EXHIBIT 10.40
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
312 441 7000
Heller Financial
March 10, 1999
Hawker Pacific Aerospace Hawker Pacific Aerospace Limited
11240 Sherman Way Technical Block A (5362)
Sun Valley, California 91352 P.O. Box 10, London Heathrow Airport
Attention: Philip Panzera Hounslow, Middlesex TW6 2JA
United Kingdom
Attention: Dennis Biety
Re: Forbearance Letter
Gentlemen:
This letter is delivered pursuant to that certain Loan
and Security Agreement dated as of December 22, 1998 (as from time to time
amended, restated, supplemented or otherwise modified, the "Loan
Agreement") by and among Hawker Pacific Aerospace ("U.S. Borrower"),
Hawker Pacific Aerospace Limited ("U.K. Borrower" and, collectively with
U.S. Borrower, the "Borrowers"), Heller Financial, Inc., as Agent and as a
Lender (the "Agent"), NMB-Heller Limited, as Funding Agent and Collateral
Agent, and the other Lenders from time to time party thereto. All
capitalized terms used but not otherwise defined herein shall have the
respective meanings ascribed thereto in the Loan Agreement.
Pursuant to paragraph (A) of the Financial Covenants Rider to the
Loan Agreement, the minimum Tangible Net Worth required to be maintained
as of December 31, 1998 was $21,500,000. Pursuant to paragraph (B) of the
Financial Covenants Rider to the Loan Agreement, the minimum EBITDA
required for the Fiscal Year ended as of December 31, 1998 was $7,000,000.
Pursuant to paragraph (D) of the Financial Covenants Rider, the minimum
Fixed Charge Coverage permitted for the twelve month period ended as of
December 31, 1998 was 1.00:1.00. Based upon your monthly financial
statements for the month ended December 31, 1998 and for the Fiscal Year
ended as of such date and the Compliance Certificate for such period
delivered in connection therewith, actual Tangible Net Worth as of
December 31, 1998 was $20,601,394, actual EBITDA for the Fiscal Year ended
as of December 31, 1998 was $4,808,129 and actual Fixed Charge Coverage
for the twelve months ended as of December 31, 1998 was .45:1:00. In
addition, pursuant to paragraph (L) of the Reporting Rider, Borrowers were
required to deliver, no later than January 31, 1999, Projections for
Fiscal Year 1999, prepared on a month-by-month basis, which Projections
have not delivered as of the date hereof; this letter hereby serves as
notice to you of such Default. Pursuant to subsection 8.1(C) of the Loan
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Hawker Pacific Aerospace Limited
March 10, 1999
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Agreement, such breaches of the covenants set forth in paragraphs (A), (B) and
(D) of the Financial Covenants Rider constitute immediate Events of Default
under the Loan Agreement and, pursuant to subsection 8.1(E) of the Loan
Agreement, the breach of the covenant set forth in paragraph (L) of the
Reporting Rider will constitute an Event of Default if not remedied within ten
days after the date of this letter. Such Events of Default and such Default
shall be collectively referred to herein as the "Existing Events of Default".
Borrowers hereby recognize and acknowledge that the Existing Events of
Default have occurred and are continuing. Borrowers hereby further recognize and
acknowledge that, absent the effectiveness of this letter agreement, Agent,
Funding Agent, Collateral Agent and Lenders have the right, in accordance with
the provisions of the Loan Agreement and the other Loan Documents, to (i)
immediately cease making additional Loans and issuing Lender Letters of Credit
and to cause their obligation to lend their respective Pro Rata Shares of the
Commitments to be suspended; (ii) declare all or any portion of the Loans and
all or some of the other Obligations to be immediately due and payable together
with accrued interest thereon, and to terminate the obligations of Agent,
Funding Agent, Collateral Agent and Lenders to make Loans and issue Lender
Letters of Credit; (iii) demand that Borrowers immediately deposit with Agent an
amount equal to 105% of the aggregate outstanding Letter of Credit Reserve to
enable Agent or any Lender to make payments under the Lender Letters of Credit
when required; and (iv) exercise such other rights and remedies available to
Agent, Funding Agent, Collateral Agent and Lenders under the Loan Documents or
at law or in equity, including without limitation the right to immediately
enforce their Liens on the Collateral.
As a result of the Existing Events of Default, you are hereby
formally notified that, pursuant to and in furtherance of the verbal notice
given to you by Agent on February 19, 1999, Agent has, as of such date,
established a reserve against the Borrowing Base of $5,000,000, which reserve
shall remain in effect at all times from and after February 19, 1999 until such
time, if any, as Agent shall give Borrowers written notice to the contrary.
You are hereby advised that from and after the date of this
letter, and continuing for so long as the Existing Events of Default are
continuing, Agent, Funding Agent, Collateral Agent and Lenders hereby agree to
forbear from exercising the rights and remedies afforded Agent and Lenders under
the Loan Agreement and the other Loan Documents as a result of the Existing
Events of Default (other than the establishment of a reserve against the
Borrowing Base as set forth above, which reserve may be maintained or modified
at any time by Agent in its sole discretion notwithstanding the terms of this
letter), but only for the period commencing on the Effective Date of this letter
through the earlier of (a) the date on which a Forbearance Default shall have
occurred and be continuing, and (b) March 30, 1999 (the "Forbearance Period"),
and only subject to the terms and conditions set forth in paragraphs (1) through
(6) below (collectively, the "Forbearance Conditions"):
(1) Notwithstanding anything contained in the Loan Documents
to the contrary (including without limitation that certain Post Closing
Matters and Waiver Agreement dated as of the Closing Date), Borrowers shall
(a) as promptly as practicable following the date hereof, establish or
cause to be established the U.S. Blocked Accounts
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March 10, 1999
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as required pursuant to subsection 4.26(A) of the Loan Agreement, and
(b) use their best efforts to, as promptly as practicable following the
date hereof, establish or cause to be established the U.K. Blocked
Accounts as required pursuant to subsection 4.26(B) of the Loan
Agreement;
(2) Notwithstanding anything contained in the Loan Documents
to the contrary (including without limitation the provisions of
paragraph (F) of the Reporting Rider to the Loan Agreement), from and
after the Effective Date and at all times thereafter until Agent shall
give Borrower Representative written notice to the contrary, Borrower
Representative shall deliver to Agent and Funding Agent Borrowing Base
Certificates on the second Business Day of each week (as appropriate
for weekly use), setting forth the calculation of the Borrowing Base as
of the last Business Day of the immediately preceding week, and
otherwise in the form and containing the information required pursuant
to paragraph (F) of the Reporting Rider;
(3) As promptly as practicable and in any event no later than
March 30, 1999, Borrowers shall retain the services of a third party
turnaround consultant acceptable to Agent to evaluate and assist, if
necessary, in the turnaround efforts for the U.K. Borrower (including
without limitation those efforts described in the turnaround
implementation plan required to be delivered pursuant to paragraph (4)
below);
(4) On or prior to the Effective Date (notwithstanding the ten
day grace period which might otherwise be available under subsection
8.1(E) of the Loan Agreement), Borrowers shall deliver to Agent
Projections for Borrowers' Fiscal Year 1999, prepared on a
month-by-month basis, which Projections shall not forecast any material
decline in Borrowers' financial condition or financial performance for
such Fiscal Year from that set forth in the quarter-by-quarter
Projections for such Fiscal Year delivered as of the Closing Date,
other than any such decline resulting from the downward adjustment in
Borrowers' EBITDA of $3,546,000 effected as of December 31, 1998. In
addition, on or prior to the Effective Date, Borrowers shall deliver to
Agent a turnaround implementation plan with respect to the U.K.
Borrower, which plan shall be satisfactory to Agent in form, scope and
substance; and
(5) On the Effective Date, and in consideration of the
execution and delivery of this letter by Agent, Borrowers shall pay to
Agent a forbearance fee of $75,000, and thereafter, without limitation
of the provisions of subsection 10.1 of the Loan Agreement, Borrowers
shall pay or reimburse Agent and Funding Agent for all fees, costs and
expenses incurred by them in connection with this letter, the Existing
Events of Default, any Forbearance Default and/or any third party
consultants, accountants or other professionals retained by Agent or
Funding Agent in connection with the analysis or implementation of any
turnaround plans regarding the U.K. Borrower or the Borrowers
collectively.
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Hawker Pacific Aerospace
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March 10, 1999
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By execution of this letter agreement, Borrowers hereby
represent and warrant that as of the date hereof, no Forbearance Default has
occurred and is continuing. For purposes of this letter:
(i) the term "Forbearance Default" means the occurrence and continuance
of any Default or Event of Default under the Loan Agreement or any of
the other Loan Documents other than the Existing Events of Default, or
the failure by Borrowers or either of them as of any date of
determination to satisfy any of the Forbearance Conditions required to
be satisfied as of such date; and
(ii) the term "Effective Date" shall mean the date on which a
counterpart of this letter, duly executed by each Borrower, is
delivered to Agent, together with payment of the forbearance fee
required pursuant to paragraph (5) of the Forbearance Conditions, which
date shall occur no later than March 6, 1999 (and the foregoing
agreement to forbear shall be of no force or effect if the Effective
Date does not occur on or prior to March 6. 1999).
The foregoing agreement to forbear shall be limited
precisely as written and, except as expressly set forth in this letter, shall
not be deemed to (i) be a waiver of the Existing Events of Default or of
Agent's, Funding Agent's, Collateral Agent's or Lenders' right to exercise or
enforce any of their rights and remedies under the Loan Agreement or the other
Loan Documents, as more fully described above; (ii) be a waiver or modification
of any other term or condition of the Loan Agreement or of any of the other Loan
Documents; or (iii) prejudice any right or rights which Agent, Funding Agent,
Collateral Agent or Lenders may now have or may have in the future under or in
connection with the Loan Agreement or any of the other Loan Documents.
You are hereby further advised that, during the Forbearance
Period, the Agent may, in its sole discretion, consider working with Borrowers
on a potential restructuring of the credit facilities provided under the Loan
Agreement and the other Loan Documents, provided that you hereby acknowledge and
agree that (a) neither Agent, Funding Agent, Collateral Agent or any Lender is
obligated or in any way committed to enter into any such restructuring, (b) none
of Agent, Funding Agent, Collateral Agent or any Lender has sought or obtained
the approval of their respective internal credit authorities as to any such
restructuring or any potential terms and conditions thereof, (c) this letter
shall not be deemed or construed as obligating any of Agent, Funding Agent,
Collateral Agent or any Lender to seek or obtain any such approval, and (d) the
terms and conditions of any such restructuring, if one should occur, are not
known at this time. However, you are hereby advised that in the event any such
restructuring were to be consummated, one condition precedent thereto would be
that, prior to or contemporaneously with any such restructuring, the portion of
the Subordinated Debt of U.S. Borrower repaid to Unique on the Closing Date
(which repayment was in the amount of $2,500,000) would be required to be
reinvested by Unique in Subordinated Debt or other junior capital of U.S.
Borrower, in such form and on such terms and conditions as may be acceptable to
Agent at such time.
You are hereby further advised that, except for the agreement
of Agent, Funding Agent, Collateral Agent and Lenders to forbear from exercising
their rights and remedies during the Forbearance
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Hawker Pacific Aerospace
Hawker Pacific Aerospace Limited
March 10, 1999
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Period as set forth above, Agent, Funding Agent, Collateral Agent and Lenders
expressly reserve the right to exercise any or all of their rights and remedies
under the Loan Agreement and the other Loan Documents or otherwise now or at any
time hereafter. None of the statements set forth in this letter, any prior oral
or written statements by Agent, Funding Agent, Collateral Agent or any Lender to
Borrowers, the making of further advances or other extensions of credit to
Borrowers, or the failure of Agent, Funding Agent, Collateral Agent or any
Lender to exercise any of its rights and remedies against Borrowers now or at
any time in the future, shall be deemed a waiver of the Existing Events of
Default described herein, a waiver of any such rights and remedies or a waiver
or modification of any of the terms of the Loan Agreement or any of the other
Loan Documents, all of which remain in full force and effect.
Very truly yours,
HELLER FINANCIAL, INC., as Agent
By: /s/ Anthony Vizgirda
-----------------------------
Title: Vice President
ACKNOWLEDGED AND AGREED TO
this 11 day of March, 1999 by
HAWKER PACIFIC AEROSPACE
By: /s/ David L. Lokken
-------------------------------
Title: Chief Executive Officer
ACKNOWLEDGED AND AGREED TO
this 11 day of March, 1999 by
HAWKER PACIFIC AEROSPACE LIMITED
By: /s/ David L. Lokken
------------------------------
Title: Director
cc: Yvonne E. Chester, Esq.
Troy & Gould Professional Corporation
1801 Century Park East, Suite 1600
Los Angeles, California 90067
and
Andrew Heathcock, Esq.
Paris, Smith & Randall, Solicitors
Number 1, London Road
Southhampton, Hampshire S015 2AE
United Kingdom
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