EXHIBIT 10.56
[HAWKER PACIFIC AEROSPACE LETTERHEAD]
11240 Sherman Way
Sun Valley, CA 91352-4942 USA
(818) 765-6201
Fax: (818) 765-2416
www.hawker.com
February 6, 2001
Dr. Peter Janssen
Chief Financial Officer
Lufthansa Technik AG
Weg beim Jager 193
D-22334 Hamburg Germany
Re: Exchange of Promissory Note of Hawker Pacific Aerospace
Dear Dr. Janssen:
The purpose of this letter agreement (this "Agreement") is to confirm
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the agreement of Hawker Pacific Aerospace ("Hawker") and Lufthansa Technik AG
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("LHT") as follows:
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1. Defined Terms. Capitalized terms used herein but not defined herein
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shall have the meanings ascribed to them in that certain Loan Agreement by and
between Hawker and LHT dated as of September 20, 2000 (the "Loan Agreement" ).
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2. Exchange of Promissory Note.
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(a) At the Closing (as defined below) LHT shall exchange (i) the
$9,300,000 in principal and (ii) the accrued interest as of the Closing (to
be $443,300.00), under the Promissory Note issued by Hawker and owned by
LHT dated September 20, 2000 (the "Note").
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(b) In exchange for the tendered Note, Hawker will issue to LHT a
number (rounded to the nearest whole number) of shares of Hawker's common
stock ("Common Stock") equal to (i) the sum of the principal plus accrued
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interest through the Closing under the Note divided by (ii) the Market
Price. "Market Price" means $3.125, which is the average of the last bid
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prices of a share of the Common Stock on the NASDAQ Stock Market for each
of the five (5) trading days preceding and including the trading day prior
to the date hereof.
3. Representations of Hawker. Hawker hereby represents and warrants to
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LHT as follows:
(a) Hawker has the corporate power and authority to execute,
deliver and perform this Agreement and to issue, sell and deliver the
shares of Common Stock hereunder. The issuance and delivery of the shares
of Common Stock hereunder and the
Dr. Peter Janssen
Lufthansa Technik AG
February 6, 2001
Page 2
execution, delivery and performance of this Agreement by Hawker have been,
or as of the Closing will have been, duly authorized by all necessary
corporate action of Hawker.
(b) The shares of Common Stock to be issued hereunder have been
duly authorized and, when issued in accordance with this Agreement, will be
(i) validly issued, (ii) fully paid and nonassessable, (iii) exempt from
registration under the Securities Act of 1933 and applicable state
securities laws and (iv) free and clear of all liens or encumbrances
imposed by or through Hawker. Since September 20, 2000, Hawker has not
sold or offered to sell any shares of Common Stock except shares of Common
Stock issued to LHT upon conversion of the Hawker Series C Preferred Stock.
Hawker has issued and outstanding as of February 6, 2001, 7,232,622 shares
of Common Stock representing all of the issued and outstanding capital
stock of Hawker on a fully diluted basis.
(c) This Agreement has been duly executed and delivered by Hawker
and constitutes the legal, valid and binding obligation of Hawker,
enforceable in accordance with its terms, except as the same may be limited
by bankruptcy, insolvency, moratorium and other laws of general application
affecting the enforcement of creditors' rights and by the exercise of
judicial discretion and the application of principles of equity.
(d) The execution, delivery and performance of this Agreement,
the consummation of the transactions contemplated hereby, the compliance
with any of the provisions hereof, will not: (i) conflict with, or result
in a breach or violation of the Organizational Documents of Hawker; (ii)
(A) conflict with, or result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give
rise to any right of termination, cancellation, vesting, payment, exercise,
acceleration, suspension, revocation or modification) under, any of the
terms, conditions or provisions of any note, credit agreement, bond,
mortgage, deed of trust, security instrument, indenture, lease, License,
Contract, plan or other instrument or obligation to which Hawker is a party
or by which Hawker or any of its properties or assets may be bound or
affected ("Third Party Obligation"), (B) result in the creation or
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imposition of any Lien on any of the assets or properties of Hawker or (C)
except as such filing with NASDAQ as will be made prior to Closing, require
any filing or notification to any third party or Governmental Entity or
consent or approval under any Third Party Obligation or from any
Governmental Entity; or (iii) violate any Order or Applicable Law
applicable to Hawker or any of its properties or assets.
(e) Except as set forth on Schedule 3(e), the representations and
warranties made by Hawker in Sections 4.1 (Organization), 4.2
(Capitalization), 4.5 (Litigation), 4.6 (Financial Statements), 4.9
(Absence of Undisclosed Liabilities) and 4.16 (Valid Issuance) of the Loan
Agreement are true, complete and correct in all material respects.
(f) No representation or warranty by Hawker in this Agreement or
any schedule hereto, or any certificate furnished or to be furnished by
Hawker in connection
Dr. Peter Janssen
Lufthansa Technik AG
February 6, 2001
Page 3
with this Agreement, contains or will contain an untrue statement of
material fact, or omits or will omit to state a material fact necessary to
make the statements contained herein or therein, in light of the
circumstances in which they were made, not misleading.
4. Representations of LHT. LHT hereby represents and warrants to Hawker
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as follows:
(a) The execution, delivery and performance of this Agreement and the
exchange of the Note hereunder by LHT have been duly authorized by all necessary
corporate action of LHT.
(b) This Agreement has been duly executed and delivered by LHT and
constitutes the legal, valid and binding obligation of LHT, enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, moratorium and other laws of general application affecting the
enforcement of creditors' rights and by the exercise of judicial discretion and
the application of principles of equity.
(c) LHT is acquiring the shares of Common Stock hereunder for
investment only for its own account, not as nominee or agent, and not with a
view to or for resale or distribution of any part thereof.
(d) LHT is an "accredited investor" within the meaning of Rule 501(a)
under the Securities Act of 1933, as amended (the "Securities Act").
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(e) LHT understands that the shares of Common Stock acquired hereunder
will be "restricted securities" under the U.S. federal securities laws inasmuch
as they will acquired from Hawker in a transaction not involving a public
offering and that, under such laws and applicable regulations, such shares may
not be resold without registration under the Securities Act, except in certain
limited circumstances. In this connection LHT represents that it is familiar
with Rule 144 under the Securities Act, as presently in effect, and understands
the resale limitations imposed thereby and by the Securities Act.
(f) LHT understands and agrees that the certificates evidencing the
shares of Common Stock shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF IN
VIOLATION OF APPLICABLE SECURITIES LAWS. NO SUCH SALE OR DISTRIBUTION MAY
BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OTHER THAN PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT 1933."
Dr. Peter Janssen
Lufthansa Technik AG
February 6, 2001
Page 4
5. Closing. Subject to the terms and conditions of this Agreement,
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the closing of the transactions contemplated hereby (the "Closing") will occur
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on February 23, 2001 at 10:00 a.m. (the "Closing Date") at the offices of
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Wilmer, Cutler & Pickering at 2445 M Street, N.W., Washington, D.C. 20037. At
the Closing, Hawker will issue and deliver or cause to be issued and delivered a
certificate registered in the name of LHT representing the shares of Common
Stock and cash payment specified in Section 2(b) against LHT's delivery and
surrender of the Note.
6. Conditions to LHT's Obligation to Close. The obligations of LHT to
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tender the Note in exchange for the shares of Common Stock hereunder and to
carry out the terms of this Agreement are subject to the fulfillment on or
before the Closing Date of the following conditions, which may be waived by LHT:
(a) The representations and warranties of Hawker contained in
Section 3 shall be true, complete and correct in all material respects on
and as of Closing Date with the same effect as if made on and as of the
Closing Date.
(b) A National Association of Securities Dealers ("NASD") listing
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qualifications panel shall have made a written determination with respect
to Hawker's present proceedings before it that continues Hawker's present
NASD listing and LHT shall have received a copy of such written
determination.
(c) Hawker shall not have received any notice from the NASD to
the effect that the consummation of the transactions contemplated by this
Agreement will not, in and of themselves, be sufficient to cause Hawker to
be in compliance with the net tangible asset requirements of the NASD
Rules.
(d) Hawker shall have filed a notification with the NASD with
respect to the listing of the shares of Common Stock to be issued to LHT
hereunder at least fifteen (15) days prior to the Closing as required under
NASD Rule 4310(c)(17).
(e) The Board of Directors of Hawker shall have approved this
Agreement and the transactions contemplated hereby.
(f) Hawker shall have obtained all regulatory approvals, if any,
required in connection with the transactions contemplated hereby.
(g) The receipt of such other certificates or documentation as
LHT shall reasonably request in connection with the transactions
contemplated hereby.
Dr. Peter Janssen
Lufthansa Technik AG
February 6, 2001
Page 5
7. Conditions to Hawker's Obligation to Close. The obligations of
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Hawker to carry out the terms of this Agreement are subject to the fulfillment
on or before the Closing Date of the following condition, which may be waived by
Hawker: LHT shall have obtained all regulatory approvals, if any, required in
connection with the transactions contemplated hereby.
8. Covenants of Hawker. The covenants of Hawker set forth in this
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Section 8 are continuations of certain obligations of Hawker set forth in the
Loan Agreement that would not have survived the tender of the Note by LHT
pursuant to the terms of the Loan Agreement and which the parties agree should
continue under this Agreement. From the Closing until the first anniversary of
the Closing, or, for any particular covenant, for such longer period as may be
specified therein, Hawker covenants and agrees with LHT that:
(a) Payments to FUSI. Upon the satisfaction of any amounts owed
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to First Union Securities, Inc. ("FUSI"), such sum to be paid from funds
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other than the proceeds of the loan made to Hawker pursuant to the Loan
Agreement, Hawker shall deliver to LHT (i) a written acknowledgement from
FUSI of the satisfaction and payment in full of any fees owed to it
pursuant to that certain agreement dated October 1, 1999 by and between
Hawker and FUSI (the "FUSI Agreement") and the release in full of Hawker of
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any further obligations of Hawker under the FUSI Agreement or claims FUSI
may have against Hawker and (ii) copies of all written documentation
evidencing such payment; provided, however, in accordance with that certain
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Indemnification Agreement by and between the Sellers (as that term is
defined in that certain Stock Purchase Agreement dated September 20, 2000
by and between LHT and the shareholders listed therein) and Hawker, Hawker
shall in no event pay in excess of $250,000 to FUSI, and any amounts owed
FUSI above $250,000 shall be the sole liability of the Sellers. The
covenant set forth in this paragraph (a) shall survive until LHT has
received the written documentation referred to in clauses (i) and (ii)
above.
(b) Stock Transactions. Hawker shall not, without prior notice
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to and consent of LHT, (i) take any action that would have the effect of
preventing LHT from exercising the Warrant or otherwise acquiring Common
Stock, (ii) issue any Common Stock or other securities convertible into or
exchangeable for Common Stock, (iii) issue any stock dividend, (iv)
subdivide the outstanding Common Stock, (v) propose to dissolve, liquidate
or wind-up voluntarily, (vi) change the number of authorized or outstanding
Common Stock or issue any Common Stock or any warrants, options, or other
rights to subscribe for or to purchase any Common Stock or securities
convertible into or exchangeable or exercisable for any of its Common
Stock, (vii) enter into any capital reorganization or any reclassification
of its Common Stock, (viii) issue any Common Stock distribution; (ix)
issue, sell, distribute or grant any rights to subscribe or purchase any
Common Stock, or any warrants or options to purchase any Common Stock,
except for any such option grants made pursuant to the 1997 Stock Option
Plan as approved by Hawker's Board of Directors and that are consistent
with Hawker's past practice as of September 20, 2000 or (x) amend or grant
any waiver to the Rights Agreement to any Person other than LHT or its
Affiliates.
Dr. Peter Janssen
Lufthansa Technik AG
February 6, 2001
Page 6
(c) Confidentiality.
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(i) Disclosure of Terms. The terms and conditions of this
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Agreement (the "Terms"), including its existence, shall be
considered confidential information and shall not be
disclosed by any party hereto to any third party except in
accordance with the provisions set forth below.
(ii) Press Release. Within sixty (60) days after the Closing,
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Hawker may issue a press release, but only after Hawker
receives the prior written approval of LHT for any such
press release or form of press release, disclosing the
transactions contemplated hereunder.
(iii) Permitted Disclosures. Notwithstanding clause (i) above,
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any party may disclose any of the Terms to its employees,
investment bankers, lenders, accountants and attorneys, in
each case only where such persons or entities are under
appropriate nondisclosure obligations.
(iv) Legally Compelled Disclosure. In the event that any party
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is requested or becomes legally compelled (including
without limitation, pursuant to securities laws and
regulations) to disclose the existence of this Agreement or
any of the Terms in contravention of the provisions of this
Section 8(c), such party (the "Disclosing Party") shall
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provide the other parties (the "Non-Disclosing Party") with
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prompt written notice of that fact so that the appropriate
party may seek (with the cooperation and reasonable efforts
of the other parties) a protective order, confidential
treatment or other appropriate remedy. In such event, the
Disclosing Party shall furnish only that portion of the
information which is legally required or which has been
previously released in a public filing and shall exercise
reasonable efforts to obtain reliable assurance that
confidential treatment shall be accorded such information
to the extent reasonably requested by any Non-Disclosing
Party. Notwithstanding the preceding, each party
acknowledges that the other party shall be required to make
certain filings with SEC with respect to this Agreement;
each Disclosing Party shall provide the Non-Disclosing
Party with prior notice of any such filings, and no such
filing shall be made without the prior written approval of
the Non-Disclosing Party to the applicable disclosures;
provided, however, that the text of this Agreement may be
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filed by either party without the prior
written approval of the other party.
Dr. Peter Janssen
Lufthansa Technik AG
February 6, 2001
Page 7
(d) Warrant Shares. Hawker shall propose and recommend to its
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Board of Directors that at the Annual Meeting (as defined below) its Board
of Directors (i) approve and recommend to Hawker's shareholders the
approval of and (ii) seek the approval of Hawker's shareholders of, the
issuance of the Warrant and the Company's corresponding issuance of the
number of shares of Common Stock represented by the Exercise Amount (as
defined in the Warrant). Hawker shall not take any action or omit to take
any action that would hinder the above described actions by its Board of
Directors or Hawker's shareholders. Hawker shall duly list any additional
shares represented by shares exercised under the Warrant with NASDAQ. Upon
shareholder approval of the 2,500,000 shares of Common Stock represented by
the Exercise Amount, until September 20, 2001, Hawker shall keep reserved
an aggregate of 2,500,000 shares of Common Stock authorized and unissued,
such amount being subject to adjustment as provided in the Warrant, and
Hawker will take all necessary corporate action to authorize and reserve
for issuance all additional shares of Common Stock or other securities that
may be issued pursuant to adjustment as provided in the Warrant; provided,
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however, that the parties agree that no adjustment to the Exercise Amount
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under the Warrant shall be required as a result of the exchange of the Note
pursuant to this Agreement. The Warrant shall continue in full force and
effect in accordance with its terms.
(e) Board Seats.
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(i) Hawker shall recommend to its Board of Directors to take
such actions as are necessary to effect the following:
(A) At the written request of LHT, at a meeting (whether an
annual or special meeting) of Hawker shareholder's, increase
the number of its Board of Directors from seven to nine
directors in accordance with the Charter Documents;
(B) At the written request of LHT, at a meeting (whether an
annual or special meeting) of Hawker shareholders, elect and
thereafter continue in office as directors of Hawker
individuals who may be nominated by LHT and LHT shall have
the exclusive right to make two (2) nominations of
directorships for the new board seats created pursuant to
paragraph (A) above and one director so designated shall sit
in Class I and one director so designated shall sit in Class
II, which shall be initially established at the next annual
meeting Hawker's shareholders to be held no later than June
30, 2001 (the "Annual Meeting"), and shall sit for a term
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expiring at second succeeding annual meeting of Hawker's
shareholders held following such election to the respective
class;
Dr. Peter Janssen
Lufthansa Technik AG
February 6, 2001
Page 8
(C) At the Annual Meeting, elect and establish a board
which, pursuant to Article IV of the Articles of
Incorporation of Hawker (as may be amended at the Annual
Meeting), shall be classified into two classes. At the
Annual Meeting, Class I shall be comprised of four directors
and Class II shall be comprised of three directors. Upon
the increase of the board to nine directors pursuant to
paragraph (A) above, Class I shall be comprised of five
directors and Class II shall be comprised of four directors.
At the Annual Meeting, the directors of Class I shall be
elected to hold office for a term expiring at the next
succeeding annual meeting of the shareholders following the
Annual Meeting and the directors of Class II shall be
elected to hold office for a term expiring at the second
succeeding annual meeting of the shareholders following the
Annual Meeting. At each subsequent annual meeting of
Hawker's shareholders, the successors to the class of
directors whose term shall then expire shall be elected to
hold office for a term expiring at the second succeeding
annual meeting of Hawker's shareholders;
(D) At the Annual Meeting, (1) the three directors nominated
by LHT and elected pursuant to Section 2.1.1 of the
Shareholders Rights and Voting Agreement shall be elected
and serve in Class II and (2) the remaining directors not
nominated by LHT shall be elected and serve in Class I.
Upon the increase of the board size to nine pursuant to
paragraph (A) above, (1) one of the directors nominated by
LHT pursuant to paragraph (B) above, shall be elected and
serve in Class I; and the other director so nominated shall
be elected and serve in Class II; and (2) the remaining
directors not nominated by LHT shall be elected and serve in
Class I; and
(E) Within thirty (30) days after the Annual Meeting, the
Board duly elected and constituted at the Annual Meeting
shall ratify the actions taken by Hawker's Board of
Directors since the 1999 annual meeting of Hawker's
shareholders.
(ii) Hawker shall use its best efforts to cause (A) all actions
set forth in clause (i) to be taken on or before June 30,
2001 and (B) such actions to be proposed to Hawker's
shareholders for their approval, if required, on or before
June 30, 2001, unless otherwise specified in clause (i).
(iii) If, at the end of the initial term of the directors elected
pursuant to paragraph (B) and (D) above, LHT beneficially
owns (which
Dr. Peter Janssen
Lufthansa Technik AG
February 6, 2001
Page 9
ownership shall include shares issuable under the Warrant)
at least 40% of the total issued and outstanding shares of
Common Stock, such individuals or such other individuals as
LHT designates shall be nominated for a two-year term and
Hawker shall recommend such nomination to its Board of
Directors; provided, however, that if Hawker fails to make
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such recommendation LHT, as a shareholder, may nominate its
designees in accordance with the Organizational Documents.
(iv) Hawker shall recommend to its Board of Directors to take
such actions as are necessary for the removal of any
director upon the request of the party or parties
designating such director and for the election to its Board
of Directors of a substitute designated by such party.
(v) Hawker shall recommend that its Board of Directors take such
actions as are necessary or appropriate to ensure that any
vacancy on its Board of Directors (occurring for any reason)
be filled by the election to its Board of Directors of a
replacement designated by the party or parties who
designated the director whose failure to continue to serve
causes the applicable vacancy.
(f) Rights Agreement. Hawker shall not recommend to its Board of
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Directors that it adopt any amendment to the Rights Agreement, as amended
on August 15, 2000, which would be adverse to LHT.
9. Dividends on Preferred Stock. On December 22, 2000, LHT exercised
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its rights under Hawker's Certificate of Determination of Rights, Preferences,
Privileges and Restrictions of 8% Series C Convertible Preferred Stock (the
"Certificate of Determination") to convert all 300 of its shares of Hawker
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Series C Convertible Preferred Stock (the "Preferred Stock") into shares of
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Common Stock. In conjunction with the conversion, LHT also received partial
accrued dividends on the Preferred Stock. Pursuant to the terms of the
Certificate of Determination, upon shareholder approval, LHT has the right to
receive the remaining accrued dividends on the Preferred Stock in the form of
35,583 shares of Common Stock. On December 22, 2000, LHT requested that Hawker
seek shareholder approval to issue these 35,583 shares of Common Stock.
Pursuant to the Certificate of Determination, Hawker must use its best efforts
to obtain such shareholder approval not later than sixty (60) days after such
request has been made and if such shareholder approval is not obtained within
such 60-day period, Hawker shall instead be required to make a cash payment to
LHT pursuant to a formula set forth in the Certificate of Determination.
Pursuant to the Certificate of Determination, if Hawker fails to make such cash
payment in full, interest on any unpaid amount shall accrue at a rate of 18% per
year beginning as of December 22, 2000. Hawker hereby agrees that it shall seek
the shareholder approval to issue the foregoing 35,583 shares of Common Stock to
LHT at the Annual Meeting. Hawker further agrees that if the Annual Meeting does
not take place during the 60-day period required
Dr. Peter Janssen
Lufthansa Technik AG
February 6, 2001
Page 10
for such shareholder approval pursuant to the Certificate of Determination, that
LHT shall thereafter, at its option, have the right to receive either (1) a cash
payment, in accordance with the terms of the Certificate of Determination or (2)
in the event their issuance is approved at the Annual Meeting, the 35,583 shares
of Common Stock in accrued dividends.
10. Termination Date. This Agreement may be terminated by either
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party if the Closing shall not have occurred by September 30, 2001; provided,
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however, that the right to terminate this Agreement under this Section 10 shall
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not be available to either party whose material misrepresentation, inaccuracy,
breach of warranty, default or failure to fulfill any covenant or obligation
under this Agreement has been the cause of, or resulted in, the failure of the
Closing to occur on or before such date. In the event of any termination of
this Agreement pursuant to this Section 10, this Agreement shall be
automatically rescinded and of no further force or effect, and no party hereto
(or any of its affiliates, directors, trustees, executors, officers, agents or
representatives) shall have any liability or obligation hereunder. The
provisions of Section 8 of this Agreement (Covenants of Hawker) shall survive
any termination of this Agreement pursuant to this Section 10.
11. Entire Agreement. This Agreement represents the entire
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understanding and agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior oral and written and all
contemporaneous oral negotiations, commitments and understandings between such
parties. The parties may amend or modify this Agreement, in such manner as may
be agreed upon, only by a written instrument executed by the parties hereto.
12. Governing Law. This Agreement shall be
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governed by and construed in
accordance with the laws of the State of California.
13. Severability. The invalidity or unenforceability of any
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provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
14. Expenses. Each party shall be responsible for its own fees,
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costs and expenses incurred in connection with the negotiation of this
Agreement, including but not limited to, any attorneys' fees.
15. Counterparts. This Agreement may be executed in two or more
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counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
[Execution Page to Follow]
Please confirm your agreement by signing in the space indicated below.
Hawker Pacific Aerospace
By: /s/ Phillip M. Panzera
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Name: Philip M. Panzera
Title: Executive Vice President
Accepted and Agreed as of February 6, 2001
Lufthansa Technik AG
By: /s/ Peter Janssen
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Name: Dr. Peter Janssen
Title: Chief Executive Finance
By: /s/ Silke Richter
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Name: Silke Richter
Title:
Signature Page to the Letter from Hawker
Pacific Aerospace to Lufthansa Technik re:
Exchange of Promissory Note of Hawker Pacific Aerospace
Schedule 3(e)
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Hawker Pacific Aerospace Representations
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4.2 Capitalization.
A Shareholder Rights and Voting Agreement was entered into between LHT,
Hawker Pacific Aerospace and certain management shareholders on September
20, 2000.
The Company may be obligated, upon shareholder approval, to issue a stock
dividend of 35,583 shares of common stock to LHT in accordance with the
Certificate of Determination for the Series C preferred stock.
A complete list of all outstanding shareholders, option holders and other
security holders of the Company with 5% or more ownership interest is as
follows:
Lufthansa Technik AG
Royce & Associates, Inc.
Dimensional Fund Advisors, Inc.
Daniel Toomey is no longer a director of the Company, and Dennis Biety is
no longer an officer of the Company.
4.5 Litigation
First Union Securities Inc. commenced an arbitration against the Company on
October 18, 2000, with regard to collecting a transaction fee related to
the LHT purchase of Company stock.