<PAGE>
- - ------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________.
COMMISSION FILE NUMBER: 0-29490
HAWKER PACIFIC AEROSPACE
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3528840
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11240 SHERMAN WAY, SUN VALLEY, CALIFORNIA 91352
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(818) 765-6201
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
------ ------
The number of shares of the registrant's common stock outstanding on
August 12, 1998 was 5,822,222 shares.
- - ------------------------------------------------------------------------------
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HAWKER PACIFIC AEROSPACE
Report on Form 10-Q
For the Quarter Ended June 30, 1998
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Condensed Balance Sheets... . . . . . . . . . . . . . . . . . 3
Consolidated Condensed Statements of Income - Three Months . . . . . . . . 4
Consolidated Condensed Statements of Income - Six Months . . . . . . . . . 5
Consolidated Condensed Statements of Cash Flows. . . . . . . . . . . . . . 6
Consolidated Condensed Statements of Shareholder's Equity. . . . . . . . . 7
Notes to Consolidated Condensed Financial Statements . . . . . . . . . . . 8
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . 11
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exhibit 27.1 - Financial Data Schedule
</TABLE>
2
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HAWKER PACIFIC AEROSPACE
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
--------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 574,000 $ 160,000
Accounts receivable 14,246,000 7,351,000
Other receivables 85,000 80,000
Inventories 20,445,000 14,814,000
Prepaid expenses and other current assets 636,000 240,000
------------- -------------
Total current assets 35,986,000 22,645,000
Equipment and leasehold improvements, net 9,569,000 5,083,000
Landing gear exchange, net 32,652,000 11,067,000
Goodwill, net - 145,000
Deferred financing costs, net 497,000 262,000
Deferred offering costs - 766,000
Deferred taxes 157,000 -
Other assets 343,000 930,000
------------- -------------
$ 79,204,000 $ 40,898,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,967,000 $ 6,946,000
Line of credit 10,470,000 8,529,000
Accrued liabilities 8,886,000 1,976,000
Current portion of long term debt 1,830,000 1,450,000
------------- -------------
Total current liabilities 26,153,000 18,901,000
------------- -------------
Long-term debt 29,054,000 17,700,000
Shareholders' equity 23,997,000 4,297,000
------------- -------------
Total Liabilities and Shareholders' Equity $ 79,204,000 $ 40,898,000
------------- -------------
------------- -------------
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
3
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HAWKER PACIFIC AEROSPACE
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30
----------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Revenues $ 17,372,000 $ 10,544,000
Cost of revenues 13,632,000 8,149,000
-------------- --------------
Gross profit 3,740,000 2,395,000
Selling, general and administrative expenses 2,228,000 1,399,000
-------------- --------------
Income from operations 1,512,000 996,000
Net interest expense (801,000) (592,000)
-------------- --------------
Income before provision (benefit) for income taxes 711,000 404,000
Provision for (benefit) income taxes (254,000) 151,000
-------------- --------------
Net income $ 965,000 $ 253,000
-------------- --------------
-------------- --------------
Earnings per common share $ .17 $ .08
-------------- --------------
-------------- --------------
Earnings per common share - assuming dilution $ .16 $ .08
-------------- --------------
-------------- --------------
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
4
<PAGE>
HAWKER PACIFIC AEROSPACE
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------------------------------
1998 1997
----------- ----------------
<S> <C> <C>
Revenues $ 31,039,000 $ 20,358,000
Cost of revenues 24,102,000 15,680,000
------------ ------------
Gross profit 6,937,000 4,678,000
Selling, general and administrative expenses 4,090,000 2,794,000
------------ ------------
Income from operations 2,847,000 1,884,000
Net interest expense (1,449,000) (1,171,000)
------------ ------------
Income before provision (benefit) for income taxes 1,398,000 713,000
Provision (benefit) for income taxes 5,000 265,000
------------ ------------
Net income $ 1,393,000 $ 448,000
------------ ------------
------------ ------------
Earnings per common share $ .26 $ .14
------------ ------------
------------ ------------
Earnings per common share - assuming dilution $ .25 $ .14
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
5
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HAWKER PACIFIC AEROSPACE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1998 1997
--------- ------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income .............................. $1,393,000 $ 448,000
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities:
Deferred income taxes.................. (12,000) 279,000
Depreciation........................... 637,000 353,000
Amortization........................... 657,000 254,000
Changes in operating assets and
liabilities:
Accounts receivable.................... (6,900,000) 737,000
Inventory.............................. (3,669,000) 128,000
Prepaid expenses and other current
assets............................... (396,000) (304,000)
Accounts payable....................... (1,979,000) (883,000)
Deferred revenue....................... 690,000 (866,000)
Accrued liabilities.................... 3,341,000 (732,000)
----------- ---------
Cash provided by (used in) operating
activities........................... (6,238,000) (586,000)
INVESTING ACTIVITIES
Purchase of equipment, leasehold
improvements and landing gear.......... (5,360,000) (495,000)
Purchase of equipment and landing gear
from BA................................ (18,887,000) --
Purchase of BA inventory................. (1,962,000) --
Other assets............................. 587,000 (39,000)
----------- ---------
Cash used in investing activities........ (25,622,000) (534,000)
FINANCING ACTIVITIES
Borrowing under bank note................ 13,285,000 --
Principal payments on bank note.......... (51,000) (425,000)
Principal payments on related party
note................................... (1,500,000) --
Borrowings/payments on line of credit,
net.................................... 1,941,000 600,000
Deferred offering costs.................. (1,966,000) --
Deferred loan fees....................... (235,000) --
Net proceeds from equity offering........ 20,800,000 --
----------- ---------
Cash provided by financing activities.... 32,274,000 175,000
Increase (decrease) in cash.............. 414,000 (945,000)
Cash, beginning of period................ 160,000 1,055,000
----------- ---------
Cash, end of period...................... $ 574,000 $ 110,000
----------- ---------
----------- ---------
Supplemental disclosure of cash flow
information:
Noncash investing and financing
activities
Purchase of landing gear from BA...... $2,879,000 $ --
</TABLE>
SEE ACCOMPANYING NOTES.
6
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HAWKER PACIFIC AEROSPACE
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------- ------------------------ Other
Number of Retained Comprehensive
Shares Amount Shares Amount Earnings Income Total
------ ----------- --------- ----------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 400 $ 2,000,000 2,972,222 $ 1,040,000 $ 1,257,000 - $ 4,297,000
Net income for the period - - - - 1,393,000 - 1,393,000
Foreign currency translation
adjustment (unaudited) - - - - - 239,000 239,000
----------
Comprehensive Income
(unaudited) - - - - - - 1,632,000
Conversion of preferred stock
(unaudited) (400) (2,000,000) 250,000 2,000,000 - - -
Issuance of common stock
(unaudited) - - 2,600,000 18,068,000 - - 18,068,000
---- ---------- --------- ----------- ----------- --------- -----------
Balance at June 30, 1998
(unaudited) $ - $ - 5,822,222 $21,108,000 $ 2,650,000 $ 239,000 $23,997,000
---- ---------- --------- ----------- ----------- --------- -----------
---- ---------- --------- ----------- ----------- --------- -----------
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
7
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
INTERIM CONDENSED FINANCIAL STATEMENTS
During interim periods, Hawker Pacific Aerospace (the "Company") follows the
accounting policies set forth in its Annual Report to Shareholders and applies
appropriate interim financial reporting standards, as indicated below. Users of
financial information produced for interim periods are encouraged to refer to
the notes contained in the Annual Report to Shareholders when reviewing interim
financial results.
Interim financial reporting standards require management to make estimates
that are based on assumptions regarding the outcome of future events and
circumstances not known at the present time, including the use of estimated
effective tax rates. Some assumptions may not materialize and unanticipated
events and circumstances may occur which vary from those estimates and such
variations may significantly affect the Company's future results.
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements of the Company have been prepared in accordance with the
Securities and Exchange Commission's requirements of form 10-Q and contain all
adjustments, of a normal and recurring nature, which are necessary to present
fairly the financial position of the Company as of June 30, 1998, and the
results of its operations and cash flows for the three and six month periods
ended June 30, 1998 and 1997.
CONTINGENCIES
The Company is party to various legal and environmental proceedings incidental
to its business. Certain claims, suits and complaints arising in the ordinary
course of business have been filed or are pending against the Company. Based on
facts now known to the Company, management believes all such matters are
adequately provided for, covered by insurance or, if not so covered or provided
for, are without merit, or involve such amounts that would not materially
adversely affect the consolidated results of operations and cash flows or
financial position of the Company.
EARNINGS PER SHARE
Basic earnings per share are based upon the weighted average number of common
shares outstanding including the 250,000 shares issued upon the automatic
conversion of the convertible preferred stock as if the conversion occurred at
the beginning of the periods presented. The weighted average common shares used
in calculating basic earnings per share were 5,822,222 and 3,120,603 for the
three months ended June 30 1998 and 1997, respectively and 5,420,012 and
3,120,603 for the six months then ended, respectively. Diluted earnings per
share is based on the number of shares used in the basic earnings per share
calculation plus the dilutive effects of stock options under the treasury stock
method. The weighted average of common and common equivalent shares used in
calculating diluted earnings per share were 6,023,152 and 3,120,603, for the
three months ended June 30, 1998 and 1997, respectively and 5,573,074 and
3,120,603 for the six months then ended, respectively.
STOCK SPLITS
The information set forth herein reflects a 579.48618 for one stock split
effected in November 1997 and a one for .9907406 reverse stock split effected in
January 1998. All references in the accompanying financial statements and notes
to the number of shares of common stock and per common share amounts have been
retroactively adjusted to reflect the stock splits.
8
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HAWKER PACIFIC AEROSPACE
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(Unaudited)
INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
June 30
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Purchased parts and assemblies $ 18,615,000 $ 10,106,000
Work-in-process 1,830,000 2,716,000
------------- -------------
$ 20,445,000 $ 12,822,000
------------- -------------
------------- -------------
</TABLE>
INCOME TAXES
The tax provision for the three months and six months ended June 30, 1998
includes a benefit of approximately $514,000 resulting from the reduction of
the deferred tax valuation allowance.
RECENTLY ISSUED ACCOUNTING STANDARDS
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components. However, the adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. Under Statement 130, the Company has elected to report other
comprehensive income, which includes unrealized gains or losses on the Company's
foreign currency translation adjustments, within the Statement of Shareholder
Equity. Comprehensive income for the quarter and six months ended June 30, 1997
was the same as net income for the period.
During the quarter and six months ended June 30, 1998, total comprehensive
income amounted to $821,000 and $1,632,000, respectively.
FORWARD LOOKING STATEMENTS
Statements included in this filing which are not historical in nature are
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward looking statements regarding the
Company's future performance and financial results are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those set forth in the forward looking statements due to a variety of factors.
Factors that may impact such forward looking statements include, among other,
changes in the condition of the industry, changes in general economic conditions
and the success of the Company's strategic operating plans.
2. ACQUISITIONS
On February 4, 1998, the Company completed the acquisition of certain assets
("BA Assets") of the British Airways plc landing gear operation (the "BA
Acquisition") for a purchase price of approximately $19.5 million, (including
acquisition related expenses) excluding a 747-400 landing gear rotable asset
that was acquired during the second quarter of fiscal 1998 for approximately
$2.9 million. The BA assets consisted of $1.9 million in inventory, $4.0
million in machinery and equipment and $13.6 million in landing gear rotable
assets. Transaction expenses of $1.1 million were capitalized as part of the
landing gear rotable asset value.
3. NOTES PAYABLE
On January 23, 1998, the Company and Bank of America National Trust and
Savings Association ("Bank of America") entered into the Amended and Restated
Business Loan Agreement (the "Amended Loan Agreement"), which agreement
increased the maximum amount of credit available to the Company from $26.5
million to $45.5 million. The credit facilities of the Amended Loan
Agreement became available upon the completion of the Company's initial
public offering and consummation of the BA Acquisition. The Company
9
<PAGE>
used approximately $9.2 million of the proceeds available under the Amended
Loan Agreement to fund a portion of the purchase price of the BA Assets. The
Amended Loan Agreement provides the Company with a $15.0 million revolving
line of credit, a $24.5 million term loan, and a $6.0 million capital
expenditure facility. The revolving line of credit matures in January 2001,
and the term loan and capital expenditure facilities mature in January 2005.
The Amended Loan Agreement is secured by a lien on all of the assets of the
Company, including the BA Assets. At the Company's election, the rate of
interest on each of the three facilities available under the Amended Loan
Agreement is either Bank of America's reference rate or the inter-bank
eurodollar rates on either, at the Company's option, the London market or the
Cayman Islands market.
4. INITIAL PUBLIC OFFERING
On February 3, 1998, the Company completed an initial public offering (the
"Initial Public Offering") of 2,766,667 shares of the Company's common stock
("Common Stock"). Of the 2,766,667 shares of Common Stock sold in the Initial
Public Offering, 2,600,000 shares were sold by the Company and 166,667 shares
were sold by a principal shareholder of the Company. The principal
shareholder sold 415,000 additional shares of Common Stock pursuant to the
exercise of an over-allotment option granted to the underwriters by the
principal shareholder. The Company received net proceeds of approximately
$18.1 million net of expenses of approximately $2.7 million. The Company used
approximately $9.2 million of the net proceeds to fund a portion of the
purchase price for certain assets of British Airways as discussed in Note 3,
and approximately $7.6 million to repay a portion of the revolving and term
debt previously outstanding under the Company's credit facility. The balance
of $1.3 million in net proceeds has been used for working capital purposes.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report contains forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, such as statements of the Company's plans, objectives, expectations and
intentions, that involve risks and uncertainties that could cause actual results
to differ materially from those discussed in such forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this Quarterly Report and in the Company's
various filings with the Securities and Exchange Commission, including without
limitation the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
The following discussion and analysis should be read in conjunction with the
Company's financial statements and related notes thereto included herein and
with the information set forth under Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data for the
periods indicated:
<TABLE>
<CAPTION>
(unaudited) (unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------------- ----------------------------------
1998 1997 1998 1997
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Landing gear repairs $ 11,131,000 $ 5,027,000 $ 19,122,000 $ 9,388,000
Hydromechanics repairs 3,926,000 3,621,000 8,788,000 8,134,000
Spares & other 2,315,000 1,896,000 3,129,000 2,836,000
------------- ------------ ------------- -------------
Total revenue 17,372,000 10,544,000 31,039,000 20,358,000
Gross profit 3,740,000 2,395,000 6,937,000 4,678,000
Selling, general and
administrative expense 2,228,000 1,399,000 4,090,000 2,794,000
------------- ------------ ------------- -------------
Income from operations 1,512,000 996,000 2,847,000 1,884,000
Net interest expense (801,000) (592,000) (1,449,000) (1,171,000)
------------- ------------ ------------- -------------
Income before provision (benefit) for
income taxes 711,000 404,000 1,398,000 713,000
Provision (benefit) for income taxes (254,000) 151,000 5,000 265,000
------------- ------------ ------------- -------------
Net income $ 965,000 $ 253,000 $ 1,393,000 $ 448,000
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
</TABLE>
Revenues in the second quarter increased 64.8% to $17.4 million compared with
$10.5 million for the same period in 1997. Revenues increased 52.5% to $31.0
million for the six months ended June 30, 1998 compared to $20.4 million for
the same period in 1997. Internal growth from new business accounted for
28.8% of this increase in the quarter and 23.8% of the increase for the six
months ended June 30, 1998. External growth from the acquisition of British
Airways' landing gear operation accounted for 36.0% of the increase in
revenue in the second quarter and 28.7% of the increase for the six months
ended June 30, 1998. The British Airways' landing gear operation acquisition
was completed on February 4, 1998 and was accounted for using the purchase
method of accounting. Landing gear repair
11
<PAGE>
services is the fastest growing segment for the Company. Landing gear repair
services revenue, which represented 47.7% of total revenues in the second
quarter of 1997 increased 121.4% from $5.0 million in that period to $11.1
million in the second quarter of 1998 and accounted for 64.1% of total
revenues. Landing gear repair services revenue, which represented $9.4
million, or 46.1% of total revenues for the six months ended June 30, 1997,
increased 103.7% to $19.1 million, or 61.6% of total revenues for the six
months ended June 30, 1998. The increase in landing gear services revenue was
due in part to new long-term contracts with American Airlines Inc. ("American
Airlines"), British Airways plc ("British Airways"), United Parcel Services,
British Midland Engineering Services and Canadian Airlines International Ltd.
in addition to further penetration at Federal Express Corporation ("FedEx")
to support their MD10 freighter conversion program and their fleet of Airbus
A310 aircraft.
Gross profit increased 56.1% to $3.7 million for the quarter ended June 30,
1998 compared to $2.4 million for the same period in 1997. Gross profit
increased 48.3% to $6.9 million in the six months ended June 30, 1998
compared to $4.7 million for the same period in 1997. Gross profit as a
percent of revenues in the second quarter of 1998 was 21.5% compared to 22.7%
in the comparable period in 1997. The decline in gross profit margins is
attributable to certain costs incurred at the new United Kingdom operation,
which began operations in February 1998. These costs included expenses
incurred to outsource United Kingdom landing gear services to the Company's
repair facility in California, which significantly increased freight
expenses, in addition to increased subcontracted expenses with other United
Kingdom landing gear repair stations.
Selling, general and administrative expenses increased 59.3% to $2.2 million
for the quarter ended June 30, 1998 compared to $1.4 million for the same
period in 1997. Selling, general and administrative expenses increased 46.4%
to $4.1 million for the six months ended June 30, 1998 compared to $2.8
million for the same period in 1997. As a percent of revenues, selling,
general and administrative expenses declined to 12.8% in the second quarter
from 13.3% in the same period in 1997. Expenses during the second quarter and
six months ended June 30, 1998 included expenses related to the new United
Kingdom operation and outside consultant costs relating to the pending
relocation of such operations to a new facility. The Company expects to enter
into a long-term lease agreement and begin construction on the new facility
in the third quarter of 1998. Completion and relocation is expected to occur
in the second quarter of 1999.
Operating income increased 51.8% to $1.5 million for the quarter ended June
30, 1998 compared to $1.0 million for the same period in 1997. Operating
income increased 51.1% to $2.8 million for the six months ended June 30, 1998
compared to $1.9 million for the same period in 1997. As a percent of
revenue, operating income declined to 8.7% in the second quarter compared to
9.4% in the comparable period in 1997. As a percent of revenue, operating
income declined slightly in the first half of 1998 to 9.2% compared to 9.3%
in the first half of 1997. The decline is a result of increased expenses
related to the integration of the new United Kingdom operations offset by
reductions in selling, general and administrative expenses as a percentage of
total revenue.
Net interest expense increased 35.3% to $0.8 million for the second quarter
ended June 30, 1998 compared to $0.6 million for the same period in 1997.
Interest expense increased 23.7% to $1.4 million for the six months ended
June 30, 1998 compared to $1.2 million for the same period in 1997. This
increase is a result of increased borrowings to fund expansion of existing
business and to fund the acquisition of the United Kingdom operation. As a
percent of revenue, net interest expense declined to 4.6% in the second quarter
of 1998 compared to 5.6% in the comparable period in 1997. Interest income
was not significant for either period.
Income tax provision for the second quarter included a reversal of $514,000
for a previously recorded deferred tax valuation allowance. The effective
tax rate for the six months ended June 30, 1998, excluding this one-time tax
benefit was 37.1% compared to 37.2% for the same period in 1997. The
deferred tax valuation allowance was a previously recorded allowance against
the potential future benefit of net operating loss carry-forwards and other
deferred tax assets, net of deferred tax liabilities.
Net income in the quarter ended June 30, 1998 increased 281.4% to $1.0
million compared to $0.3 million for the same period in 1997. Excluding the
reversal of the previously recorded deferred tax valuation allowance, net
income would have increased 78.3% to $0.5 million in the second quarter of
1998 over the comparable period in 1997. Net income in the six months ended
June 30, 1998 increased 210.9% to $1.4 million compared to $0.4 million for
the same period in 1997. Excluding the effect of the reversal of the
previously recorded deferred tax valuation allowance, net income would have
increased 96.2% to $0.9 million in the first half of 1998 over the same period
in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital and funds for capital expenditures have been provided by cash
generated from operations, borrowings on the Company's credit facilities, and
cash generated from the sale of Common Stock.
Contemporaneously with the Initial Public Offering and the BA Acquisition,
the Company entered into the Amended Loan Agreement, which increased the
maximum amount of credit available to the Company from $26.5 million to $45.5
million. The Company used approximately $9.2 million of the proceeds
available under the Amended Loan Agreement to fund a portion of the purchase
price of the BA Assets. The Amended Loan Agreement provides the Company with
a $15.0 million revolving line of credit, a $24.5 million term loan, and a
$6.0 million capital expenditure facility. The revolving line of credit
matures in January 2001, and the term loan and capital expenditure facilities
mature in January 2005. The Amended Loan Agreement is secured by a lien on
all of the assets of the Company, including the BA Assets. At the Company's
election, the rate of interest on each of the three facilities available
under the Amended Loan Agreement is either Bank of America's reference rate
or the inter-bank eurodollar rates on either, at the Company's option, the
London market or the Cayman Islands market. As of June 30, 1998, there was
$36.4 million outstanding under the Amended Loan Agreement.
On February 3, 1998, the Company completed its Initial Public Offering and
received net proceeds of $18.1 million. A portion of the net proceeds,
together with proceeds from the Amended Loan Agreement were used to acquire
the BA Assets. The balance of the net offering proceeds was used to pay down
indebtedness and for working capital.
Net cash used in operating activities was $6.2 million for six months ended
June 30, 1998 compared to $0.6 million for the same period in 1997. The
increased use of cash relates to increases in working capital to support the
new United Kingdom operation. Accounts receivable increased as a result of
higher revenues and inventory was increased to cover production requirements
related to new contracts, including contracts with British Airways, American
Airlines and Airbus landing gear contracts for Federal Express.
12
<PAGE>
Approximately $2.9 million is to be paid to British Airways plc during the
third quarter of 1998 as part of the acquisition described in Note 2 to the
Financial Statements which will be funded by borrowings against the revolving
credit line and cash flow from operations.
Working capital and current ratio were $9.8 million and 1.4 for the second
quarter ended June 30, 1998, respectively. Working capital increased $2.5
million from June 30, 1997. The ratio of total debt to equity improved to
1.7 for the quarter ended June 30, 1998 from 6.4 at June 30, 1997. This
improvement is the result of the increased equity from the public offering
consummated in the first quarter of 1998.
RISK FACTORS
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 a decrease in market growth. 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.
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 for an aircraft,
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.
ESTABLISHMENT OF UNITED KINGDOM OPERATIONS
In February 1998, the Company consummated the BA Acquisition and established
its operations in the United Kingdom. Before the BA Acquisition, the Company
had 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.
These include, without limitation, the need to establish manufacturing,
marketing and administrative capabilities, the need to integrate the
Company's United Kingdom operations into the Company's existing operations,
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. There can be no
assurance that the risks inherent in establishing the United Kingdom
operations will not have a material adverse effect on the Company's business,
financial condition and results of operations.
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 divisions of original equipment
manufacturers ("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 B.F.
Goodrich Company, the Landing Gear Division of AAR Corporation, Revima, a
company organized and operating under the laws of France, and Dowty Aerospace
Aviation Services. The Company's major competitors in its hydromechanical
components business include AAR and OEMs such as Sundstrand Corporation,
Inc., Aeroquip Vickers, Inc., Parker-Hannifin Corporation, 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 and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company's growth strategy is based in part on the Company's ability to
expand its international operations, which will require significant
management attention and financial resources. The Company currently has
divisions in the United Kingdom and the Netherlands and plans to expand
further its international customer base. There can be no assurance that the
Company's efforts to expand operations internationally 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 international end-users and, consequently,
on the Company's business, financial condition and results of operations.
FOREIGN CURRENCY RISKS
The Company's sales are principally denominated in United States dollars and
British pounds and to some extent in Dutch guilders. 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 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. As a
result 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.
GOVERNMENT REGULATION
The Company is highly regulated worldwide by the Federal Aviation
Administration ("FAA"), the Joint Airworthiness Authority ("JAA"), a
consortium of European regulatory authorities, and various other foreign
regulatory authorities, including the Dutch Air Agency, which regulates the
Company's Netherlands' operations and the Civil Aviation Authority, which
regulates the Company's United Kingdom operations. These regulatory
authorities require aircraft to be maintained under continuous condition
monitoring programs and to periodically undergo thorough inspections. 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 condition 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 ten-year
agreements that each expires in October 2006 with (i) Dunlop Limited,
Aviation Division, (ii) Dunlop Limited, Precision Rubber and (iii) Dunlop
Equipment Division (collectively, "Dunlop"). Under two of these agreements,
the Company is entitled to purchase, at a discount from list price, Dunlop
parts for resale and for use in the repair and overhaul of a variety of fixed
wing aircraft and helicopters. For the years ended December 31, 1996 and
1997, the Company's single largest supplier was Dunlop, accounting for
approximately $5.6 million (27.0%) and $4.3 million (19.3%), respectively, of
the spare parts and components that the Company purchased in such periods.
During the six months ended June 30, 1998, Boeing was the single largest
supplier, accounting for $5.8 million (19.2%) of the spare parts and
components that the Company purchased. Dunlop was the second largest
supplier, accounting for $2.3 million (7.7%) of the spare parts and
components that the Company purchased during the six months ended June 30,
1998. Failure by any one of these divisions of Dunlop to renew its agreement
on similar terms when it expires could have a material adverse affect on the
Company's business, financial condition and results of operations. In
addition, the Company has agreements with Messier-Bugatti, SAMM and
Eurocopter France that enable the Company to purchase new aircraft parts at
discounts from list price. Many of the Company's supplier agreements, other
than its agreements with Dunlop, are short-term and can be terminated by the
suppliers upon providing 90 days prior written notice. A decision by any one
of these suppliers to terminate their agreements would eliminate the
competitive advantage the Company derives therefrom and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
SHORTAGES OF SUPPLY; INVENTORY OBSOLESCENCE
The Company's inventory consists principally of new, overhauled, serviceable
and repairable aircraft landing gear parts and components that it purchases
primarily from OEMs, parts resellers and customers. The Company believes it
maintains a sufficient supply of inventory to meet its current and
immediately foreseeable production schedule. However, the Company may fail to
order sufficient parts in advance to meet its work requirements, a particular
part may be unavailable when the Company needs it from its suppliers or the
Company unexpectedly may receive one or more large orders simultaneously for
repair and overhaul services. As a result, the Company may on occasion face
parts shortages that delay its production schedule and prevent it from
meeting required turnaround times. Delays or failure to meet turnaround times
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
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 19.3% and 6.5%, respectively, of product sales for the year ended
December 31, 1997. Sales derived from British Airways, FedEx, American
Airlines and the USCG accounted for 20.3%, 19.3%, 10.4% and 5.2%,
respectively, of the Company's total revenue during the six months ended June
30, 1998. Some of the Company's long-term service agreements may be
terminated by the customers upon providing the Company with 90 days prior
written notice, and the Company's agreement with the USCG is subject to
termination at any time at the convenience of the government. In addition,
the Company's sales are made primarily on the basis of purchase orders rather
than long-term agreements. The Company expects that a small number of
customers will continue to account for a substantial portion of its sales for
the foreseeable future. As a result, the Company's business, financial
condition and results of operations could be materially adversely affected by
the decision of a single customer to cease using the Company's products. In
addition, there can be no assurance that sales from customers that have
accounted for significant sales in past periods, individually or as a group,
will continue, or if continued, will reach or exceed historical levels in any
future period.
As of June 30, 1998, 16.7% and 27.2% of the Company's total accounts
receivable were associated with FedEx and British Airways, respectively. As a
result of the BA Acquisition, British Airways accounts for a significant
percentage of both the Company's product sales and accounts receivable.
Although the Company has not had any material difficulties in collecting its
accounts receivable during the past three years, the Company cannot ensure
that it will not have difficulty collecting receivables in the future. Any
inability by the Company to collect material amounts of receivables under its
service agreements could have a material adverse effect on the Company's
business, financial condition and results of operations.
RISKS RELATING TO ACQUISITION STRATEGY
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
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. 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 into its 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, 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.
In August 1997 and January 1998, two separate lawsuits were filed by various
individuals against Lockheed Martin Corporation and various other parties,
including the Company, in the Los Angeles Superior Court pleading various
causes of action in connection with certain alleged injuries caused by toxic
and carcinogenic chemicals allegedly released by the defendants in the
Burbank and Glendale areas of Los Angeles County, California. The individual
plaintiffs seek unspecified compensatory and punitive damages. The Company
does not believe that it caused the release of toxic and carcinogenic
chemicals alleged in the complaints and BTR has assumed the defense and has
agreed to indemnify the Company in connection with such claims.
PRODUCT AND SERVICE 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 in the amount of
$500 million, 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, 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 L. Lokken, President and Chief
Executive Officer, Brian S. Aune, Vice President and Chief Financial Officer,
Brian S. Carr, Managing Director of Sun Valley Operations, or Michael A.
Riley, Vice President Hydromechanical Business Unit, could adversely affect
the operations of the Company. The Company has entered into an employment
agreement expiring October 31, 2001 with Mr. Lokken and into employment
agreements expiring October 31, 1999 with Messrs. Aune, Carr and Riley. The
Company has obtained 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.
CONTROL BY EXISTING SHAREHOLDERS AND ANTI-TAKEOVER PROVISIONS
As of August 1, 1998, the five shareholders (the "Unique Shareholders") of
Unique Investment Corporation ("Unique") owned in the aggregate approximately
40.4% of the Company's Common Stock. The directors and executive officers of
the Company beneficially owned approximately 24.9% of the Company's Common
Stock. By virtue of such ownership, the Unique Shareholders together with the
executive officers of the Company will have effective control over all
matters requiring a vote of shareholders, including the election of a
majority of directors. The ownership positions of the existing shareholders,
together with the authorization of blank check preferred stock and the
implementation, if certain conditions are met, of a staggered board and
elimination of cumulative voting in the Company's Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws, may have the
effect of delaying, deferring or preventing a change in control of the
Company, may discourage bids for the Company's Common Stock at a premium over
the market price of the Common Stock, and may adversely affect the market
price of the Common Stock.
YEAR 2000 COMPLIANCE
The Company is currently working to resolve the potential impact of the year
2000 on the processing of date-sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the
year 2000, which could result in miscalculation or system failures. The
Company believes that its mainframe database and operating systems are year
2000 compliant. However, certain of the Company's software applications
currently are coded using two digits rather than four to define the
applicable year. The Company is systematically modifying such software
applications to be coded as four digits and anticipates such modifications to
be completed by March 1999. The Company plans to replace its telephone system
at an estimated cost of approximately $100,000 and any other non-information
technology systems by July 1999 to be year 2000 compliant. In addition, the
Company is working with its external suppliers, vendors and service providers
to ensure that their systems will be able to support and interact with the
Company's server and network. The Company has not quantified the total costs
required to become year 2000 compliant, but does not expect such costs to be
material. As of June 30, 1998, the total costs incurred to address the
Company's year 2000 issues have not been material. However, if the Company,
its customers or vendors are unable to resolve such processing issues in a
timely manner, it could have a material adverse impact on the Company's
financial position, results of operations or cash flows in future periods.
Accordingly, the Company plans to devote the necessary resources to becoming
year 2000 compliant in a timely manner and is currently working to create a
contingency plan by July 1999 to handle any year 2000 problems.
EUROPEAN MONETARY UNIT
A single currency called the euro will be introduced in Europe on January 1,
1999. The Company does not believe the introduction of the euro will have a
material effect on the Company's business, financial condition and results of
operations.
13
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
- - ------- -------------------
<S> <C>
10.1 Tenancy Agreement relating to Bennebroekerweg, Rijsinboat
(Netherlands), dated March 15, 1998, between Hawker Pacific Holland,
a division of the Company, and Mateor II C.V.
10.2 Statement of Terms and Conditions of Employment, dated May 12, 1998
between Hawker Pacific Aerospace, Limited and Richard Adey.
27 Financial Data Schedule
</TABLE>
___________________
(b) Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1998.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HAWKER PACIFIC AEROSPACE
Date: August 14, 1998 By /s/ Scott W. Hartman
----------------------------
Scott W. Hartman
CHAIRMAN OF THE BOARD
Date: August 14, 1998 By /s/ David L. Lokken
----------------------------
David L. Lokken
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: August 14, 1998 By /s/ Brian S. Aune
----------------------------
Brian S. Aune
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
15
<PAGE>
[LETTERHEAD]
Beekman Sorensen Bedrijfsmakelaardij
Aalsmeerderweg 606
Rozenburg SCHIPHOL
Postbus 3109
2130 KC Hoofddorp
Telefoon 020 - 3 166 166
Fax 020 - 3 166 160
STANDARD LEASE FOR
OFFICE SPACE
<PAGE>
[LETTERHEAD]
- - -------------------------------------------------------------------------------
GENERAL CONDITIONS FOR LEASING OFFICE SPACE
and other business premises NOT under section 7A:1624 CC
- - -------------------------------------------------------------------------------
According to the standard text decided upon by the RAAD VOOR ONROERENDE ZAKEN
(Council for Real Estate deposited on 29 February 1996, under registration
number 34/1996 with the Clerk of the Court in the Hague. The Council is not
liable for any adverse consequences of the use of the standard text. The
purpose of the headings above the articles in these General Conditions is
only to improve their readability. The content and import of the clause
covered by the heading is therefore not limited to such heading.
- - -------------------------------------------------------------------------------
THE LEASED PREMISES
1.1 The Leased Premises include the installations and facilities which are
present, in as much as these are not excluded in the certified description
accompanying the lease.
1.2 The Leased Premises will be made available for occupation and accepted in
the state outlined in the certified description accompanying the lease or,
in the absence of such a description, in the state at the commencement of the
lease, in a good state without faults.
USE
2.1 The Lessee will make actual and proper use of the Leased Premises himself
during the entire term of the lease, exclusively for the purpose stipulated
in the lease. He shall in doing so observe existing limited rights and
requirements which have been or may be made by government authorities or
public utility companies. He shall provide the Leased Premises with
sufficient furniture and fixtures and keep the same so provided.
2.2 The Lessee shall act in accordance with the law and local regulations and
in accordance with accepted practice as regards leasing, with regulations
issued by the authorities, public utility companies, the insurers and, if
applicable, with the regulations of the agency responsible for the sprinkler
system and the "STICHTING NEDERLANDS INSTITUUT VOOR LIFTECHNIEK" and other
competent authorities to issue the necessary certificates. The Lessee shall
also observe the instructions given in writing or by word of mouth by or on
behalf of the Lessor in the interests of the proper used of the Leased
Premises and of the inside and outside areas, the installations and fixtures
in the building or complex which the Leased Premises are part of. This shall
include instructions regarding the maintenance, appearance, noise level,
public order, fire protection, parking and the correct operation of the
installations and the building or the complex which the Leased Premises are
part of.
2.3 The Lessee may not create any nuisance or cause any inconvenience when
using the Leased Premises or the building or the complex of which the Leased
Premises form a part and will ensure that any third party present on his
behalf do likewise.
2.4 The Lessor has the right and the duty to use the common facilities and
services which are or will be available in the interest of the proper
functioning of the complex which the Leased Premises are part of.
LICENSES.
2.5.1 The Lessee shall obtain the licenses and/or exemptions required to
carry on the business for which the Leased Premises are intended. Refusal or
suspension of the same shall not give cause for cancelling or annulling the
lease or for undertaking any other action against the Lessor.
2.5.2 If alterations or improvements to the Leased Premises are necessary in
connection with 2.5.1, whether or not as a result of regulations issued by
authorities, it is the Lessee's responsibility (without prejudice to the
conditions in 2.6 and 2.10) to ensure that the activities to that purpose
are carried out in accordance with the requirements made or to be made by the
authorities and that any necessary licences are obtained, while the costs of
the alterations or improvements will be met by the Lessee.
ENVIRONMENT
2.6.1 If upon commencement or during the term of the lease an environmental
investigation is started with respect to the Leased Premises and afterwards
during the term of the lease or immediately upon termination of the lease -
in a similar investigation - the concentrations of one or more substances
found on, in, at or around the Leased Premises are higher than those of the
earlier investigation, the Lessee shall compensate the damage arising from
the contamination and he shall be liable to the Lessor for expenses relating
to the removal of such contamination or for the taking of actions. The Lessee
shall indemnify the Lessor against claims of third parties, including
government agencies.
<PAGE>
[LETTERHEAD]
2.6.2 The provision of 2.6.1 is not applicable if the Lessee shows that the
contamination has neither been caused by any fault or negligence of himself,
his personnel or persons or objects under his supervision, nor by any
circumstances which can be imputed to the Lessee.
2.6.3 The Lessor shall not indemnify the Lessee against (government) orders
for further investigation or the taking of actions.
WASTE PRODUCTS/CHEMICAL WASTE
2.7 Where directives or regulations by the government or other competent
authorities are applicable to the (differentiated) presentation of waste
products, the Lessee shall continuously and carefully observe the same. In
case of non-observance or incomplete observance of this obligation the Lessee
shall be liable for any resulting financial, criminal and possibly other
consequences.
ADVERTISEMENTS
2.8 Where the Leased Premises are part of a building or complex, the Lessor
shall have the right to make use of the roofs, outer walls, gardens and
grounds of that building or complex for (illuminated) advertisements, signs
and the like, both for his own benefit and for the benefit of the Lessee or
any third party. In exercising this right, the Lessor will take account of
the Lessee's interests.
APARTMENT TITLES (APPARTEMENTSRECHT)
2.9.1 If the building, or the complex of which the Leased Premises are part,
is or is to be subdivided into apartment titles, the Lessee will be required to
observe the regulations arising from the property division agreement and
rules governing their use. The same applies if the building or complex of
buildings is or becomes the property of a cooperative.
2.9.2 Insofar as this is within his power, the Lessor shall not assist in
the formulation of regulations which are in conflict with the lease.
2.9.3 The Lessor will ensure that the Lessee is provided with the
regulations regarding use as referred to in 2.9.1.
PROHIBITIONS AND REGULATIONS REGARDING PUBLIC ORDER
2.10.1 The Lessee is not permitted:
a. to have environmentally hazardous materials, including malodorous,
inflammable or explosive substances, in, on, attached to or in the
immediate vicinity of the Leased Premises, unless such materials are part
of the normal carrying on of a profession or business;
b. to burden floors of the Leased Premises or the building or complex of
which the Leased premises form a part more than is technically
permissible or specified in the lease;
c. to make such use of the Leased Premises that as a result of this use the
soil or environment becomes polluted, the Leased Premises suffer damage,
or the appearance of the Leased Premises is adversely affected, which is
understood to include the use of vehicles as a result of which the floors
may be damaged.
d. to make any alterations or additions in, on or to the Leased Premises
which are in conflict with regulations of the authorities and of public
utility companies or with the conditions under which the owner of the
Leased Premises acquired ownership of the Leased Premises or with any
other limited rights, or to make alterations or additions which create a
nuisance for other Lessees or the neighbours or hinder them in their use.
2.10.2 Without the Lessor's prior written permission the Lessee shall not be
permitted:
a. to make alterations or additions in, on or to the Leased Premises, which
shall include making holes in the outer walls;
b. to affix or have in, on, or to the Leased Premises or in the immediate
vicinity, any objects, including name boards, advertisements, bill boards,
announcements, publications, buildings, wooden structures, scaffolding,
packing materials, goods, vending machines, lighting, awnings, aerials
with fittings, flag poles, etc., or to render windowpanes opaque;
c. to enter or allow others to enter the service and installation areas,
roof terraces, roofs and drains and the areas and places not reserved for
general use in the Leased Premises or the complex of which the Leased
Premises form a part, unless for work which the Lessee is required to
carry out under this agreement.
d. To park vehicles in places other than those appropriated for this purpose.
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[LETTERHEAD]
2.10.3 The Lessor shall not be liable in any way whatsoever for any
alterations or additions referred to in 2.10.2(a) and (b).
2.10.4 The Lessee shall keep fire fighting equipment and fire exits in the
Leased Premises free and clear at all times.
2.10.5 If the Leased Premises include a lift, rolling carpet, escalator or
automatic door mechanism, or if the Leased Premises can be reached by one or
more of the said facilities, the use of such facilities shall be entirely at
a person's own risk. All regulations issued or to be issued by or on behalf
of the Lessor, the installer concerned or the authorities must be carefully
observed. If and for as long as this is necessary, the Lessor may put the said
facilities out of operation without the Lessee being entitled to any damages
or a reduction in rent.
2.10.6 Where objects installed by the Lessee (including advertisements or
other signs) must be removed temporarily in connection with maintenance or
repair work to the Leased Premises, or the building or complex of which the
Leased Premises form part, the expenses or removal, possible storage and
reinstallment shall be at the Lessee's expense and risk, regardless of
whether the Lessor has given permission for the installations of the objects
concerned.
APPLICATIONS/PERMISSION
2.11.1 If the Lessee requires any deviation from and/or addition to any
provision of this agreement, the Lessee shall file his application for such
deviation of and/or addition in writing.
2.11.2 If and to the extent that any provision of this agreement requires the
Lessor's permission, it shall only be deemed granted if given in writing.
2.11.3 Any permission granted by the Lessor shall be for one instance only
and shall not apply to other or subsequent cases. The Lessor shall be
entitled to make his permission conditional.
SUBLETTING
3.1 Subject to the Lessee's prior permission, the Lessee shall not be
permitted to relinquish all or part of the Leased Premises to any third party
letting, subletting or allowing the use of the same, or by transferring the
rights of lease in whole or in part to any third party or by bringing these
rights into a partnership, or a legal entity.
3.2 In the event that the Lessee acts in breach of the above provision he
will forfeit to the Lessor for every calendar day that the breach continues
an immediately payable fine, equal to two times the then current daily rent
payable by the Lessee, without prejudice to the Lessor's right to demand
compliance or cancellation, as well as damages.
RENT ADJUSTMENT
4.1 Any adjustment of the rent as agreed in 4.3 of the lease will occur on
the basis of the revisions of the monthly index figure according to the
consumer's price index (CP) series CPI Employees Low (1990 = 100), as
published by the Central Bureau of Statistics (CBS).
The adjusted rent will be calculated according to the following formula: the
adjusted rent is equal to the current rent on the adjustment date, multiplied
by the index figure of the calendar month which lies four calendar months
before the calendar month in which the rent is adjusted, divided by the index
figure of the calendar month which lies sixteen calendar months before the
calendar month in which the rent is adjusted.
4.2 The rent will not be adjusted if such adjustment would lead to a lower
rent than the most recent rent. In that case, the most recent rent shall
remain unchanged, until at a next indexing the index figure of the calendar
month, which lies four calendar months before the calendar month in which the
rent is adjusted, is higher than the index figure of the calendar month,
which lies four calendar months before the calendar month in which the last
rent adjustment occurred. At that time the index figures of the calendar
months referred to in the previous sentence shall be used in that adjustment.
4.3 The adjusted rent will come into force even if the Lessee is not
informed of this.
4.4 If the CBS discontinues publication of the said consumer index figure or
if the basis of the calculation is changed, an index figure adjusted to this
or as similar to this as possible will be used. In the event of any dispute
in this regard, the party who takes action first may request a statement from
the director of the CBS which will be binding on all parties. Each party will
pay half of any costs arising from this.
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[LETTERHEAD]
END OF LEASE OR USE
5.1 Subject to any statutory right the Lessee shall at the end of the
lease, or on termination of the use, deliver the Leased Premises to the
Lessor in the original state, as set out in the certified description drawn
up at the commencement of the lease as referred to in 1.2 and, in the absence
of such description, in a good state, entirely vacated, free of use or
rights to use and properly cleaned and return all keys, keycards and the like
to the Lessor. The Lessee shall remove at his own expense all objects added
to the Leased Premises or acquired by him from the previous Lessee or user.
The Lessor shall not be required to pay any sum for objects that are not
removed.
5.2 If the Lessee has terminated the use of the Leased Premises, whether or
not in due time, without returning the keys to the Lessor, the Lessor shall
be entitled to consider the lease to have expired, to gain access to the
Leased Premises at the Lessee's expense and to take possession of it, without
the Lessee having any right to damages or any other rights.
5.3 Any objects which the Lessee may be deemed to have abandoned by leaving
them in the Leased Premises on actually vacating the Leased Premises may be
removed at the expense of the Lessee by the Lessor, at the latter's
discretion and without any liability on his account, unless the Lessor has
been informed that the subsequent lessee has taken over the objects.
5.4 The parties shall inspect the Leased Premises together in good time
before the end of the lease or the use of it. The parties shall make a report
of this inspection, in which they shall record their findings. This report
will also set out which work in respect or repairs which appeared to be
necessary at the time of the inspection and the established outstanding
maintenance for which the Lessee is required to meet the costs, must still be
carried out at the Lessee's expense and in what way this must be done.
5.5 If the Lessee does not cooperate in the inspection and/or in the
recording of the findings and agreements in the inspection report within a
reasonable period, after having been duly given the opportunity to that
effect, the Lessor shall have the right to carry out the inspection without
the Lessee being present and to determine the report to be binding on both
parties. The Lessor shall give the Lessee a copy of the report without delay.
5.6 The Lessee shall carry out or cause the carrying out of the repairs he
is required to carry out on the basis of the inspection report within the
term specified in the report - or to be further agreed by the parties - to
the satisfaction of the Lessor.
If the Lessee, after having been given notice of default, fails completely or
partly to fulfil the obligations arising from the report, the Lessor shall
have the right to have the relevant work carried out himself and to recover
the consequential costs from the Lessee.
5.7 For the period required to carry out the repairs, calculated from the
date of termination of the lease, the Lessee will be in debt to the Lessor
for a sum calculated on the basis of the most recent rent and additional
supplies and services, without prejudice to the Lessor's claim for
compensation for further damages and costs.
DAMAGE
6.1 The Lessee shall take appropriate steps in due time to prevent and limit
damage to the Leased Premises, such as damage caused by short circuits, fire,
leakage, storms, frost and any other weather condition, the inward or outward
flow of liquids and gases. The Lessee shall inform the Lessor immediately if
such damage or an event such as referred to in 6.5 occurs or seems likely to
occur.
6.2 If the Lessee has the possibility to do so, the foregoing shall also
apply to the building or complex of which the Leased Premises form part.
6.3 The Lessee shall be responsible to the Lessor for any damage and loss to
the Leased Premises, unless the Lessee proves that he, the persons he had
admitted to the Leased Premises, his staff or the persons for whom he is
responsible are not to blame or that negligence cannot be held against him in
that respect.
6.4 The Lessee shall indemnify the Lessor against penalties which are
imposed on the Lessor for actions or negligence of the Lessee.
6.5 The Lessor shall not be liable for any damage done to the person or
goods of the Lessee or of third parties - and the Lessee shall indemnify the
Lessor against liability for claims from third parties in this respect - due
to the emergence and the consequences of visible and invisible faults in the
Leased Premises or the complex of which the Leased Premises form part, or
which arise due to the occurrence of weather conditions, impediments to the
accessibility of the Leased Premises.
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[LETTERHEAD]
Impediments to the supply of gas, water, electricity, heating, ventilation or
air conditioning, due to faults in the installations and apparatuses, due to
the inward and outward flow of liquids and gases, due to fire, explosion and
other occurrences, due to disruption of the benefits of leasehold or due to
disruption or faults in supplies or services, all of which to the exception
of cases of damage resulting from gross faults or serious negligence on the
part of the Lessor in respect of the state of repair of the Leased Premises
or of the building or complex of which the Leased Premises form a part.
6.6 The Lessor shall not be responsible for the Lessee's loss in trade
resulting from the activities of other lessees or obstructions to the use of
the Leased Premises caused by third parties, except in the event of gross
fault or serious negligence of the Lessor in that respect.
INTERIM TERMINATION, DEFAULT
7.1 If the Lessee
- - - does not pay the sums due by him at the specified times;
- - - ceases to practise his profession or carry on his business wholly or for
a large part in the Leased Premises;
- - - does not comply with any other condition of the lease;
- - - does not heed any condition attached to permission given by the Lessor;
- - - loses power to dispose of his capital or a part of it;
- - - loses his status as a legal entity, is wound up or in actual fact is
liquidated, provided that the Lessee is not a natural person;
- - - is declared to be bankrupt;
- - - offers a settlement in lieu of bankruptcy, or if the goods of the Lessee
are attached;
- - - dies;
the Lessor shall have the right to terminate the lease prematurely. This
shall only be preceded by a notice if the law so requires.
7.2 If any specified period of payment should lapse or if any situation as
mentioned above should arise, the Lessee will be in default as a consequence.
7.3 The Lessee shall compensate the Lessor for all damage, costs and
interests as a result of a situation as mentioned in 7.1 and as a result of
premature termination of the lease, even in the event that he is granted a
moratorium of payments or is declared bankrupt.
This damage shall include in any case the rent, the expenses for additional
supplies and services, including heating costs, V.A.T. and the other amounts
due, the costs of reletting the Leased Premises as well as all costs incurred
by the Lessor in actions in and out of court, including those for legal
assistance with regard to a situation as referred to in 7.1.
7.4 The provisions of 7.1 to and including 7.3 shall not exclude the
Lessor's right to exercise his other rights, including his right to demand
payment or performance with damages.
BANK GUARANTEE
8.1 As security for the correct fulfillment of his obligations arising from
the lease, the Lessee shall present the Lessor with a bank guarantee at the
signing of the lease according to a specimen indicated by the Lessor, for an
amount to be specified in the lease and related to the Lessee's payment
obligations to the Lessor, increased by the applicable V.A.T. This bank
guarantee shall also apply to extensions of the lease including amendments to
it and shall remain valid until six months after the date on which the Leased
Premises are actually vacated and the lease is terminated. This bank
guarantee shall in addition apply to the Lessor's assigns.
8.2 The Lessee may not demand a settlement for any amount against the bank
guarantee.
8.3 In the event that a claim is made against the bank guarantee, the Lessee
shall at the Lessor's first request arrange for a new bank guarantee which
meets the requirement stated in 8.1 and 8.4, for the full sum.
8.4 After an upward adjustment of the rent, of the expenses for supplies and
services or of the advance payments for these, the Lessee shall take
immediate steps to ensure that a new bank guarantee is issued for a sum
adjusted to the new payment obligations.
8.5 If the Lessee does not fulfil his obligations as set out in this clause,
he shall forfeit to the Lessor for every breach an immediately payable fine
of NLG 500.00 per calendar day he remains in default after he has been
informed of his omission by registered letter.
<PAGE>
[LETTERHEAD]
MAINTENANCE AND PRESERVATION
AT THE LESSOR'S EXPENSE
9.1 Unless it concerns work which may be considered to be of a limited nature
and day-to-day repairs as referred to in the law (section 7A:1619 Dutch Civil
Code) or work on objects which are not installed by or on behalf of the
Lessor, the following shall be at the expense of the Lessor:
a. maintenance, repair and renovation of structural parts of the Leased
Premises, such as foundations, pillars, beams, concrete floors, roofs,
terraces, structural walls, outer walls;
b. maintenance, repairs and renovation of staircases, stairs, sewers,
drains, gutters, outer casings of windows and doors, and the like. In
respect of sewers the condition set out in 9.2.4 shall remain in full
force;
c. replacement of parts and renovation of installations such as lifts,
central heating installations and fire hydrant boosters;
d. exterior paint work.
AT THE LESSEE'S EXPENSE
9.2.1 All other maintenance, repairs and renovations such as the following
shall be at the expense of the Lessee:
a. exterior maintenance if and insofar as it concerns work which must be
considered to be of a limited nature and day-to-day maintenance in terms
of the law (section 7A:1619 Dutch Civil Code), as well as interior
maintenance which does not include maintenance as referred to in 9.1
without prejudice to the further conditions hereof;
b. maintenance, repair and renovation of hinges and locks, plate glass,
window glass and other glass, both inside and out;
c. maintenance, repair and renovation of roller blinds, Venetian blinds,
awnings and other blinds;
d. maintenance, repair and renovation of switches, sockets, doorbell
systems, light bulbs, lighting (including fittings), carpeting,
upholstery, interior paint work, sinks, toilet facilities;
e. maintenance, repair and renovation of pipes and taps of gas, water,
electricity from the metre or main tap with all appurtenances, subject to
renovation for normal wear;
f. maintenance, repair and renovation of fences as well as maintenance of
gardens and maintenance of the grounds;
g. daily maintenance and repair (and renovation of small parts) of the
technical installations of the Leased Premises.
9.2.2 The Lessee shall pay for maintenance, repair and renovation of objects
which have been or will be installed by or on behalf of the Lessee under an
approximate estimate made available to him by the Lessor.
9.2.3 The Lessee shall furthermore pay for the care for cleaning the Leased
Premises and keeping the same clean, both inside and out, which shall include
the cleaning of windows, window frames and outer walls of the Leased Premises.
9.2.4 In addition the Lessee shall be responsible for the emptying of grease
traps, the cleaning and unblocking of cesspits, gutters and all drains/sewers
of the Leased Premises up to the municipal main sewers, the sweeping of
chimneys and the cleaning of ventilation ducts.
9.3 If the Lessee fails to carry out maintenance, repairs of renovations at
his own expense after being reminded - or if these are carried out badly or
injudiciously in the opinion of the Lessor - the Lessor shall be entitled to
carry out this work or have it carried out at the expense and risk of the
Lessee.
If the work to be carried out at the expense of the Lessee can brook no
delay, the Lessor shall be entitled to carry out this work or to have it
carried out at the Lessee's expense.
9.4 In the event of maintenance, repair and renovation work to be carried out
by the Lessor, the Lessor will consult with the Lessee in advance in which
case the latter interests may be taken into consideration where possible.
Extra costs for work to be carried out at the Lessee's request outside normal
working hours, shall be at the Lessee's expense.
9.5 The Lessee shall be responsible for the proper and competent use and
maintenance of the Leased Premises including the technical installations in
the Leased Premises. The Lessee shall at his own expense and risk conclude
service contracts. Service contracts for the installations shall be approved
in advance by the Lessor. As far as the maintenance is concerned the above
conditions shall apply except and to the extent that 12.2 is applicable.
9.6 The Lessee shall notify the Lessor immediately in writing of any faults
to the Leased Premises.
<PAGE>
[LETTERHEAD]
9.7 If the Lessee an the Lessor have agreed that the objects which are at the
expense of the Lessee under this clause are not carried out on the instruction
of the Lessee but of the Lessor, the costs of the same shall be passed on by
the Lessor to the Lessee. The Lessor shall in a number of cases conclude
maintenance contracts for such purpose.
ADJUSTMENTS
10. If the Lessor considers it necessary to carry out maintenance, repairs,
renewals, including extra facilities and alterations, renovations or other
work in, on or to the Leased Premises or the building or complex of which the
Leased Premises form part or on the adjoining properties, or to have such
work carried out, or if such work is necessary due to (environmental)
requirements or measures by the authorities or public utility companies, the
Lessee shall permit and suffer this work and these measures and the
inconvenience, if any, without being able to claim damages, reduction of his
payment obligations or cancellation of the lease, even if all of this lasts
for longer than forty days, without prejudice to the provisions of section
7A:1589 Dutch Civil Code. In the execution of the work the Lessor shall take
account of the Lessee's interests where possible.
ACCESS OF THE LESSOR
11.1 If the Lessor wants (to have) an assessment of the Leased Premises, or
wants to carry out the work as referred to in 2.6, 5, 9.3 or 10, the Lessee
shall give the Lessor, or the person who will report to the Lessee for this
purpose, access to the Leased Premises and enable the latter to carry out the
necessary work.
11.2 For the purpose of 11.1 the Lessor and all persons designated by him
shall be entitled to enter the Leased Premises after consultation with the
Lessee on working days between 7:00 a.m. and 5:30 p.m.
The Lessor shall be entitled to enter the Leased Premises in cases of
emergency without consultation and where necessary outside the specified
times.
11.3 In the event of the intended sale or auction of the Leased Premises and
after termination of the lease, the Lessee shall, after prior notice by the
Lessor or his attorney, without compensation, provide an opportunity for
inspection of the Leased Premises during at least two working days every
week. He will permit the usual notices or posters "To Let" or "For Sale" on
or near the Leased Premises.
COSTS OF SUPPLIES AND SERVICES
12.1 In addition to the rent, the Lessee will meet the costs incurred for the
use of water and electricity for the Leased Premises, including the costs for
concluding an agreement for the supply and for the hiring of a meter, as well
as any other costs and penalties charged by public utility companies. The
Lessee shall himself conclude the agreements for supplies with the
institutions involved, unless the Leased Premises have no separate
connections and the Lessor sees to these matters as part of the agreed
supplies and services.
12.2 If the parties have agreed on additional supplies and services to be
rendered by the Lessor, the Lessor will determine the sum payable by the
Lessee on the basis of the costs arising from the supplies and services and
the accompanying administrative tasks. This also applies to technical
installations and other supplies and services. If the Leased Premises form
part of a building or a complex and the suppliers or services also relate to
other parts of the same, the Lessor shall determine a reasonable sum payable
by the Lessee for the Lessee's share of the cost of such supplies and
services. The Lessor need not take account of the fact that the Lessee may
not make use of one or more of these supplies or services. If one or more
sections of the building or the complex are not in use, the Lessor will
ensure when determining the Lessee's share that this share is not larger than
it would be if the entire building or complex were in use.
12.3 The Lessor shall render to the Lessee on an annual basis an itemised
statement of the cost of supplies and services, specifying the way in which
these have been calculated and the Lessee's share of the costs, where
applicable.
12.4 At the end of the lease a statement shall be provides for the period not
yet covered. The last statement shall be provided after expiry of a maximum
of 14 months calculated from the period on which the previous statement was
provided. Neither the Lessee nor the Lessor shall claim early settlement.
12.5 If the statement on the period in question, taking account of advance
payments, shows any shortfall in payments by the Lessee or any excess
receipts by the Lessor, these will be paid or reimbursed within one month of
the statement being issued. Any disputes as to the correctness of the
statement shall provide no grounds for suspension of this obligation.
12.6 The Lessor has the right to alter or cancel the type and range of
supplies and services after consulting the Lessee.
<PAGE>
[LETTERHEAD]
12.7 The Lessor has the right to adjust the advance payments payable by the
Lessee of the expenses for supplies and services prematurely to the costs he
expects to incur, inter alia in an event as referred to in 12.6
12.8 In the event that heating and/or hot water are included in
the supplies and services, the Lessor may adjust the method of
determining the consumption of these and the Lessee's share in the
cost of this consumption after consultation with the Lessee.
12.9 If the consumption of heating and/or hot water is measured using meters
and a dispute arises regarding the Lessee's share in the costs of
consumption as a result of the failure of malfunctioning of these meters,
this share shall be determined by a company specialised in measuring and
determining consumed heating and/or warm water consulted by the Lessor. This
shall also apply in case of damage, destruction of fraud in relation to
meters, without prejudice to any other claims the Lessor may have against the
Lessee in such a case, such as a claim for repairs to or replacement of the
meters and compensation for damage suffered.
12.10 Save in the event of serious negligence or gross fault, the Lessor
shall not be liable for any damage as a result of the malfunctioning or
improper supply of the supplies and services referred to herein. Nor shall
the Lessee be able to claim rent reduction in such cases.
COSTS
13. In all cases in which the Lessor has a warning notice, a notice of
default or a writ served on the Lessee, or in the case of actions against the
Lessee to coerce him to act in accordance with the lease or to evict him,
the Lessee shall be required to reimburse the Lessor for all costs incurred,
both in and out of court, except for legal costs payable by the Lessor by
virtue of a final decision by the court. The costs to be incurred will be set
in advance by the parties at an amount which shall not be less than the
usual rate charged by bailiffs.
PAYMENTS
14.1 The payment of rent and all amounts payable under this lease will be
made at the latest on the due date in legal Dutch tender - without any
suspension, discount, reduction, or settlement with a claim which the Lessee
has, or has in his opinion, against the Lessor - by payment or transfer to an
account specified by the Lessor. The Lessor shall be free to alter the place
or manner in which payment is to be made by giving the Lessee written notice
to this effect. The Lessor shall be entitled to determine the outstanding
amount under the lease from which payments received from the Lessee will be
deducted, unless the Lessee specifically states otherwise upon payment. In
the latter case section 6:50 of the Dutch Civil Code shall not be applicable.
14.2 Every time when an amount owed by the Lessee by virtue of the lease is
not paid promptly on the due date, the Lessee will forfeit to the Lessor by
operation of the law as of the due date an immediately payable fine of 2
per cent a month of the amount owing with a minimum of NLG 250.00 per
calendar month, with each month after commencement counting as a full month.
TAXES, EXPENSES, LEVIES, PREMIUMS ETC.
15.1 If it has been agreed that V.A.T. will be charged on the rent, the
Lessor shall file an application as referred to in 5.2 of the lease to the
inspection in question.
15.2 If application is not to be granted, the Lessee shall owe the Lessor
an amount over and above the rent corresponding with the amount of V.A.T.
that would have been payable had the application been granted. If an
application is granted with effect from a later date than requested, the
Lessee shall owe the Lessor an amount over and above the rent corresponding
with the amount of V.A.T. as of the agreed commencement date up to the date
of commencement of the taxed rent.
15.3 If the Lessee shows the application was not granted or not granted on
the agreed date by the Lessor's action, the amount corresponding with the
V.A.T. as referred to in 15.2, shall not be payable.
OTHER TAXES, EXPENSES, LEVIES, PREMIUMS ETC.
15.4 The Lessee shall pay, even if the Lessor is assessed for the same:
a. the real estate tax and the district water board charges or polder dues
regarding the actual use of the Leased Premises and the actual joint use of
service areas, general areas and areas in common use;
b. other current or future taxes, sufferance dues, charges, levies and
utilisation taxes with respect to the Leased Premises and property of the
Lessee, except for the real estate tax and the district water board charges
or polder dues in respect of the enjoyment under a right in rem and except
for the sewerage charges;
<PAGE>
[LETTERHEAD]
c. environmental levies including surface water purification levies and
charges for waste water purification and any other amounts on account of
environmental protection.
15.5 If the Lessor or other lessees in the building or the complex are
charged a higher premium for fire insurance for the building or the inventory
of the Leased Premises or the complex of which the Leased Premises form part,
as a consequence of the nature of performance of the profession or business of
the Lessee, the Lessee shall reimburse the amount over and above the normal
premium to the Lessor or such other lessees. The Lessor and the other lessees
shall be free to choose their insurance company, to set the value insured and
to assess the reasonableness of the premium payable.
"Normal Premium" shall be understood to mean the premium the Lessor of the
Lessee may stipulate from any reputable insurer established in the
Netherlands for the insurance of the Leased Premises or his inventory and
goods, against fire risk at the time immediately preceding the conclusion of
the lease, without taking account of the nature of the business or profession
to be carried on by the Lessee in the Leased Premises, as well as - for the
duration of the lease - each adjustment of this premium, which does not
result from any change of the nature or extent of the risk insured.
SEVERABILITY
16.1 If several (natural or legal) persons have committed themselves as
Lessees, they shall always be severally liable and each for the whole to the
Lessor for all commitments arising from the lease. Suspension of payments or
discharge by the Lessor to or of one of the Lessees or an offer to that
effect, shall only concern such Lessee.
16.2 The commitments arising from the lease are severable, also with respect
to the heirs and assigns of the Lessee.
UNTIMELY AVAILABILITY
17.1 If the Leased Premises are not available on the agreed commencement
date of the lease, as a result of the fact that the Leased Premises are not
ready on time - not being due to the Lessee's request -, the previous user
has not vacated the Leased Premises on time or the Lessor has not yet obtained
from the authorities the licenses for which he, the Lessee, is responsible,
the Lessee shall be exempt from payment of rent or expenses for additional
supplies and services until the date on which the Leased Premises are
available to him and his other obligations and the agreed terms of the lease
will be postponed accordingly. The price index date shall remain unchanged.
17.2 The Lessor shall not be liable for damage to the Lessee resulting from
the delay, unless serious negligence or gross fault can be imputed to him in
this respect.
17.3 The Lessee may not claim cancellation, unless the overdue delivery is a
result of premeditated action or negligence on the part of the Lessor, and as
a consequence leads to such a delay that the Lessee cannot reasonably be
expected to uphold the agreement without amendments.
DATA PROTECTION ACT (WET PERSOONSREGISTRATIE)
18. If the Lessee is a natural person, the Lessee's personal data may have
been recorded by the Lessor and the administrator (if any) in a personal data
file.
DOMICILE
19.1 From the commencement date of the lease all communications from the
Lessor to the Lessee relating to the fulfillment of this lease, shall be
addressed to the Leased Premises.
19.2 The Lessee shall immediately notify the Lessor if he no longer actually
carries on his business in the Leased Premises, stating his new domicile in
the Netherlands.
19.3 In the event that the Lessee should leave the Leased Premises without
giving the Lessor his new domicile in the Netherlands, the address of the
Leased Premises shall be the Lessee's domicile.
COMPLAINTS
20. The Lessee shall submit his complaints and requests in writing. In
urgent cases, he may do so by word of mouth. In such cases, the Lessee shall
confirm his complaint or request in writing as soon as possible.
ADMINISTRATOR
21. Where an administrator is or has been appointed by the Lessor, the Lessee
will consult the administrator in all matters relating to the lease.
<PAGE>
[LETTERHEAD]
FINAL CLAUSE
22. Should any part of the lease or of these General Conditions be null or
voidable, this shall not affect the remaining parts of the lease and these
General Conditions. In stead of the annulled or null part, the agreements
which are nearest to what the parties would have agreed, had they known of the
nullity or voidance, shall be considered to be agreed.
<PAGE>
I, Willem Bek, sworn translator for the English Language, residing at Omloop
31, Middelburg, The Netherlands, sworn in at the District Court of
Middelburg, do solemnly and sincerely declare that the following is a full,
true and faithful translation made by me of the documents hereunto annexed,
which were submitted to me for translation.
[SEAL]
Signed, 21st April 1998
<PAGE>
[SEAL]
TENANCY AGREEMENT
relating to:
Bennebroekerweg
Rijsenhout
<PAGE>
[SEAL]
SPECIFICATIONS OF TENANCY AGREEMENT
- - - Property rented : unit 3 of business complex located at
Bennebroekerweg, Rijsenhout (Netherlands)
- - - Lessor : Mateor II C.V.
- - - Lessee : Hawker Pacific Inc.
- - - Tenancy : 10 years
- - - Commencing date of tenancy : 1st June 1998
- - - First payment of rent : 1st June 1998
- - - Option period : yes, 5 years
- - - Term of notice : yes, 12 months
- - - Initial rent : NLG 180,000-annually
- - - VAT on rent : yes
- - - Service charge : none
- - - Time of payment : 3 months in advance
- - - Market-related rent adjustment : yes
- - - Indexation : yes, annually, for the first time on 1st
June 1999 on the basis of "CPI-Werknemers
Laag" (1995=100) [Consumer Price Index
published by the Dutch Central Bureau of
Statistics]
- - - Bank guarantee : yes, to an amount of 3 months' rent
inclusive of VAT
- - - Manager : lessor
- - - Extraordinary provisions : see Section 9
<PAGE>
[SEAL]
- - --------------------------------------------------------------------------------
TENANCY AGREEMENT FOR OFFICE SPACE
AND OTHER BUSINESS ACCOMMODATION NOT UNDER SECTION 7A:1624 BW [Dutch Civil Code]
---
- - --------------------------------------------------------------------------------
Laid down in accordance with the model by the Raad voor Onroerende Zaken [Dutch
Real Estate Council] in February 1996. Referral to this model is exclusively
permitted if the completed, added or variant text is clearly recognisable as
such. Additions and variations are preferably to be included under the
heading "extraordinary provisions". Liability for adverse consequences of the
use of the text of the model is excluded by the Council.
- - --------------------------------------------------------------------------------
The undersigned
Mateor II C.V.
domiciled at Amsterdam,
hereinafter called 'lessor',
represented by Mr. H. van Luling
and
Hawker Pacific Inc.
Domiciled at Nieuw-Vennep,
hereinafter called 'lessee',
- - - filed in the Register of Commercial Enterprises at Haarlem
- - - file No. 34063957
- - - represented by Mr E.R. Lepelaar
agree to the following:
THE PROPERTY RENTED, PURPOSE, USE
1.1 This tenancy agreement relates to the business accommodation,
hereinafter called 'the property', locally known: Bennebroekerweg at
Rijsenhout and consisting of approx. 300 m2 office space and approx. 810 m2
business accommodation (unit 3), and further specified on the drawing of
the property which has been certified by the parties and is part of this
document to which it is attached.
1.2 The property may exclusively be used as office and business
accommodation.
<PAGE>
[SEAL]
1.3 The lessee is not allowed to put the property to any other use than is
described in 1.2 without prior written approval from the lessor.
1.4 The highest acceptable load of the floor(s) of the property is 250
kgs.m2 for office space and 2,000 kgs/m2 for business accommodation.
CONDITIONS
2.1 This agreement includes the general provisions of the tenancy
agreement for office space and other business accommodation NOT under
Section 7A: 1624 BW [Dutch Civil
Code], filed with the registry of the
court at The Hague, Netherlands, on 29th February 1996 and filed there
under number 34/1996, hereinafter called "general provisions". The
contents of these general provisions are known to the parties. The
lessee has received a copy of the general provisions.
2.2 The provisions referred to in 2.1 are applicable except where this
agreement expressly departs from these provisions or if application of
these provisions is not possible in relation to the property.
DURATION, EXTENSION AND TERMINATION
3.1 This agreement has been entered for the duration of 10 years, starting
on 1st June 1998 to 31st May 2008 inclusive.
3.2 After expiration of the period stated in 3.1 this agreement shall be
continued for a consecutive period of 5 years, that is to 31st May 2013
inclusive.
Subsequently this agreement is continued for consecutive periods of 5
years each.
3.3 Termination of this agreement is effected by giving notice towards the
end of a tenancy period and is subject to a term of notice of at least
12 months.
3.4 Termination must be effected by means of a writ or by registered mail.
3.5 Premature termination of this agreement is possible under a circumstance
as referred to in 7 of the general provisions.
PAYMENT OBLIGATION, TIME OF PAYMENT
4.1 The payment obligation of the lessee consists of:
- the rent;
Initials of lessor: [initials] Initials of lessee: [initials]
<PAGE>
[SEAL]
- the fee for the attendant deliveries and services including the sales
tax due;
- the sales tax due on the rent or else a corresponding amount, in
accordance with and in compliance with 15.2 and 15.3 of the general
provisions, provided that the parties agree on a rent taxed with sales
tax.
4.2 The rent amounts to NLG 180,000.- annually.
In words: one hundred and eighty thousand Dutch guilders.
4.3 The rent is adjusted for the first time on 1st June 1999, and
subsequently annually on 1st June in accordance with 4.1 and 4.2 of the
general provisions.
4.4 The fee for attendant deliveries and services is determined in
accordance with 12 of the general provisions. As specified there, a
system of advance payments with clearance later is applied to this fee.
4.5 The payments to be made by the lessee to the lessor are payable in one
amount in advance in consecutive instalments as specified in 4.6 and
must be settled in full before or on the first day of the period to
which the payments relate.
4.6 Per instalment of 3 (three) calendar months the payment obligation amounts
to: NLG 45,000.-.
In words: forty-five thousand Dutch guilders; this amount is exclusive of
sales tax.
4.7 In view of the commencing date of the rent the first instalment relates
to 1st June 1998 to 30th June 1998 inclusive and the amount due for this
first period is NLG 15,000.- exclusive of sales tax. The lessee shall
settle this amount inclusive of such sales tax as is due before or on
1st June 1998.
SALES TAX
5.1 All amounts mentioned in this agreement are exclusive of sales tax. The
lessee must pay sales tax on the fee for attendant deliveries and
services. In case of taxed letting this also applies to the rent. The
sales tax is charged by the lessor and must be settled together with the
rent and the fee for attendant deliveries and services or the advance
payment on these.
Initials of lessor: [initials] Initials of lessee: [initials]
<PAGE>
[SEAL]
5.2 The parties agree that the lessor charges the lessee sales tax on the
rent.
5.3 If it has been agreed that sales tax on the rent is charged, the
lessee hereby grants the lessor and the lessor's legal successor(s)
irrevocable powers also on the lessee's behalf to lodge a request as
referred to in Section 11, Subsection 1 under b, 5-DEG.- of the Wet
op de omzetbelasting 1968 [Sales Tax Act 1968] (option request for taxed
letting). If so desired the lessee shall co-sign the request and place
the lessor in possession of it again within 14 days after having received
the request from the lessor.
DELIVERIES AND SERVICES
6. In relation to attendant deliveries and services to be arranged by or
on account of the lessor the parties agree on the following:
Not applicable.
BANK GUARANTEE
7. The amount of the bank guarantee referred to in 8.1 of the general
provisions is NLG 52,875.-
In words: fifty-two thousand eight hundred and seventy-five Dutch
guilders.
MANAGER
8. Until the moment when the lessor announces otherwise the lessor acts
as manager, telephone No. 0297-32 40 83.
9. EXTRAORDINARY PROVISIONS
VAT
9.1.1 Section 4.1, third dash, is replaced by: "the sales tax due on the
rent or else a corresponding amount, in accordance with and in compliance
with 9.1.2 to 9.1.8 inclusive of the general provisions. The provisions
in 15.2 and 15.3 of the general provisions which are part of this
agreement are hereby expressly declared not applicable".
9.1.2 The lessee and lessor expressly state that the point of departure for
determining the rent has been the fact that the lessee shall use the
property permanently for the percentage set down by the law or the
minimum percentage yet to be determined for performances entitling to
deduction of VAT, in such a way that taxed renting or taxed letting can
be opted for.
Initials of lessor: [initials] Initials of lessee: [initials]
<PAGE>
[SEAL]
9.1.3 If the lessee does not (any longer) use the property for performances
entitling to deduction of VAT as referred to in 9.1.2, the lessee no
longer owes VAT on the rent to the lessor, but then, starting from the
date on which the letting is exempt from VAT, the lessee owes the lessor
such an amount as a separate fee in addition to the rent exclusive of VAT
that the lessor is fully compensated for:
1. The VAT on the operating costs for the property and/or investments
therein which is not (any longer) deductible as a result of the
lapsing of the taxed letting.
2. The VAT which the lessor, as a result of the lapsing of the taxed
letting on account of recalculation as referred to in Section 15,
Subsection 4 of the Wet op de omzetbelasting 1968 [Sales Tax Act 1968]
or revision as referred to in Sections 11 to 13 inclusive of the
Uitvoeringsbeschikking omzetbelasting 1968 [Sales Tax Implementing
Order 1968], must repay to the Revenue and/or which the lessor can
no longer get back from the Revenue.
3. All other damage incurred by the lessor as a result of the lapsing
of the taxed letting.
9.1.4 When a situation as referred to in 9.1.3 occurs the lessor shall
inform the lessee what amounts must be paid by the lessor to the Revenue
and give insight in the other damage as referred to in 9.1.3.
The lessor shall co-operate if the lessee wishes to have the statement
of the lessor checked by an independent auditor. The costs of this are
for the lessee's account. The financial loss to be incurred by the
lessor, as a result of the lapsing of the taxed letting, must be settled
by the lessee at the first request of the lessor.
9.1.5 The provisions in 9.1.3 and 9.1.4 also apply if the option request for
taxed letting under Section 11 Subsection 1 under b, 5-DEG.- of the
Wet op de omzetbelasting 1968 [Sales Tax Act 1968] is not granted by the
Revenue for whatever reason. The provisions in 9.1.3 and 9.1.4 also apply
if the option request is granted starting from a later date than was
requested, for the period from the agreed commencing date of the taxed
letting to the commencing date of the rent taxed with sales tax.
However, if the lessee proves that the option request has not been
granted at all or has not been granted on the agreed date through a fault
of the lessor, the lessee does not owe the compensation mentioned
in 9.1.3.
9.1.6 The lessee is bound to notify the lessor within four weeks after the
conclusion of the financial year in which the lessee started to rent the
property (also if it has fully or partly been given into use to a third
party) by means of a signed declaration whether the lessee has used the
property for purposes for which a full or virtually full (at least 90%)
entitlement to deduction of VAT exists on the basis of Section 15 of the
Wet op de omzetbelasting 1968 [Sales Tax Act 1968].
Initials of lessor: [initials] Initials of lessee: [initials]
<PAGE>
[SEAL]
Furthermore, if the property (also if it has been given fully or partly
into use to a third party) has not been used for purposes for which a
full or virtually full (at least 90%) entitlement to deduction of VAT
exists on the basis of Section 15 of the Wet op de omzetbelasting 1968
[Sales Tax Act 1968], the lessee is bound to notify the lessor within
four weeks after the conclusion of the financial year concerned by means
of a signed declaration.
In both cases the lessee is bound to send a copy of the declaration to
the tax inspector within the same period.
9.1.7 If the lessee does not comply with the obligation to provide
information as referred to above or if it appears afterwards that the
lessee has departed from the wrong point of departure and the lessor
has consequently, as appears afterwards, wrongly charged VAT on the
rent, the lessee is in default and the lessor is entitled to recover
the financial loss resulting from this from the lessee. This loss
concerns the full relevant VAT payable to the Revenue by the lessor
increased by interest and possible rises, as well as the VAT not to
be deducted by the lessor.
This Subsection provides for a damage claim settlement in case the
taxed letting should end in retroaction, this in addition to the
arrangement described in 9.1.3 and 9.1.4. The extra damage which is
incurred by the lessor as a result of this retroactive effect, is
claimable from the lessee outright, fully and as a lump sum. The
lessor shall co-operate if the lessee wishes to have the statement of
this extra damage of the lessor checked by an independent auditor. The
cost of this is for the lessee's account.
9.1.8 The provisions in 9.1.3, 9.1.5 and 9.1.7 are also applicable if the
lessor, after termination of the tenancy agreement, premature or
otherwise, is confronted with damage as a result of the lapsing of the
taxed letting agreed on by the parties, which damage is claimable from
the lessee by the lessor outright, fully and as a lump sum.
LEAVING BEHIND BUILT-IN COMPONENTS
9.2 The lessee is allowed to leave behind the built-in components
installed in the property at the end of the tenancy agreement. The
attached drawings of the lay-out of the ground floor and the first
floor are the point of departure for the state of the property at
vacating and delivering the property at the end of the tenancy.
Initials of lessor: [initials] Initials of lessee: [initials]
<PAGE>
[SEAL]
PENALTY ARRANGEMENT
9.3 Contrary to Section 3.1 the lessee is entitled to terminate this
agreement prematurely after 5 years, in which case the lessee must
observe a 12 months' notice. Termination can only take place towards
the end of a month. If a lessee makes use of this possibility to give
notice, the following penalty arrangement applies:
On departure as of 1st June 2003 50% of the ruling annual rent;
on departure as of 1st June 2004 40% of the ruling annual rent;
on departure as of 1st June 2005 30% of the ruling annual rent;
on departure as of 1st June 2006 20% of the ruling annual rent;
on departure as of 1st June 2007 10% of the ruling annual rent;
on departure as of 1st June 2008 0% of the ruling annual rent;
Or the pro rata part if termination does not take place as of 1st June;
COMPLETION
9.4 On the basis of the offer of 6th November 1997 by v.o.f. Bouwbedrijf
Van Luling, on the understanding that the full "completion" of the
property shall take place and the execution of the work is the
criterion and NOT the estimate of the work, and on the basis of the
fax of 6th February 1998 from Beekman Sorensen Bedrijfsmakelaardij.
Both documents have been attached to the agreement.
OPTION RIGHT
9.5 The option right mentioned in Section 3.2 is a unilateral option right
of the lessee, therefore the tenancy cannot be terminated by the
lessor on the basis of this Section.
REVIEW OF THE MARKET-RELATED RENTABLE VALUE ADJUSTMENT
9.6 Without prejudice to a rent adjustment on the basis of 4.3 of the
tenancy agreement each of the parties is authorised to desire
adjustment of the rent to the market-related rentable value. This
adjustment can take place for the first time as of 1st June 2008 and
subsequently after every period of at least 5 (five) years after the
latest adjustment of the rent to the market-related rentable value. If
a party wishes to make use of this power, this party shall notify the
other party by means of a registered letter with an advice of delivery
at the latest 12 (twelve) months before the date on which the rent
adjustment must take effect.
If the parties have not come to an agreement about the adjustment of
the rent to the market-related rentable value within 2 (two) months
after receipt of this notification, the rent shall be determined by
three experts.
Initials of lessor: [initials] Initials of lessee: [initials]
<PAGE>
[SEAL]
When determining the rent the experts are to receive the
assignment to take into account everything that has been agreed
between the parties in relation to the property as well as the
circumstances of the case, such as the location, size, lay-out and
quality of the property and the facilities in and around the
property, as well as the rent of comparable business
accommodation which rent has been agreed mutually or has been
determined by the court.
Of these three experts one is appointed by each of the parties
within 14 (fourteen) days after a party has received the request
in this matter from the other party. An expert must make known
within 8 (eight) days after the date of the assignment whether he
accepts this assignment.
The third expert is appointed by these two experts within 8
(eight) days after they have both accepted their appointment. The
judgement of the third expert is decisive in default of agreement
between the experts about the rent to be determined. If one of the
parties should fail to appoint an expert or if the experts
appointed by the parties do not succeed in appointing the third
expert, the complainant may request the president of the Chamber
of Commerce and Factories of the district in which the property
is located, to appoint the expert(s).
A party bears the costs of the expert appointed by this party. The
costs of the third expert are borne half each by both parties. The
experts are assigned to report within 6 (six) weeks after their
appointment has been definitely settled.
After the rent has been adjusted to the market-related rentable
value, the first rent indexation takes place on the date agreed in
4.3 of the tenancy agreement on the understanding that the rent
indexation is effected in proportion over the period which has
lapsed since the date of the adjustment of the rent to the
market-related rentable value.
Executed in duplicate at Rijsenhout/Nieuw-Vennep.
Lessor: Lessee:
MATEOR II C.V. Hawker Pacific Inc.
H. van Luling E.R. Lepelaar
Date: 13th March 1998 Date: 13th March 1998
[signature] [signature]
Initials of lessor: [initials] Initials of lessee: [initials]
<PAGE>
HAWKER PACIFIC AEROSPACE LIMITED
STATEMENT OF TERMS AND CONDITIONS OF EMPLOYMENT
This Written Statement of Terms and Conditions of Employment is given by
Hawker Pacific Aerospace Limited to Mr. Richard Adey in accordance with the
provisions of Section 1 of the Employment Protection (Consolidation) Act 1978
as amended and together with your offer letter, any rules and procedures
published by the Company and any Collective Agreements reached with the
recognised Trade Union in respect of your work group, constitutes your
Contract of Employment.
EMPLOYEE'S NAME: Richard Adey
EMPLOYEE'S ADDRESS: Overdene,
Paper Mews,
Dorking,
Surrey RH4 2TU
EMPLOYER'S NAME: Hawker Pacific Aerospace Limited
EMPLOYER'S ADDRESS: Technical Block A (S362)
P.O. Box 10
Heathrow Airport
Hounslow
Middx. TW6 2JA
JOB TITLE
Your job title will be Managing Director.
You will be required to report to David Lokken, President and CEO, Hawker
Pacific Aerospace.
Please note that in order to meet the needs of the business, you may, from
time to time, be required to undertake other duties in addition to your
normal duties.
LOCATION
Your place of work will be at the company's premises as stated above or such
other location in the UK or Europe or World Wide as the company shall direct
whether on a temporary or permanent basis.
COMMENCEMENT OF EMPLOYMENT
Your employment began on 4 February 1998.
Hawker Pacific Aerospace Limited does recognise your previous service.
Your continuous employment will therefore be calculated from 11 March 1996.
<PAGE>
HOURS OF WORK
You will be required to work such hours as are necessary to meet the needs of
the business and this will not normally be less than 37.5 hours per week.
BASIC RATE OF PAY
You will be paid at the rate of L75,000 per annum plus car allowance of
L8,000 per annum, which you will receive monthly in arrears direct into your
Bank or Building Society account on the last working day of each month.
Your basic rate of pay will be reviewed on an annual basis at 1 January. (A
review of salary should not automatically be assumed to mean an increase in
salary.)
BONUS SCHEME
You will be eligible to participate in the company's performance bonus scheme
in accordance with the rules of that scheme. Any such scheme shall operate in
relation to a particular annual accounting period and you shall be notified
of the terms of that scheme at the beginning of that period or as soon as
possible thereafter. If the company implements a bonus scheme in an annual
accounting period, it shall be under no obligation to continue that scheme in
any subsequent period and it may amend or withdraw that scheme at its
discretion.
EXPENSES
The company will reimburse to you, expenses properly incurred in the
conduct of the company's business. Details must be submitted and approved for
payment in accordance with company policy, details of which will be available
from your immediate manager.
DEDUCTIONS FROM PAY
The company reserves the right to deduct from your salary or any other monies
payable or reimbursable to you by the company all and any sums which you may
owe to the company or any of its subsidiary or associated companies at any
time.
PROBATIONARY SERVICE
This employment will be subject to satisfactory completion of a six month
probationary period of service. This period may be extended for up to a
further three months subject to discussion with yourself.
TERMS AND NOTICE OF TERMINATION
The period of employment with this company shall be for a period of three
years to terminate at 3 February 2001 unless extended by mutual consent.
<PAGE>
Your employment will be subject to you providing six months notice of
termination, given in writing.
However, the company may not serve notice of termination in the event that
employment is terminated as a result of gross misconduct.
Please note that the company reserves the right to deduct monies owing from
final pay, e.g. overpayment of holiday.
TRAINING
You will be required to undertake such training as the company shall from
time to time direct and successfully complete that training (which includes
the attainment of any qualifications specified). If within the time period
determined by the company, you do not successfully complete the training or
at any time during the training you do not progress to the satisfaction of
the company, your employment under this contract will be terminated by the
company giving to you in writing the period of notice required under this
contract.
ANNUAL LEAVE
You will be entitled to 26 days annual leave (excluding Bank Holidays) and
the holiday year operates from 1 January to 31 December.
Holiday is accrued at 2.2 days per month and you will therefore be eligible
to receive 26 days holiday between the date of commencement and 31 December
1998. The company does not normally permit employees to carry forward holiday
entitlement and holiday not taken during the year of entitlement will be
forfeit.
On termination of employment employees will receive payment in lieu of
outstanding annual leave entitlement except when employment is terminated by
the company on grounds of gross misconduct.
Holiday with or without pay will only be taken with the prior approval of
your immediate superior and you are expected to comply with the accepted
practices and requirements of the company with regard to annual leave,
details of which will be in the Employee Handbook.
ABSENCE
If you are unable to attend at work you are required to notify your immediate
manager, by telephone, within two hours of your appointed start time giving
the reason for your absence. A deduction may be made from your pay in respect
of the time lost.
If you fail to report for work for five consecutive working days without
notification in respect of your absence, it will be assumed that you no
longer with to be employed by
<PAGE>
Hawker Pacific Aerospace Limited and the company will write to you
terminating you employment without notice.
SICKNESS ABSENCE
If you are unable to attend at work through ill-health you will be required
to provide Self-Certification for absences of up to and including six
calendar days.
In the event that the period of incapacity for work is for seven calendar
days or more you will be required to produce a medical statement signed by a
qualified medical practitioner on the eighth calendar day of absence and
thereafter until your return to work.
During a period of twelve months (Benefit Period) which will commence with
each Tax Year you will be eligible to receive Company Sick Pay according to
length of service, as follows:
<TABLE>
<CAPTION>
Service Company Sick Pay
------- ----------------
<S> <C>
Less than three months Nil
More than three months but less than six months Six weeks
More than six months but less than nine months Seven weeks
More than nine months but less than two years Eight weeks
More than two years but less than three years Thirteen weeks
More than three years Twenty-six weeks
</TABLE>
Subject to adherence to the Company Notification of Sickness Absence
Procedure payment for Company Sick Pay will commence of the first working day
of sickness absence.
Further details of the calculation of Company Sick pay and associated Company
Policy and Procedure on Sickness Absence are contained in the Employee
Handbook.
MEDICAL
You and your family will be entitled to membership of the company nominated
private health insurance scheme. Details of this will be made available as
soon as possible.
RETIREMENT
Normal retirement will be on achieving the statutory retirement age.
PENSION
You will be eligible to enroll into a company pension scheme. Details of this
will be made available as soon as possible.
<PAGE>
ADDITIONAL BENEFITS
You will be entitled to a package of benefits which from time to time has
generally been available to employees. This package will be available at the
absolute discretion of the company and the company reserves the right to vary
and/or withdraw such benefits.
COMPANY PROPERTY
If you are issued with company property you will be responsible for ensuring
that property is properly maintained and cared for. In the event that the
property is lost, damaged (other than through normal usage) or stolen you
will be responsible for notifying the company and its insurance brokers and
where appropriate your local police and for providing them with such
information as they require.
RIGHT OF SEARCH
Random searches will be conducted and the company reserves the right to
search you, your vehicle and any personal effects brought on to company
premises. You have the right to refuse to be searched but such refusal may
result in your dismissal.
INDIVIDUAL GRIEVANCE
If you have a grievance related to your employment you should first discuss
it with your immediate manager. If you are not satisfied with the response
you receive you may pursue your grievance in accordance with the company
grievance procedure, details of which are contained in the Employee Handbook.
DISCIPLINE
You are expected to comply with the normal working practices and requirements
of the company and with the provisions of the Health and Safety at Work Act
1974 (and as amended). Failure to do so may result in disciplinary action.
Details of the company disciplinary procedure are contained in the Employee
Handbook.
OUTSIDE BUSINESS INTERESTS
It is a condition of employment, that you shall not be concerned or
interested, either directly or indirectly, whether financially or otherwise
in any other business, trade or undertaking other than Hawker Pacific
Aerospace Limited, without consent in writing from Hawker Pacific Aerospace
Limited except as a non-executive shareholder or debenture holder of a company.
CONFIDENTIALITY AT WORK
You shall not, except in the proper course of your duties or as required by
law, divulge to any person any confidential information concerning the
company or any of
<PAGE>
its subsidiary or associated companies, knowledge which has resulted from
employment with the company, and you shall not use such information in any
manner likely to cause loss or damage to the company or any of its subsidiary
or associated companies. This restriction will continue to apply after
termination of employment with Hawker Pacific Aerospace Limited.
ADDITIONAL RESTRAINTS ON TERMINATION OF EMPLOYMENT
As and when you leave the service of the company, you shall not use the name
of the company in connection with your own or any other name calculated to
suggest that you are still connected with the company nor in any way hold
yourself as having any such connection.
You shall refrain for a period of six months after the termination of your
employment for whatever reason from canvassing business of the type carried
out at the date of termination by the company on behalf of yourself or of
any other person or persons or company Worldwide from any person, firm or
company except that if you are employed by another person, firm or company
which at the date of termination also had the person, firm or company as a
customer or was in the habit of dealing with them.
You will also refrain for a period of twelve months after the termination of
your employment for whatever reason either on your own behalf or on behalf of
any person, firm or company from enticing away from the company any employee
of the company.
Each of the obligations contained in this section shall be separate, distinct
and severable from each other.
PUBLICATIONS AND BROADCASTS
You are required to submit to the President and CEO of the company for
approval, any proposed publication, lecture, recording, radio or television
broadcast, script or demonstration relating to the aerospace industry or
in which the name of the company or any of its subsidiary or associated
companies is mentioned before it is published, given, recorded or broadcast.
COPYRIGHT
You acknowledge that all Industrial property produced, invented or discovered
by you at any time during your employment with the company whether before or
after the date hereof shall belong to and vest in the company absolutely to
the fullest extent permitted by law and to such end you undertake, at the
request and expense of the company to execute all such documents and give all
such assistance as in the option of the company may be necessary or desirable
to vest any such Industrial Property or any Industrial Property Rights
therein in the company absolutely and you hereby assign by way of present
assignment of future copyright in all Industrial Property produced or
originated by you.
<PAGE>
"INDUSTRIAL PROPERTY" includes inventions, designs, processes, formulae,
notations, improvements, know-how, goodwill, reputation, moulds, get-up,
tradenames and marks, logos, devices, plans, models, literary, dramatic,
musical and artistic works as defined by the Copyright Designs and Patents
Act 1988 or of the kind which relate directly or indirectly to the business
of the company or any associated company which may in the opinion of the
company be capable of being use or adapted for use therein or in connection
therewith.
"INDUSTRIAL PROPERTY RIGHTS" includes patents, design rights, trademark
rights whether registered or unregistered, copyrights and all other forms of
industrial or intellectual property (in each case in any part of the world
and whether or not registered or registrable and to the fullest extent
thereof and for the full period thereof and all extensions and renewals
thereof) and all applications for registration thereof, and all rights and
interests thereto and therein.
CHANGE IN CONTROL
In addition to any compensation, benefits or rights you may have, in the event
of a "change in control", you will be paid twelve months salary based on the
total then current compensation package on a schedule to be determined at the
time of such "change in control". As used in this Statement of Terms and
Conditions of Employment, a "change in control" shall mean (i) the sale,
conveyance or disposition of all or substantially all of the assets of the
company, (ii) a consolidation or merger of the company or interest in any
other entity unless the shareholders of this company continue to own, in such
merger or consolidation, greater than 50% of the voting power of the capital
stock of the surviving entity that is normally entitled to vote in the
election of directors, or (iii) any person or "group", other than the Unique
Investment Corporation shareholders or their affiliates, as such term is used
in Section 13(d) of the Securities Exchange Act ("Exchange Act") becomes the
beneficial owner or is deemed to beneficially own (as described in Rule 13d-3
under the Exchange Act) in excess of 30% of the company's voting power of the
capital stock normally entitled to vote in the election of directors of the
company. The provisions of this section shall also apply within 90 days of
any "change in control" as defined above if your employment is terminated for
any reason.
VARIATION TO TERMS AND CONDITIONS OF EMPLOYMENT
The company reserves the right to vary the terms and conditions of your
employment on one months notice. Any alterations to your contractual terms
will be notified to you personally. No variation of contract will be
implemented without prior consultation with you.
<PAGE>
On behalf of Hawker Pacific Aerospace
NAME: David Lokken
SIGNATURE /s/ David Lokken DATE: 12/5/98
------------------------ ---------
CONFIRMATION OF ACCEPTANCE OF TERMS AND CONDITIONS OF EMPLOYMENT
I confirm that I wish to accept employment with Hawker Pacific Aerospace in
accordance with this Statement of Terms and Conditions of Employment.
NAME: Richard Adey
SIGNATURE: /s/ Richard Adey DATE: 12/5/98
------------------------ ---------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS OF HAWKER PACIFIC AEROSPACE FOR THE QUARTER
ENDED JUNE 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 574,000
<SECURITIES> 0
<RECEIVABLES> 14,408,000
<ALLOWANCES> 162,000
<INVENTORY> 20,445,000
<CURRENT-ASSETS> 35,986,000
<PP&E> 44,689,000
<DEPRECIATION> 2,468,000
<TOTAL-ASSETS> 79,204,000
<CURRENT-LIABILITIES> 26,153,000
<BONDS> 0
0
0
<COMMON> 21,108,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 79,204,000
<SALES> 17,372,000
<TOTAL-REVENUES> 17,372,000
<CGS> 13,632,000
<TOTAL-COSTS> 13,632,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (3,000)
<INTEREST-EXPENSE> 801,000
<INCOME-PRETAX> 711,000
<INCOME-TAX> (254,000)
<INCOME-CONTINUING> 965,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 965,000
<EPS-PRIMARY> .17
<EPS-DILUTED> .16
</TABLE>
