Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
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[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
HAWKER PACIFIC AEROSPACE
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
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HAWKER PACIFIC AEROSPACE
11240 Sherman Way
Sun Valley, California 91352-4942
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On January 19, 2001
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Hawker Pacific Aerospace (the "Company") will be held at the
principal office of the Company, located at 11240 Sherman Way, Sun Valley,
California, on January 19, 2001, at 9:00 A.M., Pacific Time, for the
following purposes, as more fully described in the attached Proxy Statement:
(1) To elect seven directors of the Company to serve on a classified Board
of Directors in accordance with the Company's Amended and Restated Articles of
Incorporation;
(2) To approve a warrant to purchase 2,500,000 shares of the Company's
common stock at a price of $4.25 per share issued to Lufthansa Technik AG on
September 20, 2000; and
(3) To transact such other business as may properly be brought before the
Special Meeting and any and all adjournments thereof.
The Board of Directors fixed the close of business on December 14, 2000, as
the record date for the determination of shareholders entitled to notice of and
to vote at the Special Meeting. Only shareholders of record at the close of
business on the record date are entitled to vote at the Special Meeting.
Accompanying this Notice are a Proxy and Proxy Statement. IF YOU WILL NOT
BE ABLE TO ATTEND THE SPECIAL MEETING TO VOTE IN PERSON, PLEASE COMPLETE, SIGN
AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-
PAID ENVELOPE. The Proxy may be revoked at any time prior to its exercise at
the Special Meeting. The Proxy and Proxy Statement are first being mailed to
shareholders on or about December ____, 2000.
By Order of the Board of Directors,
Philip M. Panzera
Secretary
Sun Valley, California
December ____, 2000
HAWKER PACIFIC AEROSPACE
11240 Sherman Way
Sun Valley, California 91352-4942
SPECIAL MEETING OF SHAREHOLDERS
January 19, 2001
PROXY STATEMENT
INTRODUCTION
This Proxy Statement ("Proxy Statement") is furnished to the shareholders
of Hawker Pacific Aerospace, a California corporation (the "Company"), in
connection with the solicitation of proxies by and on behalf of the Board of
Directors of the Company. The proxies solicited hereby are to be voted at the
Special Meeting of Shareholders of the Company to be held on January 19, 2001,
and at any and all adjournments thereof (the "Special Meeting").
PURPOSE OF SPECIAL MEETING
At the Special Meeting, shareholders will be asked: (i) to elect seven
directors of the Company to serve on a classified Board of Directors, with four
directors to be elected to serve until the annual shareholders meeting in 2001
and three directors to be elected to serve until the annual shareholders meeting
in 2002 and, in each case, until their successors are duly elected and
qualified; (ii) to approve a warrant to purchase up to 2,500,000 shares of the
Company's common stock at an exercise price of $4.25 per share (the "Warrant")
issued on September 20, 2000 to Lufthansa Technik AG ("LHT"); and (iii) to
transact such other business as may properly be brought before the Special
Meeting. The Board recommends a vote "FOR" the election of the nominees for
director named in this Proxy Statement and "FOR" approval of the Warrant.
QUORUM AND VOTING RIGHTS
The presence, in person or by proxy, of the holders of a majority of the
outstanding common stock of the Company (the "Common Stock") is necessary to
constitute a quorum at the Special Meeting. Only shareholders of record at the
close of business on December 14, 2000 (the "Record Date"), are entitled to
notice of, and to vote at, the Special Meeting. As of the Record Date, there
were 5,857,653 shares of Common Stock outstanding and entitled to vote. Holders
of Common Stock as of the Record Date are entitled to one vote for each share
held.
All shares of Common Stock represented by properly executed proxies will,
unless the proxies have previously been revoked, be voted in accordance with the
instructions indicated in the proxies. If no instructions are indicated, the
shares will be voted "FOR" the election of the seven nominees for directors of
the Company and "FOR" approval of the Warrant. With respect to any other item
of business that may come before the Special Meeting, the proxy holders will
vote the proxies in accordance with their best judgment.
In the election of directors, the seven candidates receiving the highest
number of votes will be elected as directors. The approval of the Warrant and
any other matters submitted for shareholder approval at the Special Meeting will
be decided by the affirmative vote of a majority of the shares represented in
person or by proxy and entitled to vote on each such matter. Abstentions with
respect to any matter will be treated as shares present or represented and
entitled to vote on that matter and thus have the same effect as negative votes.
If a broker which is the record holder of certain shares indicates on a proxy
that it does not have discretionary authority to vote on a particular matter as
to such shares, or if shares are not voted in other circumstances in which proxy
authority is defective or has been withheld with respect to a particular matter,
these non-voted shares will be counted as present at the Special Meeting for
quorum purposes, but will not be counted for purposes of determining whether
shareholder approval of that matter has been obtained. As a result, any such
"non-votes" will not affect the outcome of the matters presented at the Special
Meeting.
-1-
Any shareholder executing a proxy has the power to revoke the proxy at any
time prior to its exercise. A proxy may be revoked prior to exercise by (a)
filing with the Company a written revocation of the proxy; (b) appearing in
person at the Special Meeting and casting a vote contrary to that indicated on
the proxy; or (c) submitting a duly executed proxy bearing a later date.
The cost of preparing, printing, assembling and mailing this Proxy
Statement and other material furnished to shareholders in connection with the
solicitation of proxies will be borne by the Company. In addition to the
solicitation of proxies via U.S. Mail, officers, directors and regular employees
of the Company may solicit proxies by written communications, by telephone,
telegraph or personal call. These persons are to receive no special
compensation for any solicitation activities. The Company will reimburse banks,
brokers and other persons holding Common Stock in their names, or those of their
nominees, for their expenses in forwarding proxy solicitation materials to
beneficial owners of Common Stock. This Proxy Statement and the accompanying
form of proxy are first being mailed to shareholders on or about December ____,
2000.
RECENT TRANSACTIONS
As previously reported by the Company in its current report on Form 8-K
filed with the Securities and Exchange Commission on October 5, 2000, on
September 20, 2000, LHT purchased 2,336,495 shares of the Company's Common
Stock, or approximately 40% of the outstanding Common Stock, from six of the
Company's former shareholders (the "Selling Shareholders") and all 300 shares of
the Company's outstanding 8% Series C Convertible Preferred Stock from Deephaven
Private Placement Trading Ltd. ("Deephaven") in separately negotiated private
transactions. As of November 27, 2000, the 8% Series C Convertible Preferred
Stock was convertible into 1,168,197 shares of Common Stock.
In another transaction, the Company and LHT entered into a Loan Agreement,
dated September 20, 2000 (the Loan Agreement"), pursuant to which LHT provided
the Company a $9,300,000 subordinated loan for a term of three years. In
connection with the Loan Agreement, the Company issued LHT the Warrant. The
Warrant will entitle LHT to purchase 2,500,000 shares of the Company's Common
Stock at an exercise price of $4.25 per share, but will become exercisable only
upon approval by the shareholders of the Company. If approved by the
shareholders, the Warrant will be immediately exercisable from the date of such
approval until September 19, 2001.
As part of the Loan Agreement, the Company and LHT entered into a Voting
and Indemnity Agreement, dated September 20, 2000, under which the Company
agreed to indemnify LHT and its "Affiliates" and "Representatives" (as defined
therein) against all "Losses" (as defined therein) arising out of, or in
connection with, or as a result of, LHT's voting in favor of the Warrant of the
Special Meeting, the failure of the shareholders to approve the Warrant at the
Special Meeting, or if a majority of the shareholders (other than LHT) vote
against approval of the Warrant. The Company also entered into a Registration
Rights Agreement, dated September 20, 2000, with LHT, under which the Company
agreed, at LHT's request, to file a registration statement under the federal
securities laws covering all or any part of the "Registrable Securities"
(as defined therein) held by LHT and granted LHT certain "piggyback"
registration rights and rights to registration of LHT's Registrable Securities
on Form S-3.
The Company, David L. Lokken, Brian Carr, Michael Riley and Dennis Biety
(collectively, the "Management Shareholders"), and LHT also entered into a
Shareholder Rights and Voting Agreement, dated September 20, 2000 (the
"Shareholder Rights Agreement"), pursuant to which the Management Shareholders
granted LHT the right of first refusal to purchase a total of 196,342 shares of
Common Stock, or approximately 3.4% of the outstanding Common Stock, owned by
the Management Shareholders, plus up to an additional 129,786 shares of Common
Stock that the Management Shareholders may acquire upon the exercise of
outstanding options held by them. LHT also was granted proxies from the
Management Shareholders to vote all of such shares and certain preemptive rights
to purchase shares from the Company. Pursuant to the Shareholder Rights
Agreement and corresponding provisions of the Loan Agreement, the Company
granted LHT, among other things, the rights to nominate three members of the
Board of Directors of the Company who will serve as "Class II" directors as
described below under "Proposal One: Election of Directors" (including the right
to nominate the successors to those nominees), and to cause the Company to
increase the size of the Board from seven to nine directors, and, in that event,
to nominate two additional directors.
-2-
The foregoing transactions and agreements are described in the text of the
Company's 8-K filed on October 5, 2000, a copy of which is attached as Annex A
to this Proxy Statement. The Form 8-K includes additional information with
respect to LHT which is incorporated herein by reference.
PROPOSAL ONE: ELECTION OF DIRECTORS
Background
In November 1997, the Company adopted Amended and Restated Articles of
Incorporation (the "Articles") which included a new Article FOUR, which was to
become effective automatically when the Company had at least 800 shareholders as
of the record date for its most recent annual meeting of shareholders. Once
Article FOUR became effective, shareholders were no longer able to cumulate
their votes in the election of directors.
In addition, at the first annual shareholders meeting following the
effectiveness of Article FOUR, the Company's Board of Directors was to be
classified into two classes of an equal (or nearly equal) number of directors,
with each class of directors to serve for staggered two-year terms. Any
increase in the authorized number of directors is to be apportioned equally, or
as nearly equal as is possible, between the two classes.
The Company had more than 800 shareholders of record at least as of the
record date for the 2000 annual meeting of shareholders. If no action were taken
before that time, the election of a classified Board of Directors would occur at
the annual meeting of shareholders to be held in 2001. As part of the
transactions with LHT described above, however, the Company and the Management
Shareholders agreed to call the Special Meeting for the purposes of electing a
classified Board of Directors prior to that time and submitting the Warrant to
the shareholders for their approval as described in Proposal Two below.
The Board of Directors considered it appropriate and in the best interests
of the Company's shareholders to give immediate effect to Article FOUR of the
Articles by reelecting directors to the newly classified board. The Board of
Directors currently consists of members who are elected to one-year terms at
each annual meeting of the shareholders. To facilitate the election of a
classified Board of Directors, each of the incumbent directors, including Mr.
Lokken and Mr. McIntyre, who were reelected to the Board at the recent annual
shareholders meeting held on July 19, 2000, has agreed stand for reelection at
the Special Meeting.
Nominees
At the Special Meeting, seven directors, who will constitute the entire
Board of Directors, are to be elected to serve on the newly classified board.
In accordance with the Company's Amended Restated Articles of Incorporation,
Class I directors will serve until the annual meeting of shareholders in 2001
and Class II directors will serve until the annual meeting of shareholders in
2002, in each case, until their successors shall be duly elected and qualified.
All nominees have consented to being named herein and have agreed to serve if
elected. The nominees are as follows:
Class I Class II
------- --------
David L. Lokken Wolfgang Mayrhuber
Mellon C. Baird Dr. Gerald Gallus
Joel F. McIntyre James C. Stoecker
Laurans A. Mendelson
Upon the sale of their shares of the Company's Common Stock to LHT on
September 20, 2000, Daniel J. Lubeck, Scott Hartman, and John Makoff resigned as
directors, and Messrs. Mayrhuber, Stoecker, and Gallus, the three nominees of
LHT, were appointed by the remaining directors to fill the three vacancies on
the Board.
-3-
In October 2000, Daniel C. Toomey, Jr., also resigned as a director. The
Board has nominated Mr. Mendelson to succeed Mr. Toomey on the Board.
The proxy holders will vote the proxies "FOR" the election of all of the
above named nominees, unless the shareholder instructs that the proxy shall not
be voted for all or any one of the nominees. Nominees receiving the highest
number of affirmative votes cast, up to the number of directors to be elected,
will be elected as directors. Abstentions, broker non-votes, and instructions on
the accompanying proxy card to withhold authority to vote for one or more of the
nominees will result in the respective nominees receiving fewer votes. If for
any reason any nominee should, prior to the Special Meeting, become unavailable
for election as a Director, the proxies will be voted for such substitute
nominee, if any, as may be recommended by management. In no event, however,
shall the proxies be voted for a greater number of persons than the number of
nominees named. Since Article FOUR of the Company's Amended and Restated
Articles of Incorporation is now effective, shareholders are no longer entitled
to cumulative votes for the election of directors.
Classified Board - General
As described above, Article FOUR of the Amended and Restated Articles
provides that the Board of Directors is to be divided into two classes, Class I
and Class II, with the number of directors in each class to be as nearly equal
as possible, and with each class to be elected for a two-year term on a
staggered basis.
All directors in Class I will serve a term ending at the annual meeting of
shareholders in 2001, and will be eligible for re-election for a full two-year
term at that annual meeting. All directors in Class II will serve a term ending
at the annual meeting of shareholders in 2002. They (or other individuals
designated by LHT) will be eligible for reelection for a full two-year term at
that annual meeting. As a result, only one class of directors will be elected
at each subsequent annual meeting of shareholders. Vacancies and newly created
directorships resulting from any increase in the number of authorized directors
will be apportioned as nearly equal as is possible between Class I and Class II
and may be filled by a majority vote of the directors then remaining in office.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE ELECTION OF THE PERSONS NOMINATED ABOVE.
Executive Officers and Directors
Set forth below is certain information with respect to the directors,
director-nominees and executive officers.
Name Position
- --------------------- ------------------------------------------------------
Wolfgang Mayrhuber Chairman of the Board (1)(2)(4)
David L. Lokken President, Chief Executive officer and Director (1)(2)
Philip M. Panzera Executive Vice President, Chief Financial Officer and
Secretary
Brian S. Carr Managing Director of Sun Valley Operations
Michael A. Riley Vice President, Sales & Marketing
Mellon C. Baird Director (1)(3)
Joel F. McIntyre Director (3)(4)
Dr. Gerald Gallus Director (2)
James C. Stoecker Director
Laurans A. Mendelson Director Nominee
____________________
(1) Member of Executive Committee
(2) Member of Nominating Committee
(3) Member of Audit Committee
(4) Member of Compensation Committee
-4-
Wolfgang Mayrhuber, 53, was appointed to the Board on September 20, 2000,
and has served as Chairman of the Board since that time. He has served with
Deutsche Lufthansa since 1970, and has held various senior management positions
for the maintenance and overhaul of aircraft, components and engines in Hamburg
and Frankfurt. In 1992 Mr. Mayrhuber was appointed Executive Vice President and
Chief Operating Officer Technical for Lufthansa. He then chaired the Lufthansa
revitalization and restructuring team and in October 1994 became Chairman of the
Executive Board of the newly formed LHT. Mr. Mayrhuber studied mechanical
engineering at the Federal Technical High School in Steyr, Austria, and the
Bloor Institute in Canada. He has also participated in Senior Executive
Management Training at the Massachusetts Institute of Technology.
David L. Lokken, 54, joined the Company in May 1989 as Executive Vice
President and Chief Operating Officer. He has served as President and Chief
Executive Officer of the Company since June 1993, and as a Director of the
Company since 1994. From November 1985 until he joined the Company, Mr. Lokken
served as Vice President and General Manager of Cleveland Pneumatic's Product
Service Division. Mr. Lokken previously served as Vice President, Technical
Operations, for the Flying Tiger cargo airline. He has also held avionics and
product engineering positions with Western Airlines and the Sperry Flight
Systems Division. Mr. Lokken holds a B.S. in Electrical Engineering from North
Dakota State University and an M.B.A. from Arizona State University.
Philip M. Panzera, 51, joined the Company in October 1998 as Vice President
of Corporate Development. In March 1999 he was appointed Vice President and
Chief Financial Officer, and since September 1999 he has served as Executive
Vice President. In September 2000, he was appointed Secretary of the Company, as
well. Prior to joining the Company, Mr. Panzera held a number of senior
management positions as Chief Financial Officer, Chief Operating Officer,
President and Director in both private and public companies. He has worked as an
attorney, specializing in tax and corporate law, and business planning, and has
also served with Coopers & Lybrand. Mr. Panzera received a B.A. from Methodist
College, an M.B.A. from the Rutgers University Graduate School of Management,
and a J.D. from the Rutgers University School of Law.
Brian S. Carr, 43, became Managing Director of Sun Valley Operations in
November 1997 after having served as Vice President of the Landing Gear Business
Unit since he joined the Company in January 1993. From 1980 until he joined the
Company, Mr. Carr held various engineering, technical sales and management
positions with Cleveland Pneumatic's Product Service Division and Dowty
Aerospace. Mr. Carr holds a B.S. in Aerospace Engineering Technology from Kent
State University.
Michael A. Riley, 54, joined the Company as Vice President of Marketing in
October 1989. He served as Vice President of the Hydromechanical Business Unit
from January 1994 to September 1999, when he was appointed as Vice President of
Sales & Marketing. From 1982 until he joined the Company, Mr. Riley held various
positions in the aerospace/aircraft industry with Abex Aerospace and Dunlop
Aviation. Mr. Riley served as a helicopter pilot in the United States Navy
after receiving a B.S. in Engineering from the United States Naval Academy,
Annapolis, Maryland.
Mellon C. Baird, 69, became a director of the Company in March 1998. Mr.
Baird is serving as Chief Executive Officer of Titan Systems and Senior Vice
President of the Titan Corporation. He was Chairman, President and Chief
Executive Officer of Delfin Systems, a private company, from 1990 until 1998.
From 1987 to 1989, Mr. Baird served as President and Chief Executive Officer of
Tracor, Inc., a privately-held company. From 1986 until 1987, Mr. Baird served
as President, Chief Operating Officer and a director of Tracor, a publicly-held
company. Mr. Baird currently serves on the Board of Directors of Software
Spectrum, Inc. and EDO Corporation, which are both publicly-held companies. Mr.
Baird received a B.B.A. and an M.B.A. from the University of North Texas in 1956
and 1961, respectively.
Dr. Gerald Gallus, 59, became a director of the Company on September 20,
2000. He has served with Deutsche Lufthansa since 1979. He has held various
senior management positions at Lufthansa in aircraft maintenance and production
planning. In 1991, Dr. Gallus was given worldwide responsibility for
Lufthansa's maintenance operations, and in October 1994 he was appointed to the
Executive Board of the newly formed LHT. Dr. Gallus has served on the staff of
the business management institutes at Mainz University and Darmstadt
-5-
Technical University, where he was also appointed to the academic council. He
studied engineering, operations research and computer science at Darmstadt
Technical University, earning a degree in 1968, and a doctorate in 1974.
Joel F. McIntyre, 62, became a director of the Company in February 1998.
From 1963 through 1993, Mr. McIntyre was an attorney with the law firm of Paul,
Hastings, Janofsky and Walker. In 1993, Mr. McIntyre founded his own law firm,
specializing in merger and acquisition transactions. Mr. McIntyre currently
serves on the Board of Directors of International Aluminum Corporation, a
publicly-held company. Mr. McIntyre received a B.A. from Stanford University in
1960, and a J.D. from the University of California- Los Angeles in 1963.
James C. Stoecker, 43, became a director of the Company on September 20,
2000. Mr. Stoecker joined Lufthansa Technik AG in December 1998 as General
Manager for Business Development for North America. He also serves as President,
CEO and Director of Lufthansa Technik Component Services, LLC, and as a Director
and Treasurer of Bizjet International Sales and Support, Inc. In 1994, Mr.
Stoecker founded AvEng Trading Partners, Inc. where he served as President and
Chairman until 1996. From 1996 to 1997, Mr. Stoecker served as Senior Vice
President of Aviation Sales Company responsible for the Engine division. Mr.
Stoecker is a CPA, with a B.S. in Accounting from Illinois State University, and
an MBA in Finance and Strategic Management from the University of Illinois at
Chicago.
Laurans A. Mendelson, 62, has served as Chairman of the Board of New York
Stock Exchange-traded HEICO Corporation since December 1990, as its Chief
Executive Officer since February 1990, and as its President since September
1991. He also served as President of MediTek Health Corporation, a Heico
subsidiary, from May 1994 through July 1996. In 1997 and 1999, Mr. Mendelson
served on the board of governors of the Aerospace Industries Association. Mr.
Mendelson is a Certified Public Accountant, and a member of the Board of
Trustees of Columbia University in the City of New York and the Board of
Trustees of Mount Sinai Medical Center in Miami Beach, Florida.
Meetings; Attendance; Committees
During the fiscal year ended December 31, 1999, the Board of Directors of
the Company met three times, had four telephonic meetings, and took action two
times by unanimous written consent.
The Audit Committee is temporarily composed of Messrs. McIntyre and Baird,
with one vacancy. If elected as a director, Mr. Mendelson will assume the role
of chair of the committee, a position filled by Mr. Toomey prior to his
resignation. The functions of the Audit Committee principally include (i)
recommending to the Board of Directors the selection and retention of
independent auditors, (ii) reviewing the scope of the annual audit undertaken by
the Company's independent auditors and the progress and results of their work,
and (iii) reviewing the financial statements of the Company and its internal
accounting and auditing procedures. The Audit Committee met once during 1999.
The Compensation Committee is currently composed of Messrs. Mayrhuber and
McIntyre, with one vacancy. If elected as a director, Mr. Mendelson will be
appointed to the committee. Prior to their resignations, Messrs. Lubeck and
Toomey were members of the committee. The functions of the Compensation
Committee principally include (i) establishing the compensation of the Chief
Executive Officer, (ii) reviewing and approving executive compensation policies
and practices, (iii) reviewing salaries and bonuses for certain executive
officers of the Company, (iv) administering the Company's employee stock option
plans, and (v) considering such other matters as may from time to time be
delegated to the Compensation Committee by the Board of Directors. The
Compensation Committee met once during 1999.
The function of the Nominating Committee, which consists of Messrs.
Mayrhuber, Gallus and Lokken, is to select the slate of directors to be
presented to the shareholders for election at each Annual Meeting. The
Nominating Committee may consider director nominees recommended by the Company's
shareholders if recommendations are submitted to the Company in the manner
provided below under "Submission of Shareholder Proposals." Prior to their
resignations, Messrs. Lubeck and Hartman were members of the Nominating
Committee. Under the terms of the Loan Agreement and the Shareholder Rights
Agreement entered into with LHT on September 20, 2000, the Company agreed that
LHT will have the exclusive right to nominate three persons to serve as Class II
directors to fill
-6-
the vacancies created by the resignations of Messrs. Lubeck, Hartman and Makoff,
to cause the Company to increase the number of authorized directors to nine and,
in that event, to nominate two additional directors to fill those new Board
positions.
The Board of Directors has also established an Executive Committee to
advise the Company on strategic planning matters. The Executive Committee is
composed of Messrs. Mayrhuber, Lokken and Baird. Prior to his resignation, Mr.
Lubeck was the chair of the committee.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, as well as persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission ("SEC") initial reports of beneficial ownership and reports of
changes in beneficial ownership of the Common Stock. Directors, executive
officers and greater-than-ten-percent shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on a review of copies of reports filed with the SEC and
submitted to the Company, the Company believes that all of the Company's
directors, executive officers and greater-than-ten-percent shareholders filed
all required reports on a timely basis.
PROPOSAL TWO: APPROVAL OF WARRANT TO LUFTHANSA TECHNIK AG
At the Special Meeting, shareholders will be asked to approve the Warrant.
A copy of the Warrant is attached as Annex B to this Proxy Statement and
incorporated herein by reference.
The Warrant was issued to LHT on September 20, 2000 in connection with
entering into the Loan Agreement under which LHT provided a $9,300,000
subordinated loan to the Company. The Warrant would entitle LHT to purchase up
to 2,500,000 shares of the Company's Common Stock at an exercise price of $4.25
per share, but will not become exercisable unless and until shareholder approval
is obtained. If approved at the Special Meeting, the Warrant will be
immediately exercisable from the date of the Special Meeting until September 19,
2001.
At LHT's election, LHT may pay the exercise price of the Warrant in cash,
or by canceling all or a portion of the outstanding principal or interest on its
subordinated loan to the Company in an amount equal to the exercise price, or by
a combination of cash and cancellation of all or a portion of the outstanding
principal or interest on the subordinated loan.
As of November 27, 2000, LHT owned or had the right to vote 2,537,837
shares, or approximately 43.3%, of the Company's outstanding Common Stock. Based
on recent trading prices of the Company's Common Stock, if LHT had converted all
of its 8% Series C Preferred Stock of the Company as of November 27, 2000, LHT
would have owned or had the right to vote approximately 52% of the Company's
outstanding Common Stock. If the 8% Series C Convertible Preferred Stock were
converted in full, and the Warrant is also approved by the shareholders at the
Special Meeting, LHT would own, or have the right to acquire or vote,
approximately 65% of the Company's outstanding Common Stock.
The Company's management and its directors not affiliated with LHT believe
that the LHT relationship enhances the Company's ability to improve its results
of operations and increase shareholder value in the future. Shareholders are
therefore being asked to approve the Warrant. The approval of the Warrant will
require the vote of a majority of the shares of Common Stock present, in person
or by proxy, and entitled to vote at the Special Meeting. LHT has indicated its
intention to vote in favor of Proposal Two.
-7-
If the Warrant were not approved at the Special Meeting, the Company would
be in default under its Loan Agreement with LHT, and LHT would have the right,
among other things, to accelerate the Company's repayment of the $9,300,000
subordinated loan from LHT. Under its Voting and Indemnity Agreement with the
Company, LHT also would be entitled to indemnity from the Company for all
"Losses" (as defined) to LHT resulting from LHT's voting in prior of favor of
the Warrant or the failure of the shareholders to approve the Warrant. Even if
the Warrant is approved at the Special Meeting, LHT would be entitled to such
indemnity from the Company if a majority of the shareholders (other than LHT)
vote against approval of the Warrant.
Messrs. Mayrhuber and Gallus, who are directors of the Company, also are
directors of LHT and Mr. Stoecker, a director of the Company, is a general
manager of LHT. As such, these directors may be deemed to have an interest in
the proposal to approve the issuance of the Warrant. The Warrant was authorized
by the Board of Directors prior to the closing of the transactions with LHT as
part of the authorization of those transactions, so Messrs. Mayrhuber, Gallus,
and Stoecker did not participate in the Board's action authorizing the issuance
of the Warrant.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
APPROVAL OF THE WARRANT.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Executive Compensation
The following table sets forth certain compensation earned or accrued
during the years ended December 31, 1997, 1998 and 1999 by the Company's Chief
Executive Officer, and the Company's three other most highly compensated
executive officers whose total salary and bonus during the year ended December
31, 1999, exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
Long-term Compensation
----------------------
Awards Payouts
------ -------
Securities
Restricted Underlying All Other
Annual Compensation Stock Options/ LTIP Compen-
-----------------------------
Name and Principal Position Year Salary Bonus(1) Other Awards SARs (#) Payouts sation
- --------------------------------------------- ---- -------- -------- ---------- ---------- -------- ------- ---------
David L. Lokken.............................. 1999 $245,326 $30,751 - - - - -
Chief Executive Officer 1998 222,351 22,431 - - - - -
1997 233,147 44,358 - - - - -
Philip M. Panzera............................ 1999 $159,843 $24,002 - - - - -
Executive Vice President
Brian S. Carr................................ 1999 $160,637 $24,002 - - - - -
Managing Director of Sun Valley Operations 1998 136,022 10,669 - - - - -
1997 125,156 21,097 - - - - -
Dennis M. Biety(2)........................... 1999 $156,141 $24,002 - - - - -
Managing Director of UK Operations
Michael A. Riley............................. 1999 $123,588 $19,500 - - - - -
Vice President-Sales & Marketing 1998 115,003 9,438 - - - - -
1997 113,430 18,663 - - - - -
- -----------
(1) Bonus amounts are shown in the year accrued.
(2) As of November 2000, Mr. Biety was no longer employed by the Company.
-8-
Director Compensation
Directors not employed by or affiliated with the Company currently receive
$1,500 per month for service on the Board, plus an additional $500 per month for
service on one or more committees of the Board. At the discretion of the Board,
directors may also be granted stock options. Directors are reimbursed for
expenses incurred in connection with the performance of services as directors.
In January 1998, Mr. McIntyre was granted a five-year option to purchase up
to 14,861 shares, exercisable at $8.00 per share, vesting 33 1/3% per year
beginning on the first anniversary of the effective date of the Company's
initial public offering. In March 1998, the Company granted Mr. Baird five-year
options to purchase up to 14,861 shares, exercisable at the then current market
price, vesting 33 1/3% per year beginning on the first anniversary of the date
of grant.
Stock Options/SAR Grants
No stock options or Stock Appreciation Rights were granted to or exercised
by the Named Executive Officers during the fiscal year ended December 31, 1999.
Employment Arrangements
In November 1996, the Company entered into an employment agreement with
David L. Lokken pursuant to which Mr. Lokken agreed to serve as the Company's
President and Chief Executive Officer. The employment agreement is for an
initial term of five years and, as amended in 1997, provides for an annual base
salary of $205,000, and a performance bonus to be awarded in accordance with the
terms and conditions of a separate Management Incentive Compensation Plan.
Pursuant to the employment agreement, the Company may terminate Mr. Lokken's
employment with or without cause at any time before its term expires upon
providing written notice. In the event the Company terminates Mr. Lokken's
employment without cause, Mr. Lokken would be entitled to receive a severance
amount equal to his annual base salary and benefits for the greater of two years
or the balance of the term of his employment agreement, and a pro rata bonus for
the year of termination. In the event of a termination by reason of Mr. Lokken's
death or permanent disability, his legal representative will be entitled to
receive his annual base salary and benefits for the remaining term of his
employment agreement. In the event of, or termination following, a change in
control of the Company, as defined in the agreement, Mr. Lokken would be
entitled to receive eighteen months salary and benefits.
In November 1996, the Company also entered into employment agreements with
Brian S. Carr, Managing Director of Sun Valley Operations, and Michael A. Riley,
Vice President, Sales & Marketing. The employment agreements are each for an
initial term of three years, which has been automatically extended for one year.
The agreements, as amended in 1997 and 1999, provide for annual base salaries of
$160,000 and $130,000, respectively, and performance bonuses to be awarded in
accordance with the terms and conditions of a separate Management Incentive
Compensation Plan. Mr. Riley will also receive commissions totaling $30,000 per
year if the Company achieves its revenue targets, plus additional commissions if
Company revenue should exceed its targets. In the event the Company terminates
their employment without cause, Messrs. Carr and Riley would each be entitled to
receive a severance amount equal to his respective annual base salary and
benefits for the greater of one year or the balance of the term of his
employment agreement and a pro rata bonus for the year of termination. In the
event of a termination by reason of Messrs. Carr's or Riley's death or permanent
disability, his legal representative will be entitled to receive his annual base
salary and benefits for the remaining term of his employment agreement. In the
event of, or termination following, a change in control of the Company, as
defined in the agreement, Messrs. Carr and Riley would each be entitled to
receive twelve months salary and benefits.
In October 1998, the Company entered into an employment agreement with
Philip M. Panzera, Executive Vice President. The agreement is for an initial
term of three years, and, as amended in 1999, provides for an annual base salary
of $160,000, and a performance bonus to be awarded in accordance with the terms
and conditions of a separate Management Incentive Compensation Plan. In the
event the Company terminates his employment without cause, Mr. Panzera would be
entitled to receive a severance amount equal to his annual base salary and
benefits for the greater of one year or the balance of the term of his
employment agreement, and a pro rata bonus for the year of termination. In the
event of a termination by reason of Mr. Panzera's death or permanent disability,
his legal representative will be entitled to receive his annual base salary and
benefits for the remaining term of his employment agreement. In the event of, or
termination following, a change in control of the Company, as defined in the
agreement, Mr. Panzera would be entitled to receive twelve months salary and
benefits.
-9-
The transactions with LHT described above under "Recent Transactions"
triggered the "change-of-control" payments provided for in the respective
employment agreements of Messrs. Lokken, Carr, Riley and Panzera. A portion of
these amounts was paid in September and November 2000. Certain of the officers
have voluntarily deferred their receipt of the balance of the change-of-control
payments.
During 2000, the Company provided contracts to each of the executive
officers, and certain other key employees, which provide additional financial
incentives upon a change in control of the Company, depending upon the price
paid for the Company in connection with the change of control transaction. The
transactions with LHT did not trigger any payments to these employees pursuant
to such agreements, but certain officers and employees received accelerated
vesting for their stock options as a result of the closing of the LHT
transactions.
Employee Defined Benefit Plan
General. On January 1, 1997, the Board of Directors adopted the Employee
Defined Benefit Pension Plan (the "Pension Plan") for the benefit of the
eligible employees of the Company. The primary purpose of the Pension Plan is to
provide a retirement benefit for participating employees. All employees of the
Company are eligible to participate in the Pension Plan on the January 1/st/
next following their date of hire. Employees who are covered by collective
bargaining units and whose retirement benefits are the subject of good faith
bargaining, however, are not eligible to participate in the Pension Plan.
Administration. The Pension Plan is administered by trustees appointed by
the Board of Directors. The trustees oversee the day-to-day administration of
the Pension Plan and have the authority to take action and make rules and
regulations necessary to carry out the purpose of the Pension Plan.
Normal Retirement Benefits and Vesting. The Pension Plan provides for
employer contributions only. Each year, the Company makes a contribution to the
pension plan equal to the minimum funding requirement sufficient to fund for the
benefits being accrued under the Pension Plan for the year. The Pension Plan
provides for a normal retirement benefit payable on a monthly basis for the
lifetime of the participant. The normal retirement benefit is equal to the
participant's credited benefit service (up to a maximum of 35 years) times the
sum of 0.75% of the participant's final average monthly compensation plus 0.65%
of such compensation in excess of the participant's average monthly wage.
However, the benefit actually payable from the Pension Plan will be reduced for
any benefits payable (or paid) with respect to service credited from the Defined
Benefit Plan of the Company's predecessor.
For purposes of calculating a participant's normal retirement benefits,
average monthly compensation is defined in the Pension Plan as average monthly
compensation during the five consecutive plan years of the participant's
employment which yields the highest average compensation.
No maximum monthly benefit payable under the Pension Plan is to exceed the
applicable Internal Revenue Code Section 415 limit adjusted actuarially to
reflect a participant's retirement age if the retirement age is other than
-10-
the social security retirement age. The monthly retirement benefit payable by
the Pension Plan is a benefit payable in the form of a straight life annuity
with no ancillary benefits. For a participant who is to receive benefits other
than in the form of a straight life annuity, the monthly retirement benefit will
be adjusted to an equivalent benefit in the form of a straight life annuity on
an actuarial equivalent basis.
A participant becomes fully vested in his accrued benefits under the
Pension Plan upon attainment of normal retirement age (age 65), permanent
disability, death or the termination of the Pension Plan. If a participant
terminates employment with the Company prior to retirement, death or disability,
the vested interest he has in accrued benefits under the Pension Plan is based
on years of service, with 0% vesting for less than five years of service and
100% vesting after five or more years of service.
Pension Plan Investments. The Plan Committee selects vehicles for the
investment of plan assets. The Plan Committee then directs the trustee to invest
employer contributions in the investment option selected by the Plan Committee
under the Pension Plan.
Pension Plan Amendment or Termination. Under the terms of the Pension Plan,
the Company reserves the right to amend or terminate the Pension Plan at any
time and in any manner. No amendment or termination, however, may deprive a
participant of any benefit accrued under the Pension Plan prior to the effective
date of the amendment or termination.
Estimated Monthly Benefits. The following table sets forth the estimated
monthly benefits under the pension Plan, without regard to any offsetting
benefit which may be payable from the Defined Benefit Pension Plans of the
Company's predecessors for service prior to January 1, 1997, based on the
current benefit structure and assuming the participant's current age is 50.
Years of Service
-----------------------------------------------
Remuneration 15 20 25 30 35
- ------------ -----------------------------------------------
$125,000........................... $1,684 $2,246 $2,807 $3,369 $3,930
150,000........................... 2,122 2,829 3,536 4,244 4,951
175,000........................... 2,297 3,063 3,828 4,594 5,360
200,000........................... 2,297 3,063 3,828 4,594 5,360
225,000........................... 2,297 3,063 3,828 4,594 5,360
250,000........................... 2,297 3,063 3,828 4,594 5,360
300,000........................... 2,297 3,063 3,828 4,594 5,360
400,000........................... 2,297 3,063 3,828 4,594 5,360
450,000........................... 2,297 3,063 3,828 4,594 5,360
500,000........................... 2,297 3,063 3,828 4,594 5,360
The compensation covered by the Pension Plan includes basic salary or
wages, overtime payments, bonuses, commissions and all other direct current
compensation but does not include contributions by the Company to Social
Security, benefits from stock options (whether qualified or not), contributions
to this or any other retirement plans or programs or the value of any other
fringe benefits provided at the expense of the Company. For benefit calculation
purposes, a "highest five-year" average of compensation is used. Benefits are
paid as straight-life annuities with no subsidies or offsets. The compensation
covered by the Pension Plan for all of the Named Executive Officers was limited
in accordance with Section 401(a)(17) of the Internal Revenue Code to $160,000
in 1999 ($170,000 for 2000 and after).
The years of credited service for each Named Executive Officer who
participates in the Pension Plan are as follows.
-11-
Name Years
-------------------------------------------- ---------------------
David L. Lokken............................ 11 years
Michael A. Riley........................... 11 years
Brian S. Carr.............................. 7 years
Philip M. Panzera.......................... 2 years
Dennis M. Biety(1)......................... 2 years
(1) As of November 2000, Mr. Biety was no longer employed by the Company.
Compensation Committee Interlocks and Insider Participation
Joel F. McIntyre, Daniel J. Lubeck, and Daniel C. Toomey, Jr. served on the
Compensation Committee during 2000. Mr. McIntyre serves as Chairman of the
Compensation Committee. Mr. Mayrhuber was recently appointed as Chairman of the
Compensation Committee. Mr. Lubeck resigned as a director and Chairman of the
Board and Secretary of the Company on September 20, 2000. Mr. Toomey also
resigned in October 2000.
Compensation Committee Report
The following is a reprint of the report of the Compensation Committee that
appeared in the Company's proxy statement for its annual meeting of shareholders
which was held on July 19, 2000 and has not been modified or updated since that
time. Mr. McIntyre is the sole remaining member of the Compensation Committee
which prepared such report. Mr. Mayrhuber only recently joined the Compensation
Committee, and was not a member of the Compensation Committee when this report
was prepared. Wolfgang Mayrhuber was appointed to the Compensation Committee to
succeed Mr. Lubeck, and it is expected that, if he is elected at the Special
Meeting, Laurans A. Mendelson will be appointed to the Committee to succeed Mr.
Toomey.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is a standing
committee comprised of three outside directors. One of the Compensation
Committee's functions is to recommend to the Board of Directors base salary,
incentive compensation and stock option awards for the executive officers of the
Company. Each of the principal executive officers of the Company is presently
employed pursuant to a written Employment Agreement. The Employment Agreement
with Mr. Lokken provides for a term ending on October 31, 2001. Each Employment
Agreement provides for the payment of a base salary and participation by the
executive officer in the Company's Management Incentive Compensation Plan
pursuant to a Management Incentive Compensation Agreement executed by the
Company and the executive officer. Stock option awards are made pursuant to the
Company's 1997 Stock Option Plan. Other than stock option grants by the full
Board to directors for their service on the Board, no member of the Compensation
Committee is eligible to participate in any of the plans or programs which it
administers.
Compensation Philosophy. The Compensation Committee's primary objective is
to craft a compensation package for the Company's executive officers that aligns
the interest of management with the long-term interests of the Company's
shareholders. This is accomplished by tying major portions of executive
compensation to the achievement of both individual and Company performance
objectives which are directed at enhancing shareholder value. A second goal of
the Compensation Committee is to implement a compensation philosophy that will
both attract and retain the experienced and talented individuals who are
essential to the Company's long-term success. The Committee regularly reviews
publicly available information regarding compensation programs and philosophies
of the Company's competitors, and other entities of a comparable size with the
Company, with the objective of ensuring that the Company's compensation
philosophy and programs remain competitive and appropriate.
Each executive officer's compensation package is comprised of three
principal components: (i) base salary; (ii) annual incentive compensation; and
(iii) stock options.
-12-
Base Salary. The current base salary of each of the Company's principal
executive officers is set forth in the Employment Agreement between the Company
and such executive officer. As a general principle, the Compensation Committee
will attempt to establish and maintain base salaries within the range of
salaries for companies of a size and engaged in a business comparable to the
Company. Among the specific factors which are considered in establishing base
salary levels for the Company's principal executive officers are (i) the
executive officer's recent and long-term performance; (ii) identifiable
contribution by the executive officer to the Company's achievement of its
performance objectives; (iii) level of responsibility; and (iv) years of service
with the Company. Performance goals for each principal executive officer are
established prior to the beginning of each fiscal year. These goals are
established by the Chief Executive Officer with respect to other officers and by
the Compensation Committee with respect to the Chief Executive Officer.
Management Incentive Compensation Plan. Certain employees of the Company
(including the Company's principal executive officers) are participants in the
Company's Management Incentive Compensation Plan (the "Plan") pursuant to which
they are entitled to receive performance based bonuses. Under the Plan, bonuses
are based on the Company's actual percentage achievement, versus forecast, with
respect to three criteria: revenue, net income and return on net assets. Under
the Plan, the President and Vice Presidents have the potential of receiving
bonuses equal to forty percent (40%) and thirty percent (30%) of their base
salaries for the fiscal year, respectively. If the weighted average of the three
criteria drops to 80% of forecast, then no bonus is payable. If the weighted
average of the three criteria amounts to 120% of forecast, then the bonus
amounts are doubled. Results in between 80% and 120% of forecast are pro rated
accordingly. This bonus methodology is exactly the same as the calculation used
for bonuses for all other Company personnel.
Stock Options. Stock options are granted to principal executive officers
under the Company's 1997 Stock Option Plan. The purpose of the 1997 Plan is to
encourage and facilitate stock ownership by participants and to provide
incentives to participants to remain in the employ of the Company and contribute
to enhancing shareholder value over the long-term. The 1997 Plan is
administered by the Board of Directors which has the discretion to select
optionees and the terms and conditions of each option, subject to the provisions
of the 1997 Plan. Options granted under the 1997 Plan may be either incentive
stock options or nonqualified options.
Change of Control Program. During 2000, upon the recommendation of the
Company's financial advisors, the Board of Directors approved certain financial
incentives for the executive officers, and certain other key employees, upon a
successful change in control of the Company. Such incentives include the
potential for an award if the Company should be sold for a certain amount, and
acceleration of unvested stock options. Upon investigation, and consultation
with the Company's financial advisors, the Compensation Committee determined
that such incentives were consistent with those awarded by other companies
pursuing similar strategic transactions, and that such incentives could
reasonably serve to enhance the realized value from such a transaction to the
Company's shareholders.
Audit Committee
The Audit Committee has adopted a written charter to govern its operation.
The Audit Committee Charter is attached hereto as Annex C. The Audit Committee
currently is comprised of Messrs. McIntyre and Baird, each of whom is an
independent director as defined Rule 4200(a)(15) of the National Association of
Securities Dealers, Inc. listing standards. There currently is a vacancy on the
Audit Committee, and it is expected that Mr. Mendelson will be appointed to fill
that vacancy if he is elected a director at the Special Meeting. Mr. Mendelson
also would be an independent directors as defined in Rule 4200(a)(15).
Report of the Audit Committee
The Audit Committee of the Board of Directors oversees and monitors the
participation of the Company's management and independent auditors throughout
the financial reporting process. No member of the Committee is employed by or
has any other material relationship with the Company.
In connection with its function to oversee and monitor the financial
reporting process, the Audit Committee has, among other things, done the
following:
. reviewed and discussed the audited financial statements for the fiscal
year ended December 31, 1999, with the Company's management;
. discussed with the Company's independent auditors those matters
required to be discussed by SAS 61 (Codification of Statements on
Auditing Standards, AU 380); and
. received the written disclosures and letter from the Company's
independent auditors required by Independence Standards Board Standard
No. 1 (Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees) and discussed with the Company's
independent auditors their independence.
Based upon the foregoing, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in the Company's
annual report on Form 10-K for the fiscal year ended December 31, 1999.
Joel F. McIntyre
Mellon C. Baird
Performance Measurement Comparison
The chart below depicts the cumulative total return to the Company's
shareholders of a hypothetical $100 investment in the Company's Common Stock
from January 29, 1998, the date of the Company's initial public offering,
through December 31, 1999. Hypothetical investments of $100 in the NASDAQ
Composite Index and the Standard and Poor's Small Cap Aerospace/Defense Index
are shown for comparison.
The Company does not believe that an appropriate industry index or peer
group exists that would provide a meaningful comparison to the Company's Common
Stock performance. There is no other public company in the United States of a
similar size that provides similar services to the aerospace industry. All of
the Company's principal competitors are either privately held, foreign based,
significantly different in size or services offered, or divisions of much larger
companies.
This chart does not reflect the Company's forecast of future financial or
market performance.
-13-
[GRAPH]
----------------------------------------------------------------------
1/29/98 12/31/98 12/31/99
----------------------------------------------------------------------
Hawker Pacific Aerospace $ 100 $ 43.75 $ 90.63
S&P Small Cap Aerospace/Defense $ 100 $ 110.07 $ 102.92
NASDAQ Composite $ 100 $ 135.90 $ 252.23
----------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of November 27, 2000, by: (i) each person known by the Company
to beneficially own 5% or more of the outstanding shares of Common Stock; (ii)
each director of the Company and each nominee for election as a director; (iii)
each Named Executive Officer of the Company; and (iv) all directors and
executive officers of the Company as a group.
Number of Shares of Percentage of
Name and Address Common Stock/(1)(2)/ Common Stock/(1)(2)/
- ------------------------------------------------- -------------------- --------------------
Lufthansa Technik AG (3).......................... 3,835,820/(4)/ 54.6%
David L. Lokken (3)(5)............................ 326,401 5.4%
Brian S. Carr..................................... 57,546 *
Michael A. Riley.................................. 57,546 *
Philip M. Panzera................................. 43,261 *
Mellon C. Baird................................... 11,907 *
Joel F. McIntyre.................................. 11,907 *
Wolfgang Mayrhuber................................ 0 -
Dr. Gerald Gallus................................. 0 -
James C. Stoecker................................. 0 -
Laurans A. Mendelson.............................. 0 -
All directors and executive officers as a group
(9 people)........................................ 4,018,260/(6)/ 58.6%
_______________
* Less than 1%
-14-
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to the securities. Shares of Common Stock subject to options,
warrants or convertible securities held by a person which are currently
exercisable, or exercisable within 60 days of November 27, 2000, are deemed
outstanding for purposes of computing the beneficial ownership of that person,
but no other person.
(2) Includes the following shares subject to options to purchase Common Stock:
Mr. Lokken, 187,471; Messrs. Carr, Riley and Panzera, 43,261 each; and Messrs.
Baird and McIntyre, 9,907 each.
(3) The address for these beneficial owners is c/o the Company at 11240
Sherman Way, Sun Valley, California 91352-4942.
(4) Includes 1,168,197 shares of Common Stock issuable upon the conversion of
300 shares of 8% Series C Convertible Preferred Stock owned by LHT, 196,342
shares owned by the Management Shareholders which LHT is entitled to vote under
the Shareholders Rights Agreement among the Company, LHT, and the Management
Shareholders, and 129,786 shares subject to options to purchase Common Stock
held by the Management Shareholders. If the Warrant is approved at the Special
Meeting, LHT would own beneficially an additional 2,500,000 shares issuable upon
exercise of the Warrant, or a total of 6,335,820 shares.
(5) Includes 138,930 shares held by the David L. Lokken and Susan M. Lokken
Revocable Trust, dated March 20, 1998, of which Mr. Lokken is trustee.
(6) Includes a total of 337,068 shares subject to options to purchase common
stock held by the directors and executive officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the transactions described above under "Recent
Transactions," the Selling Shareholders entered into an Indemnification
Agreement, dated September 20, 2000, with the Company under which the Selling
Shareholders agreed to indemnify the Company with respect to certain
liabilities, damages, expenses and judgments, including reasonable attorneys'
fees, that the Company may incur in connection with any claim, lawsuit or
proceeding against the Company by First Union Securities, Inc. relating to the
Company's October 1, 1999 agreement with First Union Securities or First Union
Securities' engagement by the Company. An arbitration proceeding recently was
commenced against the Company by First Union Securities in which First Union
Securities is seeking, among other things, $900,000 relating to compensation it
alleges is owing from the Company, in part, as a result of the closing of the
transactions with LHT described above under "Recent Transactions."
The Company previously had a $2.5 million long-term loan with Unique
Investment Corporation ("Unique"). Interest paid or accrued on this loan during
1999 amounted to $295,000 and $311,228, respectively. Following the closing of
the LHT Loan Agreement, this loan was repaid in full. Unique also received
$21,456 and $14,359 in 1999 and 2000, respectively, for reimbursed expenses
related to services performed by Unique, and its principals who serve as
directors of the Company. Commencing in January 1999, the Company began paying
monthly management fees of $12,500 to Unique pursuant to a November 1997
management services agreement. The management services agreement was terminated
upon the closing of the LHT Loan Agreement. In August 2000, the Board of
Directors authorized the payment of an additional one-time termination fee of
$150,000 to Unique upon the closing of the Loan Agreement with LHT.
In June 1999, Melanie L. Bastian established a $2.5 million letter of
credit which secured the Company's obligations on a certain debt instrument with
its senior lender, Heller Financial Inc. Ms. Bastian was released from this
obligation upon the closing of the LHT Loan Agreement.
-15-
In October 2000, the Company entered into a loan agreement with Landesbank
Hessen-Thuringen Girozentrale and Kreditenstalt fur Wiederaufbrau (collectively,
the "Banks"), under which the Banks provided term loans of $45 million and 14
million British Pounds ("sterling") to the Company. LHT received a fee from the
Banks of $ for its services in introducing the Company to the Banks and
assisting in facilitating the closing of the loans to the Company, agreeing to
provide continuing advisory services to the Banks on industry matters, and
guaranteeing the Company's obligations to the Banks under the sterling loan.
INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal years ended December 31,
1998 and 1999, were Ernst & Young LLP. In November 2000, the Board of Directors
selected Deloitte & Touche LLP as the Company's independent auditors for the
fiscal year ending December 31, 2000.
As previously reported in its Form 8-K filed with the Securities and
Exchange Commission on June 28, 2000, the decision to change the Company's
independent auditors was recommended by the Company's Audit Committee and
approved by the full Board of Directors.
As also reported in the Company's 8-K, none of the reports of Ernst & Young
LLP on the financial statements of the Company for the past two fiscal years of
the Company contained any adverse opinion or disclaimer, or was qualified or
modified as to uncertainty, audit scope or accounting principles, and there also
were no disagreements with Ernst & Young LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure during the two most recent fiscal years or during 2000.
A copy of the letter of Ernst & Young LLP, dated June 27, 2000, confirming
the information reported in the Company's 8-K is attached as Annex D to this
Proxy Statement.
Representatives of Deloitte & Touche LLP are expected to be present and
available to answer questions at the Special Meeting.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
The Company will furnish without charge a copy of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999, to any
shareholder desiring a copy. Shareholders may request a copy by sending a (i)
letter to the Company, Attn: Investor Relations; (ii) fax to (818) 765-2416; or
(iii) e-mail to investor@hawker.com.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders are advised that any shareholder proposal, including
nominations to the Board of Directors, intended for consideration at the 2001
Annual Shareholders Meeting, must be received by the Company no later than
February 15, 2001, to be included in the proxy material for such Meeting. It is
recommended that shareholders submitting proposals direct them to the Company's
Executive Vice President by U.S. certified mail, return receipt requested, in
order to ensure and document timely delivery.
-16-
OTHER MATTERS
The Board of Directors knows of no matter to come before the Special
Meeting other than as specified herein. If other business should, however, be
properly brought before the Special Meeting, the persons voting the proxies will
vote them in accordance with their best judgment.
SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, AND RETURN PROMPTLY THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
Philip M. Panzera
Secretary
December __, 2000
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ANNEX A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
September 20, 2000
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Date of Report (date of earliest event reported)
HAWKER PACIFIC AEROSPACE
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(Exact name of registrant as specified in its charter)
California 0-29490 95-3528840
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(State or other jurisdiction (Commission (IRS Employer
of incorporation or organization) File Number) Identification No.)
11240 Sherman Way, Sun Valley, California 91355
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(Address of principal executive offices) (Zip Code)
(818) 765-6201
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address if changed since last report)
A-1
ITEM 1. CHANGE IN CONTROL OF REGISTRANT
A. Name of Person Acquiring Control: Lufthansa Technik AG ("Lufthansa
Technik") a corporation organized under the laws of the Federal Republic of
Germany having its principal executive offices at Weg beim Jager 193, D-22335
Hamburg, Germany. Lufthansa Technik is a provider of aircraft-related technical
services.
B. Amount and Source of Consideration: The aggregate amount of consideration
was $26,570,109, all of which was funded from the working capital of Lufthansa
Technik.
C. Date and Description of Transaction: On September 20, 2000, the following
events occurred. The Company was not a party to the private transactions
described in paragraphs 1 and 2 below.
1. Lufthansa Technik entered into a Stock Purchase Agreement with Melanie
L. Bastian, John G. Makoff, John G. Makoff custodian for Dillon John Makoff,
Sidney G. Makoff, Daniel J. Lubeck, and Scott W. Hartman. Pursuant to this Stock
Purchase Agreement, Lufthansa Technik: (i) purchased 2,336,495 shares of common
stock of the Company ("Common Stock") for $4.12 per share for a total purchase
price of $9,626,359.40; and (ii) received the right to nominate three members of
the Board of Directors of the Company.
2. Lufthansa Technik entered into a Stock Purchase Agreement with
Deephaven Private Placement Trading Ltd. for the purchase of 300 shares of 8%
Series C Convertible Preferred Stock for $3,790,000 (the "Preferred Purchase
Agreement"). These shares of Convertible Preferred Stock are convertible into
Common Stock on a variable conversion formula. As of September 29, 2000,
conversion would yield 733,035 shares of Common Stock.
3. Lufthansa Technik entered into a Loan Agreement with the Company, and
provided the Company subordinated debt of $9,300,000 for a term of three years.
Pursuant to this Loan Agreement, Lufthansa Technik acquired warrants for
2,500,000 shares of Common Stock for $4.25 per share. These warrants are subject
to the approval of the shareholders of the Company, and are exercisable from the
date of such shareholder approval until September 19, 2001. In addition, the
Company and Lufthansa Technik entered into a Voting and Indemnity Agreement in
which Lufthansa Technik agreed to vote its shares in favor of the warrants and
the Company agreed to indemnify Lufthansa Technik for any losses associated with
it so voting.
4. Lufthansa Technik purchased 5,000 shares of Common Stock in the open
market. The purchase price for these shares was $6.375, for a total cost of
$31,875.
5. Lufthansa Technik entered into a Shareholders Rights and Voting
Agreement with the Company and David Lokken, Brian Carr, Michael Riley, and
Dennis Biety (the "Shareholders"). Pursuant to this Shareholders Rights and
Voting Agreement, Lufthansa Technik now has: (i) control over the voting rights
of 196,342 shares of Common Stock and 129,786 options to acquire Common Stock
held by the Shareholders; (ii) the right to increase the number of Directors of
the Company from seven to nine; (iii) a right of first refusal prior to any sale
of Common Stock by the Shareholders; and (iv) the agreement of the Shareholders
to vote their shares in favor of the warrants issued to Lufthansa Technik.
D. Percentage of Voting Securities Beneficially Owned: As a result of the
Stock Purchase Agreement and the open market purchase of Common Stock, Lufthansa
Technik became the record owner of 2,341,495 shares of Common Stock, currently
representing approximately 40.0% of the outstanding shares. In addition, as a
result of the Shareholders Rights and Voting Agreement, Lufthansa Technik
controls the voting rights of: (i) an additional 196,342 shares of Common Stock,
representing approximately 3.4% of the outstanding shares; and (ii) 129,786
options, which if exercised by the option holders would represent 2.2% of the
then outstanding shares of Common Stock.
As a result of the Preferred Purchase Agreement, Lufthansa Technik acquired 300
shares of 8% Series C Convertible Preferred shares representing 100% of the
issued and outstanding shares of this series. These
A-2
shares of Convertible Preferred Stock are convertible into Common Stock of the
Company on a variable conversion formula. As of September 29, 2000, conversion
would yield 733,035 shares of Common Stock of the Company, which if converted
would represent approximately 11.1% of the outstanding shares of Common Stock of
the Company, raising Lufthansa Technik's total percentage ownership to
approximately 46.7% of the outstanding shares of Common Stock, and total voting
control percentage to approximately 50.1%.
Upon shareholder approval of the warrants issued with regard to the Loan
Agreement, Lufthansa Technik shall become the owner of immediately exercisable
warrants to purchase 2,500,000 shares of Common Stock. If these warrants were
exercised at a time when Lufthansa Technik had not converted its Convertible
Preferred Stock, the shares issued on exercise would represent 29.9% of the then
outstanding shares of Common Stock, raising Lufthansa Technik's total percentage
ownership to 58.0% of the then outstanding shares of Common Stock. If these
warrants were exercised at a time when Lufthansa Technik had previously
converted its Convertible Preferred Stock, the shares issued on exercise would
represent 27.5% of the then outstanding shares of Common Stock, raising
Lufthansa Technik's total percentage ownership to 61.3% of the then outstanding
shares of Common Stock.
E. Basis of Control: Although Lufthansa Technik currently has voting control
over only 43.4% of the outstanding Common Stock, the transaction constitutes a
change of control for reporting purposes, in that Rule 13d-3 under the Exchange
Act provides that any securities acquired with the purpose of effecting a change
in control shall be deemed beneficially owned, even if not yet acquired.
Therefore, for the purpose of determining whether a change of control has
occurred, Lufthansa Technik is deemed the beneficial owner of the Common stock
which may be acquired through the conversion of its Preferred Stock and the
exercise of management options subject to the Shareholder Rights and Voting
Agreement. In such an event, together with the additional voting rights granted
to Lufthansa Technik under such agreement, Lufthansa Technik would have voting
control over 50.6% of the then outstanding Common Stock. If the warrants
acquired by Lufthansa Technik were to be subsequently approved and exercised,
then the voting control percentage would increase to 64.0%.
A-3
ITEM 7. EXHIBITS
Exhibit No. Description
10.47 Loan Agreement, dated September 20, 2000, between Hawker
Pacific Aerospace and Lufthansa Technik AG
10.48 Voting and Indemnity Agreement, dated September 20, 2000,
between Hawker Pacific Aerospace and Lufthansa Technik AG
10.49 Shareholders Rights and Voting Agreement, dated September
20, 2000, between Hawker Pacific Aerospace, The
Shareholders Listed and Lufthansa Technik AG
10.50 Promissory Note, dated September 20, 2000, between Hawker
Pacific Aerospace and Lufthansa Technik AG
10.51 Warrant issued by Hawker Pacific Aerospace to Lufthansa
Technik AG, dated September 20, 2000
10.52 Registration Rights Agreement, dated September 20, 2000,
between Hawker Pacific Aerospace and Lufthansa Technik AG
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: October 5, 2000 HAWKER PACIFIC AEROSPACE
/s/ Philip M. Panzera
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Philip M. Panzera
Executive Vice President
A-4
ANNEX B
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EXECUTION COPY
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
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 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 THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
Dated: September 20, 2000
WARRANT
To Purchase Shares of Common Stock of
HAWKER PACIFIC AEROSPACE
Expiring September 19, 2001
THIS IS TO CERTIFY THAT, for value received, Lufthansa Technik AG or its
designated assigns (the "Holder") is entitled to purchase from Hawker Pacific
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Aerospace, a California corporation (with its successors, the "Company"), at any
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time or from time to time between the Effective Date (as defined herein) and
5:00 p.m., Los Angeles, California time, on September 19, 2001 (the "Expiration
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Date"), at the place where the Warrant Agency (as defined herein) is located, at
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a price per share equal to the Exercise Price (as defined herein), the number of
shares of common stock of the Company, par value $0.01 per share (the "Common
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Stock") which is the Exercise Amount (as defined herein) shown above, all
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subject to adjustment and upon the terms and conditions hereinafter provided,
and is entitled also to exercise the other appurtenant rights, powers and
privileges hereinafter described.
This Warrant entitles the Holder to purchase, subject to shareholder
approval, the Exercise Amount, as adjusted pursuant to Article V. This Warrant
has been issued pursuant to that certain Loan Agreement by and between the
Company and the Holder dated September 20, 2000 (the "Loan Agreement"). The
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Company acknowledges that the Holder is further entitled to certain benefits as
set forth in the Shareholders Rights and Voting Agreement dated as of September
20, 2000 among the Company, the Holder, and shareholders set forth therein (as
amended from time to time, the "Shareholders Rights Agreement"). The Company
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shall keep a copy of the Shareholders Rights Agreement, the Loan Agreement and
any amendments thereto, at the Warrant Agency and shall furnish, without charge,
copies thereof to the Holder upon request.
ARTICLE I
DEFINITIONS
The following terms, as used in this Warrant, have the following meanings:
"Business Day" means a day other than (i) Saturday, (ii) Sunday, or (iii)
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any day on which banks located in New York, New York or Hamburg, Germany are
generally closed.
"Capital Reorganization" has the meaning set forth in Section 5.5.
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"Cashless Exercise" shall have the meaning set forth in Section 2.1(b)(vi).
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"Cashless Loan Exercise" shall have the meaning set forth in Section
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2.1(b)(ii).
"Cashless Principal Only Exercise" shall have the meaning set forth in
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Section 2.1(b)(iii).
"Cashless Interest Only Exercise" shall have the meaning set forth in
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Section 2.1(b)(iv).
"Closing Price" on any day means (a) if the Common Stock is listed or
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admitted for trading on a national securities exchange, the reported last sales
price regular way or, if no such reported sale occurs on such day, the average
of the closing bid and asked prices regular way on such day, in each case on the
principal national securities exchange on which Common Stock is listed or
admitted to trading, or (b) if Common Stock is not listed or admitted to trading
on any national securities exchange, the average of the closing bid and asked
prices in the over-the-counter market on such day as reported by NASDAQ or any
comparable system.
"Common Stock" has the meaning set forth in the first paragraph of this
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Warrant, subject to adjustment pursuant to Article V.
"Common Stock Distribution" has the meaning set forth in Section 5.3(a).
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"Common Stock Reorganization" has the meaning set forth in Section 5.2.
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"Company" has the meaning set forth in the first paragraph of this Warrant.
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"Convertible Securities" has the meaning set forth in Section 5.3(b).
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"Effective Date" means the date hereof which is also date on which the
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Holder extends the loan to the Company as provided in the Loan Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
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any successor Federal statute, and the rules and regulations of the Securities
and Exchange Commission (or its successor) thereunder, all as the same shall be
in effect at the time.
"Exercise Amount" means 2,500,000 shares of Common Stock, assuming
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shareholder approval is obtained in accordance with Section 2.7.
"Exercise Price" means $4.25 per share of Common Stock, subject to
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adjustment pursuant to Article V.
"Expiration Date" has the meaning set forth in the first paragraph of this
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Warrant.
"Fair Market Value" means fair market value as determined in good faith by
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the Board of Directors of the Company after consultation with and receipt of a
written report thereon from an independent investment bank of national standing
selected by the Company and reasonably acceptable to the Holder (which written
report will be made available to the Holder prior to any determination of fair
market value).
"Fully Diluted Basis" means, with respect to any determination or
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calculation, that such determination or calculation is performed on a fully
diluted basis as determined in accordance with GAAP.
"GAAP" means U.S. generally accepted accounting principles as in effect
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from time to time.
"Holder" has the meaning set forth in the first paragraph of this Warrant.
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B-2
"Holder Control" shall have the meaning set forth in Section 5.3 of this
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Warrant.
"Loan Agreement" has the meaning set forth in the second paragraph of this
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Warrant.
"Market Price" means, on any date, the unweighted average of the daily
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Closing Prices per share of Common Stock for the five consecutive Business Days
prior to such date; provided that for purposes of the application of Section 5.3
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to a Common Stock Distribution pursuant to a public offering registered under
the Securities Act, "Market Price" means the Closing Price per share of Common
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Stock on the Business Day immediately preceding the effective date of the
registration statement with respect to such public offering; and provided
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further that if the Common Stock is not listed or admitted to trading on any
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national securities exchange, nor reported on NASDAQ or any comparable system,
"Market Price" means the Fair Market Value of a share of Common Stock
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(determined without giving effect to any discount for (i) a minority interest or
(ii) any lack of liquidity of the Common Stock).
"NASD" means The National Association of Securities Dealers, Inc.
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"NASDAQ" means The National Association of Securities Dealers, Inc.
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Automated Quotation System.
"Note" has the meaning set forth in Section 2.1(b)(ii).
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"Options" has the meaning set forth in Section 5.3(b).
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"Person" means any natural person, corporation, limited liability company,
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limited partnership, general partnership, limited liability partnership, joint
stock company, joint venture, association, company, trust, bank, trust company,
land trust, business trust or other organization, whether or not a legal entity,
and any government agency or political subdivision thereof.
"Registration Rights Agreement" means that certain registration rights
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agreement of even date herewith by and between the Company and the Holder.
"Securities Act" means the Securities Act of 1933, or any similar Federal
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statute, and the rules and regulations of the Securities and Exchange Commission
(or its successor) thereunder, all as the same shall be in effect at the time.
"Special Dividend" has the meaning set forth in Section 5.4.
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"Shareholders Rights Agreement" has the meaning set forth in the second
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paragraph of this Warrant.
"Warrant Agency" has the meaning set forth in Section 3.1.
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"Warrant Shares" means the shares of Common Stock issuable upon the
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exercise of this Warrant under the Exercise Amount.
"Warrant" shall mean this Warrant issued in accordance with Section 3.1 of
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the Loan Agreement, as the same may be amended from time to time, and all
warrants issued upon transfer, division or combination of, or in substitution
for, this Warrant. All Warrants so issued shall at all times be identical as to
terms and conditions, except as to the number of shares of Common Stock for
which a Warrant may be exercised.
ARTICLE II
EXERCISE OF WARRANTS
B-3
SECTION 2.1 Method of Exercise.
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(a) To exercise this Warrant in whole or in part, the Holder
shall deliver on any Business Day to the Company, at the Warrant Agency:
(i) this Warrant;
(ii) a written notice of the Holder's election to exercise
this Warrant ("Election Notice"), which notice shall specify the number of
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shares of Common Stock to be purchased (which shall be a whole number of shares
if for less than all the shares then issuable hereunder), the denominations of
the share certificate or certificates desired and the name or names in which
such certificates are to be registered; and
(iii) payment of the Exercise Price with respect to such
shares in accordance with Section 2.1(b).
(b) Payment of the Exercise Price with respect to any shares may
be made, at the option of the Holder, by any of the following methods:
(c) by wire transfer of immediately available funds in U.S.
Dollars in an amount equal to (A) the Exercise Price times (B) the number of
Warrant Shares as to which this Warrant is being exercised,
(d) presentment of the Company's Note dated September 20, 2000,
or as amended in accordance with Section 2.11 of the Loan Agreement (the "Note")
for cancellation, to the extent that any principal and accrued interests remain
unpaid under such Note as of the time of such presentment and to the extent that
such aggregate unpaid principal and interest equals (x) the Exercise Price
multiplied by (y) the number of Warrant Shares as to which this Warrant is being
exercised (the "Cashless Loan Exercise"),
(e) presentment of the Note for partial cancellation of the
principal only to the extent such aggregate unpaid principal equals (A) the
Exercise Price multiplied by (B) the number of Warrant Shares as to which this
Warrant is being exercised (the "Cashless Principal Only Exercise");
(f) presentment of the Note for partial cancellation of the
accrued but unpaid interest only to the extent such interest equals (A) the
Exercise Price multiplied by (B) the number of Warrant Shares as to which this
Warrant is being exercised (the "Cashless Interest Only Exercise");
(g) any combination of clauses (i) - (iv); or
(h) the Holder may surrender this Warrant to the Company together
with a notice of cashless exercise, in which event the Company shall issue to
the Holder the number of Warrant Shares determined as follows (the "Cashless
Exercise"):
X = Y (A-B)/A
Where:
X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this Warrant is
being exercised.
A = the average of the closing trading prices of the Common Stock for the
ten (10) trading days immediately prior to (but not including) the Date of
Exercise.
B = the Exercise Price.
B-4
(i) For purposes of Rule 144 promulgated under the Securities
Act, it is intended, understood and acknowledged that the Warrant Shares issued
in a Cashless Exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the issue date.
(j) The Company shall, as promptly as practicable and in any
event within ten (10) Business Days after receipt of such notice and payment,
execute and deliver or cause to be executed and delivered, in accordance with
such notice, a certificate or certificates representing the aggregate number of
shares of Common Stock specified in the Election Notice together with cash in
lieu of any fractions of a share as provided in Section 2.3. The share
certificate or certificates so delivered shall be in such denominations as may
be specified in the Election Notice, and shall be issued in the name of the
Holder or such other name or names as shall be designated in the Election
Notice. This Warrant shall be deemed to have been exercised and such certificate
or certificates shall be issued, and the Holder or any other Person so
designated to be named therein shall be deemed for all purposes to have become a
holder of record of such shares of Common Stock, effective as of the date the
aforementioned notice and payment is received by the Company. If this Warrant
shall have been exercised only in part, the Company shall, at the time of
delivery of such certificate or certificates, deliver to the Holder a new
Warrant evidencing the rights to purchase the remaining shares of Common Stock
called for by this Warrant, which new Warrant shall in all other respects be
identical with this Warrant, or, at the request of the Holder, appropriate
notation may be made on this Warrant which shall then be returned to the Holder.
If this Warrant shall have been exercised by in accordance with Section
2.1(b)(ii) of Section 2.1(b)(iii) 2.1(b)(iv) or 2.1(b)(v), in whole or in part,
and the payment of the Exercise Price is less than the outstanding principal and
accrued interest then owed under the Note such exercise of the Warrant shall act
as only a partial cancellation of the Note and the Company shall, upon the
issuance of the number of shares specified in the Election Notice, issue an
amended promissory note to the Holder for the amount of the outstanding
principal immediately following such exercise of the Warrant, assuming Company
does not pay in full the Remaining Balance (as defined in the Loan Agreement) on
the date of issuance of such Warrant Shares.
(k) At any time during the period of the date of this Warrant to
the Expiration Date, the Holder shall be entitled to exercise this Warrant to
purchase up to either (A) the Initial Exercise Amount or (B) the Initial
Exercise Amount plus the Subsequent Exercise Amount at the Exercise Price, as
adjusted pursuant to Article V. The Holder's right to exercise this Warrant
under this section 2.1(c) shall expire at 5:00 p.m., Los Angeles, California
time, on September 19, 2001.
(l) This Warrant shall be exercisable, at the election of the
Holder, either in whole or in part from time to time.
(m) The Company shall pay all expenses, taxes and other charges
payable in connection with the preparation, issuance and delivery of share
certificates and new Warrants.
SECTION 2.2 Shares to be Fully Paid and Nonassessable; Listing of Additional
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Shares. All shares of Common Stock issued upon the exercise of this Warrant are
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duly authorized, validly issued and nonassessable, free and clear of all claims,
liens, pledges, options, preemptive rights and liens or encumbrances of any kind
and the Holder shall acquire complete and absolute legal, marketable and
equitable title to such Common Stock. All shares of Common Stock issued upon the
exercise of this Warrant shall be duly listed or quoted on the applicable
national securities exchange or NASDAQ, as the case may be.
SECTION 2.3 No Fractional Shares Required to be Issued. The Company shall not
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be required to issue any fractions of shares of Common Stock upon exercise of
this Warrant. If any fraction of a share would, but for this Section 2.3, be
issuable upon final exercise of this Warrant, in lieu of such fractional share
the Company shall pay to the Holder, in cash, an amount equal to the same
fraction of the Market Price per share of Common Stock on the Business Day on
the date of such exercise.
B-5
SECTION 2.4 Share Legend. Each certificate for shares of Common Stock issued
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upon exercise of this Warrant, unless at the time of exercise such shares are
registered under the Securities Act, 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. THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A SHAREHOLDERS
RIGHTS AND VOTING AGREEMENT BY AND AMONG THE COMPANY, THE
SHAREHOLDERS NAMED THEREIN AND THE HOLDER (A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH
SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE
TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID SHAREHOLDERS
RIGHTS AND VOTING AGREEMENT."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public offering pursuant to a registration statement under the Securities
Act) shall also bear such legend unless, in the opinion of counsel selected by
the holder of such certificate (who may be an employee of such holder) and
reasonably acceptable to the Company, the securities represented thereby need no
longer be subject to restrictions on resale under the Securities Act.
SECTION 2.5 Reservation. The Company has duly reserved and will keep
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available for issuance upon exercise of the Warrants the total number of Warrant
Shares, as adjusted pursuant to Article V, deliverable from time to time upon
exercise of all Warrants from time to time outstanding. The Company will not
permit the par value of a share of Common Stock to be greater than the Exercise
Price per share without the consent of the Holder.
SECTION 2.6 Shareholders Rights. All shares of Common Stock issued upon the
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exercise of this Warrant shall be subject to and entitled to all rights and
benefits held by the Investor (as defined therein) under the Shareholders Rights
Agreement.
SECTION 2.7 Adjustment to Exercise Amount. Pursuant to Section 5.19 of the
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Loan Agreement, the Company has undertaken to recommend and to seek the approval
of its shareholders for the issuance pursuant to the Warrant of the Exercise
Amount. Concurrent with, and conditioned upon, the Company's obtaining such
shareholder approval, the number of shares of Common Stock issuable upon
exercise of this Warrant shall be the Exercise Amount.
B-6
ARTICLE III
WARRANT AGENCY; TRANSFER; EXCHANGE AND
REPLACEMENT OF WARRANTS
SECTION 3.1 Warrant Agency. As long as any of the Warrants remain
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outstanding, the Company shall perform the obligations of and be the warrant
agency with respect to the Warrants (the "Warrant Agency") at its address set
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forth in the Section 6.1 or at such other address as the Company shall specify
by notice to the Holder.
SECTION 3.2 Ownership of Warrant. The Company may deem and treat the person
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in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by any person
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until due presentment of this Warrant for registration of
transfer as provided in this Article III.
SECTION 3.3 Transfer to Comply with the Securities Act. This Warrant has not
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been registered under the Securities Act, and has been issued to the Holder for
investment and not with a view to the distribution of either the Warrant or the
Warrant Shares. Neither this Warrant nor any of the Warrant Shares or any other
security issued or upon exercise of this Warrant may be sold, transferred,
pledged or hypothecated in the absence of an effective registration statement
under the Act relating to such security or an opinion of counsel satisfactory to
the Company that registration is not required under the Act. Each certificate
for the Warrant, the Warrant Shares and any other security issued or issuable
upon exercise of this Warrant shall contain a legend in form set forth in
Section 2.4 hereof which sets forth the restrictions on transfer contained in
this Section.
SECTION 3.4 Transfer of Warrant. Subject to compliance with Section 3.3, this
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Warrant shall be transferable and assignable by the Holder hereof in whole or in
part from time to time to any other Person, without the prior consent of the
Company. The Company agrees to maintain at the Warrant Agency books for the
registration of transfers of the Warrant, and transfer of this Warrant and all
rights hereunder shall be registered, in whole or in part, on such books, upon
surrender of this Warrant at the Warrant Agency, together with a written
assignment of this Warrant duly executed by the Holder or its duly authorized
agent or attorney, with signatures guaranteed by a bank or trust company or a
broker or dealer registered with the NASD, and funds sufficient to pay any
transfer taxes payable upon such transfer, unless such transfer is to an
Affiliate of the Holder in which case Company shall pay the transfer taxes. Upon
surrender and, if required, such payment and compliance with the requirements of
any legend set forth thereon, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denominations specified in the instrument of assignment (which shall be whole
numbers of shares only) and shall issue to the assignor a new Warrant evidencing
the portion of this Warrant not so assigned, and this Warrant shall promptly be
canceled.
SECTION 3.5 Division or Combination of Warrants. This Warrant may be divided
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or combined with other Warrants upon presentment of this Warrant and of any
other Warrants with which this Warrant is to be combined at the Warrant Agency,
together with a written notice specifying the names and denominations (which
shall be whole numbers of shares only) in which the new Warrant or Warrants are
to be issued, signed by the holders hereof and thereof or their respective duly
authorized agents or attorneys. Subject to compliance with Section 3.4 as to any
transfer or assignment which may be involved in the division or combination, the
Company shall execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such notice.
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SECTION 3.6 Loss, Theft, Destruction or Mutilation of Warrant Certificates.
--------------------------------------------------------------
Upon receipt of evidence satisfactory to the Company of the ownership of and the
loss, theft, destruction or mutilation of any Warrant and, in the case of any
such loss, theft or destruction, upon receipt of indemnity or security
satisfactory to the Company or, in the case of any such mutilation, upon
surrender and cancellation of such Warrant, the Company will make and deliver,
in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of
like tenor and representing the right to purchase the same aggregate number of
shares of Common Stock.
SECTION 3.7 Expenses of Delivery of Warrants. The Company shall pay all
--------------------------------
expenses, taxes and other charges payable in connection with the preparation,
issuance and delivery of Warrants hereunder; provided however, the Company shall
not pay the transfer taxes involved in the transfer of Warrant Shares or this
Warrant in a name other than the Holder or an Affiliate of the Holder.
ARTICLE IV
CERTAIN RIGHTS
SECTION 4.1 Rights and Obligations under the Shareholders Rights Agreement.
--------------------------------------------------------------
This Warrant is entitled to the benefits and subject to the terms of the
Shareholders Rights Agreement. The Company shall keep or cause to be kept a copy
of the Shareholders Rights Agreement, and any amendments thereto, at the Warrant
Agency and shall furnish, without charge, copies thereof to the Holder upon
request. Upon the exercise of this Warrant, in whole or in part, shares issued
to the Holder upon such exercise shall be deemed subject to the Shareholders
Rights Agreement and entitled to the full benefits afforded the Investor (as
defined therein) under such Shareholders Rights Agreement.
SECTION 4.2 Financial Statements and Other Information. The Company will, and
------------------------------------------
will cause its subsidiaries to, maintain a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in accordance with GAAP, and will deliver to each of the
Holder:
(a) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed; and
(b) with reasonable promptness, such other information and data
with respect to the Company or any of its subsidiaries as from time to time may
be reasonably requested by the Holder.
SECTION 4.3 The Company agrees to use its best efforts to ensure that the
rights granted hereunder are effective and that the Holder enjoys the benefits
thereof. The Company will not, by any voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be performed hereunder by
the Company, but will at all times in good faith assist in the carrying out of
all of the provisions of this Warrant and in the taking of all such actions as
may be necessary or in order to protect the rights of the Holder hereunder
against impairment.
SECTION 4.4 The Company covenants that it (i) will file any reports required
to be filed by it under the Securities Act and the Exchange Act, including
without limitation Section 13 and 15(d), (ii) shall provide the Holder and
prospective purchasers of its respective shares or assigns of this Warrant with
the information specified in Rule 144(A), and (iii) will take such further
action as the Holder may reasonably request to the extent required from time to
time to enable the Holder to sell the Common Stock (and any other shares
convertible into Common Stock) beneficially owned by it without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144 under the Securities Act, as such Rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the Commission.
Upon the request of any the Holder, the Company will deliver to such holder a
written statement as to whether it has complied with such reporting
requirements.
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SECTION 4.5 After the requirement for the restrictive legend described in
Section 2.4 hereof is no longer applicable because such Common Stock held by the
Holder are freely transferable under the Securities Act, the Company shall
remove such legend upon the request of the Holder of such Common Stock, if
outside counsel for such Holder reasonably determines that the transfer of such
Common Stock is no longer restricted by the Securities Act and outside counsel
for the Company reasonably concurs in such determination.
SECTION 4.6 Registration Rights. Upon the exercise of this Warrant, in whole
-------------------
or in part, the Holder shall be entitled to the rights and benefits and subject
to the limitations as set forth in the Registration Rights Agreement with
respect to the registration of any Warrant Shares and any other capital stock of
the Company beneficially owned by the Holder.
ARTICLE V
ANTIDILUTION PROVISIONS
SECTION 5.1 Adjustment Generally. The Exercise Price and the Initial
--------------------
Exercise Amount and the Subsequent Exercise Amount (or other securities or
property) issuable upon exercise of this Warrant shall be subject to adjustment
from time to time upon the occurrence of certain events as provided in this
Article V; provided that notwithstanding anything to the contrary contained
--------
herein, the Exercise Price shall not be less than the par value of the Common
Stock.
SECTION 5.2 Common Stock Reorganization. If the Company shall subdivide its
---------------------------
outstanding shares of Common Stock (or any class thereof) into a greater number
of shares or consolidate its outstanding shares of Common Stock (or any class
thereof) into a smaller number of shares (any such event being called a "Common
------
Stock Reorganization"), then (a) the Exercise Price shall be adjusted, effective
- --------------------
immediately after the effective date of such Common Stock Reorganization, to a
price determined by multiplying the Exercise Price in effect immediately prior
to such effective date by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding on such effective date before giving
effect to such Common Stock Reorganization and the denominator of which shall be
the number of shares of Common Stock outstanding after giving effect to such
Common Stock Reorganization, and (b) the number of shares of Common Stock
subject to purchase upon exercise of this Warrant shall be adjusted, effective
at such time, to a number determined by multiplying the number of shares of
Common Stock subject to purchase immediately before such Common Stock
Reorganization by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding after giving effect to such Common Stock
Reorganization and the denominator of which shall be the number of shares of
Common Stock outstanding immediately before such Common Stock Reorganization.
SECTION 5.3 Common Stock Distribution.
-------------------------
From the Effective Date until the earlier of the time the Holder (i) obtains
at least 51% of the seats of the Company's Board of Directors or (ii) owns
beneficially 51% or more of the total issued and outstanding shares of capital
stock of the Company on a Fully Diluted Basis, the Holder shall be entitled to
the rights set forth in this Section 5.3; provided, however, if at any time
after either clause (i) or clause (ii) has become effective, the Holder (x) does
not hold 51% of the seats of the Company's Board of Directors and (y) owns
beneficially more than 40% but less than 51% of the total issued and outstanding
capital stock of the Company on a Fully Diluted Basis then the Holder shall be
entitled to the rights set forth in this Section 5.3.
(a) If the Company shall issue, sell or otherwise distribute any
shares of Common Stock, other than pursuant to a Common Stock Reorganization
(which shall be governed by Section 5.2 hereof) (any such event, including any
event described in Section 5.3(b) or Section 5.3(c) below, being herein called a
"Common Stock Distribution"), for a consideration per share that is less than
-------------------------
85% of the Market Price per share of Common Stock on the date of such Common
Stock Distribution, then, effective upon such Common
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Stock Distribution, the Exercise Price shall be reduced to the lowest of the
prices (calculated to the nearest one-thousandth of one cent) determined as
provided in clauses (i), (ii) and (iii) below:
(i) if the Company shall receive any consideration for the
Common Stock issued, sold or distributed in such Common Stock Distribution, the
consideration per share of Common Stock received by the Company upon such issue,
sale or distribution;
(ii) by dividing (A) an amount equal to the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such Common
Stock Distribution multiplied by the then existing Exercise Price, plus (2) the
consideration, if any, received by the Company upon such Common Stock
Distribution by (B) the total number of shares of Common Stock outstanding
immediately after such Common Stock Distribution; and
(iii) by multiplying the Exercise Price on the Business Day
immediately prior to such Common Stock Distribution by a fraction, the numerator
of which shall be the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such Common Stock Distribution multiplied by
such Market Price per share on the date of such Common Stock Distribution, plus
(B) the consideration, if any, received by the Company upon such Common Stock
Distribution, and the denominator of which shall be the product of (1) the total
number of shares of Common Stock outstanding immediately after such Common Stock
Distribution multiplied by (2) the Market Price per share on the date of such
Common Stock Distribution.
If any Common Stock Distribution shall require an adjustment to the
Exercise Price pursuant to the foregoing provisions of this Section 5.3(a),
including by operation of Section 5.3(b) or 5.3(c) below, then, effective at the
time such adjustment is made, the number of shares of Common Stock subject to
purchase upon exercise of this Warrant shall be increased to a number determined
by multiplying the number of shares of Common Stock subject to purchase
immediately before such Common Stock Distribution by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding immediately
after giving effect to such Common Stock Distribution and the denominator of
which shall be the sum of the number of shares outstanding immediately before
giving effect to such Common Stock Distribution (both calculated on a Fully
Diluted Basis) plus the number of shares of Common Stock which the aggregate
consideration received by the Company with respect to such Common Stock
Distribution would purchase at the Market Price per share of Common Stock on the
date of such Common Stock Distribution. In computing adjustments under this
paragraph, fractional interests in Common Stock shall be taken into account to
the nearest one-thousandth of a share.
The provisions of this Section 5.3(a), including by operation of Section
5.3(b) or 5.3(c) below, shall not operate to increase the Exercise Price or
reduce the number of shares of Common Stock subject to purchase upon exercise of
this Warrant.
(b) If after the date hereof the Company shall issue, sell,
distribute or otherwise grant in any manner (including by assumption) any rights
to subscribe for or to purchase, or any warrants or options for the purchase of
Common Stock or any stock or securities convertible into or exchangeable for
Common Stock (such rights, warrants or options being herein called "Options" and
-------
such convertible or exchangeable stock or securities being herein called
"Convertible Securities"), whether or not such Options or the rights to convert
----------------------
or exchange any such Convertible Securities in respect of such Options are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities in respect of such Options (determined by dividing
(i) the aggregate amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
all such Options, plus, in the case of Options to acquire Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable upon the issuance or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon the conversion
or exchange of all such Convertible Securities issuable upon the exercise of
such Options) shall be less than the Market Price per
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share of Common Stock on the date of granting such Options, then, for purposes
of Section 5.3(a) above, the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the exercise
of such Options shall be deemed to have been issued as of the date of granting
of such Options and thereafter shall be deemed to be outstanding and the Company
shall be deemed to have received as consideration of such price per share,
determined as provided above, therefor. Except as otherwise provided in this
Warrant (including Sections 5.3(d) and 5.3(f) below), no additional adjustment
of the Exercise Price shall be made upon the actual exercise of any Options or
upon conversion or exchange of any Convertible Securities, notwithstanding any
change in the Market Price between the date of issuance, sale, distribution or
grant and the date of exercise, conversion or exchange.
(c) If the Company shall issue, sell or otherwise distribute
(including by assumption) any Convertible Securities, whether or not the rights
to exchange or convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or exchange
(determined by dividing (i) the aggregate amount received or receivable by the
Company as consideration for the issuance, sale or distribution of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities) shall be
less than the Market Price per share of Common Stock on the date of such
issuance, sale or distribution, then, for purposes of Section 5.3(a) above, the
total maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to have been issued
as of the date of the issuance, sale or distribution of such Convertible
Securities and thereafter shall be deemed to be outstanding and the Company
shall be deemed to have received as consideration such price per share,
determined as provided above, therefor. Except as otherwise provided in this
Warrant (including Sections 5.3(d) and 5.3(f) below), no additional adjustment
of the Exercise Price shall be made upon the actual conversion or exchange of
any Convertible Securities, notwithstanding any change in the Market Price
between the date of issuance, sale or distribution and the date of conversion or
exchange.
(d) If (i) the purchase price provided for in any Option referred to
in Section 5.3(b) above or the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities referred to in Section
5.3(b) or 5.3(c) above or the rate at which any Convertible Securities referred
to in Section 5.3(b) or 5.3(c) above are convertible into or exchangeable for
Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution upon an event which results in a
related adjustment pursuant to this Article V, in accordance with 5.6(b)), or
(ii) any of such Options or Convertible Securities shall have terminated, lapsed
or expired, the Exercise Price then in effect shall forthwith be readjusted
(effective only with respect to any exercise of this Warrant after such
readjustment) to the Exercise Price which would then be in effect had the
adjustment made upon the issuance, sale, distribution or grant of such Options
or Convertible Securities been made based upon such changed purchase price,
additional consideration or conversion rate, as the case may be (in the case of
any event referred to in clause (i) of this Section 5.3(d)) or had such
adjustment not been made (in the case of any event referred to in clause (ii) of
this Section 5.3(d)).
(e) If the Company shall pay a dividend or make any other
distribution upon any capital stock of the Company payable in Common Stock,
Options or Convertible Securities, then, for purposes of Section 5.3(a) above,
such Common Stock, Options or Convertible Securities shall be deemed to have
been issued or sold without consideration.
(f) If any shares of Common Stock, Options or Convertible Securities
shall be issued, sold or distributed for cash, the consideration received
therefor shall be deemed to be the amount received by the Company therefor. If
any shares of Common Stock, Options or Convertible Securities shall be issued,
sold or distributed for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be deemed to be the
Fair Market Value of such consideration, after deduction of any expenses
incurred in connection therewith. If any shares of Common Stock, Options or
Convertible Securities shall be issued in connection with any merger in which
the Company is the surviving corporation, the amount of consideration therefor
shall be deemed to be the Fair Market Value of such portion of the assets
B-11
and business of the non-surviving corporation as shall be attributable to such
Common Stock, Options or Convertible Securities, as the case may be. If any
Options shall be issued in connection with the issuance and sale of other
securities of the Company, together comprising one integral transaction, then
such Options shall be deemed to have been issued (i) for such consideration as
shall be allocated to such Options by the parties thereto, or (ii) in the
absence of such an allocation by the parties thereto, by a reasonable
determination made in good faith by the Board of Directors of the Company, or
(iii) in the absence of such an allocation by the parties thereto and such a
determination by the Board of Directors, without consideration.
SECTION 5.4 Special Dividends. If the Company shall issue or distribute
-----------------
to any holder or holders of shares of Common Stock evidences of indebtedness,
any other securities of the Company or any cash, property or other assets
(excluding a Common Stock Reorganization or a Common Stock Distribution),
whether or not accompanied by a purchase, redemption or other acquisition of
shares of Common Stock (any such nonexcluded event being herein called a
"Special Dividend"), (a) the Exercise Price shall be decreased, effective
----------------
immediately after the effective date of such Special Dividend, to a price
determined by multiplying the Exercise Price then in effect by a fraction, the
numerator of which shall be the Market Price per share of Common Stock as of
such effective date less any cash and the then fair market value of any
evidences of indebtedness, securities or property or other assets issued or
distributed in such Special Dividend with respect to one share of Common Stock,
and the denominator of which shall be such Market Price per share and (b) the
number of shares of Common Stock subject to purchase upon exercise of this
Warrant shall be increased to a number determined by multiplying the number of
shares of Common Stock subject to purchase immediately before such Special
Dividend by a fraction, the numerator of which shall be the Exercise Price in
effect immediately before such Special Dividend and the denominator of which
shall be the Exercise Price in effect immediately after such Special Dividend. A
reclassification of Common Stock (other than a change in par value, or from par
value to no par value or from no par value to par value) into shares of Common
Stock and shares of any other class of stock shall be deemed a distribution by
the Company to the holders of such Common Stock of such shares of such other
class of stock and, if the outstanding shares of Common Stock shall be changed
into a larger or smaller number of shares of Common Stock as part of such
reclassification, a Common Stock Reorganization.
SECTION 5.5 Capital Reorganizations. If there shall be any consolidation
-----------------------
or merger to which the Company is a party, other than a consolidation or a
merger of which the Company is the continuing corporation and which does not
result in any reclassification of, or change (other than a Common Stock
Reorganization) in, outstanding shares of Common Stock, or any sale or
conveyance of the property of the Company as an entirety or substantially as an
entirety, or any recapitalization of the Company (any such event being called a
"Capital Reorganization"), then, effective upon the effective date of such
----------------------
Capital Reorganization, the Holder shall no longer have the right to purchase
Common Stock, but shall have instead the right to purchase, upon exercise of
this Warrant, the kind and amount of shares of stock and other securities and
property (including cash) which the Holder would have owned or have been
entitled to receive pursuant to such Capital Reorganization if this Warrant had
been exercised immediately prior to the effective date of such Capital
Reorganization. As a condition to effecting any Capital Reorganization, the
Company or the successor or surviving corporation, as the case may be, shall
execute and deliver to the Holder and to the Warrant Agency an agreement as to
the Holder's rights in accordance with this Section 5.5, providing, to the
extent of any right to purchase equity securities hereunder, for subsequent
adjustments as nearly equivalent as may be practicable to the adjustments
provided for in this Article V. The provisions of this Section 5.5 shall
similarly apply to successive Capital Reorganizations.
SECTION 5.6 Adjustment Rules. Any adjustments pursuant to this Article V
----------------
shall be made successively whenever an event referred to herein shall occur,
except that, notwithstanding any other provision of this Article V:
B-12
(a) no adjustment shall be made to the number of shares of
Common Stock to be delivered to the Holder (or to the Exercise Price) if such
adjustment represents less than 1% of the number of shares previously required
to be so delivered, but any lesser adjustment shall be carried forward and shall
be made at the time and together with the next subsequent adjustment which
together with any adjustments so carried forward shall amount to 1% or more of
the number of shares to be so delivered; and
(b) no adjustment shall be made pursuant to this Article V
in respect of the issuance from time to time of shares of Common Stock upon the
exercise of the Warrant.
If the Company shall take a record of the holders of its Common Stock for any
purpose referred to in this Article V, then (i) such record date shall be deemed
to be the date of the issuance, sale, distribution or grant in question and (ii)
if the Company shall legally abandon such action prior to effecting such action,
no adjustment shall be made pursuant to this Article V in respect of such
action.
SECTION 5.7 Proceedings Prior to Any Action Requiring Adjustment. As a
----------------------------------------------------
condition precedent to the taking of any action which would require an
adjustment pursuant to this Article V, the Company shall take any action which
may be necessary, including obtaining regulatory approvals or exemptions, in
order that the Company may thereafter validly and legally issue as fully paid
and nonassessable all shares of Common Stock which the Holder is entitled to
receive upon exercise thereof.
SECTION 5.8 Notice of Adjustment. Not less than 10 nor more than 30 days
--------------------
prior to the record date or effective date, as the case may be, of any action
which requires or might require an adjustment or readjustment pursuant to this
Article V, the Company shall give notice to the Holder of such event, describing
such event in reasonable detail and specifying the record date or effective
date, as the case may be, and, if determinable, the required adjustment and the
computation thereof. If the required adjustment is not determinable at the time
of such notice, the Company shall give notice to the Holder of such adjustment
and computation promptly after such adjustment becomes determinable.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient on the date of delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or by
certified or registered U.S. mail, and addressed to the party to be notified at
such party's address as follows:
If to the Holder:
Lufthansa Technik AG
Weg beim Jager 193
D-22335 Hamburg, GERMANY
Attention: HAM-TB/B
Fax: 011 49 40 5070 5366
with a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attention: Stephen P. Doyle, Esq.
Fax: 202 663 6363
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If to the Company to:
Hawker Pacific Aerospace
11240 Sherman Way
Sun Valley, California, 91352
Attention: Chief Financial Officer
Fax: 818 765 2416
SECTION 6.2 Amendment. This Agreement may not be modified or amended
---------
except by written agreement specifically referring to this Agreement and
executed and delivered by the parties hereto.
SECTION 6.3 Waivers. No waiver of a breach or default hereunder shall be
-------
considered valid unless in writing and signed by the party giving such waiver,
and no such waiver shall be deemed a waiver of any subsequent breach or default
of the same or similar nature.
SECTION 6.4 Governing Law. This Warrant shall be construed in accordance
-------------
with and governed by the laws of the State of California (without regard to
principles of conflicts of law).
SECTION 6.5 Binding Effect. All covenants, stipulations, promises and
--------------
agreements in this Warrant contained by and on behalf of the Company or the
Holder shall bind its successors and assigns, whether so expressed or not.
SECTION 6.6 Severability. In case any one or more of the provisions
------------
contained in this Warrant shall be invalid, illegal or unenforceable in an
respect, the validity, legality and enforceability of the remaining provisions
contain herein shall not in any way be affected or impaired thereby. The parties
shall endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 6.7 Section Headings. The section headings used herein are for
----------------
convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant. All references to sections, articles, Exhibits or Schedules shall mean
the sections, articles, Exhibits or Schedules of this Agreement. Terms used with
initial capital letters will have the meaning specified, applicable to both
singular and plural forms, for all purposes of this Agreement. The words
"include" and "exclude" and derivatives of those words are used in this
Agreement in an illustrative sense rather than a limiting sense.
SECTION 6.8 Specific Performance. The Company hereby acknowledge and agree
--------------------
that the failure of the Company to perform its obligations under this Warrant,
the Shareholders Rights Agreement or the Loan Agreement in accordance with their
specific terms or to otherwise comply with such obligations will cause
irreparable injury to the Holder for which damages, even if available, will not
be adequate remedy. Accordingly, the Company hereby consent to the issuance of
injunctive relief to prevent breaches, and to the granting by any such court of
the remedy of specific performance of the terms and provisions of this Warrant,
the Shareholders Rights Agreement and the Loan Agreement.
[signature on following page]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in
its corporate name by one of its officers thereunto duly authorized, all as of
the day and year first above written.
HAWKER PACIFIC AEROSPACE
By: s/s Philip M. Panzera
-----------------------------
Name: Philip M. Panzera
-----------------------------
Title: Executive Vice President
-----------------------------
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ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IF IT DESIRES
AND IS PERMITTED TO TRANSFER THE WARRANT OF
HAWKER PACIFIC AEROSPACE)
FOR VALUE RECEIVED ___________________________________________ hereby
sells, assigns and transfers unto _________________________________________ the
right to purchase shares of Common Stock evidenced by the within Warrant, and
does hereby irrevocably constitute and appoint _______________________________
Attorney to transfer the said Warrant on the books of the Company (as defined in
said Warrant) with full power and substitution.
The undersigned represents and warrants to the Company that this assignment
has been effected in compliance with all applicable provisions of said Warrant.
Signature: ________________________(SEAL)
Address: ______________________________
______________________________
Dated: _______________
In the presence of
___________________________ __________________________________
(Witness) (Signature of Witness)
NOTICE: The signature to the foregoing Assignment must correspond to the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
B-16
PURCHASE FORM
(TO BE EXECUTED ONLY UPON EXERCISE OF WARRANT)
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for and purchases Shares of Common Stock of HAWKER PACIFIC AEROSPACE
purchasable with this Warrant, and herewith makes payment therefore: (circle the
following as applicable)
2. By cash in the amount of $________.
3. By bank cashier's check in the amount of $___________.
4. By certified check in the amount of $_____________.
5. By request for partial satisfaction of the Loan Agreement, dated September
20, 2000, between the Company and the Holder as defined herein.
all at the price and on the terms and conditions specified in this Warrant and
requests that certificates for the shares of Common Stock hereby purchased (and
any securities or property issuable upon such exercise) be issued in the name of
and delivered to ____________________________, whose address is
_____________________________ and, if such shares shall not include all of the
shares issuable as provided in this Warrant that a new Warrant of like tenor and
date for the balance of the shares of Common Stock issuable thereunder be
delivered to the undersigned.
Dated:
___________________________________
(Signature of Registered Owner)
___________________________________
(Street Address)
___________________________________
(City) (State) (Zip Code)
B-17
ANNEX C
HAWKER PACIFIC AEROSPACE
AUDIT COMMITTEE CHARTER
Organization
This charter governs the operations of the audit committee. The committee shall
review and reassess the charter at lease annually and obtain the approval of the
Board of Directors. The committee shall be appointed by the Board of Directors
and shall comprise at least three directors, each of whom are independent of
management and the Company. Members of the committee shall be considered
independent if they have no relationship that may interfere with the exercise of
their independence from management and the Company. All committee members shall
be financially literate, and at least one member shall have accounting or
related financial management expertise.
Statement of Policy
The audit committee shall provide assistance to the Board of Directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the board. In
so doing, it is the responsibility of the committee to maintain free and open
communication between the committee, independent auditors, the internal auditors
and management of the Company. In discharging its oversight role, the committee
is empowered to investigate any matter brought to its attention with full access
to all books, records, facilities, and personnel of the Company and the power to
retain outside counsel, or other experts for this purpose.
Responsibilities and Processes
The primary responsibility of the audit committee is to oversee the Company's
financial reporting process on behalf of the board and report the results of
their activities to the board. Management is responsible for preparing the
Company's financial statements, and the independent auditors are responsible for
auditing those financial statements. The committee in carrying out its
responsibilities believes its policies and procedures should remain flexible, in
order to best react to changing conditions and circumstances. The committee
should take the appropriate actions to set the overall corporate "tone" for
quality financial reporting, sound business risk practices, and ethical
behavior.
The following shall be the principal recurring processes of the audit committee
in carrying out its oversight responsibilities. The processes are set forth as
a guide with the understanding that the committee may supplement them as
appropriate.
. The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately accountable
to the Board and the audit committee, as representatives of the Company's
shareholders. The committee shall have the ultimate authority and
responsibility to evaluate and,
where appropriate, replace the independent auditors. The committee shall
discuss with the auditors their independence from management and the Company
and the matters included in the written disclosures required by the
Independence Standards Board.
. The committee shall discuss with management and the independent auditors the
adequacy and effectiveness of the accounting and financial controls,
including the Company's system to monitor and manage business risk, and legal
and ethical compliance programs. Further, the committee shall meet separately
with the independent auditors, with and without management present, to
discuss the results of their examinations.
. The committee shall review with management and the independent auditors the
financial statements to be included in the Company's Annual Report on Form
10-K, to determine that the independent auditors are satisfied with the
disclosure and content of the financial statements to be presented to the
shareholders. The committee shall also review any changes in accounting
principles, and shall discuss the results of the annual audit and any other
matters required to be communicated to the committee by the independent
auditors under generally accepted auditing standards.
. The committee may review, as it deems necessary, the interim financial
statements with management and the independent auditors prior to the filing
of the Company's Quarterly Report on Form 10-Q. The chair of the committee
may represent the entire committee for the purposes of this review.
. The committee shall investigate any matter brought to its attention within
the scope of its duties, with the power to retain outside counsel for this
purpose if appropriate.
. At the discretion of the chair of the committee, the committee may submit the
minutes of committee meetings to the Board, or discuss any relevant matters
discussed at such meetings with the Board.
EXHIBIT D
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Ernst & Young LLP
Woodland Hills, California
June 27, 2000
Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read Item 4 of Form 8-K dated June 27, 2000, of Hawker Pacific Aerospace
and are in agreement with the statements contained in the paragraphs (ii) and
(iv) on page 2 therein. We have no basis to agree or disagree with other
statements of the registration contained therein.
/s/ Ernst & Young LLP
D-1
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF HAWKER PACIFIC AEROSPACE
The undersigned hereby constitutes and appoints Philip M. Panzera and David
L. Lokken, and each of them, with full power of substitution, the proxies of the
undersigned to represent the undersigned and vote all shares of common stock of
Hawker Pacific Aerospace (the "Company") which the undersigned would be entitled
to vote if personally present at the Annual Meeting of Shareholders to be held
at the principal office of the Company, 11240 Sherman Way, Sun Valley,
California, on January 19, at 9:00 A.M., Pacific Time, and at any adjournment
thereof, with respect to the matters described in the accompanying Notice of
Special Meeting of Shareholders and Proxy Statement, receipt of which is hereby
acknowledged, in the following manner.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE NOMINEES LISTED IN PROPOSAL 1
1. PROPOSAL 1 - ELECTION OF DIRECTORS [_] FOR all nominees listed (except as
marked to the contrary below)
Class I - Mellon C. Baird, David L. Lokken, Joel F. McIntyre, Laurans A.
Mendelsohn
Class II - Wolfgang Mayrhuber, Dr. Gerald Gallus, James C. Stoecker
Instructions: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name on the list above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL 2
2. PROPOSAL 2 - APPROVAL OF WARRANT TO LHT [_] FOR [_] AGAINST [_] ABSTAIN
3. IN ACCORDANCE WITH THEIR BEST JUDGMENT, with respect to any other matters
which may properly come before the meeting and any adjournment thereof.
Please sign and date on the reverse side.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder.
If no choice is specified, this proxy will be voted FOR Proposals 1 and 2.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE
Please date and sign exactly as your name or
names appear hereon. If more than one owner,
all should sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title as such. If the
signatory is a corporation or partnership,
sign the full corporate or partnership name
by its duly authorized officer or partner.
Date:__________________, 200_
_________________________________
Signature
_________________________________
Signature if held jointly