<PAGE>
As filed with the Securities and Exchange Commission on February 1, 2000
Reg. No. 333-93391
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
HAWKER PACIFIC AEROSPACE
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation or organization)
95-3528840
(I.R.S. Employer Identification No.)
Hawker Pacific Aerospace
11249 Sherman Way
Sun Valley, CA 91352
(818) 765-6201
(Address, including zip code, and telephone
number, including area code, of
Registrant's principal executive offices)
Phil Panzera
Executive Vice President
Hawker Pacific Aerospace
11249 Sherman Way
Sun Valley, CA 91352
(818) 765-6201
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
With a copy to:
Yvonne Wong Chester, Esq.
Troy & Gould Professional Corporation
1801 Century Park East, Suite 1600
Los Angeles, California 90067
(310) 553-4441
Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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 number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Share Offering Price Fee
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value............ 1,433,881 shares (1) $6.72 (2) $9,635,680 $2,544
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value............ 125,000 shares (3) 7.37 (4) 921,250 243
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value............ 50,000 shares (3) 2.85 (4) 142,500 38
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value............ 222,716 shares (3) 8.00 (4) 1,781,728 471
- -------------------------------------------------------------------------------------------------------------------------------
Total Registration Fee.................................................................................................$3,296(5)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents shares of common stock issuable upon conversion of the 8%
Series C convertible preferred stock described herein, including stock
dividends on the Series C. In accordance with Rule 416, there is also
being registered hereunder such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the
convertible preferred stock to prevent dilution resulting from stock
splits, stock dividends or similar transactions.
(2) Estimated solely for the purpose of calculating the registration fee.
Based, pursuant to Rule 457, on the average of the high and low sale
prices of Registrant's common stock as reported on the Nasdaq National
Market on December 20, 1999.
(3) Represents shares issuable upon exercise of warrants. In accordance with
Rule 416, there is also being registered hereunder such indeterminate
number of additional shares of common stock as may become issuable upon
exercise of the warrants to prevent dilution resulting from stock
splits, stock dividends or similar transactions.
(4) Based, pursuant to Rule 457, on the exercise price of the warrants
referred to in note (3) above.
(5) Previously paid.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not and the selling shareholders may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
SUBJECT TO COMPLETION, DATED FEBRUARY 1, 2000
PROSPECTUS
1,831,597 SHARES
HAWKER PACIFIC AEROSPACE
COMMON STOCK
Hawker Pacific Aerospace is a leading provider of aviation maintenance
services for major commercial airlines, air cargo operators, domestic government
agencies, aircraft leasing companies, parts distributors and OEMs. The
shareholders named in this prospectus or their assigns are offering for sale
from time to time up to 1,831,597 shares of our common stock which they have the
right to acquire. See "Selling Shareholders." Of the shares offered, Hawker may
issue 397,716 upon exercise of outstanding warrants and 1,433,881 upon
conversion of outstanding convertible preferred stock and payment of stock
dividends on the convertible preferred stock. The selling shareholders may
increase the number of shares they are offering due to certain antidilution
provisions of the warrants and convertible preferred stock held by them,
including a split of the common stock, a dividend or distribution in common
stock or a combination of the common stock.
We will receive the exercise price of the warrants described in this
prospectus to the extent they are exercised, but we will not receive any
proceeds in connection with the sale of the shares by the selling shareholders.
See "Use of Proceeds."
Our common stock is traded on the Nasdaq National Market under the symbol
"HPAC." On January 28, 2000, the last sale price for the common stock as
reported on the Nasdaq National Market was $7.1875.
The selling shareholders may offer the shares of common stock from
time-to-time to or through brokers, dealers or other agents, or directly to
other purchasers, in one or more market transactions or private
<PAGE>
transactions at prevailing market or at negotiated prices. Brokers, dealers
or other agents engaged by the selling shareholders may arrange for other
brokers, dealers or agents to participate in sales of the shares and may
receive commissions, discounts or concessions from the selling shareholders
in amounts to be negotiated. These brokers, dealers or agents may be deemed
to be "underwriters" within the meaning of the federal securities laws, and
any commissions, discounts or concessions they receive may be deemed to be
underwriting discounts or commissions. See "Plan of Distribution."
We will bear the costs and expenses of registering the shares offered by
the selling shareholders. The selling shareholders will bear any commissions and
discounts attributable to sales of the shares.
YOUR INVESTMENT IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. BEFORE
PURCHASING ANY SHARES, YOU SHOULD CONSIDER CAREFULLY THE RISKS DESCRIBED UNDER
"RISK FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
The date of this prospectus is February __, 2000
<PAGE>
THE COMPANY
Hawker Pacific Aerospace is a leading provider of aviation maintenance
services. We repair and overhaul aircraft and helicopter landing gear,
hydromechanical components (including spillway radial gates, penstocks, shut-off
devices, trashracks, hydraulic devices, mobile intake cleaning machines and
roll-on/roll-off facilities), wheels, and braking systems for a diverse
international customer base, including major commercial airlines, air cargo
operators, domestic government agencies, aircraft leasing companies, parts
distributors and OEMs. Our principal executive offices are located at 11249
Sherman Way, Sun Valley, California 91352 and our telephone number is (818)
765-6201.
We have retained the aerospace investment banking team of First Union
Securities, including its mergers and acquisitions group (formerly Bowles
Hollowell Conner), to advise our board of directors on alternatives for
maximizing shareholder value. Based in part on the number of unsolicited
inquiries we had previously received, we believe that the time is right to
explore alternatives for fully realizing Hawker's potential.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended. We file reports and other information with the SEC in
accordance with the Exchange Act. You can inspect and copy these reports, proxy
statements and other information at the public reference facilities maintained
by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as at the following regional offices: Seven World Trade Center, New
York, New York 10048, and Northwestern Atrium Center, 500 W. Madison Street,
Chicago, Illinois 60661. You can obtain copies of such material from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates, or electronically at the SEC's site
on the World Wide Web at http:/www.sec.gov.
Additional information regarding us and the shares of common stock offered
by the selling shareholders is contained in the registration statement, which
includes this prospectus, and the attached exhibits, which is filed is with the
SEC under the Securities Act of 1933, as amended. You can inspect and copy the
registration statement and attached exhibits at prescribed rates at the office
of the SEC at Judiciary Plaza, 450 Fifth Street,
2
<PAGE>
Washington, D.C. 20549 or electronically at http:/www.sec.gov. Statements in
this prospectus about provisions of any document are not necessarily complete
and in each instance each statement is qualified by, and you should refer to,
the copy of the document filed as an exhibit or schedule to the registration
statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This prospectus incorporates by reference the following documents filed by
Hawker (Commission File No. 0-29490) with the SEC under the Exchange Act: (a)
Hawker's Annual Report on Form 10-K for the year ended December 31, 1998; (b)
Hawker's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999; (c)
Hawker's Quarterly Report on Form 10-Q, as amended, for the quarter ended June
30, 1999; Hawker's Quarterly Report on Form 10-Q for the quarter ended September
30,1999; (d) all other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of fiscal 1997; (e) the description of Hawker's
common stock contained in Hawker's Registration Statement on Form 8-A (Reg. No.
0-29490) under the Exchange Act; and (f) the description of Hawker's preferred
share purchase rights and Series B Junior Participating preferred stock
contained in Hawker's Registration Statement on Form 8-A, filed March 23, 1999,
as amended April 7, 1999, under the Exchange Act; and including any amendment or
report subsequently filed by Hawker for the purpose of updating the descriptions
under (e) and (f).
All documents filed by Hawker pursuant to Section 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this prospectus and prior to
the termination of this offering shall be deemed to be incorporated by reference
into this prospectus and to be a part of this prospectus from the date of filing
of such documents. If a statement made in a document is referred to and has been
modified or superseded in this prospectus, please rely on the statement made in
this prospectus.
On request, we will provide, without charge, to each person, including any
beneficial owner, to whom this prospectus is delivered, a copy of the documents
which are referred to in this prospectus (other than exhibits to such documents
that are not specifically incorporated by reference in such documents). You
should request copies from Phil Panzera, telephone number (818) 765-6201 at
Hawker Pacific Aerospace, 11240 Sherman Way, Sun Valley, California 91352.
3
<PAGE>
FORWARD LOOKING STATEMENTS
This prospectus contains so-called forward-looking statements within the
meaning of the federal securities laws. These include statements about our
expectations, beliefs, intentions or strategies for the future, which we
indicate by words or phrases such as "anticipate," "expect," "intend," "plan,"
"will," "we believe," "management believes" and similar language. All
forward-looking statements are based on our current expectations and are subject
to certain risks, uncertainties and assumptions. Our actual results may differ
materially from results anticipated in these forward-looking statements. We base
our forward-looking statements on information currently available to us, and we
assume no obligation to update them.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS WHEN EVALUATING AN
INVESTMENT IN THE SHARES OFFERED HEREBY.
DEMAND FOR OUR PRODUCTS MAY BE AFFECTED BY NEGATIVE ECONOMIC TRENDS IN THE
AVIATION INDUSTRY
We derive our sales and operating income from the services and parts we
provide to our customers in the aviation industry. Therefore, our business is
directly affected by economic factors and other trends that affect our 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 our products and services and decrease our sales and operating income.
OUR RESULTS OF OPERATIONS FLUCTUATE DUE TO TIMING OF ORDERS AND PERFORMANCE
A number of factors affect our operating results, 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
we have several long-term agreements to service multiple aircraft, we receive
sales under these agreements only when we actually perform a repair or overhaul.
4
<PAGE>
Because the average time between landing gear overhauls is seven years, the
work orders that we receive and the number of repairs or overhauls that we
perform in particular periods may vary significantly causing our quarterly
sales and results of operations to fluctuate substantially. Our inability to
predict the timing of the actual receipt of such orders often causes
significant variations between forecasts and actual orders. In addition, our
need to make significant expenditures to support new aircraft in advance of
generating revenues from repairing or overhauling such aircraft may cause our
quarterly operating results to fluctuate. Furthermore, if we reschedule the
shipment of any large order, or portion thereof, or experience any production
difficulties or delays, our quarterly operating results could be materially
adversely affected.
OUR INTERNATIONAL OPERATIONS ARE AFFECTED BY RISKS DIFFERENT THAN OUR DOMESTIC
OPERATIONS
We currently have a subsidiary in the United Kingdom and a division in the
Netherlands. A number of risks affect international operations, including longer
accounts receivable collection periods, 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, compliance with multiple, potentially
conflicting laws and the impact of business cycles and economic instability
outside the United States. These risks may cause some of our products already in
stock to no longer be saleable in a particular foreign country, may require us
to charge more for our products than competitors located in a particular country
because they are not subject to the import tariffs and restrictions, or may
require us to charge more for our services in order to cover the additional
costs of complying with conflicting laws or managing foreign operations.
We make sales principally in United States dollars and British pounds, and
to a lesser extent in Dutch guilders. We make substantial inventory purchases in
French francs from such suppliers as Messier-Bugatti, Societe D'Applications Des
Machines Motrices and Eurocopter France. Our Netherlands facility makes
inventory purchases primarily in United States dollars, and sales and operating
expenses partially in Dutch guilders. To date, currency fluctuations or
inflation have not significantly affected our business. However, significant
fluctuations in currency exchange rates could increase the price of Hawker's
products in particular countries, reducing sales in that country.
5
<PAGE>
MANY COMPETITORS AND INDUSTRY CONSOLIDATION MAY REDUCE OUR SALES
We believe that the primary competitive factors in our marketplace are
quality, price, rapid turnaround time and industry experience. We compete
primarily with various repair and overhaul organizations, which include the
service arms of OEMs, the maintenance departments or divisions of large air
carriers and independent organizations such as The BF Goodrich Company,
Sogerma/Revima and AAR. Our major competitors in the hydromechanical
components business include AAR and OEMs such as Sunstrand, Messier-Bugatti,
Parker Hannifin Corporation and Lucas. As we move into new geographic or
product markets we will encounter new competitors. Certain of our competitors
have substantially greater financial, technical, marketing and other
resources than us. In addition, we expect that industry consolidations and
alliances due to the trend in the aviation industry toward outsourcing of
repair and overhaul services will create new competitors in our industry.
These competitors may adapt more quickly to changes in customer requirements,
may have stronger customer relationships and greater name recognition and may
have greater resources to devote towards the development, promotion and sale
of their products than us. These competitive pressures may cause us to lose
customers or market share or reduce the price of our services and products
thereby decreasing our income from operations.
OUR BUSINESS WILL BE AFFECTED IF THE GOVERNMENT DENIES US MATERIAL APPROVALS
The Coordinating Agency for Supplier Evaluation ("CASE"), formed by
commercial airlines to approve FAA approved repair stations and aviation parts
suppliers regularly audit and accredit our operations. If the CASE revokes or
suspends material authorizations or approvals, our operations will be delayed
and we may lose potential sales of our services or products while we attempt to
obtain the necessary authorizations or approvals. 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. 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, we
may have to spend additional funds to comply with these new regulations.
Delivery of our services and/or products may be delayed as we attempt to comply
with the new regulations
6
<PAGE>
and we may have to increase prices of our services and/or products to offset
the costs of complying with the new regulations, both of which could cause us
to lose sales to our customers.
OUR BUSINESS MAY BE AFFECTED IF WE DO NOT RENEW AGREEMENTS WITH OUR KEY
SUPPLIERS
We purchase from our suppliers landing gear spare parts and components for
a variety of fixed wing aircraft and helicopters. We have 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. Under two of these agreements, we purchase discounted parts for resale
and repair from Dunlop. For the year ended December 31, 1998, Dunlop accounted
for approximately $4,513,000 and for the year ended December 31, 1997, Dunlop
accounted for approximately $4,301,000, of the spare parts and components that
we purchased in such periods. Our single largest supplier during 1998 was
Boeing, who provided us $13,000,000 of spare parts and components. If any one of
these divisions of Dunlop fails to renew its agreement on similar terms when it
expires or if we are unable to secure spare parts and components from Boeing on
similar or more favorable terms we may have difficulty in finding a supplier of
these parts on terms as favorable as with Boeing or Dunlop. Agreements with new
suppliers may cost more money and may take time to find and therefore could
delay sales to our customers or increase the cost of our products and/or
services thereby reducing our competitiveness.
In addition, we have agreements with Messier-Bugatti, SAMM and Eurocopter
France that enable us to purchase new aircraft parts at discounts from list
price. Many of our supplier agreements, other than our agreements with Dunlop,
are short-term and the supplier can terminate them upon providing ninety days
prior written notice. If any of these suppliers terminate their agreements, our
competitive advantage will be reduced if we are unable to replace these
agreements with new agreements on terms at least as favorable.
WE DEPEND ON PRIMARILY FOUR CUSTOMERS
American Airlines, British Airways, Federal Express and the United States
Coast Guard ("USCG") have been our only customers accounting for more than 10%
of sales during the last three years. Some of Hawker's long-term service
agreements may be terminated by the customers upon providing Hawker with 90
7
<PAGE>
days' prior written notice, and Hawker's agreement with the USCG is subject to
termination at any time at the convenience of the government. In addition,
Hawker's sales are made primarily on the basis of purchase orders rather than
long-term agreements. Hawker expects that a small number of customers will
continue to account for a substantial portion of its sales for the
foreseeable future. If one of these customers were to cease using Hawker's
products or choose to place a portion of its purchase orders with one of
Hawker's competitors, Hawker's revenues would significantly decrease unless
Hawker were able to increase its sales to its other customers or find new
customers to replace the lost orders.
OUR CREDIT RISK IS CONCENTRATED MAINLY AMONG FOUR CUSTOMERS
At December 31, 1998 the Company's total accounts receivable were broken
down as follows: 10.2% was associated with American Airlines, 25.7% was
associated with British Airways and 19.4% was associated with Federal Express.
At December 31, 1997, the Company's total accounts receivable were broken down
as follows: 13.1% were associated with American Airlines, 18.9% were associated
with Federal Express and 6.1% were associated with British Airways. At December
31, 1996, the Company's total accounts receivable were broken down as follows:
7.4% were associated with Federal Express and 9.3% were associated with the
USCG. Although Hawker has not had any material difficulties in collecting its
accounts receivable during the past three years, if Hawker was unable to collect
any material amount of its receivables under it service agreements and could not
offset this inability with new purchase orders from other customers, it would
suffer a significant decrease in revenue.
ENVIRONMENTAL REGULATIONS MAY INCREASE OUR COST OF OPERATIONS
Our operations are subject to extensive and frequently changing federal,
state and local environmental laws and substantial related regulation by
government agencies, including the 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 that we generate during the normal course of our operations, govern
the health and safety of our employees and require us to obtain and maintain
permits in
8
<PAGE>
connection with our operations. This extensive regulatory framework imposes
significant compliance burdens and risks which substantially affect our
operational costs. In addition, we may become liable for the cost of removal
or remediation of certain hazardous substances released on or in our
facilities without regard to whether we knew of, or caused, the release of
such substances. We believe that we currently are materially complying with
applicable laws and regulations and do not know of any material environmental
problem at any of our current or former facilities. We cannot assure you,
however, that our prior activities did not create a material problem for
which we may 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 our
operations) will not result in material environmental liability to us and
materially and adversely affect our financial condition and results of
operations. Our plating operations, which use a number of hazardous materials
and generate a significant volume of hazardous waste, increase our regulatory
compliance burden and compound the risk that we may encounter a material
environmental problem in the future. Furthermore, compliance with laws and
regulations in foreign countries in which we locate our operations may
increase our operating costs or otherwise adversely affect our results of
operations or financial condition.
SHORTAGES OF SUPPLY AND INVENTORY OBSOLESCENCE MAY AFFECT OUR SALES
Hawker'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. We believe we maintain a
sufficient supply of inventory to meet our current and immediately foreseeable
production schedule. However, we may fail to order sufficient parts in advance
to meet our work requirements, a particular part may be unavailable when we need
it from our suppliers or we unexpectedly may receive one or more large orders
simultaneously for repair and overhaul services. As a result, we may [have we
ever?] on occasion face parts shortages that delay our production schedule and
prevent it from meeting required turnaround times. Delays or failure to meet
turnaround times could cause us to lose purchase orders or customers. In
addition, regulatory standards may change in the future, causing parts which are
currently included in our inventory to be scrapped or modified. Aircraft
manufacturers may also develop new parts to be used in lieu of parts already
contained in our inventory making these parts no longer saleable or requiring
9
<PAGE>
us to modify them. In all such cases, to the extent that we have these parts
or excess parts in our inventory, their value would be reduced, requiring us
to lower the price charged to our customers for products or services which
include these parts or increase the price to offset the costs of
modifications.
OUR BUSINESS EXPOSES US TO PRODUCT LIABILITY CLAIMS
Hawker's business exposes it to possible claims for personal injury, death
or property damage which may result from the failure or malfunction of landing
gears, hydromechanical components or aircraft spare parts that we repair or
overhaul. Many factors beyond our control could lead to liability claims,
including the failure of the aircraft on which landing gear or hydromechanical
components we overhaul is installed, the reliability of the customer's operators
of the aircraft and the maintenance of the aircraft by the customer. We have not
experienced any material product liability claims related to our products. We
currently have in force aviation products liability and premises insurance and
we believe this insurance provides coverage in amounts and on terms that are
generally consistent with industry practice. However, we cannot assure you that
the amount of product liability insurance that we carry at the time a product
liability claim is made will be sufficient to protect us. If the amount of
product liability insurance we carry is insufficient to cover a particular
claim, Hawker may be required to cover some of the costs of such claim which
would reduce our net income.
SERIES C PREFERRED STOCKHOLDERS MAY BE ABLE TO ACQUIRE SIGNIFICANT AMOUNTS OF
COMMON STOCK
The conversion price of the Series C preferred stock depends on the trading
price of the common stock. See "Description Of Our Capital Stock - Preferred
Stock." When the trading price of the common stock falls, the conversion price
of the Series C also declines. If the trading price of the common stock falls to
a sufficiently low level and the holders of the Series C choose to convert their
preferred stock at that time, they may be able to gain control of Hawker as they
would be able to purchase a significant number of shares of common stock.
OUR STOCK PRICE HAS BEEN VOLATILE OVER THE PAST YEAR
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
10
<PAGE>
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 have caused the market price
of our common stock to fluctuate, perhaps substantially. Over the last 12
months, the trading price of the common stock has ranged from $4.750 to
$7.250.
THE RELOCATION OF OUR UK FACILITY AFFECTED OUR OPERATIONS IN 1999
From May through June 1999, we relocated the principal elements of our
UK subsidiary to a new state-of-the-art facility. During the third and fourth
quarters of 1999 additional processes were relocated, and a plating shop was
constructed. The completion of the plating shop in January 2000 marks the
final event in the relocation of the UK facility. This relocation had a
significant adverse effect on the financial health of Hawker during 1999.
Cost of revenue during the second, third and fourth quarters was adversely
affected by the UK relocation as many operating hours were lost and we had to
outsource many jobs to meet customer requirements. We believe that the impact
of the UK relocation on Hawker's operating results were transitional,
non-recurring and do not present a risk to future results of operations.
EFFECT OF YEAR 2000 NONCOMPLIANCE
The year 2000 problem is the result of computer programs being written
using two digits (rather than four) to define the applicable year. Any of our
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in miscalculation
or system failures. It cost us approximately $200,000 to address our year
2000 issues during 1999. In addition, we have been working with our external
suppliers, vendors and service providers to ensure that their systems will be
able to support and interact with our server and network. We believe that our
mainframe database and operating systems are year 2000 compliant and to date
our systems have not experienced any adverse impact due to the year 2000
issue. We do not expect any operational problems to arise from the year 2000
issue.
11
<PAGE>
USE OF PROCEEDS
We will bear the costs and expenses of registering the shares offered by
the selling shareholders, which are estimated at $42,500. Other than the
exercise of the warrants described herein (to the extent they may be exercised),
we will not receive any of the proceeds from the sale of the shares offered by
the selling shareholders. The holders of the warrants are not obligated to
exercise the warrants, and we cannot assure you that they will choose to do so.
If all of the warrants are exercised in full, we will receive $2,854,228 upon
exercise. We intend to use any proceeds we receive from the exercise of warrants
for working capital and general corporate purposes.
SELLING SHAREHOLDERS
DEEPHAVEN FINANCING
Deephaven Private Placement Trading Ltd. ("Deephaven") purchased an
aggregate of $3 million of 8% Series C Convertible preferred stock and
warrants from Hawker in a private placement transaction which closed on
December 10, 1999. As part of that private placement, Deephaven was issued
preferred stock that may be converted into our common stock and warrants to
acquire 125,000 shares of our common stock ("Deephaven Warrants"). The
preferred stock and the Deephaven Warrants are described in more detail under
"Description of Our Capital Stock." Holders of the preferred stock and the
Deephaven Warrants may not convert their securities into shares of our common
stock if after the conversion of all the outstanding Series C preferred stock
and the Deephaven Warrants the holder, together with any of its affiliates,
would beneficially own over 4.999% of the outstanding shares of our common
stock. This restriction may be waived by the holder on not less than 61 days'
notice to Hawker. Since the number of shares of our common stock issuable
upon conversion of the preferred stock will change based upon fluctuations of
the market price of our common stock prior to a conversion, the actual number
of shares of our common stock that will be issued under the preferred stock,
and consequently the number of shares of our
12
<PAGE>
common stock that will be beneficially owned by Deephaven, cannot be
determined at this time. Because of this fluctuating characteristic, we
agreed to register a number of shares of our common stock that exceeds the
number of shares beneficially owned by Deephaven. If there is a decline in
the share price of the common stock which requires us to issue over 1,433,881
shares of common stock if Deephaven converted its shares of preferred stock,
we would be required to file another registration statement to register that
number of shares which are over 1,433,881. The number of shares of our common
stock listed in the table below as being beneficially owned by Deephaven
includes the shares of our common stock that are issuable to them, subject to
the 4.999% limitation, upon conversion of their preferred stock and exercise
of the Deephaven Warrants. However, the 4.999% limitation would not prevent
Deephaven from acquiring and selling in excess of 4.999% of our common stock
through a series of conversions and sales under the preferred stock and
acquisitions and sales under the warrants.
In connection with the financing by Deephaven, warrants to purchase 50,000
shares of our common stock at $2.85 per share ("Brighton Warrants") were issued
to Brighton Capital, Ltd., which underlying shares of common stock are being
registered in this prospectus. Although the trading price of our common stock on
the closing date of the financing with Deephaven was $7.37, on the date we
became contractually obligated to issue warrants to Brighton, the trading price
of our common stock was $2.85.
IPO WARRANTS
In connection with our initial public offering in 1998, we issued warrants
to purchase up to 222,716 of our shares of common stock ("IPO Warrants") to the
underwriters in that offering. The holders of the IPO Warrants are registering
the shares underlying the warrants pursuant to their piggyback registration
rights in this prospectus.
SELLING SHAREHOLDER TABLE
The following table sets forth certain information regarding the beneficial
ownership of our common stock by the selling shareholders on February 1, 2000.
To our knowledge, each of the selling shareholders has
13
<PAGE>
sole voting and investment power with respect to the shares of common stock
shown, subject to applicable community property laws.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE OFFERING(1) AFTER OFFERING (1)
----------------------- ------------------------
NUMBER OF
NUMBER OF SHARES NUMBER OF
SELLING SHAREHOLDER SHARES PERCENT(2) BEING OFFERED SHARES PERCENT(2)
- ------------------- ------------ --------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Everen Securities, Inc./First Union 111,722(3) 1.9% 111,722 -0- --
Securities, Inc.
David Enzer 48,315(3)(4) * 48,315 -0- --
Basil Horner 12,000(3) * 12,000 -0- --
The Seidler Companies Incorporated 13,929(3) * 13,929 -0- --
Kerry Cotter 41,750(3) * 41,750 -0- --
Deephaven Private Placement Trading Ltd. 306,368(5) 4.999% 1,558,881 -0- --
Brighton Capital Ltd.(4) 45,000 * 45,000 -0- --
- -----------------------
</TABLE>
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Shares of common stock subject to options, warrants and
convertible securities currently exercisable or convertible, or
exercisable or convertible within 60 days, are deemed outstanding,
including for purposes of computing the percentage ownership of the
person holding such option, warrant or convertible security, but not for
purposes of computing the percentage of any other holder.
(2) Included as outstanding for this purpose are 5,822,222 shares outstanding
on February 1, 2000, plus, in the case of each of these selling
shareholders, the shares issuable upon exercise and conversion of the
warrants and/or shares of convertible preferred stock held by such
selling shareholder (but not including shares issuable upon exercise or
conversion of any other warrants, convertible preferred stock or other
securities held by any other person).
(3) Issuable upon exercise of warrants.
(4) Brighton transferred 5,000 Brighton Warrants to David Enzer.
(5) The number of shares of our common stock listed in this table as being
beneficially owned by Deephaven includes the shares of our common stock
that are issuable to them, subject to the 4.999% limitation, upon
conversion of their preferred stock and exercise of the Deephaven
Warrants. However, the 4.999% limitation would not prevent Deephaven from
acquiring and selling in excess of 4.999% of our common stock through a
series of conversions and sales under the preferred stock and
acquisitions and sales under the warrants.
14
<PAGE>
PLAN OF DISTRIBUTION
The selling shareholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling shareholders may use any one or more of the
following methods when selling shares:
- - ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
- - block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
- - purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
- - an exchange distribution in accordance with the rules of the applicable
exchange;
- - privately negotiated transactions;
- - short sales;
- - broker-dealers may agree with the selling shareholders to sell a specified
number of such shares at a stipulated price per share;
- - a combination of any such methods of sale; and
- - any other method permitted pursuant to applicable law.
The selling shareholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling shareholders may also short sell against the box, put and call
and otherwise transact in our securities or derivatives and may sell or deliver
shares in connection with these trades. The selling
15
<PAGE>
shareholders may pledge their shares to their brokers under the margin
provisions of customer agreements. If a selling shareholder defaults on a
margin loan, the broker may, from time to time, offer and sell the pledged
shares.
Broker-dealers engaged by the selling shareholders may arrange for other
brokers-dealers to sell the shares. The selling shareholders may pay commissions
or discounts to broker-dealers (or, if any broker-dealer acts as agent for the
purchaser of shares, the purchaser may) in amounts to be negotiated. The selling
shareholders do not expect to pay higher commissions and discounts than
customary for these transactions.
The SEC may consider the selling shareholders and any broker-dealers or
agents that are involved in selling the shares to be "underwriters" as defined
in the Securities Act in connection with sales of the shares. In such event, the
SEC may deem any commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them to be underwriting
commissions or discounts under the Securities Act.
Hawker must pay all fees and expenses incident to the registration of the
shares, including fees and disbursements of counsel to the selling shareholders.
We will indemnify the selling shareholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act.
DESCRIPTION OF OUR CAPITAL STOCK
As of the date of this prospectus, our authorized capital stock consists of
20,000,000 shares of common stock, no par value, and 5,000,000 shares of
preferred stock, no par value.
COMMON STOCK
As of February 1, 2000, 5,822,222 shares of common stock were outstanding,
held of record by 35 registered shareholders. The holders of common stock have
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 if they
give the required notice. Subject to preferences of shares of preferred stock
issued in the future, holders of common stock are entitled to receive ratably
any dividends declared by the board of directors out of legally
16
<PAGE>
available funds. Our 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 for directors. Cumulative
voting means that in any election of directors, each shareholder may give one
candidate or may distribute among any of the candidates a number of votes
equal to the number of directors to be elected multiplied by the number of
shares held by that shareholder. Cumulative voting will no longer be required
or permitted under the Amended and Restated Articles of Incorporation, as
amended at such time as (i) our shares of common stock are listed on the
Nasdaq National Market and we have at least 800 holders of our equity
securities as of the record date of our most recent annual meeting of
shareholders or (ii) our shares of common stock are listed on the New York
Stock Exchange or the American Stock Exchange. At that time, we may divide
the board of directors into classes of directors. In the event of a
liquidation, dissolution or winding up of Hawker, 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 are, and all shares of common stock we have issued in the initial
public offering are, fully paid and nonassessable.
PREFERRED STOCK
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 any preferred stock
that may be issued in the future will be senior to and may adversely affect the
rights of the holders of the common stock. If preferred stock is issued, it
could become more difficult for a third party to acquire a majority of our
outstanding voting stock and thereby delay, defer or prevent a change in control
of Hawker. Furthermore, this preferred stock may have other rights, including
economic rights senior to the common stock, and, as a result, the issuance of
this preferred stock could materially adversely effect the market value of the
common stock.
17
<PAGE>
SERIES B
In March 1999, we adopted a Rights Agreement and in connection with
which we created a Series B Junior Participating preferred stock ("Series
B"). No shares of Series B are currently outstanding.
SERIES C
In connection with the $3,000,000 financing, we issued 300 shares of 8%
Series C Convertible preferred stock ("Series C") to Deephaven. The Series C
is senior to the Series B and the common stock in dividends and liquidation.
The Series C is convertible into common stock at fluctuating conversion
rates, including rates that are below fair market value based upon a formula
contained in the Certificate of Determination for the Series C.
Holders of the Series C may not convert their securities into shares of our
common stock if after the conversion the holder, together with any of its
affiliates, would beneficially own over 4.999% of the outstanding shares of our
common stock. This restriction may be waived by the holder on not less than 61
days' notice to Hawker
The holders of the Series C may initially convert their stock at a fixed
conversion price of $7.37 per share from December 10, 1999 through March 10,
2000. Beginning March 11, 2000, the Series C is convertible pursuant to the
schedule set forth below. The variable conversion price means the product
obtained by multiplying the discount rate and the average of the five lowest
per share closing bid prices during the 30 trading days immediately preceding
the applicable conversion date. The discount rate is 88% from March 11, 2000
through June 10, 2000; 84% from June 11, 2000 through October 10, 2000; and
80% after October 11, 2000.
Each holder of Series C may convert its shares according to the
following schedule:
18
<PAGE>
(1) from December 10, 1999 through March 10, 2000, the holder may convert
its shares at $7.37, the fixed conversion price;
(2) from March 11, 2000 through April 10, 2000, the holder may convert up to
5% of its shares at the variable conversion price and the rest at $7.37;
(3) from April 11, 2000 through May 10, 2000, the holder may convert an
additional 5% of its shares, or up to 10% if no shares were converted prior
to such date, at the variable conversion price and the rest at $7.37;
(4) from May 11, 2000 through June 10, 2000, the holder may convert an
additional 10% of its shares, or up to 20% if no shares were converted prior
to such date, at the variable conversion price and the rest at $7.37;
(5) from June 11, 2000 through July 10, 2000, the holder may convert an
additional 15% of its shares, or up to 35% if no shares were converted prior
to such date, at the variable conversion price and the rest at $7.37;
(6) from July 11, 2000 through August 10, 2000, the holder may convert an
additional 20% of its shares, or up to 55% if no shares were converted prior
to such date, at the variable conversion price and the rest at $7.37;
(7) from August 11, 2000 through September 10, 2000, the holder may convert
an additional 20% of its shares, or up to 75% if no shares were converted
prior to such date, at the variable conversion price and the rest at $7.37;
(8) from September 11, 2000 through October 10, 2000, the holder may convert
an additional 20% of its shares, or up to 95% if no shares were converted
prior to such date, at the variable conversion price and the rest at $7.37;
and
(9) from October 11, 2000, the holder may convert all its shares at the lower
of $7.37 and the variable conversion price.
Upon the request of any holder of Series C, we must redeem the Series C
of that holder, and any underlying shares of common stock issued within 45
days of the occurrence of, among other things, the following events: (a) the
SEC fails to declare effective the registration statement registering the
shares of common stock underlying the Series C within 180 days of the
issuance of the Series C; (b) the SEC suspends the effectiveness of the
registration statement for more than 10 days; (c) the common stock ceases to
be listed on Nasdaq, NYSE, Amex or Nasdaq SmallCap Market; or (d) Hawker
experiences a change of control or agrees to sell over 50% of its assets.
19
<PAGE>
WARRANTS
We have issued and outstanding IPO Warrants to purchase up to 222,716
shares of common stock at $8 per share; Brighton Warrants to purchase up to
50,000 shares of common stock at $2.85 per share; and Deephaven Warrants to
purchase up to 125,000 shares of common stock at $7.37 per share. All of the
warrants contain net exercise provisions.
STOCK TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is U.S. Stock
Transfer Corporation, Glendale, California.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Hawker's articles provide that, pursuant to the California Corporations
Code, the liability of our directors 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, Hawker for breach of a director's duties to
Hawker or its shareholders. This provision in the articles does not eliminate
the directors' fiduciary duty and does not apply for the following 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 Hawker 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
Hawker 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 Hawker 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 Hawker 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 Hawker or any shareholder to seek non-monetary relief
20
<PAGE>
such as an injunction or rescission in the event of a breach of a director's
duty of care. Hawker's Amended and Restated Bylaws require Hawker to
indemnify its officers and directors to the full extent permitted by law,
even if indemnification would otherwise be discretionary. Among other things,
the bylaws require Hawker to indemnify directors and officers against certain
liabilities that may arise because of their status or service as directors
and officers. The bylaws allow Hawker to advance expenses they incur due to
any proceeding against them as to which they could be indemnified.
Hawker believes that it is the position of the SEC 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.
Hawker has entered into indemnification agreements with each of its
directors and executive officers. Each indemnification agreement requires Hawker
to indemnify the indemnitee against expenses, including reasonable attorneys'
fees, judgments, 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 his performance as a director or
officer, other than an action instituted by the director or officer. Such
indemnification is available if the indemnitee acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
Hawker, and, with respect to any criminal action, had no reasonable cause to
believe his conduct was unlawful. Each indemnification agreement requires Hawker
to indemnify the indemnitee in all cases to the fullest extent permitted by
applicable law. Each indemnification agreement permits the subject director or
officer to bring suit to recover amounts due under the indemnification agreement
and to recover the expenses of the suit if he is successful. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling Hawker pursuant to the
foregoing provisions, Hawker has been informed that in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable. Hawker believes that the indemnification
provision of its articles and bylaws are necessary to attract and retain
qualified directors and officers.
21
<PAGE>
LEGAL MATTERS
The validity of the shares offered hereby has been passed upon by Troy &
Gould Professional Corporation, Los Angeles, California.
EXPERTS
Ernst & Young, LLP, independent auditors, have audited our consolidated
financial statements included in our Annual report on Form 10-K for the year
ended December 31, 1998, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young,
LLP's report, given on their authority as experts in accounting and auditing.
22
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFERING HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY SELLING SECURITYHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES TO ANY PERSON IN ANY
STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
Page
The Company.......................................2
Available Information.............................2
Incorporation of Certain
Documents by Reference.........................3
Forward Looking Statements........................4
Risk Factors......................................4
Use of Proceeds..................................12
Selling Shareholders.............................12
Plan of Distribution.............................15
Description of Our Capital Stock.................16
Legal Matters....................................22
Experts..........................................22
COMMON STOCK
HAWKER PACIFIC AEROSPACE
1,831,597 SHARES
------------
PROSPECTUS
------------
February __, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company estimates that expenses in connection with the distributions
described in this Registration Statement will be as set forth below. Such costs
and expenses shall be borne by the Company. Any commissions, discounts and
transfer taxes, if any, attributable to the sales of the shares being registered
hereunder will be borne by the Selling Securityholders.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee........................................ $ 3,296
Nasdaq filing............................................... $17,500
Printing expenses........................................... $ 1,000
Accounting fees and expenses................................ $ 3,000
Legal fees and expenses..................................... $15,000
Miscellaneous............................................... $ 2,704
-------
Total $42,500
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Articles of Incorporation, as amended
("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 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
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 indemnification agreements ("Indemnification
Agreement(s)") with each of its directors and executive officers. Each such
Indemnification Agreement provides that the Company will indemnify the
indemnitee against expenses, including reasonable attorneys' fees, judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any civil or criminal action or administrative
proceeding arising out of the performance of his duties as a director or
officer, other than an action instituted by the director or officer. Such
indemnification is available if the indemnitee acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action, had no reasonable cause
to believe his conduct was unlawful. The Indemnification Agreements require that
the Company indemnify the director or other party thereto in all cases to the
fullest extent permitted by applicable law. Each Indemnification
<PAGE>
Agreement permits the director or officer that is party thereto to bring suit
to seek recovery of amounts due under the Indemnification Agreement and to
recover the expenses of such a suit if he is successful. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. The Company
believes that its Amended Articles and Bylaw provisions are necessary to
attract and retain qualified persons as directors and officers.
ITEM 16. EXHIBITS
The following exhibits are filed herewith or incorporated by reference as a
part of this Registration Statement:
<TABLE>
<CAPTION>
<C> <S>
3 Certificate of Determination for 8% Series C Convertible Preferred
Stock as filed with the California Secretary of State on December
9, 1999.*
4.1 Copy of Warrant to purchase 50,000 shares issued to Brighton
Capital, Ltd. dated December 10, 1999.*
4.2 Copy of Warrant to purchase 125,000 shares issued to Deephaven
Private Placement Trading Ltd. dated December 10, 1999.*
5 Opinion of Troy & Gould Professional Corporation (filed herewith).
10.1 Convertible Preferred Stock Purchase Agreement dated December 10,
1999 between the Company and Deephaven Private Placement Trading
Ltd. (filed herewith).
10.2 Registration Rights Agreement dated December 10, 1999 between the
Company and Deephaven Private Placement Trading Ltd.*
10.3 Waiver and Amendment No. 2 to the Loan and Security Agreement
(filed herewith).
23.1 Consent of Troy & Gould Professional Corporation (included in
Exhibit 5) (filed herewith).
23.2 Consent of Ernst & Young LLP (filed herewith).
24 Power of Attorney (included on page II-5 hereof).*
- ------------------------------------
</TABLE>
* Previously filed on December 22, 1999.
ITEM 17. UNDERTAKINGS
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, 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; and
(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;
<PAGE>
provided, however, that (i) and (ii) do not apply if the registration
statement is on Form S-3, and the information required to be included in a
post-effective amendment is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to section 13 or section
15(d) of the Exchange Act that are incorporated by reference 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 at that time 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.
(b) The undersigned Company hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the Company's
annual report pursuant to section 13(a) or section 15(d) of the Exchange Act
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company 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
Company 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 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.
(d) The undersigned Company 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 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to
Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Sun Valley, State of
California, on January 28, 2000.
HAWKER PACIFIC AEROSPACE
By: /s/ David L. Lokken
------------------------------------
David L. Lokken
President and Chief Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ------- ------
<S> <C> <C>
/s/ Dan Lubeck * Chairman of the Board January 28, 2000
- ---------------------------------------
Daniel J. Lubeck
/s/ David L. Lokken Chief Executive Officer (Principal January 28, 2000
- --------------------------------------- Executive Officer), President and
David L. Lokken Director
/s/ Philip Panzera * Executive Vice President January 28, 2000
- --------------------------------------- (Principal Financial and Accounting
Philip Panzera Officer)
/s/ Scott W. Hartman * Director January 28, 2000
- ---------------------------------------
Scott W. Hartman
/s/ John G. Makoff * Director January 28, 2000
- ---------------------------------------
John G. Makoff
/s/ Daniel C. Toomey, Jr. * Director January 28, 2000
- ---------------------------------------
Daniel C. Toomey, Jr.
/s/ Mellon C. Baird * Director January 28, 2000
- ---------------------------------------
Mellon C. Baird
/s/ Joel F. McIntyre * Director January 28, 2000
- ---------------------------------------
Joel F. McIntyre
*By:/s/ David L. Lokken
-----------------------------------
David L. Lokken, as
Attorney-In-Fact
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number
--------
<C> <S>
3 Certificate of Determination for 8% Series C Convertible
Preferred Stock as filed with the California Secretary of State
on December 9, 1999.*
4.1 Copy of Warrant to purchase 50,000 shares issued to Brighton
Capital, Ltd. dated December 10, 1999.*
4.2 Copy of Warrant to purchase 125,000 shares issued to Deephaven
Private Placement Trading Ltd. dated December 10, 1999.*
5 Opinion of Troy & Gould Professional Corporation (filed
herewith).
10.1 Convertible Preferred Stock Purchase Agreement dated December 10,
1999 between the Company and Deephaven Private Placement Trading
Ltd. (filed herewith).
10.2 Registration Rights Agreement dated December 10, 1999 between the
Company and Deephaven Private Placement Trading Ltd.*
10.3 Waiver and Amendment No. 2 of Loan and Security Agreement
(filed herewith).
23.1 Consent of Troy & Gould Professional Corporation (included in
Exhibit 5) (filed herewith).
23.2 Consent of Ernest & Young, LLP (filed herewith).
24 Power of Attorney (included on page II-5 hereof).*
- --------------------
</TABLE>
* Previously filed on December 22, 1999.
<PAGE>
EXHIBIT 5
TROY & GOULD
PROFESSIONAL CORPORATION
1801 CENTURY PARK EAST, 16TH FLOOR
LOS ANGELES, CALIFORNIA 90067
TELEPHONE (310) 553-4441
February 1, 2000
Hawker Pacific Aerospace
11249 Sherman Way
Sun Valley, CA 91352
Re: REGISTRATION STATEMENT ON FORM S-3
At your request, we have examined the Registration Statement on Form S-3
(the "Registration Statement") of Hawker Pacific Aerospace, Inc. (the
"Company"), which has been prepared for filing with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"). The
Registration Statement relates to 1,831,597 shares of the Company's common stock
(the "Shares") issuable upon the exercise of certain warrants or upon the
conversion of certain convertible preferred stock, as described in the
Registration Statement. The Shares are to be offered for sale by certain selling
securityholders as described therein. Capitalized terms not defined herein shall
have the definitions ascribed to them in the Registration Statement.
We are familiar with the corporate proceedings heretofore taken by the
Company in connection with the authorization for issuance of the Shares. In
addition, we have examined such records of the Company as in our judgment were
necessary or appropriate to enable us to render the opinions expressed herein.
Based on the foregoing, it is our opinion that the Shares have been duly
and validly authorized and, when issued in accordance with the warrants relating
thereto or the certificate of designations authorizing the series of the
convertible preferred stock converted thereto, as applicable, will be duly and
validly issued, fully paid and nonassessable.
We consent to the use of our name under the caption "Legal Matters" in the
Registration Statement and the prospectus made part thereof, 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 or prospectus within the meaning of the term
"expert" as used in Section 11 of the 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 Act.
Very truly yours,
/S/ TROY & GOULD
Troy & Gould
Professional Corporation
<PAGE>
================================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Among
HAWKER PACIFIC AEROSPACE
and
THE INVESTORS SIGNATORY HERETO
Dated as of December 10, 1999
================================================================================
<PAGE>
CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated
as of December 10, 1999, among Hawker Pacific Aerospace, a California
corporation (the "COMPANY"), and the investors signatory hereto (each such
investor is a "PURCHASER" and all such investors are, collectively, the
"PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers and the Purchasers,
severally and not jointly, desire to purchase from the Company, shares of the
Company's 8% Series C Convertible Preferred Stock (the "PREFERRED STOCK"), which
are convertible into shares of the Company's common stock, no par value (the
"COMMON STOCK").
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy are hereby acknowledged, the Company and the Purchasers agree as
follows:
ARTICLE I
PURCHASE AND SALE
1.1 THE CLOSING.
(a) THE CLOSING. (i) Subject to the terms and conditions set forth
in this Agreement, the Company shall issue and sell to the Purchasers and the
Purchasers shall, severally and not jointly, purchase 300 shares of Preferred
Stock (the "SHARES") for an aggregate purchase price of $3,000,000. The closing
of the purchase and sale of the Shares (the "CLOSING") shall take place at the
offices of Robinson Silverman Pearce Aronsohn & Berman LLP ("ROBINSON
SILVERMAN"), 1290 Avenue of the Americas, New York, New York 10104, immediately
following the execution hereof or such later date as the parties shall agree.
The date of the Closing is hereinafter referred to as the "CLOSING DATE."
(ii) At the Closing, the parties shall deliver or shall cause to be
delivered the following: (A) the Company shall deliver to each Purchaser (1)
stock certificates, registered in the name of such Purchaser, representing a
number of Shares equal to the quotient obtained by dividing the purchase price
indicated below such Purchaser's name on the signature page to this Agreement by
10,000, (2) a Common Stock purchase warrant, in the form of EXHIBIT D,
registered in the name of such Purchaser, pursuant to which such Purchaser shall
have the right at any time and from time to time thereafter through the fifth
anniversary of the Closing Date to acquire the number of shares of Common Stock
indicated below such Purchaser's name on the signature page to this
(collectively, the "WARRANTS"), (3) the legal opinion of Troy & Gould
Professional Corporation, counsel to the Company in the form of EXHIBIT C, and
(4) all other documents, instruments and writings required to have been
delivered at or prior to the Closing Date by the Company pursuant to this
Agreement, including an executed Registration Rights Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of EXHIBIT B (the
"REGISTRATION RIGHTS AGREEMENT") the Irrevocable Transfer Agent Instructions, in
the form of EXHIBIT E, delivered to and
<PAGE>
acknowledged by the Company's transfer agent (the "TRANSFER AGENT
INSTRUCTIONS"), and a letter agreement, dated the date hereof, among the Company
and the Purchasers, in the form of EXHIBIT F (the "LETTER AGREEMENT"); and (B)
each Purchaser shall deliver (1) the purchase price indicated below such
Purchaser's name on the signature page to this Agreement in United States
dollars in immediately available funds by wire transfer to an account designated
in writing by the Company for such purpose, and (2) all documents, instruments
and writings required to have been delivered at or prior to the Closing Date by
such Purchaser pursuant to this Agreement, including, without limitation, an
executed Registration Rights Agreement and Letter Agreement.
1.2 TERMS OF PREFERRED STOCK. The Preferred Stock shall have the
rights preferences and privileges set forth in EXHIBIT A, and shall be
incorporated into a Certificate of Determination (the "CERTIFICATE OF
DETERMINATION") which shall be filed on or prior to the Closing Date by the
Company with the Secretary of State of the State of California, in form and
substance mutually agreed to by the parties.
1.3 CERTAIN DEFINED TERMS. For purposes of this Agreement,
"CONVERSION PRICE," "ORIGINAL ISSUE DATE" and "TRADING DAY" shall have the
meanings set forth in EXHIBIT A; "BUSINESS DAY" shall mean any day except
Saturday, Sunday and any day which shall be a federal legal holiday or a day on
which banking institutions in the State of New York or the State of California
are authorized or required by law or other governmental action to close;
"PERSON" means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchasers:
(a) ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of California, with the requisite corporate power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. The Company has no subsidiaries other than as set forth in SCHEDULE
2.1(A) (collectively the "SUBSIDIARIES"). Each of the Subsidiaries is an entity,
duly incorporated or otherwise organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted. Each
of the Company and the Subsidiaries is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate, (x) adversely
-2-
<PAGE>
affect the legality, validity or enforceability of the Securities (as defined
below) or any of this Agreement, the Registration Rights Agreement, the Letter
Agreement, the Transfer Agent Instructions or the Warrants (collectively, the
"TRANSACTION DOCUMENTS"), (y) have or result in a material adverse effect on the
results of operations, assets, prospects, or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or (z) adversely impair
the Company's ability to perform fully on a timely basis its obligations under
any of the Transaction Documents (any of (x), (y) or (z), a "MATERIAL ADVERSE
EFFECT").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company. Each of
the Transaction Documents has been duly executed by the Company and, when
delivered (or filed, as the case may be) in accordance with the terms hereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective articles
of incorporation, by-laws or other charter documents.
(c) CAPITALIZATION. The number of authorized, issued and
outstanding capital stock of the Company is set forth in SCHEDULE 2.1(C). No
shares of Common Stock are entitled to preemptive or similar rights, nor is any
holder of the Common Stock entitled to preemptive or similar rights arising out
of any agreement or understanding with the Company by virtue of any of the
Transaction Documents. Except as a result of the purchase and sale of the Shares
and the Warrants and except as disclosed in SCHEDULE 2.1(C), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock. To
the knowledge of the Company, except as specifically disclosed in the SEC
Reports (as defined below) or in filed Schedule 13-D's or 13-G's or SCHEDULE
2.1(C), no Person or group of related Persons beneficially owns (as determined
pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")), or has the right to acquire by agreement with or
by obligation binding upon the Company, in excess of 5% of the Common Stock.
(d) ISSUANCE OF THE SHARES AND THE WARRANTS. The Shares and the
Warrants are duly authorized and, when issued and paid for in accordance with
the terms hereof, will be duly and validly issued, fully paid and nonassessable,
free and clear of all liens, encumbrances and rights of first refusal of any
kind (collectively, "LIENS"). The Company has on the date hereof and will, at
all times while the Shares and the Warrants are outstanding, maintain an
adequate reserve of duly authorized shares of Common Stock, reserved for
issuance to the holders of the Shares and the
-3-
<PAGE>
Warrants, to enable it to perform its conversion, exercise and other obligations
under this Agreement, the Certificate of Designation and the Warrants. Such
number of reserved and available shares of Common Stock is not less than the sum
of (i) 200% of the number of shares of Common Stock which would be issuable upon
conversion in full of the Shares, assuming that the Shares are outstanding for
three (3) years and that such conversion occurred on the Original Issue Date (as
defined in Exhibit A) at the Conversion Price, and (ii) the number of shares of
Common Stock issuable upon exercise of the Warrants (such number of shares of
Common Stock as contemplated in clauses (i)-(ii), the "INITIAL MINIMUM"). All
such authorized shares of Common Stock shall be duly reserved for issuance to
the holders of the Shares and the Warrants. The shares of Common Stock issuable
upon conversion of the Shares and upon exercise of the Warrants are collectively
referred to herein as the "UNDERLYING SHARES." The Shares, the Warrants and the
Underlying Shares are collectively referred to herein as, the "SECURITIES." When
issued in accordance with the Certificate of Designation and the Warrants, the
Underlying Shares will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all Liens.
(e) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate of
incorporation, bylaws or other charter documents (each as amended through the
date hereof), or (ii) subject to obtaining the Required Approvals (as defined
below), conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), as could not, individually or in the aggregate, have or
result in a Material Adverse Effect. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
authority, except for violations which, individually or in the aggregate, would
reasonably be expected to have or result in a Material Adverse Effect.
(f) FILINGS, CONSENTS AND APPROVALS. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing of the Certificate of
Designation with the Secretary of State of California, (ii) the filings required
pursuant to Section 3.11, (iii) the filing with the Securities and Exchange
Commission (the "Commission") of a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale of the Underlying Shares by the Purchasers (the "UNDERLYING SHARES
REGISTRATION STATEMENT"), (iv) the
-4-
<PAGE>
application(s) to the Nasdaq National Market ("NASDAQ") for the listing of the
Underlying Shares for trading on the NASDAQ (and with any other national
securities exchange or market on which the Common Stock is then listed), (v)
applicable Blue Sky filings and (vi) in all other cases where the failure to
obtain such consent, waiver, authorization or order, or to give such notice or
make such filing or registration could not have or result in, individually or in
the aggregate, a Material Adverse Effect (collectively, the "REQUIRED
APPROVALS").
(g) LITIGATION; PROCEEDINGS. Except as set forth in SCHEDULE
2.1(G), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or any of their respective
properties before or by any court, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) (collectively,
an "ACTION") which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
would reasonably be expected to, individually or in the aggregate, have or
result in a Material Adverse Effect.
(h) NO DEFAULT OR VIOLATION. Except as set forth in SCHEDULE
2.1(H), neither the Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred which has not been waived which, with
notice or lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not such
default or violation has been waived), (ii) is in violation of any order of any
court, arbitrator or governmental body, or (iii) is in violation of any statute,
rule or regulation of any governmental authority except as would reasonably be
expected to, not individually or in the aggregate, have or result in a Material
Adverse Effect.
(i) PRIVATE OFFERING. Assuming the accuracy of the representations
and warranties of the Purchasers set forth in Sections 2.2(b)-(g), the offer,
issuance and sale of the Securities to the Purchasers as contemplated hereby are
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "SECURITIES ACT"). Neither the Company nor any Person acting on its
behalf has taken or is, to the knowledge of the Company, contemplating taking
any action which could subject the offering, issuance or sale of the Securities
to the registration requirements of the Securities Act including soliciting any
offer to buy or sell the Securities by means of any form of general solicitation
or advertising.
(j) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed all
reports required to be filed by it under the Securities Act and the Exchange Act
for the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing materials
being collectively referred to herein as the "SEC REPORTS" and, together with
the Schedules to this Agreement, the "DISCLOSURE MATERIALS") on a timely basis
or has received a valid extension of such time of filing and has filed any such
SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of
-5-
<PAGE>
the Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All material agreements to which the Company is a party or to which
the property or assets of the Company are subject have been filed as exhibits to
the SEC Reports. The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto, and fairly present in all
material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments. Since September
30, 1999, except as specifically disclosed in the SEC Reports, (a) there has
been no event, occurrence or development that has or that would reasonably be
expected to result in a Material Adverse Effect, (b) the Company has not
incurred any liabilities (contingent or otherwise) other than (x) liabilities
incurred in the ordinary course of business consistent with past practice and
(y) liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made with the
Commission, (c) the Company has not altered its method of accounting or the
identity of its auditors and (d) the Company has not declared or made any
payment or distribution of cash or other property to its stockholders or
officers or directors (other than in compliance with existing Company stock
option plans) with respect to its capital stock, or purchased, redeemed (or made
any agreements to purchase or redeem) any shares of its capital stock.
(k) INVESTMENT COMPANY. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(l) CERTAIN FEES. Except for certain fees payable to Brighton
Capital, Ltd. by the Company, no fees or commissions will be payable by the
Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, or bank with respect to the transactions contemplated by this
Agreement. The Purchasers shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement. The Company shall indemnify and
hold harmless the Purchasers, their employees, officers, directors, agents, and
partners, and their respective Affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as such fees
and expenses are incurred.
(m) SOLICITATION MATERIALS. Neither the Company nor any Person
acting on the Company's behalf has solicited any offer to buy or sell the
Securities by means of any form of general solicitation or advertising.
-6-
<PAGE>
(n) FORM S-3 ELIGIBILITY. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(o) EXCLUSIVITY. The Company shall not issue and sell the Shares
to any Person other than the Purchasers other than with the specific prior
written consent of the Purchasers.
(p) SENIORITY. Except the Series B Junior Participating Preferred
Stock, no class of equity securities of the Company is senior to the Shares in
right of payment, whether upon liquidation or dissolution, or otherwise.
(q) LISTING AND MAINTENANCE REQUIREMENTS. The Company has not, in
the two years preceding the date hereof, received notice (written or oral) from
the NASDAQ or any other stock exchange, market or trading facility on which the
Common Stock is or has been listed (or on which it has been quoted) to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listings and maintenance requirements.
(r) PATENTS AND TRADEMARKS. The Company and its Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and rights
(collectively, the "INTELLECTUAL PROPERTY RIGHTS") which are necessary or
material for use in connection with their respective business as described in
the SEC Reports and as contemplated to be conducted, and which the failure to so
have would have a Material Adverse Effect. Neither the Company nor any
Subsidiary has received a written notice that the Intellectual Property Rights
used by the Company or its Subsidiaries violates or infringes upon the rights of
any Person, to the best knowledge of the Company. All such Intellectual Property
Rights are enforceable and to the best knowledge of the Company, there is no
existing infringement by another Person of any of the Intellectual Property
Rights.
(s) REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as set
forth on SCHEDULE 6(B) to the Registration Rights Agreement, the Company has not
granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been satisfied. No
Person has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by the
Transaction Documents.
(t) REGULATORY PERMITS. The Company and its Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Reports, except where the failure to possess
such permits would reasonably be expected to, individually or in the aggregate,
have or result in a Material Adverse Effect ("MATERIAL PERMITS"), and neither
the Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
-7-
<PAGE>
(u) LABOR RELATIONS. Except as set forth in SCHEDULE 2.1(U), No
material labor problem exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company.
(v) TITLE. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them which is
material to the business of the Company and its Subsidiaries and good and
marketable personal property owned by them which is material to the business of
the Company and its Subsidiaries, in each case free and clear of all Liens,
except for Liens as do not affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its Subsidiaries. Any real property and facilities held under lease
by the Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its Subsidiaries.
(w) DISCLOSURE. The Company confirms that it has not provided any
of the Purchasers or its agents or counsel with any information that constitutes
or would constitute material non-public information. The Company understands and
confirms that the Purchasers shall be relying on the foregoing representations
in effecting transactions in securities of the Company. All disclosure provided
to the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by or
on behalf of the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby for itself and for no other Purchaser, represents and warrants to the
Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The purchase by such Purchaser of the Securities
hereunder has been duly authorized by all necessary action on the part of such
Purchaser. Each of this Agreement, the Letter Agreement and the Registration
Rights Agreement has been duly executed by such Purchaser, and when delivered by
such Purchaser in accordance with the terms hereof, will constitute the valid
and legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms.
(b) INVESTMENT INTENT. Such Purchaser is acquiring the Securities
as principal for its own account for investment purposes only and not with a
view to or for distributing or reselling such Securities or any part thereof,
without prejudice, however, to such Purchaser's right, subject to the provisions
of this Agreement and the Registration Rights Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act and in compliance with
applicable federal and state securities laws or under
-8-
<PAGE>
an exemption from such registration. Nothing contained herein shall be deemed a
representation or warranty by such Purchaser and such Purchaser makes no such
representations or warranties to hold Securities for any amount of time.
(c) PURCHASER STATUS. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and at each exercise date
under the Warrants, it will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act. Such Purchaser has not been formed solely for
the purpose of acquiring the Securities.
(d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) ABILITY OF PURCHASER TO BEAR RISK OF INVESTMENT. Such
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(f) ACCESS TO INFORMATION. Such Purchaser acknowledges that it has
reviewed the Disclosure Materials and has been afforded (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment. Neither such
inquiries nor any other investigation conducted by or on behalf of such
Purchaser or its representatives or counsel shall modify, amend or affect such
Purchaser's right to rely on the truth, accuracy and completeness of the
Disclosure Materials and the Company's representations and warranties contained
in the Transaction Documents.
(g) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.
(h) RELIANCE. Such Purchaser understands and acknowledges that (i)
the Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance.
-9-
<PAGE>
The Company acknowledges and agrees that no Purchaser makes or has
made representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 TRANSFER RESTRICTIONS. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act, and in
compliance with any applicable federal and state securities laws. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration under the Securities Act. Notwithstanding
the foregoing, the Company, without requiring a legal opinion as described in
the immediately preceding sentence, hereby consents to and agrees to register on
the books of the Company and with any transfer agent for the securities of the
Company any transfer of Securities by a Purchaser to an Affiliate of such
Purchaser or to one or more funds or managed accounts under common management
with such Purchaser, and any transfer among any such Affiliates or one or more
funds or managed accounts, provided that the transferee certifies to the Company
that it is an "accredited investor" within the meaning of Rule 501(a) under the
Securities Act and that it is acquiring the Securities solely for investment
purposes (subject to the qualifications hereof). As a condition of transfer, any
such transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Purchaser under this Agreement and the
Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required
by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
-10-
<PAGE>
Underlying Shares shall not contain the legend set forth above nor
any other legend if the conversion of Shares and exercise of the Warrants or
other issuances of Underlying Shares as contemplated hereby by the Certificate
of Designation or the Warrants, occurs at any time while an Underlying Shares
Registration Statement is effective under the Securities Act or, in the event
there is not an effective Underlying Shares Registration Statement at such time
if such legend is not required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued by the staff
of the Commission). The Company shall cause its counsel to issue the legal
opinion included in the Transfer Agent Instructions to the Company's transfer
agent on the day that the Underlying Shares Registration Statement is declared
effective by the Commission (the "EFFECTIVE DATE"). The Company agrees that if
any Underlying Shares are issued with a legend in accordance with this Section
3.1(b), it will, within three (3) Trading Days (i) after request therefor by a
Purchaser, and (ii) after the stock certificate for such legended Underlying
Shares are received by the Company's Transfer Agent, provide such Purchaser with
a new certificate or certificates representing such Underlying Shares, free from
such legend at such time as such legend would not have been required under this
Section 3.1(b) had such issuance occurred on the date of such request. The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions of transfer set
forth in this Section.
3.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Shares in
accordance with the terms of the Certificate of Designation, and (ii) exercise
of the Warrants in accordance with their terms, will result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
to issue Underlying Shares upon (x) conversion of the Shares in accordance with
the terms of the Certificate of Designation, and (y) exercise of the Warrants
pursuant to the terms thereof, is unconditional and absolute, subject to the
limitations set forth herein, in the Certificate of Designation or pursuant to
the Warrants, regardless of the effect of any such dilution.
3.3 FURNISHING OF INFORMATION. As long as the Purchasers own Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. So long as the
Purchasers own Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) promulgated under the
Securities Act such information as is required for the Purchasers to sell the
Securities under Rule 144 promulgated under the Securities Act. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell Underlying Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including the legal opinion referenced
above in this Section. Upon the request of any such Person, the Company shall
deliver to such Person a written certification of a duly authorized officer as
to whether it has complied with such requirements.
-11-
<PAGE>
3.4 INTEGRATION. The Company shall not, and shall use its best efforts
to ensure that, no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers.
3.5 INCREASE IN AUTHORIZED SHARES. If on any date the Company would be,
if a notice of conversion or exercise (as the case may be) were to be delivered
on such date, precluded from issuing the sum of (i) 200% of the number of
Underlying Shares then issuable upon conversion in full of the Shares and (ii)
the number of Underlying Shares issuable upon exercise in full of the Warrants
(the "CURRENT REQUIRED MINIMUM") due to the unavailability of a sufficient
number of authorized but unissued or reserved shares of Common Stock, then the
Board of Directors of the Company shall promptly (and in any case, within 30
Business Days from such date, which date may be extended with the consent of 51%
of the number of Series C Preferred Stock outstanding) prepare and mail to the
stockholders of the Company proxy materials requesting authorization to amend
the Company's articles of incorporation to increase the number of shares of
Common Stock which the Company is authorized to issue to at least such number of
shares as is reasonably adequate to enable the Company to comply with its
issuance, conversion, exercise and reservation of shares obligations as set
forth in this Agreement, the Certificate of Designation and the Warrants (the
sum of (x) the number of shares of Common Stock then outstanding plus all shares
of Common Stock issuable upon exercise of all outstanding options, warrants and
convertible instruments, and (y) the Current Required Minimum, is deemed for
purposes hereof to be a reasonable number). In connection therewith, the Board
of Directors shall (a) adopt proper resolutions authorizing such increase, (b)
recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the stockholders no later than the earlier to occur of the 60th day after
delivery of the proxy materials relating to such meeting but, in any event, not
more than the 90th day after request by a holder of Securities to issue the
number of Underlying Shares in accordance with the Certificate of Designation
and Warrants) and (c) within five (5) Business Days of obtaining such
stockholder authorization, file an appropriate amendment to the Company's
articles of incorporation to evidence such increase.
3.6 LISTING OF UNDERLYING SHARES. The Company shall (i) in the time and
manner required by NASDAQ and such other exchange, market or quotation system on
which the Common Stock is traded, but in any event, not later than the fifth
(5th) Business Day following the Closing Date prepare and file with the NASDAQ
(and such other national securities exchange or market or trading or quotation
facility on which the Common Stock is then listed) an additional shares listing
application covering a number of shares of Common Stock which is not less than
the Initial Minimum, (b) take all steps necessary to cause such shares of Common
Stock to be approved for listing in the NASDAQ (as well as on any such other
national securities exchange or market or trading or quotation facility on which
the Common Stock is then listed) as soon as possible thereafter, and (c) provide
to the Purchasers evidence of such listing, and the Company shall maintain the
listing of its Common Stock thereon. If the number of Underlying Shares issuable
upon conversion in full of the then outstanding Shares and upon exercise of the
then unexercised portion of the Warrants exceeds 85% of the number of Underlying
Shares previously listed on account
-12-
<PAGE>
thereof with NASDAQ (and any such other required exchanges), then the Company
shall take the necessary actions to immediately list a number of Underlying
Shares as equals no less than the then Current Required Minimum
(b) The Company shall maintain a reserve of shares of Common Stock
for issuance upon conversion of the Shares and upon exercise in full of the
Warrants in accordance with this Agreement, the Certificate of Designation and
the Warrants, respectively, in such amount as may be required to fulfill its
obligations in full under the Transaction Documents, which reserve shall equal
no less than the then Current Required Minimum.
3.7 CONVERSION AND EXERCISE PROCEDURES. The Transfer Agent Instructions,
Conversion Notice in the form set forth as EXHIBIT G and Notice of Exercise
under the Warrants set forth the totality of the procedures with respect to the
conversion of the Shares and exercise of the Warrants, including the form of
legal opinion, if necessary, that shall be rendered to the Company's transfer
agent and such other information and instructions as may be reasonably necessary
to enable the Purchasers to convert their Shares and exercise their Warrants as
contemplated in the Certificate of Designation and the Warrants (as applicable).
3.8 NOTICE OF BREACHES. Each of the Company and the Purchasers shall
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained therein to be
incorrect or breached as of the Closing Date. However, no disclosure by either
party pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.
3.9 CONVERSION AND EXERCISE OBLIGATIONS OF THE COMPANY. The Company
shall honor conversions of the Shares and exercises of the Warrants and shall
deliver Underlying Shares in accordance with the respective terms, conditions
and time periods set forth in the Certificate of Designation and the Warrants.
3.10 SUBSEQUENT FINANCING AND REGISTRATIONS. (a) The Company shall not,
until the earlier to occur of (i) the date on which 85% of the Shares shall have
been converted, or (ii) the 180th days following the Effective Date, PROVIDED,
that such 180th day period shall be extended for the number of Trading Days
during such period (A) in which trading in the Common Stock is suspended by the
NASDAQ or such market or quotation system on which the Common Stock is then
listed, or (B) during which the Underlying Shares Registration Statement is not
effective, or (C) during which the prospectus included in the Underlying Shares
Registration Statement may not be used by the holders thereof for the resale of
Underlying Shares, directly or indirectly, without the prior written consent of
the Purchasers, offer, sell, grant any option to purchase, or otherwise dispose
of (or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities including the issuance of any debt or other instrument at any time
over life thereof convertible into or exchangeable for Common Stock, or any
other transaction intended to be exempt or not subject to registration under the
Securities Act, at a purchase price per share of
-13-
<PAGE>
Common Stock lower then the then applicable Per Share Market Value (a
"SUBSEQUENT PLACEMENT"), except for an additional financing by the Purchasers,
or any other third party as the Company and the Purchasers shall agree, of the
Company's Series D Preferred Stock in the aggregate sum of up to $1,000,000.
(b) Except for Underlying Shares and other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered, and securities of the Company permitted pursuant to Schedule 6(b) of
the Registration's Rights Agreement to be registered, in the Underlying Shares
Registration Statement in accordance with the Registration Rights Agreement, the
Company shall not, for a period of not less than 90 Trading Days after the
Effective Date, without the prior written consent of the Purchasers (i) issue or
sell any of its or any of its Affiliates' equity or equity-equivalent securities
pursuant to Regulation S promulgated under the Securities Act, or (ii) file a
registration statement for the issuance or resale of any securities of the
Company, except for a Form S-4 or successor form in connection with a Change of
Control Transaction where the Company has complied with its obligations
hereunder in connection therewith, including pursuant to Section 5(c)(viii) and
Section 7 of the Certificate of Designation. Any days after the Effective Date
that a Purchaser is not permitted or unable to utilize the prospectus or
otherwise to resell Underlying Shares under the Underlying Shares Registration
Statement shall be added to such 90 Trading Day period for the purposes of this
Section.
3.11 CERTAIN SECURITIES LAWS DISCLOSURES; PUBLICITY. The Company shall
(i) within one (1) Business Day of the Closing Date, issue a press release
acceptable to the Purchasers (and Purchasers shall timely approve such press
release) disclosing the transactions contemplated hereby, (ii) file with the
Commission such disclosure as the Company determines is required to disclose the
transaction contemplated hereby in accordance with applicable securities laws,
and (iii) timely file with the Commission a Form D promulgated under the
Securities Act as required under Regulation D promulgated under the Securities
Act and provide a copy thereof to the Purchasers promptly after the filing
thereof. The Company shall, no less than one (1) Business Days prior to the
filing of any disclosure required by clauses (ii) and (iii) above, provide a
copy thereof to the Purchasers. The Company and the Purchasers shall consult
with each other in issuing any press releases or otherwise making public
statements or filings and other communications with the Commission or any
regulatory agency or stock market or trading facility with respect to the
transactions contemplated hereby and neither party shall issue any such press
release or otherwise make any such public statement, filings or other
communications pertaining to the transactions contemplated hereby without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law and such consent can not reasonably be expected to
be received prior to the time required to complete such filing or make such
statement in accordance with such applicable law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement, filing or other communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of a Purchaser, or include the name
of a Purchaser in any filing with the Commission, or any regulatory agency,
trading facility or stock market without the prior written consent of such
Purchaser, except to the extent such disclosure (but not any disclosure as to
the controlling Persons thereof) is required by law, in which case the Company
shall provide such Purchaser with prior
-14-
<PAGE>
notice of such disclosure.
3.12 TRANSFER OF INTELLECTUAL PROPERTY RIGHTS. Except in connection with
the sale of all or substantially all of the assets of the Company, the Company
shall not transfer, sell or otherwise dispose of any Intellectual Property
Rights, or allow any of the Intellectual Property Rights to become subject to
any Liens, or fail to renew such Intellectual Property Rights (if renewable and
it would otherwise lapse if not renewed), without the prior written consent of
the Purchasers.
3.13 USE OF PROCEEDS. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes. Pending
application of the proceeds of this placement in the manner permitted hereby,
the Company will invest such proceeds in interest bearing accounts and/or
short-term, investment grade interest bearing securities.
3.14 REIMBURSEMENT. If any Purchaser, other than by reason of its gross
negligence or willful misconduct, fraud, or misrepresentation, becomes involved
in any capacity in any action, proceeding or investigation brought by or against
any Person, including stockholders of the Company, in connection with or as a
result of the consummation of the transactions contemplated by Transaction
Documents, the Company will reimburse such Purchaser for its reasonable legal
and other expenses (including the cost of any investigation and preparation and
travel in connection therewith) incurred in connection therewith, as such
expenses are incurred. In addition, other than with respect to any matter in
which any of the Purchasers is a named party, the Company will pay such
Purchaser the charges, as reasonably determined by such Purchaser, for the time
of any officers or employees of such Purchaser devoted to appearing and
preparing to appear as witnesses, assisting in preparation for hearings, trials
or pretrial matters, or otherwise with respect to inquiries, hearings, trials,
and other proceedings relating to the subject matter of this Agreement. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct, fraud or misrepresentation of the applicable Purchaser or
entity in connection with the transactions contemplated by this Agreement.
3.15 SHAREHOLDERS RIGHTS PLAN. No claim will be made or enforced by the
Company or any other Person that any Purchaser is an "Acquiring Person" under
any shareholders rights plan or in any way could be deemed to trigger the
provisions of such plan by virtue of receiving Securities under the Transaction
Documents.
-15-
<PAGE>
3.16 DELIVERY OF STOCK CERTIFICATES. (i) If stock certificate or
certificates as registered by Section 5(b)(i) of the Certificate of
Determination are not delivered to or as directed by the applicable Purchaser by
the third (3rd) Trading Day after the Conversion Date (as defined in the
Certificate of Determination), the Purchaser shall be entitled to elect by
written notice to the Company at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such conversion, in which
event the Company shall immediately return the certificates representing the
shares of Preferred Stock tendered for conversion and Purchaser shall
immediately return any certificates representing the converted shares of Common
Stock which may be in transit to arrive after such 3rd Trading Day (such
certificates being deemed void ab initio.)
(ii) If the Company fails to deliver to the Purchaser such
certificate or certificates pursuant to Section 5(b)(i) of the Certificate of
Determination, PROVIDED, that the certificate representing the shares of
Preferred Stock to be converted have actually been delivered to the Company, by
the third (3rd) Trading Day after the Conversion Date, the Company shall pay to
such Purchaser, in cash, as liquidated damages and not as a penalty, $5,000 for
each Trading Day after such third (3rd) Trading Day until such certificates are
delivered. Nothing herein shall limit a Purchaser's right to pursue actual
damages for the Company's failure to deliver certificates representing shares of
Common Stock upon conversion within the period specified herein and such
Purchaser shall have the right to pursue all remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief.
(iii) In addition to any other rights available to the Purchaser, if
the Company fails to deliver to the Purchaser such certificate or certificates
pursuant to Section 5(b)(i)of the Certificate of Determination, by the third
(3rd) Trading Day after the Conversion Date, and if after such third (3rd)
Trading Day the Purchaser purchases (in an open market transaction or otherwise)
Common Stock to deliver in satisfaction of a sale by such Purchaser of the
Underlying Shares which the Purchaser was entitled to receive upon such
conversion (a "BUY-IN"), then the Company shall (A) pay in cash to the Purchaser
the amount by which (x) the Purchaser's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the
product of (1) the aggregate number of shares of Common Stock that such
Purchaser was entitled to receive from the conversion at issue multiplied by (2)
the market price of the Common Stock at the time of the sale giving rise to such
purchase obligation and (B) at the option of the Purchaser, either return the
shares of Preferred Stock for which such conversion was not honored or deliver
to such Purchaser the number of shares of Common Stock that would have been
issued had the Company timely complied with its conversion and delivery
obligations under Section 5(b)(i) of the Certificate of Determination. For
example, if the Purchaser purchases Common Stock having a total purchase price
of $11,000 to cover a Buy-In with respect to an attempted conversion of shares
of Preferred Stock with respect to which the market price of the Underlying
Shares on the date of conversion totaled $10,000, under clause (A) of the
immediately preceding sentence the Company shall be required to pay the
Purchaser $1,000. The Purchaser shall provide the Company written notice
indicating the amounts payable to the Purchaser in respect of the Buy-In.
Nothing herein shall limit a Purchaser's right to pursue actual damages for the
Company's failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such
-16-
<PAGE>
Purchaser shall have the right to pursue all remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief.
(iv) (A) Notwithstanding anything herein to the contrary, the
Company shall have the right, exercisable by notice to the Purchasers, to pay
the initial $100,000 of the liquidated damages, if any, that accrue from the
Closing Date under this Section 3.16 and Section 3(a)(ii) of the Registration
Rights Agreement, in one or more of the following: (i) cash, (ii) unregistered
shares of Common Stock determined by dividing the amount of liquidated damages
at issue by the Conversion Price determined at (A) the date that such liquidated
damages were incurred, (B) the date of the filing of the registration statement
covering the resale by the Purchasers of such shares, and (C) the date that the
registration rights covering the resale of such shares by the Purchasers is
declared effective by the Commission; whichever of (A), (B) or (C) yields the
lowest Conversion Price, and (iii) through a promissory note, bearing interest
at the annual rate of 12% or the maximum lowest rate as is permitted under
applicable laws related to usury, payable in full upon the earlier to occur of
270 days from the date of issuance thereof and the occurrence of a Change of
Control Transaction (as defined in the Certificate of Determination).
(B) The Company shall have the right, exercisable by notice
to the Purchasers to pay liquidated damages over the initial $100,000, if any,
that accrue from the Closing Date under this Section 3.16 and Section 3(a)(ii)
of the Registration Rights Agreement, in one or more of the following: (i) cash,
(ii) registered shares of Common Stock determined by dividing the amount of
liquidated damages at issue by the Conversion Price determined the date that
such liquidated damages were incurred.
3.17 REDEMPTION UPON TRIGGERING EVENTS.
(a) Upon the occurrence of a Triggering Event as defined in this
Section), each Purchaser shall (in addition to all other rights it may have
hereunder or under applicable law), have the right, exercisable at the sole
option of such Purchaser, to require the Company to redeem all or a portion of
the Preferred Stock and the Underlying Shares issued in respect of conversions
hereunder not more than 45 Trading Days prior to the date of the Triggering
Event and then held by such Purchaser for a redemption price, in cash, equal to
the sum of (i) the Mandatory Redemption Amount (as defined below) plus (ii) the
product of (A) the number of Underlying Shares issued in respect of conversions
hereunder and then held by the Purchaser and (B) the Per Share Market Value on
the date such redemption is demanded or the date the redemption price hereunder
is paid in full, whichever is greater (such sum, the "REDEMPTION PRICE"). The
Mandatory Redemption Amount payable upon the occurrence of a Triggering Event
pursuant to Section 3.17 (c)(ix), shall be equal to the Change of Control Amount
(as defined in Section 8 of the Certificate of Determination).
(b) All Mandatory Redemption Amounts and the Change of Control
Amount shall be due and payable within five (5) Trading Days of the date on
which the notice for the payment therefor is provided by a Purchaser. If the
Company fails to pay either the Mandatory Redemption Amount or the Change of
Control Amount hereunder in full pursuant to this Section on the date such
amount is due in accordance with this Section, the Company will pay interest
thereon at a rate of
-17-
<PAGE>
18% per annum (or the lesser amount permitted by applicable law), accruing daily
from such date until the Redemption Price or Change of Control Amount (as
applicable), plus all such interest thereon, is paid in full. For purposes of
this Section, a share of Preferred Stock is outstanding until such date as the
Purchaser shall have received Underlying Shares upon a conversion (or attempted
conversion) thereof that meets the requirements hereof.
(c) A "Triggering Event" means any one or more of the following
events (whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(i) the failure of an Underlying Shares Registration
Statement to be declared effective by the Commission on or prior to the 180th
day after the Original Issue Date;
(ii) if, during the Effectiveness Period, the effectiveness
of the Underlying Shares Registration Statement lapses for any reason for more
than an aggregate of ten (10) Trading Days, or the Purchaser shall not be
permitted to resell Registrable Securities under the Underlying Shares
Registration Statement for more than an aggregate of ten (10) Trading Days
(which need not be consecutive Trading Days);
(iii) the failure of the Common Stock to be listed for trading
on the NASDAQ or on a Subsequent Market or the suspension of the Common Stock
from trading on the NASDAQ or on a Subsequent Market, in either case, for more
than three (3) Trading Days (which need not be consecutive Trading Days);
(iv) the Company shall fail for any reason to deliver
certificates representing Underlying Shares issuable upon a conversion hereunder
that comply with the provisions hereof prior to the tenth (10th) Trading Days
after the Conversion Date (provided the stock certificates for the Preferred
Stock is delivered to the Company) or the Company shall provide notice to any
Purchaser, including by way of public announcement, at any time, of its
intention not to comply with requests for conversion of any Preferred Stock in
accordance with the terms hereof;
(v) the Company shall redeem more than a de minimis number
of Common Stock or other Junior Securities (other than redemptions of Underlying
Shares) except as specifically permitted hereunder;
(vi) an Event shall not have been cured to the satisfaction
of the Purchasers prior to the expiration of sixty (60) days from the Event Date
relating thereto (other than an Event pursuant to Section 3(a)(ii) of the
Registration Rights Agreement);
(vii) the Company shall fail for any reason to pay in full the
amount of cash due pursuant to a Buy-In within seven (7) days after notice
therefor is delivered hereunder;
-18-
<PAGE>
(viii) the Company shall fail to have available a sufficient
number of authorized and unreserved shares of Common Stock to issue to such
Purchaser upon a conversion hereunder; or
(ix) the Company shall be a party to any Change of Control
Transaction, shall agree to sell (in one or a series of related transactions) in
excess of 50% of its assets (whether or not such sale would constitute a Change
of Control Transaction).
For the purposes of this Section the following terms shall have the
meaning set forth herein: "CHANGE OF CONTROL TRANSACTION" means the occurrence
of any of (i) an acquisition after the date hereof by an individual or legal
entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of in
excess of 33% of the voting securities of the Company, (ii) a replacement at one
time or over time of more than one-half of the members of the Company's board of
directors which is not approved by a majority of those individuals who are
members of the board of directors on the date hereof (or by those individuals
who are serving as members of the board of directors on any date whose
nomination to the board of directors was approved by a majority of the members
of the board of directors who are members on the date hereof), (iii) the merger
of the Company with or into another entity that is not wholly-owned by the
Company, consolidation or sale of all or substantially all of the assets of the
Company in one or a series of related transactions, or (iv) the execution by the
Company of an agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii).
"MANDATORY REDEMPTION AMOUNT" for each share of Preferred Stock means the sum of
(i) the greater of (A) 125% of the Stated Value and (B) the product of (a) the
Per Share Market Value on the Trading Day immediately preceding (x) the date of
the Triggering Event or the Conversion Date, as the case may be, or (y) the date
of payment in full by the Company of the applicable redemption price, whichever
is greater, and (b) the Conversion Ratio calculated on the date of the
Triggering Event, or the Conversion Date, as the case may be, and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of such share of
Preferred Stock.
ARTICLE IV
MISCELLANEOUS
4.1 FEES AND EXPENSES. At the Closing the Company shall reimburse
the Purchasers for their legal fees and expenses incurred in connection with the
preparation and negotiation of the Transaction Documents by paying to Robinson
Silverman $25,000 for the preparation and negotiation of the Transaction
Documents. The amount contemplated by the immediately preceding sentence shall
be retained by the Purchasers and shall not be delivered to the Company at the
Closing. Other than the amounts contemplated in the immediately preceding
sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.
-19-
<PAGE>
4.2 ENTIRE AGREEMENT; AMENDMENTS. The Transaction Documents, together
with the Exhibits and Schedules thereto contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and
schedules.
4.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 6:30 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Agreement later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices and
communications shall be as follows:
if to the Company: Hawker Pacific Aerospace
11240 Sherman Way,
Sun Valley, California 91352
Facsimile No.:(818) 765-2416 and (818) 765-8073
Attn: Chief Financial Officer
With copies to: Troy & Gould Professional Corporation
1801 Century Park East, Suite 1600
Los Angeles, CA 90067
Facsimile No.: (310) 201-4746
Attn: Yvonne Wong Chester, Esq.
William D. Gould, Esq.
If to a Purchaser: To the address set forth under such Purchaser's
name on the signature pages hereto.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and the Purchasers or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
-20-
<PAGE>
4.5 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Except as set forth in
Section 3.1(a), the Purchasers may not assign this Agreement or any of the
rights or obligations hereunder without the consent of the Company. This
provision shall not limit any Purchaser's right to transfer securities or
transfer or assign rights under the Registration Rights Agreement.
4.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
4.8 GOVERNING LAW. The corporate laws of the State of California shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4.9 SURVIVAL. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and conversion or
exercise (as the case may be) of the Shares and the Warrants.
4.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
-21-
<PAGE>
4.11 SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.12 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchasers agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
4.13 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document is several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert with respect to such obligations or
the transactions contemplated by the Transaction Document. Each Purchaser shall
be entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOWS]
-22-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Preferred Stock Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
HAWKER PACIFIC AEROSPACE.
By: /s/ Philip M. Panzera
-------------------------------
Name: Philip M. Panzera
Title: Executive Vice President
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASERS FOLLOWS]
<PAGE>
DEEPHAVEN PRIVATE PLACEMENT
TRADING LTD.
By: /s/ Irwin Kessler
---------------------------------------
Name: Irwin Kessler
Title: Managing Partner
Purchase Price for Shares to be acquired
at Closing: $3 million
Number of Shares underlying Warrant: 125,000
Address for Notice:
Deephaven Private Placement Trading Ltd.
c/o Deephaven Capital Management LLC
130 Cheshire Lane
Minnetonka, MN 55305
Facsimile No.: (612) 249-5300
Attn: Bruce Lieberman
With copies to:
Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 and (212) 541-1432
Attn: Kenneth L. Henderson, Esq.
Eric L. Cohen, Esq.
<PAGE>
EXHIBIT G
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of 8% Series C
Convertible Preferred Stock indicated below, into shares of Common Stock, no par
value (the "COMMON STOCK"), of Hawker Pacific Aerospace, a California
corporation (the "COMPANY"), according to the conditions hereof, as of the date
written below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
Holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
---------------------------------------------------
Date to Effect Conversion
---------------------------------------------------
Number of shares of Preferred Stock to be Converted
---------------------------------------------------
Stated Value of shares of Preferred Stock to be
Converted
---------------------------------------------------
Number of shares of Common Stock to be Issued
---------------------------------------------------
Applicable Conversion Price
---------------------------------------------------
Signature
---------------------------------------------------
Name
---------------------------------------------------
Address
<PAGE>
WAIVER AND AMENDMENT NO. 2
TO
LOAN AND SECURITY AGREEMENT
This Waiver and Amendment No. 2 to Loan and Security Agreement (this
"Amendment") is entered into as of December ___, 1999 among HAWKER PACIFIC
AEROSPACE, a California corporation ("U.S. BORROWER"), HAWKER PACIFIC AEROSPACE
LIMITED, a company organized under the laws of England and Wales ("U.K.
Borrower" and, collectively with U.S. Borrower, "BORROWERS"), the financial
institution(s) listed on the signature pages hereof and their respective
successors and Eligible Assignees (each, individually, a "Lender" and,
collectively, "LENDERS"), HELLER FINANCIAL, INC., a Delaware corporation, as a
Lender and as Agent for Lenders ("Agent"), and NMB-HELLER LIMITED, an Affiliate
of Agent domiciled in the United Kingdom, as Funding Agent and Collateral Agent
("NMB-HELLER").
RECITALS;
WHEREAS, Borrowers, Lenders, Agent and NMB-Heller are parties to a Loan and
Security Agreement dated as of December 22, 1998 (as heretofore, now, or
hereafter amended, supplemented, restated or otherwise modified, the "Loan
Agreement"); and
WHEREAS, Borrowers, Lenders, Agent and NMB-Heller are also parties to
Waiver and Amendment No. 1 to Loan and Security Agreement dated as of October
21, 1999 (as heretofore, now, or hereafter amended, supplemented, restated or
otherwise modified, the "First Amendment");
WHEREAS, pursuant to the First Amendment, Borrowers agreed, among other
things, that (a) on or prior to November 15, 1999, Borrowers would obtain a
Junior Investment of at least $4,000,000 and (b) within two (2) Business Days
after the date of the First Amendment, Borrowers would cause Unique to deliver a
Refund Agreement on terms and conditions satisfactory to Agent;
WHEREAS, Borrowers have failed to comply with the covenants described in
the preceding clause and such failures constitute Events of Default under the
Loan Agreement (the "Existing Defaults"); and
WHEREAS, Borrowers seek to obtain a preferred equity investment of
$3,000,000 on terms and conditions substantially as set forth in the form of
Convertible Preferred Stock Purchase Agreement attached hereto as Exhibit A (the
"Initial Junior Investment");
NOW, THEREFORE, in consideration of the terms and conditions set forth
herein, and for other good and valuable consideration, the sufficiency of which
is hereby acknowledged, the parties agree as follows:
<PAGE>
1. DEFINITIONS. Unless otherwise defined herein, capitalized terms used
in this Amendment shall have the meanings ascribed to such terms in the Loan
Agreement and the First Amendment.
2. LIMITED WAIVER OF LENDERS. Lenders hereby waive the Existing Defaults.
3. AMENDMENTS TO LOAN AGREEMENT. The parties agree to amend the Loan
Agreement as set forth in this Section 3.
(a) Section 7.5 of the Loan Agreement is hereby amended by deleting
such subsection in its entirety and replacing it with the following:
7.5 RESTRICTED JUNIOR PAYMENTS. Directly or indirectly declare,
order, pay, make or set apart any sum for any Restricted Junior Payment,
except that (a) Subsidiaries of any Borrower may make Restricted Junior
Payments with respect to their common stock (or equivalent equity
interests) to the extent necessary to permit such Borrower to pay the
Obligations, to make Restricted Junior Payments permitted under clauses
(b), (c), (d), (e), (f) and (g) below, and to permit such Borrower to pay
expenses incurred in the ordinary course of business; (b) U.S. Borrower may
pay dividends on account of its Series C Preferred Stock with shares of
common stock; (c) U.S. Borrower pay dividends on account of its Series C
Preferred Stock in cash up to a maximum of $25,000 in the aggregate for all
dividends declared; (d) U.S. Borrower may pay management fees to Unique in
the amounts and on the respective dates required pursuant to the Unique
Management Agreement, so long as (i) such payments do not exceed an
aggregate of $150,000 per Fiscal Year, and (ii) at the time any such
payment is made and after giving effect thereto, no Default or Event of
Default shall have occurred and be continuing; (e) U.S. Borrower may repay
up to $2,500,000 in principal amount of the Subordinated Debt in full on
the Closing Date, so long as after giving effect to such repayment and
after giving effect to the consummation of all of the other transactions
contemplated hereunder on the Closing Date and the payment by Borrowers of
all costs, fees and expenses relating thereto, Borrowers shall have
Availability (determined on a pro forma basis, with Borrowers having no
accounts payables which are more than 60 days past due, and expenses and
liabilities being paid in the ordinary course of business and without
acceleration of sales) of at least $7,000,000; (f) following the Closing
Date, U.S. Borrower may pay accrued and unpaid interest due and owing on an
unaccelerated basis in respect to the Subordinated Debt, so long as at the
time of any such payment and after giving effect thereto, no Default or
Event of Default shall have occurred and be continuing and such payment is
otherwise permitted to be made pursuant to the Subordination Agreement; and
(g) following the Closing Date, U.S. Borrower may make annual repayments
2
<PAGE>
of the principal balance of the Subordinated Debt from a portion of its
Excess Cash Flow, if any, for the immediately preceding Fiscal Year,
commencing with Borrowers' 1999 Fiscal Year (i.e., assuming there is Excess
Cash Flow available therefor, the first such principal repayment permitted
hereunder would be made during Fiscal Year 2000) so long as (i) the
mandatory prepayment from Excess Cash Flow payable for the most recently
ended Fiscal Year preceding the date of such payment pursuant to SUBSECTION
2.4(B)(3) shall have been paid prior to the making of such principal
payment; (ii) the amount of such principal payment does not exceed 25% of
Excess Cash Flow for the most recently ended Fiscal Year; (iii) at the time
of such principal payment and after giving effect thereto and to the
mandatory prepayment of the Obligations payable pursuant to SUBSECTION
2.4(B)(3), Borrowers shall have Availability as of such date, and shall
have had average daily excess Availability during the immediately preceding
60 day period prior to such date (determined in each case on a pro forma
basis as of such date or for such period, as the case may be, with
Borrowers having no accounts payables which are more than 60 days past due,
and expenses and liabilities being paid in the ordinary course of business
and without acceleration of sales) of at least $3,000,000; and (iv) at the
time of any such payment and after giving effect thereto, no Default or
Event of Default shall have occurred and be continuing and such payment is
otherwise permitted to be made pursuant to the Subordination Agreement.
(b) Section 8.15(S) of the Loan Agreement is hereby amended by
deleting such subsection in its entirety and replacing it with the following:
(S) CHANGE IN CONTROL OR MANAGEMENT. Any of the following
occurs: (1) all or substantially all of the assets of any Borrower or any
of its Subsidiaries are sold, leased or otherwise disposed of (in a single
transaction or in a series of related transactions); (2) Deephaven Private
Placement Trading Ltd., the Persons listed on SCHEDULE 8.15(S) hereto which
owned equity interests in U.S. Borrower immediately prior to U.S.
Borrower's initial public offering, 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 U.S. Borrower entitled to ordinary voting power during
the two year period following the Closing Date, or 30% thereafter; (3) any
person or entity or "affiliated group" (other than Deephaven Private
Placement Trading Ltd. or existing shareholders described on SCHEDULE
8.1(S)) acquires more than 30% of the equity securities of U.S. Borrower
entitled to ordinary voting power; (4) less than a majority of those
persons constituting the board of directors of U.S. Borrower as of the
Closing Date fail to remain as members of the board of directors of U.S.
Borrower; (5) David Lokken, Phil Panzera, Brian Carr or Michael
3
<PAGE>
Riley ceases to be actively involved on a full time basis in their current
capacities as executive level employees of U.S. Borrower at any time and a
replacement acceptable to Requisite Lenders is not appointed (or another
plan for replacement which is acceptable to the Requisite Lenders is not in
place) within 90 days; (6) Dennis Biety ceases to be actively involved on a
full time basis in his current capacity as managing director of U.K.
Borrower at any time during the one year period following the Closing Date
and a replacement acceptable to Requisite Lenders is not appointed (or
another plan for replacement which is acceptable to the Requisite Lenders
is not in place) within 90 days; or (7) U.K. Borrower ceases to be a wholly
owned subsidiary of U.S. Borrower.
4. COVENANTS. Each Borrower covenants and agrees that (i) such Borrower
shall perform, and shall cause each of its Subsidiaries to perform, all
covenants in this Section 4, and (ii) failure of any Loan Party to perform or
comply with any term or condition in this Section 4 shall constitute an
immediate Event of Default under the Loan Agreement.
(a) INITIAL JUNIOR INVESTMENT. Within two (2) Business Days after the
date of this Amendment, Borrower shall have provided Agent with evidence of
the receipt by Borrower of $3,000,000 less reasonable out-of-pocket closing
costs from the Initial Junior Investment.
(b) SECOND JUNIOR INVESTMENT. On or prior to January 15, 2000,
Borrowers shall obtain at least $1,000,000 or such greater amount not to
exceed $3,000,000 as deemed necessary by Agent (the "SECOND JUNIOR
INVESTMENT") from either (i) secured or unsecured loans subordinated to the
Obligations in a manner and form satisfactory to Agent as to right and time
of payment, lien priority and as to any other rights and remedies
thereunder or (ii) additional equity investments in Borrowers.
5. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective
upon the prior or concurrent satisfaction of the following conditions, all in a
manner satisfactory to Agent:
(a) Agent shall have received a fully executed copy of this
Amendment, including all Exhibits hereto.
(b) Agent shall have received a fully executed Refund Agreement in
form and substance satisfactory to Agent.
(c) Agent shall have received a fully executed Amendment No. 1 to
Refund Agreement in the form of Exhibit B hereto.
(d) Agent shall have received a Assumption Agreement in the form of
Exhibit C hereto.
4
<PAGE>
(e) Agent shall have received certified copies of resolutions of U.S.
Borrower and U.K. Borrower approving the execution, delivery and
performance of this Amendment and the transactions contemplated hereby.
(f) Agent shall have received a fully executed copies of all
documents, agreements and instruments executed in connection with the
Initial Junior Investment.
6. REPRESENTATIONS AND WARRANTIES OF BORROWERS. Each Borrower represents
and warrants to Agent and Lenders that:
6.1 AUTHORITY. Each Borrower has full power, authority and legal right to
enter into this Amendment and the other agreements entered into in connection
herewith to which such Borrower is a party. The execution and delivery by each
Borrower of this Amendment and the other agreements entered into in connection
herewith to which such Borrower is a party: (i) have been duly authorized by all
necessary action on the party of such Borrower; (ii) are not in contravention of
the terms of such Borrower's organizational documents or of any indenture,
agreement or undertaking to which such Borrower is a party or by which such
Borrower or any of its property is bound; (iii) do not and will not require any
governmental consent, registration or approval; (iv) do not and will not
contravene any contractual or governmental restriction of which such Borrower or
any of its property may be subject; and (v) do not and will not, except as
contemplated herein, result in the imposition of any lien, charge, security
interest or encumbrance upon any property of such Borrower under any existing
indenture, mortgage, deed of trust, loan or credit agreement or other material
agreement or instrument to which such Borrower is a party or by which such
person or any of its property may be bound or affected.
6.2 BINDING EFFECT. This Amendment and all of the other agreements entered
into by each Borrower in connection herewith have been duly executed and
delivered by such Borrower, are the legal, valid and binding obligations of such
Borrower and are enforceable against such in accordance with their respective
terms.
6.3 NO DEFAULT. No Default or Event of Default has occurred and is
continuing or would result from the execution and delivery of this Amendment or
the other agreements executed and delivered by either Borrower hereunder or the
consummation of the transactions contemplated hereby or thereby.
7. REFERENCE TO AND EFFECT UPON THE LOAN DOCUMENTS.
7.1 Except as specifically amended above, the Loan Agreement, as amended,
and each of the Loan Documents shall remain in full force and effect and is
hereby ratified and confirmed.
7.2 The execution, delivery and effectiveness of this Amendment shall be
limited precisely as written and shall not be deemed to (i) be a consent to any
waiver or modification of any other term or condition of the Loan Agreement or
any other Loan Document or (ii) prejudice any right, power or remedy which
Lender may now have or may have in the
5
<PAGE>
future under or in connection with the Loan Agreement (after giving effect to
this Amendment) or any other Loan Document. Upon the effectiveness of this
Amendment, each reference in the Loan Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of similar import shall mean and be a
reference to the Loan Agreement as amended hereby.
8. COUNTERPARTS; FACSIMILE SIGNATURES. This Amendment may be executed in
any number of counterparts, each of which when so executed shall be deemed an
original, but all such counterparts shall constitute one and the same
instrument. Transmission by facsimile of an executed counterpart of this
Amendment shall be deemed to constitute due and sufficient delivery of such
counterpart and an original for all purposes.
9. COSTS, EXPENSES AND TAXES. Borrowers jointly and severally agree to
pay on demand all reasonable fees, costs and expenses incurred by Agent, Lenders
and NMB-Heller in connection with the preparation, execution and delivery of
this Amendment (including, without limitation, attorney's fees and expenses).
10. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS (AS OPPOSED TO CONFLICT OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.
11. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purposes.
6
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and
year first above written.
HAWKER PACIFIC AEROSPACE, as Borrower
and as Borrower Representative
By: /s/ Philip M. Panzera
--------------------------------------------
Name: Philip M. Panzera
------------------------------------------
Title: Executive Vice President
-----------------------------------------
HAWKER PACIFIC AEROSPACE LIMITED, as a Borrower
By: /s/ Philip M. Panzera
--------------------------------------------
Name: Philip M. Panzera
------------------------------------------
Title: Director
-----------------------------------------
HELLER FINANCIAL, INC., as Agent and as a Lender
By: /s/ Renee M. Rempe
--------------------------------------------
Name: Renee M. Rempe
------------------------------------------
Title: Vice President
-----------------------------------------
NMB-HELLER LIMITED, in its capacity as
Funding Agent and Collateral Agent
By: /s/ J.P. Onslow
--------------------------------------------
Name: J.P. Onslow
------------------------------------------
Title: Director
-----------------------------------------
7
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
Hawker Pacific Aerospace
Sun Valley, California
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related prospectus of Hawker Pacific
Aerospace for the registration of 1,831,597 shares of its common stock and to
the incorporation by reference therein of our report dated February 13, 1999,
except for paragraphs 5 through 9 of Note 5 for which the date is April 12,
1999, with respect to the consolidated financial statements and schedules of
Hawker Pacific Aerospace included in its Annual Report (Form 10-K) for the year
ended December 31, 1998, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Woodland Hills, California
January 31, 2000
