EXHIBIT 10.41
April 13, 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 M. Panzera Hounslow, Middlesex TW6 2JA
United Kingdom
Attention: Dennis Biety
Re: Second 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.
Pursuant to subsection 8.l(C) of the Loan Agreement, such breaches
of the covenants set forth in paragraph (A), (B) and (D) of the
Financial Covenants Rider constitute immediate Events of Default
under the Leon Agreement; such Events of Default shall be
collectively referred to herein as the "Existing Events of Default".
Hawker Pacific Aerospace
Hawker Pacific Aerospace Limited
April 13, 1999
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Borrowers hereby recognize and acknowledge that (a) in
connection with the Existing Events of Default, Agent and
Borrowers entered into those certain letter agreements dated as of
March 4, 1999 and March 10, 1999 (collectively, the "Prior
Forbearance Letter"), that the "Forbearance Period" as defined in
the Prior Forbearance Letter (the "Prior Forbearers Period")
expired as of March 30, 1999, and that the agreement to forbear set
forth in the Prior Forbearance Period is thus of no further force
and effect, and (b) the Existing Events of Default continue to
exist as of the date hereof Based on the foregoing, 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 end 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 set forth in the Prior Forbearance Latter, as a result
of the Existing Events of Default, you were formally noted that, as
of February 19, 1999, Agent has established a reserve against the
Borrowing Base of $5,000,000. You are hereby notified that such
reserve continues to remain in effect as of the date hereof and
shall remain in effect until such time as Agent receives duly
executed copies of the Guaranty and Letter of Credit described (and
defined) in paragraph (6) below.
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 further 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 (x) the establishment of the reserve against
the Borrowing Base as set forth above, which reserve may, subject
to the provisions of paragraph (6) below, be maintained or modified
at any time by Agent in its sole discretion notwithstanding the
terms of this letter, and (y) the elimination of the LIROR option
as described below), 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) April 30, 1999 (the "Second Forbearance
Period"), and only subject to the terms and conditions set forth in
paragraphs(l) through (6) below (collectively, the "Second
Forbearance Conditions"):
(l) 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 as required pursuant to subsection 4.26(A) of the
Loan Agreement, to the extent not previously established
pursuant to the Prior Forbearance Letter, and (b) continue
to use their best efforts to, as promptly as practicable
following the date hereof, establish or cause to be
established the
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Hawker Pacific Aerospace Limited
April 13, 1999
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U.K. Blocked Accounts as required pursuant to subsection
4.26(B) of the Loan Agreement, to the extent not previously
established pursuant to the Prior Forbearance Letter;
(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),until Agent shall give Borrower
Representative written notice to the contrary, Borrower
Representative shall continue to deliver to Agent and
Funding Agent Borrowing Base Certificates on the second
Business Day of each week, 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 April 16, 1999, Borrowers shall retain the
services of a third party turnaround consultant acceptable
to Agent to assist in the turnaround efforts for the U.K.
Borrower (including without limitation those efforts
described in the turnaround implementation plan delivered
pursuant to the Prior Forbearance Letter);
(4) On or prior to April 15, 1999, Borrowers shall
deliver to Agent restated annual financial statements for
Borrowers' Fiscal Year 1998 conforming to the requirements
of paragraph (C) of the Reporting Rider to the Loan
Agreement; Borrowers' EBITDA set forth in such restated
annual Financial statements shall not be less than
$3,500,000;
(5) From and after April 1, 1909 and at all times
thereafter until Agent shall give Borrowers written notice
to the contrary, and notwithstanding anything contained in
the Loan Documents to the contrary including without
limitation the definition of the term "Base Rate Margin")
(a) Borrowers shall no longer be entitled to elect the
LIBOR option with respect to any Loans, and each
outstanding LIBOR Loan shall automatically convert to a
Base Rate Loan denominated in the same Available Currency
as such LIBOR Loan as of the equation of the Interest
Period applicable thereto, and (b) the Base Rate Margin
shall equal one and one-half of one percent (1.50%), which
margin shall not be subject to adjustment as of any
Adjustment Date. The parties hereto acknowledge and agree
that this paragraph (5) effectively eliminates the pricing
matrix currently embodied in the terms "LIBOR Margin" and
"Base Rate Margin" in the Loan Agreement in the course of
considering potential restructurings of the Credit
facilities as discussed in the last paragraph of this
letter, Agent and Lenders may consider providing an
alternative pricing matrix, but as more fully stated in
such last paragraph of this letter, there are no assurances
that any such alternative will be offered or approved by
Agent and Lenders; and
(6) No later than April 23, 1999;
(a) Unique or Melanic Bastian, as the case may be
(either such person, the "Term B Guarantor") will
execute and deliver to Agent (i) a Guaranty of up to
$2,500,000 of the Obligations in respect of Term
Loan B (the
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Hawker Pacific Aerospace Limited
April 13, 1909
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"Guaranty"), Which Guaranty must be in form and
substance satisfactory to agent, and (ii)a stand-by
letter of credit securing the obligations of the
Term B Guarantor under the Guaranty, which letter
of credit (the "Letter of Credit")must be in a face
amount of $2,500,000, must name Agent, for the
benefit of Agent and Lenders, as sole
beneficiaries, and must be issued by a bank
satisfactory to Agent. Sole recourse under the
GuaRANty will be limited to drawing under the
Letter of Credit. Further, the Letter of Credit
will(i) provide that drawings thereunder may be
made upon Agent's demand at anytime during the
period commencing on the issuance date thereof
through December 31, 2003, so long as at the time
any such demand is made, a 'material Event of
Default' (as such term will be mutually agreed upon
in the GuaRANty) has occurred and is then
continuing, and (ii) otherwise be acceptable in
form and substance to Agent. Proceeds of drawings
under the Letter of Credit will be applied in
repayment of Term Loan B. U.S. Borrower and the
Term B Guarantor will execute and deliver such
agreements as may be necessary to provide that,
upon any drawing by Agent under the Letter of
Credit (x) the amount drawn will constitute
additional Subordinated Debt of U.S. Borrower owed
to the Term B Guarantor, subject in all respect to
the terms and conditions set forth in the existing
Subordination Agreement (which agreement will be
amends to so provide), and (y) the Term B Guarantor
shall be entitled to receive from U.S. Borrower and
U.S. Borrower shall issue to the Term B Guarantor,
such warrants or similar equity rights as may be
agreed upon by the Term B Guarantor and U.S.
Borrower, provided that any such agreements and any
warrants or similar equity rights to be issued
thereunder must be acceptable to Agent.
Notwithstanding anything contained to the contrary
in the Loan Agreement, in consideration of the
issuance of such Guaranty and the delivery of such
Letter of Credit, U.S. Borrower will be permitted
to pay to the Term B Guarantor a fee, in an annual
amount not exceeding 3% of the face amount of such
Letter of Credit, which foe may be paid annually in
advance in cash on the date such Guaranty and
Letter of Credit is executed and delivered to Agent
and on each anniversary of such date thereunder so
long as such Guaranty and Letter of Credit remain
outstanding.
(b) Upon delivery of the Guaranty and Letter of
Credit as required above (i) the $5,000,000 reserve
against the Borrowing Base shall be released, (ii)
U.S. Borrower shall request, and Lenders shall
make, a Revolving Advance in Dollars in an amount
equal to the lesser of (x) $4,150,000 (e.g., the
then outstanding principal balance of Term Loan B
less the $2,500,000 portion thereof secured by the
Letter of Credit), and (y) Availability as of such
date, and (iii) U.S. Borrower shall direct Agent to
apply the proceeds of such Revolving Advance as a
permanent prepayment of the principal
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Hawker Pacific Aerospace Limited
April 13, 1999
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balance of Term Loan B, which prepayment will be
made without premium or penalty.
(c) Notwithstanding anything contained in the Loan
Agreement to the contrary, no further Scheduled
Installments shall be require to be paid in respect
of Term Loan B from and after the earlier of (i)
the date the Revolving Advance referred to in
paragraph 6(b) is made and applied to Term Loan B,
if Availability as of such date is sufficient to
permit U.S. Borrower to repay $4,150,000 of Term
Loan B on such date, and (ii) such subsequent date
on which the outstanding principal balance of Term
Loan B has been reduced to $2,500,000 (and until
such date, Borrowers shall continue to make
payments of Scheduled Installments of Term Loan B
on the dates required pursuant to the Loan
Agreement, each such Scheduled Installment to be in
an amount equal to the lesser of (x) the amount of
the Scheduled Installment due on the relevant
payment date pursuant to the Loan Agreement, or (y)
the amount required to reduce the outstanding
principal balance of Term Loan B to $2,500,000.
By execution of this letter agreement, Borrower
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 Second 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, which date shall occur no later than
April 13, 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 April 13, 1999).
The foregoing agreement to forbear shall be limited
precisely as written and 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, except for the
agreement of Agent, Funding Agent, Collateral Agent and Lender to
forbear from exercising their rights and remedies during the Second
Forbearance 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
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Hawker Pacific Aerospace Hawker
Pacific Aerospace Limited
April 13, 1999
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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 at any Lender
to Borrowers (including without limitation the Prior Forbearance
Letter), 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 right 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.
You are hereby further advised that, during the
Second Forbearance, the Agent may, in its sole discretion, consider
working with Borrowers on a potential restructuring of the facilities
provided under the Loan Agreement and the other Loan Document,
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.
Very truly yours,
HELLER FINANCIAL, INC., as Agent
By:
Title: Vice President
(signatures continue on next page)
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Hawker Pacific Aerospace
Hawker Pacific Aerospace Limited
April 13, 1999
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ACKNOWLEDGED AND AGREED TO
this 13th day of April, 1999 by
HAWKER PACIFIC AEROSPACE
By:
Title:
ACKNOWLEDGE AND AGREED TO
this 13th day of April, 1999 by
HAWKER PACIFIC AEROSPACE LIMITED
By:
Title:
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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