SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-29490
HAWKER PACIFIC AEROSPACE
(Exact name of registrant as specified in its charter)
California 95-3528840
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
11240 Sherman Way
Sun Valley, California 91352
(Address of principal executive offices, including zip code)
(818) 765-6201
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the registrant's common stock held by non-
affiliates of the registrant as of April 27, 2001 was approximately $12,735,000.
The number of shares of common stock outstanding on April 27, 2001, was
10,160,675.
Documents Incorporated by Reference:
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to the directors and
executive officers of Hawker Pacific Aerospace (the "Company"):
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 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 (3)(4)
____________________
(1) Member of Executive Committee
(2) Member of Nominating Committee
(3) Member of Audit Committee
(4) Member of Compensation Committee
Each director will serve until the next annual meeting of shareholders and
until his successor is duly elected and qualified. Subject to the terms of any
employment agreement with the Company, all executive officers serve at the
discretion of the Board of Directors.
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. Since January 2001,
Mr. Mayrhuber has been a member of the Executive Board of Deutsche Lufthansa AG
and responsible for its passenger business division. 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 (while maintaining responsibilities as the Company's Principal
Financial and Accounting Officer). In September 2000, he was also appointed
Secretary of the Company. 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 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, was appointed to the Board of Directors in
January 2001. He 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.
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 to report changes
in beneficial ownership of the Common Stock. These reporting persons also are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. Based upon 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 Section 16(a) reports on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation earned or accrued during
the years ended December 31, 1998, 1999 and 2000 by the Company's Chief
Executive Officer and its four other most highly compensated executive officers
whose total salary and bonus during the year ended December 31, 2000, exceeded
$100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
Long-term Compensation
------------------------
Awards Payouts
---------- -----------
Securities
Annual Compensation Restricted Underlying All Other
----------------------------- Stock Options/ LTIP Compen-
Name and Principal Position Year Salary Bonus(1) Other Awards SARs (#) Payouts sation(2)
- ------------------------------------------ ---- -------- ------- ------- ------ ---------- ------- ---------
David L. Lokken........................... 2000 $205,000 $ - $44,174 - - - $344,877
Chief Executive Officer 1999 205,000 41,000 44,251 - - - -
1998 205,000 22,431 - - - - -
Philip M. Panzera......................... 2000 $160,000 $ - - - - - $202,537
Executive Vice President 1999 153,088 24,000 - - - - -
Brian S. Carr............................. 2000 $160,000 $ - - - - - $177,537
Managing Director of Sun Valley Operations 1999 157,628 24,000 - - - - -
1998 130,000 10,669 - - - - -
Dennis M. Biety(3)........................ 2000 $141,550 $ - $67,820 - - - $368,178
Managing Director of UK Operations 1999 160,000 24,000 77,236 - - - -
Michael A. Riley.......................... 2000 $130,000 $ - - - - - $145,918
Vice President-Sales & Marketing 1999 118,464 19,500 - - - - -
1998 115,000 9,438 - - - - -
- ------------------------------------------
(1) Bonus amounts are shown in the year earned.
(2) Represents amounts paid or payable to the Named Executive Officers pursuant
to change of control provisions in their respective Employment Agreements.
The provisions were triggered by the transactions with LHT described below
under "Certain Relationships and Related Transactions - Transactions with
LHT." See the discussion below under "Employment Agreements" for more
information regarding these payments.
(3) As of November 2000, Mr. Biety was no longer employed by the Company. The
Company and Mr. Biety are currently negotiating the terms of any severance
pay to which Mr. Biety may be entitled pursuant to his employment agreement.
Director Compensation
Directors not employed by the Company or LHT currently receive $1,500 per
month for their 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. No stock options or stock
appreciation rights were granted to, or exercised by, any Director during the
fiscal year ended December 31, 2000. Directors are reimbursed for out-of-pocket
expenses incurred in connection with the performance of their services as
directors.
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, 2000.
4
Fiscal Year-End Option/SAR Values
The following table sets forth information regarding the number and value
of unexercised options and any stock appreciation rights owned at December 31,
2000, by the Named Executive Officers:
Number of Unexercised Options Value of Unexercised Options(1)
-------------------------------------------- --------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------- ------------------- ------------------- ------------------------ --------------------
David L. Lokken..... 187,471 - $4,146 -
Philip M. Panzera... 43,261 - - -
Brian S. Carr....... 43,261 - 829 -
Michael A. Riley.... 43,261 - 829 -
(1) Represents the excess, if any, of the market price of the Common Stock as
of December 31, 2000, over the exercise price of the options.
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 1st
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 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.
5
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 currently is
limited in accordance with Section 401(a)(17) of the Internal Revenue Code to
$170,000.
The years of credited service under the Pension Plan for each Named
Executive Officer as of December 31, 2000 were as follows.
Name Name
- ------------------------------------------- -------------------------------
David L. Lokken............................ 11 years
Michael A. Riley........................... 11 years
Brian S. Carr.............................. 7 years
Philip M. Panzera.......................... 2 years
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 the Company's Profit Sharing Plan.
6
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 have been automatically extended for
successive one year terms. 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 the
Company's Profit Sharing Plan. Mr. Riley may 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 the Company's Profit Sharing 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.
7
As reflected in the Summary Compensation Table above, the transactions with
LHT described below under "Certain Relationships and Related Transactions"
triggered the "change-of-control" payments provided for in the respective
employment agreements of Messrs. Lokken, Biety, Panzera, Carr and Riley. To
assist the Company, Messrs. Lokken, Biety, Panzera and Riley voluntarily
deferred receipt of these payments pursuant to individual Payment Deferral
Agreements. A portion of these deferred amounts, plus interest, was paid during
2000. As of April 30, 2001, $81,478 of these payments, plus accrued interest of
$747, remains to be paid.
During 2000, the Company provided Management Incentive Program agreements
to each of the Named Executive Officers and certain other key employees. The
Management Incentive Program (the "Program") provided 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. Based
on the purchase price of the Company's common shares in the transactions with
LHT, no payments were due to these employees pursuant to the Program. Upon the
completion of a change of control of the Company, the Program also provided for
accelerated vesting of stock options. On September 20, 2000, upon the execution
of the transactions with LHT, Messrs. Lokken, Biety, Panzera, Carr and Riley
received immediate vesting of 26,914, 18,747, 28,120, 12,979 and 12,979 options,
respectively.
Compensation Committee Interlocks and Insider Participation
Daniel J. Lubeck, Joel F. McIntyre, and Daniel C. Toomey, Jr. served on the
Compensation Committee during 2000. Mr. Lubeck resigned as Chairman of the
Board, Secretary, and Chairman of the Compensation Committee on September 20,
2000. Mr. McIntyre served as the interim chair until Mr. Mayrhuber was appointed
as Chairman of the Compensation Committee in October 2000. Mr. Toomey resigned
from the Board in October 2000, and Mr. Mendelson was appointed to succeed Mr.
Toomey on the Board and the Compensation Committee.
8
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of April 27, 2001, 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, (iii) each Named Executive Officer of the Company; and
(iv) all directors and executive officers of the Company as a group. Unless
otherwise indicated, to the Company's knowledge, subject to applicable community
property and similar laws, the persons shown have sole voting and investment
power with respect to the shares shown.
Amount and Nature of Beneficial Ownership(1)
---------------------------------------------------
Number of Shares of
Name, and Address for 5% owners Common Stock Percentage of Class
- ---------------------------------------------------------- ---------------------------------------------------
Lufthansa Technik AG (7).................................. 6,839,175 (2) 66.0%
David L. Lokken........................................... 326,401 (3) 3.2%
Brian S. Carr............................................. 71,967 (4) *
Michael A. Riley.......................................... 71,967 (4) *
Philip M. Panzera......................................... 43,261 (4) *
Mellon C. Baird........................................... 16,861 (5) *
Joel F. McIntyre.......................................... 16,861 (5) *
Wolfgang Mayrhuber........................................ 0 -
Dr. Gerald Gallus......................................... 0 -
James C. Stoecker......................................... 0 -
Laurans A. Mendelson...................................... 0 -
All directors and executive officers as a group (10
people).................................................. 547,318 (6) 5.2%
__________________
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Shares of Common Stock subject to
options, warrants or convertible securities held by a person which are
currently exercisable, or exercisable within 60 days following April 27,
2001, are deemed outstanding for purposes of computing the beneficial
ownership of that person, but no other person.
(2) Includes 196,342 shares owned by the "Management Shareholders" identified
under "Certain Relationships and Related Transactions - Transactions With
LHT," which LHT is entitled to vote under the Shareholders Rights Agreement
among the Company, LHT and the Management Shareholders. Excludes 100,945
shares subject to options to purchase Common Stock held by the Management
Shareholders. Also excludes, as not yet approved by shareholders, 2,500,000
shares of the Common Stock purchase warrant issued to LHT, and 35,582
dividend shares payable to LHT from the conversion of the Series C Preferred
Stock.
(3) 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. Also
includes 187,471 shares subject to options.
(4) Includes 43,261 shares subject to options.
(5) Includes 14,861 shares subject to options.
9
(6) Includes a total of 346,976 shares subject to options to purchase Common
Stock held by the directors and executive officers.
(7) The address for Lufthansa Technik AG is Wilmer, Cutler & Pickering, Attn:
Ron Meltzer, 2445 M Street, N.W., Washington, D.C. 20037-1420.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with LHT
Purchase of Common and Preferred Stock. On September 20, 2000, LHT
purchased 2,336,495 shares of the Company's Common Stock at $4.12 per share,
constituting approximately 40% of the outstanding Common Stock as of that date,
from six individual shareholders (the "Selling Shareholders") affiliated with
Unique Investment Corporation ("Unique"). In a separately negotiated private
transaction on the same date, LHT also paid $3,777,333.00 for all 300
outstanding shares of the Company's Series C preferred issue (the "Preferred
Stock") owned by Deephaven Private Placement Trading Ltd. Upon the sale of
Common Stock, Messrs. Lubeck, Hartman and Makoff resigned as directors, and
three nominees of LHT were appointed to the Board: Mr. Mayrhuber, as Chairman,
and Messrs. Gallus and Stoecker.
Indemnification by Selling Shareholders. In connection with the
transactions described above, the Selling Shareholders and the Company entered
into an Indemnification Agreement, dated September 20, 2000, under which the
Selling Shareholders agreed to partially indemnify the Company for 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 and related engagement with First Union
Securities. In October 2000, an arbitration proceeding 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 in this section. The Company accrued in fiscal year 2000 all
unindemnified liabilities, costs and expenses which may arise from this
arbitration proceeding.
Subordinated Loan Agreement. On September 20, 2000, the Company and LHT
entered into a Loan Agreement (the "Loan Agreement") pursuant to which LHT
provided the Company a $9,300,000 subordinated loan for a term of three years at
a rate equal to the higher of 10% per annum or 5% per annum plus USD LIBOR,
provided such rate did not exceed 11% or the maximum amount allowable by law.
The Loan Agreement contained certain covenants, among others, regarding the
Company's use of the proceeds, and certain corporate rights and actions, some of
which continue in the debt conversion agreement described below.
Issuance of Warrant. In connection with the Loan Agreement, the Company
issued LHT a Common Stock purchase warrant (the "LHT Warrant"). The LHT Warrant
would 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. The Company intends to present the
LHT Warrant for the shareholders' approval at its upcoming Annual Meeting of
Shareholders (tentatively scheduled to occur in June or July 2001). If approved
by the shareholders, the LHT Warrant will be immediately exercisable from the
date of such approval until September 19, 2001. Amounts owed to LHT under the
Loan Agreement were converted into shares of the Company's Common Stock on March
16, 2001 as discussed below. Such conversion did not terminate the LHT Warrant.
Shareholder Rights and Voting Agreement. 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 owned by the
Management Shareholders, plus up to an additional 129,786 shares of Common Stock
that the Management Shareholders could acquire upon the exercise of outstanding
options held by them (100,945 shares subsequent to the termination of Mr.
Biety's options). LHT also was granted proxies from the Management Shareholders
to vote all of such shares on all matters, 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 cause the Company to establish a classified
board and to nominate three members of the Board of Directors of
10
the Company (including the right to nominate the successors to those nominees),
two as Class I Directors and one as a Class II Director, and to cause the
Company to increase the size of the Board from seven to nine directors as
permitted by the Company's Bylaws, and, in that event, to nominate for election
the two additional directors.
Voting and Indemnity Agreement. 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 LHT Warrant at the shareholders meeting at which it is presented for
approval, the failure of the shareholders to approve the LHT Warrant, or if a
majority of the shareholders (other than LHT) vote against approval of the LHT
Warrant.
Registration Rights Agreement. On September 20, 2000, the Company entered
into a Registration Rights Agreement with LHT under which the Company agreed, at
LHT's request, to file a registration statement under 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.
Loan Participation with Heller. In connection with the Loan Agreement, on
September 20, 2000, LHT became a junior participating lender in the Heller
Financial Inc. loan to the Company by funding $10,000,000 of the Heller loan
facility. In October 2000, the Heller loan facility was terminated and replaced
by a new senior loan agreement.
New Senior Loan Facility. In October 2000, the Company entered into a loan
agreement with Landesbank Hessen-Thuringen Girozentrale and Kreditanstalt fur
Wiederaufbau (collectively, the "Banks"), under which the Banks provided term
loans of $45,000,000 and 14,000,000 British Pounds ("sterling") to the Company.
LHT will receive an annual fee from the Banks in an amount between $355,000 and
$450,000 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 a commission
equal to 2.1% of the outstanding loan amounts per year for guaranteeing the
Company's obligations to the Banks under the sterling loan.
Waiver of Rights with respect to the Company's Board. In an October 31,
2000, letter agreement, LHT waived its rights (under sections 5.20.1.1.1 and
5.20.1.1.2 of the Loan Agreement, and section 2.4.1 of the Shareholder Rights
Agreement) to require the Company to increase the Board size to nine directors
at the next special meeting of the Company's shareholders, and to appoint LHT
representatives to the two newly created Board seats. LHT further specifically
reserved the right to call for such increase in the Board size and to nominate
the two additional directors at any other future meeting of the shareholders of
the Company.
Waiver of Redemption Rights. On December 11, 2000, LHT voluntarily
executed a Waiver to waive its right to require the Company to redeem any of the
Company's Preferred Stock and Underlying Shares (as defined in the Certificate
of Determination for the Series C Preferred Stock).
Conversion of Preferred Stock. In December 2000, LHT converted all of the
Preferred Stock and a portion of the accrued dividends into 1,164,386 shares of
Common Stock at $2.71007 per share in accordance with the conversion provisions
of the Series C Stock.. The purpose of the conversion was to increase LHT's
equity position in the Company, to assist the Company in improving its debt-to-
equity ratio and net tangible assets (which helped the Company to comply with
Nasdaq maintenance requirements), and to assist the Company in avoiding certain
prepayment obligations under its new senior loan agreement with the Banks which
would have become effective if LHT did not own or control more than 50% of the
share capital and voting rights of the Company by December 30, 2000.
In accordance with the provisions of the Preferred Stock, accrued dividends
of 35,582 shares owed to LHT can not be paid without shareholders' approval. The
Company will seek approval to pay these accrued
11
dividends at the Annual Meeting of Shareholders. If such approval is not
obtained, LHT will instead receive a cash payment of $96,431, plus accrued
interest at 18% per annum, for the dividends.
Conversion of Subordinated Debt. On February 6, 2001, the Company and LHT
entered into an agreement under which LHT agreed to exchange $9,803,000 of
principal and accrued interest owed to it under the Loan Agreement into shares
of the Company's Common Stock at an exchange price of $3.125 per share. The
exchange price of $3.125 was determined by the average of the closing bid prices
on the five trading days immediately prior to February 6, 2001. On March 16,
2001, the Company completed the exchange by issuing to LHT 3,136,952 shares of
its Common Stock. This exchange served to increase shareholders' equity and net
tangible assets by $7,203,000 (representing the $6,700,000 carrying value of the
indebtedness plus accrued interest of $503,000. The exchange agreement also
contained certain covenants by the Company, including, among others, agreements
by the Company not to enter into certain stock transactions without the prior
written consent of LHT, to seek approval of the LHT Warrant, to seek to increase
the size of the Board of Directors from seven to nine, to establish a classified
board and allow LHT to nominate two Class I directors and one Class II director,
and not to amend the Rights Agreement (as defined therein).
Operating Transactions with LHT. In the ordinary course of business, the
Company enters into subcontracting transactions with LHT to provide overhaul
services. During 2000, the Company derived revenue of $465,000 from overhaul
services provided to LHT.
Proposed Agreements. The Company and LHT are currently working together to
prepare a joint Cooperation Agreement to establish general policies and
procedures with regard to overhaul services between the two companies, and a
joint Marketing and Sales Agreement to establish a cooperative global sales and
marketing strategy. Both agreements are subject to approval by the LHT and
Hawker Boards.
Potential Additional Funding from LHT. The Company and LHT are presently in
discussions about the possibility of LHT providing the Company a line of credit.
The terms of such a line of credit, if approved by both LHT and Hawker Boards,
have not yet been determined.
Transactions with Former Shareholders and Directors
Unique Loan. The Company previously had a $2,500,000 long-term loan with
Unique. Three of the principal shareholders of Unique served as directors of the
Company from 1996 through 2000. Interest paid or accrued on this loan during
2000 amounted to $311,228. Following the closing of the Loan Agreement with
LHT, this loan was repaid in full.
Unique Management and Termination Fees. 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 Company's Loan Agreement with LHT. 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. Unique also received $14,359 in 2000 for reimbursed expenses
related to services performed for the Company by Unique and its principals.
Letter of Credit. In June 1999, Melanie L. Bastian, a former principal
shareholder of the Company, established a $2,500,000 letter of credit which
secured the Company's obligations on a certain debt instrument with Heller
Financial Inc. Ms. Bastian was released from this obligation upon the payment by
the Company of all outstanding Heller obligations.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: April 30, 2001 HAWKER PACIFIC AEROSPACE
By: /s/ Philip M. Panzera
--------------------------------------------
Philip M. Panzera, Executive Vice President
13