<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 23, 1998
REGISTRATION NO. 333-40295
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HAWKER PACIFIC AEROSPACE
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 3728 95-3528840
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
------------------------------
11240 SHERMAN WAY
SUN VALLEY, CALIFORNIA 91352
(818) 765-6201
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
DAVID L. LOKKEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HAWKER PACIFIC AEROSPACE
11240 SHERMAN WAY
SUN VALLEY, CALIFORNIA 91352
TEL: (818) 765-6201
FAX: (818) 765-8073
(Name, address and telephone number of agent for service)
------------------------------
COPIES TO:
YVONNE E. CHESTER, ESQ. MARK A. KLEIN, ESQ.
ROBERT E. BENFIELD, ESQ. SUSAN B. KALMAN, ESQ.
TROY & GOULD PROFESSIONAL CORPORATION FRESHMAN, MARANTZ, ORLANSKI, COOPER &
KLEIN
1801 CENTURY PARK EAST, SUITE 1600 9100 WILSHIRE BOULEVARD, 8TH FLOOR
LOS ANGELES, CALIFORNIA 90067 BEVERLY HILLS, CALIFORNIA 90212
TEL. (310) 553-4441 TEL. (310) 273-1870
FAX. (310) 201-4746 FAX. (310) 274-8357
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended ("Securities Act"), check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement of the earlier effective registration statement for the
same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1) REGISTRATION FEE(2)
<S> <C> <C>
Common Stock, no par value........................................... $31,816,670 $9,641.41
Representatives' Warrants(3)(4)...................................... 223 0.07
Common Stock, no par value(4)(5)..................................... 2,227,160 674.90
Total Registration Fee........................................... $10,316.38*
</TABLE>
* Previously paid.
(1) Estimated solely for the purpose of calculating the registration fee, and
based upon a proposed maximum offering price per share of $10.00. Includes
the offering price of up to 415,000 shares that may be purchased at the
option of the Underwriters solely to cover over-allotments, if any.
(2) Computed in accordance with Rule 457(o).
(3) To be issued to the Representatives of the several Underwriters.
(4) Pursuant to Rule 416, there are also being registered such indeterminate
number of shares and warrants as may become issuable pursuant to
antidilution provisions of the Warrants registered hereunder.
(5) Issuable upon the exercise of the Representatives' Warrants at an assumed
maximum exercise price per share of $10.00.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 23, 1998
[LOGO]
2,766,667 SHARES
COMMON STOCK
------------------
Of the 2,766,667 shares of Common Stock offered hereby, 2,600,000 are being
sold by Hawker Pacific Aerospace, a California corporation ("Hawker Pacific" or
the "Company") and 166,667 are being sold by a shareholder of the Company (the
"Selling Shareholder"). See "Principal and Selling Shareholders." The Company
will not receive any proceeds from the sale of shares by the Selling
Shareholder. Prior to this offering (the "Offering"), there has been no public
market for the Common Stock of the Company. It is currently estimated that the
initial public offering price will be in the range of $8 to $10 per share. See
"Underwriting" for information relating to the method of determining the initial
public offering price. Immediately following the Offering, the shareholders of
Unique Investment Corp. will beneficially own in the aggregate approximately
47.5% (or 40.4% if the over-allotment option is exercised in full) of the
Company's outstanding Common Stock, and by virtue of such ownership will have
effective control over all matters requiring a vote of shareholders, including
the election of a majority of directors. See "Risk Factors--Control by Existing
Shareholders and Anti-Takeover Provisions." The Common Stock has been approved
for quotation on the Nasdaq National Market under the symbol "HPAC" subject to
official notice of issuance.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED
BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDER
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
Total(3)......................... $ $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses estimated at $ payable by the Company and
$ payable by the Selling Shareholder.
(3) The Selling Shareholder has granted to the Underwriters a 30-day option to
purchase up to an aggregate of 415,000 additional shares of Common Stock at
the price to the public less underwriting discounts and commissions for the
purpose of covering over-allotments, if any. If the Underwriters exercise
such option in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to the Selling Shareholder will be $ ,
$ and $ , respectively. See "Principal and Selling
Shareholders" and "Underwriting." The Company will not receive any portion
of the proceeds from the sale of the shares by the Selling Shareholder.
------------------------
The shares of Common Stock are offered by the Underwriters named herein,
subject to prior sale, when, as and if issued by the Company and delivered to
and accepted by the Underwriters and subject to certain prior conditions
including the right of the Underwriters to reject any order in whole or in part.
It is expected that delivery of the shares of Common Stock will be made at the
offices of EVEREN Securities, Inc., or through the facilities of The Depository
Trust Company, New York, New York on or about , 1998.
EVEREN SECURITIES, INC. THE SEIDLER COMPANIES
INCORPORATED
The date of this Prospectus is , 1998.
<PAGE>
[ART WORK]
LANDING GEAR
Large air transport landing gear, which are comprised of thousands of
component parts and may stand over seven feet tall and require sophisticated
information systems technology, skilled labor and heavy machinery to complete
the repair and overhaul processes performed by the Company.
THE COMPANY'S BORING MILLS, PERFORMING TIGHT TOLERANCE MACHINING OF A
WIDEBODY LANDING GEAR COMPONENT
PLASTIC MEDIA BLASTING FOR EFFICIENT PAINT REMOVAL
PRECISION TRACKING
The Company utilizes advanced information systems including computerized
material requirements planning, bar-coded routing systems and electronic data
order processing.
These systems enable the Company to instantaneously track any job through
all repair operations and provide a direct link between facilities, allowing a
real-time view of work orders and associated material requirements.
DC10 MAIN LANDING GEAR ASSEMBLY, OVERHAULED BY HAWKER PACIFIC
SA365 DAUPHIN MAIN CONTROL
AS332 PUMA LOAD ABSORBING LANDING GEAR SHOCK STRUT
MD-11 WHEEL & TIRE ASSEMBLY
AS332 SUPER PUMA MAIN SERVO CONTROL
HYDROMECHANICS
Hawker Pacific's broad array of services include repair and overhaul of
hydraulic systems, flight controls, constant speed drives and integrated drive
generators for a variety of fixed wing aircraft and helicopters.
WHEELS TIRES & BRAKES
Hawker Pacific's United States facility offers one stop, full service wheel,
tire and brake (steel and carbon) overhaul and repair, "Aircraft On the Ground"
and technical support for a wide range of commercial and corporate aircraft.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE FINANCIAL STATEMENTS AND RELATED NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN
RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMMON STOCK.
THE COMPANY
Hawker Pacific repairs and overhauls aircraft and helicopter landing gear,
hydromechanical components and wheels, brakes and braking system components for
a diverse international customer base, including commercial airlines, air cargo
operators, domestic government agencies, aircraft leasing companies, aircraft
parts distributors and original equipment manufacturers ("OEMs"). In addition,
the Company distributes and sells new and overhauled spare parts and components
for both fixed wing aircraft and helicopters. During the nine months ended
September 30, 1997, the Company had in excess of 440 customers, several of which
have entered into long-term service contracts with the Company, including
Federal Express Corporation, American Airlines, Inc., the United States Coast
Guard, and US Airways, Inc. On December 20, 1997, the Company entered into an
acquisition agreement to purchase, for approximately L13.0 million
(approximately $21.1 million at September 30, 1997), substantially all of the
assets of British Airways' landing gear repair and overhaul operations. The
Company expects to close the transaction immediately following completion of
this Offering using approximately $11 million of the net proceeds. As part of
the BA Acquisition, the Company and British Airways have agreed to enter into a
seven-year exclusive service agreement to provide landing gear and related
repair and overhaul services to substantially all of the aircraft currently
operated by British Airways. The Company believes that the BA Acquisition will
provide it with a base in the United Kingdom from which to expand its
international repair and overhaul operations significantly and position itself
to become the global leader in its markets. See "Acquisition of Certain Assets
of British Airways" and "Use of Proceeds."
The Company believes it is well positioned to benefit from the following
aviation industry trends that are driving increased demand for third-party
repair, overhaul and spare parts inventory management services: (i) an increase
in worldwide air traffic associated with the addition of new aircraft and more
frequent use of existing aircraft; (ii) the outsourcing by aircraft operators of
services previously handled internally; (iii) the break-up of monopolistic
aircraft maintenance consortiums; and (iv) an increase in regulatory and
customer emphasis on the traceability of aircraft parts.
GROWTH STRATEGY
PURSUE ADDITIONAL INTERNATIONAL GROWTH OPPORTUNITIES. The Company believes
that the international aviation aftermarket presents the greatest potential for
substantial growth. With the hydromechanical repair and overhaul services that
it performs from its Netherlands facility and the large air transport repair and
overhaul operations that it will establish through the BA Acquisition, the
Company believes it will be able to provide customers with a full range of
repair and overhaul services in Europe. In addition, the Company believes that
the break-up of aircraft maintenance consortiums will create opportunities for
the Company to expand its European, Middle Eastern and Asian customer bases.
With facilities located in the United Kingdom and California, the Company
believes that it will be geographically positioned to pursue additional growth
opportunities in both the European and Asian aviation aftermarkets.
FOCUS ON LONG-TERM SERVICE AGREEMENTS. Through increased sales and
marketing efforts, the Company is actively seeking to enter into long-term
service agreements with its existing and potential customers to provide its
services for all of their respective aircraft. A recent example of the Company's
success in this area includes the Company's September 1997 seven-year exclusive
agreement with American Airlines to service landing gear on all Boeing 757
aircraft within its fleet. While long-term agreements are often terminable on
short notice, the Company believes that securing long-term service agreements
with
3
<PAGE>
customers will provide Hawker Pacific with a more predictable and consistent
flow of business and enable it to improve its profit margins from fixed wing
operations.
EXPAND EXISTING OPERATIONS. Hawker Pacific seeks to increase sales, margins
and operating income by marketing its landing gear repair and overhaul services
to new and existing customers and expanding its hydromechanical component
product lines. Boeing projects that the global aircraft fleet will grow from
approximately 11,500 aircraft at the end of 1996 to over 16,000 aircraft in 2006
and 23,000 aircraft in 2016. The Company plans to expand its landing gear repair
and overhaul operations in order to capitalize on this growth trend. The Company
also intends to expand its hydromechanical component service offerings
particularly through increased capabilities resulting from the BA Acquisition.
SUPPLEMENT GROWTH THROUGH ACQUISITION. The Company intends to evaluate and
pursue strategically located acquisition prospects with technology, equipment
and inventory that complement or expand the Company's existing operations and
that may enable it to expand into new geographic or product markets.
COMPETITIVE STRENGTHS
- STRONG MARKET POSITION. The Company through its predecessors has been
providing aftermarket products and services to the aviation industry for over 30
years and believes it has gained an international reputation for high quality
and reliability. The Company believes that its customers select Hawker Pacific
based on its superior quality of service, competitive pricing, rapid turnaround
time and extensive industry experience. Using its engineering expertise, the
Company has developed proprietary or specialized repair and overhaul equipment
and techniques, including the ability to manufacture certain replacement parts
in-house, that enable it to reduce costs in providing its customers with repair
and overhaul services.
- EXPERIENCED MANAGEMENT TEAM. The Company's senior executives have on
average over 20 years of industry experience and have served the Company for an
average of seven years. In addition, the Company believes that its customers
highly value the extensive experience of its 15 managers, who have served the
Company on average for 12 years.
- ADVANCED MANAGEMENT INFORMATION SYSTEMS. The Company has developed
proprietary systems to manage and schedule work flow and coordinate many aspects
of operations. The Company believes that its management information systems are
among the most advanced in its industry, permitting the Company to achieve
greater operating efficiencies, offer a higher level of customer service than
its competitors and provide complete traceability of aircraft parts.
Hawker Pacific was incorporated in 1980 in California as a distributor of
aircraft parts and certain other consumer products and began providing aircraft
repair and overhaul services in 1987. In November 1996, BTR Dunlop, Inc. sold
all of the outstanding capital stock of the Company to the Company's current
shareholders. See "Certain Transactions--Acquisition of the Company from BTR."
Unless the context otherwise requires, all references henceforth to the
"Company" or "Hawker Pacific" shall also include Hawker Pacific Aerospace
Limited, a wholly-owned United Kingdom subsidiary formed in November 1997. The
Company's principal executive offices are located at 11240 Sherman Way, Sun
Valley, California 91352, and its telephone number is (818) 765-6201.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered:
By the Company.............................................. 2,600,000 shares
By the Selling Shareholder.................................. 166,667 shares
Common Stock Outstanding after the Offering..................... 5,822,222 shares
Use of Proceeds................................................. The net proceeds will be used to finance a
portion of the BA Acquisition, to repay a
portion of certain indebtedness and for working
capital and general corporate purposes. See "Use
of Proceeds."
Risk Factors.................................................... Prospective investors should consider carefully
the factors set forth under "Risk Factors."
Nasdaq National Market Symbol................................... HPAC
</TABLE>
------------------------
"BA ASSETS" REFERS TO THE ASSETS OF BRITISH AIRWAYS PLC'S ("BRITISH
AIRWAYS") LANDING GEAR REPAIR AND OVERHAUL OPERATIONS TO BE ACQUIRED BY THE
COMPANY IMMEDIATELY FOLLOWING THE CLOSING OF THE OFFERING (THE "BA
ACQUISITION"). UNLESS OTHERWISE INDICATED, THE INFORMATION SET FORTH HEREIN (I)
REFLECTS A 579.48618 FOR ONE STOCK SPLIT (ASSUMING AN INITIAL PUBLIC OFFERING
PRICE OF $9 PER SHARE) TO BE EFFECTED PRIOR TO THIS OFFERING, (II) ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, THE REPRESENTATIVES'
WARRANTS TO PURCHASE UP TO 222,716 SHARES OF COMMON STOCK, OR OPTIONS TO
PURCHASE UP TO AN AGGREGATE OF 756,888 SHARES OF COMMON STOCK GRANTED OR
RESERVED UNDER THE COMPANY'S 1997 STOCK OPTION PLAN AND PURSUANT TO MANAGEMENT
STOCK OPTIONS GRANTED IN NOVEMBER 1997, AND (III) GIVES EFFECT TO THE CONVERSION
OF ALL OUTSTANDING SHARES OF THE COMPANY'S SERIES A PREFERRED STOCK (THE
"PREFERRED STOCK") INTO 222,222 SHARES OF COMMON STOCK (ASSUMING AN INITIAL
PUBLIC OFFERING PRICE OF $9 PER SHARE).
FORWARD-LOOKING STATEMENTS
When included in this Prospectus, the words "expects," "intends,"
"anticipates," "plans," "projects" and "estimates," and analogous or similar
expressions are intended to identify forward-looking statements. Such
statements, which include statements contained in "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," are inherently subject to a variety of
risks and uncertainties that could cause actual results to differ materially
from those reflected in such forward-looking statements. For a discussion of
certain of such risks, see "Risk Factors." These forward-looking statements
speak only as of the date of this Prospectus. The Company expressly disclaims
any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
5
<PAGE>
SUMMARY FINANCIAL DATA
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
PREDECESSOR(1) SUCCESSOR(1)
-------------------------- -----------------------------------------------------------
YEAR TEN MONTHS TWO MONTHS YEAR NINE MONTHS
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995(2) 1996(3) 1996 1996 1996 1997
------------- ----------- ------------ ---------------- ---------------- ---------
(PRO (PRO
FORMA)(3)(4) FORMA)(3)(4)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ 35,012 $ 32,299 $ 6,705 $ 39,004 $ 29,567 $ 30,060
Cost of revenues............... 28,993 27,027 4,599 31,799 25,157 23,083
------------- ----------- ------------ ---------------- ---------------- ---------
Gross profit................... 6,019 5,272 2,106 7,205 4,410 6,977
Selling, general and
administrative(5)............ 4,837 5,044 1,059 6,161 4,406 4,118
Restructuring charges(3)....... -- 1,196 -- 1,196 1,196 --
------------- ----------- ------------ ---------------- ---------------- ---------
Income (loss) from
operations................... 1,182 (968) 1,047 (152) (1,192) 2,859
Interest expense, net.......... (1,598) (1,609) (196) (2,305) (1,734) (1,802)
Income tax expense
(benefit)(6)................. (680) (971) 382 (934) (1,112) 392
------------- ----------- ------------ ---------------- ---------------- ---------
Net income (loss).............. $ 264 $ (1,606) $ 469 $ (1,523) $ (1,814) $ 665
------------- ----------- ------------ ---------------- ---------------- ---------
------------- ----------- ------------ ---------------- ---------------- ---------
Pro forma net income (loss) per
share........................ $ 0.15 $ (0.49) $ (0.58) $ 0.21
------------ ---------------- ---------------- ---------
Weighted average shares
outstanding.................. 3,119,627 3,119,627 3,119,627 3,119,811
Pro forma supplemental net
income (loss) per share(7)... $ 0.14 $ (0.28) $ (0.38) $ 0.25
OPERATING AND OTHER DATA:
Capital expenditures........... $ 4,114 $ 1,199 $ 28,553 $ 1,576
Depreciation and
amortization................. 854 819 200 866
EBITDA(8)...................... 2,036 (149) 1,254 3,727
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------
ACTUAL AS ADJUSTED(9)
--------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................ $ 5,582 $ 21,344
Total assets........................................................................... 39,399 52,518
Total long-term debt (excluding current portion)....................................... 18,063 13,063
Total shareholders' equity............................................................. 3,674 24,936
</TABLE>
- ------------------------------
(1) Predecessor information represents the historical financial data of the
Company when it was owned by BTR Dunlop, Inc. ("BTR"). Successor information
represents the historical financial data after the acquisition of the
Company by its existing shareholders (the "BTR Transaction"). See "Certain
Transactions--Acquisition of the Company from BTR" and Note 1 of Notes to
Financial Statements.
(2) Fiscal 1995 includes a non-recurring charge to cost of revenues of $927,000
for disposal of inventory related to the merger (the "Dunlop Merger") of
certain operations of Dunlop Aviation, Inc., a wholly-owned subsidiary of
BTR Dunlop Holdings, Inc. ("Dunlop Aviation"), which had operations in
Chatsworth, CA ("Dunlop Chatsworth") and Miami, FL ("Dunlop Miami"). Fiscal
1995 also includes a net gain of approximately $300,000 in selling, general
and administrative expenses which represents an operating expense of
$700,000 offset by an insurance reimbursement of $1,000,000 related to an
environmental liability incurred by the Company (the "EPA Claim"), for which
the Company has been fully indemnified by BTR. The estimated total net cost
of the EPA Claim recorded in fiscal 1995 was based on the information
available at that time. See "Business--Environmental Matters and
Proceedings" and Notes 1 and 7 of Notes to Financial Statements.
(3) Restructuring charges during the ten months ended October 31, 1996 relate to
costs incurred to shut down discontinued operations of Dunlop Miami. See
Note 10 of Notes to the Financial Statements. In addition, the ten months
ended October 31, 1996, pro forma year ended December 31, 1996 and pro forma
nine months ended September 30, 1996 include a non-recurring charge of
$489,000 to cost of revenues for the disposal of inventory related to the
shutdown of Dunlop Miami and a non-recurring charge to cost of revenues of
$574,000 for non-productive inventory of the Company.
(4) The pro forma presentation gives effect to the BTR Transaction as though it
had occurred on January 1, 1996.
(5) Included in selling, general and administrative expenses for the ten months
ended October 31, 1996, the pro forma nine months ended September 30, 1996,
and the pro forma year ended December 31, 1996 are expenditures related to
the EPA Claim of
6
<PAGE>
$947,000. No such costs were incurred during the two months ended December
31, 1996 or the nine months ended September 30, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
(6) Income tax expenses for the two months ended December 31, 1996 and nine
months ended September 30, 1997 include provisions of $382,000 and $391,000,
respectively, resulting from the reduction of deferred tax assets. No tax is
actually payable for such provisions. See Note 4 of Notes to Financial
Statements.
(7) Pro forma supplemental earnings per share reflect what earnings would have
been if the debt retired with the proceeds from the Offering had been
retired at the beginning of the period. The number of shares of Common Stock
to be sold in this Offering, the proceeds from which will be used to retire
debt (833,333 shares), are included in this calculation with a corresponding
reduction in interest expense. See Note 1 of Notes to Financial Statements.
(8) EBITDA represents earnings before taking into consideration interest
expense, income tax expense and depreciation and amortization expense and is
not a measurement of income under generally accepted accounting principles
("GAAP"). EBITDA may not provide an accurate comparison among companies
because it is not necessarily computed identically by all companies. The use
of such information is intended only to supplement the conventional income
statement presentation and is not to be considered as an alternative to net
income, cash flows or any other indicator of the Company's operating
performance which is presented in accordance with GAAP.
(9) Adjusted to give effect to the receipt of the net proceeds from the sale by
the Company of 2,600,000 shares of Common Stock to be sold in this Offering
(at an assumed initial public offering price of $9.00 per share), the
receipt of $500,000 in proceeds from the issuance of 52,154 shares of Common
Stock in October 1997, and the application of the estimated net proceeds to
working capital and repayment of a portion of certain debt. Does not give
effect to the BA Acquisition which is expected to be completed immediately
following the Offering. The Company plans to use approximately $11 million
from the proceeds of this Offering and approximately $11 million from its
credit facility to fund the purchase price of the BA Assets. See
"Acquisition of Certain Assets of British Airways" and "Use of Proceeds."
7
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS WHEN EVALUATING AN INVESTMENT IN
THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE
COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY
STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE
DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
AVIATION INDUSTRY RISKS
The Company derives all of its sales and operating income from the services
and parts that it provides to its customers in the aviation industry. Therefore,
the Company's business is directly affected by economic factors and other trends
that affect its customers in the aviation industry, including a possible
decrease in aviation activity, a decrease in outsourcing by aircraft operators
or the failure of projected market growth to materialize or continue. When such
economic and other factors adversely affect the aviation industry, they tend to
reduce the overall demand for the Company's products and services, thereby
decreasing the Company's sales and operating income. There can be no assurance
that economic and other factors that might affect the aviation industry will not
adversely affect the Company's results of operations. See "Business--Market and
Industry Overview."
FLUCTUATIONS IN RESULTS OF OPERATIONS
The Company's operating results are affected by a number of factors,
including the timing of orders for the repair and overhaul of landing gear and
fulfillment of such contracts, the timing of expenditures to manufacture parts
and purchase inventory in anticipation of future services and sales, parts
shortages that delay work in progress, general economic conditions and other
factors. Although the Company has secured several long-term agreements to
service multiple aircraft, the Company receives sales under these agreements
only when it actually performs a repair or overhaul. Because the average time
between landing gear overhauls is seven years, the work orders that the Company
receives and the number of repairs or overhauls that the Company performs in
particular periods may vary significantly causing the Company's quarterly sales
and results of operations to fluctuate substantially. The Company is unable to
predict the timing of the actual receipt of such orders and, as a result,
significant variations between forecasts and actual orders will often occur. In
addition, the Company's need to make significant expenditures to support new
aircraft in advance of generating revenues from repairing or overhauling such
aircraft may cause the Company's quarterly operating results to fluctuate.
Furthermore, the rescheduling of the shipment of any large order, or portion
thereof, or any production difficulties or delays by the Company, could have a
material adverse effect on the Company's quarterly operating results.
RISKS RELATING TO ACQUISITION STRATEGY; ESTABLISHMENT OF UNITED KINGDOM
OPERATIONS
Immediately following completion of this Offering, the Company will acquire
the BA Assets using approximately $11 million of the proceeds from this
Offering. See "Acquisition of Certain Assets of British Airways," "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." 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
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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, including the BA Acquisition. The Company
evaluates acquisition opportunities from time to time, but the Company has not
entered into any commitments or binding agreements to date, except with respect
to the BA Acquisition. There can be no assurance that the Company will be able
to consummate acquisitions on satisfactory terms, or at all, or that it will be
successful in integrating any such acquisitions, including the BA Acquisition,
into its operations. The Company has no history or experience operating in the
United Kingdom. Accordingly, establishing operations in the United Kingdom will
subject the Company to all of the risks inherent in the establishment of a new
business enterprise. The likelihood of the success of the Company's United
Kingdom operations must be considered in light of the problems, expenses,
difficulties, complications and delays frequently encountered in connection with
a new business. These include, without limitation, the need to establish
manufacturing, marketing and administrative capabilities, the need to implement
the Company's management information systems in its new location, the need to
locate and move into a new facility, unanticipated marketing problems, new
competitive pressures and expenses.
RISKS ASSOCIATED WITH EXPANSION OF INTERNATIONAL OPERATIONS
The Company's growth strategy is based in large part on the Company's
ability to expand its international operations, which will require significant
management attention and financial resources. The Company currently has a
division in the Netherlands, and through the BA Acquisition, the Company plans
to expand further its international customer base. There can be no assurance
that the Company's efforts to expand operations internationally, including the
BA Acquisition, will be successful. Failure to increase revenue in international
markets could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, international operations
are subject to a number of risks, including longer receivable collection periods
and greater difficulty in accounts receivable collections, unexpected changes in
regulatory requirements, foreign currency fluctuations, import and export
restrictions and tariffs, difficulties and costs of staffing and managing
foreign operations, potentially adverse tax consequences, political instability,
the burdens of complying with multiple, potentially conflicting laws and the
impact of business cycles and economic instability outside the United States.
Moreover, the Company's operating results could also be adversely affected by
seasonality of international sales, which are typically lower in Asia in the
first calendar quarter and in Europe in the third calendar quarter. In addition,
inflation in such countries could increase the Company's expenses. These
international factors could have a material adverse effect on future sales of
the Company's products to intentional end-users and, consequently, the Company's
business, operating results and financial condition.
The Company's sales are principally denominated in United States dollars and
to some extent in Dutch guilders, and the Company expects to make material sales
in British pounds following the BA Acquisition. The Company makes substantial
inventory purchases in French francs from such suppliers as Messier-Bugatti,
Societe D'Applications Des Machines Motrices ("SAMM") and Eurocopter France. The
Company's Netherlands facility's inventory purchases are primarily United States
dollar denominated, while sales and operating expenses are partially denominated
in Dutch guilders. To date, the Company's business has not been significantly
affected by currency fluctuations or inflation. However, the Company conducts
business in the Netherlands and expects to conduct business in the United
Kingdom, and thus fluctuations in currency exchange rates could cause the
Company's products to become relatively more expensive in particular countries,
leading to a reduction in sales in that country. Upon completion of the BA
Acquisition, the Company may engage in additional foreign currency denominated
sales or pay material amounts of expenses in foreign currencies that may
generate gains and losses due to currency fluctuations. The Company's operating
results could be adversely affected by such fluctuations or as result of
inflation in particular countries where material expenses are incurred.
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The Company's payment of the purchase price for the BA Acquisition is
denominated in pounds. To hedge against the fluctuation of pounds to dollars,
the Company has entered into a transaction which permits it to purchase
approximately $17 million of pounds at a rate of 1.6373 dollars per pound. The
balance of the purchase price has not been hedged and thus the purchase price in
United States dollars could increase or decrease depending on fluctuations of
pounds to dollars and the currency conversion factor in effect at the time the
BA Acquisition is consummated. See "Acquisition of Certain Assets of British
Airways" and "Management's Discussion and Analysis of Financial Conditions and
Results of Operations--Foreign Exchange."
SUBSTANTIAL COMPETITION
Numerous companies compete with the Company in the aviation services
industry. The Company primarily competes with various repair and overhaul
organizations, which include the service arms of OEMs, the maintenance
departments or divisions of large commercial airlines (some of which also offer
maintenance services to third parties) and independent organizations such as the
Landing Gear Services Division of the B.F. Goodrich Company ("BFG"), the Landing
Gear Division of AAR Corporation ("AAR"), Revima, a company organized and
operating under the laws of France ("Revima") and Dowty Aerospace Aviation
Services ("Dowty"). The Company's major competitors in its hydromechanical
components business include AAR and OEMs such as Sunstrand, Aeroquip Vickers,
Inc. ("Vickers"), Parker-Hannifin Corporation ("Parker-Hannifin"),
Messier-Bugatti and Lucas. The Company expects that competition in its industry
will increase substantially as a result of industry consolidations and alliances
in response to the trend in the aviation industry toward outsourcing of repair
and overhaul services. In addition, as the Company moves into new geographic or
product markets it will encounter new competition.
The Company believes that the primary competitive factors in its marketplace
are quality, price, rapid turnaround time and industry experience. Certain of
the Company's competitors have substantially greater financial, technical,
marketing and other resources than the Company. These competitors may have the
ability to adapt more quickly to changes in customer requirements, may have
stronger customer relationships and greater name recognition and may devote
greater resources to the development, promotion and sale of their products than
the Company. There can be no assurance that competitive pressures will not
materially and adversely affect the Company's business, financial condition or
results of operations. See "Business--Competition."
GOVERNMENT REGULATION
The Company is highly regulated worldwide by the Federal Aviation
Administration ("FAA"), the Joint Airworthiness Authority, a consortium of
European regulatory authorities ("JAA"), and various other foreign regulatory
authorities, including the Dutch Air Agency, which regulates the Company's
Netherlands' operations. Upon completion of the BA Acquisition, the Company's
British operations will be regulated by the Civil Aviation Authority ("CAA").
These regulatory authorities require aircraft to be maintained under continuous
condition monitoring programs and to periodically undergo thorough inspection.
In addition, all parts must be certified by the FAA and equivalent regulatory
agencies in foreign countries and conformed to regulatory standards before they
are installed on an aircraft. The Company is a certified FAA and JAA approved
repair station and has been granted Parts Manufacturer Approvals by the FAA
Manufacturing Inspectors District Office. In addition, the Company's operations
are regularly audited and accredited by the Coordinating Agency for Supplier
Evaluation, formed by commercial airlines to approve FAA approved repair
stations and aviation parts suppliers. If material authorizations or approvals
were revoked or suspended, the Company's operations would be materially and
adversely affected. As the Company attempts to commence operations in countries
in which it has not previously operated, it will need to obtain new
certifications and approvals, and any delay or failure in attaining such
certifications or approvals could have a material adverse effect on the
Company's business, financial
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conditions and results of operations. In addition, if in the future new and more
stringent regulations are adopted by foreign or domestic regulatory agencies,
the Company's business may be materially and adversely affected.
DEPENDENCE ON KEY SUPPLIERS
The Company purchases landing gear spare parts and components for a variety
of fixed wing aircraft and helicopters. The Company has separate 10-year
agreements that each expire in October 2006 with (i) Dunlop Limited, Aviation
Division, (ii) Dunlop Limited, Precision Rubber and (iii) Dunlop Equipment
Division (collectively, "Dunlop"). Under two of these agreements, the Company is
entitled to purchase at a discount from list price Dunlop parts for resale and
for use in the repair and overhaul of a variety of fixed wing aircraft and
helicopters. For the years ended December 31, 1995 and 1996, and the nine months
ended September 30, 1997, the Company's single largest supplier was Dunlop,
accounting for approximately $5,005,000 (22.3%), $5,634,000 (27%) and $2,846,000
(18.7%), respectively, of the spare parts and components that the Company
purchased in such periods. Failure by any one of these divisions of Dunlop to
renew its agreement on similar terms when it expires could have a material
adverse affect on the Company's business, financial condition and results of
operations. In addition, the Company has agreements with Messier-Bugatti, SAMM
and Eurocopter France that enable the Company to purchase new aircraft parts at
discounts from list price. Many of the Company's supplier agreements, other than
its agreements with Dunlop, are short-term and can be terminated by the
suppliers upon providing 90 days prior written notice. A decision by any one of
these suppliers to terminate their agreements would eliminate the competitive
advantage the Company derives therefrom and could have a material adverse effect
on the Company's business, financial condition and results of operations.
SHORTAGES OF SUPPLY; INVENTORY OBSOLESCENCE
The Company's inventory consists principally of new, overhauled, serviceable
and repairable aircraft landing gear parts and components that it purchases
primarily from OEMs, parts resellers and customers. The Company believes it
maintains a sufficient supply of inventory to meet its current and immediately
foreseeable production schedule. However, the Company may fail to order
sufficient parts in advance to meet its work requirements, a particular part may
be unavailable when the Company needs it from its suppliers or the Company
unexpectedly may receive one or more large orders simultaneously for repair and
overhaul services. As a result, the Company may on occasion face parts shortages
that delay its production schedule and prevent it from meeting required
turnaround times. 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
sales to Federal Express Corporation ("FedEx") and the United States Coast Guard
(the "USCG") accounted for 18.4%, and 11.2%, respectively, of product sales for
the year ended December 31, 1996 and 18.2% and 7.0%, respectively, of product
sales for the nine months ended September 30, 1997. Some of the Company's
long-term service agreements may be terminated by the customers upon providing
the Company with 90 days prior written notice, and the Company's agreement with
the USCG is subject to termination at any time at the convenience of the
government. In addition, the Company's sales are made primarily on the basis of
purchase orders rather than long-term agreements. The Company expects that a
small number of customers will continue to
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account for a substantial portion of its sales for the foreseeable future. As a
result, the Company's business, financial condition and results of operations
could be materially adversely affected by the decision of a single customer to
cease using the Company's products. In addition, there can be no assurance that
sales from customers that have accounted for significant sales in past periods,
individually or as a group, will continue, or if continued, will reach or exceed
historical levels in any future period. See "Business-- Customers."
At September 30, 1997, 20.9% and 11.1%, respectively of the Company's total
accounts receivable were associated with two customers, FedEx and United Air
Lines, Inc. ("United Air Lines"). At December 31, 1996, 7.4% and 9.3%,
respectively of the Company's total accounts receivable were associated with
FedEx and the USCG. Following the BA Acquisition, the Company expects that
British Airways will account for a significant percentage of both its products
sales and accounts receivable. Although the Company has not had any material
difficulties in collecting its accounts receivable during the past three years,
the Company cannot ensure that it will not have difficulty collecting
receivables in the future. Any inability by the Company to collect 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.
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to extensive and frequently changing
federal, state and local environmental laws and substantial related regulation
by government agencies, including the United States Environmental Protection
Agency ("EPA"), the California Environmental Protection Agency and the United
States Occupational Safety and Health Administration. Among other matters, these
regulatory authorities impose requirements that regulate the operation,
handling, transportation and disposal of hazardous materials generated by the
Company during the normal course of its operations, govern the health and safety
of the Company's employees and require the Company to obtain and maintain
permits in connection with its operations. This extensive regulatory framework
imposes significant compliance burdens and risks on the Company and, as a
result, substantially affects its operational costs. In addition, the Company
may become liable for the costs of removal or remediation of certain hazardous
substances released on or in its facilities without regard to whether or not the
Company knew of, or caused, the release of such substances. The Company believes
that it currently is in material compliance with applicable laws and regulations
and is not aware of any material environmental problem at any of its current or
former facilities. There can be no assurance, however, that its prior activities
did not create a material problem for which the Company could be responsible or
that future uses or conditions (including, without limitation, changes in
applicable environmental laws and regulation, or an increase in the amount of
hazardous substances generated by the Company's operations) will not result in
any material environmental liability to the Company and materially and adversely
affect the Company's financial condition and results of operations. The
Company's plating operations, which use a number of hazardous materials and
generate a significant volume of hazardous waste, increase the Company's
regulatory compliance burden and compound the risk that the Company may
encounter a material environmental problem in the future. Furthermore,
compliance with laws and regulations in foreign countries in which the Company
locates its operations may cause future increases in the Company's operating
costs or otherwise adversely affect the Company's results of operations or
financial condition. See "Business--Environmental Matters and Proceedings."
PRODUCT LIABILITY RISKS
The Company's business exposes it to possible claims for personal injury,
death or property damage which may result from the failure or malfunction of
landing gear, hydromechanical components or aircraft spare parts repaired or
overhauled by the Company. Many factors beyond the Company's control could lead
to liability claims, including the failure of the aircraft on which landing gear
or hydromechanical
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components overhauled by the Company is installed, the reliability of the
customer's operators of the aircraft and the maintenance of the aircraft by the
customers. The Company currently has in force aviation products liability and
premises insurance, which the Company believes provides coverage in amounts and
on terms that are generally consistent with industry practice. The Company has
not experienced any material product liability claims related to its products.
However, the Company may be subject to a material loss to the extent that a
claim is made against the Company that is not covered in whole or in part by
insurance and for which any third-party indemnification is not available. There
can be no assurance that the amount of product liability insurance that the
Company carries at the time a product liability claim may be made will be
sufficient to protect the Company. A product liability claim in excess of the
amount of insurance carried by the Company could have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, there can be no assurance that insurance coverages can be maintained
in the future at an acceptable cost.
DEPENDENCE ON KEY PERSONNEL
The continued success of the Company depends to a large degree upon the
services of certain of its executive officers and upon the Company's ability to
attract and retain qualified managerial and technical personnel experienced in
the various operations of the Company's business. Loss of the services of such
employees, particularly David Lokken, President and Chief Executive Officer,
Brian Aune, Vice President and Chief Financial Officer, Brian Carr, Managing
Director of Sun Valley Operations, or Michael Riley, Vice
President--Hydromechanical Business Unit, could adversely affect the operations
of the Company. The Company has entered into an employment agreement expiring
October 31, 2001 with Mr. Lokken and into employment agreements expiring October
31, 1999 with Messrs. Aune, Carr and Riley. The Company intends to obtain key
person insurance on the life of Mr. Lokken in the amount of $1,000,000 prior to
the consummation of this Offering. There can be no assurance that the proceeds
of such insurance will be sufficient to compensate the Company in the event that
Mr. Lokken dies. Competition for qualified technical personnel is intense and
from time to time, the Company has experienced difficulty in attracting and
retaining personnel skilled in its repair and overhaul operations. There can be
no assurance that these individuals will continue employment with the Company.
The loss of certain key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Employees and Employee Training" and "Management."
CURRENT DEPENDENCE ON PRIMARY FACILITIES; RISK ASSOCIATED WITH FACILITIES
REORGANIZATION
The Company's ability to manufacture repair parts and components and to
perform its repair and overhaul operations depends upon the use of the Company's
machinery and equipment at its Sun Valley, California, facility. Accordingly,
any material disruption in the operations of its Sun Valley, California facility
would have a material adverse effect on the Company's business, financial
condition and results of operations. Such interruption or disruption could occur
due to malfunctions in machinery or equipment, or to natural disasters, such as
earthquakes or fires.
The Company is in the process of reorganizing and reconfiguring its Sun
Valley facilities to meet its growth needs and increase the efficiency of its
operations. The Company expects to complete its facilities reorganization in
early 1998 and then plans to begin expanding its plating operations, which is
not expected to be completed until the end of 1998. Any failure or delay in
completing the reorganization of its facilities or the expansion of its plating
operations as currently planned, however, could significantly impair the
Company's ability to manage its rapid growth and could have a material adverse
affect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Liquidity and Capital Resources" and "Business-- Facilities."
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CONTROL BY EXISTING SHAREHOLDERS AND ANTI-TAKEOVER PROVISIONS
Prior to the Offering, and assuming an initial public offering price of $9
per share, the five shareholders (the "Unique Shareholders") of Unique
Investment Corp. ("Unique") beneficially owned approximately 91% of the
Company's outstanding Common Stock, and the executive officers of the Company
beneficially owned approximately 10.4% of the Company's outstanding Common
Stock, including vested management stock options to purchase 116,444 shares of
Common Stock. Upon consummation of the Offering, the Unique Shareholders will
beneficially own in the aggregate approximately 47.5% (or 40.4% if the
overallotment option is exercised in full) of the Company's outstanding Common
Stock, and by virtue of such ownership, will have effective control over all
matters requiring a vote of shareholders, including the election of a majority
of directors. The ownership positions of the existing shareholders, together
with the authorization of blank check preferred stock and the implementation, if
certain conditions are met, of a staggered board and elimination of cumulative
voting in the Company's Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws, may have the effect of delaying, deferring or
preventing a change in control of the Company, may discourage bids for the
Company's Common Stock at a premium over the market price of the Common Stock
and may adversely affect the market price of the Common Stock. See "Principal
and Selling Shareholders" and "Description of Capital Stock."
BENEFITS OF OFFERING TO CURRENT SHAREHOLDERS AND MANAGEMENT
As a result of this Offering, assuming an initial public offering price per
share of $9.00, the Company's existing shareholders, including certain members
of the Company's management, will realize an immediate increase of $3.10 in the
net tangible book value per share of their investment in the Company. See
"Dilution." The market price of the Common Stock held by the Company's existing
shareholders, including management, could increase significantly as a result of
this Offering. In addition, a portion of the Company's net proceeds of this
Offering will be used to repay a portion of subordinated debt owed to Melanie L.
Bastian, a principal shareholder of the Company and the Selling Shareholder in
this Offering. It is also expected that Ms. Bastian will be released from
certain bank guarantees that she has heretofore provided for the Company. See
"Use of Proceeds," "Certain Transactions" and "Principal and Selling
Shareholders."
ABSENCE OF PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; STOCK PRICE
VOLATILITY
Prior to this Offering there has been no public market for the Common Stock,
and there can be no assurance that an active trading market for the Common Stock
will develop or be sustained after the Offering. The initial public offering
price has been determined by negotiations between the Company and the
representatives of the Underwriters and does not necessarily bear a relationship
to assets, book value, earnings history or other established criteria of value.
See "Underwriting." In addition, in recent years, the stock market has
experienced significant price and volume fluctuations. These fluctuations, which
are often unrelated to the operating performances of specific companies, have
had a substantial effect on the market price of stocks, particularly for many
small capitalization companies. Accordingly, the factors described in this Risk
Factors section or market conditions in general may cause the market price of
the Company's Common Stock to fluctuate, perhaps substantially.
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors in this Offering will experience immediate and substantial
dilution in the net tangible bank value of the shares of Common Stock in this
Offering. At an assumed initial public offering price of $9.00 per share,
purchasers of the Common Stock offered hereby will incur dilution of $4.80 in
the pro forma net tangible book value per share of Common Stock. See "Dilution."
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, 3,055,555 shares of Common Stock
outstanding prior to this Offering (less any shares sold by the Selling
Shareholder upon exercise of the over-allotment option) will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act. All of
the restricted securities will become available for immediate sale in the public
market following the expiration of lock-up agreements between certain security
holders and the Representatives of the Underwriters beginning 180 days after the
date of this Prospectus, subject in certain cases to the volume, holding period
and other restrictions of Rule 144. Sales of substantial amounts of Common Stock
in the public market following this Offering or even the potential of such sales
could have an adverse effect on the market price of the Common Stock.
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ACQUISITION OF CERTAIN ASSETS OF BRITISH AIRWAYS
On December 20, 1997, the Company signed a definitive acquisition agreement
(the "Acquisition Agreement") with British Airways to purchase the BA Assets,
which consist of substantially all of the assets of British Airways' landing
gear repair and overhaul operations. The Company expects to close the
transaction immediately following completion of this Offering. The Company plans
to use approximately $11 million from the net proceeds of this Offering to fund
a portion of the purchase price for the BA Assets. The balance of the purchase
price will be provided by the Company's credit facility. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The purchase price for the BA Assets is approximately L13.0 million
(approximately $21.1 million at September 30, 1997), subject to adjustment to
reflect certain changes to the quantity and condition of the assets purchased
and the potential exclusion of one landing gear shipset priced at L1.8 million
($2.9 million at September 30, 1997). To hedge against the fluctuation of pounds
to dollars, the Company has entered into a transaction which permits it to
purchase approximately $17 million of pounds at a rate of 1.6373 dollars per
pound. The balance of the purchase price has not been hedged and thus the
purchase price in United States dollars could increase or decrease depending on
fluctuations of pounds to dollars and the currency conversion factor in effect
at the time the BA Acquisition is consummated. See "Risk Factors-- Risks
Associated with Expansion of International Operations" and "Management's
Discussion and Analysis of Financial Conditions and Results of
Operation--Foreign Exchange." The BA Acquisition represents the purchase of
assets of British Airways Engineering used to service landing gear primarily on
British Airways' aircraft. The Company is acquiring assets utilized exclusively
to provide general repair and overhaul services for landing gear, flap tracks
and flap carriages, including machining and plating operations. The BA
Acquisition does not include British Airways' facilities or business support
functions, such as purchasing, accounting, human resources, management
information systems, quality assurance, training, transportation, property
management and legal, which are currently provided by British Airways'
centralized departments. As a result, the Company will be required to integrate
its support systems into the BA Assets and provide facilities for its United
Kingdom operations following the BA Acquisition. See "Risk Factors--Risks
Relating to Acquisition Strategy; Establishment of United Kingdom Operations."
The Company will not assume any debt or liabilities of British Airways
except liability for two contracts between British Airways and a supplier and a
third party customer, respectively. Under United Kingdom labor laws,
approximately 130 of British Airways' current employees (the "British Airways
Employees") will become employees of the Company. In addition, the Company has
agreed in the Acquisition Agreement to establish a new pension plan that
provides the British Airways Employees with the same benefits as those they
currently receive under British Airways' pension plan. The Acquisition Agreement
provides that British Airways and the Company will agree to indemnify one
another against certain losses that could arise as a result of the transfer of
the British Airways Employees.
As part of the BA Acquisition, the Company and British Airways have agreed
to enter into an exclusive seven-year Landing Gear Overhaul Services Agreement
(the "Services Agreement") with British Airways pursuant to which the Company
will agree to provide British Airways with landing gear, flap track and flap
carriage repair and overhaul services, and related spare parts and component
overhaul services for substantially all of the aircraft currently operated by
British Airways. In exchange for the Company's repair and overhaul services,
British Airways will pay the Company a fixed overhaul fee per individual landing
gear, flap track and flap carriage, and variable fees for "over and above" work
and other services. Repair and overhaul of spare parts and components will be
separately charged on a time and materials basis. In addition, the Services
Agreement will obligate British Airways to pay the Company an annual inventory
access fee based on the value of rotable spares which the Company is required to
dedicate to the support of British Airways' fleet, estimated to be L1.8 ($2.9
million at September 30, 1997) in the first year based upon the amount of
rotable inventory sold to the Company pursuant to the Acquisition Agreement,
which is expected to fluctuate over the term of the Services Agreement. The
Services Agreement provides that
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British Airways will have the right to terminate the Services Agreement with
respect to a specific type of aircraft or the entire agreement, in the event
that the Company's services fail to meet certain standard performance and
quality criteria. In addition, the Company will be required to indemnify British
Airways against losses arising from material breaches of the Services Agreement,
the Company's failure to comply with certain United Kingdom regulatory
requirements, willful or grossly negligent acts of the Company and infringement
of any intellectual property rights of third parties.
The Services Agreement provides that the Company will be permitted to occupy
temporarily the premises in which the BA Assets are currently housed while
relocating to a new United Kingdom facility. The Company will be required to
make monthly rental payments from June 1, 1998 through June 30, 1999 aggregating
L1.8 million ($2.9 million at September 30, 1997) to British Airways, which
amount is payable whether or not the Company continues to occupy the premises
during such period. In addition, commencing on July 1, 1999 through December 31,
1999 the Company will be required to make rental payments of L8,500 ($13,770 at
September 30, 1997) per day to British Airways if the Company occupies the
premises, which L8,500 per day rental will be proportionately reduced as the
Company returns space to British Airways. The Company anticipates that it will
need to occupy a portion of British Airways' premises until June 1999. The
Services Agreement provides that the Company will indemnify British Airways
against losses resulting from failure to comply with any United Kingdom
environmental laws or regulations, or any expenditures required to bring the
facilities in compliance with any such laws or regulations, while it occupies
British Airways' premises. It also provides that British Airways will indemnify
the Company against any losses resulting from any failure by British Airways to
comply with such environmental laws or regulations prior to the closing of the
BA Acquisition.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from its sale of the 2,600,000 shares of
Common Stock offered hereby at an assumed initial public offering price of $9
per share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company, are estimated to be
approximately $20.8 million. The Company will not receive any proceeds from the
sale of the shares by the Selling Shareholder.
The Company intends to use approximately $11 million of the net proceeds to
fund a portion of the purchase price for the BA Assets, approximately $6 million
to repay a portion of the revolving and term debt outstanding under the
Company's credit facility and $1.5 million to repay a portion of subordinated
debt to the Company's principal shareholder. See "Acquisition of Certain Assets
of British Airways," "Certain Transactions" and "Principal and Selling
Shareholders." The total balance outstanding under the credit facility was $20.3
million as of September 30, 1997. Advances under the revolving portion of the
credit facility bear interest at the Inter-bank Offer Rate ("IBOR") plus 1.5%
(7.51% at September 30, 1997) and on the term debt portion of the credit
facility bear interest at the IBOR plus 1.875% (7.6% at September 30, 1997) and
have been used primarily to fund the BTR Transaction. The total balance
outstanding under the subordinated debt at September 30, 1997, was $6.5 million.
The note bears interest at 11.8% per annum and matures January 1, 2001. The
proceeds of the subordinated debt were used to acquire the Company in the BTR
Transaction. See "Certain Transactions."
The Company has entered into an amended and restated business loan agreement
(the "Amended Loan Agreement") which increased the amount of its available
borrowings from $26.5 million to $45.5 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-- Liquidity and
Capital Resources." The Company plans to use $11 million from the proceeds of
this Offering and approximately $11 million from its credit facility to fund the
purchase price of the BA Assets. See "Acquisition of Certain Assets of British
Airways."
The Company intends to use any remaining net proceeds for working capital
and general corporate purposes. Prior to their eventual use, the net proceeds
will be invested in high quality, short-term investment instruments such as
short-term corporate investment grade or United States Government
interest-bearing securities.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock since its
inception and has no current plans to pay dividends on the Common Stock in the
foreseeable future. The Company intends to reinvest future earnings, if any, in
the development and expansion of its business. The Company's current bank credit
facility prohibits the payment of dividends. Any future determination to pay
dividends will depend upon the Company's combined results of operations,
financial condition and capital requirements and such other factors deemed
relevant by the Company's Board of Directors.
18
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the actual short-term debt and
capitalization of the Company as of September 30, 1997; (ii) the pro forma
short-term debt and capitalization of the Company giving effect to the
conversion of the Company's outstanding shares of preferred stock into 222,222
additional shares of Common Stock and the filing of the Amended and Restated
Articles of Incorporation, the receipt of $500,000 in proceeds from the issuance
of Common Stock in October 1997; and (iii) the pro forma capitalization as
adjusted to give effect to the sale of the 2,600,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of $9
per share and the application of the estimated net proceeds from the Offering to
working capital and the repayment of a portion of its bank account.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------
PRO FORMA
AS ADJUSTED
ACTUAL PRO FORMA (1)
--------- ----------- --------------
(IN THOUSANDS, EXCEPT SHARE
INFORMATION)
<S> <C> <C> <C>
Short-term debt.......................................................... $ 8,779 $ 8,779 $ 6,279
--------- ----------- -------
--------- ----------- -------
Long-term debt, less current portion..................................... $ 18,063 $ 18,063 $ 13,063
Shareholders' equity:
Series A Preferred Stock, $2,000,000 liquidation value; 400 shares
authorized; 400 shares issued and outstanding, actual; none issued
and outstanding pro forma and pro forma as adjusted.................. 2,000 -- --
Preferred Stock, no par value; 5,000,000 shares authorized pro forma
and pro forma as adjusted; none issued and outstanding............... -- -- --
Common Stock, no par value; (1) 20,000,000 shares authorized;
20,000,000 shares authorized pro forma and pro forma as adjusted;
2,947,820 shares issued and outstanding, actual; 3,222,222 issued and
outstanding, pro forma; 5,822,222 issued and outstanding, pro forma
as adjusted.......................................................... 540 3,040 23,802
Retained earnings...................................................... 1,134 1,134 1,134
--------- ----------- -------
Total shareholders' equity........................................... 3,674 4,174 24,936
--------- ----------- -------
Total capitalization............................................... $ 21,737 $ 22,237 $ 37,999
--------- ----------- -------
--------- ----------- -------
</TABLE>
- ------------------------
(1) Does not give effect to the BA Acquisition. The Company has entered into the
Amended Loan Agreement to increase the amount of its available borrowings to
$45.5 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." The
Company plans to use approximately $11 million from the proceeds of this
Offering and approximately $11 million from its credit facility to fund the
purchase price of the BA Assets. Total pro forma as adjusted capitalization
as presented above at September 30, 1997, giving effect to the anticipated
new credit facility and the BA Acquisition, would be increased by
approximately $12 million. See "Acquisition of Certain Assets of British
Airways" and "Use of Proceeds."
19
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at September 30, 1997
(giving effect to the conversion of Preferred Stock outstanding as of September
30, 1997 into 222,222 shares of Common Stock assuming an initial public offering
price of $9.00 per share and the receipt of $500,000 in proceeds from the
issuance of 52,154 shares of Common Stock in October 1997), was $3.5 million or
$1.10 per share. Pro forma net tangible book value per share is determined by
dividing the net tangible book value of the Company (total assets net of
goodwill less total liabilities of the Company) by the number of shares of
Common Stock outstanding (giving effect to the conversion of Preferred Stock
outstanding as of September 30, 1997 into 222,222 shares of Common Stock). After
giving effect to the sale of 2,600,000 shares offered by the Company hereby at
an assumed public offering price of $9 per share (after deduction of estimated
underwriting discounts and commissions and estimated offering expenses), the pro
forma net tangible book value of the Company as of September 30, 1997 would have
been $24.4 million, or $4.20 per share. This represents an immediate increase in
the net tangible book value of $3.10 per share to existing shareholders and an
immediate dilution in pro forma net tangible book value of $4.80 per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price......................................... $ 9.00
Pro forma net tangible book value before this Offering...................... $ 1.10
Increase in net tangible book value attributable to this Offering........... 3.10
---------
Pro forma net tangible book value after this Offering......................... 4.20
---------
Dilution to new investors..................................................... $ 4.80
---------
---------
</TABLE>
The following table sets forth on a pro forma basis as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid, and the average price per share paid by the existing
shareholders and by purchasers of the shares of Common Stock offered hereby
(giving effect to the conversion of Preferred Stock outstanding as of September
30, 1997 into 222,222 shares of Common Stock and assuming the sale of 2,600,000
shares by the Company at an assumed initial public offering price of $9.00 per
share, before deducting underwriting discounts and commissions and offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............................... 3,222,222 55.3% $ 3,040,000 11.5% $ 0.94
New public investors................................ 2,600,000 44.7 23,400,000 88.5 $ 9.00
---------- ----- ------------- -----
Total............................................. 5,822,222 100.0% $ 26,440,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
20
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth for the periods and the dates indicated
certain financial data which should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included elsewhere herein. For the
years ended December 31, 1993, 1994, 1995 and the ten months ended October 31,
1996 the Company was a wholly owned subsidiary of BTR Dunlop Holdings, Inc. and
is presented below as the "Predecessor" financial data. Effective November 1,
1996, the Company was acquired by the Unique Shareholders and the Company's
executive officers. All financial data subsequent to October 31, 1996 is
presented below as the "Successor" financial data.
The balance sheet data as of December 31, 1995 and 1996 and September 30,
1997 and the statement of operations data for the fiscal year ended December 31,
1995, the ten months ended October 31, 1996, two months ended December 31, 1996
and nine months ended September 30, 1997 are derived from the financial
statements of the Company which have been audited by Ernst & Young LLP,
independent accountants, and are included elsewhere in this Prospectus. The
balance sheet data as of December 31, 1993 and 1994 and the statement of
operations for the year ended December 31, 1993 and 1994 are derived from
unaudited financial statements, which are not presented elsewhere herein. The
pro forma statements of operations data for the nine months ended September 30,
1996 and the year ended December 31, 1996 is derived from the unaudited pro
forma statement of operations included elsewhere herein. The unaudited financial
statements have been prepared by the Company on a basis consistent with the
Company's audited financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring accruals, necessary
for a fair presentation of the Company's results of operations for the period.
The results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of results for the year ending December 31, 1997 or any
other future period.
<TABLE>
<CAPTION>
PREDECESSOR(1) SUCCESSOR(1)
------------------------------------- -------------------------------------------------------
TEN MONTHS NINE MONTHS
ENDED TWO MONTHS ENDED
YEAR ENDED DECEMBER 31, OCTOBER ENDED YEAR SEPTEMBER 30,
------------------------- 31, DECEMBER 31, ENDED --------------------
1993(2) 1994(2) 1995(3) 1996(4) 1996 DECEMBER 31, 1996 1996 1997
------- ------- ------- ---------- ------------ ----------------- --------- ---------
(PRO FORMA)(4)(5) (PRO FORMA)(4)(5)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATION DATA:
Revenues.................... $29,757 $31,743 $35,012 $32,299 $ 6,705 $ 39,004 $ 29,567 $ 30,060
Cost of revenues............ 25,055 24,825 28,993 27,027 4,599 31,799 25,157 23,083
------- ------- ------- ---------- ------------ ----------------- --------- ---------
Gross profit................ 4,702 6,918 6,019 5,272 2,106 7,205 4,410 6,977
Selling, general and
administrative(6)......... 3,861 5,332 4,837 5,044 1,059 6,161 4,406 4,118
Restructuring charges(4).... -- -- -- 1,196 -- 1,196 1,196 --
------- ------- ------- ---------- ------------ ----------------- --------- ---------
Income (loss) from
operations................ 842 1,586 1,182 (968) 1,047 (152) (1,192) 2,859
Interest expense, net....... (1,033) (507) (1,598) (1,609) (196) (2,305) (1,734) (1,802)
------- ------- ------- ---------- ------------ ----------------- --------- ---------
(192) 1,079 (416) (2,577) 851 (2,457) (2,926) 1,057
Income tax expense
(benefit)(7).............. (24) 29 (680) (971) 382 (934) (1,112) 392
------- ------- ------- ---------- ------------ ----------------- --------- ---------
Net income (loss)........... $ 168 $ 1,050 $ 264 $(1,606) $ 469 $ (1,523) $ (1,814) $ 665
------- ------- ------- ---------- ------------ ----------------- --------- ---------
------- ------- ------- ---------- ------------ ----------------- --------- ---------
Pro forma net income (loss)
per share................. $ 0.15 $ (0.49) $ (0.58) $ 0.21
------------ ----------------- --------- ---------
------------ ----------------- --------- ---------
Weighted average shares
outstanding............... 3,119,627 3,119,627 3,119,627 3,119,811
Pro forma supplemental net
income (loss) per
share(8).................. $ 0.14 $ (0.28) $ (0.38) $ 0.25
------------ ----------------- --------- ---------
------------ ----------------- --------- ---------
OPERATING AND OTHER DATA:
Capital expenditures........ $ 996 $ 4,114 $ 1,199 $ 28,553 $ 1,576
Depreciation and
Amortization.............. 756 854 819 200 866
EBITDA(9)................... 2,342 2,036 (149) 1,254 3,727
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR(1)
-------------------------------
SUCCESSOR(1)
DECEMBER 31, --------------------------
------------------------------- DECEMBER SEPTEMBER 30,
1993 1994 1995 31, 1996 1997
--------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $ 4,070 $ 9,966 $ 13,289 $ 7,225 $ 5,582
Total assets............................................. 22,802 25,865 35,455 35,178 39,399
Total long-term debt (excluding current portion)......... 13,754 21,404 27,310 19,150 18,063
Total shareholders' equity............................... 266 (1,182) (917) 2,509 3,674
</TABLE>
- ------------------------------
(1) Predecessor information represents the historical financial data of the
Company when it was owned by BTR. Successor information represents the
historical financial data after the BTR Transaction. See "Certain
Transactions-- Acquisition of the Company from BTR" and Note 1 of Notes to
Financial Statements.
(2) Effective January 1, 1994 certain assets, liabilities and operations of
Dunlop Aviation were merged into the Company. The merger was treated
similarly to a pooling of interest for accounting purposes and, accordingly,
the financial data as of and for the year ended December 31, 1993 includes
those assets, liabilities and operations as if the merger occurred on
January 1, 1993. Included in selling, general and administrative expenses
for the year ended December 31, 1994 are approximately $501,000 of merger
related expenses.
(3) Fiscal 1995 includes a non-recurring charge to cost of revenues of $927,000
for disposal of inventory related to the Dunlop Merger which had operations
in Chatsworth, CA and Miami, FL. Fiscal 1995 also includes a net gain of
approximately $300,000 included in selling, general and administrative
expenses, which represents an operating expense of $700,000 offset by an
insurance reimbursement of $1,000,000 related to the EPA Claim for which the
Company has been fully indemnified by BTR. The estimated total net cost of
the EPA Claim recorded in fiscal 1995 was based on the information available
at that time. See "Business--Environmental Matters and Proceedings" and
Notes 1 and 7 of Notes to Financial Statements.
(4) Restructuring charges during the ten months ended October 31, 1996 relate to
costs incurred to shut down discontinued operations of Dunlop Miami. See
Note 10 of Notes to Financial Statements. In addition, the ten months ended
October 31, 1996, pro forma year ended December 31, 1996 and pro forma nine
months ended September 30, 1996 include a non-recurring charge of $489,000
to cost of revenues for the disposal of inventory related to the shutdown of
Dunlop Miami and a non-recurring charge to cost of revenues of $574,000 for
non-productive inventory of the Company.
(5) The pro forma presentation gives effect to the BTR Transaction as though it
had occurred on January 1, 1996.
(6) Included in selling, general and administrative expenses for the ten months
ended October 31, 1996, the pro forma nine months ended September 30, 1996
and the pro forma year ended December 31, 1996 are expenditures related to
the EPA Claim of approximately $947,000. For the years ended December 31,
1993 and 1994 selling, general and administrative expenses included $122,000
and $410,000, respectively, for expenditures related to the EPA Claim. No
such costs were incurred during the two months ended December 31, 1996 or
the nine months ended September 30, 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations."
(7) Income tax expenses for the two months ended December 31, 1996 and the nine
months ended September 30, 1997 include provisions of $382,000 and $391,000,
respectively, primarily due to changes in deferred tax assets. No tax is
actually payable for such provisions. See Note 4 of Notes to Financial
Statements.
(8) Pro forma supplemental earnings per share reflects what earnings would have
been if the debt retired with the proceeds from the Offering had been
retired at the beginning of the period. The number of shares of Common Stock
to be sold in this Offering, the proceeds from which will be used to retire
debt (833,333 shares), are included in this calculation with a corresponding
reduction in interest expense. See Note 1 of Notes to Financial Statements.
(9) EBITDA represents earnings before taking into consideration interest
expense, income tax expense and depreciation and amortization expense and is
not a measurement of income under generally accepted accounting principles
("GAAP"). EBITDA may not provide an accurate comparison among companies
because it is not necessarily computed by all companies in an identical
manner. The use of such information is intended only to supplement the
conventional statement of operations presentation and is not to be
considered as an alternative to net income, cash flows or any other
indicator of the Company's operating performance which is presented in
accordance with GAAP.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO AND THE OTHER FINANCIAL
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. WHEN USED IN THE FOLLOWING
DISCUSSIONS, THE WORDS "BELIEVES", "ANTICIPATES", "INTENDS", "EXPECTS" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED, INCLUDING, BUT NOT
LIMITED TO, THOSE SET FORTH IN "RISK FACTORS." READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE
DATE HEREOF.
OVERVIEW
CORPORATE HISTORY. The Company was organized in August 1980 as a California
corporation to provide aircraft parts distribution and sales to the aviation
industry and began providing repair and overhaul services in 1987. In 1991, BTR,
a United Kingdom company, acquired the Company, and in January 1994, BTR merged
the Company with the operations of another wholly-owned subsidiary of BTR,
Dunlop Aviation, Inc., which had operations in Chatsworth, California and Miami,
Florida. The more profitable operations of Dunlop were absorbed into the
Company's Sun Valley, California business to achieve economies of scale and full
service capability. The Company closed Dunlop Chatsworth in February 1994 and,
as a result, incurred significant integration expenses during 1994. The Company
incurred inventory obsolescence costs during 1995 and closed Dunlop Miami in
1996 and, as a result, incurred restructuring expenses and inventory valuation
charges during 1996. These charges adversely impacted financial results for
1994, 1995 and 1996. In November 1996, BTR sold the Company for $29.8 million to
Aqhawk, Inc., an entity wholly-owned by the Unique Shareholders and the
Company's executive officers ("Aqhawk"). See "Certain Transactions--Acquisition
of the Company from BTR."
EXPANSION INTO WIDE-BODY COMMERCIAL AIRCRAFT. The Company's operating
strategy has been to increase higher margin large air transport landing gear
repair and overhaul services. In that regard, revenue for the years ended
December 31, 1996 (pro forma) and December 31, 1995 increased 51.5% and 30.7%,
respectively, over their respective prior years and 14.5% for the nine months
ended September 30, 1997 over the comparable period in 1996. This increase
resulted from the Company's $6.3 million capital investment program in 1994 and
1995 to expand its landing gear repair and overhaul capabilities to support
wide-body commercial aircraft, such as the Boeing models 747, 757, 767,
McDonnell Douglas models DC10, MD10 and MD11, and Airbus models A310 and A320.
These expenditures included expenses for facility improvements, purchase of
machinery and equipment to handle large landing gear components and the purchase
of rotable assets (i.e., landing gear shipsets exchanged with customers for an
exchange fee).
The Company's efforts to increase its wide-body business have led to a
number of key new contracts. On September 9, 1997, the Company signed a
seven-year exclusive contract with American Airlines, Inc. ("American Airlines")
to service landing gear on all Boeing 757 aircraft within its fleet (the "AA
Fleet"). Performance under this new contract is anticipated to begin in February
1998. In December 1997, the Company entered into an amendment to its existing
contract with FedEx to extend the term of the contract to 2007 and to include
support of FedEx's fleet of Airbus A310 aircraft and FedEx's program to convert
DC10 aircraft to MD10 cargo carriers.
As part of the BA Acquisition, the Company and British Airways have agreed
to enter into a seven-year exclusive service agreement to provide landing gear
and related component repair and overhaul services to substantially all of the
aircraft currently operated by British Airways.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statement
of operations data (in thousands) of the Company.
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR -------------------------------------
--------------------
YEAR ENDED
YEAR ENDED DECEMBER NINE MONTHS ENDED
DECEMBER 31, 31, ------------------------
-------------------- ----------- SEPTEMBER SEPTEMBER
1994 1995 1996 30, 1996 30, 1997
--------- --------- ----------- ----------- -----------
(PRO FORMA) (PRO FORMA)
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 31,743 $ 35,012 $ 39,004 $ 29,567 $ 30,060
Cost of revenues......................... 24,825 28,993 31,799 25,157 23,083
--------- --------- ----------- ----------- -----------
Gross profit............................. 6,918 6,019 7,205 4,410 6,977
Selling, general and administrative
expenses............................... 5,332 4,837 6,161 4,406 4,118
Restructuring charges related to closure
of Miami operations.................... -- -- 1,196 1,196 --
--------- --------- ----------- ----------- -----------
Operating income (loss).................. 1,586 1,182 (152) (1,192) 2,859
Interest expense, net.................... (507) (1,598) (2,305) (1,734) (1,802)
--------- --------- ----------- ----------- -----------
Income (loss) before income taxes........ 1,079 (416) (2,457) (2,926) 1,057
Income tax expense (benefit)............. 29 (680) (934) (1,112) 392
--------- --------- ----------- ----------- -----------
Net income (loss)........................ $ 1,050 $ 264 $ (1,523) $ (1,814) $ 665
--------- --------- ----------- ----------- -----------
--------- --------- ----------- ----------- -----------
</TABLE>
The following table sets forth, for the periods indicated, the percentage of
sales represented by certain items in the Company's statement of operations.
<TABLE>
<CAPTION>
SUCCESSOR
------------------------------------------
NINE MONTHS ENDED
PREDECESSOR ----------------------------
---------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1997
---------- ---------- ------------ ------------- -------------
(PRO FORMA) (PRO FORMA)
<S> <C> <C> <C> <C> <C>
Revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.......................... 78.2 82.8 81.5 85.1 76.8
----- ----- ----- ----- -----
Gross profit.............................. 21.8 17.2 18.5 14.9 23.2
Selling, general and administrative
expenses................................ 16.8 13.8 15.8 14.9 13.7
Restructuring charges related to closure
of Miami operations..................... -- -- 3.1 4.0 --
----- ----- ----- ----- -----
Operating income (loss)................... 5.0 3.4 (0.4) (4.0) 9.5
Interest expense, net..................... (1.6) (4.6) (5.9) (5.9) (6.0)
----- ----- ----- ----- -----
Income (loss) before income taxes......... 3.4 (1.2) (6.3) (9.9) 3.5
Income tax expense (benefit).............. 0.1 (1.9) (2.4) (3.8) 1.3
----- ----- ----- ----- -----
Net income (loss)......................... 3.3% 0.7% (3.9)% (6.1)% 2.2%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
24
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO PRO FORMA NINE MONTHS ENDED
SEPTEMBER 30, 1996
REVENUES. Revenues for the nine months ended September 30, 1997 increased
1.7% to $30,060,000 from $29,567,000 for the nine months ended September 30,
1996. Repair and overhaul revenues accounted for 91.1% of sales for the nine
months ended September 30, 1997, as compared to 89.5% for the comparable period
in 1996. Revenues from spare parts distribution and sales accounted for 7.7% of
total revenue for the nine months ended September 30, 1997, as compared to 9.1%
for the comparable period in 1996. This decline was a result of the Company's
decision to close Dunlop Miami and discontinue its low-margin tire distribution
agreement with Dunlop Aircraft Tyres, United Kingdom. Dunlop Miami contributed
$2,048,000 of revenues for the nine months ended September 30, 1996.
Large air transport landing gear repair and overhaul revenue increased 14.5%
to $13,715,000 and accounted for 45.6% of total revenues, as compared to
$11,978,000 or 40.5% of total revenue for the nine months ended September 30,
1996. This increase in landing gear repair and overhaul revenue was attributable
to increases in business from FedEx's MD10 freighter conversion program and new
wide-body repair and overhaul business from British Airways and American
Airlines.
Fixed wing aircraft and helicopter repair and overhaul declined 1.1% to
$9,755,000 or 32.5% of total revenues for the nine months ended September 30,
1997 from $9,859,000 or 33.3% of total revenues for the comparable period in
1996. This decline was attributable to a reduction in helicopter repair and
overhaul business from the USCG, in part due to the modifications performed by
the Company in 1996 and 1997 to extend the time between overhauls for the USCG
fleet of Dauphin II helicopters. Wheels, brakes and braking system component
repair and overhaul increased 14.6% to $3,942,000 or 13.1% of total revenues for
the nine months ended September 30, 1997 from $3,439,000 or 11.6% of total
revenues for the comparable period in 1996.
GROSS PROFIT. Gross profit for the nine months ended September 30, 1997
increased 58.2% to $6,977,000 from $4,410,000 for the nine months ended
September 30, 1996. Gross profit as a percentage of sales increased to 23.2% for
the nine months ended September 30, 1997 compared to 14.9% for the comparable
period in the prior year. This increase was primarily due to (i) a 14.5%
increase in revenues from large air transport landing gear repair and overhaul
services, (ii) development of the Company's higher margin fixed wing aircraft
and helicopter hydromechanics products and (iii) discontinuation of Dunlop
Miami, which adversely impacted gross profit in 1996 as a result of charges to
cost of revenues for non-productive inventory.
Gross profit for the nine months ended 1996 included a nonrecurring charge
of $489,000 to dispose of certain obsolete and non-productive inventory related
to closing Dunlop Miami and a charge of $574,000 primarily related to other
non-productive inventory at the Company's Sun Valley operations, including
inventory related to Dunlop Aviation. Excluding these charges, gross profit
would have been $5.5 million or 18.5% of revenues for the nine months ended
September 30, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the nine months ended September 30, 1997 decreased
$288,000, or 6.5% to $4,118,000 from $4,406,000 for the nine months ended
September 30, 1996. Selling, general and administrative expense decreased as a
percentage of revenues to 13.7% from 14.9% for the comparable period in the
prior year. The decrease was due to approximately $947,000 of costs related to
the EPA Claim included in the pro forma nine months ended September 30, 1996 but
not included in the nine months ended September 30, 1997. BTR indemnified the
Company for costs incurred in connection with the EPA Claim. This decrease was
offset by additional costs incurred during the nine months ended September 30,
1997 resulting from (i) the Company's efforts to expand its international market
presence through sales representatives located in Europe, the Middle East and
China, (ii) management fees paid to Unique and (iii) expenses incurred in
connection with developing the Company's relationship with British Airways.
Excluding the $947,000
25
<PAGE>
charge, selling, general and administrative expenses would have been $3,459,000
or 11.7% of revenues for the nine months ended September 30, 1996.
OPERATING INCOME. Operating income for the nine months ended September 30,
1997 increased $4,051,000 to $2,859,000 or 9.5% of total revenues compared to an
operating loss of $1,192,000 for the comparable period in 1996. Operating income
for the nine months ended September 30, 1996 was negatively impacted by
nonrecurring restructuring charges of $1,196,000, charges to cost of revenues of
$1,063,000 related to the closure of Dunlop Miami and approximately $947,000 in
costs related to the EPA Claim. Excluding these charges, pro forma operating
income for the nine months ended September 30, 1996 would have been $2,014,000
or 6.8% of revenues.
NET INTEREST EXPENSE. Net interest expense for the nine months ended
September 30, 1997 increased $68,000, or 4.0%, to $1,802,000 from $1,734,000 for
the nine months ended September 30, 1996. This is a result of increased average
borrowings under the Company's working capital credit facilities as well as
additional indebtedness incurred in connection with the BTR Transaction.
Interest income was not significant in either period.
INCOME TAXES. Income taxes for the nine months ended September 30, 1997
were $392,000 compared to an income tax benefit of $1,112,000 for the comparable
period in the prior year. The effective tax rate for the nine months ended
September 30, 1997 was 37.0% compared to 38.0% for the comparable period in the
prior year. The effective tax rate for the periods differs from the federal
statutory tax rate of 34.0% due to certain nondeductible expenses. At September
30, 1997, the Company had net operating loss carry-forwards of $7,768,000. The
utilization of these operating loss carryforwards is limited due to changes in
the Company's ownership resulting from the BTR Transaction.
NET INCOME. As a result of the factors described above, the net income for
the nine months ended September 30, 1997 of $665,000 represents an increase of
$2,479,000 as compared to the net loss of $1,814,000 for the nine month's ended
September 30, 1996.
PRO FORMA YEAR ENDED DECEMBER 31, 1996 ("FISCAL 1996") COMPARED TO YEAR
ENDED DECEMBER 31, 1995 ("FISCAL 1995")
REVENUES. Revenues for Fiscal 1996 increased 11.4% to $39,004,000 from
$35,012,000 for Fiscal 1995. Repair and overhaul revenues accounted for 90.2% of
revenues for Fiscal 1996 as compared to 84.0% for Fiscal 1995. Revenues from
spare parts distribution and sales accounted for 8.6% of total revenues for
Fiscal 1996, as compared to 13.8% for Fiscal 1995. The increase in repair
revenue as a percentage of total revenue was a result of the Company's decision
to discontinue the low margin Dunlop Miami aircraft tire spare parts and
distribution business in May 1996.
Revenues from large air transport landing gear repair and overhaul increased
51.5% to $15,745,000 or 40.4% of total revenues in Fiscal 1996, compared to
$10,394,000 or 29.7% of total revenues for Fiscal 1995. The increase in revenues
for landing gear repair and overhaul was attributable to increases in revenues
from the Company's largest customer, FedEx, and to new wide-body repair and
overhaul business from other customers including US Airways, Inc. ("US
Airways"), Air Canada, Trans World Airlines and American Airlines.
Fixed wing aircraft and helicopter hydromechanics repair and overhaul
increased 12.7% to $13,310,000 or 34.1% of total revenues for Fiscal 1996, as
compared to $11,811,000 or 33.7% of Fiscal 1995 sales. This increase in revenues
was attributable to increases in helicopter repair and overhaul business from
the USCG for Fiscal 1996. The Dunlop Miami operation, which operated at a loss,
was closed in May 1996 and contributed $2,048,000 or 5.3% of total revenues for
Fiscal 1996 compared to $7,404,000 or 21.1% of revenues for Fiscal 1995.
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GROSS PROFIT. Gross profit for Fiscal 1996 increased 19.7% to $7,205,000
from $6,019,000 for Fiscal 1995. Gross profit increased as a percentage of
revenues to 18.5% for Fiscal 1996 compared to 17.2% for Fiscal 1995. This
increase was primarily due to (i) a 51.5% increase in revenues from large air
transport landing gear repair and overhaul services, (ii) development of higher
margin fixed wing aircraft and helicopter hydromechanics products and (iii)
discontinuation of Dunlop Miami.
Gross profit for Fiscal 1996 included a nonrecurring charge of $489,000 to
dispose of certain non-productive inventory related to closing the Dunlop Miami
operations and a charge of $574,000 primarily related to other non-productive
inventory related to Dunlop Aviation at the Company's Sun Valley operations.
Excluding these charges, gross profit would have been $8,268,000 or 21.2% of
revenue for Fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for Fiscal 1996 increased $1,324,000 or 27% to
$6,161,000 from $4,837,000 for Fiscal 1995. This was a result of the Company's
efforts to expand its international market presence through sales
representatives located in Europe, the Middle East and China. In addition,
Fiscal 1996 included approximately $947,000 of costs related to the EPA Claim,
and Fiscal 1995 included a net gain of approximately $300,000 due to an
insurance reimbursement of $1,000,000 for legal defense costs related to the EPA
Claim, for which the Company has been fully indemnified by BTR. Selling, general
and administrative expenses increased as a percentage of revenues to 15.8% for
Fiscal 1996 from 13.8% for Fiscal 1995 as a result of the above items offset by
increased revenues in Fiscal 1996 over Fiscal 1995.
OPERATING INCOME. Operating income for Fiscal 1996 declined $1,334,000 to a
loss of $152,000 or 0.4% of revenues, as compared to an operating income of
$1,182,000 for Fiscal 1995. Operating income for Fiscal 1996 was negatively
impacted by nonrecurring restructuring charges of $1,196,000 and charges to cost
of revenues of $1,063,000 related to the winding down of the Dunlop Miami
operation and approximately $947,000 in costs related to the EPA Claim.
Excluding these charges, pro forma operating income for Fiscal 1996 would have
been $3,054,000 or 7.8% of revenues.
NET INTEREST EXPENSE. Net interest expense for Fiscal 1996 increased by
44.2% to $2,305,000 from $1,598,000 for Fiscal 1995. Interest expense for 1996
has been adjusted, on a pro forma basis, to give effect to the BTR Transaction
as if it happened on January 1, 1996. As a result of this pro forma adjustment,
interest expense was increased to give effect to the Company's existing credit
facilities, which are at higher interest rates than charged to the Company by
BTR for inter-company advances. Interest income was not significant in either
period.
INCOME TAXES. The income tax benefit for Fiscal 1996 was $934,000 compared
to an income tax benefit of $680,000 for Fiscal 1995. The effective tax rate for
Fiscal 1996 was 38% compared to 164% for Fiscal 1995. The effective tax rate for
Fiscal 1995 includes a benefit of $525,000 from the reduction of a deferred tax
valuation allowance that was no longer required in 1995 since the Company was
part of a consolidated group, and the deferred tax assets became recoverable.
NET INCOME. As a result of the factors described above, the net loss for
Fiscal 1996 of $1,523,000 represented a decrease of $1,787,000 from net income
of $264,000 for Fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since the BTR Transaction, the Company's working capital and funds for
capital expenditures have been provided by cash generated from operations,
borrowings under the Company's working capital credit facilities and cash
received from the sale of Common Stock. In November 1996, the Company entered
into a loan agreement with Bank of America National Trust and Savings
Association ("Bank of America") for a $10.0 million revolving line of credit, a
$13.5 million term loan and a $3.0 million capital expenditures facility. A
portion of the credit facility and the entire term loan were used to finance
partially the acquisition of the Company from BTR. At the Company's election,
each of the facilities under the
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agreement bears interest at a fixed bank reference rate or variable rate above
IBOR. As of September 30, 1997, $7.5 million was outstanding under the revolving
credit facility, and $12.9 million was outstanding under the term loan.
On January 23, 1998, the Company and Bank of America entered into the
Amended Loan Agreement, which agreement increases 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 will become available to the Company
upon the consummation of the BA Acquisition, and the Company intends to use
approximately $11 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 million revolving line of credit,
a $24.5 million term loan, and a $6 million capital expenditure facility. The
revolving line of credit matures in three years, and the term loan and capital
expenditure facilities mature in seven years. 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. The Company plans to use
approximately $11 million from the proceeds of this Offering and approximately
$11 million from its credit facility to fund the purchase price of the BA
Assets. See "Acquisition of Certain Assets of British Airways" and "Use of
Proceeds."
As part of the BA Acquisition, the Company and British Airways have agreed
to enter into the Services Agreement which the Company anticipates will result
in substantial revenue from the repair and overhaul services and related spare
parts provided to the aircraft currently operated by British Airways. The
Company also expects to incur additional operating and interest costs as a
result of the BA Acquisition. Such increases in operating costs will include
additional depreciation expense associated with the allocation of the purchase
price to the assets acquired, additional rent expense associated with leasing
facilities in the United Kingdom and additional salary and overhead costs
associated with establishing operations using the BA Assets. In addition,
interest expense will increase due to the initial borrowing to fund the
acquisition of the BA Assets and subsequent borrowings for working capital and
to fund capital expenditures.
Cash (used) by the Company for operating activities amounted to
$(4,223,000), $(230,000) and $(976,000) for Fiscal 1995, the ten months ended
October 31, 1996 and the nine months ended September 30, 1997, respectively.
Cash used by the Company for investing activities amounted to $4,114,000,
$1,199,000 and $1,576,000 for Fiscal 1995, the ten months ended October 31, 1996
and the nine months ended September 30, 1997, respectively. These activities
were for the purchase of machinery, leasehold improvements and landing gear
rotable assets, net of proceeds received for disposal of equipment and rotable
assets. In September 1997, the Company acquired $3.2 million in Boeing 757
rotable assets and inventory from American Airlines in connection with the
seven-year exclusive contract to support the AA Fleet. A deposit of 10% of the
$3.2 million was made to American Airlines in September 1997. The balance of
$2.8 million was included in accounts payable and is due to American Airlines
when work under the contract commences in February 1998. The Company plans to
pay this balance from additional borrowings under the Company's Amended Loan
Agreement. Cash provided by the Company from financing activities in Fiscal 1995
and the ten months ended October 31, 1996 primarily related to additional
borrowings from the Company's parent, BTR, for investments in wide-body Boeing
747 and DC10 landing gear shipsets and working capital. Cash generated from
financing activities in the two months ended December 31, 1996 primarily related
to the borrowings under the current credit facilities and the issuance of
preferred stock for $2.0 million to fund the acquisition of the Company from
BTR. Cash provided from financing activities for the nine months ended September
30, 1997 related to leasehold improvements at a new facility and expenditures to
increase landing gear repair and overhaul capacity.
In April 1997, the Company entered into a 13-year lease for a 77,800 square
foot facility adjacent to its existing location. Occupancy costs under the
Company's existing facilities in Sun Valley, California and in the Netherlands
amount to approximately $1.1 million per year. See Note 7 of Notes to Financial
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statements. The Company is seeking to lease or construct a facility in the
United Kingdom in connection with the BA Acquisition, and has identified a
possible construction site. The Services Agreement permits the Company to occupy
temporarily the premises in which the BA Assets are currently housed through
December 31, 1999. Rent payments aggregating L1.8 million ($2.9 million at
September 30, 1997) for the period from June 1, 1998 through June 30, 1999 will
be paid to British Airways on a monthly basis, whether or not the Company
continues to occupy the premises during such period. Beginning July 1, 1999,
rental amounts will increase to L8,500 ($13,770 at September 30, 1997) per day,
which amount will be proportionately reduced as the Company returns space to
British Airways. Assuming the Company can enter into a lease or begin
construction of a new facility by February 1998, the Company believes it will be
able to relocate a substantial portion of the facilities during the first
quarter of 1999, but that plating operations as well as certain other areas will
remain at the British Airways location through at least the second quarter of
1999. The Company has budgeted approximately $1.4 million in occupancy expenses
for the remainder of 1998 following the BA Acquisition, although there can be no
assurance that this estimate will not be exceeded.
The Company anticipates making capital expenditures of approximately $4
million during 1998 at its Sun Valley operations for plating shop expansion,
rotable assets, large air transport landing gear handling equipment and
leasehold improvements to expand the Company's repair and overhaul capacity.
This expansion is a continuation of the Company's 1997 facilities expansion,
which included a significant increase in square footage primarily devoted to
landing gear repair and overhaul in addition to expansion of its Constant Speed
Drive and Integrated Drive Generator Shop. The majority of the expenditure in
1998 and 1999 will be to expand the electro-plating shop capacity at the Sun
Valley operations. This expenditure will be financed from cash flow from
operations and borrowings under new credit facilities.
In connection with the BA Acquisition, the Company anticipates making
approximately $1 million in capital expenditures in 1998 for the purchase of
rotable assets and $2 million in 1999 to relocate the British Airways' landing
gear operations to a new facility, which include expenditures for leasehold
improvements, handling equipment and machinery. Capital expenditures related to
new facility leasehold improvements will be financed by cash flow from
operations and borrowings under new credit facilities.
The Company believes that funds generated from operations, the net proceeds
of the Offering and available borrowings under new credit facilities will be
sufficient to meet operating needs and other capital equipment requirements of
the Company under its existing business plan for at least 12 months following
the Offering.
FOREIGN EXCHANGE
To date, the Company's business has not been significantly affected by
currency fluctuations. However, the Company conducts business in the Netherlands
and will conduct business in the United Kingdom, and thus fluctuations in
currency exchange rate could cause the Company's products to become relatively
more expensive in those countries, which could lead to a reduction in sales in
that country.
The Company makes substantial inventory purchases in French francs from such
suppliers as Messier-Dowty, SAMM and Eurocopter France. During 1996 and 1997,
the United States dollar has strengthened against the French franc, creating a
favorable exchange rate variance for the Company. The Company's Netherlands
facility's inventory purchases are primarily United States dollar denominated
while sales and operating expenses are partially denominated in Dutch guilders.
The Company's sales are primarily denominated in United States dollars and to
some extent in Dutch guilders, and the Company expects to make material sales in
British pounds sterling following the BA Acquisition.
The Company's payment of the purchase price for the BA Acquisition is
denominated in pounds. To hedge against the fluctuation of pounds to dollars,
the Company has entered into a transaction which permits it to purchase
approximately $17 million of pounds at a rate of 1.6373 dollars per pound. The
balance of the purchase price has not been hedged and thus the purchase price in
United States dollars could increase or decrease depending on the fluctuation of
pounds to dollars and the currency conversion
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factor in effect at the time the BA Acquisition is consummated. The Company will
continue to evaluate hedging options in the future. Upon completion of the BA
Acquisition, the Company may engage in additional foreign currency denominated
sales or pay material amounts of expenses in foreign currencies that may
generate gains and losses due to currency fluctuations. See "Risk Factors--Risks
Associated with Expansion of International Operations," and "Acquisition of
Certain Assets of British Airways."
QUARTERLY SALES FLUCTUATIONS
The Company's operating results are affected by a number of factors,
including the timing of orders for the repair and overhaul of landing gear and
fulfillment of such contracts, the timing of expenditures to manufacture parts
and purchase inventory in anticipation of future services and sales, parts
shortages that delay work in progress, general economic conditions and other
factors. Although the Company has secured several long-term agreements to
service multiple aircraft, the Company receives sales under those agreements
only when it actually performs a repair or overhaul. Because the average time
between landing gear overhauls is seven years, the work orders that the Company
receives and the number of repairs or overhauls that the Company performs in
particular periods may vary significantly causing the Company's quarterly sales
and results of operations to fluctuate substantially. The Company is unable to
predict the timing of the actual receipt of such orders and, as a result,
significant variations between forecasts and actual orders will often occur. In
addition the Company's need to make significant expenditures to support new
aircraft in advance of generating revenues from repairing or overhauling such
aircraft may cause the Company's quarterly operating results to fluctuate.
Furthermore, the rescheduling of the shipment of any large order, or portion
thereof, or any production difficulties or delays by the Company, could impact
the Company's quarterly operating results. See "Risk Factors--Fluctuations in
Results of Operations."
INFLATION
Although the Company cannot accurately anticipate the effect of inflation on
its operations, the Company does not believe that inflation has had, or is
likely in the foreseeable future to have, a material effect on its results of
operations or financial condition.
YEAR 2000
The Company does not expect a significant disruption in operations or any
significant expenditures as a result of computer software issues related to the
year 2000.
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BUSINESS
GENERAL
Hawker Pacific repairs and overhauls aircraft and helicopter landing gear,
hydromechanical components and wheels, brakes and braking system components for
a diverse international customer base, including commercial airlines, air cargo
operators, domestic government agencies, aircraft leasing companies, aircraft
parts distributors and OEMs. In addition, the Company distributes and sells new
and overhauled spare parts and components for both fixed wing aircraft and
helicopters. During the nine months ended September 30, 1997, the Company had in
excess of 440 customers, several of which have entered into long-term service
contracts with the Company, including FedEx, American Airlines, the USCG, and US
Airways. On December 20, 1997, the Company entered into the Acquisition
Agreement to purchase, for approximately L13.0 million (approximately $21.1
million at September 30, 1997), substantially all of the assets of British
Airways' landing gear repair and overhaul operations. The Company expects to
close the transaction immediately following completion of this Offering using
approximately $11 million of the net proceeds. As part of the BA Acquisition,
the Company and British Airways have agreed to enter into a seven-year exclusive
service agreement for the Company to provide landing gear and related repair and
overhaul services to substantially all of the aircraft currently operated by
British Airways. The Company believes that the BA Acquisition will provide it
with a base in the United Kingdom from which to expand its international repair
and overhaul operations significantly and position itself to become the global
leader in its markets. See "Acquisition of Certain Assets of British Airways"
and "Use of Proceeds."
The Company believes it is well positioned to benefit from the following
aviation industry trends that are driving increased demand for third-party
repair, overhaul and spare parts inventory management services: (i) the increase
in worldwide air traffic associated with the addition of new aircraft and more
frequent use of existing aircraft; (ii) the outsourcing by aircraft operators of
services previously handled internally; (iii) the break-up of monopolistic
aircraft maintenance consortiums; and (iv) an increase in regulatory pressure
and consumer emphasis on the traceability of aircraft parts.
MARKET AND INDUSTRY OVERVIEW
The aviation aftermarket consists of the servicing and support of aircraft
after delivery of aircraft to operators by OEMs. The Company provides
aftermarket landing gear repair and overhaul services and related spare parts to
a variety of customers in the aviation industry. In March 1997, Dillon Read &
Co., Inc. ("Dillon Read") estimated the current global aviation aftermarket to
be $47 billion annually and projected that it would grow to $60 billion by the
year 2000.
INCREASED AVIATION ACTIVITY. Boeing's 1997 Current Market Outlook (the
"Boeing Outlook") projects that global air travel will increase by 75% through
the year 2006. Average passenger seat miles flown are also expected to increase
significantly over the next few years. Further, many new airlines are expected
to commence operations in the United States and abroad, especially in China and
other Asian nations where only a small percentage of the population has flown to
date. In order to accommodate growing demand, aircraft operators will be
required to increase the size of their aircraft fleets. The Boeing Outlook
projects that the global fleet of aircraft will grow from 11,500 aircraft at the
end of 1996 to over 16,000 aircraft in 2006 and 23,000 aircraft in 2016.
Increases in passenger travel, air cargo services and the number of aircraft in
service increase the demand for repair and overhaul services. In addition, the
FAA requires aircraft landing gear to be overhauled every seven to ten years. As
a result, the growth in the number of aircraft over the past 15 years is
expected to create immediate and consistent demand for landing gear repair and
overhaul services, which will most likely continue as the number of new aircraft
in service grows. Further, because start-up airlines generally do not invest in
the infrastructure necessary to service their aircraft, such airlines outsource
all or most of their repair and overhaul services.
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OUTSOURCING OF REPAIR AND OVERHAUL SERVICES. While the overall air
transportation industry has grown significantly over the past decade, commercial
airlines have not experienced consistent earnings growth over the same period.
As a result, many aircraft operators have recognized outsourcing as an
opportunity to reduce operating costs, working capital investment and turnaround
time. In March 1997, Dillon Read estimated the outsourced military and
government market to be $9 billion and the third party market to be $12 billion.
Outsourcing allows aircraft operators to benefit from the expertise of service
providers such as the Company who have developed specialized repair techniques
and achieved economies of scale unavailable to individual operators.
Additionally, outsourcing allows aircraft operators to limit their capital
investment in infrastructure and personnel by eliminating the need for the
equipment, sophisticated information systems technology and inventory required
to repair and overhaul landing gear and hydromechanical components effectively.
Dillon Read also estimated in March 1997 that approximately 40%, 35% and 95%,
respectively, of commercial, military and general aviation functions are
currently outsourced. Having recently awarded to the Company large contracts for
outsourcing of repair and overhaul services, American Airlines and British
Airways exemplify this growing trend. As aircraft operators continue to become
more cost and value conscious, the Company expects the trend toward outsourcing
to continue.
BREAK-UP OF MONOPOLISTIC AIRCRAFT MAINTENANCE CONSORTIUMS. Until recently,
European aircraft operators attempted to realize cost savings by forming repair
consortiums to provide maintenance, repair and overhaul services for their
aircraft. Within these repair consortiums, each member was responsible for
providing the consortium's other members with maintenance, repair and overhaul
services for certain specified aircraft components. Over time, these members
have begun subcontracting their maintenance, repair and overhaul services to
independent service providers whom they subject to a competitive bidding process
to obtain the work. The Company believes that this trend will provide it with
opportunities to expand substantially its European customer base.
GREATER EMPHASIS ON TRACEABILITY. Due to concerns regarding unapproved
aircraft spare parts, regulatory authorities have focused on the level of
documentation which must be maintained on aircraft spare parts. As a result,
aircraft operators increasingly demand that third party service providers
provide complete traceability of all parts used in the repair and overhaul
process. The sophistication required to track the parts histories of an
inventory consisting of thousands of aircraft spare parts is considerable. For
example, an overhaul of a 747 aircraft shipset requires the handling and
tracking of over 2,500 parts. This has required companies to invest heavily in
information systems technology. The Company has developed and maintains a
proprietary management information system that enables it to comply with its
customer's contract specifications and enables its customers to comply with
governmental regulations concerning traceability of spare parts.
COMPANY OPERATIONS
REPAIR AND OVERHAUL
The primary reasons for removing landing gear or hydromechanical components
from an aircraft for servicing are: (i) the number of takeoffs and landings or
years since a landing gear's last overhaul have reached the time between
overhaul limit and it must be overhauled or (ii) the landing gear or
hydromechanical component has been damaged or is not performing optimally. The
cost of servicing landing gear or hydromechanical components that have been
removed varies depending upon the age and type of aircraft and the extent of the
repairs being performed.
Each overhaul of landing gear can involve numerous separate parts and work
orders. For example, the Boeing 737 nose landing gear calls for over 290 parts
and related work orders while the Boeing 747-200 nose gear calls for over 650
parts and related work orders. Generally, the Company performs these overhauls
in approximately six to eight weeks. Hydromechanical component overhauls can
involve 200 or more parts and over 25 separate work orders and are performed in
approximately two to four weeks. In order to achieve this throughput, the
Company must perform many parallel processes and integrate numerous components
just before final assembly. Completing this complex overhaul work within the
time
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constraints set by aircraft operators has led the Company to develop a highly
managed systems-driven process, which is facilitated by its highly specialized
management information systems described in more detail below. The stages of the
overhaul process include the following:
DISASSEMBLY, CLEANING AND INSPECTION. Upon receiving a landing gear shipset
or a hydromechanical component, the Company's technicians disassemble the unit
into its parts, a process which requires special tooling and expertise. Each
part is completely cleaned to allow for comprehensive inspection, testing and
evaluation of part size, structural integrity and material tolerances. The
Company uses a detailed checklist and reporting procedure to create a work order
documenting the state of each part inspected and indicating the extent of repair
or overhaul to be performed. Technicians tag all parts which need to be replaced
or reworked and electronically prepare bills of material and requisitions to the
Company's parts and production departments for inventory and scheduling
purposes. An internal sales order is created concurrently with the work order
for shipping, pricing, billing and delivery purposes. The Company utilizes its
management information system throughout this process to reduce the amount of
detailed inspection time required. See "--Management Information Systems and
Quality Assurance."
The work completed in the disassembly and inspection process enables the
Company to obtain detailed information concerning which parts can be reused or
repaired and which must be replaced, as well as the approximate labor needed to
complete the job. The Company's computer system identifies and tracks the parts
and associated work orders from each landing gear or hydromechanical component
throughout the overhaul process in order to maintain the integrity of the
landing gear or hydromechanical component the Company services. Shop travelers
provide a complete, detailed listing of all repair and overhaul work steps and
processes. Once disassembled, the individual parts are washed, visually
inspected for obvious damage and permanently identified using the internal work
order number assigned to that delivery order. Major and minor parts are then
processed for engineering evaluation and disposition of required repair work
steps.
PARTS REWORK, REPLACEMENT AND REASSEMBLY. The next phase of an overhaul
involves reworking existing parts to specifications set by the Company's
customers. This entails a combination of machining, plating, heat treatment,
metal reshaping, surface finishing and restoration of organic finish. At this
phase, each part is accompanied by the customized bar-coded traveler which
facilitates the computerized prioritization and tracking of a part through the
rework phase. Tight control is maintained over scheduling for each part,
enabling the Company to remain within its required turnaround time. The Company
performs the majority of the repair and overhaul procedures in its facilities
using proprietary or specialized repair techniques. In addition, the Company
utilizes in-house manufacturing capabilities to fabricate certain parts used in
the overhaul process that are otherwise difficult to obtain. If a part cannot be
reclaimed, the Company may install either a new part or a previously-reworked
part from inventory. The Company maintains an inventory of serviceable parts
that it has reworked for this purpose. Overhauling parts or using serviceable
parts from inventory in lieu of new parts generally lowers customer costs and
increases the Company's margins in comparison to an overhaul that consists of
exclusively new spare parts. In addition, these manufacturing and service
capabilities are integral to the Company's competitive position because they
enable the Company to maintain or increase the quality of work performed and
significantly reduce cost and turnaround time relative to its competitors.
INSPECTION AND SHIPPING. After completing the rework phase of the
overhaul/repair process, each part is delivered to the assembly area where the
end unit is assembled, tested and final inspection is completed. Once the end
unit assembly has been accepted through final inspection it is moved to
shipping, where it is packaged and prepared for dispatch.
PRICING. The Company offers its customers different pricing arrangements
for its repair and overhaul services. Pricing generally depends on the volume
and complexity of the work performed, the kind and number of new or
remanufactured spare parts used in the repair or overhaul and the required
turnaround time. For many of its customers, the Company exchanges a previously
overhauled shipset from its
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inventory for an as-removed shipset from customer's aircraft upon which the
Company charges the customer a fixed overhaul fee. Upon completing the overhaul
of the as-removed shipset, the Company charges the customer an additional fee
for spare parts or extra services required to overhaul the landing gear to the
customer's specifications. The Company typically bills a substantial portion of
the repair and overhaul fee to the customer up-front upon receiving its
as-removed shipset and generally receives payment for this portion of the
overhaul fee before completing the overhaul. When the Company overhauls a
shipset without exchanging an overhauled gear assembly from its inventory, the
Company charges one fee, which includes all parts and labor charges, upon
delivering the overhauled shipset to the operator. Pursuant to the Company's
standard payment terms, invoices are due within 30 days after receipt. The
Company typically offers a discount of up to 1.5% on payment made within 13 days
of receipt of an invoice.
With certain of its customers for whom the Company regularly provides parts
and services on entire fleets or large numbers of aircraft, the Company utilizes
a flat fee fixed price arrangement which it typically sets forth in long-term
service agreements. For the nine months ended September 30, 1997, approximately
$7.4 million, or 54% of the Company's landing gear repair and overhaul sales,
were received under long-term service agreements, which is expected to increase
in 1998 following the BA Acquisition. Pursuant to the Company's service
agreements, the Company performs repair and overhaul services on a scheduled or
as-needed basis. Pricing depends on the volume and type of aircraft landing gear
or hydromechanical component to be serviced and the required turnaround time.
Under its long-term service agreements, the Company is able to plan in advance
for equipment and inventory requirements and can achieve efficiencies in labor
hours and materials usage relative to the estimate on which the contract price
was based.
The following table sets forth: (i) the type of aircraft landing gear the
Company overhauls; (ii) management's estimate of the cost to purchase new
landing gear, which is not commonly purchased separately from an aircraft; (iii)
the typical charge by the Company to overhaul such landing gear; (iv)
management's estimate of the average time between overhauls; and (v) the
Company's primary customers for each type of aircraft:
<TABLE>
<CAPTION>
TYPICAL
ESTIMATED COST COST AVERAGE TIME
TYPE OF OF NEW OF COMPLETE BETWEEN
AIRCRAFT LANDING GEAR OVERHAUL OVERHAULS CUSTOMERS
- --------- ---------------- ----------- ------------ -------------------
<C> <C> <C> <C> <S>
727 Not in $ 165,000 7 yrs. FedEx
Production
737 $1.1 mil $ 130,000 6-8 yrs. United Air Lines
British Airways
747 $7.2 mil $ 500,000 7-9 yrs. Air Canada
Tower Air
British Airways
757 $3.1 mil $ 250,000 7-9 yrs. U.S. Airways
American
British Airways
767 $4.6 mil $ 360,000 7-9 yrs. U.S. Airways
British Airways
MD80 $1.2 mil $ 180,000 7-8 yrs. Delta Air Lines
DC10 $5.1 mil $ 400,000 7-10 yrs. FedEx
British Airways
United Airlines
A300 $6.1 mil $ 400,000 8-10 yrs. FedEx
A310 $4.3 mil $ 400,000 8-10 yrs. FedEx
</TABLE>
34
<PAGE>
PARTS DISTRIBUTION
GENERAL. Aircraft spare parts are classified within the industry as (i)
factory new, (ii) new surplus, (iii) overhauled, (iv) serviceable, and (v)
as-removed. A factory new or new surplus part is one that has never been
installed or used. Factory new parts are purchased from manufacturers or their
authorized distributors. New surplus parts are purchased from excess stock of
airlines, repair facilities or other distributors. An overhauled part has been
disassembled, inspected, repaired, reassembled and tested by a licensed repair
facility. An aircraft spare part is classified serviceable if it is repaired by
a licensed repair facility rather than completely disassembled as in an
overhaul. A part may also be classified serviceable if it is removed by the
operator from an aircraft or engine while operating under an approved
maintenance program and is functional and meets any manufacturer or time and
cycle restrictions applicable to the part. A factory new, new surplus,
overhauled or serviceable part designation indicates that the part can be
immediately utilized on an aircraft. A part in as-removed condition requires
functional testing, repair or overhaul by a licensed facility prior to being
returned to service in an aircraft.
PARTS SALES. The Company sells factory new, FAA-approved parts manufactured
by approximately 80 OEMs, including SAMM, Dunlop, Parker Hannifin and
Messier-Bugatti and overhauled aircraft spare parts to a diverse base of
customers in the aviation industry. The Company believes that it provides
customers with value added parts distribution services by offering immediate
availability, broad product lines, technical assistance and additional services.
CUSTOMERS
COMMERCIAL. During the nine months ended September 30, 1997, the Company
served a broad base of over 440 domestic and international customers in the
aviation industry. The Company's customers include FedEx, American Airlines, US
Airways, United Air Lines, Continental Airlines, Inc., Continental Express, Inc.
and Westair Commuter Airlines, Inc. The Company's largest customer, FedEx,
accounted for approximately 18.4% of its sales for the year ended December 31,
1996 and 18.2% for the nine months ended September 30, 1997. In 1994, the
Company entered into an agreement with FedEx to provide spare parts and repair
and overhaul services at a fixed price for most aircraft in FedEx's fleet, which
has been amended to extend the term to 2007 and to expand the Company's services
to include additional types of aircraft. The Company also has a seven-year
exclusive agreement with American Airlines to service landing gear on all Boeing
757 aircraft within its fleet on a flat-fee basis expiring in June 30, 2005. The
Company believes that the long-term relationships that it has developed with
many of its customers provide the Company with an ongoing base of business and
an excellent source of new business opportunities.
GOVERNMENT CONTRACTS. Sales to the United States government and its
agencies were approximately $4,491,000 (11.5% of revenues) and $2,163,000 (7.2%
of revenues) in the year ended December 31, 1996 and the nine months ended
September 30, 1997, respectively. The Company's largest government customer has
been the USCG with which the Company has an agreement to provide repair and
overhaul services and spare parts on an as-needed, fixed price basis for the
USCG's Dauphin II helicopters. The agreement is for a one-year term which the
USCG may renew for additional one-year terms through the year 2000. For the year
ended December 31, 1996, and the nine months ended September 30, 1997 sales to
the USCG accounted for approximately 11.2% and 7.0%, respectively, of the
Company's revenues. Because government sales are subject to competitive bidding
and government funding, there can be no assurance that such sales will continue
at previous levels. Although the Company's government contracts are subject to
termination at the election of the government, in the event of such a
termination, the Company would be entitled to recover from the government all
allowable costs incurred by the Company through the date of termination.
MATERIAL CUSTOMERS. FedEx and the USCG were the only customers who
accounted for 10% or more of the Company's total revenues for the year ended
December 31, 1996 (pro forma), and FedEx was the only customer who accounted for
10% or more of the Company's total revenues for the nine months ended September
30, 1997. See "Risk Factors--Customer Concentration; Concentration of Credit
Risks."
35
<PAGE>
MANAGEMENT INFORMATION SYSTEMS AND QUALITY ASSURANCE
The Company believes that its management information systems are among the
most advanced in its industry. The Company utilizes its system to shorten
turnaround times for customer orders, increase output, improve inventory
management and reduce costs by eliminating duplication of work and reducing
errors in ordering of parts. The system consists of an automated inspection and
routing system, a material resources planning module, a bar-coded shop floor
control module, an inventory control and parts tracing module, a tooling
calibration module and a general accounting module.
The system enables the Company to shorten lead times, increase output and
improve inventory management by allowing the Company to manage and control the
process of detailed parts inspection, materials requisitioning and work order
scheduling and release. The system's database contains much of the information
required to perform landing gear inspection activities, including illustrated
parts catalogues, parts specifications and other technical data. This has
largely eliminated the need to update parts catalogues manually and allows an
inspector using a personal computer located at his workstation to (i) refer to
computer based parts manuals and catalogues to identify needed parts, (ii)
access inventory to check on the availability of needed parts, (iii) requisition
needed parts from inventory and (iv) create and record an audit trail for all
inspected parts and processes. These features of the system have substantially
reduced total detailed inspection time required in the overhaul process.
Using the system, all materials utilized and labor performed in connection
with a work order are recorded using bar code scanners located throughout the
Company's facility. Work order travelers are generated upon commencement of a
repair or overhaul and accompany the separate parts of each landing gear or
hydromechanical component throughout the overhaul process. After each stage of
the process is completed, the employee who performed the work records, using the
bar code system, the date of completion, his or her employee identification
number, critical dimensions and the quantity processed, accepted or rejected.
For each repair or overhaul that it performs, the Company records all essential
operations and tests conducted, inspection data on all components repaired,
overhauled or exchanged for new components and the sources of all materials
issued during the course of the work. This function allows the company to
provide more accurate cost and timing estimates to customers, facilitates faster
and more accurate preparation of customer invoices and forms the basis of the
Company's comprehensive quality assurance program. In addition, shoploading and
material requisition personnel receive more accurate planning data. Using the
system, management can plan for material requirements in advance so that
required materials for a specific unit are on hand in time to facilitate on-time
delivery and based upon sales forecasts and actual orders can optimize daily
manpower and materials utilization.
EQUIPMENT MAINTENANCE AND TOOLING
The Company performs all of the maintenance and repair on the equipment used
in the repair and overhaul process. The Company's maintenance personnel perform
various regularly scheduled maintenance procedures on the Company's equipment on
a weekly, monthly and annual basis, and shift operators perform daily preventive
maintenance. Precision measurement accessories installed on certain machines,
which require periodic calibration, are maintained and serviced by approved
vendors and closely monitored by the Company.
The Company invests significant material and resources to design and
construct tooling and fixtures to support its current product line and improve
the efficiency of the repair and overhaul process. Manufacturer-designed tooling
is typically limited to specialized tools to aid in the disassembly, assembly
and testing of a landing gear assembly, such as spanner wrenches and seal
installation tools. From time to time, the Company's employees may develop
modifications to existing tooling or ideas for new tooling and fixtures in order
to accomplish a specific machining or testing operation or to improve the
performance of the overhaul process. Tooling and fixtures used in machining and
plating operations are conceived, designed and fabricated in-house by the
technical personnel involved in the Company's daily operations to improve the
labor efficiency of a process and reduce the cost of performing a repetitive
process. The
36
<PAGE>
Company believes that its ability to design and fabricate tooling used in its
operations allows it to maximize efficiencies and enables its customers to
realize cost savings and improved turnaround time.
SUPPLIERS AND PROCUREMENT PRACTICES
The primary sources of parts and components for the Company's overhaul
operations and parts distribution business are domestic and foreign airlines,
OEMs and aircraft leasing companies. The supply of parts and components for the
Company's aftermarket sales is affected by the availability of excess
inventories that typically become available for purchase as a result of new
aircraft purchases by commercial airlines, which reduce the airline's need for
spares supporting the aircraft that have been replaced. Aftermarket supply is
also affected by the availability of new parts from OEMs and the availability of
older, surplus aircraft that can be purchased for the value of the major parts
and components. Although the Company does not have fixed agreements with the
majority of its suppliers, it is frequently able to obtain significant price
discounts from many of its suppliers because of the volume and regularity of its
purchases. Under two of the Company's three ten-year agreements with Dunlop,
however, the Company purchases Dunlop parts at a discount from list price for
resale and for use in the repair and overhaul of a variety of fixed wing
aircraft and helicopters. For the year ended December 31, 1996 and the nine
months ended September 30, 1997, Dunlop accounted for approximately 27% and
18.7%, respectively, of the total dollar amount of parts purchased by the
Company. The Company also has agreements with Messier-Bugatti, SAMM and
Eurocopter France that enable the Company to purchase new aircraft parts at
discounts from list price.
Although the Company does not have agreements with many of its suppliers and
competes with other parts distributors for production capacity, the Company
believes that its sources of supply and its relationships with its suppliers are
satisfactory. While the loss of any one supplier could have a material adverse
effect on the Company until alternative suppliers are located and have commenced
providing products, alternative suppliers exist for substantially all of the
parts purchased by the Company. See "Risk Factors--Dependence on Key Suppliers."
The Company has developed procurement practices to ensure that all supplies
received conform to contract specifications. For cost, quality control and
efficiency reasons, the Company generally purchases supplies only from vendors
with whom the Company has on-going relationships and/or whom the Company's
customers have previously approved. The Company has qualified second sources or
has identified alternate sources for all of its supplies. However, the inability
or delay in obtaining needed parts on a timely basis could have a material
adverse effect on the Company. The Company chooses it vendors primarily based on
the quality of the parts supplied and record for on-time performance. The
Company regularly evaluates and audits its approved vendors based on their
performance. Repeated failures to comply with the Company's quality and delivery
requirements may ultimately cause the Company to remove a vendor from its
approved vendor list.
SALES AND MARKETING
The Company's sales and marketing strategy is designed to target commercial
and government customers with large fleets of aircraft that require regular
repair and overhaul of landing gear parts and components. In recent years, the
Company has significantly expanded its direct sales efforts toward the goal of
increasing its sales from its existing customer base as well as attracting new
customers. In particular, the Company focuses its sales efforts on encouraging
its existing and prospective customers to enter into long-term agreements with
the Company for the repair and overhaul of landing gear on all aircraft within a
fleet, or alternatively, to engage the Company to perform repair and overhaul
services on several aircraft at once. In its sales and marketing efforts, the
Company emphasizes its competitive strengths, including its superior quality of
service, competitive pricing, rapid turnaround time and extensive industry
experience.
The Company markets and sells its products and services worldwide both
directly through an in-house sales staff and indirectly through a network of
independent sales representatives which at September 30, 1997 consisted of
approximately 11 employees and 11 sales representatives, respectively. Air
37
<PAGE>
Resources, Inc., an aviation sales representative agency ("Air Resources"),
markets and sells the Company's products and services to a number of domestic
airlines in return for a commission on sales made through Air Resources'
efforts. The Company's domestic sales are conducted primarily by Air Resources,
which focuses its efforts on major domestic commercial carriers as well as the
Company's in-house sales force. The Company conducts its international sales and
marketing through a number of independent agencies based worldwide in such
countries as France, Sweden, Mexico and India. Additionally, senior management
plays an active role in marketing several of the Company's product lines. The
Company's President and Chief Executive Officer, David Lokken oversees its sales
activities, while the Company's indirect and direct sales representatives report
directly to Brian Carr, Managing Director of Sun Valley Operations, for landing
gear sales and Michael Riley, Vice President--Hydromechanical Business Unit, for
hydromechanical component sales. The Company's sales staff works closely with
engineering and customer support personnel to provide cost effective solutions
to maintaining landing gear, stressing the Company's repair and overhaul
engineering expertise, turnaround times and component overhauling capabilities.
In addition, the Company actively participates in many of the major aviation
industry gatherings and air shows globally and hosts groups of aircraft
operators at technical and other meetings. In certain instances, the Company
bids on government contracts for certain lines through its government contracts
department, which coordinates with the Company's sales and marketing team.
The Company does not consider backlog meaningful to its business.
GROWTH STRATEGY
The Company seeks to become the leading provider of landing gear repair and
overhaul services to the global aviation industry. The Company's strategies for
accomplishing this objective include the following:
PURSUE ADDITIONAL INTERNATIONAL GROWTH OPPORTUNITIES. The Company believes
that the international aviation aftermarket presents the greatest potential for
substantial growth. With the hydromechanical repair and overhaul services that
it performs from its Netherlands facility and the large air transport repair and
overhaul operations that it will establish through the BA Acquisition, the
Company believes it will be able to provide customers with a full range of
repair and overhaul services in Europe. In addition, the Company believes that
the break-up of aircraft maintenance consortiums will create opportunities for
the Company to expand its European, Middle Eastern and Asian customer bases.
With facilities located in the United Kingdom and California, the Company
believes that it will be geographically positioned to pursue additional growth
opportunities in both the European and Asian aviation aftermarkets.
FOCUS ON LONG-TERM SERVICE AGREEMENTS. Through increased sales and
marketing efforts, the Company is actively seeking to enter into long-term
service agreements with its existing and potential customers to provide its
services for all of their respective aircraft. A recent example of the Company's
success in this area includes the Company's September 1997 seven-year exclusive
agreement with American Airlines to service landing gear on all Boeing 757
aircraft within its fleet. While long-term agreements are often terminable on
short notice, the Company believes that securing long-term service agreements
with customers will provide Hawker Pacific with a more predictable and
consistent flow of business and enable it to improve its profit margins from
fixed wing operations.
EXPAND EXISTING OPERATIONS. Hawker Pacific seeks to increase sales and
operating income by marketing its landing gear repair and overhaul services to
new and existing customers and expanding its hydromechanical component product
lines. Boeing projects that the global fleet of aircraft will grow from 11,500
aircraft at the end of 1996 to over 16,000 aircraft in 2006 and 23,000 aircraft
in 2016. The Company plans to expand its landing gear repair and overhaul
operations in order to capitalize on this growth trend. Because the Company
believes that improved profit margins in fixed wing operations are primarily a
function of increased volume, it plans to expand its capacity to perform fixed
wing landing gear repair and overhaul services. The Company also intends to
expand its hydromechanical component service offerings
38
<PAGE>
particularly through increased capabilities resulting from the BA Acquisition.
The Company recently began to offer repair and overhaul of constant speed
drive-integrated drive generators after having expended minimal funds to
initiate these operations.
ACCELERATE GROWTH THROUGH ACQUISITION. The Company intends to evaluate and
pursue strategically located companies with technology, equipment and inventory
that complement or expand the Company's existing operations and that may enable
it to expand into new geographic or product markets. In particular, the Company
seeks to acquire companies that will enable it to expand its international
operations or to increase its product offerings.
COMPETITIVE STRENGTHS
The Company believes that it is well-positioned to achieve its strategic
objectives because of the following competitive strengths:
STRONG MARKET POSITION. The Company through its predecessors has been
providing aftermarket products and services to the aviation industry for over 30
years and believes it has gained an international reputation for high quality
and reliability. The Company believes that its customers select Hawker Pacific
based on its superior quality of service, competitive pricing, rapid turnaround
time and extensive industry experience. Using its engineering expertise, the
Company has developed proprietary or specialized repair and overhaul equipment
and techniques, including the ability to manufacture certain replacement parts
in-house, that enable it to reduce costs in providing its customers with repair
and overhaul services.
EXPERIENCED MANAGEMENT TEAM. The Company's senior executives have on
average over 20 years industry experience and have served the Company for an
average of seven years. In addition, the Company believes that its customers
highly value the extensive experience of its 15 managers, who have served the
Company on average for 12 years.
ADVANCED MANAGEMENT INFORMATION SYSTEMS. The Company has developed
proprietary systems to manage and schedule work flow and coordinate many aspects
of operations. The Company believes that its management information systems are
among the most advanced in its industry, permitting the Company to achieve
greater operating efficiencies, offer a higher level of customer service than
its competitors and provide complete traceability of aircraft parts.
BROAD ARRAY OF PRODUCTS AND SERVICES. The Company services and sells a
broad array of landing gear and hydromechanical components for fixed wing
aircraft and helicopters. The Company provides services and parts for several
large air transport aircraft, including the full line of Boeing, McDonnell
Douglas, Lockheed and Airbus jets, in addition to a variety of smaller fixed
wing aircraft and helicopters, including Embraer aircraft and Bell, and
Eurocopter helicopters. The Company believes that this breadth of products and
services gives it a competitive advantage in winning business from new customers
and affords an opportunity to expand its business with existing customers. It
also positions the Company to respond to aircraft operators' desire to focus on
a select group of suppliers to control costs, increase quality and enhance
timeliness of delivery.
KEY RELATIONSHIPS. The Company actively seeks to develop close
relationships with its customers and suppliers. The Company has been providing
repair and overhaul services and spare parts to the USCG for its Dauphin II
helicopters since 1987. The Company believes that the long-term relationships
that it has developed with many of its customers provide it with an ongoing base
of business and a source of new business opportunities. In addition, the
Company's relationships with certain key parts suppliers and OEMs enable it to
purchase parts at discounts from list price and, therefore, provide the Company
with a competitive advantage. Under two of the Company's three ten-year
agreements with Dunlop, each of which expires in October 2006, the Company
purchases Dunlop parts at a discount to list price for resale and for use in the
repair and overhaul of a variety of fixed wing aircraft and helicopters. In
addition, the Company has agreements with Messier-Bugatti, SAMM and Eurocopter
France that enable the Company to purchase new aircraft parts at discounts from
list price.
39
<PAGE>
COMPETITION
Numerous companies compete with the Company in the aviation services
industry. The Company primarily competes with various repair and overhaul
organizations, which include the service arms of OEMs, the maintenance
departments or divisions of large air carriers (some of which also offer
maintenance services to third parties) and independent organizations such as the
Aerospace Division of BFG, the Landing Gear Division of AAR, Revima, and Dowty.
The Company's major competitors in its hydromechanical components business
include AAR and OEMs such as Sunstrand, Vickers, Parker-Hannifin,
Messier-Bugatti and Lucas. The Company expects that competition in its industry
will increase substantially as a result of industry consolidations and alliances
in response to the trend in the aviation industry toward outsourcing of repair
and overhaul services. In addition, as the Company moves into new geographic or
product markets it will encounter new competition.
The Company believes that the primary competitive factors in its marketplace
are quality price, the ability to perform repairs and overhauls within a rapid
and reliable turnaround time and industry experience. Certain of the Company's
competitors have substantially greater financial, technical, marketing and other
resources than the Company. These competitors may have the ability to adapt more
quickly to changes in customer requirements, may have stronger customer
relationships and greater name recognition and may devote greater resources to
the development, promotion and sale of their products than the Company. There
can be no assurance that competitive pressures will not materially and adversely
affect the Company's business, financial condition or results of operations. See
"Risk Factors--Substantial Competition."
GOVERNMENT REGULATION
The Company is highly regulated worldwide by the FAA, the JAA, and various
other foreign regulatory authorities, including the Dutch Air Agency, which
regulates the Company's Netherlands' operations, and the CAA, which will
regulate the Company's United Kingdom operations upon consummation of the BA
Acquisition. These regulatory authorities require all aircraft to be maintained
under continuous condition monitoring programs and to periodically undergo
thorough inspection. In addition, all parts must be certified by the FAA and
equivalent regulatory agencies in foreign countries and conformed to regulatory
standards before they are installed on an aircraft. The Company is a certified
FAA and JAA approved repair station and has been granted Parts Manufacturer
Approvals by the FAA Manufacturing Inspectors District Office. In addition, the
Company's operations are regularly audited and accredited by the Coordinating
Agency for Supplier Evaluation, formed by commercial airlines to approve FAA
approved repair stations and aviation parts suppliers. If material
authorizations or approvals were revoked or suspended, the Company's operations
would be materially and adversely affected. As the Company attempts to commence
operations in countries in which it has not previously operated, it will need to
obtain new certifications and approvals, and any delay or failure in attaining
such certifications or approvals could have a material adverse effect on the
Company's business, financial conditions and results of operations. In addition,
if new and more stringent regulations are adopted by foreign or domestic
regulatory agencies or oversight of the aviation industry is increased in the
future the Company's business may be materially and adversely affected. See
"Risk Factors--Government Regulation."
ENVIRONMENTAL MATTERS AND PROCEEDINGS
The Company's operations are subject to extensive and frequently changing
federal, state and local environmental laws and substantial related regulation
by government agencies, including the United States Environmental Protection
Agency, the California Environmental Protection Agency and the United States
Occupational Safety and Health Administration. Among other matters, these
regulatory authorities impose requirements that regulate the operation,
handling, transportation and disposal of hazardous materials generated by the
Company during the normal course of its operations, govern the health and 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
40
<PAGE>
on the Company and, as a result, substantially affects its operational costs. In
addition, the Company may become liable for the costs of removal or remediation
of certain hazardous substances released on or in its facilities without regard
to whether or not the Company knew of, or caused, the release of such
substances. The Company believes that it currently is in material compliance
with applicable laws and regulations and is not aware of any material
environmental problem at any of its current or former facilities. There can be
no assurance, however, that its prior activities did not create a material
problem for which the Company could be responsible or that future uses or
conditions (including, without limitation, changes in applicable environmental
laws and regulations, or an increase in the amount of hazardous substances
generated by the Company's operations) will not result in any material
environmental liability to the Company and materially and adversely affect the
Company's financial condition and results of operations. The Company's plating
operations, which use a number of hazardous materials and generate significant
hazardous waste, increase the Company's regulatory compliance burden and
compound the risk that the Company may encounter a material environmental
problem in the future. Furthermore, compliance with laws and regulations in
foreign countries in which the Company locates its operations may cause future
increases in the Company's operating costs or otherwise adversely affect the
Company's results of operations or financial condition. See "Risk
Factors--Environmental Regulations."
In October 1993, the United States of America and the State of California
each filed lawsuits in the United States District Court for the Central District
of California, against the Company and the owners (the "Owners") of one of the
Company's facilities (the "Site"). The lawsuits (the "SFVB Actions") alleged
that the groundwater in the San Fernando Valley Basin ("SFVB") had been
contaminated with volatile organic compounds and other hazardous substances
released from the Site, requiring costly investigation, evaluation and
remediation efforts for which the Company and the Owners were liable. In
February 1997, the Company entered into settlements with the United States of
America and State of California pursuant to which the Company paid the EPA
$382,500 and the State of California $40,950 in June 1997. The Company believes
that it will not be liable for any future costs to the United States government
or the State of California related to this matter, and the California Regional
Water Quality Control Board recently notified the Company of its conclusion that
soil contamination at the Site does not represent a significant threat to
groundwater quality and cannot be determined with certainty. BTR has agreed to
indemnify the Company against any future amounts for which the Company may be
responsible in connection with the SFVB Actions. See "Certain Transactions--
Acquisition of the Company from BTR."
EMPLOYEES AND EMPLOYEE TRAINING
As of September 30, 1997 the Company had 225 employees of whom approximately
16 are in management, 42 are engineering and technical personnel, 131 are direct
labor personnel, 11 are in sales and marketing and 25 are administrative
personnel. The Company is not currently a party to any collective bargaining
agreements; however, in connection with the BA Acquisition, the Company will be
required to enter into collective bargaining agreements in the United Kingdom.
The Company believes that its relationships with its employees are generally
good. Competition for employees in the Company's industry is intense, and the
Company cannot give any assurance that it will be able to attract or retain
highly qualified personnel in the future. See "Risk Factors--Dependence on Key
Employees."
Each of the Company's technical employees receives specific training in the
individual repair and overhaul functions that he or she performs in addition to
comprehensive general training in total quality management procedures,
statistical process control and material resource planning. The Company also
regularly conducts in-house training programs, which the Company's management
designs using standard industry practice manuals, for its technical and
engineering employees on a number of subjects, including materials handling,
corrosion prevention and control, surface tension etch inspection and shot
peening.
FACILITIES
The Company's principal executive offices and production facilities are
located in Sun Valley, California. The Company occupies the premises, comprising
approximately 193,000 square feet and nine
41
<PAGE>
buildings pursuant to various long-term leases that expire on dates ranging
between 2004 and 2010 and require the Company to make monthly rent payments
ranging from $4,727 to $38,200.
The Company also leases a facility comprising approximately 8,000 square
feet near Amsterdam, Netherlands from which it performs hydraulic repairs on
rotor and fixed wing aircraft. The lease expires in 1998 after which the Company
plans to move to new and larger facilities. The Company believes that a facility
will be available on terms acceptable to the Company.
The Company believes that its facilities satisfy its current needs. However,
as part of its internal growth strategy, the Company is in the process of
reorganizing and reconfiguring its Sun Valley, California location to meet its
growth needs and increase the efficiency of its operations, which it expects to
complete in early 1998. Beginning in 1998, the Company plans to expand its
plating operations at this facility. In addition, the Company is currently
looking for a facility in the United Kingdom to house its new United Kingdom
operations. See "Acquisition of Certain Assets of British Airways." Any failure
or delay in completing the reorganization or expansion of plating operations as
currently planned, or locating and organizing a facility in the United Kingdom,
however, could significantly impair the Company's ability to manage its growth
and could have a material adverse affect on the Company's business, financial
condition and results of operations. See "Risk Factors--Risk Associated With
Facilities Reorganization" and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Liquidity and Capital
Resources."
42
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following sets forth certain information regarding the Company's
executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------- ----------- --------------------------------------------------------------
<S> <C> <C>
Scott W. Hartman............................ 34 Chairman of the Board(1)(2)
David L. Lokken............................. 51 President, Chief Executive Officer and Director(2)
Brian S. Aune............................... 42 Vice President and Chief Financial Officer
Brian S. Carr............................... 40 Managing Director of Sun Valley Operations
Michael A. Riley............................ 51 Vice President--Hydromechanical Business Unit
Daniel J. Lubeck............................ 35 Secretary and Director(2)
John G. Makoff.............................. 34 Director
Joel F. McIntyre............................ 59 Director Nominee(1)(3)(4)
Daniel C. Toomey, Jr........................ 34 Director Nominee(1)(3)(4)
</TABLE>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Nominating Committee
(3) Member of Audit Committee
(4) Position to be held with the Company following the Offering
SCOTT W. HARTMAN became a director of the Company in December 1996 and
became Chairman of the Board of the Company in March 1997. Since March 1995, Mr.
Hartman has served as Chief Operating Officer of Unique. From December 1993
until he joined Unique, Mr. Hartman served as Chief Executive Officer of Nucor
World Industries, a private holding company. From December 1991 until December
1993, Mr. Hartman served as a Vice President of Business Development for City
National Bank, and from May 1983 until he joined City National Bank, he held
various management positions with Emerson Electric Company. Mr. Hartman earned a
B.S. from Indiana University.
DAVID L. LOKKEN joined the Company in May 1989 as Executive Vice President
and Chief Operating Officer and has served as President and Chief Executive
Officer of the Company since June 1993. From November 1985 until he joined the
Company, Mr. Lokken served a Vice President and General Manager of Cleveland
Pneumatic's Product Service Division. Mr. Lokken holds a B.S. in Electrical
Engineering from North Dakota State University and an M.B.A. from Arizona State
University.
BRIAN S. AUNE joined the Company as Vice President of Finance and
Administration in 1992 and has served as Vice President and Chief Financial
Officer of the Company since August 1994. Before joining the Company, Mr. Aune
held various finance and management positions with Dunlop Aviation, BEI Motion
Systems Electronics and Eastman Kodak. Mr. Aune has a B.A. in Accounting from
Eastern Washington University and an M.B.A. from the University of San Diego.
BRIAN S. CARR became Managing Director of Sun Valley Operations in November
1997 after having served as Vice President--Landing Gear Business Unit since he
joined the Company in January 1993. From 1980 until he joined the Company, Mr.
Carr held various engineering, technical sales and management positions with
Cleveland Pneumatic's Product Service Division and Dowty Aerospace. Mr. Carr
holds a B.S. in Aerospace Engineering Technology from Kent State University.
MICHAEL A. RILEY joined the Company's predecessor as Vice President of
Marketing in October 1989 and has served as Vice President--Hydromechanical
Business Unit since January 1994. From 1982 until he joined the Company, Mr.
Riley held various positions in the aerospace/aircraft industry with Abex
Aerospace and Dunlop Aviation. Mr. Riley served as a helicopter pilot in the
United States Navy and received a B.S. in Engineering from the United States
Naval Academy, Annapolis, Maryland.
43
<PAGE>
DANIEL J. LUBECK joined the Company as Secretary and a director in December
1996. Since July 1996, Mr. Lubeck has served as President of Unique. From March
1993 until he joined Unique, Mr. Lubeck was an attorney with McIntyre, Borgess &
Burns, a multi-service law firm, after having worked as an attorney with Paul,
Hastings, Janofsky & Walker from 1987 until 1992 and with Manatt, Phelps &
Philips, LLP from 1992 until 1993. Mr. Lubeck earned a J.D. from University of
Southern California and holds a B.A. from University of California San Diego.
JOHN G. MAKOFF became a director of the Company in December 1996. Mr. Makoff
founded Unique in June 1993 and currently serves as its Chief Executive Officer.
From June 1991 until he founded Unique, Mr. Makoff served as Manager for
Computerland of Pasadena, Inc., a computer reseller. Mr. Makoff holds a B.A.
from Lewis & Clark University.
JOEL F. MCINTYRE has been nominated to become a director of the Company
following the Offering. From 1963 through 1993, Mr. McIntrye was an attorney
with the law firm of Paul, Hastings, Janofsky and Walker. In 1993, Mr. McIntyre
founded the law firm of McIntyre, Borges & Burns LLP and currently serves as its
Managing Partner. Mr. McIntyre currently serves on the Board of Directors on
International Aluminum Corporation, a publicly-held company. Mr. McIntyre
received a B.A. from Stanford University in 1960 and J.D. from University of
California, Los Angeles in 1963.
DANIEL C. TOOMEY has been nominated to become a director of the Company
following the Offering. Mr. Toomey has served as Vice President and Chief
Financial Officer of Eltron International, Inc., a publicly-held company
("Eltron"), from October 1992 until December 1997. From 1987 until he joined
Eltron, Mr. Toomey was employed with Arthur Andersen LLP, where he served as
Manager in the Enterprise Division of its Woodland Hills, California office. In
January 1998, Mr. Toomey joined a Los Angeles-based venture capital firm. Mr.
Toomey received a B.A. from the University of California, Los Angeles in 1986.
The Board of Directors has established an Audit Committee and a Compensation
Committee. The functions of the Audit Committee include recommending to the
Board the selection and retention of independent auditors, reviewing the scope
of the annual audit undertaken by the Company's independent auditors and the
progress and results of their work and reviewing the financial statements of the
Company and its internal accounting and auditing procedures. The functions of
the Compensation Committee include establishing the compensation of the Chief
Executive Officer, reviewing and approving executive compensation policies and
practices, reviewing salaries and bonuses for certain executive officers of the
Company, administering the Company's employee stock option plans and considering
such other matters as may from time to time be delegated to the Compensation
Committee by the Board of Directors. The Board of Directors intends to appoint
independent directors to the Audit and Compensation Committees at such time as
such directors join the Board of Directors. The Board of Directors has also
established a nominating committee whose function is to select the slate of
directors to be presented to the shareholders for election at the Annual Meeting
of the shareholders of the Company.
The Company's executive officers are appointed by, and serve at the
discretion of, the Board of Directors of the Company. See
"Management--Employment Agreements." The Company's Directors serve until the
next annual meeting of shareholders or until successors are elected and
qualified.
FUTURE KEY EMPLOYEE
RICHARD ADEY is expected to become the Company's Managing Director of UK
Operations following the BA Acquisition. Since March 1996, Mr. Adey has been a
Senior Manager for British Airways Engineering, in charge of overhauling landing
gear, flap tracks and flap carriages on British Airways' aircraft. From 1994
until he joined British Airways Engineering, Mr. Adey served as Operations
Director for Woodhead Manufacturing Ltd. From 1984 through 1993, Mr. Adey served
as a Senior Consultant with Coopers & Lybrand, specializing in operations
management and process improvement within commercial organizations. Mr. Adey
holds a BSc in Production Engineering and Engineering Management from the
University of Nottingham and an MSc in Manufacturing Technology and Business
Management from Cranfield Institute.
44
<PAGE>
DIRECTOR COMPENSATION
Following the Offering, each non-employee Director will receive a cash fee
of $1,500 per regular and special Board meeting attended in person and $1,000
per telephonic Board meeting and an additional $500 per month for being a member
of one or more committees of the Board. Each non-employee Director is expected
to receive, as additional director compensation, such number of options as
determined by the Board to purchase shares of Common Stock per year at an
exercise price equal to the fair market value of the Common Stock on the date of
the grant. In January 1998, Daniel C. Toomey Jr. and Joel F. McIntyre, director
nominees, were each granted five-year options to purchase up to 15,000 shares,
exercisable at the initial public offering price per share, vesting 33 1/3% per
year beginning on the first anniversary of the effective date of the Offering.
The Directors are also reimbursed for expenses incurred in connection with the
performance of services as Directors.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation earned or accrued during
the years ended December 31, 1995, 1996 and 1997 by the Company's Chief
Executive Officer and the Company's three other most highly compensated
executive officers whose total salary and bonus during such year exceeded
$100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OTHER
- ----------------------------------------------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
David Lokken........................................................... 1997 $ 233,147 $ 44,358
Chief Executive Officer 1996 192,566 67,125 $ 173,220(2)
1995 184,256 --
Brian Aune............................................................. 1997 $ 117,302 $ 21,097
Chief Financial Officer 1996 98,440 28,763
1995 100,509 --
Brian Carr............................................................. 1997 $ 125,156 $ 21,097
Managing Director of Sun Valley Operations 1996 111,258 26,910
1995 104,785 --
Michael Riley.......................................................... 1997 $ 113,430 $ 18,663
Vice President--Hydromechanical Business Unit 1996 95,584 23,550
1995 93,335 --
</TABLE>
- ------------------------
(1) Bonus amounts are shown in the year accrued.
(2) Nonrecurring payment made for services rendered in connection with BTR's
sale of the Company to Unique of which 31% was paid in 1996 and 69% was paid
in 1997.
In November 1996, the Company entered into an employment agreement with
David L. Lokken pursuant to which Mr. Lokken agreed to serve as the Company's
President and Chief Executive Officer. The employment agreement is for an
initial term of five years and as amended in 1997 provides for an annual base
salary of $205,000, a performance bonus to be awarded in accordance with the
terms and conditions of a separate Management Incentive Compensation Plan, and a
monthly automobile allowance of $1,500. Pursuant to the employment agreement,
the Company may terminate Mr. Lokken's employment with or without cause at any
time before its term expires upon providing written notice. In the event the
Company terminates Mr. Lokken's employment without cause, Mr. Lokken would be
entitled to receive a severance amount equal to his annual base salary for the
greater of two years or the balance of the term of his employment agreement and
a bonus for the year of termination. In the event of a termination by reason of
Mr. Lokken's death or permanent disability, his legal representative will be
entitled to receive his annual base salary for the remaining term of his
employment agreement.
45
<PAGE>
In November 1996, the Company also entered into employment agreements with
each of Brian Aune, the Company's Vice President and Chief Financial Officer,
Brian Carr, the Company's Managing Director of Sun Valley Operations, and
Michael Riley, the Company's Vice President--Hydromechanical Business Unit. The
employment agreements are each for an initial term of three years and as amended
in 1997 provide for annual base salaries of $130,000, $130,000 and $115,000,
respectively, performance bonuses to be awarded in accordance with the terms and
conditions of a separate Management Incentive Compensation Plan, and monthly
automobile allowances of $750. In the event the Company terminates their
employment without cause, Messrs. Aune, Carr and Riley would each be entitled to
receive a severance amount equal to his respective annual base salary for the
greater of one year or the balance of the term of his employment agreement and a
bonus for the year of termination. In the event of a termination by reason of
Messrs. Aune's, Carr's or Riley's death or permanent disability, his legal
representative will be entitled to receive his annual base salary for the
remaining term of his employment agreement.
In addition, pursuant to each of their amended employment agreements, in the
event of, or termination following, a change in control of the Company, as
defined in the agreements, Mr. Lokken and each of Messrs. Aune, Carr and Riley
would be entitled to receive 18 and 12 months' salary, respectively, based on
the total annual salary then in effect paid according to a schedule to be
determined at the time such event occurs. Upon consummation of the BA
Acquisition, the Company will enter into an employment agreement with Mr.
Richard Adey to serve as the Company's Managing Director of its UK Operations
which will provide for an annual base salary of $120,000 and otherwise contain
the same terms and conditions as the Company's agreements with Messrs. Aune,
Carr and Riley.
MANAGEMENT STOCK OPTIONS
In November 1997, the Board of Directors granted five-year management stock
options to purchase an aggregate of 116,444 shares of Common Stock to David
Lokken, Brian Aune, Brian Carr, and Michael Riley. These options are in addition
to those granted under the 1997 Stock Option Plan described below. All of these
options are vested and are exercisable at the initial public offering price per
share.
STOCK OPTION PLAN
In November 1997, the Board of Directors adopted the Company's 1997 Stock
Option Plan (the "1997 Plan"). The 1997 Plan, which was approved by the
Company's shareholders in November 1997, provides for the grant of options to
directors, officers, other employees and consultants of the Company to purchase
up to an aggregate of 640,444 shares of Common Stock. The purpose of the 1997
Plan is to provide participants with incentives that will encourage them to
acquire a proprietary interest in, and continue to provide services to, the
Company. The 1997 Plan is to be administered by the Board of Directors, or a
committee of the Board, which has discretion to select optionees and to
establish the terms and conditions of each option, subject to the provisions of
the 1997 Plan. Options granted under the 1997 Plan may be "incentive stock
options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or nonqualified options.
The exercise price of incentive stock options may not be less than 100% of
the fair market value of Common Stock as of the date of grant (110% of the fair
market value if the grant is to an employee who owns more than 10% of the total
combined voting power of all classes of capital stock of the Company). The Code
currently limits to $100,000 the aggregate value of Common Stock that may be
acquired in any one year pursuant to incentive stock options under the 1997 Plan
or any other option plan adopted by the Company. Nonqualified options may be
granted under the 1997 Plan at an exercise price of not less than 85% of the
fair market value of the Common Stock on the date of grant. Nonqualified options
may be granted without regard to any restriction on the amount of Common Stock
that may be acquired pursuant to such options in any one year. Options may not
be exercised more than ten years after the date of grant (five years after the
date of grant if the grant is an incentive stock option to an employee who owns
more than 10.0% of the total combined voting power of all classes of capital
stock of the Company). Options granted under the 1997 Plan generally are
nontransferable, but transfers may be permitted under certain circumstances in
the discretion of the administrator. Shares subject to options that expire
unexercised
46
<PAGE>
under the 1997 Plan will once again become available for future grant under the
1997 Plan. The number of options outstanding and the exercise price thereof are
subject to adjustment in the case of certain transactions such as mergers,
recapitalizations, stock splits or stock dividends. The 1997 Plan is effective
for ten years, unless sooner terminated or suspended.
In November 1997, the Board of Directors of the Company granted six-year
options to purchase 262,000 shares of Common Stock under the 1997 Plan, of which
232,888 were granted to David Lokken, Brian Aune, Brian Carr, Michael Riley and
Richard Adey. All of these options are exercisable at the initial public
offering price per share. The options generally will be subject to vesting and
will become exercisable at a rate of 5% per quarter from the date of grant,
subject to the optionee's continuing employment with the Company. Each of the
option agreements for Messrs. Lokken, Aune, Carr, Riley and Adey provides that
all options will become fully vested and exercisable upon a change in control of
the Company, as defined in the agreements.
In general, upon termination of employment of an optionee, all options
granted to such person which are not exercisable on the date of such termination
will immediately terminate, and any options that are exercisable will terminate
not less than three months (six months in the case of termination by reason of
death or disability) following termination of employment.
To the extent nonqualified options are granted under the 1997 Plan after
this Offering, the Company intends to issue such options with an exercise price
of not less than the market price of the Common Stock on the date of grant.
EMPLOYEE DEFINED BENEFIT PLAN
GENERAL. On January 1, 1997 the Board of Directors adopted the Employee
Defined Benefit Pension Plan (the "Pension Plan") for the benefit of the
eligible employees of the Company. The primary purpose of the Pension Plan is to
provide a retirement benefit for participating employees. All employees of the
Company are eligible to participate in the Pension Plan on the January 1st next
following their date of hire. Employees who are covered by collective bargaining
units and whose retirement benefits are the subject of good faith bargaining,
however, are not eligible to participate in the Pension Plan.
ADMINISTRATION. The Pension Plan is administered by a committee (the "Plan
Committee") whose members are appointed by the Board of Directors of the
Company. The Plan Committee oversees the day-to-day administration of the
Pension Plan and has the authority to take action and make rules and regulations
necessary to carry out the purposes of the Pension Plan.
NORMAL RETIREMENT BENEFITS AND VESTING. The Pension Plan provides for
employer contributions only. Each year, the Company makes a contribution to the
pension plan equal to the minimum funding requirement sufficient to fund for the
benefits being accrued under the Pension Plan for the year. The Pension Plan
provides for a normal retirement benefit payable on a monthly basis for the
lifetime of the participant. The normal retirement benefit is equal to the
participant's credited benefit service (up to a maximum of 35 years) times the
sum of 0.75% of the participant's final average monthly compensation plus 0.65%
of such compensation in excess of the participant's average monthly wage.
However, the benefit actually payable from the Pension Plan will be reduced for
any benefits payable (or paid) with respect to service credited from the Defined
Benefit Pension Plan of the Company's predecessor.
For purposes of calculating a participant's normal retirement benefits,
average monthly compensation is defined in the Pension Plan as average monthly
compensation during the five consecutive plan years of the participant's
employment which yields the highest average compensation.
No maximum monthly benefit payable under the Pension Plan is to exceed the
applicable Internal Revenue Code Section 415 limit ($10,416.67 for 1997)
adjusted actuarially to reflect a participant's retirement age if the retirement
age is other than the social security retirement age. The monthly retirement
benefit payable by the Pension Plan is a benefit payable in the form of a
straight life annuity with no ancillary benefits. For a participant who is to
receive benefits other than in the form of a straight
47
<PAGE>
life annuity, the monthly retirement benefit will be adjusted to an equivalent
benefit in the form of a straight life annuity on an actuarial equivalent basis.
A participant becomes fully vested in his accrued benefits under the Pension
Plan upon attainment of normal retirement age (age 65), permanent disability,
death or the termination of the Pension Plan. If a participant terminates
employment with the Company prior to retirement, death or disability, the vested
interest he has in accrued benefits under the Pension Plan is based on years of
service, with 0% vesting for less than five years of service and 100% vesting
after five or more years of service.
PENSION PLAN INVESTMENTS. The Committee selects vehicles for the investment
of plan assets. The Committee then directs the trustee to invest employer
contributions in the investment option selected by the Committee under the
Pension Plan.
PENSION PLAN AMENDMENT OR TERMINATION. Under the terms of the Pension Plan,
the Company reserves the right to amend or terminate the Pension Plan at any
time and in any manner. No amendment or termination, however, may deprive a
participant of any benefit accrued under the Pension Plan prior to the effective
date of the amendment or termination.
ESTIMATED MONTHLY BENEFITS. The following table sets forth the estimated
monthly benefits under the Pension Plan, without regard to any offsetting
benefit which may be payable from the Defined Benefit Pension Plans of the
Company's predecessors for service prior to January 1, 1997, based on the
current benefit structure and assuming the participant's current age is 50.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ----------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$125,000......................................................... $ 1,743 $ 2,323 $ 2,904 $ 3,485 $ 4,066
150,000......................................................... 2,180 2,907 3,633 4,360 5,087
175,000......................................................... 2,355 3,140 3,925 4,710 5,495
200,000......................................................... 2,355 3,140 3,925 4,710 5,495
225,000......................................................... 2,355 3,140 3,925 4,710 5,495
250,000......................................................... 2,355 3,140 3,925 4,710 5,495
300,000......................................................... 2,355 3,140 3,925 4,710 5,495
400,000......................................................... 2,355 3,140 3,925 4,710 5,495
450,000......................................................... 2,355 3,140 3,925 4,710 5,495
500,000......................................................... 2,355 3,140 3,925 4,710 5,495
</TABLE>
The compensation covered by the Pension Plan includes basic salary or wages,
overtime payments, bonuses, commissions and all other direct current
compensation but does not include contributions by the Company to Social
Security, benefits from stock options (whether qualified or not), contributions
to this or any other retirement plans or programs or the value of any other
fringe benefits provided at the expense of the Company. For benefit calculation
purposes, a "highest five-year" average of compensation is used. Benefits are
paid as straight-life annuities with no subsidies or effects. The compensation
covered by the Pension Plan for all of the Named Executives was limited to
$160,000 in accordance with Section 401(a)(17) of the Internal Revenue Code of
1986, as amended.
The years of credited service for each Named Executive Officer who
participates in the Pension Plan are as follows:
<TABLE>
<CAPTION>
NAME YEARS
- ----------------------------------------------------------------------------------- ---------
<S> <C>
Dave Lokken........................................................................ 9 years
Brian Aune......................................................................... 6 years
Brian Carr......................................................................... 5 years
Michael Riley...................................................................... 8 years
</TABLE>
48
<PAGE>
LIMITATION ON DIRECTORS' LIABILITY
The Company's Amended and Restated Articles of Incorporation ("Amended
Articles") provide that, pursuant to the California Corporations Code, the
liability of the directors of the Company for monetary damages shall be
eliminated to the fullest extent permissible under California law. This is
intended to eliminate the personal liability of a director for monetary damages
in an action brought by, or in the right of, the Company for breach of a
director's duties to the Company or its shareholders. This provision in the
Amended Articles does not eliminate the directors' fiduciary duty and does not
apply for certain liabilities: (i) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law; (ii) for acts
or omissions that a director believes to be contrary to the best interest of the
Company or its shareholders or that involve the absence of good faith on the
part of the director; (iii) for any transaction from which a director derived an
improper personal benefit; (iv) for acts or omissions that show a reckless
disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Company or its shareholders; (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Company or its shareholders; (vi) with respect to certain
transactions or the approval of transactions in which a director has a material
financial interest; and (vii) expressly imposed by statute for approval of
certain improper distributions to shareholders or certain loans or guarantees.
This provision also does not limit or eliminate the rights of the Company or any
shareholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. The Company's Amended and
Restated Bylaws (the "Amended Bylaws") require the Company to indemnify its
officers and directors to the full extent permitted by law, including
circumstances in which indemnification would otherwise be discretionary. Among
other things, the Amended Bylaws require the Company to indemnify directors and
officers against certain liabilities that may arise by reason of their status or
service as directors and officers and allows the Company to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified.
The Company believes that it is the position of the Commission that insofar
as the foregoing provision may be invoked to disclaim liability for damages
arising under the Securities Act, the provision is against public policy as
expressed in the Securities Act and is therefore unenforceable. Such limitation
of liability also does not affect the availability of equitable remedies such as
injunctive relief or rescission.
The Company has entered into indemnity agreements ("Indemnity Agreement(s)")
with each of its directors and executive officers. Each such Indemnity Agreement
provides that the Company shall indemnify the indemnitee against expenses,
including reasonable attorneys' fees, judgements, penalties, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
any civil or criminal action or administrative proceeding arising out of the
performance of his duties as a director or officer. Such indemnification is
available if the indemnitee acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Company, and,
with respect to any criminal action, had no reasonable cause to believe his
conduct was unlawful. The Indemnity Agreements also require that the Company
indemnify the director or executive officer in all cases to the fullest extent
permitted by applicable law. Each Indemnity Agreement permits the director or
officer that is party thereto to bring suit to seek recovery of amounts due
under the Indemnity Agreement and to recover the expenses of such a suit if he
is successful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. The
Company believes that its Amended Articles and Amended Bylaws provisions are
necessary to attract and retain qualified persons as directors and officers.
49
<PAGE>
CERTAIN TRANSACTIONS
ACQUISITION OF THE COMPANY FROM BTR
Effective November 1, 1996, Aqhawk, purchased all of the outstanding capital
stock of the company from BTR. The purchase price Aqhawk paid was $29,802,861,
consisting of (i) $18,828,841 obtained through debt financing provided by Bank
of America to the Company (the "Bank of America Loan"), which then loaned such
amount to Aqhawk, (ii) $6,500,000 obtained through a subordinated note (the
"Subordinated Note") provided by Melanie Bastian, a principal shareholder and
the former Chairman of the Company, to Unique which then loaned such amount to
Aqhawk, (iii) $2,000,000 obtained in return for the issuance to Ms. Bastian of
400 shares of Preferred Stock of Aqhawk, and (iv) the remaining amount obtained
through cash provided by the Company. In December 1996, Aqhawk was merged with
the Company. In the merger, each two shares of Common Stock of Aqhawk were
converted into one share of Common Stock of the Company, and each share of
preferred stock was converted into one share of Preferred Stock of the Company.
In connection with the BTR Transaction, BTR Dunlop entered into an
Environmental Indemnity Agreement pursuant to which it agreed to indemnify
Aqhawk and the Company against losses arising from any finding that the Company
or Aqhawk is liable for the handling, storage and disposal of hazardous
substances on, around or originating from the Company's facilities that existed
on or before November 1, 1996, including any future amounts for which the
Company may be responsible in connection with the SFVB Actions. See
"Business--Environmental Matters and Proceedings." BTR and its subsidiary also
agreed not to compete against the Company in the repair and overhaul of aircraft
landing gear for a period of three years following the BTR Transaction. In
addition, BTR granted the Company an exclusive, worldwide, royalty-free license
to use the Hawker Pacific logo and name, for as long as the Company continues to
use such marks, in connection with the repair and overhaul of aircraft landing
gear and a non-exclusive right to use the logo and name for the same period in
connection with all other operations of the Company.
To obtain a portion of the purchase price paid for the Company in connection
with the BTR Transaction, in November 1996, the Company issued the Subordinated
Note in the aggregate principal amount of $6.5 million. The Subordinated Note
bears interest at the rate of 11.8% per annum paid monthly and matures January
1, 2001. The Company has agreed to use $1.5 million of the net proceeds of this
Offering to repay a portion of the $6.5 million Subordinated Note. Concurrently
with the funding of the Amended Loan Agreement, the remaining balance of the
Subordinated Note will be replaced by a new $5 million promissory note. The new
note will bear interest at a fixed rate of 11.8% per annum, will require the
Company to make monthly payments of interest only, and will mature on the
earlier of June 30, 2005 or six months after the termination of the Amended Loan
Agreement. See "Use of Proceeds."
Pursuant to a Limited Guaranty dated as of November 27, 1996 by Melanie L.
Bastian in favor of Bank of America, in connection with the Bank of America
Loan, Ms. Bastian has guaranteed the Company's payment obligations, and the
shareholders of the Company pledged as collateral for the loan all of their
capital stock of the Company. In connection with the Amended Loan Agreement, Ms.
Bastian's guarantee and the pledges will be released upon the consummation of
this Offering.
CONVERSION OF PREFERRED STOCK INTO COMMON STOCK
As of September 30, 1997, all of the Company's issued and outstanding shares
of Preferred Stock were held by Ms. Bastian. Pursuant to the Company's Amended
Articles, all of the outstanding shares of Preferred Stock will upon the closing
of this Offering be converted into such number of shares of Common Stock as
shall equal $2.0 million divided by the initial offering price per share.
Assuming an initial public offering price of $9 per share, the Preferred Stock
will be converted into 222,222 shares of Common Stock. If the initial public
offering price is less than $9, Ms. Bastian will receive a greater number of
shares of Common Stock upon conversion, and the remaining current holders of
Common Stock of the Company
50
<PAGE>
will own such number of shares as shall equal 3,222,222 less the number of
shares issued upon Ms. Bastian's conversion of Preferred Stock.
SALES OF COMMON STOCK TO PRINCIPAL SHAREHOLDER
In September and October 1997, Ms. Bastian purchased an aggregate of 102,569
shares of Common Stock for $1,000,000 ($9.75 per share).
AGREEMENTS WITH UNIQUE INVESTMENT CORP.
The Company and Unique entered into a management agreement dated March 1,
1997 (the "Old Management Agreement"), pursuant to which the Company paid Unique
management fees and reimbursable expenses totalling approximately $225,000
during the nine months ended September 30, 1997. In November 1997, the Company
and Unique entered into a new management services agreement (the "Management
Services Agreement") pursuant to which, upon the consummation of this Offering,
the Old Management Agreement will be terminated, and Unique will be entitled to
receive $150,000 per year payable monthly commencing in January 1999 for certain
management services to be rendered to the Company. The Management Services
Agreement will terminate upon the Company's completing an additional
underwritten public offering in which selling shareholders offer 25% or more in
such offering.
The Company also entered into a mergers and acquisitions agreement dated as
of September 2, 1997 with Unique pursuant to which Unique is entitled to receive
$300,000 upon the closing of the BA Acquisition for services provided in
connection with the acquisition. Amounts paid under the Old Management Agreement
during 1998 will be credited against this $300,000.
FUTURE TRANSACTIONS
The Company intends that any future transactions with affiliates of the
Company will be on terms at least as favorable to the Company as those that can
be obtained from nonaffiliated third parties.
51
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth the beneficial ownership of Common Stock as
of January 23, 1998, and as adjusted to reflect the sale of Common Stock offered
hereby (assuming no exercise of the Underwriters' over-allotment option), by:
(i) each person known by the Company to beneficially own 5% or more of the
outstanding shares of Common Stock, (ii) each director and director nominee of
the Company, (iii) each Named Executive Officer of the Company, (iv) the Selling
Shareholder and (v) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER OFFERING(1)
OFFERING(1)
-------------------------- NUMBER OF -----------------------
NAME AND BENEFICIAL OWNERS NUMBER PERCENT SHARES NUMBER PERCENT
- ------------------------------------------------------- ---------- -------------- OFFERED ---------- -----------
---------
<S> <C> <C> <C> <C> <C>
Melanie L. Bastian(2).................................. 1,527,225 47.4% 166,667 1,360,558 23.4%
Sidney G. Makoff....................................... 289,743 9.0 -- 289,743 5.0
John G. Makoff......................................... 449,102 13.9 -- 449,102 7.7
Daniel J. Lubeck....................................... 333,205 10.3 -- 333,205 5.7
Scott W. Hartman....................................... 333,205 10.3 -- 333,205 5.7
David L. Lokken(3)..................................... 223,473 6.8 -- 223,473 3.8
Brian S. Aune(4)....................................... 44,985 1.4 -- 44,985 *
Brian S. Carr(4)....................................... 44,985 1.4 -- 44,985 *
Michael A. Riley(4).................................... 44,985 1.4 -- 44,985 *
Daniel C. Toomey, Jr................................... 0 * -- 0 *
Joel F. McIntyre....................................... 0 * -- 0 *
All directors and executive officers as a group
(7 persons).......................................... 1,473,940 44.0 -- 1,473,940 24.8
</TABLE>
- ------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options currently exercisable, or exercisable within 60 days of January
23, 1998, are deemed outstanding for computing the percentage of the person
holding such options but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote and subject
to community property laws where applicable, the persons named in the table
have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.
(2) Ms. Bastian has granted the Underwriters an option to purchase up to 415,000
shares of Common Stock solely to cover over-allotments, if any. In the event
that the over-allotment option is exercised in full, Ms. Bastian will sell
an additional 415,000 shares, reducing her ownership in the Company to
945,558 shares (16.2%) after this Offering.
(3) Includes 72,779 shares issuable upon exercise of vested options to purchase
Common Stock, and 5,822 shares issuable upon exercise of options which vest
within 60 days.
(4) Includes 14,555 shares issuable upon exercise of vested options to purchase
Common Stock, and 1,456 shares issuable upon exercise of options which vest
within 60 days.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 20,000,000 shares of Common Stock and 5,000,000 shares of
preferred stock.
COMMON STOCK
As of January 23, 1998, 3,222,222 shares of Common Stock were outstanding,
held of record by 11 shareholders. The holders of Common Stock are entitled to
one vote for each share held of record on all matters submitted to a vote of the
shareholders and may cumulate their votes in the election of directors upon
giving notice required by law. Subject to preferences that may be applicable to
any shares of Preferred Stock issued in the future, holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." The
Company's shareholders currently may cumulate their votes for the election of
directors so long as at least one shareholder has given notice at the meeting of
shareholders prior to the voting of that shareholder's desire to cumulate his or
her votes. Cumulative voting means that in any election of directors, each
shareholder may give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of shares held by such
shareholder, or such shareholder may distribute such number of votes among as
many candidates as the shareholder sees fit. Cumulative voting will no longer be
required or permitted under the Amended Articles at such time as (i) the
Company's shares of Common Stock are listed on the Nasdaq National Market and
the Company has at least 800 holders of its equity securities as of the record
date of the Company's most recent annual meeting of shareholders or (ii) the
Company's shares of Common Stock are listed on the New York Stock Exchange or
the American Stock Exchange. At that time, the Company may divide its Board into
two classes of directors. In the event of a liquidation, dissolution or winding
up of the Company, holders of the Common Stock are entitled to share ratably
with the holders of any then outstanding Preferred Stock in all assets remaining
after payment of liabilities and the liquidation preference of any then
outstanding Preferred Stock. Holders of Common Stock have no preemptive rights
and no right to convert their Common Stock into any other securities. There are
no redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock (including the shares to be sold by the
Selling Shareholder) are, and all shares of Common Stock to be issued by the
Company in this Offering will be, fully paid and nonassessable.
PREFERRED STOCK
As of January 23, 1998, 400 shares of Series A Preferred Stock were
outstanding held by one shareholder. Such shares will automatically be converted
into 222,222 shares of Common Stock upon the consummation of this Offering.
The Board of Directors has authority to fix the rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any future vote or action by the shareholders. The rights of the holders of the
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future. The
issuance of preferred stock could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such preferred stock may have other rights, including
economic rights senior to the common stock, and, as a result, the issuance
thereof could have a material adverse effect on the market value of the Common
Stock. The Company has no present plans to issue shares of preferred stock. No
shares of preferred stock are currently outstanding, other than the shares of
preferred stock which shall be automatically converted into Common Stock upon
this Offering.
STOCK TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is U.S.
Stock Transfer Corporation, Glendale, California.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 5,822,222 shares of
Common Stock outstanding. Of these shares, the 2,766,667 shares sold in this
Offering (3,181,667 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction or registration
under the Securities Act, unless they are purchased by "affiliates" of the
Company as that term is defined under Rule 144 adopted under the Securities Act.
The remaining 3,055,555 shares will be "restricted securities" as defined in
Rule 144 ("Restricted Shares"). All such Restricted Shares are subject to
lock-up agreements with the Underwriters. See "Underwriting."
Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices and adversely affect the
Company's ability to raise additional capital in the capital markets at a time
and price favorable to the Company. As a result of the lock-up agreements and
the provisions of Rules 144(k), 144 and 701, additional shares will be available
for sale in the public market as follows: (i) 2,766,667 shares will be eligible
for immediate sale on the date of this Prospectus, and (ii) 3,055,555 shares
(less any shares sold in the over-allotment option) will be eligible for sale
upon expiration of the lock-up agreements 180 days after the date of this
Prospectus, subject to the provisions of Rule 144.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
the Company's Common Stock (approximately 58,222 shares immediately after this
Offering) or the average weekly trading volume during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and availability of current public
information about the Company. A person who is not an affiliate, has not been an
affiliate within three months prior to the sale and has beneficially owned the
Restricted Shares for at least two years is entitled to sell such shares under
Rule 144(k) without regard to any of the limitations described above.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisers between May 20, 1988, the effective
date of Rule 701, and the date the issuer becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Securities and
Exchange Commission has indicated that Rule 701 will apply to typical stock
options granted by an issuer before they become subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of this Prospectus).
Securities issued in reliance on Rule 701 are restricted securities, and,
subject to the contractual restrictions described above, beginning 90 days after
the date of this Prospectus, such securities may be sold (i) by persons other
than Affiliates, subject only to the manner of sale provisions of Rule 144 and
(ii) by Affiliates under Rule 144 without compliance with its two-year minimum
holding period requirements.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register an aggregate of 756,888 shares of Common Stock
reserved for issuance under the 1997 Plan or under management stock options,
thus permitting the resale of shares issued under such plan by non-affiliates in
the public market without restriction under the Securities Act. The registration
statement is expected to be filed after the date of this Prospectus and will
automatically become effective upon filing. 180 days following the date of this
Prospectus, 116,444 shares issuable upon exercise of vested options that are
subject to the lock-up agreements will be eligible for sale pursuant to Rule
701.
Prior to this Offering, there has been no public market for the Common Stock
of the Company, and any sale of substantial amounts of Common Stock in the open
market may adversely affect the market price of Common Stock offered hereby.
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom EVEREN Securities, Inc.
and The Seidler Companies Incorporated are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company and the
Selling Shareholder, and the Company and the Selling Shareholder have agreed to
sell to the Underwriters, the respective number of shares of Common Stock set
forth opposite each Underwriter's name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
EVEREN Securities, Inc.....................................................
The Seidler Companies Incorporated.........................................
-----------------
Total.............................................................. 2,766,667
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligation is such that they are committed to purchase and pay for all the
shares of Common Stock if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain securities dealers at such price less a concession not
in excess of $ per share. The Underwriters may allow, and such selected dealers
may reallow, a concession not in excess of $ per share to certain brokers and
dealers. After this Offering, the price to the public, concession, allowance and
reallowance may be changed by the representatives of the Underwriters.
The Selling Shareholder has granted the Underwriters an option, exercisable
during the 30-day period after the date of this Prospectus, to purchase up to
415,000 shares of Common Stock to cover over-allotments, if any, at the same
price per share as the initial 2,766,667 purchased by the Underwriters of the
Company. To the extent that the Underwriters exercise this option, each of the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares of Common Stock in approximately the same proportions as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with this Offering.
At the closing of this Offering, the Company has agreed to pay the
Representatives a non-accountable expense allowance of one percent of the total
offering proceeds, which will include proceeds from the Underwriters' exercise
of the over-allotment option to the extent exercised. The Company has paid
$50,000 to be applied to the non-accountable expense allowance. The
Representatives' expenses in excess of the non-accountable expense allowance
will be borne by the Underwriters.
The Company has agreed to issue to the Representatives warrants (the
"Representatives' Warrants") to purchase up to 222,716 shares of Common Stock,
at an exercise price per share equal to the initial public offering price per
share. The Representatives' Warrants are exercisable for a period of four years,
commencing one year from the effective date (the "Effective Date") of the
Registration Statement of which this Prospectus is a part and expire five years
from the Effective Date. The Representatives' Warrants are not transferrable
prior to the expiration of one year from the Effective Date other than to
officers or partners of the Underwriters and members of the selling group and
their officers and partners. The holders of the Representatives' Warrants will
have no voting, dividend or other shareholders' rights
55
<PAGE>
until the Warrants are exercised. The Company has granted the Representatives
certain demand and piggy-back registration rights related to the
Representatives' Warrants, which are applicable during the period that the
Representatives' Warrants are exercisable and expire five years from the
Effective Date.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
The Company has agreed not to issue, and all the Company's officers and
directors and all of the other shareholders, who in the aggregate hold 100% of
the shares of the Common Stock of the Company outstanding immediately prior to
the completion of this Offering, have agreed not to sell, or otherwise dispose
of, any shares of Common Stock or other equity securities of the Company for 180
days after the date of this Prospectus (other than shares sold pursuant to this
Prospectus) without the prior written consent of the Representatives.
The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act, or to contribute to payments the
Underwriters may be required to make in respect thereof.
Prior to this Offering, there has been no trading market for the Common
Stock. Consequently, the initial public offering price was negotiated among the
Company and the Representatives. Among the factors considered in such
negotiations were the history of, and the prospects for, the Company and the
industry in which it competes, an assessment of the Company's management, the
past earnings of the Company and the trend and future prospects of such
earnings, the present state of the Company's development, the general conditions
of the securities markets at the time of this Offering and the market prices of
publicly-traded common stocks of comparable companies in recent periods. There
can be no assurance that an active trading market will develop for the Common
Stock or that the Common Stock will trade in the public market subsequent to
this Offering at or above the initial public offering price.
The initial public offering price set forth on the cover page of this
Prospectus should not be considered an indication of the actual value of the
Common Stock. Such price is subject to change as a result of market conditions
and other factors. No assurances can be given that Common Stock can be resold at
or above the initial public offering price.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Troy & Gould Professional Corporation, Los Angeles, California.
Freshman, Marantz, Orlanski, Cooper & Klein, a law corporation, Beverly Hills,
California, has acted as counsel to the Underwriters in connection with certain
legal matters related to this Offering.
EXPERTS
The financial statements of the Company at December 31, 1995 and 1996 and
September 30, 1997 and for the year ended December 31, 1995, the ten months
ended October 31, 1996, the two months ended December 31, 1996 and the nine
months ended September 30, 1997, included in this Prospectus and the
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as stated in their report thereon appearing elsewhere herein and in
the Registration Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), in Washington, D.C., a Registration Statement on Form S-1 under
the Securities Act with respect to the Common Stock being offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock
56
<PAGE>
offered hereby, reference is made to the Registration Statement and such
exhibits and schedules. A copy of the Registration Statement and the exhibits
and schedules thereto may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661 and
Seven World Trade Center, 13th Floor, New York, New York 10048, and copies of
all or any part of the Registration Statement may be obtained from such offices
upon payment of the fees prescribed by the Commission. In addition, the
Registration Statement may be accessed at the Commission's site on the World
Wide Web located at http://www.sec.gov. Statements contained in this Prospectus
as to the contents of any contract or other document are not necessarily
complete and, in each instance, reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
------------------------
The Company intends to furnish its shareholders with annual reports
containing consolidated audited financial statements and quarterly reports
containing unaudited consolidated financial data for the first three quarters of
each fiscal year.
57
<PAGE>
HAWKER PACIFIC AEROSPACE
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors....................................................... F-2
Audited Financial Statements
Balance Sheets....................................................................... F-3
Statements of Operations............................................................. F-4
Statements of Changes in Stockholders' Equity........................................ F-5
Statements of Cash Flows............................................................. F-6
Notes to Financial Statements........................................................ F-7
Unaudited Pro Forma Condensed Combining Statements of Operations
For the year ended December 31, 1996 (unaudited)................................... F-24
For the nine months ended September 30, 1996 (unaudited)........................... F-25
Notes to Unaudited Pro Forma Statements of Operations................................ F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Hawker Pacific Aerospace
We have audited the accompanying balance sheet of Hawker Pacific Aerospace,
a wholly owned subsidiary of BTR Dunlop Holdings, Inc. (the "Predecessor") as of
December 31, 1995, and the related statements of operations, and cash flows for
the year ended December 31, 1995 and the ten months ended October 31, 1996. We
have also audited the accompanying balance sheets of Hawker Pacific Aerospace
(the "Successor") as of December 31, 1996 and September 30, 1997 and the related
statements of operations, changes in stockholders' equity and cash flows for the
two months ended December 31, 1996 and the nine months ended September 30, 1997.
These financial statements are the responsibility of the Predecessor's and
Successor's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hawker Pacific Aerospace, as
the Predecessor and Successor companies, at December 31, 1995 and 1996 and
September 30, 1997, and the results of their operations and their cash flows for
the year ended December 31, 1995, the ten months ended October 31, 1996, the two
months ended December 31, 1996, and the nine months ended September 30, 1997, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Woodland Hills, CA
November 7, 1997, except as to Note 14,
as to which the date is November 13, 1997
F-2
<PAGE>
HAWKER PACIFIC AEROSPACE
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------- -------------------------
DECEMBER DECEMBER SEPTEMBER
31, 1995 31, 1996 30, 1997
----------- ----------- ------------
Current assets:
<S> <C> <C> <C>
Cash........................................................ $ 399,000 $1,055,000 $ 36,000
Accounts receivable, less allowance for doubtful accounts of
$39,000, $67,000 and $100,000 at December 31, 1995,
December 31, 1996 and September 30, 1997, respectively.... 6,392,000 6,336,000 6,852,000
Accounts receivable from affiliates......................... 624,000 -- --
Other receivables........................................... 1,086,000 59,000 19,000
Inventories................................................. 13,446,000 12,950,000 16,000,000
Prepaid expenses and other current assets................... 404,000 344,000 337,000
----------- ----------- ------------
Total current assets.......................................... 22,351,000 20,744,000 23,244,000
Equipment and leasehold improvements, net..................... 4,871,000 4,719,000 4,780,000
Landing gear exchange, less accumulated amortization of
$422,000, $61,000 and $271,000 at December 31, 1995,
December 31, 1996 and September 30, 1997, respectively...... 7,479,000 8,654,000 10,226,000
Goodwill, less accumulated amortization of $17,000 and $24,000
at December 31, 1996 and September 30, 1997, respectively... -- 620,000 227,000
Deferred taxes................................................ 680,000 -- --
Deferred financing costs...................................... -- 325,000 275,000
Deferred offering costs....................................... -- -- 143,000
Other assets.................................................. 74,000 116,000 504,000
----------- ----------- ------------
3$5,455,000 3$5,178,000 $39,399,000
----------- ----------- ------------
----------- ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $2,536,000 $3,806,000 $6,876,000
Accounts payable to affiliates.............................. 1,365,000 -- --
Line of credit.............................................. -- 5,329,000 7,479,000
Deferred revenue............................................ 1,299,000 1,593,000 827,000
Accrued payroll and employee benefits....................... 511,000 809,000 745,000
Environmental remediation................................... 234,000 657,000 --
Accrued expenses and other liabilities...................... 1,012,000 475,000 435,000
Current portion of notes payable............................ 2,105,000 850,000 1,300,000
----------- ----------- ------------
Total current liabilities..................................... 9,062,000 13,519,000 17,662,000
Due to parent and affiliates.................................. 27,310,000 -- --
Notes payable:
Bank note................................................... -- 12,650,000 11,563,000
Related party............................................... -- 6,500,000 6,500,000
----------- ----------- ------------
-- 19,150,000 18,063,000
Commitments and contingencies
Stockholders' equity:
Preferred Stock--Series A, $5,000 per share
liquidation preference, non-voting, 400 shares authorized,
issued and outstanding.................................... -- 2,000,000 2,000,000
Common Stock--20,000,000 shares authorized,
2,897,405 shares and 2,947,820 issued and outstanding at
December 31, 1996 and September 30, 1997, respectively.... 500,000 40,000 540,000
Additional paid-in capital.................................. 4,126,000 -- --
Retained earnings (deficit)................................. (5,543,000) 469,000 1,134,000
----------- ----------- ------------
Total stockholders' equity (deficiency)....................... (917,000) 2,509,000 3,674,000
----------- ----------- ------------
Total liabilities and stockholders' equity (deficiency)....... 3$5,455,000 3$5,178,000 $39,399,000
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
HAWKER PACIFIC AEROSPACE
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SUCCESSOR
PREDECESSOR -----------------------
---------------------- NINE
TEN MONTHS TWO MONTHS MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER OCTOBER DECEMBER SEPTEMBER
31, 1995 31, 1996 31, 1996 30, 1997
---------- ---------- ----------- ----------
Revenues................................... $35,012,000 $32,299,000 $6,705,000 $30,060,000
Cost of revenues........................... 28,993,000 27,027,000 4,599,000 23,083,000
---------- ---------- ----------- ----------
Gross profit............................... 6,019,000 5,272,000 2,106,000 6,977,000
---------- ---------- ----------- ----------
Operating expenses:
Selling expenses......................... 2,858,000 2,248,000 525,000 2,139,000
General and administrative expenses...... 1,979,000 2,796,000 534,000 1,979,000
Restructuring charges.................... -- 1,196,000 -- --
---------- ---------- ----------- ----------
Total operating expenses................... 4,837,000 6,240,000 1,059,000 4,118,000
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Income (loss) from operations.............. 1,182,000 (968,000) 1,047,000 2,859,000
Other (expense) income:
Interest expense......................... (1,598,000) (1,609,000) (203,000) (1,804,000)
Interest income.......................... -- -- 7,000 2,000
---------- ---------- ----------- ----------
Total other (expense) income............... (1,598,000) (1,609,000) (196,000) (1,802,000)
---------- ---------- ----------- ----------
Income (loss) before income tax provision
(benefit)................................ (416,000) (2,577,000) 851,000 1,057,000
Income tax provision (benefit)............. (680,000) (971,000) 382,000 392,000
---------- ---------- ----------- ----------
Net income (loss).......................... $ 264,000 $(1,606,000) $ 469,000 $ 665,000
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Pro forma earnings per common share........ $ 0.15 $ 0.21
----------- ----------
----------- ----------
Weighted average shares outstanding........ 3,119,627 3,119,811
----------- ----------
----------- ----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
HAWKER PACIFIC AEROSPACE
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------------- ---------------------- RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
----------- ------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 1, 1996.......... -- $ -- -- $ -- $ -- $ --
Issuance of Preferred Stock.......... 400 2,000,000 -- -- -- 2,000,000
Issuance of Common Stock to
founders........................... -- -- 2,665,611 -- -- --
Issuance of Common Stock to
management......................... -- -- 231,794 40,000 -- 40,000
Net income for the period............ -- -- -- -- 469,000 469,000
--- ------------ ---------- ---------- ------------ ------------
Balance at December 31, 1996......... 400 2,000,000 2,897,405 40,000 469,000 2,509,000
Issuance of Common Stock............. -- -- 50,415 500,000 -- 500,000
Net income for the period............ -- -- -- -- 665,000 665,000
--- ------------ ---------- ---------- ------------ ------------
Balance at September 30, 1997........ 400 $ 2,000,000 2,947,820 $ 540,000 $ 1,134,000 $ 3,674,000
--- ------------ ---------- ---------- ------------ ------------
--- ------------ ---------- ---------- ------------ ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
HAWKER PACIFIC AEROSPACE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------- ---------------------------
TEN MONTHS TWO MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER 31, OCTOBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1996 1997
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....................................................... $ 264,000 ($1,606,000) $ 469,000 $ 665,000
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Deferred income taxes................................................. (680,000) (971,000) 382,000 391,000
Depreciation.......................................................... 680,000 525,000 183,000 537,000
Amortization.......................................................... 174,000 294,000 17,000 329,000
Non cash restructuring charge......................................... -- 561,000 -- --
Stock compensation.................................................... -- -- 40,000 --
(Gain) loss on the sale of machinery, equipment and landing gear...... 332,000 -- -- (78,000)
Changes in operating assets and liabilities:..........................
Accounts receivable................................................. (1,773,000) 1,771,000 (103,000) (476,000)
Inventory........................................................... (4,433,000) 1,156,000 (901,000) (1,371,000)
Prepaid expenses and other current assets........................... (101,000) (72,000) 21,000 7,000
Accounts payable.................................................... (397,000) (2,681,000) 2,195,000 552,000
Deferred revenue.................................................... 1,029,000 532,000 115,000 (766,000)
Accrued liabilities................................................. 682,000 261,000 (139,000) (766,000)
------------ ----------- ------------ -------------
Cash provided by (used in) operating activities......................... (4,223,000) (230,000) 2,279,000 (976,000)
INVESTING ACTIVITIES
Purchase of equipment, leasehold improvements and landing gear.......... (4,479,000) (1,173,000) (155,000) (1,438,000)
Proceeds from disposals of equipment, leasehold
improvements and landing gear......................................... 350,000 -- -- 250,000
Other assets............................................................ 15,000 (26,000) -- (388,000)
Acquisition of Predecessor.............................................. -- -- (28,398,000) --
------------ ----------- ------------ -------------
Cash used in investing activities....................................... (4,114,000) (1,199,000) (28,553,000) (1,576,000)
FINANCING ACTIVITIES
Borrowing under bank note............................................... -- -- 13,500,000 --
Principal payments on bank note......................................... -- -- -- (637,000)
Borrowing on note payable to related party.............................. -- -- 6,500,000 --
Borrowings/payments on line of credit, net.............................. -- -- (1,287,000) 2,150,000
Initial borrowing under line of credit.................................. -- -- 6,616,000 --
Borrowings/payments on due to Parent and Affiliates (net)............... 8,010,000 2,193,000 -- --
Deferred offering costs................................................. -- -- -- (143,000)
Deferred financing cost................................................. -- -- -- (337,000)
Issuance of preferred stock............................................. -- -- 2,000,000 --
Contributions to capital................................................ -- 242,000 -- 500,000
------------ ----------- ------------ -------------
Cash provided by financing activities................................... 8,010,000 2,435,000 27,329,000 1,533,000
Increase (decrease) in cash............................................. (327,000) 1,006,000 1,055,000 (1,019,000)
Cash, beginning of period............................................... 726,000 399,000 -- 1,055,000
------------ ----------- ------------ -------------
Cash, end of period..................................................... $ 399,000 $1,405,000 $1,055,000 $ 36,000
------------ ----------- ------------ -------------
------------ ----------- ------------ -------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................................ $1,574,000 $1,279,000 $ 193,000 $ 1,745,000
------------ ----------- ------------ -------------
------------ ----------- ------------ -------------
Income taxes........................................................ $ 44,000 $ 20,000 $ -- $ 3,000
------------ ----------- ------------ -------------
------------ ----------- ------------ -------------
Noncash investing and financing activities
Acquisition of Predecessor:
Fair market value of assets acquired.................................. $ -- $ -- $34,973,000 $ --
Fair market value of liabilities assumed.............................. -- -- (5,170,000) --
Less cash received.................................................... -- -- (1,405,000) --
------------ ----------- ------------ -------------
Net cash paid........................................................... $ -- $ -- $28,398,000 $ --
------------ ----------- ------------ -------------
------------ ----------- ------------ -------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Hawker Pacific Aerospace, formerly known as Hawker Pacific, Inc., (the
"Company") is a California Corporation with headquarters in Sun Valley,
California, with satellite facilities in the Netherlands and, through May 31,
1996, Miami, Florida. The Company repairs and overhauls aircraft and helicopter
landing gear, hydromechanical components and wheels, brakes and braking system
components for a diverse international customer base, including commercial
airlines, air cargo operators, domestic government agencies, aircraft leasing
companies, aircraft parts distributors and original equipment manufacturers. In
addition, the Company distributes and sells new and overhauled spare parts and
components for both fixed wing aircraft and helicopters.
ORGANIZATION AND BASIS OF PRESENTATION
The Company operated as a subsidiary of BTR Dunlop Holdings, Inc., a
Delaware corporation, from December 21, 1994 to October 31, 1996. BTR Dunlop
Holdings, Inc. was a subsidiary of BTR plc, a United Kingdom company
(collectively, the "Parent").
Effective January 1, 1994, the Company merged its operations with certain
operations of Dunlop Aviation, Inc., a subsidiary of the Parent. The merger was
a combination of companies under common control and was accounted for similar to
the pooling of interests method of accounting.
Pursuant to an Agreement of Purchase and Sale of Stock, AqHawk, Inc.
purchased all of the Company's outstanding stock from BTR plc effective as of
November 1, 1996 (the "Acquisition"). AqHawk, Inc. was formed as a holding
company for the sole purpose of acquiring the stock of the Company and was
subsequently merged into the Company. The Acquisition has been accounted for
under the purchase accounting method. The aggregate purchase price was
approximately $29,800,000, which includes the cost of the Acquisition. The
aggregate purchase price was allocated to the assets of the Company, based upon
estimates of their respective fair market values. The excess of purchase price
over the fair values of the net assets acquired was $1,019,000 and has been
recorded as goodwill. Goodwill has been subsequently reduced for the reduction
of certain allowances on deferred taxes and amortization.
The financial statements as of December 31, 1995, and for the years ended
December 31, 1994 and 1995 and the ten months ended October 31, 1996, are
presented under the historical cost basis of the Company, as a wholly owned
subsidiary of BTR Dunlop Holdings, Inc., the predecessor Company (the
"Predecessor"). The financial statements as of December 31, 1996, and September
30, 1997, and for the two months ended December 31, 1996, and the nine months
ended September 30, 1997, are presented under the new basis of the successor
company (the "Successor") established in the Acquisition.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma information combines the results of
operations of the Successor and Predecessor as if the Acquisition had occurred
on January 1, 1996 and includes certain pro forma adjustments to the historical
operating results for amortization of goodwill, depreciation and amortization of
fixed assets, interest expense and the removal of approximately $947,000 of
environmental related legal expenses and settlement costs which the parent of
the Predecessor indemnified the Successor and thus would not had been incurred
by the Successor during the period. The pro forma information is presented
F-7
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for illustrative purposes only, and is not necessarily indicative of what the
actual results of operations would have been during such periods or
representative of future operations.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
DECEMBER 31,
1996
-------------
(UNAUDITED)
<S> <C>
Revenues....................................................................... $39,004,000
Net loss....................................................................... (1,523,000)
Net loss per share............................................................. (0.43)
</TABLE>
LANDING GEAR EXCHANGE
Landing gear and other rotable assets are accounted for as fixed assets at
cost and are depreciated over their estimated useful lives to their respective
salvage values. These assets include various airplane, wing, body and nose
landing gear shipsets. Landing gear and other rotable assets are held for
purposes of exchanging the assets for a customer's landing gear or other parts
needing repair or overhaul. As the landing gear is exchanged and the customer is
billed for the cost of the repair, the landing gear or other parts are typically
repaired and overhauled and maintained as property of the Company for future
exchanges. The estimated useful lives range from 10 to 15 years depending on the
age of the aircraft and projected marketability of the exchange gear over time.
Amortization expense is recorded as a component of cost of revenues using the
straight-line amortization method.
RECOGNITION OF REVENUE
The Company generates revenue primarily from repair and overhaul services.
In some cases repair and overhaul services include exchange fees for the
exchange of the Company's landing gear or other parts for the customer's landing
gear or other parts needing repair or overhaul services. The Company also
generates revenues from the sale and distribution of spare parts.
Spare parts sales and exchange fee revenues are each individually less than
10% of total revenues.
Revenues for repair and overhaul services not involving an exchange
transaction are recognized when the job is complete. Deferred revenue is
principally comprised of customer prepayments and progress billings related to
the overhaul and repair of landing gear and other services which are in process.
Revenues from spare parts sales are recognized at the time of shipment. Landing
gear exchange fees are recognized on shipment of the exchanged gear to the
customer. Revenues for repair and overhaul service involving an exchange are
recognized when the cost of repairing the part received from the customer are
known and billable.
CONCENTRATIONS OF RISK
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK--The Company performs
credit evaluations and analysis of amounts due from its customers; however, the
Company generally does not require collateral. Credit losses have been within
management's expectations and an estimate of uncollectible accounts has been
provided for in the financial statements.
F-8
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
One customer accounted for 18.2% of the Company's total revenues for the
nine month period ended September 30, 1997 and represented 20.9% of the accounts
receivable balance at September 30, 1997.
One customer accounted for 13.1% of the Company's total revenues for the two
month period ended December 31, 1996 and represented 7.4% of the accounts
receivable balance at December 31, 1996.
Revenues from two customers, who individually accounted for greater than 10%
of total revenues, were 19.6% and 11.7%, respectively, of the Company's total
revenues for the ten month period ended October 31, 1996.
Revenues from two customers, who individually accounted for greater than 10%
of total revenues, were 17.1% and 10.0%, respectively, of the Company's total
revenues for the year ended December 31, 1995 and accounted for 9.9% and 11.3%,
respectively, of the accounts receivable balance at December 31, 1995.
MAJOR VENDORS--Three vendors accounted for $6,944,000 of the Company's total
purchases during the nine month period ended September 30, 1997.
Three vendors accounted for $1,901,000 of the Company's total purchases for
the two month period ended December 31, 1996.
Two vendors accounted for $7,030,000 of the Company's total purchases during
the ten month period ended October 31, 1996.
One vendor accounted for $5,005,000 of the Company's total purchases for the
year ended December 31, 1995.
INVENTORIES
Inventories are stated at the lower of cost or market. Purchased parts and
assemblies are valued based on the weighted average cost. Work-in-process
inventories include purchased parts, direct labor and factory overhead.
Provisions for potentially obsolete or slow moving inventory are made based on
management's analysis of inventory levels, turnover and future revenue
forecasts.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are recorded at cost. Depreciation
expense is being provided using the straight-line method based on the following
estimated useful lives:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------- ----------------------------------
<S> <C> <C>
Leasehold improvements.............. Lesser of life of lease or asset Lesser of life of lease or asset
Machinery and equipment............. 13.3 years 8 years
Tooling............................. 13.3 years 5 years
Furniture and fixtures.............. 7 years 5 years
Vehicles............................ 5 years 3 years
Computer equipment.................. 5 years 3 years
</TABLE>
Expenditures for repairs are expensed as incurred and additions, renewals
and betterments are capitalized.
F-9
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
In connection with the purchase of Hawker Pacific, Inc. by AqHawk, Inc. as
previously described, the Company recorded goodwill which represents the excess
of the purchase price over the estimated fair value of the net assets acquired.
The Company is amortizing goodwill using the straight-line method over a period
of 15 years. The Company assesses the recoverability of its goodwill whenever
adverse events or changes in circumstances or business climate indicate that
expected future cash flows for the business may not be sufficient to support
recorded goodwill.
At December 31, 1996 and September 30, 1997, goodwill was reduced by
$382,000 and $391,000, respectively, due to the realization of certain deferred
tax assets and the corresponding reduction of the valuation allowance
established in the allocation of the purchase price of the Acquisition.
FOREIGN REVENUES
The Company generated revenues from customers located outside of the United
States of $5,616,000, $4,493,000, $1,517,000 and $7,099,000, of which
$3,368,000, $2,887,000, $1,191,000 and $5,557,000 were revenues generated from
the Company's United States location for the year ended December 31, 1995, the
ten months ended October 31, 1996, and the two months ended December 31, 1996,
and the nine months ended September 30, 1997, respectively.
Realized and unrealized foreign exchange gains (losses) amounted to
$161,000, $33,000, ($3,000) and $200,000 for the year ended December 31, 1995,
the ten months ended October 31, 1996, the two months ended December 31, 1996
and the nine months ended September 30, 1997.
ENVIRONMENTAL EXPENSE AND INSURANCE RECOVERY
Included in general and administrative expense for the years ended December
31, 1995, and the ten months ended October 31, 1996, is $717,000 and $947,000,
respectively, of legal fees and settlement cost associated with investigating,
defending and settling the environmental remediation matter discussed in Note 7.
In addition, for the year ended December 31, 1995, general and administrative
expense has been reduced by insurance recoveries of $1,000,000. There were no
corresponding costs incurred in the two months ended December 31, 1996 or the
nine months ended September 30, 1997.
EARNINGS PER SHARE
Earnings per common share are computed based on the weighted average number
of shares outstanding during each period. The weighted average number of shares
outstanding give effect to the stock split and conversion of preferred stock
discussed in Note 14 as if they had occurred on November 1, 1996.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," ("Statement 128") which is required to be adopted
on December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating earnings per share, the
dilutive effect of stock options will be excluded and the calculation will be
referred to as basic earnings per share. Basic earnings (loss) per share under
Statement 128 would have been the same as primary earnings (loss) per
F-10
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
share for all periods presented because there were no dilutive securities
included in the calculation. The impact of Statement 128 on the calculation of
fully diluted earnings (loss) per share for these periods is also not expected
to be material.
SUPPLEMENTAL EARNINGS PER SHARE
Supplemental earnings per share reflects what earnings would have been under
Accounting Principles Bulletin No. 15 if the debt retired with the proceeds from
the initial public offering (see footnote 14) had been retired at the beginning
of the period. The number of shares of common stock to be sold in this offering,
the proceeds from which will be used to retire debt are included in this
calculation with a corresponding reduction in interest expense.
Supplemental earnings per share for each of the periods presented are set
forth below:
<TABLE>
<CAPTION>
SUCCESSOR
--------------------------------
TWO MONTHS NINE MONTHS
ENDED DECEMBER ENDED SEPTEMBER
31, 1996 30, 1997
--------------- ---------------
<S> <C> <C>
Supplemental earnings per share................................. $ 0.14 $ 0.25
----- -----
----- -----
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments principally consist of accounts
receivable, accounts payable, line of credit, note payable to a bank, and notes
payable to a related party as defined by Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments." The
carrying value of accounts receivable and accounts payable approximate of their
fair value due to the short-term nature of these instruments. The carrying value
of the line of credit and note payable to a bank approximates its fair market
value since these financial instruments carry a floating interest rate. The fair
market value of the note payable to a related party approximated its carrying
value based on current market rates for such debt.
MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results may differ from those estimates.
F-11
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- ----------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Purchased parts and assemblies...................................... $ 10,658,000 $ 9,722,000 $ 12,630,000
Work-in-process..................................................... 2,788,000 3,228,000 3,370,000
------------- ------------- -------------
$ 13,446,000 $ 12,950,000 $ 16,000,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements, at cost, consist of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ---------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Leasehold improvements............................................... $1,331,000 $1,009,000 $ 1,344,000
Machinery and equipment.............................................. 5,354,000 3,202,000 3,308,000
Tooling.............................................................. 641,000 308,000 339,000
Furniture and fixtures............................................... 342,000 72,000 91,000
Vehicles............................................................. 31,000 30,000 30,000
Computer equipment................................................... 1,301,000 209,000 319,000
------------ ------------ -------------
9,000,000 4,830,000 5,431,000
Less: Accumulated depreciation....................................... 4,129,000 111,000 651,000
------------ ------------ -------------
$4,871,000 $4,719,000 $ 4,780,000
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
4. INCOME TAXES
The tax provision of the Predecessor has been computed as if the Predecessor
filed a separate income tax return. For the period ending December 31, 1995, the
taxable income of the Predecessor was included in the consolidated federal and
state tax returns of its Parent. Under a tax sharing arrangement with its
Parent, the Predecessor's deferred tax assets were expected to be recoverable
against the current or future earnings of the Predecessor or its Parent.
Accordingly, the deferred tax valuation allowance for certain deferred taxes
recoverable through the consolidated tax return of the Parent was reduced
resulting in a net deferred tax benefit for the year ended December 31, 1995.
For the two months ended December 31, 1996, and the nine months ended
September 30, 1997, the taxable income will be included in a stand-alone federal
and state tax return of the Successor. A full valuation allowance for the
Successor's net deferred tax assets was provided at the Acquisition date as an
adjustment to goodwill due to future uncertainty concerning the ultimate
realization of the net deferred tax asset. To the extent the deferred tax assets
of the Successor are realized the related reduction in the valuation allowance
will be recorded as a reduction to goodwill until goodwill is eliminated and
then as a reduction of income tax expense.
F-12
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- ----------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................................... $ 3,026,000 $ 1,953,000 $ 2,972,000
Inventory valuation accruals....................................... 942,000 1,449,000 331,000
Accounts receivable valuation accruals............................. 17,000 131,000 22,000
Environmental remediation accruals................................. 102,000 285,000 --
Employee benefits and compensation................................. 135,000 195,000 164,000
Product and service warranties..................................... 109,000 82,000 70,000
State tax credits.................................................. -- -- 126,000
Other items, net................................................... 335,000 351,000 167,000
------------- ------------- -------------
Total deferred tax assets............................................ 4,666,000 4,446,000 3,852,000
Less valuation allowance............................................. (1,824,000) (1,427,000) (761,000)
------------- ------------- -------------
Net deferred tax asset............................................... 2,842,000 3,019,000 3,091,000
Deferred tax liabilities:............................................
Depreciation and amortization methods.............................. 1,977,000 2,474,000 2,583,000
Property, equipment and landing gear exchange asset basis
adjustments...................................................... -- 445,000 445,000
Other items, net................................................... 185,000 100,000 63,000
------------- ------------- -------------
Total deferred tax liabilities....................................... 2,162,000 3,019,000 3,091,000
------------- ------------- -------------
Net deferred tax asset after allowance $ 680,000 $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Significant components of the provision for taxes based on income are as
follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------- ---------------------------
TEN MONTHS TWO MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER 31, OCTOBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1996 1997
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Current:
Federal.............................................. $ -- $ -- $ -- $ --
State................................................ -- -- -- 1,000
------------ ----------- ------------ -------------
-- -- -- 1,000
Deferred:
Federal.............................................. (504,000) (746,000) 277,000 391,000
State................................................ (176,000) (225,000) 105,000 --
------------ ----------- ------------ -------------
(680,000) (971,000) 382,000 391,000
------------ ----------- ------------ -------------
(Benefit) provision for taxes.......................... $ (680,000) $(971,000) $ 382,000 $ 392,000
------------ ----------- ------------ -------------
------------ ----------- ------------ -------------
</TABLE>
F-13
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
The tax provision (benefit) for the year ended December 31, 1995, includes a
benefit of $525,000, resulting from the reduction of the deferred tax valuation
allowance.
For the two months ended December 31, 1996, and the nine months ended
September 30, 1997, reductions of the valuation reserve of approximately
$382,000 and $391,000, respectively, resulted in equivalent reductions of
goodwill. For the nine months ended September 30, 1997 deferred tax assets of
$275,000, were determined not to be realizable and were charged directly against
the valuation allowance.
A reconciliation of the statutory federal income tax rate to the effective
tax rate, as a percentage of income before tax, is as follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------------- --------------------------------
TEN MONTHS TWO MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER 31, OCTOBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1996 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Statutory federal income tax rate................... (34)% (34)% 34% 34%
Nondeductible expenses.............................. 13 2 3 3
State income taxes, net of federal benefit.......... (4) (6) 8 --
Decrease in valuation reserve....................... (139) -- -- --
--- --- --- ---
Other............................................... (164)% (38)% 45% 37%
--- --- --- ---
--- --- --- ---
</TABLE>
The Company has net operating loss carryforwards for federal tax purposes of
$7,768,000 which expire in the years 2007 to 2012. The Company also has state
net operating loss carryforwards of $3,486,000 which expire in the years 1999 to
2002. Utilization of the net operating losses may be limited as a result of
limitations due to changes in ownership.
F-14
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SUCCESSOR LINE OF CREDIT AND SHIPSET PURCHASE LINE
The Company has a revolving line of credit agreement with a bank which
permits borrowings up to the lesser of $10,000,000 or a borrowing base of 85% of
eligible accounts receivable plus the lesser of $6,000,000 or 50% of the value
of acceptable inventory. The line of credit agreement also includes a facility
for up to $2,000,000 in letters of credit. The line of credit expires November
30, 1999, and bears interest at either the "offshore rate" plus 1.5% or the
bank's reference rate, at the option of the Company. The weighted average
interest rate on borrowing outstanding under the line of credit was 7.51% at
September 20, 1997. The Company had available borrowings of $511,000 at
September 30, 1997, under this agreement.
The line of credit agreement contains certain covenants which include, but
are not limited to, quick ratio, fixed charge coverage ratio, profitability, and
dividend and capital investment limitations. The line of credit is
collateralized by all personal property of the Company and guaranteed by a
shareholder of the Company.
The Company also has a shipset purchase line of credit from a bank up to
$3,000,000 to finance a portion of the purchase price for landing gear used in
the ordinary course of business. This line is payable in monthly installments
equal to one eighty-fourth of the initial amount of the loan plus interest at
either the offshore rate plus 1.875% or at the bank's reference rate, subject to
the same terms and conditions as the bank line of credit. The shipset purchase
line of credit matures November 30, 1998. At December 31, 1996 and September 30,
1997, there were no amounts outstanding under the shipset purchase line of
credit.
6. NOTES PAYABLE
The Company's note payable balance consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------- -------------
<S> <C> <C>
Note payable to a bank, payable in quarterly installments increasing from $212,500
in 1997 to $625,000 in 2002, plus interest at either the "offshore rate" plus
1.875% or the bank's reference rate, subject to the same terms and conditions as
the line of credit (Note 5), maturing December 31, 2003. The interest rate in
effect at September 30, 1997, was 7.6%........................................... $ 13,500,000 $ 12,863,000
Note payable to related party, interest accrues monthly at 11.8% per annum,
interest payments due monthly equal to the lesser of the accrued interest or
"excess cash flow" as defined, subordinated to the line of credit (Note 5), term
loan and capital expenditure loan, quarterly principal payments of $700,000
scheduled to begin in January 2004 through December 2006......................... 6,500,000 6,500,000
------------- -------------
20,000,000 19,363,000
Less current portion............................................................... 850,000 1,300,000
------------- -------------
$ 19,150,000 $ 18,063,000
------------- -------------
------------- -------------
</TABLE>
F-15
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE (CONTINUED)
Maturity of notes payable as of September 30, 1997, is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
1998........................................................................... $ 1,300,000
1999........................................................................... 1,637,000
2000........................................................................... 2,113,000
2001........................................................................... 2,250,000
2002........................................................................... 2,438,000
2003 and thereafter............................................................ 9,625,000
-------------
$ 19,363,000
-------------
-------------
</TABLE>
The Company entered into an interest rate swap agreement (the "Swap
Agreement)" to reduce the impact of changes in interest rates in its
floating-rate long term debt. The Swap Agreement dated January 13, 1997 has an
initial notional amount of $6,750,000 reducing to $2,781,000 through the
expiration date of December 31, 2001. The Company is required to pay interest on
the notional amount at the rate of 6.65% and receives from the bank a percentage
of the notional amount based on a floating interest rate. The Swap Agreement
effectively reduces its interest rate exposure to a fixed rate of 6.65% of the
notional amount. The notional amount at September 30, 1997 was $6,537,500. The
floating interest rate in effect under the Swap Agreement at September 30, 1997
was 5.66%. The Swap Agreement had a negative fair market value of $97,000 at
September 30, 1997.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities, certain office equipment and a vehicle
under operating lease agreements, which expire through May 2010 and contain
certain escalation clauses based on various inflation indexes. Future minimum
rental payments as of September 30, 1997, are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
1998........................................................................... $ 1,110,000
1999........................................................................... 1,116,000
2000........................................................................... 1,123,000
2001........................................................................... 1,101,000
2002........................................................................... 1,088,000
2003 and thereafter............................................................ 5,554,000
-------------
$ 11,092,000
-------------
-------------
</TABLE>
The Company entered into a 13-year operating lease for additional office
space and warehouse facilities during July 1997. In addition, significant
leasehold improvement costs were incurred during the nine months ended September
30, 1997.
The Company incurred rent expense of approximately $980,000, $586,000,
$109,000 and $567,000 for the year ended December 31, 1995, the ten months ended
October 31, 1996, the two months ended December 31, 1996, and the nine months
ended September 30, 1997, respectively.
F-16
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
EMPLOYMENT AGREEMENTS
The Company is obligated under certain management employment contracts
through October 31, 2001. Future minimum salary expense related to these
contracts are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
1998............................................................................ $ 575,000
1999............................................................................ 575,000
2000............................................................................ 200,000
2001............................................................................ 200,000
------------
$ 1,550,000
------------
------------
</TABLE>
ENVIRONMENTAL REMEDIATION
During 1993, the Company and other parties became defendants in a United
States Environmental Protection Agency and State of California lawsuit (the
"Plaintiffs") alleging violations of certain environmental regulations related
to the contamination of ground water in the San Fernando Valley Basin that
resulted from the release of hazardous substances. During 1996, the Company
recorded additional reserves related to this matter for total reserves of
$657,000 at October 31, 1996, and December 31, 1996. The Company has been
indemnified by BTR plc for any claims related to this matter in excess of the
amount recorded. The amount recorded at December 31, 1996, represented the
Company's portion of a settlement that was reached with the Plaintiffs during
1997.
LITIGATION
The Company is involved in various lawsuits, claims and inquiries, which the
Company believes are routine to the nature of the business. In the opinion of
management, the resolution of these matters will not have a material adverse
effect on the financial position, results of operations or cash flows of the
Company.
8. RELATED PARTY TRANSACTIONS
SALES AND PURCHASES
The Predecessor generated revenue and purchased goods and services from its
Parent and various subsidiaries of its Parent (collectively, the "Affiliates").
Certain long term purchase agreements with the Affiliates have continued under
the Successor company.
Total revenues for the year ended December 31, 1995, and the ten months
ended October 31, 1996, from the Affiliates were approximately $552,000 and
$331,000, respectively.
Total purchases for the year ended December 31, 1995, and the ten months
ended October 31, 1996, from the Affiliates were approximately $6,820,000 and
$5,437,000, respectively.
In the ordinary course of business, the Successor pays sales commissions to
a company which is also a shareholder of the Successor. During the period from
January 1, 1997 through September 30, 1997, the Successor paid $422,000 of
commissions and reimbursed expenses to this related party.
F-17
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
NOTES PAYABLE TO RELATED PARTY
As more fully described in Note 6, the Successor is subject to a note
payable to a company controlled by shareholders of the Successor for $6,500,000
which is included in notes payable on the balance sheets. Interest expense on
this note payable for the two months ended December 31, 1996, and the nine
months ended September 30, 1997, amounted to $74,000 and $574,000, respectively.
DUE TO PARENT AND AFFILIATES
The Predecessor generally funded its operations through borrowings from the
Parent through October 31, 1996. The Predecessor made payments against such
borrowings based on cash availability although there were no contractual payment
terms. Amounts classified as current in the balance sheet at December 31, 1995,
represent the estimated amount of the borrowing paid from working capital as of
December 31, 1995. During the year ended December 31, 1995, and the ten months
ended October 31, 1996, the weighted average interest rate was 5.6% and 4.9%,
respectively. During the years ended December 31, 1995 and the ten months ended
October 31, 1996, the average borrowings outstanding on the due to Parent and
Affiliates were approximately $28,624,000 and $32,978,000, respectively, and
Company recognized interest expense on borrowings from its Parent and Affiliates
of $1,598,000, and $1,609,000, respectively. All borrowing amounts due to Parent
and Affiliates were settled in connection with the November 1, 1996, acquisition
of the Company.
MANAGEMENT FEE
The Company has an agreement (the "Old Management Agreement") with Unique
Investment Corporation ("UIC") to pay a management fee of $25,000 per month.
Certain shareholders of the Company are related parties to UIC. The Company paid
$50,000 to UIC during the period from November 1, 1996 through December 31,
1996, and $225,000 during the period from January 1, 1997 through September 30,
1997.
In September 1997, the Company and Unique entered into a new management
services agreement (the "New Management Services Agreement") pursuant to which,
upon the consummation of the anticipated Offering, the Old Management Agreement
will be terminated, and Unique will be entitled to receive $150,000 per year
payable monthly commencing in January 1999 for certain management services
rendered to the Company. The New Management Services Agreement will terminate
upon the Company completing an underwritten public offering in which selling
shareholders offer 25% or more of the Common Stock sold in such offering.
In September 1997, the Company also entered into a mergers and acquisitions
agreement with Unique pursuant to which Unique is entitled to receive $300,000
upon the closing of the BA Acquisition for services provided in connection with
the acquisition.
PARENT COMPANY ALLOCATION OF EXPENSES
The Predecessor received a charge from its Parent for certain insurance
(i.e., workers' compensation, product liability, group medical, etc.) and
employee benefit program expenses that were contracted and paid by the Parent
and allocated to the various subsidiaries. Management believes these allocations
approximate the amounts that would have been incurred had the Predecessor
operated on a stand-alone basis. Included in general and administrative expense
and cost of revenues is $436,000 and $1,504,000 for
F-18
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
the year ended December 31, 1995, and the ten months ended October 31, 1996,
respectively, of costs charged to the Predecessor by the Parent for these
programs.
WARRANTY REIMBURSEMENT FROM PARENT
The Predecessor had an arrangement with the Parent whereby certain warranty
costs incurred by the Predecessor for the failure of parts purchased from the
Parent or its affiliates were reimbursed to the Predecessor. For the year ended
December 31, 1995, the Predecessor received $184,000 for reimbursement of
warranty costs incurred by the Predecessor.
9. EMPLOYEE BENEFIT PLANS
Effective January 1, 1997, the Company adopted a defined benefit pension
plan (the "1997 Plan") to provide retirement benefits to its employees. This
non-contributory plan covers substantially all employees of the Company as of
the effective date of the plan. Pursuant to plan provisions, normal monthly
retirement benefits are equal to the participant's credited benefit service (up
to a maximum of 35 years) times the sum of 0.75% of the participant's final
average monthly compensation plus 0.65% of such compensation in excess of the
participant's covered average monthly wage. The plan also provides for early
retirement and certain death and disability benefits. The Company's funding
policy for the plans is to contribute amounts sufficient to meet the minimum
funding requirements of the Employee Retirement Income Security Act of 1974,
plus any additional amounts which the Company may determine to be appropriate.
During the year ended December 31, 1995, the assets and liabilities of the
defined benefit pension plan were transferred to the Parent. For the year ended
December 31, 1995 the Company recorded net periodic pension expense of $166,000.
During the ten months ended October 31, 1996, the Company recorded a net
periodic pension expense of $234,000 as part of the allocated charges from the
Parent.
The net pension cost for Company-sponsored defined benefit pension plans for
the nine months ended September 30, 1997, included the following components:
<TABLE>
<CAPTION>
SUCCESSOR
-------------
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Service cost................................................................... $ 70,000
Interest cost.................................................................. 41,000
Actual gain on plan assets..................................................... --
Net amortization and deferral.................................................. 25,000
-------------
Net pension cost............................................................... $ 136,000
-------------
-------------
</TABLE>
F-19
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The reconciliation of the funded status of the defined benefit pension plan
is as follows:
<TABLE>
<CAPTION>
SUCCESSOR
-------------
SEPTEMBER 30,
1997
-------------
<S> <C>
Actuarial present value of benefits:
Vested benefits.............................................................. $ (111,000)
Nonvested benefits........................................................... (99,000)
-------------
Accumulated benefit obligation................................................. (210,000)
Effect of projected future compensation increases.............................. (680,000)
-------------
Projected benefit obligation................................................... (890,000)
Fair value of plan assets...................................................... --
-------------
Projected benefit obligation in excess of plan assets.......................... (890,000)
Unrecognized net losses........................................................ --
Unrecognized transition obligation............................................. --
Unrecognized prior service cost................................................ 753,000
Minimum pension liability...................................................... (74,000)
-------------
Pension liability.............................................................. $ (211,000)
-------------
-------------
</TABLE>
The Company made no contributions to the Plans during the nine months ended
September 30, 1997.
The assumptions used in the determination of the net pension cost for the
defined benefit pension plan were as follows:
<TABLE>
<CAPTION>
1997
-----
<S> <C>
Discount rate.......................................................................... 7%
Rate of increase in compensation levels................................................ 3%
Expected long-term rate of return on assets............................................ 7%
</TABLE>
Effective January 1, 1997, the Company also adopted a defined contribution
401(k) retirement savings plan which covers substantially all employees of the
Company. Plan participants are allowed to contribute up to 15% of their base
annual compensation and are entitled to receive a company match equal to 50% of
the participant's contribution up to a maximum of 6% of the participant's annual
base compensation. Participant contributions to the plan are immediately fully
vested while company matching contributions are subject to a five-year vesting
period. All contributions to the plan are held in a separate trust account.
During the nine months ended September 30, 1997, the Company's matching
contribution amounted to $105,000. This amount was expensed during the period
and is included in the statement of operations.
10. RESTRUCTURING CHARGES
The Predecessor closed its facility in Miami, Florida during May 1996. This
closure and the transfer of certain fixed assets and inventory to the Sun
Valley, California facility resulted in a nonrecurring restructuring charge of
$1,196,000 in the statement of operations for the ten months ended October 31,
1996. The nonrecurring charge primarily includes costs incurred related to fixed
and other asset write-offs of approximately $600,000, payroll and severance of
approximately $190,000, moving and integration costs
F-20
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. RESTRUCTURING CHARGES (CONTINUED)
of approximately $243,000 and the balance for facility and other charges.
Additionally, the Company recorded Miami related inventory write-offs of
approximately $489,000, which were charged to cost of sales during the ten
months ended October 31, 1996. Revenues and operating income of Miami, Florida
operations which will not be continued were approximately as follows for the
year ended December 31, 1995, and the ten months ended October 31, 1996:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Revenue........................................................... $ 7,404,000 $ 2,049,000
Operating income (loss)........................................... (74,000) (40,000)
</TABLE>
11. STOCKHOLDERS EQUITY
Aqhawk, Inc. was formed on November 1, 1996 with the issuance of 400 shares
of Series A Preferred Stock to an individual for $2,000,000 and the issuance of
5,794,860 shares of Common Stock to the same individual, certain shareholders of
UIC and management of the Company. Effective November 1, 1996 Aqhawk, Inc.
merged with the Company through the issuance of 2,897,430 shares of Common Stock
of the Company in exchange for the 5,794,860 shares of Common Stock of Aqhawk,
Inc. and the issuance of 400 shares of Series A Preferred Stock of the Company
for 400 shares of Preferred Stock of Aqhawk, Inc. A value of $40,000 was
assigned to the 231,794 shares of Common Stock issued to management and such
amount was expensed as compensation expense in the two months ended December 31,
1996. In September 1997 the Company received $500,000 for the issuance of 50,415
shares of the Company's Common Stock. The capital infusion was made pursuant to
an agreement under which the majority shareholder had agreed to provide to the
Company up to $1,000,000 in return for Common Stock. Subsequent to September 30,
1997 the majority shareholder provided an additional $500,000 in exchange for
52,154 shares of Common Stock of the Company.
12. NONMONETARY EXCHANGE TRANSACTION
During the nine months ended September 30, 1997, the Company sold certain
landing gear with a book value of $1,240,000 for a different landing gear valued
at $1,800,000 and cash of $250,000. In connection with the exchange transaction
the Company recognized profit of $78,000 during the nine months ended September
30, 1997, representing the pro rata portion of the gain associated with the cash
received. The landing gear received in the exchange was recorded in the amount
of $1,068,000.
13. ACQUISITION
On September 8, 1997, the Company signed a "letter of intent" related to a
significant purchase of assets for approximately $21.9 million, subject to due
diligence, from British Airways to expand international operations to include
the United Kingdom. The assets to be purchased consist primarily of machinery
and equipment, tooling, inventory and rotable assets. These assets will be
generally located in the United Kingdom and utilized in landing gear, flap track
and carriage overhaul and repair services, related to the British Airways fleet
as well as other customers.
F-21
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. PROPOSED INITIAL PUBLIC OFFERING AND OTHER SUBSEQUENT EVENTS
During 1997, the Company's Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission, relating to
an initial public offering of 2,600,000 shares of the Company's unissued Common
Stock (222,716 additional shares if the underwriters' warrants are exercised)
and up to 415,000 shares of Common Stock held by a selling shareholder. If the
initial public offering is consummated under the terms presently anticipated,
all of the Preferred Stock outstanding will convert into 222,222 shares of
Common stock.
In connection with the initial public offering, the Company has effected a
579.48618 for one stock split of the Company's Common Stock. All references in
the accompanying financial statements to the number of shares of Common Stock,
per common share amounts have been retroactively adjusted to reflect the stock
split. In addition, the Company's capital structure was changed to reflect
20,000,000 shares of Common Stock and 5,000,000 shares of preferred stock
authorized. The Board of Directors has authority to fix the rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any future vote or action by the shareholders.
In November 1997, the Board of Directors adopted the Company's 1997 Stock
Option Plan (the "1997 Plan"). The 1997 Plan, provides for the grant of options
to directors, officers, other employees and consultants of the Company to
purchase up to an aggregate of 640,444 shares of Common Stock. The purpose of
the 1997 Plan is to provide participants with incentives that will encourage
them to acquire a proprietary interest in, and continue to provide services to,
the Company. Options granted under the 1997 Plan may be "incentive stock
options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or nonqualified options.
The exercise price of any incentive stock options granted may not be less
than 100% of the fair market value of Common Stock as of the date of grant (110%
of the fair market value if the grant is to an employee who owns more than 10.0%
of the total combined voting power of all classes of capital stock of the
Company). Nonqualified options may be granted under the 1997 Plan at an exercise
price of not less than 85% of the fair market value of the Common Stock on the
date of grant. Options may not be exercised more than ten years after the date
of grant (five years after the date of grant if the grant is an incentive stock
option to an employee who owns more than 10.0% of the total combined voting
power of all classes of capital stock of the Company). The number of options
outstanding and the exercise price thereof are subject to adjustment in the case
of certain transactions such as mergers, recapitalizations, stock splits or
stock dividends.
In November 1997, the Board of Directors of the Company granted six-year
options to purchase 262,000 shares of Common Stock under the 1997 Plan. All of
these options are exercisable at the initial public offering price per share.
The options generally will be subject to vesting and will become exercisable at
a rate of 5% per quarter from the date of grant, subject to the optionee's
continuing employment with the Company. Certain options become fully vested and
exercisable upon a change in control as defined.
In addition, in November 1997, the Board of Directors granted five-year
management stock options to purchase an aggregate of 116,444 shares of Common
Stock. All of these options are vested and are exercisable at $9 per share or,
in the event of the initial public offering described above, the exercise price
will be changed to the initial public offering price per share.
F-22
<PAGE>
HAWKER PACIFIC AEROSPACE
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Pursuant to an Agreement of Purchase and Sale of Stock, AqHawk, Inc. (the
"Purchase Agreement") purchased all of the Company's outstanding stock from BTR
plc effective as of November 1, 1996 (the "Acquisition"). AqHawk, Inc. was
formed as a holding company for the sole purpose of acquiring the stock of the
Company. Effective December 6, 1996, the assets and liabilities of AqHawk, Inc.
were merged into the Company. The Acquisition has been accounted for under the
purchase accounting method. The aggregate purchase price was approximately
$29,800,000, which includes the cost of the Acquisition. The aggregate purchase
price was allocated to the assets of the Company, based upon estimates of their
respective fair market values. The excess of purchase price over the fair values
of the net assets acquired was initially $1,019,000 and has been recorded as
goodwill.
The following unaudited pro forma condensed combining statements of
operations of Hawker Pacific, Inc. (the "Company") for the year ended December
31, 1996 and the nine months ended September 30, 1996, have been prepared to
illustrate the effect of the Acquisition, as though the Acquisition had occurred
on January 1, 1996, for purposes of the pro forma statements of operations. The
pro forma adjustments and the assumptions on which they are based are described
in the accompanying Notes to the Unaudited Pro Forma Condensed Combining
Statements of Operations.
The pro forma condensed combining statements of operations are presented for
illustrative purposes only and are not necessarily indicative of the results of
operations of the Company that would have been reported had the Acquisition
occurred on January 1, 1996, nor do they represent a forecast of the results of
operations for any future period. The unaudited pro forma condensed combining
statements, including the Notes thereto should be read in conjunction with the
historical consolidated financial statements of the Company and the Predecessor
to the Company, which are, respectively, incorporated herein by reference and
included herein.
F-23
<PAGE>
HAWKER PACIFIC AEROSPACE
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
PREDECESSOR SUCCESSOR PRO FORMA
----------- ------------ COMBINED
TEN MONTHS TWO MONTHS ------------
ENDED ENDED YEAR ENDED
OCTOBER 31, DECEMBER 31, PRO FORMA DECEMBER 31,
1996 1996 ADJUSTMENTS 1996
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues................................................. $ 32,299 $ 6,705 $ -- $ 39,004
Cost of revenues......................................... 27,027 4,599 173(1) 31,799
----------- ------------ ----- ------------
Gross profit............................................. 5,272 2,106 (173) 7,205
Operating expenses:
Selling expenses....................................... 2,248 525 -- 2,773
General and administrative expenses.................... 2,796 534 58 3,388
Restructuring charges.................................. 1,196 -- -- 1,196
----------- ------------ ----- ------------
6,240 1,059 58 7,357
----------- ------------ ----- ------------
Income (loss) from operations............................ (968) 1,047 (231) (152)
Other:
Interest and other income.............................. -- 7 -- 7
Interest expense....................................... (1,609) (203) (500) (2,312)
----------- ------------ ----- ------------
Income (loss) before taxes............................... (2,577) 851 (731) (2,457)
Provision (benefit) for income taxes..................... (971) 382 (345) (934)
----------- ------------ ----- ------------
Net income (loss)........................................ $ (1,606) $ 469 $ (386) $ (1,523)
----------- ------------ ----- ------------
----------- ------------ ----- ------------
Net earnings per share................................... $ 0.15 $ (0.49)
Average shares outstanding............................... 3,119,627 3,119,627
</TABLE>
See accompanying notes to pro forma financial statements.
F-24
<PAGE>
HAWKER PACIFIC AEROSPACE
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL COMBINED
------------- -------------
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, PRO FORMA SEPTEMBER 30,
1996 ADJUSTMENTS 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenues........................................................ $ 29,567 $ -- $ 29,567
Cost of revenues................................................ 25,018 139(1) 25,157
------------- ----- -------------
Gross profit.................................................... 4,549 (139) 4,410
Operating expenses:
Selling expenses, general..................................... 4,346 60(2) 4,406
Restructuring charges......................................... 1,196 -- 1,196
------------- ----- -------------
5,542 60 (5,602)
------------- ----- -------------
Income (loss) from operations................................... (993) (199) (1,192)
Other:
Interest expense (1,449) (285)(3) (1,734)
------------- ----- -------------
Income (loss) before taxes...................................... (2,442) (484) (2,926)
Provision (benefit) for income taxes............................ (928) (184) (1,112)
------------- ----- -------------
Net income (loss)............................................... $ (1,514) $ (300) $ (1,814)
------------- ----- -------------
------------- ----- -------------
Net earnings (loss) per share................................... $ (0.58)
Average shares outstanding...................................... 3,119,627
</TABLE>
See accompanying notes to pro forma financial statements.
F-25
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING
STATEMENTS OF OPERATIONS
The unaudited pro forma combined statements of operations assume that the
Acquisition was completed on January 1, 1996. The unaudited pro forma combined
statement of operations are not necessarily indicative of operating results
which would have been achieved had the Acquisition been consummated as of
January 1, 1996 and should not be construed as representative of future
operations. The allocation of the purchase price amount identifiable tangible
and intangible assets was based on analysis of the estimated fair value of those
assets. The excess of the purchase price over the fair value of the net assets
acquired was allocated to goodwill.
1) Represents the pro forma adjustment for depreciable equipment and leasehold
improvements and amortization of landing gear based on the allocation of the
purchase price to the fair values of those assets and there remaining useful
lives.
2) Pro forma adjustment consist of the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
A -- Depreciation and amortization of equipment,
leasehold improvements $ 9,000 $ 8,000
B -- Amortization of goodwill 51,000 50,000
------- -------
$ 60,000 $ 58,000
------- -------
------- -------
</TABLE>
A -- Represents depreciation and amortization of equipment and leasehold
improvement as described in note 1 above.
B -- Represents the amortization of goodwill calculated as follows.
<TABLE>
<S> <C>
Goodwill $1,019,000
Life 15 years
---------
Annual Amortization $ 68,000
---------
---------
</TABLE>
<TABLE>
<S> <C> <C>
Amortization for nine months = $ 51,000
---------
---------
Amortization for year $ 68,000
Amortization recorded in two months ended
December 31, 1996 (18,000)
---------
50,000 $ 50,000
---------
---------
</TABLE>
General and administrative expense includes $947,000 of expense related to
environmental remediation costs, settlement costs and legal fees related to the
predecessor Company's lawsuit with the United States Environmental Protection
Agency and the State of California in connection with certain alleged violations
of environmental regulations an groundwater contamination. The Company was fully
indemnified by BTR plc in the Purchase Agreement.
F-26
<PAGE>
HAWKER PACIFIC AEROSPACE
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING
STATEMENTS OF OPERATIONS (CONTINUED)
3) Adjusts interest expense assuming the revolving line of credit, bank and
related party notes which funded the Acquisition were outstanding on January
1, 1996 and that the applicable interest rates on the Acquisition date were
effective on January 1, 1996. Deferred financing costs are being amortized
as a component of interest expense over five years using on a straight-line
basis. Total interest expense include in the unaudited pro forma condensed
combining statement of operations was calculated as follows:
<TABLE>
<CAPTION>
ACQUISITION DATE PRO FORMA
---------------------------- INTEREST
DESCRIPTION BALANCE INTEREST RATE EXPENSE
------------------------------------- ------------- ------------- ---------------
<S> <C> <C> <C>
Revolving line of credit $ 6,615,841 7.13% $ 472,000
Note payable to bank 13,500,000 7.45% 1,006,000
Note payable to related party 6,500,000 11.8% 767,000
Deferred financing costs 337,000 N/A 67,000
---------------
Annual interest expense $ 2,312,000
Interest recorded 1,812,000
---------------
Pro forma adjustment $ 500,000
---------------
---------------
Pro forma interest expense for nine months $ 1,734,000
Interest recorded 1,449,000
---------------
---------------
Pro forma adjustment $ 285,000
---------------
---------------
</TABLE>
4) The income tax expense adjustment relates to the above described pro forma
adjustments and was calculated using the historical effective tax rate of
38% for the ten months ended October 31, 1996.
F-27
<PAGE>
HOLLAND FACILITY
The Company's Netherlands operation extends its services internationally,
providing an advanced hydraulic maintenance facility to service Europe and the
Middle East.
SPARES
Hawker Pacific stocks thousands of different parts to assist operators in
planning and controlling their maintenance budgets.
EXCHANGE POOL SHORTS 3-30 BRAKE ASSEMBLY
A DUNLOP CARBON BRAKE ASSEMBLY FOR THE BAE AND RJ SERIES AIRCRAFT
MANUFACTURING
Hawker Pacific designs and fabricates its own proprietary components, plus a
variety of build-to-print components and assemblies for aircraft manufacturers
and the military.
CUSTOMER SUPPORT
The Company constantly strives to build on its quality assurance standards,
and decrease overhaul and repair turn times.
AOG SUPPORT
The Company maintains Aircraft On the Ground service 24 hours a day, seven
days a week staffed by personnel who have the experience to solve problems fast.
ALL NON DESTRUCTIVE TESTING PROCESSES ARE PERFORMED ON-SITE BY THE COMPANY'S
TECHNICIANS
IN-HOUSE LAB FACILITIES PROVIDE ALL PLATING BATHS AND SOLUTIONS TO MEET
CUSTOMERS' SPECIFICATIONS
HYDRO-ELECTRIC TESTING OF BRAKE SERVO VALVE
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HERETO.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Acquisition of Certain Assets of British
Airways...................................... 16
Use of Proceeds................................ 18
Dividend Policy................................ 18
Capitalization................................. 19
Dilution....................................... 20
Selected Financial Data........................ 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 23
Business....................................... 31
Management..................................... 43
Certain Transactions........................... 50
Principal and Selling Shareholders............. 52
Description of Capital Stock................... 53
Shares Eligible For Future Sale................ 54
Underwriting................................... 55
Legal Matters.................................. 56
Experts........................................ 56
Additional Information......................... 56
Financial Statements........................... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS REQUIREMENT IS ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2,766,667 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
EVEREN SECURITIES, INC.
THE SEIDLER COMPANIES
INCORPORATED
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all expenses to be
incurred in connection with the issuance and distribution of the securities that
are the subject of this Registration Statement other than underwriting discounts
and commissions. The following expenses incurred with respect to the
distribution will be paid by the Company, and such amounts, other than the
Securities and Exchange Commission registration fee and the NASD filing fee, are
estimates only.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 10,316
NASD filing fee................................................. 3,904
Nasdaq National Market System listing fee....................... 32,055
Representative's nonaccountable expense allowance (1%)*......... 234,000
Printing and engraving expenses................................. 125,000
Transfer agent and registrar fees............................... 3,000
Legal fees and expenses......................................... 160,000
Accounting fees and expenses.................................... 360,000
Miscellaneous expenses.......................................... 71,725
---------
Total..................................................... $1,000,000
---------
---------
</TABLE>
- ------------------------
* Assumes an initial public offering price of $9 per share.
The Selling Shareholder shall bear the underwriting discounts and
commissions and nonaccountable expense allowance attributable to the shares sold
by the Selling Shareholder in this Offering.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Articles of Incorporation ("Amended
Articles") provide that, pursuant to the California Corporations Code, the
liability of the directors of the Company for monetary damages shall be
eliminated to the fullest extent permissible under California law. This is
intended to eliminate the personal liability of a director for monetary damages
in an action brought by, or in the right of, the Company for breach of a
director's duties to the Company or its shareholders. This provision in the
Amended Articles does not eliminate the directors' fiduciary duty and does not
apply for certain liabilities: (i) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law; (ii) for acts
or omissions that a director believes to be contrary to the best interest of the
Company or its shareholders or that involve the absence of good faith on the
part of the director; (iii) for any transaction from which a director derived an
improper personal benefit; (iv) for acts or omissions that show a reckless
disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Company or its shareholders; (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Company or its shareholders; (vi) with respect to certain
transactions or the approval of transactions in which a director has a material
financial interest; and (vii) expressly imposed by statute for approval of
certain improper distributions to shareholders or certain loans or guarantees.
This provision also does not limit or eliminate the rights of the Company or any
shareholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. The Company's Amended and
Restated Bylaws (the "Amended Bylaws") require the Company to indemnify its
officers and directors to the full extent permitted by law, including
circumstances in which indemnification would otherwise be discretionary. Among
other things, the Amended Bylaws require the Company to indemnify directors and
officers
II-1
<PAGE>
against certain liabilities that may arise by reason of their status or service
as directors and officers and allows the Company to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified.
Section 317 of the California Corporations Code ("Section 317") provides
that a California corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or proceeding, whether civil, criminal, administrative or investigative (other
than action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee, or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation or enterprise, against expenses, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interest of
the corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Section 317 also provides that a California corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect to any claim, issue or matter as to which
such persons shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 317 provides further that to the extent a director or officer of a
California corporation has been successful in the defense of any action, suit or
proceeding referred to in the previous paragraphs or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification authorized by Section 317 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 317.
In addition, the Company has entered into indemnity agreements ("Indemnity
Agreement(s)") with each of its directors and executive officers. Each such
Indemnity Agreement provides that the Company shall indemnify the indemnitee
against expenses, including reasonable attorneys' fees, judgements, penalties,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with any civil or criminal action or administrative proceeding
arising out of the performance of his duties as a director or officer. Such
indemnification is available if the indemnitee acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action, had no reasonable cause
to believe his conduct was unlawful. The Indemnity Agreements also require that
the Company indemnify the director or executive officer in all cases to the
fullest extent permitted by applicable law. Each Indemnity Agreement permits the
director or officer that is party thereto to bring suit to seek recovery of
amounts due under the Indemnity Agreement and to recover the expenses of such a
suit if he is successful. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. The Company believes that its Amended Articles of Incorporation
and Amended Bylaws provisions are necessary to attract and retain qualified
persons as directors and officers. The Company also intends to obtain directors'
and officers' liability insurance.
II-2
<PAGE>
The Underwriting Agreement to be filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.
The Company believes that it is the position of the Commission that insofar
as the foregoing provisions may be invoked to disclaim liability for damages
arising under the Securities Act, the provision is against public policy as
expressed in the Securities Act and is therefore unenforceable. Such limitation
of liability also does not affect the availability of equitable remedies such as
injunctive relief or rescission.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a table of recent option grants and sales of unregistered
securities:
<TABLE>
<CAPTION>
EFFECTIVE DATE OF ISSUANCE ISSUED TO NUMBER AND TYPE OF SECURITY CONSIDERATION
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
November 1996 Five shareholders of Unique 2,607,688 shares of Common (1)
Investment Corp. ("Unique") Stock
November 1996 Four executive officers 231,794 shares of Common (1)
Stock
November 1996 Two sales representatives 57,948 shares of Common (1)
Stock
November 1997 Four executive officers Options to Purchase 116,444 Services Rendered
shares at $9
IPO date A principal shareholder 222,222 shares of Common Conversion of 400 shares of
Stock Series A Preferred Stock
issued in connection with
the BTR Transaction, for
which Ms. Bastian paid
$2,000,000
November 1997 Employee Stock Options to Options to purchase 262,000 Services rendered
employees, including four shares at IPO price
executive officers
September 30, 1997 A principal shareholder 50,415 shares of Common $500,000
Stock
October 10, 1997 A principal shareholder 52,154 shares of Common $500,000
Stock
</TABLE>
- ------------------------
(1) Effective November 1, 1996, Aqhawk, Inc., ("Aqhawk"), a corporation owned by
the Unique shareholders and management of the Company, purchased all of the
outstanding capital stock of the Company from BTR Dunlop, Inc. ("BTR") (the
"BTR Transaction"). The purchase price Aqhawk paid was approximately
$29,802,861 provided through a combination of bank debt and funds in the
aggregate amount of $8,500,000 provided by Melanie L. Bastian, a principal
shareholder and former director of the Company, consisting of subordinated
debt and $2,000,000 cash in return for the issuance of Preferred Stock. In
December 1996, Aqhawk was merged with the Company. In the merger, each two
shares of Common Stock of Aqhawk were converted into one share of Common
II-3
<PAGE>
Stock of the Company, and each share of preferred stock was converted into
one share of Series A Preferred Stock of the Company, resulting in the
issuance of the shares shown on this chart.
The Company believes that the issuances of securities pursuant to the
foregoing transactions were exempt from registration under the Securities Act of
1933, as amended, by virtue of Section 4(2) thereof as transactions not
involving public offerings. No underwriters were engaged in connection with any
of the foregoing offers or sales of securites and no commissions were paid in
connection with such sales.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits, which are furnished with this Registration
Statement or incorporated herein by reference, are filed as a part of this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.(2)
2.1 Agreement relating to the Sale and Purchase of part of the Business of
British Airways plc dated December 20, 1997 by and among the Company,
Hawker Pacific Aerospace Limited and British Airways plc., and related
Landing Gear Overhaul Services Agreement.+(2)
3.1 Amended and Restated Articles of Incorporation of the Company.(1)
3.2 Amended and Restated Bylaws of the Company.(1)
4.1 Specimen Common Stock Certificate.
4.2 Form of Representatives' Warrant Agreement.(2)
5.1 Opinion of Troy & Gould Professional Corporation.
10.1 1997 Stock Option Plan and forms of Stock Option Agreements.(1)
10.1A Amendment No. 1 to 1997 Stock Option Plan.
10.2 Employment Agreement dated November 1, 1996 between the Company and David
L. Lokken.(1)
10.2A First Amendment to Employment Agreement for David L. Lokken.
10.3 Employment Agreement dated November 1, 1996 between the Company and Brian
S. Aune.(1)
10.3A First Amendment to Employment Agreement for Brian S. Aune.
10.4 Employment Agreement dated November 1, 1996 between the Company and Brian
S. Carr.(1)
10.4A First Amendment to Employment Agreement for Brian S. Carr.
10.5 Employment Agreement dated November 1, 1996 between the Company and
Michael A. Riley.(1)
10.5A First Amendment to Employment Agreement for Michael A. Riley.
10.6 Form of Indemnity Agreement for directors and executive officers of the
Company.
10.7 Business Loan Agreement dated November 27, 1996 between the Company and
Bank of America National Trust and Savings Association.(1)
10.7A Amendment No. 1 to Business Loan Agreement between the Company and Bank of
America National Trust and Savings Association.
10.8 Agreement of Purchase and Sale of Stock effective as of November 1, 1996
by and among BTR Dunlop, Inc., BTR, Inc., the Company and Aqhawk,
Inc.(1)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.9 Repair, Overhaul, Exchange, Warranty and Distribution Agreement dated
November 1, 1996 between the Company and Dunlop Limited, Aviation
Division.(1)+
10.10 Distribution Agreement dated November 1, 1996 between the Company and
Dunlop Limited, Precision Rubber.(1)
10.11 Repair, Overhaul, Exchange, Warranty and Distribution Agreement dated
November 1, 1996 between the Company and Dunlop Equipment Division.+(2)
10.12 Repair Services Agreement dated September 9, 1997 between the Company and
American Airlines, Inc.+
10.12A Form of First Amendment to Repair Services Agreement between the Company
and American Airlines, Inc.
10.13 Award/Contract dated September 20, 1995 issued by USCG Aircraft Repair and
Supply Center to the Company.+(1)
10.14 Maintenance Services Agreement dated August 19, 1994 between the Company
and Federal Express Corporation.+(2)
10.14A Form of Second Amendment to Maintenance Services Agreement between the
Company and Federal Express Corporation.
10.15 Lease Agreement dated March 31, 1997 by and between the Company and
Industrial Centers Corp.(1)
10.15A Form of First Amendment to Lease Agreement dated March 31, 1997 by and
between the Company and Industrial Centers Corp.
10.16 Management Services Agreement dated November 14, 1997 between the Company
and Unique Investment Corp.(1)
10.17 Mergers and Acquisitions Agreement dated September 2, 1997 between the
Company and Unique Investment Corp.(1)
10.17A Form of First Amendment to Mergers and Acquisitions Agreement between the
Company and Unique Investment Corp.
10.18 Subordinated Note for $6,500,000 in favor of Melanie Bastian.
10.19 Form of Amended and Restated Subordinated Promissory Note in favor of
Melanie L. Bastian.
10.20 Certified Translation of Rental Agreement between Mr. C. G. Kortenoever
and Flight Accessory Services.
10.21 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.(2)
10.21A Form of First Amendment to Lease Agreement dated July 28, 1994 by and
between the Company and Industrial Bowling Corp.
10.22 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.(2)
10.23 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.(2)
10.24 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.(2)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.25 Lease Agreement dated June 24, 1997 by and between the Company and
Allstate Insurance Company.
10.25A Form of First Amendment to Lease Agreement between the Company and
Allstate Insurance Company.
10.26 Lease Agreement dated November 21, 1994 by and between the Company and
Gordon N. Wagner and Peggy M. Wagner, and Joseph W. Basinger and Viola
Marie Basinger.
10.27 Form of Amended and Restated Business Loan Agreement between the Company
and Bank of America National Trust and Savings Association.
10.28 Form of Security Agreement by the Company in favor of Bank of America
National Trust and Savings Association.
10.29 Form of Pledge Agreement by the Company in favor of Bank of America
National Trust and Savings Association.
10.30 Form of Subordination Agreement by and among the Company, Hawker Pacific
Aerospace Limited, Bank of America National Trust and Savings
Association, Melanie L. Bastian and Unique Investment Corporation.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit
5.1).
23.3 Consent of Daniel C. Toomey, Director Nominee.(2)
23.4 Consent of Joel F. McIntyre, Director Nominee.(2)
24.1 Power of Attorney (1)
27.1 Financial Data Schedule(1)
</TABLE>
- ------------------------
+ Portions of exhibits deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidentiality.
(1) Previously filed on November 14, 1997.
(2) Previously filed on December 24, 1997.
(b) The following schedules supporting the financial statements are included
herein:
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted, since the required information is not
present in amounts sufficient to require submission of schedules or because the
information required is included in the Registrant's financial statements and
notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers, and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such
II-6
<PAGE>
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sun Valley,
State of California, on January 23, 1998.
<TABLE>
<S> <C> <C>
HAWKER PACIFIC AEROSPACE
By: /s/ SCOTT W. HARTMAN
-----------------------------------------
Scott W. Hartman
CHAIRMAN OF THE BOARD
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David L. Lokken and Scott Hartman, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any Registration Statement and/or
amendment thereto pursuant to Rule 462(b) under the Securities Act of 1933, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ SCOTT W. HARTMAN
- ------------------------------ Chairman of the Board January 23, 1998
Scott W. Hartman
Chief Executive Officer
* (Principal Executive
- ------------------------------ Officer), President and January 23, 1998
David L. Lokken Director
Vice President and Chief
* Financial Officer
- ------------------------------ (Principal Financial and January 23, 1998
Brian S. Aune Accounting Officer)
*
- ------------------------------ Director January 23, 1998
Daniel J. Lubeck
*
- ------------------------------ Director January 23, 1998
John G. Makoff
*By: /S/ SCOTT W. HARTMAN
- ------------------------------
Scott W. Hartman
ATTORNEY-IN-FACT
II-8
<PAGE>
HAWKER PACIFIC AEROSPACE
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN E
---------- ------------------------ ----------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT
- ------------------------------------------------ BEGINNING COSTS AND OTHER ----------- THE END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------------------ ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
PREDECESSOR
Year Ended December 31, 1995 $ 111,000 $ 50,000 -- $ $(122,000 (a) $ 39,000
Ten Months Ended October 31, 1996 39,000 345,000 -- (188,000 (a) 196,000
SUCCESSOR
Two Months Ended December 31, 1996 196,000 -- -- (129,000 (a) 67,000
Nine Months Ended September 30, 1997 67,000 117,000 -- (84,000 (a) 100,000
</TABLE>
- ------------------------
(a) Represents amounts written-off against the allowance for doubtful accounts,
net of recoveries and reversals.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.(2)
2.1 Agreement relating to the Sale and Purchase of part of the Business of
British Airways plc dated December 20, 1997 by and among the Company,
Hawker Pacific Aerospace Limited and British Airways plc., and related
Landing Gear Overhaul Services Agreement.+(2)
3.1 Amended and Restated Articles of Incorporation of the Company.(1)
3.2 Amended and Restated Bylaws of the Company.(1)
4.1 Specimen Common Stock Certificate.
4.2 Form of Representatives' Warrant Agreement.(2)
5.1 Opinion of Troy & Gould Professional Corporation.
10.1 1997 Stock Option Plan and forms of Stock Option Agreements.(1)
10.1A Amendment No. 1 to 1997 Stock Option Plan.
10.2 Employment Agreement dated November 1, 1996 between the Company and David
L. Lokken.(1)
10.2A First Amendment to Employment Agreement for David L. Lokken.
10.3 Employment Agreement dated November 1, 1996 between the Company and Brian
S. Aune.(1)
10.3A First Amendment to Employment Agreement for Brian S. Aune.
10.4 Employment Agreement dated November 1, 1996 between the Company and Brian
S. Carr.(1)
10.4A First Amendment to Employment Agreement for Brian S. Carr.
10.5 Employment Agreement dated November 1, 1996 between the Company and
Michael A. Riley.(1)
10.5A First Amendment to Employment Agreement for Michael A. Riley.
10.6 Form of Indemnity Agreement for directors and executive officers of the
Company.
10.7 Business Loan Agreement dated November 27, 1996 between the Company and
Bank of America National Trust and Savings Association.(1)
10.7A Amendment No. 1 to Business Loan Agreement between the Company and Bank of
America National Trust and Savings Association.
10.8 Agreement of Purchase and Sale of Stock effective as of November 1, 1996
by and among BTR Dunlop, Inc., BTR, Inc., the Company and Aqhawk,
Inc.(1)
10.9 Repair, Overhaul, Exchange, Warranty and Distribution Agreement dated
November 1, 1996 between the Company and Dunlop Limited, Aviation
Division.(1)+
10.10 Distribution Agreement dated November 1, 1996 between the Company and
Dunlop Limited, Precision Rubber.(1)
10.11 Repair, Overhaul, Exchange, Warranty and Distribution Agreement dated
November 1, 1996 between the Company and Dunlop Equipment Division.+(2)
10.12 Repair Services Agreement dated September 9, 1997 between the Company and
American Airlines, Inc.+
10.12A Form of First Amendment to Repair Services Agreement between the Company
and American Airlines, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.13 Award/Contract dated September 20, 1995 issued by USCG Aircraft Repair and
Supply Center to the Company.+(1)
10.14 Maintenance Services Agreement dated August 19, 1994 between the Company
and Federal Express Corporation.+(2)
10.14A Form of Second Amendment to Maintenance Services Agreement between the
Company and Federal Express Corporation.
10.15 Lease Agreement dated March 31, 1997 by and between the Company and
Industrial Centers Corp.(1)
10.15A Form of First Amendment to Lease Agreement dated March 31, 1997 by and
between the Company and Industrial Centers Corp.
10.16 Management Services Agreement dated November 14, 1997 between the Company
and Unique Investment Corp.(1)
10.17 Mergers and Acquisitions Agreement dated September 2, 1997 between the
Company and Unique Investment Corp.(1)
10.17A Form of First Amendment to Mergers and Acquisitions Agreement between the
Company and Unique Investment Corp.
10.18 Subordinated Note for $6,500,000 in favor of Melanie Bastian.
10.19 Form of Amended and Restated Subordinated Promissory Note in favor of
Melanie L. Bastian.
10.20 Certified Translation of Rental Agreement between Mr. C. G. Kortenoever
and Flight Accessory Services.
10.21 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.(2)
10.21A Form of First Amendment to Lease Agreement dated July 28, 1994 by and
between the Company and Industrial Bowling Corp.
10.22 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.(2)
10.23 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.(2)
10.24 Lease Agreement dated July 28, 1994 by and between the Company and
Industrial Bowling Corp.(2)
10.25 Lease Agreement dated June 24, 1997 by and between the Company and
Allstate Insurance Company.
10.25A Form of First Amendment to Lease Agreement between the Company and
Allstate Insurance Company.
10.26 Lease Agreement dated November 21, 1994 by and between the Company and
Gordon N. Wagner and Peggy M. Wagner, and Joseph W. Basinger and Viola
Marie Basinger.
10.27 Form of Amended and Restated Business Loan Agreement between the Company
and Bank of America National Trust and Savings Association.
10.28 Form of Security Agreement by the Company in favor of Bank of America
National Trust and Savings Association.
10.29 Form of Pledge Agreement by the Company in favor of Bank of America
National Trust and Savings Association.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.30 Form of Subordination Agreement by and among the Company, Hawker Pacific
Aerospace Limited, Bank of America National Trust and Savings
Association, Melanie L. Bastian and Unique Investment Corporation.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit
5.1).
23.3 Consent of Daniel C. Toomey, Director Nominee.(2)
23.4 Consent of Joel F. McIntyre, Director Nominee.(2)
24.1 Power of Attorney (1)
27.1 Financial Data Schedule(1)
</TABLE>
- ------------------------
+ Portions of exhibits deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidentiality.
(1) Previously filed on November 14, 1997.
(2) Previously filed on December 24, 1997.
(b) The following schedules supporting the financial statements are included
herein:
Schedule II--Valuation and Qualifying Accounts
<PAGE>
NUMBER
SHARES
COMMON STOCK
[Logo]
COMMON STOCK
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
CUSIP 420123 10 1
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, NO PAR VALUE,
OF
HAWKER PACIFIC AEROSPACE
transferable on the books of the Corporation by the holder hereof
in person or by duly authorized Attorney upon surrender of this
certificate properly endorsed. This certificate is not valid
until countersigned by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
[DANIEL J. LUBECK]
SECRETARY
[Seal]
[SCOTT W. HARTMAN]
CHAIRMAN OF THE BOARD
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
HAWKER PACIFIC AEROSPACE
A statement of the rights, preferences, privileges and
restrictions granted to or imposed upon each class or series of
shares authorized to be issued and upon the holders thereof may
be obtained, upon request and without charge, from the principal
executive office of the corporation.
The following abbreviations, when used in the inscription on the
face of this certificate, shall be construed as though they were
written out in full according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with the right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT ___Custodian_____
(Cust) (Minor)
under Uniform Gifts to Minors Act_________
<PAGE>
_____________________________
(State)
UNIF TRF MIN ACT ___Custodian (until age)_____
under Uniform Transfer to Minors Act
_____________________________
(State)
Additional abbreviations may also be used thought not in the
above list.
For Value Received, ______hereby sell(s), assign(s), and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF
ASSIGNEE(S)
of shares of the common stock represented by the within
Certificate, and do hereby irrevocably constitute and
appoint_______Attorney,
to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated
The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular,
without alteration or enlargement or any change whatever.
Signature(s) Guaranteed
By
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKER, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
January 23, 1998
Hawker Pacific Aerospace
11240 Sherman Way
Sun Valley, California 91352
Re: Registration Statement on Form S-1
(Registration No. 333-40295)
----------------------------------
Gentlemen:
We have acted as securities counsel to Hawker Pacific Aerospace, a
California corporation (the "Company"), in connection with the preparation
and filing with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Securities Act"), of a Registration Statement
on Form S-1, as amended, Registration No. 333-40295 (the "Registration
Statement"). The Registration Statement relates to the public offering by
the Company and a certain selling shareholder named therein (the "Selling
Shareholder") of up to 3,181,667 shares of Common Stock of the Company, of
which 2,600,000 shares are to be issued and sold by the Company (the "New
Shares") and 581,667 shares are to be sold by the Selling Shareholder (the
"Outstanding Shares"), including 415,000 shares to cover over-allotments, if
any.
The New Shares and the Outstanding Shares are to be sold by the Company
and the Selling Shareholder pursuant to an Underwriting Agreement (the
"Underwriting Agreement") by and among the Company, the Selling Shareholder
and Everen Securities, Inc. and The Seidler Companies Incorporated, acting as
representatives of the several underwriters named in the Underwriting
Agreement. This opinion is being furnished in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction,
of such documents, corporate records and other instruments as we have deemed
necessary or appropriate as a basis for the opinions set forth herein,
including (i) the Registration Statement of the Company filed with the
Securities and Exchange Commission; (ii) the Amended
<PAGE>
Hawker Pacific Aerospace
January 23, 1998
Page 2
and Restated Articles of Incorporation and the Amended and Restated Bylaws of
the Company, as amended to date; (iii) the form of the Underwriting
Agreement; (iv) the form of Common Stock Certificate; (v) copies of certain
resolutions adopted by the Board of Directors of the Company relating to the
issuance of the New Shares and the Outstanding Shares, the filing of the
Registration Statement and any amendments or supplements thereto and related
matters; and (vi) such other documents as we have deemed necessary or
appropriate as a basis for the opinions set forth below.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed by parties other than the Company, we have
assumed that such parties had the power, corporate or other, to enter into
and perform all obligations thereunder and have also assumed the due
authorization by all requisite action, corporate or other, and execution and
delivery by such parties of such documents and the validity and binding
effect thereof. As to any facts material to the opinions expressed herein
which were not independently established or verified, we have relied upon
oral or written statements and representations of officers and other
representatives of the Company and others.
Members of our firm are admitted to the bar in the State of California,
and we do not express any opinion as to the laws of any other jurisdiction,
other than the laws of the United States of America to the extent referred to
specifically herein.
Based on the foregoing, it is our opinion that, subject to effectiveness
with the Securities and Exchange Commission of the Registration Statement and
to registration or qualification under the securities laws of the states in
which securities may be sold,
1. The New Shares are duly and validly authorized and, upon the
sale and issuance thereof in the manner contemplated in the Registration
Statement and the Underwriting Agreement, and upon payment therefor, will
constitute legally issued, fully paid and nonassessable shares of Common
Stock of the Company; and
<PAGE>
Hawker Pacific Aerospace
January 23, 1998
Page 3
2. The Outstanding Shares are duly and validly authorized and
constitute legally issued, fully paid and nonassessable shares of Common
Stock of the Company.
We consent to the use of our name under the caption "Legal Matters" in
the Registration Statement, and to the filing of this opinion as an exhibit
to the Registration Statement. By giving you this opinion and consent, we do
not admit that we are experts with respect to any part of the Registration
Statement within the meaning of the term "expert" as used in Section 11 of
the Securities Act, or the rules and regulations promulgated thereunder, nor
do we admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act.
Very truly yours,
/s/ TROY & GOULD
TROY & GOULD
Professional Corporation
<PAGE>
AMENDMENT NO. 1 TO
1997 STOCK OPTION PLAN
OF
HAWKER PACIFIC AEROSPACE
The 1997 Stock Option Plan (the "Plan") of Hawker Pacific Aerospace is
hereby amended to add the following sentence at the end of Section 3 of the
Plan:
"No eligible person shall be granted Options during any twelve-month period
covering more than 640,000 shares."
<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
FOR DAVID L. LOKKEN
This First Amendment (this "Amendment") is dated November 14, 1997 BETWEEN
HAWKER PACIFIC AEROSPACE (formerly Hawker Pacific, Inc.) ("HPI"), having its
principal place of business at 11240 Sherman Way, Sun Valley, California
91352, AND DAVID L. LOKKEN ("Employee") of 48-571 Shady View Drive, Palm
Desert, California 92660, in order to amend that certain Employment
Agreement, dated November 1, 1996 (the "Agreement") between HPI and Employee
as herein set forth:
1. Section 4.1 of this Agreement is hereby amended to read in its entirety as
follows:
"4.1 BASE SALARY. Effective October 6, 1997, HPI shall pay Employee a
base salary of $205,000 (two hundred five thousand dollars) per year."
2. This Agreement is hereby amended to add a new Section 8 of the Agreement
to read in its entirety as follows:
"8. CHANGE IN CONTROL. In addition to any compensation, benefits or
rights Employee may have under Sections 4 and 5 above, in the event of a
"change in control," Employee will be paid eighteen (18) months salary
based on the total compensation package then in effect, in accordance
with a payment schedule to be determined at the time of such "change in
control". As used in this Agreement, a "change in control" shall mean (i)
the sale, transfer, conveyance or disposition, whether direct or
indirect, of all or substantially all of the assets of HPI, (ii) a
consolidation or merger of HPI with or into any entity in which HPI is
not the surviving entity, (iii) a consolidation or merger of HPI with or
into any other entity in which HPI is the surviving entity, if
immediately after such transaction the shareholders of HPI own less than
35% of the voting power of the capital stock of the surviving entity that
is normally entitled to vote in the election of directors, or (iv) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
whether or not applicable), other than the shareholders of Unique
Investment Corporation ("Unique") or affiliates of Unique, 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 HPI's voting power
of the capital stock normally entitled to vote in the election of
directors of HPI. The provisions of this Section 8 shall also apply if
Employee is terminated for any reason within 90 days of any "change in
control" of HPI, as defined above.
The parties execute this Agreement on the date set forth above.
HAWKER PACIFIC AEROSPACE EMPLOYEE
By:/s/ Scott Hartman /s/ DAVID L. LOKKEN
------------------------------ ------------------------------
Scott Hartman David L. Lokken
Its: Chairman
Page 1 of 1
<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
FOR BRIAN S. AUNE
This First Amendment (this "Amendment") is dated November 14, 1997 BETWEEN
HAWKER PACIFIC AEROSPACE (formerly Hawker Pacific, Inc.) ("HPI"), having its
principal place of business at 11240 Sherman Way, Sun Valley, California
91352, AND BRIAN S. AUNE ("Employee") of 25665 N. Shaw Place, Stevenson
Ranch, California 91381, in order to amend that certain Employment Agreement,
dated November 1, 1996 (the "Agreement") between HPI and Employee as herein
set forth:
1. Section 4.1 of this Agreement is hereby amended to read in its entirety as
follows:
"4.1 BASE SALARY. Effective October 6, 1997, HPI shall pay Employee a
base salary of $130,000 (one hundred thirty thousand dollars) per year."
2. This Agreement is hereby amended to add a new Section 8 of the Agreement
to read in its entirety as follows:
"8. CHANGE IN CONTROL. In addition to any compensation, benefits or
rights Employee may have under Sections 4 and 5 above, in the event of a
"change in control," Employee will be paid twelve (12) months salary
based on the total compensation package then in effect, in accordance
with a payment schedule to be determined at the time of such "change in
control". As used in this Agreement, a "change in control" shall mean (i)
the sale, transfer, conveyance or disposition, whether direct or
indirect, of all or substantially all of the assets of HPI, (ii) a
consolidation or merger of HPI with or into any entity in which HPI is
not the surviving entity, (iii) a consolidation or merger of HPI with or
into any other entity in which HPI is the surviving entity, if
immediately after such transaction the shareholders of HPI own less than
35% of the voting power of the capital stock of the surviving entity that
is normally entitled to vote in the election of directors, or (iv) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
whether or not applicable), other than the shareholders of Unique
Investment Corporation ("Unique") or affiliates of Unique, 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 HPI's voting power
of the capital stock normally entitled to vote in the election of
directors of HPI. The provisions of this Section 8 shall also apply if
Employee is terminated for any reason within 90 days of any "change in
control" of HPI, as defined above.
The parties execute this Agreement on the date set forth above.
HAWKER PACIFIC AEROSPACE EMPLOYEE
By: /s/ DAVID LOKKEN /s/ BRIAN S. AUNE
------------------------------ ------------------------------
David Lokken Brian S. Aune
Its: President & CEO
Page 1 of 1
<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
FOR BRIAN S. CARR
This First Amendment (this "Amendment") is dated November 14, 1997 BETWEEN
HAWKER PACIFIC AEROSPACE (formerly Hawker Pacific, Inc.) ("HPI"), having its
principal place of business at 11240 Sherman Way, Sun Valley, California
91352, AND BRIAN S. CARR ("Employee") of 12178 Cherry Grove Street, Moorpark,
California 93021, in order to amend that certain Employment Agreement, dated
November 1, 1996 (the "Agreement") between HPI and Employee as herein set
forth:
1. Section 4.1 of this Agreement is hereby amended to read in its entirety as
follows:
"4.1 BASE SALARY. Effective October 6, 1997, HPI shall pay Employee a
base salary of $130,000 (one hundred thirty thousand dollars) per year."
2. This Agreement is hereby amended to add a new Section 8 of the Agreement
to read in its entirety as follows:
"8. CHANGE IN CONTROL. In addition to any compensation, benefits or
rights Employee may have under Sections 4 and 5 above, in the event of a
"change in control," Employee will be paid twelve (12) months salary
based on the total compensation package then in effect, in accordance
with a payment schedule to be determined at the time of such "change in
control." As used in this Agreement, a "change in control" shall mean (i)
the sale, transfer, conveyance or disposition, whether direct or
indirect, of all or substantially all of the assets of HPI, (ii) a
consolidation or merger of HPI with or into any entity in which HPI is
not the surviving entity, (iii) a consolidation or merger of HPI with or
into any other entity in which HPI is the surviving entity, if
immediately after such transaction the shareholders of HPI own less than
35% of the voting power of the capital stock of the surviving entity that
is normally entitled to vote in the election of directors, or (iv) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
whether or not applicable), other than the shareholders of Unique
Investment Corporation ("Unique") or affiliates of Unique, 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 HPI's voting power
of the capital stock normally entitled to vote in the election of
directors of HPI. The provisions of this Section 8 shall also apply if
Employee is terminated for any reason within 90 days of any "change in
control" of HPI, as defined above.
The parties execute this Agreement on the date set forth above.
HAWKER PACIFIC AEROSPACE EMPLOYEE
By: /s/ DAVID LOKKEN /s/ Brian S. Carr
------------------------------ ------------------------------
David Lokken Brian S. Carr
Its: President & CEO
Page 1 of 1
<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
FOR MICHAEL A. RILEY
This First Amendment (this "Amendment") is dated November 14, 1997 BETWEEN
HAWKER PACIFIC AEROSPACE (formerly Hawker Pacific, Inc.) ("HPI"), having its
principal place of business at 11240 Sherman Way, Sun Valley, California
91352, AND Michael A. Riley ("Employee") of 1735 Coronado Court, Camarillo,
California 93010, in order to amend that certain Employment Agreement, dated
November 1, 1996 (the "Agreement") between HPI and Employee as herein set
forth:
1. Section 4.1 of this Agreement is hereby amended to read in its entirety as
follows:
"4.1 BASE SALARY. Effective October 6, 1997, HPI shall pay Employee a
base salary of $115,000 (one hundred fifteen thousand dollars) per year."
2. This Agreement is hereby amended to add a new Section 8 of the Agreement
to read in its entirety as follows:
"8. CHANGE IN CONTROL. In addition to any compensation, benefits or
rights Employee may have under Sections 4 and 5 above, in the event of a
"change in control," Employee will be paid twelve (12) months salary
based on the total compensation package then in effect, in accordance
with a payment schedule to be determined at the time of such "change in
control". As used in this Agreement, a "change in control" shall mean (i)
the sale, transfer, conveyance or disposition, whether direct or
indirect, of all or substantially all of the assets of HPI, (ii) a
consolidation or merger of HPI with or into any entity in which HPI is
not the surviving entity, (iii) a consolidation or merger of HPI with or
into any other entity in which HPI is the surviving entity, if
immediately after such transaction the shareholders of HPI own less than
35% of the voting power of the capital stock of the surviving entity that
is normally entitled to vote in the election of directors, or (iv) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
whether or not applicable), other than the shareholders of Unique
Investment Corporation ("Unique") or affiliates of Unique, 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 HPI's voting power
of the capital stock normally entitled to vote in the election of
directors of HPI. The provisions of this Section 8 shall also apply if
Employee is terminated for any reason within 90 days of any "change in
control" of HPI, as defined above.
The parties execute this Agreement on the date set forth above.
HAWKER PACIFIC AEROSPACE EMPLOYEE
By:/s/ DAVID LOKKEN /s/ Michael A. Riley
------------------------------ ------------------------------
David Lokken Michael A. Riley
Its: President & CEO
Page 1 of 1
<PAGE>
INDEMNITY AGREEMENT
This Indemnity Agreement ("Agreement") is made as of January ___, 1998,
by and between Hawker Pacific Aerospace, a California corporation (the
"Corporation"), and ___________ ___________________________, an individual
(the "Indemnitee"), a director and/or officer of the Corporation.
R E C I T A L S
A. The Corporation and the Indemnitee recognize that the
interpretation of statutes, regulations, court opinions and the Corporation's
Articles of Incorporation and bylaws is too uncertain to provide the
Corporation's officers and directors with adequate guidance with respect to
the legal risks and potential liabilities to which they may become personally
exposed as a result of performing their duties in good faith for the
Corporation.
B. The Corporation and the Indemnitee are aware of the substantial
increase in the number of lawsuits filed against corporate officers and
directors.
C. The Corporation and the Indemnitee recognize that the cost of
defending against such lawsuits, whether or not meritorious, may impose
substantial economic hardship upon the Corporation's officers and directors.
D. The Corporation and the Indemnitee recognize that the legal risks,
potential liabilities and expenses of defense associated with litigation
against officers and directors arising or alleged to arise from the conduct
of the affairs of the Corporation are frequently excessive in view of the
amount of compensation received by the Corporation's officers and directors,
and thus may act as a significant deterrent to the ability of the Corporation
to obtain experienced and capable officers and directors.
E. Section 317 of the California General Corporation Law, which sets
forth certain provisions relating to the indemnification of officers and
directors (among others) of a California corporation by such corporation, is
specifically not exclusive of other rights to which those indemnified
thereunder may be entitled under any bylaw, agreement, vote of shareholders
or disinterested directors, or otherwise.
F. In order to induce capable persons such as the Indemnitee to serve
or continue to serve as officers or directors of the Corporation and to
enable them to perform their duties to the Corporation secure in the
knowledge that certain
1.
<PAGE>
expenses and liabilities that may be incurred by them will be borne by the
Corporation, the Board of Directors of the Corporation has determined, after
due consideration and investigation of the terms and provisions of this
Agreement and the various other options available to the Corporation and the
Indemnitee in lieu of this Agreement, that the following Agreement is in the
best interests of the Corporation and its shareholders.
G. The Corporation desires to have the Indemnitee serve or continue to
serve as an officer and/or director of the Corporation, and the Indemnitee
desires to serve or continue to serve as an officer and/or director of the
Corporation provided, and on the express condition, that he is furnished with
the indemnity set forth below.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below, the Corporation and the Indemnitee agree as follows:
1. CONTINUED SERVICE. The Indemnitee agrees to serve or continue to
serve as a director and/or officer of the Corporation for so long as he is
duly elected or appointed or until such time as he resigns in writing,
subject to the terms of any applicable employment agreement.
2. DEFINITIONS.
(a) The term "Proceeding" shall include any threatened, pending or
completed action, suit or proceeding, whether brought in the name of the
Corporation or otherwise and whether of a civil, criminal or administrative
or investigative nature, including, but not limited to, actions, suits or
proceedings brought under or predicated upon the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, their respective
state counterparts or any rule or regulation promulgated thereunder, in which
the Indemnitee may be or may have been involved as a party or otherwise by
reason of the fact that the Indemnitee is or was a director and/or officer of
the Corporation, by reason of any action taken by him or of any inaction on
his part while acting as such director and/or officer, or by reason of the
fact that he is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, whether or not he is serving in
such capacity at the time any indemnified liability or reimbursable expense
is incurred.
(b) The term "Expenses" shall include, but shall not be limited to,
damages, judgments, fines, settlements and charges, costs, expenses of
investigation and expenses of
2.
<PAGE>
defense of legal actions, suits, proceedings or claims and appeals therefrom,
and expenses of appeal, attachment or similar bonds. "Expenses" shall not
include any judgments, fines or penalties actually levied against the
Indemnitee which the Corporation is prohibited by applicable law from paying.
3. INDEMNITY IN THIRD-PARTY PROCEEDINGS. Subject to Paragraph 8, the
Corporation shall indemnify the Indemnitee in accordance with the provisions
of this Paragraph 3 if the Indemnitee is a party to, threatened to be made a
party to or otherwise involved in any Proceeding (other than a Proceeding by
the Corporation itself to procure a judgment in its favor), by reason of the
fact that the Indemnitee is or was a director and/or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against all Expenses actually and
reasonably incurred by the Indemnitee in connection with the defense or
settlement of such Proceeding, provided it is determined, pursuant to
Paragraph 7 or by the court before which such action was brought, that the
Indemnitee acted in good faith and in a manner that he reasonably believed to
be in the best interests of the Corporation and, in the case of a criminal
proceeding, had no reasonable cause to believe that his conduct was unlawful.
The termination of any such Proceeding by judgment, order of court,
settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent
shall not, of itself, create a presumption that the Indemnitee did not act in
good faith or in a manner that he reasonably believed to be in the best
interests of the Corporation, and with respect to any criminal proceeding,
that such person had reasonable cause to believe that his conduct was
unlawful.
4. INDEMNITY IN PROCEEDINGS BY OR IN THE NAME OF THE CORPORATION.
Subject to Paragraph 8, the Corporation shall indemnify the Indemnitee against
all Expenses actually and reasonably incurred by the Indemnitee in connection
with the defense or settlement of any Proceeding by or in the name of the
Corporation to procure a judgment in its favor by reason of the fact that the
Indemnitee was or is a director and/or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, but only if he acted in good faith and in a manner that he
reasonably believed to be in the best interests of the Corporation and its
shareholders; provided, however, that no indemnification for Expenses shall be
made under this Paragraph 4 with respect to any claim, issue or matter as to
which the Indemnitee shall have been adjudged to be liable to the Corporation,
unless and only to the extent that any court in which such Proceeding is brought
shall determine upon application that despite the adjudication of liability, but
in view of all the circumstances of the case, the Indemnitee is
3.
<PAGE>
fairly and reasonably entitled to indemnity for such expenses as such court
shall deem proper.
5. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding
any other provisions of this Agreement, to the extent that the Indemnitee has
been successful on the merits or otherwise in defense of any Proceeding or in
defense of any claim, issue or matter therein, including the dismissal of an
action without prejudice, the Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.
6. ADVANCES OF EXPENSES. Expenses incurred by the Indemnitee pursuant
to Paragraphs 3 and 4 in any Proceeding shall be paid by the Corporation in
advance of the determination of such Proceeding at the written request of the
Indemnitee, if the Indemnitee shall undertake to repay such amount to the
extent that it is ultimately determined that the Indemnitee is not entitled
to indemnification.
7. RIGHT OF INDEMNITEE TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION. Any indemnification or advance under Paragraph 3, 4 or 6
shall be made no later than 30 days after receipt of the written request of
the Indemnitee therefor, unless a determination is made within said 30-day
period by (a) the Board of Directors of the Corporation by a majority vote of
a quorum thereof consisting of directors who were not parties to such
Proceedings, or (b) independent legal counsel in a written opinion (which
counsel shall be appointed if such a quorum is not obtainable) that the
Indemnitee has not met the relevant standards for indemnification set forth
in Paragraphs 3 and 4.
The right to indemnification or advances as provided by this Agreement
shall be enforceable by the Indemnitee in any court of competent
jurisdiction. The Corporation shall bear the burden of proving that
indemnification or advances are not appropriate. The failure of the
Corporation to have made a determination that indemnification or advances are
proper in the circumstances shall not be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of
conduct. The Indemnitee's Expenses incurred in connection with successfully
establishing his right to indemnification or advances, in whole or in part,
in any such Proceeding shall also be indemnified by the Corporation.
8. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE.
(a) Notwithstanding any other provision of this Agreement, the
Company shall not indemnify Indemnitee for any act or omission or transactions
for which indemnification is expressly prohibited by Section 204(a)(11) of the
California General Corporation Law.
4.
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(b) The right to indemnification provided by this Agreement shall
not be exclusive of any other rights to which the Indemnitee may be entitled
under the Corporation's Articles of Incorporation, bylaws, any agreement, any
vote of shareholders or disinterested directors, the California General
Corporation Law or otherwise, both as to action in his official capacity and
as to action in another capacity while holding such office. The
indemnification under this Agreement shall continue as to the Indemnitee even
though he may have ceased to be a director or officer, and shall inure to the
benefit of the heirs and personal representatives of the Indemnitee.
9. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Corporation for a
portion of his Expenses actually and reasonably incurred by him in any
Proceeding but not, however, for the total amount thereof, the Corporation
shall nevertheless indemnify the Indemnitee for the portion of such Expenses
to which the Indemnitee is entitled.
10. SEVERABILITY. If any provision of this Agreement or the
application of any provision hereof to any person or circumstance is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement
and the application of such provision to other persons or circumstances shall
not be affected, and the provision so held to be invalid, unenforceable or
otherwise illegal shall be revised to the extent (and only to the extent)
necessary to make it enforceable, valid and legal.
11. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, without giving effect
to the principles of conflict of laws thereof.
12. NOTICES. The Indemnitee shall, as a condition precedent to his right
to be indemnified under this Agreement, give to the Corporation written notice
as soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to the Corporation shall be
directed to Hawker Pacific Aerospace 11240 Sherman Way, Sun Valley, California
91352, Attention: President (or at such other address or to the attention of
such other person as the Corporation shall designate in writing to the
Indemnitee). Notices to the Indemnitee shall be sent to the Indemnitee at the
address set forth after his name on the signature page of this Agreement (or at
such other add-
5.
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resses the Indemnitee shall designate in writing to the Corporation).
HAWKER PACIFIC AEROSPACE
By:
------------------------------------
Title:
------------------------------
INDEMNITEE
---------------------------------------
---------------------------------------
(Print Name)
Address:
-------------------------------
-------------------------------
-------------------------------
6.
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AMENDMENT NO. 1 TO BUSINESS LOAN AGREEMENT
This Amendment No. 1 to Business Loan Agreement (this "Amendment")
dated as of November ___, 1997 is made with reference to the Business Loan
Agreement dated as of November 27, 1996 is made between BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION ("BANK") and HAWKER PACIFIC, INC., a
California corporation ("BORROWER"). Borrower and bank hereby agree as
follows:
1. SECTION 1 - DEFINITIONS. Capitalized terms used in this
Amendment but not defined are used with the meanings set forth for those
terms in the Business Loan Agreement. In addition, the following additional
defined terms are added to Section 1 of the Business Loan Agreement:
"AMR PAYABLE" means Borrower's obligation to pay $2,854,372 to American
Airlines, Inc. for certain inventory acquired by Borrower pursuant to a
repair services agreement.
"QUALIFIED PUBLIC OFFERING" means a public offering of the common stock
of the Borrower which yields cash proceeds to the Borrower (net of
underwriting discounts and transactional expenses) of not less than
$17,000,000.
2. SECTION 11.4 - QUICK RATIO. The preamble to Section 11.4 of
the Business Loan Agreement is hereby amended to read in full as follows,
with such amendment to have retroactive effect to September 30, 1997:
"As of the last day of each calendar month ending during a period
described below, to maintain a ratio of (a) Quick Assets to (b) current
liabilities (excluding the current portion of long term debt, and
capital leases AND THE AMR PAYABLE, but including advances and
commercial Letters of Credit outstanding under Facility No. 1 to the
extent that the same exceed Borrower's aggregate cash, cash balances, and
short term cash investments) which is not less than the ratio set forth
opposite that calendar month:"
3. SECTION 12.15 - AMENDMENT TO CHANGE IN CONTROL. Section 12.15
of the Business Loan Agreement is hereby amended to read in full as follows:
"12.15 CHANGE IN CONTROL OR MANAGEMENT. Any of the following occurs:
(a) Bastian fails to own, beneficially and of record directly or
indirectly, and control the power to vote, at least 40% of the equity
interests in Borrower AT ANY TIME PRIOR TO THE OCCURRENCE OF A QUALIFIED
PUBLIC OFFERING; or
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<PAGE>
(b) At any time prior to the merger of Borrower and AqHawk, AqHawk
fails to own 100% of the equity interest in Borrower; or
(c) The individuals owning equity interest in AqHawk, as described
in Schedule 1 (or, after the merger of Borrower and AqHawk, owning
equity interests in Borrower) collectively sell, assign or otherwise
transfer, either beneficially or of record, more than 10% of the total
equity interests in AqHawk (and/or Borrower), other than to members of
their immediate families or trusts for the benefit of members of their
immediate families, OR IN CONNECTION WITH (OR FOLLOWING) A QUALIFIED
PUBLIC OFFERING; or
(d) David Lokken ceases to be actively involved on a full time basis
as an executive level employee of Borrower at any time during the two
year period following the Closing Date and a replacement acceptable to
Bank is not appointed (or another plan for replacement which is
acceptable to the Bank is not in place) within 90 days.
4. CONSENT TO ACQUISITION. Subject to the conditions precedent set
forth herein, the Bank hereby consents to the purchase, at any time following
the consummation of a Qualified Public Offering, by Borrower of the Landing
Gears Repair and Overhaul Business of British Airways Plc, substantially on
the terms set forth in the Letter of Intent therefor delivered to the Bank,
PROVIDED that (i) substantially all of the funds from such Qualified Public
Offering are use to partially finance the $22,000,000 purchase price for
such purchase, and (ii) Borrower has obtained financing for the balance of
such purchase which is reasonably acceptable to the Bank.
5. WAIVER RE EXCESS CASH FLOW. The Bank hereby agrees that it shall
not require the making of any payment by Bastian or Unique pursuant to
Section 2.3, clause (iv) of the Subordination Agreement by reason of Excess
Cash Flow (or any lack thereof) during Borrower's 1997 fiscal year. This
waiver is a one-time waiver only, and the Bank shall be free to request the
making of such payments with respect to any other fiscal year. It is agreed
that this waiver shall not be construed in derogation of the Guaranty issued
by Unique and Bastian.
6. REPRESENTATION. No Default or Event of Default has occurred
under the Business Loan Agreement and remains continuing which is not cured
by this Amendment.
7. CONDITIONS. There shall be conditions precedent to the
effectiveness of this Agreement that Melanie Bastian and Unique Investment
Corporation shall have consented hereto.
8. EXPENSES. Borrower confirms its obligations to pay the reasonable
expenses of the Bank in connection with the preparation of this Amendment.
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<PAGE>
9. CONFIRMATION. In all other respects, the terms of the Business
Loan Agreement and the instruments, documents and agreements executed in
connection therewith are hereby confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above by their duly authorized representatives.
BANK OF AMERICA NATIONAL HAWKER PACIFIC, INC., a
TRUST AND SAVINGS ASSOCIATION California corporation
By [ILLEGIBLE] By /s/ Brian Aune
-------------------------------- ----------------------------------
Title Vice President Title CFO
----------------------------- -------------------------------
By By
-------------------------------- ----------------------------------
Title Title
----------------------------- -------------------------------
Consented to: Consented to:
UNIQUE INVESTMENT CORPORATION
By /s/ Daniel J. Lubeck /s/ Melanie Bastian
------------------------------- ---------------------------------
Melanie Bastian, individually
Title President
---------------------------
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EXHIBIT 10.12
Agreement No. 999701000 September 9, 1997
Form AARSA-01
Rev. 16 (01-96)
Repair Services Agreement
This Repair Services Agreement is made effective as of the day of
September, 1997 between American Airlines, Inc., a Delaware corporation with
its principal place of business at 4333 Amon Carter Blvd., Fort Worth, Texas
76155 (herein "AMERICAN" ) and Hawker Pacific Inc., a California Corporation,
with its principal place of business at 11240 Sherman Way, Sun Valley,
California 91352 (herein "Supplier").
TERMS AND CONDITIONS
1. SERVICES. Subject to the terms and conditions of this Agreement, American
agrees to purchase and Supplier agrees to provide the repair and exchange
services (the "SERVICES") for the components, equipment and parts (the
"ARTICLES") described in the attached EXHIBIT A as American may request from
time to time. Supplier shall also perform additional services (the "ADDITIONAL
SERVICES") agreed upon by the parties from time to time as evidenced by the
execution of an Additional Services/Work Change Authorization, in form and scope
substantially similar to the attached EXHIBIT B. For ease of drafting, Services
and Additional Services are sometimes hereinafter referred to collectively as
Services. The intent of the parties is that the providing of services is
exclusive to Supplier subject to Supplier's performance under the contract and
subject to any decision American may subsequently make to perform Services in
house.
2. CHARGES. In consideration of Supplier's performance of the Services,
American shall pay or cause to be paid to Supplier the charges set forth in
EXHIBIT A and the amounts agreed upon in the Additional Services
Authorization Form for Additional Services. No sooner than five (5) days
prior to the scheduled exchange dock date, Supplier shall submit to American
an invoice for the performance of the Services to the address identified in
EXHIBIT A, or such other place as American may advise Supplier in writing.
For unscheduled events, Supplier shall submit the invoice at the time
Supplier re-fills the backorder in American's Inventory system. In addition,
Supplier may submit an additional invoice for missing parts and for parts
damaged by mishandling or incident, as caused by American, identified at
incoming inspection or during the overhaul process. Payment to Supplier shall
be made in U.S. Dollars to the address identified in EXHIBIT A, and shall be
paid within thirty (30) days following American's receipt of Supplier's
properly documented invoice. In the event that American in good faith
disputes any invoiced amount, within thirty (30) days following receipt of
the invoice, American will notify Supplier in writing of any disputed amount
and submit payment for all undisputed amounts in accordance with this
Section. The unpaid disputed amounts will be resolved by mutual negotiations
of the parties. No payment by American shall be deemed an acceptance of the
Services and American shall have the right to recover any amounts previously
paid in error. Supplier shall keep full and accurate records of all costs and
labor billed in connection with performance of the Services and shall make
such records available for audit by American until three (3) years after the
expiration or earlier termination of this Agreement. Supplier shall further
ensure all subcontractors performing Services hereunder will likewise keep
such records and make them available to American for audit upon request for
up to three (3) years following their performance of any Service by the
subcontractor.
3. TERM. The term of this Agreement (the "TERM") shall commence upon
execution of this Agreement by both parties and shall, unless earlier
terminated in accordance with the terms hereof, end on the date set forth in
EXHIBIT A. American shall have the right to renew the term of this Agreement
as described in EXHIBIT A, with the charges for the Services being subject to
renegotiation for the Renewal Term. American reserves the right, in its sole
and absolute discretion, to terminate this Agreement at any time with one (1)
year prior written notice to Supplier in consideration of performing the
Services in house. Upon expiration or earlier termination of this Agreement,
Supplier shall complete all Services in process and shall protect and
THE [*] INDICATES THAT PORTIONS OF TEXT HAVE BEEN DELETED AND ARE BEING FILED
UNDER SEPARATE COVER WITH THE SECURITIES EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT.
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return all of American's property in its possession. In the event of termination
of this Agreement, American shall have the first right of refusal to purchase
back at a mutually agreed upon price not to exceed the Suppliers acquisition
cost, any inventory acquired by the supplier from American. See list in Exhibit
A.
4. SUPPLIER REPRESENTATIONS Supplier hereby represents and warrants to
American the following:
(a) Supplier is and will remain the holder of the FAA Repair Station
Certificate identified in EXHIBIT A and is authorized under 14 C.F.R. Part
121/145 to perform the Services set forth herein. Supplier shall
immediately notify American upon any suspension, revocation, relevant
change or deletion of its FAA authorization.
(b) Supplier has and will maintain during the term of this Agreement, a
Drug Testing Program under its administration and control that has been
approved by the FAA, in full compliance with FAR Part 121 Sections 121.429,
121.455 and 121.457. Supplier shall immediately notify American of any
changes to the FAA approval of its Drug Testing Program.
(c) Supplier is duly organized and validly existing and has the power and
authority to execute and deliver, and to perform its obligations under this
Agreement. Supplier's execution and delivery of this Agreement and the
performance of its obligations hereunder have been and remain duly
authorized by all necessary action and do not contravene any provision of
its certification of incorporation or by-laws (or equivalent constituent
documents) or any law, regulation or contractual restriction binding on or
affecting Supplier or its property.
(c) This Agreement is Supplier's legal, valid and binding obligation,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally, and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding in
equity or in law).
5. TURN TIMES. Supplier shall perform the Services within the turn times set
forth in EXHIBIT A and the Additional Services within the turn times set forth
in the Additional Services Authorization Form. Supplier acknowledges that time
is of the essence in performance of the Services. Failure to meet the turn times
will subject American to significant damages that are difficult, if not
impossible, to determine under the circumstances existing at the time this
Agreement is made. Accordingly, as a reasonable estimate of the minimum amount
of damages American will suffer, Supplier agrees to pay American liquidated
damages in an amount equal to that shown in EXHIBIT A for each day any Service
is delayed beyond the scheduled redelivery date unless such delay is consented
to by American in writing or results from an Excusable Delay, as defined herein.
The liquidated damages provided for above are intended to establish only the
minimum amount of American's damages. In addition to payment of the daily
liquidated damages charges for not meeting turntimes in accordance with Exhibit
A, Supplier will (when a turntime is not met) also reimburse American for
reasonable costs incurred by American to support scheduled dock dates.
6. EXCUSABLE DELAYS. Supplier shall be excused from performance of the
Services to the extent that such performance is delayed by reasons beyond the
reasonable control of SUPPLIER (AN "EXCUSABLE DELAY"), provided the Excusable
Delay is not occasioned by the fault or negligence of the Supplier. Delays
associated with the delivery of the Articles to Supplier later than the fifth
day after the dock date of the Aircraft shall be deemed an excusable delay.
Delays by Supplier's subcontractors shall in no event be an Excusable Delay.
Any Excusable Delay shall last only as long as the event remains beyond the
control of the Supplier and only to the extent that it is the primary cause
of the delay. Supplier shall use its best efforts to minimize the effects of
any Excusable Delay and shall notify American immediately upon the occurrence
of such an event. If the Excusable Delay lasts in excess of ten (10) days,
American shall have the right to terminate this Agreement or employ third
parties to perform the Services.
7. DELIVERY / REDELIVERY. All Articles upon which the Services are to be
performed shall be delivered by American, at its sole cost and expense, to
Supplier's repair facility. Articles may be accompanied by a
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return order in a form similar to the attached EXHIBIT C; provided, however, no
provision of any individual return order which contains terms or conditions
different from the terms and conditions of this Agreement shall be construed as
a waiver, amendment or modification of this Agreement. Upon completion of the
Services, Supplier shall deliver the Articles to American at AFW or any field
location designated by American in the same or comparable shipping container to
that in which the Articles were received by Supplier. From receipt of any
Article until redelivery as provided herein, Supplier shall be fully responsible
for any loss or damage to an Article. Supplier shall use any carrier designated
by American and such designated carrier shall invoice American for the actual
cost of such shipping.
8. PERFORMANCE STANDARDS. Supplier shall perform the Services in accordance
with the relevant specifications described in EXHIBIT A. American shall have the
right to change the specifications from time to time as it deems necessary;
provided, however, any change affecting the cost of any parts required to
perform the Services by more than [*] percent [*] or in a change of [*]
percent [*] or more in the number of man-hours required to perform any Service,
shall entitle Supplier to an adjustment in the charge and turn time for such
Service, as agreed upon by the parties in writing. Any deviation from the
specifications must have the prior written authorization of American the
Additional Services/Work Authorization form.
9. FAA COMPLIANCE, Supplier warrants that Services performed hereunder will
comply with all applicable laws, including without limitation, all Federal
Aviation Administration ("FAA") orders or regulations and any other United
States Regulatory Agency or body having jurisdiction over the Services. Supplier
shall at all times meet the technical and operational requirements of an FAA
Certificated Repair Station.
10. PROVISION AND MANAGEMENT OF PARTS. Except as otherwise notified by American
in writing, Supplier shall provide all parts and materials necessary for the
performance of the Services. Supplier shall be responsible for the timely
procurement of such parts and materials to ensure completion of the Services in
accordance with the terms and conditions of this Agreement. All parts used by
Supplier shall be secured only from sources which can trace their origin to the
manufacturer and be of a part number and modification status as listed and
identified in American's applicable Illustrated Parts Catalog. Any deviation
from the applicable Illustrated Parts Catalog must have written authorization
via an Engineering Authorization from American's Engineering Group prior to the
use of such part. Material certification slips, where applicable, shall be
retained by Supplier and copies supplied with the parts upon installation.
American reserves the right, at its sole discretion, to furnish to Supplier any
parts or material for the performance of the Services, which parts and materials
shall be delivered to Supplier by no later than the arrival at Supplier's
facility of the Articles upon which the Services are to be performed. At no cost
to American, Supplier shall maintain a material management organization staffed
to handle the receiving, inventory, warehousing, quality control, inspection,
storage, transportation, packaging, issuance and disposition of parts. In that
regard, Supplier shall accumulate, store and assume full responsibility for all
parts supplied by American, unserviceable recoverable parts and scrap material
and shall provide American with a monthly inventory of such items. American
shall give Supplier, at least quarterly, directions on the disposition of all
such parts and materials.
11. MONITORING OF WORK. American shall have the unrestricted right to monitor
performance of the Services in progress. For that purpose, Supplier shall permit
American's agents or employees to enter Supplier's facilities when the Services
are being performed. Supplier shall impose an identical requirement on any
subcontractor performing Services as permitted hereunder.
Supplier shall provide office space and equipment for use by an American
representative during the term of this contract.
12. RECORDKEEPING REQUIREMENTS. Supplier shall maintain, and shall require
all its subcontractors to maintain, all records in connection with the Services
as required by American or by the FAA, in a format approved by American.
Supplier shall supply to American all such records, including those maintained
by subcontractors, upon redelivery of Article. In particular, and not by way of
limitation, Supplier shall return
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with each Article upon which Services are performed, a properly executed FAA
Form 8130-3 Airworthiness Approval Tag, and a repair findings report.
Supplier shall also obtain and provide to American, proper approval for any
repairs that require OEM or FAA substantiation.
13. USE OF SUBCONTRACTORS. Supplier may have any of the Services performed by
subcontractors after first obtaining the prior written consent of American.
American reserves the right to require Supplier refrain from the use of a
particular subcontractor. Nothing in this Agreement shall create any contractual
relationship between American and any such subcontractor and no subcontract
shall relieve Supplier of its obligations hereunder should the subcontractor
fail to perform in accordance with the provisions of this Agreement. American
shall have no obligation to pay or to see to the payment of any moneys to any
subcontractor; provided, however, American reserves the right to make payment
directly to any subcontractor (or jointly to such subcontractor and Supplier) in
such amount as American determines necessary to protect itself and its equipment
from claims arising out of Services performed or parts provided by a
subcontractor. American will notify supplier of any subcontractor's claim and
will give Supplier a reasonable opportunity to cure. If Supplier fails to cure
such claim, American may, but shall not be required, to pay the subcontractor's
claim and reduce such payment from amounts owed to Supplier. American shall
incur no liability as a result of any such payments made pursuant to this
Section.
14. WARRANTIES. With respect to the Services performed for American by Supplier
and any of its subtiers hereunder, Supplier warrants that the Services,
excluding normal wear on seals, hoses and cables and damage due to misuse, will
(i) conform in all respects to the requirements of this Agreement, (ii) except
as set forth in EXHIBIT A, be free from all defects, whether patent or latent,
in materials and workmanship until the next overhaul, following redelivery of
any Article upon which Services are performed, (iii) be suitable for the
purposes intended whether expresses or reasonably implied, and (iv) be free and
clear from all liens, charges and encumbrances of any kind whatsoever resulting
from Supplier's performance of the Services. To the extent any parts are covered
by any warranty made by the manufacturer or subtier suppliers of such parts,
Supplier hereby assigns to American all of Supplier's right, title and interest
to such warranties.
Supplier's liability for breach of the warranties set forth above (a
"DEFECT") shall be, at American's option, reservicing, repairing or replacing
all or any portion of the Defect, and to the repair or replacement of any other
item of equipment which has been returned to Supplier and, in the reasonable
determination of American and Supplier, has suffered damages caused by the
Defect in the warranted part or Services. Supplier shall further be responsible
for (i) reasonable transportation charges incurred by American for return of
Articles containing a Defect and any other Articles suffering damage as a result
of such Defect, and (ii) the expenses incurred by American in the removal and
reinstallation of any such Articles.
At American's option, it may repair, or obtain the repair of, any Defect
and any damaged Article resulting therefrom. In that event, Supplier shall
reimburse American all costs and expenses incurred in connection with the repair
as substantiated by American to Supplier.
15. INDEMNIFICATION. Supplier hereby releases and agrees to indemnify, defend,
and hold harmless American, its parent company, subsidiaries and affiliates, and
their respective officers, directors, agents and employees (collectively herein
the "INDEMNIFIED PARTIES") from and against any and all liabilities, damages,
losses, expenses, claims, suits or judgments (including without limitation all
attorney's fees, costs, and expenses in connection therewith or incident
thereto), for the death of or bodily injury to any person (including, without
limitation Supplier's employees) and for the loss of, damage to or destruction
of any property whatsoever in any manner arising out of the performance of the
Services, except to the extent such injury, death or damage is, directly,
attributable to the negligence or willful misconduct or omissions of American.
American hereby releases and agrees to indemnify, defend, and hold harmless
Supplier, its parent company, subsidiaries and affiliates, and their respective
officers, directors, agents and employees from any and all liabilities, damages,
losses, expenses, claims, suits or judgements (including without limitation all
attorney's fees, costs, and expenses in connection therewith or incident
thereto), for the death of or bodily injury to any person (including, wihout
limitation American's employees) and for the loss of, damage to or
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<PAGE>
destruction of any property whatsoever in any manner arising out of the purchase
of the services, but only to the extent such injury, death or damage is directly
attributable to the negligence or willful misconduct or omissions of American.
16. INDEPENDENT CONTRACTOR. Supplier is an independent contractor and personnel
used or supplied by Supplier in performance of this Agreement shall be and
remain employees or agents of Supplier, and under no circumstances are such
personnel to be considered employees or agents of American. Supplier shall have
the sole responsibility for supervision and control of its personnel. Each party
assumes full responsibility for any and all liability on account of bodily
injury to or death of any of its own employees occurring in the course of their
employment.
17. INSURANCE. Throughout the term of this Agreement, Supplier shall maintain
in full force at its expense, the following insurance:
(i). Product Liability and Completed Operations Liability Insurance,
including contractual coverage in the amount not less than U.S.
$[*] and shall extend for a period of three (3) years
following the termination of this Agreement;
(ii). Property Insurance covering all risks and covering all property
in Supplier's custody and control in an amount at least equal to
the value of American's property in Supplier's possession.
(iii). Worker's Compensation and Employer's Liability insurance in the
statutory amount required by the State where the Services are
performed.
Supplier shall have its insurers provide certificates of insurance evidencing
the coverages required herein, and such insurance certificates shall also
include the following special provisions:
(a). The Indemnified Parties shall be included as additional insureds.
(b). The insurer(s) shall accept and insure the indemnification and
hold harmless provisions of Section 15.
(c). The insurer(s) shall waive any rights of subrogation they may or
could have against any of the Indemnified Parties except to the
extent directly attributable to the negligence or willful
misconduct or omissions of any such parties.
(d). To the extent of Supplier's liability under this Agreement,
insurance shall be primary without right of contribution from any
insurance carried by the Indemnified Parties.
(e). Such insurance shall not be invalidated with respect to any of
the Indemnified Parties by any action or inaction of Supplier,
and shall insure each of the Indemnified Parties regardless of
any breach or violation of such policy by Supplier.
(f). The insurer(s) will give at least thirty (30) days prior written
notice to American before any adverse change in the coverage of
such policies.
18. CONFIDENTIALITY. American and Supplier each agree that all information
communicated to each other in connection with this Agreement will be received in
strict confidence and will not be disclosed, transferred, used or otherwise made
available by the party receiving such information (the "RECIPIENT") to any third
party without the prior written consent of the party disclosing the information
(the "DISCLOSING PARTY"). In that regard, each party agrees to exercise care
that is at least equal to the care it uses to protect the confidentiality of its
own confidential and proprietary information of similar importance to prevent
the disclosure to outside parties or the unauthorized use of such information.
This Section shall not be violated by disclosure of information which (i) at the
time of disclosure is publicly available or becomes available
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through no act or omission of the Recipient, (ii) is disclosed to the Recipient
by a third party which did not acquire the information under an obligation of
confidentiality, (iii) can be shown by credible evidence to have already been in
the possession of the Recipient at the time of disclosure hereunder, or (iv) is
disclosed as required by court order or as otherwise required by law, on the
condition that notice of the requirement for such disclosure is given to the
Disclosing Party prior to making any disclosure and the Recipient cooperates in
resisting the requirement for such disclosure as the Disclosing Party may
reasonably request. In the event either party violated or threatens to violate
the provisions of this Section, the other party shall be entitled to obtain from
a court of competent jurisdiction preliminary or permanent injunctive relief, in
addition to any other remedies available at law or in equity.
19. AMERICAN'S RIGHT TO USE DOCUMENTATION. American shall have the royalty-free
right to use and disclose for the purposes of the sale, use, maintenance or
lease of any of its aircraft, any written documentation or information received
from Supplier which is required for use in the operation and maintenance of such
aircraft. American shall also have the unlimited right to duplicate said written
documentation for the purposes set forth above.
20. EVENT OF DEFAULT AND REMEDIES. The following events shall constitute
non-exclusive events of default:
(i). If either party shall fail in the performance of any of the
obligations contained in this Agreement, which failure shall
continue uncured for a period of thirty (30) days following
written notice from the other party.
(ii). If either party shall file a voluntary petition in bankruptcy, or
shall be adjudicated a bankrupt or insolvent or shall file any
petition or answer seeking any reorganization, composition,
readjustment, liquidation or similar relief for itself under any
present or future statute, law or regulation of the United States
or shall seek or consent to or acquiesce in the appointment of
any trustee, or shall make any general assignment for the benefit
of creditors, or shall admit in writing its inability to pay its
debts generally as they become due.
(iii). If a petition shall be filed against either party seeking any
reorganization, composition, readjustment, liquidation or similar
relief under any present or future statute, law or regulation of
the United States and shall remain undismissed or unstayed for an
aggregate of ninety (90) days (whether or not consecutive), or if
any trustee, receiver or liquidator of either party is appointed,
which appointment shall remain unvacated or unstayed for an
aggregate of ninety (90) days (whether or not consecutive).
(iv). If any representation or warranty made by any party herein or
made in any statement or certificate furnished or required
hereunder, or in connection with the execution and delivery of
this Agreement proves untrue in any material respect as of the
date of the issuance or making thereof.
Upon the occurrence of any Event of Default, the non-defaulting party shall be
entitled to terminate this Agreement in all respects and shall further be
entitled to all remedies under applicable laws, which remedies shall be
cumulative and not exclusive.
21. NOTICES. Unless otherwise specified by the parties, all notices, approvals,
requests, consents and other communications given pursuant to this Agreement
shall be in writing and shall be deemed to have been duly given when received if
hand-delivered, sent by telex, sent by overnight courier or sent by United
States certified or registered mail, addressed to the notices addresses set
forth in EXHIBIT A, or to such other persons or addresses as may be subsequently
specified by either party in writing.
22. ASSIGNMENT. This Agreement shall inure to the benefit of and be binding
upon each of the parties and their respective successors and assigns, but
neither the rights nor the duties of either party under this
6
<PAGE>
Agreement may be voluntarily or involuntarily assigned, in whole or part,
without the prior written consent of the other party.
23. CHANGE OF CONTROL. In the event of any Change of Control by the Supplier,
or termination of business by Supplier, American may, at its option, exercise
any or all of the following rights. Supplier shall notify American at least
thirty (30) days before any such Change of Control, subject to the requirements
of applicable law and American's entering into a customary Confidentiality
Agreement with respect of any such disclosure. For purposes of this section, a
Change of Control shall consist of: (1) the dissolution or liquidation of
Supplier, (2) any reorganization, merger, or consolidation of Supplier, or any
other transaction with one or more corporations or persons as a result of which
thirty-five percent (35%) or more of the equity securities of Supplier is
exchanged for or converted into cash or property or securities not issued by
Supplier, or as a result of which there is a change in ownership of existing
equity securities of Supplier or the issuances of new equity securities of
Supplier (or the right or option to acquire such equity securities) which equal
or exceed thirty-five percent (35%) in amount of the equity securities of
Supplier outstanding immediately prior to such transaction, (3) the sale of (or
agreement to sell or grant of a right or option to purchase as to) all or
substantially all of the assets of Supplier to any person or entity or (4) any
change in Supplier's Senior management, defined as President and CEO, Vice
President, or Local Representation, during the two year period commencing on the
effective date of this Agreement. In this event:
1. American shall have the option, exercisable in its reasonable
discretion, to immediately terminate this Agreement or require completion
of Agreement to term upon any Change of Control of Supplier.
2. All pricing, delivery terms and all other rights under this agreement
shall be fixed, and remain in effect under the new ownership for the
original term. However, American may, at its sole option, exercise two (2)
additional extensions, with terms of five (5) years each, with a [*]
over the prior periods pricing, effective with each renewal.
Further, if supplier performance, as measured by American's SE-2000
Program, falls below MAP in any one or more areas, the liquidated damages
in effect will be [* ]for that entire [*] and remain in effect each
month until the condition is corrected.
3. In the event of termination of business, or as a result of change of
ownership the new owners decide to discontinue the manufacture of a
product, or a proprietary repair service utilized by American under this
contract, Supplier shall provide all rights, licenses, drawings, PMA, STC,
or DER approvals, process information and equipment, so as to allow
American, or such 3rd party designated by American, to continue the supply
of such parts and services for use of American and its customers. American
may at any time, at its sole discretion, have unrestricted use of such
documentation for alternate sourcing of parts or repairs for which it
contributed technical or material assistance in their development. In the
event of termination of business, ownership of PMA's or repairs developed
with American's technical and material assistance, will revert to American.
4. Parts, PMA parts or repair services that were provided to American with
a license/royalty fee from the OEM included in American's price, will have
that fee removed if that OEM takes an ownership position as the Supplier of
this Agreement.
5. To prevent any disruption in product supply, Supplier will maintain a 6
months new parts supply for two years following the change of ownership.
Shop pools for repair coverage will be increased 50% over the same period.
24. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND GOVERNED ACCORDING TO
THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ITS CONFLICT OF LAWS
PROVISIONS.
25. CHOICE OF FORUM. ANY SUIT, ACTION OR PROCEEDING AGAINST SUPPLIER OR
AMERICAN WITH RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN THE COURTS OF THE
STATE OF
7
<PAGE>
TEXAS, COUNTY OF TARRANT, OR IN THE UNITED STATES DISTRICT COURTS FOR THE
NORTHERN DISTRICT OF TEXAS, AND SUPPLIER HEREBY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING.
SUPPLIER FURTHER IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT BROUGHT IN THE COURTS LOCATED IN THE STATE OF TEXAS,
COUNTY OF TARRANT AND THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
26. MERGER. This Agreement sets forth the entire agreement of the parties and
shall supersede any previously executed agreements or oral understandings
between the parties or any representations, claims or other statements not
contained herein which relate to the subject matter of this Agreement.
27. SAVINGS CLAUSE. If any provision of this Agreement is declared unlawful or
unenforceable as a result of final administrative, legislative or judicial
action, the parties agree that this Agreement shall be deemed to be amended to
conform with the requirements of such action and that all other provisions
herein shall remain in full force and effect.
28. WAIVER CLAUSE. No failure or delay by either party in requiring strict
performance of this Agreement and no previous waiver or forbearance of the terms
of this Agreement by a party hereto and no course of dealing, shall in any way
be construed as a waiver or continuing waiver of any provision of this
Agreement.
29. SURVIVAL. Notwithstanding anything herein to the contrary, Sections 2, 14,
15, 17, 18, 19, 24, and 25 shall survive the expiration or termination of this
Agreement.
IN WITNESS WHEREOF, the American and Supplier have entered into this Agreement
effective as of the date set forth above.
HAWKER PACIFIC, INC AMERICAN AIRLINES, INC.
By:/s/ Brian Carr By: /s/ John R. MacLean
------------------------- -------------------------
Name: Brian Carr Name: John R. MacLean
----------------------- -------------------------
Title: Vice President, LGBU Title: V P Purchasing
---------------------- -------------------------
Date: 11 Sept. 97 Date: 9/29/97
----------------------- -------------------------
8
<PAGE>
EXHIBIT A
TO
REPAIR SERVICES AGREEMENT
PERFORMANCE STANDARDS
<TABLE>
<CAPTION>
DESCRIPTION
1. OF SERVICES ARTICLES PART NO. CHARGES
----------- -------- -------- -------
<S> <C> <C> <C>
A. Landing Gear Overhaul B757 Landing Various $ [*]
Gear Shipset (FFP - Incl.
1 each - includes scrappage)
below listed
components.
B. Component Overhaul - Trim Cylinder 161N0001-113 $ [*]
Individual component Steering Actuators 275N1211-2 $ [*]
offload - shipped Steering Valve 3800014-106 $ [*]
separately MLG Torque Link 161N1501-3 $ [*]
RH MLG Assy 654N0241-4 $ [*]
LH MLG Assy 654N0241-3 $ [*]
NLG Assy 654N0242-1 $ [*]
RH MLG Side Strut 161N0001-144 $ [*]
LH MLG Side Strut 161N0001-143 $ [*]
RH MLG Side Strut 161N001-124 $ [*]
LH MLG Side Strut 161N001-123 $ [*]
NLG Drag Strut 161N0001-104 $ [*]
MLG Truck Assy 161N1601-7 $ [*]
RH MLG Reaction Link 161N2301-8 $ [*]
LH MLG Reaction Link 161N2301-7 $ [*]
NLG Steering Collar 162N1146-4/-3 $ [*]
MLG Tow Fitting 161N1621-1 $ [*]
NLG Drag Fwd Link 1623101-1 $ [*]
NLG Drag Aft Unk 162N3101-10 $ [*]
NLG Upper Torsion Link 162N1132-7 $ [*]
NLG Lower Torsion Link 1621134-7 $ [*]
MLG Stabilizer Link 161N2517-1 $ [*]
MLG Side Support Link 161N2401-1 $ [*]
MLG Trunnion Link 161N1401-7 $ [*]
NLG Lower Drag Strut 162N2201-1 $ [*]
NLG Upper Drag Strut 162N2101-1 $ [*]
</TABLE>
2. CHARGES. Prices established above are not to exceed prices and include all
labor and material. No additional charges will be allowed except for those
outlined in the Repair Services Agreement, paragraph 2.
Supplier shall invoice American for missing parts and parts damaged by
mishandling or incident, as caused by American, at Supplier's acquisition cost
plus [*] handling per line item and not to exceed $[*] per line item.
9
<PAGE>
Check and Repair charges shall be billed at an hourly rate of $[*] and
material will be billed at acquisition cost plus [*] handling per line item and
not to exceed $[*] per line item.
Supplier agrees that the price(s) on the Product(s) items purchased hereunder
will be no higher than those extended to other customers for like items and
quantities. Furthermore, Supplier agrees that if, at any time subsequent to the
date of the execution this agreement, Supplier sells or contracts to sell to any
customer other than the United States Government or other goverments for
non-commercial use, any product(s) purchased hereunder for delivery during or
before any month in which that Product(s) is scheduled to be delivered to
American, at a basic price which is lower than the price of the Product(s)
delivered to American in the same calendar year, Seller will adjust the price of
the product(s) purchased by American to the amount of such lower price.
3. COST REDUCTION. Supplier and American shall work to reduce the overall cost
for overhauling the Landing Gear. To this, American will review all Supplier
developed initiatives for applicability to American's fleet and if accepted will
incorporate the change/s into the appropriate ESQ. The Supplier and American
will review the cost savings and reduce American's overhaul charge an amount
equal to [*] of the savings generated.
4. TURNTIMES.
A. LANDING GEAR SHIPSETS. American commits to have the off gear
delivered to Supplier's facility by the fifth calendar day after the actual
"dock in date" of the aircraft requiring gear change. Supplier commits to
return an overhauled gear, fully assembled and ready for installation, to
American's facility at Alliance Fort Worth (AFW) for its use five (5)
calendar days prior to the scheduled "dock in date" of the next aircraft.
No time period from "dock in date" of aircraft requiring gear change to
"dock in date" of next aircraft will be less than 42 calendar days.
B. COMPONENTS. All turn times for the components listed in Exhibit A,
1.B., will be 35 days. Turn times shall be measured in calendar days from
the receipt of the component and accompanying Repair Order at Supplier's
facility until the receipt of the component back at American.
5. DOCK DATES. The Landing Gear removal and installation schedule is soley
determined by American's B757 Aircraft Main Base Visit (MBV) Dock Plan. This
schedule is flexible and subject to change over time. American will provide the
MBV Dock Plan on a quarterly basis and whenever it it revised. The "dock in
date" is the date the B757 aircraft is introduced at American's facility at AFW.
6. SUPPLIER FURNISHED MATERIAL. Supplier is required to provide a detail list
of material furnished to complete the Assembly for each of the Overhauls.
7. ENGINEERING SPECIFICATIONS. All work shall be accomplished in accordance
with American Airlines Engineering Specification Order.
8. INVOICE ADDRESS PAYMENT ADDRESS
--------------- ---------------
American Airlines, Inc. Hawker Pacific, Inc.
P.O. Box 582839, MD 788 File #54993
Tulsa, OK 74158-2839 Los Angeles, CA 90074-4993
9. TERM. The term of the Agreement shall upon the complete execution of the
Agreement and continue until June 30, 2005. American shall have the right to
renew the term of the Agreement, at its option, for an additional term of one
year by providing written notice to Supplier prior to expiration of the original
term of this Agreement.
10
<PAGE>
10. SUPPLIER FAA REPAIR STATION CERTIFICATE
Location Cert. No.
Sun Valley, CA RJ3R817L
11. LIQUIDATED DAMAGES.
A. LANDING GEAR SHIPSETS: $[*] each day delinquent.
B. COMPONENTS: [*] percent [*] of the total repair cost each day
delinquent up to a maximum of [*] percent [*] of the total repair
cost.
12. FOB POINT. Sun Valley, CA
13. WARRANTY PERIOD. The period of Warranty shall be "Time between Overhaul"
(TBO) on all items, excluding normal wear on seals, hoses, cables, and damage
due to misuse. Items determined by American's Engineering as "0n Condition"
shall have a 24 month Warranty period.
14. NOTICE ADDRESS
If to American: If To Supplier:
Managing Director Purchasing President and CEO
American Airlines, Inc. Hawker Pacific, Inc.
Maintenance and Engineering Center 11240 Sherman Way
Mail Drop 534 Sun Valley, CA 91352
3800 N. Mingo Road
Tulsa, OK 74151-2809
11
<PAGE>
15. INVENTORY PURCHASE. Supplier shall purchase from American, in cash or
certified funds, the following inventory at the prices shown below. This
inventory is to be used in support of American's landing gear requirements and
in the event of termination of this agreement, American shall have the first
right of refusal to purchase back at a mutually agreed upon price not to exceed
the prices shown below.
A. PAYMENT TERMS. Supplier shall issue a purchase order for American's
new or "0" timed overhauled inventory for $[*], and shall issue a
payment to American in the amount of $[*] on the signing of this
Agreement. The Supplier shall issue a payment for the remaining sum
$[*] at the time of delivery of the first gear shipset to Supplier.
CPN PRIME MPN PURCHASE QTY EXTENDED PRICE
--- --------- ------------ --------------
GEA5309 654N0241-4 1 $ [*]
GEA5310 654N0241-3 1 $ [*]
GEA5311 654N0242-1 1 $ [*]
STR5104 161N0001-144 1 $ [*]
STR5105 161N0001-143 1 $ [*]
STR5104 161N0001-124 1 $ [*]
STR5105 161N0001-123 1 $ [*]
STR5106 161N0001-104 1 $ [*]
TRU5004 161N1601-7 1 $ [*]
PIS5011 162N1101-21 1 $ [*]
PIS5012 161N1220-3 1 $ [*]
LIN5348 161N2301-8 1 $ [*]
LIN5349 161N2301-7 1 $ [*]
COL1005 12N1146-4OR3 2 $ [*]
FIT1779 161N1621-1 1 $ [*]
LIN1243 162N3101-1 3 $ [*]
LIN1244 162N3103-10 3 $ [*]
LIN1245 162N1132-7 3 $ [*]
LIN1246 162N113-7 3 $ [*]
LIN1247 161 N2517-1 5 $ [*]
LIN1248 161N2401-1 3 $ [*]
LIN1249 161N1401-7 3 $ [*]
STR1066 162N2201-1 2 $ [*]
STR1067 162N2101-1 2 $ [*]
ACT6174 161N0001-113 10 $ [*]
ACT6156 275N1211-2 12 $ [*]
VAL5766 3800014-106 3 $ [*]
----------
TOTAL $ [*]
12
<PAGE>
16. INVENTORY FIELD ALLOCATION. Supplier shall place in American's inventory,
to support field operations, the following inventory as directed by American's
Inventory Control. This requirement will vary over the course of the contract
due to aircraft utilization. This in no way alleviates the supplier of the
responsibility to maintain an adequate inventory to meet American's field
requirements.
<TABLE>
<CAPTION>
CPN MPN DESCRIPTION QTY LOCATION
- --- --- ----------- --- ---------
<S> <C> <C> <C> <C>
GEA5309 654N0241-4 RH MLG ASSY 1 HPI (Hawker Pacific)
GEA5310 654N0241-3 LH MLG ASSY 1 HPI
GEA5311 654N0242-1 NLG ASSY 1 HPI
STR5104 161N0001-144 RH MLG SIDE STRUT 1 HPI
STR5105 161N0001-143 LH MLG SIDE STRUT 1 HPI
STR5104 161N001-124 RH MLG SIDE STRUT 1 AFW
STR5105 161N001-123 LH MLG SIDE STRUT 1 AFW
STR5106 161N0001-104 NLG DRAG STRUT 1 HPI
TRU5004 161N1601-7 MLG TRUCK ASSY 1 AFW
LIN5348 161N2301-8 RH MLG REACTION LINK 1 AFW
LIN5349 161N2301-7 LH MLG REACTION LINK 1 AFW
COL1005 162N1146-4/-3 NLG STEERING COLLAR 2 AFW - 2
FIT1779 161N1621-1 MLG TOW FITTING 1 DFW
LIN1243 1623101-1 NLG DRAG FWD LINK 3 DFW - 1 MIA - 1 SNA - 1
LIN1244 162N3101-10 NLG DRAG AFT LINK 3 DFW - 1 MIA - 1 SNA - 1
LIN1245 162N1132-7 NLG UPPER TORSION LINK 3 DFW - 1 JFK - 1 MIA - 1
LIN1246 1621134-7 NLG LOWER TORSION LINK 3 DFW - 1 MIA - 1 SNA - 1
LIN1247 161N2517-1 MLG STABILIZER LINK 5 DFW - 1 MIA - 1 SNA - 1 HPI - 2
LIN1248 161N2401-1 MLG SIDE SUPPORT LINK 3 DFW - 1 MIA - 1 SNA - 1
LIN1249 161N1401-7 MLG TRUNNION LINK 3 DFW - 1 MIA - 1 ORD - 1
STR1066 162N2201-1 NLG LOWER DRAG STRUT 4 AFW - 3 HPI - 1
STR1067 162N2101-1 NLG UPPER DRAG SUPP. 2 AFW - 1 HPI - 1
ACT6174 161N0001-113 MLG TRIM CYLINDER 10 AFW - 1 JFK - 1 LGA - 1 DCA - 1
DFW - 2 MIA - 1 ORD - 1 SJC - 1
SNA - 1
ACT6156 275N1211-2 NLG STEERING ACTUATOR 12 AFW - 2 JFK - 1 LGA - 1 MIA - 1
DFW - 3 SNA - 1 PHL - 1 DCA - 1
ORD - 1
VAL5766 3800014-106 NLG STRNG METERING ACT 3 DFW - 1 MIA - 1 SNA - 1
</TABLE>
17. AOG SUPPORT. Supplier shall be responsible for providing 24 hour AOG
support for American's Boeing 757 Landing Gear fleet. AOG support shall not be
considered an excusable delay for meeting turn times.
18. COMPONENT OFFLOAD. Supplier will utilize American as a sub-contractor to
provide repair services for the MLG Trim Cylinder, P/N 161N0001-113, NLG
Steering Actuator, P/N 275N1211-2 and NLG Steering Metering Actuator, P/N
3800014-106. American shall retain this work for the duration of the agreement
provided American maintains a minimum performance level, mutually established by
the Supplier and American. Standards shall be established to assure American
does not impact the Supplier's obligation under this agreement for supplying a
B757 Landing Gear shipset to American. If American does not fulfill its
requirements on the delivery performance this will be deemed an excusable delay
on the specific Landing Gear that the parts were scheduled for installation and
will, at the Suppliers option, be cause for resourcing the work to another
Supplier.
13
<PAGE>
ADDITIONAL SERVICES / WORK CHANGE AUTHORIZATION
Date: Number:
In accordance with the terms and conditions of the Repair Services Agreement
dated ____________ between American Airlines, Inc. and the Supplier listed
below, the following Additional Services/Changes are hereby authorized:
Additional Services/Change Authorized
Specifications
Current Scheduling Impact: Yes ___ No___
Turn Time or Scheduling Delay
Warranty, if different than provided under the Agreement
Charges
APPROVED AND AUTHORIZED BY:__________________
American Airlines
APPROVED AND AUTHORIZED BY:___________________
Hawker Pacific
14
<PAGE>
FIRST AMENDMENT TO REPAIR SERVICES AGREEMENT
--------------------------------------------
This First Amendment (this "Amendment") is entered into as of December
___, 1997 by and between American Airlines, Inc., a Delaware corporation with
its principal place of business at 4333 Amon Center, Fort Worth, Texas 76155
(herein "AMERICAN"), and Hawker Pacific Aerospace (formerly Hawker Pacific,
Inc.), a California corporation with its principal place of business at 11240
Sherman Way, Sun Valley, California 91352 (herein "SUPPLIER"), in order to
amend that certain Repair Services Agreement, dated as of September 29, 1997
(the "Agreement"), between American and Supplier as herein set forth:
1. The first paragraph of Section 23 of this Agreement is hereby amended
to read in its entirety as follows:
"23. CHANGE IN CONTROL. In the event of any Change of Control by the
Supplier, American may, at its option, exercise any or all of the following
rights. Supplier shall notify American at least thirty (30) days before any
such Change of Control, subject to the requirements of applicable law and
American's entering into a customary Confidentiality Agreement with respect
of any such disclosure. For purposes of this section, a "Change in Control"
(or "change of ownership" as used in subparagraphs 3 and 5 of this Section
23) shall consist of: (1) the dissolution or liquidation of Supplier, (2) any
merger or consolidation of Supplier with or into any person or entity or any
sale, transfer or other conveyance, whether direct or indirect, of all or
substantially all of Supplier's assets, on a consolidated basis, in one
transaction or a series of related transactions, if, immediately after giving
effect to such transaction any "person" or "group" (as such terms are used
for purposes of Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended, whether or not applicable) is or becomes the "beneficial
owner," directly or indirectly, of more than 35% of the total voting power in
the aggregate normally entitled to vote in the election of directors,
managers or trustees, as applicable, of the transferee or surviving entity or
(3) any change occurs in Supplier's Senior management (defined as President
and Chief Executive Officer or Managing Director of Sun Valley Operations)
during the two year period commencing on the effective date of the Agreement.
In this event:"
No changes are being made to subparagraphs 1 through 5 of Section 23.
IN WITNESS WHEREOF, American and Supplier have entered into this
Amendment effective as of the date set forth above.
HAWKER PACIFIC AEROSPACE AMERICAN AIRLINES, INC.
By: By:
--------------------- --------------------
Brian S. Carr Name:
------------------
Managing Director of Sun Title:
-----------------
Valley Operations
<PAGE>
SECOND AMENDMENT TO MAINTENANCE SERVICES AGREEMENT
--------------------------------------------------
This Second Amendment (this "Amendment") is entered into as of December
___, 1997 by and between FEDERAL EXPRESS CORPORATION, a Delaware corporation
("Federal"), and HAWKER PACIFIC AEROSPACE (formerly Hawker Pacific, Inc.), a
California corporation ("Hawker"), in order to amend that certain Maintenance
Services Agreement made the 19th day of August 1994, as amended (the
"Agreement"), as herein set forth:
1. Section 22.01 of the Agreement is hereby amended to read in its
entirety as follows:
"SECTION 22.01. CHANGE IN CONTROL: In addition to such other rights as
Federal may have, Federal shall have the right to immediately terminate this
Agreement, in Federal's reasonable discretion, upon any "Change in Control"
of Hawker. As used herein, a "Change in Control" shall mean (i) any merger or
consolidation of Hawker with or into any person or entity or any sale,
transfer or other conveyance, whether direct or indirect, of all or
substantially all of Hawker's assets, on a consolidated basis, in one
transaction or a series of related transactions, if, immediately after giving
effect to such transaction any "person" or "group" (as such terms are used
for purposes of Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended, whether or not applicable) is or becomes the "beneficial
owner," directly or indirectly, of more than 51% of the total voting power in
the aggregate normally entitled to vote in the election of directors,
managers or trustees, as applicable, of the transferee or surviving entity or
(2) any change in Hawker's Senior Management (defined as President and Chief
Executive Officer or Managing Director of Sun Valley Operations) during the
effectiveness of this Agreement. Hawker shall notify Federal in writing at
least thirty (30) days before the occurrence of any such "Change in Control."
IN WITNESS WHEREOF, the parties hereby execute this Amendment on the day
and year first above written.
FEDERAL EXPRESS CORPORATION
By:
---------------------------
Title:
------------------------
HAWKER PACIFIC AEROSPACE
By:
---------------------------
Title:
------------------------
<PAGE>
Exhibit 10.15A
FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment (this "Amendment") is entered into as of
December __, 1997 by and between Industrial Centers Corp. ("Lessor") and
Hawker Pacific Aerospace (formerly Hawker Pacific, Inc.), a California
corporation ("Lessee"), in order to amend that certain Lease Agreement, dated
March 31, 1997 (the "Lease"), between Lessor and Lessee as herein set forth:
12. ASSIGNMENT AND SUBLETTING. Section 12.1(b) is hereby amended to read
in its entirety as follows:
"(b) A change in control of Lessee shall constitute an assignment
requiring consent. The transfer, on a cumulative basis of twenty-five percent
(25%) or more of the voting control of Lessee, other than any bona-fide
underwritten public offering of Lessee's securities registered under the
Securities Act of 1933, as amended, or any securities issued pursuant to
Lessee's employee stock option plans, shall constitute a change in control
for this purpose."
IN WITNESS WHEREOF, this Amendment is executed as of the date first
above written.
LESSOR:
Industrial Centers Corp.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
LESSEE:
HAWKER PACIFIC AEROSPACE
By:
----------------------------------
Brian S. Aune
Chief Financial Officer
<PAGE>
FIRST AMENDMENT TO MERGERS AND ACQUISITIONS AGREEMENT
This First Amendment (this "Amendment") is entered into as of January 23,
1998 by and between Unique Investment Corp., a California corporation
("Unique"), and Hawker Pacific Aerospace (the "Company"), in order to amend
that certain Mergers and Acquisitions Agreement, dated September 2, 1997 (the
"Agreement"), between Unique and the Company as herein set forth:
1. The first sentence of the second paragraph of the Agreement is hereby
amended to add the following at the end of the sentence:
"(the "Acquisition Closing Date"), which amount shall be reduced by the
aggregate amount of payments made to Unique by the Company beginning January
1, 1998 through the Acquisition Closing Date, pursuant to that certain
Management Agreement dated as of March 1, 1997 by and between Unique and the
Company and any successor agreement thereto."
No changes are being made to the remainder of the paragraph or to the
rest of the Agreement.
IN WITNESS WHEREOF, Unique and the Company have entered into this
Amendment effective as of the date set forth above.
UNIQUE INVESTMENT CORP.
By:
---------------------------
Scott Hartman
Chief Operating Officer
HAWKER PACIFIC AEROSPACE
By:
---------------------------
David Lokken
Chief Executive Officer
<PAGE>
SUBORDINATED PROMISSORY NOTE
THIS INSTRUMENT IS SUBJECT TO A DEBT SUBORDINATION
AGREEMENT IN FAVOR OF BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION DATED NOVEMBER 27, 1996
$6,500,000 Orange County, California
November 27, 1995
FOR VALUE RECEIVED, the undersigned, AqHawk, Inc. a California
corporation ("Borrower"), promises to pay to Unique Investment Corporation, a
California corporation ("Lender"), or order, at such place as Lender from
time to time may designate, the principal sum of Six Million Five Hundred
Thousand Dollars ($6,500,000), together with interest on unpaid principal as
set forth herein, with principal and interest payable at the times and in the
manner set forth in this Note.
1. INTEREST ONLY PERIOD
During the period commencing on the date hereof and ending upon the date
(the "Retirement Date") all debt obligations of Hawker Pacific, Inc., a
California corporation ("Company"), to Bank of America National Trust and
Savings Association ("Bank") under that certain Business Loan Agreement (the
"Loan Agreement") dated as of November 27, 1996 by and between Hawker and
Bank are retired in full, Borrower shall pay monthly interest payments in
arrears to Lender; provided, however, the first such payment shall be for the
period commencing as of the date hereof and ending December 31, 1996. Said
monthly interest payments shall be made by Borrower no sooner than five (5)
days after Company's delivery to Bank of Company's financials for the
month prior to the month in which the interest payment is made. Said monthly
interest payments shall equal the lesser of (i) the then outstanding
principal balance under this note multiplied by 11.8% (the Interest Rate"),
then divided by three hundred sixty (360), then multiplied by the number of
days in the subject month (the "Monthly Interest"), or (ii) Company's Excess
Cash Flow (as defined below) for the month prior to the month in which the
interest payment is made. For purposes of this Note, "Excess Cash Flow" for
any period shall be defined as:
the sum, without duplication during that fiscal period, of Company's net
income plus income tax expense, plus interest expense, plus amortization
and depreciation expense, minus gains (or plus losses) on sales of fixed
assets, plus non-cash extraordinary losses, minus non-cash extraordinary
income, minus capital expenditures (net of the amount of any associated
purchase money financing), minus 75% of the increase (or plus 75% of the
decrease) in working capital, minus cash income taxes paid or payable,
minus interest payments (including that portion of capital lease
payments construed as interest), minus scheduled payments of principal
with respect to indebtedness
-1-
<PAGE>
for borrowed money and capital leases, and minus voluntary prepayments by
Company of its debt obligations to Bank known as "Facility No. 2" and
"Facility No. 3" under the Loan Agreement.
In any month where the Excess Cash Flow is less than the Monthly Interest,
the difference between the Monthly Interest and Excess Cash Flow for such
month shall accrue. Borrower shall pay Lender such difference in the
following months only in the event and to the extent that year to date Excess
Cash Flow exceeds year to date Monthly Interest in any month; provided,
however, that if the aggregate of all interest paid by Borrower during any
fiscal period of Company (including interest paid pursuant to the final
sentence of this Paragraph 1) exceeds the total Excess Cash Flow for such
period, then Lender promptly (but in any event within 10 days of written
request by Borrower or Bank) shall return to Borrower the total amount of
such excess. Borrower shall repay Lender such excess in the following months
only in the event and to the extent that year to date Excess Cash Flow
exceeds year to date Monthly Interest. Any Monthly Interest accrued and
unpaid at the end of any fiscal quarter of Company shall accrue interest at
the rate of 8.5% per annum until said accrued Monthly Interest and the
interest accrued thereon is paid in full.
2. AMORTIZATION PERIOD
During the period beginning on the Retirement Date and ending on the
third (3rd) anniversary of the Retirement Date (the "Maturity Date"), in
addition to the monthly interest payments set forth in Paragraph 1 above,
Borrower shall pay to Lender quarterly payments of principal in the amount of
Seven Hundred Thousand Dollars ($700,000) each. All payments of interest and
principal after the Retirement Date shall be made on the tenth (10th) day of
the month in which they are due. The first payment of principal pursuant to
this Paragraph 2 shall be due, along with the monthly interest payment, on
the tenth (10th) day of the forth (4th) month after the month in which the
Retirement Date falls; and each additional payment of principal shall be due
in quarterly intervals thereafter. All outstanding principal and interest
hereunder shall be due and payable in full on the Maturity Date.
3. INTEREST RATE CALCULATION
In the event, whether before or after the Retirement Date (i) any
principal is paid hereunder; or (ii) Company or AqHawk, a California
corporation ("AqHawk"), as the case may be, retires any of its preferred
stock (the "Preferred Stock") held by Melanie L. Bastian, the Interest Rate
on the remaining unpaid principal hereunder shall be recalculated as follows:
(i) the total principal outstanding hereunder shall be added to the total
capital value of the Preferred Stock and multiplied by 8.5%, (ii) the product
thereof then shall be divided by the total principal outstanding hereunder.
Notwithstanding the foregoing, at no time shall the Interest Rate exceed
twelve (12%).
-2-
<PAGE>
4. NO PREPAYMENT PENALTY
At no time shall Borrower be charged a prepayment penalty or yield
maintenance fee of any kind.
5. BLOCKING RIGHTS
During the period commencing on the date hereof and ending upon the
Retirement Date, should an Event of Default (as defined in the Loan
Agreement) occur under the Loan Agreement, Bank shall have the right by
delivering written notice thereof to Borrower and Lender to (i) block all
payments hereunder and (ii) to prevent Lender from exercising any of its
rights and remedies hereunder in the event of such blockage of payments all
as set forth in the Subordination Agreement.
6. DEFAULT
In the event of any default in the performance or observance of any
covenant or obligation of Borrower under this Note Lender may elect, without
notice or demand to Borrower, to declare all principal and accrued and unpaid
interest under this Note immediately due and payable. Any failure of Lender
to make such election following a default or defaults shall not constitute a
waiver of Lender's right to make the election in the event of any subsequent
default.
7. LATE PAYMENT CHARGE
If any payment under this Note (whether of principal or interest or
both, and including the payment due on the Maturity Date or upon any
acceleration of this Note) is not paid within ten (10) days after the date on
which it is due, Borrower shall pay to Lender, in addition to the delinquent
payment and without any requirement of notice or demand by Lender, a late
payment charge equal to two percent (2%) of the amount of the delinquent
payment. Borrower expressly acknowledges and agrees that the foregoing late
payment charge is reasonable under the circumstances existing on the date of
this Note, that it would be extremely difficult and impractical to fix
Lender's actual damages arising out of any late payment and that the
foregoing late payment charge shall be presumed to be the actual amount of
such damages incurred by Lender. No provision in this note (including without
limitation the provisions for a late payment charge) shall be construed as in
any way excusing Borrower from its obligation to make each payment under this
Note promptly when due. All payments made hereunder shall be applied first to
late payment charges and accrued but unpaid interest until all such charges
and interest are paid, and then to principal.
-3-
<PAGE>
8. COSTS OF COLLECTION
Borrower agrees to pay all costs and expenses incurred by Lender,
including without limitation attorneys' fees and costs, in the event (i) this
Note or any portion of this Note is placed for collection; (ii) suit is
instituted to collect this Note or any portion of this Note; (iii) any
bankruptcy, insolvency, reorganization proceeding or receivership involving
Borrower or any affiliate of Borrower occurs in which Lender is required to
appear, or from which Lender is required to seek relief; and/or (iv) Lender
is required to engage an attorney to cause Borrower to comply with any of the
provisions hereof.
9. CERTAIN WAIVERS
Borrower and all endorsers jointly and severally waive diligence, grace,
demand, presentment for payment, exhibition of this Note, notice of protest,
notice of dishonor, notice of demand, notice of nonpayment, and any and all
exemption rights against the indebtedness evidenced by this Note, and agree
to any and all extensions or renewals from time to time without notice and to
any partial payments of this Note made before or after maturity and that no
such extension, renewal or partial payment shall release any one or all of
them from the obligation of payment of this Note or any installment of this
Note, and consent to offsets of any sums owed to any one or all of them by
Lender at any time.
10. CONSTRUCTION OF NOTE
Headings in this Note are solely for convenience and are not to be
referred to in construing this Note. All references to paragraphs are to
paragraphs in this Note. This Note shall be governed by, interpreted and
enforced under and according to the laws of the State of California. If a law
which applies to this Note and sets maximum interest rates and loan charges
is finally interpreted so that the interest or other loan charges collected
or to be collected in connection with this Note exceed the lawful limits,
then (i) such interest or loan charge shall thereafter be reduced to the
permitted limit and (ii) any sums already collected from Borrower which
exceed the permitted limit will be refunded to Borrower. Lender may choose to
make this refund by reducing the principal owed under this Note or by making
a direct payment to Borrower.
11. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTE
In the event of the loss, theft or destruction of this Note, upon
Borrower's receipt of a reasonably satisfactory indemnification agreement
executed in favor of Borrower by the party who held this Note immediately
prior to its loss, theft or destruction, or in the event of the mutilation of
this Note, upon surrender to the Borrower of the mutilated Note, Borrower
shall execute and deliver to the holder a new promissory note in form and
content identical to this Note in lieu of the lost, stolen, destroyed or
mutilated Note.
-4-
<PAGE>
12. NOTICES
All notices and other communications pertaining hereto shall be in
writing and shall be deemed to have been duly given when delivered
personally, or two days after being sent via overnight courier, postage
prepaid, to the following addresses or to such other address or addresses as
Borrower or Lender may from to time designate in writing:
To Borrower:
1831 South Ritchey Street
Santa Ana, California 92705
Attention: Daniel J. Lubeck
To Lender:
1831 South Ritchey Street
Santa Ana, California 92705
Attention: Daniel J. Lubeck
IN WITNESS WHEREOF, this Note has been duly executed and delivered
by Borrower on and as of the date first above written.
BORROWER:
AqHawk, Inc.
a California corporation
By: /s/ Daniel J. Lubeck
------------------------------------
Daniel J. Lubeck
President
-5-
<PAGE>
AMENDED AND RESTATED SUBORDINATED PROMISSORY NOTE
THIS INSTRUMENT IS SUBJECT TO A DEBT SUBORDINATION AGREEMENT
IN FAVOR OF BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION DATED JANUARY 23, 1998.
$5,000,000 Orange County, California
February __, 1998
FOR VALUE RECEIVED, the undersigned, Hawker Pacific Aerospace, a
California corporation ("Borrower"), promises to pay to Unique Investment
Corporation, a California corporation ("Lender"), or order, at such place as
Lender from time to time may designate, the principal sum of Five Million
Dollars ($5,000,000), together with interest on the unpaid principal balance as
set forth herein, with principal and interest payable at the times and in the
manner set forth in this Note. Reference is made to the Amended and Restated
Business Loan Agreement, dated January 23, 1998 (the "Loan Agreement"), between
Borrower and Bank of America National Trust and Savings Association ("Bank").
This Amended and Restated Subordinated Promissory Note is the Subordinated Note
referred to in the Loan Agreement.
1. MATURITY. The entire unpaid principal balance of this Note shall be
due and payable on the earlier of (i) 180 days after the termination of the Loan
Agreement or (ii) June 30, 2005 (the "Maturity Date").
2. INTEREST. Interest on the unpaid balance of this Note shall accrue at
the rate of 11.8% per annum from the date hereof through the Maturity Date, and
shall accrue on the basis of actual days based on a 365-day year. Interest
shall be payable monthly in arrears on the tenth day of each calendar month;
provided, however, the first such payment shall be for the period commencing as
of the date hereof and ending on February 28, 1998.
3. NO PREPAYMENT PENALTY.
At no time shall Borrower be charged a prepayment penalty or yield
maintenance fee of any kind.
4. BLOCKING RIGHTS.
During the period commencing on the date hereof and ending upon the
Maturity Date, should an Event of Default (as defined in the Loan Agreement)
occur under the Loan Agreement, Bank shall have the right by delivering written
notice thereof to Borrower and
<PAGE>
Lender to (i) block all payments hereunder and (ii) to prevent Lender from
exercising any of its rights and remedies hereunder in the event of such
blockage of payments all as set forth in the Subordination Agreement, dated as
of the date hereof, between Borrower, Lender, Bank, Melanie L. Bastian, and
Hawker Pacific Aerospace Limited.
5. DEFAULT.
In the event of any default in the performance or observance of any
covenant or obligation of Borrower under this Note, Lender may elect, without
notice or demand to Borrower, to declare all principal and accrued and unpaid
interest under this Note immediately due and payable. Any failure of Lender to
make such election following a default or defaults shall not constitute a waiver
of Lender's right to make the election in the event of any subsequent default.
6. LATE PAYMENT CHARGE.
If any payment under this Note (whether of principal or interest or both,
and including the payment due on the Maturity Date or upon any acceleration of
this Note) is not paid within ten (10) days after the date on which it is due,
Borrower shall pay to Lender, in addition to the delinquent payment and without
any requirement of notice or demand by Lender, a late payment charge equal to
two percent (2%) of the amount of the delinquent payment. Borrower expressly
acknowledges and agrees that the foregoing late payment charge is reasonable
under the circumstances existing on the date of this Note, that it would be
extremely difficult and impractical to fix Lender's actual damages arising out
of any late payment and that the foregoing late payment charge shall be presumed
to be the actual amount of such damages incurred by Lender. No provision in
this Note (including without limitation the provisions for a late payment
charge) shall be construed as in any way excusing Borrower from its obligation
to make each payment under this Note promptly when due. All payments made
hereunder shall be applied first to late payment charges and accrued but unpaid
interest until all such charges and interest are paid, and then to principal.
7. COSTS OF COLLECTION.
Borrower agrees to pay all costs and expenses incurred by Lender, including
without limitation attorneys' fees and costs, in the event (i) this Note or any
portion of this Note is placed for collection; (ii) suit is instituted to
collect this Note or any portion of this Note; (iii) any bankruptcy, insolvency,
reorganization proceeding or receivership involving Borrower or any affiliate of
Borrower occurs in which Lender is required to appear, or from which Lender is
required to seek relief; and/or (iv) Lender
2.
<PAGE>
is required to engage an attorney to cause Borrower to comply with any of the
provisions hereof.
8. CERTAIN WAIVERS.
Borrower and all endorsers jointly and severally waive diligence, grace,
demand, presentment for payment, exhibition of this Note, protest, notice of
protest, notice of dishonor, notice of demand, notice of nonpayment, and any and
all exemption rights against the indebtedness evidenced by this Note, and agree
to any and all extensions or renewals from time to time without notice and to
any partial payments of this Note made before or after maturity and that no such
extension, renewal or partial payment shall release any one or all of them from
the obligation of payment of this Note or any installment of this Note, and
consent to offsets of any sums owed to any one or all of them by Lender at any
time.
9. CONSTRUCTION OF NOTE.
Headings in this Note are solely for convenience and are not to be referred
to in construing this Note. All references to paragraphs are to paragraphs in
this Note. This Note shall be governed by, interpreted and enforced under and
according to the laws of the State of California. If a law which applies to
this Note and sets maximum interest rates and loan charges is finally
interpreted so that the interest or other loan charges collected or to be
collected in connection with this Note exceed the lawful limits, then (i) such
interest or loan charge shall thereafter be reduced to the permitted limit and
(ii) any sums already collected from Borrower which exceed the permitted limit
will be refunded to Borrower. Lender may choose to make this refund by reducing
the principal owed under this Note or by making a direct payment to Borrower.
10. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTE.
In the event of the loss, theft or destruction of this Note, upon
Borrower's receipt of a reasonably satisfactory indemnification agreement
executed in favor of Borrower by the party who held this Note immediately prior
to its loss, theft or destruction, or in the event of the mutilation of this
Note, upon surrender to the Borrower of the mutilated Note, Borrower shall
execute and deliver to the holder a new promissory note in form and content
identical to this Note in lieu of the lost, stolen, destroyed or mutilated Note.
11. NOTICES.
All notices and other communications pertaining hereto shall be in writing
and shall be deemed to have been duly given when delivered personally, or two
days after being sent via overnight
3.
<PAGE>
courier, postage prepaid, to the following addresses or to such other address or
addresses as Borrower or Lender may from to time designate in writing:
To Borrower:
11240 Sherman Way
Sun Valley, California 91352
Attention: David L. Lokken
To Lender:
1831 South Ritchey Street
Santa Ana, California 92705
Attention: Daniel J. Lubeck
IN WITNESS WHEREOF, this Note has been duly executed and delivered by
Borrower on and as of the date first above written.
BORROWER:
Hawker Pacific Aerospace,
a California corporation
By: __________________________________
David L. Lokken,
President
4.
<PAGE>
[LOGO]
DECLARATION OF INTERPRETER/TRANSLATOR
AFFIDAVIT OF TRANSLATION OF FOREIGN DOCUMENT
RE: Rental Agreement between Mr. C.G. Kortenoever
and Flight Accessory Services
---------------------------------------------
Rental Agreement between Mr. C.G. Kortenoever
and Parker Bertea Services
---------------------------------------------
STATE OF CALIFORNIA
Country of Los Angeles
I, Dr. Eric Wilson, the undersigned, do depose and say:
---------------
I am a certified interpreter/translator for the English and the Dutch
languages. I am accredited by the American Translators Association, and
by the United States Department of State. I have read the above
described document, which is attached hereto, and declare under penalty
of perjury under the laws of the state of California that the foregoing
translation of said document into English is a true and correct
translation to the best of my knowledge.
Executed on this fifteenth day of January, 1998, at Santa Monica, California.
--------- -------------
/s/ Eric Wilson
------------------------------
TRANSLATOR
/s/ Dina Spevack
------------------------------
DINA SPEVACK, DIRECTOR
AMERICAN LANGUAGE SERVICES
<PAGE>
[by hand:] Jan Holland
Facility
Folder
van
GROENINGEN
BROKERAGE
Hoofdweg 716 - Hoofddorp
Tel. 02503 - 12341
CONTENTS:
Rental Agreement between
Mr. C.G. Kortenoever
and
Flight Accessory Services
with regard to business premises
in Nieuw Vennep
<PAGE>
RENTAL AGREEMENT
The Undersigned,
Mr. C. G. Kortenoever, residing in Nieuw Vennep, at Hoofdweg 1236;
hereinafter designated as the landlord
states that he has rented to the co-signer,
Hawker Pacific, Inc., with headquarters in Nieuw Vennep, at Noorderdreef 80,
hereinafter designated as the tenant,
which states that it has accepted in rental:
business premises, with a size of approx. six hundred fifty m2, locally known
as Noorderedreef 80 in Nieuw Vennep,
The rental and renting of which the parties state that they have agreed to
for a period of five years, beginning on 1 April 1991 and accordingly
terminating on 31 March 1996.
The landlord extends to the tenant the right of option for a period of five
years, beginning on 1 April 1996 and accordingly terminating on 31 March
2001.
If the tenant wishes to make use of the above-described option right, it is
to notify the landlord of this by registered mail prior to or, at the latest,
on April 2000.
This rental agreement has been entered into under the following provisions
and conditions contained in the rental agreement of 1 April 1981, accepted by
Kawker Pacific Inc.
Drawn up and signed in Nieuw Vennep, 26 February 1991.
Landlord, Tenant,
[signature] [signature]
[by hand:]
<PAGE>
RENTAL AGREEMENT
The undersigned,
Mr. C.G. Kortenoever, residing in Nieuw Vennep, at Hoofdweg 1236;
hereinafter designated as the landlord
states that he has rented to the co-signer,
Flight Accessory Services, with headquarters in Nieuw Vennep, at Noorderdreef
80;
hereinafter designated as the tenant,
which states that it has accepted in rental:
business premises, with a size of approx. six hundred fifty square meters,
locally known as Noorderdreef 80 in Nieuw Vennep, for the rest well enough
known to the parties that no further description is required,
the rental and renting of which the parties state that they have agreed to
for a period of five years, beginning on 1 April 1981 and accordingly
terminating on 31 March 1986.
The landlord extends to the tenant the right of option for a period of five
years, beginning on 1 April 1986 and accordingly terminating on 31 March 1991.
If the tenant wishes to make use of the above-described option right, it* is
to notify the landlord of this by registered mail prior to or, at the latest,
on 1 April 1985.
This rental agreement has been entered into under the following provisions
and conditions:
- ----------------------------------
* Translator's note: For the sake of a smoother English translation, from
now on the tenant, the company of Flight Accessory Services, will be referred to
as "he" rather than "it."
<PAGE>
van GROENINGEN Brokers
- 2 -
ARTICLE 1
1. The landlord and tenant promise to adhere to everything to which the law
and local regulations and customs obligate tenants and landlords, as well as
to compliance with each of the articles of this rental agreement.
2. If either the tenant or landlord does not comply with his obligations or
does not comply with them in due time, the negligent party is liable and the
other party has the right to compensation for all damages and interests
resulting from this negligence, without prejudice to all the means at his
disposal in accordance with the law, the local regulations and the conditions
of this rental agreement, in order to force compliance with this rental
agreement or a dissolution of this rental agreement.
ARTICLE 2
1. The rental price is to be 45,000 guilders (forty-five thousand guilders)
per year, with advance payment to be made in four periods of three months,
each to be for 11,250 guilders (eleven thousand two hundred fifty guilders).
The first rental payment for the period from 1 April 1981 through 30 June
1981, at an amount of 11,250 guilders (eleven thousand two hundred fifty
guilders), is to be made prior to or at the latest on 1 April 1981 and then
subsequently every three months on the following due dates: 1 July 1981, 1
October 1981, etc. etc.
2. All payments that are owed to the landlord by the tenant on the basis of
this rental agreement are to be made by the tenant in currency that is legal
tender in the Netherlands and to be paid without compensation or discount to
the landlord, as owner of the rental property. The landlord is to give
further details with regard to the bank account into which the tenant is to
make the payments.
3. If a payment by the tenant is not made by the agreed-upon due date, then,
without prejudice to the rights falling to the landlord from this, the tenant
is to pay a fine of 1 1/2% per month for the amount in arrears, whereby a
portion of one month is to be counted as a full month.
<PAGE>
van GROENINGEN Brokers
- 3 -
This fine is not to be owed for payments that are received by the landlord
within seven days of the due date.
Both any possible legal and non-legal rental collection expenses are to be at
the expense of the tenant, whereby the non-legal expenses for the parties are
set at 10% of the rental amount to be collected.
4. The rental price as set forth in Art. 2, para. 1, is fixed until 1 April
1982.
Thereafter, each year, starting 1 April 1982, the rental price is to be
reviewed by means of a connection to the price index figure for family
consumption for employee families as published by the Central Bureau of
Statistics (1975 = 100).
The first rental price revision, on 1 April 1982, is to be calculated as
follows:
Price index figure January 1982
x 45,000 guilders
Price index figure January 1981
The second rental price revision, on 1 April 1983, is to be calculated as
follows:
Price index figure January 1983
x 45,000 guilders
Price index figure January 1981
5. The landlord is entitled to increase the rental price, along with the
sales tax (in Dutch: B.T.W.) set by the government.
6. In the event of bankruptcy of the tenant and/or confiscation of his
property by third parties lasting longer than 4 weeks, the landlord has the
right to consider this agreement to be dissolved, immediately or whenever he
chooses, without its being necessary for a judge to pronounce this
dissolution.
He is, however, obligated to notify the tenant by registered mail that he wishes
to make use of this right.
<PAGE>
van GROENINGEN Brokers
- 4 -
7. As a guarantee for compliance with his obligations from this rental
agreement, the tenant is to make a bank guarantee for an amount of 22,500
guilders (twenty-two thousand five hundred guilders). This bank guarantee is
to be valid until one month after the end of this agreement. The parties
state that they have reached an agreement as to the text of this agreement.
The landlord cannot exercise his rights from the bank guarantee until two
weeks after the landlord his informed the tenant by registered letter that he
is in default.
ARTICLE 3
1. The rental object is intended to be used as a repair shop for aircraft
parts, storage area and office premises, this being in the broadest sense of
the word.
2. The maximum permissible floor load of the business premises is to be
2,000 kg per square meter of floor surface.
3. The tenant must see to it that he obtains any possible permissions and/or
releases necessary for carrying out his business. The withdrawal or
cancellation of these permissions and/or releases may not ever give rise to
the dissolution or nullification of this rental agreement or to any action
against the landlord.
4. If at any time a premium higher than 1.75% per annum for fire insurance
is charged to the landlord, then the tenant is to compensate the landlord for
the higher premium. The landlord is free to designate the amount to be
insured and the selection of the insurance company or companies, as well as
an assessment of the judiciousness of the premium(s) owed.
A premium increase, to the extent that this is occasioned by the exercise of
the tenant's business, is to be paid by the tenant for the entire rental
period.
5. The tenant is obligated to strictly comply with all regulations that are
given by the authorities with regard to the danger of fire pertaining to the
rental object.
<PAGE>
van GROENINGEN Brokers
- 5 -
6. Taxes incurred for business affairs that are brought about by the tenant
are to be paid by the tenant, even if the assessment is issued in the name of
the landlord.
ARTICLE 4
1. The rental object, subject to the rest of what is set forth in this
contract, is to be turned over to the tenant by the landlord in its present
condition, provided with a heating system. This heating system must be ready
for use by 1 September 1981 at the latest. In default of this, the landlord
must immediately pay a fine of 500 guilders (five hundred guilders) for every
day that this system in not yet ready for use, while in this event the tenant
is also entitled to declare this agreement as being dissolved in observing a
period of one month, by registered letter, without having to resort to legal
means.
Through the actual putting of the rental object into use, the tenant
indicates that the rental object complies with his requirements, this without
prejudice to the obligation by the landlord for the repair of structural
defects that might appear after the tenants moves into the rental object.
2. The tenant is responsible for all damages that occur to the rental object
through the tenant's type of use.
3. The landlord is not liable for the consequences of visible or invisible
defects to the rental object, unless the tenant can prove that the landlord
knew about these defects at the time the damage occurred and the landlord
cannot prove that he informed the tenant of these defects immediately.
4. The tenant releases the landlord from claims from third parties with
regard to damages to goods/property kept in the rental object that occurred
as a consequence of defects described in para. 3 of this Article.
5. The landlord is not liable for loss of profits incurred by the tenant or
for damage to the tenant's property caused by storms, hail, snow, wind,
leakage, fire or similar occurrences.
The tenant is expected to have insured himself against such events.
<PAGE>
van GROENINGEN Brokers
- 6 -
ARTICLE 5
Without written permission by the landlord, the tenant may not let the rental
object be used in whole or in part by third parties or sub-rented to any
third parties.
If the tenant wishes to vacate leave the entire [rental] object, the tenant
has the right to find a new tenant for the [rental] object, taking into
account the fact that the business of the new tenant will do no harm to the
standing of the building and with the stipulation that the new tenant is
comparable to the tenant with regard to morality and solvency.
The new tenant must be prepared to take over the rental agreement under the
same stipulations and conditions as those set forth in this present agreement
and for payment of the same rental price.
ARTICLE 6
1. The parties have reached an agreement over the fact that various dividing
walls and furnishings are to be installed; the parties do not feel that any
further description is necessary as to their nature, other than the floor
plan to which both parties have signed in agreement. The costs connected to
the architectural work to build the office, canteen and shipping area on the
ground floor, as shown on the floor plan, are to be totally at the expense of
the landlord.
During each rental year, the tenant is to pay the landlord an amount equal to
10% of the last-mentioned costs, with a maximum of 5,100 guilders, without
any indexing, increase or interest.
The method of payment for the above-mentioned amount is to occur in
accordance with the method of payment of the rental sum as described in Art.
2, para. 1 of this document.
2. Whatever has been installed, modified or torn down, either in, on and to
the rental object, with the consent of the landlord, must be put back in
order at the end of the rental, without being able to claim any compensation
from the landlord.
The landlord can request that the rental object, at the end of the rental, be
returned to its original condition, in whole or in part, at the expense and
risk of the tenant.
Any damage that is incurred through the removal of the installations is to be
repaired at the expense of the tenant.
<PAGE>
van GROENINGEN Brokers
- 7 -
3. The landlord herewith states that he has been informed of and is in
agreement with the fact that in conjunction with his business, the tenant
will install machines in the rental object whereby arrangements must be made
that, among other things, could lead to these machines being considered to be
built-in installations.
The landlord expressly states that even in this above-mentioned instance he
will not assert a claim to ownership of these machines and that he fully
recognizes the tenant's rights in this regard.
ARTICLE 7
1. The broad exterior maintenance of the rental object, such as the roof,
the walls, the exterior paintwork, as well as the repair of structural
defects, such as, e.g., the replacement of a non-functional central heating
system, is to be at the expense of the landlord.
2. The daily exterior and interior maintenance, as well as the maintenance
of the systems that include any possible heating systems and lighting
installations, is to be at the expense of the tenant, and, in addition, also
all other maintenance connected to daily usage -- such as, e.g., the proper
functioning of all pipes and drains, the repair of broken windows, the
sweeping of chimneys, repairs to doorbells, switches, locks, door bolts, door
handles, water faucets, the replacement of lamps and their fittings, the
repair of damage to the interior paintwork.
3. If the tenant does not comply with his obligations set forth in the
previous paragraph in due time, the landlord, in the event of such needed
work, is entitled to carry out the required measures himself or to have such
work carried out, at the expense of the tenant, who is to repay the expenses
incurred, without any claim for a discount or compensation.
4. The tenant is obligated to grant the landlord, or the person who is to
report to the landlord about the tenant, access to the rental object and, to
the extent necessary and feasible, to give all his co-operation with regard
to the carrying out of an examination and/or maintenance work and, on or to
the rental object, without asking for anything in return.
- ----------------------------------
Translator's note: There is no Article 8 in the original Dutch document.
<PAGE>
van GROENINGEN Brokers
- 8 -
ARTICLE 9
1. The tenant is obligated to allow the rental object to be inspected for
six months prior to the end of the rental agreement and also in the event of
a private or public sale. The inspections are to take place after
consultation with the tenant.
2. At the end of the rental agreement, the tenant is obligated to vacate the
rental object in due time and, in compliance with what is specified in this
agreement in this regard, to turn it over to the landlord in good condition
and properly cleaned.
ARTICLE 10
1. The business costs and taxes that are imposed on the rental object, are,
except for what is specified in para. 2 of this Article, to be at the expense
of the landlord, unless this is otherwise specified by law or another
agreement has been reached between the landlord and the tenant, with the
understanding, however, that government taxes put into effect after the date
of entering into this rental agreement are to be at the expense of the
tenant. The real estate tax for the owner of the real estate is to be at the
expense of the landlord.
2. An increase of the total that is owed by the landlord as per para. 1 of
this Article is only to be passed on to the tenant if and to the extent that
this increase is higher than the increase stated in Article 2, para. 4
(increase in the rental price by means of a connection to the price index
figure).
ARTICLE 11
The tenant, after consultation with the landlord, has the right to affix
advertising for himself or a company name for the tenant's business on or
near the rental object, this being subject to the approval of the
municipality of Haarlemmermeer. The above-mentioned advertising or company
designation is to be removed at the end of the rental period, by the tenant,
at the tenant's expense and risk.
<PAGE>
van GROENINGEN Brokers
- 9 -
ARTICLE 12
The tenant is prohibited:
a. from storing any possible surplus goods on the outside of the building;
b. from parking or allowing for the parking of automobiles so that the
owners or users of other buildings are inconvenienced by this, all this at
the exclusive judgment of the landlord.
ARTICLE 13
1. The tenant states that for all notifications and the like that the
landlord might wish to communicate to him in conjunction with the execution
of this agreement, the interim termination of the rental, dissolution and
evacuation, he will elect a continued domicile in the rental object, until
the tenant has actually left the rental object.
The above is to be applied correspondingly with regard to a newly elected
domicile, provided that the tenant gives notification of this by registered
letter.
2. All correspondence between the landlord and the tenant with regard to the
rental object, as far as the tenant is concerned, to be directly solely to
and handled by the landlord.
Drawn up and signed in Nieuw Vennep, March 3, 1981.
Landlord, Tenant,
[no signature] [signature]
<PAGE>
- 9* -
ARTICLE 12
The tenant is prohibited:
a. from storing any possible surplus goods on the outside of the building;
b. from parking or allowing for the parking of automobiles so that the
owners or users of other buildings are inconvenienced by this, all this at
the exclusive judgment of the landlord.
ARTICLE 13
1. The tenant states that for all notifications and the like that the
landlord might wish to communicate to him in conjunction with the execution
of this agreement, the interim termination of the rental, dissolution and
evacuation, he will elect a continued domicile in the rental object, until
the tenant has actually left the rental object.
The above is to be applied correspondingly with regard to a newly elected
domicile, provided that the tenant gives notification of this by registered
letter.
2. All correspondence between the landlord and the tenant with regard to the
rental object, as far as the tenant is concerned, to be directly solely to
and handled by the landlord.
Drawn up and signed in ................, 1984.
Landlord, Tenant,
[signature] [signature]
[by hand:] 12 June 1984
- ----------------------------------
* Translator's note: This is the second page 9 in the set of pages
provided from the original Dutch document.
<PAGE>
Exhibit 10.21
FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment (this "Amendment") is entered into as of
December __, 1997 by and between Industrial Centers Corp. (formerly Industrial
Bowling Corp.) ("Lessor") and Hawker Pacific Aerospace (formerly Hawker
Pacific, Inc.), a California corporation ("Lessee"), in order to amend that
certain Lease Agreement, dated July 28, 1994 (the "Lease"), between Lessor and
Lessee as herein set forth:
1. ASSIGNMENT AND SUBLETTING. Section 12.1(b) is hereby amended to read
in its entirety as follows:
"(b) A change in control of Lessee shall constitute an assignment
requiring consent. The transfer, on a cumulative basis of twenty-five percent
(25%) or more of the voting control of Lessee, other than any bona fide
underwritten public offering of Lessee's securities registered under the
Securities Act of 1933, as amended, or any securities issued pursuant to
Lessee's employee stock option plans, shall constitute a change in control
for this purpose."
2. FULL FORCE AND EFFECT. By its execution of this Amendment, Lessor
confirms that the Lease is in full force in effect and that no default
occurred thereunder in connection with the purchase by Aqhawk, Inc. of all of
the outstanding capital stock of Hawker from BTR Dunlop, Inc. in November
1996.
IN WITNESS WHEREOF, this Amendment is executed as of the date first
above written.
LESSOR:
Industrial Centers Corp.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
LESSEE:
HAWKER PACIFIC AEROSPACE
By:
---------------------------------
Brian S. Aune
Chief Financial Officer
<PAGE>
CORPORATE RESOLUTION
The undersigned Director of HAWKER PACIFIC, INC., A CALIFORNIA
CORPORATION, hereby certifies that the following is a true and correct copy
of a resolution duly and legally adopted by the Board of Directors of said
Corporation on July 14, 1997, and that said resolution is unmodified and has
not been revoked and is presently in full force and effect:
RESOLVED
1) That this Corporation shall enter into a Lease with ALLSTATE
INSURANCE COMPANY for the Premises described as 7103 FAIR AVENUE, NORTH
HOLLYWOOD, CA 91605 for the rent and upon the terms and conditions of that
certain Lease dated June 24, 1997, which has been presented to and reviewed
by the Board of Directors.
2) That DAVID LOKKEN, the Chief Executive Officer of said Corporation
is hereby authorized to execute and deliver such Lease on behalf of the
Corporation.
Dated: July 14, 1997
(SEAL) /s/ Brian Aune
------------------------------------
Brian Aune
Director and Chief Financial Officer
<PAGE>
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only,
June 24, 1997 is made by and between ALLSTATE INSURANCE COMPANY, An Illinois
Insurance Corporation ("Lessor") and HAWKER PACIFIC, INC., A California
Corporation ("Lessee"), (collectively the "PARTIES," or individually a
"PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known by the street address of 7103 Fair Avenue, North Hollywood, CA
91605 located in the County of Los Angeles, State of California and generally
described as (describe briefly the nature of the property) approximately
17,010 sq. ft. building in a 358,392 sq. ft. industrial park (See Exhibit
"A"). ("Premises"). (See Paragraph 2 for further provisions.)
1.3 TERM: seven (7) years and -0- months ("Original Term") commencing
October 1, 1997 ("Commencement Date") and ending September 30, 2004
("Expiration Date"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (See Paragraphs 3.2
and 3.3 for further provisions.)
1.5 BASE RENT: $8,845.00 per month ("BASE RENT"), payable on the 1st day
of each month commencing October 1, 1997 (See Paragraph 4 for further
provisions.)
/X/ If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $8,845.00 as Base Rent for the period
October 1-31, 1997
1.7 SECURITY DEPOSIT: $8,845.00 ("Security Deposit"). (See Paragraph 5 for
further provisions.)
1.8 PERMITTED USE: manufacturing/overhaul of aircraft components and all
legal activities related thereto only. (See Paragraph 6 for further
provisions.)
1.9 INSURING PARTY: Lessor is the "Insuring Party" unless otherwise stated
herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes): DELPHI BUSINESS
PROPERTIES represents
/X/ Lessor exclusively ("LESSOR'S BROKER"); / / both Lessor and Lessee, and
THE SEELEY COMPANY represents
/X/ Lessee exclusively ("LESSEE'S BROKER"); / / both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 60 and Exhibits A all of which constitute a part of
this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this LEASE, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by
Lessee, shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee
does not give Lessor written notice of a non-compliance with this warranty
within thirty (30) days after the Commencement Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or
to be made by Lessee. If the Premises do not comply with said warranty,
Lessor shall, except as otherwise provided in this Lease, promptly after
receipt of written notice from Lessee setting forth with specificity the
nature and extent of such non-compliance, rectify the same at Lessor's
expense. If Lessee does not give Lessor written notice of a non-compliance
with this warranty within six (6) months following the Commencement Date,
correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical and fire
sprinkler systems, security, environmental aspects, compliance with
Applicable Law, as defined in Paragraph 6.3) and the present and future
suitability of the Premises for Lessee's intended use, (b) that Lessee has
made such investigation as it deems necessary with reference to such matters
and assumes all responsibility therefor as the same relate to Lessee's
occupancy of the Premises and/or the term of this Lease, and (c) that neither
Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to the said matters other than as
set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises.
In such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be
abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be
in effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
Initials [illegible]
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[illegible]
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NET PAGE 1
<PAGE>
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as a agreed herein by the Early
Possession Date, if one is specified in Paragraph 1.4, or, if no Early
Possession Date is specified, by the Commencement Date, Lessor shall not be
subject to any liability therefor, nor shall such failure affect the validity
of this Lease, or the obligations of Lessee hereunder, or extend the term
hereof but in such case. Lessee shall not, except as otherwise provided
herein, be obligated to pay rent or perform any other obligation of Lessee
under the terms of this Lease until Lessor delivers possession of the
Premises to Lessee. If possession of the Premises is not delivered to Lessee
within sixty (60) days after the Commencement Date, Lessee may, at its
option, by notice in writing to Lessor within ten (10) days thereafter,
cancel this Lease, in which event the Parties shall be discharged from all
obligations hereunder; provided, however, that if such written notice by
Lessee is not received by Lessor within said ten (10) day period. Lessee's
right to cancel this Lease shall terminate and be of no further force or
effect. Except as may be otherwise provided, and regardless of when the term
actually commences, if possession is not tendered to Lessee when required by
this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue
for a period equal to what Lessee would otherwise have enjoyed under the
terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent
or charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on
or before the day on which it is due under the terms of this Lease. Base Rent
and all other rent and charges for any period during the term hereof which is
for less than one (1) full calendar month shall be prorated based upon the
actual number of days of the calendar month involved. Payment of Base Rent
and other charges shall be made to Lessor at its address stated herein or to
such other persons or at such other addresses as Lessor may from time to time
designate in writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1). Lessor
may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or
any portion of said Security Deposit, Lessee shall within ten (10) days after
written request therefor deposit moneys with Lessor sufficient to restore
said Security Deposit to the full amount required by this Lease. Any time the
Base Rent increases during the term of this Lease, Lessee shall, upon written
request from Lessor, deposit additional moneys with Lessor sufficient to
maintain the same ratio between the Security Deposit and the Base Rent as
those amounts are specified in the Basic Provisions. Lessor shall not be
required to keep all or any part of the Security Deposit separate from its
general accounts. Lessor shall, at the expiration or earlier termination of
the term hereof and after Lessee has vacated the Premises, return to Lessee
(or, at Lessor's option, to the last assignee, if any, of Lessee's interest
herein), that portion of the Security Deposit not used or applied by Lessor.
Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
purposes set forth in Paragraph 1.8, or any other use which is comparable
thereto, and for no other purpose: Lessee shall not use or permit the use of
the Premises in a manner that creates waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to, neighboring premises or
properties.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials expected to
be on the Premises, is either: (i) potentially injurious to the public
health, safety or welfare, the environment or the Premises, (ii) regulated or
monitored by any governmental authority, or (iii) a basis for liability of
Lessor to any governmental agency or third party under any applicable statute
or common law theory. Hazardous Substance shall include, but not be limited
to hydrocarbons, petroleum, gasoline, crude oil or any products, by-products,
or fractions thereof. Lessee shall not engage in any activity in, on or about
the Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 6.3). "Reportable Use" shall mean (i)
the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring
properties. In addition, Lessor may (but without any obligation to do so)
condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such
additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefrom or
therefor, including, but not limited to, the installation (and removal on or
before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the Premises (such as concrete encasements)
and/or the deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance, or a condition involving or
resulting from same, has come to be located in, on, under or about the
Premises, other than as previously consented to by Lessor. Lessee shall
immediately give written notice of such fact to Lessor. Lessee shall also
immediately give Lessor a copy of any statement, report, notice,
registration, application, permit, business plan, license, claim, action or
proceeding given to, or received from, any governmental authority or private
party, or persons entering or occupying the Premises, concerning the
presence, spill, release, discharge of, or exposure to, any Hazardous
Substance or contamination in, on, or about the Premises, including but not
limited to all such documents as may be involved in any Reportable Uses
involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any,
and the Premises, harmless from and against any and all loss of rents and/or
damages, liabilities, judgements, costs, claims, liens, expenses, penalties,
permits and attorney's and consultant's fees arising out of or involving any
Hazardous Substance or storage tank brought onto the Premises by or for
Lessee or under Lessee's control. Lessee's obligations under this Paragraph 6
shall include, but not be limited to, the effects of any contamination or
injury to person, property or the environment created or suffered by Lessee,
and the cost of Investigation (including consultant's and attorney's fees and
testing), removal, remediation, restoration and/or abatement thereof, or
of any contamination therein involved, and shall survive the expiration or
earlier termination of this Lease. No termination, cancellation or release
agreement entered into by Lessor and Lessee shall release Lessee from its
obligations under this Lease with respect to Hazardous Substances or storage
tanks, unless specifically so agreed by Lessor in writing at the time of such
agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in
this Lease, Lessee, shall, at Lessee's sole cost and expense, fully,
diligently and in a timely manner, comply with all "Applicable Law," which
term is used in this Lease to include all laws, rules, regulations,
ordinances, directives, covenants, easements and restrictions of record,
permits, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or
consultants, relating in any manner to the Premises (including but not
limited to matters pertaining to (i) industrial hygiene, (ii) environmental
conditions, on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture,
production, installation, maintenance, removal, transportation, storage,
spill or release of any Hazardous Substance or storage tank), now in effect
or which may hereafter come into effect, and whether or not reflecting a
change in policy from any previously existing policy. Lessee shall, within
five (5) days after receipt of Lessor's written request, provide Lessor with
copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor,
and shall immediately upon receipt, notify Lessor in writing (with copies of
any documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or
the Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined
in Paragraph 8.3(a)) shall have the right to enter the Premises at any time,
in the case of an emergency, and otherwise at reasonable times, for the
purpose of inspecting the condition of the Premises and for verifying
compliance by Lessee with this Lease and all Applicable Laws (as defined in
Paragraph 6.3), and to employ experts and/or consultants in connection
therewith and/or to advise Lessor with respect to Lessee's activities,
including but not limited to the installation, operation, use, monitoring,
maintenance, or removal of any Hazardous Substance or storage tank on or from
the Premises. The costs and expenses of any such inspections shall be paid by
the party requesting same, unless a Default or Breach of this Lease,
violation of Applicable Law, or a contamination, caused or materially
contributed to by Lessee is found to exist or be imminent, or unless the
inspection is requested or ordered by a governmental authority as the result
of any such existing imminent violation or contamination. In any such case,
Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case
may be, for the costs and expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's
warranty as to condition), 2.3 (Lessor's warranty as to compliance with
covenants, etc.), 7.2 (Lessor's obligations to repair), 9 (damage and
destruction), and 14 (condemnation), Lessee shall, at Lessee's sole cost and
expense and at all times, keep the Premises and every part thereof in good
order, condition and repair, structural and non-structural (whether or not
such portion of the Premises requiring repair, or the means of repairing the
same, are reasonably or readily accessible to Lessee, and whether or not the
need for such repairs occurs
INITIALS [ILLEGIBLE]
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NET PAGE 2
<PAGE>
as a result of Lessee's use, any prior use, the elements or the age of such
portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as
plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing system, including
fire alarm and/or smoke detection systems and equipment, fire hydrants,
fixtures, walls (interior and exterior), foundations, ceilings, roofs,
windows, doors, plate glass, skylights, landscaping, driveways, parking lots,
fences, retaining walls, signs, sidewalks and parkways located in, on, about
or adjacent to the Premises. Lessee shall not cause or permit any Hazardous
Substance to be spilled or released in, on, under or about the Premises
(including through the plumbing or sanitary sewer system) and shall promptly,
at Lessee's expense, take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for the cleanup of
any contamination of, and for the maintenance, security and/or monitoring of,
the Premises, the elements surrounding same, or neighboring properties, that
was caused or materially contributed to by Lessee, or pertaining to or
involving any Hazardous Substance and/or storage tank brought onto the
Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair. If Lessee occupies the Premises for seven (7) years or more, Lessor
may require Lessee to repaint the exterior of the buildings on the Premises
as reasonably required, but not more frequently than once every seven (7)
years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance
for, and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire
sprinkler and/or standpipe and hose or other automatic fire extinguishing
systems, including fire alarm and/or smoke detection, (iv) landscaping and
irrigation systems, (v) roof covering and drain maintenance and (vi) asphalt
and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements
of Lessor contained in Paragraph 2.2 (relating to condition of the Premises),
2.3 (relating to compliance with covenants, restrictions and building code),
9 (relating to destruction of the Premises) and 14 (relating to condemnation
of the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises,
the improvements located thereon, or the equipment therein, whether
structural or non structural, all of which obligations are intended to be
that of the Lessee under Paragraph 7.1 hereof, it is the intention of the
Parties that the terms of this Lease govern the respective obligations of the
Parties as to maintenance and repair of the Premises. Lessee and Lessor
expressly waive the benefit of any statute now or hereafter in effect to the
extent it is inconsistent with the terms of this Lease with respect to, or
which affords Lessee the right to make repairs at the expense of Lessor or to
terminate this Lease by reason of, any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all carpeting, window
coverings, air lines, power panels, electrical distribution, security, fire
protection systems, communication systems, lighting fixtures, heating,
ventilating, and air conditioning equipment, plumbing, and fencing in, on or
about the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery
and equipment that can be removed without doing material damage to the
Premises. The term "ALTERATIONS" shall mean any modification of the
improvements on the Premises from that which are provided by Lessor under the
terms of this Lease, other than Utility Installations or Trade Fixtures,
whether by addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY
INSTALLATIONS" are defined as Alterations and/or Utility Installations made
by Lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a).
Lessee shall not make any Alterations or Utility Installations in, on, under
or about the Premises without Lessor's prior written consent. Lease may,
however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof), as long as they are not visible from the
outside, do not involve puncturing, relocating or removing the roof or any
existing walls, and the cumulative cost thereof curing the term of this Lease
as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall
be presented to Lessor in written form with proposed detailed plans. All
consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by
subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's
acquiring all applicable permits required by governmental authorities, (ii)
the furnishing of copies of such permits together with a copy of the plans
and specifications for the Alteration or Utility Installation to Lessor prior
to commencement of the work thereon, and (iii) the compliance by Lessee with
all conditions of said permits in a prompt and expeditious manner. Any
Alterations or Utility Installations by Lessee during the term of this Lease
shall be done in a good and workmanlike manner, with good and sufficient
materials, and in compliance with all Applicable Law. Lessee shall promptly
upon completion thereof furnish Lessor with as-built plans and specifications
therefor. Lessor may (but without obligation to do so) condition its consent
to any requested Alteration or Utility Installation that costs $10,000 or
more upon Lessee's providing Lessor with a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such Alteration
or Utility Installation and/or upon Lessee's posting an additional Security
Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by
any mechanics' or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessee not less than ten (10) days' notice prior
to the commencement of any work in, on or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same
and shall pay and satisfy any such adverse judgement that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises. If
Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times the
amount of such contested lien claim or demand, indemnifying Lessor against
liability for the same, as required by law for the holding of the Premises
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's attorney's fees and costs in participating in such
action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their
removal or become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Additions made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee Owned
Alterations, and Utility installations. Unless otherwise instructed per
subparagraph 7.4(b) hereof, all Lessee Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon and be surrendered by Lessee
with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease,
notwithstanding their installation may have been consented to by Lessor.
Lessor may require the removal at any time of all of any part of any Lessee
Owned Alterations or Utility Installations made without there required
consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date,
with all of the improvements, parts and surfaces thereof clean and free of
debris and in good operating order, condition and state of repair, ordinary
wear and tear excepted. "Ordinary wear and tear" shall not include any damage
or deterioration that would have been prevented by good maintenance practice
or by Lessee performing all of its obligations under this Lease. Except as
otherwise agreed or specified in writing by Lessor, the Premises, as
surrendered, shall include the Utility Installations. The obligation of
Lessee shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment,
and Alterations and/or Utility Installations, as well as the removal of any
storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all
as may then be required by Applicable Law and/or good practice. Lessee's Trade
Fixtures shall remain the property of Lessee and shall be removed by Lessee
subject to its obligation to repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee
is the Insuring Party Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums
for policy periods commencing prior to or extending beyond the Lease term
shall be prorated to correspond to the Lease term. Payment shall be made by
Lessee to Lessor within ten (10) days following receipt of an invoice for any
amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee and Lessor (as an additional insured) against
claims for bodily injury, personal injury and property damage based upon,
involving or arising out of the ownership, use, occupancy or maintenance of
the Premises and all areas are appurtenant thereto. Such insurance shall be
on an occurrence basis providing single limit coverage in an amount not less
than $1,000,000 per occurrence with an "Additional Insured-Managers or
Lessors of Premises" Endorsement and contain the "Amendment of the Pollution
Exclusion" for damage caused by heat, smoke or fumes from a hostile fire. The
policy shall not contain any intra-insured exclusions as between insured
persons or organizations, but shall include coverage for liability assumed
under this Lease as an "insured contract" for the performance of Lessee's
indemnity obligations under this Lease. The limits of said insurance required
by this Lease or as carried by Lessee shall not, however, limit the liability
of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be
carried by Lessee shall be primary to and not contributory with any similar
insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The insuring Party shall obtain
and keep in force furing the term of this Lease a policy or policies in the
name of Lessor, with loss payable to Lessor and to the holders of any
mortgages, deeds of trust or ground leases on the Premises ("Lender(s)"),
insuring loss
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or damage to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value thereof if, by reason
of the unique nature or age of the improvements involved, such latter amount
is less than full replacement cost. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations shall be insured by Lessee
under Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered cause of
loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property
insurance coverage amount by a factor of not less than the adjusted U.S.
Department of Labor Consumer Price Index for All Urban Consumers for the city
nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per
occurrence, and Lessee shall be liable for such deductible amount in the
event of an Insured Loss, as defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of
the full rental and other charges payable by Lessee to Lessor under this
Lease for one (1) year (including all real estate taxes, insurance costs, and
any scheduled rental increases). Said insurance shall provide that in the
event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the
completion of repairs or replacement of the Premises, to provide for one full
year's loss of rental revenues from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any coinsurance
clause, and the amount of coverage shall be adjusted annually to reflect the
projected rental income, property taxes, insurance premium costs and other
expenses, if any, otherwise payable by Lessee, for the next twelve (12) month
period. Lessee shall be liable for any deductible amount in the event of such
loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in
the premiums for the property insurance of such building or buildings if
said increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lessee. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned
Alterations and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain
insurance coverage on all of Lessee's personal property, Lessee Owned
Alterations and Utility Installations in, on, or about the Premises similar
in coverage to that carried by the Insuring Party under Paragraph 8.3. Such
insurance shall be full replacement cost coverage with a deductible of not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be
used by Lessee for the replacement of personal property or the restoration of
Lessee Owned Alterations and Utility Installations. Lessee shall be the
Insuring Party with respect to the insurance required by this Paragraph 8.4
and shall provide Lessor with written evidence that such insurance is in
force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required by a
Lender having a lien on the Premises, as set forth in the most current issue
of "Best's Insurance Guide." Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in this
Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be
delivered to Lessor certified copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with the
insureds and loss payable clauses as required by this Lease. No such policy
shall be cancellable or subject to modification except after thirty (30) days
prior written notice to Lessor. Lessee shall at least thirty (30) days prior
to the expiration of such policies, furnish Lessor with evidence of renewals
or "insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand. If the Insuring Party shall fail to
procure and maintain the insurance required to be carried by the Insuring
Party under this Paragraph 8, the other Party may, but shall not be required
to, procure and maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("Waiving Party") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in
contract or in tort) against the other, for loss of or damage to the Waiving
Party's property arising out of or incident to the perils required to be
insured against under Paragraph 8. The effect of such releases and waivers of
the right to recover damages shall not be limited by the amount of insurance
carried or required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or
damages, costs, liens, judgments, penalties, permits, attorney's and
consultant's fees, expenses and/or liabilities arising out of, involving, or
in dealing with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by
Lessee in the performance in a timely manner of any obligation on Lessee's
part to be performed under this Lease. The foregoing shall include, but not
be limited to, the defense or pursuit of any claim or any action or
proceeding involved therein, and whether or not (in the case of claims made
against Lessor) litigated and/or reduced to judgment and whether well founded
or not, in case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend
the same at Lessee's expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have
first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by
or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or light fixtures, or from any
other cause, whether the said injury or damage results from conditions
arising upon the Premises or upon other portions of the building of which the
Premises are a part, or from other sources or places, and regardless of
whether the cause of such damage or injury or the means of repairing the same
is accessible or not. Lessor shall not be liable for any damages arising from
any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's
negligence or breach of this Lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to
such damage or destruction, excluding from such calculation the value of the
land and Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations
the repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible
amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances
or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE--Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; provided, however, that Lessee shall, at
Lessor's election, make the repair of any damage or destruction the total
cost to repair of which is $10,000 or less, and, in such event, Lessor shall
make the insurance proceeds available to Lessee on a reasonable basis for
that purpose. Notwithstanding the foregoing, if the required insurance was
not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds
(except as to the deductible which is Lessee's responsibility) as and when
required to complete said repairs. In the event, however, the shortage in
proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available. Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or
adequate assurance thereof, within ten (10) days following receipt of written
notice of such shortage and request therefor. If Lessor receives said funds
or adequate assurance thereof within said ten (10) day period, the party
responsible for making the repairs shall complete them as soon as reasonably
possible and this Lease small remain in full force and effect. If Lessor does
not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days
thereafter to make such restoration and repair as is commercially reasonable
with Lessor paying any shortage in proceeds, in which case this Lease shall
remain in full force and effect. If in such case Lessor does not so elect,
then this Lease shall terminate sixty (60) days following the occurrence of
the damage or destruction. Unless otherwise agreed, Lessee shall in no event
have any right to reimbursement from Lessor for any funds contributed by
Lessee to repair any such damage or destruction. Premises Partial Damage due
to flood or earthquake shall be subject to Paragraph 9.3 rather than
Paragraph 9.2, notwithstanding that there may be some insurance coverage, but
the net proceeds of any such insurance shall be made available for the
repairs if made by either Party.
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9.3 PARTIAL DAMAGE--Uninsured Loss. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which
event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate
this Lease as of the date sixty (60) days following the giving of such
notice. In the event Lessor elects to give such notice of Lessor's intention
to terminate this Lease, Lessee shall have the right within ten (10) days
after the receipt of such notice to give written notice to Lessor of Lessee's
commitment to pay for the repair of such damage totally at Lessee's expense
and without reimbursement from Lessor. Lessee shall provide Lessor with the
required funds or satisfactory assurance thereof within thirty (30) days
following Lessee's said commitment. In such event this Lease shall continue
in full force and effect, and Lessor shall proceed to make such repairs as
soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the funds or assurance thereof within
the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
a Premises Total Destruction occurs (including any destruction required by
any authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss or was caused by a negligent or
willful act of Lessee. In the event, however, that the damage or destruction
was caused by Lessee, Lessor shall have the right to recover Lessor's damages
from Lessee except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor
may, at Lessor's option, terminate this Lease effective sixty (60) days
following the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within thirty (30) days after the date
of occurrence of such damage. Provided, however, if Lessee at that time has
an exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by, within twenty (20) days following the
occurrence of the damage, or before the expiration of the time provided in
such option for its exercise, whichever is earlier ("Exercise Period"),
(i) exercising such option and (ii) providing Lessor with any shortage in
insurance proceeds (or adequate assurance thereof) needed to make the
repairs. If Lessee duly exercises such option during said Exercise Period and
provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such
damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option and provide such
funds or assurance during said Exercise Period, then Lessor may at Lessor's
option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any item or provision in
the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at
any time prior to the commencement of such repair or restoration, give
written notice to Lessor and to any Lenders of which Lessee has actual notice
of Lessee's election to terminate this Lease on a date not less than sixty
(60) days following the giving of such notice. If Lessee gives such notice to
Lessor and such Lenders and such repair or restoration is not commenced
within thirty (30) days after receipt of such notice, this Lease shall
terminate as of the date specified in said notice. If Lessor or a Lender
commences the repair or restoration of the Premises within thirty (30) days
after receipt of such notice, this Lease shall continue in full force and
effect. "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Law and this Lease shall continue in full force and effect, but subject to
Lessor's rights under Paragraph 13), Lessor may at Lessor's option either (i)
investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Lessor's expense, in which event this Lease
shall continue in full force and effect, or (ii) if the estimated cost to
investigate and remediate such condition exceeds twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater, give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the giving of
such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten
(10) days after the receipt of such notice to give written notice to Lessor
of Lessee's commitment to pay for the investigation and remediation of such
Hazardous Substance Condition totally at Lessee's expense and without
reimbursement from Lessor except to the extent of an amount equal to twelve
(12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such investigation and remediation as soon as
reasonably possible and the required funds are available. If Lessee does not
give such notice and provide the required funds or assurance thereof within
the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance
Condition occurs for which Lessee is not legally responsible, there shall be
abatement of Lessee's obligations under this Lease to the same extent as
provided in Paragraph 9.6(a) for a period of not to exceed twelve months.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security
Deposit as has not been, or is not then required to be, used by Lessor under
the terms of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions
of any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such
taxes have been paid. If any such taxes to be paid by Lessee shall cover any
period of time prior to or after the expiration or earlier termination of the
term hereof, Lessee's share of such taxes shall be equitably prorated to
cover only the period of time within the tax fiscal year this Lease is in
effect, and Lessor shall reimburse Lessee for any overpayment after such
proration. If Lessee shall fail to pay any Real Property Taxes required by
this Lease to be paid by Lessee, Lessor shall have the right to pay the same,
and Lessee shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Lessor reserves the
right, at Lessor's option, to estimate the current Real Property Taxes
applicable to the Premises, and to require such current year's Real Property
Taxes to be paid in advance to Lessor by Lessee, either: (i) in a lump sum
amount equal to the installment due, at least twenty (20) days prior to the
applicable delinquency date, or (ii) monthly in advance with the payment of
the Base Rent. If Lessor elects to require payment monthly in advance, the
monthly payment shall be that equal monthly amount which, over the number of
months remaining before the month in which the applicable tax installment
would become delinquent (and without interest thereon), would provide a fund
large enough to fully discharge before delinquency the estimated installment
of taxes to be paid. When the actual amount of the applicable tax bill is
known, the amount of such equal monthly advance payment shall be adjusted as
required to provide the fund needed to pay the applicable taxes before
delinquency. If the amounts paid to Lessor by Lessee under the provisions of
this Paragraph are insufficient to discharge the obligations of Lessee to pay
such Real Property Taxes as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums as are necessary to pay such
obligations. All moneys paid to Lessor under this Paragraph may be
intermingled with other moneys of Lessor and shall not bear interest. In the
event of a Breach by Lessee in the performance of the obligations of Lessee
under this Lease, then any balance of funds paid to Lessor under the
provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional
Security Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"Real Property Taxes" shall include any form of real estate tax or
assessment, general, special, ordinary or extraordinary, and any license fee,
commercial rental tax, improvement bond or bonds, levy or tax (other than
inheritance, personal income or estate taxes) imposed upon the Premises by
any authority having the direct or indirect power to tax, including any city,
state or federal government, or any school, agricultural, sanitary, fire,
street, drainage or other improvement district thereof, levied against any
legal or equitable interest of Lessor in the Premises or in the real property
of which the Premises are a part, Lessor's right to rent or other income
therefrom, and/or Lessor's business of leasing the Premises. The term "Real
Property Taxes" shall also include any tax, fee, levy, assessment or charge,
or any increase therein, imposed by reason of events occurring, or changes in
applicable law taking effect, during the term of this Lease, including but
not limited to a change in the ownership of the Premises or in the
improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property
Taxes for all of the land and improvements included within the tax parcel
assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information
as may be reasonably available. Lessor's reasonable determination thereof, in
good faith, shall be conclusive.
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10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause its Trade Fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property
of Lessor. If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property or, at Lessor's option, as
provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or
in the Premises without Lessor's prior written consent given under and
subject to the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a
formal assignment or hypothecation of this Lease or Lessee's assets occurs,
which results or will result in a reduction of the Net Worth of Lessee, as
hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor at
the time of the execution by Lessor of this Lease or at the time of the most
recent assignment to which Lessor has consented, or as it exists immediately
prior to said transaction or transactions constituting such reduction, at
whichever time said Net Worth of Lessee was or is greater, shall be
considered an assignment of this Lease by Lessee to which Lessor may
reasonably withhold its consent. "NET WORTH OF LESSEE" for purposes of this
Lease shall be the net worth of Lessee (excluding any guarantors) established
under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be
a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to
treat such unconsented to assignment or subletting as a noncurable Breach,
Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon
thirty (30) days written notice ("Lessor's Notice"), increase the monthly
Base Rent to fair market rental value or one hundred ten percent (110%) of
the Base Rent then in effect, whichever is greater. Pending determination of
the new fair market rental value, if disputed by Lessee, Lessee shall pay the
amount set forth in Lessor's Notice, with any overpayment credited against
the next installment(s) of Base Rent coming due, and any underpayment for the
period retroactively to the effective date of the adjustment being due and
payable immediately upon the determination thereof. Further, in the event of
such Breach and market value adjustment, (i) the purchase price of any option
to purchase the Premises held by Lessee shall be subject to similar
adjustment to the then fair market value (without the Lease being considered
an encumbrance or any deduction for depreciation or obsolescence, and
considering the Premises at its highest and best use and in good condition),
or one hundred ten percent (110%) of the price previously in effect,
whichever is greater, (ii) any index-oriented rental or price adjustment
formulas contained in this Lease shall be adjusted to require that the base
index be determined with reference to the index applicable to the time of
such adjustment, and (iii) any fixed rental adjustment scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the
market value adjustment.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent or performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this
Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee
or anyone else liable on the Lease or sublease and without obtaining their
consent, and such action shall not relieve such persons from liability under
this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors
or any one else responsible for the performance of the Lessee's obligations
under this Lease, including the sublessee, without first exhausting Lessor's
remedies against any other person or entity responsible therefor to Lessor,
or any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the current monthly
Base Rent, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may
be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for
the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed
or performed by Lessee during the term of said assignment or sublease, other
than such obligations as are contrary to or inconsistent with provisions of
an assignment or sublease to which Lessor has specifically consented in
writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment structure of the
rent payable under this Lease be adjusted to what is then the market value
and/or adjustment structure for property similar to the Premises as then
constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a
portion of the Premises heretofore or hereafter made by Lessee, and Lessor
may collect such rent and income and apply same toward Lessee's obligations
under this Lease; provided, however, that until a Breach (as defined in
Paragraph 13.1) shall occur in the performance of Lessee's obligations under
this Lease, Lessee may, except as otherwise provided in this Lease, receive,
collect and enjoy the rents accruing under such sublease. Lessor shall not,
by reason of this or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to
the sublessee for any failure of Lessee to perform and comply with any of
Lessee's obligations to such sublessee under such sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the performance of
Lessee's obligations under this Lease, to pay to Lessor the rents and other
charges due and to become due under the sublease. Sublessee shall rely upon
any such statement and request from Lessor and shall pay such rents and other
charges to Lessor without any obligation or right to inquire as to whether
such Breach exists and notwithstanding any notice from or claim from Lessee
to the contrary. Lessee shall have no right or claim against said sublessee,
or, until the Breach has been cured, against Lessor, for any such rents and
other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of
such sublease; provided, however, Lessor shall not be liable for any prepaid
rents or security deposit paid by such sublessee to such sublessor or for any
other prior Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in
said notice as as rent due and payable to cure said Default. A "DEFAULT" is
defined as a failure by the Lessee to observe, comply with or perform any of
the terms, covenants, conditions or rules applicable to Lessee under this
Lease. A "BREACH" is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is
specified herein, the failure by Lessee to cure such Default prior to the
expiration of the applicable grace period, and shall entitle Lessor to pursue
the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
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(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary
payment required to be made by Lessee hereunder, whether to Lessor or to a
third party, as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of three (3) days following written notice thereof by or on behalf of
Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with applicable law
per Paragraph 6.3, (ii) the inspection, maintenance and service contracts
required under Paragraph 7.1(b), (iii) the recission of an unauthorized
assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per
Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease
per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii)
the execution of any document requested under Paragraph 42 (easements), or
(viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice by or on
behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than
those described in subparagraphs (a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or
on behalf of Lessor to Lessee; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably
required for its cure, then it shall not be deemed to be a Breach of this
Lease by Lessee if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making
by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all
of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where possession is not restored to Lessee within thirty (30) days;
or (iv) the attachment, execution or other judicial seizure of substantially
all of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days;
provided, however, in the event that any provision of this subparagraph (e)
is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a guarantor's becoming insolvent or
the subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the
guaranty, or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurance or security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the guarantors that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made under this
Lease by Lessee to be made only by cashier's check. In the event of a Breach
of this Lease by Lessee, as defined in Paragraph 13.1, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall Terminate
and Lessee shall immediately surrender possession of the Premises to Lessor.
In such event, Lessor shall be entitled to recover from Lessee: (i) the worth
at the time of the award of the unpaid rent which had been earned at the time
of termination; (ii) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that the Lessee proves could
have been reasonably avoided: (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, and that portion of the leasing commission paid by Lessor applicable to
the unexpired term of this Lease. The worth at the time of award of the
amount referred to in provision (iii) of the prior sentence shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank
of San Francisco at the time of award plus one percent. Efforts by Lessor to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph. If termination
of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding the
unpaid rent and damages as are recoverable therein, or Lessor may reserve
therein the right to recover all or any part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay
rent or quit, or to perform or quit, as the case may be, given to Lessee
under any statute authorizing the forfeiture of leases for unlawful detainer
shall also constitute the applicable notice for grace period purposes
required by subparagraphs 13.1(b), (c) or (d). In such case, the applicable
grace period under subparagraphs 13.1(b), (c) or (d) and under the unlawful
detainer statute shall run concurrently after the one such statutory notice,
and the failure of Lessee to cure the Default within the greater of the two
such grace periods shall constitute both an unlawful detainer and a Breach of
this Lease entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's
Breach and abandonment and recover the rent as it becomes due, provided
Lessee has the right to sublet or assign, subject only to reasonable
limitations. See Paragraphs 12 and 36 for the limitations on assignment and
subletting which limitations Lessee and Lessor agree are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under the Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's
occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for
the giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of
which concessions are hereinafter referred to as "Inducement Provisions,"
shall be deemed conditioned upon Lessee's full and faithful performance of
all of the terms, covenants and conditions of this Lease to be performed or
observed by Lessee during the term hereof as the same may be extended. Upon
the occurrence of a Breach of this Lease by Lessee, as defined in Paragraph
13.1, any such Inducement Provision shall automatically be deemed deleted from
this Lease and of no further force or effect, and any rent, other charge,
bonus, inducement or consideration theretofore abated, given or paid by
Lessor under such an Inducement Provision shall be immediately due and
payable by Lessee to Lessor, and recoverable by Lessor as additional rent due
under this Lease, notwithstanding any subsequent cure of said Breach by
Lessee. The acceptance by Lessor of rent or the cure of the Breach which
initiated the operation of this Paragraph shall not be deemed a waiver by
Lessor of the provisions of this Paragraph unless specifically so stated in
writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%)
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Lessor shall
not be in breach of this Lease if performance is commenced within such thirty
(30) day period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than ten percent
(10%) of the floor area of the Premises, or more than twenty-five percent
(25%) of the land area not occupied by any building, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing
within ten (10) days after Lessor shall have given Lessee written notice of
such taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall
NET PAGE 7
<PAGE>
have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and
effect as to the portion of the Premises remaining, except that the Base Rent
shall be reduced in the same proportion as the rentable floor area of the
Premises taken bears to the total rentable floor area of the building located
on the Premises. No reduction of Base Rent shall occur if the only portion of
the Premises taken is land on which there is no building. Any award for the
taking of all or any part of the Premises under the power of eminent domain
or any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
compensation, separately awarded to Lessee for Lessee's relocation expenses
and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above the legal and other expenses
incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has
been reimbursed therefor by the condemning authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually
designate in writing, a fee as set forth in a separate written agreement
between Lessor and said Brokers (or in the event there is no separate written
agreement between Lessor and said Brokers, the sum of $ --- ) for
brokerage services rendered by said Brokers to Lessor in this transaction.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent
of its interest in any commission arising from this Lease and may enforce
that right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it
has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation
of this Lease and/or the consummation of the transaction contemplated hereby,
and that no broker or other person, firm or entity other than said named
Brokers is entitled to any commission or finder's fee in connection with said
transaction. Lessee and Lessor do each hereby agree to indemnify, protect,
defend and hold the other harmless from and against liability for
compensation or charges which may be claimed by any such unnamed broker,
finder or other similar party by reason of any dealings or actions of the
indemnifying Party, including any costs, expenses, attorneys' fees reasonably
incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in
form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee
and such Guarantors as may be reasonably required by such lender or
purchaser, including but not limited to Lessee's financial statements for the
past three (3) years. All such financial statements shall be received by
Lessor and such lender or purchaser in confidence and shall be used only for
the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if
this is a sublease of the lessee's interest in the prior lease. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior
Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to
be performed by the Lessor shall be binding only upon the Lessor as
hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but
not exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service)
or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this
Lease shall be that Party's address for delivery or mailing of notice
purposes. Either Party may by written notice to the other specify a different
address for notice purposes, except that upon Lessee's taking possession of
the Premises, the Premises shall constitute Lessee's address for the purpose
of mailing or delivering notices to Lessee. A copy of all notices required or
permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by
regular mail the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours
after delivery of the same to the United States Postal Service or courier. If
any notice is transmitted by facsimile transmission or similar means, the
same shall be deemed served or delivered upon telephone confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Sunday or legal holiday, it
shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any preceding Default or Breach by Lessee of any provision hereof, other than
the failure of Lessee to pay the particular rent so accepted. Any payment
given Lessor by Lessee may be accepted by Lessor on account of moneys or
damages due Lessor, notwithstanding any qualifying statements or conditions
made by Lessee in connection therewith, which such statements and/or
conditions shall be of no force or effect whatsoever unless specifically
agreed to in writing by Lessor at or before the time of deposit of such
payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, whenever possible, be cumulative with all other remedies
at law or in equity.
NET PAGE 8
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28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "Security Device"), now
or hereafter placed by Lessor upon the real property of which the Premises
are a part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor
under this Lease, but that in the event of Lessor's default with respect to
any such obligation, Lessee will give any Lender whose name and address have
been furnished Lessee in writing for such purpose notice of Lessor's default
and allow such Lender thirty (30) days following receipt of such notice for
the cure of said default before invoking any remedies Lessee may have by
reason thereof, if any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such Security Device, notwithstanding the relative dates of
the documentation or recordation thereof.
30.2. ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device,
and that in the event of such foreclosure, such new owner shall not: (i) be
liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets
or defenses which Lessee might have against any prior lessor, or (iii) be
bound by prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving assurance (a "non-disturbance agreement")
from the Lender that Lessee's possession and this Lease, including any
options to extend the term hereof, will not be disturbed so long as Lessee is
not in Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with
a sale, financing or refinancing of the Premises, Lessee and Lessor shall
execute such further writings as may be reasonably required to separately
document any such subordination or non-subordination, attornment and/or
non-disturbance agreement as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding
to enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) or Broker in any such proceeding, action, or appeal
thereon, shall be entitled to reasonable attorney's fees. Such fees may be
awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term, "Prevailing
Party" shall include, without limitation, a Party or Broker who substantially
obtains or defeats the relief sought, as the case may be, whether by
compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorney's fee award shall not be
computed in accordance with any court fee schedule, but shall be such as to
fully reimburse all attorney's fees reasonably incurred. Lessor shall be
entitled to attorney's fees, costs and expenses incurred in the preparation
and service of notices of Default and consultations in connection therewith,
whether or not a legal action is subsequently commenced in connection with
such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's
agents shall have the right to enter the Premises at any time, in the case of
an emergency, and otherwise at reasonable times for the purpose of showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part, as Lessor may reasonably deem necessary.
Lessor may at any time place on or about the Premises or building any
ordinary "For Sale" signs and Lessor may at any time during the last one
hundred twenty (120) days of the term hereof place on or about the Premises
any ordinary "For Lease" signs. All such activities of Lessor shall be
without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to
the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except
that Lessee may, with Lessor's prior written consent, install (but not on the
roof) such signs as are reasonably required to advertise Lessee's own
business. The installation of any sign on the Premises by or for Lessee shall
be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility
Installations, Trade Fixtures and Alterations). Unless otherwise expressly
agreed herein, Lessor reserves all rights to the use of the roof and the
right to install, and all revenues from the installation of, such advertising
signs on the Premises, including the roof, as do not unreasonably interfere
with the conduct of Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in
writing by Lessor, the voluntary or other surrender of this Lease by Lessee,
the mutual termination or cancellation hereof, or a termination hereof by
Lessor for Breach by Lessee, shall automatically terminate any sublease or
lesser estate in the Premises; provided, however, Lessor shall, in the event
of any such surrender, termination or cancellation, have the option to
continue any one or all of any existing subtenancies. Lessor's failure within
ten (10) days following any such event to make a written election to the
contrary by written notice to the holder of any such lesser interest, shall
constitute Lessor's election to have such event constitute the termination of
such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act
by or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of
a Hazardous Substance, practice or storage tank, shall be paid by Lessee to
Lessor upon receipt of an invoice and supporting documentation therefor.
Subject to Paragraph 12.2(e) (applicable to assignment or subletting), Lessor
may, as a condition to considering any such request by Lessee, require that
Lessee deposit with Lessor an amount of money (in addition to the Security
Deposit held under Paragraph 5) reasonably calculated by Lessor to represent
the cost Lessor will incur in considering and responding to Lessee's request.
Except as otherwise provided, any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment
of this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the
time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in
the form most recently published by the American Industrial Real Estate
Association, and each said Guarantor shall have the same obligations as
Lessee under this Lease, including but not limited to the obligation to
provide the Tenancy Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give:
(a) evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and
including in the case of a corporate Guarantor, a certified copy of a
resolution of its board of directors authorizing the making of such guaranty,
together with a certificate of incumbency showing the signatures of the
persons authorized to sign on its behalf, (b) current financial statements of
Guarantor as may from time to time be requested by Lessor, (c) a Tenancy
Statement, or (d) written confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property
of Lessor; (b) the right of first refusal to lease the Premises or the right
of first offer to lease the Premises or the right of first refusal to lease
other property of Lessor or the right of first offer to lease other property
of Lessor; (c) the right to purchase the Premises, or the right of first
refusal to purchase the Premises, or the right of first offer to purchase the
Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchase other property of Lessor, or the right of first
offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1
hereof, and cannot be voluntarily or involuntarily assigned or exercised by
any person or entity other than said original Lessee while the original
Lessee is in full and actual possession of the Premises and without the
intention of thereafter assigning or subletting. The Options, if any, herein
granted to Lessee are not assignable, either as a part of an assignment of
this Lease or separately or apart therefrom, and no Option may be separated
from this Lease in any manner, by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
NET PAGE 9
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39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether notice thereof is given Lessee), or (iii)
during the time Lessee is in breach of this Lease, or (iv) in the event that
Lessor has given to Lessee three (3) or more notices of Default under
Paragraph 13.1, whether or not the Defaults are cured, during the twelve (12)
month period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of thirty (30) days after such obligation becomes due
(without necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three or more notices of Default under Paragraph 13.1
during any twelve month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe
all reasonable rules and regulations which Lessor may make from time to time
for the management, safety, care, and cleanliness of the grounds, the parking
and unloading of vehicles and the preservation of good order, as well as for
the convenience of other occupants or tenants of such other buildings and
their invitees, and that Lessee will pay its fair share of common expenses
incurred in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide
same. Lessee assumes all responsibility for the protection of the Premises,
Lessee, its agents and invitees and their property from the acts of third
parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute
and deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS
SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO
THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS
SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
TO WHICH IT RELATES: THE PARTIES SHALL RELY SOLELY UPON THE ADVICE
OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS
LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates
specified above to their respective signatures.
<TABLE>
<S> <C>
Executed at Northbrook, Ill Executed at Sun Valley, CA
on on 7-14-97
------------------------------------ ------------------------------------
by LESSOR: by LESSEE:
ALLSTATE INSURANCE COMPANY HAWKER PACIFIC, INC.
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
By /s/ B. S. Brown By /s/ David Lokken
------------------------------------ ------------------------------------
Name Printed: Barbara S. Brown Name Printed: David Lokken
------------------------- -------------------------
Title: Authorized Signatories Title: C.E.O.
-------------------------------- --------------------------------
By By
----------------------------------- -----------------------------------
Name Printed: Name Printed:
------------------------- -------------------------
Title: c/o CB COMMERCIAL REAL ETATE Title:
-------------------------------- --------------------------------
Address: 533 S. Fremont Avenue Address: 11310 Sherman Way
------------------------------ ------------------------------
Los Angeles, CA 90071 Sun Valley, CA 91352
- -------------------------------------- --------------------------------------
Tel. No. (818) 502-8037 Fax No. (818) 240-0294 Tel. No. (818) 765-6201 Fax No. (818) 765-8073
--------------- --------------- --------------- ---------------
</TABLE>
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<PAGE>
ADDENDUM TO LEASE AGREEMENT
THIS ADDENDUM TO LEASE AGREEMENT is dated June 24, 1997, by and between
ALLSTATE INSURANCE COMPANY, AN ILLINOIS INSURANCE CORPORATION, ("Lessor") and
HAWKER PACIFIC, INC., A CALIFORNIA CORPORATION, ("Lessee") for the Premises
commonly know as 7103 Fair Avenue, North Hollywood, CA 91605.
This Addendum is attached to, and made a part of, the above referenced
Standard Industrial/Commercial Single-Tenant Lease-Net (together with this
Addendum, the "Lease"). The provisions of this Addendum shall govern and
supersede and, and all, contrary or inconsistent provisions of the preprinted
portion of the Lease.
49. INSURANCE: Lessor agrees that during the Lease Term it will insure
the Building (excluding any property which Lessee is obligated to insure) for
its full replacement cost against loss due to fire and other casualties
included in standard extended coverage insurance. In addition, Lessor will
maintain public liability and loss of rental income insurance.
Lessee shall, at its own expense, procure and maintain during the Lease Term,
commercial general liability insurance with respect to the Leased Premises
and Lessee's activities in the Leased Premises and in the Building, providing
bodily injury, broad form property with a maximum $10,000.00 deductible, or
such other amount approved by Lessor in writing, as follows:
a. $1,000,000, with respect to bodily injury or death to any one
person;
b. $1,000,000, with respect to bodily injury or death arising out of
any one occurrence;
c. $1,000,000, with respect to property damage or other loss arising
out of any one occurrence;
d. Fire and extended casualty insurance covering Lessee's trade
fixtures, merchandise and other personal property in an amount
not less than 100% of their actual replacement cost, and,
e. Worker's Compensation insurance in at least the statutory amounts.
Nothing in this Paragraph shall prevent Lessee from obtaining insurance of
the kind and in the amount provided for under this Paragraph under a blanket
insurance policy covering other properties as well as the Leased Premises,
provided, however, that any such policy of blanket insurance (i) shall
provide that the amount of insurance or the coverage required hereunder shall
not be prejudiced by any other losses under such blanket policy, and (ii)
such amounts so specified shall be sufficient to prevent any one of the
insured from becoming a co-insurer within the terms of the applicable
policy, and (iii) shall, as to the Leased Premises, otherwise comply as to
endorsements and coverage with the Provisions of the Paragraph.
Lessee's insurance shall be with a Best's Insurance Reports A+ rated company
(or A rated, if Class XIII or larger). Lessor and Lessor's mortgagee, if any,
shall be named as "Additional Insurers" under Lessee's insurance, and such
Lessee's insurance shall be primary and non-contributing with Lessee's
insurance. Lessee's insurance policies shall contain endorsements requiring
30 day's notice to Lessor and Lessor's mortgagee, if any, prior to any
cancellation, lapse, or non-renewal or and reduction in amount of coverage.
Lessee shall deliver to Lessor, as a condition precedent to its taking
occupancy of the Leased Premises, a certificate (or certificates) evidencing
such insurance.
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50. WAIVER OF CERTAIN CLAIMS: Lessee, to the extent permitted by law,
waives all claims it may have against Lessor, and against Lessor's agents and
employees, for any damages sustained by Lessee or by any occupant of the
Leased Premises, or by any other person, resulting from any cause arising at
any time, except those claims arising from Lessor's gross negligence or
willful misconduct. Lessee agrees to hold Lessor harmless and indemnified
against claims and liability for injuries to all persons and for damages to
or loss of property occurring in or about the Leased Premises or the Building
due to Lessee's breach of this Lease or any act of negligence or default
under the Lease by Lessee, its contractors, agents, employees, licensees and
invitees, except for those claims arising from Lessor's gross negligence or
willful misconduct.
51. LIMITATION OF LESSOR'S LIABILITY: The obligations of Lessor under this
Lease do not constitute personal obligations of the individual partners,
shareholders, directors, officers, employees or agents of Lessor, and Lessee
shall look solely to Lessor's interest in the building and Land (and the
proceeds thereof) and to no other assets of Lessor for satisfaction of any
liability with respect to this Lease. Lessee will not seek recourse against
the individual partners, shareholders, directors, officers, employees or
agents of Lessor, or any of their personal assets for such satisfaction.
Notwithstanding any other provisions contained herein, Lessor shall not be
liable to Lessee, its contractors, agents, or employees for any consequential
damages or loss of profits.
52. RENTAL ADJUSTMENTS: See Addendum attached hereto and made a part
hereof by reference.
53. MAINTENANCE AND REPAIRS: Notwithstanding anything contained in
Paragraph 7.1 or 7.2 herein to the contrary, Lessor agrees that at all times
during the Term of this Lease, it will maintain the structural portions of
the Premises, including without limitation the foundation, floor/slab, roof
structure and exterior roof covering, columns, and beams (collectively,
"Building Structure") in good condition and repair at Lessor's sole cost and
expense. In the event the damage or needed repair is a result of the Lessee's
actions, use of the Premises and/or failure to properly maintain, the repair
shall be at the sole cost and expense of the Lessee.
54. CONDITION OF THE PREMISES: Premises shall be delivered to Lessee in
their "As Is" condition, subject to, and without in any way limiting, the
warranties contained within the Lease (including without limitation Paragraph
2.2 and 2.3 of this Lease), except that prior to occupancy being tendered to
Lessee, Lessor at its sole cost and expense shall perform the following work
upon the Premises:
A. Paint the exterior front (east side) of the Premises and the interior
office and bathroom areas;
B. Install new carpeting in the existing offices (Lessor's Standard).
55. LESSEE'S IMPROVEMENTS: Lessee shall have the right to perform the
following improvements upon the Premises at its sole cost and expense:
A. Install a fire sprinkler system;
B. Install a "paint room"
C. Install two-ton overhead cranes (subject to a structural engineer
report);
D. Install metal halide lighting throughout the warehouse area;
All said work shall be performed subject to any, and all, applicable
governmental rules and regulations and permit processes. Lessor shall reserve
the right to request that Lessee remove said improvements at the expiration
of the Lease Term, as extended, and restore the building to its original
condition.
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All such improvements not permanently affixed to the Premises shall remain
the property of the Lessee, and may be removed at the expiration of the Lease
Term, as extended, and Lessee shall repair any damage to the Premises caused
by such removal.
56. IMPOUND FOR NET CHARGES: Lessee shall pay to Lessor, on the first day
of every month of the Lease Term, as extended, as additional rental, the sum
of $1,445.85 as its estimated cost for Real Property Tax, Premise Insurance
and Common Area Expense applicable to the Premises, subject to an annual
recap of the actual expense. Lessor may increase or decrease this estimated
payment during the Lease Term based upon the actual amounts.
Common Area Expense shall be defined as either the direct costs associated
with Lessee's Premises (i.e. landscaping maintenance) and/or Lessee's
pro-rata share of the general cost of maintaining all of Lessor's property at
the Burbank Airport Business Park, such as maintenance staff and supplies.
Lessee and Lessor acknowledge that the Premises are equal to 9.6% of the
total square footage in the Park (358,392).
57. RENTAL ABATEMENT: The Base Monthly Rental specified in Paragraph 1.5
herein during the second (2nd), third (3rd), fourth (4th) and fifth (5th)
months of the initial Lease Term only shall be Abated ("Free") by fifty (50%)
percent. The portion of the Base Monthly Rental not paid pursuant to this
Paragraph, together with any postponed rent or other rental concessions under
this Lease is collectively referred to as "Abated Rent". The Abated Rent set
forth in this Paragraph shall be subject to all of the provisions set forth
in Paragraph 13.3 of the Lease.
58. SURFACE WATER ABATEMENT: During the term of this Lease, Lessor, at
its sole cost and expense, shall be responsible to make necessary repairs to
the Premises to prevent "surface water" from entering the Premises. Provided
that Lessor is using its reasonable best efforts to correct any such
condition, Lessor shall have no responsibility for any damage caused as a
result of surface water entering the Premises.
59. HAZARDOUS MATERIALS: Lessee shall not store, use and/or dispose of
any Hazardous Substances on, or within the Premises without the explicit
prior written consent of Lessor. Lessee hereby discloses to Lessor that
the following material shall be stored within, and used upon, the Premises,
in compliance with all applicable laws, and Lessor hereby grants its consent
to the use of these materials provided they are stored, used and disposed of
in compliance with all applicable laws and governmental rules and regulations:
A. Oil and water mixtures;
B. Solvents;
C. Paint shop related wastes;
D. Used "blast media";
E. Assorted abrasives.
Should Lessee desire to store any different materials within the Premises, it
shall first notify Lessor in writing and receive Lessor's written permission
before bringing said new materials onto the Premises.
60. EXISTING RAMP: Lessor and Lessee acknowledge that a prior Tenant of
the Premises constructed a "ramp" to the building directly to the west of the
Premises. Lessor will not be held responsible for, or warrant that it meets
all applicable building codes and permit requirements. Lessee may use same
during the Lease Term, but shall be responsible for any modifications to same
to meet any, and all, applicable building codes.
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<PAGE>
This Addendum to Lease is executed as of the date first written above.
LESSOR: ALLSTATE INSURANCE COMPANY
By: /s/ B. S. Brown
-------------------------------
Its: Authorized Signatories
------------------------------
LESSEE: HAWKER PACIFIC, INC.
By: /s/ David Lokken
-------------------------------
David Lokken
Its: Chief Executive Officer
------------------------------
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RENT ADJUSTMENT(S)
ADDENDUM TO
STANDARD LEASE
Dated June 24, 1997
--------------------------------------------------
By and Between (Lessor) ALLSTATE INSURANCE COMPANY
--------------------------------
(Lessee) HAWKER PACIFIC, INC.
--------------------------------
Property Address: 7103 Fair Avenue, North Hollywood, CA
---------------------------------------
Paragraph 52
--------
A. RENT ADJUSTMENTS:
The monthly rent for each month of the adjustment period(s) specified
below shall be increased using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
/X/ I. Cost of Living Adjustment(s) (COL)
(a) On (Fill in COL Adjustment Date(s): April 1, 1999; October 1, 2000;
April 1, 2002 and October 1, 2003 the Monthly rent payable under paragraph
1.5 ("Base Rent") of the attached Lease shall be adjusted by the change, if
any, from the Base Month specified below, in the Consumer Price Index of the
Bureau of Labor Statistics of the U.S. Department of Labor for (select one):
/ / CPI W (Urban Wage Earners and Clerical Workers) or /X/ CPI U (All Urban
Consumers), for (Fill in Urban Area): Los Angeles, Anaheim, Riverside. All
items (1982-1984 = 100), herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph AI(a) of this
Addendum shall be calculated as follows: the Base Rent set forth in paragraph
1.5 of the attached Lease, shall be multiplied by a fraction the numerator of
which shall be the C.P.I. of the calendar month 2 (two) months prior to the
month(s) specified in paragraph AI(a) above during which the adjustment is to
take effect, and the denominator of which shall be the C.P.I. of the calendar
month which is two (2) months prior to (select one): /X/ the first month of
the term of this Lease as set forth in paragraph 1.3 ("Base Month") or / /
(Fill in Other "Base Month"): .**
(c) In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the C.P.I.
shall be used to make such calculation. In the event the Lessor and Lessee
cannot agree on such alternative index, then the matter shall be submitted
for decision to the American Arbitration Association, in accordance with the
then rules of said association and the decision of the arbitrators shall be
binding upon both parties. The cost of said Arbitrators shall be paid equally
by Lessor and Lessee.
/ / II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV)
(a) On (Fill in MRV Adjustment Date(s): N/A the monthly rent payable
under paragraph 1.5 ("Base Rent") of the attached Lease shall be adjusted to
the "Market Rental Value" of the property as follows:
1) Four months prior to the Market Rental Value (MRV) Adjustment
Date(s) described above, Lessor and Lessee shall meet to establish an agreed
upon new MRV for the specified term. If agreement cannot be reached, then:
i) Lessor and Lessee shall immediately appoint a mutually
acceptable appraiser or broker to establish the new MRV within the next 30
days. Any associated costs will be split equally between the parties, or
ii) Both Lessor and Lessee shall each immediately select and pay the
appraiser or broker of their choice to establish a MRV within the next 30
days. If for any reason either one of the appraisals is not completed within
the next 30 days, as stipulated, then the appraisal that is completed at the
time shall automatically become the new MRV. If both appraisals are completed
and the two appraisers/brokers cannot agree on a reasonably average MRV then
they shall immediately select a third mutually acceptable appraiser/broker to
establish a third MRV within the next 30 days. The average of the two
appraisals closest in value shall then become the new MRV. The costs of the
third appraisal shall be split equally between the parties.
** The sum so calculated shall constitute the new monthly rent hereunder,
but in no event shall any new monthly rent be less than four and one-half
(4 1/2%) percent greater than, nor more than nine (9%) percent higher than
the rent payable for the month immediately preceding the date for the rent
adjustment. As an example, at the first adjustment on April 1, 1999, the
minimum new monthly rent shall be $9,243.03, and the maximum new monthly
rent shall be $9,641.05.
Initials [ILLEGIBLE] Initials [ILLEGIBLE]
----------- -----------
RENT ADJUSTMENT(S)
Page 1 of 2
<PAGE>
2) In any event; the new MRV shall not be less than the rent payable
for the month immediately preceding the date for rent adjustment.
b) Upon the establishment of a New Market Rental Value as described in
paragraph AII:
1) the monthly rental sum so calculated for each term as specified in
paragraph AII(a) will become the new "Base Rent" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
AI(a) above and
2) the first month of each Market Rental Value term as specified in
paragraph AII(a) shall become the new "Base Month" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
AI(b).
/ / III. FIXED RENTAL ADJUSTMENT(S) (FRA)
The monthly rent payable under paragraph 1.5 ("Base Rent") of the attached
Lease shall be increased to the following amounts on the dates set forth
below:
On (Fill in FRA Adjustment Date(s)): The New Base Rental shall be:
N/A
- ----------------------------------- $-----------------------------
- ----------------------------------- $-----------------------------
- ----------------------------------- $-----------------------------
- ----------------------------------- $-----------------------------
B. NOTICE: Unless specified otherwise herein, notice of any escalations
other than FIxed Rental Adjustment(s) shall be made as specified in paragraph
23 of the attached Lease.
C. BROKER'S FEE:
Initials [ILLEGIBLE] Initials [ILLEGIBLE]
----------- -----------
----------- -----------
RENT ADJUSTMENT(S)
PAGE 2 OF 2
NOTICE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are utilizing
the most current form. American Industrial Real Estate Association,
345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071,
(213) 887-8777. Fax No. (213) 687-8616.
<PAGE>
BURBANK AIRPORT BUSINESS PARK
Plot Plan
EXHIBIT "A"
SHERMAN WAY
[Map of Plot Plan for the Burbank Airport Business Park]
<PAGE>
Exhibit 10.25A
FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment (this "Amendment") is entered into as of January __,
1997 by and between Allstate Insurance Company, an Illinois Insurance
Corporation ("Lessor"), and Hawker Pacific Aerospace (formerly Hawker
Pacific, Inc.), a California corporation ("Lessee"), in order to amend that
certain Lease Agreement, dated June 24, 1997 (the "Lease"), between Lessor
and Lessee as herein set forth:
12. ASSIGNMENT AND SUBLETTING. Section 12.1(b) is hereby deleted in its
entirety.
IN WITNESS WHEREOF, this Amendment is executed as of the date first
above written.
LESSOR:
ALLSTATE INSURANCE COMPANY
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
LESSEE:
HAWKER PACIFIC AEROSPACE
By:
----------------------------------
Brian S. Aune
Chief Financial Officer
<PAGE>
ATTACHMENT A
L E A S E
THIS LEASE is made as of the 21 day of November, 1994, by and between
GORDON N. WAGNER and PEGGY M. WAGNER, as Co-Trustees of the Wagner Living
Trust, and JOSEPH W. BASINGER and VIOLA MARIE BASINGER (collectively,
"Landlord") and HAWKER PACIFIC, INC., a California corporation ("Tenant"),
who hereby mutually covenant and agree as follows:
I. GRANT, TERM, DEFINITIONS AND BASIC PROVISIONS
1.0 GRANT. Landlord, for and in consideration of the rents and other
sums herein reserved and of the covenants and agreements herein contained on
the part of the Tenant to be performed, hereby leases to Tenant, and Tenant
hereby lets from Landlord, the improved real estate commonly known as 11310
Sherman Way, Sun Valley, California and legally described in Exhibit A
attached hereto, together with all real property improvements and
appurtenances belonging to or in any way pertaining to the same (collectively,
the "Leased Premises").
Landlord and Tenant hereby acknowledge that the lease dated March 26,
1987 (the "Existing Lease"), between Tenant and Landlord's
predecessor-in-interest, with respect to the Leased Premises (the "Prior
Lease"), shall terminate as of the Commencement Date, as defined hereinbelow.
1.1 LEASE TERM. The term of this Lease (the "Term") shall commence
upon the complete execution of this Lease (the "Commencement Date") and shall
terminate on July 31, 2004 (the "Expiration Date"), unless sooner terminated
in accordance with the terms of this Lease.
1.2 BASIC LEASE PROVISIONS.
(a) Purpose (See Article III): Any lawful purpose.
(b) Rent (See Paragraph 4.0.1)
Annual Monthly
Period Rent Rent
------ ---- ----
Commencement
Date to July 31, 1995 $197,368.44 $16,447.37
Periods subsequent to Rent shall be adjusted in accordance
July 31, 1995 during the with Paragraph 4.0.1 hereof.
Lease Term
(c) Payee (See Paragraph 4.0): Peggy M. Wagner and
Joseph W. Basinger.
(d) Payee's Address (See Paragraph 4.0):
--------------------------------------------------------------------
--------------------------------------------------------------------
(e) Security Deposit (See Article V): Twenty-Five Thousand Three
Hundred Sixty-Eight and 00/100 Dollars ($25,368.00).
(f) Form of Insurance (See Article VI): The insurance specified
in Paragraph 6.0 of this Lease.
<PAGE>
(g) Tenant's Address (for notices) (See Paragraph 18.1):
11310 Sherman Way, Sun Valley, California 91352.
(h) Landlord's Address (for notices) (See Paragraph 18.1):
--------------------------------------------------------------------
--------------------------------------------------------------------
II. POSSESSION
Tenant has examined and knows the condition of the Leased Premises
(including, without limitation, the condition of all improvements), and
Tenant hereby accepts the Leased Premises in its "AS IS" condition, subject
to all applicable zoning, municipal, county and state laws, ordinances and
regulations governing and regulating the use of the Leased Premises, and
accepts this Lease subject thereto and to all matters disclosed hereby and by
any exhibits attached hereto. Tenant acknowledges that neither Landlord nor
Landlord's agent has made any representation or warranty as to the
suitability of the Leased Premises for the conduct of Tenant's business. If
Tenant vacates the Leased Premises, Tenant shall pay any increased insurance
caused thereby.
III. PURPOSE
The Leased Premises shall be used and occupied only for the purpose set
forth in Paragraph 1.2(a) hereof, except that no such use shall (a)
constitute a public or private nuisance or waste, or (b) be unlawful. Except
as expressly stated otherwise in this Lease or in the Agreement of which this
Lease is Attachment A, Tenant shall, at Tenant's expense, comply promptly
with all applicable statutes, ordinances, rules, regulations, orders and
requirements in effect during the term or any part of the term hereof
regulating the use by Tenant of the Leased Premises.
IV. RENT
4.0 RENT. Beginning with the Commencement Date, Tenant shall pay rent
as set forth in Paragraph 1.2(b) hereof. Annual rent shall be payable in
equal monthly installments, in advance, on the first day of each month during
the Lease Term. Rent shall be prorated for partial years and months within
the Term. Rent shall be paid to or upon the order of Payee at the Payee's
Address. Landlord shall have the right to change the Payee or the Payee's
Address by giving written notice thereof to Tenant.
4.0.1 RENT ADJUSTMENTS. Annual rent shall be adjusted in accordance
with this Paragraph 4.0.1.
(a) The annual rent shall be adjusted as of August 1, 1995 and as
of the first day of August of each year thereafter during the Term (each
such date being referred to hereinafter as an "Adjustment Date"),
according to the following computation:
The base for computing the adjustment is the index figure for
the month of August, 1994 (the "Base Index"), as shown in the Consumer
Price Index ("CPI") for all urban consumers for the Los Angeles area
(1982 - 1984 = 100) as published by the United States Department of
Labor's Bureau of Labor Statistics.
If the CPI for all urban consumers for the Los Angeles area
published for the month preceding the month of the Adjustment Date,
("Adjustment Index") has changed over the Base Index, the annual rent
for the following one-year
2
<PAGE>
period (until the next rent adjustment) shall be set by multiplying the
sum of One Hundred Ninety-Seven Thousand Three Hundred Sixty-Eight and
44/100 Dollars ($197,368.44) by a fraction, the numerator of which is
the Adjustment Index and the denominator of which is the Base Index. If
the amount of annual rental increase cannot be ascertained at the time
it is effective, it shall be paid within thirty (30) days after the time
such increase is determined and notice thereof mailed to Tenant at the
Leased Premises.
(b) Notwithstanding the foregoing, the annual/monthly rent for
each period from August 1, 1995 through the end of the Term of this
Lease shall be at least the Minimum Annual/Monthly rent shown below,
and shall be no greater than the Maximum Annual/Monthly rent shown below.
Minimum Maximum
Annual/ Annual/
Monthly Monthly
Period Rent Rent
------ ---- ----
August 1, 1995 - July 31, 1996 $203,289.49/ $209,210.54/
$ 16,940.79 $ 17,434.21
August 1, 1996 - July 31, 1997 $209,388.17/ $221,763.17/
$ 17,449.01 $ 18,480.26
August 1, 1997 - July 31, 1998 $215,669.81/ $235,068.96/
$ 17,972.48 $ 19,589.08
August 1, 1998 - July 31, 1999 $222,139.90/ $249,173.09/
$ 18,511.65 $ 20,764.42
August 1, 1999 - July 31, 2000 $228,804.09/ $264,123.47/
$ 19,067.00 $ 22,010.28
August 1, 2000 - July 31, 2001 $235,668.21/ $279,970.87/
$ 19,639.01 $ 23,330.90
August 1, 2001 - July 31, 2002 $242,738.25/ $296,769.12/
$ 20,228.18 $ 24,730.76
August 1, 2002 - July 31, 2003 $250,020.39/ $314,575.26/
$ 20,835.03 $ 26,214.60
August 1, 2003 - July 31, 2004 $257,521.00/ $333,449.77/
$ 21,460.08 $ 27,787.48
4.1 TAXES. For the period following the Commencement Date, Tenant shall
pay all real estate taxes applicable to the Leased Premises during the Lease
Term ("Taxes"). "Taxes" shall mean all federal, state and local governmental
taxes, assessments and charges (including transit or transit district taxes
or assessments) of every kind or nature, whether general, special, ordinary
or extraordinary, which Landlord shall pay or become obligated to pay
because of or in connection with the ownership, leasing, management, control
or operation of the Leased Premises, or of the personal property, fixtures,
machinery, equipment, systems and apparatus located therein or used in
connection therewith (including any rental or similar taxes levied in lieu of
or in addition to general real and/or personal property taxes). All such
payments shall be made prior to the delinquency date of such payment. Upon
request of Landlord, Tenant shall promptly furnish Landlord with satisfactory
evidence that such taxes have been paid. If any such taxes paid by Tenant
shall cover any period of time prior to or after the expiration of the term
hereof, Tenant's share of such taxes shall be equitably prorated to cover
only the period of time within the tax fiscal year during which this Lease
shall be in effect, and Landlord shall reimburse Tenant to the extent
required. If Tenant shall fail to pay any such taxes, Landlord shall have the
right to pay
3
<PAGE>
the same, in which case Tenant shall repay such amount to Landlord with
Tenant's next rent installment together with interest at the rate of seven
and one-half percent (7.5%) per annum.
4.1.1 JOINT ASSESSMENT. If the Leased Premises are not separately
assessed, Tenant's liability shall be an equitable proportion of the real
property taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Landlord from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Landlord's reasonable
determination thereof, in good faith, shall be conclusive.
4.1.2 PERSONAL PROPERTY TAXES. Tenant shall pay prior to
delinquency all taxes assessed against and levied upon trade fixtures,
furnishings, equipment and all other personal property of Tenant contained in
the Leased Premises or elsewhere. When possible, Tenant shall cause said trade
fixtures, furnishings, equipment and all other personal property to be assessed
and billed separately from the real property of Landlord.
4.2 INTEREST ON LATE PAYMENTS. Tenant hereby acknowledges that late
payment by Tenant to Landlord of rent and other sums due hereunder will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are
not limited to, processing and accounting charges, and late charges which may
be imposed on Landlord by the terms of any mortgage or trust deed covering
the Leased Premises. Accordingly, each and every payment of charges due
hereunder, which shall not be paid within ten (10) days after such amount
shall be due, shall bear interest at the rate of seven and one-half percent
(7.5%) per annum or the maximum rate of interest permitted by law, whichever
is less, from the date when same is payable under the terms of this Lease
until the same shall be paid. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of late payment by Tenant. Acceptance of such late charge by Landlord
shall in no event constitute a waiver of Tenant's default with respect to
such overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder.
V. SECURITY DEPOSIT
As security for the performance of its obligations under this Lease,
Landlord has received a security deposit (the "Security Deposit") in the
amount specified in Subsection 1.2(e). The Security Deposit may be applied by
Landlord to cure any default of Tenant hereunder following notice to Tenant
and the expiration of applicable cure periods. If Tenant has not cured said
default within the applicable cure period, Landlord may use, apply or retain
all or any portion of the Security Deposit for the payment of any rent or
other charge in default or for the payment of any other sum to which Landlord
may become obligated by reason of Tenant's default. Unless Tenant disputes
Landlord's application of all or any portion of the Security Deposit, Tenant
shall within ten (10) days after written demand therefor deposit cash with
Landlord in an amount sufficient to restore said deposit to the full amount
hereinabove stated and Tenant's failure to do so shall be a material breach
of this Lease. Within thirty (30) days after the Expiration Date and after
Tenant has vacated the Leased Premises, Landlord shall return the balance of
the Security Deposit, if any, to Tenant or Tenant's assignee.
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<PAGE>
VI. INSURANCE
6.0 KINDS AND AMOUNTS. During the term of this Lease, Tenant shall
procure and maintain policies of insurance, at its sole cost and expense,
insuring:
(a) Landlord and Tenant from all claims, demands or actions for bodily
injury or property damage in an amount of not less than Five Hundred
Thousand Dollars ($500,000) combined single limit made by, or on behalf
of, any person or persons, firm or corporation arising from, related
to or connected with the operation of the Leased Premises by Tenant.
(b) Landlord's interest in all improvements located on the Leased
Premises against property damage in an amount equal to the full
replacement value.
(c) Loss of rent from business interruption in an amount equal to the
rent reserved for a period of six (6) months under this Lease.
6.1 FORM OF INSURANCE. The aforesaid insurance shall be issued by
companies rated A- or better in BEST'S INSURANCE GUIDE at the time such
insurance is procured, shall be qualified to do business in California, and
shall contain standard loss payee clauses satisfactory to Landlord and
Landlord's mortgagee. The aforesaid insurance shall not be subject to
cancellation or non-renewal by either the insurance carrier or the insured
except after at least thirty (30) days prior written notice to Landlord and
any mortgagee of Landlord. Certificates of insurance shall be deposited with
Landlord, naming the same as additional insured with respect to Tenant's
liability coverage.
6.2 MUTUAL WAIVER OF SUBROGATION RIGHTS. Whenever (a) any loss, cost,
damage or expense resulting from fire, explosion or any other casualty or
occurrence is incurred by either of the parties to this Lease, or anyone
claiming by, through, or under it in connection with the Leased Premises, and
(b) such party is then covered in whole or in part by insurance with respect
to such loss, cost, damage or expense or is required under this Lease to be
so insured, then the party so insured (or so required) hereby releases the
other party from any liability said other party may have on account of such
loss, cost, damage or expense to the extent of any amount recovered by reason
of such insurance (or which could have been recovered had such insurance been
carried as so required) and waives any right of subrogation which might
otherwise exist in or accrue to any person on account thereof, provided that
such release of liability and waiver of the right of subrogation shall not be
operative in any case where the effect thereof is to invalidate such
insurance coverage. Notwithstanding anything to the contrary contained in
this Paragraph, nothing herein is intended to waive or affect, and Tenant
specifically reserves, all of its rights against Landlord to recover any and
all of the amount of any deductible or self-insured retention that Tenant has
incurred as a result of any loss, cost, damage or expense.
VII. DAMAGE OR DESTRUCTION
7.0 PARTIAL DAMAGE -- INSURED. For purposes of this Article VII, damage
to the Leased Premises shall be considered "Partial Damage" only if less than
twenty-five percent (25%) of the floor area of the improvements on the Leased
Premises is damaged by a casualty. Subject to the provisions of Paragraph
7.3, if the Leased Premises suffer Partial Damage and such Partial Damage was
caused by a casualty covered under an insurance policy required to be
maintained pursuant to Article VI, Landlord shall at Landlord's expense
repair such Partial
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Damage as soon as reasonably possible and this Lease shall continue in full
force and effect. Notwithstanding the above, if the Tenant is the insuring
party, and if the insurance proceeds received by Landlord are not sufficient
to effect such repair, Landlord shall give notice to Tenant of the amount
required in addition to the insurance proceeds to effect such repair. Tenant
may, at Tenant's option, contribute the required amount, but upon failure to
do so within thirty (30) days following such notice, Landlord's sole remedy
shall be, at Landlord's option and with no liability to Tenant, to cancel and
terminate this lease as of the date of the casualty. If Tenant shall
contribute such amount to Landlord within said thirty (30) day period,
Landlord shall make such repairs as soon as reasonably possible and this
Lease shall continue in full force and effect. Tenant shall in no event have
any right to reimbursement for any such amount so contributed.
7.1 PARTIAL DAMAGE -- UNINSURED. Subject to the provisions of
Paragraph 7.3, if at any time during the term hereof the Leased Premises
suffer Partial Damage, except by a willful act of Tenant, and such Partial
Damage was caused by a casualty not covered under an insurance policy
required to be maintained pursuant to Article VI, Landlord may at Landlord's
option either (a) repair such Partial Damage as soon as reasonably possible
at Landlord's expense, in which event this Lease shall continue in full force
and effect, or (b) give written notice to Tenant within thirty (30) days
after the date of the occurrence of such Partial Damage of Landlord's
intention to cancel and terminate this Lease as of the date of the occurrence
of such Partial Damage. In the event Landlord elects to give such notice of
Landlord's intention to cancel and terminate this Lease, Tenant shall have
the right within ten (10) days after the receipt of such notice to give
written notice to Landlord of Tenant's intention to repair such Partial
Damage at Tenant's expense, without reimbursement from Landlord, in which
event this Lease shall continue in full force and effect, and Tenant shall
proceed to make such repairs as soon as reasonably possible. If Tenant does
not give such notice within such ten (10) day period this Lease shall be
cancelled and terminated as of the date of the occurrence of such Partial
Damage.
7.2 TOTAL DESTRUCTION. Notwithstanding anything else in this Article
VII, damage to the Leased Premises shall be considered "Total Destruction" of
the Leased Premises if (a) twenty-five percent (25%) or more of the floor
area of the improvements on the Leased Premises is damaged by a casualty, or
(b) as a result of a casualty, Tenant is unable to conduct its business in
the normal course of business. If at any time during the term hereof the
Leased Premises suffer Total Destruction from any cause whether or not
covered by the insurance required to be maintained pursuant to Article VI
(including any total destruction required by any authorized public authority)
this Lease shall automatically terminate as of the date of such Total
Destruction.
7.3 DAMAGE NEAR END OF TERM. If the Leased Premises suffer Partial
Damage during the last twelve (12) months of the term of this Lease, either
party may at its option cancel and terminate this Lease as of the date of
occurrence of such Partial Damage by giving written notice to the other party
of its election to do so within thirty (30) days after the date of occurrence
of such Partial Damage.
7.4 ABATEMENT OF RENT; TENANT'S REMEDIES.
(a) If the Leased Premises are partially destroyed or damaged and
Landlord or Tenant repairs or restores them pursuant to the provisions of
this Article, the rent payable under Article 4 and all other payments
Tenant is obligated to pay under this Lease for the period during which
such damage, repair, or restoration continues shall be abated in
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proportion to the degree to which Tenant's use of the Leased
Premises is impaired; provided, however, that in no case shall such
abatement be less than if the abatement was calculated pro rata
based on the amount of square footage damaged or destroyed.
Except for abatement of rent, if any, Tenant shall have no claim
against Landlord for any damage suffered by reason of any such
damage, destruction, repair, or restoration, unless such damage or
destruction was caused by a willful act of Landlord, or such repair
or restoration was performed in a negligent or willfully dangerous
or unstable manner.
(b) If Landlord shall be obligated to repair or restore the Leased
Premises under the provisions of this Paragraph 7.0 and shall not
commence such repair or restoration within ninety (90) days after
such obligation shall accrue, Tenant may at Tenant's option cancel
and terminate this Lease by giving Landlord written notice of
Tenant's election to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall
terminate as of the date of the casualty.
7.5 PROMPT REPAIR. If, under Paragraphs 7.0 or 7.1, Landlord is
obligated or chooses to repair Partial Damage to the Leased Premises, Tenant
may terminate this Lease without penalties if Landlord (a) fails to complete
such repair work within one hundred and eighty (180) days from the date of
the occurrence of such Partial Damage, or (b) cannot reasonably be expected
to complete such repair work within one hundred and eighty (180) days from
the date of the occurrence of such Partial Damage. If Tenant chooses to
terminate this Lease pursuant to this Paragraph 7.5, this Lease shall be
terminated as of the date of the occurrence of such Partial Damage.
7.6 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Article VII, Tenant shall be entitled to a pro rata refund
of any rent or other monetary amounts paid in advance. In addition, Landlord
shall return to Tenant Tenant's Security Deposit in the manner described in
Article V.
VIII. CONDEMNATION
8.0 LANDLORD'S DUTY TO NOTIFY TENANT. Within ten (10) days after
receiving notice that the Leased Premises or a portion thereof may be taken
under the power of eminent domain or sold under the threat of the exercise
of said power (all of which are herein called "condemnation"), Landlord shall
notify Tenant in writing of the threatened condemnation.
8.1 TERMINATION. If the Leased Premises or any portion thereof are to
be taken by condemnation, this Lease shall terminate as to the part so
taken as of the date the condemning authority takes title or possession,
whichever first occurs; provided, however, Tenant may, at Tenant's option,
terminate this Lease if (a) more than ten percent (10%) of the floor area of
the improvements on the Leased Premises is taken or threatened to be taken by
condemnation, (b) more than twenty-five percent (25%) of the land area of the
Leased Premises which is not occupied by any improvements is taken or
threatened to be taken by condemnation, or (c) any such condemnation or
threatened condemnation materially restricts ingress or egress from the
Leased Premises. If Tenant chooses to terminate this Lease pursuant to this
Article VIII, Tenant must so notify Landlord before thirty (30) days have
lapsed from the date Tenant receives written notice of such condemnation or
threatened condemnation from Landlord (or in the absence of such notice,
before thirty (30) days have lapsed from the date the condemning authority
shall have taken possession of the Leased Premises). Under the
aforementioned circumstances the Lease shall terminate as of the date title
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vests in the condemning authority. If Tenant does not terminate this Lease
in accordance with the foregoing, this Lease shall remain in full force and
effect as to the portion of the Leased Premises remaining, except that the
rent shall abate pro rata based upon the square footage of the total floor
area of the Leased Premises taken by condemnation. In any case of a complete
or partial taking or conveyance of the Leased Premises, the Tenant shall be
entitled to a pro rata refund of any rent and other monetary amounts paid in
advance. The Tenant shall receive such portion of any condemnation award to
which it is entitled under statutory or common law. Any award for the taking
of all or any part of the Leased Premises under the power of eminent domain
or any payment made under threat of the exercise of such power shall be the
property of Landlord, whether such award shall be made as compensation for
diminution in value of this leasehold or for the taking of the fee, or as
severance damages; provided, however, that Tenant shall be entitled to any
portion of the award for loss of or damage to Tenant's trade fixtures and
removable personal property, and Tenant may bring apportionment proceedings to
identify the portion of the award to which Tenant is entitled. In the event
that this Lease is not terminated by reason of such condemnation, Landlord
shall, to the extent of severance damages received by Landlord in connection
with such condemnation, repair any damages to the Leased Premises caused by
such condemnation except to the extent that Tenant has been reimbursed
therefor by the condemning authority.
IX. MAINTENANCE, ALTERATIONS, AND SURRENDER
9.0 MAINTENANCE. Tenant shall during the term of this Lease keep in
good order, condition and repair, the Leased Premises and every part thereof,
structural or non-structural, and all adjacent sidewalks, landscaping,
driveways, parking lots, fences, and signs located in the areas which are
adjacent to and included with the Leased Premises. Landlord shall incur no
expense nor have any obligation of any kind whatsoever in connection with
maintenance of the Leased Premises, and Tenant expressly waives the
benefits of any statute now or hereafter in effect which would otherwise
afford Tenant the right to make repairs at Landlord's expense or to terminate
this Lease because of Landlord's failure to keep the Leased Premises in good
order, condition, and repair.
9.1 ALTERATIONS.
(a) Without Landlord's prior written consent, which shall not
be unreasonably withheld, Tenant shall not make any alterations,
improvements, additions, utility installations in, on, or about the
Leased Premises, except for non-structural alterations not
exceeding Twenty-Five Thousand and 00/100 Dollars ($25,000.00) in
cost; Tenant is expressly permitted to effect nonstructural
alterations to the Leased Premises if the cost of such alterations
does not exceed Twenty-Five Thousand and 00/100 Dollars
($25,000.00). As used in this Paragraph 9.1, the term "utility
installations" shall include bus ducting, power panels, fluorescent
fixtures, space heaters, conduits, and wiring. As a condition to
giving such consent, Landlord may require that Tenant agree to
remove any such alterations, improvements, additions, or utility
installations at the expiration of the term, and to restore the
Leased Premises to their prior condition.
(b) Tenant shall give Landlord not less that ten (10) days'
notice prior to the commencement of any work in the Leased
Premises, and Landlord shall have the right to post notices of
non-responsibility in or on the Leased Premises as provided by law.
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(c) Unless Landlord requires their removal as set forth in
Paragraph 9.1(a), all alterations, improvements, additions, and
utility installations (whether or not such utility installations
constitute fixtures of Tenant), which may be made on the Leased
Premises, shall become the property of Landlord and remain upon and
be surrendered with the Leased Premises at the expiration of the
term. Notwithstanding the provisions of this Paragraph 9.1(c),
Tenant's machinery, trade fixtures, and equipment shall remain the
property of Tenant and may be removed by Tenant subject to the
provisions of Paragraph 9.2. All machinery, trade fixtures, and
equipment which Tenant does not remove from the Leased Premises
upon the termination of the Term shall become the property of
Landlord.
9.2 SURRENDER. Upon the termination of the Term, Tenant shall
surrender the Leased Premises to Landlord in the same condition as when
received on the Commencement Date (subject to Paragraphs 9.1(a) and (c)),
broom clean, ordinary wear and tear excepted. Tenant shall repair any damage
to the Leased Premises occasioned by the removal of Tenant's trade fixtures,
furnishings, and equipment pursuant to Paragraph 9.1(c)), which repair shall
include the patching and filling of holes and repair of structural damage.
9.3 LANDLORD'S RIGHTS. If Tenant fails to perform Tenant's obligations
under this Article 9, Landlord may at its option (but shall not be required
to) enter upon the Leased Premises, after ten (10) days' prior written notice
to Tenant, and put the same in good order, condition and repair, and the cost
thereof together with interest thereon at the rate of seven and one-half
percent (7.5%) per annum shall become due and payable by Tenant.
X. ASSIGNMENT AND SUBLETTING
Tenant shall not voluntarily or by operation of law assign, transfer,
mortgage, sublet, or otherwise transfer or encumber all or any part of
Tenant's interest in this Lease or in the Leased Premises, without Landlord's
prior written consent, which Landlord shall not unreasonably withhold.
Regardless of Landlord's consent, no subletting or assignment shall release
Tenant of Tenant's obligation or alter the primary liability of Tenant to pay
the rent and to perform all other obligations to be performed by Tenant
hereunder. The acceptance of rent by Landlord from any other person shall
not be deemed to be a waiver by Landlord of any provision hereof. Consent to
one assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. Any attempted assignment, transfer, mortgage,
encumbrance or subletting without such consent shall be void, and shall
constitute a breach of this Lease. Notwithstanding anything contained herein
to the contrary, and so long as Tenant is not otherwise in default under this
Lease, Tenant may assign this Lease without Landlord's consent to (a)
Tenant's corporate parent, the corporate subsidiaries of Tenant or its
corporate parent, or any corporation in which Tenant or said parent or
subsidiaries shall own a controlling interest, or (b) any purchaser of
substantially all of Tenant's assets located at the Leased Premises or
Tenant's stock, provided that the assignee executes an agreement assuming
Tenant's obligations hereunder. In the event that the net worth of the
assignee following the assignment incidental to the sale of Tenant's assets
or stock is less that ten (10) times the reasonably estimated remaining
monetary obligations of Tenant under the Lease, the entity receiving the
proceeds from such sale shall be liable for Tenant's remaining obligations
under the Lease.
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XI. LIENS AND ENCUMBRANCES
11.0 ENCUMBERING TITLE. Tenant shall not do any act which shall in any
way encumber Landlord's interest in and to the Leased Premises, nor shall the
interest or estate of Landlord in the Leased Premises in any way become
subject to any claim by way of lien or encumbrance, whether by operation of
law or by virtue of any express or implied contract by Tenant, subject to
Tenant's right to contest any such lien or encumbrance as described in
Paragraph 11.1 hereinbelow. Any claim to, or lien upon, the Leased Premises
arising from any act or omission of Tenant other than a claim by Landlord,
shall accrue only against the leasehold estate of Tenant and shall be subject
and subordinate to the paramount title and rights of Landlord in and to the
Leased Premises.
11.1 LIENS AND RIGHT TO CONTEST. If a person should attempt to place a
mechanics', laborers', or materialmen's lien upon any part of the Leased
Premises, Tenant shall so notify Landlord in writing within ten (10) days of
discovering the attempt to place such a lien. Tenant shall not permit the
Leased Premises to become subject to any mechanics', laborers' or
materialmen's lien on account of labor or material furnished to Tenant or
claimed to have been furnished to Tenant in connection with work of any
character performed or claimed to have been performed for the Leased Premises
by, or at the direction or sufferance of, Tenant; provided, however, that
Tenant shall have the right to contest, in good faith and with reasonable
diligence, the validity of any such lien or claimed lien if Tenant shall give
to Landlord, upon Landlord's request, a bond in an amount equal to one and
one-half (1-1/2) times the estimated cost of such improvements, to insure
Landlord against any liability for mechanics' and materialmen's liens;
provided further, however, that on final determination of the lien or claim
for lien, Tenant shall immediately pay any judgment rendered, with all
proper costs and charges, and shall have the lien released and any judgment
satisfied.
XII. UTILITIES
Tenant shall purchase all utility services, including without
limitation, fuel, water, sewerage, and electricity, from the utility or
municipality providing such service, and shall pay for such services,
together with any taxes thereon, when such payments are due.
XIII. INDEMNITY AND WAIVER
13.0 TENANT'S INDEMNITY. Tenant and its successors and assignees will
protect, defend, indemnify, and save harmless Landlord, and its heirs,
successors, and assignees from and against all liabilities, obligations,
claims, damages, penalties, causes of action, costs, and expenses (including,
without limitation, reasonable attorneys' fees and expenses) imposed upon or
incurred by or asserted against Landlord by reason of (a) any failure on the
part of Tenant to perform or comply with any of the terms of this Lease; or
(b) the performance of any labor or services or the furnishing of any
materials or other property in respect of the Leased Premises or any part
thereof performed by or on behalf of Tenant during the Lease Term.
13.1 EXEMPTION OF LANDLORD FROM LIABILITY. Except as set forth in
Paragraph 7.4(a), Tenant hereby agrees that Landlord shall not be liable for
injury to Tenant's business or any loss of income therefrom or for the damage
to the goods, wares, merchandise, or other property of Tenant, Tenant's
employees, invitees, customers, or any other person in or about the Leased
Premises, nor shall Landlord be liable for injury to the person of Tenant,
Tenant's employees, agents, or contractors, whether
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such damage or injury is caused by or results from fire, steam, electricity,
gas, water, or rain, or from the breakage, leakage, obstruction, or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning,
or lighting fixtures, or from any other cause, whether the said damage or
injury results from conditions arising upon the Leased Premises or upon other
portions of the building of which the Leased Premises are a part, or from
other sources or places, and regardless of whether the cause of such damage
or injury or the means of repairing the same is inaccessible to Tenant.
Landlord shall not be liable for any damages arising from any act or neglect
of any other tenant, if any, of the building in which the Leased Premises are
located. Nothing in this Paragraph 13.1 is intended to grant, and Tenant
expressly does not grant, Landlord the right to seek indemnification from
Tenant for any costs incurred by Landlord as a result of claims or demands or
liability arising out of the matters discussed in this Paragraph 13.1.
13.2 LANDLORD'S INDEMNITY. Landlord and its heirs, successors, and
assignees will protect, defend, indemnify, and save harmless Tenant, and its
agents, employees, officers, and directors from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs, and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) imposed upon or incurred by or asserted against Tenant by reason of
any failure on the part of Landlord to perform or comply with any of the
terms of this Lease.
XIV. RIGHTS RESERVED TO LANDLORD
Without limiting any other rights reserved or available to Landlord
under this Lease, at law or in equity, Landlord reserves the following rights
to be exercised at Landlord's election:
(a) Upon five (5) days notice to Tenant, except in case of emergency, to
enter and/or inspect the Leased Premises and to make repairs, additions,
or alterations to the Leased Premises; and
(b) Upon five (5) days notice to Tenant, to show the Leased Premises to
persons having a legitimate interest in viewing the same.
Landlord may enter upon the Leased Premises for any and all of said purposes
and may exercise any and all of the foregoing rights hereby reserved, so long
as such exercise does not result in any interference in the conduct of
Tenant's business.
XV. QUIET ENJOYMENT
So long as Tenant is not in default under the covenants and agreements
of this Lease, Tenant's quiet and peaceable enjoyment of the Leased Premises
shall not be disturbed or interfered with by Landlord or by any person
claiming by, through, or under Landlord.
XVI. SUBORDINATION OR SUPERIORITY
This Lease and Tenant's rights are and shall be subject to any
mortgage(s) or trust deed(s) executed by Landlord against the Leased Premises
and to any amendments, modifications, or renewals thereof. Tenant shall
execute and deliver within fifteen (15) days of the request of Landlord
or its mortgagee such acknowledgments or documents as may be requested from
time to time in connection with the financing of the Leased Premises
including, without limitation, subordination and attornment instruments, and
estoppel certificates. Notwithstanding the
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foregoing, Tenant shall have no obligation to subordinate its interest in
this Lease to the holder of any mortgage(s) or trust deed(s) executed by
Landlord unless Tenant has received from such mortgagee a so-called
"Nondisturbance Agreement" in form and content satisfactory to Tenant.
XVII. REMEDIES
17.0 DEFAULTS. Tenant agrees that any one or more of the following
events shall be considered events of default as said term is used herein:
(a) Tenant shall be adjudged an involuntary bankrupt, or a decree or
order approving, as properly filed, a petition or answer filed against
Tenant asking reorganization of Tenant under the Federal bankruptcy laws
as now or hereafter amended, or under the laws of any state, shall be
entered, and any such decree or judgement or order shall not have been
vacated or set aside within sixty (60) days from the date of the entry
or granting thereof; or
(b) Tenant shall file or admit the jurisdiction of the court and the
material allegations contained in any petition in bankruptcy or any
petition pursuant or purporting to be pursuant to the Federal bankruptcy
laws as now or hereafter amended, or Tenant shall institute any
proceedings for any relief of Tenant under any bankruptcy or insolvency
laws or any laws relating to the relief of debtors, readjustment or
indebtedness, reorganization, arrangements, composition or extension; or
(c) Tenant shall make any assignment for the benefit of creditors or
shall apply for consent to the appointment of a receiver for tenant or
any of the property of Tenant; or
(d) The Leased Premises are levied upon by any revenue officer or
similar officer as the result of any act or omission of Tenant; or
(e) A decree or order appointing a receiver of all or substantially all
of the property of Tenant shall be made and such decree or order shall
not have been vacated or set aside within sixty (60) days from the date
of entry or granting thereof; or
(f) Tenant shall default in any payment of rent or in any other payment
required to be made by Tenant hereunder and such default shall continue
for ten (10) days after delivery of notice thereof in writing to Tenant;
or
(g) Tenant shall fail to contest the validity of any lien or claimed
lien and give security to Landlord to assure payment thereof, or, having
commenced to contest the same and having given such security, shall fail
to prosecute such contest with diligence, or shall fail to have the same
released and satisfy any judgment rendered thereon, and such default
continues for ten (10) days after notice thereof in writing to Tenant; or
(h) Tenant shall vacate and abandon the Leased Premises and cease
payment of rent. It shall not be an instance of default if Tenant
vacates and abandons the Leased Premises but continues to pay rent; or
(i) Tenant shall default in keeping, observing, or performing any of the
other covenants or agreements herein contained to be kept, observed, and
performed by Tenant, and such default shall continue for thirty (30)
days after notice thereof in writing to Tenant; provided, however, that
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if the nature of Tenant's default is such that more than thirty (30)
days are reasonably required for its cure, then Tenant shall not be in
default if Tenant commences such cure within said thirty (30) day period
and thereafter diligently prosecutes such cure to completion.
Upon the occurrence of any one or more of such events of default, Landlord
may, at its election, terminate this Lease or terminate Tenant's right to
possession only, without terminating the Lease. Upon termination of the
Lease, or upon any termination of the Tenant's right to possession without
termination of the Lease, the Tenant shall surrender possession and vacate
the Leased Premises immediately, and deliver possession thereof to the
Landlord, and hereby grants to the Landlord the full and free right, without
demand or notice of any kind to Tenant (except as hereinabove expressly
provided for or otherwise required by applicable law), to enter into and upon
the Leased Premises, in accordance with the requirements of applicable law,
and to repossess the Leased Premises as the Landlord's former estate and to
expel or remove the Tenant and any others who may be occupying the Leased
Premises, without relinquishing the Landlord's rights to the rent or any
other right given to the Landlord hereunder or by operation of law. Upon
termination of the Lease, Landlord shall be entitled to recover as damages
all rent and other sums due and payable by Tenant on the date of termination,
plus (1) an amount equal to the present value of the rent and other sums
provided herein to be paid by Tenant for the residue of the stated term
hereof, less the fair rental value of the Leased Premises for the residue of
the stated term (taking into account the time and expenses necessary to
obtain a replacement tenant or tenants, including expenses hereinafter
described relating to recovery of the Leased Premises, preparation for
reletting and for reletting itself), and (2) the cost of performing any other
covenants to be performed by the Tenant. If the Landlord elects to terminate
the Tenant's right to possession only without terminating the Lease, the
Landlord may enter into the Leased Premises, remove the Tenant's signs, if
any, and other evidences of tenancy, and take and hold possession thereof as
hereinabove provided, without such entry and possession terminating the Lease
or releasing the Tenant, in whole or in part, from the Tenant's obligations
to pay the rent hereunder for the full term or from any other of its
obligations under this Lease. In the event Landlord elects to terminate the
Tenant's right to possession only, Landlord shall exercise reasonable efforts
to relet all or any part of the Leased Premises for such rent and upon such
terms as shall be satisfactory to Landlord (including the right to relet the
Leased Premises as part of a larger area and the right to change the
character or use made of the Leased Premises). For the purpose of such
reletting, Landlord may decorate or make any repairs, changes, alterations or
additions in or to the Leased Premises that may be necessary or convenient.
All expenses of decorating, changing, altering, and adding to the Leased
Premises shall be borne solely by Landlord. If Landlord does not relet the
Leased Premises, Tenant shall pay to Landlord on demand damages equal to the
amount of the rent and other sums provided herein to be paid by Tenant for
the remainder of the Lease Term as the same shall become due and payable. If
the Leased Premises are relet and a sufficient sum shall not be realized from
such reletting after paying all of the expenses of such reletting and the
collection of the rent accruing therefrom (including, but not by way of
limitation, reasonable attorneys' fees and brokers' commissions), to satisfy
the rent and other charges herein provided to be paid for the remainder of
the Lease Term, Tenant shall pay to Landlord on demand any deficiency as the
same shall become due and payable. Tenant agrees that Landlord may file suit
to recover any sums falling due under the terms of this Paragraph 17.0 from
time to time. Tenant shall pay all costs and expenses, including attorneys'
fees and costs, incurred by Landlord in recovering such sums due hereunder.
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17.1 REMEDIES CUMULATIVE. No remedy herein or otherwise conferred upon
or reserved to Landlord shall be considered to exclude or suspend any other
remedy but the same shall be cumulative and shall be in addition to every
other remedy given hereunder, or now or hereafter existing at law or in
equity or by statute, and every power and remedy given by this Lease to
Landlord may be exercised from time to time and so often as occasion may
arise or as may be deemed expedient.
17.2 NO WAIVER. No delay or omission of either party to exercise any
right or power arising from any default shall impair any such right or power
or be construed to be a waiver of any such default or any acquiescence
therein. No waiver of any breach of any of the covenants of this Lease shall
be construed, taken, or held to be a waiver of any other breach, or as a
waiver, acquiescence in or consent to any further or succeeding breach of the
same covenant. The acceptance by Landlord of any payment of rent or other
sums due hereunder after the termination by Landlord of this Lease or of
Tenant's right to possession hereunder shall not, in the absence of agreement
in writing to the contrary by Landlord, be deemed to restore this Lease or
Tenant's rights hereunder, as the case may be, but shall be construed as a
payment on account, and not in satisfaction of damages due from Tenant to
Landlord.
17.3 COMPLIANCE WITH LAWS. Notwithstanding anything contained herein
to the contrary, Landlord shall pursue its remedies hereunder in accordance
with the laws and judicial decisions of the State of California.
XVIII. MISCELLANEOUS
18.0 AMENDMENTS MUST BE IN WRITING. None of the covenants, terms or
conditions of this Lease to be kept and performed by either party, shall in
any manner be altered, waived, modified, changed, or abandoned except by a
written instrument, duly signed and delivered by the other party.
18.1 NOTICES. All notices to or demands upon Landlord or Tenant
desired or required to be given under any of the provisions hereof shall be
writing. Any notices or demands from Landlord to Tenant shall be deemed to
have been duly and sufficiently given if delivered personally or mailed by
United States certified mail in an envelope properly stamped and addressed
to Tenant at Tenant's Address described in Paragraph 1.2(g) hereof or at such
other address as Tenant may heretofore or hereafter have designated by
written notice to Landlord, and any notices or demands from Tenant to
Landlord shall be deemed to have been duly and sufficiently given if
delivered personally or mailed by United States certified mail in an envelope
properly stamped and addressed to Landlord at Landlord's Address described in
Paragraph 1.2(h) hereof, or at such other address or to such other agent as
Landlord may heretofore have designated by written notice to Tenant. The
effective date of any notice shall be the date of personal delivery or, in
the case of mailing, three (3) business days after delivery of the same to
the United States Postal Service.
18.2 MEMORANDUM OF LEASE. Tenant may record this Lease or a "short
form" memorandum of this Lease without Landlord's prior consent. Either
party shall, within five (5) business days after request by the other,
execute, acknowledge and deliver to the other a "short form" memorandum of
this Lease for recording.
18.3 RELATIONSHIP OF PARTIES. Nothing contained herein shall be
deemed or construed by the parties hereto, or by any third party, as creating
the relationship of principal and agent or of partnership, or of joint
venture, by the parties hereto, it being understood and agreed that no
provision contained in this
14
<PAGE>
Lease nor any acts of the parties hereto shall be deemed to create any
relationship other than the relationship of Landlord and Tenant.
18.4 CAPTIONS. The captions of this Lease are for convenience only
and are not to be construed as part of this Lease and shall not be construed
as defining or limiting in any way the scope or intent of the provisions
hereof.
18.5 SEVERABILITY. If any term or provision of this Lease shall to
any extent be held invalid or unenforceable, the remaining terms and
provisions of this Lease shall not be affected thereby, but each term and
provision of this Lease shall be valid and shall be enforced to the fullest
extent permitted by law.
18.6 LAW APPLICABLE. This Lease shall be construed and enforced in
accordance with the laws of the State of California.
18.7 COVENANTS BINDING ON SUCCESSORS. All of the covenants,
agreements, conditions, and undertakings contained in this Lease shall extend
and inure to and be binding upon the permitted heirs, executors,
administrators, successors, and assignees of the respective parties hereto.
18.8 BROKERAGE. Each of Landlord and Tenant represents and warrants
for itself that it has not had any dealings with any broker or agent in
connection with the transactions contemplated hereby. Each of Landlord and
Tenant covenants to pay, hold harmless, and indemnify the other from and
against any and all costs, expenses, or liability for any compensation,
commissions, and charges claimed by any broker or agent, with respect to the
transactions contemplated hereby or the negotiation thereof and arising by
virtue of the acts of the indemnifying party.
18.9 ATTORNEY'S FEES. If either party herein brings an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court.
18.10 TENANT'S RIGHT TO PERFORM LANDLORD'S DUTIES. If Landlord fails
to perform any of its duties under this Lease within ten (10) days following
its time for performance of the same, Tenant shall have the right (but not
the obligation) to perform such duties on behalf of Landlord, at the expense
of Landlord and without further notice to Landlord, and all expenses incurred
by Tenant in performing such duties shall be paid by Landlord to Tenant,
together with interest thereon at the rate of seven and one-half percent
(7.5%) per annum; provided, however, Tenant is hereby granted the right to
set off against rent and other sums owing to Landlord hereunder all sums to
be paid to Tenant under this Paragraph 18.10.
18.11 TRUSTEES INDIVIDUALLY LIABLE. If the Wagner Living Trust should
dissolve or for any reason cease to exist, Gordon N. Wagner and Peggy M.
Wagner shall, jointly and separately, succeed to all of the Wagner Living
Trust's rights and responsibilities under this Lease as if this Lease were
entered into between Hawker Pacific and Gordon N. Wagner and Peggy M. Wagner
in their individual capacities.
18.12 EXECUTION IN COUNTERPARTS. This Lease may be signed in two or
more counterparts, each of which shall be treated as an original but which,
when taken together, shall constitute one and the same instrument.
18.13 REPRESENTATIONS OF SIGNATORIES. Landlord and Tenant have
executed this Lease on the dates opposite their names. The party executing
this Lease on behalf of Tenant represents and
15
<PAGE>
warrants that the party is authorized to bind Tenant to this Lease. Gordon N.
Wagner and Peggy M. Wagner represent and warrant that they are executing this
Lease on behalf of themselves in their individual capacities and on behalf of
the Wagner Living Trust as the Co-Trustees of the Wagner Living Trust.
XIX. OPTION TO RENEW
Tenant is hereby granted the option (the "Extension Option") to extend
the term of this lease for one (1) period of five (5) years (the "Extended
Term"), commencing on the date immediately following the Expiration Date.
Tenant shall provide Landlord with at least ninety (90) days prior written
notice of Tenant's election to exercise the Extension Option. The Extended
Term shall be governed by the same terms and conditions as contained in this
Lease. Rent for the Extended Term shall be the same as if the rent under the
Lease had continued uninterrupted through the Extended Term with all
necessary CPI adjustments pursuant to Paragraph 4.0.1.
(SIGNATURE PAGE FOLLOWS IMMEDIATELY)
16
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.
LANDLORD:
Dated: 11-21-94 /s/ Gordon N. Wagner
--------- -----------------------------------
GORDON N. WAGNER, Individually, and
as Co-Trustee of the Wagner Living
Trust
Dated: 11-21-94 /s/ Peggy M. Wagner
--------- -----------------------------------
PEGGY M. WAGNER, Individually, and
as Co-Trustee of the Wagner Living
Trust
Dated: 11/18/94 /s/ Joseph W. Basinger
--------- -----------------------------------
JOSEPH W. BASINGER
Dated: 11/18/94 /s/ Viola Marie Basinger
--------- -----------------------------------
VIOLA MARIE BASINGER
TENANT:
HAWKER PACIFIC, INC.
Dated: 14 Nov 1994 By: /s/ David L. Lokken
------------ --------------------------------
Its: PRESIDENT
-------------------------------
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<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
That portion of the east 100 feet of the west half
of lot 62 of Lankershim Ranch Land and Water
Company's subdivision of the east 12,000 acres of
the south half of the Ranch X Mission of San
Fernando, in the city of Los Angeles, county of
Los Angeles, State of California as per map
recorded in Book 31, Pages 39 seq. of
miscellaneous records in the office of the City
Recorder of said county line northerly of a line,
extending south 89 degrees 4 feet 25 inches east
from a point in the centerline of Tujunga Avenue,
50 feet wide distant north zero degrees 00 feet
30 inches west 406.44 feet from the intersection
of said centerline of the westerly prolongation
of the southerly line of said lot 62. Except
therefrom the southerly 30 feet thereof.
<PAGE>
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
January ___, 1998
between
HAWKER PACIFIC AEROSPACE, a California corporation,
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. LINE OF CREDIT (FACILITY NO.1). . . . . . . . . . . . . . . . . . . . . 12
2.1 Line of Credit Amount . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Availability Period . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 Repayment Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.6 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3. TERM LOAN (FACILITY NO. 2). . . . . . . . . . . . . . . . . . . . . . . 15
3.1 Loan Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2 Availability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.3 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.4 Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.5 Repayment Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.6 Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . 16
4. CAPITAL EXPENDITURE FACILITY (FACILITY NO.3). . . . . . . . . . . . . . 16
4.1 Capital Expenditure Loans . . . . . . . . . . . . . . . . . . . . . . . 16
5. OPTIONAL INTEREST RATE. . . . . . . . . . . . . . . . . . . . . . . . . 18
5.1 Optional Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.2 Offshore Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6. FEES, EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.1 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 Reimbursement Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7. COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.1 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.2 Guarantees; Personal Property Supporting Guarantees. . . . . . . . . . 22
7.3 Future Subsidiaries and Collateral. . . . . . . . . . . . . . . . . . . 22
7.4 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
i
<PAGE>
8. DISBURSEMENTS, PAYMENTS AND COSTS . . . . . . . . . . . . . . . . . . . 23
8.1 Requests for Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.2 Disbursements and Payments. . . . . . . . . . . . . . . . . . . . . . . 23
8.3 Telephone and Telefax Authorization . . . . . . . . . . . . . . . . . . 23
8.4 Direct Debit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.5 Direct Debit (Line of Credit) . . . . . . . . . . . . . . . . . . . . . 24
8.6 Banking Days. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.8 Additional Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.9 Interest Calculation. . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.10 Default Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.11 Overdrafts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.12 Collections on Accounts Receivable. . . . . . . . . . . . . . . . . . . 26
9. CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.1 Authorizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.2 Incumbency Certificates; Governing Documents. . . . . . . . . . . . . 27
9.3 Security Agreements, Etc. . . . . . . . . . . . . . . . . . . . . . . . 27
9.4 Evidence of Priority. . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.5 Consent to Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.7 Business Interruption Insurance . . . . . . . . . . . . . . . . . . . . 27
9.8 Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.9 Subordination Agreement . . . . . . . . . . . . . . . . . . . . . . . . 27
9.10 Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . 27
9.11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.12 Legal Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.13 Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.14 Payment of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.16 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.17 Certain Financial Information . . . . . . . . . . . . . . . . . . . . . 28
9.23 Other Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 29
10.1 Organization of Borrower and its Subsidiaries . . . . . . . . . . . . . 29
10.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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<PAGE>
10.3 Enforceable Agreement . . . . . . . . . . . . . . . . . . . . . . . . 30
10.4 Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.5 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.6 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . 30
10.7 Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.8 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.9 Permits, Franchises. . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.10 Other Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.11 Income Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.12 No Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.13 Merchantable Inventory . . . . . . . . . . . . . . . . . . . . . . . . 31
10.14 ERISA Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.15 Location of Borrower and its Subsidiaries. . . . . . . . . . . . . . . 32
10.16 Certain Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.17 The Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.18 Environmental. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.19 Governmental Regulation. . . . . . . . . . . . . . . . . . . . . . . . 33
10.20 Copyrights, Patents, Trademarks and Licenses, etc. . . . . . . . . . . 33
10.21 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.22 Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 33
11. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.1 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.2 Use of Proceeds: Ineligible Securities. . . . . . . . . . . . . . . . 34
11.3 Financial and Other Information . . . . . . . . . . . . . . . . . . . 34
11.4 Senior Funded Debt to Adjusted EBITDA . . . . . . . . . . . . . . . . 37
11.5 Fixed Charge Coverage Ratio . .. . . . . . . . . . . . . . . . . . . . 37
11.6 Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.7 Other Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.8 Other Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.9 Capital Expenditures for Rotable Gears . . . . . . . . . . . . . . . . 39
11.10 Capital Expenditures for Other Assets. . . . . . . . . . . . . . . . . 39
11.11 Dividends and Other Payments . . . . . . . . . . . . . . . . . . . . . 40
11.12 Loans to Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.13 Notices to Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.14 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.15 Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.16 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.17 Preservation of Rights . . . . . . . . . . . . . . . . . . . . . . . . 41
11.18 Maintenance of Properties. . . . . . . . . . . . . . . . . . . . . . . 41
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<PAGE>
11.19 Perfection of Liens . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.20 Places of Business. . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.21 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.22 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(a) Insurance Covering Collateral . . . . . . . . . . . . . . 42
(b) General Business Insurance. . . . . . . . . . . . . . . . 42
(c) Evidence of Insurance . . . . . . . . . . . . . . . . . . 42
11.23 Additional Negative Covenants . . . . . . . . . . . . . . . . . . . . 42
11.24 ERISA Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.25 Inspection of Property and Books and Records. . . . . . . . . . . . . 43
11.26 Environmental Laws. . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.27 Collection of Accounts. . . . . . . . . . . . . . . . . . . . . . . . 43
11.28 Amendment to the Environmental Indemnities. . . . . . . . . . . . . . 44
11.29 Capitalization of HP UK . . . . . . . . . . . . . . . . . . . . . . . 44
12. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.1 Failure to Pay. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.2 Lien Priority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.3 Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.4 False Informat. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.5 Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.6 Receivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.7 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.8 Government Action . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.9 Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . 45
12.10 Cross-default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.11 Other Bank Agreements . . . . . . . . . . . . . . . . . . . . . . . . 46
12.12 ERISA Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
12.13 Environmental Indemnity Breach. . . . . . . . . . . . . . . . . . . . 46
12.14 Change in Control or Management . . . . . . . . . . . . . . . . . . . 46
12.15 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.16 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.17 Other Breach Under Agreement. . . . . . . . . . . . . . . . . . . . . 47
13. ENFORCING THIS AGREEMENT; MISCELLANEOUS. . . . . . . . . . . . . . . . 48
13.1 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
13.2 California Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
13.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 48
13.4 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
13.5 Severability; Waivers. . . . . . . . . . . . . . . . . . . . . . . . . 50
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13.6 Administration Costs . . . . . . . . . . . . . . . . . . . . . . . . . 50
13.7 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
13.8 One Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13.9 Disposition of Schedules, Reports, Etc. Delivered by Borrower. . . . . 51
13.10 Returned Merchandise . . . . . . . . . . . . . . . . . . . . . . . . . 51
13.11 Verification of Receivables. . . . . . . . . . . . . . . . . . . . . . 51
13.12 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13.13 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
13.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
13.15 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
v
<PAGE>
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
This Amended and Restated Business Loan Agreement (this
"Agreement") dated as January ___, 1998 is entered into between BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BANK") and HAWKER PACIFIC
AEROSPACE, a California corporation ("BORROWER"), and amends and restates in
its entirety the Business Loan Agreement (the "Existing Loan Agreement")
dated November 27, 1996 between the Bank and Borrower (acting under its
former name, Hawker Pacific, Inc.). Borrower and Bank hereby agree as
follows:
1. DEFINITIONS
In addition to the terms defined elsewhere in this Agreement, the following
terms have the meanings indicated for the purposes of this Agreement:
"ACCEPTABLE RECEIVABLE" means an account receivable which satisfies the
following requirements:
(a) The account has resulted from the sale of goods or the
performance of services by Borrower or HP UK in the ordinary course of
their business.
(b) There are no conditions which must be satisfied before
Borrower or HP UK is entitled to receive payment of the account. Accounts
arising from COD sales, consignments or guaranteed sales are not
acceptable.
(c) The debtor upon the account does not claim any defense
to payment and has not asserted any counterclaims or offsets against
Borrower or its Subsidiaries. To the extent any credit balances exist in
favor of the debtor, such credit balances shall be deducted from the
account balance.
(d) The account represents a genuine obligation of the debtor
for goods sold and accepted by the debtor, or for services performed for
and accepted by the debtor.
(e) Borrower or HP UK has sent an invoice to the debtor in the
amount of the account.
(f) The account is owned by Borrower or HP UK free of any title
defects or any liens or interests of others except the security interest in
favor of Bank.
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(g) The debtor upon the account is not any of the following:
(i) an employee, affiliate, parent or Subsidiary of
Borrower or HP UK, or an entity which has common officers or directors
with Borrower or HP UK.
(ii) any government or any agency or department of any
nation other than an account of Borrower arising out of the Coast Guard
Contract (and then only to the extent that Borrower has caused an
effective assignment of the Coast Guard Contract to occur under the
Federal Assignment of Claims Act assigning the interest of Bank in the
Coast Guard Contract, to the satisfaction of Bank), and any other contract
with the United States of America or its agencies and instrumentalities
which is reasonably acceptable to Bank and as to which such a filing has
been completed.
(iii) any person or entity located in a foreign country
(other than accounts owed to Borrower from debtors located in the Canadian
provinces of Quebec, Ontario, British Columbia, Saskatchewan and Manitoba)
unless the account is supported by a letter of credit issued by a bank
acceptable to Bank or by FCIA insurance or other credit insurance
acceptable to Bank in its sole discretion, and in the case of accounts
receivable owed by account debtors located in the United Kingdom, debtors
whose accounts are owed to HP UK.
(iv) any person or entity to whom Borrower or any of its
Subsidiaries are obligated for goods purchased or services performed (but
only to the extent of such obligation).
(h) The account is not in default. An account will be
considered in default if any of the following occur:
(i) The account is not paid within the 90 day period
starting on its original invoice date or, in the case of accounts owed
by any Major Customer, the 120 day period starting on its original
invoice date (it being understood that the entire amount of such
accounts which is not paid within the foregoing periods shall be
excluded from Borrower's and HP UK's gross accounts receivable balance
without regard to any credit balances due to the account debtor with
respect to any such account);
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(ii) The debtor obligated upon the account suspends
business, makes a general assignment for the benefit of creditors, or
fails to pay its debts generally as they come due; or
(iii) Any petition is filed by or against the debtor
obligated upon the account under any bankruptcy law or any other law
or laws for the relief of debtors;
(i) The account is not the obligation of a debtor who is in
default (as defined in (h) above) on 25% or more of the total accounts
upon which such debtor is obligated (or, in the case of any Major
Customer, 15% or more of the total accounts upon which such debtor is
obligated).
(j) The account does not arise from the sale of goods which
remain in Borrower's or HP UK's possession or control.
(k) The account is not evidenced by a promissory note or
chattel paper.
(l) The account is otherwise acceptable to Bank.
In addition to the foregoing limitations, the dollar amount of accounts
included as Acceptable Receivables which are the obligations of a single
debtor shall not exceed 20% of Borrower's and HP UK's consolidated gross
accounts receivable at that time, PROVIDED THAT (i) such concentration
limit for Federal Express will be 30%, and (ii) such concentration limit
for British Airways will be 40%, in each case unless and until 15% of the
gross accounts receivable of Borrower and HP UK from such account debtor
remain unpaid for 90 days past their respective original invoice dates.
To the extent the total accounts owed by any debtor exceeds that debtor's
concentration limit pursuant to this paragraph, the amount of any such
excess shall be excluded.
"ACCEPTABLE INVENTORY" means inventory which satisfies the following
requirements:
(a) The inventory is owned by Borrower or HP UK free of
any title defects or any liens or interests of others except the security
interest in favor of Bank.
(b) In the case of inventory of Borrower, the inventory is
permanently located at United States domestic locations of Borrower which
Borrower has disclosed to Bank, as to which Bank has an appropriate
Uniform Commercial Code financing statement on file, and which is
otherwise acceptable to Bank. In the case of inventory of HP UK, the
inventory is permanently located at a location in England disclosed to
Bank,
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and is subject to a first priority floating charge in favor of
Bank. In either case, if the inventory is covered by a negotiable
document of title (such as a warehouse receipt) that document must be
delivered to Bank. Inventory which is in transit (including but not
limited to inventory in transit between locations of Borrower and its
Subsidiaries and any used exchange parts shipped from Borrower's or
HP UK's customer but which have not reached their respective locations
described above) is not acceptable unless it is covered by a commercial
Letter of Credit issued by Bank and the seller of the inventory is
required to present shipping or title documents to Bank as a condition
to obtaining payment.
(c) The inventory is held for sale in the ordinary course of
Borrower's and HP UK's business and is of good and merchantable quality.
Inventory which is obsolete, unsalable, damaged, defective, discontinued,
slow-moving or excess inventory, or which has been returned by the buyer,
is not acceptable. For purposes of this clause (c), inventory shall be
considered slow moving if Borrower and HP UK have not sold inventory or
otherwise dealt in of that type within a 12 month period. Inventory shall
be considered "excess inventory" if Borrower's and HP UK's supply of
inventory of that type is in excess of the amount which is salable within a
24 month period, as determined by Bank given Borrower's and HP UK's
historical sales information. Work-in-process shall not be considered
Acceptable Inventory except to the extent that the same consists of
purchased parts allocated to work orders but not yet in assembly which are
identified as such to the reasonable satisfaction of the Bank. Display
items, and packing and shipping materials and supplies are not acceptable
inventory and are excluded.
(d) The inventory is not placed on consignment or otherwise
placed with the customer or on the customer's premises.
(f) The inventory does not consist of freight or duty.
(g) The inventory consists of property other than rotable
gears or Shipsets.
(h) The inventory is otherwise acceptable to Bank.
"ACQUISITION" means the acquisition by HP UK of the UK Business on the
Closing Date pursuant to the Acquisition Agreement.
"ACQUISITION AGREEMENT" means that certain Agreement relating to the Sale
and Purchase of part of the Business of British Airways Plc among Borrower,
HP UK and British Airways dated as of 20th December, 1997, as in effect on
the date of this Agreement.
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"ADJUSTED EBITDA" means, as of each date of determination, EBITDA for the
four Fiscal Quarter period ending on that date, EXCEPT THAT (i) as of the
Fiscal Quarter ending March 31, 1998, Adjusted EBITDA shall be EBITDA for
that Fiscal Quarter plus $5,700,000, (ii) as of the Fiscal Quarter ending
June 30, 1998, Adjusted EBITDA shall be EBITDA for the two Fiscal Quarter
period then ending plus $4,300,000, and (iii) as of the Fiscal Quarter
ending September 30, 1998, Adjusted EBITDA shall be EBITDA for the three
Fiscal Quarter period then ending plus $2,400,000.
"AMR SHIPSET PAYABLE" means trade accounts payable net of deposits payable
to American Airlines in the amount of $2,854,373.
"BASTIAN" means Melanie L. Bastian, an individual residing in Orem, Utah.
"BORROWER" means Hawker Pacific Aerospace, a California corporation
formerly known as Hawker Pacific, Inc., its successors and permitted
assigns.
"BORROWER DEBENTURE" means a Debenture of even date herewith executed by
Borrower providing for a floating charge upon all assets of Borrower which
may hereafter be located in the United Kingdom, the terms of which are
subject to and controlled by the Security Agreement.
"BORROWER SECURITY AGREEMENT" means that certain Security Agreement of even
date herewith made by Borrower in favor of Bank, as at any time amended.
"BORROWING BASE" means the sum of:
(a) 85% of the balance due on the aggregate amount of the
Acceptable Receivables; and
(b) The lesser 50% of the value of Acceptable Inventory
or the Inventory Limit. In determining the value of Acceptable Inventory
to be included in the Borrowing Base, Bank will use the lowest of (i)
Borrower's or HP UK's cost, (ii) Borrower's or HP UK's estimated market
value, or (iii) Bank's independent determination of the resale value of
such inventory in such quantities and on such terms as Bank deems
appropriate.
"BORROWING BASE CERTIFICATE" is defined in Section 11.3(e).
"BRITISH AIRWAYS" means British Airways Plc, an English company.
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"BRITISH AIRWAYS ENVIRONMENTAL INDEMNITY" means the representations,
warranties, covenants and indemnities as to environmental matters made by
British Airways in favor of Borrower and HP UK in the Acquisition
Agreement, including without limitation those set forth in Section 2.2 of
Schedule 3 thereto.
"BTR ENVIRONMENTAL INDEMNITY" means that certain environmental indemnity
dated as of November 27, 1996 made in favor of Borrower by BTR Dunlop,
Inc., a Delaware corporation.
"CAPITAL EXPENDITURE LOANS" means loans to Borrower made pursuant to
Facility No. 3, as described in Section 4.
"CASH FLOW" means, for any period, EBITDA for that period, MINUS state and
federal income taxes payable in cash by Borrower and its Subsidiaries with
respect to income earned during that period, and net cash taxes payable in
the current period for fiscal years prior to that period.
"CLOSING DATE" means the date upon which each of the conditions precedent
set forth in Section 9 of this Agreement are satisfied or waived in writing
by Bank and the initial loans under this Agreement are funded.
"COAST GUARD CONTRACT" means that certain Contract No. DTCG38-95-D-20018
dated September 20, 1995, between Borrower and the United States Coast
Guard Aircraft Repair and Supply Center, as amended from time to time.
"COMMITMENT FEE RATE" means (a) during the period from the Closing Date
through the day prior to the commencement of the initial Pricing Period,
0.50% per annum, and (b) during each Pricing Period, the percentage per
annum set forth below opposite the Leverage Ratio as of the last day of the
Fiscal Quarter ending 45 days prior to the start of that Pricing Period:
LEVERAGE RATIO COMMITMENT FEE RATE
Less than 2.00:1.00 0.25%
Equal to or greater than
2.00:1.00, but less than
2.50:1.00 0.35%
Equal to or greater than
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2.50:1.00, but less than
3.00:1.00 0.375%
Equal to or greater than
3.00:1.00 0.50%
"DEFAULT" means any event or circumstance which, with the giving of notice
or the passage of time, or both, would constitute an Event of Default.
"EBITDA" means, for any period, the sum (without duplication) of (a) the
consolidated net income of Borrower and its Subsidiaries for that period,
PLUS (b) the amount of state and federal taxes paid or payable with respect
to such net income, PLUS (c) depreciation and amortization expense of
Borrower and its Subsidiaries, MINUS (d) gains (and PLUS losses) associated
with the sale of fixed assets to the extent included in such net income,
MINUS (e) extraordinary gains during that period, PLUS (f) interest expense
of Borrower and its Subsidiaries during that fiscal period, in each case
for that period, determined in accordance with generally accepted
accounting principles, consistently applied.
"ENVIRONMENTAL CLAIMS" means all claims, however asserted, by any
governmental authority or other person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or
injury to the environment.
"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with
all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any governmental
authorities, in each case relating to environmental, health, safety and
land use matters.
"EVENT OF DEFAULT" means any of the circumstances or events constituting
defaults hereunder and listed in Section 12.
"FACILITY NO. 1 OUTSTANDING AMOUNT" has the meaning set forth in Section
2.1(b).
"FACILITY NO. 1 UNUSED AMOUNT" means, as of each date of determination, the
difference between (i) $15,000,000, and (ii) the Facility No. 1 Outstanding
Amount.
"FIXED CHARGES" for any period, means the sum of (a) gross interest expense
paid or payable by Borrower and its Subsidiaries in cash (including
interest on the Subordinated Note), plus (b) scheduled principal payments
on indebtedness of Borrower and its
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Subsidiaries for borrowed money and capital leases, PLUS (c) for each
fiscal quarter during that period during which no scheduled payments are
required to be made with respect to the Facility No. 2, $750,000.
"HP UK" means Hawker Pacific Aerospace Limited, a company organized under
the laws of England and Wales (registered No. ____________________), its
successors and permitted assigns.
"HP UK GUARANTY" means the Composite Guarantee and Debenture of even date
herewith executed by HP UK in favor of the Bank, as at any time amended.
"INELIGIBLE SECURITIES" means securities which may not be underwritten or
dealt in by member banks of the Federal Reserve System under Section 16 of
Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended.
"INITIAL PUBLIC OFFERING" means the initial Public Offering of the common
stock of Borrower conducted prior to the Closing Date pursuant to the
Registration Statement on Form S-1 (Reg. No. 333-40295), as amended, filed
by Borrower with the Securities and Exchange Commission.
"INTERCOMPANY DEBENTURE" means a Debenture of even date herewith made by HP
UK in favor of Borrower in a form acceptable to the Bank, the lien of which
shall be subject to a Deed of Priorities of even date therewith among Bank,
Borrower and HP UK.
"INTERCOMPANY NOTE" means that certain $_________ promissory note of even
date herewith made by HP UK in favor of Borrower and pledged to the Bank.
"INVENTORY LIMIT" means, as of each date of determination of the Borrowing
Base, an amount equal to 75% of the revenues of Borrower and its
Subsidiaries for the then most recently ending three month period for which
Borrower has reported such revenues on its latest Borrowing Base
Certificate.
"LETTER OF CREDIT" means any of the standby or commercial letters of credit
issued by Bank for the account of Borrower pursuant to Section 2.6.
"LEVERAGE RATIO" means, as of the last day of each fiscal quarter of
Borrower, the ratio of (a) Senior Funded Debt as of that date to (b)
Adjusted EBITDA as of that date.
"LOAN DOCUMENTS" means this Agreement, the Borrower Security Agreement, the
Lockbox Agreements, the Intercompany Note, each Letter of Credit, the
Pledge
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Agreement, the HP UK Guaranty, the Deed of Priorities among Borrower, HP
UK and the Bank, each interest and currency hedging agreement entered into
between the Bank and Borrower, and each other instrument, document and
agreement now or hereafter executed by Borrower, Bastian, or any of
their respective shareholders or affiliates in connection with this
Agreement.
"LOCKBOX" means post office boxes established by Borrower and HP UK
pursuant to the Lockbox Agreements.
"LOCKBOX ACCOUNTS" means the blocked bank deposit accounts established by
Borrower and HP UK with Bank subject to the first priority lien of Bank
into which remittances to a Lockbox are deposited on a daily basis.
"LOCKBOX AGREEMENT" means each agreement establishing a Lockbox or Lockbox
Account, in any event providing for (i) the deposit of all remittances with
respect to accounts receivable of Borrower and HP UK to the Lockboxes, (ii)
the deposit of remittances received in the Lockboxes to a Lockbox Account,
and (iii) a first priority lien in favor of Bank with respect to the
contents of the Lockbox and each Lockbox Account.
"MAJOR CUSTOMER" means, collectively, American Airlines, United Airlines,
British Airways and Federal Express Corporation and their affiliated
business entities.
"NET PROCEEDS" means the amount received by Borrower by reason of any
Public Offering, after deduction of all actual and reasonably estimated
associated fees and transactional expenses.
"OFFSHORE RATE MARGIN" means (a) during the period from the Closing Date
through the day prior to the commencement of the initial Pricing Period,
1.75%, and (b) during each Pricing Period, the percentage set forth below
opposite the Leverage Ratio as of the last day of the Fiscal Quarter ending
45days prior to the start of that Pricing Period:
LEVERAGE RATIO OFFSHORE RATE MARGIN
Less than 2.00:1.00 1.00%
Equal to or greater than
2.00:1.00, but less than
2.50:1.00 1.25%
Equal to or greater than
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2.50:1.00, but less than
3.00:1.00 1.50%
Equal to or greater than
3.00:1.00 1.75%
"PERMITTED MANAGEMENT FEES" means fees payable to Unique, in equal
installments and not less frequently than quarterly, in an annual amount
not to exceed (i) $300,000 during 1998 and (ii) $150,000 in each subsequent
year.
"PLEDGE AGREEMENT" means the Pledge Agreement of even date herewith made by
Borrower in favor of Bank to secure the obligations and indebtedness under
this Agreement, pursuant to which 100% of the capital stock of HP UK and
the Intercompany Note shall be pledged by Borrower to Bank, as at any time
amended.
"PRICING PERIOD" means the period beginning May 15, 1998 and ending on
August 14, 1998, and each of the subsequent and concurrent three month
periods beginning on August 15, November 15, February 14 and May 15 during
the term of this Agreement.
"PUBLIC OFFERING" means each offer and sale by Borrower of capital stock of
Borrower pursuant to a registration statement filed with the Securities and
Exchange Commission other than a registration on Form S-8, and includes the
Initial Public Offering.
"REFERENCE RATE" is the rate of interest publicly announced from time to
time by Bank in San Francisco, California, as its Reference Rate. The
Reference Rate is set by Bank based on various factors, including Bank's
costs and desired return, general economic conditions and other factors,
and is used as a reference point for pricing some loans. Bank may price
loans to its customers at, above, or below the Reference Rate. Any change
in the Reference Rate shall take effect at the opening of business on the
day specified in the public announcement of a change in Bank's Reference
Rate.
"REFERENCE RATE MARGIN" means (a) during the period from the Closing Date
through the day prior to the commencement of the initial Pricing Period,
0.50%, and (b) during each Pricing Period, the percentage set forth below
opposite the Leverage Ratio as of the last day of the Fiscal Quarter ending
45 days prior to the start of that Pricing Period:
LEVERAGE RATIO REFERENCE RATE MARGIN
Less than 2.50:1.00 0%
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Equal to or greater than
2.50:1.00, but less than
3.00:1.00 0.25%
Equal to or greater than
3.00:1.00 0.50%.
"SENIOR FUNDED DEBT" means, as of each date of determination, and without
duplication, the principal amount of (a) all indebtedness of Borrower and
its Subsidiaries for borrowed money, (b) all obligations of Borrower and
its Subsidiaries with respect to capital leases, (c) all obligations of
Borrower and its Subsidiaries with respect to standby letters of credit,
and (d) all guarantees and other contingent obligations with respect to any
of the foregoing items, OTHER than the Subordinated Note.
"SHIPSET" means a landing gear core set for a fixed wing or rotor equipped
aircraft.
"SUBORDINATED NOTE" means that certain $5,000,000 Amended and Restated
Subordinated Promissory Note dated as of the date hereof made by Borrower
in favor of Unique, as at any time amended.
"SUBORDINATION AGREEMENT" means that certain Amended and Restated
Subordination Agreement of even date herewith executed by Bastian, Unique,
Borrower, HP UK and Bank, as at any time amended, pursuant to which all
obligations of Borrower to Bastian and Unique have been subordinated to the
Intercompany Note and the Loan Documents.
"SUBSIDIARY" means, as of any date of determination and with respect to any
person, any corporation or partnership (whether or not, in either case,
characterized as such or as a "joint venture"), whether now existing or
hereafter organized or acquired: (a) in the case of a corporation, of which
a majority of the securities having ordinary voting power for the election
of directors or other governing body (other than securities having such
power only by reason of the happening of a contingency) are at the time
beneficially owned by such person or one or more Subsidiaries of such
person, or (b) in the case of a partnership, of which a majority of the
partnership or other ownership interests are at the time beneficially owned
by such person or one or more of its Subsidiaries.
"UK BUSINESS" means the landing gear repair and overhaul business purchased
from British Airways pursuant to the Acquisition Agreement.
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"UK LOCKBOX AGREEMENT" means [[describe after consultation with UK
Counsel]]
"UNIQUE" means Unique Investment Corporation, a Utah corporation, its
successors and assigns.
2. LINE OF CREDIT (FACILITY NO.1).
2.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, Bank
will provide a line of credit ("FACILITY NO. 1") to Borrower. The
maximum amount of the line of credit (the "FACILITY NO. 1 COMMITMENT")
is equal to the lesser of (i) $15,000,000 or (ii) the Borrowing Base.
(b) This is a revolving line of credit for advances with
a within-line facility for Letters of Credit (the maximum effective
amount of which shall not exceed $2,000,000 at any time). During the
availability period, Borrower may repay principal amounts and reborrow
them, to the extent of the excess from time to time of (i) the Facility
No. 1 Commitment over (ii) the outstanding principal balance of the line
of credit under Facility No. 1 PLUS the outstanding amounts of any
Letters of Credit, including amounts drawn on Letters of Credit and not
yet reimbursed (such aggregate amount being the "FACILITY NO. 1
OUTSTANDING AMOUNT").
(c) Each advance must be for at least $100,000 or, if
less, for the Facility No. 1 Unused Amount.
(d) Borrower agrees not to permit the Facility No. 1
Outstanding Amount to at any time exceed the Facility No. 1 Commitment.
If Borrower exceeds this limit (including without limitation, because of
any decrease in the Borrowing Base), Borrower will immediately pay the
excess to Bank upon Bank's demand.
2.2 AVAILABILITY PERIOD. The line of credit is available
between the date of this Agreement and January 30, 2001 (the "FACILITY
NO. 1 EXPIRATION DATE"), provided that Bank will not be required to make
any advances or issue any Letters of Credit under Facility No. 1 if any
Default or Event of Default exists under this Agreement.
2.3 PURPOSE. The line of credit shall be used to partially
finance the Acquisition (by means of an advance under the Intercompany
Note), and for working capital for operations of Borrower and HP UK and
for the issuance of Letters of Credit thereafter.
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2.4 INTEREST RATE.
(a) Unless Borrower elects an optional interest rate in
the manner described in Section 5, loans under Facility No. 1 shall bear
interest at Bank's Reference Rate.
(b) Borrower may prepay the loans under Facility No. 1 in
full or in part at any time in an amount not less than $10,000 (or the
remaining principal balance under Facility No. 1), subject to the limits
set forth in Section 5.
2.5 REPAYMENT TERMS
(a) Borrower will pay all accrued unpaid interest on the
last business day of each calendar month commencing on January 31, 1998
and upon the termination of the Facility No. 1 Commitment.
(b) Borrower will repay in full all principal and any
unpaid interest or other charges outstanding under this line of credit
no later than the Facility No. 1 Expiration Date. Interest on any amount
bearing interest at an Offshore Rate (as defined in Section 5) shall be
paid on the earliest of the last day of each calendar month, at the end
of the applicable interest period, and in any event on the Facility No.
1 Expiration Date.
2.6 LETTERS OF CREDIT. The Facility No. 1 line of credit may be
used for the issuance of Letters of Credit, provided that the aggregate
effective face amount of all outstanding Letters of Credit PLUS the
amount of any unpaid reimbursement obligations of Borrower thereunder
shall not exceed $2,000,000 at any time. The within line amount for
Letters of Credit shall be used for the issuance of:
(i) commercial Letters of Credit in a form and having
beneficiaries acceptable to Bank. Each such Letter of Credit shall
have a maximum maturity of 180 days but in any event shall not
extend beyond the Facility No. 1 Expiration Date. Each commercial
Letter of Credit will require drafts payable at sight;
(ii) standby Letters of Credit having beneficiaries and
terms acceptable to Bank with a maximum maturity of 365 days but not to
extend beyond the Facility No. 1 Expiration Date, PROVIDED that standby
Letters of Credit in support of workers compensation obligations shall not
exceed $750,000 at any time. Standby Letters of Credit may contain
provisions allowing for their automatic extension unless Bank is
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notified, within thirty days of their scheduled expiration, of their
non-renewal, provided that they shall in no event extend beyond the
Facility No. 1 Expiration Date.
Borrower agrees:
(a) any sum drawn under a Letter of Credit may, at the
option of Bank, be added to the principal amount outstanding under
Facility No. 1. The amount will bear interest at the Reference Rate and
shall be payable upon demand.
(b) if an Event of Default exists, to pay to Bank an
amount equal to the aggregate effective face amount of all outstanding
Letters of Credit, and all amounts which remain unreimbursed with
respect to Letters of Credit to be applied to such unreimbursed amounts
or held as cash collateral for the obligations of Borrower under such
Letters of Credit.
(c) the issuance of any Letter of Credit and any
amendment to a Letter of Credit is subject to Bank's written approval
and must be in form and substance acceptable to Bank and in favor of a
beneficiary acceptable to Bank.
(d) to sign Bank's form Application and Agreement for
Commercial Letter of Credit or Application and Agreement for Standby
Letter of Credit, as applicable.
(e) to pay a letter of credit fee with respect to each
standby Letter of Credit in an amount equal to the greater of (i) $1000
per annum (or, if higher, then Bank's generally applicable minimum
issuance fee for standby letters of credit), or (ii) the then applicable
Offshore Rate Margin per annum calculated on the face amount thereof ,
in each case payable upon issuance and thereafter quarterly in advance,
provided that, if there is a Default or Event of Default exists under
this Agreement, at Bank's option, the amount of the fee shall be
increased to 4.5% per annum.
(f) to pay any issuance fees with respect to commercial
Letters of Credit, and any amendment and/or other fees with respect to
commercial Letters of Credit and/or standby Letters of Credit that Bank
notifies Borrower will be charged for issuing and processing Letters of
Credit for Borrower, in accordance with Bank's typical schedule of fees.
(g) to allow Bank to automatically charge its checking
account or other deposit accounts for applicable fees, discounts, and other
charges.
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3. TERM LOAN (FACILITY NO. 2).
3.1 LOAN AMOUNT. Subject to the fulfillment of the conditions
precedent set forth in Section 9, Bank agrees to provide a term loan
("FACILITY NO. 2") to Borrower in the amount of $24,500,000 on the Closing
Date, PROVIDED THAT in the event that the Initial Public Offering yields Net
Proceeds which are in excess of $22,000,000, then the amount of the Facility
No. 2 term loan will be reduced to an amount not less than $22,000,000 by the
amount of such excess.
3.2 AVAILABILITY. The Facility No. 2 term loan will be made in
a single disbursement on the Closing Date.
3.3 PURPOSE. The proceeds of the Facility No. 2 term loan shall
be (i) loaned by Borrower to HP UK via the Intercompany Note and shall be
used to partially finance the Acquisition and (ii) used by Borrower to
refinance certain obligations under the Existing Loan Agreement and to
refinance the AMR Shipset Payable.
3.4 INTEREST RATE
(a) Unless Borrower elects an optional interest rate in the
manner described in Section 5, loans under Facility No. 2 shall bear
interest rate at Bank's Reference Rate.
(b) Borrower may voluntarily prepay the loan in full or in
part at any time in amounts which are not less than $100,000 (subject
to its concurrent payment of applicable termination fees described in
Section 5). Each such prepayment will be applied to the most remote
installment of principal outstanding under Facility No. 2.
3.5 REPAYMENT TERMS
(a) Borrower will pay all accrued unpaid interest on
January 31, 1998, and then monthly on the last business day of each
calendar month thereafter and upon any payment of all or part of the
principal of the loan with respect to the amount being paid. Interest
on any amount bearing interest with respect to an Offshore Rate shall
be paid on the earlier of the last day of each calendar month, at the
end of the applicable interest period, and in any event on the December
31, 2004.
(b) Borrower will repay principal in successive quarterly
installments beginning on March 31, 1999 and on the last calendar day
of each successive June,
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September, December and March in the following amounts (or such lesser
amount as may then be outstanding):
YEAR DURING
WHICH DUE AMOUNT OF EACH INSTALLMENT
1999 $ 812,500
2000 812,500
2001 937,500
2002 1,062,500
2003 1,187,500
2004 1,312,500.
3.6 MANDATORY PREPAYMENTS. In addition to the other scheduled
payments of principal required hereunder, Borrower shall repay an amount of
principal outstanding under Facility No. 2 equal to:
(a) 100% of the net after-tax cash proceeds in excess of $200,000, in
the aggregate, received or receivable during each fiscal year from sales,
leases or other transfers by Borrower or its Subsidiaries of equipment or
other fixed assets unless, during the 180 day period following such sale,
lease or other transfer (or, if earlier, the date upon which any Event of
Default occurs), such cash proceeds are reinvested in similar equipment or
replacement fixed assets. Each such repayment shall be made on the 180th
day following the date upon which the sale is consummated, and shall be
applied to the outstanding installments of Facility No. 2 in inverse order
of their maturity, PROVIDED that if an Event of Default sooner occurs,
Borrower shall immediately repay the Facility No. 2 by the amount of the
unreinvested cash proceeds of such sale, transfer or other leases.
(b) concurrently with the consummation of the related Public Offering,
50% of the Net Proceeds from any offering, subsequent to the Initial Public
Offering, of the capital stock of Borrower.
If and to the extent that, as of the date of any prepayment required under
this Section, Facility No. 2 has been repaid in full, Borrower shall instead
make like prepayments of any outstanding obligations under Facility No. 3, to
be applied to installments due under Facility No. 3 in the inverse order of
their maturity.
16
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4. CAPITAL EXPENDITURE FACILITY (FACILITY NO.3).
4.1 CAPITAL EXPENDITURE LOANS.
(a) In addition to the other credit provided under this
Agreement, during the availability period set forth below, unless a Default
or Event of Default exists under this Agreement, Borrower may request
Capital Expenditure Loans from Bank in an aggregate principal amount not
to exceed $6,000,000. The availability period for such loans is from the
date of this Agreement through January 30, 2001. Any amount repaid with
respect to Capital Expenditure Loans may not be reborrowed.
(b) Unless Borrower elects an optional interest rate for
Capital Expenditure Loans in the manner described in Section 5, Capital
Expenditure Loans shall bear interest at Bank's Reference Rate. Interest
on Capital Expenditure Loans will be paid at the times set forth herein as
applicable to interest due in respect of Facility No. 2.
(c) Each Capital Expenditure Loan shall be used to finance a
portion of the purchase price for rotable gears or Shipsets for use in the
ordinary course of Borrower's business. All rotable gears and Shipsets
acquired with the proceeds of Capital Expenditure Loans shall be free and
clear of any security interests, liens, encumbrances or rights of others
except the security interests of Bank under any security agreements
required under this Agreement. Each request for a Capital Expenditure
Loan shall be accompanied by either (i) a copy of the purchase order or
invoice for the equipment to be purchased with the proceeds of the
advance, or (ii) a detailed cost schedule for the rotable gear or Shipset
constructed and such other information as Bank may reasonably require. The
amount of each Capital Expenditure Loan shall not exceed the lesser of (x)
the cash purchase price or cost to construct the rotable gear or Shipset or
(y) 70% of:
(i) if Bank in its discretion requests an appraisal, the
appraised value of the related rotable gear or Shipset (as
determined by a qualified independent appraiser approved by Bank); or
(ii) if Bank waives the requirement of such an appraisal,
the purchase price paid by Borrower or HP UK for the related rotable
gear or Shipset.
17
<PAGE>
(d) As conditions precedent to each Capital Expenditure
Loan which is made in connection with any capital expenditure which is
in excess of $1,000,000 or which results in the aggregate principal
amount of capital expenditures made during the then current fiscal year
being in excess of $1,500,000:
(i) Borrower will deliver to Bank evidence acceptable to
Bank of its compliance with all of the terms of this Agreement.
(ii) Borrower shall have delivered to Bank (and Bank shall
have completed its review of, and shall have approved ) each of the
following:
(x) pro forma financial statements in form and substance
acceptable to Bank demonstrating the pro forma effect of the
proposed capital expenditure for the twelve month period
following the date thereof, the proposed Capital Expenditure Loan
and other projected new financings, projected revenues and
working capital requirements related thereto demonstrating
projected compliance with all terms of this Agreement; and
(y) the contract entered into by Borrower or HP UK
which requires the purchase or assembly of additional Shipsets or
rotable gears.
(e) As conditions precedent to the making of Capital Expenditure
Loans which are, in the aggregate, in excess of $3,000,000, Borrower shall
have delivered its audited consolidated financial statements to Bank
demonstrating compliance with the terms of this Agreement and the other
Loan Documents as of the date thereof, and EBITDA of not less than
$10,000,000 during Borrower's fiscal year 1998.
(f) Borrower will repay principal of each Capital Expenditure
Loan made hereunder in successive equal quarterly installments
beginning on the March 31, June 30, September 30 or December 31 next
following the making of such loan, with all remaining principal and any
unpaid interest and charges then remaining outstanding under Facility No. 3
in any event being due and payable on December 31, 2004. Each quarterly
installment payment due under this clause (f) with respect to each Capital
Expenditure Loan shall be equal to one eighty-fourth of the initial amount
of the related Capital Expenditure Loan.
18
<PAGE>
5. OPTIONAL INTEREST RATE
5.1 OPTIONAL RATE. Provided that no Default or Event of Default
exists, Borrower may elect that Portions (as defined in Section 5.2(b)) of
the loans hereunder will bear interest at the Offshore Rate in accordance
with this Section 5. The Offshore Rate is a rate per annum based upon a year
of 360 days and the actual number of days elapsed. Interest will be paid on
the last day of each interest period, and, if the interest period is longer
than one month, then on the last business day of each calendar month during
the interest period. At the end of any interest period, the interest rate
will revert to the Reference Rate, unless Borrower has designated another
optional interest rate for the Portion. Subject to Section 8.10, no Portion
will be converted to a different interest rate during the applicable interest
period. Upon the occurrence of a Default or Event of Default under this
Agreement, Bank may terminate the availability of optional interest rates for
interest periods commencing after a Default or Event of Default occurs.
5.2 OFFSHORE RATE. The election of the Offshore Rate shall be
subject to the following terms and requirements:
(a) Borrower may select interest periods for Offshore Rate
loans which have durations of 1, 2, 3, 6, 9 or 12 months, provided that
no such interest period may be selected which would extend beyond the
maturity of the related facility or which would result in Borrower
being unable to make a scheduled payment of principal required
hereunder without prepayment of the related Portion (as defined below).
Borrower may select either the Cayman Islands eurodollar market or the
London Inter-bank eurodollar market as the market in which quotations
of Offshore Rates are obtained, provided that Borrower shall give the
Bank (i) not less than two business days' notice, by 11:00 a.m. on such
date, of its request for any loan to be made on the basis of an
interest rate quotation based upon the London Interbank eurodollar
market, and (ii) notice for loans based upon the Cayman Islands
eurodollar market not later than 11:00 a.m. on the relevant date. The
last day of the interest period will be determined by Bank using the
practices of the relevant offshore dollar inter-bank market.
(b) Any principal amount bearing interest at an optional
rate under this Agreement is referred to as a "PORTION". Each Offshore
Rate Portion will be for an amount not less than $500,000.
19
<PAGE>
The "OFFSHORE RATE" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts
in the calculation will be determined by Bank as of the first day of the
interest period.)
Offshore Rate = OFFSHORE BASE RATE + Offshore Rate Margin
---------------------------
(1.00 - Reserve Percentage)
Where:
(i) "OFFSHORE BASE RATE" means either (a) the interest rate
(rounded upward to the nearest 1/16th of one percent) at which the
Bank's office in London, England, would offer U.S. dollar deposits
for the applicable interest period to other prime banks in the London
Interbank eurodollar market, or (b) the interest rate (rounded upward
to the nearest 1/16th of one percent) at which Bank's Grand Cayman
Branch, Grand Cayman, British West Indies or another branch office
of Bank selected by Bank, would offer U.S. dollar deposits for the
applicable interest period to other prime banks in the offshore
dollar inter-bank market.
(ii) "RESERVE PERCENTAGE" means the total of the maximum
reserve percentages for determining the reserves to be maintained
by member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent. The percentage
will be expressed as a decimal, and will include, but not be
limited to, marginal, emergency, supplemental, special, and other
reserve percentages.
(c) Subject to Section 5, Borrower may voluntarily prepay
any Offshore Rate Portion upon three banking days' advance written
notice delivered to Bank. Each prepayment of an Offshore Rate Portion,
whether voluntary, by reason of acceleration or otherwise, must be
accompanied by the amount of accrued interest on the amount prepaid, and
a prepayment fee as described below. A "PREPAYMENT" is a payment of an
amount on a date earlier than the scheduled payment date for such amount
as required by this Agreement. The prepayment fee shall be equal to the
amount (if any) by which:
(i) the additional interest which would have been
payable during the interest period on the amount prepaid had it not
been prepaid, EXCEEDS
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(ii) the interest which would have been recoverable by
Bank by placing the amount prepaid on deposit in the offshore
dollar market for a period starting on the date on which it was
prepaid and ending on the last day of the interest period for
such Portion (or the scheduled payment date for the amount
prepaid, if earlier).
(d) Bank will have no obligation to accept an election for
an Offshore Rate Portion if any of the following described events has
occurred and is continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of an Offshore Rate Portion
are not available in the offshore Dollar inter-bank market; or
(ii) the Offshore Rate does not accurately reflect the
cost of an Offshore Rate Portion.
6. FEES, EXPENSES
6.1 FEES
(a) FACILITY FEE. On the Closing Date, Borrower shall pay a
facility fee of $100,000 to Bank (net of any credits then applicable
thereto).
(b) COMMITMENT FEES. Borrower agrees to pay to Bank a
commitment fee equal to (a) the sum of (i) Facility No. 1 Unused Amount,
and (ii) the undisbursed portion of Facility No. 3, TIMES (b) the then
applicable Commitment Fee Rate, quarterly in arrears on the last day of
each calendar quarter. The amount of the commitment fees payable
hereunder shall not be reduced if any portion of the Facility No. 1 or
Facility No. 3 is unavailable to Borrower because of borrowing base
limitations or otherwise.
(c) EARLY TERMINATION FEE. In the event that Borrower
prepays any portion of the principal outstanding under the Facility No.
2 term loan, or terminates Facility No. 1 or Facility No. 3 prior to the
date when due or their termination dates (other than as a result of
mandatory prepayments of Facility No. 2 and Facility No. 3 made in
accordance with Section 3.6 or voluntarily prepayments made out of
Borrower's operating cash flow), then Borrower will concurrently pay to
Bank an early termination fee in an amount equal to (i) until the first
anniversary of the Closing Date, 0.75% of the amount of the Facilities so
repaid or terminated, and (ii) thereafter through the second anniversary
of the Closing Date, 0.50% of the Facilities so repaid or terminated.
The Bank hereby confirms that no "Early Termination Fee" is payable under
the Existing
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<PAGE>
Loan Agreement by reason of the execution of this Agreement and the other
transactions contemplated to occur on
the Closing Date.
6.2 EXPENSES.
Borrower agrees to immediately repay Bank for expenses that
include, but are not limited to, filing, recording and search fees,
appraisal fees, title report fees, documentation fees, environmental review
and audit expenses.
6.3 REIMBURSEMENT COSTS.
(a) Borrower agrees to reimburse Bank for any expenses it
incurs in the preparation, closing and enforcement of this Agreement
and any agreement or instrument required by this Agreement, and by
reason of the due diligence conducted by Bank and its agents and experts
in connection herewith or therewith, and any proposed amendment or waiver
of the terms hereof or thereof. Expenses include, but are not limited to,
reasonable attorneys' fees, including any allocated costs of Bank's
in-house counsel and Bank's domestic and English external counsel.
(b) Borrower agrees to reimburse Bank for the cost of periodic
audits and appraisals of the property collateral securing this Agreement,
at such intervals as Bank may reasonably require. These audits and
appraisals may be performed by employees of Bank or by independent
appraisers.
7. COLLATERAL
7.1 PERSONAL PROPERTY. Borrower's obligations to Bank under
this Agreement will be secured by all personal property Borrower now owns or
will own in the future. The collateral is further defined in Borrower
Security Agreement. All personal property collateral securing any other
present or future obligations of Borrower to Bank shall also secure this
Agreement.
7.2 GUARANTEES; PERSONAL PROPERTY SUPPORTING GUARANTEES. The
obligations of Borrower under this Agreement and the Loan Documents are
guaranteed by HP UK pursuant to the HP UK Guaranty, which provides for fixed
and floating charges upon substantially all of the assets of HP UK. HP UK
has entered into the UK Lockbox Agreement to secure its obligations under the
UK Guaranty. Pursuant to the Pledge Agreement, Borrower has pledged 100% of
the capital stock of HP UK and the Intercompany Note to the Bank to secure
its obligations under this Agreement and the other Loan Documents. Borrower
has also executed the Borrower Security Agreement to secure its obligations
hereunder and under the other Loan Documents.
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<PAGE>
3. TERM LOAN (FACILITY NO. 2).
3.1 LOAN AMOUNT. Subject to the fulfillment of the conditions
precedent set forth in Section 9, Bank agrees to provide a term loan
("FACILITY NO. 2") to Borrower in the amount of $24,500,000 on the Closing
Date, PROVIDED THAT in the event that the Initial Public Offering yields Net
Proceeds which are in excess of $22,000,000, then the amount of the Facility
No. 2 term loan will be reduced to an amount not less than $22,000,000 by the
amount of such excess.
3.2 AVAILABILITY. The Facility No. 2 term loan will be made in
a single disbursement on the Closing Date.
3.3 PURPOSE. The proceeds of the Facility No. 2 term loan shall
be (i) loaned by Borrower to HP UK via the Intercompany Note and shall be
used to partially finance the Acquisition and (ii) used by Borrower to
refinance certain obligations under the Existing Loan Agreement and to
refinance the AMR Shipset Payable.
3.4 INTEREST RATE
(a) Unless Borrower elects an optional interest rate in the
manner described in Section 5, loans under Facility No. 2 shall bear
interest rate at Bank's Reference Rate.
(b) Borrower may voluntarily prepay the loan in full or in
part at any time in amounts which are not less than $100,000 (subject
to its concurrent payment of applicable termination fees described in
Section 5). Each such prepayment will be applied to the most remote
installment of principal outstanding under Facility No. 2.
3.5 REPAYMENT TERMS
(a) Borrower will pay all accrued unpaid interest on
January 31, 1998, and then monthly on the last business day of each
calendar month thereafter and upon any payment of all or part of the
principal of the loan with respect to the amount being paid. Interest
on any amount bearing interest with respect to an Offshore Rate shall
be paid on the earlier of the last day of each calendar month, at the
end of the applicable interest period, and in any event on the December
31, 2004.
(b) Borrower will repay principal in successive quarterly
installments beginning on March 31, 1999 and on the last calendar day
of each successive June,
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<PAGE>
September, December and March in the following amounts (or such lesser
amount as may then be outstanding):
YEAR DURING
WHICH DUE AMOUNT OF EACH INSTALLMENT
1999 $ 812,500
2000 812,500
2001 937,500
2002 1,062,500
2003 1,187,500
2004 1,312,500.
3.6 MANDATORY PREPAYMENTS. In addition to the other scheduled
payments of principal required hereunder, Borrower shall repay an amount of
principal outstanding under Facility No. 2 equal to:
(a) 100% of the net after-tax cash proceeds in excess of $200,000, in
the aggregate, received or receivable during each fiscal year from sales,
leases or other transfers by Borrower or its Subsidiaries of equipment or
other fixed assets unless, during the 180 day period following such sale,
lease or other transfer (or, if earlier, the date upon which any Event of
Default occurs), such cash proceeds are reinvested in similar equipment or
replacement fixed assets. Each such repayment shall be made on the 180th
day following the date upon which the sale is consummated, and shall be
applied to the outstanding installments of Facility No. 2 in inverse order
of their maturity, PROVIDED that if an Event of Default sooner occurs,
Borrower shall immediately repay the Facility No. 2 by the amount of the
unreinvested cash proceeds of such sale, transfer or other leases.
(b) concurrently with the consummation of the related Public Offering,
50% of the Net Proceeds from any offering, subsequent to the Initial Public
Offering, of the capital stock of Borrower.
If and to the extent that, as of the date of any prepayment required under
this Section, Facility No. 2 has been repaid in full, Borrower shall instead
make like prepayments of any outstanding obligations under Facility No. 3, to
be applied to installments due under Facility No. 3 in the inverse order of
their maturity.
16
<PAGE>
4. CAPITAL EXPENDITURE FACILITY (FACILITY NO.3).
4.1 CAPITAL EXPENDITURE LOANS.
(a) In addition to the other credit provided under this
Agreement, during the availability period set forth below, unless a Default
or Event of Default exists under this Agreement, Borrower may request
Capital Expenditure Loans from Bank in an aggregate principal amount not
to exceed $6,000,000. The availability period for such loans is from the
date of this Agreement through January 30, 2001. Any amount repaid with
respect to Capital Expenditure Loans may not be reborrowed.
(b) Unless Borrower elects an optional interest rate for
Capital Expenditure Loans in the manner described in Section 5, Capital
Expenditure Loans shall bear interest at Bank's Reference Rate. Interest
on Capital Expenditure Loans will be paid at the times set forth herein as
applicable to interest due in respect of Facility No. 2.
(c) Each Capital Expenditure Loan shall be used to finance a
portion of the purchase price for rotable gears or Shipsets for use in the
ordinary course of Borrower's business. All rotable gears and Shipsets
acquired with the proceeds of Capital Expenditure Loans shall be free and
clear of any security interests, liens, encumbrances or rights of others
except the security interests of Bank under any security agreements
required under this Agreement. Each request for a Capital Expenditure
Loan shall be accompanied by either (i) a copy of the purchase order or
invoice for the equipment to be purchased with the proceeds of the
advance, or (ii) a detailed cost schedule for the rotable gear or Shipset
constructed and such other information as Bank may reasonably require. The
amount of each Capital Expenditure Loan shall not exceed the lesser of (x)
the cash purchase price or cost to construct the rotable gear or Shipset or
(y) 70% of:
(i) if Bank in its discretion requests an appraisal, the
appraised value of the related rotable gear or Shipset (as
determined by a qualified independent appraiser approved by Bank); or
(ii) if Bank waives the requirement of such an appraisal,
the purchase price paid by Borrower or HP UK for the related rotable
gear or Shipset.
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<PAGE>
(d) As conditions precedent to each Capital Expenditure
Loan which is made in connection with any capital expenditure which is
in excess of $1,000,000 or which results in the aggregate principal
amount of capital expenditures made during the then current fiscal year
being in excess of $1,500,000:
(i) Borrower will deliver to Bank evidence acceptable to
Bank of its compliance with all of the terms of this Agreement.
(ii) Borrower shall have delivered to Bank (and Bank shall
have completed its review of, and shall have approved ) each of the
following:
(x) pro forma financial statements in form and substance
acceptable to Bank demonstrating the pro forma effect of the
proposed capital expenditure for the twelve month period
following the date thereof, the proposed Capital Expenditure Loan
and other projected new financings, projected revenues and
working capital requirements related thereto demonstrating
projected compliance with all terms of this Agreement; and
(y) the contract entered into by Borrower or HP UK
which requires the purchase or assembly of additional Shipsets or
rotable gears.
(e) As conditions precedent to the making of Capital Expenditure
Loans which are, in the aggregate, in excess of $3,000,000, Borrower shall
have delivered its audited consolidated financial statements to Bank
demonstrating compliance with the terms of this Agreement and the other
Loan Documents as of the date thereof, and EBITDA of not less than
$10,000,000 during Borrower's fiscal year 1998.
(f) Borrower will repay principal of each Capital Expenditure
Loan made hereunder in successive equal quarterly installments
beginning on the March 31, June 30, September 30 or December 31 next
following the making of such loan, with all remaining principal and any
unpaid interest and charges then remaining outstanding under Facility No. 3
in any event being due and payable on December 31, 2004. Each quarterly
installment payment due under this clause (f) with respect to each Capital
Expenditure Loan shall be equal to one eighty-fourth of the initial amount
of the related Capital Expenditure Loan.
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<PAGE>
5. OPTIONAL INTEREST RATE
5.1 OPTIONAL RATE. Provided that no Default or Event of Default
exists, Borrower may elect that Portions (as defined in Section 5.2(b)) of
the loans hereunder will bear interest at the Offshore Rate in accordance
with this Section 5. The Offshore Rate is a rate per annum based upon a year
of 360 days and the actual number of days elapsed. Interest will be paid on
the last day of each interest period, and, if the interest period is longer
than one month, then on the last business day of each calendar month during
the interest period. At the end of any interest period, the interest rate
will revert to the Reference Rate, unless Borrower has designated another
optional interest rate for the Portion. Subject to Section 8.10, no Portion
will be converted to a different interest rate during the applicable interest
period. Upon the occurrence of a Default or Event of Default under this
Agreement, Bank may terminate the availability of optional interest rates for
interest periods commencing after a Default or Event of Default occurs.
5.2 OFFSHORE RATE. The election of the Offshore Rate shall be
subject to the following terms and requirements:
(a) Borrower may select interest periods for Offshore Rate
loans which have durations of 1, 2, 3, 6, 9 or 12 months, provided that
no such interest period may be selected which would extend beyond the
maturity of the related facility or which would result in Borrower
being unable to make a scheduled payment of principal required
hereunder without prepayment of the related Portion (as defined below).
Borrower may select either the Cayman Islands eurodollar market or the
London Inter-bank eurodollar market as the market in which quotations
of Offshore Rates are obtained, provided that Borrower shall give the
Bank (i) not less than two business days' notice, by 11:00 a.m. on such
date, of its request for any loan to be made on the basis of an
interest rate quotation based upon the London Interbank eurodollar
market, and (ii) notice for loans based upon the Cayman Islands
eurodollar market not later than 11:00 a.m. on the relevant date. The
last day of the interest period will be determined by Bank using the
practices of the relevant offshore dollar inter-bank market.
(b) Any principal amount bearing interest at an optional
rate under this Agreement is referred to as a "PORTION". Each Offshore
Rate Portion will be for an amount not less than $500,000.
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<PAGE>
The "OFFSHORE RATE" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts
in the calculation will be determined by Bank as of the first day of the
interest period.)
Offshore Rate = OFFSHORE BASE RATE + Offshore Rate Margin
---------------------------
(1.00 - Reserve Percentage)
Where:
(i) "OFFSHORE BASE RATE" means either (a) the interest rate
(rounded upward to the nearest 1/16th of one percent) at which the
Bank's office in London, England, would offer U.S. dollar deposits
for the applicable interest period to other prime banks in the London
Interbank eurodollar market, or (b) the interest rate (rounded upward
to the nearest 1/16th of one percent) at which Bank's Grand Cayman
Branch, Grand Cayman, British West Indies or another branch office
of Bank selected by Bank, would offer U.S. dollar deposits for the
applicable interest period to other prime banks in the offshore
dollar inter-bank market.
(ii) "RESERVE PERCENTAGE" means the total of the maximum
reserve percentages for determining the reserves to be maintained
by member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent. The percentage
will be expressed as a decimal, and will include, but not be
limited to, marginal, emergency, supplemental, special, and other
reserve percentages.
(c) Subject to Section 5, Borrower may voluntarily prepay
any Offshore Rate Portion upon three banking days' advance written
notice delivered to Bank. Each prepayment of an Offshore Rate Portion,
whether voluntary, by reason of acceleration or otherwise, must be
accompanied by the amount of accrued interest on the amount prepaid, and
a prepayment fee as described below. A "PREPAYMENT" is a payment of an
amount on a date earlier than the scheduled payment date for such amount
as required by this Agreement. The prepayment fee shall be equal to the
amount (if any) by which:
(i) the additional interest which would have been
payable during the interest period on the amount prepaid had it not
been prepaid, EXCEEDS
20
<PAGE>
(ii) the interest which would have been recoverable by
Bank by placing the amount prepaid on deposit in the offshore
dollar market for a period starting on the date on which it was
prepaid and ending on the last day of the interest period for
such Portion (or the scheduled payment date for the amount
prepaid, if earlier).
(d) Bank will have no obligation to accept an election for
an Offshore Rate Portion if any of the following described events has
occurred and is continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of an Offshore Rate Portion
are not available in the offshore Dollar inter-bank market; or
(ii) the Offshore Rate does not accurately reflect the
cost of an Offshore Rate Portion.
6. FEES, EXPENSES
6.1 FEES
(a) FACILITY FEE. On the Closing Date, Borrower shall pay a
facility fee of $100,000 to Bank (net of any credits then applicable
thereto).
(b) COMMITMENT FEES. Borrower agrees to pay to Bank a
commitment fee equal to (a) the sum of (i) Facility No. 1 Unused Amount,
and (ii) the undisbursed portion of Facility No. 3, TIMES (b) the then
applicable Commitment Fee Rate, quarterly in arrears on the last day of
each calendar quarter. The amount of the commitment fees payable
hereunder shall not be reduced if any portion of the Facility No. 1 or
Facility No. 3 is unavailable to Borrower because of borrowing base
limitations or otherwise.
(c) EARLY TERMINATION FEE. In the event that Borrower
prepays any portion of the principal outstanding under the Facility No.
2 term loan, or terminates Facility No. 1 or Facility No. 3 prior to the
date when due or their termination dates (other than as a result of
mandatory prepayments of Facility No. 2 and Facility No. 3 made in
accordance with Section 3.6 or voluntarily prepayments made out of
Borrower's operating cash flow), then Borrower will concurrently pay to
Bank an early termination fee in an amount equal to (i) until the first
anniversary of the Closing Date, 0.75% of the amount of the Facilities so
repaid or terminated, and (ii) thereafter through the second anniversary
of the Closing Date, 0.50% of the Facilities so repaid or terminated.
The Bank hereby confirms that no "Early Termination Fee" is payable under
the Existing
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Loan Agreement by reason of the execution of this Agreement and the other
transactions contemplated to occur on
the Closing Date.
6.2 EXPENSES.
Borrower agrees to immediately repay Bank for expenses that
include, but are not limited to, filing, recording and search fees,
appraisal fees, title report fees, documentation fees, environmental review
and audit expenses.
6.3 REIMBURSEMENT COSTS.
(a) Borrower agrees to reimburse Bank for any expenses it
incurs in the preparation, closing and enforcement of this Agreement
and any agreement or instrument required by this Agreement, and by
reason of the due diligence conducted by Bank and its agents and experts
in connection herewith or therewith, and any proposed amendment or waiver
of the terms hereof or thereof. Expenses include, but are not limited to,
reasonable attorneys' fees, including any allocated costs of Bank's
in-house counsel and Bank's domestic and English external counsel.
(b) Borrower agrees to reimburse Bank for the cost of periodic
audits and appraisals of the property collateral securing this Agreement,
at such intervals as Bank may reasonably require. These audits and
appraisals may be performed by employees of Bank or by independent
appraisers.
7. COLLATERAL
7.1 PERSONAL PROPERTY. Borrower's obligations to Bank under
this Agreement will be secured by all personal property Borrower now owns or
will own in the future. The collateral is further defined in Borrower
Security Agreement. All personal property collateral securing any other
present or future obligations of Borrower to Bank shall also secure this
Agreement.
7.2 GUARANTEES; PERSONAL PROPERTY SUPPORTING GUARANTEES. The
obligations of Borrower under this Agreement and the Loan Documents are
guaranteed by HP UK pursuant to the HP UK Guaranty, which provides for fixed
and floating charges upon substantially all of the assets of HP UK. HP UK
has entered into the UK Lockbox Agreement to secure its obligations under the
UK Guaranty. Pursuant to the Pledge Agreement, Borrower has pledged 100% of
the capital stock of HP UK and the Intercompany Note to the Bank to secure
its obligations under this Agreement and the other Loan Documents. Borrower
has also executed the Borrower Security Agreement to secure its obligations
hereunder and under the other Loan Documents.
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7.3 FUTURE SUBSIDIARIES AND COLLATERAL. In the event that Borrower
hereafter forms or acquires any new Subsidiaries, or Borrower or any of its
Subsidiaries hereafter moves any collateral for the obligations under the
Loan Documents or acquires any new property or assets which are not subject
to the lien of the Loan Documents, then Borrower shall, and shall cause each
such Subsidiary, concurrently with the occurrence of any such event:
(a) to deliver to the Bank a guaranty of the obligations of Borrower under
this Agreement executed by any such new Subsidiary, together with 100% of
the capital stock of such Subsidiary in pledge to secure the obligations
under this Agreement;
(b) deliver to the Bank such security agreements, mortgages, debentures,
financing statements or other similar collateral assignments as the Bank
may reasonably request to grant to the Bank a first priority perfected lien
in such property; and
(c) any and all landlord consents, opinions, certificates and other
assurances as the Bank may request.
7.4 SUBORDINATION. The obligations of Borrower to Bastian and Unique
shall be subordinate and junior in right of payment to the obligations of
Borrower to Bank, in the manner and to the extent set forth in the
Subordination Agreement.
8. DISBURSEMENTS, PAYMENTS AND COSTS
8.1 REQUESTS FOR CREDIT. Each request for an extension of credit will
be made in writing in a manner acceptable to Bank, or by another means
acceptable to Bank. By requesting any extension of credit under this
Agreement, Borrower shall be deemed to have reaffirmed that each
representation and warranty set forth in this Agreement and the other Loan
Documents (other than those which expressly relate only to a specific date)
is true and correct as of the date of the making of the requested loan or the
issuance of the requested Letter of Credit, and that no Default or Event of
Default exists, in each case after giving effect to the making or issuance
thereof. If requested by Bank, Borrower will provide written assurances to
Bank of the accuracy of each such representation and warranty prior to the
making of any requested Loan or the issuance of any requested Letter of
Credit.
8.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by Bank and each
payment by Borrower will be:
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(a) made through Bank's South Orange County Regional Commercial
Banking Office in Costa Mesa, California or other branch location
selected by Bank from time to time;
(b) made for the account of Bank's branch selected by Bank from time
to time;
(c) evidenced by records kept by Bank. In addition, Bank may, at
its discretion, require Borrower to sign one or more promissory notes.
8.3 TELEPHONE AND TELEFAX AUTHORIZATION
(a) Bank may honor telephone or telefax instructions for advances or
repayments or for the designation of optional interest rates or the
issuance of Letters of Credit given by any one of the individual signers
of this Agreement or a person or persons authorized by any one of the
individuals signing this Agreement on behalf of Borrower.
(b) Advances will be deposited in and repayments will be withdrawn
from Borrower's account number 1458126057, or such other accounts of
Borrower with Bank as designated in writing by Borrower.
(c) Borrower will provide written confirmation to Bank of any
telephone or telefax instructions within one business day. If there is
a discrepancy and Bank has already acted on the instructions, the
telephone or telefax instructions will prevail over the written
confirmation.
(d) Borrower indemnifies and excuses Bank (including its officers,
employees, and agents) from all liability, loss, and costs in connection
with any act resulting from telephone or telefax instructions it
reasonably believes are made by any individual authorized by Borrower to
give such instructions. This indemnity and excuse will survive the
termination of this Agreement.
8.4 DIRECT DEBIT
(a) Borrower agrees that interest and principal payments and fees
will be deducted automatically on the due date from Borrower's account
number 1458126057, or such other of Borrower's accounts with Bank as
designated in writing by Borrower.
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(b) Bank will debit the account on the dates the payments become
due. If a due date does not fall on a banking day, Bank will debit the
account on the first banking day following the due date.
(c) Borrower will maintain sufficient funds in the account on the
dates Bank enters debits authorized by this Agreement. If there are
insufficient funds in the account on the date Bank enters any debit
authorized by this Agreement, the debit will be reversed.
8.5 DIRECT DEBIT (LINE OF CREDIT)
(a) Borrower agrees that Bank may create advances under the line of
credit to pay interest, principal payments, and any fees that are due
under this Agreement.
(b) Bank will create any such advances on the dates the payments
become due. If a due date does not fall on a banking day, Bank will
create the advance on the first banking day following the due date.
(c) If the creation of an advance under the line of credit causes
the total amount of credit outstanding under the line to exceed the
limitations set forth in this Agreement, Borrower will immediately pay
the excess to Bank upon Bank's demand.
8.6 BANKING DAYS. Unless otherwise provided in this Agreement, a
banking day is a day other than a Saturday or a Sunday on which Bank is open
for business in California. For amounts bearing interest at the Offshore
Rate described in Section 5, a banking day is a day other than a Saturday or
a Sunday on which Bank is open for business in California and dealing in
offshore dollars. All payments and disbursements which would be due on a day
which is not a banking day will be due on the next banking day. All payments
received on a day which is not a banking day will be applied to the credit on
the next banking day.
8.7 TAXES. If any payments to Bank under this Agreement are made from
outside the United States, Borrower will not deduct any foreign taxes from
any payments it makes to Bank. If any such taxes are imposed on any payments
made by Borrower (including payments under this Section), Borrower will pay
the taxes and will also pay to Bank, at the time interest is paid, any
additional amount which Bank specifies as necessary to preserve the after-tax
yield Bank would have received if such taxes had not been imposed. Borrower
will confirm that it has paid the taxes by giving Bank official tax receipts
(or notarized copies) within 30 days after the due date.
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8.8 ADDITIONAL COSTS. Borrower will pay Bank, on demand, for Bank's
costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks
or a class of all national banks. The costs and losses will be allocated to
the loan in a manner determined by Bank, using any reasonable method. The
costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to Bank's assets and
commitments for credit.
8.9 INTEREST CALCULATION. All interest and fees under this Agreement
will be computed on the basis of a 360-day year and the actual number of days
elapsed. This results in more interest or a higher fee than if a 365-day year
is used.
8.10 DEFAULT RATE. Upon the occurrence and during the continuation of
any Default or Event of Default under this Agreement, advances under this
Agreement will at the sole option of Bank bear interest at a rate (the
"DEFAULT RATE") which is 3.0 percentage points per annum higher than the rate
of interest otherwise provided under this Agreement. The Default Rate shall
apply not only to principal but to payments of interest and fees which are
not paid when due. This may result in a compounding of interest. The
imposition of the Default Rate by Bank will not constitute a waiver of any
default.
8.11 OVERDRAFTS. At Bank's sole option in each instance, Bank may do
one of the following:
(a) Bank may make advances under this Agreement to prevent or
cover an overdraft on any account of Borrower or HP UK with Bank. Each
such advance will accrue interest from the date of the advance or the date
on which the account is overdrawn, whichever occurs first, at the interest
rate described in this Agreement.
(b) Bank may reduce the amount of credit otherwise available
under this Agreement by the amount of any overdraft on any account of
Borrower or HP UK with Bank.
This Section shall not be deemed to authorize Borrower or HP UK to create
overdrafts on any of their accounts with Bank.
8.12 COLLECTIONS ON ACCOUNTS RECEIVABLE. Prior to the occurrence of
any Default or Event of Default, all proceeds of collections of Borrower's
accounts receivable
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received in the Lockboxes shall be collected by Bank and deposited into a the
relevant Lockbox Account, and all proceeds of collections of HP UK's accounts
receivable shall be deposited directly into the relevant Lockbox Account.
Prior to the occurrence of any Default or Event of Default, Bank shall remit
any funds collected in the Lockbox Account to Borrower's or HP UK's checking
account or other deposit accounts maintained by Borrower or HP UK in
accordance with the terms of the Lockbox Agreement. Upon the occurrence and
during the continuance of any Default or Event of Default, collections in the
Lockbox Account shall be credited to interest, principal, and other sums owed
to Bank under this Agreement in the order and proportion determined by Bank
in its sole discretion. All such credits will be conditioned upon collection
and any returned items may, at Bank's option, be charged to Borrower and HP
UK.
9. CONDITIONS
Bank must receive the following items, in form and substance acceptable
to Bank, before it is required to make the initial loans or issue the initial
Letters of Credit under this Agreement:
9.1 AUTHORIZATIONS. Evidence that the execution, delivery and
performance by Borrower and HP UK of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
9.2 INCUMBENCY CERTIFICATES; GOVERNING DOCUMENTS. Incumbency
certificates for Borrower and HP UK, together with true, correct and complete
copy of Borrower's and HP UK's articles of incorporation and bylaws or other
organizational papers, certificates of good standing with respect to Borrower
issued by the California Secretary of State's office and the California
Franchise Tax Board, and evidence of the due formation and existence of HP UK
acceptable to the Bank.
9.3 SECURITY AGREEMENTS, ETC. The Borrower Security Agreement, the
Pledge Agreement, the Lockbox Agreements, the Intercompany Debenture and the
Borrower Debenture, each duly executed by Borrower or HP UK, as required,
together with the collateral pledged thereunder and such other assignments,
instruments, financing statements and fixture filings as Bank requires.
9.4 EVIDENCE OF PRIORITY. Evidence that all security interests and
liens to be established in favor of Bank pursuant hereto are valid,
enforceable, and prior to all others' rights and interests (other than the
purchase money liens disclosed on the UCC search provided to Bank), except
those to which Bank explicitly consents in writing.
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9.5 CONSENT TO REMOVAL. A Landlord's Consent from the owner of each
parcel of real property leased by Borrower or HP UK.
9.6 INSURANCE. Evidence of insurance coverage, as required in Section
11.24 of this Agreement.
9.7 BUSINESS INTERRUPTION INSURANCE. Evidence of a business
interruption insurance policy for at least $4,000,000 with an insurer
acceptable to Bank, and with Bank named as an additional loss payee.
9.8 GUARANTY. The HP UK Guaranty.
9.9 SUBORDINATION AGREEMENT. The Subordination Agreement shall have
been executed by all parties thereto.
9.10 INITIAL PUBLIC OFFERING. Evidence acceptable to Bank of the
completion of the Initial Public Offering and the receipt by Borrower of Net
Proceeds thereof in an amount which is not less than $17,500,000.
9.11 ACQUISITION. A certificate executed by a senior officer of
Borrower certifying that the attached copies of the Acquisition Agreement,
the Landing Gear Overhaul Services Agreement with British Airways, and the
British Airways Environmental Indemnity are true, correct and complete,
together with evidence that the Acquisition is in a position to concurrently
close in accordance with the Acquisition Agreement and all applicable laws
and in a manner acceptable to Bank.
9.12 LEGAL OPINIONS. Written opinions from legal counsel for Borrower
and HP UK, covering such matters as Bank may require, including the
organization, authority and good standing of Borrower and HP UK, the due
execution and delivery of all Loan Documents, the valid, binding and
enforceable nature of the Loan Documents against Borrower and HP UK, and the
possession by Borrower and HP UK of all necessary certificates, permits and
licenses which are required to conduct its business as presently conducted,
including a valid certificate from the Civil Aviation Authority.
9.13 APPRAISAL. An appraisal (by an appraiser acceptable to Bank, and
in form and scope acceptable to Bank) of the fixed assets of the UK Business
with results satisfactory to Bank and in any event providing for an orderly
liquidation value (after liquidation costs) of rotable gear sets and eligible
machinery and equipment of not less than $12,000,000.
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9.14 PAYMENT OF FEES. Payment of all accrued and unpaid expenses
incurred by Bank as required by Sections 6.2 and 6.3.
9.15 MATERIAL CONTRACTS. A Certificate of a senior officer of Borrower
certifying that there have been no material amendments to Borrower's
contracts with Federal Express, Inc., BTR Dunlop, Inc. and its affiliates and
the Coast Guard Contract since November 27, 1996, and that the attached copy
of Borrower's long term supply contract with American Airlines is true and
correct.
9.16 CONSENTS. Executed consents and agreements in form and substance
acceptable to Bank from (a) each party whose agreement or consent to the
Acquisition or any other transaction contemplated hereby is required by any
material agreement to which Borrower or any of its Subsidiaries is a party,
(b) each party to any material contract allowing termination upon any change
in control of Borrower or any of its Subsidiaries, and (c) which are
otherwise deemed necessary by Bank.
9.17 CERTAIN FINANCIAL INFORMATION.
(a) A certificate of an officer of Borrower setting forth all
revisions (if any) that have been made to the five year annual financial
projections for Borrower previously delivered to Bank.
(b) Pro forma pre-closing and post-closing balance sheets
reflecting all adjustments necessary or desirable to reflect the effects of
the Acquisition.
(c) A final sources and uses statement with respect to the
Acquisition.
(d) the British Airways services schedule and agreement for 1998.
9.18 YEAR 2000 COMPLIANCE. Borrower shall have completed a Year 2000
questionnaire and a comprehensive action plan acceptable to Bank for dealing
with computer related problems associated with the year 2000.
9.19 BORROWING BASE. Borrower shall have delivered the initial
Borrowing Base Certificate hereunder as of December 31, 1997.
9.20 MIS PLAN. Borrower shall have developed and delivered to Bank an
acceptable plan in relation to the management information systems for HP UK.
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9.21 TAX LETTER. Borrower shall have delivered a copy of a letter
addressed to Borrower by Ernst & Young LLP as to the availability and
limitations of certain net operating loss carry-forwards in existence prior
to the Initial Public Offering as deductions for inclusion in Borrower's
federal and state income tax returns, and such report shall be acceptable to
Bank.
9.22 ENVIRONMENTAL PERMITS. Copies of documents establishing, to the
satisfaction of the Bank, that all environmental permits necessary for HP UK
to operate the business acquired pursuant to the Acquisition Agreement at its
present Heathrow Airport location have been obtained, including without
limitation extensions of the following permits:
Environmental Agency Authorization (Cadmium Plating Process) No. A00130
Local Authority Authorization (Painting Process) EPA B3\26
Approval (Thames Water Utilities Consent) HS119A
9.23 OTHER ITEMS. Any other items that Bank reasonably requires.
10. REPRESENTATIONS AND WARRANTIES
When Borrower signs this Agreement, and until Bank is repaid in full,
Borrower makes the following representations and warranties as to itself and
its Subsidiaries. Each request for an extension of credit hereunder
constitutes a renewed representation and warranty to Bank:
10.1 ORGANIZATION OF BORROWER AND ITS SUBSIDIARIES. Borrower and each
of its Subsidiaries are corporations duly formed, existing and in good
standing under the laws of their respective jurisdictions of formation.
Schedule 1 hereto correctly details the ownership of Borrower as of the
Closing Date (separately listing each of the persons owning interests in
Borrower prior to the consummation of the Initial Public Offering). The form
of organization, number of shares of capital stock issued and outstanding,
and ownership of each Subsidiary of Borrower are properly described on
Schedule 1.
10.2 AUTHORIZATION. This Agreement, the Loan Documents and any
instrument or agreement required hereunder or thereunder, are within
Borrower's and it Subsidiaries respective powers, have been duly authorized,
and do not conflict with any of their respective organizational papers.
10.3 ENFORCEABLE AGREEMENT. This Agreement and the other Loan Documents
are the legal, valid and binding agreements of Borrower and each other party
thereto, enforceable against Borrower and each such other party in accordance
with their respective terms, and any
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instrument or agreement required hereunder, when executed and delivered, will
be similarly legal, valid, binding and enforceable.
10.4 GOOD STANDING. In each state in which Borrower and its
Subsidiaries do business, they are properly licensed, in good standing, and,
where required, in compliance with fictitious name statutes. HP UK is
properly licensed and in good standing under the laws of England.
10.5 NO CONFLICTS. This Agreement and the other Loan Documents do not
conflict with any law, agreement, or obligation by which Borrower, its
Subsidiaries or any of their affiliates are bound.
10.6 FINANCIAL INFORMATION. All financial and other information that
has been or will be supplied to Bank, including pursuant to Section 9 of this
Agreement, is:
(a) sufficiently complete to give Bank accurate knowledge of
Borrower's and its Subsidiaries financial condition.
(b) in compliance with all government regulations that apply.
Since the date of the financial statements of Borrower delivered pursuant
hereto for the period ending November 30, 1997, there has been no material
adverse change in the assets, consolidated financial condition, business or
prospects of Borrower and its Subsidiaries. Each of the projections
delivered by Borrower to Bank are, to the best knowledge of Borrower, based
upon assumptions which are reasonable and internally consistent, and are
consistent with all facts known to Borrower (subject to the uncertainties
inherent in all projections).
10.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending
or threatened against Borrower or its Subsidiaries which, if adversely
decided, would impair Borrower's consolidated financial condition or ability
to repay the obligations hereunder.
10.8 COLLATERAL. All collateral required in this Agreement is owned (or
is being concurrently acquired) by the grantor of the security interest free
of any title defects or any liens or interests of others, except those which
have been explicitly approved by Bank in writing.
10.9 PERMITS, FRANCHISES. Borrower and its Subsidiaries possess all
permits, memberships, franchises, contracts and licenses required and all
trademark rights, trade name rights, patent rights and fictitious name rights
necessary to enable them to conduct the business in which they are now
engaged.
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10.10 OTHER OBLIGATIONS. Borrower and its Subsidiaries are not in
default on any obligation for borrowed money, any purchase money obligation
or any other material lease, commitment, contract, instrument or obligation.
10.11 INCOME TAX RETURNS. Borrower has no knowledge of any pending
assessments or adjustments of the income tax payable by Borrower and its
Subsidiaries with respect to any year.
10.12 NO EVENT OF DEFAULT. There is no event which is, or with notice
or lapse of time or both would be, a Default or Event of Default under this
Agreement or any of the other Loan Documents.
10.13 MERCHANTABLE INVENTORY. All inventory which is included in the
Borrowing Base is of good and merchantable quality and free from material
defects.
10.14 ERISA PLANS.
(a) Borrower and each of its ERISA Affiliates have fulfilled their
obligations, if any, under the minimum funding standards of ERISA and the
Code with respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code,
and has not incurred any liability with respect to any Plan under Title
IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of ERISA
for which the PBGC requires 30 day notice.
(c) No action by Borrower or any of its ERISA Affiliates to terminate
or withdraw from any Plan has been taken and no notice of intent to
terminate a Plan has been filed under Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under
Section 4042 of ERISA, and no event has occurred or condition exists which
might constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes of
this Agreement:
(i) "CODE" means the Internal Revenue Code of 1986, as amended
from time to time.
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(ii) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time.
(iii) "ERISA AFFILIATE" means, with respect to any person, any
other person (or any trade or business, whether or not incorporated)
that is under common control with that person within the meaning of
Section 414 of the Code.
(iv) "PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
(v) "PLAN" means any employee pension benefit plan
maintained or contributed to by any Borrower and insured by the
Pension Benefit Guaranty Corporation under Title IV of ERISA.
10.15 LOCATION OF BORROWER AND ITS SUBSIDIARIES. Borrower's only place
of business (other than its location in the Netherlands) and chief executive
office is located at the address listed under Borrower's signature on this
Agreement. HP UK's sole business location and the location of its chief
executive offices is located at Number 1 London Road, Southampton S015 2AE
England or at another location disclosed in writing to the Bank as such.
10.16 CERTAIN COLLATERAL.
(a) Each deposit account maintained by Borrower and its Subsidiaries
as of the Closing Date is described on Schedule 1 hereto. Borrower has
notified Bank in writing of each deposit account opening by Borrower or any
of its Subsidiaries following the Closing Date.
(b) Borrower and its Subsidiaries do not own any patents,
trademarks or other intellectual property which is not described on
Schedule 1 hereto.
(c) Each Shipset which Borrower or any of its Subsidiaries has
received in exchange from one of its customers is Borrower's or such
Subsidiary's sole property, free and clear of all liens and rights of
others, including without limitation any and all liens and other rights of
lenders to customers of Borrower and its Subsidiaries which whom such
Shipsets have been exchanged.
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(d) Each of the assets described in the appraisal of the UK Business
delivered to Bank shall be purchased pursuant to the Acquisition
Agreement and, as of the Closing Date, has not suffered any material
deterioration in value since the date of such appraisal.
10.17 THE ACQUISITION. The Acquisition has been consummated
concurrently with the Closing Date in accordance with the Acquisition
Agreement and all applicable laws.
10.18 ENVIRONMENTAL. Borrower, its Subsidiaries and their operations
are in material compliance with all Environmental Laws. Borrower and its
Subsidiaries have no knowledge of any Environmental Claims that, either
individually or in the aggregate, could reasonably be expected to have a
material adverse effect upon their condition or their ability to repay the
obligations evidenced by this Agreement and the other Loan Documents.
10.19 GOVERNMENTAL REGULATION. Neither Borrower nor any person
controlling Borrower is an "Investment Company" within the meaning of the
Investment Company Act of 1940. Borrower is not subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, any state public utilities code, or any other
Federal or state statute or regulation limiting its ability to incur
indebtedness.
10.20 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. Borrower and
its Subsidiaries own or are licensed or otherwise have the right to use all
of the patents, trademarks, service marks, trade names, copyrights,
contractual franchises, authorizations and other rights that are reasonably
necessary for the operation of their business, without conflict with the
rights of any other person.
10.21 CONTRACTS. Borrower and its Subsidiaries have not entered into any
material contracts during the three month period immediately preceding the
Closing Date which have not been disclosed to Bank in writing.
10.22 YEAR 2000 COMPLIANCE. Borrower and its Subsidiaries have
implemented a comprehensive program to address the "year 2000 problem" (that
is, the risk that computer applications may not be able to properly perform
date-sensitive functions after December 31, 1999) and expect to resolve on a
timely basis any material year 2000 problem. Borrower and its Subsidiaries
have also made inquiry of each supplier, vendor and customer of Borrower and
its Subsidiaries that is of material importance to the financial well-being
of Borrower and its Subsidiaries with respect to the "year 2000 problem". On
the basis of that inquiry, Borrower believes that each such supplier, vendor
and customer will resolve any material year 2000 problem on a timely basis.
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10.23 LANDLORD CONSENTS. The landlord consents delivered to Bank with
respect to Borrower's premises in Sun Valley, California, have been delivered
from each lessor of the real property comprising that facility
[[[list exceptions, if any]]].
11. COVENANTS
Borrower agrees, so long as credit is available under this Agreement
and until Bank is repaid in full, unless Bank otherwise agrees in writing,
Borrower shall, and shall cause each of its Subsidiaries:
11.1 USE OF PROCEEDS. To use the proceeds of the credit provided
hereunder (a) on the Closing Date to (i) refinance the obligations under the
Existing Loan Agreement (including a repayment of the Facility No. 1
thereunder in an amount which is not less than $2,000,000), (ii) to repay a
$1,500,000 portion of the Subordinated Note (leaving a principal balance of
not less than $5,000,000), (iii) to repay in full the AMR Shipset Payable,
and (iv) to partially finance the Acquisition (by means of the loan to HP UK
evidenced by the Intercompany Note) and (b) thereafter for the working
capital needs of Borrower and HP UK, for Letters of Credit, and, in the case
of the Capital Expenditure Loans, only for the purposes approved in
connection with each such loan.
11.2 USE OF PROCEEDS: INELIGIBLE SECURITIES. Not to use, directly or
indirectly, any portion of the proceeds of the credit (including any Letters
of Credit) for any of the following purposes:
(a) knowingly to purchase Ineligible Securities from BA Securities,
Inc. (the "ARRANGER") during any period in which the Arranger makes a
market in such Ineligible Securities; or
(b) knowingly to purchase during the underwriting or placement period
Ineligible Securities being underwritten or privately placed by the
Arranger; or
(c) to make payments of principal, interest or dividends on Ineligible
Securities underwritten or privately placed by the Arranger and issued by
or for the benefit of any Borrower or any affiliate of any Borrower.
11.3 FINANCIAL AND OTHER INFORMATION. To provide the following
financial information and statements and other information:
(a) Within 90 days following the end of each fiscal year of Borrower,
Borrower's consolidated annual financial statements. These financial
statements must be
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audited (with an unqualified opinion) by Ernst & Young, LLP or another
nationally recognized firm of independent public accountants reasonably
acceptable to Bank and must be accompanied by a management letter prepared
by such auditors.
(b) Within 30 days following the end of each calendar month (including
the last calendar month in each fiscal year), Borrower's monthly
consolidated and consolidating financial statements showing results for
that month and for a year to date basis, PROVIDED THAT if no Default or
Event of Default has then occurred, following the delivery of Borrower's
audited financial statements for the fiscal year ending December 31, 1998,
Borrower shall instead, within 45 days following the end of each fiscal
quarter (including the last fiscal quarter in each fiscal year) deliver its
quarterly consolidated and consolidating financial statements showing
results for that fiscal quarter and on a year to date basis. In either
case, these financial statements may be Borrower prepared, and shall
include a comparison to plan and prior year on a monthly and year to date
basis.
(c) If requested by Bank, copies of Borrower's federal income tax
return, promptly and in any event within 15 days of filing, and copies of
any extensions of the filing date.
(d) Within the period provided for in clause (a) (in relation to
Borrower's audited statements and giving effect to any adjustments from the
unaudited statements made therein) and promptly and in any event within
45 days following the last day of each fiscal quarter (in relation to the
unaudited statements and including the last fiscal quarter in each fiscal
year) a compliance certificate signed by an authorized financial officer of
Borrower setting forth information and computations (in sufficient detail)
to establish (x) that Borrower is in compliance with all financial
covenants at the end of the period covered by the financial statements then
being furnished, and (y) whether there existed as of the date of such
financial statements and whether there exists as of the date of the
certificate, any Default or Event of Default under this Agreement and,
(iii) if any such Default or Event of Default exists, specifying the
nature thereof and the action Borrower is taking and propose to take with
respect thereto.
(e) A borrowing base certificate ("Borrowing Base Certificate")
setting forth the respective amounts of Acceptable Receivables and
Acceptable Inventory and a calculation of the Borrowing Base as of the
last day of each month within 20 days after month end and, if requested
by Bank copies of the invoices or the record of invoices from each
Borrower's and HP UK's sales journal for such Acceptable Receivables,
copies of the delivery receipts, purchase orders, shipping instructions,
bills of lading and other documentation pertaining to such Acceptable
Receivables.
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(f) (Statements showing an aging and reconciliation of Borrower's
and HP UK's receivables within 20 days after the end of each month.
(g) A statement showing an aging of accounts payable within 20 days
after the end of each month.
(h) If Bank requires Borrower and its Subsidiaries to deliver the
proceeds of accounts receivable to Bank upon collection by Borrower and
its Subsidiaries, a schedule of the amounts so collected and delivered
to Bank.
(i) An inventory summary report and listing within 20 days after
the end of each month, including a description of the inventory, its
location and cost, and such other information and collateral reports as
Bank may require.
(j) A listing of the names and addresses, telephone numbers and
principal contacts of all debtors obligated upon Borrower's and its
Subsidiaries accounts receivable semi-annually within 20 days following
the last day of the second and fourth fiscal quarters in each of
Borrower's fiscal years.
(k) 30 days prior to each fiscal year end, updated annual financial
projections for Borrower and its Subsidiaries through December 31, 2004,
and quarterly financial projections through the subsequent fiscal year.
(l) Within 90 days following the Closing Date, an audited opening
consolidated balance sheet of Borrower prepared by Ernst & Young LLP.
(m) Promptly upon Bank's request, such other statements, lists of
property and accounts, budgets, forecasts or reports as to Borrower as
Bank may reasonably request.
(n) Annually and in any event not later than January 1 of each
year, commencing with January 1, 1998, an environmental compliance audit
prepared by consultants acceptable to Bank, which audit shall (i) be
prepared at the sole cost and expense of Borrower and (ii) detail areas
of environmental non-compliance, types of environmental permits and
licenses required and held by Borrower, and upgrades to programs, permits
and licenses required or to be considered by Borrower due to changes in
environmental regulations. The environmental compliance audit shall
identify, to a degree of certainty "more likely than not" any conditions
or operations that meet the foregoing criteria.
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(q) Promptly and in any event within 5 days following the filing
thereof, copies of Borrower's reports on Form 10-K and Form 10-Q and
all other material reports filed by Borrower with the Securities and
Exchange Commission.
(r) On a monthly basis until HPUK has vacated the Heathrow Airport
location leased from British Airways, not later than the 5th day of each
calendar month, (i) a copy of a receipt issued by British Airways for rent
paid with respect to that location for that calendar month and (ii) a
narrative description of the progress of Borrower's and HP UK's efforts to
relocate the operations of HP UK from Heathrow Airport, and an update of
the timetable for that relocation.
(s) Promptly upon Bank's request, such other information as
Bank may reasonably request.
11.4 SENIOR FUNDED DEBT TO ADJUSTED EBITDA. As of the last day of each
Fiscal Quarter described below, to maintain a ratio of (a) Senior Funded Debt
as of the last day of such Fiscal Quarter to (b) Adjusted EBITDA, which is
not greater than the ratio set forth opposite the period in which such Fiscal
Quarter ends:
FISCAL QUARTERS ENDED MAXIMUM RATIO
--------------------- -------------
March 31, 1998 and June 30, 1998 3.85:1.00
September 30, 1998 3.50:1.00
December 31, 1998 through September 30, 1999 3.25:1.00
December 31, 1999 through September 30, 2000 3.00:1.00
December 31, 2000 through September 30, 2001 2.75:1.00
Thereafter 2.50:1.00.
11.5 FIXED CHARGE COVERAGE RATIO. To maintain, as of the last day of
each Fiscal Quarter set forth below, a ratio of (a) Cash Flow to (b) Fixed
Charges which is not less
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than the ratio set forth opposite the period in which such Fiscal Quarter
ends, calculated quarterly on a fiscal year to date basis through December
31, 1998 and on a rolling four quarter basis thereafter.
PERIOD MINIMUM RATIO
------ -------------
March 31, 1998 and June 30, 1998 1.20:1.00
September 30, 1998 and December 31, 1998 1.40:1.00
Thereafter 1.50:1.00
11.6 PROFITABILITY. To maintain a positive net income before taxes and
extraordinary income on a cumulative basis for each period of two consecutive
fiscal quarters following the Closing Date.
11.7 OTHER DEBTS. Not to have outstanding or incur any direct or
contingent liabilities of any kind or lease obligations or swap or similar
hedge agreement obligations (other than to Bank), or become liable for the
liabilities of others, without Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Debts and leases in existence on the date of this Agreement
disclosed in writing to Bank on Schedule 1.
(e) Additional debts and lease obligations for the acquisition of
fixed or capital assets in the ordinary course of Borrower's business, in
an aggregate amount not to exceed $750,000 at any one time outstanding.
(f) the unsecured subordinated debt evidenced by the Subordinated
Note on then Closing Date.
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11.8 OTHER LIENS. Not to create, assume, or allow any security
interest, encumbrance or judicial or other lien (each a "LIEN") on property
Borrower now or later owns, except:
(a) Liens in favor of Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement and
disclosed in writing to Bank on Schedule 1.
(d) Additional purchase money security interests in personal
property acquired using indebtedness of the type described in Section
11.7(e).
11.9 CAPITAL EXPENDITURES FOR ROTABLE GEARS. Not to make or
commit to make capital expenditures (including any amount expended with
respect to capital leases) for the purchase or lease of rotable gears in any
fiscal year (net of the amount received from the sale of rotable gears) which
are in excess of the amount set forth below opposite that fiscal year:
FISCAL YEAR AMOUNT.
1998 3,000,000
1999 and each subsequent
fiscal year 3,500,000.
11.10 CAPITAL EXPENDITURES FOR OTHER ASSETS. Not to make or
commit to make capital expenditures (including any amount expended with
respect to capital leases) for any assets (other than expenditures for the
purchase or lease of rotable gears which are permitted by Section 11.9) in
any fiscal year which are in excess of the amount set forth below opposite
that fiscal year:
FISCAL YEAR AMOUNT.
1998 $4,500,000
1999 2,500,000
Each subsequent fiscal year 2,000,000;
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PROVIDED that in the event that Borrower and its Subsidiaries expend less
than the amount allotted above during the 1998 fiscal year, the unexpended
amount, not to exceed $2,250,000, may be carried over to the 1999 fiscal year.
11.11 DIVIDENDS AND OTHER PAYMENTS. Not to declare or pay any
dividends or other distributions on any of Borrower's shares, or make any
loan or investment having the effect of making any such dividend or
distribution, and not to purchase, redeem or otherwise acquire for value any
of Borrower's shares, or create any sinking fund in relation thereto, and not
to make other payments to Unique, Bastian or their respective affiliates,
including without limitation management fees, except that Borrower may pay
Permitted Management Fees when no Default or Event of Default exists or would
result therefrom.
11.12 LOANS TO OFFICERS. Not to make any loans, advances or
other extensions of credit to Borrower's or its Subsidiaries' executives,
officers, or directors or shareholders (or any relatives of any of the
foregoing), other than amounts which do not exceed $10,000, in the aggregate,
at any time.
11.13 NOTICES TO BANK. To promptly notify Bank in writing of:
(a) any lawsuit over $100,000 against Borrower or any of
its Subsidiaries.
(b) any substantial dispute between Borrower and its
Subsidiaries and any government authority.
(c) any known failure to comply with this Agreement or
the other Loan Documents.
(d) any material adverse change in Borrower's and its
Subsidiaries financial condition or operations.
(e) any change in the name, legal structure, place of
business, or chief executive office of Borrower or any of its
Subsidiaries.
(f) any pending or threatened environmental investigation
or proceeding not previously disclosed to Bank in writing involving
Borrower, its Subsidiaries or any of the real property upon which their
operations are located.
11.14 BOOKS AND RECORDS. To maintain adequate books and records.
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11.15 AUDITS. To allow Bank and its agents to inspect Borrower's
and its Subsidiaries properties and examine, audit and make copies of books
and records at any reasonable time, provided that if no Default or Event of
Default exists, Bank will provide prior verbal or written notice of its
intention to exercise its rights under this Section not later than the
business day prior to its exercise and, if requested by Borrower, will
provide written confirmation of any such verbal notice. If any of Borrower's
or its Subsidiaries properties, books or records are in the possession of a
third party, Borrower authorizes that third party to permit Bank or its
agents to have access to perform inspections or audits and to respond to
Bank's requests for information concerning such properties, books and
records. Bank has no duty to inspect Borrower's properties or to examine,
audit or copy books and records and Bank shall not incur any obligation or
liability by reason of not making any such inspection or inquiry. In the
event that Bank inspects Borrower's properties or examines, audits or copies
books and records, Bank will be acting solely for the purposes of protecting
Bank's security and preserving Bank's rights under this Agreement. Neither
Borrower nor any other party is entitled to rely on any inspection or other
inquiry by Bank. Bank owes no duty of care to protect Borrower or any other
party against, or to inform Borrower or any other party of, any adverse
condition that may be observed as affecting Borrower's properties or
premises, or Borrower's business. Bank may in its discretion disclose to
Borrower or any other party any findings made as a result of, or in
connection with, any inspection of Borrower's properties.
11.16 COMPLIANCE WITH LAWS. To comply with the laws (including
any fictitious name statute), regulations, and orders of any government body
with authority over the business of Borrower and its Subsidiaries.
11.17 PRESERVATION OF RIGHTS. To use commercially reasonable
efforts to maintain and preserve all rights, privileges, and franchises
Borrower and its Subsidiaries now have.
11.18 MAINTENANCE OF PROPERTIES. To make any repairs, renewals,
or replacements to the properties of Borrower and its Subsidiaries which are
necessary to keep the same in good working condition.
11.19 PERFECTION OF LIENS. To help Bank perfect and protect its
security interests and liens, and reimburse it for related costs it incurs to
protect its security interests and liens.
11.20 PLACES OF BUSINESS. Not to open additional business locations
or store property having a value in excess of $10,000 at any location not
disclosed to Bank in writing.
11.21 COOPERATION. To take any action reasonably requested by
Bank to carry out the intent of this Agreement.
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11.22 INSURANCE.
(a) INSURANCE COVERING COLLATERAL. To maintain all risk
property damage insurance policies covering the tangible property
comprising the collateral. Each insurance policy must be for the full
replacement cost of the collateral and include a replacement cost
endorsement. The insurance must be issued by an insurance company
acceptable to Bank and must include a lender's loss payable endorsement
in favor of Bank in a form acceptable to Bank.
(b) GENERAL BUSINESS INSURANCE. To maintain insurance
acceptable to Bank as to amount, nature and carrier covering property
damage (including loss of use and occupancy) to any of Borrower's and
its Subsidiaries' properties, public liability insurance including
coverage for contractual liability, product liability and workers'
compensation, and any other insurance which is usual for Borrower's and
its Subsidiaries' business.
(c) EVIDENCE OF INSURANCE. Upon the request of Bank, to
deliver to Bank a copy of each insurance policy, or, if permitted by
Bank, a certificate of insurance listing all insurance in force.
11.23 ADDITIONAL NEGATIVE COVENANTS. Not to, without Bank's
written consent:
(a) engage in any business activities substantially
different from Borrower's and its Subsidiaries' present business.
(b) liquidate or dissolve Borrower's or any Subsidiary's
business or adopt a plan to take any such action.
(c) enter into any consolidation, merger, pool, joint
venture, syndicate, or other combination.
(d) without the prior written consent of Bank (no to be
unreasonably withheld or delayed), lease, or dispose of any assets of
Borrower or its Subsidiaries which have an aggregate value in excess of
$100,000 in any year, other than sales and leases of inventory in the
ordinary course of business.
(e) acquire or purchase a business or its assets.
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(f) sell or otherwise dispose of any assets for less than
fair market value or enter into any sale and leaseback agreement
covering any of Borrower's fixed or capital assets.
(g) voluntarily suspend Borrower's business for any
period.
11.24 ERISA PLANS. To give prompt written notice to Bank of:
(a) The occurrence of any reportable event under Section
4043(b) of ERISA for which the PBGC requires 30 day notice.
(b) Any action by Borrower to terminate or withdraw from
a Plan or the filing of any notice of intent to terminate under Section
4041 of ERISA.
(c) Any notice of noncompliance made with respect to a
Plan under Section 4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a
Plan under Section 4042 of ERISA.
11.25 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. To maintain proper
books of record and account, in which full, true and correct entries
consistently applied shall be made of all financial transactions and matters
involving the assets and business of Borrower and its Subsidiaries. The
financial statements of Borrower and its Subsidiaries shall, in addition, be
in conformity with generally accepted accounting principles, consistently
applied. Borrower shall, and shall cause its Subsidiaries to, permit
representatives and independent contractors of Bank to visit and inspect any
of their properties, to examine their corporate, financial and operating
records, and make copies thereof or abstracts therefrom, and to discuss their
affairs, finances and accounts with their respective directors, officers, and
independent public accountants, all without unreasonably interfering with the
normal operations of Borrower and its Subsidiaries, and all at such times
during normal business hours and as often as may be reasonably desired,
provided that if no Default or Event of Default exists, Bank will provide
prior verbal or written notice of its intention to exercise its rights under
this Section not later than the business day prior to its exercise and, if
requested by Borrower, will provide written confirmation of any such verbal
notice.
11.26 ENVIRONMENTAL LAWS. To conduct its operations and keep and
maintain its property in compliance with all Environmental Laws. Borrower
and its Subsidiaries will maintain all required records and procedures in
relation to its environmental compliance programs.
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11.27 COLLECTION OF ACCOUNTS. To instruct all account debtors with
respect to accounts owed to Borrower and HP UK to remit their payments to the
appropriate Lockbox or directly to the appropriate Lockbox Account. All
amounts remitted to the Lockbox shall be credited to the Lockbox Account
after allowing for the number of clearance days specified by the agreements
establishing the Lockbox. Borrower shall also:
(a) Cause all collections which are received by Borrower and HP
UK, whether in cash or otherwise, to be deposited by Borrower and HP UK as
and when received in kind (except for any endorsement necessary to vest
title to any instrument in Bank) into the appropriate Lockbox Accounts;
(b) unless otherwise agreed by Bank, either (i) maintain all of
Borrower's and its Subsidiaries' deposit account relationships with Bank,
or (ii) cause the granting to Bank of perfected first priority liens in all
depositary accounts maintained by Borrower and its Subsidiaries pursuant
to documents acceptable to Bank.
11.28 AMENDMENT TO THE ENVIRONMENTAL INDEMNITIES. Not to amend or modify
the BTR Environmental Indemnity or the British Airways Environmental Indemnity
in any respect without the prior written consent of Bank.
11.29 CAPITALIZATION OF HP UK. Use or permit the use of any funds loaned
by Bank to Borrower to be subscribed for shares of capital stock of HP UK or
otherwise used in a manner which could result in the HP Guaranty being
"financial assistance" within the meaning of the Companies Act under English
law, or permit HP UK to issue any preferred stock.
11.30 SWAP ARRANGEMENTS. To enter into contracts for interest rate
protection for Borrower with respect to not less than 60% of the projected
outstanding principal balance of Facility No. 2 for a period of not less than
four years, and with other terms, conditions and counterparties reasonably
acceptable to Bank within 30 days following the Closing Date.
11.31 INVESTMENTS IN SUBSIDIARIES. Not to make any investment in HP UK
following the Closing Date which is not evidenced by the Intercompany Note, or
make any investment in any new Subsidiary unless, concurrently therewith,
Borrower causes all of the issued and outstanding capital stock or other equity
securities of such Subsidiary to be pledged to the Bank and causes such
Subsidiary to issue a guarantee of the obligations under the Loan Documents
secured by all of its assets, in each case pursuant to agreements reasonably
acceptable to the Bank.
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11.32 NEW PREMISES. Prior to entering into any lease of any real
property, deliver to Bank any landlord consents, estoppels and subordinations as
the Bank may reasonably request from the landlords of such premises, and from
any other person who, by reason of Borrower's or its Subsidiaries' tenancy, may
have claims against the assets of Borrower and its Subsidiaries located on such
premises.
12. DEFAULT
If any of the following events occur, Bank may declare Borrower in
default, stop making any additional credit available to Borrower, require
Borrower to repay their entire debt immediately and without prior notice, or any
combination of the foregoing. If an event described in Section 12.5, occurs
with respect to Borrower or any of its Subsidiaries then the entire debt
outstanding under this Agreement will automatically be due immediately.
12.1 FAILURE TO PAY. Borrower or any of its Subsidiaries fails
to make a payment under this Agreement or the other Loan Documents when due.
12.2 LIEN PRIORITY. Bank fails to have an enforceable first lien
(except for any prior liens to which Bank has consented in writing) on or
security interest in any property given as security for this Agreement or any
of the Loan Documents.
12.3 LOAN DOCUMENTS. Any party to any Loan Document seeks to
terminate, revoke or rescind its liability thereunder, or asserts in writing
that its liability is terminated, revoked or rescinded, or any Loan Document
ceases to be in full force and effect (except in accordance with its express
terms) or is declared by a court of competent jurisdiction to be null and
void, invalid or unenforceable in any respect.
12.4 FALSE INFORMATION. Borrower, any of its Subsidiaries or
Unique has furnished to Bank false, materially incorrect or misleading
information or representations, including any information which omits any
fact which is required to make the information not materially misleading.
12.5 BANKRUPTCY. Borrower or any of its Subsidiaries files a
bankruptcy petition, a bankruptcy petition is filed against Borrower or any
of its Subsidiaries, or Borrower or any of its Subsidiaries, any Subsidiary
of Borrower takes any corporate action or other stpes are taken or legal or
other proceedings are started for its winding up, dissolution or
reorganization, or for the appointment of a receiver, administrator,
administrative receiver, trustee or similar officer for its or any portion of
its assets, or Borrower or any of its Subsidiaries makes a general assignment
for the benefit of creditors. An Event of Default under this Section 12.5
will be deemed cured if any such bankruptcy petition filed is dismissed
within a period of 60 days after
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the filing; PROVIDED, HOWEVER, that Bank will not be obligated to extend any
additional credit to Borrower during that period.
12.6 RECEIVERS. A receiver or similar official is appointed for
Borrower's or any of its Subsidiaries business, or the business is terminated.
12.7 JUDGMENTS. Any judgments or arbitration awards are entered
against Borrower or any of its Subsidiaries, or Borrower or any of its
Subsidiaries enters into any settlement agreements with respect to any
litigation or arbitration, which are either (i) in an aggregate amount of
$500,000 or more in excess of any insurance coverage, or (ii) absent
procurement of a stay of execution, such judgments or arbitration awards
remain unsatisfied for thirty calendar days after the date of the entry
thereof, or in any event later than five days prior to the date of any
proposed sale thereunder.
12.8 GOVERNMENT ACTION. Any government authority takes action
that Bank believes materially adversely affects Borrower's and its
Subsidiaries consolidated financial condition or ability to repay the
obligations under this Agreement.
12.9 MATERIAL ADVERSE CHANGE. There occurs any material adverse
change occurs in the consolidated financial condition, properties or
prospects of Borrower and its Subsidiaries, or their ability to repay their
respective obligations. Borrower acknowledges that termination of Borrower
or any of its Subsidiaries contracts or relationships with any Major Customer
may be considered to be such material adverse effect depending on the factual
context then in existence.
12.10 CROSS-DEFAULT. Borrower or any of its Subsidiaries (a)
fails to make any payment in respect of any indebtedness, capital lease or
contingent obligation when due (whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise); or (b) fails to perform or
observe any other condition or covenant, or any other event shall occur or
condition exist, under any agreement or instrument relating to any
indebtedness, capital lease or contingent obligation, in each case if the
effect of such failure, event or condition is to cause, or to permit the
holder or holders of any indebtedness, capital lease or contingent obligation
(or a trustee or agent on behalf of such holder or holders) to cause
indebtedness or capital leases in an amount which exceeds $250,000 to be
declared to be due and payable prior to their stated maturity, or any such
contingent obligation to become payable or cash collateral in respect thereof
in an amount in excess of $250,000 to be demanded.
12.11 OTHER BANK AGREEMENTS. Borrower or any of its Subsidiaries
fails to meet the conditions of, or fails to perform any obligation under any
other agreement it has with Bank or any affiliate of Bank in any material
respect.
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12.12 ERISA PLANS. The occurrence of any one or more of the
following events with respect to Borrower or any of its ERISA Affiliates,
provided such event or events could reasonably be expected, in the judgment
of Bank, to subject Borrower or any of its ERISA Affiliates to any tax,
penalty or liability (or any combination of the foregoing) which, in the
aggregate, could have a material adverse effect on the financial condition of
Borrower and its Subsidiaries with respect to a Plan:
(a) A reportable event shall occur with respect to a Plan
which is, in the reasonable judgment of Bank likely to result in the
termination of such Plan for purposes of Title IV of ERISA.
(b) Any Plan termination (or commencement of proceedings to
terminate a Plan) or Borrower's full or partial withdrawal from a Plan.
12.13 ENVIRONMENTAL INDEMNITY BREACH. British Airways or BTR
Dunlop, Inc. fails to honor within 15 days of written request therefor any
obligation payable by Borrower which is within the scope of the British
Airways Environmental Indemnity or the BTR Environmental Indemnity which
requires the immediate payment by Borrower of an amount in excess of $500,000.
12.14 CHANGE IN CONTROL OR MANAGEMENT. Any of the following occurs
(a) All or substantially all of the assets of Borrower or
any of its Subsidiaries are sold, leased or otherwise disposed of (in a
single transaction or in a series of related transactions);
(b) The persons owning equity interests in Borrower as of
the day to the Initial Public Offering as described as "prior
shareholders" in Schedule 1, or members of their immediate families or
trusts for the benefit of members of their immediate families, fail to
own, beneficially and of record, and control the power to vote, 35% of
the equity securities of Borrower entitled to ordinary voting power
during the three year period following the Closing Date, or 30%
thereafter; or
(c) Any person or entity or "affiliated group" (other than
existing shareholders described on Schedule 1) acquires more than 30% of
the equity securities of Borrower entitled to ordinary voting power;
(d) Less than a majority of those persons constituting the
board of directors of Borrower as of the Closing Date fail to remain as
members of the board of directors of Borrower; or
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(e) David Lokken, Brian Aune, Brian Carr or Michael Riley ceases to
be actively involved on a full time basis in their current capacities as
executive level employees of Borrower at any time and a replacement
acceptable to Bank is not appointed (or another plan for replacement which
is acceptable to the Bank is not in place) within 90 days.
(f) Richard Adey ceases to be actively involved on a full time basis
in his current capacity as managing director of HP UK at any time during
the two year period following the Closing Date and a replacement acceptable
to Bank is not appointed (or another plan for replacement which is
acceptable to the Bank is not in place) within 90 days.
12.15 SUBORDINATION. Bastian, Unique or Borrower asserts in writing
that the Subordinated Note (or the "Bastian Note" referred to in the
Subordination Agreement") is not subordinated in accordance with the terms of
the Subordination Agreement.
12.16 BALANCE SHEET. The audited opening balance sheet prepared by
Ernst & Young and delivered pursuant to Section 11.3(m) varies, in any material
respect, from the unaudited opening balance sheet submitted to Bank prior to the
Closing Date.
12.17 OTHER BREACH UNDER AGREEMENT. Borrower, HP UK, Unique or
Bastian fail to meet the conditions of, or fails to perform any obligation
under, any term of this Agreement or the other Loan Documents not specifically
referred to in this Article.
12.18 LICENCES, CERTIFICATES, PERMITS AND OTHER AUTHORIZATIONS.
Borrower and its Subsidiaries cease to hold any license, certificate, permit or
other authorization from any governmental or quasi-governmental authority which
is necessary for the effective conduct of their business as presently or
properly conducted.
13. ENFORCING THIS AGREEMENT; MISCELLANEOUS
13.1 GAAP. Except as otherwise stated in this Agreement, all
financial information provided to Bank and all financial covenants will be made
under generally accepted accounting principles, consistently applied.
13.2 CALIFORNIA LAW. This Agreement is governed by California law.
13.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on Borrower's
and Bank's successors and assignees. Borrower agrees that it may not assign
this Agreement without Bank's prior written consent, and that any purported
assignment by Borrower without that consent shall be VOID ab initio. BANK MAY
SELL PARTICIPATIONS IN OR ASSIGN THIS LOAN, PROVIDED that when no Default or
Event of Default exists, Bank will obtain Borrower's prior written consent to
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any such assignment or participation, not to be unreasonably withheld. In
furtherance of its rights under this Section, Bank may exchange financial
information about Borrower with actual or potential participants or assignees.
If a participation is sold or the loan is assigned, the purchaser will have the
right of set-off against Borrower.
13.4 ARBITRATION.
(a) This Section concerns the resolution of any controversies
or claims between Borrower and any of its Subsidiaries and the Bank,
including but not limited to those that arise from:
(i) This Agreement (including any renewals, extensions
or modifications of this Agreement);
(ii) Any document, agreement or procedure related to or
delivered in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business
conducted between Borrower, its Subsidiaries and Bank, including
claims for injury to persons, property or business interests (torts);
PROVIDED that the Bank shall be entitled to resolve any controversies
or claims which arise under the HP UK Guaranty, and each other Loan
Document which states that it is governed by the laws of England,
Wales or the United Kingdom, without reference to arbitration and (in
the event that any controversy or claim under the Loan Documents
involves both arbitrable claims and claims subject to the laws of
England, Wales or the United Kingdom exempt from arbitration as
aforesaid), shall be entitled to sever from the arbitrable claims and
independently enforce pursuant to such laws the claims subject to the
laws of England, Wales and the United Kingdom.
(b) At the request of Borrower, any relevant Subsidiary or Bank,
any such controversies or claims will be settled by arbitration in
accordance with the United States Arbitration Act. The United States
Arbitration Act will apply even though this Agreement provides that it is
governed by California law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration and will be conducted within Los Angeles County, California.
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(d) For purposes of the application of the statute of
limitations, the filing of an arbitration pursuant to this Section is the
equivalent of the filing of a lawsuit, and any claim or controversy which
may be arbitrated under this Section is subject to any applicable statute
of limitations. The arbitrators will have the authority to decide whether
any such claim or controversy is barred by the statute of limitations and,
if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable,
the arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may
be submitted to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the
controversy or claim, at the time of the proposed submission to
arbitration, arises from or relates to an obligation to Bank secured by
real property located in California. In this case, both Borrower and Bank
must consent to submission of the claim or controversy to arbitration. If
all parties do not consent to arbitration, the controversy or claim will be
settled as follows:
(i) Borrower and Bank will designate a referee (or a
panel of referees) selected under the auspices of the American
Arbitration Association in the same manner as arbitrators are
selected in Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees)
will be appointed by a court as provided in California Code of Civil
Procedure Section 638 and the following related sections;
(iii) The referee (or the presiding referee of the panel)
will be an active attorney or a retired judge; and
(iv) The award that results from the decision of the
referee (or the panel) will be entered as a judgment in the court that
appointed the referee, in accordance with the provisions of California
Code of Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of Borrower or Bank
to:
(i) exercise self-help remedies such as setoff;
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(ii) foreclose against or sell any real or personal
property collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(iv) The pursuit of or a successful action for interim,
additional or supplementary remedies, or the filing of a court action,
does not constitute a waiver of the right of Borrower or Bank,
including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit. However, if the
controversy or claim arises from or relates to an obligation to Bank
which is secured by real property located in California at the time of
the proposed submission to arbitration, this right is limited
according to the provision above requiring the consent of both
Borrower and Bank to seek resolution through arbitration.
13.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. Bank retains all
rights, even if it makes a loan after Default or Event of Default. If Bank
waives a Default or event of Default, it may enforce a later Default or Event of
Default. Any consent or waiver under this Agreement must be in writing.
13.6 ADMINISTRATION COSTS. Borrower shall pay Bank for all
reasonable costs incurred by Bank in connection with administering this
Agreement.
13.7 ATTORNEYS' FEES. Borrower shall reimburse Bank for any
reasonable costs and attorneys' fees incurred by Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and including
any amendment, waiver, "workout" or restructuring under this Agreement. In the
event of a lawsuit or arbitration proceeding, the prevailing party is entitled
to recover costs and reasonable attorneys' fees incurred in connection with the
lawsuit or arbitration proceeding, as determined by the court or arbitrator. As
used in this Section, "attorneys' fees" includes the allocated costs of Bank's
in-house counsel.
13.8 ONE AGREEMENT. This Agreement and any security or other
agreements referred to in this Agreement, collectively:
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(a) represent the sum of the understandings and agreements
between Bank and Borrower concerning this credit;
(b) replace any prior oral or written agreements between Bank
and Borrower concerning this credit; and
(c) are intended by Bank and Borrower as the final, complete
and exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
This Section shall not be construed to terminate or otherwise affect
the Landlord Consents, the Assignment of Monies Due and to Become Due dated
December 5, 1996 (regarding Contract DTGC-38-95-D-20018 with the United States
Coast Guard), the Authorization and Agreement for Account Management Services
dated November 27, 1996 between Borrower and Bank, each Landlord Consent and
Agreement, and any other instrument, document or agreement executed by Borrower
and AqHawk in connection with the Existing Loan Agreement (each of which shall
continue to be in full force and effect and accrue to the benefit of the Bank),
PROVIDED that it is expressly agreed and understood that the Limited Guaranty
dated as of November 27, 1996 executed by Melanie L. Bastian with respect to the
Existing Loan Agreement, and (ii) the Pledge Agreement dated as of November 27,
1996 made by the shareholders in Borrower in favor of the Bank, are each
terminated and deemed to be of no further force and effect as of the Closing
Date.
13.9 DISPOSITION OF SCHEDULES, REPORTS, ETC. DELIVERED BY BORROWER.
Bank will not be obligated to return any schedules, invoices, statements,
budgets, forecasts, reports or other papers delivered by Borrower or HP UK.
Bank will destroy or otherwise dispose of such materials at such time as Bank,
in its discretion, deems appropriate.
13.10 RETURNED MERCHANDISE. Until Bank exercises its rights to
collect the accounts receivable as provided under any security agreement
required under this Agreement, Borrower and its Subsidiaries may continue its
present policies for returned merchandise and adjustments. Credit adjustments
with respect to returned merchandise shall be made immediately upon receipt of
the merchandise by Borrower or its Subsidiaries or upon such other disposition
of the merchandise by the debtor in accordance with Borrower's or its
Subsidiaries' instructions. If a credit adjustment is made with respect to any
Acceptable Receivable, the amount of such adjustment shall no longer be included
in the amount of such Acceptable Receivable in computing the Borrowing Base.
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13.11 VERIFICATION OF RECEIVABLES. Bank may at any time, either
orally or in writing, request confirmation from any debtor of the current amount
and status of the accounts receivable upon which such debtor is obligated.
13.12 INDEMNIFICATION. Borrower shall defend and indemnify the Bank
and its officers, directors, employees and agents (each, an "Indemnified
Person"), against all claims, damages, liabilities and expenses which may be
incurred by or asserted against any of them (except by Borrower) in connection
with this Agreement, the other Loan Documents and the transactions contemplated
herein, in the other Loan Documents and in the Acquisition Agreement, or which
are related thereto, and for any reasonable legal or other expenses incurred in
connection with investigating, defending or participating in any such loss,
claim, damage, liability or action or other proceeding, whether commenced or
threatened (including without limitation the allocated cost of in-house
attorneys and staff), or in any way relating to the extension of the financing
contemplated by this Agreement or from any use or intended use of any of the
proceeds thereof except, in the case of any Indemnified Person, to the extent
any such loss, claim, damage or liability results from the gross negligence or
willful misconduct of such Indemnified Person. Without limitation on the
foregoing, Borrower will indemnify and hold harmless Bank and each other
Indemnified Person from any loss, or liability directly or indirectly arising
out of the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence of any materials which
described as "hazardous" or "toxic" under or which are governed by any
Environmental Laws, irrespective of whether such materials are on, under or
about Borrower's premises. The indemnities under this Section will survive the
termination of this Agreement and the repayment of all obligations of Borrower
hereunder.
13.13 NOTICES. All notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, to the
addresses on the signature page of this Agreement, or to such other addresses as
Bank and Borrower may specify from time to time in writing.
13.14 HEADINGS. Article and Section headings are for reference only
and shall not affect the interpretation or meaning of any provisions of this
Agreement.
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13.15 COUNTERPARTS. This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.
This Agreement is executed as of the date stated at the top of the first page
hereof.
BANK OF AMERICA NATIONAL HAWKER PACIFIC AEROSPACE, a
TRUST AND SAVINGS ASSOCIATION California corporation
By ____________________________ By _________________________
Title __________________________ Title _______________________
By ____________________________ By _________________________
Title __________________________ Title _______________________
Address where notices to Address where notices to
Bank are to be sent: Borrower are to be sent:
675 Anton Boulevard, Second Floor Hawker Pacific Aerospace
Costa Mesa, California 92626 11240 Sherman Way
Attention: Deborah Miller, Vice President Sun Valley, California 91352
Attention: David Lokken
With a copy to:
Unique Investment Corporation
1380 Vernon Street
Anaheim, California 92805
Attention: Daniel J. Lubeck
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Schedule 1 to Business Loan Agreement
Deposit Accounts
BANK ACCOUNT NO.
Intellectual Property
PATENTS
TRADEMARKS
COPYRIGHTS
PERSONS OWNING INTERESTS IN BORROWER
NAME PERCENTAGE OWNERSHIP NO. OF SHARES
SUBSIDIARIES
Name Number of Shares Form of Organization
EXISTING DEBTS, CONTINGENT OBLIGATIONS AND LEASES.
EXISTING LIENS.
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SECURITY AGREEMENT
This SECURITY AGREEMENT ("Agreement"), dated as of January __,
1998, is made by HAWKER PACIFIC AEROSPACE, a California corporation
("Grantor"), in favor of BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as the Bank under the Loan Agreement referred to below ("Secured
Party"). Terms defined in the Loan Agreement (as hereinafter defined) and
not otherwise defined in this Agreement are used herein with the same
meanings.
RECITALS
A. Pursuant to the Amended and Restated Business Loan Agreement
of even date herewith by and among Grantor, as Borrower, and Secured Party,
as Bank (as such agreement may from time to time be amended, extended,
renewed, supplemented or otherwise modified, the "Loan Agreement"), Secured
Party has agreed to extend certain credit facilities to Grantor.
B. The Loan Agreement provides, as a condition of the
availability of such credit facilities on the Closing Date, that Grantor
shall enter into this Agreement and shall grant security interests to Secured
Party as herein provided.
AGREEMENT
NOW, THEREFORE, in order to induce Bank to extend the
aforementioned credit facilities, and for other good and valuable
consideration, the receipt and adequacy of which hereby is acknowledged,
Grantor hereby represents, warrants, covenants, agrees, assigns and grants as
follows:
1. DEFINITIONS. This Agreement is the Borrower Security
Agreement referred to in the Loan Agreement. This Agreement is one of the
Loan Documents referred to in the Loan Agreement. Terms defined in the
California Uniform Commercial Code and not otherwise defined in this
Agreement or in the Loan Agreement shall have the meanings defined for those
terms in the California Uniform Commercial Code. As used in this Agreement,
the following terms shall have the meanings respectively set forth after each:
"ADVANCE" means any advance made or to be made by Bank to Grantor
as provided in ARTICLE 2, and INCLUDES advances made under Facility No. 1,
Facility No.
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2, any Capital Expenditure Loan made pursuant to Facility No. 3 and all
Letters of Credit issued by Bank for the account of Grantor.
"AFFILIATE" means, as to any Person, any other Person which
indirectly controls, or is under common control with, or is controlled by,
such Person. As used in this definition, "control" (and the correlative
terms, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction
of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise); PROVIDED
that, in any event, any Person that owns, directly or indirectly, 10% or more
of the securities having ordinary voting power for the election of directors
or other governing body of a corporation that has more than 100 record
holders of such securities, or 10% or more of the partnership or other
ownership interests of any other Person that has more than 100 record holders
of such interests, will be deemed to control such corporation or other Person.
"COLLATERAL" means and includes all present and future right, title
and interest of Grantor, in or to any Property or assets whatsoever, and all
rights and powers of Grantor to transfer any interest in or to any Property
or assets whatsoever, INCLUDING, without limitation, any and all of the
following property:
(a) All present and future accounts, accounts receivable,
agreements, contracts, leases, contract rights, rights to payment,
instruments, documents, chattel paper, security agreements, guaranties,
letters of credit, undertakings, surety bonds, insurance policies (whether
or not required by the terms of the Loan Documents), notes and drafts, and
all forms of obligations owing to Grantor or in which Grantor may have any
interest, however created or arising and whether or not earned by
performance;
(b) All present and future general intangibles, all tax refunds
of every kind and nature to which Grantor now or hereafter may become
entitled, however arising, all other refunds, and all deposits, reserves,
loans, royalties, cost savings, deferred payments, goodwill, choses in
action, liquidated damages, rights to indemnification, trade secrets,
computer programs, software, customer lists, trademarks, trade names,
patents, licenses, copyrights, technology, processes, proprietary
information and insurance proceeds of which Grantor is a beneficiary;
(c) All present and future deposit accounts of Grantor,
INCLUDING, without limitation, any demand, time, savings, passbook or like
account maintained by Grantor with any bank, savings and loan association,
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credit union or like organization, and all cash and cash equivalents of
Grantor, whether or not deposited in any such deposit account;
(d) All present and future books and records, INCLUDING, without
limitation, books of account and ledgers of every kind and nature, all
electronically recorded data relating to Grantor or the business thereof,
all receptacles and containers for such records, and all files and
correspondence;
(e) All present and future goods, INCLUDING, without limitation,
all consumer goods, farm products, inventory, equipment, gaming devices and
associated equipment, machinery, tools, molds, dies, furniture,
furnishings, fixtures, trade fixtures, motor vehicles and all other goods
used in connection with or in the conduct of Grantor's business;
(f) All present and future inventory and merchandise, INCLUDING,
without limitation, all present and future goods held for sale or lease or
to be furnished under a contract of service, all raw materials, work in
process and finished goods, all packing materials, supplies and containers
relating to or used in connection with any of the foregoing, and all bills
of lading, warehouse receipts or documents of title relating to any of the
foregoing;
(g) All present and future stocks, bonds, debentures,
securities, subscription rights, options, warrants, puts, calls,
certificates, partnership interests, limited liability company interests,
joint venture interests, investments and/or brokerage accounts and all
rights, preferences, privileges, dividends, distributions, redemption
payments, or liquidation payments with respect thereto;
(h) All present and future accessions, appurtenances,
components, repairs, repair parts, spare parts, replacements,
substitutions, additions, issue and/or improvements to or of or with
respect to any of the foregoing;
(i) All other tangible and intangible property of Grantor;
(j) All rights, remedies, powers and/or privileges of Grantor
with respect to any of the foregoing; and
(k) Any and all proceeds and products of any of the foregoing,
INCLUDING, without limitation, all money, accounts, general intangibles,
deposit accounts, documents, instruments, chattel paper, goods, insurance
proceeds, and
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any other tangible or intangible property received upon the
sale or disposition of any of the foregoing;
PROVIDED that the term "COLLATERAL", as used in this Agreement, shall NOT
include the following: (i) interests pledged pursuant to the Pledge
Agreement; or (ii) real property or any interest therein.
"GOVERNMENTAL AGENCY" means (a) any international, foreign,
federal, state, county or municipal government, or political subdivision
thereof, (b) any governmental or quasi-governmental agency, authority, board,
bureau, commission, department, instrumentality or public body, or (c) any
court or administrative tribunal.
"LAWS" means, collectively, all international, foreign, federal,
state and local statutes, treaties, rules, regulations, ordinances, codes and
administrative or judicial precedents.
"LOAN" means the aggregate of the Advances made at any one time by
Bank pursuant to ARTICLE 2.
"PERSON" means any entity, whether an individual, trustee,
corporation, general partnership, limited partnership, joint stock company,
trust, estate, unincorporated organization, business association, firm, joint
venture, Governmental Agency, or otherwise.
"PROPERTY" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"SECURED OBLIGATIONS" means any and all present and future
obligations of any type or nature of Grantor to Secured Party arising under
or relating to (a) the Loan Agreement and the other Loan Documents including
all obligations with respect to Loans or Letters of Credit made under the
Loan Agreement and obligations under the Loan Documents executed in
connection therewith, (b) interest rate swaps and other hedging arrangements
entered into by Bank and Grantor, (c) the documents governing each other
credit facility hereafter made available to Grantor or guarantied by Grantor,
whether due or to become due, matured or unmatured, liquidated or
unliquidated, or contingent or noncontingent, INCLUDING obligations of
performance as well as obligations of payment, and INCLUDING interest that
accrues after the commencement of any bankruptcy or insolvency proceeding by
or against Grantor.
2. FURTHER ASSURANCES. At any time and from time to time at the
request of Secured Party, Grantor shall execute and deliver to Secured Party
all such financing statements and other instruments and documents in form and
substance
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satisfactory to Secured Party as shall be necessary or desirable to fully
perfect, when filed and/or recorded, Secured Party's security interests
granted pursuant to SECTION 3 of this Agreement. At any time and from time
to time, Secured Party shall be entitled to file and/or record any or all
such financing statements, instruments and documents held by it, and any or
all such further financing statements, documents and instruments, and to take
all such other actions, as Secured Party may deem appropriate to perfect and
to maintain perfected the security interests granted in SECTION 3 of this
Agreement. Before and after the occurrence of any Event of Default, at
Secured Party's request, Grantor shall execute all such further financing
statements, instruments and documents, and shall do all such further acts and
things, as may be deemed necessary or desirable by Secured Party to create
and perfect, and to continue and preserve, an indefeasible security interest
in the Collateral in favor of Secured Party, or the priority thereof. With
respect to any Collateral consisting of certificated securities, instruments,
documents, certificates of title or the like, as to which Secured Party's
security interest need be perfected by, or the priority thereof need be
assured by, possession of such Collateral, Grantor will upon demand of
Secured Party deliver possession of same in pledge to Secured Party. With
respect to any Collateral consisting of securities, instruments, partnership,
joint venture or limited liability company interests or the like, Grantor
hereby consents and agrees that the issuers of, or obligors on, any such
Collateral, or any registrar or transfer agent or trustee for any such
Collateral, shall be entitled to accept the provisions of this Agreement as
conclusive evidence of the right of Secured Party to effect any transfer or
exercise any right hereunder or with respect to any such Collateral,
notwithstanding any other notice or direction to the contrary heretofore or
hereafter given by Grantor or any other Person to such issuers or such
obligors or to any such registrar or transfer agent or trustee.
3. SECURITY AGREEMENT. For valuable consideration, Grantor
hereby assigns and pledges to Secured Party, and grants to Secured Party a
security interest in, all presently existing and hereafter acquired
Collateral, as security for the timely payment and performance of the Secured
Obligations, and each of them. This Agreement is a continuing and
irrevocable agreement and all the rights, powers, privileges and remedies
hereunder shall apply to any and all Secured Obligations, including those
arising under successive transactions which shall either continue the Secured
Obligations, increase or decrease them and notwithstanding the bankruptcy of
any Grantor or any other Person or any other event or proceeding affecting
any Person.
4. GRANTOR'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS. EXCEPT
as otherwise disclosed to Secured Party in writing concurrently herewith,
Grantor represents, warrants and agrees that: (a) Grantor will pay, prior to
delinquency, all taxes, charges, Liens and assessments against the
Collateral, EXCEPT such as are timely contested in good faith, and upon its
failure to pay or so contest such taxes, charges,
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Liens and assessments, Secured Party, after an Event of Default, at its
option may pay any of them, and Secured Party shall be the sole judge of the
legality or validity thereof and the amount necessary to discharge the same;
(b) the Collateral will not be used for any unlawful purpose or in violation
of any Laws in any material respect, nor used in any way that will void or
impair any insurance required to be carried in connection therewith; (c)
Grantor will, to the extent consistent with good business practice, keep the
portion of the Collateral owned by it in reasonably good repair, working
order and condition, and from time to time make all needful and proper
repairs, renewals, replacements, additions and improvements thereto and, as
appropriate and applicable, will otherwise deal with such portion of the
Collateral in all such ways as are considered good practice by owners of like
Property; (d) Grantor will take all reasonable steps to preserve and protect
the Collateral; (e) Grantor will maintain, with responsible insurance
companies, insurance covering the Collateral against such insurable losses as
is required by the Loan Agreement, and will cause Secured Party to be
designated as an additional insured and loss payee with respect to all
insurance (whether or not required by the Loan Agreement), will obtain the
written agreement of the insurers that such insurance shall not be canceled,
terminated or materially modified to the detriment of Secured Party without
at least 30 days prior written notice to Secured Party, and will furnish
copies of such insurance policies or certificates to Secured Party promptly
upon request therefor; (f) Grantor will promptly notify Secured Party in
writing in the event of any substantial or material damage to the Collateral
(considered as a whole) from any source whatsoever, and, EXCEPT for the
disposition of collections and other proceeds of the Collateral permitted by
SECTION 7 hereof, Grantor will not remove or permit to be removed any part of
the Collateral from its places of business without the prior written consent
of Secured Party, EXCEPT for such items of the Collateral as are removed in
the ordinary course of business or in connection with any transaction or
disposition otherwise permitted by the Loan Documents; and (g) in the event
Grantor changes its name or its address as either are set forth herein or in
the Loan Agreement, Grantor will notify Secured Party of such name and/or
address change promptly, but in any event, within five (5) days.
5. SECURED PARTY'S RIGHTS RE COLLATERAL. At any time (whether or
not an Event of Default has occurred), without notice or demand and at the
expense of Grantor with regard to the portion of the Collateral owned by it,
Secured Party may, to the extent it may be necessary or desirable to protect
the security hereunder, but Secured Party shall not be obligated to: (a) at
all reasonable times on reasonable notice, provided that if no Default or
Event of Default exists, Bank will provide one (1) business day prior written
or verbal notice of its intention to exercise its rights, and, if requested
by Borrower, will provide written confirmation of any such verbal notice,
enter upon any premises on which Collateral is situated and examine the same
or (b) perform any obligation of Grantor under this Agreement or any
obligation of any other Person under the Loan Documents. At any time and
from time to time, at the
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expense of Grantor, Secured Party may, to the extent it may be necessary or
desirable to protect the security hereunder, but Secured Party shall not be
obligated to: (i) after an Event of Default, notify obligor on the Collateral
that the Collateral has been assigned to Secured Party; and (ii) at any time
and from time to time request from obligors on the Collateral, in the name of
Grantor or in the name of Secured Party, information concerning the
Collateral and the amounts owing thereon, PROVIDED, HOWEVER, that any such
action which involves communicating with customers of Grantor shall be
carried out by Secured Party through such Grantor's independent auditors
unless Secured Party shall then have the right directly to notify obligors on
the Collateral as provided in SECTION 9. Grantor shall maintain books and
records pertaining to the Collateral in such detail, form and scope as
Secured Party shall reasonably require consistent with Secured Party's
interests hereunder. Grantor shall at any time at Secured Party's request
mark the Collateral and/or Grantor's ledger cards, books of account and other
records relating to the Collateral with appropriate notations reasonably
satisfactory to Secured Party disclosing that they are subject to Secured
Party's security interests. Secured Party shall be under no duty or
obligation whatsoever to take any action to preserve any rights of or against
any prior or other parties in connection with the Collateral, to exercise any
voting rights or managerial rights with respect to any Collateral, whether or
not an Event of Default shall have occurred, or to make or give any
presentments, demands for performance, notices of non-performance, protests,
notices of protests, notices of dishonor or notices of any other nature
whatsoever in connection with the Collateral or the Secured Obligations.
Secured Party shall be under no duty or obligation whatsoever to take any
action to protect or preserve the Collateral or any rights of Grantor
therein, or to make collections or enforce payment thereon, or to participate
in any foreclosure or other proceeding in connection therewith.
6. COLLECTIONS ON THE COLLATERAL. EXCEPT as otherwise provided
in any Loan Document, Grantor shall have the right to use and to continue to
make collections on and receive dividends and other proceeds of all of the
Collateral in the ordinary course of business so long as no Event of Default
shall have occurred and be continuing. Upon the occurrence and during the
continuance of an Event of Default, at the option of Secured Party, Grantor's
right to make collections on and receive dividends and other proceeds of the
Collateral and to use or dispose of such collections and proceeds shall
terminate, and any and all dividends, proceeds and collections, including all
partial or total prepayments, then held or thereafter received on or on
account of the Collateral will be held or received by Grantor in trust for
Secured Party and immediately delivered in kind to Secured Party. Any
remittance received by Grantor from any Person shall be presumed to relate to
the Collateral and to be subject to Secured Party's security interests. Upon
the occurrence and during the continuance of an Event of Default, Secured
Party shall have the right at all times to receive, receipt for, endorse,
assign, deposit and deliver, in the name of Secured Party or in the name
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of Grantor, any and all checks, notes, drafts and other instruments for the
payment of money constituting proceeds of or otherwise relating to the
Collateral; and Grantor hereby authorizes Secured Party to affix, by
facsimile signature or otherwise, the general or special endorsement of it,
in such manner as Secured Party shall deem advisable, to any such instrument
in the event the same has been delivered to or obtained by Secured Party
without appropriate endorsement, and Secured Party and any collecting bank
are hereby authorized to consider such endorsement to be a sufficient, valid
and effective endorsement by Grantor, to the same extent as though it were
manually executed by the duly authorized officer of Grantor, regardless of by
whom or under what circumstances or by what authority such facsimile
signature or other endorsement actually is affixed, without duty of inquiry
or responsibility as to such matters, and Grantor hereby expressly waives
demand, presentment, protest and notice of protest or dishonor and all other
notices of every kind and nature with respect to any such instrument.
7. POSSESSION OF COLLATERAL BY SECURED PARTY. All the Collateral
now, heretofore or hereafter delivered to Secured Party shall be held by
Secured Party in its possession, custody and control. Any or all of the
Collateral delivered to Secured Party shall be held in an interest-bearing
account, which is in the form of cash or cash equivalent, and Secured Party
shall apply any such interest to payment of the Secured Obligations. Nothing
herein shall obligate Secured Party to obtain any particular return on the
Collateral. Upon the occurrence and during the continuance of an Event of
Default, whenever any of the Collateral is in Secured Party's possession,
custody or control, Secured Party may use, operate and consume the
Collateral, whether for the purpose of preserving and/or protecting the
Collateral, or for the purpose of performing any of Grantor's obligations
with respect thereto, or otherwise. Secured Party may at any time deliver or
redeliver the Collateral or any part thereof to Grantor, and the receipt of
any of the same by Grantor shall be complete and full acquittance for the
Collateral so delivered, and Secured Party thereafter shall be discharged
from any liability or responsibility therefor. So long as Secured Party
exercises reasonable care with respect to any Collateral in its possession,
custody or control, Secured Party shall have no liability for any loss of or
damage to such Collateral, and in no event shall Secured Party have liability
for any diminution in value of Collateral occasioned by economic or market
conditions or events. Secured Party shall be deemed to have exercised
reasonable care within the meaning of the preceding sentence if the
Collateral in the possession, custody or control of Secured Party is accorded
treatment substantially equal to that which Secured Party accords its own
property, it being understood that Secured Party shall not have any
responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relating to any
Collateral, whether or not Secured Party has or is deemed to have knowledge
of such matters, or (b) taking any necessary steps to preserve rights against
any Person with respect to any Collateral.
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8. EVENTS OF DEFAULT. There shall be an Event of Default
hereunder upon the occurrence and during the continuance of an Event of
Default under the Loan Agreement.
9. RIGHTS UPON EVENT OF DEFAULT. Upon the occurrence and during
the continuance of an Event of Default, Secured Party shall have, in any
jurisdiction where enforcement hereof is sought, in addition to all other
rights and remedies that Secured Party may have under applicable Law or in
equity or under this Agreement (INCLUDING, without limitation, all rights set
forth in SECTION 5 hereof) or under any other Loan Document, all rights and
remedies of a secured party under the Uniform Commercial Code as enacted in
California and, in addition, the following rights and remedies, all of which
may be exercised with or without notice to Grantor and without affecting the
Secured Obligations of Grantor hereunder or under any other Loan Document, or
the enforceability of the Liens created hereby: (a) to foreclose the Liens
created hereunder or under any other agreement relating to any Collateral by
any available judicial procedure or without judicial process; (b) to enter
any premises where any Collateral may be located for the purpose of securing,
protecting, inventorying, appraising, inspecting, repairing, preserving,
storing, preparing, processing, taking possession of or removing the same;
(c) to sell, assign, lease or otherwise dispose of any Collateral or any part
thereof, either at public or private sale or at any broker's board, in lot or
in bulk, for cash, on credit or otherwise, with or without representations or
warranties and upon such terms as shall be acceptable to Secured Party; (d)
to notify obligors on the Collateral that the Collateral has been assigned to
Secured Party and that all payments thereon are to be made directly and
exclusively to Secured Party; (e) to collect by legal proceedings or
otherwise all dividends, distributions, interest, principal or other sums now
or hereafter payable upon or on account of the Collateral; (f) to cause the
Collateral to be registered in the name of Secured Party, as legal owner; (g)
to enter into any extension, reorganization, deposit, merger or consolidation
agreement, or any other agreement relating to or affecting the Collateral,
and in connection therewith Secured Party may deposit or surrender control of
the Collateral and/or accept other Property in exchange for the Collateral;
(h) to settle, compromise or release, on terms acceptable to Secured Party,
in whole or in part, any amounts owing on the Collateral and/or any disputes
with respect thereto; (i) to extend the time of payment, make allowances and
adjustments and issue credits in connection with the Collateral in the name
of Secured Party or in the name of Grantor; (j) to enforce payment and
prosecute any action or proceeding with respect to any or all of the
Collateral and take or bring, in the name of Secured Party or in the name of
Grantor, any and all steps, actions, suits or proceedings deemed by Secured
Party necessary or desirable to effect collection of or to realize upon the
Collateral, INCLUDING any judicial or nonjudicial foreclosure thereof or
thereon, and Grantor specifically consents to any nonjudicial foreclosure of
any or all of the Collateral or any other action taken by Secured Party which
may release any obligor
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from personal liability on any of the Collateral, and Grantor waives any
right not expressly provided for in this Agreement to receive notice of any
public or private judicial or nonjudicial sale or foreclosure of any security
or any of the Collateral; and any money or other Property received by Secured
Party in exchange for or on account of the Collateral, whether representing
collections or proceeds of Collateral, and whether resulting from voluntary
payments or foreclosure proceedings or other legal action taken by Secured
Party or Grantor may be applied by Secured Party without notice to Grantor to
the Secured Obligations in such order and manner as Secured Party in its sole
discretion shall determine; (k) to insure, process and preserve the
Collateral; (l) to exercise all rights, remedies, powers or privileges
provided under any of the Loan Documents; (m) to remove, from any premises
where the same may be located, the Collateral and any and all documents,
instruments, files and records, and any receptacles and cabinets containing
the same, relating to the Collateral, and Secured Party may, at the cost and
expense of Grantor, use such of its supplies, equipment, facilities and space
at its places of business as may be necessary or appropriate to properly
administer, process, store, control, prepare for sale or disposition and/or
sell or dispose of the Collateral or to properly administer and control the
handling of collections and realizations thereon, and Secured Party shall be
deemed to have a rent-free tenancy of any premises of Grantor for such
purposes and for such periods of time as reasonably required by Secured
Party; (n) to receive, open and dispose of all mail addressed to Grantor and
notify postal authorities to change the address for delivery thereof to such
address as Secured Party may designate; PROVIDED that Secured Party agrees
that it will promptly deliver over to Grantor such opened mail as does not
relate to the Collateral; and (o) to exercise all other rights, powers,
privileges and remedies of an owner of the Collateral; all at Secured Party's
sole option and as Secured Party in its sole discretion may deem advisable.
Grantor will, at Secured Party's request, assemble the Collateral and make it
available to Secured Party at places which Secured Party may reasonably
designate, whether at the premises of Grantor or elsewhere, and will make
available to Secured Party, free of cost, all premises, equipment and
facilities of Grantor for the purpose of Secured Party's taking possession of
the Collateral or storing same or removing or putting the Collateral in
salable form or selling or disposing of same.
Upon the occurrence and during the continuance of an Event of
Default, Secured Party also shall have the right, without notice or demand,
either in person, by agent or by a receiver to be appointed by a court (and
Grantor hereby expressly consents upon the occurrence and during the
continuance of an Event of Default to the appointment of such a receiver),
and without regard to the adequacy of any security for the Secured
Obligations, to take possession of the Collateral or any part thereof and to
collect and receive the rents, issues, profits, income and proceeds thereof.
Taking possession of the Collateral shall not cure or waive any Event of
Default or notice
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thereof or invalidate any act done pursuant to such notice. The rights,
remedies and powers of any receiver appointed by a court shall be as ordered
by said court.
Any public or private sale or other disposition of the Collateral
may be held at any office of Secured Party, or at Grantor's place of
business, or at any other place permitted by applicable Law, and without the
necessity of the Collateral's being within the view of prospective
purchasers. Secured Party may direct the order and manner of sale of the
Collateral, or portions thereof, as it in its sole and absolute discretion
may determine, and Grantor expressly waives any right to direct the order and
manner of sale of any Collateral. Secured Party or any Person on Secured
Party's behalf may bid and purchase at any such sale or other disposition.
The net cash proceeds resulting from the collection, liquidation, sale, lease
or other disposition of the Collateral shall be applied, first, to the
expenses (including reasonable attorneys' fees and disbursements) of
retaking, holding, storing, processing and preparing for sale or lease,
selling, leasing, collecting, liquidating and the like, and then to the
satisfaction of the Secured Obligations in such order as shall be determined
by Secured Party in its sole and absolute discretion. Grantor and any other
Person then obligated therefor shall pay to Secured Party on demand any
deficiency with regard thereto which may remain after such sale, disposition,
collection or liquidation of the Collateral.
Unless the Collateral is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Secured Party will send or otherwise make available to Grantor reasonable
notice of the time and place of any public sale thereof or of the time on or
after which any private sale thereof is to be made. The requirement of
sending reasonable notice conclusively shall be met if such notice is mailed,
first class mail, postage prepaid, to Grantor at its address set forth in the
Loan Agreement, or delivered or otherwise sent to Grantor, at least five (5)
days before the date of the sale.
With respect to any Collateral consisting of securities,
partnership interests, joint venture interests, limited liability company
interests, Investments or the like, and whether or not any of such Collateral
has been effectively registered under the Securities Act of 1933, as amended,
or other applicable Laws, Secured Party may, in its sole and absolute
discretion, sell all or any part of such Collateral at private sale in such
manner and under such circumstances as Secured Party may deem necessary or
advisable in order that the sale may be lawfully conducted. Without limiting
the foregoing, Secured Party may (i) approach and negotiate with a limited
number of potential purchasers, and (ii) restrict the prospective bidders or
purchasers to persons who will represent and agree that they are purchasing
such Collateral for their own account for investment and not with a view to
the distribution or resale thereof. In the event that any such Collateral is
sold at private sale, Grantor agrees that if such Collateral is sold for a
price which Secured Party in good faith believes to be
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<PAGE>
reasonable under the circumstances then existing, then (a) the sale shall be
not be deemed to be commercially unreasonable by reason of price, (b) Grantor
shall not be entitled to a credit against the Secured Obligations in an
amount in excess of the purchase price, and (c) Secured Party shall not incur
any liability or responsibility to Grantor in connection therewith,
notwithstanding the possibility that a substantially higher price might have
been realized at a public sale. Grantor recognizes that a ready market may
not exist for such Collateral if it is not regularly traded on a recognized
securities exchange, and that a sale by Secured Party of any such Collateral
for an amount substantially less than a pro rata share of the fair market
value of the issuer's assets minus liabilities may be commercially reasonable
in view of the difficulties that may be encountered in attempting to sell a
large amount of such Collateral or Collateral that is privately traded.
Upon consummation of any sale of Collateral hereunder, Secured
Party shall have the right to assign, transfer and deliver to the purchaser
or purchasers thereof the Collateral so sold. Each such purchaser at any
such sale shall hold the Collateral so sold absolutely free from any claim or
right upon the part of Grantor or any other Person, and Grantor hereby waives
(to the extent permitted by applicable Laws) all rights of redemption, stay
and appraisal which it now has or may at any time in the future have under
any rule of Law or statute now existing or hereafter enacted.
10. ATTORNEY-IN-FACT. Grantor hereby irrevocably nominates and
appoints Secured Party as their attorney-in-fact for the following purposes:
(a) to do all acts and things which Secured Party may deem necessary or
advisable to perfect and continue perfected the security interests created by
this Agreement and, upon the occurrence and during the continuance of an
Event of Default, to preserve, process, develop, maintain and protect the
Collateral; (b) upon the occurrence and during the continuance of an Event of
Default, to do any and every act which Grantor is obligated to do under this
Agreement, at the expense of the Grantor and without any obligation to do so;
(c) to prepare, sign, file and/or record, for Grantor, in the name of
Grantor, any financing statement, application for registration, or like
paper, and to take any other action deemed by Secured Party necessary or
desirable in order to perfect or maintain perfected the security interests
granted hereby; and (d) upon the occurrence and during the continuance of an
Event of Default, to execute any and all papers and instruments and do all
other things necessary or desirable to preserve and protect the Collateral
and to protect Secured Party's security interests therein; PROVIDED, HOWEVER,
that Secured Party shall be under no obligation whatsoever to take any of the
foregoing actions, and, absent bad faith or actual malice, Secured Party
shall have no liability or responsibility for any act taken or omission with
respect thereto (other than Secured Party's own gross negligence or wilful
misconduct).
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11. COSTS AND EXPENSES. Grantor agrees to pay to Secured Party
all costs and expenses (INCLUDING, without limitation, reasonable attorneys'
fees and disbursements, including allocated costs of in-house counsel),
incurred by Secured Party in the enforcement or attempted enforcement of this
Agreement, whether or not an action is filed in connection therewith, and in
connection with any waiver or amendment of any term or provision hereof. All
advances, charges, costs and expenses, INCLUDING reasonable attorneys' fees
and disbursements, incurred or paid by Secured Party in exercising any right,
privilege, power or remedy conferred by this Agreement (INCLUDING, without
limitation, the right to perform any Secured Obligation of Grantor under the
Loan Documents), or in the enforcement or attempted enforcement thereof,
shall be secured hereby and shall become a part of the Secured Obligations
and shall be paid to Secured Party by Grantor, immediately upon demand,
together with interest thereon at the Default Rate.
12. STATUTE OF LIMITATIONS AND OTHER LAWS. Until the Secured
Obligations shall have been paid and performed in full, the power of sale and
all other rights, privileges, powers and remedies granted to Secured Party
hereunder shall continue to exist and may be exercised by Secured Party at
any time and from time to time irrespective of the fact that any of the
Secured Obligations may have become barred by any statute of limitations.
Grantor expressly waives the benefit of any and all statutes of limitation,
and any and all Laws providing for exemption of property from execution or
for valuation and appraisal upon foreclosure, to the maximum extent permitted
by applicable Law.
13. OTHER AGREEMENTS. Nothing herein shall in any way modify or
limit the effect of terms or conditions set forth in any other security or
other agreement executed by Grantor or in connection with the Secured
Obligations, but each and every term and condition hereof shall be in
addition thereto. All provisions contained in the Loan Agreement or any
other Loan Document that apply to Loan Documents generally are fully
applicable to this Agreement and are incorporated herein by this reference.
14. CONTINUING EFFECT. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Grantor for liquidation or reorganization, should Grantor become insolvent or
make an assignment for the benefit of creditors or should a receiver or trustee
be appointed for all or any significant part of Grantor's assets.
15. RELEASE OF GRANTOR. This Agreement and all Secured Obligations
of Grantor hereunder shall be released when all Secured Obligations have been
paid in full in cash or otherwise performed in full and when no portion of the
Commitments remain outstanding. Upon such release of Grantor's Secured
Obligations hereunder, Secured Party shall return any pledged Collateral to
Grantor, or to the Person or
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Persons legally entitled thereto, and shall endorse, execute, deliver, record
and file all instruments and documents, and do all other acts and things,
reasonably required for the return of the Collateral to Grantor, or to the
Person or Persons legally entitled thereto, and to evidence or document the
release of Secured Party's interests arising under this Agreement, all as
reasonably requested by, and at the sole expense of, Grantor.
16. GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with and governed by the local laws of the State of California.
17. ATTORNEY'S FEES. In any action to enforce this Agreement, the
prevailing party shall be entitled to receive, in addition to any other
relief awarded by the tribunal, its attorney's fees and costs (including the
allocated fees and costs of internal counsel).
IN WITNESS WHEREOF, Grantor has executed this Agreement by its duly
authorized officer as of the date first written above.
"Grantor"
HAWKER PACIFIC AEROSPACE, a California
corporation
By:______________________________
______________________________
[Name and Title]
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ACCEPTED AND AGREED
AS OF THE DATE FIRST
ABOVE WRITTEN:
"Secured Party"
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
as Secured Party
By:_________________________
Title:_______________________
<PAGE>
PLEDGE AGREEMENT
This PLEDGE AGREEMENT ("Agreement"), dated as of January__, 1998, is
made by HAWKER PACIFIC AEROSPACE, a California corporation ("Grantor"), in favor
of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as lender under the
Loan Agreement referred to below ("Bank") with reference to the following
facts:
RECITALS
A. Pursuant to the Amended and Restated Business Loan Agreement of
even date herewith between Grantor, as borrower, and Bank (as such agreement may
from time to time be amended, extended, renewed, supplemented or otherwise
modified, the "Loan Agreement"), Bank has agreed to extend certain credit
facilities to Grantor.
B. The Loan Agreement provides, as a condition precedent to the
Bank's obligations to extend credit facilities to Grantor, that Grantor shall
enter into this Agreement, and shall pledge certain Pledged Collateral (as
defined herein) to Bank, all under the terms and conditions set forth in this
Agreement.
AGREEMENT
NOW, THEREFORE, in order to induce the Bank to extend credit
facilities to the Grantor under the Loan Agreement, and for other good and
valuable consideration, the receipt and adequacy of which hereby is
acknowledged, Grantor hereby represents, warrants, covenants, agrees, and
pledges as follows:
1. DEFINITIONS. Terms defined in the Loan Agreement and not otherwise
defined in this Agreement shall have the meanings given those terms in the Loan
Agreement as though set forth herein in full. The following terms shall have
the meanings respectively set forth after each:
"CERTIFICATES" means all certificates, instruments or other documents
now or hereafter representing or evidencing any Pledged Securities.
"PLEDGED COLLATERAL" means (i) any and all property of Grantor now or
hereafter pledged and delivered to Bank, (ii) the Pledged Securities and
the Certificates representing or evidencing same, and (iii) the
Intercompany Note, and any and all proceeds and products of any of the
foregoing, and any and all
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collections, dividends, distributions, redemption payments or
liquidation payments with respect to any of the foregoing, EXCEPT
dividends or distributions actually paid to the Grantor as
permitted under the terms of the Loan Agreement.
"PLEDGED SECURITIES" means (i) all shares of capital stock of Hawker
Pacific Aerospace Limited, an English company ("HP UK"), owned by Grantor;
(ii) any and all securities now or hereafter issued in substitution,
exchange or replacement therefor, or with respect thereto; (iii) any and
all warrants, options or other rights to subscribe to or acquire any
additional capital stock of HP UK; and (iv) any and all additional capital
stock of HP UK.
2. REPRESENTATIONS AND WARRANTIES.
(a) INCORPORATION OF TERMS. This Agreement is one of the Loan
Documents referred to in the Loan Agreement. All provisions contained in the
Loan Agreement that are applicable to the Loan Documents generally are fully
applicable to this Agreement and are incorporated herein by this reference as
though set forth in full.
(b) REPRESENTATIONS AND WARRANTIES OF GRANTOR. Grantor represents,
warrants and agrees that: (i) it has good title to the Pledged Collateral, free
from any liens, leases, encumbrances, defenses or other claims or restrictions
whatsoever; (ii) the security interest in the Pledged Collateral created hereby
constitutes a first, prior, and indefeasible security interest with respect to
such collateral; (iii) it has the right to transfer the Pledged Collateral
pursuant to this Agreement without restriction, and such collateral has been
duly and validly pledged to Bank in accordance with law; (iv) it shall provide
such additional endorsements, forms and writings and execute all documents and
take such other action as Bank deems necessary to create and perfect a security
interest in the Pledged Collateral or as Bank may at any time reasonably request
in connection with the administration or enforcement of this Agreement or the
administration of the Pledged Collateral.
3. CREATION OF SECURITY INTEREST.
(a) PLEDGE OF PLEDGED COLLATERAL. Grantor hereby pledges to Bank and
grants to Bank a security interest in and to all Pledged Collateral, together
with all products, proceeds, dividends, redemption payments, liquidation
payments, cash, instruments and other property, and any and all rights, titles,
interests, privileges, benefits and preferences appertaining or incidental to
the Pledged Collateral. The security interest and pledge created by this
Agreement shall continue in effect so long as any obligation is owed to Bank by
Grantor under the Loan Agreement.
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<PAGE>
(b) DELIVERY OF CERTAIN PLEDGED COLLATERAL. On or before the Closing
Date, Grantor shall pledge and deliver the Certificates representing 100% of the
issued and outstanding capital stock of HP UK, to Bank.
Following the Closing Date, additional Pledged Collateral may from
time to time be delivered to Bank as required pursuant to the Loan Agreement and
hereunder. All Certificates at any time delivered to Bank shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Bank. Bank shall hold all Certificates pledged hereunder
pursuant to this Agreement.
4. SECURITY FOR OBLIGATIONS. This Agreement and the pledge and security
interest granted herein secure the prompt payment, in full in cash, and full
performance of, all obligations of Grantor under the Loan Agreement and the
other Loan Documents.
5. FURTHER ASSURANCES. Grantor agrees that at any time, and from time to
time, at its own expense Grantor will promptly execute, deliver and file or
record all further financing statements, instruments and documents, and will
take all further actions that may be necessary or desirable, or that Bank
reasonably may request, in order to perfect and protect any pledge or security
interest granted hereby or to enable Bank to exercise and enforce its rights and
remedies hereunder with respect to any Pledged Collateral and to preserve,
protect and maintain the Pledged Collateral and the value thereof, including,
without limitation, payment of all taxes, assessments and other charges imposed
on or relating to the Pledged Collateral. Grantor hereby consents and agrees
that the issuers of, or obligors on, the Pledged Collateral, or any registrar or
transfer agent or trustee for any of the Pledged Collateral, shall be entitled
to accept the provisions of this Agreement as conclusive evidence of the right
of Bank to effect any transfer or exercise any right hereunder, notwithstanding
any other notice or direction to the contrary heretofore or hereafter given by
Grantor or any other Person to such issuers or such obligors or to any such
registrar or transfer agent or trustee.
6. VOTING RIGHTS; DIVIDENDS; ETC. So long as no Event of Default under
the Loan Agreement occurs and remains continuing:
(a) VOTING RIGHTS. Grantor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged Securities, or any
part thereof, for any purpose not inconsistent with the terms of this Agreement,
the Loan Agreement, or the other Loan Documents; PROVIDED, HOWEVER, that Grantor
shall not exercise, or shall refrain from exercising, any such right if it would
result in a default or an Event of Default under the Loan Agreement.
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<PAGE>
(b) DIVIDEND AND DISTRIBUTION RIGHTS. Grantor shall be entitled to
receive and to retain and use only those dividends or distributions paid to
Grantor with respect to the Pledged Securities as permitted under the terms of
the Loan Agreement; PROVIDED, HOWEVER, that any and all such dividends or
distributions received in the form of capital stock shall be, and the
Certificates representing such capital stock forthwith shall be, delivered to
Bank to hold as Pledged Collateral and shall, if received by Grantor, be
received in trust for the benefit of Bank, be segregated from the other property
of Grantor, and forthwith be delivered to Bank as Pledged Collateral in the same
form as so received (with any necessary endorsements).
7. RIGHTS DURING EVENT OF DEFAULT. When an Event of Default under the
Loan Agreement or this Agreement has occurred and is continuing:
(a) VOTING, DIVIDEND, AND DISTRIBUTION RIGHTS. At the option of
Bank, all rights of Grantor to exercise the voting and other consensual rights
which it would otherwise be entitled to exercise pursuant to Section 6(a) above,
and to receive the dividends and distributions which it would otherwise be
authorized to receive and retain pursuant to Section 6(b) above, shall cease,
and all such rights shall thereupon become vested in Bank who shall thereupon
have the sole right to exercise such voting and other consensual rights and to
receive and to hold as Pledged Collateral such dividends and distributions.
Bank shall give notice thereof to Grantor; PROVIDED, HOWEVER, that (i) neither
the giving of such notice nor the receipt thereof by Grantor shall be a
condition to exercise of any rights of Bank hereunder, and (ii) Bank shall incur
no liability for failing to give such notice.
(b) DIVIDENDS AND DISTRIBUTIONS HELD IN TRUST. All dividends and
other distributions which are received by Grantor contrary to the provisions of
the Loan Agreement or this Agreement shall be received in trust for the benefit
of Bank, shall be segregated from other funds of Grantor, and forthwith shall be
paid over to Bank as Pledged Collateral in the same form as so received (with
any necessary endorsements).
(c) IRREVOCABLE PROXY. Grantor hereby revokes all previous proxies
with regard to the Pledged Securities and appoints Bank as its proxyholder to
attend and vote at any and all meetings of the shareholders of the corporations
which issued the Pledged Securities, and any adjournments thereof, held on or
after the date of the giving of this proxy and prior to the termination of this
proxy and to execute any and all written consents of shareholders of such
corporations executed on or after the date of the giving of this proxy and prior
to the termination of this proxy, with the same effect as if Grantor had
personally attended the meetings or had personally voted their shares or had
personally signed the written consents; PROVIDED, HOWEVER, that the proxyholder
shall have rights hereunder only upon the occurrence and during the
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continuance of an Event of Default under the Loan Agreement, and that Bank
shall have instructed the proxyholder to exercise voting rights with
respect to the Pledged Securities or any of them. Grantor hereby
authorizes Bank to substitute another person as the proxyholder and,
upon the occurrence or during the continuance of any Event of Default
under the Loan Agreement, hereby authorizes and directs the proxyholder
to file this proxy and the substitution instrument with the secretary of
the appropriate corporation. This proxy is coupled with an interest and
is irrevocable until such time as all Secured Obligations have been paid
and performed in full.
8. TRANSFERS AND OTHER LIENS. Grantor agrees that, except as not
prohibited under the Loan Documents, it will not (i) sell, assign, exchange,
transfer or otherwise dispose of, or contract to sell, assign, exchange,
transfer or otherwise dispose of, or grant any option with respect to, any of
the Pledged Collateral, (ii) create or permit to exist any lien upon or with
respect to any of the Pledged Collateral, except for liens in favor of Bank, or
(iii) take any action with respect to the Pledged Collateral which is
inconsistent with the provisions or purposes of this Agreement or any other Loan
Document.
9. BANK APPOINTED ATTORNEY-IN-FACT. After the occurrence and during the
continuance of an Event of Default under the Loan Agreement, Grantor hereby
irrevocably appoints Bank as Grantor's attorney-in-fact, with full authority in
the place and stead of Grantor, and in the name of Grantor, or otherwise, from
time to time, in Bank's sole and absolute discretion to do any of the following
acts or things: (a) to do all acts and things and to execute all documents
necessary or advisable to perfect and continue perfected the security interests
created by this Agreement and to preserve, maintain and protect the Pledged
Collateral; (b) to do any and every act which Grantor is obligated to do under
this Agreement; (c) to prepare, sign, file and record, in Grantor's name, any
financing statement covering the Pledged Collateral; and (d) to endorse and
transfer the Pledged Collateral upon foreclosure by Bank; PROVIDED, HOWEVER,
that Bank shall be under no obligation whatsoever to take any of the foregoing
actions, and Bank shall have no liability or responsibility for any act (other
than Bank's own gross negligence or willful misconduct) or omission taken with
respect thereto. Grantor hereby agrees to repay immediately upon demand all
reasonable costs and expenses incurred or expended by Bank in exercising any
right or taking any action under this Agreement, together with interest as
provided for in the Loan Agreement.
10. BANK MAY PERFORM OBLIGATIONS. If Grantor fails to perform any
obligation contained herein, Bank may, but without any obligation to do so and
without notice to or demand upon Grantor, perform the same and take such other
action as Bank may deem necessary or desirable to protect the Pledged Collateral
or Bank's security interests therein, Bank being hereby authorized (without
limiting the
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general nature of the authority hereinabove conferred) to pay, purchase,
contest and compromise any lien which in the reasonable judgment of Bank
appears to be prior or superior to Bank's security interests, and in
exercising any such powers and authority to pay necessary expense, employ
counsel and pay reasonable attorneys' fees. Grantor hereby agrees to repay
immediately upon demand all sums so expended by Bank, together with interest
from the date of expenditure at the rates provided for in the Loan Agreement.
Bank shall not be under any duty or obligation to (i) preserve, maintain or
protect the Pledged Collateral or any of any Grantor's rights or interest
therein, (ii) exercise any voting rights with respect to the Pledged
Collateral, whether or not an Event of Default under the Loan Agreement has
occurred or is continuing, or (iii) make or give any notices of default,
presentments, demands for performance, notices of nonperformance or dishonor,
protests, notices of protest or notice of any other nature whatsoever in
connection with the Pledged Collateral on behalf of Grantor or any other
Person having any interest therein; and Bank does not assume and shall not be
obligated to perform the obligations of Grantor, if any, with respect to the
Pledged Collateral.
11. REASONABLE CARE. Bank shall in all events be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially similar to that which Bank accords its own property, it being
understood that Bank shall not have any responsibility for (i) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relative to any Pledged Collateral, whether or not Bank has or
is deemed to have knowledge of such matters, or (ii) taking any necessary steps
to preserve rights against any Person with respect to any Pledged Collateral.
12. EVENTS OF DEFAULT AND REMEDIES.
(a) RIGHTS UPON EVENT OF DEFAULT. Upon the occurrence and during the
continuance of an Event of Default under the Loan Agreement, Grantor shall be in
default hereunder and Bank shall have in any jurisdiction where enforcement is
sought, in addition to all other rights and remedies that Bank may have under
this Agreement and under applicable law or in equity, all of its rights and
remedies as a secured party under the Uniform Commercial Code as enacted in any
such jurisdiction, and in addition the following rights and remedies, all of
which may be exercised with or without further notice to Grantor:
(1) to notify any issuer of any Pledged Securities, and any and
all other issuers of or obligors on any Pledged Collateral, that the same
has been pledged to Bank and that all dividends and other payments thereon
are to be made directly and exclusively to Bank; to renew, extend, modify,
amend,
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accelerate, accept partial payments on, make allowances and
adjustments and issue credits with respect to, release, settle,
compromise, compound, collect or otherwise liquidate, on terms
acceptable to Bank, in whole or in part, the Pledged Collateral and
any amounts owing thereon or any guaranty or security therefor; to
enter into any other agreement relating to or affecting the Pledged
Collateral; and to give all consents, waivers and ratification with
respect to the Pledged Collateral and exercise all other rights
(including voting rights), powers and remedies and otherwise act
with respect thereto as if Bank were the owner thereof;
(2) to enforce payment and prosecute any action or proceeding
with respect to any and all of the Pledged Collateral and take or bring, in
Bank's name or in the name of Grantor, all steps, actions, suits or
proceedings deemed by Bank necessary or desirable to effect collection of
or to realize upon the Pledged Collateral;
(3) in accordance with applicable law, to take possession of and
operate or control the Pledged Collateral with or without judicial process;
(4) to endorse, in the name of Grantor, all checks, notes,
drafts, money orders, instruments and other evidences of payment relating
to the Pledged Collateral;
(5) to transfer any or all of the Pledged Collateral into the
name of Bank or its nominee or nominees; and
(6) in accordance with applicable law, to foreclose the liens
and security interests created under this Agreement or under any other
agreement relating to the Pledged Collateral by any available judicial
procedure or without judicial process, and to sell, assign or otherwise
dispose of the Pledged Collateral or any part thereof, either at public or
private sale or at any broker's board or securities exchange, in lots or in
bulk, for cash, on credit or on future delivery, or otherwise, with or
without representations or warranties, and upon such terms as shall be
acceptable to Bank;
all at the sole option of and in the sole discretion of Bank.
(b) NOTICE OF SALE. Bank shall give Grantor at least five (5) days'
written notice of sale of all or any part of the Pledged Collateral. Any sale
of the Pledged Collateral shall be held at such time or times and at such place
or places as Bank may determine in the exercise of their sole and absolute
discretion. Bank may bid (which bid may be, in whole or in part, in the form of
cancellation of Secured Obli-
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gations) for and purchase for the account of Bank or any nominee of Bank the
whole or any part of the Pledged Collateral. Bank shall not be obligated to
make any sale of the Pledged Collateral if it shall determine not to do so
regardless of the fact that notice of sale of the Pledged Collateral may have
been given. Bank may, without notice or publication, adjourn the sale from
time to time by announcement at the time and place fixed for sale, and such
sale may, without further notice, be made at the time and place to which the
same was so adjourned.
(c) PRIVATE SALES. Whether or not any of the Pledged Collateral has
been effectively registered under the Securities Act of 1933 or other applicable
laws, Bank may, in its sole and absolute discretion, sell all or any part of the
Pledged Collateral at private sale in such manner and under such circumstances
as Bank may deem necessary or advisable. Without limiting the foregoing, Bank
may (i) approach and negotiate with a limited number of potential purchasers,
and (ii) restrict the prospective bidders or purchasers to persons who will
represent and agree that they are purchasing the Pledged Collateral for their
own account for investment and not with a view to the distribution or resale
thereof. In the event that any of the Pledged Collateral is sold at private
sale, Grantor agrees that if the Pledged Collateral is sold for a price which
Bank in good faith believe to be reasonable, then (A) the sale shall be deemed
to be commercially reasonable in all respects, (B) Grantor shall not be entitled
to a credit against the Secured Obligations in an amount in excess of the
purchase price, and (C) Bank shall not incur any liability or responsibility to
Grantor in connection therewith, notwithstanding the possibility that a
substantially higher price might have been realized at a public sale. Grantor
recognizes that a ready market may not exist for Pledged Collateral which is not
regularly traded on a recognized securities exchange, and that a sale by Bank of
any such Pledged Collateral for an amount substantially less than a pro rata
share of the fair market value of the issuer's assets minus liabilities may be
commercially reasonable in view of the difficulties that may be encountered in
attempting to sell a large amount of Pledged Collateral or Pledged Collateral
that is privately traded.
(d) TITLE OF PURCHASERS. Upon consummation of any sale of Pledged
Collateral pursuant to this Section 12, Bank shall have the right to assign,
transfer and deliver to the purchaser or purchasers thereof the Pledged
Collateral so sold. Each such purchaser at any such sale shall hold the Pledged
Collateral sold absolutely free from any claim or right on the part of Grantor,
and Grantor hereby waives (to the extent permitted by applicable law) all rights
of redemption, stay and appraisal which they now have or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
If the sale of all or any part of the Pledged Collateral is made on credit or
for future delivery, Bank shall not be required to apply any portion of the sale
price to the Secured Obligations until such amount actually is received by Bank,
and any Pledged Collateral so sold may be retained by Bank until
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the sale price is paid in full by the purchaser or purchasers thereof. Bank
shall not incur any liability in case any such purchaser or purchasers shall
fail to pay for the Pledged Collateral so sold, and, in case of any such
failure, the Pledged Collateral may be sold again upon like notice.
(e) DISPOSITION OF PROCEEDS OF SALE. The net cash proceeds resulting
from the collection, liquidation, sale or other disposition of the Pledged
Collateral shall be applied, FIRST, to the reasonable costs and expenses
(including reasonable attorneys: fees) of retaking, holding, storing, processing
and preparing for sale, selling, collecting and liquidating the Pledged
Collateral, and the like; SECOND, to the satisfaction of all Secured
Obligations, with application as to any particular Secured Obligations to be in
the order set forth in the Loan Agreement or other Loan Documents; and, THIRD,
to all other indebtedness secured hereby in such order and manner as Bank in its
sole and absolute discretion may determine.
13. OTHER AGREEMENTS. Nothing herein shall in any way modify or limit the
effect of terms or conditions set forth in any other security or other agreement
in connection with the Secured Obligations, whether or not executed by the
Grantor, but each and every term and condition hereof shall be in addition
thereto.
14. COVENANT NOT TO ISSUE UNCERTIFICATED SECURITIES. Grantor represents
and warrants to Bank that all of the capital stock of and each of its Affiliates
that is a corporation is in certificated form (as contemplated by Article 8 of
the Uniform Commercial Code as enacted in California), and covenants to Bank
that it will not cause or permit any Affiliate to issue any capital stock in
uncertificated form or seek to convert all or any part of its existing capital
stock into uncertificated form (as contemplated by Article 8 of the Uniform
Commercial Code as enacted in California).
15. COVENANT NOT TO DILUTE INTERESTS OF BANK IN PLEDGED SECURITIES.
Grantor represents, warrants and covenants to Bank that it will not at any time
cause or permit any corporation whose securities constitute Pledged Collateral
to issue any additional capital stock, or any warrants, options or other rights
to acquire any additional capital stock PROVIDED that Grantor may cause or
permit management of Grantor to receive capital stock of Grantor and options to
acquire the same provided that concurrently with the issuance thereof the same
are delivered in pledge to the Bank hereunder.
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<PAGE>
IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly
executed as of the date first above written.
"Grantor"
HAWKER PACIFIC AEROSPACE, a California
corporation
By:______________________________
______________________________
Printed Name and Title
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<PAGE>
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (the "AGREEMENT"), dated as of January __,
1998, is entered into by and among HAWKER PACIFIC AEROSPACE, a California
corporation ("BORROWER"), HAWKER PACIFIC AEROSPACE LIMITED, an English company
("HP UK"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BANK"),
MELANIE L. BASTIAN ("BASTIAN"), and UNIQUE INVESTMENTS CORPORATION, a Utah
corporation ("UNIQUE").
RECITALS
A. Pursuant to the Amended and Restated Business Loan Agreement of
even date herewith between Borrower and Bank (as at any time amended, the
"SENIOR LOAN AGREEMENT"), Bank is providing certain credit facilities to
Borrower.
B. Using the proceeds of a $6,500,000 subordinated loan from Bastian
(the "Bastian Loan"), Unique has heretofore made a $6,500,000 subordinated
loan to Borrower (the "Unique Loan"). Concurrently herewith, Unique will
receive a $1,500,000 principal repayment with respect to the Unique Loan from
Borrower and shall use such funds to make a $1,500,000 principal payment to
Bastian.
C. The remaining balance of $5,000,000 under the Bastian Loan shall be
evidenced by an Amended and Restated Subordinated Promissory Note of even
date herewith made by Unique in favor of Bastian (as in effect on the date of
this Agreement, the "BASTIAN NOTE"), a copy of which is attached hereto as
Exhibit A. The remaining balance of $5,000,000 under the Unique Loan shall
be evidenced by an Amended and Restated Subordinated Promissory Note of even
date herewith made by Borrower in favor of Unique (as in effect on the date
of this Agreement, the "UNIQUE NOTE"), a copy of which is attached hereto as
Exhibit B.
D. It is a condition precedent to the making of the loans under the
Senior Loan Agreement that Bastian and Unique enter into this Agreement, and
thereby subordinate the Bastian Loan, the Unique Loan and certain other
"Subordinated Debt" described herein to the obligations evidenced by the
Senior Loan Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS AND CONSTRUCTIONS. As used herein, the following terms shall
have the definitions set forth after each:
"ASSETS" means any interest of Borrower or HP UK in any kind of
property or asset, whether real, personal or mixed real and personal, or
whether tangible or intangible.
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<PAGE>
"BANKRUPTCY CODE" means Title 11 of the United States Code, as
amended from time to time, or any successor statute.
"BORROWER" shall include both Hawker Pacific Aerospace and any
other person at any time assuming or otherwise becoming primarily liable for
all or any part of the obligations of Borrower under the Senior Loan
Documents, including without limitation any trustee or debtor-in-possession
in any bankruptcy or similar proceeding involving Borrower or such survivor.
"CODE" means the Uniform Commercial Code as codified in the State
of California or as codified in any other state the laws of which are
required by Section 9-103 thereof to be applied in connection with the issue
of perfection of security interests, as such statutes are in effect during
the term hereof. All terms used in this Agreement which are defined in the
Code shall be construed and defined in accordance with the meaning and
definition ascribed to such terms under the Code, unless another meaning is
specifically provided herein.
"COLLATERAL" means Assets with respect to which any Senior Creditor
or any Subordinated Creditor has a Lien.
"DISTRIBUTION OF ASSETS" means any distribution of Assets of any
kind or character, whether in cash, property, or securities, and whether in
respect of repayment of indebtedness or otherwise, including, but not limited
to, adequate protection payments under the Bankruptcy Code.
"HP UK" shall include both Hawker Pacific Aerospace Limited and any
other person at any time assuming or otherwise becoming primarily liable for
all or any part of the obligations of HP UK under the Senior Loan Documents,
including without limitation any trustee or debtor-in-possession in any
bankruptcy or similar proceeding involving HP UK or such survivor.
"LIEN" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, security interest, charge or
other encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to
give any security interest) and any agreement to give or refrain from giving
a lien, mortgage, pledge, hypothecation, assignment, deposit arrangement,
security interest, charge or other encumbrance of any kind.
"PERSON" means any natural person, sole proprietorship, general
partnership, limited partnership, joint venture, trust, unincorporated
organization, association, corporation, public authority, or any other
organization, irrespective of whether it is a legal entity.
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<PAGE>
"SENIOR DEBT" means (i) all obligations of Borrower or any of its
Subsidiaries arising under or in connection with the Senior Loan Agreement or
any other Senior Loan Document; (ii) all obligations owed pursuant to any
interest rate or currency hedging arrangements or other derivative contracts
entered into with the Bank; (iii) all obligations of HP UK arising under or
in connection with the Intercompany Note referred to in the Loan Agreement,
and (iv) all renewals, extensions, refinancings, refundings, amendments,
restatements, supplements, and modifications of all of the foregoing
obligations.
"SENIOR DEFAULT" means any "Event of Default" as defined in the
Senior Loan Agreement.
"SENIOR LOAN DOCUMENTS" means the "Loan Documents" as defined in
the Senior Loan Agreement.
"SUBORDINATED CREDITORS" means Unique, Bastian, and any other
present or future holder of any Subordinated Debt.
"SUBORDINATED DEBT" means all indebtedness, claims, debts,
liabilities, or obligations (i) of Borrower arising under or in connection
with the Unique Note, (ii) of Unique arising under or in connection with the
Bastian Note, and (iii) of Borrower or HP UK otherwise owing to any
Subordinated Creditor of any kind whatsoever; in each case whatever nature,
character or description, and whether presently existing or arising
hereafter, including without limitation, all management and similar fees, all
contract and tort claims that a Subordinated Creditor may have in connection
therewith; together with interest and fees accruing thereon and costs and
expenses (including attorneys' fees and expenses) of collection thereof, and
all renewals, extensions, refinancings, refundings, amendments, restatements,
supplements, and modifications thereof.
2. SUBORDINATION.
2.1 DEBT. Each Subordinated Creditor covenants and agrees that all
payments of the Subordinated Debt shall be subordinated and junior in all
respects to the prior payment in full, in cash, of all Senior Debt except
that interest may be paid with respect to the Subordinated Debt and Permitted
Management Fees (as defined in the Loan Agreement) in accordance with Section
2.3 hereof. No Subordinated Creditor shall have or assert any claim with
respect to the Subordinated Debt until the payment in full and in cash of the
Senior Debt, except as explicitly permitted by Section 2.3 of this Agreement.
2.2 LIENS. Each Subordinated Creditor covenants and agrees that the
Subordinated Debt shall remain unsecured at all times; and that any lien or
security interest created in favor of such Subordinated Creditor
notwithstanding this Agreement
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<PAGE>
shall be (a) held by such Subordinated Creditor in trust for the exclusive
benefit of Bank and the holders, from time to time, of the Senior Loan
Documents, and (b) terminated and released, or at Bank's election assigned to
Bank, immediately upon the demand of Bank and pursuant to documentation
satisfactory to Bank.
2.3 PERMITTED PAYMENTS. Notwithstanding the subordination of the
Subordinated Debt to the Senior Debt hereunder, (x) Unique may pay and
Bastian may accept scheduled payments of accrued interest coming due under
the Bastian Note, to the extent funded from payments to Unique permitted by
this Section 2.3; and (y) Borrower may pay and Unique may accept scheduled
monthly payments of accrued interest coming due under the Unique Note,
provided that:
(i) no such payment shall be made at any time after the occurrence
and during the pendency of any Senior Default or any of the other
prohibitions described in either Section 2.4.1 or Section 2.4.2;
(ii) the initial payment shall be made with respect to the calendar
month of March, 1998; and
(iii) Permitted Management Fees may be paid when no Senior Default
exists.
2.4 PRIORITY AND PAYMENT OVER OF PROCEEDS IN CERTAIN EVENTS.
2.4.1 SUBORDINATION ON DISSOLUTION, LIQUIDATION OR REORGANIZATION
OF BORROWER. Upon any Distribution of Assets in the event of any
dissolution or winding up or total or partial liquidation or
reorganization, whether voluntary or involuntary, or adjustment or
protection or relief or composition of Borrower or any of its Subsidiaries,
or of Borrower's or its Subsidiaries' debts, or in any bankruptcy,
insolvency, receivership, arrangement, reorganization, relief or other
proceeding of Borrower or its Subsidiaries, or upon an arrangement for the
benefit of creditors of Borrower or its Subsidiaries or any other
marshaling of the assets and liabilities of Borrower or its Subsidiaries:
(a) all amounts payable under or on account of the Senior Debt
shall first be paid in full, in cash or payment provided for in cash,
before the holders of Subordinated Debt shall be entitled to receive
any Distribution of Assets; and
(b) before any payment may be made on account of the
Subordinated Debt, any such Distribution of Assets to which Bastian
would be entitled, except for the provisions of this Section 2.4.1,
shall be made directly to Bank to the extent necessary to pay all
Senior Debt in full, in cash, after giving effect to any concurrent
payment or distribution
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<PAGE>
to Bank. In the case of a non-cash Distribution of Assets with
respect to the Subordinated Debt which is delivered to Bank under
this Section 2.4.1, the Senior Debt shall be deemed satisfied in the
amount equal to the cash realized by Bank upon disposition of such
Distribution of Assets; until such disposition, the non-cash
Distribution of Assets shall be held as security for the Senior Debt.
Bank shall have no duty hereunder to sell or otherwise reduce to cash
any non-cash Distribution of Assets turned over by any Subordinated
Creditor in accordance with this Section 2.4.1 and shall have no
liability to any Subordinated Creditor with respect to any such sale
or other disposition, under the Code or otherwise, except for
liability arising from Bank's willful misconduct or gross negligence,
and such sale or other disposition shall not affect Bank's rights and
remedies hereunder.
Borrower and HP UK shall give prompt written notice to Bank and Bastian of
any Distribution of Assets of the nature described in this Section.
Bank is hereby irrevocably authorized and empowered (in its own
name or in the name of any or all Subordinated Creditors or otherwise), but
shall have no obligation, to demand, sue for, collect and receive every
Distribution of Assets and give acquittance therefor and to file claims and
proofs of claim in respect of the Subordinated Debt and take such other
action (including, without limitation, voting the Subordinated Debt or
enforcing any Lien securing payment of the Subordinated Debt) on behalf of
any or all Subordinated Creditors as it may deem necessary or advisable for
the exercise or enforcement of any of its rights or interests hereunder.
Each Subordinated Creditor shall promptly take such action as Bank may
request (i) to collect the Subordinated Debt for the account of Bank and to
file appropriate claims or proofs of claim in respect of the Subordinated
Debt; (ii) to execute and deliver to Bank such powers of attorney,
assignments, or other instruments as it. may request in order to enable it
to enforce any and all claims with respect to, and any Liens securing
payment of, the Subordinated Debt, and (iii) to collect and receive any and
all Distribution of Assets which may be payable or deliverable upon or with
respect to the Subordinated Debt.
2.4.2 SUBORDINATION ON SENIOR DEFAULT. If a Senior Default has
occurred and is continuing, no Subordinated Creditor may receive payment
under or on account of the Subordinated Debt, directly or indirectly, in
cash or other property or by set-off or in any other manner, commencing
upon the date of receipt by such Subordinated Creditor from Bank of a
notice of the Senior Default or its actual notice thereof. The prohibition
on Subordinated Debt payments shall end on the earlier of (a) the waiver of
the Senior Default by Bank, or (b) the cure of the Senior Default to the
satisfaction of Bank. Immediately following the termination of any such
prohibition, all payments of
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Subordinated Debt which, but for such prohibition, each Subordinated
Creditor would have been entitled to receive, shall be immediately due
and payable, to the extent not otherwise prohibited or limited by the
terms hereof.
3. FORBEARANCE AND STANDSTILL.
3.1 Until the Senior Debt is paid in full, in cash and the Senior
Loan Agreement is terminated or expires, or unless requested by Bank, no
Subordinated Creditor shall, without Bank's prior written consent, such
consent to be given or withheld in Bank's sole and absolute discretion: (a)
assert, collect or enforce the Subordinated Debt or any of the amounts due
thereunder, or exercise any right of set-off; (b) exercise its right of
possession of any Collateral or attach, seize, or realize upon any Collateral
or enforce any Lien against the Assets; (c) exercise any right under the
Code, including, but not limited to, the right of strict foreclosure, but
excluding the right of redemption; or (d) commence, or cause to commence,
prosecute or participate in (other than participate in an action, once
commenced, to protect and pursue its rights and remedies as, for example,
exercising its rights in a bankruptcy proceeding as described in Section 8
hereof) any administrative, legal or equitable action against Borrower or HP
UK or any administrative, legal or equitable action that might adversely
affect Borrower or HP UK or their respective interests, including, but not
limited to, the entry of a decree or order for relief in respect of either
Borrower or HP UK under Bankruptcy Code or any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect or the appointment
of a receiver, liquidator, custodian, trustee, sequestrator or similar
official of either Borrower or HP UK or for any substantial part of the
Assets, the commencement by either Borrower or HP UK of a voluntary case
under Bankruptcy Code or any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by either company to
the entry of an order for relief in an involuntary case under any such law,
or the consent by either company to the appointment of, or taking possession
by, a receiver, liquidator, trustee, custodian, sequestrator (or similar
official) or any of them for any substantial part of the Assets, or either
company's admission in writing of its inability to pay its debts generally,
or the making of any general assignment for the benefit of creditors, or the
failure generally by either company to pay its debts as they become due, or
the taking by either company of any action in furtherance of any of the
foregoing.
3.2 If any Subordinated Creditor, other than in accordance with
this Section 3, commences, prosecutes or participates in any suit, action or
proceeding against Borrower or HP UK or takes any other action in violation
of this Section 3, either company may interpose as a defense or a dilatory
plea the making of this Agreement and Bank may intervene and interpose such
defense or plea in such company's name.
3.3 Each Subordinated Creditor jointly and severally agrees that
it shall reimburse Bank upon demand for all fees and expenses Bank incurs in
connection
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<PAGE>
with any breach by any Subordinated Creditor of this Section 3, including,
but not limited to, the fees and expenses incurred in removing from a
Subordinated Creditor's possession any Collateral or other Assets held in
breach of this Section 3.
4. DISPOSITION OF COLLATERAL. Upon any foreclosure upon, or
realization or collection in respect of any Collateral, all Senior Debt shall
first be satisfied in full in cash before any Subordinated Creditor shall be
entitled to receive or retain any proceeds or assets from such foreclosure,
realization or collection.
5. PAYMENTS AND/OR PROPERTY HELD IN TRUST. If (a) any payment or any
cash or noncash distribution is made to any Subordinated Creditor in
violation of this Agreement or (b) any cash or other property is received by
any Subordinated Creditor upon any disposition or other action with respect
to any of the Collateral, including, but not limited to, converting accounts
receivable, instruments and chattel paper to cash, in violation of this
Agreement, before the Senior Debt is paid in full, in cash, then such
Subordinated Creditor shall receive the same in trust for Bank's benefit and
shall forthwith remit it to Bank in the form in which it was received,
together with such endorsements or documents as may be necessary to
effectively negotiate or transfer the same, to the extent necessary to pay in
full, in cash, the Senior Debt, after giving effect to any other payment or
distribution with respect to the Senior Debt.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS. Each Subordinated
Creditor represents and warrants that it has not entered into any
subordination agreement with respect to the Subordinated Debt prior to the
execution and delivery of this Agreement. Each Subordinated Creditor
covenants not to enter into any subordination agreement with respect to the
Subordinated Debt without Bank's prior written consent, to be given or
withheld in Bank's sole and absolute discretion. Any such subsequent
subordination shall be, and shall be expressed to be, subject and subordinate
to the terms of this Agreement. Each Subordinated Creditor represents and
warrants that it has not previously assigned any interest in the Subordinated
Debt, that no other Person (whether as a joint holder of the Subordinated
Debt, participant or otherwise) owns any interest in the Subordinated Debt.
7. RIGHTS OF BANK NOT TO BE IMPAIRED, ETC.
7.1 No right of Bank to enforce the subordination and other terms
and conditions provided herein shall at any time in any way be prejudiced or
impaired by any act or failure to act by Bank, or by any non-compliance by
Borrower with the terms and provisions and covenants herein, regardless of
any knowledge thereof Bank may have or with which Bank may otherwise be
charged. Bank shall not be prejudiced in its right to enforce the
subordination and other terms and conditions of the Subordinated Debt by any
act or failure to act by Borrower, any Subordinated Creditor or any other
Person in custody of any of the Assets.
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<PAGE>
7.2 Without limiting the generality of the foregoing, each
Subordinated Creditor, for the benefit of Bank, waives any right it may have
to require Bank to (a) proceed against any Person, including Borrower and HP
UK; (b) proceed against or exhaust any security held from Borrower or HP UK,
or any other Person; or (c) pursue any other remedy in Bank's power.
7.3 Each Subordinated Creditor further waives, for the benefit of
Bank, any defense or cause of action based upon or arising by reason of (a)
any disability or other defense of Borrower or HP UK or any other Person; (b)
the cessation or limitation from any cause whatsoever, other than payment in
full, of the Senior Debt; (c) any lack of authority of any officer, director,
partner, agent or any other Person acting or purporting to act on behalf of
Borrower or HP UK; (d) any act or omission by Bank which directly or
indirectly results in or aids the discharge of Borrower or HP UK from any
Senior Debt by operation of-law or otherwise; (e) any failure by Bank or its
agents to use reasonable care in the custody and preservation of Collateral
in the possession of Bank or its agents which directly or indirectly impairs
or diminishes the value of the Liens securing the Subordinated Debt; (f) any
failure by Bank to give notice to any Subordinated Creditor of a proposed
sale of any of the Collateral or to conduct a commercially reasonable sale of
any of the collateral; or (g) any failure by Bank or its agents to fulfill
any duty which may be owed to or asserted by any Subordinated Creditor with
respect to any of the Collateral.
7.4 Each Subordinated Creditor agrees that Bank shall have the
right to apply the proceeds of any disposition of Collateral in the manner
Bank determines, in its sole and absolute discretion, including, but not
limited to, payment of obligations of Borrower to Persons other than Bank and
the Subordinated Creditors, prior to full satisfaction of the Senior Debt and
the Subordinated Debt.
7.5 Each Subordinated Creditor agrees that (a) Bank shall have no
obligation to marshal any Collateral in favor of any Person; and (b) Bank
shall not be liable to any Subordinated Creditor for any action or failure to
act in exercising its rights and remedies under this Agreement, the Senior
Loan Documents or against any of the Collateral. Each Subordinated Creditor
further agrees, for the benefit of Bank, not to commence or prosecute any
cause of action against Bank with respect to the Collateral, any duty of Bank
to such Subordinated Creditor or otherwise arising with respect to the
Subordinated Debt or this Agreement for which the waivers contained herein
are not effective unless and until Bank has sold or otherwise disposed of all
the Collateral, and each Subordinated Creditor waives any right to recover
punitive or consequential damages in any such action.
7.6 Each Subordinated Creditor (a) consents to any extension or
renewal of the Liens securing the Senior Debt, (b) waives any right to cure
any Senior Default, whether by payment of any portion of the Senior Debt or
otherwise, (c) waives any right to set aside or otherwise legally challenge
any foreclosure sale or
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other exercise of rights and remedies by Bank, and (d) waives any right to
redeem any Collateral foreclosed or otherwise disposed of by Bank.
7.7 Each Subordinated Creditor agrees that Bank shall not be a
fiduciary or an agent of such Subordinated Creditor, or otherwise owe any
duty thereto, by virtue of any provision of this Agreement or Bank's
exercise, or failure to exercise, any right hereunder.
8. CONDUCT OF BANKRUPTCY PROCEEDING.
8.1 In any bankruptcy, insolvency, receivership or other similar
proceeding of Borrower or HP UK, each Subordinated Creditor hereby
irrevocably constitutes and appoints Bank its true and lawful attorney to act
in its name and stead:
8.1.1 To file the appropriate claim or claims in respect of
the Subordinated Debt on behalf of that Subordinated Creditor if that
Subordinated Creditor does not do so prior to 30 days before the expiration
of the time to file claims in such proceeding and if Bank elects, in its
sole and absolute discretion, to file such claim or claims; and
8.1.2 To accept or reject any plan of reorganization or
arrangement on behalf of that Subordinated Creditor and to otherwise vote
that Subordinated Creditor's claims in respect of any Subordinated Debt now
or hereafter owing from Borrower or HP UK in any manner which Bank deems
appropriate for the enforcement of its rights hereunder.
8.2 Each Subordinated Creditor agrees that Bank may consent to the
use of cash collateral or provide financing to Borrower or HP UK on such
terms and conditions and in such amounts as Bank, in its sole and absolute
discretion, may decide and that, in connection with such cash collateral
usage or such financing, Borrower or HP UK (or a trustee appointed for the
estates thereof) may grant to Bank Liens upon all Assets, which Liens (a)
shall secure payment of all Senior Debt (whether such Senior Debt arose prior
to the filing of the petition for relief under Bankruptcy Code or arise
thereafter); and (b) shall be superior in priority to the Liens held by any
Subordinated Creditor on the Assets. All allocations of payments between
Bank and the Subordinated Creditors shall, subject to any court order,
continue to be made after the filing of a petition under Bankruptcy Code on
the same basis that the payments were to be allocated prior to the date of
such filing. Each Subordinated Creditor agrees that they will not object to
or oppose a sale or other disposition of any Assets securing the Senior Debt
(or any portion thereof) free and clear of Liens or other claims of the
Subordinated Creditors under Section 363 of Bankruptcy Code or any other
provision of Bankruptcy Code if Bank has consented to such sale or
disposition of such Assets. Each Subordinated Creditor agrees not to assert
any right it may have to "adequate protection" of its Liens with respect to
any of the Assets in any bankruptcy proceeding
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and agrees that it will not seek to have the automatic stay lifted with
respect to such Liens, without Bank's prior written consent, given in its
sole and absolute discretion. Each Subordinated Creditor agrees not to
initiate or prosecute or encourage any other Person to initiate or prosecute
any claim, action or other proceeding (i) challenging the enforceability of
Bank's claim, (ii) challenging the enforceability of any Liens in Assets
securing the Senior Debt, or (iii) asserting any claims which Borrower or HP
UK may hold with respect to Bank.
9. MODIFICATION OF SUBORDINATED DEBT. No amendment or modification of
the Bastian Note, the Unique note, or any other agreement or instrument in
favor of a Subordinated Creditor shall directly or indirectly modify the
provisions of this Agreement in any manner which might terminate or impair
the subordination of the Subordinated Debt or the subordination of any Liens
granted thereunder in accordance with the terms of this Agreement. By way of
example, the Subordinated Creditors may not amend any of the foregoing
agreements or instruments to (a) increase the rate of interest with respect
to the Subordinated Debt, (b) accelerate the payment of principal or interest
or any other portion of the Subordinated Debt, or (c) increase any payments
due to any Subordinated Creditor thereunder.
10. SUBORDINATED DEBT ACCELERATION. In the event of any acceleration
of all or any portion of the Subordinated Debt and so long as such
acceleration shall continue, all Senior Debt shall be paid in full, in cash,
before any payment is made on account of the Subordinated Debt.
11. SUBROGATION. Upon the payment in full, in cash, of the Senior Debt
and the termination or expiration of the Senior Loan Agreement by the
Subordinated Creditors, the Subordinated Creditors shall be subrogated to the
rights of Bank to receive any Distribution of Assets made on account of the
Senior Debt to the extent that distributions otherwise payable to the
Subordinated Creditors have been applied to payment of Senior Debt, until the
Subordinated Debt shall be paid in full; and for the purposes of such
subrogation, no Distribution of Assets to Bank of any cash, property, or
securities to which the holders of Subordinated Debt would be entitled except
for the provisions hereof, and no payment paid over pursuant to the
provisions of Section 5 to Bank by the Subordinated Creditors shall, as among
Borrower, HP UK, their respective creditors, and the Subordinated Creditors,
be deemed to be a payment by Borrower and HP UK on account of such Senior
Debt. Bank shall have no liability to the Subordinated Creditors, and the
subordination and other provisions of this Agreement shall not be affected
by, any act or omission by Bank, prior to payment in full of the Senior Debt
and the termination or expiration of the Senior Loan Agreement, which affect
in any way the Subordinated Creditors' subrogation rights hereunder.
12. OBLIGATIONS OF BORROWER AND HP UK UNCONDITIONAL. Nothing contained
in this Agreement is intended to or shall, as among Borrower, HP UK or their
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respective creditors (other than Bank and the Subordinated Creditors): (a)
impair the obligations of Borrower and HP UK, which obligations are absolute
and unconditional, to pay the Subordinated Debt as and when the same shall
become due and payable in accordance with its terms; or (b) affect the
relative rights of the Subordinated Creditors and other creditors of
Borrower and HP UK (other than between the Subordinated Creditors and Bank).
13. FURTHER ASSURANCES. Each Subordinated Creditor shall mark all
evidence of the Subordinated Debt with a legend "THIS INSTRUMENT IS SUBJECT
TO A DEBT SUBORDINATION AGREEMENT IN FAVOR OF BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION DATED AS OF JANUARY __, 1998." Each Subordinated
Creditor agrees to take such actions and execute, acknowledge and deliver, or
cause to be executed, acknowledged and delivered, such documents as are
reasonably requested by Bank to effectuate and carry out the purposes of this
Agreement and the subordination provisions hereunder, so long as any such
acts are consistent with and do not impose terms of subordination more
onerous than the terms hereof.
14. MODIFICATION AND EXPANSION OF SENIOR DEBT. Notwithstanding any
term of the Subordinated Debt to the contrary, Bank may (a) grant extensions
of time of payment or performance of any Senior Debt, (b) make compromises
and settlements with Borrower and other Persons regarding any Senior Debt,
and (c) increase, expand and/or modify any Senior Debt without the consent of
the Subordinated Creditor, and without affecting this Agreement and its
rights hereunder. No action that Bank may take, or refrain from taking, with
respect to the Senior Debt or any Collateral therefor or any agreements in
connection therewith, shall affect this Agreement or Bank's rights hereunder.
15. DISCONTINUATION OF CREDIT. If, at any time hereafter, Bank shall,
in Bank's sole and absolute judgment, determine to discontinue the extension
of credit to Borrower, Bank may do so in accordance with the terms and
provisions of the Senior Loan Agreement. Such discontinuation
notwithstanding, this Agreement shall continue in full force and effect until
the Senior Debt shall have been paid in full in cash and the Senior Loan
Agreement terminates or expires.
16. CONTINUED EFFECTIVENESS OF SUBORDINATION. If, at any time after
payment in full of the Senior Debt in cash and the termination or expiration
of the Senior Loan Agreement any such payments must be disgorged by Bank for
any reason whatsoever (including, without limitation, the insolvency,
bankruptcy or reorganization of Borrower or HP UK) this Agreement and the
relative rights and priorities provided herein shall be reinstated as to all
such disgorged payments as though such payments had not been made and each
Subordinated Creditor shall immediately pay over or deliver to Bank all
payments and distributions received by the Subordinated Creditors to the
extent necessary to pay in full, in cash, all amounts payable in connection
with
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the Senior Debt as if this Agreement had remained in full force and effect;
provided, however, that the Subordinated Creditors shall not be required to
turn over such payments to the extent that the Subordinated Creditors have
also been required to disgorge Subordinated Debt payments to Borrower or HP
UK. If, at any time prior to payment in full of the Senior Debt in cash and
the termination or expiration of the Senior Loan Agreement any such payments
must be disgorged by Bank for any reason whatsoever (including, without
limitation, the insolvency, bankruptcy or reorganization of Borrower or HP
UK) the Subordinated Creditors shall immediately pay over or deliver to Bank
all payments and distributions received by the Subordinated Creditors to the
extent necessary to pay in full, in cash, the disgorged payments; provided,
however, that the Subordinated Creditors shall not be required to turn over
such payments to the extent that the Subordinated Creditors have also been
required to disgorged Subordinated Debt payments to Borrower or HP UK. The
obligations of Borrower, HP UK and the Subordinated Creditors hereunder
shall continue irrespective of, and Borrower, HP UK and the Subordinated
Creditors hereby waive, so far as the law permits, any existing or future
statutes of limitations applicable thereto or applicable to the enforcement
of indebtedness and liability of Borrower or HP UK, and any Collateral
therefor.
17. ACCELERATION. If Borrower, HP UK or any Subordinated Creditor
violates any of the provisions of this Agreement, Bank may elect, by notice
in writing delivered to the Borrower, HP UK or the Subordinated Creditors, to
declare a Senior Default and cause all Senior Debt to become immediately due
and payable.
18. IMPAIRMENT OF SENIOR DEBT OR LIEN. No court or other action which
has the effect of voiding, impairing, equitably subordinating or otherwise
adversely affecting the Senior Debt or the Lien securing the Senior Debt,
whether upon the insolvency, bankruptcy or reorganization of Borrower, HP UK
or otherwise, shall affect Bank's rights hereunder or any of the Subordinated
Creditors' waivers, covenants or obligations hereunder.
19. BREACH OF DUTY OR OBLIGATION TO THE SUBORDINATED CREDITORS. No
breach by Bank of any duty or obligation owed to any Subordinated Creditor
(should any such duty exist), whether under this Agreement or otherwise, nor
any determination that Bank has any liability to the Subordinated Creditors,
whether under this Agreement or otherwise, shall affect Bank's rights
hereunder or any of the Subordinated Creditors' waivers, covenants or
obligations hereunder.
20. WAIVER OF JURY TRIAL. EACH OF THE SUBORDINATED CREDITORS, BANK, HP
UK AND Borrower EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTION HEREUNDER. EACH
PARTY HERETO HEREBY CONFIRMS THAT SUCH WAIVERS ARE INFORMED AND FREELY MADE.
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21. REMEDIES. Each Subordinating Creditor agrees and acknowledges that
any violation or threatened violation by the Subordinating Creditors of any
term of this Agreement will cause irreparable injury to Bank, that the remedy
at law of Bank for any such violation or threatened violation will be
inadequate and that Bank shall be entitled to obtain an injunction
prohibiting the continuance or reoccurrence of such violation or threatened
violation, and not in limitation of, any other rights or remedies available
at law or in equity. Each Subordinating Creditor hereby irrevocably waives
any defense based on the adequacy of a remedy at law which might be asserted
as a bar to such injunctive remedy.
22. AGREEMENT BY BORROWER. Borrower agrees that it will not, and it
will not permit any affiliate or subsidiary to, purchase, redeem or otherwise
acquire any of the Subordinated Debt or make any payment of any of the
Subordinated Debt, or take any other action, in contravention of the
provisions of this Agreement.
23. MISCELLANEOUS PROVISIONS.
23.1 NO THIRD PARTY BENEFICIARIES. All of the understandings,
covenants and agreements contained herein are solely for the benefit of Bank,
Unique Bastian (and their respective successors and assigns) and there are no
other persons which are intended to be benefitted in any way by this
Agreement.
23.2 NOTICES. All notices, demands and other communications which
a party may desire, or may be required, to give to another shall be in
writing, shall be delivered personally against receipt, or sent by recognized
overnight courier service, or mailed by registered or certified mail, return
receipt requested, postage prepaid, or sent by telex or telecopy, and shall
be addressed to the party to be notified as follows:
If to Bank: 675 Anton Boulevard, Second Floor
Costa Mesa, California 92626
If to c/o Unique Investment Corporation
Subordinated 1380 Vernon Street
Lenders: Anaheim, California 92805
If to As set forth in the Senior Loan Agreement
Borrower
or HP UK:
Any such notice, demand, or communication shall be deemed given when received
if personally delivered or sent by overnight courier, or when deposited in
the United States mails, postage prepaid, if sent by registered or certified
mail, or when answer back received, if sent by telex or telecopier. The
address for a party may be changed by notice given in accordance with this
subsection.
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23.3 CHOICE OF LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without
reference to the choice of laws or conflicts of laws principles thereof.
23.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, and shall inure to the benefit of, the participants, transferees,
successors, and permitted assigns of the parties hereto. Each Subordinating
Creditor further agrees that if Borrower or HP UK is in the process of
refinancing a portion of the Senior Debt with a new lender, and if Bank makes
a request of the Subordinating Creditors, the Subordinating Creditors shall
agree to enter into a new subordination agreement with the new lender on
substantially the terms and conditions of this Agreement.
23.5 SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
23.6 WAIVERS. No failure on the part of Bank to exercise, no
delay in exercising and no course of dealing with respect to, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right.
23.7 ATTORNEYS' FEES. If it becomes necessary for Bank or the
Subordinating Creditors to commence any proceedings or actions to enforce the
provisions of this Agreement, the court or body before which the same shall
be brought shall award to the prevailing party therein all of its costs and
expenses in prosecuting such proceedings and actions, including attorneys'
fees, the usual and customary and lawfully recoverable court costs, and all
the expenses in connection therewith.
23.8 ENTIRE AGREEMENT; MODIFICATIONS. This Agreement contains all
of the terms and conditions agreed upon by the parties relating to its
subject matter and supersedes all prior and contemporaneous agreements,
negotiations, correspondence, understandings and communications of the
parties, whether oral or written, respecting that subject matter. No
modification, rescission, waiver, release, or amendment of any provision of
this Agreement shall be made, except by a written agreement signed by Bank
and the Subordinated Creditors.
23.9 COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which will constitute an original, and all of which,
taken together, shall constitute but one and the same agreement.
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23.10 AMENDMENTS TO NOTES. None of the parties to this Agreement
other than Bank shall enter into any amendment, modification or waiver with
respect to the Subordinated Debt without the express prior written consent of
the Bank.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first set forth above.
_________________________________
MELANIE L. BASTIAN, an individual
HAWKER PACIFIC AEROSPACE
By: _____________________________
Title: __________________________
HAWKER PACIFIC AEROSPACE LIMITED
By: _____________________________
Title:___________________________
UNIQUE INVESTMENTS CORPORATION
By: _____________________________
Title: __________________________
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
By: _____________________________
Title: __________________________
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[Attach Subordinated Notes]
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EXHIBIT 21.1
LIST OF SUBSIDIARIES
Hawker Pacific Aerospace Limited,
A United Kingdom Corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITOR
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated November 7, 1997
(except Note 14, as to which the date is November 13, 1997), in the Registration
Statement Form S-1 and related Prospectus (the Registration Statement) of Hawker
Pacific Aerospace for the registration of 2,766,667 shares of its Common Stock.
Our audit also included the financial statement schedule of Hawker Pacific
Aerospace listed in Item 16(b). The schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audit. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Woodland Hills, CA
January 22, 1998
