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EXHIBIT 7
February 6, 2001
Xx. Xxxxx Xxxxxxx
Chief Financial Officer
Lufthansa Technik AG
Weg beim Jager 193
D-22334 Hamburg Germany
Re: Exchange of Promissory Note of Hawker Pacific Aerospace
Dear Xx. Xxxxxxx:
The purpose of this letter agreement (this "Agreement") is to confirm
the agreement of Hawker Pacific Aerospace ("Hawker") and Lufthansa Technik AG
("LHT") as follows:
1. Defined Terms. Capitalized terms used herein but not defined
herein shall have the meanings ascribed to them in that certain Loan Agreement
by and between Xxxxxx and LHT dated as of September 20, 2000 (the "Loan
Agreement").
2. Exchange of Promissory Note.
(a) At the Closing (as defined below) LHT shall exchange (i) the
$9,300,000 in principal and (ii) the accrued interest as of the Closing
(to be $443,300.00), under the Promissory Note issued by Xxxxxx and
owned by LHT dated September 20, 2000 (the "Note").
(b) In exchange for the tendered Note, Hawker will issue to LHT
a number (rounded to the nearest whole number) of shares of Hawker's
common stock ("Common Stock") equal to (i) the sum of the principal plus
accrued interest through the Closing under the Note divided by (ii) the
Market Price. "Market Price" means $3.125, which is the average of the
last bid prices of a share of the Common Stock on the NASDAQ Stock
Market for each of the five (5) trading days preceding and including the
trading day prior to the date hereof.
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3. Representations of Hawker. Hawker hereby represents and warrants
to LHT as follows:
(a) Xxxxxx has the corporate power and authority to execute,
deliver and perform this Agreement and to issue, sell and deliver the
shares of Common Stock hereunder. The issuance and delivery of the
shares of Common Stock hereunder and the execution, delivery and
performance of this Agreement by Xxxxxx have been, or as of the Closing
will have been, duly authorized by all necessary corporate action of
Xxxxxx.
(b) The shares of Common Stock to be issued hereunder have
been duly authorized and, when issued in accordance with this Agreement,
will be (i) validly issued, (ii) fully paid and nonassessable, (iii)
exempt from registration under the Securities Act of 1933 and applicable
state securities laws and (iv) free and clear of all liens or
encumbrances imposed by or through Hawker. Since September 20, 2000,
Xxxxxx has not sold or offered to sell any shares of Common Stock except
shares of Common Stock issued to LHT upon conversion of the Hawker
Series C Preferred Stock. Xxxxxx has issued and outstanding as of
February 6, 2001, 7,232,622 shares of Common Stock representing all of
the issued and outstanding capital stock of Hawker on a fully diluted
basis.
(c) This Agreement has been duly executed and delivered by
Xxxxxx and constitutes the legal, valid and binding obligation of
Hawker, enforceable in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, moratorium and other laws of
general application affecting the enforcement of creditors' rights and
by the exercise of judicial discretion and the application of principles
of equity.
(d) The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, the
compliance with any of the provisions hereof, will not: (i) conflict
with, or result in a breach or violation of the Organizational Documents
of Hawker; (ii) (A) conflict with, or result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both)
a default (or give rise to any right of termination, cancellation,
vesting, payment, exercise, acceleration, suspension, revocation or
modification) under, any of the terms, conditions or provisions of any
note, credit agreement, bond, mortgage, deed of trust, security
instrument, indenture, lease, License, Contract, plan or other
instrument or obligation to which Hawker is a party or by which Hawker
or any of its properties or assets may be bound or affected ("Third
Party Obligation"), (B) result in the creation or imposition of any Lien
on any of the assets or properties of Hawker or (C) except as such
filing with NASDAQ as will be made prior to Closing, require any filing
or notification to any third party or Governmental Entity or consent or
approval under any Third Party Obligation or from any Governmental
Entity; or (iii) violate any Order or Applicable Law applicable to
Hawker or any of its properties or assets.
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(e) Except as set forth on Schedule 3(e), the
representations and warranties made by Hawker in Sections 4.1
(Organization), 4.2 (Capitalization), 4.5 (Litigation), 4.6 (Financial
Statements), 4.9 (Absence of Undisclosed Liabilities) and 4.16 (Valid
Issuance) of the Loan Agreement are true, complete and correct in all
material respects.
(f) No representation or warranty by Hawker in this
Agreement or any schedule hereto, or any certificate furnished or to be
furnished by Hawker in connection with this Agreement, contains or will
contain an untrue statement of material fact, or omits or will omit to
state a material fact necessary to make the statements contained herein
or therein, in light of the circumstances in which they were made, not
misleading.
4. Representations of LHT. LHT hereby represents and warrants to
Hawker as follows:
(a) The execution, delivery and performance of this
Agreement and the exchange of the Note hereunder by LHT have been duly
authorized by all necessary corporate action of LHT.
(b) This Agreement has been duly executed and delivered by
LHT and constitutes the legal, valid and binding obligation of LHT, enforceable
in accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, moratorium and other laws of general application affecting the
enforcement of creditors' rights and by the exercise of judicial discretion and
the application of principles of equity.
(c) LHT is acquiring the shares of Common Stock hereunder
for investment only for its own account, not as nominee or agent, and not with a
view to or for resale or distribution of any part thereof.
(d) LHT is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act of 1933, as amended (the "Securities Act").
(e) LHT understands that the shares of Common Stock acquired
hereunder will be "restricted securities" under the U.S. federal securities laws
inasmuch as they will acquired from Hawker in a transaction not involving a
public offering and that, under such laws and applicable regulations, such
shares may not be resold without registration under the Securities Act, except
in certain limited circumstances. In this connection LHT represents that it is
familiar with Rule 144 under the Securities Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
(f) LHT understands and agrees that the certificates evidencing
the shares of Common Stock shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
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February 6, 2001
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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."
5. Closing. Subject to the terms and conditions of this Agreement,
the closing of the transactions contemplated hereby (the "Closing") will occur
on February 23, 2001 at 10:00 a.m. (the "Closing Date") at the offices of
Xxxxxx, Xxxxxx & Xxxxxxxxx at 0000 X Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000. At
the Closing, Hawker will issue and deliver or cause to be issued and delivered a
certificate registered in the name of LHT representing the shares of Common
Stock and cash payment specified in Section 2(b) against LHT's delivery and
surrender of the Note.
6. Conditions to LHT's Obligation to Close. The obligations of LHT
to tender the Note in exchange for the shares of Common Stock hereunder and to
carry out the terms of this Agreement are subject to the fulfillment on or
before the Closing Date of the following conditions, which may be waived by LHT:
(a) The representations and warranties of Hawker contained
in Section 3 shall be true, complete and correct in all material
respects on and as of Closing Date with the same effect as if made on
and as of the Closing Date.
(b) A National Association of Securities Dealers ("NASD")
listing qualifications panel shall have made a written determination
with respect to Xxxxxx's present proceedings before it that continues
Xxxxxx's present NASD listing and LHT shall have received a copy of such
written determination.
(c) Hawker shall not have received any notice from the NASD
to the effect that the consummation of the transactions contemplated by
this Agreement will not, in and of themselves, be sufficient to cause
Hawker to be in compliance with the net tangible asset requirements of
the NASD Rules.
(d) Xxxxxx shall have filed a notification with the NASD
with respect to the listing of the shares of Common Stock to be issued
to LHT hereunder at least fifteen (15) days prior to the Closing as
required under NASD Rule 4310(c)(17).
(e) The Board of Directors of Hawker shall have approved
this Agreement and the transactions contemplated hereby.
(f) Hawker shall have obtained all regulatory approvals, if
any, required in connection with the transactions contemplated hereby.
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(g) The receipt of such other certificates or documentation
as LHT shall reasonably request in connection with the transactions
contemplated hereby.
7. Conditions to Xxxxxx's Obligation to Close. The obligations of
Hawker to carry out the terms of this Agreement are subject to the fulfillment
on or before the Closing Date of the following condition, which may be waived by
Hawker: LHT shall have obtained all regulatory approvals, if any, required in
connection with the transactions contemplated hereby.
8. Covenants of Hawker. The covenants of Hawker set forth in this
Section 8 are continuations of certain obligations of Hawker set forth in the
Loan Agreement that would not have survived the tender of the Note by LHT
pursuant to the terms of the Loan Agreement and which the parties agree should
continue under this Agreement. From the Closing until the first anniversary of
the Closing, or, for any particular covenant, for such longer period as may be
specified therein, Hawker covenants and agrees with LHT that:
(a) Payments to FUSI. Upon the satisfaction of any amounts
owed to First Union Securities, Inc. ("FUSI"), such sum to be paid from
funds other than the proceeds of the loan made to Hawker pursuant to the
Loan Agreement, Hawker shall deliver to LHT (i) a written
acknowledgement from FUSI of the satisfaction and payment in full of any
fees owed to it pursuant to that certain agreement dated October 1, 1999
by and between Xxxxxx and FUSI (the "FUSI Agreement") and the release in
full of Hawker of any further obligations of Hawker under the FUSI
Agreement or claims FUSI may have against Hawker and (ii) copies of all
written documentation evidencing such payment; provided, however, in
accordance with that certain Indemnification Agreement by and between
the Sellers (as that term is defined in that certain Stock Purchase
Agreement dated September 20, 2000 by and between LHT and the
shareholders listed therein) and Hawker, Hawker shall in no event pay in
excess of $250,000 to FUSI, and any amounts owed FUSI above $250,000
shall be the sole liability of the Sellers. The covenant set forth in
this paragraph (a) shall survive until LHT has received the written
documentation referred to in clauses (i) and (ii) above.
(b) Stock Transactions. Hawker shall not, without prior
notice to and consent of LHT, (i) take any action that would have the
effect of preventing LHT from exercising the Warrant or otherwise
acquiring Common Stock, (ii) issue any Common Stock or other securities
convertible into or exchangeable for Common Stock, (iii) issue any stock
dividend, (iv) subdivide the outstanding Common Stock, (v) propose to
dissolve, liquidate or wind-up voluntarily, (vi) change the number of
authorized or outstanding Common Stock or issue any Common Stock or any
warrants, options, or other rights to subscribe for or to purchase any
Common Stock or securities convertible into or exchangeable or
exercisable for any of its Common Stock, (vii) enter into any capital
reorganization or any reclassification of its Common Stock, (viii) issue
any Common Stock distribution; (ix) issue, sell, distribute or grant any
rights to subscribe or purchase any Common Stock, or any warrants or
options to purchase any Common Stock, except
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February 6, 2001
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for any such option grants made pursuant to the 1997 Stock Option Plan
as approved by Xxxxxx's Board of Directors and that are consistent with
Xxxxxx's past practice as of September 20, 2000 or (x) amend or grant
any waiver to the Rights Agreement to any Person other than LHT or its
Affiliates.
(c) Confidentiality.
(i) Disclosure of Terms. The terms and conditions of
this Agreement (the "Terms"), including its
existence, shall be considered confidential
information and shall not be disclosed by any
party hereto to any third party except in
accordance with the provisions set forth below.
(ii) Press Release. Within sixty (60) days after the
Closing, Hawker may issue a press release, but
only after Xxxxxx receives the prior written
approval of LHT for any such press release or
form of press release, disclosing the
transactions contemplated hereunder.
(iii) Permitted Disclosures. Notwithstanding clause
(i) above, any party may disclose any of the
Terms to its employees, investment bankers,
lenders, accountants and attorneys, in each case
only where such persons or entities are under
appropriate nondisclosure obligations.
(iv) Legally Compelled Disclosure. In the event that
any party is requested or becomes legally
compelled (including without limitation,
pursuant to securities laws and regulations) to
disclose the existence of this Agreement or any
of the Terms in contravention of the provisions
of this Section 8(c), such party (the
"Disclosing Party") shall provide the other
parties (the "Non-Disclosing Party") with prompt
written notice of that fact so that the
appropriate party may seek (with the cooperation
and reasonable efforts of the other parties) a
protective order, confidential treatment or
other appropriate remedy. In such event, the
Disclosing Party shall furnish only that portion
of the information which is legally required or
which has been previously released in a public
filing and shall exercise reasonable efforts to
obtain reliable assurance that confidential
treatment shall be accorded such information to
the extent reasonably requested by any
Non-Disclosing Party. Notwithstanding the
preceding, each party acknowledges that the
other party shall be required to make certain
filings with SEC with respect to this Agreement;
each Disclosing Party shall provide the
Non-Disclosing Party with prior notice of any
such filings, and no such filing shall be made
without
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February 6, 2001
Page 7
the prior written approval of the Non-Disclosing
Party to the applicable disclosures; provided,
however, that the text of this Agreement may be
filed by either party without the prior written
approval of the other party.
(d) Warrant Shares. Hawker shall propose and recommend to
its Board of Directors that at the Annual Meeting (as defined below) its
Board of Directors (i) approve and recommend to Hawker's shareholders
the approval of and (ii) seek the approval of Xxxxxx's shareholders of,
the issuance of the Warrant and the Company's corresponding issuance of
the number of shares of Common Stock represented by the Exercise Amount
(as defined in the Warrant). Hawker shall not take any action or omit to
take any action that would hinder the above described actions by its
Board of Directors or Hawker's shareholders. Hawker shall duly list any
additional shares represented by shares exercised under the Warrant with
NASDAQ. Upon shareholder approval of the 2,500,000 shares of Common
Stock represented by the Exercise Amount, until September 20, 2001,
Hawker shall keep reserved an aggregate of 2,500,000 shares of Common
Stock authorized and unissued, such amount being subject to adjustment
as provided in the Warrant, and Hawker will take all necessary corporate
action to authorize and reserve for issuance all additional shares of
Common Stock or other securities that may be issued pursuant to
adjustment as provided in the Warrant; provided, however, that the
parties agree that no adjustment to the Exercise Amount under the
Warrant shall be required as a result of the exchange of the Note
pursuant to this Agreement. The Warrant shall continue in full force and
effect in accordance with its terms.
(e) Board Seats.
(i) Hawker shall recommend to its Board of Directors
to take such actions as are necessary to effect
the following:
(A) At the written request of LHT, at a
meeting (whether an annual or special meeting)
of Hawker shareholder's, increase the number of
its Board of Directors from seven to nine
directors in accordance with the Charter
Documents;
(B) At the written request of LHT, at a
meeting (whether an annual or special meeting)
of Hawker shareholders, elect and thereafter
continue in office as directors of Hawker
individuals who may be nominated by LHT and LHT
shall have the exclusive right to make two (2)
nominations of directorships for the new board
seats created pursuant to paragraph (A) above
and one director so designated shall sit in
Class I and one director so designated shall sit
in Class II, which shall be initially
established at the next annual meeting Xxxxxx's
shareholders to be held no later than June 30,
2001 (the "Annual Meeting"), and shall sit for a
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February 6, 2001
Page 8
term expiring at second succeeding annual
meeting of Xxxxxx's shareholders held following
such election to the respective class;
(C) At the Annual Meeting, elect and
establish a board which, pursuant to Article IV
of the Articles of Incorporation of Hawker (as
may be amended at the Annual Meeting), shall be
classified into two classes. At the Annual
Meeting, Class I shall be comprised of four
directors and Class II shall be comprised of
three directors. Upon the increase of the board
to nine directors pursuant to paragraph (A)
above, Class I shall be comprised of five
directors and Class II shall be comprised of
four directors. At the Annual Meeting, the
directors of Class I shall be elected to hold
office for a term expiring at the next
succeeding annual meeting of the shareholders
following the Annual Meeting and the directors
of Class II shall be elected to hold office for
a term expiring at the second succeeding annual
meeting of the shareholders following the Annual
Meeting. At each subsequent annual meeting of
Xxxxxx's shareholders, the successors to the
class of directors whose term shall then expire
shall be elected to hold office for a term
expiring at the second succeeding annual meeting
of Xxxxxx's shareholders;
(D) At the Annual Meeting, (1) the three
directors nominated by LHT and elected pursuant
to Section 2.1.1 of the Shareholders Rights and
Voting Agreement shall be elected and serve in
Class II and (2) the remaining directors not
nominated by LHT shall be elected and serve in
Class I. Upon the increase of the board size to
nine pursuant to paragraph (A) above, (1) one of
the directors nominated by LHT pursuant to
paragraph (B) above, shall be elected and serve
in Class I; and the other director so nominated
shall be elected and serve in Class II; and (2)
the remaining directors not nominated by LHT
shall be elected and serve in Class I; and
(E) Within thirty (30) days after the Annual
Meeting, the Board duly elected and constituted
at the Annual Meeting shall ratify the actions
taken by Xxxxxx's Board of Directors since the
1999 annual meeting of Xxxxxx's shareholders.
(ii) Hawker shall use its best efforts to cause (A)
all actions set forth in clause (i) to be taken
on or before June 30, 2001 and (B) such actions
to be proposed to Xxxxxx's shareholders for
their approval, if required, on or before June
30, 2001, unless otherwise specified
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in clause (i).
(iii) If, at the end of the initial term of the
directors elected pursuant to paragraph (B) and
(D) above, LHT beneficially owns (which
ownership shall include shares issuable under
the Warrant) at least 40% of the total issued
and outstanding shares of Common Stock, such
individuals or such other individuals as LHT
designates shall be nominated for a two-year
term and Hawker shall recommend such nomination
to its Board of Directors; provided, however,
that if Xxxxxx fails to make such recommendation
LHT, as a shareholder, may nominate its
designees in accordance with the Organizational
Documents.
(iv) Xxxxxx shall recommend to its Board of Directors
to take such actions as are necessary for the
removal of any director upon the request of the
party or parties designating such director and
for the election to its Board of Directors of a
substitute designated by such party.
(v) Hawker shall recommend that its Board of
Directors take such actions as are necessary or
appropriate to ensure that any vacancy on its
Board of Directors (occurring for any reason) be
filled by the election to its Board of Directors
of a replacement designated by the party or
parties who designated the director whose
failure to continue to serve causes the
applicable vacancy.
(f) Rights Agreement. Xxxxxx shall not recommend to its
Board of Directors that it adopt any amendment to the Rights Agreement,
as amended on August 15, 2000, which would be adverse to LHT.
9. Dividends on Preferred Stock. On December 22, 2000, LHT
exercised its rights under Xxxxxx's Certificate of Determination of Rights,
Preferences, Privileges and Restrictions of 8% Series C Convertible Preferred
Stock (the "Certificate of Determination") to convert all 300 of its shares of
Hawker Series C Convertible Preferred Stock (the "Preferred Stock") into shares
of Common Stock. In conjunction with the conversion, LHT also received partial
accrued dividends on the Preferred Stock. Pursuant to the terms of the
Certificate of Determination, upon shareholder approval, LHT has the right to
receive the remaining accrued dividends on the Preferred Stock in the form of
35,583 shares of Common Stock. On December 22, 2000, LHT requested that Hawker
seek shareholder approval to issue these 35,583 shares of Common Stock. Pursuant
to the Certificate of Determination, Hawker must use its best efforts to obtain
such shareholder approval not later than sixty (60) days after such request has
been made and if such shareholder approval is not obtained within such 60-day
period, Hawker shall instead be required to make a cash payment to LHT pursuant
to a formula set forth in the Certificate of Determination. Pursuant to the
Certificate of Determination, if Xxxxxx fails to make such cash
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payment in full, interest on any unpaid amount shall accrue at a rate of 18% per
year beginning as of December 22, 2000. Xxxxxx hereby agrees that it shall seek
the shareholder approval to issue the foregoing 35,583 shares of Common Stock to
LHT at the Annual Meeting. Xxxxxx further agrees that if the Annual Meeting does
not take place during the 60-day period required for such shareholder approval
pursuant to the Certificate of Determination, that LHT shall thereafter, at its
option, have the right to receive either (1) a cash payment, in accordance with
the terms of the Certificate of Determination or (2) in the event their issuance
is approved at the Annual Meeting, the 35,583 shares of Common Stock in accrued
dividends.
10. Termination Date. This Agreement may be terminated by either
party if the Closing shall not have occurred by September 30, 2001; provided,
however, that the right to terminate this Agreement under this Section 10 shall
not be available to either party whose material misrepresentation, inaccuracy,
breach of warranty, default or failure to fulfill any covenant or obligation
under this Agreement has been the cause of, or resulted in, the failure of the
Closing to occur on or before such date. In the event of any termination of this
Agreement pursuant to this Section 10, this Agreement shall be automatically
rescinded and of no further force or effect, and no party hereto (or any of its
affiliates, directors, trustees, executors, officers, agents or representatives)
shall have any liability or obligation hereunder. The provisions of Section 8 of
this Agreement (Covenants of Hawker) shall survive any termination of this
Agreement pursuant to this Section 10.
11. Entire Agreement. This Agreement represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior oral and written and all
contemporaneous oral negotiations, commitments and understandings between such
parties. The parties may amend or modify this Agreement, in such manner as may
be agreed upon, only by a written instrument executed by the parties hereto.
12. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
13. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
14. Expenses. Each party shall be responsible for its own fees,
costs and expenses incurred in connection with the negotiation of this
Agreement, including but not limited to, any attorneys' fees.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
[Execution Page to Follow]
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Please confirm your agreement by signing in the space indicated below.
Hawker Pacific Aerospace
By: _________________________
Name:
Title:
Accepted and Agreed as of February ____, 2001
Lufthansa Technik AG
By: _____________________________
Name: Xx. Xxxxx Xxxxxxx
Title:
By: _____________________________
Name: Xxxxx Xxxxxxx
Title:
Signature Page to the Letter from Hawker
Pacific Aerospace to Lufthansa Technik re:
Exchange of Promissory Note of Hawker
Pacific Aerospace
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Schedule 3(e)
Hawker Pacific Aerospace Representations
4.2 Capitalization.
A Shareholder Rights and Voting Agreement was entered into between LHT,
Hawker Pacific Aerospace and certain management shareholders on
September 20, 2000.
The Company may be obligated, upon shareholder approval, to issue a
stock dividend of 35,583 shares of common stock to LHT in accordance
with the Certificate of Determination for the Series C preferred stock.
A complete list of all outstanding shareholders, option holders and
other security holders of the Company with 5% or more ownership interest
is as follows:
Lufthansa Technik AG
Royce & Associates, Inc.
Dimensional Fund Advisors, Inc.
Xxxxxx Xxxxxx is no longer a director of the Company, and Xxxxxx Xxxxx
is no longer an officer of the Company.
4.5 Litigation
First Union Securities Inc. commenced an arbitration against the Company
on October 18, 2000, with regard to collecting a transaction fee related
to the LHT purchase of Company stock.
