorporated, or twelve (12) months after delivery
of the Equipment to Hawker, as the case may be.
The warranty covers the repair or replacement (at Dunlop'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
aircraft unserviceability.
In no event shall Dunlop 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 Dunlop and can be considered as vendor parts cannot be
guaranteed beyond the warranty period given by their respective
vendor.
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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.
No defective piece of Equipment or spare part is to be returned to
Dunlop except with the written consent of one of Dunlop's authorized
representatives.
The return of any piece of Equipment or spare part will be made in
accordance with Dunlop shipping instructions.
The warranty obligation only exists if Dunlop 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 Dunlop 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 Dunlop as
described below shall be invoiced by Hawker to Dunlop in the following
manner:
a) Replacement piece parts shall be invoiced by Hawker at their
actual "landed" cost to Hawker.
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) 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 be invoiced by Hawker to Dunlop at actual
and substantiated incurred costs.
d) Terms of payment accepted by Dunlop for these warranty
charge-backs are net forty five (45) days from date of invoice.
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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 Dunlop 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 Dunlop.
Dunlop 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 Dunlop's
facility if Hawker declines.
8 LIABILITY
8.1 HAWKER'S INDEMNIFICATION
Hawker shall be solely liable for and hereby agrees to defend, indemnify
and hold harmless Dunlop 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.
8.2 DUNLOP'S INDEMNIFICATION
Dunlop 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 the improper performance by Dunlop of any
obligation hereunder and/or defective Equipment manufactured by Dunlop.
9 EXCUSABLE DELAY
Dunlop shall not be liable for any delay in delivery or failure in
performance herein due to causes beyond Dunlop'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 Dunlop's reasonable control and not due to Dunlop'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 Dunlop from using reasonable efforts to
continue prompt delivery performance while such causes exist and whenever
such causes are removed. Dunlop promptly shall notify Hawker when such
delays occur and shall continue to advise it of new shipping schedules
and/or changes thereto.
10 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 Dunlop upon written notice to Hawker, if:
1) Hawker consistently fails to reasonably maintain Dunlop'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".
11 NOTICES
11.1 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 Managing Director
DUNLOP LIMITED
AVIATION DIVISION
Holbrook Lane Coventry
CV6 4AA England
11.2 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.
12 APPLICABLE LAW AND LITIGATION
12.1 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.
12.2 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.
12.3 In the event of any dispute resolved pursuant to paragraph 12.2
above all expenses (including reasonable attorney's fees and costs)
shall be apportioned as determined by the arbitrator(s).
13 SURVIVORSHIP
13.1 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.
13.2 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 Logistical Support
Article 8 Liability
Article 12 Applicable Law and Litigation
Article 15 Inventory Buy Back
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Article 16 Miscellaneous
14 ASSIGNMENT
Hawker shall not assign any rights or obligations arising under this
Agreement without the prior written consent of Dunlop 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 Dunlop'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 stock of Hawker, operation of law,
assignment or other arrangement) to a competitor of Dunlop.
Dunlop 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 Dunlop 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 Dunlop without the need for Hawker's prior written
consent and shall remain fully enforceable thereafter.
15 INVENTORY BUY BACK
15.1 Subject to Section 15.3, Dunlop shall buy back from Hawker all
provisioned parts which become obsolete only as a result of
mandatory modifications ordered by regulatory authorities or Dunlop.
15.2 For all other parts that Hawker is restricted from selling or
otherwise dealing in hereunder and that become surplus to Hawker's
requirements, Hawker shall offer Dunlop the right of refusal to
purchase the same and, if Dunlop declines, Hawker may sell the same.
15.3 All parts bought back by Dunlop (or which Hawker may be entitled to
sell pursuant to Section 15.2) shall be in new condition, free from
shocks or marks. Dunlop will credit Hawker upon receipt and
inspection of parts bought back by Dunlop at an amount equal to
Hawker's "landed cost" (cost of acquisition and freight) for such
parts.
16 MISCELLANEOUS
16.1 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 except
only to the extent of joint marketing programs contemplated in
Section 4 hereto.
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16.2 Without limiting Section 16.1 hereof, Hawker, its employees, agents,
subsidiaries and affiliates are not to be construed as being the
legal representatives of Dunlop 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 the behalf of Dunlop.
16.3 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.
16.4 The term "Dunlop" throughout this Agreement includes, and this
Agreement shall be binding upon, all subsidiaries, affiliates and
other entities owned or controlled by Dunlop and/or its parent.
17 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.
18 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.
19 AMENDMENTS
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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.
20 INSPECTION VISITS
At its sole expense, Dunlop 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.
21 ENTIRE AGREEMENT
This Agreement including Appendices 1, 2, 3, 4 and 5 attached hereto 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 LIMITED, AVIATION DIVISION HAWKER PACIFIC, INC.
/s/ GEORGE MELBOURNE /s/ DAVID L. LOKKEN
------------------------------- -------------------------------
On behalf of Piet WALTON-KNIGHT David L. LOKKEN
Managing Director President and CEO
Date: Date: 1 November 1996
/s/ R.C. HAMABERG
-------------------------------
R.C. Hamaberg
Product Group Chief Executive
BTR Aerospace
Date:
Signed by Dunlop conditional upon the incorporation of changes and
deletions identified in the attached pages. DLL
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APPENDIX 1
DISCOUNT STRUCTURE BY AIRCRAFT TYPE
AIRCRAFT DISCOUNT
- -------- --------
ATP/J61 [*]%
ATR72 [*]%
B737-500 and prior [*]%
B757-200 and prior [*]%
BAC1-11 - all series [*]%
BAe146/RJ Series [*]%
CN212/235 [*]%
DO328 TBD
F27/28/50/100 [*]%
HS125- all series [*]%
HS748 [*]%
J31/32 [*]%
J41 25%
SD3-30/3-60 [*]%
SKYVAN [*]%
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APPENDIX 2
RECORD OF JOINT CBL GUARANTEE AGREEMENTS
<TABLE>
<CAPTION>
OPERATOR A/C TYPE DATE/SIGNED DURATION
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(YRS)
1.AMR Eagle (dba Wings West/Nashville Eagle) J32 19.06.91 5
2.Atlantic Coast Airlines (dba United Express) J41 21.10.93 3
3.Chicago Express J31 No Copy of
Agreement
4.Express Airlines, I Inc. (dba Northwest Airlink) J31 25.09.92 4
5.Transstates (dba USAir Express) J32 06.01.94 In Service
6.Transstates ATR72 03.06.93 3
7.Transstates ATP 03.06.93 3
8.AMR Eagle ATR72 01.01.96 5
</TABLE>
Note:
Agreements numbered 1,2,4,6 and 7 have, by their written terms, expired.
Any written renewal shall be in accordance with Articles 4 hereto.
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APPENDIX 4
SPECIAL PRICING
PART NUMBER DESCRIPTION GROSS 1996 US$ NET 1996 US$
- ----------- ----------- -------------- ------------
AH43615 HALF HUB $ [*] $ [*]
AHO89676 HEATPACK $ [*] $ [*]
AHO89903 HEATPACK - $ [*]
AHO90944 HEATPACK $ [*] $ [*]
AHO90945 HEATPACK $ [*] $ [*]
AHO90946 HEATPACK $ [*] $ [*]
AHO89620 HEATPACK $ [*] $ [*]
AH52997 NOSE WHEEL $ [*] $ [*]
AH85484/4 PAD $ [*] $ [*]
AH83829/6 PAD $ [*] $ [*]
AHO86040/2 PAD $ [*] $ [*]
AHO83322/9 PAD $ [*] $ [*]
AHO85484/3 PAD $ [*] $ [*]
AHO83829/8 PAD $ [*] $ [*]
AHM7129 SEGMENT $ [*] $ [*]
AHM9128 SEGMENT $ [*] $ [*]
AHM9053 SEGMENT $ [*] $ [*]
AHM8252 SEGMENT $ [*] $ [*]
AHM8875 SEGMENT $ [*] $ [*]
AHM6748 SEGMENT $ [*] $ [*]
AHM10038 SEGMENT $ [*] $ [*]
AHM7284 SPIDER $ [*] $ [*]
24 OF 25
<PAGE>
APPENDIX 5
DANA LIST PRICING (1996)
<TABLE>
<CAPTION>
CATEGORY OF CUSTOMER CALCULATION OF PRICE PAID BY DANA'S
CUSTOMER
<S> <C>
Operator, FBO, OEM, Private Operator (Dunlop List - A/C Discount) x [*]
Brokers/Repair Stations (Dunlop List - A/C Discount) x [*]
AI(R) (Dunlop List - A/C Discount) x [*]
Distributors (HS125) (Dunlop List - A/C Discount) x [*]
Tools (Dunlop List - A/C Discount) x [*]
</TABLE>
Exceptions:
a. BAe146 Heatpacks (AHO90944) Coventry List = $[*] (DANA pays $[*])
Air Wisconsin pays $[*]
Atlantic Southeast pays $[*]
ADI pays $[*]
All others pay $[*] (no core returns, price is $[*])
b. B757 Heatpacks (AHO89903) Coventry List = $[*] (DANA pays $
[*]
Avianca pays $[*]
Aviation Brake Service pays $[*]
Note: "A/C Discount" above is the Discount off Dunlop List in dollars for
Hawker in accordance with Appendix 1 of the Agreement and "(Dunlop List - A/C
Discount)" above is the Price paid by Hawker.
25 OF 25
<PAGE>
DISTRIBUTION AGREEMENT
BETWEEN
DUNLOP LIMITED, PRECISION RUBBER
AND
HAWKER PACIFIC, INC.
NOVEMBER 1, 1996
<PAGE>
DISTRIBUTION AGREEMENT
This Distribution Agreement ("Agreement") is made and effective as of this
1st day of November 1996 by and between:
DUNLOP LIMITED, PRECISION RUBBER, a Company existing and organized under
the laws of England and having a place of business at Ashby Road Shepshed,
Loughborough, Leicester, LEIZ 9EQ, England, hereinafter referred to as
"Precision Rubber",
represented by Gordon Midgley, Managing Director
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".
2 of 11
<PAGE>
DISTRIBUTION AGREEMENT
CONTENTS
THE PARTIES
page
----
CONTENTS
WITNESSETH
1. SUBJECT AND SCOPE 5
2. PRECISION RUBBER'S OBLIGATIONS
2.1 Technical and Logistics Support 5
3. HAWKER'S OBLIGATIONS
3.1 Technical and Logistics Support 5
4. PRODUCT
4.1 Manufacture and Distribution 6
4.2 Price Catalogues 6
4.3 Special Pricing 6
5. CONDITIONS OF DELIVERY, INVOICES AND PAYMENT 6
6. WARRANTIES 7
6.1 Precision Rubber Vendor Standard Warranty 7
7. TERM OF AGREEMENT AND TERMINATION 7
8. NOTICES 8
9. SURVIVORSHIP 8
10. ASSIGNMENT 8
11. MISCELLANEOUS 9
12. ENTIRE AGREEMENT 10
ATTACHMENT 1 PRODUCTS BY PART NUMBER 11
3 of 11
<PAGE>
WITNESSETH
WHEREAS, Precision Rubber, is an Original Equipment Manufacturer (OEM) and
seller of certain products,
WHEREAS, Hawker heretofore provided distribution for such products,
WHEREAS, in connection with the sale of Hawker, the Parties wish to enter into
this Agreement providing for the continuation of such distribution services upon
the terms and conditions contained herein,
NOW THEREFORE, in consideration of the mutual convenants contained herein, the
Parties agree as follows:
4 of 11
<PAGE>
1 SUBJECT AND SCOPE
Precision Rubber hereby appoints Hawker as a source for the distribution
and sale of Precision Rubber manufactured products as delineated in
Attachment 1 (hereinafter referred to as "Product" or "Products").
Hawker's rights pursuant to this Article 1 shall be solely limited to the
territories of North, Central and South America, including the Caribbean
(hereinafter referred to as the "Territory").
2 PRECISION RUBBER'S OBLIGATIONS
2.1 TECHNICAL AND LOGISTICS SUPPORT
In order to give Hawker all required qualifications for support of the
Product, Precision Rubber agrees to provide the following, where
applicable, to Hawker:
A. Documentation (Free of Charge)
- Service Bulletins, Service Newsletters and technical instructions
- General procedures
- Material Specification Data Sheets (MSDS)
- Price lists
- Life limiting, handling and storage characteristics
B. Technical Support (Free of Charge)
Precision Rubber shall provide technical support to Hawker by way of
promptly answering technical queries raised by Hawker relating to
manufacture, application, use and storage as well as material
characteristics of the Product in order that Hawker will be in good
position to meet its commitments to its customers. Precision Rubber's
answers shall include technical opinions and servicing solutions and
procedures.
3 HAWKER'S OBLIGATIONS
3.1 TECHNICAL AND LOGISTICS SUPPORT
Hawker shall use all technical information given by Precision Rubber
for the sole purpose of providing assistance to customers in resolving
technical problems, and shall not use such data (such as drawings,
etc.) for any other purpose without Precision Rubber's written
permission. Similarly, Hawker shall not publish this technical
information nor disclose it to third parties.
5 of 11
<PAGE>
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 Precision Rubber and shall be promptly returned to
Precision Rubber at the expiration of this Agreement.
4 PRODUCT
4.1 MANUFACTURE AND DISTRIBUTION
The manufacture of Products is the responsibility of Precision Rubber
while the distribution of same in the Territory is the responsibility
of Hawker.
Hawker shall utilize published lead times as noted in Precision
Rubber's current year price list for provisioning of said Product.
4.2 PRICE CATALOGUES
Precision Rubber will provide Hawker annually with at least one (1)
printed copy of all revised issues of the list price catalogues for
the Product. Precision Rubber agrees that the list pricing set forth
in the Catalogues shall come into effect on the 1st of January
following issuance of the catalogues and shall be effective through 31
December of the same year.
4.3 SPECIAL PRICING
In the event the Parties identify circumstances and market pressures
that necessitate special pricing, then the Parties shall jointly agree
to such special pricing.
5 CONDITIONS OF DELIVERY, INVOICES AND PAYMENT
Prices charged Hawker by Precision Rubber are to be those existing on
order date. All other delivery conditions shall be as indicated in
the standard Product catalogues concerned.
Invoices by Precision Rubber to Hawker shall be in UK Pounds.
Payment terms shall be net thirty (30) days from receipt of the
material.
6 of 11
<PAGE>
6 WARRANTIES
6.1 PRECISION RUBBER VENDOR STANDARD WARRANTY
Precision Rubber warrants all materials supplied to be:
In compliance with applicable regulations and with approved drawings,
as well as with specifications and test procedures included in the
order.
Free from defects in material, workmanship and operation, and from
faults inherent in design and manufacture.
In no event shall Precision Rubber 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 altering, tampering or modification of a piece of said
Product are considered as improper use.
No defective Product is to be returned to Precision Rubber except with
the written consent of one of Precision Rubber's authorized
representatives.
The return of Product will be made in accordance with Precision Rubber
shipping instructions.
7 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
7 of 11
<PAGE>
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.
8 NOTICES
8.1 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
2. The Managing Director
DUNLOP LIMITED
PRECISION RUBBER DIVISION
Ashby Road
Shepshed, Loughborough
Leicester LE12 9EO England
8.2 All communication under this agreement shall be given in writing
either by personal delivery, by mail 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.
9 SURVIVORSHIP
9.1 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.
10 ASSIGNMENT
Hawker shall not assign any rights or obligations arising under this
Agreement without the prior written consent of Precision Rubber 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 Precision
Rubber's prior written consent and shall remain fully enforceable
thereafter. Precision
8 of 11
<PAGE>
Rubber 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 Precision Rubber 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 Precision Rubber
without the need for Hawker's prior written consent and shall remain fully
enforceable thereafter.
11 MISCELLANEOUS
11.1 Hawker shall maintain the Precision Rubber identity in all its
dealings with respect to the Product.
11.2 Hawker shall be solely responsible under its own contracts with its
customers for the services provided and the charges incurred for
stated services except as agreed under Article 4 hereto.
11.3 The relationship between Precision Rubber and Hawker under this
Agreement shall be as stated in this Agreement. Hawker, its
employees, agents, subsidiaries and affiliates are not to be
construed as being the legal representatives of Precision Rubber 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 the behalf of Precision
Rubber.
11.4 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.
11.5 The term "Precision Rubber" throughout this Agreement includes, and
this Agreement shall be binding upon, all subsidiaries, affiliates
and other entities owned or controlled by Precision Rubber and/or
its parent.
12 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.
9 of 11
<PAGE>
In WITNESS WHEREOF, the Parties have executed this Agreement by their duly
authorized representatives on the date indicated.
For:
DUNLOP LIMITED, PRECISION RUBBER HAWKER PACIFIC, INC.
/s/ GORDON MIDGLEY /s/ DAVID L. LOKKEN
---------------------------- ----------------------------
Gordon MIDGLEY David L. LOKKEN
Managing Director President and CEO
Date: 1 November 1996 Date: 1 November 1996
10 of 11
<PAGE>
ATTACHMENT 1
PRODUCTS
by
PART NUMBER
ARM689 ARM812 LK88077 PRO150-218
ARM690 ARM813 LK88078 PRO150-219
ARM692 ARM815 LK88085 PRO150-222
ARM693 ARM822 LK88086 PRO150-223
ARM694 ARM835 LK88103-7 PRO150-237
ARM696 ARM840 LK88110-7 PRO150-238
ARM697 ARM845 LK88110-501 PRO150-256
ARM698 ARM847 LK88110-502 PRO150-258
ARM699 ARM853 LK88110-503
ARM709 ARM854 LK88110-504 WX1156A
ARM714 ARM855 LK88111-501 WX1206
ARM715 ARM856 LK88121 WX1322
ARM716 ARM858 LK88122 WX1406
ARM717 ARM868 LK88123 WX1675
ARM718 ARM869 LK88124 WX1713
ARM719 ARM872 LK88125 WX1738
ARM720 ARM873 S700S0577A WX1757
ARM722 ARM874 S700S0701 WX1771
ARM767 ARM875 WX1806
ARM769 ARM876 PRO120-4 WX1832
ARM770 ARM877 PRO120-5 WX1833
ARM772 ARM879 PRO120-6 WX1950
ARM773 ARM880 PRO130-018 WX2004
ARM774 ARM891 PRO130-243 WX2092
ARM775 ARM892 PRO130-250 WX2118
ARM776 ARM913 PRO140-5 WX2119
ARM777 ARM965 PRO140-6 WX2004
ARM779 ARM966 PRO140-8 WX2092
ARM780 PRO140-16 WX2118
ARM783 LK88047 PRO150-010 WX2119
ARM792 LK88048 PRO150-012 WX2175
ARM793 LK88049 PRO150-028 WX2201
ARM794 LK88050 PRO150-110 WX2398
ARM796 LK88072 PRO150-134 WX2420
ARM797 LK88075 PRO150-149 WX2590
ARM801 LK88076 PRO150-213 WX2595
11 of 11
<PAGE>
REPAIR, OVERHAUL, EXCHANGE, WARRANTY
AND
DISTRIBUTION AGREEMENT
BETWEEN
DUNLOP EQUIPMENT DIVISION
AND
HAWKER PACIFIC, INC.
<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".
2 of 19
<PAGE>
REPAIR, OVERHAUL, EXCHANGE, WARRANTY AND DISTRIBUTION AGREEMENT
CONTENTS
THE PARTIES
page
----
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
3 of 19
<PAGE>
page
----
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
4 of 19
<PAGE>
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:
5 of 19
<PAGE>
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
6 of 19
<PAGE>
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.
7 of 19
<PAGE>
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.
8 of 19
<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.
9 of 19
<PAGE>
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.
10 of 19
<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:
11 of 19
<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.
12 of 19
<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.
13 of 19
<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.
14 of 19
<PAGE>
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 [*] 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
15 of 19
<PAGE>
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
16 of 19
<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.
17 of 19
<PAGE>
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.
18 of 19
<PAGE>
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
19 of 19
<PAGE>
<TABLE>
<CAPTION>
<S><C>
- ----------------------------------------------------------------------------------------------------------------------------
AWARD CONTRACT THIS CONTRACT IS A [ILLEGIBLE] [ILLEGIBLE] Illegible
UNDER OPAS [ILLEGIBLE] DO-A1 1 72
- ----------------------------------------------------------------------------------------------------------------------------
2. CONTRACT Illegible NO. 3. EFFECTIVE DATE 4. ACQUISITION/PURCHASE, REQUEST/PROJECT NO.
DTCG38-95-D-20018 See Block 20C 4152-IG20
- ----------------------------------------------------------------------------------------------------------------------------
5. ISSUED BY CODE Z50100 6. ADMINISTERED BY (IF OTHER THAN ITEM 5) CODE
--------- ---------
USCG Aircraft Repair and Supply Center
Elizabeth City, NC 27909-5001
ATTN: HH65A Contract Section
- ----------------------------------------------------------------------------------------------------------------------------
7. NAME AND ADDRESS OF CONTRACTOR (NO., STREET, CITY, COUNTY, STATE AND ZIP CODE) 8. DELIVERY
Destination
HAWKER PACIFIC INC. / / FOB ORIGIN / / OTHER (SEE BELOW)
11310 Sherman Way ------------------------------------
Sun Valley, CA 91352 9. DISCOUNT FOR PROMPT PAYMENT
Net 30
------------------------------------
10. SUBMIT INVOICES ITEM
(4 COPIES UNLESS OTHER-
- --------------------------------------------------------------------------------------- WISE SPECIFIED) TO THE
CODE 53583 FACILITY CODE ADDRESS SHOWN IN: Section G
- -----------------------------------------------------------------------------------------------------------------------------
11. SHIP TO/MARK FOR CODE 12. PAYMENT WILL BE MADE BY CODE
------------- ----------
As specified in Section F As specified in Section G
- ----------------------------------------------------- -----------------------------------------------------------------
13. AUTHORITY FOR USING OTHER THAN FULL AND OPEN 14. ACCOUNTING AND APPROPRIATION DATA
COMPETITION:
/X/ 10 U.S.C. 2304(c)( ) / / 41 U.S.C. 253(c)( ) As specified on individual delivery orders
- -----------------------------------------------------------------------------------------------------------------------------
15A. ITEM NO. 15B. SUPPLIES/SERVICES 15C. QUANTITY 15D. UNIT 15E. UNIT PRICE 15F. AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
This document constitutes award of an indefinite-delivery indefinite-quantity
contract resulting from Solicitation DTCG38-94-R-20008, and includes items
cited in Section B of the contract.
PART IV, SECTION K of the Contractor's proposal is incorporated herein by reference.
- -----------------------------------------------------------------------------------------------------------------------------
15G. TOTAL AMOUNT OF CONTRACT $ N/A
- -----------------------------------------------------------------------------------------------------------------------------
16. TABLE OF CONTENTS
- -----------------------------------------------------------------------------------------------------------------------------
W) SEC. DESCRIPTION PAGE(S) W) SEC DESCRIPTION PAGE(S)
- -----------------------------------------------------------------------------------------------------------------------------
PART I - THE SCHEDULE PART II - CONTRACT CLAUSES
- -----------------------------------------------------------------------------------------------------------------------------
x A SOLICITATION/CONTRACT FORM 1 x I CONTRACT CLAUSES 65-71
- -----------------------------------------------------------------------------------------------------------------------------
x B SUPPLIES OR SERVICES AND PRICES/COSTS 2-41 PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH.
- -----------------------------------------------------------------------------------------------------------------------------
x C DESCRIPTION/SPECS./WORK STATEMENT 42-49 x J LIST OF ATTACHMENTS 72
- -----------------------------------------------------------------------------------------------------------------------------
x D PACKAGING AND MARKING 50 PART IV - REPRESENTATIONS AND INSTRUCTIONS
- -----------------------------------------------------------------------------------------------------------------------------
x E INSPECTION AND ACCEPTANCE 51 K REPRESENTATIONS, CERTIFICATIONS AND
- ------------------------------------------------------------ OTHER STATEMENTS OF OFFERORS
x F DELIVERIES OR PERFORMANCE 52-55
- -----------------------------------------------------------------------------------------------------------------------------
x G CONTRACT ADMINISTRATION DATA 56-57 L INSTRS, CONDS, AND NOTICES TO OFFERORS
- -----------------------------------------------------------------------------------------------------------------------------
x H SPECIAL CONTRACT REQUIREMENTS 58-64 M EVALUATION FACTORS FOR AWARD
- -----------------------------------------------------------------------------------------------------------------------------
CONTRTACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE
- -----------------------------------------------------------------------------------------------------------------------------
17 /x/ CONTRACTOR'S NEGOTIATED AGREEMENTS (CONTRACTOR IS RE- 18. / / AWARD (CONTRACTOR IS NOT REQUIRED TO SIGN THIS
QUIRED TO SIGN THIS DOCUMENT AND RETURN 1 COPIES TO DOCUMENT.) Your offer on Solicitation Number
ISSUING OFFICE.) Contractor agrees to furnish and ________________________________________________,
deliver all items or perform all the services set including the additions or changes made by you
forth or otherwise identified above and on any which additions or changes are set forth in full
continuation sheets for the consideration stated above, is hereby accepted as in the items listed
herein. The rights and obligations of the parties above and on any continuation sheets. This
to this contract shall be subject to and governed award consummates the contract which consists of
by the following documents: (a) this award/contract the following documents: (a) the Government's
(b) the solicitation, if any, and (c) such solicitation and your offer, and (b) this award/
provisions, representations, certifications, and contract. no further contractual document is
specifications, as are attached or incorporated by necessary.
reference herein. (ATTACHMENTS ARE LISTED HEREIN.)
- -----------------------------------------------------------------------------------------------------------------------------
19A. NAME AND TITLE OF SIGNER (TYPE OR PRINT) 20A. NAME OF CONTRACTING OFFICER
MICHAEL A. RILEY, VICE PRESIDENT
HYDROMECHANICAL SYSTEMS
- -----------------------------------------------------------------------------------------------------------------------------
19B. NAME OF CONTRACTOR 19C. DATE SIGNED 20B. UNITED STATES OF AMERICA 20C. DATE SIGNED
BY /s/ Illegible BY
---------------------------------------- 20 SEPT 95 ----------------------------------
(SIGNATURE OF PERSON AUTHORIZED TO SIGN) (SIGNATURE OF CONTRACTING OFFICER)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE [*] INDICATES THAT PORTIONS OF TEXT HAVE BEEN DELETED AND ARE BEING FILED
UNDER SEPARATE COVER WITH THE SECURITIES COMMISSION EXCHANGE PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
U.S. Department Commanding Officer Aircraft Repair & Supply Center
of Transportation U.S. Coast Guard Elizabeth City, NC 27909-5001
[Logo] Staff Symbol: 4220/2400
United States Phone: (919)335-6141
Coast Guard
19 September 1995
Hawker Pacific Inc.
Attn: Doris Parr
11310 Sherman Way
Sun Valley, CA 913
Subj: SOLICITATION DTCG38-94-R-20008
Dear Ms. Parr:
It is requested that you review the enclosed proposed contract which is the
result of your response to the subject solicitation. Please sign the proposed
contract in Block 19, then return only the cover sheet and one copy to this
office.
The changes made from the solicitation to the proposed contract are as follows:
1. The requirement for inspection by DCMAO has been waived; therefore,
references to DCMAO have been deleted from Section C, Paragraph C-3.5 Unusual
Damage, Section E, Paragraph E-2 Inspection and Acceptance, and Section H,
Paragraph H-2 Exclusions.
2. FAR clause 52.246-15 Certificate of Conformance (APR 1984) has been
added to Section E, Paragraph E-1.
3. FAR clauses 52.215-30 Facilities Capital Cost of Money and 52.229-6
Taxes -Foreign Fixed-Price Contracts have been deleted from Section I,
Paragraph I-1.
4. Section G, Paragraph G-1 - The requirement to direct the original
Standard Form 295 to Washington, DC has been deleted. The form shall be
submitted to the address in G-1, in accordance with the delivery schedule in
Section F, F-2 Delivery Schedule.
If you have any questions concerning these changes or the proposed contract
please call Linda Foster at (919)335-6561 or the undersigned at (919)335-6141.
/s/ Elissa D. Gill
ELISSA D. GILL
Contracting Officer
Encl: Proposed Contract DTCG38-95-D-20018
<PAGE>
Page 2
DTCG38-95-D-20018
PART I
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
B-1. CONTRACT LINE ITEMS.
The contractor shall provide all necessary parts, material, labor, tooling, test
equipment and facilities for performance of the services specified in Section C,
Statement of Work for the following components. Sea Section H, Paragraph H-6 for
specific pricing instructions.
NOTE: ALL SEPARATELY PRICED REPLACEMENT PARTS SHALL BE NEW UNLESS
OTHERWISE SPECIFIED.
BASE PERIOD:
DATE OF CONTRACT AWARD THROUGH ONE YEAR FROM DATE OF AWARD
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
1 REWORK 5 30 EA $ [*]
1620-14-459-0511
LEG, LH MAIN LG
P/N 18785-100-05
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
17975 CONTACTOR UNIT ASSY $ [*] EA
18802 UNION $ [*] EA
18965-000-01 LH HOUSING $ [*] EA
18965-000-01 LH HOUSING $ [*] EA RECOVERED IAW C-3.2.4.1
18979 SHAFT $ [*] EA
18980 SHAFT $ [*] EA
18981 SWIVEL PIN $ [*] EA
18989-000-01 JACK $ [*] EA
19217 CABLE $ [*] EA
19828-100 FLEX HOSE $ [*] EA
20529-100 HOSE $ [*] EA
24079-000-00 SINGLE PIECE BEARING S [*] EA
<PAGE>
Page 3
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
2 REWORK 5 40 EA $ [*]
1620-14-462-8049
LEG, RH MAIN LG
P/N 18786-100-05
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
17975 CONTACTOR UNIT ASSY $ [*] EA
18130 ROLLER $ [*] EA
18802 UNION $ [*] EA
18966-000-01 RH HOUSING $ [*] EA
18966-000-01 RH HOUSING $ [*] EA RECOVERED IAW C-3.2.4.1
18979 SHAFT $ [*] EA
18980 SHAFT $ [*] EA
18981 SWIVEL PIN $ [*] EA
18989-000-01 JACK $ [*] EA
19217 CABLE $ [*] EA
19828-100 FLEX HOSE $ [*] EA
20529-100 HOSE $ [*] EA
24079-000-00 SINGLE PIECE BEARING $ [*] EA
3 REWORK 5 35 EA $ [*]
1620-14-459-0514
AUX LANDING GEAR
P/N 18740-100-07
OR
P/N 18740-100-06
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18880-000-02 HOUSING $ [*] EA
18907-000-01 UPPER BEARING $ [*] EA
18921-000-01 BEARING POST $ [*] EA
18922 PISTON TUBE $ [*] EA
18926 LOWER BEARING $ [*] EA
18928 LEVER PISTON SHAFT $ [*] EA
18932-000-01 LOWER BEARING $ [*] EA
19010 SHAFT S [*] EA
19324 AXLE $ [*] EA
19465 YOKE $ [*] EA
<PAGE>
Page 4
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
4 MODIFY/REWORK 1 5 EA $ [*]
1620-14-459-0514 MODIFY TO:
AUX LANDING GEAR
P/N 18740-100-04 P/N 18740-100-07
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18880-000-02 HOUSING $ [*] EA
18907-000-01 UPPER BEARING $ [*] EA
18921-000-01 BEARING POST $ [*] EA
18922 PISTON TUBE $ [*] EA
18926 LOWER BEARING $ [*] EA
18928 LEVER PISTON SHAFT $ [*] EA
18932-000-01 LOWER BEARING $ [*] EA
19010 SHAFT $ [*] EA
19324 AXLE $ [*] EA
19465 YOKE $ [*] EA
5 MODIFY/REWORK 1 5 EA $ [*]
1620-14-386-4447 MODIFY TO:
AUX LANDING GEAR 1620-14-459-0514
P/N 18740-100-01 P/N 18740-100-07
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18880-000-02 HOUSING $ [*] EA
18907-000-01 UPPER BEARING $ [*] EA
18921-000-01 BEARING POST $ [*] EA
18922 PISTON TUBE $ [*] EA
18926 LOWER BEARING $ [*] EA
18928 LEVER PISTON SHAFT $ [*] EA
18932-000-01 LOWER BEARING $ [*] EA
19010 SHAFT $ [*] EA
19324 AXLE $ [*] EA
19465 YOKE $ [*] EA
<PAGE>
Page 5
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
6 REWORK 3 25 EA $ [*]
1650-14-043-0964
ACTUATOR CYLINDER
P/N 19570-101
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
17946 BUSHING $ [*] EA
18787-100 HOSE ASSY $ [*] EA
18788-100 HOSE ASSY $ [*] EA
18789-100 HOSE ASSY $ [*] EA
19640 BALL FITTING ASSY $ [*] EA
19645 BODY ASSY $ [*] EA
19645 BODY ASSY $ [*] EA RECOVERED IAW C-3.2.4.3
19713 BUSHING $ [*] EA
19727 PISTON $ [*] EA
19731 CLAW $ [*] EA
19870 HARNESS CABLE $ [*] EA
7 REWORK 3 8 EA $ [*]
1650-14-387-2620
ACTUATOR CYLINDER
P/N 19575-101
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18789-100 HOSE ASSY $ [*] EA
18790-100 HOSE ASSY $ [*] EA
18791-100 HOSE ASSY $ [*] EA
19640 BALL FITTING ASSY $ [*] EA
19713 BUSHING $ [*] EA
19716-100 HOUSING ASSY $ [*] EA
19716-100 HOUSING ASSY $ [*] EA RECOVERED IAW C-3.2.4.3
19727 PISTON $ [*] EA
19731 CLAW $ [*] EA
19880 HARNESS CABLE $ [*] EA
<PAGE>
Page 6
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
8 REWORK 3 30 EA $ [*]
OVERHAUL/MODIFY 3 30 EA $ [*]
*REPLACE LINER ONLY 3 30 EA $ [*]
1650-14-383-0795 OVERHAUL AND MODIFY TO:
PUMP, SELF REGULATING 1650-14-463-8804
P/N C24160022 P/N C24160022-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
A81953-2 END FITTING $ [*] EA
GA70926-1 SWASH PLATE ASSY $ [*] EA
GA70657-2 BLOCK ASSY $ [*] EA
*See Section C, Paragraph C-3.2.4.4.1
9 REWORK 3 35 EA $ [*]
OVERHAUL 0 10 EA $ [*]
*REPLACE LINER ONLY 1 20 EA $ [*]
1650-14-463-8804
PUMP, SELF REGULATING
P/N C24160022-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
A81953-2 END FITTING $ [*] EA
GA70926-1 SWASH PLATE ASSY $ [*] EA
GA70657-2 BLOCK ASSY $ [*] EA
*See Section C, Paragraph C-3.2.4.4.1
<PAGE>
Page 7
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
10 MODIFY/OVERHAUL 5 38 EA $ [*]
1650-14-397-0762 MODIFY TO:
SERVO CONTROL 1650-14-451-4636
P/N SC8031-1 P/N SC8033-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
11 REWORK 1 20 EA $ [*]
OVERHAUL 0 1 EA $ [*]
1650-14-451-4636
SERVO CONTROL
P/N SC8033-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
<PAGE>
Page 8
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
12 MODIFY/OVERHAUL 5 20 EA $ [*]
1650-14-397-0763 MODIFY TO:
SERVO CONTROL 1650-14-448-1729
P/N SC8032-1 P/N SC8034-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
801400 CUP ASSEMBLY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
607763 SWITCH $ [*] EA
13 REWORK 1 15 EA $ [*]
OVERHAUL 0 1 EA $ [*]
1650-14-448-1729
SERVO CONTROL
P/N SC8034-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
801400 CUP ASSEMBLY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
<PAGE>
Page 9
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
UNIT
CLIN SUPPLIES/SERVICES QTY UNIT PRICE
18 LABOR RATE: UNUSUAL DAMAGE 1 LT Not separately priced
IAW Section C, Paragraph C-3.5
and Section H, Paragraph H-6
HOURLY RATE $ [*]
19 LABOR RATE: TECHNICAL SUPPORT 1 LT Not separately priced
SERVICES
IAW Section C, Paragraph C-3.7
and Section H, Paragraph H-6
HOURLY RATE $ [*]
20 LABOR RATE: PRODUCT IMPROVEMENT/ 1 LT Not separately priced
ENGINEERING CHANGE PROPOSAL
IAW Section C, Paragraph C-3.8
and Section H, Paragraph H-6
HOURLY RATE $ [*]
21 LABOR RATE: SERVICE BULLETINS 1 LT Not separately priced
IAW Section C, Paragraph C-3.10
and Section H, Paragraph H-6
HOURLY RATE $ [*]
22 PUBLICATIONS/UPDATES
IAW Section C, Paragraph C-3.12 1 LT Not separately priced
23 AVIATION COMPUTERIZED MAINTENANCE
SYSTEM (ACMS) forms IAW Section H,
Paragraph H-1 1 LT Not separately priced
24 Failure Data Report
IAM Section F, Paragraph F-4 1 LT Not separately priced
25 Replacement Parts Listing
IAW SECTION C, PARAGRAPH C-3.4 1 LT Not separately priced
26 Standard Form 294, SUBCONTRACTING
REPORT FOR INDIVIDUAL CONTRACTS
IAW FAR 52.219-9 in Section I 1 LT Not separately priced
27 Standard Form 295,
SUMMARY SUBCONTRACT REPORT
IAW FAR 52.219-9 in Section I 1 LT Not separately priced
28 Government Property Report IAW
TAR 1252.245-70 in Section I 1 LT Not separately priced
<PAGE>
Page 10
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
OPTION YEAR ONE:
DATE OF OPTION EXERCISE THROUGH ONE YEAR FROM DATE OF OPTION
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
29 REWORK 5 30 EA $ [*]
1620-14-459-0511
LEG, LH MAIN LG
P/N 18785-100-05
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
17975 CONTACTOR UNIT ASSY $ [*] EA
18802 UNION $ [*] EA
18965-000-01 LH HOUSING $ [*] EA
18965-000-01 LH HOUSING $ [*] EA RECOVERED IAW C-3.2.4.1
18979 SHAFT $ [*] EA
18980 SHAFT $ [*] EA
18981 SWIVEL PIN $ [*] EA
18989-000-01 JACK $ [*] EA
19217 CABLE $ [*] EA
19828-100 FLEX HOSE $ [*] EA
20529-100 HOSE $ [*] EA
24079-000-00 SINGLE PIECE BEARING $ [*] EA
<PAGE>
Page 11
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
30 REWORK 5 40 EA $ [*]
1620-14-462-8049
LEG, RH MAIN LG
P/N 18786-100-05
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
17975 CONTACTOR UNIT ASSY $ [*] EA
18130 ROLLER $ [*] EA
18802 UNION $ [*] EA
18966-000-01 RH HOUSING $ [*] EA
18966-000-01 RH HOUSING $ [*] EA RECOVERED IAW C-3.2.4.1
18979 SHAFT $ [*] EA
18980 SHAFT $ [*] EA
18981 SNIVEL PIN $ [*] EA
18989-000-01 JACK $ [*] EA
19217 CABLE $ [*] EA
19828-100 FLEX HOSE $ [*] EA
20529-100 HOSE $ [*] EA
24079-000-00 SINGLE PIECE BEARING $ [*] EA
31 REWORK 5 35 EA $ [*]
1620-14-459-0514
AUX LANDING GEAR
P/N 18740-100-07
OR
P/N 18740-100-06
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18880-000-02 HOUSING $ [*] EA
18907-000-01 UPPER BEARING $ [*] EA
18921-000-01 BEARING POST $ [*] EA
18922 PISTON TUBE $ [*] EA
18926 LOWER BEARING $ [*] EA
18928 LEVER PISTON SHAFT $ [*] EA
18932-000-01 LOWER BEARING S [*] EA
19010 SHAFT $ [*] EA
19324 AXLE $ [*] EA
19465 YOKE $ [*] EA
<PAGE>
Page 12
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
32 MODIFY/REWORK 1 5 EA $ [*]
1620-14-459-0514 MODIFY TO:
AUX LANDING GEAR
P/N 18740-100-04 P/N 18740-100-07
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18880-000-02 HOUSING $ [*] EA
18907-000-01 UPPER BEARING $ [*] EA
18921-000-01 BEARING POST $ [*] EA
18922 PISTON TUBE $ [*] EA
18926 LOWER BEARING $ [*] EA
18928 LEVER PISTON SHAFT $ [*] EA
18932-000-01 LOWER BEARING $ [*] EA
19010 SHAFT $ [*] EA
19324 AXLE $ [*] EA
19465 YOKE $ [*] EA
33 MODIFY/REWORK 1 5 EA $ [*]
1620-14-386-4447 MODIFY TO:
AUX LANDING GEAR 1620-14-459-0514
P/N 18740-100-01 P/N 18740-100-07
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18880-000-02 HOUSING $ [*] EA
18907-000-01 UPPER BEARING $ [*] EA
18921-000-01 BEARING POST $ [*] EA
18922 PISTON TUBE $ [*] EA
18926 LOWER BEARING $ [*] EA
18928 LEVER PISTON SHAFT $ [*] EA
18932-000-01 LOWER BEARING $ [*] EA
19010 SHAFT $ [*] EA
19324 AXLE $ [*] EA
19465 YOKE $ [*] EA
<PAGE>
Page 13
DTCG38-95-D-20018
B-l. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
34 REWORK 3 25 EA $ [*]
1650-14-043-0964
ACTUATOR CYLINDER
P/N 19570-101
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
17946 BUSHING $ [*] EA
18787-100 HOSE ASSY $ [*] EA
18788-100 HOSE ASSY $ [*] EA
18789-100 HOSE ASSY $ [*] EA
19640 BALL FITTING ASSY $ [*] EA
19645 BODY ASSY $ [*] EA
19645 BODY ASSY $ [*] EA RECOVERED IAW C-3.2.4.3
19713 BUSHING $ [*] EA
19727 PISTON $ [*] EA
19731 CLAW $ [*] EA
19870 HARNESS CABLE $ [*] EA
35 REWORK 3 8 EA $ [*]
1650-14-387-2620
ACTUATOR CYLINDER
P/N 19575-101
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18789-100 HOSE ASSY $ [*] EA
18790-100 HOSE ASSY $ [*] EA
18791-100 HOSE ASSY $ [*] EA
19640 BALL FITTING ASSY $ [*] EA
19713 BUSHING $ [*] EA
19716-100 HOUSING ASSY $ [*] EA
19716-100 HOUSING ASSY $ [*] EA RECOVERED IAW C-3.2.4.3
19727 PISTON $ [*] EA
19731 CLAW $ [*] EA
19880 HARNESS CABLE $ [*] EA
<PAGE>
Page 14
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
36 REWORK 2 25 EA $ [*]
OVERHAUL/MODIFY 3 30 EA $ [*]
*REPLACE LINER ONLY 1 10 EA $ [*]
1650-14-383-0795 OVERHAUL AND MODIFY TO:
PUMP, SELF REGULATING 1650-14-463-8804
P/N C24160022 P/N C24160022-1
TEST/EVALUATION S [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
A81953-2 END FITTING $ [*] EA
GA70926-1 SWASH PLATE ASSY $ [*] EA
GA70657-2 BLOCK ASSY $ [*] EA
*See Section C, Paragraph C-3.2.4.4.1
37 REWORK 3 35 EA $ [*]
OVERHAUL 0 15 EA $ [*]
*REPLACE LINER ONLY 1 10 EA $ [*]
1650-14-463-8804
PUMP, SELF REGULATING
P/N C24160022-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
A81953-2 END FITTING $ [*] EA
GA70926-1 SWASH PLATE ASSY $ [*] EA
GA70657-2 BLOCK ASSY $ [*] EA
*See Section C, Paragraph C-3.2.4.4.1
<PAGE>
Page 15
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
38 MODIFY/OVERHAUL 1 26 EA $ [*]
1650-14-397-0762 MODIFY TO:
SERVO CONTROL 1650-14-451-4636
P/N SC8031-1 P/N SC8033-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
39 REWORK 1 22 EA $ [*]
OVERHAUL 0 1 EA $ [*]
1650-14-451-4636
SERVO CONTROL
P/N SC8033-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
<PAGE>
Page 16
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
40 MODIFY/OVERHAUL 2 20 EA $ [*]
1650-14-397-0763 MODIFY TO:
SERVO CONTROL 1650-14-448-1729
P/N SC8032-1 P/N SC8034-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
801400 CUP ASSEMBLY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
41 REWORK 1 15 EA $ [*]
OVERHAUL 1 5 EA $ [*]
1650-14-448-1729
SERVO CONTROL
P/N SC8034-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
801400 CUP ASSEMBLY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
<PAGE>
Page 17
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
UNIT
CLIN SUPPLIES/SERVICES QTY UNIT PRICE
46 LABOR RATE: UNUSUAL DAMAGE 1 LT Not separately priced
IAW Section C, Paragraph C-3.5
and Section H, Paragraph H-6
HOURLY RATE $ [*]
47 LABOR RATE: TECHNICAL SUPPORT 1 LT Not separately priced
SERVICES
IAW Section C, Paragraph C-3.7
and Section H, Paragraph H-6
HOURLY RATE $ [*]
48 LABOR RATE: PRODUCT IMPROVEMENT/ 1 LT Not separately priced
ENGINEERING CHANGE PROPOSAL
ZAN Section C, Paragraph C-3.8
and Section H, Paragraph H-6
HOURLY RATE $ [*]
49 LABOR RATE: SERVICE BULLETINS 1 LT Not separately priced
IAW Section C, Paragraph C-3.10
and Section H, Paragraph H-6
HOURLY RATE $ [*]
50 PUBLICATIONS/UPDATES
IAW Section C, Paragraph C-3.12 1 LT Not separately priced
51 AVIATION COMPUTERIZED MAINTENANCE
SYSTEM (ACMS) forms IAW Section H,
Paragraph H-1 1 LT Not separately priced
52 Failure Data Report
IAW Section F, Paragraph F-4 1 LT Not separately priced
53 Replacement Parts Listing
IAW SECTION C, PARAGRAPH C-3.4 1 LT Not separately priced
54 Standard Form 294, SUBCONTRACTING
REPORT FOR INDIVIDUAL CONTRACTS
IAW FAR 52.219-9 in Section I 1 LT Not separately priced
55 Standard Form 295,
SUMMARY SUBCONTRACT REPORT
IAW FAR 52.219-9 in Section I 1 LT Not separately priced
56 Government Property Report IAW
TAR 1252.245-70 in Section I 1 LT Not separately priced
<PAGE>
Page 18
DTCG38-95-D-20018
B-l. CONTRACT LINE ITEMS. (Cont'd)
OPTION YEAR TWO:
DATE OF OPTION EXERCISE THROUGH ONE YEAR FROM DATE OF OPTION
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
57 REWORK 5 30 EA $ [*]
1620-14-459-0511
LEG, LH MAIN LG
P/N 18785-100-05
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
17975 CONTACTOR UNIT ASSY $ [*] EA
18802 UNION $ [*] EA
18965-000-01 LH HOUSING $ [*] EA
18965-000-01 LH HOUSING $ [*] EA RECOVERED IAW C-3.2.4.1
18979 SHAFT $ [*] EA
18980 SHAFT $ [*] EA
18981 SWIVEL PIN $ [*] EA
18989-000-01 JACK $ [*] EA
19217 CABLE $ [*] EA
19828-100 FLEX HOSE $ [*] EA
20529-100 HOSE $ [*] EA
24079-000-00 SINGLE PIECE BEARING $ [*] EA
<PAGE>
Page 19
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
58 REWORK 5 40 EA $ [*]
1620-14-462-8049
LEG, RH MAIN LG
P/N 18786-100-05
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
17975 CONTACTOR UNIT ASSY $ [*] EA
18130 ROLLER $ [*] EA
18802 UNION $ [*] EA
18966-000-01 RH HOUSING $ [*] EA
18966-000-01 RH HOUSING $ [*] EA RECOVERED IAW C-3.2.4.1
18979 SHAFT $ [*] EA
18980 SHAFT $ [*] EA
18981 SWIVEL PIN $ [*] EA
18989-000-01 JACK $ [*] EA
19217 CABLE $ [*] EA
19828-100 FLEX HOSE $ [*] EA
20529-100 HOSE $ [*] EA
24079-000-00 SINGLE PIECE BEARING $ [*] EA
59 REWORK 5 35 EA $ [*]
1620-14-459-0514
AUX LANDING GEAR
P/N 18740-100-07
OR
P/N 18740-100-06
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18880-000-02 HOUSING $ [*] EA
18907-000-01 UPPER BEARING $ [*] EA
18921-000-01 BEARING POST $ [*] EA
18922 PISTON TUBE $ [*] EA
18926 LOWER BEARING $ [*] EA
18928 LEVER PISTON SHAFT $ [*] EA
18932-000-01 LOWER BEARING $ [*] EA
19010 SHAFT $ [*] EA
19324 AXLE $ [*] EA
19465 YOKE $ [*] EA
<PAGE>
Page 20
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
60 MODIFY/REWORK 1 5 EA $ [*]
1620-14-459-0514 MODIFY TO:
AUX LANDING GEAR
P/N 18740-100-04 P/N 18740-100-07
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18880-000-02 HOUSING $ [*] EA
18907-000-01 UPPER BEARING $ [*] EA
18921-000-01 BEARING POST $ [*] EA
18922 PISTON TUBE $ [*] EA
18926 LOWER BEARING $ [*] EA
18928 LEVER PISTON SHAFT $ [*] EA
18932-000-01 LOWER BEARING $ [*] EA
19010 SHAFT $ [*] EA
19324 AXLE $ [*] EA
19465 YOKE $ [*] EA
61 MODIFY/REWORK 1 5 EA $ [*]
1620-14-386-4447 MODIFY TO:
AUX LANDING GEAR 1620-14-459-0514
P/N 18740-100-01 P/N 18740-100-07
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18880-000-02 HOUSING $ [*] EA
18907-000-01 UPPER BEARING $ [*] EA
18921-000-01 BEARING POST $ [*] EA
18922 PISTON TUBE $ [*] EA
18926 LOWER BEARING $ [*] EA
18928 LEVER PISTON SHAFT $ [*] EA
18932-000-01 LOWER BEARING $ [*] EA
19010 SHAFT $ [*] EA
19324 AXLE $ [*] EA
19465 YOKE $ [*] EA
<PAGE>
Page 21
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
62 REWORK 3 25 EA $ [*]
1650-14-043-0964
ACTUATOR CYLINDER
P/N 19570-101
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
17946 BUSHING $ [*] EA
18787-100 HOSE ASSY $ [*] EA
18788-100 HOSE ASSY $ [*] EA
18789-100 HOSE ASSY $ [*] EA
19640 BALL FITTING ASSY $ [*] EA
19645 BODY ASSY $ [*] EA
19645 BODY ASSY $ [*] EA RECOVERED IAW C-3.2.4.3
19713 BUSHING $ [*] EA
19727 PISTON $ [*] EA
19731 CLAW $ [*] EA
19870 HARNESS CABLE $ [*] EA
63 REWORK 3 10 EA $ [*]
1650-14-387-2620
ACTUATOR CYLINDER
P/N 19575-101
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18789-100 HOSE ASSY $ [*] EA
18790-100 HOSE ASSY $ [*] EA
18791-100 HOSE ASSY $ [*] EA
19640 BALL FITTING ASSY $ [*] EA
19713 BUSHING $ [*] EA
19716-100 HOUSING ASSY $ [*] EA
19716-100 HOUSING ASSY $ [*] EA RECOVERED IAW C-3.2.4.3
19727 PISTON $ [*] EA
19731 CLAW $ [*] EA
19880 HARNESS CABLE $ [*] EA
<PAGE>
Page 22
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
64 REWORK 2 25 EA $ [*]
OVERHAUL/MODIFY 3 30 EA $ [*]
*REPLACE LINER ONLY 1 15 EA $ [*]
1650-14-383-0795 OVERHAUL AND MODIFY TO:
PUMP, SELF REGULATING 1650-14-463-8804
P/N C24160022 P/N C24160022-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
A81953-2 END FITTING $ [*] EA
GA70926-1 SWASH PLATE ASSY $ [*] EA
GA70657-2 BLOCK ASSY $ [*] EA
*See Section C, Paragraph C-3.2.4.4.1
65 REWORK 3 35 EA $ [*]
OVERHAUL 1 15 EA $ [*]
*REPLACE LINER ONLY 1 15 EA $ [*]
1650-14-463-8804
PUMP, SELF REGULATING
P/N C24160022-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
A81953-2 END FITTING $ [*] EA
GA70926-1 SWASH PLATE ASSY $ [*] EA
GA70657-2 BLOCK ASSY $ [*] EA
*See Section C, Paragraph C-3.2.4.4.1
<PAGE>
Page 23
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
66 MODIFY/OVERHAUL 1 17 EA $ [*]
1650-14-397-0762 MODIFY TO:
SERVO CONTROL 1650-14-451-4636
P/N SC8031-1 P/N SC8033-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
67 REWORK 5 21 EA $ [*]
OVERHAUL 1 20 EA $ [*]
1650-14-451-4636
SERVO CONTROL
P/N SC8033-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
<PAGE>
Page 24
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
68 MODIFY/OVERHAUL 1 20 EA $ [*]
1650-14-397-0763 MODIFY TO:
SERVO CONTROL 1650-14-448-1729
P/N SC8032-1 P/N SC8034-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
801400 CUP ASSEMBLY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
69 REWORK 1 10 EA $ [*]
OVERHAUL 1 10 EA $ [*]
1650-14-448-1729
SERVO CONTROL
P/N SC8034-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
801400 CUP ASSEMBLY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
<PAGE>
Page 25
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
UNIT
CLIN SUPPLIES/SERVICES QTY UNIT PRICE
74 LABOR RATE: UNUSUAL DAMAGE 1 LT Not separately priced
IAW Section C, Paragraph C-3.5
and Section H, Paragraph H-6
HOURLY RATE $ [*]
75 LABOR RATE: TECHNICAL SUPPORT 1 LT Not separately priced
SERVICES
IAW Section C, Paragraph C-3.7
and Section H, Paragraph H-6
HOURLY RATE $ [*]
76 LABOR RATE: PRODUCT IMPROVEMENT/ 1 LT Not separately priced
ENGINEERING CHANGE PROPOSAL
IAW Section C, Paragraph C-3.8
and Section H, Paragraph H-6
HOURLY RATE $ [*]
77 LABOR RATE: SERVICE BULLETINS 1 LT Not separately priced
IAW Section C, Paragraph C-3.10
and Section H, Paragraph H-6
HOURLY RATE $ [*]
78 PUBLICATIONS/UPDATES
IAW Section C, Paragraph C-3.12 1 LT Not separately priced
79 AVIATION COMPUTERIZED MAINTENANCE
SYSTEM (ACMS) forms IAW Section H,
Paragraph H-1 1 LT Not separately priced
80 Failure Data Report
IAW Section F, Paragraph F-4 1 LT Not separately priced
81 Replacement Parts Listing
IAW SECTION C, PARAGRAPH C-3.4 1 LT Not separately priced
82 Standard Form 294, SUBCONTRACTING
REPORT FOR INDIVIDUAL CONTRACTS
IAW FAR 52.219-9 in Section I 1 LT Not separately priced
83 Standard Form 295,
SUMMARY SUBCONTRACT REPORT
IAW FAR 52.219-9 in Section I 1 LT Not separately priced
84 Government Property Report IAW
TAR 1252.245-70 in Section I 1 LT Not separately priced
<PAGE>
Page 26
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
OPTION YEAR THREE:
DATE OF OPTION EXERCISE THROUGH ONE YEAR FROM DATE OF OPTION
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
85 REWORK 5 30 EA $ [*]
1620-14-459-0511
LEG, LH MAIN LG
P/N 18785-100-05
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
17975 CONTACTOR UNIT ASSY $ [*] EA
18802 UNION $ [*] EA
18965-000-01 LH HOUSING $ [*] EA
18965-000-01 LH HOUSING $ [*] EA RECOVERED IAW C-3.2.4.1
18979 SHAFT $ [*] EA
18980 SHAFT $ [*] EA
18981 SWIVEL PIN $ [*] EA
18989-000-01 JACK $ [*] EA
19217 CABLE $ [*] EA
19828-100 FLEX HOSE $ [*] EA
20529-100 HOSE $ [*] EA
24079-000-00 SINGLE PIECE BEARING $ [*] EA
<PAGE>
Page 27
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
86 REWORK 5 40 EA $ [*]
1620-14-462-8049
LEG, RH MAIN LG
P/N 18786-100-05
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
17975 CONTACTOR UNIT ASSY $ [*] EA
18130 ROLLER $ [*] EA
18802 UNION $ [*] EA
18966-000-01 RH HOUSING $ [*] EA
18966-000-01 RH HOUSING $ [*] EA RECOVERED IAW C-3.2.4.1
18979 SHAFT $ [*] EA
18980 SHAFT $ [*] EA
18981 SWIVEL PIN $ [*] EA
18989-000-01 JACK $ [*] EA
19217 CABLE $ [*] EA
19828-100 FLEX HOSE $ [*] EA
20529-100 HOSE $ [*] EA
24079-000-00 SINGLE PIECE BEARING $ [*] EA
87 REWORK 5 35 EA $ [*]
1620-14-459-0514
AUX LANDING GEAR
P/N 18740-100-07
OR
P/N 18740-100-06
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18880-000-02 HOUSING $ [*] EA
18907-000-01 UPPER BEARING $ [*] EA
18921-000-01 BEARING POST $ [*] EA
18922 PISTON TUBE $ [*] EA
18926 LOWER BEARING $ [*] EA
18928 LEVER PISTON SHAFT $ [*] EA
18932-000-01 LOWER BEARING $ [*] EA
19010 SHAFT $ [*] EA
19324 AXLE $ [*] EA
19465 YOKE $ [*] EA
<PAGE>
Page 28
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
88 MODIFY/REWORK 1 5 EA $ [*]
1620-14-459-0514 MODIFY TO:
AUX LANDING GEAR
P/N 18740-100-04 P/N 18740-100-07
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18880-000-02 HOUSING $ [*] EA
18907-000-01 UPPER BEARING $ [*] EA
18921-000-01 BEARING POST $ [*] EA
18922 PISTON TUBE $ [*] EA
18926 LOWER BEARING $ [*] EA
18928 LEVER PISTON SHAFT $ [*] EA
18932-000-01 LOWER BEARING $ [*] EA
19010 SHAFT $ [*] EA
19324 AXLE $ [*] EA
19465 YOKE $ [*] EA
89 MODIFY/REWORK 1 5 EA $ [*]
1620-14-386-4447 MODIFY TO:
AUX LANDING GEAR 1620-14-459-0514
P/N 18740-100-01 P/N 18740-100-07
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18880-000-02 HOUSING $ [*] EA
18907-000-01 UPPER BEARING $ [*] EA
18921-000-01 BEARING POST $ [*] EA
18922 PISTON TUBE $ [*] EA
18926 LOWER BEARING $ [*] EA
18928 LEVER PISTON SHAFT $ [*] EA
18932-000-01 LOWER BEARING $ [*] EA
19010 SHAFT $ [*] EA
19324 AXLE $ [*] EA
19465 YOKE $ [*] EA
<PAGE>
Page 29
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
90 REWORK 3 25 EA $ [*]
1650-14-043-0964
ACTUATOR CYLINDER
P/N 19570-101
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
17946 BUSHING $ [*] EA
18787-100 HOSE ASSY $ [*] EA
18788-100 HOSE ASSY $ [*] EA
18789-100 HOSE ASSY $ [*] EA
19640 BALL FITTING ASSY $ [*] EA
19645 BODY ASSY $ [*] EA
19645 BODY ASSY $ [*] EA RECOVERED IAW C-3.2.4.3
19713 BUSHING $ [*] EA
19727 PISTON $ [*] EA
19731 CLAW $ [*] EA
19870 HARNESS CABLE $ [*] EA
91 REWORK 3 10 EA $ [*]
1650-14-387-2620
ACTUATOR CYLINDER
P/N 19575-101
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18789-100 HOSE ASSY $ [*] EA
18790-100 HOSE ASSY $ [*] EA
18791-100 HOSE ASSY $ [*] EA
19640 BALL FITTING ASSY $ [*] EA
19713 BUSHING $ [*] EA
19716-100 HOUSING ASSY $ [*] EA
19716-100 HOUSING ASSY $ [*] EA RECOVERED IAW C-3.2.4.3
19727 PISTON $ [*] EA
19731 CLAW $ [*] EA
19880 HARNESS CABLE $ [*] EA
<PAGE>
Page 30
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
92 REWORK 2 25 EA $ [*]
OVERHAUL/MODIFY 3 30 EA $ [*]
*REPLACE LINER ONLY 1 15 EA $ [*]
1650-14-383-0795 OVERHAUL AND MODIFY TO:
PUMP, SELF REGULATING 1650-14-463-8804
P/N C24160022 P/N C24160022-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
A81953-2 END FITTING $ [*] EA
GA70926-1 SWASH PLATE ASSY $ [*] EA
GA70657-2 BLOCK ASSY $ [*] EA
*See Section C, Paragraph C-3.2.4.4.1
93 REWORK 3 35 EA $ [*]
OVERHAUL 1 20 EA $ [*]
*REPLACE LINER ONLY 1 20 EA $ [*]
1650-14-463-8804
PUMP, SELF REGULATING
P/N C24160022-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
A81953-2 END FITTING $ [*] EA
GA70926-1 SWASH PLATE ASSY $ [*] EA
GA70657-2 BLOCK ASSY $ [*] EA
*See Section C, Paragraph C-3.2.4.4.1
<PAGE>
Page 31
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
94 MODIFY/OVERHAUL 1 18 EA $ [*]
1650-14-397-0762 MODIFY TO:
SERVO CONTROL 1650-14-451-4636
P/N SC8031-1 P/N SC8033-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
95 REWORK 5 20 EA $ [*]
OVERHAUL 1 20 EA $ [*]
1650-14-451-4636
SERVO CONTROL
P/N SC8033-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
<PAGE>
Page 32
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
96 MODIFY/OVERHAUL 0 7 EA $ [*]
1650-14-397-0763 MODIFY TO:
SERVO CONTROL 1650-14-448-1729
P/N SC8032-1 P/N SC8034-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
801400 CUP ASSEMBLY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
97 REWORK 3 20 EA $ [*]
OVERHAUL 3 20 EA $ [*]
1650-14-448-1729
SERVO CONTROL
P/N SC8034-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
801400 CUP ASSEMBLY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
<PAGE>
Page 33
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
UNIT
CLIN SUPPLIES/SERVICES QTY UNIT PRICE
102 LABOR RATE: UNUSUAL DAMAGE 1 LT Not separately priced
IAW Section C, Paragraph C-3.5
and Section H, Paragraph H-6
HOURLY RATE $ [*]
103 LABOR RATE: TECHNICAL SUPPORT 1 LT Not separately priced
SERVICES
IAW Section C, Paragraph C-3.7
and Section H, Paragraph H-6
HOURLY RATE $ [*]
104 LABOR RATE: PRODUCT IMPROVEMENT/ 1 LT Not separately priced
ENGINEERING CHANGE PROPOSAL
IAW Section C, Paragraph C-3.8
and Section H, Paragraph H-6
HOURLY RATE $ [*]
105 LABOR RATE: SERVICE BULLETINS 1 LT Not separately priced
IAW Section C, Paragraph C-3.10
and Section H, Paragraph H-6
HOURLY RATE $ [*]
106 PUBLICATIONS/UPDATES
IAM Section C, Paragraph C-3.12 1 LT Not separately priced
107 AVIATION COMPUTERIZED MAINTENANCE
SYSTEM (ACMS) forms IAW Section H,
Paragraph H-1 1 LT Not separately priced
108 Failure Data Report
IAW Section F, Paragraph F-4 1 LT Not separately priced
109 Replacement Parts Listing
IAW SECTION C, PARAGRAPH C-3.4 1 LT Not separately priced
110 Standard Form 294, SUBCONTRACTING
REPORT FOR INDIVIDUAL CONTRACTS
IAW FAR 52.219-9 in Section I 1 LT Not separately priced
111 Standard Form 295,
SUMMARY SUBCONTRACT REPORT
IAW FAR 52.219-9 in Section I 1 LT Not separately priced
112 Government Property Report IAW
TAR 1252.245-70 in Section I 1 LT Not separately priced
<PAGE>
Page 34
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
OPTION YEAR FOUR:
DATE OF OPTION EXERCISE THROUGH ONE YEAR FROM DATE OF OPTION
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
113 REWORK 5 30 EA $ [*]
1620-14-459-0511
LEG, LH MAIN LG
P/N 18785-100-05
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
17975 CONTACTOR UNIT ASSY $ [*] EA
18802 UNION $ [*] EA
18965-000-01 LH HOUSING $ [*] EA
18965-000-01 LH HOUSING $ [*] EA RECOVERED IAW C-3.2.4.1
18979 SHAFT $ [*] EA
18980 SHAFT $ [*] EA
18981 SWIVEL PIN $ [*] EA
18989-000-01 JACK $ [*] EA
19217 CABLE $ [*] EA
19828-100 FLEX HOSE $ [*] EA
20529-100 HOSE $ [*] EA
24079-000-00 SINGLE PIECE BEARING $ [*] EA
<PAGE>
Page 35
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
114 REWORK 5 40 EA $ [*]
1620-14-462-8049
LEG, RH MAIN LG
P/N 18786-100-05
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
17975 CONTACTOR UNIT ASSY $ [*] EA
18130 ROLLER $ [*] EA
18802 UNION $ [*] EA
18966-000-01 RH HOUSING $ [*] EA
18966-000-01 RH HOUSING $ [*] EA RECOVERED IAW C-3.2.4.1
18979 SHAFT $ [*] EA
18980 SHAFT $ [*] EA
18981 SWIVEL PIN $ [*] EA
18989-000-01 JACK $ [*] EA
19217 CABLE $ [*] EA
19828-100 FLEX HOSE $ [*] EA
20529-100 HOSE $ [*] EA
24079-000-00 SINGLE PIECE BEARING $ [*] EA
115 REWORK 5 35 EA $ [*]
1620-14-459-0514
AUX LANDING GEAR
P/N 18740-100-07
OR
P/N 18740-100-06
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18880-000-02 HOUSING $ [*] EA
18907-000-01 UPPER BEARING $ [*] EA
18921-000-01 BEARING POST $ [*] EA
18922 PISTON TUBE $ [*] EA
18926 LOWER BEARING $ [*] EA
18928 LEVER PISTON SHAFT $ [*] EA
18932-000-01 LOWER BEARING $ [*] EA
19010 SHAFT $ [*] EA
19324 AXLE $ [*] EA
19465 YOKE $ [*] EA
<PAGE>
Page 36
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
116 MODIFY/REWORK 1 5 EA $ [*]
1620-14-459-0514 MODIFY TO:
AUX LANDING GEAR
P/N 18740-100-04 P/N 18740-100-07
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18880-000-02 HOUSING $ [*] EA
18907-000-01 UPPER BEARING $ [*] EA
18921-000-01 BEARING POST $ [*] EA
18922 PISTON TUBE $ [*] EA
18926 LOWER BEARING $ [*] EA
18928 LEVER PISTON SHAFT $ [*] EA
18932-000-01 LOWER BEARING $ [*] EA
19010 SHAFT $ [*] EA
19324 AXLE $ [*] EA
19465 YOKE $ [*] EA
117 MODIFY/REWORK 1 5 EA $ [*]
1620-14-386-4447 MODIFY TO:
AUX LANDING GEAR 1620-14-459-0514
P/N 18740-100-01 P/N 18740-100-07
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18880-000-02 HOUSING $ [*] EA
18907-000-01 UPPER BEARING $ [*] EA
18921-000-01 BEARING POST $ [*] EA
18922 PISTON TUBE $ [*] EA
18926 LOWER BEARING $ [*] EA
18928 LEVER PISTON SHAFT $ [*] EA
18932-000-01 LOWER BEARING $ [*] EA
19010 SHAFT $ [*] EA
19324 AXLE $ [*] EA
19465 YOKE $ [*] EA
<PAGE>
Page 37
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
118 REWORK 3 25 EA $ [*]
1650-14-043-0964
ACTUATOR CYLINDER
P/N 19570-101
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
17946 BUSHING $ [*] EA
18787-100 HOSE ASSY $ [*] EA
18788-100 HOSE ASSY $ [*] EA
18789-100 HOSE ASSY $ [*] EA
19640 BALL FITTING ASSY $ [*] EA
19645 BODY ASSY $ [*] EA
19645 BODY ASSY $ [*] EA RECOVERED IAW C-3.2.4.3
19713 BUSHING $ [*] EA
19727 PISTON $ [*] EA
19731 CLAW $ [*] EA
19870 HARNESS CABLE $ [*] EA
119 REWORK 3 10 EA $ [*]
1650-14-387-2620
ACTUATOR CYLINDER
P/N 19575-101
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
18789-100 HOSE ASSY $ [*] EA
18790-100 HOSE ASSY $ [*] EA
18791-100 HOSE ASSY $ [*] EA
19640 BALL FITTING ASSY $ [*] EA
19713 BUSHING $ [*] EA
19716-100 HOUSING ASSY $ [*] EA
19716-100 HOUSING ASSY $ [*] EA RECOVERED IAW C-3.2.4.3
19727 PISTON $ [*] EA
19731 CLAW $ [*] EA
19880 HARNESS CABLE $ [*] EA
<PAGE>
Page 38
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
120 REWORK 1 10 EA $ [*]
OVERHAUL/MODIFY 2 30 EA $ [*]
*REPLACE LINER ONLY 1 10 EA $ [*]
1650-14-383-0795 OVERHAUL AND MODIFY TO:
PUMP, SELF REGULATING 1650-14-463-8804
P/N C24160022 P/N C24160022-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
A81953-2 END FITTING $ [*] EA
GA70926-1 SWASH PLATE ASSY $ [*] EA
GA70657-2 BLOCK ASSY $ [*] EA
*See Section C, Paragraph C-3.2.4.4.1
121 REWORK 3 35 EA $ [*]
OVERHAUL 2 30 EA $ [*]
*REPLACE LINER ONLY 1 25 EA $ [*]
1650-14-463-8804
PUMP, SELF REGULATING
P/N C24160022-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
A81953-2 END FITTING $ [*] EA
GA70926-1 SWASH PLATE ASSY $ [*] EA
GA70657-2 BLOCK ASSY $ [*] EA
*See Section C, Paragraph C-3.2.4.4.1
<PAGE>
Page 39
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
122 MODIFY/OVERHAUL 0 1 EA $ [*]
1650-14-397-0762 MODIFY TO:
SERVO CONTROL 1650-14-451-4636
P/N SC8031-1 P/N SC8033-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
123 REWORK 1 30 EA $ [*]
OVERHAUL 1 30 EA $ [*]
1650-14-451-4636
SERVO CONTROL
P/N SC8033-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
<PAGE>
Page 40
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
MIN MAX UNIT
CLIN SUPPLIES/SERVICES QTY QTY UNIT PRICE
124 MODIFY/OVERHAUL 0 2 EA $ [*]
1650-14-397-0763 MODIFY TO:
SERVO CONTROL 1650-14-448-1729
P/N SC8032-1 P/N SC8034-1
TEST/EVALUATION S [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
801400 CUP ASSEMBLY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
125 REWORK 3 22 EA $ [*]
OVERHAUL 3 22 EA $ [*]
1650-14-448-1729
SERVO CONTROL
P/N SC8034-1
TEST/EVALUATION $ [*] EA
SEPARATELY PRICED REPLACEMENT PARTS:
P/N NOMENCLATURE
800600 FILTER $ [*] EA
801271 BODY $ [*] EA
801400 CUP ASSEMBLY $ [*] EA
802170 CIRCUIT BOARD $ [*] EA
807763 SWITCH $ [*] EA
<PAGE>
Page 41
DTCG38-95-D-20018
B-1. CONTRACT LINE ITEMS. (Cont'd)
UNIT
CLIN SUPPLIES/SERVICES QTY UNIT PRICE
130 LABOR RATE: UNUSUAL DAMAGE 1 LT Not separately priced
IAW Section C, Paragraph C-3.5
and Section H, Paragraph H-6
HOURLY RATE $ [*]
131 LABOR RATE: TECHNICAL SUPPORT 1 LT Not separately priced
SERVICES
IAW Section C, Paragraph C-3.7
and Section H, Paragraph H-6
HOURLY RATE $ [*]
132 LABOR RATE: PRODUCT IMPROVEMENT/ 1 LT Not separately priced
ENGINEERING CHANGE PROPOSAL
IAW Section C, Paragraph C-3.8
and Section H, Paragraph H-6
HOURLY RATE $ [*]
133 LABOR RATE: SERVICE BULLETINS 1 LT Not separately priced
IAW Section C, Paragraph C-3.10
and Section H, Paragraph H-6
HOURLY RATE $ [*]
134 PUBLICATIONS/UPDATES
IAW Section C, Paragraph C-3.12 1 LT Not separately priced
135 AVIATION COMPUTERIZED MAINTENANCE
SYSTEM (ACMS) forms IAW Section H,
Paragraph H-1 1 LT Not separately priced
136 Failure Data Report
IAW Section F, Paragraph F-4 1 LT Not separately priced
137 Replacement Parts Listing
IAW SECTION C, PARAGRAPH C-3.4 1 LT Not separately priced
138 Standard Form 294, SUBCONTRACTING
REPORT FOR INDIVIDUAL CONTRACTS
IAW FAR 52.219-9 in Section I 1 LT Not separately priced
139 Standard Form 295,
SUMMARY SUBCONTRACT REPORT
IAW FAR 52.219-9 in Section I 1 LT Not separately priced
140 Government Property Report IAW
TAR 1252.245-70 in Section I 1 LT Not separately priced
<PAGE>
Page 42
DTCG38-95-D-20018
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT
C-1 SCOPE.
The HH-65A components to be reworked/overhauled/modified under this contract are
not life limited. They are removed and reworked as an on condition item or at
scheduled overhaul intervals. The requirement exists to rework/overhaul/modify
unserviceable components and return them to Ready-For-Issue (RFI) condition,
provide technical support services, support product improvement efforts, modify
components per service bulletins, and provide updates to Component Maintenance
Manuals (CMM). Work under this contract shall be performed at the contractor's
facility or U. S. Coast Guard approved subcontractor facility.
C-1.1 Background. The HH-65A (Dolphin) helicopter entered the Coast Guard
inventory in 1984 as a replacement for the H-52. The search and rescue mission,
for which the HH-65A is used, is primarily around salt water, at low altitude;
therefore, the components are subject to corrosion.
C-1.2 Original Equipment Manufacturers (OEM):
CAGE OEM *ITEM
---- --- ----
F0189 Eram-Etudes Realisations 1 - 7
Accessorires Mecaniques
153 Rue de Noisy Le Sec
93260 Les Lilas France
F6137 Messier-Hispano Bugatti 8 - 9
SA B P 113
92124 Montrouge Cedex France
F1688 Samm/STE D Applications Des 10 - 14
Machines Motrices/SA Dpt
Hydraulique 224 Quai de Stalingrad
92130 Issy Les Moulineaux France
F6103 D B A Div Air Equipement 15 - 17
98 Boulevard Victor Hugo
92115 Clichy France
*Includes respective option years.
C-1.3 Precedence. In the event of conflict between OEM technical
specifications/rework procedures and other technical specifications/procedures,
the order of precedence is as follows:
C-1.3.1 Coast Guard/Aircraft Repair and Supply Center (ARSC) specifications and
procedures.
C-1.3.2 OEM specifications and procedures.
C-1.3.3 Other
<PAGE>
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DTCG38-95-D-20018
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT
C-2. APPLICABLE DOCUMENTS.
C-2.1 Industry Specifications.
C-2.1.1 OEM specifications and procedures applicable to the components listed
in Section B. NOTE: Documents are not available from the Government.
C-2.2 Military Specifications.
C-2.2.1 MIL-I-45208A, Quality Program Requirements, dated 16 Dec 63, with
Amendment 1 dated 24 Jul 81.
C-2.2.2 MIL-P-116J, Preservation Methods, dated 29 Sep 89.
C-2.3 Military Standards
C-2.3.1 MIL-STD-129M, Marking for Shipment and Storage, dated 15 Jun 93.
C-2.4 Other Military Documents.
C-2.4.1 NAVAIR 01-1A-509 (AFTO 1/1/691), Aircraft Weapons Systems Cleaning and
Corrosion Control, dated 1 Jan 92.
C-2.5 Source of Government Documents. See Section L - Instructions, Conditions
and Notices to Offerors.
C-3. REQUIREMENTS.
C-3.1 General.
C-3.1.1 The contractor shall possess a current Federal Aviation Administration
(FAA) Repair Station Certificate and be certified by the OEM for the performance
of work required by this statement of work. See Section L, Paragraph L-8.
C-3.1.2 The contractor must have access to the most current required
maintenance, rework, and overhaul manuals to insure that the components are
reworked/overhauled and operating in accordance with the applicable CMM, and
OEM's current specifications and procedures.
C-3.1.3 All rework, overhaul, modification, and inspection of components shall
be done in accordance with the manufacturer's most current procedures as
modified by ARSC Engineering. Replacement parts requirements have been modified
for the Servo Controls, Section B item numbers 10 - 14, and respective option
years (see Section J, Attachment 4). In all cases the rework, overhaul,
modification, inspection, and test procedures must meet or exceed manufacturer's
specifications, except where specifically noted herein.
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DTCG38-95-D-20018
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT
C-3. REQUIREMENTS. (Cont'd)
C-3.1.4 The Coast Guard reserves the right to review and modify all rework,
overhaul, modification, inspection, and test procedures to make them more
suitable to the Coast Guard environment. The Coast Guard shall be advised
within 15 working days of any changes to manufacturer's procedures. Any such
modification after contract award will be in accordance with FAR clause 52.243-1
Alternate II, entitled, "Changes - Fixed-Price." The Coast Guard reserves the
right to waive any specification.
C-3.2 Major Tasks.
C-3.2.1 Components shall be reworked/overhauled/modified for the specific
fault(s) for which they were returned. DD Form 1577-2, Unserviceable
(Repairable) Tag-Material, or Department of Transportation, USCG, CG-1577-A
(11-90), Unsatisfactory Report Tag, will be attached to each Non-RFI component
describing faults. The contractor shall perform a visual and technical
inspection in accordance with the applicable CMM and correct all additional
deficiencies found. This shall include replacement of broken parts and the
removal of any foreign matter or corrosion.
C-3.2.2 The contractor shall provide all necessary parts, material, labor,
tooling, test equipment and facilities to evaluate, rework, overhaul, and
modify, as required, the following components:
NOMENCLATURE NSNPART NUMBER REWORK/OVERHAUL
- ------------ -------------- ---------------
Main Landing Gear 1620-14-459-0511 18785-100-05 On Condition
Leg, LH
Main Landing Gear 1620-14-462-8049 18786-100-05 On Condition
Leg, RH
Auxiliary Landing 1620-14-459-0514 18740-100-07 On Condition
Gear 1620-14-SR1-1681 18740-100-04
1620-14-386-4447 18740-100-01
Actuator 1650-14-043-0964 19570-101 On condition
Cylinder 1650-14-387-2620 19575-101
Self Regulating 1650-14-383-0795 C24160022 On Condition or 1000
Pump Hour Liner Replace or
2000 Hour Overhaul
Servo Control 1650-14-397-0762 SC8031-1 On Condition or
1650-14-388-3431 8031A 3000 Hours Overhaul
1540-14-397-0763 SC8032-1
1650-14-388-3432 SC8032
1650-14-451-4636 SC8033-1
5930-12-328-3476 SC8034-1
1650-14-404-8798 SC7282
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DTCG38-95-D-20018
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT
C-3. REQUIREMENTS. (Cont'd)
NOMENCLATURE NSN PART NUMBER REWORK/OVERHAUL
- ------------ --- ----------- ---------------
Landing Gear 6110-14-401-5731 97168-100 On Condition
Regulator
Hydraulic 1620-14-406-3536 97166-300 On Condition
Regulator 6615-14-393-8808 97166-100
C-3.2.3 The following components, when received for rework, shall be overhauled
when the Time-Since-Overhaul (TSO) is equal to or greater than 60% of the
scheduled Time-Between-Overhaul (TBO) as shown below.
COMPONENT SCHEDULED TBO TSO
- --------- ------------- ---
Self Regulating Pump 2000 Hours 1200 Hours for Rework
1440 Hours for Liner
Replacement
Servo Control 3000 Hours 1800 Hours
C-3.2.4 The following are tasks associated with the rework, overhaul, and/or
modification effort for each component. This list is not intended to be all
inclusive. The contractor shall determine the specific tasks necessary to meet
current minimum functional performance and test specifications designated by the
OEM for the component.
C-3.2.4.1 Leg, LH Main LG, P/N 18785-100-05 and Leg, RH Main LG, P/N
18786-100-05. Compliance with manufacturer's Service Bulletins (SB) and Service
Letters (SL) is mandatory. Applicability is as follows:
Messier-Eram -
SL 32-10 - as necessary
SL 32-12 - as necessary
SB 024-32-012 - always required
SB 024-32-013 - reference
C-3.2.4.2 Auxiliary Landing Gear, P/N 18740-100-07. Compliance with
manufacturer's Service Bulletins (SB) and Service Letters (SL) is mandatory.
Applicability is as follows:
Messier-Eram -
SB 024-32-001 - always required
SB 024-32-002 - always required
SB 024-32-003 - always required
SB 024-32-006 - always required
SB 024-32-009 - always required
SB 024-32-011 - always required
SB 024-32-015 - always required
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DTCG38-95-D-20018
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT
C-3. REQUIREMENTS. (Cont'd)
C-3.2.4.3 Actuator Cylinder, P/N 19570-101 and Actuator Cylinder, P/N
19575-101. Compliance with manufacturer's Service Bulletins (SB) and Service
Letters (SL) is mandatory. Applicability is as follows:
Messier-Eram SL 32-013 - as necessary
C-3.2.4.4 Self Regulating Pump, P/N C2416022
C-3.2.4.4.1 Self Regulating Pump, P/N C2416022 Liner Replacement. Pumps with
Time-Since-Repair (TSR)/TSO ranging from 1000 to 1440 hours will be removed for
the purpose of replacing the Liner, P/N A81222. The contractor shall
disassemble and inspect each pump returned for liner replacement. After
inspection, the contractor shall install a liner replacement kit consisting of
the following parts:
Liner P/N A81222 1 EA
Seal P/N BT5-7 2 EA
Packing P/N BT63-4 1 EA
Packing P/N BT82-4 1 EA
After installation of the above kit, the contractor shall re-assemble and
perform operational tests in accordance with the CMM on each pump. If failures
unrelated to the liner replacement are discovered, the contractor shall request
authorization to perform rework priced in Section B.
C-3.2.4.4.2 Application of SB 025-29-001 required during overhaul.
C-3.2.4.5 Servo Controls. All servo controls returned for rework/overhaul
shall be upgraded to the large body configuration:
P/N SC8033-1 and SC8034-1.
C-3.2.4.5.1 Application of SBs 8033-67-39-01 and 8034-67-39-01 is required
during overhaul, modification and rework. These SBs require the installation of
stainless steel bearings.
C-3.2.5 During inspection and functional test, the presence of corrosion in a
component shall constitute reason for a more thorough disassembly and
inspection. Should corrosion be found, disassembly shall be made to the extent
necessary to remove corrosion or replace the part, or parts, affected.
C-3.2.6 Corroded parts shall be replaced, except in those cases where removal
of corrosion from a part will not impair efficiency or safe operation of the
part. Corrosion removal and treatment of affected areas will be accomplished in
accordance with manufacturer's specifications and NAVAIR 01-1A-509.
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DTCG38-95-D-20018
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT
C-3. REQUIREMENTS. (Cont'd)
C-3.2.7 The contractor shall make every effort to develop a rework procedure
for component parts for which none exist. The contractor shall submit the
procedure to the Coast Guard for approval prior to implementation. The
contractor may be required to coordinate changes with the OEM.
C-3.2.8 Upon completion of rework and testing, the contractor shall clean
reworked components in accordance with the applicable CMM instructions.
C-3.3 Replacement Parts. Parts found to be defective shall be replaced with
parts meeting the manufacturer's specifications and drawings. Replacement parts
shall be new. Parts shall be replaced as specified in the manufacturer's most
current procedures as modified by ARSC Engineering. Replacement parts
requirements have been modified for Servo Controls, Section B, Items 10 - 14,
and respective option years (see Section J, Attachment 4). Prices provided in
Section B shall be inclusive of all required replacement parts except as
provided in Section H, Paragraph H-2, Exclusions.
C-3.3.1 Separately Priced Replacement Parts. During the course of this
contract, the contractor may propose use of serviceable parts in lieu of new
separately priced replacement parts subject to Contracting Officer approval.
The price of any such part will be negotiated on a case by case basis.
C-3.4 Replacement Parts Listing. The contractor shall submit a listing of all
replacement parts utilized in the rework/overhaul/modification procedure of each
assembly/component. This listing shall be submitted with the contractor's
invoice. The replacement parts listing must show assembly/component serial
number, nomenclature, and replacement parts used, listed in numerical order.
C-3.5 Unusual Damage. Prices should not include components which indicate
obvious misuse, cannibalization, or severe damage due to mishandling or crash
damage. Components received with unusual damage shall be inspected,
rework/overhaul/modification estimate determined, and authorization to proceed
obtained from the Contracting Officer prior to commencement of work. The labor
rate utilized in the estimate will be as specified in Section B. The contractor
shall notify the Contracting Officer within 15 working days of receipt, when any
component reflects unusual damage. If any material is determined by the Coast
Guard to be scrap or beyond economical rework, the contractor will be given
disposition instructions. The contractor will be reimbursed the firm fixed
price for test and evaluation as specified in Section B.
<PAGE>
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DTCG38-95-D-20018
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT
C-3. REQUIREMENTS. (Cont'd)
C-3.6 Test and Evaluation. If, after visual and functional inspections, an
item is found to meet manufacturer's minimum performance specifications, the
contractor will be allowed the firm fixed price for test and evaluation. The
Failure Data Report shall be prepared, indicating the Coast Guard's reported
failure, and included with the returned component, as well as with the invoice.
C-3.7 Technical Support Services. The contractor shall provide
engineering/customer support services for the items set forth in Section B. The
Coast Guard may develop a requirement for additional technical support services
in support of the Coast Guard's continuous quality improvement program. These
requirements will be transmitted to the contractor in writing on a case by case
basis. Upon receipt of a request for a quote for a specific task, the
contractor shall prepare and submit to the Contracting Officer, a proposal of
the hours associated with the performance task. The Government will utilize the
labor rate specified in Section B to determine a final price. Specific
deliverables will be identified on individual delivery orders.
C-3.8 Product Improvement Proposal (PIP)/Engineering Change Proposal (ECP).
When the need for a PIP/ECP is identified by the Coast Guard, the contractor
will be notified in accordance with FAR 52.243-1 Alternate II, Changes -
Fixed-Price. The contractor shall submit a proposal to the Contracting Officer
for an incremental charge to be assessed each time the PIP/ECP is incorporated
into the component. The proposal shall contain a breakdown of material
estimates. The labor rate will be as specified in Section B. Upon agreement of
the price for incorporation of the PIP/ECP, the Contracting Officer will issue a
supplemental agreement reflecting the incorporation of the approved PIP/ECP.
The contractor shall not incorporate approved PIP/ECPs prior to contract
modification.
C-3.9 Value Engineering Change Proposals (VECP). The contractor is encouraged
to develop, prepare, and submit VECPs voluntarily. The contractor will share in
any net savings realized from accepted VECPs in accordance with the procedures
outlined in FAR 52.248-1.
C-3.10 Service Bulletins. The contractor shall provide the Contracting Officer
two copies of all service bulletins within 10 calendar days of receipt. The
Contracting Officer will notify the contractor in writing of components
requiring incorporation of mandatory or optional service bulletins. Upon
receiving notice of a service bulletin, from the Contracting Officer, the
contractor shall submit, within 30 calendar days, a detailed proposal which
shall include a listing of replacement parts and/or materials required, the time
needed to effect the modifications, an estimated price breakdown of each part,
and the number of labor hours required. The Coast Guard will normally
incorporate all mandatory service bulletins. The labor rate will be as
specified in Section B.
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DTCG38-95-D-20018
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT
C-3. REQUIREMENTS. (Cont'd)
C-3.11 Aviation Computerized Maintenance System (ACMS). The contractor shall
submit component repair tracking forms as specified in Section H, Paragraph H-l,
Aviation Computerized Maintenance System (ACMS) Procedures.
C-3.12 Publications/Updates. The contractor, within 60 calendar days of
contract award, shall provide the Coast Guard with an updated copy of all
applicable OEM approved CMMs for components listed in Section B. The CMMs shall
reflect the latest procedures used in the rework, overhaul, and modification of
components. If during the course of reworking components, the contractor
determines that current procedures detailed in the CMM, should be changed, two
copies of recommended changes shall be submitted to the Coast Guard for review
and approval/disapproval. The contractor shall continuously update all
applicable CMMs during the life of the contract. Revisions to CMMs shall be
submitted to the Coast Guard within 60 calendar days of receipt by the
contractor.
C-4. QUALITY ASSURANCE PROVISIONS.
C-4.1 Responsibility for Inspections and Tests. The contractor shall establish
an Inspection System in accordance with MIL-I-45208A, Quality Program
Requirements.
C-4.2 Inspections. After rework/overhaul/modification is complete each
component shall be inspected/checked in accordance with procedures outlined in
the applicable CMM.
C-4.3 Testing. No deviations from test requirements are authorized.
C-5. NOTES.
C-5.1 Definitions.
C-5.1.1 ON CONDITION. Rework of a component when some type of degradation or
failure prevents it from performing in the desired manner.
C-5.1.2 QUALITY DEFICIENCY REPORT (QDR). The QDR (SF368) is a means of
informing DOD and civilian supply sources of deficiencies in the products
procured from them by ARSC. The QDR is usually the result of an Unsatisfactory
Report of Aeronautical Equipment, CG Form 4010 (UR), received from a USCG Air
Station, or initiated at ARSC.
<PAGE>
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DTCG38-95-D-20018
SECTION D - PACKAGING AND MARKING
D-1. PRESERVATION - PACKAGING - PACKING.
Each component shall be individually preserved, packaged, and packed (PPP). PPP
shall be in accordance with MIL-P-116J, Method II, Submethod IIF. Quality
conformance tests are not required. Humidity indicators are not required. For
availability of this document see Section L, Paragraph L-3.
D-2. MARKING INSTRUCTIONS.
Material shall be marked in accordance with Paragraph 4.5 of MIL-STD-129M,
Marking for Shipment and Storage, dated 15 Jan 93. Accordingly, items of the
same National Stock Number (NSN) shall be individually packaged and labeled with
NSN, P/N, quantity, unit of issue, serial number, contract number, and delivery
order number on the exterior of the shipping container.
<PAGE>
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DTCG38-95-D-20018
SECTION E - INSPECTION AND ACCEPTANCE
E-1. NOTICE - CLAUSES INCORPORATED BY REFERENCE.
The following contract clauses pertinent to this section are hereby incorporated
by reference:
FEDERAL ACQUISITION REGULATION (48 CFR CHAPTER 1) CLAUSES
52.246-4 INSPECTION OF SERVICES - FEB 1992
FIXED-PRICE.
52.246-15 CERTIFICATE OF CONFORMANCE. APR 1984
E-2. INSPECTION & ACCEPTANCE.
Inspection and acceptance of material under this contract shall be performed at
destination by local Quality Assurance personnel, and consist of count and
condition only.
ARSC considers components RFI upon acceptance. Components determined to be
Non-RFI upon installation may be returned to the contractor as a Quality
Deficiency Report item.
The contractor shall provide the necessary documentation as required in Section
H, Paragraph H-8, Airworthiness.
E-3. MATERIAL INSPECTION AND RECEIVING REPORT.
At the time of delivery of each component under this contract, the contractor
shall prepare and furnish to the Contracting Officer a properly completed DD
Form 250 Material Inspection and Receiving Report (MIRR). The DD Form 250 must
include: Contract Number, Delivery Order Number, Nomenclature, NSN, P/N,
Quantity, Unit of Issue, and Serial Number.
One copy of the DD Form 250, marked "Information Only", shall be sent as a
packing slip with each shipment and affixed to the outside of the shipping
container. The final billing DD Form 250 shall be sent to the address in
Section G, Paragraph G-2, with a copy to the Contracting Officer.
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DTCG38-95-D-20018
SECTION F - DELIVERIES OR PERFORMANCE
F-1. NOTICE - CLAUSES INCORPORATED BY REFERENCE.
The following contract clauses pertinent to this section are hereby incorporated
by reference:
FEDERAL ACQUISITION REGULATION (48 CFR CHAPTER 1) CLAUSES
52.212-13 STOP-WORK ORDER. AUG 1989
52.212-15 GOVERNMENT DELAY OF WORK. APR 1984
52.247-34 F.O.B. DESTINATION. NOV 1991
52.247-54 DIVERSION OF SHIPMENT UNDER F.O.B. MAR 1989
DESTINATION CONTRACTS.
52.247-55 F.O.B. POINT FOR DELIVERY OF GOVERNMENT- APR 1984
FURNISHED PROPERTY.
F-2. DELIVERY SCHEDULE.
Delivery shall be according to the following schedule:
SCOPE CALENDAR DAYS AFTER
*CLIN OF WORK RECEIPT OF ORDER/COMPONENT
---- ------- --------------------------
1 REWORK 60
2 REWORK 60
3 REWORK 60
4 MODIFY/REWORK 60
5 MODIFY/REWORK 60
6 REWORK 45
7 REWORK 45
8 REWORK 45
MODIFY/OVERHAUL 45
REPLACE LINER ONLY 45
9 REWORK 45
MODIFY/OVERHAUL 45
REPLACE LINER ONLY 45
<PAGE>
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DTCG38-95-D-20018
SECTION F - DELIVERIES OR PERFORMANCE
F-2. DELIVERY SCHEDULE. (Cont'd)
SCOPE CALENDAR DAYS AFTER
*CLIN OF WORK RECEIPT OF ORDER/COMPONENT
- ----- ------- --------------------------
10 MODIFY/OVERHAUL 45
11 REWORK 45
OVERHAUL 45
12 MODIFY/OVERHAUL 45
13 REWORK 45
OVERHAUL 45
23 Aviation Computerized Maintenance With invoice
Maintenance System (ACMS) Form
24 Failure Data Report With invoice
25 Replacement Parts Listing With invoice
26 Standard Form 294 Semi-annually, through 31 March and 30 Sept,
and at contract completion
Due 25 April and 25 October
27 Standard Form 295 Quarterly, through end of March, June,
September, and December
Due 25th day of following month
28 Form DOT F 4220.43 Annually, not later than 15 Sept of each
calendar year, and at contract completion
*Includes respective option years.
NOTE: Partial and/or early deliveries are acceptable.
F-3. F.O.B. POINT.
Shipments under this contract shall be f.o.b. Destination only. Offers
submitted on any other basis will be rejected as nonresponsive.
In accordance with clause at FAR 52.247-55, f.o.b. Point for Delivery
of Government-Furnished Property, the Coast Guard will ship components, freight
prepaid, to the Contractor's facility within the United States (except Alaska
and Hawaii) or Canada to the location specified in Section K, Paragraph K-11,
Place of Performance unless the Contractor specifies an alternate location
below:
-------------------------------
-------------------------------
-------------------------------
(City, County, State, Zip Code)
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DTCG38-95-D-20018
SECTION F - DELIVERIES OR PERFORMANCE
F-3. F.O.B. POINT. (Cont'd)
In the event that the Contractor's facility is located outside the contiguous
states, the District of Columbia or Canada, the f.o.b. Point for Government
delivery of Government-furnished property shall be a location in the United
States (excluding Alaska and Hawaii) specified by the Contractor below:
-------------------------------
-------------------------------
-------------------------------
(City, County, State, Zip Code)
NOTE: The delivery clock will start upon receipt of delivery order
at contractor's facility or upon receipt of the component at the CONUS location.
All actions necessary for shipment through customs for items leaving and
entering the United States shall be the responsibility of the contractor.
F-4. SHIPPING INSTRUCTIONS.
Components will be shipped to the contractor from Coast Guard Operating Units or
ARSC. Upon completion of required services, material shall be shipped to the
following address, or to other Coast Guard Operating Units as directed by the
Contracting Officer.
USCG Aircraft Repair and Supply Center
Receiving Section, Building 63
Elizabeth City, NC 27909-5001
MARK FOR: 41000 Field Stock
Contract Number DTCG38-95-D-20018
Delivery Order Number
------------------------------
(assigned at time of issuance)
Unless otherwise specified, documentation listed in Section B shall be submitted
to the address shown in Section G, Paragraph G-l, Address of Correspondence.
The Component Repair Record shall be submitted as follows:
Original Copy 1 Copy 2
-------- ------ ------
TAMSCO Packaged with Attached
5030 Herzel Place overhauled/ to invoice
Suite 200 reworked component
Beltsville, MD 20705
Attn: ACMS
The original Failure Data Report shall be attached to the invoice. One copy
shall be attached to the DD Form 250 shipped with the
reworked/overhauled/modified component.
<PAGE>
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DTCG38-95-D-20018
SECTION F - DELIVERIES OR PERFORMANCE
F-5. ORDERING PERIOD.
The ordering period for this contract shall be from the effective date of
contract award through one year from effective date of award, with four one-year
options (if exercised), renewable annually. The total duration of the ordering
period for this contract shall not exceed five years.
F-6. LIQUIDATED DAMAGES.
(a) In the event the contractor fails to meet the contractual delivery
schedule, liquidated damages will be assessed. Liquidated damages will be based
on the overhaul price for the specific component (the rework price will be used
for components without a specified overhaul price). Liquidated damages shall be
assessed against the contractor in the amount of 1.0% (of overhaul price) per
calendar day for days 61-90 for landing gears and 46-75 all other components.
Liquidated damages shall be assessed against the contractor in the amount of
2.0% (of the overhaul price) per calendar day for days above 91 for the landing
gear and 76 for all other components. For any specific component, the maximum
liquidated damages shall be 100% of the delivery order price.
(b) Liquidated damages do not apply to components which have been determined
by the Contracting Officer to be exclusions under this contract in accordance
with Section H, Paragraph H-2, Exclusions.
(c) The parties agree that the liquidated damages formula set forth herein is
fair and reasonable, and not a penalty. The parties further agree not to contest
the validity of the liquidated damages provision set forth herein.
<PAGE>
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DTCG38-95-D-20018
SECTION G - CONTRACT ADMINISTRATION DATA
G-1. ADDRESS OF CORRESPONDENCE.
All correspondence, except as otherwise specified, shall be directed to the
following address:
Contracting Officer
Procurement Branch, HH-65A Contract Section
USCG Aircraft Repair and Supply Center
Elizabeth City, NC 27909-5001
G-2. INVOICING INSTRUCTIONS.
The original and three copies of the Contractor's invoice shall be submitted to
the designated billing office for payment as follows:
Chief, Fiscal Branch
Building 63
USCG Aircraft Repair and Supply Center
Elizabeth City, NC 27909-5001
MARK FOR: Contract Number DTCG38-95-D-20018
Delivery Order Number
------------------------------
(assigned at time of issuance)
NOTE: Failure to submit the DD Form 250, Component Repair Record, Failure
Data Report, Airworthiness Certification, and Replacement Parts
Listing will constitute an improper invoice, and may result in payment
delay or nonpayment.
G-3. REMITTANCE ADDRESS.
If remittance address is different from that shown on Page 1 of SF 33, Block 15A
enter such address below:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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DTCG38-95-D-20018
SECTION G - CONTRACT ADMINISTRATION DATA
G-4. ORDERING OFFICE.
The following activity is the only unit authorized to place delivery orders
under this contract:
Contracting Officer
USCG Aircraft Repair and Supply Center
Elizabeth City, NC 27909-5001
<PAGE>
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DTCG38-95-D-20018
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H-l. AVIATION COMPUTERIZED MAINTENANCE SYSTEM (ACMS) PROCEDURES.
ACMS is the management information system used to schedule and record all Coast
Guard aircraft maintenance. The contractor's responsibility within ACMS shall
include submission of the appropriate reports within 5 working days of the
completion of work. Items 1 - 14, plus respective option years, in Section B
will be shipped to the contractor with a Significant Component History Record
(SCHR) and Component Repair Record (CRR) for each component shipped. These
forms are described below:
(a) SCHR - Records the maintenance history of serial-number-tracked
components. Remains with corresponding part until reinstalled on aircraft
or annotated "Scrapped" and returned to Technical and Management Services
Corporation (TAMSCO), Beltsville, Maryland.
(b) CRR - Records the maintenance performed on a serial-number-tracked
components by the contractor and enrolls or disenrolls components from ACMS
when those components are scrapped, added to, or removed from the Coast
Guard parts inventory. The original of the CRR shall be mailed to TAMSCO
within 5 working days of acceptance of the component by the Government
inspector. Copy 1 shall be packed with the component at the completion of
the rework/overhaul/modification for return to the Coast Guard. Copy 2
shall be attached to and submitted with the contractor's invoice. See
Section F, Paragraph F-4 for appropriate addresses.
The contractor shall retain copies of the CRR for no less than 2 years after
delivery of component.
H-2. EXCLUSIONS.
Components received which indicate obvious misuse, cannibalization or severe
damage due to mishandling or crash damage may dictate an exclusion from the
prices specified in Section B. Such components shall be inspected, maintenance
costs determined, and authorization to proceed obtained from the Contracting
Officer prior to commencement of rework. If the contractor considers a component
to be a candidate for exclusion, the Contracting Officer shall be notified
within 15 days of receipt. Verbal notification to the Contracting Officer shall
be confirmed in writing. The contractor's delivery obligation for the component
shall be suspended as of the date of notice to the Contracting Officer. The
Contracting Officer will make a unilateral written determination, within 30 days
of written notice, as to exclusion validity. The determination is subject to
FAR clause 52.233-1, Disputes. The Government retains the right to unilaterally
set the price for exclusion items in the event an agreement on price cannot be
reached. The contractor's delivery obligation shall resume upon receipt of the
Contracting Officer's determination.
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DTCG38-95-D-20018
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H-2. EXCLUSIONS. (Cont'd)
The Government shall not be liable for any amount expended by the Contractor in
excess of the firm fixed price reflected in Section B unless prior written
authorization has been given by the Contracting Officer.
H-3. GOVERNMENT PROPERTY.
Failure by the Government to furnish any of the line items in the amounts or
quantities described as "estimated" or "maximum" will not entitle the Contractor
to any equitable adjustment in price as defined in the Government Property
Clause of the contract.
H-4. VALUE OF GOVERNMENT PROPERTY.
In accordance with the requirement contained in FAR 45.505-2(b)(2), the
Government shall determine and furnish the unit price of the
Government-furnished property on the document covering shipment of the property.
H-5. EXERCISE OF OPTIONS.
As prescribed in FAR clause 52.217-9, Option to Extend the Term of the Contract,
the Coast Guard may extend the contract as specified in Section B. Exercise of
options is subject to FAR clause 52.232-18, Availability of Funds.
H-6. PRICING INSTRUCTIONS.
(a) The offeror may propose unit prices for the option years which differ
from the unit prices for the base year.
(b) Offered prices for "rework", "overhaul", "modify only", "modify/
rework", "modify/overhaul", and "replace liner only" requirements shall include
all labor, parts, materials, test equipment, facilities, other direct and
indirect costs, and profit associated with performance of the specific efforts
as described in Section C, except those replacement parts that are separately
priced within the line item.
(c) Offered prices for "test and evaluation" shall include all labor, parts,
materials, test equipment, facilities, other direct and indirect costs, and
profit associated with performance of test and evaluation. This price will apply
when the conditions as specified in Paragraphs C-3.5, Unusual Damage and C-3.6,
Test and Evaluation are present.
(d) Offered prices for separately priced replacement parts shall include all
labor, parts, materials, test equipment, facilities, other direct and indirect
costs, and profit associated with furnishing the specified part on an "as
required" basis.
(e) Parts provided for components identified as Exclusions, Paragraph H-2,
shall be priced as follows:
<PAGE>
Page 60
DTCG38-95-D-20018
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H-6. PRICING INSTRUCTIONS. (Cont'd)
1. Discounted List Price as the lower of the following two prices:
(a) Contractor's current commercial catalog minus best commercial
discount, or
(b) Best commercial price.
2. Excluded (Repairable) Parts:
(a) If part is damaged beyond repair (SCRAP) the Coast Guard will pay
replacement part cost using price as determined above.
(b) The repair of an excluded part is subject to Contracting Officer
approval.
3. The Government retains the right to unilaterally set the price for
exclusion parts in the event an agreement on price cannot be reached.
(f) Offered labor rates shall be loaded rates inclusive of all direct and
indirect charges, escalation and profit.
(g) All actions necessary for shipment through customs for items leaving and
entering the United States, and associated charges for those actions shall be
the responsibility of the contractor. All associated charges as well as
delivery/cost factors should be considered by offeror.
H-7. UTILIZATION OF SEPARATELY PRICED REPLACEMENT PARTS.
The contractor shall notify the Contracting Officer within 15 calendar days
after receipt of the component when any of the separately priced replacement
part(s) specified in the Section B are required. This notification shall
include a list (by name, part number, and quantity) of any separately priced
replacement part(s) required. Within 30 calendar days of notification from the
contractor, the Contracting Officer will either issue a modification to the
delivery order authorizing use of the separately priced replacement part(s) or
providing disposition instructions. The delivery schedule will be adjusted
accordingly for any delay associated with requesting and obtaining approval to
utilize the specified separately priced replacement part(s).
<PAGE>
Page 61
DTCG38-95-D-20018
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H-8. AIRWORTHINESS.
FLIGHT CRITICAL AIRWORTHINESS CERTIFICATION REQUIREMENTS
1. All "Flight Critical" aircraft parts ordered, serviced, modified, reworked,
and/or overhauled under the provisions of this agreement/order/contract must be
airworthy and suitable for installation on a U.S. Coast Guard aircrafT.
NOTE: All components and associated replacement parts on this acquisition are
considered FLIGHT CRITICAL.
2. If you are certified by any organization to manufacture, service, modify,
rework or overhaul any "flight critical" aircraft item contained within this
requirement, identify the item(s) and provide the following certification with
any substantiating documentation required:
Original Equipment Manufacturer
----
OEM Certified by______________________(OEM);
---- provide copy of your OEM Certification.
Federal Aviation Administration (FAA) Certified; provide copy of your
---- FAA Certification.
Department of Defense (DOD) Certified;
---- provide DOD contract number and point of contact under
which this supply/service is performed.
DOD Contract: ____________________________________
POC & Phone#: _____________________ (___)___-____
Other Certification, i.e., Coast Guard, foreign government, etc. CALL
---- THE ORDERING OFFICER TO AFFIRM ACCEPTANCE OF THIS CERTIFICATION PRIOR
TO PROCEEDING WITH ANY WORK UNDER THIS ORDER.
Type of Cert._______________________ Number:_________________________
Date of Cert._______________________ Duration:_______________________
Certifying Organization:_____________________________________________
- ------------------------------------ -----------------
(Contractor's Signature) (Date)
<PAGE>
Page 62
DTCG38-95-D-20018
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H-8. AIRWORTHINESS. (Cont'd)
3. The forms/certification indicated above shall be attached to the OUTSIDE of
the shipping container and a copy shall be included with the invoice. Failure
to submit the appropriate forms/certificate shall constitute an improper invoice
and will result in nonpayment.
4. IF THE CONTRACTOR CANNOT CERTIFY AS REQUIRED ABOVE, HE SHALL IMMEDIATELY AND
PRIOR TO ANY WORK BEING INITIATED NOTIFY THE APPROPRIATE GOVERNMENT CONTRACTING
OFFICER.
- -----------------------------------------------------------------
AIRWORTHINESS CERTIFICATION REQUIREMENTS
1. All aircraft parts ordered, serviced, modified, reworked, and/or overhauled
under the provisions of this agreement/order/contract must be airworthy and
suitable for installation on a U.S. Coast Guard aircraft.
2. The contractor shall furnish a Certificate of Airworthiness in accordance
with FAA procedures (FAA Form 8130-3) or a Certificate of Conformance in
accordance with FAR 52.246-15, for each component shipped in response to this
order. If a Certificate of Conformance is used it MUST be submitted in the
format provided below.
3. This certificate shall be attached to the OUTSIDE of the shipping container
and a copy shall be included with the invoice. Failure to submit the
appropriate certificate shall constitute an improper invoice and will result in
nonpayment.
4. IF THE CONTRACTOR CANNOT CERTIFY AS REQUIRED ABOVE, HE SHALL IMMEDIATELY AND
PRIOR TO ANY WORK BEING INITIATED NOTIFY THE APPROPRIATE GOVERNMENT CONTRACTING
OFFICER.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
CERTIFICATE OF CONFORMANCE IN ACCORDANCE WITH FAR 52.246-15
"I CERTIFY THAT ON__________(INSERT DATE), THE_________________________________
(INSERT CONTRACTOR'S NAME) FURNISHED THE SUPPLIES OR SERVICES CALLED FOR BY
CONTRACT NUMBER_____________________________________VIA _______________________
(CARRIER) ON________________________(IDENTIFY THE BILL OF LADING OR SHIPPING
DOCUMENT) IN ACCORDANCE WITH ALL APPLICABLE REQUIREMENTS. I FURTHER CERTIFY
THAT THE SUPPLIES OR SERVICES ARE OF THE QUALITY SPECIFIED AND
<PAGE>
Page 63
DTCG38-95-D-20018
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H-9. AIRWORTHINESS. (Cont'd)
AND CONFORM IN ALL RESPECTS WITH THE CONTRACT REQUIREMENTS, INCLUDING
SPECIFICATIONS, DRAWINGS, PRESERVATION, PACKAGING, PACKING, MARKING
REQUIREMENTS, AND PHYSICAL ITEM IDENTIFICATION (PART NUMBER), AND ARE IN THE
QUANTITY SHOWN ON THIS OR ON THE ATTACHED ACCEPTANCE DOCUMENT."
DATE OF EXECUTION:
-----------------------------------
SIGNATURE:
-------------------------------------------
TITLE:
-----------------------------------------------
H-9. REPORTING REQUIREMENT FOR OCEAN SHIPMENTS OF CARGO.
(a) The contractor shall submit, for each individual ocean shipment of cargo,
one legible copy of the bill-of-lading to the Maritime Administration (MARAD),
Division of National Cargo, Office of Market Development, 400 7th St., SW,
Washington, DC 20590.
(b) Each bill-of-lading shall contain the following information:
(1) Sponsoring U.S. Government agency
(2) Name of vessel
(3) Vessel flag of registry
(4) Date of loading
(5) Port of loading
(6) Port of final discharge
(7) Description of commodity
(8) Gross weight in pounds and cubic feet, if available
(9) Total ocean freight revenue in U.S. Dollars
(c) The contractor shall furnish the bills-of-lading to MARAD within 20
working days of the loading for shipments originating in the United States or
within 30 working days for shipments originating outside the United States.
(d) The contractor shall also furnish a legible copy of the bill-of-lading
to the Contracting Officer.
(End of Clause)
<PAGE>
Page 64
DTCG38-95-D-20018
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H-9. REPORTING REQUIREMENT FOR OCEAN SHIPMENTS OF CARGO. (Con't)
(c) The contractor shall furnish the bills-of-lading to MARAD within 20
working days of the loading for shipments originating in the United States or
within 30 working days for shipments originating outside the United States.
(d) The contractor shall also furnish a legible copy of the bill-of-lading
to the Contracting Officer.
(End of Clause)
<PAGE>
Page 65
DTCG38-95-D-20018
PART II
SECTION I - CONTRACT CLAUSES
I-1. CLAUSES INCORPORATED BY REFERENCE. (JUN 1988) 52.252-2
This contract incorporates one or more clauses by reference, with the same force
and effect as if they were given in full text. Upon request, the Contracting
Officer will make their full text available.
(End of clause)
FEDERAL ACQUISITION REGULATION (48 CFR CHAPTER 1) CLAUSES
52.202-1 DEFINITIONS. SEP 1991
52.203-1 OFFICIALS NOT TO BENEFIT. APR 1984
52.203-3 GRATUITIES. APR 1984
52.203-5 COVENANT AGAINST CONTINGENT FEES. APR 1984
52.203-6 RESTRICTIONS ON SUBCONTRACTOR SALES JUL 1985
TO THE GOVERNMENT.
52.203-7 ANTI-KICKBACK PROCEDURES. OCT 1988
52.203-10 PRICE OR FEE ADJUSTMENT FOR ILLEGAL SEP 1990
OR IMPROPER ACTIVITY.
52.203-12 LIMITATION ON PAYMENTS TO INFLUENCE JAN 1990
CERTAIN FEDERAL TRANSACTIONS.
52.208-1 REQUIRED SOURCES FOR JEWEL BEARINGS APR 1984
AND RELATED ITEMS.
52.209-6 PROTECTING THE GOVERNMENT'S INTEREST NOV 1992
WHEN SUBCONTRACTING WITH CONTRACTORS
DEBARRED, SUSPENDED, OR PROPOSED FOR
DEBARMENT.
52.210-5 NEW MATERIAL. APR 1984
52.212-8 DEFENSE PRIORITY AND ALLOCATION SEP 1990
REQUIREMENTS.
52.215-1 EXAMINATION OF RECORDS BY FEB 1993
COMPTROLLER GENERAL.
52.215-2 AUDIT - NEGOTIATION. FEB 1993
52.215-23 PRICE REDUCTION FOR DEFECTIVE COST DEC 1994
OR PRICING DATA - MODIFICATIONS.
<PAGE>
Page 66
DTCG38-95-D-20018
SECTION I - CONTRACT CLAUSES
I-1. CLAUSES INCORPORATED BY REFERENCE. (JUN 1988) 52.252-2 (Cont'd)
52.215-25 SUBCONTRACTOR COST OR PRICING DATA - DEC 1994
MODIFICATIONS.
52.215-26 INTEGRITY OF UNIT PRICES. APR 1991
ALT I (APR 1991)
52.215-31 WAIVER OF FACILITIES CAPITAL COST SEP 1987
OF MONEY.
52.215-33 ORDER OF PRECEDENCE. JAN 1986
52.216-18 ORDERING. APR 1984
para (a) 25 Sept 1995 through 24 Sept 1996,
may be extended through 24 Sept 2000
based on exercise of options.
52.216-19 DELIVERY-ORDER LIMITATIONS. APR 1984
para (a) one (1) each for any line item
(b)(1) the total estimated contract
line item quantity
(2) 50% of estimated contract quantity
(3) 30 days
(d) 15 calendar days
52.216-22 INDEFINITE QUANTITY. APR 1984
para (d) 24 December 2000
NOTE: Maximum quantities may be exceeded
if agreeable to all parties.
52.217-9 OPTION TO EXTEND THE TERM OF THE CONTRACT. MAR 1989
para (a) within 30 calendar days prior
to contract expiration
para (c) five years
52.219-8 UTILIZATION OF SMALL BUSINESS CONCERNS FEB 1990
AND SMALL DISADVANTAGED BUSINESS CONCERNS.
52.219-9 SMALL BUSINESS AND SMALL DISADVANTAGED FEB 1995
BUSINESS SUBCONTRACTING PLAN.
52.219-13 UTILIZATION OF WOMEN-OWNED SMALL AUG 1986
BUSINESSES.
52.219-16 LIQUIDATED DAMAGES - SMALL BUSINESS AUG 1989
SUBCONTRACTING PLAN.
52.220-3 UTILIZATION OF LABOR SURPLUS AREA APR 1984
CONCERNS.
<PAGE>
Page 67
DTCG38-95-D-20018
SECTION I - CONTRACT CLAUSES
I-1. CLAUSES INCORPORATED BY REFERENCE. (JUN 1988) 52.252-2 (Cont'd)
52.222-20 WALSH-HEALEY PUBLIC CONTRACTS ACT. APR 1984
52.222-26 EQUAL OPPORTUNITY. APR 1984
52.222-28 EQUAL OPPORTUNITY PREAWARD CLEARANCE APR 1984
OF SUBCONTRACTS.
52.222-35 AFFIRMATIVE ACTION FOR SPECIAL APR 1984
DISABLED AND VIETNAM ERA VETERANS.
52.222-36 AFFIRMATIVE ACTION FOR HANDICAPPED APR 1984
WORKERS.
52.222-37 EMPLOYMENT REPORTS ON SPECIAL DISABLED JAN 1988
VETERANS AND VETERANS OF THE VIETNAM ERA.
52.223-2 CLEAN AIR AND WATER. APR 1984
52.223-6 DRUG-FREE WORKPLACE. JUL 1990
52.225-10 DUTY-FREE ENTRY. APR 1984
(Note: The Coast Guard is not accorded
duty-free entry on these items).
52.225-11 RESTRICTIONS ON CERTAIN FOREIGN PURCHASES. MAY 1992
52.227-1 AUTHORIZATION AND CONSENT. APR 1984
52.227-2 NOTICE AND ASSISTANCE REGARDING APR 1984
PATENT AND COPYRIGHT INFRINGEMENT.
52.227-14 RIGHTS IN DATA - GENERAL. JUN 1987
52.229-3 FEDERAL, STATE, AND LOCAL TAXES. JAN 1991
52.229-5 TAXES - CONTRACTS PERFORMED IN U.S. APR 1984
POSSESSIONS OR PUERTO RICO.
52.232-1 PAYMENTS. APR 1984
52.232-8 DISCOUNTS FOR PROMPT PAYMENT. APR 1989
52.232-11 EXTRAS. APR 1984
52.232-17 INTEREST. JAN 1991
52.232-18 AVAILABILITY OF FUNDS. APR 1984
<PAGE>
Page 68
DTCG38-95-D-20018
SECTION I - CONTRACT CLAUSES
I-1. CLAUSES INCORPORATED BY REFERENCE. (JUN 1988) 52.252-2 (Cont'd)
52.232-19 AVAILABILITY OF FUNDS FOR THE NEXT APR 1984
FISCAL YEAR.
30 September 1995
30 September 1995
52.232-23 ASSIGNMENT OF CLAIMS. JAN 1986
52.232-25 PROMPT PAYMENT. MAR 1994
52.232-28 ELECTRONIC FUNDS TRANSFER PAYMENT APR 1989
METHODS.
52.233-1 DISPUTES. MAR 1994
52.233-3 PROTEST AFTER AWARD. AUG 1989
52.242-13 BANKRUPTCY. APR 1991
52.243-1 CHANGES - FIXED-PRICE. AUG 1987
ALT II (APR 1984)
52.244-1 SUBCONTRACTS (FIXED-PRICE CONTRACTS). FEB 1995
52.244-5 COMPETITION IN SUBCONTRACTING. APR 1984
52.245-1 PROPERTY RECORDS. APR 1984
52.245-2 GOVERNMENT PROPERTY (FIXED-PRICE DEC 1989
CONTRACTS).
52.246-23 LIMITATION OF LIABILITY. APR 1984
52.246-25 LIMITATION OF LIABILITY - SERVICES. APR 1984
52.247-63 PREFERENCE FOR U.S.-FLAG AIR CARRIERS. APR 1984
52.247-64 PREFERENCE FOR PRIVATELY OWNED U.S.-FLAG APR 1984
COMMERCIAL VESSELS.
52.248-1 VALUE ENGINEERING. MAR 1989
52.249-2 TERMINATION FOR CONVENIENCE OF THE APR 1984
GOVERNMENT (FIXED-PRICE).
52.249-8 DEFAULT (FIXED-PRICE SUPPLY AND APR 1984
SERVICE).
52.253-1 COMPUTER GENERATED FORMS. JAN 1991
<PAGE>
Page 69
DTCG38-95-D-20018
SECTION I - CONTRACT CLAUSES
I-2. REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY-MODIFICATION.
(NOV 1990) 52.203-9
(a) Definitions. The definitions set forth in FAR 3.104-4 are hereby
incorporated in this clause.
(b) The Contractor agrees that it will execute the certification set forth in
paragraph (c) of this clause when requested by the Contracting Officer in
connection with the execution of any modification of this contract.
(c) Certification. As required in paragraph (b) of this clause, the officer
or employee responsible for the modification proposal shall execute the
following certification:
CERTIFICATE OF PROCUREMENT INTEGRITY-MODIFICATION (NOV 1990)
(1) I,_______________________________________(Name of certifier) am the
officer or employee responsible for the preparation of this modification
proposal and hereby certify that, to the best of my knowledge and belief, with
the exception of any information described in this certification, I have no
information concerning a violation or possible violation of subsection 27(a),
(b), (d), or (f) of the Office of Federal Procurement Policy Act, as amended*
(41 U.S.C. 423), (hereinafter referred to as "the Act"), as implemented in the
FAR, occurring during the conduct of this procurement_________________________
(contract and modification number).
(2) As required by subsection 27(e)(1)(B) of the Act, I further certify that
to the best of my knowledge and belief, each officer, employee, agent,
representative, and consultant of______________________________________________
(Name of Offeror) who has participated personally and substantially in the
preparation or submission of this proposal has certified that he or she is
familiar with, and will comply with, the requirements of subsection 27(a) of the
Act, as implemented in the FAR, and will report immediately to me any
information concerning a violation or possible violation of subsections 27(a),
(b), (d), or (f) of the Act, as implemented in the FAR, pertaining to this
procurement.
<PAGE>
Page 70
DTCG38-95-D-20018
SECTION I - CONTRACT CLAUSES
I-2. REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY-MODIFICATION.
(NOV 1990) 52.203-9 (Cont'd)
(3) Violations or possible violations: (Continue on plain bond paper if
necessary and label Certificate of Procurement Integrity-Modification
Continuation Sheet, ENTER NONE IF NONE EXISTS)
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
(Signature of the officer or employee responsible for the
modification proposal and date)
----------------------------------------------------------------------
(Typed name of the officer or employee responsible for the
modification proposal)
* Subsections 27 (a), (b), and (d) are effective on December 1, 1990.
Subsection 27(f) is effective on June 1, 1991.
THIS CERTIFICATION CONCERNS A MATTER WITHIN THE JURISDICTION OF AN AGENCY OF
THE UNITED STATES AND THE MAKING OF A FALSE, FICTITIOUS, OR FRAUDULENT
CERTIFICATION MAY RENDER THE MAKER SUBJECT TO PROSECUTION UNDER TITLE 18, UNITED
STATES CODE, SECTION 1001.
(End of certification)
(d) In making the certification in paragraph (2) of the certificate, the
officer or employee of the competing Contractor responsible for the offer or
bid, may rely upon a one-time certification from each individual required to
submit a certification to the competing Contractor, supplemented by periodic
training. These certifications shall be obtained at the earliest possible date
after an individual required to certify begins employment or association with
the Contractor. If a Contractor decides to rely on a certification executed
prior to the suspension of section 27 (i.e., prior to December 1, 1989), the
Contractor shall ensure that an individual who has so certified is notified that
section 27 has been reinstated. These certifications shall be maintained by the
Contractor for a period of 6 years from the date a certifying employee's
employment with the company ends or, for an agency, representative, or
consultant, 6 years from the date such individual ceases to act on behalf of the
Contractor.
(e) The certification required by paragraph (c) of this clause is a material
representation of fact upon which reliance will be placed in executing this
modification.
(End of clause)
I-3. RESERVED.
<PAGE>
Page 71
DTCG38-95-D-20018
SECTION I - CONTRACT CLAUSES
I-4. PREFERENCE FOR LABOR SURPLUS AREA CONCERNS. (APR 1984) 52.220-1
(a) This acquisition is not a set aside for labor surplus area (LSA)
concerns. However, the offeror's status as such a concern may affect (1)
entitlement to award in case of tie offers or (2) offer evaluation in accordance
with the Buy American Act clause of this solicitation. In order to determine
whether the offeror is entitled to a preference under (1) or (2) above, the
offeror must identify, below, the LSA in which the costs to be incurred on
account of manufacturing or production (by the offeror or the first-tier
subcontractors) amount to more than 50 percent of the contract price.
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
(b) Failure to identify the locations as specified above will preclude
consideration of the offeror as an LSA concern. If the offeror is awarded a
contract as an LSA concern and would not have otherwise qualified for award, the
offeror shall perform the contract or cause the contract to be performed in
accordance with the obligations of an LSA concern.
(End of provision)
I-5. RESERVED.
I-6. LOCAL HIRE. (OCT 1994) TAR 1252.220-90
The contractor shall employ, for the purpose of performing this contract in
whole or in part in a State that has an unemployment rate in excess of the
national average rate of unemployment (as defined by the Secretary of Labor),
individuals who are local residents and who, in the case of any craft or trade,
possess or would be able to acquire promptly the necessary skills. Local
Resident means a resident or an individual who commutes daily to that state.
(End of clause)
I-7. DISSEMINATION OF CONTRACT INFORMATION. (OCT 1994) TAR 1252.242-72
The contractor shall not publish, permit to be published, or distribute for
public consumption, any information, oral or written, concerning the results or
conclusions made pursuant to the performance of this contract, without the prior
written consent of the Contracting Officer. Two copies of any material proposed
to be published or distributed shall be submitted to the Contracting Officer.
(End of clause)
<PAGE>
Page 72
DTCG38-95-D-20018
PART III
SECTION 2 - LIST OF ATTACHMENTS
Attachment 1: U.S. Coast Guard Component Repair Record (CRR)
Attachment 2: DOT F 4220.43, Contractor Report of Government Property
Attachment 3: Replacement Parts Usage Rates
Attachment 4: Coast Guard Specific Servo Replacement Parts Requirements
<PAGE>
----------------------------------------------------------------------
U.S. COAST GUARD
COMPONENT REPAIR RECORD
----------------------------------------------------------------------
THIS FORM IS USED TO REPORT MAINTENANCE ACTIONS PERFORMED ON COAST GUARD
COMPONENTS BY OVERHAUL / REPAIR FACILITIES
- --------------------------------------------------------------------------------
PART NAME CEI NUMBER SERIAL NUMBER
- --------------------------------------------------------------------------------
-----------------------
- --------------------------------------------------------------------------------
PART NUMBER: NSN:
---------------------------- ---------------------------------
THE COMPLETED FORM TO BE PROVIDED TO:
ORIGINAL TO: COPY 1: COPY 2:
TAMSCO PACKAGED WITH THE ATTACHED TO INVOICE
5030 HERZEL PLACE OVERHAULED / REPAIRED
SUITE 200 COMPONENT
BELTSVILLE, MD 20705
ATTN: ACMS
- --------------------------------------------------------------------------------
OVERHAUL / REPAIR FACILITY TO COMPLETE ALL INFORMATION IN SHADED REGION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TSN MANUFACTURER:
------------- --------------------
TSO DATE OF MANUFACTURE:
------------- --------------------
THE FOLLOWING NARRATIVE SUMMARIZES THE WORK PERFORMED ON THIS COMPONENT
DURING THE COURSE OF THIS OVERHAUL / REPAIR.
-----------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-----------------------------------------------------------------------------
OVERHAUL/REPAIR FACILITY: WORK ORDER NO:
------------ --------------------
DATE WORK COMPLETED: / / ITEM BEYOND ECONOMICAL REPAIR
- --------------------------------------------------------------------------------
THE FOLLOWING MAINTENANCE ACTIONS WERE COMPLIED WITH DURING THE COURSE OF
THIS OVERHAUL / REPAIR.
/ / ----------------------------
FOR ACMS CONTRACTOR USE ONLY
----------------------------
DISENROLLED (SCRAP ITEMS)___
SCH ENTRIES COMPLETED ___
DATA ENTRY COMPLETED ___
DATE ___
----------------------------
-----------------------------------------------
AUTHORIZED SIGNATURE OR QUALITY ASSURANCE STAMP
<PAGE>
<TABLE>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
CONTRACTOR REPORT OF
GOVERNMENT PROPERTY
- ------------------------------------------------------------------------------------------------------------------------------------
Public reporting burden for this collection of information is estimated to average 1 hour per response, including the time for
reviewing instructions searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the
collection of information. Send comments regarding this burden estimate of any aspect of this collection of information, including
suggestions for reducing this burden, to the FAR Secretaries (VRS), Office of Federal Acquisition and Regulatory Policy, GSA,
Washington, D.C. 20406; and to the Office of Management and Budget, Paperwork Reduction Project (2106-0617), Washington, D.C. 20403.
- ------------------------------------------------------------------------------------------------------------------------------------
1. Contract Number:
----------------------------------------------------------------------------------------------------------
2. Report Period Ending:
----------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
3. Contractor (Name and Address) 4. Contracting Office (Names and Address)
- ------------------------------------------------------------------------------------------------------------------------------------
5. Name and location of Government-Owned, Contractor-Operated Plant (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
6. Any Government property located at a subcontractor's plant? ___ Yes ___ No. If yes, give the name and address of the
subcontractor(s) on an attached sheet to this report.
- ------------------------------------------------------------------------------------------------------------------------------------
7. Date contractor's property control system approved?
- ------------------------------------------------------------------------------------------------------------------------------------
8. Approved by whom?
--------------------------------------
Name of Agency/Office
- ------------------------------------------------------------------------------------------------------------------------------------
9 Starting Balance Ending Balance
------------------------------- -------------------------------
Total Total Total Total
Property Acquisition Quantity Items Items Acquisition Quantity
Class Cost (in acres Added Deleted Cost in acres
(Set FAR 45.5) (in dollars) or units) in $ in $ (in dollars) or units)
- ------------------------------------------------------------------------------------------------------------------------------------
a. Land & Rights Therein
- ------------------------------------------------------------------------------------------------------------------------------------
b. Other Real Property
- ------------------------------------------------------------------------------------------------------------------------------------
c. Plant Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
d. Special Test Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
e. Special Tooling
- ------------------------------------------------------------------------------------------------------------------------------------
f. Materials in Stock (when total
value exceeds $50.000)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NOTE: This report shall include all Government property (i.e., property furnished by the Government, or acquired or fabricated by
the contractor or subcontractors). By signature hereon, the contractor's property administrator certifies that the report was
prepared from the contractor's records that are required by FAR 45.5.
- ------------------------------------------------------------------------------------------------------------------------------------
10. Typed Name of Contractor Property Administrator 11. Signature and Date
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
USAGE RATES FOR SEPARATELY PRICED REPLACEMENT PARTS
Note: Rework and overhaul rates are grouped together.
a. Section B, Item 1:
1620-14-459-0511 LEG, LH MAIN LG P/N 18785-100-05
P/N NOMENCLATURE PERCENTAGE
17975 CONTACTOR UNIT ASSY 7
18802 UNION 1
18965-000-01 LH HOUSING 39
18979 SHAFT 57
18980 SHAFT 61
18981 SWIVEL PIN 9
18989-000-01 JACK 57
19217 CABLE 1
19828-100 FLEX HOSE 9
20529-100 HOSE 1
24079-000-00 SINGLE PIECE BEARING 50
b. Section B, Item 2:
1620-14-462-8049 LEG, RH MAIN LG P/N 18786-100-05
P/N NOMENCLATURE PERCENTAGE
17975 CONTACTOR UNIT ASSY 7
18130 ROLLER 1
18802 UNION 1
18966-000-01 RH HOUSING 47
18979 SHAFT 41
18980 SHAFT 50
18981 SWIVEL PIN 3
18989-000-01 JACK 56
19217 CABLE 6
19828-100 FLEX HOSE 3
20529-100 HOSE 1
24079-000-00 SINGLE PIECE BEARING 50
Attachment 3
<PAGE>
USAGE RATES FOR SEPARATELY PRICED REPLACEMENT PARTS (Cont'd)
c. Section B, Items 3, 4, 5:
1620-14-459-0514 AUX LANDING GEAR P/N 18740-100-06 or -07
P/N NOMENCLATURE PERCENTAGE
18880-000-02 HOUSING 25
18907 UPPER BEARING 1
18921-000-01 BEARING POST 59
18922 PISTON TUBE 10
18926 LOWER BEARING 62
18928 LEVER PISTON SHAFT 65
18932 LOWER BEARING 29
19010 SHAFT 53
19324 AXLE 6
19465 YOKE 88
d. Section B, Item 6:
1650-14-043-0964 ACTUATOR CYL P/N 19570-101
P/N NOMENCLATURE PERCENTAGE
17946 BUSHING 50
18787-100 HOSE ASSY 15
18788-100 HOSE ASSY 25
18789-100 HOSE ASSY 45
19640 BALL FITTING ASSY 50
19645 BODY ASSY 25
19713 BUSHING 25
19727 PISTON 10
19731 CLAW 10
19870 HARNESS CABLE 10
e. Section B, Item 7:
1650-14-387-2620 ACTUATOR CYLINDER P/N 19575-101
P/N NOMENCLATURE PERCENTAGE
18789-100 HOSE ASSY 25
18790-100 HOSE ASSY 5
18791-100 HOSE ASSY 5
19640 BALL FITTING ASSY 50
19716-100 HOUSING ASSY 25
19713 BUSHING 25
19727 PISTON 10
19731 CLAW 10
19880 HARNESS CABLE 5
2
<PAGE>
USAGE RATES FOR SEPARATELY PRICED REPLACEMENT PARTS (Cont'd)
f. Section B, Items 8, 9:
1650-14-463-8804 PUMP, SELF REGULATING P/N C24160022-1
P/N NOMENCLATURE PERCENTAGE
A81953-2 END FITTING 10
GA70926-1 SWASH PLATE ASSY 25
GA70657-2 BLOCK ASSY 35
g. Section B, Items 10, 11:
1650-14-451-4636 SERVO CONTROL P/N SC8033-1
P/N NOMENCLATURE PERCENTAGE
800600 FILTER 1
801271 BODY 11
802170 CIRCUIT BOARD 11
807763 SWITCH 3
h. Section B, Items 12, 13:
1650-14-448-1729 SERVO CONTROL P/N SC8034-1
P/N NOMENCLATURE PERCENTAGE
800600 FILTER 1
801271 BODY 2
801400 CUP ASSEMBLY 39
802170 CIRCUIT BOARD 4
807763 SWITCH 37
i. Section B, Item 14:
1650-14-404-8798 SERVO, TAIL ROTOR P/N SC7282
P/N NOMENCLATURE PERCENTAGE
288033950 BODY 10
801152 SWITCH 48
801189 LOCK PLATE 67
801195 TIE ROD 6
803858 COVER 6
805189 PISTON 45
3
<PAGE>
USAGE RATES FOR SEPARATELY PRICED REPLACEMENT PARTS (Cont'd)
j. Section B, Item 15:
6110-14-401-5731 L. G. REGULATOR P/N 97168-100
P/N NOMENCLATURE PERCENTAGE
97241-120 ELECTRO DISTRIBUTOR 25
k. Section B, Item 16:
6615-14-393-8808 HYDRAULIC REGULATOR P/N 97166-100
P/N NOMENCLATURE PERCENTAGE
97271-120 ELECTRO DISTRIBUTOR 25
l. Section B, Item 17:
1620-14-406-3536 HYDRAULIC REGULATOR P/N 97166-300
P/N NOMENCLATURE PERCENTAGE
97271-120 ELECTRO DISTRIBUTOR 25
4
<PAGE>
COAST GUARD SPECIFIC
SERVO REPLACEMENT PARTS REQUIREMENTS
The following replacement parts will be utilized as required. These designations
represent a deviation from the Component Maintenance Manual as directed by USCG
ARSC Engineering.
SC 8033-1
PART NUMBER DESIGNATION A B C D CMM
- --------------------------------------------------------------------
21 800246 0 BUSH *
24 800104 0 SHIM ***
24 800278 0 BEARING **
24 800600 0 FILTER *
24 807763 0 REVERSING SWITCH *
25 801341 0 PLATE *
25 801346 0 SHAFT *
25 801349 0 WASHER *
25 801352 0 LEVER *
27 800630 0 ROTARY VALVE (repaired) *
SC 8034-1
PART NUMBER DESIGNATION A B C D CMM
- --------------------------------------------------------------------
21 800246 0 BUSH *
24 800104 0 SHIM ***
24 800278 0 BEARING **
24 800600 0 FILTER *
24 801010 0 FILTER *
24 807763 0 REVERSING SWITCH *
25 801341 0 PLATE *
25 801346 0 SHAFT *
25 801349 0 WASHER * *
25 801352 0 LEVER * *
27 800630 0 ROTARY VALVE (repaired) * *
* Inspect and repair or replace as required.
** 100% systematic replacement until P/N 802911 Stainless Steel Bearings are
installed; then inspect and replace as required.
*** 100% replacement when P/N 800135 or P/N 800129 is replaced. Otherwise,
inspect and repair or replace as required.
Attachment 4
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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;
<PAGE>
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.
<PAGE>
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 [*] years, commencing
upon execution of this Agreement (the "Commencement Date") and expiring [*]
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
<PAGE>
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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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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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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(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,
<PAGE>
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
<PAGE>
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.
<PAGE>
24
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;
<PAGE>
25
(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.
<PAGE>
26
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.
<PAGE>
27
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
<PAGE>
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>
ADDENDUM TO LEASES
By and Between
INDUSTRIAL CENTERS CORP. AND HAWKER PACIFIC, INC.
MARCH 31, 1997
1.3 EXPIRATION OF LEASES FOR 11252, 11258, 11260 (FRONT, BACK) SHERMAN WAY
Notwithstanding any other terms herein, the experiation date shall be
changed to May 31, 2010 to coincide with the new lease for 11240 Sherman Way.
<PAGE>
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
March 31, 97, is made by and between INDUSTRIAL CENTERS 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 as 11240 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 and, if applicable, the "PROJECT", if the property is located within a
Project) Approx. 77,800 sq. ft. Industrial Building ("PREMISES"). (See also
Paragraph 2)
1.3 TERM: 13 years and 0 months ("ORIGINAL TERM") commencing June 15, 1997
("COMMENCEMENT DATE") and ending June 14, 2010 ("EXPIRATION DATE"). (See also
Paragraph 3)
1.4 EARLY POSSESSION: upon completion of construction ("EARLY POSSESSION
DATE"). (See also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $38,200.00 per month ("BASE RENT"), payable on the 1ST day
of each month commencing JUNE 15, 1997 (See also Paragraph 4) /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: $38,200.00 as Base Rent for the period
JUNE, 1997
1.7 SECURITY DEPOSIT: $38,200.00 ("SECURITY DEPOSIT"). (See also
Paragraph 5)
1.8 AGREED USE: LEGAL USAGE FOR M-2 ZONING. (See also Paragraph 6)
1.9 INSURING PARTY: Lessor is the "Insuring Party" unless otherwise stated
herein. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction (check
applicable boxes):
/ / N/A represents Lessor exclusively ("LESSOR'S BROKER");
/ / N/A represents Lessee exclusively ("LESSOR'S BROKER"); or
/ / N/A represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease by both
Parties, Lessor shall pay to the Broker the fee agreed to in their separate
written agreement (or if there is no such agreement, the sum of N/A % of the
total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by _____________ ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 67 and Exhibits, 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 size set forth in this Lease, or that may have been
used in calculating rental, is an approximation which the Parties agree agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom clean and
free of debris on the Commencement Date or the Early Possession Date, whichever
first occurs ("START DATE"), and, so long as the required service contracts
described in Paragraph 7.1(b) below are obtained by Lessee within thirty (30)
days following the Start Date, warrants that the existing electrical, plumbing,
fire sprinkler, lighting, heating, ventilating and air conditioning systems
("HVAC"), loading doors, if any, and all other such elements in the Premises,
other than those constructed by Lessee, shall be in good operating condition on
said date and that the structural elements of the roof, bearing walls and
foundation of any buildings on the Premises (the "BUILDING") shall be free of
material defects. If a non-compliance with said warranty exists as of the Start
Date, Lessor shall, as Lessor's sole obligation with respect to such matter,
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, after the Start Date,
Lessee does not give Lessor written notice of any non-compliance with this
warranty within: (i) one year as to the surface of the roof and the structural
portions of the roof, foundations and bearing walls, (ii) six (6) months as to
the HVAC systems, (iii) thirty (30) days as to the remaining systems and other
elements of the Building, correction of such non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises
comply with all applicable laws, covenants or restrictions of record, building
codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect on the
Start 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. NOTE: Lessee is responsible for
determining whether or not the zoning is appropriate for Lessee's intended use,
and acknowledges that past uses of the Premises may no longer be allowed. If the
Premises do not comply with said warranty, Lessor shall, except as otherwise
provided, 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 Start Date,
correction of that non-compliance shall be the obligation of Lessee at Lessee's
sole cost and expense. It the Applicable Requirements are hereafter changed (as
opposed to being in existence at the Start Date, which is addressed in paragraph
6.2(e) below) so as is required during the term of this Lease the construction
of an addition to or an alteration of the Building, the remediation of any
Hazardous Substance, or the reinforcement of other physical modification of the
Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the cost of
such work as follows:
PAGE 1
- -C- 1996 - American Industrial Real Estate Association
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET DATED
MARCH 31, 1997, BY AND BETWEEN INDUSTRIAL BOWLING CORP., A CALIFORNIA
CORPORATION (LESSOR), AND HAWKER PACIFIC, INC., A CALIFORNIA CORPORATION
(LESSEE), FOR 11240 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 provisions(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 time 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 Alterations 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, except as noted in paragraph 63 below.
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 160 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 an agreement assuming Lessee's obligations
under the Lease. Lessee may also assign this Lease to an 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
<PAGE>
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are
required as a result of the specific and unique use of the Premises by Lessee
as compared with uses by tenants in general, Lessee shall be fully
responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last two (2) years of this Lease and the
cost thereof exceeds six (6) months' Base Rent, Lessee may instead terminate
this Lease unless Lessor notifies Lessee, in writing, within (10) days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six (6)
months' Base Rent. If Lessee elects termination, Lessee shall immediately
cease the use of the Premises which requires such Capital Expenditure and
deliver to Lessor written notice specifying a termination date at least
ninety (90) days thereafter. Such termination date shall, however, in no
event be earlier than the last day that Lessee could legally utilize the
Premises without commencing such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific and
unique use of the Premises by Lessee (such as, governmentally mandated seismic
modifications), then Lessor and Lessee shall allocate the obligation to pay for
such costs pursuant to the provisions of Paragraph 7.1(c); provided, however,
that if such Capital Expenditure is required during the last two years of this
Lease or if Lessor reasonably determines that it is not economically feasible to
pay its share thereof, Lessor shall have the option to terminate this Lease upon
ninety (90) days prior written notice to Lessee unless Lessee notifies Lessor,
in writing, within ten (10) days after receipt of Lessor's termination notice
that Lessee will pay for such Capital Expenditure. If lessor does not elect to
terminate, and fails to tender its share of any such Capital Expenditure, Lessee
may advance such funds and deduct same, with interest, from Rent until Lessor's
share of such costs have been fully paid. If Lessee is unable to finance
Lessor's share, or if the balance of the Rent due and payable for the remainder
of this Lease is not sufficient to fully reimburse Lessee on an offset basis,
Lessee shall have the right to terminate this Lease upon thirty (30) days
written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises the, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised by
Lessor and/or Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with Applicable
Requirements), and their suitability for Lessee's intended use, (b) Lessee has
made such investigation as it deems necessary with reference to such matters and
assumes all responsibility therefor as the same relate to its occupancy of the
Premises, and (c) neither Lessor, Lessor's agents, nor any Broker has made any
oral or written representations or warranties with respect to said matters other
than as set forth in this Lease. In addition, Lessor acknowledges that: (a)
Broker has made no representations, promises or warranties concerning Lessee's
ability to honor the Lease or suitability to occupy the Premises; and (b) it is
Lessor's sole responsibility to investigate the financial capability and/or
suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
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
(including but not limited to the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall, however, be in effect
during such period. Any such early possession shall not affect the Expiration
Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability thereof, not
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the Commencement Date, Lessee may, as its option, by notice in
writing within ten (10) days after the end of such sixty (60) day period, cancel
this Lease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Lessor within said ten (10)
day period, Lessee's right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Lessee when required and Lessee does
not terminate this Lease, as aforesaid, any period of rent abatement that Lessee
would otherwise have enjoyed shall run from the date of delivery of possession
and continue for a period 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
or omissions of Leassee. If possession of the Premises is not delivered within
four (4) months after the Commencement Date, this Lease shall terminate unless
other agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession
of the Premises to Lessee until Lessee complies with its obligations to provide
evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee
shall be required to perform all of its obligations under this Lease from and
after the Start Date, including the payment of Rent, notwithstanding Lessor's
election to withhold possession pending receipt of such evidence of insurance.
Further, if Lessee is required to perform any other conditions prior to or
concurrent with the Start Date, the Start Date shall occur but Lessor may elect
to withhold possession until such conditions are satisfied.
4. RENT.
4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease (except for the Security Deposit) are deemed to be rent
("Rent").
4.2 PAYMENT. Lessee shall cause payment of Rent 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. Rent 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 said month. Payment of Rent shall be made to Lessor at
its address stated herein or to such other persons or place as Lessor may from
time to time designate in writing. Acceptance of a payment which is less than
the amount then due shall not be a waiver of Lessor's rights to the balance of
such Rent, regardless of Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, 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, expense, loss or damage 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. If a change in control of
Lessee occurs during this Lease and following such change the financial
condition of Lessee is, in Lessor's reasonable judgment, significantly reduced,
Lessee shall deposit such additional monies with Lessor as shall be sufficient
to cause the Security Deposit to be at a commercially reasonable level based on
said change in financial condition. Lessor shall not be required to keep the
Security Deposit separate from its general account. Within fourteen (14) days
after the expiration of termination of this Lease, if Lessor elects to apply the
Security Deposit only to unpaid Rent, and otherwise within thirty (30) days
after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor
shall return that portion of the Security Deposit not used or applied by Lessor.
No part of the Security Deposit shall be considered to be held in trust, to bear
interest or to be prepayment for any monies to be paid by Lessee under this
lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use,
or any other legal use which is reasonably comparable thereto, and for no other
purpose. Lessee shall not use or permit the use of the Premises in a manner that
is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to neighboring properties. Lessor shall not
unreasonably withhold or delay its consent to any written request
PAGE 2
<PAGE>
for a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within five (5)
business days after such request give written notification of same, which
notice shall include an explanation of Lessor's 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, or waste whose
presence, use, manufacture, disposal, transportation, or release, 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 potential 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, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "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, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such is
in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on or about
the Premises, other than as previously consented to by Lessor, Lessee shall
immediately give written notice of such fact to Lessor, and provide Lessor with
a copy of any report, notice, claim or other documentation which it has
concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substances 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 any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless from
and against any and all loss of rents and/or damages, liabilities, judgments,
costs, claims, expenses, penalties, and attorneys' and consultants' fees arising
out of or involving any Hazardous Substance brought onto the Premises by or for
Lessee, or any third party (provided, however, that Lessee shall have no
liability under this Lease with respect to underground migration of any
Hazardous Substance under the Premises from adjacent properties). Lessee's
obligations 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, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease. NO TERMINATION, CANCELLATION OR RELEASE AGREEMENT ENTERED INTO BY
LESSOR AND LESSEE SHALL RELEASE FROM ITS OBLIGATIONS UNDER THIS LEASE WITH
RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO AGREED BY LESSOR IN
WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages which existed as a
result of Hazardous Substances on the Premises prior to the Start Date or which
are caused by the gross negligence, or intential acts of Lessor, its agents or
employees. Lessor's obligations, as and when required by the Applicable
Requirements, shall include, but not be limited to, the investigation, removal,
remediation, restoration and/or abatement, and shall survive the expiration or
termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigation or remediation measures required by
governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date. Lessee shall
cooperate fully in any such activities at the request of Lessor, including
allowing Lessor and Lessor's agents to have reasonable access to the Premises at
reasonable times in order to carry out Lessor's investigative and remedial
responsibilities.
(g) LANDLORD TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
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 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 date of such notice. In the event Lessor elects to give a termination
notice, Lessee may, within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise
provided in this Lease, Lessee, shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, which relate in any manner to the Premises, without regard to
whether said requirements are now in effect or become effective after the Start
Date. Lessee shall, within ten (10) days after receipt of Lessor's written
request, provide Lessor with copies of all permits and other documents, and
other information evidencing Lessee's compliance with any Applicable
Requirements 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 the failure of Lessee or the Premises to comply with any Applicable
Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender and consultants
shall have the right to enter into 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. The cost of any such
inspections shall be paid by Lessor, unless a violation of Applicable
Requirements, or a contamination is found to exist or be imminent, or the
inspection is requested or ordered by a governmental authority. In such case,
Lessee shall upon request reimburse Lessor for the cost of such inspections, so
long as such inspection is reasonably related to the violation or contamination.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations, and Alterations in good order, condition and repair
(whether or not the portion of the Premises requiring repairs, or the means of
repairing
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the same, are reasonably or readily accessible to Lessee, and whether or not
the need for such repairs occurs as a result of Lessee's use, any prior use,
the elements or the age of such portion of the Premises, including, but not
limited to, all equipment or facilities, such as plumbing, HVAC, electrical,
lighting facilities, boilers, pressure vessels, fire protection system,
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, or adjacent to the Premises. Lessee, in keeping the Premises in good
order, condition and repair, shall exercise and perform good maintenance
practices, specifically including the procurement and maintenance of the
service contracts required by Paragraph 7.1(b) below. 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. Lessee shall, during the term of this Lease,
keep the exterior appearance of the Building in a first-class condition
consistent with the exterior appearance of other similar facilities of
comparable age and size in the vicinity, including, when necessary, the
exterior repainting of the Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, ("BASIC ELEMENTS"), if
any, as and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and
pressure vessels, (iii) fire protection systems, (iv) landscaping and irrigation
systems, (v) roof covering and drains, and (vi) asphalt and parking lots, (vii)
clarifiers and (viii) any other equipment, if reasonably required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as set
forth in Paragarph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing
such Basic Elements, then such Basic Elements shall be replaced by Lessor, and
the cost thereof shall be prorated between the Parties and Lessee shall only be
obligated to pay, each month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement by a fraction, the numerator of which
is one, and the denominator of which is the number of months of the useful life
of such replacement as such useful life is specified pursuant to Federal income
tax regulations or guidelines for depreciation thereof (including interest on
the unamortized balance as is then commercially reasonable in the judgment of
Lessor's accountants), with Lessee reserving the right to repay its obligation
at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraph 2.2
(Condition, 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation),
it is intended by the Parties hereto that Lessor have no obligation, in any
manner whatsoever, to repair and maintain the Premises, or the equipment
therein, all of which obligations are intended to be that of the Lessee. 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, and
they expressly waive the benefit of any statue now or hereafter in effect to the
extent it is inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
refers to all floor and window coverings, air lines, power panels, electrical
distribution, security and fire protection systems, communication systems,
lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises.
The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can
be removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements, 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 pursuant
to Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations to Premises without Lessor's prior written consent. Lessee may,
however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof), without such consent but upon notice to Lessor,
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 this Lease as extended does not exceed $50,000 in aggregate or
$10,000 in any one year.
(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 detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
(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 mechanic's 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. If Lessee shall contest the validity of any such
lien, claim or demand, then Lessee shall, at its sole expense defend and protect
itself, Lessor and the Premises against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof. If Lessor shall require, Lessee shall furnish a surety bond in an
amount of such contested lien, claim or demand, indemnifying Lessor against
liability for the same. If Lessor elects to participate in any such action,
Lessor shall pay Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor not
later than ninety (90) days prior to the end of the term of this Lease, Lessor
may require that any or all Lessee Owned Alterations or Utility Installations be
removed by the expiration or termination of this Lease.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and
in good operating order, condition and state of repair, ordinary wear and
tear excepted. "Ordinary wear and tear"* shall not include any damage or
deterioration that would have been prevented by good maintenance practice.
Lessee shall repair any damage occasioned by the installation, maintenance or
removal of Trade Fixtures, furnishings, and equipment 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 groundwater contaminated by Lessee.
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee. The failure by Lessee to timely vacate the Premises pursuant to this
Paragraph 7.4(c) without the express written consent of Lessor shall
constitute a holdover under the provisions of Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required
under Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 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.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
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
*except to the extent Lessor is obligated to maintain or repair the Premises.
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$2,000,000 per occurrence with an "ADDITIONAL INSURED--MANAGERS OR LESSORS OF
PREMISES ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION
ENDORSEMENT" for damage caused by soot, smoke or fumes from a hostile fire.
The Policy in lease 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
shall not, however, limit the liability of Lessee nor relieve Lessee of any
obligation hereunder. All insurance 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. Lessor shall maintain liability insurance as
described in Paragraph 8.2(a), 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 a policy or policies in the name of Lessor, with loss payable to
Lessor and to any Lender insuring loss or 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 any Lenders,
but in no event more than the commercially reasonable and available insurable
value thereof. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations, Trade Fixtures, and Lessee's personal
property 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 of direct physical loss or damage
(except the perils of flood and/or earthquake unless required by a Lender),
including coverage for debris removal and the enforcement of any Applicable
Requirements requiring the upgrading, demolition, reconstruction or replacement
of any portion of the Premises as the result of a covered 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 obtain and keep in force a
policy or policies in the name of Lessor with loss payable to Lessor and any
Lender, insuring the loss of the full Rent for one (1) year. 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 Rent 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
Rent 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.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or of a group of buildings owned by Lessor which are adjacent to the Premises,
the Lessee shall pay for any increase in the premiums for the property insurance
of such building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee
Owned Alterations and Utility Installations. 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, Trade Fixtures and
Lessee Owned Alterations and Utility Installations. If the premises are
restored after a casualty, Lessee shall provide Lessor with written evidence
that such insurance is in force.
(b) BUSINESS INTERRUPTION. If reasonably available, and if Lessor
requests to do so in writing, Lessee shall obtain and maintain loss of income
and extra expense insurance in amounts as will reimburse Lessee for direct or
indirect loss of earnings attributable to all perils commonly insured against by
prudent lessees in the business of Lessee or attributable to preventation of
access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by companies
duly licensed to admitted 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 invalidates the required insurance policies. Lessee shall,
prior to the Start Date, deliver to Lessor certified copies of policies of
such insurance or certificates evidencing the existence and amounts of the
required insurance. No such policy shall be cancelable 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. Such policies shall be for a term of at least one year, or the
length of the remaining term of this Lease, whichever is less. If either
Party shall fail to procure and maintain the insurance required to be carried
by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages against the other, for loss of or damage to its
property arising out of or incident to the perils required to be insured against
herein. The effect of such releases and waivers is not limited by the amount of
insurance carried or required, or by any deductibles applicable hereto. The
Parties agree to have their respective property damage insurance carriers waive
any right to subrogation that such companies may have against Lessor or Lessee,
as the case may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence or willful acts or
omissions, 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,
liens, judgments, penalties, permits, attorneys' and consultants' fees, expenses
and/or liabilities arising out of, involving, or in connection with, the use
and/or occupancy of the Premises by Lessee. If any action or proceeding is
brought against Lessor by reason of any of the foregoing matters, Lessee shall
upon notice 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 defended or
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, obstruction or other defects of pipes, tire sprinklers, wires,
appliances, plumbing, HVAC 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. 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.
9. 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, which can reasonably be repaired in six (6) months or less from
the date of the damage or destruction. Lessor shall notify Lessee in writing
within thirty (30) days from the date of the damage or destruction as to whether
or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations,
which cannot reasonably be repaired in six (6) months or less from the date of
the damage or destruction. Lessor shall notify Lessee in writing within thirty
(30) days from the date of the damage or destruction as to whether or not the
damage is Partial or Total.
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(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was cause [illegible] an event
required to be covered by the insurance described in Paragraph 8.3(a),
irrespective of any deductible amounts or coverage limits involved.
(d) "REPLACEMENT 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 Requirements, 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, at Lessor's expense, repair such damage (but not
Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible 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 any
applicable 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, such shortage 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 for making the repairs shall complete them as soon as reasonably
possible and this Lease shall remain in full force and effect. If such funds
or assurance are not received, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to: (i) 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, or have this Lease terminate thirty (30) days thereafter. Lessee
shall not be entitled to reimbursement of any funds contribued by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood
or earthquake shall be subject to Paragraph 9.3, notwithstanding that there
may by some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a willful act of Lessee (in
which event Lessee shall make the repairs at Lessee's expense). Lessee may
either: (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect,
or (ii) terminate this Lease by giving written notice to Lessee within thirty
days after receipt by Lessor of knowledge of the occurrence of such damage.
Such termination shall be effective sixty (60) days following the date of
such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of the termination
notice to Lessor of Lessee's commitment to pay for the repair of such damage
without reimbursement from Lessor. Lessee shall provide Lessor with said
funds or satisfactory assurance thereof within thirty (30) days after making
such 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 after the required funds are available. If Lessee does make the
required commitment, this Lease shall terminate as of the date specified in
the termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate two (2) days
following such Destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
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 terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving written termination notice to Lessee within thirty (30) days after the
date of occurrence of such damage. Notwithstanding the foregoing, 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, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's commercially reasonable
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 such period, then this Lease shall
terminate on the date specified in the termination notice and Lessee's option
shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period required
for the repair, remediation or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired, but
not to exceed the proceeds received from the Rental Value insurance. All other
obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall
have no liability for any such damage, destruction, remediation, repair or
restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such repair
or restoration 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
and such repair or restoration is not commenced within thirty (30) days
thereafter, this Lease shall terminate as of the date specified in said notice.
If the repair or restoration is commenced within thirty (30) days, this Lease
shall continue in full force and effect. "COMMENCE" 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 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to Paragraph 6.2(g) or 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.
9.8 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 DEFINITION OF "REAL PROPERTY TAXES". As used herein, the term "REAL
PROPERTY TAXES" shall include any form of assessment; real estate, general,
special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. The
term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring during
the term of this Lease, including but not limited to, a change in the ownership
of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to Paragraph
10.2(b), all such payments shall be made at least ten (10) days prior to any
delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or termination of this Lease,
Lessee's share of
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such taxes shall be prorated to cover only that portion of the tax bill
applicable to the period that this Lease is in effect, and Lessor shall
reimburse Lessee for any overpayment. If Lessee shall fail to pay any
[illegible] Real Property Taxes, Lessor shall have the right [illegible] the
same, and Lessee shall reimburse Lessor therefor upon demand.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible, Lessee shall cause such property to be assessed and
billed separetly 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's property within ten (10) days
after receipt of a written statement.
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.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an assignment
requiring consent. The transfer, on 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
series of transactions (by way of merger, sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee by an amount greater than
twenty-five percent (25%,) of such Net Worth as it was represented at the time
of the execution 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, whichever was or is
greater, shall be considered an assignment of this Lease to which Lessor may
withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles.
(d) An assignment or subletting without 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 unapproved assignment or subletting as a noncurable Breach, Lessor
may either: (i) terminate this Lease, or (ii) upon thirty (30) days written
notice, increase the monthly Base Rent to one hundred ten percent (110%) of the
Base Rent then in effect. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to one hundred ten percent
(110%) of the price previously in effect, and (ii) all fixed and non-fixed
rental adjustments scheduled during the remainder of the Lease term shall be
increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall
be limited to compensatory damages and/or 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 or for the performance of any other obligations to be
performed by Lessee.
(b) Lessor may accept 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 Rent or performance shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of the Lessee's obligations under this Lease, including any
assignee or sublessee, without first exhausting Lessor's remedies against any
other person or entity responsible therefor to Lessor, or any security held by
Lessor.
(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 not limited to the intended use and/or
required modification of the Premises, if any, together with a fee of $1,000 as
consideration for Lessor's considering and processing said request. Lessee
agrees to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed 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 to 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 Rent payable on any sublease, and Lessor may collect such Rent
and apply same toward Lessee's obligations under this Lease; provided, however,
that until a Breach shall occur in the performance of Lessee's obligations,
Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or
any assignment of such sublease, nor by reason of the collection of Rent, be
deemed liable to the sublessee for any failure of Lessee to perform and comply
with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably
authorizes and directs any such sublease, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor all Rent due and to become due under the
sublease. Sublessee shall rely upon any such notice from Lessor and shall pay
all Rents to Lessor without any obligation or right to inquire as to whether
such Breach exists, notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall undertake the
obligations of the sublessor under such sublease from the time of the exercise
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 prior Defaults or Breaches of such
sublessor.
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(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's 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 from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee
to comply with or perform any of the terms, convenants, conditions or rules
under this Lease. A "BREACH" is defined as the occurrence of one or more of
the following Defaults, and the failure of Lessee to cure such Default within
any applicable grace period.
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commerically reasonable level of security, or
where the coverage of the property insurance described in Paragraph 8.3 is
jeopardized as a result thereof, or without providing reasonable assurance to
minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any other
monetary payment required to be made by Lessee hereunder, whether to Lessor
or to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of
three (3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service
contracts, (iii) the recission of an unauthorized assignment or subletting,
(iv) a Tenancy Statement, (v) a requested subordination, (vi) evidence
concerning any guaranty and/or Guarantor, (vii) any document requested under
Paragraph 42 (easements), or (viii) any other documentation or information
which Lessor may reasonably require of Lessee under the terms of this Lease,
where any such failure continues for a period of ten (10) days following
written notice 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 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more
than thirty (30) days are reasonably required for its cure, then it shall not
be deemed to be a Breach 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
of any general arrangement or assignment for the benefit of creditors; (ii)
becoming a "DEBTOR" as defined in 11 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 of no force or
effect, and not affect the validity of the remaining provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor 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 basis, and Lessee's failure, within sixty (60) days following
written notice of any such event, to provide written alternative assurance or
security, which, when coupled with the then existing resources of Lessee,
equals or exceeds the combined financial resources of Lessee and the
Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to commence to perform any of its
affirmative duties or obligations, within thirty (30) days after written
notice (or in case of an emergency, without notice), Lessor may, at its
option, 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 upon receipt of
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 by Lessee to be by cashier's check. In the event
of a Breach, Lessor may, without limiting Lessor in the exercise of any right
or remedy which Lessor may have by reason of such Breach 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 shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of 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 any leasing
commission paid by Lessor applicable to the unexpired term of this Lease. The
worth at the time of award of the amount referred to in provision (iii) of
the immediately preceding sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of the District
within which the Premises are located at the time of award plus one percent
(1%). Efforts by Lessor to mitigate damages caused by Lessee's Breach of this
Lease shall not waive Lessor's right to recover damages under Paragraph 12.
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
the right to recover all or any part thereof in a separate suit. If a notice
and grace period required under Paragraph 13.1 was not previously given, a
notice to pay rent or quit, or to perform or quit given to Lessee under the
unlawful detainer statute shall also constitute the notice required by
Paragraph 13.1. In such case, the applicable grace period required by
Paragraph 13.1 and the unlawful detainer statute shall run concurrently, 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 and
recover the Rent as it becomes due, in which event Lessee may sublet or
assign, subject only to reasonable limitations. Acts of maintenance, efforts
to relet, and/or the appointment of a receiver to protect the Lessor's
interest, shall not constitute a termination of the Lessee's right to
possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. 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 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or
other charges, or for the giving or paying by Lessor to or for Lessee of any
cash or other bonus, inducement or consideration for Lessee's entering into
this Lease, all of which concessions are hereinafter referred to as
"INDUCEMENT PROVISIONS," shall be deemed conditioned upon Lessee's full and
faithful performance of all of the terms, covenants and conditions of this
Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision
shall automatically be deemed deleted from this Lease and or no further force
or effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an inducement
Provision shall be immediately due and payable by Lessee to Lessor,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance
by Lessor or rent or the cure of the Breach which initated the operation of
this paragraph shall not be deemed a waiver by Lessor of the provisions of
this paragraph unless specifically so stated in writing by Lessor at the time
of such acceptance.
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13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this
Lease. the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to processing and accounting charges,
and late charges which may be imposed upon Lessor by any Lender. Accordingly,
if any Rent shall not be received by Lessor within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a one-time late charge equal to ten percent (10%)
of each such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of such late payment. Acceptance of such late charge by Lessor shall
in no event constitute a waiver of Lessee's Default or Breach with respect to
such overdue amount, nor prevent the exercise of any of the other rights and
remedies granted hereunder. In the event that a late charge is payable
hereunder, whether or not collected, for three (3) consecutive installments
of Base Rent, then notwithstanding any provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable
quarterly in advance.
13.5 INTEREST. 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. The interest ("INTEREST") charge shall be equal to the
prime rate charged by the largest state chartered bank in the state in which
the Premises are located plus 4%, but shall not exceed the maximum rate
allowed by law. Interest is payable in addition to the potential late charge
provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. 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, a
reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor, and any Lender 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 are
reasonably required for its performance, then Lessor shall not be in breach
if performance is commenced within such thirty (30) day period and thereafter
dilgently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or if having commenced said cure they do not
diligently pursue it to completion, then Lessee may elect to cure said breach
at Lessee's expense and offset from Rent an amount equal to the greater of
one month's Base Rent or the Security Deposit, and to pay an excess of such
expense under protest, reserving Lessee's right to reimbursement from Lessor.
Lessee shall document the cost of said cure and supply said documentation to
Lessor.
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 (collectively "CONDEMNATION" ), this Lease shall terminate as to the
part taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of any building, 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
posession) 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 proportion to the reduction in utility of the Premises caused by such
Condamnation. Condemnation awards and/or payments shall be the property of
Lessor, whether such award shall be made as compensation for diminution in
value of the leasehold, the value of the part taken, or for severance
damages; provided, however, that Lessee shall be entitled to any compensation
for Lessee's relocation expenses, loss of business goodwill and/or Trade
Fixtures, without regard to whether or not this Lease is terminated pursuant
to the provisions of this Paragraph. All Alterations and Utility
Installations made to the Premises by Lessee, for purposes of Condemnation
only, shall be considered the property of the Lessee and Lessee shall be
entitled to any and all compensation which is payable therefor. In the event
that this Lease is not terminated by reason of the Condemnation, Lessor shall
repair any damage to the Premises caused by such Condemnation.
15. BROKER'S FEE.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. 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) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or 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.
16. TENANCY STATEMENT/ESTOPPEL CERTIFICATE.
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 an estoppel certificate 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.
16.2 If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee and all Guarantor shall deliver to any potential
lender or purchaser designated by Lessor such financial statements as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. 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 of this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor. Except as provided in
Paragraph 15, upon such transfer to 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 covenants 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 define. Notwithstanding the above, the
original Lessor under this Lease, and all subsequent holders of the Lessor's
interest in this Lease shall remain liable and responsible with regard to the
potential duties and liabilities of Lessor pertaining to Hazardous Substances
as outlined in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
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19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Except with respect to Lessor's fraud, gross
negligence or willful misconduct the obligations of Lessor under this Lease
shall not constitute personal obligations of Lessor, the individual partners,
directors, officers or shareholders, and Lessee shall look to the Premises,
and to no other assets of Lessor, for the satisfaction of any liability of
Lessor with respect to this Lease, and shall not seek recourse against the
individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. 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.
22. NO PRIOR OR OTHER AGREEMENTS; 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. NOTICES.
23.1 NOTICE REQUIREMENTS. 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 regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, 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 DATE OF NOTICE. 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 or 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 act, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's 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 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.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
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 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 attorney's 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 judgment. 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, judgment, 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
attorney's 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.
PAGE 10
<PAGE>
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 Lessor 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.
34. SIGNS. Lessee may place any lawful sign upon the Premises. The installation
of any sign on the Premises by or for Lessee shall be subject to the provisions
of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations).
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. 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.
37. GUARANTOR.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance 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
purchase 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 of 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.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(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 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.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
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, without 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. It 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.
PAGE 11
<PAGE>
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. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
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.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addedum requiring the Mediation
and/or the Arbitration of all disputes between the Parties and/or Brokers
arising out of this Lease / / is / / is not attached to this Lease.
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.
- --------------------------------------------------------------------------------
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL, AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE
PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING
SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
- --------------------------------------------------------------------------------
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Sun Valley Executed at 11310 Sherman Way Sun Valley CA
on 4-7-97 on 4-7-97
By LESSOR: By LESSEE:
INDUSTRIAL CENTERS CORP. HAWKER PACIFIC, INC
- ---------------------------------- ----------------------------------
By /s/ BRADLEY D. HOWARD By /s/ BRIAN AURE
-------------------------------- --------------------------------
Name Printed: BRADLEY D. HOWARD Name Printed: BRIAN AURE
Title: PRESIDENT Title: CFO
- ---------------------------------- ----------------------------------
By By
-------------------------------- --------------------------------
Name Printed: Name Printed:
--------------------- ---------------------
Title: Title:
---------------------------- ----------------------------
Address: 1819 W. OLIVE AVE, Address: 11310 SHERMAN WAY
BURBANK, CA 91506 SUN VALLEY, CA 91352
Telephone: (818) 843-7850 Telephone: (818) 765-6201
------------------------ ------------------------
Fasimile: (818) 842-2127 Fasimile: (818) 765-8073
------------------------ ------------------------
Federal ID No. 95-2049530 Federal ID No. 95-3528840
-------------------- --------------------
BROKER: BROKER:
- ---------------------------------- ----------------------------------
Executed at Executed at
----------------------- -----------------------
on on
-------------------------------- --------------------------------
By: By:
------------------------------- -------------------------------
Name Printed: Name Printed:
--------------------- ---------------------
Title: Title:
---------------------------- ----------------------------
Address: Address:
-------------------------- --------------------------
- ---------------------------------- ----------------------------------
Telephone: ( ) Telephone: ( )
--- ------------------ --- ------------------
Fasimile: ( ) Fasimile: ( )
--- ------------------- --- -------------------
Federal ID No. Federal ID No.
-------------------- --------------------
NOTE: 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, 700 So. Flower
Street, Suite 600, Los Angeles, California 90017. (213) 687-8777. Fax. No.
(213) 687-8616.
PAGE 12
-C- COPYRIGHT 1996 BY AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION. ALL RIGHTS RESERVED. NO PART
OF THESE WORKS MAY BE REPRODUCED IN ANY FORM
WITHOUT PERMISSION IN WRITING.
<PAGE>
C. Paint shop related wastes;
D. Used 'blast media';
E. Assorted abrasives.
65. SURFACE WATER ABATEMENT. During the term of this Lease, Lessor, at its
sole cost and expense, shall be responsible to make necessary repairs to the
Premises to prevent "surface water" from entering the Premises. Provided that
Lessor is using its reasonable best efforts to correct any such condition,
Lessor shall have no responsibility for any damage as a result of surface
water entering the Premises.
66. RENTAL ABATEMENT. The Base Monthly Rental specified in Paragraph 1.5
herein during the first (1st) through sixth (6th) months of the initial Lease
Term, only, shall be Abated by 50%. The portion of the Base Monthly Rental
not paid pursuant to this Paragraph, together with any postponed rent or
other rental concessions under this Lease is collectively referred to as
"Abated Rent". The Abated Rent set forth in this Paragraph shall be subject
to all of the provisions set forth in Paragraph 13.3 of the Lease.
67. MAINTENANCE AND REPAIRS. Notwithstanding anything contained in Paragraph
7.1 and 7.2 herein to the contrary, Lessor agrees that at all times during
the Term of the Lease, it will maintain the structural portions of the
Premises, including without limitation the foundation, floor/slab, roof
structure, columns, and beams (collectively "Building Structure") in good
condition and repair, at Lessor's sole cost and expense. In the event the
damage or needed repair is a result of Lessee's actions, use of the Premises
and/or failure to properly maintain, the repair shall be at the sole cost and
expense of Lessee.
67.1. LESSEE'S RESPONSIBILITY. Warranty air condition/heating unit
compressors for 1 year from commencement of Lease. Lessee to maintain Sump
Pump.
<PAGE>
J. Remove metal platform for Feeder Rooms behind front office area.
K. Repair/paint all interior bathroom facilities and fixtures as
required.
62.1 LESSOR'S IMPROVEMENTS. Lessor agrees to perform the following at their
sole cost and expense:
A. Remove all landscaping, which includes but is not limited to, small
trees, shrubs and other plantings from front of Premises. Lessor to trim
large pine trees.
B. Maintain structural caulking and sealing for prevention of water
penetration.
C. Repair all cracks and potholes, and put 1 1/2" of new asphalt on top
of existing base everywhere except the front parking lot. Replace all damaged
bumpers in the front parking area. Re-stripe parking lot.
D. Replace missing safety lights, exit signs, sump pump, main electrical
panel, existing, nonworking fluorescent bulbs in warehouse.
E. Remove exterior concrete curb and guard posts at southwest corner of
the building.
F. Warranty roof against leaking for 5 years from commencement of Lease.
63. OTHER LESSEE'S IMPROVEMENTS. Lessee shall have the right to perform the
following improvements upon the Premises at its sole cost and expense:
A. Install black wrought fencing along the front sidewalk (the same
style as the adjacent building currently occupied by Federal express:. Said
fencing will begin at the west end of 11310 Sherman Way and continue to the
east end of 11240 Sherman Way with automatic gates between buildings.
B. Install a "guard shack" area at the west end entrance to the Premises.
C. Install exterior lighting both on the building and in the parking lot.
D. Install a "paint room" with ventilation through the roof.
E. Install one or more heat-treat "bake" ovens with ventilation through
the roof.
F. Install as required one and two-ton free standing hoists in the
warehouse area.
G. Install metal halide lighting throughout the warehouse area.
H. Install as required evaporative coolers in the warehouse area.
I. Install gas space heaters in the warehouse area.
J. Install offices, lunchroom and other interior walls or drop ceilings.
64. HAZARDOUS MATERIALS. Lessor hereby grants its consent to the use of these
materials provided they are stored, used and disposed of in compliance with
all applicable laws and governmental rules and regulations:
A. Oil and water mixtures;
B. Solvents;
<PAGE>
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. All notices required or permitted to be given to Lessee under this
Lease shall be given to Lessee at the Premises.
60. Notwithstanding anything to the contrary contained in paragraph 30
of the 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.
61. 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 to this provision, at its sole
cost and expense.
62. LESSEE'S IMPROVEMENTS. Notwithstanding anything contained in
Paragraph 2.2, Lessee shall perform the following improvements upon the
Premises at its sole cost and expense prior to occupancy being tendered to
Lessee. For said improvements, Lessor shall credit $215,000.00. The
improvements are defined below.
A. Remove and/or relocate existing walls in the front office area as per
specifications.
B. Repair all front office walls such that all walls have the same
drywall finish. This includes, but is not limited to, removing all paneling,
wallpaper and other wall coverings and replacing with drywall wherever
necessary.
C. Repair/replace all doors, door knobs and door framing such that all
are of the same style and finish.
D. Paint the interior front office area and all existing offices in the
Premises the same color, with a Dunn-Edward's "Permasheen" or similarly rated
paint per Lessee's specifications.
E. Install new carpeting in the front office area and all other
existing, and currently carpeted, office areas in the Premises.
F. Repair/replace all damaged, stained or discolored floor tiles in the
Premises.
G. Repair/replace all ceiling tiles in the front office area and all
other existing office areas in the Premises such that all are of the same
style and color.
H. Install additional overhead fluorescent lighting fixtures at the
south end of the Premises in the Shipping/Receiving areas.
I. Paint the north and east exterior walls and the bricks on the west
exterior wall a similar white to match the west and south exterior walls.
Touchup other exterior walls as needed.
<PAGE>
2) In any event, the FRA MRV shall not be less than the rent
payable for the month immediately preceding the date for rent adjustment.
b) Upon the establishment of each New Market Rental Value as described
in paragraph All:
1) the monthly rental sum so calculated for each term as specified
in paragraph All(a) will become the new "Base Rent" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
Al(a) above and
2) the first month of each Market Rental Value term as specified in
paragraph All(a) shall become the new "Base Month" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
Al(b).
III. FIXED RENTAL ADJUSTMENT(S) (FRA)
The monthly rent payable under paragraph 1.5 ("Base Rent") of the attached
Lease shall be increased to the following amounts on the dates set forth
below:
On (Fill in FRA Adjustment Date(s)): The New Base Rental shall be:
$
------------------------------------ ---------------------------------
$
------------------------------------ ---------------------------------
$
------------------------------------ ---------------------------------
$
------------------------------------ ---------------------------------
NOTICE: Unless specified otherwise herein, notice of any escalations
other than Fixed Rental Adjustment(s) shall be made as specified in paragraph
23 of the attached Lease.
BROKER'S FEE:
The Real Estate Brokers specified in paragraph 1.10 of the attached Lease
shall be paid a Brokerage Fee for each adjustment specified above in
accordance with paragraph 15 of the attached Lease.
RENT ADJUSTMENT(S)
PAGE 2 of 2
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.
(c) 1991 AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION.
<PAGE>
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement ("Agreement") is made this 14th day of
November, 1997 by and between Unique Investment Corp., a California corporation
("Unique"), and Hawker Pacific Aerospace, a California corporation ("Hawker
Pacific"), with reference to the following:
A. Hawker Pacific is engaged in the repair and overhaul of landing gear
and hydromechanical components for a variety of aircraft.
B. Unique is in the business of providing management, strategic planning
assistance, general business advice and other services to companies and their
executive management.
C. In their capacities as principal shareholders and members of the Board
of Directors of Hawker Pacific, certain of Unique's executive officers have
gained extensive knowledge and a unique understanding of Hawker Pacific's
business and its operations, and as such, the Company and its executive
management ("Management") have determined that Unique's services would benefit
the Company in the future.
D. Hawker Pacific desires to retain Unique and Unique agrees to be
retained, on the terms set forth below, to consult with Hawker Pacific in its
operations, render certain management services to Hawker Pacific and Management
and advise on such other matters as Hawker Pacific may require.
AGREEMENT
In consideration of the foregoing and of the mutual covenants herein
contained, the parties, intending to be legally bound, agree as follows:
1. MANAGEMENT SERVICES. Beginning January 1, 1999, Hawker Pacific
engages Unique, and Unique accepts such engagement to render such management,
advisory and consulting services with respect to Hawker Pacific's business as
Management may request from time to time, including, without limitation, the
following: (i) general consulting on Hawker Pacific's operations and strategic
plan; (ii) assistance and advice regarding hiring of executive management
personnel; (iii) assistance in obtaining or providing of funding to meet Hawker
Pacific's working capital requirements; and (iv) any such other role as
Management may require on Hawker Pacific's behalf.
2. TERM. This Agreement shall commence upon the closing of a bona fide
underwritten initial public offering (the "Public Offering") of Hawker Pacific's
securities registered under the Securities Act of 1933, as amended (the "Act")
and shall continue until terminated pursuant to Paragraph 4 below (the
"Management Term"). Upon the
1.
<PAGE>
closing of the Public Offering, that certain Management Agreement dated as of
March 1, 1997 by and between Hawker Pacific and Unique shall terminate
automatically without further action.
3. MANAGEMENT FEES AND EXPENSES. As compensation for the services to be
rendered under this Agreement, Unique shall receive a fee of $12,500 per month
commencing on January 1, 1999 and continuing throughout the Management Term. In
addition, Hawker Pacific shall reimburse Unique for all reasonable and necessary
expenses incurred in carrying out its duties under this Agreement. Any such
reimbursement shall be made within 30 days following submission to Hawker
Pacific of invoices or other reasonable documentation of such expenses so
incurred.
4. TERMINATION. This Agreement shall terminate upon the closing of a
bona fide underwritten public offering of the Company's securities registered
under the Act in which at least 25% of the securities sold in such public
offering are sold by selling shareholders of the Company; PROVIDED, HOWEVER,
that termination of the Management Term under this Paragraph 4 shall not affect,
limit, waive or otherwise modify Hawker Pacific's obligation to pay Unique all
fees and reimbursable expenses incurred up to and through the effective date of
termination.
5. STATUS. The parties intend and agree that Unique is a consultant and
not an employee, agent, partner or joint venturer of Hawker Pacific. Unique
shall not represent to any third party that it is an employee, agent, partner or
joint venturer of Hawker Pacific. Unique shall not be entitled to receive any
employment benefits offered to employees of Hawker Pacific.
6. ATTORNEY'S FEES. In the event any legal action or proceeding is
commenced under or pursuant to any of the terms and conditions of this
Agreement, or to interpret or enforce the terms of or obligations arising out of
this Agreement, or to recover damages for the breach of this Agreement, the
party prevailing in any such action or proceeding shall be entitled, in addition
to any other relief awarded by a Court of competent jurisdiction, or other
tribunal, to recover from the other party all reasonable attorneys' fees, costs
and expenses incurred.
7. CHOICE OF LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of California, without reference to
principles governing conflict of laws. HAWKER PACIFIC AND UNIQUE HEREBY CONSENT
TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN ORANGE COUNTY
OF THE STATE OF CALIFORNIA OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATED TO THIS AGREEMENT AND AGREE THAT SERVICE ON THEM IN ANY SUCH SUIT,
ACTION OR PROCEEDING MAY BE EFFECTED BY GIVING NOTICE AS PROVIDED IN PARAGRAPH
12 HEREOF.
2.
<PAGE>
8. HEADINGS. The headings of the sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
Unique and Hawker Pacific with respect to the subject matter hereof and
supersedes all prior and contemporaneous arrangements or understandings with
respect thereto.
10. AMENDMENTS; WAIVERS. The terms and provisions of this Agreement may
not be modified or amended, nor may any provision be waived, except pursuant to
a writing signed by both parties.
11. CONFIDENTIALITY. During the Term of this Agreement, Unique may have
access to certain confidential information and trade secrets relating to Hawker
Pacific's business. Except as may be required to carry out its duties as
defined in Paragraph 1 above, Unique, during the Management Term and for three
years thereafter, agrees not to disclose directly or indirectly any such
confidential information or trade secrets to any third party without Hawker
Pacific's prior consent.
12. NOTICES. All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent telecopy, nationally-recognized
overnight courier or first class registered or certified mail, return receipt
requested, postage prepaid, addressed to such party at the following addresses
set forth or such address as a party may designate in writing to the other
party.
If to Hawker Pacific: 11240 Sherman Way
Sun Valley, California 91352
Attention: David Lokken
Tel. # (818) 765-6201
Fax # (818) 765-2416
If to Unique: 1380 South Vernon Street
Anaheim, California 92805
Attention: Scott Hartman
Tel. # (714) 780-5888
Fax # (714) 780-5887
All such notices, requests, consents and other communications shall be
deemed to have been delivered (a) in the case of personal delivery or delivery
by telecopy, on the date of such delivery, (b) in the case of dispatch by
nationally-recognized overnight courier, on the next business day following such
dispatch and (c) in the case of mailing, on the third business day after the
posting thereof.
3.
<PAGE>
13. SEVERABILITY. Should any provision of this Agreement be deemed
unenforceable by any arbitrator or court of competent jurisdiction, the
remainder of the Agreement shall not be affected thereby.
14. CORPORATE AUTHORIZATION. Hawker Pacific hereby represents and
warrants that it has all corporate authority for the execution and performance
of this Agreement.
15. COUNTERPARTS. This Agreement may be executed concurrently in two or
more counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
HAWKER PACIFIC AEROSPACE
By: /s/ DAVID LOKKEN
----------------
David Lokken
President and Chief Executive
Officer
UNIQUE INVESTMENT CORP.
By: /s/ SCOTT HARTMAN
-----------------
Scott Hartman
Chief Operating Officer
4.
<PAGE>
September 2, 1997
Hawker Pacific Aerospace
11240 Sherman Way
Sun Valley, California 91352
Attention: Mr. David Lokken
Re: Mergers and Acquisitions Agreement
Gentlemen:
You have agreed (this "Agreement") that Unique Investment Corp., a
California corporation ("Unique"), may act as a finder or consultant for you in
various transactions in which Hawker Pacific Aerospace (the "Company") may be
involved, such as mergers, acquisitions, joint ventures or other corporate
combinations. In this regard, you hereby retain Unique to render assistance in
connection with the Company's acquisition from British Airways plc ("British
Airways") of its landing gear repair and overhaul operations (the "British
Airways Acquisition"), including, without limitation, the following:
(i) structuring of the BA Acquisition; (ii) negotiation of the agreement
pursuant to which such acquisition will occur; (iii) assistance in negotiating
financing arrangements for such acquisition; (iv) assistance in commencing
operations in the United Kingdom; and (v) any such other assistance in
connection with the British Airways Acquisition as you may require.
In consideration for Unique's services in connection with the British
Airways Acquisition, you agree to pay Unique a fee of $300,000 immediately upon
the closing thereof. In addition, you shall reimburse Unique for all reasonable
and necessary expenses incurred in the course of carrying out its duties under
this Agreement, including, without limitation, all authorized travel expenses.
Any such reimbursement shall be made within 30 days following submission to the
Company of an invoice or other reasonable documentation of such expenses so
incurred, PROVIDED HOWEVER, that all such expenses not previously paid shall be
paid in full upon the closing of the British Airways Acquisition.
This Agreement shall be effective on the date hereof and shall expire upon
the closing of the British Airways Acquisition.
This Agreement has been executed and delivered in the State of California
and shall be governed by the laws of such state, without giving effect to the
conflicts of laws rules thereunder. YOU HEREBY CONSENT TO THE JURISDICTION OF
ANY STATE OR FEDERAL COURT LOCATED WITHIN ORANGE COUNTY OF THE STATE OF
CALIFORNIA OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT AND AGREE THAT SERVICE ON
1
<PAGE>
Mr. David Lokken
Hawker Pacific Aerospace
September 2, 1997
YOU IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE EFFECTED BY CERTIFIED MAIL
TO THE ADDRESS STATED ABOVE.
This Agreement may be executed in counterparts, each of which shall
constitute an original, and all of which together shall constitute but one and
the same instrument.
Please sign this letter at the place indicated below, whereupon it will
constitute our mutually binding agreement with respect to the matters contained
herein.
Very truly yours,
UNIQUE INVESTMENT CORP.
By: /s/ SCOTT HARTMAN
-----------------
Scott Hartman
Chief Operating Officer
Accepted to and agreed as
of the date first above written:
HAWKER PACIFIC AEROSPACE
By: /s/ DAVID LOKKEN
----------------
David Lokken
Chief Executive Officer
<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
November 14, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF HAWKER PACIFIC AEROSPACE FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 36,000
<SECURITIES> 0
<RECEIVABLES> 6,952,000
<ALLOWANCES> 100,000
<INVENTORY> 16,000,000
<CURRENT-ASSETS> 23,244,000
<PP&E> 15,928,000
<DEPRECIATION> 922,000
<TOTAL-ASSETS> 39,399,000
<CURRENT-LIABILITIES> 17,662,000
<BONDS> 0
0
2,000,000
<COMMON> 540,000
<OTHER-SE> 1,134,000
<TOTAL-LIABILITY-AND-EQUITY> 39,399,000
<SALES> 0
<TOTAL-REVENUES> 30,060,000
<CGS> 0
<TOTAL-COSTS> 23,083,000
<OTHER-EXPENSES> 4,118,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,804,000
<INCOME-PRETAX> 1,057,000
<INCOME-TAX> 392,000
<INCOME-CONTINUING> 665,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 665,000
<EPS-PRIMARY> .23
<EPS-DILUTED> 0
</TABLE>
