<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from December 1996, to September 1997
COMMISSION FILE NUMBER: 0-28774
WILLIS LEASE FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0070656
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
180 HARBOR DRIVE, SUITE 200, SAUSALITO, CA 94965
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 331-5281
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
TITLE OF EACH CLASS OUTSTANDING AT NOVEMBER 5, 1997
------------------- -------------------------------
Common Stock, No Par Value 5,452,320
<PAGE> 2
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION Page No.
-------
<S> <C> <C>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
As of September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income
Three months and nine months ended September 30, 1997 and 1996 4
Consolidated Statements of Shareholders' Equity
Year ended December 31, 1996 and nine months ended September 30, 1997 5
Consolidated Statements of Cash Flows
Nine months ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
PART 2. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
</TABLE>
2
<PAGE> 3
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 6,603,045 $ 6,573,241
Deposits 14,220,403 13,600,204
Equipment held for operating lease, less accumulated
depreciation of $17,154,618 at September 30, 1997
and $16,372,418 at December 31, 1996 125,924,782 96,092,429
Net investment in direct finance lease 9,961,033 --
Property, equipment and furnishings, less accumulated
depreciation of $240,275 at September 30, 1997
and $160,407 at December 31, 1996 507,638 458,780
Spare parts inventory 9,569,416 4,057,648
Maintenance billings receivable 1,078,400 1,107,283
Operating lease rentals receivable 108,712 405,601
Receivables from spare parts sales 3,342,133 854,566
Other receivables 82,304 829,522
Other assets 1,620,590 953,419
------------ ------------
Total assets $173,018,456 $124,932,693
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 2,144,727 $ 2,753,641
Salaries and commissions payable 909,982 538,658
Deferred income taxes 8,980,369 5,949,676
Deferred gain 189,902 209,774
Notes payable and accrued interest 105,224,643 73,185,657
Capital lease obligation 2,837,703 2,960,457
Residual share payable 1,797,404 1,199,279
Maintenance deposits 17,925,155 11,680,525
Security deposits 2,480,392 1,978,505
Unearned lease revenue 1,364,679 1,274,269
------------ ------------
Total liabilities $143,854,956 $101,730,441
Shareholders' equity:
Common stock, no par value. Authorized 20,000,000
shares; 5,452,320 and 5,426,793 issued and
outstanding at September 30, 1997
and December 31, 1996, respectively 16,276,933 16,055,689
Retained earnings 12,886,567 7,146,563
------------ ------------
Total shareholders' equity 29,163,500 23,202,252
------------ ------------
Total liabilities and shareholders' equity $173,018,456 $124,932,693
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements
3
<PAGE> 4
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Operating lease revenue $ 4,937,206 $ 3,544,111 $ 13,481,032 $ 10,379,013
Finance lease revenue 222,763 -- 222,763 --
Gain on sale of leased equipment 936,069 -- 1,333,448 --
Spare part sales 5,581,648 868,768 11,459,311 3,303,123
Sale of equipment acquired for resale 2,600,000 2,781,015 12,747,840 9,605,315
Interest and other income 90,821 149,887 543,660 196,702
------------ ------------ ------------ ------------
Total revenue $ 14,368,507 $ 7,343,781 $ 39,788,054 $ 23,484,153
EXPENSES
Interest expense 2,068,997 1,100,640 5,225,603 3,371,351
Depreciation expense 1,140,692 734,660 2,995,121 2,512,585
Residual share 226,659 161,813 598,125 535,795
Cost of spare part sales 4,044,196 217,649 7,751,179 1,603,609
Cost of equipment acquired for resale 2,033,687 3,017,625 10,671,668 8,551,229
General and administrative 2,434,013 1,332,830 6,358,000 3,434,216
------------ ------------ ------------ ------------
Total expenses 11,948,244 $ 6,565,217 33,599,696 $ 20,008,785
Income before income taxes, minority
interest and extraordinary item 2,420,263 778,564 6,188,358 3,475,368
Income taxes (969,327) (300,404) (2,456,283) (1,394,943)
------------ ------------ ------------ ------------
Income before minority interest and extraordinary item 1,450,936 478,160 3,732,075 2,080,425
Less: minority interest in net income of subsidiary -- (44,601) -- (79,053)
------------ ------------ ------------ ------------
Income before extraordinary item 1,450,936 433,559 3,732,075 2,001,372
Extraordinary item less applicable income taxes -- -- 2,007,929 --
------------ ------------ ------------ ------------
Net Income $ 1,450,936 $ 433,559 $ 5,740,004 $ 2,001,372
============ ============ ============ ============
Earnings per common share:
Income before extraordinary item 0.25 0.13 0.65 0.62
Extraordinary item -- -- 0.36 --
------------ ------------ ------------ ------------
Net Income 0.25 0.13 1.01 0.62
============ ============ ============ ============
Weighted average number of shares outstanding 5,741,448 3,425,287 5,708,569 3,215,148
============ ============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements
4
<PAGE> 5
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Issued and
outstanding Advances Total
shares of Common Retained to shareholders'
common stock stock earnings shareholders equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 1,500 $ 500 $ 5,293,566 $ (481,789) $ 4,812,277
Common stock issued and
proceeds from IPO, net 5,425,293 16,055,189 -- -- 16,055,189
Repayments to shareholders, net -- -- -- 481,789 481,789
Dividends -- -- (951,475) -- (951,475)
Net income -- -- 2,804,472 -- 2,804,472
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 5,426,793 16,055,689 7,146,563 -- 23,202,252
Shares issued 25,527 221,244 -- -- 221,244
Net income -- -- 5,740,004 -- 5,740,004
------------ ------------ ------------ ------------ ------------
Balances at September 30, 1997 (unaudited) 5,452,320 $ 16,276,933 $ 12,886,567 -- $ 29,163,500
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements
5
<PAGE> 6
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,740,004 $ 2,001,372
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of equipment held for lease 2,905,016 2,460,703
Depreciation of property, equipment and furnishings 90,105 51,882
(Gain) loss on sale of property, equipment and furnishings (45,122) 5,700
Gain on sale of leased equipment (1,333,448) --
Increase in residual share payable 598,125 535,795
Minority interest in net income of subsidiary -- (84,774)
Changes in assets and liabilities:
(Increase) decrease in deposits (620,199) 246,955
Increase in spare parts inventory (5,511,768) (681,650)
Increase in receivables (1,414,577) (771,175)
Increase in other assets (667,171) (1,281,508)
(Decrease) increase in accounts payable and accrued expenses (608,914) 5,198,453
Increase in salaries and commission payable 371,324 163,544
Increase in deferred income taxes 3,030,693 1,387,088
Decrease in deferred gain (19,872) --
(Decrease) increase in accrued interest (364,270) 25,045
Increase in maintenance deposits 6,244,630 952,088
Increase in security deposits 501,887 619,188
Increase (decrease) in unearned lease revenue 90,410 (95,785)
------------- -------------
Net cash provided by operating activities 8,986,853 10,732,921
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment held for operating lease (net of selling 12,083,807 997,350
expenses)
Proceeds from sale of property, equipment and furnishings 80,500 28,200
Purchase of equipment held for operating lease (43,487,728) (4,121,670)
Purchase of property, equipment and furnishings (174,341) (236,558)
Investment in direct finance lease (10,095,000) --
Principal payments received on direct finance lease 133,967 --
------------- -------------
Net cash used in investing activities (41,458,795) (3,332,678)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments from shareholder, net -- 476,204
Proceeds from issuance of notes payable 104,038,706 2,484,467
Proceeds from issuance of common stock 221,244 13,949,759
Principal payments on notes payable (71,635,450) (9,945,597)
Cash dividends paid on common stock -- (500,000)
Principal payments on capital lease obligation (122,754) --
------------- -------------
Net cash provided by financing activities 32,501,746 6,464,833
Increase in cash and cash equivalents 29,804 13,865,076
Cash and cash equivalents at beginning of period 6,573,241 815,649
------------- -------------
$ 6,603,045 $ 14,680,725
Cash and cash equivalents at end of period ============= =============
</TABLE>
See accompanying notes to the consolidated financial statements
6
<PAGE> 7
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation
Consolidated Financial Statements
The accompanying unaudited consolidated financial statements of Willis Lease
Finance Corporation and its subsidiaries (the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
for reporting on Form 10-Q. Pursuant to such rules and regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The accompanying unaudited interim financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto, together with Management's Discussion and Analysis of
Financial Condition and Results of Operations, contained in the Company's Annual
Report to Shareholders incorporated by reference in the Company's Annual Report
on Form 10-KA for the fiscal year ended December 31, 1996.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal and recurring
adjustments) necessary to present fairly the financial position of the Company
as of September 30, 1997, and December 31, 1996, and the results of its
operations for the three month and nine month periods ended September 30, 1997
and 1996 and its cash flows for the nine month periods ended September 30, 1997
and 1996. The results of operations and cash flows for the nine month period
ended September 30, 1997, are not necessarily indicative of the results of
operations or cash flows which may be reported for the remainder of 1997.
2. Management Estimates
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
During the quarter ended September 30, 1997, the Company recorded an allowance
for estimated returns of spare parts based on recent experience. Such returns
occur in the ordinary course of the Company's business.
3. Shares Issued
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted by
the Board of Directors on June 21, 1996. The Purchase Plan is designed to allow
eligible employees of the Company and participating subsidiaries to purchase
shares of Common Stock, at semi-annual intervals, through their periodic payroll
deduction under the Purchase Plan. The purchase price is the lesser of 85% of
the market price of the Common Stock at the beginning of each purchase interval
or 85% of the market price of the Common Stock at the end of each purchase
interval. A reserve of 75,000 shares of Common Stock has been established for
this purpose. During the nine month period ended September 30, 1997, the Company
issued 10,527 shares of Common Stock as a result of employee stock purchases
under the Purchase Plan.
Under the 1996 Stock Option/Stock Issuance Plan, 525,000 shares of the Company's
Common Stock were set aside to provide eligible persons with the opportunity to
acquire a proprietary interest in the Company. During the nine month period
ended September 30, 1997, 15,000 stock options were exercised in connection with
this agreement.
4. Financing
In February 1997, the Company obtained a new loan agreement for $41.5 million to
replace an existing loan of $44.2 million. The transaction resulted in an
extraordinary gain of $2 million or $0.36 per weighted average share, net of
tax. The new facility bears interest at LIBOR plus 2.5% and matures in February
1998. At that time, the Company has the option to extend the facility for an
additional six years.
In June 1997, the Company obtained a $15 million revolving credit facility to
finance the acquisition of engines and high-value spare parts for sale or lease.
In July 1997, the Company increased this facility to $30 million. This facility,
which expires on June 12, 1998, bears interest at prime plus 50 basis points and
may be renewed annually.
7
<PAGE> 8
5. Subsequent event
On October 5, 1997, Western Pacific Airlines, Inc., a domestic lessee of three
engines with a combined net book value of $8.7 million filed a petition under
Chapter 11 of the Bankruptcy Code in the District of Colorado. Western Pacific
has 60 days from October 5, 1997, to agree to perform its obligations and to
cure any defaults under its leases with the Company. If Western Pacific does not
cure its defaults, the Company intends to repossess its engines. Although the
Company has not received any payments from Western Pacific in October 1997, the
Company has security deposits and prepaid rents totaling $284,500 relating to
these engines. At this time, the Company does not anticipate that the bankruptcy
will have a material adverse effect on the Company's financial position or
results of operations.
6. Earnings Per Share
For the purposes of calculating earnings per share, weighted average shares
outstanding includes the effect, if any, of outstanding options and warrants.
7. Commitments
In June 1997, the Company committed to purchase nine aircraft engines. The
Company is obligated to purchase these engines by December 31, 1997. The
agreement provides that, to the extent that a purchased engine will be
overhauled by the seller, the payment of both the purchase price and the cost of
the overhauled engine will be deferred until the engine is overhauled and
delivered to the Company. It is not known at this time how many engines will be
overhauled. As of September 30, 1997, three of the nine engines subject to this
agreement have been purchased.
The Company has entered into commitments for the purchase of an aircraft for
disassembly by WASI, the purchase of two engines for the lease portfolio and the
purchase of three commuter aircraft with three spare engines for the lease
portfolio. The aggregate purchase price for these assets is $19.9 million and as
of September 30, 1997, deposits of $310,000 have been made in connection with
these purchases. The Company has arranged financing for one engine and is in the
process of arranging financing for the other purchases.
8. New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share" which requires the Company to replace its presentation of
primary earnings per share with a presentation of basic earnings per share and
requires dual presentation of basic and diluted earnings per share on the face
of the income statement. The principal difference between primary earnings per
share under current accounting standards and basic earnings per share under the
new statement is that basic earnings per share does not consider common stock
equivalents such as stock options and warrants. Diluted earnings per share under
the new Statement will include potential dilution of convertible securities,
stock options and warrants. The Statement is effective for the Company's third
quarter of 1997 and requires restatement of all prior periods presented under
the new Statement. Basic earnings per share under the new Statement would have
been $.27 and $.13 for the three months ended September 30, 1997 and 1996, and
$1.05 and $.62 for the nine months ended September 30, 1997 and 1996. Diluted
earnings per share under the new Statement would have been $.26 and $.13 for the
three months ended September 30, 1997 and 1996, and $1.03 and $.62 for the nine
months ended September 30, 1997 and 1996.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company is engaged in the business of providing operating leases of
commercial jet aircraft engines and aircraft equipment and selling aircraft
engines and parts to air carriers and overhaul/repair facilities worldwide. The
Company's core business is acquiring and leasing commercial aircraft spare
engines and other aircraft equipment, primarily pursuant to operating leases. As
a significant corollary to its core business, the Company, through its
wholly-owned subsidiary Willis Aeronautical Services, Inc., ("WASI"),
specializes in the purchase and resale of aftermarket airframe and engine parts,
engines, modules and rotable components. The Company also engages in the
selective purchase and resale of commercial aircraft engines
Summary of Financial Results for the Quarter Ended September 30, 1997. Total
revenues for the quarter ending September 30, 1997, were $14.4 million, compared
to $7.3 million in the corresponding quarter of 1996. This increase resulted
from increased revenue due to a higher asset base and significantly higher spare
parts sales, offset by a slight decrease in sale of equipment acquired for
resale. Net income for the quarter ending September 30, 1997, was $1.5 million,
compared to $434,000 in the corresponding quarter of 1996.
9
<PAGE> 10
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
Revenue is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1997 1996
--------------------- ---------------------
Amount % Amount %
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Leasing activities 5,160 35.9% 3,544 48.3%
Gain on sale of leased equipment 936 6.5% -- --
Spare parts sales 5,582 38.8% 869 11.8%
Sale of equipment acquired for resale 2,600 18.1% 2,781 37.9%
Interest and other income 91 0.7% 150 2.0%
-------- -------- -------- --------
Total 14,369 100.0% 7,344 100.0%
======== ======== ======== ========
</TABLE>
Gross Profit (net of cost of sales, allowance for sales returns, depreciation
and interest expense as applicable) before general and administrative expenses
and income taxes is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1997 1996
--------------------- ----------------------
Amount % Amount %
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Leasing activities 1,834 37.5% 1,596 75.0%
Gain on sale of leased equipment 936 19.2% -- --
Spare parts sales 1,457 29.8% 620 29.1%
Sale of equipment acquired for resale 566 11.6% (237) (11.1%)
Interest and other income 91 1.9% 150 7.0%
-------- -------- -------- --------
Total 4,884 100.0% 2,129 100.0%
======== ======== ======== ========
</TABLE>
Lease Portfolio. During the quarter ended September 30, 1997, eight engines were
added to the Company's lease portfolio at a total cost of $24.4 million and
three engines were sold.
Leasing Activities. Operating lease revenue for the three months ended September
30, 1997, increased 39% to $4.9 million from $3.5 million for the comparable
period in 1996. This increase reflects operating lease revenues from fourteen
additional engines and five spare parts packages acquired after September 30,
1996. In late June 1997, the Company entered into two finance leases. Finance
lease income generated from these transactions totaled $223,000 for the quarter
ended September 30, 1997. There were no comparable transactions as of September
30, 1996.
Expenses directly related to operating lease activity increased 71% to $3.3
million for the three months ended September 30, 1997, from the comparable
period in 1996. Interest expense increased 86% to $2.0 million for the three
months ended September 30, from the comparable period in 1996, due primarily to
an increased loan base and the replacement of the existing facility with a new
loan agreement in the first quarter of 1997 bearing a higher interest rate.
Residual sharing expenses increased 40% to $227,000 from the comparable period
in 1996. This expense is calculated by comparing the net book value of the
engines subject to such agreements to their related debt balances and adjusting
the residual share payable up or down to the appropriate amount representing the
sharing percentage of any excess of the net book value over the corresponding
debt balance for the five engines subject to residual sharing. Depreciation
expense increased 55% to $1.1 million for the three months ended September 30,
1997, from the comparable period in 1996, due to the larger asset base.
10
<PAGE> 11
Gain on Sale of Leased Engines. During the quarter ended September 30, 1997, the
Company sold two engines from the lease portfolio. These engines had a net book
value of $4.4 million and they were sold for a gain of $936,000. Maintenance
deposits collected on one of these engines were not required to be refunded to
the lessee or remitted to the seller and are included in the gain. There were no
sales of leased engines for the quarter ended September 30, 1996.
Spare Parts Sales. Revenues from spare parts sales increased 542% from $869,000
to $5.6 million compared to the three months ended September 30, 1996, due
primarily to the acquisition of three engines in the second and third quarters
of 1997 and the subsequent sale of parts from these engines. The gross profit,
before interest expense, decreased to 28% from 75% in the corresponding period
in 1996. The Company does not believe that the relatively high margin in 1996 is
indicative of future results.
Sale of Equipment Acquired for Resale. During the three months ended September
30, 1997, the Company sold one engine for $1.9 million which resulted in a gain
of $500,000, plus four engines acquired at a cost of $600,000 and sold for a
gain of $100,000. During the three months ended September 30, 1996, the Company
sold two engines for $2.8 million, resulting in a loss of $200,000 due to higher
than expected overhaul costs on the engines.
Interest and Other Income. Interest and other income decreased to $91,000 from
$150,000 for the three months ended September 30, 1996. This is a result of less
cash on deposit earning interest.
General and Administrative Expenses. General and administrative expenses
increased 83% to $2.4 million for the three months ended September 30, 1997,
from $1.3 million in the comparable period in 1996. This increase reflects
expenses associated with staff additions, increased rent due to the expansion of
the WASI facility, as well as an increase in professional fees, insurance
expense and public company costs incurred by the Company in 1997. As of
September 30, 1997, the Company has 40 full-time and 4 part-time employees,
compared to 1 part-time and 24 full-time employees as of September 30, 1996.
Income Taxes. Income taxes for the three months ended September 30, 1997,
increased to $970,000 from $300,000 in the comparable period in 1996. This
increase reflects an increase in the Company's pre-tax earnings.
11
<PAGE> 12
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenue is summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
--------------------- ---------------------
Amount % Amount %
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Leasing activities 13,704 34.4% 10,379 44.2%
Gain on sale of leased equipment 1,333 3.4% -- --
Spare parts sales 11,459 28.8% 3,303 14.1%
Sale of equipment acquired for resale 12,748 32.0% 9,605 40.9%
Interest and other income 544 1.4% 197 0.8%
-------- -------- -------- --------
Total 39,788 100.0% 23,484 100.0%
======== ======== ======== ========
</TABLE>
Gross Profit (net of cost of sales, allowance for sales returns, depreciation
and interest expense as applicable) before general and administrative expenses
and income taxes is summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
--------------------- ---------------------
Amount % Amount %
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Leasing activities 5,113 40.5% 4,103 59.0%
Gain on sale of leased equipment 1,333 10.5% -- --
Spare parts sales 3,570 28.3% 1,608 23.1%
Sale of equipment acquired for resale 2,076 16.4% 1,054 15.1%
Interest and other income 544 4.3% 197 2.8%
-------- -------- -------- --------
Total 12,636 100.0% 6,962 100.0%
======== ======== ======== ========
</TABLE>
12
<PAGE> 13
Lease Portfolio. During the first nine months of 1997, sixteen engines and five
spare parts packages were added to the Company's lease portfolio at a total cost
of $52.8 million. Five engines were sold from the portfolio.
Leasing Activities. Operating lease revenue for the nine months ended September
30, 1997, increased 30% to $13.5 million from $10.4 million from the comparable
period in 1996. This increase reflects lease revenues from additional engines
and spare parts packages acquired after September 30, 1996. In late June 1997,
the Company entered into two finance leases. Finance lease income generated from
these transactions totaled $223,000 for the nine months ended September 30,
1997. There were no comparable transactions as of September 30, 1996.
Expenses directly related to operating lease activity increased 37% to $8.6
million. Interest expense increased 55% to $5.0 million for the nine months
ended September 30, 1997, from the comparable period in 1996, due primarily to
an increased loan base and the replacement of the existing facility with a new
loan agreement in the first quarter of 1997 bearing a higher interest rate.
Depreciation expense increased 18% to $2.9 million for the nine months ended
September 30, 1997, from the comparable period in 1996, due to the larger asset
base in 1997. Residual sharing expense increased 12% to $598,000 for the nine
months ended September 30, 1997, from the comparable period in 1996, due to the
larger asset base in 1997. This expense is calculated by comparing the net book
value of the engines subject to such agreements to their related debt balances
and adjusting the residual share payable up or down to the appropriate amount
representing the sharing percentage of any excess of the net book value over the
corresponding debt balance for the five engines subject to residual sharing.
Gain on Sale of Leased Engines. During the nine months ended September 30, 1997,
the Company sold three engines from the lease portfolio. These engines had a net
book value of $6.1 million and they were sold for a gain of $1.3 million. There
were no sales of leased engines for the nine months ended September 30, 1996.
Spare Parts Sales. Revenues from spare parts sales increased 247% to $11.5
million. The gross margin decreased to 32% in 1997 from 51% in the
corresponding period in 1996. The Company does not believe that the relatively
high margin in 1996 is indicative of future results.
Sale of Equipment Acquired for Resale. During the nine months ended September
30, 1997, the Company sold 10 engines for $12.7 million which resulted in a gain
of $2.1 million, compared to the nine months ended September 30, 1996, during
which the Company sold five engines for $9.6 million resulting in a gain of $1.1
million. Included in the 1997 sales was one transaction involving the sale of
four engines acquired at a cost of $600,000 and sold for a gain of $100,000.
Interest and Other Income. Interest and other income for the nine months ended
September 30, 1997, increased to $544,000 from $197,000 for the nine months
ended September 30, 1996. This is a result of interest earned on deposits held,
primarily the proceeds from the Company's initial public offering.
General and Administrative Expenses. General and administrative expenses
increased 85% to $6.4 million for the nine months ended September 30, 1997, from
the comparable period in 1996. This increase reflects expenses associated with
staff additions, increased rent due to the expansion of the WASI facility, as
well as an increase in professional fees, insurance expense and public company
costs.
Income Taxes. Income taxes for the nine months ended September 30, 1997,
increased to $2.5 million from $1.4 million for the comparable period in 1996.
This increase reflects an increase in the Company's pre-tax earnings.
Extraordinary Item. In February 1997, the Company obtained a new loan agreement
for $41.5 million to replace the existing note of $44.2 million. The transaction
resulted in an extraordinary gain of $2 million, net of tax, or $.36 per
weighted average share.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
In September 1997, the Company financed two engines using its $15 million
financial program with Fleet Capital Corporation. The total amount borrowed
was $6.3 million with interest rates varying from 8.9% to 10%.
At September 30, 1997, $66.6 million of the Company's borrowings were on a
variable rate basis, at various interest rates tied to either LIBOR or the Prime
rate. The Company's equipment leases are generally structured at fixed rental
rates for specified terms. To date, these variable rate borrowings have resulted
in lower interest expense for the Company. In September 1996, the Company
purchased an amortizing interest rate cap from an investment grade financial
institution (the "Counter Party") to limit its exposure to increases in interest
rates on a portion of its variable rate borrowings. Pursuant to this cap, the
Counter Party will make payments to the Company, based on the notional amount of
the cap, if the three month LIBOR rate is in excess of 7.66%. As of September
30, 1997, the notional principal amount of the cap was $37.2 million and said
amount will decline to $26 million at the end of its term. The cost of the cap
is being amortized as an expense over a four year period. The Company will be
exposed to credit risk in the event of non-performance by the Counter Party.
Increases in interest rates could narrow or eliminate the spread, or result in
a negative spread, between the rental revenue the Company realizes under its
leases and the debt service that the Company pays under its floating rate
borrowings.
As of September 30, 1997, the Company had four engines and three spare parts
packages which had not been financed. The Company will seek permanent
financing for this equipment, although no assurance can be given that such
financing will be available on favorable terms, if at all. In addition, certain
of the Company's engines have been financed under floating rate facilities.
Until fixed rate financing for these assets is in place, the Company is subject
to interest rate risk if interest rates increase, since the underlying lease
revenue is fixed.
The Company has received a letter of commitment from a financial institution to
provide an $80 million warehouse facility to a special purpose subsidiary of the
Company, for the financing of jet aircraft engines to be transferred by the
Company to such finance subsidiary. The facility will become available
immediately upon completion of definitive agreements. This transaction's
structure is intended to facilitate future public or private securitized note
issuances by the special purpose subsidiary. This facility is expected to have
an eight year term and to bear interest at LIBOR plus 225 basis points. This
facility requires the issuer to hedge 50% of this facility against interest rate
changes.
The Company believes that its current and anticipated credit facilities and
internally generated funds and cash on hand should be sufficient to fund the
Company's anticipated operations for the immediate future. The Company
anticipates that it will also need to raise additional equity capital to
continue its growth.
The Company's ability to successfully execute its business strategy is
dependent in part on its ability to raise equity capital and to obtain debt
capital. There can be no assurance that the necessary amount of such equity or
debt capital will continue to be available to the Company on favorable terms, or
at all. If the Company were unable to obtain any portion of required financing
on favorable terms, the Company's ability to add new engines and parts packages
to its portfolio or to conduct profitable operations with its existing asset
base would be impaired, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
In June 1997, the Company committed to purchase nine aircraft engines. The
Company is obligated to purchase these engines by December 31, 1997. The
agreement provides that, to the extent that a purchased engine will be
overhauled by the seller, the payment of both the purchase price and the cost of
the overhauled engine will be deferred until the engine is overhauled and
delivered to the Company. It is not known at this time how many engines will be
overhauled. As of September 30, 1997, three of the nine engines subject to this
agreement have been purchased.
The Company has entered into commitments for the purchase of an aircraft for
disassembly by WASI, the purchase of two engines for the lease portfolio and the
purchase of three commuter aircraft with three spare engines for the lease
portfolio. The aggregate purchase price for these assets is $19.9 million and as
of September 30, 1997, deposits of $310,000 have been made in connection with
these purchases. The Company has arranged financing for one engine and is in the
process of arranging financing for the other purchases.
14
<PAGE> 15
FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to other information in this Report, the following risk factors
should be considered carefully by potential purchasers in evaluating an
investment in the Common Stock of the Company. Except for historical information
contained herein, the discussion in this Report contains forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The cautionary
statements made in this Report should be read as being applicable to all related
forward-looking statements wherever they appear in this Report. The Company's
actual results could differ materially from those discussed here. Factors that
could cause or contribute to such differences include those discussed below, as
well as those discussed elsewhere herein and in the Company's report on Form
10-KA for the year ended December 31, 1996.
The Company leases its portfolio of aircraft equipment and spare parts packages
(collectively "Aircraft Equipment") primarily under operating leases. Operating
leases require the Company to re-lease or sell Aircraft Equipment in its
portfolio in a timely manner upon termination of the lease in order to minimize
off-lease time and recover its original investment in the Aircraft Equipment.
Numerous factors, many of which are beyond the control of the Company, may have
an impact on the Company's ability to re-lease or sell Aircraft Equipment on a
timely basis. Among the factors are general market conditions, regulatory
changes (particularly those imposing environmental, maintenance and other
requirements on the operation of aircraft engines), changes in the supply or
cost of the Aircraft Equipment and technological developments. Further, the
value of a particular used aircraft engine varies greatly depending upon its
condition, the number of hours remaining until the next major maintenance of the
aircraft engine is required and general conditions in the airline industry. In
addition, the success of an operating lease depends in part upon having the
Aircraft Equipment returned by the lessee in marketable condition as required by
the lease. Consequently, there can be no assurance that the Company's estimated
residual value for the Aircraft Equipment would be realized. If the Company is
unable to re-lease or sell the Aircraft Equipment on favorable terms, its
business, financial condition, cash flow, ability to service debt and results of
operations could be adversely affected.
The Company through WASI, also acquires aviation equipment such as whole engines
or airframes which can dismantled and sold as parts. Before parts may be
installed in an aircraft, they must meet certain standards of condition
established by the Federal Aviation Administration ("FAA"). Parts must also be
traceable to sources deemed acceptable by the FAA. Parts owned by the Company
may not meet applicable standards or standards may change, causing parts which
are already in the Company's inventory to be scrapped or modified. Engine
manufacturers may also develop new parts to be used in lieu of parts already
contained in the Company's inventory. In all such cases, to the extent the
Company has such parts in its inventory, their value may be reduced. In
addition, if the Company did not sell airframe and engine component parts that
it purchases soon after acquisition, the Company would be subject to all the
risks of ownership described above.
The Company also engages in the selective purchase and resale of commercial
aircraft engines and engine components in the aftermarket. On occasion, the
Company purchases engines or components without having a commitment for their
sale or lease. If the Company purchased an engine or components
without having a firm commitment for their sale or if a firm commitment for sale
were to exist but not be consummated for whatever reason, the Company would be
subject to all the risks of ownership described above.
The Company would be affected by downturns in the air transportation industry in
general. In particular, substantial increases in fuel costs or interest rates,
increasing fare competition, slower growth in air traffic, or any significant
downturn in the general economy could adversely affect the air transportation
industry and may therefore negatively impact the Company's business, financial
condition and results of operations.
A lessee may default in performance of its lease obligations and the Company may
be unable to enforce its remedies under a lease. The Company's inability to
collect receivables under a lease or to repossess Aircraft Equipment in the
event of a default by a lessee could have a material adverse effect on the
Company's business, financial condition or results of operations. In most cases
where a debtor seeks protection under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code"), creditors are automatically stayed from enforcing
their rights. In the case of United States certified airlines, Section 1110 of
the Bankruptcy Code provides certain relief to lessors of the aircraft
equipment. Specifically, the airline has 60 days from the date the airline seeks
protection under Chapter 11 of the Bankruptcy Code to agree to perform its
obligations and to cure any defaults. If it does not do so, the lessor may
repossess the aircraft equipment. The scope of Section 1110 has been the subject
of significant litigation and there can be no assurance that the provisions of
Section 1110 will protect the Company's investment in an aircraft engine in the
event of a lessee's bankruptcy. In addition, Section 1110 does not apply to
lessees located outside of the United States and applicable foreign laws may not
provide comparable protection.
15
<PAGE> 16
The Company has experienced fluctuations in its quarterly results and
anticipates that these fluctuations may continue. Such fluctuations may be due
to a number of factors, including the timing of acquisitions and sales of
engines and spare parts and engine marketing activities, unanticipated early
lease terminations or default by a lessee. Given the possibility of such
fluctuations, the Company believes that comparisons of the results for preceding
quarters are not necessarily meaningful and that results for any one quarter
should not be relied upon as an indication of future performance. In the event
the Company's revenues or earnings for any quarter are less than the level
expected by securities analysts or the market in general, such shortfall could
have an immediate and significant adverse impact on the market price of the
Company's Common Stock.
In 1996, approximately 61% of the Company's lease revenue was generated by
leases to foreign customers. During the nine months ended September 30, 1997,
approximately 64% of the Company's lease revenue was generated by leases to
foreign customers. Such leases may present greater risks to the Company because
certain foreign laws, regulations and judicial procedures may not be as
protective of lessor rights as those which apply in the United States. In
addition, many foreign countries have currency and exchange laws regulating the
international transfer of currencies. To date, the Company has experienced some
collection problems under certain leases with foreign airlines, and there can be
no assurance that the Company will not experience such collection problems in
the future. The Company may also experience collection problems related to the
enforcement of its lease agreements under foreign local laws and the attendant
remedies in such locales. Consequently, the Company is subject to the timing and
access to courts and the remedies local laws impose in order to collect its
lease payments and recover its assets.
In some circumstances, the Company acquires and leases assets before it has
secured debt financing. There can be no assurance that debt financing will be
available after the asset has been acquired or, if available, at attractive
rates or terms. Factors that could cause debt financing to be more expensive or
unavailable include changes in interest rates, financial conditions of the
lessee or the Company, prospects for the airline industry or the asset type as
well as general economic conditions. If debt financing is not available, a like
amount of the Company's equity capital would be unavailable for use to acquire
additional assets, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company has recently experienced significant growth in revenues. Such growth
has placed, and is expected to continue to place, a significant strain on the
Company's managerial, operational and financial resources. Due to the Company's
rapid pace of growth over the past year, the Company hired three new officers
(an Executive Vice President and Chief Administrative Officer, an Executive Vice
President and Chief Financial Officer and a Senior Vice President and General
Counsel) during the four months prior to September 30, 1997. There can be no
assurance that the Company will be able to effectively manage the expansion of
its operations, or that the Company's systems, procedures or controls will be
adequate to support the Company's operations. An inability to effectively manage
growth could have a material adverse effect on the Company's business, financial
condition and results of operations.
One of the components of the Company's growth strategy is the selected
acquisition of businesses complementary to the Company's existing businesses and
possible expansion into new aviation-related activities. The inability of the
Company to identify suitable acquisition candidates or to complete acquisitions
on reasonable terms could adversely affect the Company's ability to grow. In
addition, any acquisition or expansion made by the Company may result in
potentially dilutive issuances of equity securities, the incurrence of
additional debt and the amortization of expenses related to goodwill and other
intangible assets. The Company also may experience difficulties in the
assimilation of operations, services, products and personnel, an inability to
sustain or improve historical revenue levels, the diversion of management's
attention from ongoing business operations and the potential loss of key
employees. Any of the foregoing could have a material effect on the Company's
financial condition, results of operations and prospects.
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
(a) Exhibits
3.1 Articles of Incorporation. Incorporated by reference to Exhibit
3.1 to Registration Statement No. 333-5126-LA filed on June 21,
1996
3.2 Amended and Restated Articles of Incorporation, filed September
11, 1996, together with Certificate of Amendment of Amended and
Restated Articles of Incorporation filed on September 24, 1996.
3.3 Bylaws. Incorporated by reference to Exhibit 3.3 to Registration
Statement No. 333-5126-LA filed on June 21, 1996.
10.19 Engine Sales Agreement dated, August 14, 1997, together with
related documents, for a $47.022 million purchase from Pratt &
Whitney for nine bare Pratt & Whitney 4056 engines.
10.20 Loan Agreement dated September 8, 1997, together with related
documents, for a $2.025 million loan from Fleet Capital
Corporation relating to the financing of equipment leased to
Delta Air Lines.
10.21 Loan Agreement dated September 17, 1997, together with related
documents, for a $4.277 million loan from Fleet Capital
Corporation relating to the financing of equipment leased to GE
ESI.
11.1 Statement regarding computation of per share earnings.
27.1 Financial Data Schedule
</TABLE>
17
<PAGE> 18
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.
Willis Lease Finance Corporation
Date: November 5, 1997
By: /s/ James D. McBride
----------------------------------------
James D. McBride
Chief Financial Officer
18
<PAGE> 1
EXHIBIT 10.19
PW4056 SERIES ENGINE SALES AGREEMENT
Between
WILLIS LEASE FINANCE CORPORATION
And
UNITED TECHNOLOGIES CORPORATION
PRATT & WHITNEY GROUP
PRATT & WHITNEY EAGLE SERVICES
SERVICEABLE MATERIAL MANAGEMENT ORGANIZATION
August 14, 1997
This document contains matter of a proprietary nature and is delivered upon the
express condition that it is not disclosed or reproduced in whole or in part
without the written consent of United Technologies Corporation. This restriction
does not limit the right to disclose information obtained legally from other
sources in lawful possession of such information.
<PAGE> 2
WILLIS LEASE FINANCE CORPORATION
PW4056 SERIES ENGINE SALES AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ENTIRE AGREEMENT
1.0 DEFINITIONS UNDER THE AGREEMENT: 1
2.0 PURCHASE AND SALE OF ENGINES: 3
3.0 TAXES: 5
4.0 INSPECTION, DELIVERY, TITLE, RISK OF LOSS: 5
5.0 WARRANTIES: 7
6.0 EXCUSABLE DELAY: 8
7.0 DEFAULT, REMEDIES: 8
8.0 INDEMNIFICATION: 9
9.0 LIABILITY LIMITATION: 10
10.0 MISCELLANEOUS: 10
11.0 EXECUTION OF THE AGREEMENT: 14
</TABLE>
EXHIBITS:
EXHIBITS 1-9: ENGINE BILLS OF SALE
EXHIBITS 10-18: ENGINE ACCEPTANCE RECEIPTS
EXHIBITS 19-27: ENGINE INSPECTION ACKNOWLEDGMENT RECEIPTS
<PAGE> 3
PW4056 SERIES ENGINE SALES AGREEMENT
Between
WILLIS LEASE FINANCE CORPORATION
And
UNITED TECHNOLOGIES CORPORATION
PRATT & WHITNEY GROUP
PRATT & WHITNEY EAGLE SERVICES
SERVICEABLE MATERIAL MANAGEMENT ORGANIZATION
THIS AGREEMENT ("the Agreement") is made and entered into by and between WILLIS
LEASE FINANCE CORPORATION, a corporation organized and existing under the laws
of the State of California, having an office and place of business at 180 Harbor
Drive, Suite 200, Sausalito, California 94965 (hereinafter referred to as
"WLFC"), and UNITED TECHNOLOGIES CORPORATION, Pratt & Whitney Group, Pratt &
Whitney Eagle Services, Serviceable Material Management Organization, a
corporation organized and existing under the laws of the State of Delaware,
having an office and place of business in the Town of East Hartford, Connecticut
(hereinafter referred to as "Pratt & Whitney", "PWES" or "PW") is effective as
of the 28th day of August, 1997.
WITNESSETH
WHEREAS, PWES desires to sell nine (9) used, bare PW4056 Pratt & Whitney
aircraft engines without Quick Engine Change Hardware ("QEC") and excluding
engine stands; and
WHEREAS, WLFC desires to purchase from PWES nine (9) used, bare PW4056 Pratt &
Whitney aircraft engines without QEC and excluding engine stands;
NOW THEREFORE: In consideration of the mutual covenants and conditions contained
in this Agreement, WLFC and PWES (individually a "Party" and collectively the
"Parties") the Parties agree as follows:
ARTICLE 1.0 - DEFINITIONS UNDER THE AGREEMENT
In addition to words and terms elsewhere defined in this Agreement, the
following words and terms as used in this Agreement shall have the following
meanings unless some other meaning is apparent from the context in which the
words and terms are used:
Contract Number: 97035A dated August 14, 1997
<PAGE> 4
WLFC PW4056 Series Engine Sales Agreement - Contract No.: 97035A, dated
August 14, 1997 (Continued)
A. BILL OF SALE:
A bill of sale for each Engine substantially in the form of Exhibits 1-9
conveying title to the Engines.
B. DELIVERY:
The following concurrent events performed in accordance with the Delivery
procedure described in Paragraph 4.2: (i) delivery of each Engine by PWES
to WLFC; and (ii) execution and delivery of the Engine Acceptance Receipts
by WLFC for each Engine being received by WLFC.
C. ENGINE:
Any of the used, bare PW4056 Pratt & Whitney aircraft engines (excluding
engine stands) bearing manufacturer's serial numbers 727344, 727346,
727347, 727365, 727379, 727383, 727384, 727385, and 727393 (each one an
"Engine", collectively, the "Engines') in "AS IS, WHERE IS" condition
without QEC and "AS-REMOVED".
D. ENGINE DOCUMENTATION:
All documentation records in the possession of PWES with respect to the
operation and maintenance of the Engines.
E. ENGINE ACCEPTANCE RECEIPT:
Receipt substantially in the form of Exhibits 10-18 to be signed by WLFC
and delivered at the time of delivery of each Engine in accordance with
Paragraph 4.2.
F. ENGINE INSPECTION ACKNOWLEDGMENT RECEIPT:
A receipt substantially in the form of Exhibits 19-27 executed upon WLFC's
completion of inspection of each Engine and the Engine Documentation.
G. EXCUSABLE DELAY:
Any delay in either Party's performance occasioned by causes beyond the
Party's reasonable control and not occasioned by its intentional acts,
fault or negligence, and including acts of God or public enemies, or
industrial or civil disturbances.
Page 2
<PAGE> 5
WLFC PW4056 Series Engine Sales Agreement - Contract No.: 97035A, dated
August 14, 1997 (Continued)
H. PURCHASE PRICE:
Twenty-Four Million, Eight Hundred and Ninety-Four Thousand Dollars
($24,894,000.00) as total consideration for the Engines.
ARTICLE 2.0 - PURCHASE AND SALE OF ENGINES
2.1 Purchase of Engines. PWES agrees to sell to WLFC, and WLFC agrees to
purchase from PWES, the nine (9) Engines, pursuant to the terms and
subject to the conditions of this Agreement.
2.2 Payment of Purchase Price. The Purchase Price for each Engine shall be
payable to PWES on the date of the relevant Engine Delivery as described
in Paragraph 4.3. For any specified Engines that are to be overhauled by
PWES's Cheshire, Connecticut facility, on behalf of WLFC, WLFC shall be
invoiced for the specified Engine purchase price and associated overhaul
costs upon satisfactory completion of the overhaul. All payments to be
made by WLFC pursuant to this Agreement shall be made by wire transfer in
immediately available United States funds, such payments to be deposited
on the dates such payments are due, to the account of PWES at:
Pratt & Whitney
Account Number: 52-23725
First National Bank of Chicago
Routing Number: 071000013
2.3 Transfer of Engine Documentation. Upon the Delivery of each Engine, PWES
shall deliver all Engine Documentation to WLFC. Simultaneous with the
complete payment of the Purchase Price, PWES shall transfer and assign its
interests to WLFC in the Engine Documentation.
2.4 PWES shall provide with each Engine shipped to WLFC the following
information, if available, which shall include all available Engine
Documentation as provided by Air India relating to the Engines:
Page 3
<PAGE> 6
WLFC PW4056 Series Engine Sales Agreement - Contract No.: 97035A, dated
August 14, 1997 (Continued)
Engine Record Data To Be Provided To WLFC
1. Bill of Sale for each Engine.
2. Letter and documentation stating the reason for removal of each
Engine which shall include a Form 8130-3 or JAA Form.
3. Life Limited parts sheet signed by Air India for each Engine.
4. Material Certification form from Air India and/or PW for each
Engine, as applicable.
5. Log sheet defining any work performed by Air India on each Engine.
6. Documentation and verification defining the preservation performed
on each Engine to ensure that the Engine(s) are preserved to Pratt &
Whitney specifications prior to Delivery.
On behalf of WLFC, PWES will put forward reasonable efforts to obtain any
of the above Engine Documentation that WLFC requires from Air India.
Additionally, PWES shall provide copies of the Pratt & Whitney original
build documentation for each Engine.
2.5 PWES will be under no obligation to ship an Engine if there is a previous
invoice outstanding by WLFC to PW which exceeds PW's outstanding invoice
balance to WLFC.
2.6 Within at least fifteen (15) days prior to Delivery notification of any
specified Engine described in this Agreement by WLFC to PW, WLFC and PW
shall mutually agree whether each Engine to be Delivered shall be either
leased or disposed of for its modules and component parts. PW shall be
granted by WLFC the "right of first refusal" to lease each such Engine as
Delivery notification is exercised by WLFC. When a lease is mutually
agreed to by the parties, the Lease Support Agreement by and between WLFC
and PW shall govern. When WLFC determines that a PW engine as described in
this Agreement will no longer be made available for leasing by customers
of WLFC or its affiliates (such PW Engine being referred to as an
unserviceable Engine), WLFC will dispose of such Engine(s), and the
modules, parts and components thereof in accordance with the Engine
Disposition Agreement.
2.7 PW shall provide, at no-charge to WLFC, four (4) PW engine data plates to
allow whatever four (4) engines, as described in this Agreement or
otherwise, that WLFC selects to be operated at a PW4060 thrust rating and
which shall exclude the programming plugs. WLFC shall return
Page 4
<PAGE> 7
WLFC PW4056 Series Engine Sales Agreement - Contract No.: 97035A, dated
August 14, 1997 (Continued)
to PW the specified PW4056 data plates in exchange for PW4060 data plates.
WLFC shall so identify the subject first two (2) Engines by serial number
from the Engines specified in this Agreement at the time of or prior to
the delivery to WLFC to which Engines the data plates shall be assigned.
WLFC shall cause each of the subject first two (2) Engines to be
overhauled and modified by PW at PW's Cheshire, Connecticut facility to
the PW4060 thrust rating. It is contemplated that the third and fourth
engines that WLFC selects at its sole discretion, whether part of this
Agreement or otherwise, may be, but not necessarily, overhauled or
modified by PW's Cheshire Connecticut facility. This data plate
provisioning has an estimated value of Three Hundred and Forty-Seven
Thousand, Eight Hundred Dollars ($347,800.00) per Engine to WLFC.
2.8 PW shall grant WLFC the "right of first refusal" to competitively bid on
the purchase of PW engine serial number 727391, if PW decides to sell said
Engine, and which is not part of this Agreement.
ARTICLE 3.0 - TAXES
3.1 Taxes. (a) The Purchase Price does not include, and WLFC shall be liable
for, all property, sales, use, excise or any other similar taxes and
customs or other duties which are based upon the purchase and sale or any
subsequent use, operation or possession of the Engine (the "Taxes"),
exclusive of taxes on or measured by PWES's income. WLFC shall promptly
remit to PWES or the proper taxing authority and shall indemnify, defend
and hold PWES, its officers, employees and directors, harmless for and
against all such Taxes, interest and penalties assessed, and reasonable
attorneys' fees incurred in connection with the payment or collection of
such Taxes.
(b) The provisions of this Article 3.0 shall survive the completion of
the transactions contemplated by this Agreement and its earlier
cancellation or termination.
ARTICLE 4.0 - INSPECTION, DELIVERY, TITLE, RISK OF LOSS
4.1 Place of Inspection and Delivery. Inspection and Delivery of each Engine
shall occur at PWES's facility in East Hartford, Connecticut in accordance
with Paragraph 4.2.
Page 5
<PAGE> 8
WLFC PW4056 Series Engine Sales Agreement - Contract No.: 97035A, dated
August 14, 1997 (Continued)
4.2 Inspection and Delivery. (a) WLFC shall have a reasonable time to inspect
and inventory each Engine and the Engine Documentation; provided, however,
that such inspections shall be performed no later than ten (10) days prior
to the scheduled Delivery. Upon completion of the relevant Engine
inspection, WLFC shall execute and deliver to PWES the Engine Inspection
Acknowledgment Receipt and the Engine Acceptance Receipt evidencing its
acceptance of the Engine and the Engine Documentation. Upon (i) PWES's
receipt of the duly executed Engine Inspection Acknowledgment Receipt, and
Engine Acceptance Receipt, and (ii) acknowledgment by Pratt & Whitney's
bank that the payment has been received in accordance with Article 2.0
PURCHASE AND SALE OF ENGINES hereof, then PWES shall deliver the Engine to
WLFC with an executed Bill of Sale evidencing WLFC's ownership of the
Engine.
(b) Upon Delivery of the Engine to WLFC, WLFC shall bear full risk of
loss of, or damage to, the Engine. Upon execution by WLFC of the
Engine Inspection Acknowledgment Receipt, WLFC shall be responsible
for any technical discrepancies in the Engine and the Engine
Documentation which it has accepted.
(c) Title to each Engine shall pass to WLFC upon Delivery.
4.3 Delivery Schedule. The Engine Delivery and payment plan schedule for each
Engine shall begin as mutually agreed and further described in the table
below with progressive Engine deliveries monthly after the execution of
this Agreement through December, 1997 or as amended from time to time. All
Engine deliveries, or any combination thereof, and payments shall be
fulfilled by the end of December, 1997.
<TABLE>
<CAPTION>
Date of 1997 Monthly Engine Purchase Price
Engine Deliveries Engine Serial Number (U.S. Dollars)
----------------- -------------------- --------------
<S> <C> <C>
August 31 S/N727379 & 727344 $5,532,000.00
September 30 S/N727347 & 727383 $5,532,000.00
October 31 S/N727384 & 727346 $5,532,000.00
November 30 S/N727385 & 727393 $5,532,000.00
December 31 S/N727365 $2,766,000.00
</TABLE>
Note:
o Engine S/N 727379 and 727344 are each subject to a separate Purchase
Order for sale to WLFC which is superseded by this Agreement.
o The ninth (9th) engine is to be delivered on or before the end of
December, 1997.
Page 6
<PAGE> 9
WLFC PW4056 Series Engine Sales Agreement - Contract No.: 97035A, dated
August 14, 1997 (Continued)
4.4 Within ninety (90) days of Delivery to WLFC, WLFC shall return to PWES the
relevant engine stand(s) and pay all related expenses and insurance for
return shipment. PWES shall be named as loss payee for the engine stand(s)
while in the care, custody and control and return transportation to PW.
ARTICLE 5.0 - WARRANTIES
5.1 Warranties. (a) PWES covenants that at the time of Delivery of each Engine
it will transfer to WLFC its legal and beneficial title to the Engine as
received from Air India and that PW will have taken no action to grant,
permit or create in any third party security interest, lien, claim, charge
or encumbrance, and that it shall have full power and lawful authority to
sell the Engine to WLFC.
(b) EXCEPT AS PROVIDED IN PARAGRAPH 5.1(A), THE ENGINE, INCLUDING
THE COMPONENT PARTS THEREOF, BEING SOLD BY PWES WILL BE SOLD
"AS IS", "WHERE IS" AND WITHOUT QEC AND EXCLUDING THE ENGINE
STANDS AND PWES MAKES NO WARRANTIES, GUARANTEES OR
REPRESENTATIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED,
STATUTORY OR OTHERWISE, THAT SHALL SURVIVE DELIVERY AS TO THE
ENGINE AND THE COMPONENT PARTS THEREOF, INCLUDING BUT NOT
LIMITED TO THE CONDITION OR AIRWORTHINESS THERETO; AND WLFC
HEREBY WAIVES ALL OTHER WARRANTIES, REMEDIES OR LIABILITIES,
EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, AND PWES SHALL
HAVE NO LIABILITY TO WLFC WITH RESPECT TO FITNESS FOR ANY
INTENDED PURPOSE AND MERCHANTABILITY, ANY OBLIGATION OF A
SELLER ARISING FROM TORT OR STRICT PRODUCTS LIABILITY CLAIMS,
OR FOR LOSS OF USE, REVENUE OR PROFIT, OR FOR INCIDENTAL OR
CONSEQUENTIAL DAMAGES, OR FOR ANY EXPENSE DIRECTLY OR
INDIRECTLY ARISING FROM THIS TRANSACTION AND THE USE OF THE
ENGINE OR ANY INABILITY TO USE THE ENGINE EITHER SEPARATELY OR
IN COMBINATION WITH OTHER PARTS OR EQUIPMENT OR FROM ANY OTHER
CAUSE. WLFC ACKNOWLEDGES THAT THE FOREGOING WAIVERS AND
AGREEMENTS WERE AGREED TO BY IT IN THE COURSE OF BARGAINING AND
NEGOTIATION WITH RESPECT TO THIS AGREEMENT AND THAT THE
PURCHASE PRICE AND OTHER TERMS HEREIN REFLECT SUCH WAIVERS AND
AGREEMENTS BY WLFC.
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WLFC PW4056 Series Engine Sales Agreement - Contract No.: 97035A, dated
August 14, 1997 (Continued)
(c) PWES makes no representations as to what uses or applications
may be made of the Engine in the condition in which the Engine
is delivered. Further, PWES makes no representations as to
whether the Engine complies with, or is capable of being
modified so as to comply with, any present or future
environmental restrictions or requirements imposed by any
governmental entity, including, but not limited to,
requirements with respect to noise abatement and emission
control. WLFC shall have the responsibility of obtaining
whatever certification, waiver or exemption is necessary from
applicable government agencies for projected uses or
applications of the Engine.
(d) WITH THE EXCEPTION OF THE WARRANTIES PROVIDED ABOVE, THE ENGINE
DOCUMENTATION IS BEING TRANSFERRED "AS IS" AND "WHERE IS", AND NO
WARRANTY AS TO TITLE, ACCURACY, COMPLETENESS OR OTHERWISE IS MADE,
EXPRESSLY OR IMPLIEDLY.
ARTICLE 6.0 - EXCUSABLE DELAY
PWES or WLFC shall promptly notify the other Party when an excusable delay has
occurred or is likely to occur, specifying to the extent practicable the
estimated duration of such Excusable Delay.
ARTICLE 7.0 - DEFAULT, REMEDIES
7.1 Events of Default. (a) Any one or more of the following events shall
constitute an Event of Default:
(i) If either Party shall fail in the performance of any of its
obligations contained in this Agreement (and such failure is not
caused by Excusable Delay), which failure shall not be cured within
ten (10) business days after receipt of written notice from the
other Party;
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WLFC PW4056 Series Engine Sales Agreement - Contract No.: 97035A, dated
August 14, 1997 (Continued)
(ii) If either Party files a voluntary petition in bankruptcy, or
shall be adjudicated as bankrupt or insolvent, or shall file
any petition or answer seeking any reorganization, composition,
readjustment, liquidation, or similar relief for itself under
any present or future statutes, law or regulation of the United
States, or shall seek or consent to or acquiesce in the
appointment of any trustee, or shall make any general
assignment for the benefit of creditors, or shall admit in
writing its inability to pay its debts generally as they become
due; or
(iii) If a petition shall be filed against either Party seeking
reorganization, composition, readjustment, liquidation or similar
relief under any present or future statute, law, or regulation of
the United States and such petition shall remain undismissed or
unstayed for an aggregate of sixty (60) days (whether or not
consecutive), or if any trustee, receiver, or liquidator of either
Party is appointed, which appointment shall remain unvacated or
unstayed for an aggregate of sixty (60) days (whether or not
consecutive).
7.2 Remedies. Upon the occurrence of an Event of Default by either of the
Parties, the non-defaulting Party shall have all the rights and remedies
available to it under this Agreement in accordance with the internal laws
of the State of Connecticut.
ARTICLE 8.0 - INDEMNIFICATION
WLFC shall release and indemnify, defend and hold harmless PWES, its officers,
directors, employees, and agents (collectively the "PWES Indemnitees") from any
and all liabilities, damages, losses, expenses, claims, demands, suits, or
judgments (including but not limited to reasonable attorney's fees, costs, and
related expenses) that may be suffered by, accrued against, be charged to or be
recovered from any of the PWES Indemnitees by any third party for any injury to
or death of any person, and for any loss of, damage to, or destruction of any
property whatsoever, in any manner arising solely out of, the possession,
ownership, maintenance, operation or use of the Engine after Delivery; provided,
however, the foregoing indemnification shall not apply to any claims resulting
from the gross negligence or willful misconduct of any of the PWES Indemnitees.
This obligation shall survive the expiration or earlier termination of this
Agreement.
Page 9
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WLFC PW4056 Series Engine Sales Agreement - Contract No.: 97035A, dated
August 14, 1997 (Continued)
ARTICLE 9.0 - LIABILITY LIMITATION
The price allocable hereunder to any product or service alleged to be the cause
of any loss or damage to WLFC shall be the ceiling limit on PWES's liability,
whether founded in contract, tort (including negligence) or strict liability,
arising out of or resulting from (i) this order or the performance or breach
thereof, (ii) the design, manufacture, delivery, sale, Maintenance Service,
replacement, or (iii) the use of any such product or the furnishing of any such
service. In no event shall PWES have any liability for any indirect, incidental
or consequential damages.
ARTICLE 10.0 - MISCELLANEOUS
10.1 Assignment. This Agreement shall inure to the benefit of and be binding
upon each of the Parties and their respective successors and assigns,
but neither the rights nor the duties of either Party under this
Agreement may be voluntarily assigned or delegated without the prior
written consent of the other Party.
10.2 Headings and Captions. All section headings and captions used in this
Agreement are for convenience of reference and shall not affect the
interpretation of this Agreement.
10.3 Exhibits. All Exhibits described in this Agreement shall be deemed to be
incorporated in and made a part of this Agreement, except that if there
is any inconsistency between this Agreement and the provisions of any
Exhibit the provisions of this Agreement shall control. Terms used in an
Exhibit and also used in this Agreement shall have the same meaning in
the Exhibit as in this Agreement.
10.4 Applicable Law. This Agreement shall be deemed entered into with and
shall be governed by and interpreted in accordance with the internal
laws of the State of Connecticut for the resolution of any disputes
which may arise hereunder.
10.5 Amendments. This Agreement shall not be modified except by a written
amendment executed on behalf of both Parties by their respective duly
authorized officers.
Page 10
<PAGE> 13
WLFC P W4056 Series Engine Sales Agreement - Contract No.: 97035A, dated
August 14, 1997 (Continued)
10.6 Entire Agreement. This Agreement supersedes all prior understanding,
representations, negotiations and correspondence between the Parties,
constitutes the entire agreement between them with respect to the
matters described, and shall not be modified or affected by any course
of dealing, course of performance or usage of trade. Only the terms and
conditions of this Agreement, including attachments incorporated by
reference, shall apply. Printed terms or conditions (other than those
acknowledging or affirming application of this Agreement) appearing on,
or attached to WLFC's Purchase Orders shall not apply.
10.7 Legality of Provisions. If any provision of this Agreement is held to be
invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall in no way be affected
or impaired.
10.8 No Waiver. The failure of either Party at any time to require
performance by the other of any provision of this Agreement shall in no
way affect that Party's right to enforce such provision, nor shall the
waiver by either Party of any breach of any provision of this Agreement
be taken or held to be a waiver of any further breach of the same
provision or any other provision.
10.9 Public Release of Information. Each Party shall in each instance obtain
the prior written approval of the other Party concerning exact text and
timing of news releases, articles, brochures, advertisements prepared
speeches or any other information releases concerning this Agreement.
10.10 Counterparts. This Agreement maybe executed in any number of
counterparts and each fully executed counterpart shall be deemed an
original.
Page 11
<PAGE> 14
WLFC PW4056 Series Engine Sales Agreement - Contract No.: 97035A, dated
August 14, 1997 (Continued)
10.11 Notices. All notices, approvals, requests, consents, and other
communications given pursuant to this Agreement shall be in writing and
shall be deemed effective when received if hand-delivered, sent by
telex, sent by Federal Express Priority Service or sent by United States
Certified or Registered Mail, addressed as follows:
If To WLFC: Willis Lease Finance Corporation
180 Harbor Drive, Suite 200
Sausalito, California 94965
Attention: Mr. Charles F. Willis
Title: President
Telephone Number: (415) 331-5281
Fax Number: (415) 331-0607
BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK
Page 12
<PAGE> 15
WLFC PW4056 Series Engine Sales Agreement - Contract No.: 97035A, dated
August 14, 1997 (Continued)
If To PWES: United Technologies Corporation
Pratt & Whitney Group
Pratt & Whitney Eagle Services
Serviceable Material Management Organization
400 Main Street
East Hartford, Connecticut 06108
Attention: Mr. Paul S. Uccello
Title: General Manager
Mail Stop: 124-18, OBE-1
Telephone Number: (860) 565-6106
Fax Number: (860) 565-8077
Mr. Loren P. Stolp, Esq.
Deputy General Counsel
United Technologies Corporation
Pratt & Whitney Group
400 Main Street
Mail Stop: 132-12, OBG-2NW
East Hartford, Connecticut 06108
Fax Number: (860) 565-9276
Changes to the recipient or address of the recipient for notices may be
made by certified mail to the other party and will not require formal
modification of this Agreement.
BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK
Page 13
<PAGE> 16
WLFC PW4056 Series Engine Sales Agreement - Contract No.: 97035A, dated
August 14, 1997 (Continued)
ARTICLE 11.0 - EXECUTION OF THE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have hereunto caused their names to be
set hereto and to a duplicate this 28th day of August, 1997.
Witnesses: WILLIS LEASE FINANCE CORPORATION
______________________________ By: /s/ Charles F. Willis
Charles F. Willis
______________________________ Title: President
Witnesses: UNITED TECHNOLOGIES CORPORATION
Pratt & Whitney Group
Pratt & Whitney" Eagle Services
_______________________________ By: /s/ Joseph H. Lubenstein
Joseph H. Lubenstein
_______________________________ Title: Vice President & General Manager
Spare Parts Management
Page 14
<PAGE> 1
EXHIBIT 10.20
ENGINE LOAN AND SECURITY AGREEMENT
This ENGINE LOAN AND SECURITY AGREEMENT ("Agreement"), dated as
of the 8th day of September, 1997 between T-12 INC., a California corporation
("Debtor"), and FLEET CAPITAL CORPORATION ("Lender"), a Rhode Island
corporation. In consideration of the mutual agreements contained herein, the
parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement the following terms shall
have the following meanings, unless the context otherwise requires (such terms
to be equally applicable to both singular and plural forms of the terms
defined):
"Account" as defined in Section 9.1 of this Agreement.
"Additional Parts" as defined in Section 5.11(e) of this Agreement.
"Affiliate" means any Person: (1) that, directly or indirectly,
controls, is controlled by, or is under common control with, the Debtor;
(2) that is an employee, officer or partner of, or investor in, the
Debtor or of any Person that, directly or indirectly, controls, is
controlled by, or is under common control with, the Debtor, together
with, in each case, their respective relatives (whether by blood or
marriage), heirs, executors, administrators, personal representatives,
successors, and assigns; and (3) any trust of which any of the foregoing
Persons is a settlor, trustee, or beneficiary. For the purposes of this
definition, the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of
voting securities, by contract, or otherwise.
"Agreement", "hereof", "hereto", "hereunder", and words of similar
import shall mean this Engine Loan and Security Agreement and any and
all riders, consents, amendments, supplements or modifications hereto
and any exhibits or schedules delivered in connection herewith.
"Business Day" shall mean a day other than a Saturday, Sunday or legal
holiday under the laws of the State of Rhode Island or California.
"Casualty Prepayment Percentage" shall mean, on the date of prepayment
of the Note pursuant to Section 2.3(a) of this Agreement, the product
obtained by multiplying 10% by a fraction, the numerator of which will
be the number of Installment Payment Dates with respect to the Note
remaining
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after such date of prepayment (including the Installment Payment Date,
if any, on which such prepayment is made) and the denominator of which
shall be the total number of Installment Payment Dates with respect to
the Note.
"Closing Date" shall mean the date on which the Loan is made pursuant
hereto.
"Collateral" shall mean, collectively, (i) the Engine, (ii) all now
existing and hereafter arising or acquired Records, (iii) the Lease,
(iv) all now existing and hereafter arising or acquired Lease
Receivables; (v) all now existing and hereafter arising or acquired
lockbox accounts, escrow accounts, deposit accounts, operating accounts
or any other accounts of any kind whatsoever relating to the Lease, the
Lease Receivables or the Engine, including, without limitation, the
Account (and any and all now existing and hereafter arising or acquired
amounts and/or proceeds contained in any such accounts); (vi) all now
existing and hereafter arising or acquired "Chattel Paper" as that term
is defined in the Uniform Commercial Code (Secured Transactions), as in
effect in the State of Rhode Island as of the date hereof, of the Debtor
relating to the Lease, the Lease Receivables or the Engine; (vii) all
now existing and hereafter arising or acquired guaranties, letters of
credit or any undertakings of any kind whatsoever of any Leases or
"Chattel Paper" as that term is defined in the Uniform Commercial Code
(Secured Transactions), as in effect in the State of Rhode Island as of
the date hereof, of the Debtor relating to the Lease, the Lease
Receivables or the Engine, and all collateral or security relating
thereto; (viii) without limiting the generality of the foregoing in any
way whatsoever, all now existing and hereafter arising or acquired
property or assets assigned to the Lender pursuant to the terms of the
Collateral Assignment and all now existing and hereafter arising or
acquired other property or assets of the Debtor subject to the terms of
this Agreement; (ix) all now existing and hereafter arising or acquired
proceeds and products of any or all of the foregoing contained in
subsections (i) through (viii), including, without limitation, cash,
deposit accounts (whether or not comprised solely of proceeds),
certificates of deposit, insurance proceeds (including property, hazard,
liability and credit insurance), negotiable instruments and other
instruments for the payment of money, chattel paper, security agreements
or documents, eminent domain proceeds, condemnation proceeds and tort
claim proceeds; and (x) all now existing and hereafter arising or
acquired books and records relating to any or all of the above,
including, without limitation, all ledger sheets, ledger cards, files,
correspondence, books of account, business papers, tapes, cards,
computer programs, computer software, computer discs,
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<PAGE> 3
computer runs, computer data and computer records and any other
electronic or computer documents, information or records of any kind
whatsoever in the possession or control of the Debtor, any computer
service bureau or any other third party of any kind whatsoever.
"Collateral Assignment" shall mean the Collateral Assignment dated the
date of this Agreement and executed by the Debtor in favor of the
Lender, which Collateral Assignment shall be in form and substance
satisfactory in all respects to the Lender, and also shall include any
and all riders, consents, amendments, supplements or modifications
thereto and any exhibits or schedules delivered in connection therewith.
"Commitment" shall mean the obligation of Lender to make the Loan in the
aggregate amount specified in Section 2.1 of this Agreement.
"Competitor" means any Person who is in the business of leasing aircraft
jet engines and is also an operating lessor of any such aircraft jet
engines; provided, however, that the foregoing shall not include any
Person who is in the business of leasing aircraft and also leases any
aircraft engines in connection with such aircraft leasing.
"Cost" shall mean, with respect to the Engine (and all Parts thereof),
the respective manufacturer's or supplier's invoiced purchase price
therefor (after giving effect to any discount or other reduction) paid
by Debtor, which amount shall be set forth in the Schedule.
"Debtor" as defined in the introductory paragraph to this Agreement.
"Debtor Additional Parts" as defined in Section 5.11(e) of this
Agreement.
"Designated Lender of a Competitor" shall mean each of the lenders
expressly set forth on Exhibit F attached hereto; provided, however,
that the number of lenders on Exhibit F hereto shall be expressly
limited to no more than three (3) such lenders.
"Engine" shall mean, collectively (i) the jet aircraft engine described
and listed on Exhibit B attached hereto (but without a fuel heat
manifold) wherever located and whether or not such aircraft engine shall
be installed in or attached to any airframe, (ii) the engine stand
described and listed on Exhibit B attached hereto wherever located and
whether or not such engine stand shall be installed in or attached to
any airframe ("Engine Stand"), (iii) any and all additions, accessions,
accessories, alterations, modifications, Parts,
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repairs and attachments to the Engine or the Engine Stand now existing
or hereafter arising or now owned or hereafter acquired, and now
existing or hereafter arising or now owned or hereafter acquired all
replacements and substitutions for the Engine or the Engine Stand or any
Parts or other items or equipment related thereto so long as such Parts
or other items or equipment remain subject to the security interest
granted to Lender in accordance with the applicable terms of this
Agreement after removal from the Engine, and (iv) and any and all
returns or exchanges for the Engine or the Engine Stand or repossessions
of the Engine or the Engine Stand, and any proceeds resulting from the
sale, lease or other disposition (temporary or otherwise) of the Engine
or the Engine Stand, and any bills of sale, warranty agreements or any
other purchase agreements or documents of any kind whatsoever related to
any or all of the foregoing, and all the proceeds thereof, including,
without limitation, insurance proceeds.
"Event of Default" as defined in Section 7 of this Agreement.
"Event of Loss" with respect to the Engine shall mean any of the
following events with respect to such property (i) loss of such property
or the use thereof due to destruction, damage beyond repair or rendition
of such property permanently unfit for normal use for any reason
whatsoever; (ii) any damage to such property which results in an
insurance settlement with respect to such property on the basis of a
total loss or constructive total loss, (iii) the requisition for title,
confiscation, condemnation, restraint, detention, forfeiture or any
compulsory acquisition or seizure or requisition for hire of such Engine
(other than a requisition for hire for a temporary period not exceeding
one hundred and eighty (180) days) by or under the order of any
governmental body or authority, or a political subdivision thereof
(whether civil, military or de facto) or public or local authority
(whether foreign or domestic); or (d) the high-jacking, theft or
disappearance, resulting in loss of possession by Lessee or Debtor for a
period of thirty (30) consecutive days, of such Engine. The date of such
Event of Loss shall be the date of destruction, damage, or unfitness for
use or the date of such hijacking, theft or disappearance for the stated
period, or such requisition for title, confiscation, condemnation,
restraint, detention, forfeiture, acquisition, seizure or requisition
for hire for the stated period, if applicable.
"FAA" shall mean the Federal Aviation Administration provided for in the
Department of Transportation Act of 1966, as in effect on the date of
this Agreement and as modified or amended hereafter, or any successor or
substituted governmental authority of the United States of America or a
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<PAGE> 5
political subdivision thereof at the time having jurisdiction over the
Engine.
"Federal Aviation Act" shall mean the Federal Aviation Act of 1958, as
amended, and as recodified by Subtitle VII of Title 49 of the United
States Code, as amended, and the rules and regulations promulgated
thereunder, as in effect on the date of this Agreement, and as modified
or amended thereafter or any successor or substituted legislation at the
time in effect and applicable.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, set forth in the Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or
in the statements of Financial Accounting Standards Board, which are
applicable in the circumstances as of the date in question, and the
requirement that such principles be applied on a consistent basis shall
mean that the accounting principles observed in a current period are
comparable in all material respects to those applied in a preceding
period. Unless otherwise indicated herein, all accounting terms shall be
defined according to GAAP.
"General Terms Agreement" shall mean a certain General Terms Engine
Lease Agreement dated May 19, 1997, Contract No. 01 between Debtor (as
assignee of the Guarantor) and Lessee and all schedules, documents,
addendums, amendments, supplements, modifications, riders, instruments
and/or agreements related thereto.
"Guarantor" shall mean Willis Lease Finance Corporation, a California
Corporation.
"Guaranty" as defined in Section 3(q) of this Agreement, and also shall
include any and all riders, consents, amendments, supplements or
modifications thereto and any exhibits or schedules delivered in
connection therewith.
"Head Office" shall mean the office of the Lender at 50 Kennedy Plaza,
5th Floor, Providence, Rhode Island 02903.
"Indebtedness" shall mean all obligations, contingent and otherwise,
which in accordance with GAAP should be classified upon an obligor's
balance sheet as liabilities, or to which reference should be made by
footnotes thereto, including, without limitation, in any event and
whether or not so classified: (i) all debt and similar monetary
obligations, whether direct or indirect, including Indebtedness in
respect of capitalized obligations (as determined by GAAP); (ii) all
liabilities secured by any mortgage, pledge, security interest, lien,
charge, or other encumbrance existing on
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<PAGE> 6
property owned or acquired subject thereto, whether or not the liability
secured thereby shall have been assumed; (iii) all guaranties,
endorsements and other contingent obligations whether direct or indirect
in respect of Indebtedness of others, including any obligation to supply
funds to or in any manner to invest in, directly or indirectly, any
Person, to purchase Indebtedness, or to assure the owner of Indebtedness
against loss, through an agreement to purchase goods, supplies, or
services for the purpose of enabling any Person to make payment of the
Indebtedness held by such owner or otherwise; and (iv) the obligations
to reimburse the issuer of any letters of credit.
"Indemnified Parties" as defined in Section 10.3(b) of this Agreement.
"Indemnified Liabilities" as defined in Section 10.3(b) of this
Agreement.
"Installment Payment Date" shall mean each date set forth in the Note on
which an installment of principal and/or interest is due and payable
under the Note.
"Interest Credit Day" as defined in Section 9.1(b) of this Agreement.
"Interest Period" shall mean the monthly period commencing on the first
day of each calendar month and ending on the last day of such month
throughout the term of the Note. The first Interest Period shall
commence on October 1, 1997 and each succeeding Interest Period shall
commence on the first day of each month thereafter throughout the
remaining term of the Note; provided, however, that any Interest Period
which would otherwise end (i) after all Maintenance Fees and Security
Deposits have been disbursed or released pursuant to the terms of
Section 9 of this Agreement shall end on the day that all such
Maintenance Fees and Security Deposits shall have been disbursed or
released as required under said Section 9, and/or (ii) after the
maturity date of the Note, shall end on such maturity date.
"Late Charge Rate" shall mean a rate equal to the lower of one and
one-half percent (1.5%) per month or the highest rate permitted by
applicable law.
"Lease" means (i) the Aircraft Engine Lease Agreement dated May 24, 1997
between Debtor (as assignee of the Guarantor) and Lessee (and as more
particularly described on Exhibit E attached hereto) and all schedules,
documents, addendums, amendments, supplements, modifications, riders,
instruments and/or agreements related thereto, (ii) to the extent
applicable, the General Terms Agreement, and (iii) any and
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all subleases, management agreements, interchange agreements, charter
agreements or any other agreements of any kind whatsoever relating to
the Engine or the Lease.
"Lease Receivables" means any and all now existing or owned and
hereafter arising or acquired rents, payments and other amounts due
under or in connection with the Lease (including, without limitation,
any sales or use tax, supplemental rent payments, additional rent
payments, rental reserves, engine reserves, maintenance reserves,
maintenance fees, use fees, security deposits, purchase option payments,
renewal payments, early termination payments, residual payments,
casualty payments, termination payments, stipulated loss payments,
insurance payments, or any other payments, proceeds or amounts of any
kind whatsoever due under or in connection with the Lease and all
proceeds thereof), proceeds of sale from sale of the equipment leased or
financed thereunder or the lease or other disposition (temporary or
otherwise) of the same, any and all other amounts due under the same,
and all proceeds of the foregoing, including, without limitation,
insurance proceeds.
"Lender" as defined in introductory paragraph to this Agreement.
"Lessee" shall mean Delta Air Lines, Inc., a Delaware corporation.
"Lessee Cure Payment" as defined in Section 7 of this Agreement.
"Lessee Event of Default" shall mean an Event of Default (as such term
is defined in Section 19 of the General Terms Agreement) by the Lessee
under the Lease.
"Lessee Notice and Acknowledgment" shall mean the Notice and
Acknowledgment of Assignment executed by the Lessee and the Debtor in
favor of the Lender and which shall be in form and substance
satisfactory in all respects to the Lender, and also shall include any
and all riders, consents, amendments, supplements or modifications
thereto and any exhibits or schedules delivered in connection therewith.
"Lessee Payment Default" as defined in Section 7 of this Agreement.
"LIBOR Rate" shall mean, with respect to each Interest Period, an
interest rate equal to the one-month London Interbank Offered Rate
(LIBOR) as published in the Money Rates Section of The Wall Street
Journal, Eastern Edition, in effect as of the fifteen (15th) day
immediately preceding
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each Interest Credit Day and shall remain in effect for each day during
an Interest Period. In the event The Wall Street Journal, Eastern
Edition, is not published for four (4) consecutive business days, a
comparable publication shall be selected by the Lender in its
discretion.
"Liens" shall mean any liens, mortgages, security agreements, security
interests, pledges, title retentions, leases, charges, financing
statements or other encumbrances of any kind whatsoever.
"Loan" shall mean the loan made by Lender pursuant to this Agreement.
"Maintenance Fees" shall mean all payments or amounts paid by the Lessee
which are Use Fees (as such term is defined in the Lease, or, to the
extent applicable, the General Terms Agreement) or are otherwise
maintenance or engine reserve amounts or payments expressly due by the
Lessee under the Lease or the General Terms Agreement.
"Monthly Rent" shall mean all payments or amounts paid by the Lessee
which are Monthly Rent (as such term is defined in the Lease, or, to the
extent applicable, the General Terms Agreement) or are otherwise rental
amounts or payments expressly due by the Lessee under the Lease or the
General Terms Agreement.
"Note" shall mean the Promissory Note of Debtor evidencing the Loan, as
described in Section 2.2 of this Agreement in substantially the form
attached hereto as Exhibit A, and any and all extensions and renewals
thereof and substitutions and replacements therefor and all riders,
amendments, consents and modifications thereto.
"Obligations" shall mean (i) the aggregate unpaid principal amount of,
and accrued interest on, the Note; (ii) all other indebtedness,
obligations and liabilities of Debtor, now existing or hereafter
incurred under, arising out of, or in connection with this Agreement or
the Note; and (iii) any and all other indebtedness, obligations and
liabilities of any kind whatsoever of Debtor to Lender, or any successor
or assignee of Lender, whether now existing or hereafter incurred or
secured or unsecured or absolute or contingent or from time to time
reduced and thereafter increased, including, without limitation, any and
all loans and advances made by Lender, or any successor or assignee of
Lender, prior to, on or after the date of this Agreement to or for the
account of Debtor pursuant to any other present or future loan or
financing documents or agreements executed by Debtor in favor of Lender,
or any successor or assignee of Lender (or by and between Debtor and
Lender, or any successor or
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assignee of Lender), and any and all interest, obligations, liabilities,
indemnifications, indebtedness, payments, costs, fees and expenses now
or hereafter owing by Debtor to Lender, or any successor or assignee of
Lender, in connection therewith.
"Parts" shall mean all appliances, avionics, parts, instruments,
appurtenances, accessories, radio devices, radar devices, accessions,
attachments and other equipment of whatever nature (other than the
complete Engine), which may from time to time be incorporated or
installed in or attached to the Engine or so long as such Parts remain
subject to the security interest granted to Lender in accordance with
the applicable terms of this Agreement after removal from the Engine.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, joint stock company, trust, trustee(s)
of a trust, unincorporated organization, or government or governmental
authority, agency or political subdivision thereof, or any other entity
of any kind whatsoever.
"Pledge Agreement" as defined in Section 3(r) of this Agreement, and
also shall include any and all riders, consents, amendments, supplements
or modifications thereto and any exhibits or schedules delivered in
connection therewith.
"Pledged Stock" as defined in Section 3(r) of this Agreement.
"Prepaid Principal Amount" as defined in Section 2.3(a) of this
Agreement.
"Records" shall mean all of Debtor's right, title and interest (if any)
in and to any and all logs, manuals, certificates, date and inspection,
modification, maintenance, engineering, technical and overhaul records
(including all computerized data, records and materials of any kind
whatsoever) with respect to the Engine, including, without limitation,
all records required to be maintained by the FAA or any other
governmental agency or authority having jurisdiction with respect to the
Engine or any manufacturer or supplier of the Engine (or any part
thereof).
"Replacement Parts" as defined in Section 5.11(d) of this Agreement.
"Schedule" shall mean the Schedule to be executed and delivered by
Debtor in substantially the form of Exhibit B attached hereto, any and
all riders, consents, amendments, supplements or modifications thereto
and any exhibits or
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schedules delivered in connection therewith.
"SEC" as defined in Section 4.26 of this Agreement.
"Securities Act" shall mean the Securities Exchange Act of 1934, as
amended or modified from time to time.
"Security Deposits" shall mean all payments or amounts paid by the
Lessee which are security deposits under the Lease or, to the extent
applicable, the General Terms Agreement.
"Stock Powers" as defined in Section 3(s) of this Agreement.
"Subsidiary" shall mean any corporation, association or other business
entity more than 50% of the shares of stock of which are entitled to
vote in the election of directors (excluding shares so entitled to vote
only upon the failure to pay dividends thereon or other contingencies)
are at the time owned or controlled, directly or indirectly, by the
Guarantor.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in any applicable jurisdiction.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP.
SECTION 2. AMOUNT AND TERMS OF LOAN.
2.1 Commitment. Subject to the terms and conditions of this Agreement,
Lender agrees to make a Loan to Debtor in a principal amount of $2,025,000.00.
The obligation of Lender to make the Loan hereunder shall terminate on September
9, 1997. Debtor shall give Lender at least three Business Days' prior written
notice of the date and amount of the proposed Loan.
2.2 The Note. The Loan shall be evidenced by a promissory note of Debtor
substantially in the form of Exhibit A hereto, with appropriate insertions
therein as to amounts and dates. The Note shall (i) be dated the date on which
the Loan evidenced thereby is made; (ii) be for the term specified in the Note;
(iii) be stated to mature in nine (9) consecutive monthly installments, which
installments will be payable on the dates and in the amounts set forth in such
Note; and (iv) bear interest from the date thereof on the unpaid principal
amount thereof at the rate per annum of 10.0% until such amount shall become due
and payable (whether at the stated maturity thereof, by acceleration or
otherwise). Whenever any amount due hereunder or under the Note shall not be
paid within ten (10) days of the date when due, Debtor shall pay
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as an administrative and late charge an amount equal to five percent (5%) of the
amount of any such overdue payment. In addition, Debtor shall pay interest on
such delinquent payment from thirty (30) days after the due date until paid in
full at the Late Charge Rate.
2.3 Prepayment.
(a) In the event that the Engine shall suffer an Event of Loss, Debtor
shall pay, within sixty (60) days after the occurrence of such Event of Loss, an
amount determined by adding the following: (i) the unpaid principal amount of
the Note together with any fees, charges and/or expenses due in connection
therewith other than interest (such amount shall be herein referred to as the
"Prepaid Principal Amount"), (ii) interest accrued with respect to the Prepaid
Principal Amount to the date of prepayment and (iii) an amount equal to (A) the
applicable Casualty Prepayment Percentage multiplied by (B) the Prepaid
Principal Amount.
(b) The entire unpaid principal balance of the Note may be prepaid in
full (but not in part) upon fifteen (15) days prior written notice to the
Lender; provided that any such prepayment shall be made together with (i) all
accrued interest and other charges owing or payable under the Note and/or this
Agreement, and (ii) a prepayment fee equal to: 3% of the entire unpaid principal
balance of the Note together with any accrued interest or any other amounts due
or payable in connection with such prepayment (said unpaid principal balance,
accrued interest and other amounts due and payable herein collectively referred
to as the "Prepayment Amount") if the prepayment is made prior to the first
annual anniversary date of the Note, thereafter 2% of the entire Prepayment
Amount if the prepayment is made after the first annual anniversary date of the
Note, but prior to the second annual anniversary date of the Note, thereafter 1%
of the entire Prepayment Amount if the prepayment is made after the second
annual anniversary date of the Note, but prior to the third annual anniversary
date of the Note, and thereafter 1% of the entire Prepayment Amount if the
prepayment is made after the third annual anniversary date of the Note, but
prior to the fourth annual anniversary date of the Note, and thereafter, no
Prepayment Amount shall apply.
(c) Upon payment in full of the amounts required in accordance with
paragraph (a) or (b) above and so long as no Event of Default has occurred and
is continuing, the Collateral shall be released from the security interest of
this Agreement.
(d) Except as provided in paragraph (a) or (b) above or in the Note, the
Note may not be prepaid in whole or in part.
2.4 Use of Proceeds. Debtor shall use the proceeds of the
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Loan only to refinance the Debtor's purchase of the Engine.
2.5 Increased Costs. If any change in any law, regulation or treaty, or
in the interpretation or administration thereof, or compliance by the Lender
with any request or directive (whether or not having the force of law) of any
authority charged with the interpretation or administration thereof, shall in
the reasonable determination of the Lender:
(a) subject the Lender to any tax, levy or other governmental charge
with respect to the Loan or its obligation to make or maintain the Loan or
change the basis of taxation of payments by the Debtor to the Lender in respect
of the Loan (other than any tax on or measured by the overall net income of the
Lender); or
(b) impose, modify or hold applicable any reserve, special deposit or
similar requirement against assets of, deposits or other liabilities of or for
the account of, or loans or commitments by, the Lender with respect to the Loan
(including without limitation any reserves against "Eurocurrency Liabilities"
under Regulation D of the Board of Governors of the Federal Reserve System); or
(c) impose on the Lender any other condition with respect to the Loan
or its obligation to make and maintain the Loan; and the result of any of the
foregoing is to increase the cost to the Lender of making or maintaining such
Loan or to reduce the amount of any sum received or receivable by the Lender
under this Agreement or the Note issued to the Lender, then the Debtor shall pay
to the affected Lender on demand from time to time such additional amounts as
may be necessary to reimburse the Lender for such increased cost or to
compensate the Lender for such reduced amount; provided, however, that upon the
Debtor's payment of such increased cost or compensation to the Lender, the
Debtor shall have the option to prepay the Note in full at the time of its
payment of any such increased cost or compensation with no prepayment penalty at
such time only. A certificate, calculating in reasonable detail the amount of
such increased cost or reduced amount, shall be submitted to the Debtor by any
affected Lender, and shall, absent manifest error, be final, conclusive and
binding for all purposes.
2.6 Capital Adequacy. If any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental agency or
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, in
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the Lender's reasaonable determination (which determination shall be conclusive
and binding) has the effect of increasing the amount of capital required to be
maintained by the Lender or reducing the rate of return on capital as a
consequence of its agreement to make, or its making of, the Loan pursuant to
this Agreement to a level below that which the Lender could have achieved but
for such adoption, change or compliance (taking into consideration policies with
respect to capital adequacy) by an amount reasonably deemed by the Lender to be
material, then, upon demand by the Lender, the Debtor shall pay to the Lender,
from time to time as specified by the Lender, such additional amounts which
shall be sufficient to compensate the Lender for the cost of such additional
capital or reduced rate of return; provided, however, that upon the Debtor's
payment of such additional amounts or compensation to the Lender, the Debtor
shall have the option to prepay the Note in full at the time of its payment of
any such additional amounts or compensation with no prepayment penalty at such
time only. A certificate calculating in reasonable detail the amount of any such
cost or reduced rate of return, submitted to the Debtor by any such affected
Lender, shall, absent manifest error, be final, conclusive and binding for all
purposes.
2.7 Illegality. In the event that the Lender shall have reasonably
determined that the making or continuation of the Loan is or has become unlawful
or interferes with or prevents compliance by the Lender in good faith with any
applicable law, governmental rule, regulation, guideline or order (whether or
not having the force of law or whether or not failure to comply therewith would
be unlawful), the Lender shall promptly give notice to the Debtor of such
determination. The Debtor shall, on the next Installment Payment Date after
notice of any such determination or earlier if required by law, repay the entire
Loan, together with all interest accrued thereon and all other amounts payable
hereunder and under the Note with no prepayment penalty at such time only.
2.8 Funding Losses. If the Debtor fails to fulfill the conditions set
forth in Sections 2.5, 2.6, and/or 2.7 of this Agreement by the time specified
for their fulfillment or otherwise fails to borrow the Loan after delivering a
notice with respect thereto, then the Debtor shall pay the Lender the amount of
any losses, costs and expenses reasonably incurred as a consequence thereof,
including any loss of margin or expenses incurred in liquidating or re-employing
deposits or other funds acquired to make such Loan. A certificate, calculating
in reasonable detail the amount of any such losses, costs and expenses,
submitted to the Debtor shall, absent manifest error, be final, conclusive and
binding for all purposes.
2.9 Method of Payment. The Debtor shall make each payment due under this
Agreement and under the Note to the Lender at its
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Head Office or at such other place as the Lender may from time to time designate
in writing not later than 2:00 P.M. (Rhode Island time) on the date when due in
lawful money of the United States in immediately available funds, without any
setoff, rebatement, recoupment, defense, claim or counterclaim of any kind
whatsoever, by wire transfer to the Lender at ABA Number: 011500010, Bank: Fleet
National Bank, Account Number: 015-5527767, For: Fleet Capital Corporation,
Reference Credit: T-12 Inc. - 32442 or to such other bank account or address
requested by the Lender. The Debtor hereby authorizes the Lender to charge from
time to time (including, without limitation, any time at which any amount is due
under this Agreement) any amount due under this Agreement or the Note,
including, without limitation, principal, interest, fees and charges, against
any account of the Debtor with the Lender (other than any payments or amounts
held in the Account which are solely Maintenance Fees or Security Deposits which
payments or amounts shall be disbursed pursuant to the terms of Sections 9.1(b),
9.1(c) and/or 10.13 of this Agreement). Whenever any payment to be made under
this Agreement or under the Note shall be stated to be due on a Saturday, Sunday
or a public holiday, or the equivalent for banks generally under the laws of the
State of Rhode Island or California, such payment shall be made on the next
succeeding Business Day, and such extension of time shall be included in the
computation of the payment of interest.
SECTION 3. CONDITIONS OF BORROWING.
Lender shall not be required to make the Loan unless on the Closing Date
of such Loan:
(a) Certificates of Incumbency of Debtor. Lender shall have received
certificates of incumbency of the Debtor signed by the Secretary or Assistant
Secretary of the Debtor, which certificate shall certify the names of the
officers of the Debtor authorized to execute any documents hereunder or under
any other related documents on behalf of the Debtor, together with specimen
signatures of such officers and Lender may conclusively rely on such certificate
until receipt of a further certificate of the Secretary or Assistant Secretary
of Debtor canceling or amending the prior certificate and submitting the
signatures of the officers named in such further certificate.
(b) Resolutions, Organizational Documents of Debtor. Lender shall have
received certified copies of all corporate proceedings of the Debtor evidencing
that all action required to be taken in connection with the authorization,
execution, delivery and performance of this Agreement, the Note, the Collateral
Assignment, the Schedule and the Lessee Notice and Acknowledgment and the
transactions contemplated hereby has been duly taken. Lender shall receive
copies of the organizational documents of
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Debtor certified by the appropriate governmental authorities.
(c) Opinions of Counsel. Lender shall have received: (i) the written
opinion addressed to it of counsel for Debtor substantially in the form of
Exhibit D hereto, satisfactory to Lender, as to the matters contained in Section
4, Subsections 4.1 through 4.10, inclusive, and Subsections 4.15 and 4.16, and
such other matters incident to the transactions contemplated by this Agreement
as Lender may reasonably request; (ii) the written opinion, addressed to it, of
Messrs. Daugherty, Fowler and Peregrin, Lender's special FAA counsel, in form
and substance satisfactory to Lender and its legal counsel, stating that on the
Closing Date, Lender shall have a legal, valid and continuing first priority
mortgage on and security interest in the Engine, free and clear of all other
Liens of any nature, and that all filings, recordings and other actions
necessary or desirable in order to establish, protect and perfect such mortgage
and security interest in favor of Lender as a perfected first priority mortgage
on and security interest in the Engine, including, without limitation the filing
of this Agreement with the FAA shall have been duly effected, and (iii) the
written opinion addressed to it of counsel for Guarantor in form and substance
satisfactory in all respects to Lender, as to the matters contained in Section
4, Subsections 4.18 through 4.24, inclusive, and such other matters incident to
the transactions contemplated by this Agreement as Lender may reasonably
request.
(d) Schedule. Debtor shall have duly executed and delivered to the
Lender a Schedule covering the Engine.
(e) Note. The Note evidencing the Loan shall have been duly executed and
delivered to the Lender.
(f) Collateral Assignment. Debtor shall have duly executed and delivered
to the Lender the Collateral Assignment.
(g) Lessee Notice and Acknowledgment. Lessee, Guarantor and Debtor shall
have duly executed and delivered to the Lender the Lessee Notice and
Acknowledgment.
(h) Equipment Delivery. The Engine shall have been duly delivered to and
accepted by Debtor, and shall have been delivered to, and fully and duly
accepted by, the Lessee under the Lease.
(i) Invoice and Title. Lender shall have received a copy of the invoice
or invoices covering the Engine and a copy of Warranty Bill of Sale conveying
the Engine (and any Parts) to Debtor.
(j) Payment of Engine Cost. Lender shall be satisfied that the Cost of
the Engine has been, or concurrently with the making of the Loan will be, fully
paid.
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(k) Insurance. Lender shall have received evidence satisfactory to it
that the Engine is insured in accordance with the provisions of this Agreement.
(l) Security Interest. All filings, recordings and other actions that
are necessary or desirable in order to establish, protect, preserve and perfect
Lender's mortgage on and security interest in the Collateral as a valid first
and only perfected mortgage and security interest shall have been duly effected,
including, without limitation, the filing of this Agreement with the FAA, and
the filing of all necessary and appropriate UCC financing statements, all in
form and substance satisfactory to Lender, and all fees, taxes and other charges
relating to such filings and recordings shall have been paid by Debtor.
(m) Representations. (i) The representations and warranties contained in
this Agreement shall be true and correct in all respects on and as of the date
of the making of the Loan with the same effect as if made on and as of such
date; (ii) no Event of Default, or event which with notice, with lapse of time
and/or with any other condition, event or act would constitute an Event of
Default, shall be in existence on the date of the making of the Loan or shall
occur as a result of the Loan; and (iii) the acceptance by Debtor of the Loan
shall constitute a representation by Debtor that the statements contained in
clauses (i) and (ii) above are true and correct on the date of such Loan.
(n) No Material Adverse Change. In the sole judgment of Lender, no
material adverse change shall have occurred in the business, operations, or
financial condition of Debtor or of the Guarantor from the date of the most
recent financial information furnished to Lender by either such party.
(o) Good Standing Certificates. Lender shall have received certificates
of good standing from the states of the Debtor's and Guarantor's incorporation
and where the Debtor's and Guarantor's chief executive offices and principal
place of business are respectively located.
(p) Release. A duly executed release of any Lien on the Engine.
(q) Guaranty. Lender shall have received a Guaranty ("Guaranty") in
favor of Lender, duly executed by Guarantor, and in form and substance
satisfactory in all respects to Lender, unconditionally guaranteeing, among
other things, the payment and performance by Debtor of the Obligations;
provided, however, that the Guarantor's personal liability for any payment
obligations under the Guaranty shall be limited to 30% of the outstanding
indebtedness due or payable under the Note, this Agreement or any other
agreement, document or instrument evidencing any other Obligations (plus any and
all costs and expenses incurred by the
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Lender in enforcing its rights or remedies under the Guaranty) pursuant to the
terms of the Guaranty; provided further, however, that in the event the Debtor
or the Guarantor fail to maintain the Engine (and any material Part related
thereto) pursuant to the terms of this Agreement or the Lease and the Guarantor
does not cure any such failure to maintain the Engine within thirty (30)
consecutive days after the Guarantor has received notice from the Lender of any
such failure to maintain the Engine pursuant to the terms of the Guaranty, the
Guarantor shall be liable for 100% of the outstanding indebtedness due or
payable under the Note, this Agreement or any other agreement, document or
instrument evidencing any Obligations relating solely to the Note or this
Agreement (plus any and all costs and expenses incurred by the Lender in
enforcing its rights or remedies under the Guaranty) pursuant to the terms of
the Guaranty; provided further, however, that nothing contained in the foregoing
provisos shall be deemed to limit or impair the enforcement of the Pledged Stock
or any other collateral or property described in or covered by the Pledge
Agreement or any other property or collateral which may from time to time may be
given for security for performance of the Guarantor's obligations under the
Guaranty, the Pledge Agreement or otherwise or the payment and performance by
the Debtor of the Obligations.
(r) Pledge Agreement. Lender shall have received a Pledge Agreement
("Pledge Agreement") in favor of Lender, duly executed by Guarantor, and in form
and substance satisfactory in all respects to Lender and Lessor's counsel,
unconditionally pledging all stock of the Debtor owned or held by the Guarantor,
including, without limitation, all stock certificates, options or rights of any
kind whatsoever (collectively, the "Pledged Stock") in order to secure the
Guarantor's obligations under the Guaranty and the payment and performance by
Debtor of the Obligations.
(s) Stock Certificates and Stock Powers. Lender shall have received all
stock certificates evidencing the Pledged Stock and appropriate stock powers
duly executed in blank by the Guarantor (collectively, the "Stock Powers"),
which stock certificates and Stock Powers shall be in form and substance
satisfactory in all respects to the Lender and Lender's counsel.
(t) Certificates of Incumbency of Guarantor. Lender shall have received
certificates of incumbency of Guarantor signed by the Secretary or Assistant
Secretary of the Guarantor, which certificate shall certify the names of the
officers of the Guarantor authorized to execute any documents hereunder or under
any other related documents on behalf of the Guarantor, together with specimen
signatures of such officers and Lender may conclusively rely on such certificate
until receipt of a further certificate of the Secretary or Assistant Secretary
of Guarantor canceling or amending the prior certificate and submitting the
signatures of the officers named in such further certificate.
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(u) Resolutions, Organizational Documents of Guarantor. Lender shall
have received certified copies of all corporate proceedings of Guarantor
evidencing that all action required to be taken in connection with the
authorization, execution, delivery and performance of the Guaranty, the Pledge
Agreement and the Stock Powers and the transactions contemplated thereby has
been duly taken. Lender shall receive copies of the organizational documents of
Guarantor certified by the appropriate governmental authorities.
(v) Legal Matters. All legal matters with respect to the transactions
contemplated by this Agreement shall be satisfactory to counsel for Lender and
to special FAA counsel for Lender.
(w) Appraisal. Lender shall have received a current appraisal of the
Engine prepared by an appraiser, which appraisal and appraiser shall be
satisfactory in all respects to the Lender.
(x) Inspection. Lender shall have received a current inspection report
with regard to the Engine prepared by an inspector, which inspection report and
inspector shall be satisfactory in all respects to the Lender.
(y) Originals of Lease. Lender shall have received the only executed
counterpart of the Lease marked "Counterpart No. 1 of 4 Serially Numbered
Counterparts" in its possession (and all other executed counterparts of the same
in its possession) and the only executed counterpart of each schedule, rider,
amendment and addendum thereto marked "Counterpart No. 1 of 4 Serially Numbered
Counterparts" in its possession (and all other executed counterparts of the same
in its possession). The Debtor shall have duly marked, and legended, the Lease
and any documentation relating thereto, with the following statement:
Counterpart No. __ of __ serially numbered, manually executed Counterparts. To
the extent, if any, that this Lease constitutes chattel paper under the UCC, no
security interest in this Lease may be created through the transfer and
possession of any Counterpart other than Counterpart No. 1.
(z) Payment of Fees. Debtor shall pay all reasonable costs and expenses
of the Lender incurred in connection with this Agreement including, without
limitation, all reasonable fees and expenses of Lender's counsel and Lender's
special FAA counsel.
(aa) Other Documents. Lender shall have received copies of such other
documents, agreements, or certificates related to the transaction contemplated
hereby, as it may reasonably request.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
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In order to induce Lender to enter into this Agreement and to make the
Loan herein provided for, Debtor represents and warrants to Lender that:
4.1 Organization of Debtor. Debtor is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
has the necessary authority and power to own and operate the Engine and its
other assets and to transact the business in which it is engaged, and is duly
qualified to do business in each jurisdiction in which the conduct of its
business or the ownership or operation of its assets requires such
qualification.
4.2 Citizenship of Debtor. Debtor is (or shall be, as the case may be) a
citizen of the United States within the meaning of Subtitle VII of Title 49 of
the United States Code, as amended and recodified.
4.3 Power and Authority of Debtor. Debtor has full power, authority and
legal right to execute and deliver this Agreement, the Note, the Schedule, the
Collateral Assignment, the Lessee Notice and Acknowledgment and all other
instruments to be executed and delivered hereunder, to perform its obligations
hereunder and thereunder, to borrow hereunder and to grant the security interest
created by this Agreement.
4.4 Consents and Permits of Debtor. No consent or approval of, or giving
of notice to, any other party or Person (including any stockholders, trustees or
holders of indebtedness), and no consent, license, permit, approval or
authorization of, exemption by, or registration or declaration with, any
governmental body, authority, bureau or agency is required in connection with
the execution, delivery or performance by Debtor of this Agreement, the Note,
the Schedule, the Collateral Assignment, the Lessee Notice and Acknowledgment or
all other instruments to be executed and delivered hereunder, or the validity or
enforceability of this Agreement or the Note, except recordation of this
Agreement with the FAA and the filing of UCC financing statements in the
appropriate recording offices, which shall have been duly effected as of the
Closing Date.
4.5 No Legal Bar re Debtor. The execution, delivery and performance by
Debtor of each of this Agreement, the Note, the Schedule, the Collateral
Assignment, the Lessee Notice and Acknowledgment and all other instruments to be
executed and delivered hereunder does not and shall not violate any provision of
any applicable law or regulation or of any judgment, award, order, writ or
decree of any court or governmental instrumentality, will not violate any
provision of the charter or by-laws of Debtor and will not violate any provision
of or cause a default under any mortgage, indenture, contract, agreement or
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other undertaking to which Debtor is a party or which purports to be binding
upon Debtor or upon any of its assets, and will not result in the creation or
imposition of any Lien on any of the assets of Debtor other than the security
interests intended to be created hereby.
4.6 Enforceability re Debtor. This Agreement, the Collateral Assignment,
the Lessee Notice and Acknowledgment and all other instruments to be executed
and delivered hereunder have been duly authorized, executed and delivered by
Debtor and constitute legal, valid and binding obligations of Debtor enforceable
in accordance with their respective terms. When executed and delivered, the Note
and the Schedule shall have been duly authorized, executed and delivered by
Debtor and shall constitute legal, valid and binding obligations of Debtor
enforceable in accordance with their respective terms.
4.7 No Litigation re Debtor. There is no action, suit, investigation or
proceeding (whether or not purportedly on behalf of Debtor) pending or
threatened against or affecting Debtor or any of its assets (a) which involves
the Collateral or any of the transactions contemplated by this Agreement; or (b)
which, if adversely determined, could have an adverse effect upon the
transactions contemplated by this Agreement or a material adverse effect on the
business, operations or financial condition of Debtor.
4.8 Title to Collateral. On the Closing Date Debtor shall be the owner
of the Collateral and shall have good and marketable title to the Collateral
subject to no Liens except the security interest created hereby in favor of
Lender and the interest of the Lessee in the Engine under the Lease.
4.9 Lender's Security Interest. On the Closing Date Lender shall have a
legal, valid and continuing first and only priority security interest in the
Collateral, free and clear of all other Liens, and all filings, recordings or
other actions necessary or desirable in order to establish, protect and perfect
such security interest in favor of Lender as a perfected first and only priority
security interest in the Collateral will have been duly effected, and all taxes,
fees and other charges in connection therewith shall have been duly paid.
4.10 No Defaults re Debtor. Debtor is not in default, and no event or
condition exists which after the giving of notice or lapse of time or both would
constitute an event of default, under any mortgage, indenture, contract,
agreement, judgment or other undertaking to which Debtor is a party or which
purports to be binding upon Debtor or upon any of its assets.
4.11 Financial Condition of Guarantor. All financial statements of
Guarantor, copies of which have been heretofore
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delivered to Lender, are complete and correct, have been prepared in accordance
with GAAP, and present fairly the financial position of Guarantor as at the date
thereof and the results of their respective operations for the period ended on
said date and there has been no material adverse change in the financial
condition, business or operations of Guarantor since said date.
4.12 Taxes. Debtor and/or Guarantor have filed all Federal, state and
local income tax returns that are required to be filed by each such party, and
have paid all taxes as shown on said returns and all assessments received by
each such party to the extent that such taxes and assessments have become due,
and Debtor and/or Guarantor does not have any knowledge of any actual or
proposed material deficiency or additional assessment in connection therewith.
The material charges, accruals and reserves on the respective books of Debtor
and the Guarantor in respect of Federal, state and local taxes for all open
years, and for the current fiscal year, make adequate provision for all unpaid
tax liabilities for such periods.
4.13 Engine. The Engine is greater than 750 rated take-off horsepower or
its equivalent.
4.14 Exempt Transaction. The issuance and delivery of the Note and any
other documents or instruments in connection with this Agreement under the
circumstances contemplated by the Note and this Agreement is an exempt
transaction under the Securities Act of 1933, as amended, and does not under
existing law require the registration of the Note (or any other document or
agreement) under the Securities Act of 1933, as amended or the qualification of
an indenture in respect thereof under the Trust Indenture Act of 1939, as
amended. Debtor is not an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
4.15 Security Interest. The Debtor has the right to grant a security
interest in, and has validly granted a security interest in and to, the
Collateral to the Lender.
4.16 No Adverse Mortgages. No mortgage, deed of trust, or other Lien
which now covers or affects, or which may hereafter cover or affect, any
property or interest therein of Debtor, now attaches or hereafter will attach to
any Collateral or in any manner affects or will affect adversely Lender's
security interest therein.
4.17 Claims. Debtor has no pending claims, and does not have knowledge
of any facts upon which a future claim may be based, against any prior owner,
the manufacturer or supplier of the Engine or of the Engine or Part thereof for
breach of warranty or otherwise.
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4.18 Organization of Guarantor. Guarantor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, has the necessary authority and power to own its assets and to
transact the business in which it is engaged, and is duly qualified to do
business in each jurisdiction in which its failure to do so would adversely
affect the Guarantor's business, operations or financial condition or its
ability to perform its obligations under the Guaranty, the Pledge Agreement, the
Stock Powers and all other instruments to be executed and delivered pursuant
thereto.
4.19 Power and Authority of Guarantor. Guarantor has full power,
authority and legal right to execute and deliver the Guaranty, the Pledge
Agreement, the Stock Powers and all other instruments to be executed and
delivered therewith, to perform its obligations thereunder, and to guaranty
thereunder the Obligations.
4.20 Consents and Permits of Guarantor. No consent or approval of, or
giving of notice to, any other party or Person (including any stockholders,
trustees or holders of indebtedness), and no consent, license, permit, approval
or authorization of, exemption by, or registration or declaration with, any
governmental body, authority, bureau or agency is required in connection with
the execution, delivery or performance by Guarantor of the Guaranty, the Pledge
Agreement, the Stock Powers and all other instruments to be executed and
delivered therewith, or the validity or enforceability of the Guaranty.
4.21 No Legal Bar re Guarantor. The execution, delivery and performance
by Guarantor of the Guaranty, the Pledge Agreement, the Stock Powers and all
other instruments to be executed and delivered thereunder does not and shall not
violate any provision of any applicable law or regulation or of any judgment,
award, order, writ or decree of any court or governmental instrumentality, will
not violate any provision of the charter or by-laws of Guarantor and will not
violate any provision of or cause a default under any mortgage, indenture,
contract, agreement or other undertaking to which Guarantor is a party or which
purports to be binding upon Guarantor or upon any of its assets, and will not
result in the creation or imposition of any Lien on any of the assets of
Guarantor.
4.22 Enforceability re Guarantor. When executed and delivered, the
Guaranty, the Pledge Agreement, the Stock Powers and all other instruments to be
executed and delivered therewith shall have been duly authorized, executed and
delivered by Guarantor and shall constitute legal, valid and binding obligations
of Guarantor enforceable in accordance with their respective terms.
4.23 No Litigation re Guarantor. There is no action, suit,
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investigation or proceeding (whether or not purportedly on behalf of Guarantor)
pending or threatened against or affecting Guarantor or any of its assets (a)
which involves the Guaranty, the Pledge Agreement, the Pledged Stock, the Stock
Powers or the Collateral or any of the transactions contemplated by this
Agreement, the Guaranty or the Pledge Agreement; or (b) which, if adversely
determined, could have an adverse effect upon the transactions contemplated by
this Agreement, the Guaranty or the Pledge Agreement or a material adverse
effect on the business, operations or financial condition of Guarantor.
4.24 No Defaults re Guarantor. Guarantor is not in default, and no event
or condition exists which after the giving of notice or lapse of time or both
would constitute an event of default, under any mortgage, indenture, contract,
agreement, judgment or other undertaking to which Guarantor is a party or which
purports to be binding upon Guarantor or upon any of its assets which could have
a materially adverse effect on the business, operations or financial condition
of the Guarantor.
4.25 Delivery of Further Financial Statements re Guarantor. The
Guarantor will furnish Lender (i) as soon as available, and in any event within
one hundred twenty (120) days after the last day of each fiscal year of
Guarantor, a copy of the consolidated balance sheet of Guarantor and its
consolidated subsidiaries as of the end of such fiscal year, and related
consolidated statements of income, cash flow and retained earnings of Guarantor
and its consolidated subsidiaries for such fiscal year, all in reasonable detail
prepared in accordance with generally accepted accounting principles
consistently applied and certified by an independent certified public accounting
firm of recognized national standing, each on a comparative basis with
corresponding statements for the prior fiscal year; (ii) within sixty (60) days
after the last day of each fiscal quarter of Guarantor (except the last fiscal
quarter of any fiscal year), a copy of the consolidated balance sheet of
Guarantor and its consolidated subsidiaries as of the end of each such quarter,
and consolidated statements of income, cash flow and retained earnings covering
the fiscal year to date of Guarantor and its consolidated subsidiaries, each on
a comparative basis with the corresponding period of the prior year, all in
reasonable detail; and (iii) within thirty (30) days after the date on which
they are filed, all SEC Form 10-K, SEC Form 10-Q and SEC Form 8-K reports, made
by Guarantor with the Securities and Exchange Commission ("SEC") or any filings
or reports made by the Debtor or the Guarantor in respect of the Engine, this
Agreement or the Lease with the FAA. All credit, financial and other information
provided by the Debtor or the Guarantor or at any such party's direction is, and
all such information hereafter furnished will be, true, correct and complete in
all material respects.
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4.26 Single Purpose. Debtor has engaged in no business or transaction
and has not incurred any Indebtedness, liabilities or obligations except in
connection with the transaction contemplated by the Lease, the General Terms
Agreement, this Agreement, the Note, the Collateral Assignment and the Lessee
Consent and Acknowledgment.
4.27 Subsidiary of Guarantor. Debtor is a wholly-owned Subsidiary of the
Guarantor and itself has no Subsidiaries, and Debtor shall remain a wholly-owned
Subsidiary of the Guarantor at all times throughout the term of this Agreement.
4.28 Margin Securities. None of the advances of the Loan will be used,
directly or indirectly, for the purpose of purchasing or carrying any margin
security, as that term is defined in Regulations G and U of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), or for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security, or for any other purpose
which might cause any of such advances and other financial actions under this
Agreement to be considered a "purpose credit" within the meaning of Regulation
G, T, U, or X of the Federal Reserve Board. None of the Debtor's assets and none
of the Collateral constitute margin securities. The Debtor will neither take,
nor permit any agent acting on its behalf to take, any action which might cause
any transaction or obligation, or right created by this Agreement, or any
document or instrument delivered pursuant hereto, to violate any regulation of
the Federal Reserve Board. None of the transactions contemplated under this
Agreement, including, without limitation, the Note or the collateral assignment
hereunder will violate or result in a violation of the Securities Exchange Act
of 1934, as amended or any regulation issued pursuant thereto.
4.29 Lease and Lease Receivables. With respect to the Lease and/or the
Lease Receivables, as the case may be, Debtor warrants and represents to Lender
that, unless otherwise indicated in writing by Debtor: (A) they are genuine, are
in all respects what they purport to be, are not evidenced by a judgment and are
only evidenced by one, if any, executed Counterpart No. 1 of any applicable
instrument, agreement, contract or document; (B) they represent undisputed, bona
fide transactions completed in accordance with the terms and provisions
contained in any documents related thereto; (C) the amounts of the face value
shown on the Lease or schedules thereto or schedule of accounts or accounts
receivable report delivered or provided to Lender, and all invoices, statements
and reports delivered or provided to Lender, with respect to the Lease and/or
any Lease Receivables are actually and absolutely owing to Debtor and are not
contingent for any reason; (D) there are no setoffs, counterclaims or disputes
existing or asserted with respect
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thereto and Debtor has not made any agreement with the Lessee for any deduction
therefrom; (E) there are no facts, events or occurrences which in any way impair
the validity or enforcement thereof or tend to reduce the amount payable
thereunder from the amount due under the Lease and/or any Lease Receivables, and
on all contracts, reports, invoices and statements delivered or provided to
Lender with respect thereto; (F) to the best of Debtor's knowledge and belief,
the Lessee, (i) had the capacity to contract at the time of the Lease or
contract or other document giving rise to the Lease Receivable was executed,
(ii) is solvent, and (iii) is not the subject of a bankruptcy or insolvency
proceeding of any kind; (G) the Lease Receivables, the Engine and the Lease are
not subject to any Liens or claim or encumbrance, except those of Lender, those
removed or terminated prior to the date hereof and those subordinate to Lender's
security interest (unless otherwise agreed by the Lender in its sole
discretion); (H) Debtor has no knowledge of any fact or circumstance which would
impair the validity or collectibility thereof; (I) to the best of Debtor's
knowledge and belief, there are no proceedings or actions which are threatened
or pending against the Lessee which might result in any material adverse change
in said party's financial condition; (J) they have not been pledged, assigned or
transferred to any Person other than to the Lender; (K) the Lease and any
guarantees or undertakings of any kind whatsoever regarding the same constitutes
legal, valid and binding agreements enforceable against the Lessee and any
guarantors in accordance with their respective terms, except to the extent that
such enforcement may be limited by applicable bankruptcy, insolvency and other
similar laws affecting creditors' rights generally; (L) Debtor is the sole and
absolute owner of (or has a perfected, first priority lien and security interest
in) all the Lease, Lease Receivables and the Engine (subject only to the Liens
of the Lender hereunder or the interest of the Lessee in the Engine under the
Lease); (M) the Engine shall have been delivered and/or installed, shall be in
good working order and shall have been fully and duly accepted by the Lessee;
(N) it has been originated by the Debtor; (O) the Debtor has not permitted the
prepayment of any monthly rentals, or other amounts or monies due or payable
under the Lease except as otherwise specifically described to the Lender in
writing prior to the execution of this Agreement, (P) the Lease has not been
terminated or amended as of the date of this Agreement, and (Q) there are no
verbal, written or implied agreements or representations between the Debtor and
the Lessee regarding the Lease Receivables, the Lease and/or the Engine other
than the written agreements or documents either delivered to and held by the
Lender pursuant to the terms of this Agreement.
4.30 Originals of Lease. Lender shall have received the only executed
counterpart of the Lease marked "Counterpart No. 1 of 4 Serially Numbered
Counterparts" in its possession (and all other
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executed counterparts of the same in its possession) and the only executed
counterpart of each schedule, rider, amendment and addendum thereto marked
"Counterpart No. 1 of 4 Serially Numbered Counterparts" in its possession (and
all other executed counterparts of the same in its possession). The Debtor shall
have duly marked, and legended, the Lease and any documentation relating
thereto, with the following statement: Counterpart No. __ of __ serially
numbered, manually executed Counterparts. To the extent, if any, that this Lease
constitutes chattel paper under the UCC, no security interest in this Lease may
be created through the transfer and possession of any Counterpart other than
Counterpart No. 1.
4.31 Solvency. The Debtor is solvent as determined under GAAP as of the
date of this Agreement.
SECTION 5. COVENANTS.
Debtor covenants and agrees that from and after the date hereof and so
long as the Commitment or the Note or any other Obligations are outstanding:
5.1 Notices. Debtor shall promptly give written notice to Lender of (i)
the occurrence of any Event of Default or any event which with notice, with
lapse of time and/or with any further condition, event or act would constitute
an Event of Default; (ii) the occurrence of any Event of Loss; (iii) the
commencement or threat of any material litigation or proceedings affecting
Debtor or any material litigation or proceedings affecting the Engine; and (iv)
any dispute between Debtor and any governmental regulatory body or other party
that involves the Engine or that might materially interfere with the normal
business operations of Debtor.
5.2 Laws; Obligations. Debtor shall (i) duly observe and conform to all
requirements of any governmental authorities relating to the conduct of its
business, the Engine, and/or to its properties or assets; (ii) maintain its
existence as a legal entity and obtain and keep in full force and effect all
rights, franchises, licenses and permits which are necessary to the proper
conduct of its business; (iii) remain a citizen of the United States within the
meaning of Subtitle VII of Title 49 of the United States Code, as amended and
recodified; (iv) obtain or cause to be obtained as promptly as possible any
governmental, administrative or agency approval and make any filing or
registration therewith which at the time shall be required with respect to the
performance of its obligations under this Agreement and the operation of the
Engine and its business; and (v) pay and perform all of its obligations and
liabilities when due, including, without limitation, all fees, taxes,
assessments and
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governmental charges or levies imposed upon it or upon its income or profits or
upon the Engine or any other property belonging to it.
5.3 Inspection. So long as no Event of Default has occurred and is
continuing hereunder, Debtor shall permit and allow Lender or its authorized
representative at any reasonable time or times to inspect the Collateral, the
Records and the books and records of the Debtor after having received five (5)
days prior notice, provided, however, so long as no Event of Default (as defined
in the Lease) has occurred and is continuing under the Lease, the Lender shall
comply with Section 13 of the General Terms Agreement as to the Lender's right
of inspection regarding the Engine; provided further, however, that nothing
contained in the foregoing proviso shall be deemed to limit, impair or adversely
affect in any way whatsoever the Lender's rights under the Collateral
Assignment, this Agreement or any other agreements, documents or instruments to
enforce the rights and remedies of the Debtor under such Section 13 of the
General Terms Agreement or any other applicable section of the Lease.
Notwithstanding the foregoing, in the event that any Event of Default has
occurred and is continuing hereunder, Debtor shall permit and allow Lender or
its authorized representative at any time or times to inspect the Collateral,
the Records and the books and records of the Debtor without any notice;
provided, however, that in the event the Engine is in the possession of the
Lessee at the time an Event of Default has occurred and is continuing hereunder,
the Debtor shall permit and allow Lender or its authorized representative at any
time or times to inspect the Collateral, the Records and the books and records
of the Debtor after having received one (1) day prior notice, provided further,
however, so long as no Event of Default (as defined in the Lease) has occurred
and is continuing under the Lease, the Lender shall comply with Section 13 of
the General Terms Agreement as to the Lender's right of inspection regarding the
Engine; provided further, however, that nothing contained in the foregoing
provisos shall be deemed to limit, impair or adversely affect in any way
whatsoever the Lender's rights under the Collateral Assignment, this Agreement
or any other agreements, documents or instruments to enforce the rights and
remedies of the Debtor under such Section 13 of the General Terms Agreement or
any other applicable section of the Lease.
5.4 Books. Debtor shall keep proper books of record and account in which
full, true and correct entries in accordance with generally accepted accounting
principles will be made of all dealings or transactions in relation to its
business and activities.
5.5 Financial Information. Debtor agrees to furnish Lender or to cause
the Guarantor to furnish Lender (i) as soon as available, and in any event
within one hundred twenty (120) days after the last day of each fiscal year of
Guarantor, a copy of
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the consolidated balance sheet of Guarantor and its consolidated subsidiaries as
of the end of such fiscal year, and related consolidated statements of income,
cash flow and retained earnings of Guarantor and its consolidated subsidiaries
for such fiscal year, all in reasonable detail prepared in accordance with
generally accepted accounting principles consistently applied and certified by
an independent certified public accounting firm of recognized national standing,
each on a comparative basis with corresponding statements for the prior fiscal
year; (ii) within sixty (60) days after the last day of each fiscal quarter of
Guarantor (except the last fiscal quarter of any fiscal year), a copy of the
consolidated balance sheet of Guarantor and its consolidated subsidiaries as of
the end of each such quarter, and consolidated statements of income, cash flow
and retained earnings covering the fiscal year to date of Guarantor and its
consolidated subsidiaries, each on a comparative basis with the corresponding
period of the prior year, all in reasonable detail; and (iii) within thirty (30)
days after the date on which they are filed, all SEC Form 10-K, SEC Form 10-Q
and SEC Form 8-K reports, made by Guarantor or Debtor with the SEC or any
filings or reports made by the Guarantor or Debtor in respect of the Engine,
this Agreement or the Lease with the FAA.
5.6. Further Assurances. Debtor shall promptly, at any time and from
time to time, at its sole expense, execute and deliver to Lender such further
instruments and documents, and take such further action, as Lender may from time
to time reasonably request in order to further carry out the intent and purpose
of this Agreement and to establish and protect the rights, interests and
remedies created, or intended to be created, in favor of Lender hereby,
including, without limitation, the execution, delivery, recordation and filing
of UCC financing statements and continuation statements. Debtor shall pay, or
reimburse Lender for, any and all reasonable fees, costs and expenses of
whatever kind or nature incurred in connection with the creation, preservation
and protection of Lender's security interest in the Collateral, including,
without limitation, all fees and taxes in connection with the recording or
filing of instruments and documents in public offices, payments or discharges of
any taxes or Liens upon or in respect of the Collateral, premiums for insurance
with respect to the Collateral and all other fees, costs and expenses in
connection with protecting, maintaining or preserving the Collateral and
Lender's interest therein, whether through judicial proceedings or otherwise, or
in defending or prosecuting any actions, suits or proceedings arising out of or
related to the Collateral, and all such amounts that are paid by Lender shall,
until reimbursed by Debtor, constitute Obligations of Debtor secured by the
Collateral.
5.7 No Disposition of Assets. Debtor shall not sell, convey, transfer,
dispose, assign, sublease, pledge, mortgage, exchange, lease or otherwise
relinquish possession or dispose of
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any of its now owned or hereafter acquired property or assets, including,
without limitation, any Collateral (or Lender's security interest in the
Collateral), except (i) for the Lease and the leasing of the Engine to the
Lessee under said Lease, (ii) for any Liens expressly permitted in Section 5.8
of this Agreement, and (iii) as otherwise expressly permitted in Section 2.3(c)
and Section 5.14 of this Agreement.
5.8 No Liens. Debtor shall not create, incur, assume, or suffer to exist
any Lien upon or with respect to any of its properties, including, without
limitation, any Collateral, now owned or hereafter acquired, except:
(a) Liens in favor of the Lender;
(b) Liens for taxes or assessments or other government charges or
levies not yet due and payable or, if due and payable, Liens for
taxes being diligently contested in good faith by appropriate
proceedings and for which appropriate cash reserves are
maintained, and where in the Lender's sole judgment, there is no
danger of the sale, forfeiture or loss of any of the Collateral,
and if requested by the Lender, adequate assurance of payment
and/or security have, in Lender's sole judgment have been
provided to Lender;
(c) Liens imposed by law, such as mechanics, material men's,
landlords', warehousemen's, and carriers' Liens, and other
similar Liens, securing obligations incurred in the ordinary
course of business which do not exceed in the aggregate
$100,000.00 and which are not past due for more than thirty (30)
days, unless such Liens are being diligently contested in good
faith by appropriate proceedings and appropriate cash reserves
have been established therefor, and where in the Lender's sole
judgment, there is no danger of the sale, forfeiture or loss of
any of the Collateral, and if requested by the Lender, adequate
assurance of payment and/or security have, in Lender's sole
judgment have been provided to Lender; and
(d) Liens expressly permitted pursuant to the terms of the Lease.
5.9 Debtor's Title; Lender's Security Interest. Debtor shall warrant and
defend its good and marketable title to the Engine and Lender's first perfected
security interest in the Collateral, against all claims and demands whatsoever.
If at any time any Person shall claim any right or interest in the Collateral,
Debtor shall, at its expense, cause such claim to be waived in writing or
otherwise eliminated to Lender's satisfaction within sixty (60) days after such
claim shall have first become
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known to Debtor.
5.10 No Changes in Debtor and/or Guarantor. Each of the Debtor and/or
Guarantor shall not (a) enter into any transaction of merger or consolidation,
or become the subject of, or engage in, a leveraged buyout; or (b) liquidate or
dissolve; or (c) sell or otherwise dispose of all or any substantial portion of
its assets; or (d) change its name or the form of organization of its business;
or (e) without thirty (30) days prior written notice to Lender, change its chief
place of business, provided, however, that the Guarantor may consolidate,
reorganize or merge with or into any other corporation or become the subject of,
or engage in, a leveraged buy out or any other form of corporate reorganization
(each individually or all collectively, the "Reorganization") without the prior
written consent of the Lender if immediately subsequent to such proposed
Reorganization (i) the surviving entity of any such proposed Reorganization
shall be the Guarantor, and (ii) no person or group (as defined in Rules 13d-3
and 13-5 under the Securities Act), becomes the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Securities Act) of a larger number of shares
of common stock of the Guarantor than the number of shares of which CHARLES F.
WILLIS, IV and members of his family (including children, brothers and sisters)
is the beneficial owner (as defined in Rules 13d-3 sand 13d-5 under the
Securities Act).
5.11 Maintenance and Operation; Compliance and Use; Replacement
Parts; Additions, Modifications; Identification; Event of Loss
re Engine.
(a) Maintenance and Operation. Debtor, at its own cost and expense,
shall (or shall cause the Lessee to) (i) maintain, inspect, service, repair,
overhaul and test the Engine in accordance with the manufacturer's maintenance
program and (w) an FAA approved Part 121 maintenance program, (x) all
maintenance manuals initially furnished with the Engine, if any, including any
subsequent amendments or supplements to such manuals issued by the applicable
manufacturer from time to time, (y) all "mandatory", "alert" and (to the extent
applicable to Debtor, or its operations) "highly recommended" or other service
bulletins, modification kits, and similar notices and components issued,
supplied, or available by or through the manufacturer and/or the manufacturer(s)
of the Engine or Part with respect to the Engine and (z) all "airworthiness
alerts" and "Airworthiness" or other "Directives", "Service Letters",
"Circulars" and "Operator Bulletins" and all other applicable service,
maintenance, repair and overhaul regulations issued by the FAA or similar
regulatory agency having jurisdictional authority, and whenever possible causing
compliance to the foregoing to be completed through corrective modification in
lieu of operating manual restrictions; (ii) maintain all Records and all other
records, logs, and other materials required by the FAA to be maintained in
respect of the
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Engine, or by the manufacturer thereof for enforcement of any warranties.
Without limiting the generality of the foregoing, Debtor shall (or shall cause
the Lessee to) maintain, inspect, service, repair, overhaul and test the Engine,
and furnish all parts, replacements, mechanisms, devices and servicing required
therefor, so that the value, condition and operating efficiency of the Engine
shall at all times be maintained and preserved at a level which is the higher
of, (x) its value, condition and operating efficiency when delivered to Debtor,
fair wear and tear excepted, or (y) the level required by any governmental
authority having jurisdiction with respect thereto, or as shall be required by
any and all applicable "airworthiness alerts" and "Airworthiness" or other
"Directives", "Service Letters", "Circulars" and "Operator Bulletins". All
maintenance procedures required under this Section 5.11(a) or any other
provision of this Agreement shall be undertaken and completed in accordance with
all FAA standards and procedures and all manufacturer recommended procedures, as
well as the procedures established by Debtor for similar engines which it owns
or leases, and only by properly trained, licensed, and certified maintenance
sources and maintenance personnel, so as to keep the Engine in good operating
condition, ordinary wear and tear alone excepted. Debtor shall not (and shall
cause the Lessee not to) permit the Engine to be serviced, repaired, maintained,
used or operated in any manner contrary to directives of the FAA or the
manufacturer's operating manuals or instructions, or in violation of the
manufacturer's specifications, service bulletins or other requirements,
including, without limitation, such of the manufacturer's requirements as may be
applicable to keep in full force and effect each warranty, product or
performance guaranty, service life policy or the like. Notwithstanding anything
contained in this Section 5.11(a) to the contrary, so long as the Debtor shall
(or cause the Lessee to) maintain, inspect, service, repair, overhaul and test
the Engine (and maintain and keep any Records) at a level which fully satisfies
in all respects the terms and conditions of the Lease, the Debtor shall be
deemed to have complied in all respects to the terms and conditions of this
Section 5.11(a).
(b) Compliance and Use. The Engine shall be maintained, used and
operated by Debtor (or the Debtor shall cause the Lessee to) maintain, use and
operate the Engine, in compliance with any and all statutes, laws, ordinances,
regulations and mandatory standards, letters, circulars, bulletins, instructions
or directives issued by any governmental agency applicable to the maintenance,
use or operation thereof, in compliance with any certificate, license or
registration relating to the Engine issued by any agency, and in a manner that
does not modify or impair any existing warranties on the Engine or any part
thereof. Debtor shall also (or shall cause the Lessee to) operate the Engine
solely in the conduct of its business and/or for commercial purposes, and Debtor
shall not (and shall cause the Lessee not to) operate or permit the Engine to be
operated at any time or in any
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geographic area when or where insurance required by the provisions of Section
5.12 hereof shall not be in effect or excluded from coverage, or in any
recognized or threatened area of hostilities unless fully covered to Lender's
satisfaction by hull, war, and political risk insurance, or any area in which
Lender's first lien on the Engine may be jeopardized or not recognized, as
determined in Lender's sole judgment, or in a manner, for any time period, such
that, any third party shall be deemed to have "operational control" of the
Engine, except for the Lessee pursuant to the terms of the Lease.
Notwithstanding anything contained in this Section 5.11(b) to the contrary, so
long as the Debtor shall (or cause the Lessee to) use, operate, maintain,
inspect, service, repair, overhaul and test the Engine (and maintain and keep
any Records) at a level which fully satisfies in all respects the terms and
conditions of the Lease, the Debtor shall be deemed to have complied in all
respects to the terms and conditions of this Section 5.11(b).
(c) Identification. If requested by Lender in writing, Debtor shall, at
its own cost and expense (or the Debtor shall cause the Lessee, at the Lessee's
own cost and expense to), attach to the Engine a data plate satisfactory to
Lender disclosing Lender's security interest in the Engine.
(d) Replacement Parts. Debtor, at its own cost and expense, will
promptly (or will cause the Lessee to promptly) replace all Parts which may from
time to time become worn out, lost, stolen, taken, destroyed, seized,
confiscated, requisitioned, damaged beyond repair or permanently rendered or
declared unfit for use for any reason whatsoever (such substituted Parts
hereinafter called "Replacement Parts"). In addition, in the ordinary course of
maintenance, service, repair, overhaul or testing, Debtor may, at its own cost
and expense, (or may cause the Lessee to promptly) remove serviceable Parts,
provided that Debtor shall, at its own cost and expense (or Debtor shall cause
the Lessee, at the Lessee's own cost and expense to), replace such serviceable
Parts as promptly as practicable. All Replacement Parts (i) shall be owned by
Debtor or Lessee free and clear of all Liens (other than the Lien of the Lender
hereunder), (ii) shall be in an airworthy condition and of at least equivalent
model and modification status and/or service bulletin accomplishment status,
shall be fully interchangeable as to form, fit and function and shall be in a
good operating condition as, and shall have a value and utility at least equal
to, the Parts replaced assuming such replaced Parts were in the condition and
repair required to be maintained by the terms hereof, (iii) shall have a current
"serviceable tag" of the manufacturer or maintenance facility providing such
items to Debtor or Lessee, indicating that such Parts are new, serviceable or
overhauled, (iv) if serviceable, shall have all maintenance records from the
last overhaul thereof and the maintenance history since the last overhaul
thereof, (v) if overhauled, have all overhaul records, and (vi) if a life
limited Part, have continuous
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records since the date of manufacture or the date of the last overhaul. All
Parts at any time removed from the Engine shall remain part of the Collateral,
no matter where located, until such time as such Parts shall be replaced by
Parts which have been incorporated or installed in or attached to the Engine and
which meet the requirements for Replacement Parts specified above. Without
limiting the generality of any term of this Agreement, immediately upon any
Replacement Part becoming incorporated or installed in or attached to the Engine
as above provided, without further act, such Replacement Part shall become
subject to this Agreement including, without limitation, the lien and security
interest of this Agreement, and shall be deemed part of the Collateral and shall
be deemed part of the Engine, as the case may be, for all purposes hereof to the
same extent as the Parts originally incorporated or installed in or attached to
the Engine, and the Lender's lien and security interest with respect to the Part
being replaced by the Replacement Part shall automatically thereafter be deemed
to be released and shall no longer be subject to the terms of this Agreement.
Notwithstanding anything contained in this Section 5.11(d) to the contrary, so
long as the Debtor shall (or cause the Lessee to) use, operate, maintain,
inspect, service, repair, overhaul and test the Engine and replace any Parts
(and maintain and keep any Records) at a level which fully satisfies in all
respects the terms and conditions of the Lease, the Debtor shall be deemed to
have complied in all respects to the terms and conditions of this Section
5.11(d).
(e) Additions; Modifications. Debtor (or the Lessee) shall be entitled
from time to time during the term of this Agreement to, at Debtor's or Lessee's
sole cost and expense, make such alterations, modifications, additions to or
removals from any Engine or Engine as may be reasonable in the proper conduct by
Debtor (or the Lessee, as applicable) of its business; provided, that in no
event shall any such alteration, modification, addition or removal (i) impair
the originally intended function or use of the Engine or diminish the use,
condition or value of the same, assuming the Engine was in the condition and
repair then required to be maintained by the terms hereof, and/or (ii) as to any
Additional Parts (as such term is defined below), the removal of any such
Additional Parts can be readily removed without causing material damage to the
Engine. All Parts incorporated or installed in or attached to the Engine as the
result of such alteration, modification or addition shall be collectively
referred to as the "Additional Parts". Debtor shall (or shall cause the Lessee
to) repair all damage to the Engine resulting from any installation and/or
removal of any Additional Parts so as to restore the Engine to its condition
prior to installation, normal wear and tear excepted assuming the Engine was in
the condition and repair then required to be maintained by the terms hereof. Any
alterations or modifications with respect to the Engine that may at any time
during the term of this Agreement be required to comply with applicable law or
any governmental rule or regulation shall be
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made at the sole cost and expense of Debtor or Lessee, as applicable. Without
limiting the generality of any term of this Agreement, immediately upon any
Additional Parts becoming incorporated or installed in or attached to the Engine
as above provided, without further act, such Additional Parts shall become
subject to this Agreement including, without limitation, the lien and security
interest of this Agreement, and shall be deemed part of the Collateral and shall
be deemed part of the Engine, as the case may be, for all purposes hereof to the
same extent as the Parts originally incorporated or installed in or attached to
the Engine; provided, that if such Additional Part was in addition to, and not a
replacement of or substitution for, any Part incorporated or installed in or
attached or added to the Engine on the date the Engine became subject to the
terms of this Agreement (a "Debtor Additional Part"), Debtor may (or may cause
the Lessee to) at any time remove such Debtor Additional Part from the Engine so
long as the removal of such Debtor Additional Part (i) does not impair the
originally intended function or use of the Engine or diminish the use, condition
or value of the same, assuming the Engine was in the condition and repair then
required to be maintained by the terms hereof, and/or (ii) can be readily
removed without causing material damage to the Engine, and upon removal of such
Debtor Additional Part, Lender's lien and security interest with respect to such
Debtor Additional Part shall automatically be deemed to be released and shall no
longer be subject to the terms of this Agreement. Notwithstanding anything
contained in this Section 5.11(e) to the contrary, so long as the Debtor shall
(or cause the Lessee to) use, operate, maintain, inspect, service, repair,
overhaul and test the Engine and make additions or modifications to the Engine
or any Parts (and maintain and keep any Records) at a level which fully
satisfies in all respects the terms and conditions of the Lease, the Debtor
shall be deemed to have complied in all respects to the terms and conditions of
this Section 5.11(e).
5.12 Insurance.
(a) Engine Liability and Property Damage Insurance. Debtor represents
and warrants that it will (or will cause the Lessee to) maintain at all times,
at its own cost and expense (or at the Lessee's own cost and expense), with
insurers of recognized responsibility, (i) comprehensive aircraft and general
public liability insurance against bodily injury and property damage claims in
an amount not less than $300,000,000.00 for each single occurrence and (ii) such
other property damage insurance (exclusive of manufacturer's product liability
insurance) with respect to the Engine as is of the type and in the amounts
usually carried by companies engaged in the same or a similar business as Debtor
(or Lessee), similarly situated with Debtor (or Lessee), and owning or operating
similar aircraft and engines, and which covers risks of the kind customarily
insured against by such
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companies.
(b) Insurance Against Loss or Damage to the Engine. Debtor represents
and warrants that it will (or will cause the Lessee to) maintain in effect at
all times, at its own cost and expense (or at the Lessee's own cost and
expense), with insurers of recognized responsibility, all-risk ground and flight
aircraft hull insurance covering the Engine, provided that such insurance shall
at all times be not less than the greater of (i) the full replacement value of
the Engine as such value is set forth on Exhibit C attached hereto, (ii) the
aggregate unpaid principal amount of the Note or (iii) the amount which would be
paid pursuant to Section 2.3 hereof upon the occurrence of an Event of Loss
(each such amount determined as of each anniversary of the Closing Date for the
next succeeding year throughout the term of this Agreement). Debtor shall (or
shall cause the Lessee to), at its (or the Lessee's) own cost and expense,
additionally maintain in effect with an insurer of recognized responsibility
reasonably satisfactory to Lender, hijacking (air piracy) insurance with respect
to the Engine in a face amount of not less than the greater of (i) the full
replacement value of the Engine as such value is set forth on Exhibit C attached
hereto, (ii) the aggregate unpaid principal amount of the Note or (iii) the
amount which would be paid pursuant to Section 2.3 hereof upon the occurrence of
an Event of Loss (each such amount determined as of each anniversary of the
Closing Date for the next succeeding year throughout the term of this
Agreement), which shall be in full force and effect throughout any geographical
areas at any time traversed by the Engine. Such insurance shall also include
governmental confiscation and expropriation and related insurance, if and to the
extent the same is maintained by Debtor (or Lessee, as applicable) with respect
to other aircraft owned or operated by Debtor (or Lessee, as applicable) on the
same routes as the Engine or where the custom in the United States airline
industry is to carry such insurance with respect to aircraft and engines
operated on the same routes as the Engine.
(c) Lender as Additional Insured; Notice. Any policies of insurance
carried in accordance with this Section and any policies taken out in
substitution or replacement or any such policies (i) shall be amended to name
Lender as the additional insured as its interests may appear, (ii) with respect
to insurance carried in accordance with paragraph (b) of this Section 5.12
covering the Engine, shall provide that any amount(s) payable thereunder which
exceed $200,000.00 in the aggregate shall be paid directly to Lender as sole
loss payee and not to Lender and Debtor jointly (and, so long as no Event of
Default has occurred, such amounts shall be disbursed by Lender to Debtor or
other appropriate persons for payment of the costs actually incurred with
respect to repairs made to the Engine so as to restore it to the operating
condition required hereunder, or shall be disbursed by Lender as otherwise
required by this Agreement), and that any amount(s) of
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less than $200,000.00 in the aggregate shall be paid to Debtor (and such amounts
shall be applied by Debtor to pay the costs of such repairs) provided, however,
that if an Event of Default has occurred, any and all such proceeds or amounts
shall be paid directly to Lender to be applied pursuant to the applicable terms
of this Agreement, (iii) shall provide that if any insurer cancels such
insurance for any reason whatever, or any substantial change is made in any of
the coverage required hereunder, or the same is allowed to lapse for nonpayment
of premium or such insurance coverage is reduced, such cancellation, change,
lapse or reduction shall not be effective as to Lender for thirty (30) days
following receipt by Lender of written notice, and (iv) shall provide that in
respect of the interests of Lender in such policies, the insurance shall not be
invalidated by any action or inaction of Debtor or any other Person (other than
Lender). Each insurance policy and its respective cover amount(s) obtained in
accordance with the requirements set forth in paragraphs (a) and (b) of this
Section 5.12 shall (i) be primary insurance, not subject to any co-insurance
clause and shall be without right of contribution from any other insurance, and
(ii) expressly provide that all of the provisions thereof, except the limits of
liability, shall operate in the same manner as if there were a separate policy
covering each insured or loss payee, and shall waive any right of such insurer
to any setoff, counterclaim or other deduction, by attachment or otherwise, in
respect of Lender or Debtor. Debtor shall arrange for appropriate certification
as to the satisfaction of the requirements set forth above in this Section 5.12
to be delivered to Lender not later than the Closing Date.
(d) Reports, etc. Upon the request of the Lender, Debtor shall furnish
to Lender a report describing in reasonable detail the insurance then carried
and maintained on the Engine and certifying that such insurance complies with
the terms hereof and such other evidence of insurance coverage that the Lender
reasonably requests. In the event Debtor shall fail to maintain insurance as
herein provided, Lender may, at its option, provide such insurance, and Debtor
shall, upon demand, reimburse Lender for the cost thereof, together with
interest at the Late Charge Rate from the date of payment through the date of
reimbursement.
(e) Agreed Value. Anything herein to the contrary notwithstanding, at
all times while the Engine is subject to this Agreement, the insurance required
by Section 5.12 of this Agreement shall be for an amount on an "agreed value"
basis not less than the greater of (i) the full replacement value of the Engine
as such value is set forth on Exhibit C attached hereto, (ii) the aggregate
unpaid principal amount of the Note or (iii) the amount which would be paid
pursuant to Section 2.3 hereof upon the occurrence of an Event of Loss (each
such amount determined as of each anniversary of the Closing Date for the next
succeeding year throughout the term of this Agreement).
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5.13 Indebtedness. Debtor shall not create, incur, assume, or suffer to
exist any recourse or nonrecourse Indebtedness, except:
(a) Indebtedness of the Debtor under this Agreement or under any
other agreement, instrument or document with or in favor of the
Lender; and
(b) Accounts payable to trade creditors for goods or services and
current operating liabilities (other than for borrowed money),
in each case incurred in the ordinary course of business and
paid within the required time, unless diligently contested by
the Debtor in good faith and by appropriate proceedings.
5.14 Leases. Debtor shall not create, incur, assume, or suffer to exist
any obligation as lessee for the rental or hire of any real or personal
property, except: (a) leases existing on the date of this Agreement and any
extensions or renewals thereof; and (b) leases that do not in the aggregate
require the Debtor to make payments (including taxes, insurance, maintenance,
and similar expense which the Debtor is required to pay under the terms of any
lease) in any fiscal year of the Debtor in excess of $20,000.
5.15 Sale and Leaseback. Debtor shall not sell, transfer, or otherwise
dispose of any real or personal property to any Person and thereafter directly
or indirectly lease back the same or similar property.
5.16 Dividends; New Stock. Debtor shall not declare or pay any
dividends; or purchase, redeem, retire, or otherwise acquire for value any of
its capital stock now or hereafter outstanding or any interests therein; or make
any distribution of assets to its shareholders as such whether in cash, assets,
or obligations of the Debtor; or alleviate or otherwise set apart any sum for
the payment of any dividend or distribution on, or for the purchase, redemption,
or retirement of, any shares of its capital stock or any interests therein; or
issue or permit to be outstanding any new or additional shares of its stock of
any kind whatsoever; or designate, establish or create any new or additional
series of its stock (other than the stock that exists as of the date of this
Agreement) so long as any Obligations are outstanding.
5.17 Investments. Debtor shall not make, directly or indirectly, any
loan or advance of any kind whatsoever to any Person, or purchase or otherwise
acquire any capital stock, assets, obligations, or other securities of, make any
capital contribution to, or lend or advance any property or assets of any kind
whatsoever of the Debtor to any Person, or otherwise invest in or acquire any
interest in any Person except: (a) direct
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obligations of the United States or any agency thereof with maturities of one
year or less from the date of acquisition; (b) commercial paper of a domestic
issuer rated at least "A-I" by Standard & Poor's Ratings Group or "PI" by
Moody's Investors Service, Inc.; (c) certificates of deposit with maturities of
one year or less from the date of acquisition issued by the Lender; or (d) for
stock, obligations, or securities received in settlement of debts (created in
the ordinary course of business) owing to the Debtor.
5.19 Guaranties, Etc. Debtor shall not assume, guaranty, endorse, or
otherwise be or become directly or contingently responsible or liable
(including, but not limited to, an agreement to purchase any obligation, stock,
assets, goods, or services, or to supply or advance any funds, assets, goods, or
services, or to maintain or cause such Person to maintain a minimum working
capital or net worth, or otherwise to assure the creditors of any Person against
loss) for obligations of any Person, except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business.
5.20 Transactions With Affiliates. Debtor shall not enter into any
transaction, including, without limitation, the purchase, sale, or exchange of
property or the rendering of any service, with any Affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of the Debtor's
business and upon fair and reasonable terms no less favorable to the Debtor than
it would obtain in a comparable arm's length transaction with a Person not an
Affiliate.
5.21 Subsidiaries. Debtor shall not create or otherwise acquire an
interest in any Subsidiary or Person.
5.22 Single Purpose. Debtor shall not engage in any business,
transaction or incur any obligations or liabilities except as expressly
contemplated in the Lease, the General Terms Agreement, this Agreement, the
Note, the Collateral Assignment and the Lessee Consent and Acknowledgment or in
any other agreement, document or instrument between the Debtor and the Lender.
5.23 Subsidiary of Guarantor. Debtor shall remain a wholly-owned
Subsidiary of the Guarantor at all times throughout the term of this Agreement.
5.24 Fiscal Year. Debtor shall not change its fiscal year end from
December 31.
5.25 Accounting Methods. Debtor shall not make or consent to a material
change in the ownership or structure of the Debtor or in the manner in which the
business of the Debtor is conducted or in its method of accounting or in its
election to be taxed under
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the Internal Revenue Code, as applicable.
5.26 Account. Debtor shall maintain the Account at all times with the
Lender pursuant to the terms of this Agreement.
5.27 Collection of Payments; Payments to Lender. Effective as of the
date of this Agreement, the Debtor shall direct the Lessee to make all payments
under the Lease directly to the Lender in accordance with the Lender's
instructions and in accordance with Section 9.1 of this Agreement.
Notwithstanding the foregoing, in the event the Debtor and/or Guarantor still
receives and/or collects any payments and/or monies of any kind whatsoever due
under, in connection with, or relating to, the Collateral (any and all such
payments and/or monies collectively the "Payments"), Debtor and/or Guarantor
shall receive and/or collect any such Payments as agent for the Lender and shall
still hold the same in trust as trustee of an express trust for the Lender, and
Debtor and/or Guarantor shall immediately upon their respective receipt and/or
collection of same turnover and deliver all of such Payments to the Lender.
5.28 No Waiver or Modification; No Action Under the Lease.
Notwithstanding anything to the contrary contained herein or otherwise, Debtor
shall not waive any provisions of, or modify or amend, the Lease or the General
Terms Agreement in any way whatsoever, nor shall Debtor have authority to
exercise any rights or remedies of any kind whatsoever in connection with any
Collateral (including, without limitation, declaring an Event of Default, as
such term is defined in the General Terms Agreement, under the General Terms
Agreement, terminating the General Terms Agreement or the Lease, accelerating
any amounts due under the General Terms Agreement or the Lease or repossessing
the Engine), without the prior written consent of the Lender.
5.29 Debtor Obligations Under the Lease. Debtor shall fulfill (at its
sole cost and expense) all of its obligations as a lessor/owner under the Lease
and the General Terms Agreement except as may otherwise be expressly limited by
Sections 5.27 and/or 5.28 of this Agreement or any other applicable section of
this Agreement.
5.30 Administrator of Lease. Debtor shall (at its sole cost and expense)
administer the Lease and the General Terms Agreement, which administration shall
include, but not be limited to:
(a) billing Lessee for amounts payable under the General Terms Agreement
and the Lease;
(b) tracking the maintenance status of the Engine and ensuring that the
Lessee corrects any maintenance deficiencies that the Debtor is aware of;
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(c) providing Lender with evidence that all insurance coverage required
under the General Terms Agreement and the Lease has been obtained and/or renewed
by the Lessee;
(d) using its best efforts, upon the request of the Lender in its sole
discretion, to remarket, lease or sell (in the sole discretion of the Lender)
the Engine upon any Event of Default under this Agreement (other than any Event
of Default based on any Lessee Event of Default under the Lease);
(e) using its best efforts to remarket, lease or sell the Engine upon
any Lessee Event of Default under the Lease so long as no Event of Default has
occurred under this Agreement (other than any Event of Default based on any
Lessee Event of Default under the Lease), provided, however, that any bona fide
and arm's length lease or sale of the Engine proposed by the Debtor to any
Person that is not an Affiliate shall be subject to the prior written consent of
the Lender, which consent shall not be unreasonably withheld, provided further,
however, that any lease or sale of the Engine proposed by the Debtor to any
Affiliate or to any other Person which is not a bona fide and arm's length
transaction shall be subject to the prior written consent of the Lender, which
consent shall be in the sole discretion of the Lender; provided further,
however, that the first proviso and any rights of the Debtor under this Section
5.30(e) to remarket, lease or sell the Engine shall terminate and have no
further force or effect upon the occurrence of any Event of Default under this
Agreement (other than any Event of Default based on any Lessee Event of Default
under the Lease), and upon any such occurrence of such Event of Default under
this Agreement the Debtor shall remarket, lease or sell the Engine only pursuant
to the terms of Section 5.30(d) of this Agreement; and
(f) such other matters as are incidental to the normal administration of
an equipment lease or are reasonably requested by the Lender.
Nothing contained in this Section 5.30 or otherwise shall permit the
Debtor to take any actions expressly prohibited by Sections 5.27 and/or 5.28 of
this Agreement or any other applicable sections of this Agreement.
5.31 Solvency. The Debtor shall be solvent as determined under GAAP at
the time of the making of the Loan and at all times throughout the term of this
Agreement.
5.32 Engine Status Reports and Certification. As promptly as possible
after the end of each month during the term of the Note and this Agreement, and
in no event more than twenty (20) days thereafter, the Debtor shall provide the
Lender with monthly
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status reports regarding the Engine, which monthly status reports (and all
related documents and information) shall be reasonably satisfactory to the
Lender and shall include (i) the amount of the hours and cycles flown by the
Engine for the applicable month, (ii) notice of any repairs, overhauls,
servicing and all other maintenance procedures or services performed or required
with regard to the Engine for the applicable month as a result of any
"Airworthiness Directives" which have required the Engine to be out of service
for more than ten (10) days of said applicable month, and (iii) copies of all
reports regarding the Engine which are provided by the Lessee to the Debtor
pursuant to the terms of the Lease and copies of any reports or other
information regarding any damage to the Engine.
5.33 Furnishing of Additional Information. Debtor agrees that it shall
furnish to Lender from time to time such information relating to the Collateral,
the Debtor or the Guarantor (or their respective Subsidiaries and/or
Affiliates), financial or otherwise, as Lender shall reasonably request;
provided, however, with regard to any additional information concerning the
Engine, the Lender shall be entitled to (i) any additional information
concerning the Engine which the Lessee is required to provide the Debtor (or the
Lender) under the terms of the Lease, and (ii) any additional information
concerning the Engine which may be in the Debtor's possession or control.
SECTION 6. SECURITY INTEREST.
6.1 Grant of Security Interest. As collateral security for the prompt
and complete payment and performance when due of all of the Obligations and in
order to induce Lender to enter into this Agreement and make the Loan to Debtor
in accordance with the terms hereof and to extend other credit from time to time
to Debtor, whether under this Agreement, the Note or otherwise, Debtor hereby
assigns, conveys, mortgages, pledges, hypothecates and transfers to Lender, and
hereby grants to Lender a present and continuing first priority security
interest in and lien on all of Debtor's right, title and interest in, to and
under the Collateral; but none of Debtor's (and/or any other party's of any kind
whatsoever) obligations, liabilities and/or duties of any kind whatsoever under,
or with respect to the Collateral. Notwithstanding anything to the contrary
contained herewith or otherwise, the Lender does not by virtue of this
Agreement, the Collateral Assignment or otherwise assume any obligations,
liabilities and/or duties of any kind whatsoever of the Debtor (and/or of any
other party of any kind whatsoever) under, or with respect to, the Collateral
and the Lender shall not be responsible in any way whatsoever for the
performance by the Debtor (and/or by any other party of any kind whatsoever) in
connection with, relating to, or arising under, the Collateral.
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The security interest granted herein shall attach to each item of
Collateral at the time Debtor has any interest of any kind whatsoever in such
Collateral without any further action of any kind whatsoever.
6.2 Lender Appointed as Attorney-in-Fact.
(a) Debtor hereby irrevocably constitutes and appoints Lender and any
other officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Debtor and in the name of Debtor or in its own name, from time to
time in Lender's discretion, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Agreement. Debtor hereby ratifies all that said attorney shall
lawfully do or cause to be done by virtue hereof. To the extent permitted by
law, this power of attorney is a power coupled with an interest and shall be
irrevocable. Without limiting the generality of the foregoing, pursuant to such
appointment, the Lender shall have authority (i) to endorse Debtor's name on any
checks, notes, drafts or any other payments or instrument relating to the
Collateral which come into the Lender's possession or control, (ii) to execute,
sign, file and record UCC financing statements, UCC amendments and other lien
recordation documents with respect to any Collateral, and (iii) to settle
insurance claims with the applicable insurer and/or to collect any insurance
proceeds from the applicable insurer in connection with any casualty occurrence
or Event of Loss.
(b) The powers conferred on Lender hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise any
such powers. Lender shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and neither it nor any of
its officers, directors, employees or agents shall be responsible to Debtor for
any act or failure to act.
SECTION 7. EVENTS OF DEFAULT.
The term "Event of Default", wherever used herein, shall mean any of the
following events or circumstances (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary, or come about or be effected
by operation of law, or be pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation or any
administrative or governmental body):
(a) Debtor shall fail to pay any Obligation within ten (10)
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days after the same shall become due and payable (whether at the stated
maturity, by acceleration or otherwise); or
(b) Debtor shall fail (or shall fail to cause the Lessee) to keep in
full force and effect any of the insurance required under this Agreement, or
shall (or the Lessee shall) operate or permit the operation of the Engine at a
time when, or at a place in which, such insurance shall not be in effect; or
(c) Debtor shall fail (or shall fail to cause the Lessee) to maintain
the Engine in accordance and in compliance with Section 5.11 hereof; or
(d) either Debtor or Guarantor shall default in the payment of any
indebtedness to Lender, any parent, affiliate or subsidiary of Lender under any
note, security agreement, equipment lease, title retention, aircraft lease or
conditional sales agreement or any other instrument or agreement evidencing such
indebtedness with Lender or any parent, affiliate or subsidiary of Lender; or
either Debtor or Guarantor shall default in the performance of, or compliance
with, any term contained in any agreement or instrument evidencing or relating
to such indebtedness with Lender or any parent, affiliate or subsidiary of
Lender, if the effect of such default is to cause or permit such indebtedness to
become due prior to its stated maturity, or if any such indebtedness is not paid
at maturity; or Debtor shall otherwise be in default of any of its Obligations;
or
(e) Debtor shall or shall attempt to remove, sell, transfer, charter,
convey, pledge, mortgage, encumber, part with possession of, assign or sublet
the Engine or any part thereof, use the Engine for an illegal purpose, or permit
the same to occur (except for the leasing of the Engine to the Lessee under the
Lease); or
(f) either Debtor or Guarantor shall fail to perform or observe any
covenant, condition or agreement (other than those covenants, conditions or
agreements specifically referred to elsewhere in this Section 7) required to be
performed or observed by the Debtor and/or the Guarantor under this Agreement,
the Collateral Assignment, the Guaranty or any agreement, document or
certificate delivered by Debtor or the Guarantor in connection herewith, and
such failure shall continue for fifteen (15) days after written notice thereof
from Lender to Debtor and/or Guarantor; or
(g) any representation or warranty made by Debtor in this Agreement or
any agreement, document or certificate delivered by Debtor in connection
herewith or pursuant hereto shall prove to have been incorrect, misleading, or
inaccurate in any material respect when such representation or warranty was made
or given (or, if a continuing representation or warranty, at any material
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time); or
(h) any representation or warranty made by Guarantor in the Guaranty,
the Pledge Agreement or any agreement, document or certificate delivered by
Guarantor in connection therewith or pursuant hereto shall prove to have been
incorrect, misleading, or inaccurate in any material respect when such
representation or warranty was made or given (or, if a continuing representation
or warranty, at any material time); or
(i) either Debtor or Guarantor shall generally fail to pay its debts as
they became due and such failure shall continue for ten (10) Business Days after
written notice by Lender, admit its inability to pay its debts or obligations
generally as they fall due, or shall file a voluntary petition in bankruptcy or
a voluntary petition or an answer seeking reorganization in a proceeding under
any bankruptcy laws (as now or hereafter in effect) or an answer admitting the
material allegations of such a petition filed against Debtor and/or the
Guarantor in any such proceeding; or Debtor and/or the Guarantor shall, by
voluntary petition, answer or consent, seek relief under the provisions of any
other now existing or future bankruptcy or other insolvency or similar law
(other than a law which does not provide for or permit the readjustment or
alteration of Debtor's and/or the Guarantor's obligations hereunder or under the
Guaranty, as the case may be) providing for the reorganization or liquidation of
corporations, or providing for an assignment for the benefit of creditors, or
providing for an agreement, composition, extension or adjustment with their
respective creditors; or
(j) a petition against Debtor and/or Guarantor in a proceeding under
applicable bankruptcy laws or other insolvency laws (other than any law which
does not provide for or permit any readjustment or alteration of Debtor's and/or
the Guarantor's obligations hereunder or under the Guaranty, as the case may
be), as now or hereafter in effect, shall be filed and shall not be withdrawn or
dismissed within sixty (60) days thereafter, or if, under the provisions of any
law (other than any law which does not provide for or permit the readjustment or
alteration of Debtor's and/or the Guarantor's obligations hereunder or under the
Guaranty, as the case may be) providing for reorganization or liquidation of
corporations which may apply to Debtor and/or the Guarantor, any court of
competent jurisdiction shall assume jurisdiction, custody or control of Debtor
and/or the Guarantor or of any substantial part of their respective property and
such jurisdiction, custody or control shall remain in force unrelinquished,
unstayed or unterminated for a period of sixty (60) days; or
(k) either Debtor or Guarantor shall default in any payment,
indebtedness or other obligation to any Person (other than to the Lender or any
parent, affiliate or subsidiary of
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Lender) regarding any loan, lease, deferred purchase price agreement,
advancement of credit or any other financing or credit arrangement or facility
of any kind whatsoever (other than those transactions, conditions, covenants,
agreements or matters specifically referred to elsewhere in this Section 7), if
the aggregate amount of such respective payment, indebtedness or obligation
regarding any such loan, lease, deferred purchase price agreement, advancement
of credit or any other financing or credit arrangement or facility of any kind
whatsoever, or if the aggregate amount of the underlying agreement, indebtedness
or obligation regarding any such default of any such loan, lease, deferred
purchase price agreement, advancement of credit or any other financing or credit
arrangement or facility of any kind whatsoever, is in excess of $250,000.00 and
such default results in the acceleration of (or the request for) any such
payment, agreement, indebtedness or obligation of any such loan, lease, deferred
purchase price agreement, advancement of credit or any other financing or credit
arrangement or facility of any kind whatsoever; or
(l) either Debtor or Guarantor shall default in any payment,
indebtedness or other obligation to any Person (other than to the Lender or any
parent, affiliate or subsidiary of Lender or other than any payment,
indebtedness or other obligation concerning any loan, lease, deferred purchase
price agreement, advancement of credit or any other financing or credit
arrangement or facility of any kind whatsoever or any other transaction,
condition, covenant, agreement or matter specifically referred to elsewhere in
this Section 7), if the aggregate amount of such respective payment,
indebtedness or obligation, or if the aggregate amount of the underlying
agreement, indebtedness or obligation regarding any such default, is in excess
of $250,000.00 and such default results in the acceleration of (or the request
for) any such payment, agreement, indebtedness or obligation unless such default
or acceleration is subject to a bona fide dispute between the Debtor or the
Guarantor and such other party and said dispute is being diligently contested by
the Debtor or the Guarantor in good faith and by appropriate proceedings,
provided, however, any such bona fide dispute and default shall be resolved and
cured within one hundred eighty (180) days after the occurrence of such default;
or
(m) any judgment, attachment or garnishment against Debtor and/or the
Guarantor with respect to aggregate claims in excess of $250,000.00 shall remain
unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period
of thirty (30) days; or
(n) either Debtor or Guarantor sells, transfers, or disposes of all or
substantially all of its stock, assets or property, or merges or consolidates
with or into any other entity or engages in any form of corporate
reorganization, or becomes the subject of, or engages in, a leveraged buy-out,
or either Debtor
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or Guarantor shall terminate its existence by merger, consolidation, or sale of
substantially all of its assets or otherwise (except as otherwise expressly
permitted with regard to the Guarantor in Section 5.10 of this Agreement); or
(o) if the Guarantor shall no longer continue to control one hundred
percent (100%) of Debtor's issued and outstanding stock at all times; or
(p) if any person or group (as defined in Rules 13d-3 and 13-5 under the
Securities Act), becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Securities Act) of a larger number of shares of common stock of
the Guarantor than the number of shares of which CHARLES F. WILLIS, IV and
members of his family (including children, brothers and sisters) is the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Securities Act);
or
(q) if either Debtor or Guarantor is a publicly held corporation, there
shall be a change in the ownership of the Debtor's or the Guarantor's, as the
case may be, stock such that the Debtor or Guarantor, as the case may be, is no
longer subject to the reporting requirements of the Securities Exchange Act of
1934, or no longer has a class of equity securities registered under Section 12
of the Securities Act of 1933; or
(r) if a Lessee Event of Default has occurred under the Lease; or
(s) if the Debtor ceases to be a wholly-owned Subsidiary of the
Guarantor.
Notwithstanding Subsection (r) of this Section 7, Debtor shall have the
right, within ten (10) days after the Debtor has been given notice that a Lessee
Event of Default has occurred under the Lease, to cure, at its sole cost and
expense, any Lessee Event of Default under the Lease relating solely to the
Lessee's failure to pay any Monthly Rent, Maintenance Fees and other payments
expressly due the Debtor by the Lessee thereunder (each a "Lessee Payment
Default") by paying the Lender the applicable Monthly Rent, Maintenance Fees and
such other payments or amounts expressly due the Debtor by the Lessee under the
Lease (any such Monthly Rent, Maintenance Fees and other payments or amounts
hereinafter collectively, the "Lessee Cure Payment") within such ten (10) day
period; provided, however, that the Debtor shall only have the right to cure one
(1) Lessee Payment Default during the term of the Lease. The Debtor shall not,
as a result of exercising the right to cure any such Lessee Payment Default,
obtain any Lien on any of the Collateral (including any Monthly Rent,
Maintenance Fees or any other amounts payable under the Lease) for or on account
of any costs or expenses incurred in connection with the exercise of such right,
nor shall any claim
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of the Debtor against the Lessee or any other party for the repayment of such
costs or expenses impair the prior right and security interest of the Lender in
the Collateral (including any Monthly Rent, Maintenance Fees or any other
amounts payable under the Lease). Upon the receipt by the Lender of the Debtor's
payment of the applicable Lessee Cure Payment (in immediately available funds),
the Lender shall credit and apply any such payment to the applicable outstanding
Obligations, Maintenance Fees, Security Deposits and/or other amounts required
under this Agreement, as the case may be, as provided in Section 9.1, Section
10.13 or any other applicable section of this Agreement.
SECTION 8. REMEDIES.
8.1 Termination of Commitment. If an Event of Default specified in
subsections 7 (i) or (j) above shall occur, then, and in any such event, the
Commitment shall immediately terminate and the principal amount of the Note,
together with accrued interest thereon and all other amounts owing under or with
respect to this Agreement (including, without limitation, any prepayment premium
or fee calculated as of the date of the Event of Default which premium or fee
shall also be due and payable) shall become immediately due and payable without
any notice or other action by Lender, and if any other Event of Default shall
occur and be continuing, then, and in any such event, Lender may (a) terminate
forthwith the Commitment and/or (b) declare the Note to be forthwith due and
payable, whereupon the remaining principal amount of the Note, together with
accrued interest thereon and all other amounts owing under or with respect to
this Agreement (including, without limitation, any prepayment premium or fee
calculated as of the date of the Event of Default which premium or fee shall
also be due and payable), shall become immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the Note to the
contrary notwithstanding. During the continuance of any Event of Default
hereunder, Lender shall have the right to pursue and enforce any of its rights
and remedies under Section 8, Subsections 8.2 through 8.4, inclusive, hereof.
8.2 Additional Remedies. Upon the occurrence of any Event of Default,
Lender may, at its sole option and discretion, in addition to any other rights
or remedies granted to it under this Agreement, at law or in equity or under any
other instrument or agreement securing, evidencing or relating to the
Obligations, exercise one or more of the following remedies with respect to any
or all of the Collateral: (a) cause Debtor to, at Debtor's expense, promptly
return such Collateral (or any portion thereof requested by Lender) to such
location as Lender may from time to time reasonably designate, or Lender, at its
option, may enter upon the premises where the Collateral (or any portion thereof
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requested by Lender) is located and take immediate possession of and remove the
same by self-help (to the extent permitted by law), or summary proceedings or
otherwise all without liability to Lender for or by reason of damage to property
or such entry or taking possession; provided, however, that the Lender shall not
remove any Collateral in the possession of the Lessee under the Lease so long as
no default or event of default exists under the Lease; (b) sell any or all of
the Collateral at public or private sale or otherwise dispose of, hold, use,
operate, lease to others or keep idle the Collateral (or any portion thereof),
all as Lender in its sole discretion may determine and all free and clear of any
rights of Debtor; (c) remedy such default, including making repairs or
modifications to any Collateral, for the account of and the expense of Debtor
and Debtor agrees to reimburse Lender for all of Lender's reasonable costs and
expenses; (d) apply any security deposit or other cash collateral or sale or
remarketing proceeds of any Collateral at any time as it sees fit to reduce any
amounts due to Lender (other than any payments or amounts held in the Account
which are solely Maintenance Fees or Security Deposits which payments or amounts
shall be disbursed pursuant to the terms of Sections 9.1(b), 9.1(c) and/or 10.13
of this Agreement); and (e) exercise any other right or remedy which may be
available to it under applicable law and the UCC or proceed by appropriate court
action to enforce the terms hereof or to recover damages for the breach hereof.
In addition to the foregoing, Debtor shall continue to be liable for all
indemnities under this Agreement and the Note and for all legal fees and other
costs and expenses resulting from any Event of Default or the exercise of
Lender's remedies. Without limiting the generality of the foregoing, Lender
shall (i) have the right upon any public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption in
Debtor, which right or equity is hereby expressly released, and/or (ii) apply
the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale (after deducting all reasonable costs and expenses of every
kind incurred therein or incidental to the care, safekeeping or otherwise of any
or all of the Collateral or in any way relating to the rights of Lender
hereunder, including attorney's fees and legal expenses) to the payment in whole
or in part of the Obligations, in such order as Lender may elect and only after
so applying such net proceeds and after the payment by Lender of any other
amount required by any provision of law (including Section 9-504(1)(c) of the
UCC), need Lender account for the surplus, if any, to Debtor. To the extent
permitted by applicable law, Debtor waives all claims, damages, and demands
against Lender arising out of the repossession, retention or sale of the
Collateral. Debtor agrees that Lender need not give more than ten (10) days'
notice (which notification shall be deemed given when mailed, postage prepaid,
addressed to Debtor at its address set forth in Section 10.2. hereof or
delivered by overnight delivery service to the Debtor at such
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address) of the time and place of any public sale or of the time after which a
private sale may take place and that such notice is reasonable notification of
such matters. Debtor shall be liable for any deficiency if the proceeds of any
sale or disposition of the Collateral are insufficient to pay all amounts to
which Lender is entitled.
8.3 Costs of Collection. Debtor shall be liable for, and also agrees to
pay, all costs, charges and expenses of Lender, including reasonable attorneys'
fees and disbursements, incurred by or on behalf of Lender with respect to (i)
any Event of Default, (ii) the collection of any of the Obligations, (iii) the
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enforcement of any of its respective rights under this Agreement, at law or in
equity or otherwise and/or (iv) the exercise of any of Lender's rights or
remedies under this Agreement, at law or in equity or otherwise.
8.4 Waivers. Without limiting the generality of any other terms of this
Agreement, Debtor hereby waives presentment, demand, protest or any notice,
except as expressly provided herein, (to the extent permitted by applicable law)
of any kind in connection with this Agreement or any Collateral.
SECTION 9. ACCOUNT
9.1 Account.
(a) All proceeds of checks, notes, cash and other proceeds of the Lease
Receivables as well as all proceeds from the sale of the Engine, any securities
(other than securities issued by Debtor) and any other Collateral and other cash
receipts of every kind and nature (other than the proceeds of any other
borrowing or amount expressly permitted by this Agreement) shall be collected
into any account required by the Lender in its sole discretion (the "Account")
commencing on the date of this Agreement and at all times hereafter pursuant to
the terms of this Section 9.1. The Lender shall maintain the Account at all
times until the Loan and any and all other Obligations of the Debtor due or
owing to the Lender under this Agreement, the Note, the Collateral Assignment or
any agreement, instrument or document evidencing any other Obligations have been
paid in full. Simultaneously with the Debtor's execution of this Agreement, the
Debtor shall direct the Lessee to make all payments under the Lease directly to
the Lender and into the Account. The Debtor shall hold in trust for Lender and
immediately remit to Lender by depositing the same into the Account all checks,
notes, cash and other proceeds of the Lease Receivables as well as all proceeds
from the sale of the Engine, any securities (other than securities issued by
Debtor) and any other Collateral and other cash receipts of every kind and
nature (other than the proceeds of other borrowing or amount expressly permitted
by this Agreement). The Debtor agrees that all payments or amounts received in
the Account will be the sole and exclusive property of Lender. The Lender shall,
on the second (2nd) Business Day after which any payment or amount is received
into the Account, and on a provisional basis until the final receipt of good
funds, (i) credit and apply all payments or amounts held in the Account which
are Monthly Rent to the applicable monthly principal and interest installment
due under the Note and any other outstanding amounts due or payable under the
Note and this Agreement, (ii) so long as no Lessee Event of Default exists under
the Lease, hold all payments or amounts held in the Account which are solely
Maintenance Fees and/or Security Deposits pursuant to the terms of this Section
9 and/or Section 10.13 of this Agreement, and (iii) so long as no Event of
Default exists under this Agreement, the Note, the Collateral Assignment or any
agreement, instrument
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or document evidencing any other Obligations, disburse the remaining amounts
held in the Account (after application to the payments or amounts due or payable
under the Note and this Agreement as provided in subclause (i) above) which are
not Maintenance Fees or Security Deposits expressly due or payable under the
Lease (or are not accrued interest on any Maintenance Fees or Security Deposits)
to the Debtor by wire transfer to Wells Fargo Bank, San Francisco, CA 94163, ABA
No. 121 000 248, Account No. 4518-101423 or to such other address or bank
account requested by the Debtor pursuant to the notice provisions of Section
10.2 of this Agreement. Upon the occurrence of an Event of Default under this
Agreement, the Note, the Collateral Assignment or any agreement, instrument or
document evidencing any other Obligations, the Lender shall, on the second (2nd)
Business Day after which any payment or amount is received into the Account
(other than any payments or amounts held in the Account which are solely
Maintenance Fees or Security Deposits which payments or amounts shall be
disbursed pursuant to the terms of Sections 9.1(b), 9.1(c) and/or 10.13 hereof),
and on a provisional basis until the final receipt of good funds, credit and
apply all such payments or amounts (including, without limitation, any accrued
interest on any amounts contained in the Account) first, to any amounts due or
outstanding under the Note (including, without limitation, all principal,
accrued interest or any prepayment premium or fee calculated as of the date of
the Event of Default which premium or fee shall also be due and payable),
second, the remainder of any such payments or amounts, if any (or in the event
there are no amounts due or outstanding under the Note, all such payments or
amounts shall be applied), to any other amounts due or payable under this
Agreement, the Collateral Assignment, or any amounts due or outstanding under
any agreement, instrument or document evidencing any other Obligations, and
third, the remainder of any such payments or amounts, if any, to a cash
collateral account under the sole dominion and control of Lender until such
Event of Default is cured by Debtor pursuant to the applicable terms of this
Agreement or any other applicable agreement or waived by Lender in its sole
discretion. Any provisional credit hereunder is subject to reversal if the final
collection of a payment is not received by the Lender within five (5) Business
Days following the initial receipt of such payment and will thereafter be
credited when such payment is actually received in good funds. The Debtor agrees
that it shall promptly pay to the Lender $85.00 per month for the Lender's
administration of the Account, together with, if any, all other reasonable fees
charged, and all reasonable expenses incurred, by the Lender in connection with
the administration of the Account. The Lender shall send the Debtor monthly
invoices regarding the $85.00 monthly payment and any other reasonable fees or
expenses charged or incurred in connection with the Lender's administration of
the Account. Without in any way whatsoever limiting the generality of the terms
of this Agreement, the Note, the Collateral Assignment or any other terms and
conditions of any other agreement, instrument
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or document evidencing any other Obligations, Debtor hereby irrevocably appoints
Lender its attorney-in-fact to endorse Debtor's name on any checks, notes,
drafts or any other payments or instruments relating to such items (and/or any
Collateral) which come into the Lender's possession or control pursuant to the
Account and to take any other action of any kind whatsoever that the Lender
deems necessary or desirable in its sole discretion regarding the same and/or
the Account, including, without limitation, inserting missing dates on checks,
notes, drafts or any other payments or instruments and/or rejecting and/or
returning checks, notes, drafts or any other payments or instruments, without
being liable in any way whatsoever for wrongful dishonor or any other thing or
matter of any kind whatsoever. To the extent appropriate or permissible under
the applicable law, such power is coupled with an interest and shall be
irrevocable. In addition, such power shall terminate only upon the Debtor's
payment and/or performance, as the case may be, in full of all of the
indebtedness and/or obligations of any kind whatsoever owing or due to the
Lender by the Debtor. Neither the Lender nor its counsel will be liable for any
acts or omissions nor error of judgment or mistake of fact or law in connection
with the exercise and/or enforcement of its rights under this Section 9. Nothing
contained in this Agreement, the Collateral Assignment or any other agreement,
instrument or document evidencing any other Obligations or otherwise or any acts
or omissions of the Lender or its counsel shall be deemed, or construed, in any
way whatsoever as the Lender being in control of the management and/or affairs
of the Debtor (other than to exercise the rights granted to the Lender under
this Agreement, the Collateral Assignment or any other agreement, instrument or
document evidencing any other Obligations to, among other things, protect its
interest in the Collateral). The Debtor further agrees that the terms of this
Section 9 are in addition to, and do not in any way whatsoever limit, the terms
of this Agreement or any related cash management or lockbox agreements or
documents executed and/or delivered in connection herewith. However, in the
event of a conflict between the terms and provisions of this Section 9 and any
related cash management or lockbox agreements or documents executed and/or
delivered in connection herewith, the applicable terms and provisions of this
Section 9 shall control for all purposes. Notwithstanding anything to the
contrary contained in this Section 9 or otherwise, all payments, funds or
amounts received into the Account (including, without limitation, all Monthly
Rent, Maintenance Fees and Security Deposits) may also be commingled with the
Lender's other funds and no trust relationship of any kind whatsoever shall
exist between the Lender and the Debtor as to any such payments, funds or
amounts so deposited. No interest shall be payable with regard to any payments,
funds or amounts deposited into the Account except as otherwise expressly
provided in Section 9.1(b) hereof.
(b) The amount of all existing Maintenance Fees and Security Deposits
only held in the Account shall bear interest at a variable rate equal to the
Libor Rate for each Interest Period.
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Any interest accrued on the Maintenance Fees and/or the Security Deposits
pursuant to the immediately preceding sentence for any Interest Period shall be
credited into the Account on the first day of each calendar month immediately
following said Interest Period or on the first Business Day of such calendar
month (said first day or first Business Day of each calendar month hereinafter
the "Interest Credit Day") so long as any such Maintenance Fees and/or Security
Deposits are required to be maintained in the Account pursuant to the terms of
this Section 9. The Maintenance Fees and/or the Security Deposits (including,
without limitation, any accrued interest thereon), shall not be released and/or
disbursed to the Debtor (or any other party) until any and all obligations
outstanding under the Note, the Collateral Assignment and this Agreement (other
than any obligations relating solely to any other agreement, instrument or
document between the Debtor and the Lender) have been fully paid and/or
performed, as the case may be, except as otherwise expressly provided in Section
9.1(c) hereof, provided, however, that upon the occurrence of any Event of
Default under this Agreement, the Note, the Collateral Assignment or any
agreement, instrument or document evidencing any other Obligations, the
Maintenance Fees and the Security Deposits (including, without limitation, any
accrued interest thereon), shall not be released and/or disbursed to the Debtor
until any and all Obligations outstanding by the Debtor under this Agreement,
the Note, the Collateral Assignment or any other agreement, instrument or
document between the Debtor and the Lender have been fully paid and/or
performed, as the case may be, except as otherwise expressly provided in Section
9.1(c) hereof; provided further, however, that nothing contained in the
foregoing proviso shall be deemed to limit, impair or adversely affect in any
way whatsoever the Lender's rights under this Agreement, the Collateral
Assignment or any other agreements, documents or instruments to set off, debit
or apply any Maintenance Fees, Security Deposits or any other amounts as
provided in Section 9.1(c) or Section 10.13 of this Agreement or any other
applicable section of this Agreement.
(c) So long as no Lessee Event of Default exists under the Lease, upon
three (3) Business Days prior written notice by the Debtor to the Lender for the
release of any Maintenance Fees which are being held in the Account, and receipt
by the Lender from the Debtor of such documents (including, without limitation,
such documents required to be supplied by the Lessee under the Lease or the
General Terms Agreement relating to any such amounts) as the Lender shall
reasonably request to document the Lessee's right to such Maintenance Fees, the
Lender shall disburse directly to the Lessee (or the applicable vendor, supplier
or maintenance company performing the applicable maintenance work or to the
Debtor if the Debtor has already paid for any such maintenance work) on behalf
of the Debtor the amount of any Maintenance Fees which the Lender expressly
agrees shall be released from the Account (which approval or agreement shall be
in the reasonable determination of the Lender). Upon and after
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the occurrence of a Lessee Event of Default under the Lease (but without
limiting any rights of the Lender to debit, apply or set off any amounts in the
Account which are not Maintenance Fees or Security Deposits, including, without
limitation, all Monthly Rent and accrued interest in the Account), the Lender
shall have the absolute right to immediately debit the Account for any
Maintenance Fees and Security Deposits (and the amounts in the Account relating
to Maintenance Fees and Security Deposits shall be immediately released
accordingly), and apply the proceeds thereof first, to any amounts due or
outstanding under the Note (including, without limitation, all principal,
accrued interest or any prepayment premium or fee calculated as of the date of
the Event of Default which premium or fee shall also be due and payable),
second, the remainder of any such amounts, if any, to any other amounts due or
payable under this Agreement, the Collateral Assignment, or any amounts due or
outstanding under any agreement, instrument or document evidencing any other
Obligations, and third, the remainder of any such amounts, if any, to a cash
collateral account under the sole dominion and control of Lender until such
Event of Default is cured by Debtor pursuant to the applicable terms of this
Agreement or any other applicable agreement or waived by Lender in its sole
discretion; provided, however, that in the event the Debtor exercises its right
to cure one (1) Lessee Payment Default and pays the Lender the applicable Lessee
Cure Payment pursuant to the terms of the last paragraph of Section 7 of this
Agreement, upon the receipt by the Lender of the Debtor's payment of the
applicable Lessee Cure Payment (in immediately available funds), the Lender
shall credit any amounts into the Account which the Lender has set off or
debited against Maintenance Fees or Security Deposits only with a corresponding
amount from the Debtor's payment of the Lessee Cure Payment, and effective as of
any such credit such amounts shall be deemed Maintenance Fees and/or Security
Deposits, as the case may be, and, if applicable, the Lender shall also credit
or apply any remaining amounts of such payment as provided in Section 9.1(a),
Section 9.1(b) or Section 10.13 of this Agreement or any other applicable
section of this Agreement.
SECTION 10. MISCELLANEOUS.
10.1 No Waiver; Cumulative Remedies. No failure or delay on the part of
Lender in exercising any right, power or privilege hereunder or under the Note
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
No right or remedy in this Agreement is intended to be exclusive but each shall
be cumulative and in addition any other remedy referred to herein or otherwise
available to Lender at law or in equity; and the exercise by Lender of any one
or more of such remedies shall not preclude the simultaneous or later exercise
by Lender of any or all such other remedies. No express or implied waiver by
Lender of an Event of Default shall in any way be, or be construed to be, a
waiver of any future or
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subsequent Event of Default. After the occurrence of any Event of Default, the
acceptance by Lender of any installment of principal and interest or of any
other sum owing hereunder or under the Note shall not constitute a waiver of
such Event of Default, regardless of Lender's knowledge or lack of knowledge
thereof at the time of acceptance of any such payment, and shall not constitute
a reinstatement of this Agreement and/or the Note if Lender has sent Debtor a
notice of default, unless Lender shall have agreed in writing to reinstate this
Agreement and/or the Note and waive the Event of Default. To the extent
permitted by law, Debtor waives any rights now or hereafter conferred by statute
or otherwise which limit or modify any of Lender's rights or remedies under this
Agreement and/or the Note.
10.2 Notices. All notices, requests and demands to or upon any party
hereto shall be deemed to have been duly given or made when received by
overnight delivery service to the address indicated below or when deposited in
the United States mail, return receipt requested first class postage prepaid,
addressed to such party as follows, or to such other address as may be hereafter
designated in writing by such party to the other party hereto:
DEBTOR: T-12 Inc.
180 Harbor Drive, Suite200
Sausalito, California 94965
Attention: General Counsel
LENDER: Fleet Capital Corporation
50 Kennedy Plaza
Fifth Floor
Providence, Rhode Island 02903
Attention: Customer Service
10.3 Payment of Expenses and Taxes; Performance by Lender of Debtor's
Obligations.
(a) Without limiting the generality of any other terms of this
Agreement, Debtor agrees, whether or not the transactions contemplated by this
Agreement shall be consummated, to pay (i) all reasonable costs and expenses of
Lender in connection with the negotiation, preparation, execution and delivery
of this Agreement, and other documents relating hereto, including, without
limitation, the fees and disbursements of counsel to Lender; (ii) all fees and
taxes in connection with the recording of this Agreement or any other document
or instrument required hereby; and (iii) all costs and expenses of Lender in
connection with the enforcement of this Agreement and the Note, including all
legal fees and disbursements arising in connection therewith. Debtor also agrees
to pay, and to indemnify and save Lender harmless from any delay in paying, all
taxes, including without limitation, sales, use, stamp and personal property
taxes (other than any corporate income, capital, franchise or similar taxes
payable by Lender with respect to the payments made to Lender hereunder or
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thereunder) and all license, filing, and registration fees and assessments and
other charges, if any, which may be payable or determined to be payable in
connection with the execution, delivery and performance of this Agreement or the
Note or any modification thereof.
(b) Debtor hereby further agrees, whether or not the transactions
contemplated by this Agreement shall be consummated, to assume liability for,
and hereby agrees to indemnify, protect, save, defend and keep harmless Lender
and its agents, employees, officers, directors, shareholders, subsidiaries,
affiliates, successors, and assigns (sometimes hereafter collectively, the
"Indemnified Parties"), on a net after-tax basis, from and against any and all
liabilities, obligations, losses, damages, penalties, claims (including, without
limitation, claims involving or alleging product liability or strict or absolute
liability in tort), actions, suits, demands, costs, expenses and disbursements
(including, without limitation, legal fees and expenses) of any kind and nature
whatsoever (the foregoing being collectively referred to as the "Indemnified
Liabilities") which may be imposed on, incurred by or asserted against any
Indemnified Parties, whether or not any such Indemnified Parties shall also be
indemnified as to any such Indemnified Liabilities by any other Person, in any
way relating to or arising out of this Agreement or any documents contemplated
hereby, or the performance or enforcement of any of the terms hereof or thereof,
or in any way relating to or arising out of the manufacture, inspection,
construction, purchase, acceptance, rejection, ownership, titling or re-titling,
delivery, lease, sublease, possession, use, operation, maintenance, condition,
registration or re-registration, sale, return, removal, repossession, storage or
other disposition of the Engine or any part thereof or any accident in
connection therewith (including, without limitation, latent and other defects,
whether or not discoverable, and any Indemnified Liabilities for patent,
trademark or copyright infringement, provided, however, that Debtor shall have
no obligations thereunder with respect to Indemnified Liabilities arising from
the gross negligence or willful misconduct of Lender.
(c) If Debtor fails to perform or comply with any of its agreements
contained herein and Lender shall itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the reasonable expenses of
Lender incurred in connection with such performance of compliance, together with
interest thereon at the rate provided for in the Note shall be payable by Debtor
to Lender on demand and until such payment shall constitute Obligations secured
hereby.
10.4 Entire Agreement. This Agreement, together with the Note, the
Collateral Assignment and any other documents and instruments executed or
delivered in connection therewith, as applicable, constitutes the entire
agreement between the parties hereto, and supersedes all prior or
contemporaneous agreements, communications and understandings, both written or
oral,
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including, without limitation, any other prior or contemporaneous letters, term
sheets or proposal letters from the Debtor and/or the Guarantor to the Lender or
from the Lender to the Debtor and/or the Guarantor, as the case may be, with
respect to the subject matter of this Agreement. This section shall not be
construed to apply to any other existing financing arrangements between the
Lender and the Debtor and/or the Guarantor, as the case may be, if any, which
are not the subject of this Agreement.
10.5 Survival of Representations and Warranties. All representations and
warranties made in this Agreement and any certificates delivered pursuant hereto
or thereto shall survive the execution and delivery of this Agreement and the
making of the Loan hereunder, and the agreements contained in Section 10.3
hereof shall survive payment of the Note.
10.6 Amendments. Neither this Agreement, nor any terms hereof, may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of a change, waiver,
discharge or termination is sought.
10.7 Counterparts. This Agreement may be executed by the parties hereto
on any number of separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
10.8 Headings. The headings of the Sections and paragraphs are for
convenience only, are not part of this Agreement and shall not be deemed to
effect the meaning or construction of any of the provisions hereof.
10.9 Successors or Assigns. This Agreement shall be binding upon and
inure to the benefit of Debtor and Lender and their respective heirs, executors,
administrators, successors and assigns, except that Debtor may not assign or
transfer its rights hereunder or any interest herein without the prior written
consent of Lender.
10.10 Authorization. Lender, its agents, representatives and employees
are hereby irrevocably and unconditionally authorized to amend and/or otherwise
fill in any and all blank spaces contained herein or in the Schedules or other
documents executed by the Debtor relative to the transactions set forth herein.
10.11 Governing Law; Construction. This Agreement and the Note shall be
governed by, and construed and interpreted in accordance with the substantive
laws, but not the choice of law rules, of the State of Rhode Island. This
Agreement shall be delivered for closing purposes in the Lender's Rhode Island
Office at 50 Kennedy Plaza, Providence, Rhode Island. Unless the context
otherwise requires, singular nouns and pronouns, when used herein,
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shall be deemed to include the plural and vice versa, and impersonal pronouns
shall be deemed to include the personal pronoun of the appropriate gender.
10.12 Additional Waivers. Without limiting the generality of any other
terms of this Agreement, and to the extent permitted by law, the Debtor hereby
expressly waives presentment, demand, dishonor, protest, diligence in
collection, notice of protest, notice of non-payment, notice of acceptance,
notice of maturity, notice of default, notice of demand, notice of dishonor, and
notice of any renewals, extensions or modifications of this Agreement, the Note
or any Obligations or in connection with any Collateral, and any other notice or
action otherwise required to be given under the law in connection with the
delivery, acceptance, performance, default, enforcement or collection of this
Agreement, the Note or any Obligations, and expressly agrees that this
Agreement, the Note or any Obligations, or any payment hereunder or thereunder,
may be extended, modified or subordinated (by forbearance or otherwise), or the
terms hereof or thereof, as the case may be, may be modified or amended with the
Debtor, from time to time, without in any way affecting in any way the
obligations or the liability of the Debtor or any endorser or guarantor of
Debtor or otherwise. The Debtor hereby further consents and agrees that the
Lender or any other party may release or surrender, exchange or substitute any
property or other collateral security of any kind whatsoever (or any portion
thereof) now held or which may hereafter be held as security for this Agreement,
the payment of the Note and/or any Obligations, or may add any property as
security, or may release any party liable hereunder or under any applicable loan
documents or otherwise, all without releasing in any way the obligations or the
liability of the Debtor or any endorser or guarantor of Debtor or otherwise. The
Debtor hereby further expressly waives any right to require the Lender or any
other party to marshal any property or other collateral security of any kind
whatsoever (or any portion thereof) now held or which may hereafter be held as
security for this Agreement, the payment of the Note and/or any Obligations or
otherwise to compel the Lender or any other party to seek recourse against or
satisfaction of the indebtedness owed to it from one source before seeking
recourse or satisfaction from another source.
10.13 Right of Set Off. Upon the occurrence of an Event of Default under
this Agreement, the Lender is hereby authorized at any time and from time to
time without notice to the Debtor or any other party (any such notice being
expressly waived by the Debtor), to set off and apply any and all deposits
(general or special, time or demand, provisional or final) of any kind
whatsoever at any time held, including, without limitation, any amounts or
proceeds (including, without limitation, any accrued interest) contained in the
Account (other than any Maintenance Fees or Security Deposits as expressly
provided below), and other indebtedness at any time owing by the Lender to or
for the credit or the account of the Debtor against any and all of the
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obligations of the Debtor now or hereafter existing under this Agreement, the
Note, the Collateral Assignment or any agreement, document or instrument
evidencing any other Obligations, irrespective of whether or not the Lender
shall have made any demand under this Agreement, the Note, the Collateral
Assignment or any agreement, document or instrument evidencing any other
Obligations, and although such obligations may be unmatured; provided, however,
that the Lender shall not be authorized to set off any amounts in the Account
which are solely Maintenance Fees and/or Security Deposits without notice to the
Debtor or any other party until after the occurrence a Lessee Event of Default
under the Lease, and upon the occurrence of any such Lessee Event of Default,
the Lender shall have the right to set off and apply any and all Maintenance
Fees and/or Security Deposits without notice to the Debtor as provided in this
Section 10.13; provided further, however, that in the event the Debtor exercises
its right to cure one (1) Lessee Payment Default and pays the Lender the Lessee
Cure Payment pursuant to the terms of the last paragraph of Section 7 of this
Agreement, upon the receipt by the Lender of the Debtor's payment
of the applicable Lessee Cure Payment (in immediately available funds), the
Lender shall credit any amounts into the Account which the Lender has set off or
debited against Maintenance Fees or Security Deposits only with a corresponding
amount from the Debtor's payment of the Lessee Cure Payment, and effective as of
any such credit such amounts shall be deemed Maintenance Fees and/or Security
Deposits, as the case may be, and, if applicable, the Lender shall also credit
or apply any remaining amounts of such payment as provided in this Section 10.13
or in Section 9.1(a) or Section 9.1(b) of this Agreement or any other applicable
section of this Agreement. The Lender agrees promptly to notify the Debtor after
any such set off and application, provided that the failure to give such notice
shall not affect the validity of such setoff and application. The rights of the
Lender under this Section 10.13 are in addition to any other rights and remedies
of any kind whatsoever (including, without limitation, other rights of setoff)
which the Lender may have.
10.14 Primary Obligations. Notwithstanding anything to the contrary
contained herein or otherwise, the Debtor shall be, and remain, primarily and
fully liable and obligated for any and all Obligations and the performance of
all terms and conditions hereunder notwithstanding the Lease and the Lessee's
obligations thereunder.
10.15 Assignment By Lender. Lender, may at any time, without notice to
Debtor, mortgage, grant a security interest in or otherwise transfer, sell or
assign all or any part of its interest in this Agreement, the Note, the
Collateral Assignment, the Guaranty, the Pledge Agreement, the Pledged Stock,
the Stock Powers, the Obligations, or the Engine or any payments or other sums
due or to become due hereunder or under the Note, this Agreement, the Guaranty
or any other documents or agreements or under the Obligations and Debtor shall
perform all of its
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obligations under this Agreement, the Note and the Obligations for the benefit
of such assignee, lender, creditor, mortgagee, transferee or Person of Lender
except that the interest of any such assignee, lender, creditor, mortgagee,
transferee or Person of Lender shall be subject to Debtor's rights of use and
possession, so long as no Default or Event of Default has occurred and is
continuing hereunder; provided, however, that any transfer, sale or assignment
of all or any part of the Lender's interest in this Agreement, the Note, the
Collateral Assignment, the Guaranty, the Pledge Agreement, the Pledged Stock,
the Stock Powers, the Obligations, or the Engine or any payments or other sums
due or to become due hereunder or under the Note, this Agreement, the Guaranty
or any other documents or agreements or under the Obligations to any Competitor
of the Debtor or the Guarantor or to any Designated Lender of a Competitor of
the Debtor or the Guarantor shall be subject to the prior written consent of the
Debtor and the Guarantor, which consent by the Debtor and the Guarantor shall
not be unreasonably withheld or conditioned and shall be given or denied by the
Debtor and the Guarantor within ten (10) Business Days after receipt by the
Debtor and the Guarantor of any request by the Lender for such consent, and in
the event that the Debtor or the Guarantor do not object in writing to any such
request by the Lender within in such ten (10) Business Day period any such
failure to so object shall be deemed (without any further action of any kind
whatsoever) an absolute waiver of the Debtor's and the Guarantor's rights to
object to any such assignment, sale or transfer; provided further, however, that
no consent of any kind of the Debtor or the Guarantor shall be required for any
merger or consolidation between the Lender or any parent, affiliate or
subsidiary of the Lender and any Competitor of the Debtor or the Guarantor or
any Designated Lender of a Competitor of the Debtor or the Guarantor (or any
parent, affiliate or subsidiary of any such Competitor or Designated Lender).
Debtor agrees that the rights hereunder of any such assignee, lender, creditor,
mortgagee, transferee or Person of Lender shall not be subject to any defense,
setoff, recoupment, abatement, reduction, claim or counterclaim (collectively
the "Defenses") that Debtor has or may at any time have against Lender and/or
its agents, employees, officers, directors, shareholders, subsidiaries,
affiliates, successors, and assigns for any reason whatsoever; and Debtor hereby
waives any right to assert at any time any of the foregoing Defenses against any
such assignee, lender, creditor, mortgagee, transferee or Person of Lender.
Debtor further agrees, if so directed in writing, to, among other things, pay
all sums due or to become due hereunder or under the Note and/or the Obligations
directly to the assignee, lender, creditor, mortgagee, transferee or Person of
Lender or any other party designated in writing by Lender or any such assignee,
lender, creditor, mortgagee, transferee or Person of Lender. Upon the written
request of Lender or any assignee, lender, creditor, mortgagee, transferee or
Person of Lender, Debtor also agrees (i) to promptly execute and deliver to
Lender or to such assignee, lender, creditor, mortgagee, transferee or Person of
Lender an acknowledgment of assignment in form and substance satisfactory to
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the requesting party which, among other things, reaffirms the basic terms and
conditions of this Agreement, the Note and/or the Obligations, and (ii) to
comply with the reasonable demands of any such assignee, lender, creditor,
mortgagee, transferee or Person of Lender in order to perfect any such
assignment or transfer, at Lender's sole expense.
10.16 Jurisdiction. Debtor hereby irrevocably consents and agrees that
any legal action, suit, or proceeding arising out of or in any way in connection
with this Agreement may be instituted or brought in the courts of the State of
Rhode Island or the United States Courts for the District of Rhode Island, as
Lender may elect or in any other state or Federal Court as Lender shall deem
appropriate, and by execution and delivery of this Agreement, Debtor hereby
irrevocably accepts and submits to, for itself and in respect of its property,
generally and unconditionally, the non-exclusive jurisdiction of any such court,
and to all proceedings in such courts. Debtor irrevocably consents to service of
any summons and/or legal process by registered or certified United States air
mail, postage prepaid, to Debtor at the address set forth in Section 10.2
hereof, such method of service to constitute, in every respect, sufficient and
effective service of process in any such legal action or proceeding. Nothing in
this Agreement shall affect the right to service of process in any other manner
permitted by law or limit the right of Lender to bring actions, suits or
proceedings in the courts of any other jurisdiction. Debtor further agrees that
final judgment against it in any such legal action, suit or proceeding shall be
conclusive and may be enforced in any other jurisdiction, within or outside the
United States of America, by suit on the judgment, a certified or exemplified
copy of which shall be conclusive evidence of the fact and the amount of the
liability.
10.17 Jury Waiver. THE DEBTOR HEREBY KNOWINGLY AND FREELY WAIVES ITS
RIGHTS TO A JURY TRIAL IN ANY ACTION, SUIT OR PROCEEDING RELATING TO, ARISING
UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE NOTE, THE OBLIGATIONS OR ANY
OTHER AGREEMENT OR DOCUMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH.
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[This space intentionally left blank]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered personally or by their proper and duly authorized
officers as of the day and year first above written.
FLEET CAPITAL CORPORATION
By: _________________________
Title:_______________________
T-12 INC.
By:___________________________
Title:________________________
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Exhibit B To Engine Loan and Security Agreement
SCHEDULE
This Schedule is executed and delivered by T-12 Inc. ("Debtor") pursuant
to the terms of a Engine Loan and Security Agreement ("Agreement") dated as of
September 8, 1997 between Debtor and Fleet Capital Corporation ("Lender). Terms
defined in the Agreement shall have the respective meanings given to them in the
Agreement unless otherwise defined herein or unless the context otherwise
requires.
1. Debtor hereby confirms that the proceeds of the Loan made this date
shall be used to refinance the acquisition of the property (collectively the
"Engine") described below:
that certain one (1) Pratt & Whitney aircraft engine, Model JT8D-219
bearing manufacturer's serial number 718229 but without a fuel heat
manifold (which engine has 750 or more rated takeoff horsepower or the
equivalent of such horsepower) wherever located and whether or not such
aircraft engine shall be installed in or attached to any airframe,
together with one (1) Engine Stand bearing serial number GA01 wherever
located and whether or not such engine stand shall be installed in or
attached to any airframe, and any and all additions, accessions,
accessories, alterations, modifications, parts, repairs and attachments
to the Engine or the Engine Stand now existing or hereafter arising or
now owned or hereafter acquired and now existing or hereafter arising or
now owned or hereafter acquired all replacements and substitutions for
the Engine or the Engine Stand or any parts or other items or equipment
related thereto so long as such parts or other items or equipment remain
subject to the security interest granted to Lender in accordance with
the applicable terms of this Agreement after removal from the Engine or
the Engine Stand.
2. Debtor hereby represents and warrants that the above described Engine
has been delivered to it, duly assembled and in good working order and is under
lease to Delta Airlines, Inc. pursuant to the Lease.
3. Debtor hereby affirms that the representations and warranties set
forth in Section 4 of the Agreement are true and correct as of the date hereof.
4. Debtor hereby affirms that Lender has made a Loan to it for the
refinancing of the acquisition of the above described
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Engine, which Loan is evidenced by a Note, in the principal amount of U.S.
$2,025,000.00 dated September 8, 1997.
5. Debtor hereby affirms that Lender has a first and only perfected
priority security interest in the Engine described above and as set forth in
Section 6.1 of the Agreement.
6. Debtor hereby represents and warrants that the invoiced purchase
price paid by the Debtor for the above described Engine was $_________________.
DEBTOR:
T-12 Inc.
By:___________________________
Title:________________________
<PAGE> 66
Exhibit C to Engine Loan and Security Agreement
Replacement Value of the Engine
$2,085,750.00
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Exhibit D to Engine Loan and Security Agreement
September __, 1997
Fleet Capital Corporation
50 Kennedy Plaza
Fifth Floor
Providence, Rhode Island 02903
Re: Engine Loan and Security Agreement
Gentlemen:
We have acted as general counsel for T-12 Inc., a California corporation
("Debtor"), and Willis Lease Finance Corporation, a California Corporation
("Guarantor") in connection with the execution of the Engine Loan and Security
Agreement of even date (the "Agreement"), between Debtor and Fleet Capital
Corporation ("Lender") and the related transactions contemplated thereby. Terms
not otherwise defined herein shall have the defined meanings set forth in the
Agreement.
We are familiar with the Debtor and the Guarantor, their respective
affairs, and their respective charter, by-laws, and corporate records. We have
examined originals or copies, certified or otherwise identified to our
satisfaction, or such records, instruments, decisions, certificates, and
documents, have made such inquiries as to questions of fact of officers and
representatives of Debtor and the Guarantor and have made such examinations of
laws, rules, regulations, orders, decrees, writs, judgments, awards,
injunctions, and the like, as are necessary and appropriate for purposes of
giving the opinions hereinafter expressed.
Based upon the foregoing, it is our opinion:
1. Debtor is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, has the
necessary authority and power to own the Engine and its other
assets and to transact the business in which it is engaged, and
is duly qualified to do business in each jurisdiction in which
the conduct of its business or the ownership or operation of its
assets requires such qualification.
2. Debtor is a citizen of the United States within the
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meaning of Subtitle VII of Title 49 of the United States Code, as
amended and recodified.
3. Debtor has full power, authority and legal right to execute and
deliver the Agreement, the Note, the Collateral Assignment and
all other instruments to be executed and delivered pursuant to
the Agreement, to perform its obligations thereunder, to borrow
thereunder and to grant the security interest created by the
Agreement and the Collateral Assignment.
4. No consent of any other party (including any partners,
stockholders, trustees or holders of indebtedness), and no
consent, license, approval or authorization of, exemption by, or
registration or declaration with, any governmental body,
authority, bureau or agency is required in connection with the
execution, delivery or performance by Debtor of the Agreement,
the Note, the Collateral Assignment and any other instruments to
be executed and delivered pursuant to the Agreement, or the
validity or enforceability of the Agreement, the Note, the
Collateral Assignment and any other instruments to be executed
and delivered pursuant to the Agreement, except recordation of
the Agreement with the FAA, which shall have been duly effected
as of the Closing Date.
5. The execution, delivery and performance by Debtor of each of the
Agreement, the Note, the Collateral Assignment and any other
instruments to be executed and delivered pursuant to the
Agreement does not and shall not violate any provision of any
applicable law or regulation or of any judgment, award, order,
writ or decree of any court or governmental instrumentality, will
not violate any provision of the charter or by-laws of Debtor and
will not violate any provision of or cause a default under any
mortgage, indenture, contract, agreement or other undertaking to
which Debtor is a party or which purports to be binding upon
Debtor or upon any of its assets, and will not result in the
creation or imposition of any Lien on any of the assets of Debtor
other than the security interest intended to be created by the
Agreement and the Collateral Assignment.
6. The Agreement, the Collateral Assignment and any other
instruments to be executed and delivered pursuant to the
Agreement have been duly
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authorized, executed and delivered by Debtor and constitutes
legal, valid and binding obligations of Debtor enforceable in
accordance with their respective terms. The Note and the Schedule
have been duly authorized, executed and delivered by Debtor and
constitutes legal, valid and binding obligations of Debtor
enforceable in accordance with their respective terms.
7. To the best of Debtor's actual knowledge, there is no action,
suit, investigation or proceeding (whether or not purportedly on
behalf of Debtor) pending or threatened against or affecting
Debtor or any of its assets (a) which involves the Engine or any
of the transactions contemplated by the Agreement, the Note, the
Collateral Assignment and any other instruments to be executed
and delivered pursuant to the Agreement; or (b) which, if
adversely determined, could have an adverse effect upon the
transactions contemplated by the Agreement, the Note, the
Collateral Assignment and any other instruments to be executed
and delivered pursuant to the Agreement or a material adverse
effect on the business, operations or financial condition of
Debtor.
8. On the Closing Date Debtor shall have good and marketable title
to the Engine subject to no Liens except the security interest in
favor of Lender and the interest of the Lessee in the Engine
pursuant to the Lease.
9. On the Closing Date Lender shall have a legal, valid and
continuing first and only priority security interest in the
Collateral, free and clear of all other Liens except for the
interest of the Lessee in the Engine pursuant to the Lease, and
all filings, recordings or other actions necessary or desirable
in order to establish, protect and perfect such security interest
in favor of Lender as a perfected first and only priority
security interest in the Collateral will have been duly effected,
and all taxes, fees and other charges in connection therewith
shall have been duly paid.
10. Debtor is not in default, and no event or condition exists which
after the giving of notice or lapse of time or both would
constitute an event of default, under any mortgage, indenture,
contract, agreement, judgment or other undertaking to which
Debtor is a party or which purports to be
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binding upon Debtor or upon any of its assets, except for any
such default, event or condition which, individually or in the
aggregate, would not affect Debtor's ability to perform its
obligations under the Agreement or any such mortgage, indenture,
contract, agreement, judgment or other undertaking.
11. Guarantor is a corporation duly organized, validly existing and
in good standing under the laws of the State of California, has
the necessary authority and power to own and operate its assets
and to transact the business in which it is engaged, and is duly
qualified to do business in each jurisdiction where its failure
to do so would adversely affect its business, operations or
financial condition or its ability to perform under the Guaranty,
the Pledge Agreement, the Stock Powers and all other instruments
to be executed and delivered pursuant thereto and to perform its
obligations thereunder.
12. Guarantor has full power, authority and legal right to execute
and deliver the Guaranty, the Pledge Agreement, the Stock Powers
and all other instruments to be executed and delivered pursuant
thereto and to perform its obligations thereunder.
13. No consent of any other party (including any partners,
stockholders, trustees or holders of indebtedness), and no
consent, license, approval or authorization of, exemption by, or
registration or declaration with, any governmental body,
authority, bureau or agency is required in connection with the
execution, delivery or performance by Guarantor of the Guaranty,
the Pledge Agreement, the Stock Powers and all other instruments
to be executed and delivered pursuant thereto, or the validity or
enforceability of the Guaranty, the Pledge Agreement, the Stock
Powers and all other instruments to be executed and delivered
pursuant thereto.
14. The execution, delivery and performance by Guarantor of each of
the Guaranty, the Pledge Agreement, the Stock Powers and all
other instruments to be executed and delivered pursuant thereto
does not and shall not violate any provision of any applicable
law or regulation or of any judgment, award, order, writ or
decree of any court or governmental instrumentality, will not
violate any provision of the charter or
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by-laws of Guarantor and will not violate any provision of or
cause a default under any mortgage, indenture, contract,
agreement or other undertaking to which Guarantor is a party or
which purports to be binding upon Guarantor or upon any of its
assets, and will not result in the creation or imposition of any
Lien on any of the assets of Guarantor other than the security
interest intended to be created by the Pledge Agreement.
15. The Guaranty, the Pledge Agreement, the Stock Powers and all
other instruments to be executed and delivered pursuant thereto
have been duly authorized, executed and delivered by Guarantor
and constitute legal, valid and binding obligations of Guarantor
enforceable in accordance with their respective terms.
16. There is no action, suit, investigation or proceeding (whether or
not purportedly on behalf of Guarantor) pending or threatened
against or affecting Guarantor or any of its assets (a) which
involves the Collateral or the Pledge Stock or any of the
transactions contemplated by the Agreement, the Guaranty, the
Pledge Agreement, the Stock Powers and all other instruments to
be executed and delivered pursuant thereto; or (b) which, if
adversely determined, could have an adverse effect upon the
transactions contemplated by the Agreement or a material adverse
effect on the business, operations or financial condition of
Guarantor.
17. On the Closing Date Guarantor shall have good and marketable
title to the Pledged Stock subject to no Liens except the
security interest created by the Pledge Agreement in favor of
Lender.
18. On the Closing Date Lender shall have a legal, valid and
continuing first and only priority security interest in the
Pledged Stock, free and clear of all other Liens, and all
filings, recordings or other actions necessary or desirable in
order to establish, protect and perfect such security interest in
favor of Lender as a perfected first and only priority security
interest in the Pledged Stock will have been duly effected, and
all taxes, fees and other charges in connection therewith shall
have been duly paid.
19. Guarantor is not in default, and no event or condition exists
which after the giving of notice
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or lapse of time or both would constitute an event of default,
under any mortgage, indenture, contract, agreement, judgment or
other undertaking to which Guarantor is a party or which purports
to be binding upon Guarantor or upon any of its assets, except
for any such default, event or condition which, individually or
in the aggregate, would have no material adverse affect on the
Guarantor's ability to perform its obligations under the
Guaranty, the Pledge Agreement, the Stock Powers or all other
instruments to be executed and delivered pursuant thereto and to
perform its obligations thereunder
Very truly yours,
----------------------------------
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Exhibit E to Engine Loan and Security Agreement
Description of Lease
Aircraft Engine Lease Agreement dated as of May 24, 1997 between Willis
Lease Finance Corporation, as lessor, and Delta Air Lines, Inc., as lessee,
which was recorded by the Federal Aviation Administration on June 25, 1997 and
assigned Conveyance No. FF22263.
<PAGE> 74
Exhibit F to Engine Loan and Security Agreement
Designated Lender of a Competitor
1. Bank of Tokyo and its affiliates
2. General Electric Company and its affiliates
3. United Technologies and its affiliates.
<PAGE> 1
EXHIBIT 10.21
ENGINE LOAN AND SECURITY AGREEMENT
This ENGINE LOAN AND SECURITY AGREEMENT ("Agreement"), dated as
of the 17th day of September, 1997 between T-12 INC., a California corporation
("Debtor"), and FLEET CAPITAL CORPORATION ("Lender"), a Rhode Island
corporation. In consideration of the mutual agreements contained herein, the
parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement the following terms shall
have the following meanings, unless the context otherwise requires (such terms
to be equally applicable to both singular and plural forms of the terms
defined):
"Account" as defined in Section 9.1 of this Agreement.
"Additional Parts" as defined in Section 5.11(e) of this Agreement.
"Affiliate" means any Person: (1) that, directly or indirectly,
controls, is controlled by, or is under common control with, the Debtor;
(2) that is an employee, officer or partner of, or investor in, the
Debtor or of any Person that, directly or indirectly, controls, is
controlled by, or is under common control with, the Debtor, together
with, in each case, their respective relatives (whether by blood or
marriage), heirs, executors, administrators, personal representatives,
successors, and assigns; and (3) any trust of which any of the foregoing
Persons is a settlor, trustee, or beneficiary. For the purposes of this
definition, the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of
voting securities, by contract, or otherwise.
"Agreement", "hereof", "hereto", "hereunder", and words of similar
import shall mean this Engine Loan and Security Agreement and any and
all riders, consents, amendments, supplements or modifications hereto
and any exhibits or schedules delivered in connection herewith.
"Business Day" shall mean a day other than a Saturday, Sunday or legal
holiday under the laws of the State of Rhode Island or California.
"Casualty Prepayment Percentage" shall mean, on the date of prepayment
of the Note pursuant to Section 2.3(a) of this Agreement, the product
obtained by multiplying 10% by a fraction, the numerator of which will
be the number of
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Installment Payment Dates with respect to the Note remaining after such
date of prepayment (including the Installment Payment Date, if any, on
which such prepayment is made) and the denominator of which shall be the
total number of Installment Payment Dates with respect to the Note.
"Closing Date" shall mean the date on which the Loan is made pursuant
hereto.
"Collateral" shall mean, collectively, (i) the Engine, (ii) all now
existing and hereafter arising or acquired Records, (iii) the Lease,
(iv) all now existing and hereafter arising or acquired Lease
Receivables; (v) all now existing and hereafter arising or acquired
lockbox accounts, escrow accounts, deposit accounts, operating accounts
or any other accounts of any kind whatsoever relating to the Lease, the
Lease Receivables or the Engine, including, without limitation, the
Account (and any and all now existing and hereafter arising or acquired
amounts and/or proceeds contained in any such accounts); (vi) all now
existing and hereafter arising or acquired "Chattel Paper" as that term
is defined in the Uniform Commercial Code (Secured Transactions), as in
effect in the State of Rhode Island as of the date hereof, of the Debtor
relating to the Lease, the Lease Receivables or the Engine; (vii) all
now existing and hereafter arising or acquired guaranties, letters of
credit or any undertakings of any kind whatsoever of any Leases or
"Chattel Paper" as that term is defined in the Uniform Commercial Code
(Secured Transactions), as in effect in the State of Rhode Island as of
the date hereof, of the Debtor relating to the Lease, the Lease
Receivables or the Engine, and all collateral or security relating
thereto; (viii) without limiting the generality of the foregoing in any
way whatsoever, all now existing and hereafter arising or acquired
property or assets assigned to the Lender pursuant to the terms of the
Collateral Assignment and all now existing and hereafter arising or
acquired other property or assets of the Debtor subject to the terms of
this Agreement; (ix) all now existing and hereafter arising or acquired
proceeds and products of any or all of the foregoing contained in
subsections (i) through (viii), including, without limitation, cash,
deposit accounts (whether or not comprised solely of proceeds),
certificates of deposit, insurance proceeds (including property, hazard,
liability and credit insurance), negotiable instruments and other
instruments for the payment of money, chattel paper, security agreements
or documents, eminent domain proceeds, condemnation proceeds and tort
claim proceeds; and (x) all now existing and hereafter arising or
acquired books and records relating to any or all of the above,
including, without limitation, all ledger sheets, ledger cards, files,
correspondence, books of account, business papers, tapes, cards,
computer programs, computer software, computer discs, computer runs,
computer data and computer records and any
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<PAGE> 3
other electronic or computer documents, information or records of any
kind whatsoever in the possession or control of the Debtor, any computer
service bureau or any other third party of any kind whatsoever.
"Collateral Assignment" shall mean the Collateral Assignment dated the
date of this Agreement and executed by the Debtor in favor of the
Lender, which Collateral Assignment shall be in form and substance
satisfactory in all respects to the Lender, and also shall include any
and all riders, consents, amendments, supplements or modifications
thereto and any exhibits or schedules delivered in connection therewith.
"Commitment" shall mean the obligation of Lender to make the Loan in the
aggregate amount specified in Section 2.1 of this Agreement.
"Competitor" means any Person who is in the business of leasing aircraft
jet engines and is also an operating lessor of any such aircraft jet
engines; provided, however, that the foregoing shall not include any
Person who is in the business of leasing aircraft and also leases any
aircraft engines in connection with such aircraft leasing.
"Cost" shall mean, with respect to the Engine (and all Parts thereof),
the respective manufacturer's or supplier's invoiced purchase price
therefor (after giving effect to any discount or other reduction) paid
by Debtor, which amount shall be set forth in the Schedule.
"Debtor" as defined in the introductory paragraph to this Agreement.
"Debtor Additional Parts" as defined in Section 5.11(e) of this
Agreement.
"Designated Lender of a Competitor" shall mean each of the lenders
expressly set forth on Exhibit F attached hereto; provided, however,
that the number of lenders on Exhibit F hereto shall be expressly
limited to no more than three (3) such lenders.
"Engine" shall mean, collectively (i) the jet aircraft engine described
and listed on Exhibit B attached hereto wherever located and whether or
not such aircraft engine shall be installed in or attached to any
airframe, (ii) the engine stand described and listed on Exhibit B
attached hereto wherever located and whether or not such engine stand
shall be installed in or attached to any airframe ("Engine Stand"),
(iii) any and all additions, accessions, accessories, alterations,
modifications, Parts, repairs and attachments to the Engine or the
Engine Stand now existing or hereafter arising or now owned or hereafter
acquired, and now existing or hereafter arising or now owned or
hereafter acquired all
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<PAGE> 4
replacements and substitutions for the Engine or the Engine Stand or any
Parts or other items or equipment related thereto so long as such Parts
or other items or equipment remain subject to the security interest
granted to Lender in accordance with the applicable terms of this
Agreement after removal from the Engine, and (iv) and any and all
returns or exchanges for the Engine or the Engine Stand or repossessions
of the Engine or the Engine Stand, and any proceeds resulting from the
sale, lease or other disposition (temporary or otherwise) of the Engine
or the Engine Stand, and any bills of sale, warranty agreements or any
other purchase agreements or documents of any kind whatsoever related to
any or all of the foregoing, and all the proceeds thereof, including,
without limitation, insurance proceeds.
"Event of Default" as defined in Section 7 of this Agreement.
"Event of Loss" with respect to the Engine shall mean any of the
following events with respect to such property (i) loss of such property
or the use thereof due to destruction, damage beyond repair or rendition
of such property permanently unfit for normal use for any reason
whatsoever; (ii) any damage to such property which results in an
insurance settlement with respect to such property on the basis of a
total loss or constructive total loss, (iii) the requisition for title,
confiscation, condemnation, restraint, detention, forfeiture or any
compulsory acquisition or seizure or requisition for hire of such Engine
(other than a requisition for hire for a temporary period not exceeding
one hundred and eighty (180) days) by or under the order of any
governmental body or authority, or a political subdivision thereof
(whether civil, military or de facto) or public or local authority
(whether foreign or domestic); or (d) the high-jacking, theft or
disappearance, resulting in loss of possession by Lessee or Debtor for a
period of thirty (30) consecutive days, of such Engine. The date of such
Event of Loss shall be the date of destruction, damage, or unfitness for
use or the date of such hijacking, theft or disappearance for the stated
period, or such requisition for title, confiscation, condemnation,
restraint, detention, forfeiture, acquisition, seizure or requisition
for hire for the stated period, if applicable.
"FAA" shall mean the Federal Aviation Administration provided for in the
Department of Transportation Act of 1966, as in effect on the date of
this Agreement and as modified or amended hereafter, or any successor or
substituted governmental authority of the United States of America or a
political subdivision thereof at the time having jurisdiction over the
Engine.
"Federal Aviation Act" shall mean the Federal Aviation Act of 1958, as
amended, and as recodified by Subtitle VII of Title 49 of the United
States Code, as amended, and the rules and
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<PAGE> 5
regulations promulgated thereunder, as in effect on the date of this
Agreement, and as modified or amended thereafter or any successor or
substituted legislation at the time in effect and applicable.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, set forth in the Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or
in the statements of Financial Accounting Standards Board, which are
applicable in the circumstances as of the date in question, and the
requirement that such principles be applied on a consistent basis shall
mean that the accounting principles observed in a current period are
comparable in all material respects to those applied in a preceding
period. Unless otherwise indicated herein, all accounting terms shall be
defined according to GAAP.
"General Terms Agreement" shall mean a certain General Terms Engine
Lease Agreement dated July 25, 1997, Contract No. 01 between Debtor (as
assignee of the Guarantor) and Lessee and all schedules, documents,
addendums, amendments, supplements, modifications, riders, instruments
and/or agreements related thereto.
"Guarantor" shall mean Willis Lease Finance Corporation, a California
Corporation.
"Guaranty" as defined in Section 3(q) of this Agreement, and also shall
include any and all riders, consents, amendments, supplements or
modifications thereto and any exhibits or schedules delivered in
connection therewith.
"Head Office" shall mean the office of the Lender at 50 Kennedy Plaza,
5th Floor, Providence, Rhode Island 02903.
"Indebtedness" shall mean all obligations, contingent and otherwise,
which in accordance with GAAP should be classified upon an obligor's
balance sheet as liabilities, or to which reference should be made by
footnotes thereto, including, without limitation, in any event and
whether or not so classified: (i) all debt and similar monetary
obligations, whether direct or indirect, including Indebtedness in
respect of capitalized obligations (as determined by GAAP); (ii) all
liabilities secured by any mortgage, pledge, security interest, lien,
charge, or other encumbrance existing on property owned or acquired
subject thereto, whether or not the liability secured thereby shall have
been assumed; (iii) all guaranties, endorsements and other contingent
obligations whether direct or indirect in respect of Indebtedness of
others, including any obligation to supply funds to or in any manner to
invest in, directly or indirectly, any Person, to purchase Indebtedness,
or to assure the owner of Indebtedness against loss, through an
agreement to purchase goods,
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<PAGE> 6
supplies, or services for the purpose of enabling any Person to make
payment of the Indebtedness held by such owner or otherwise; and (iv)
the obligations to reimburse the issuer of any letters of credit.
"Indemnified Parties" as defined in Section 10.3(b) of this Agreement.
"Indemnified Liabilities" as defined in Section 10.3(b) of this
Agreement.
"Installment Payment Date" shall mean each date set forth in the Note on
which an installment of principal and/or interest is due and payable
under the Note.
"Interest Credit Day" as defined in Section 9.1(b) of this Agreement.
"Interest Period" shall mean the monthly period commencing on the first
day of each calendar month and ending on the last day of such month
throughout the term of the Note. The first Interest Period shall
commence on October 1, 1997 and each succeeding Interest Period shall
commence on the first day of each month thereafter throughout the
remaining term of the Note; provided, however, that any Interest Period
which would otherwise end (i) after all Maintenance Fees and Security
Deposits have been disbursed or released pursuant to the terms of
Section 9 of this Agreement shall end on the day that all such
Maintenance Fees and Security Deposits shall have been disbursed or
released as required under said Section 9, and/or (ii) after the
maturity date of the Note, shall end on such maturity date.
"Late Charge Rate" shall mean a rate equal to the lower of one and
one-half percent (1.5%) per month or the highest rate permitted by
applicable law.
"Lease" means (i) the Aircraft Engine Lease Agreement dated July 31,
1997 between Debtor (as assignee of the Guarantor) and Lessee (and as
more particularly described on Exhibit E attached hereto) and all
schedules, documents, addendums, amendments, supplements, modifications,
riders, instruments and/or agreements related thereto, (ii) to the
extent applicable, the General Terms Agreement, and (iii) any and
all subleases, management agreements, interchange agreements, charter
agreements or any other agreements of any kind whatsoever relating to
the Engine or the Lease.
"Lease Receivables" means any and all now existing or owned and
hereafter arising or acquired rents, payments and other amounts due
under or in connection with the Lease (including, without limitation,
any sales or use tax, supplemental rent payments, additional rent
payments, rental reserves, engine reserves, maintenance reserves,
maintenance
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fees, use fees, security deposits, purchase option payments, renewal
payments, early termination payments, residual payments, casualty
payments, termination payments, stipulated loss payments, insurance
payments, or any other payments, proceeds or amounts of any kind
whatsoever due under or in connection with the Lease and all proceeds
thereof), proceeds of sale from sale of the equipment leased or financed
thereunder or the lease or other disposition (temporary or otherwise) of
the same, any and all other amounts due under the same, and all proceeds
of the foregoing, including, without limitation, insurance proceeds.
"Lender" as defined in introductory paragraph to this Agreement.
"Lessee" shall mean GE Engine Services, Inc.
"Lessee Cure Payment" as defined in Section 7 of this Agreement.
"Lessee Event of Default" shall mean an Event of Default (as such term
is defined in Section 19 of the General Terms Agreement) by the Lessee
under the Lease.
"Lessee Notice and Acknowledgment" shall mean the Notice and
Acknowledgment of Assignment executed by the Lessee and the Debtor in
favor of the Lender and which shall be in form and substance
satisfactory in all respects to the Lender, and also shall include any
and all riders, consents, amendments, supplements or modifications
thereto and any exhibits or schedules delivered in connection therewith.
"Lessee Payment Default" as defined in Section 7 of this Agreement.
"LIBOR Rate" shall mean, with respect to each Interest Period, an
interest rate equal to the one-month London Interbank Offered Rate
(LIBOR) as published in the Money Rates Section of The Wall Street
Journal, Eastern Edition, in effect as of the fifteen (15th) day
immediately preceding each Interest Credit Day and shall remain in
effect for each day during an Interest Period. In the event The Wall
Street Journal, Eastern Edition, is not published for four (4)
consecutive business days, a comparable publication shall be selected by
the Lender in its discretion.
"Liens" shall mean any liens, mortgages, security agreements, security
interests, pledges, title retentions, leases, charges, financing
statements or other encumbrances of any kind whatsoever.
"Loan" shall mean the loan made by Lender pursuant to this Agreement.
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<PAGE> 8
"Maintenance Fees" shall mean all payments or amounts paid by the Lessee
which are EFH Rate reimbursements as provided in Section 18 of the
General Terms Agreement or are otherwise maintenance, reimbursement, use
or engine reserve amounts or payments expressly due or payable by the
Lessee under the Lease or the General Terms Agreement.
"Monthly Rent" shall mean all payments or amounts paid by the Lessee
which are Monthly Rent (as such term is defined in the Lease, or, to the
extent applicable, the General Terms Agreement) or are otherwise rental
amounts or payments expressly due by the Lessee under the Lease or the
General Terms Agreement.
"Note" shall mean the Promissory Note of Debtor evidencing the Loan, as
described in Section 2.2 of this Agreement in substantially the form
attached hereto as Exhibit A, and any and all extensions and renewals
thereof and substitutions and replacements therefor and all riders,
amendments, consents and modifications thereto.
"Obligations" shall mean (i) the aggregate unpaid principal amount of,
and accrued interest on, the Note; (ii) all other indebtedness,
obligations and liabilities of Debtor, now existing or hereafter
incurred under, arising out of, or in connection with this Agreement or
the Note; and (iii) any and all other indebtedness, obligations and
liabilities of any kind whatsoever of Debtor to Lender, or any successor
or assignee of Lender, whether now existing or hereafter incurred or
secured or unsecured or absolute or contingent or from time to time
reduced and thereafter increased, including, without limitation, any and
all loans and advances made by Lender, or any successor or assignee of
Lender, prior to, on or after the date of this Agreement to or for the
account of Debtor pursuant to any other present or future loan or
financing documents or agreements executed by Debtor in favor of Lender,
or any successor or assignee of Lender (or by and between Debtor and
Lender, or any successor or assignee of Lender), and any and all
interest, obligations, liabilities, indemnifications, indebtedness,
payments, costs, fees and expenses now or hereafter owing by Debtor to
Lender, or any successor or assignee of Lender, in connection therewith.
"Parts" shall mean all appliances, avionics, parts, instruments,
appurtenances, accessories, radio devices, radar devices, accessions,
attachments and other equipment of whatever nature (other than the
complete Engine), which may from time to time be incorporated or
installed in or attached to the Engine or so long as such Parts remain
subject to the security interest granted to Lender in accordance with
the applicable terms of this Agreement after removal from the Engine.
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<PAGE> 9
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, joint stock company, trust, trustee(s)
of a trust, unincorporated organization, or government or governmental
authority, agency or political subdivision thereof, or any other entity
of any kind whatsoever.
"Pledge Agreement" as defined in Section 3(r) of this Agreement, and
also shall include any and all riders, consents, amendments, supplements
or modifications thereto and any exhibits or schedules delivered in
connection therewith.
"Pledged Stock" as defined in Section 3(r) of this Agreement.
"Prepaid Principal Amount" as defined in Section 2.3(a) of this
Agreement.
"Records" shall mean all of Debtor's right, title and interest (if any)
in and to any and all logs, manuals, certificates, date and inspection,
modification, maintenance, engineering, technical and overhaul records
(including all computerized data, records and materials of any kind
whatsoever) with respect to the Engine, including, without limitation,
all records required to be maintained by the FAA or any other
governmental agency or authority having jurisdiction with respect to the
Engine or any manufacturer or supplier of the Engine (or any part
thereof).
"Replacement Parts" as defined in Section 5.11(d) of this Agreement.
"Schedule" shall mean the Schedule to be executed and delivered by
Debtor in substantially the form of Exhibit B attached hereto, any and
all riders, consents, amendments, supplements or modifications thereto
and any exhibits or schedules delivered in connection therewith.
"SEC" as defined in Section 4.26 of this Agreement.
"Securities Act" shall mean the Securities Exchange Act of 1934, as
amended or modified from time to time.
"Security Deposits" shall mean all payments or amounts paid by the
Lessee which are security deposits under the Lease or, to the extent
applicable, the General Terms Agreement.
"Stock Powers" as defined in Section 3(s) of this Agreement.
"Subsidiary" shall mean any corporation, association or other business
entity more than 50% of the shares of stock of which are entitled to
vote in the election of directors (excluding shares so entitled to vote
only upon the failure to pay
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<PAGE> 10
dividends thereon or other contingencies) are at the time owned or
controlled, directly or indirectly, by the Guarantor.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in any applicable jurisdiction.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP.
SECTION 2. AMOUNT AND TERMS OF LOAN.
2.1 Commitment. Subject to the terms and conditions of this Agreement,
Lender agrees to make a Loan to Debtor in a principal amount of $4,276,884.82.
The obligation of Lender to make the Loan hereunder shall terminate on September
18, 1997. Debtor shall give Lender at least three Business Days' prior written
notice of the date and amount of the proposed Loan.
2.2 The Note. The Loan shall be evidenced by a promissory note of Debtor
substantially in the form of Exhibit A hereto, with appropriate insertions
therein as to amounts and dates. The Note shall (i) be dated the date on which
the Loan evidenced thereby is made; (ii) be for the term specified in the Note;
(iii) be stated to mature in fifty-nine (59) consecutive monthly installments,
which installments will be payable on the dates and in the amounts set forth in
such Note; and (iv) bear interest from the date thereof on the unpaid principal
amount thereof at the rate per annum of 8.89% until such amount shall become due
and payable (whether at the stated maturity thereof, by acceleration or
otherwise). Whenever any amount due hereunder or under the Note shall not be
paid within ten (10) days of the date when due, Debtor shall pay as an
administrative and late charge an amount equal to five percent (5%) of the
amount of any such overdue payment. In addition, Debtor shall pay interest on
such delinquent payment from thirty (30) days after the due date until paid in
full at the Late Charge Rate.
2.3 Prepayment.
(a) In the event that the Engine shall suffer an Event of Loss, Debtor
shall pay, within sixty (60) days after the occurrence of such Event of Loss, an
amount determined by adding the following: (i) the unpaid principal amount of
the Note together with any fees, charges and/or expenses due in connection
therewith other than interest (such amount shall be herein referred to as the
"Prepaid Principal Amount"), (ii) interest accrued with respect to the Prepaid
Principal Amount to the date of prepayment and (iii) an amount equal to (A) the
applicable Casualty Prepayment Percentage multiplied by (B) the Prepaid
Principal Amount.
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(b) The entire unpaid principal balance of the Note may be prepaid in
full (but not in part) upon fifteen (15) days prior written notice to the
Lender; provided that any such prepayment shall be made together with (i) all
accrued interest and other charges owing or payable under the Note and/or this
Agreement, and (ii) a prepayment fee equal to: 3% of the entire unpaid principal
balance of the Note together with any accrued interest or any other amounts due
or payable in connection with such prepayment (said unpaid principal balance,
accrued interest and other amounts due and payable herein collectively referred
to as the "Prepayment Amount") if the prepayment is made prior to the first
annual anniversary date of the Note, thereafter 2% of the entire Prepayment
Amount if the prepayment is made after the first annual anniversary date of the
Note, but prior to the second annual anniversary date of the Note, thereafter 1%
of the entire Prepayment Amount if the prepayment is made after the second
annual anniversary date of the Note, but prior to the third annual anniversary
date of the Note, and thereafter 1% of the entire Prepayment Amount if the
prepayment is made after the third annual anniversary date of the Note, but
prior to the fourth annual anniversary date of the Note, and thereafter, no
Prepayment Amount shall apply.
(c) Upon payment in full of the amounts required in accordance with
paragraph (a) or (b) above and so long as no Event of Default has occurred and
is continuing, the Collateral shall be released from the security interest of
this Agreement.
(d) Except as provided in paragraph (a) or (b) above or in the Note, the
Note may not be prepaid in whole or in part.
2.4 Use of Proceeds. Debtor shall use the proceeds of the Loan to
refinance the Debtor's purchase of the Engine.
2.5 Increased Costs. If any change in any law, regulation or treaty, or
in the interpretation or administration thereof, or compliance by the Lender
with any request or directive (whether or not having the force of law) of any
authority charged with the interpretation or administration thereof, shall in
the reasonable determination of the Lender:
(a) subject the Lender to any tax, levy or other governmental charge
with respect to the Loan or its obligation to make or maintain the Loan or
change the basis of taxation of payments by the Debtor to the Lender in respect
of the Loan (other than any tax on or measured by the overall net income of the
Lender); or
(b) impose, modify or hold applicable any reserve, special deposit or
similar requirement against assets of, deposits or other liabilities of or for
the account of, or loans or commitments by, the Lender with respect to the Loan
(including without limitation any reserves against "Eurocurrency Liabilities"
under Regulation D of the Board of Governors of the
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Federal Reserve System); or
(c) impose on the Lender any other condition with respect to the Loan
or its obligation to make and maintain the Loan; and the result of any of the
foregoing is to increase the cost to the Lender of making or maintaining such
Loan or to reduce the amount of any sum received or receivable by the Lender
under this Agreement or the Note issued to the Lender, then the Debtor shall pay
to the affected Lender on demand from time to time such additional amounts as
may be necessary to reimburse the Lender for such increased cost or to
compensate the Lender for such reduced amount; provided, however, that upon the
Debtor's payment of such increased cost or compensation to the Lender, the
Debtor shall have the option to prepay the Note in full at the time of its
payment of any such increased cost or compensation with no prepayment penalty at
such time only. A certificate, calculating in reasonable detail the amount of
such increased cost or reduced amount, shall be submitted to the Debtor by any
affected Lender, and shall, absent manifest error, be final, conclusive and
binding for all purposes.
2.6 Capital Adequacy. If any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental agency or
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, in the Lender's
reasaonable determination (which determination shall be conclusive and binding)
has the effect of increasing the amount of capital required to be maintained by
the Lender or reducing the rate of return on capital as a consequence of its
agreement to make, or its making of, the Loan pursuant to this Agreement to a
level below that which the Lender could have achieved but for such adoption,
change or compliance (taking into consideration policies with respect to capital
adequacy) by an amount reasonably deemed by the Lender to be material, then,
upon demand by the Lender, the Debtor shall pay to the Lender, from time to time
as specified by the Lender, such additional amounts which shall be sufficient to
compensate the Lender for the cost of such additional capital or reduced rate of
return; provided, however, that upon the Debtor's payment of such additional
amounts or compensation to the Lender, the Debtor shall have the option to
prepay the Note in full at the time of its payment of any such additional
amounts or compensation with no prepayment penalty at such time only. A
certificate calculating in reasonable detail the amount of any such cost or
reduced rate of return, submitted to the Debtor by any such affected Lender,
shall, absent manifest error, be final, conclusive and binding for all purposes.
2.7 Illegality. In the event that the Lender shall have reasonably
determined that the making or continuation of the Loan
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<PAGE> 13
is or has become unlawful or interferes with or prevents compliance by the
Lender in good faith with any applicable law, governmental rule, regulation,
guideline or order (whether or not having the force of law or whether or not
failure to comply therewith would be unlawful), the Lender shall promptly give
notice to the Debtor of such determination. The Debtor shall, on the next
Installment Payment Date after notice of any such determination or earlier if
required by law, repay the entire Loan, together with all interest accrued
thereon and all other amounts payable hereunder and under the Note with no
prepayment penalty at such time only.
2.8 Funding Losses. If the Debtor fails to fulfill the conditions set
forth in Sections 2.5, 2.6, and/or 2.7 of this Agreement by the time specified
for their fulfillment or otherwise fails to borrow the Loan after delivering a
notice with respect thereto, then the Debtor shall pay the Lender the amount of
any losses, costs and expenses reasonably incurred as a consequence thereof,
including any loss of margin or expenses incurred in liquidating or re-employing
deposits or other funds acquired to make such Loan. A certificate, calculating
in reasonable detail the amount of any such losses, costs and expenses,
submitted to the Debtor shall, absent manifest error, be final, conclusive and
binding for all purposes.
2.9 Method of Payment. The Debtor shall make each payment due under this
Agreement and under the Note to the Lender at its Head Office or at such other
place as the Lender may from time to time designate in writing not later than
2:00 P.M. (Rhode Island time) on the date when due in lawful money of the United
States in immediately available funds, without any setoff, rebatement,
recoupment, defense, claim or counterclaim of any kind whatsoever, by wire
transfer to the Lender at ABA Number: 011500010, Bank: Fleet National Bank,
Account Number: 015-5527767, For: Fleet Capital Corporation, Reference Credit:
T-12 Inc. - 32442 or to such other bank account or address requested by the
Lender. The Debtor hereby authorizes the Lender to charge from time to time
(including, without limitation, any time at which any amount is due under this
Agreement) any amount due under this Agreement or the Note, including, without
limitation, principal, interest, fees and charges, against any account of the
Debtor with the Lender (other than any payments or amounts held in the Account
which are solely Maintenance Fees or Security Deposits which payments or amounts
shall be disbursed pursuant to the terms of Sections 9.1(b), 9.1(c) and/or 10.13
of this Agreement). Whenever any payment to be made under this Agreement or
under the Note shall be stated to be due on a Saturday, Sunday or a public
holiday, or the equivalent for banks generally under the laws of the State of
Rhode Island or California, such payment shall be made on the next succeeding
Business Day, and such extension of time shall be included in the computation of
the payment of interest.
SECTION 3. CONDITIONS OF BORROWING.
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Lender shall not be required to make the Loan unless on the Closing Date
of such Loan:
(a) Certificates of Incumbency of Debtor. Lender shall have received
certificates of incumbency of the Debtor signed by the Secretary or Assistant
Secretary of the Debtor, which certificate shall certify the names of the
officers of the Debtor authorized to execute any documents hereunder or under
any other related documents on behalf of the Debtor, together with specimen
signatures of such officers and Lender may conclusively rely on such certificate
until receipt of a further certificate of the Secretary or Assistant Secretary
of Debtor canceling or amending the prior certificate and submitting the
signatures of the officers named in such further certificate.
(b) Resolutions, Organizational Documents of Debtor. Lender shall have
received certified copies of all corporate proceedings of the Debtor evidencing
that all action required to be taken in connection with the authorization,
execution, delivery and performance of this Agreement, the Note, the Collateral
Assignment, the Schedule and the Lessee Notice and Acknowledgment and the
transactions contemplated hereby has been duly taken. Lender shall receive
copies of the organizational documents of Debtor certified by the appropriate
governmental authorities.
(c) Opinions of Counsel. Lender shall have received: (i) the written
opinion addressed to it of counsel for Debtor substantially in the form of
Exhibit D hereto, satisfactory to Lender, as to the matters contained in Section
4, Subsections 4.1 through 4.10, inclusive, and Subsections 4.15 and 4.16, and
such other matters incident to the transactions contemplated by this Agreement
as Lender may reasonably request; (ii) the written opinion, addressed to it, of
Messrs. Daugherty, Fowler and Peregrin, Lender's special FAA counsel, in form
and substance satisfactory to Lender and its legal counsel, stating that on the
Closing Date, Lender shall have a legal, valid and continuing first priority
mortgage on and security interest in the Engine, free and clear of all other
Liens of any nature, and that all filings, recordings and other actions
necessary or desirable in order to establish, protect and perfect such mortgage
and security interest in favor of Lender as a perfected first priority mortgage
on and security interest in the Engine, including, without limitation the filing
of this Agreement with the FAA shall have been duly effected, and (iii) the
written opinion addressed to it of counsel for Guarantor in form and substance
satisfactory in all respects to Lender, as to the matters contained in Section
4, Subsections 4.18 through 4.24, inclusive, and such other matters incident to
the transactions contemplated by this Agreement as Lender may reasonably
request.
(d) Schedule. Debtor shall have duly executed and delivered to the
Lender a Schedule covering the Engine.
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(e) Note. The Note evidencing the Loan shall have been duly executed and
delivered to the Lender.
(f) Collateral Assignment. Debtor shall have duly executed and delivered
to the Lender the Collateral Assignment.
(g) Lessee Notice and Acknowledgment. Lessee, Guarantor and Debtor shall
have duly executed and delivered to the Lender the Lessee Notice and
Acknowledgment.
(h) Equipment Delivery. The Engine shall have been duly delivered to and
accepted by Debtor, and shall have been delivered to, and fully and duly
accepted by, the Lessee under the Lease.
(i) Invoice and Title. Lender shall have received a copy of the invoice
or invoices covering the Engine and a copy of Warranty Bill of Sale conveying
the Engine (and any Parts) to Debtor.
(j) Payment of Engine Cost. Lender shall be satisfied that the Cost of
the Engine has been, or concurrently with the making of the Loan will be, fully
paid.
(k) Insurance. Lender shall have received evidence satisfactory to it
that the Engine is insured in accordance with the provisions of this Agreement.
(l) Security Interest. All filings, recordings and other actions that
are necessary or desirable in order to establish, protect, preserve and perfect
Lender's mortgage on and security interest in the Collateral as a valid first
and only perfected mortgage and security interest shall have been duly effected,
including, without limitation, the filing of this Agreement with the FAA, and
the filing of all necessary and appropriate UCC financing statements, all in
form and substance satisfactory to Lender, and all fees, taxes and other charges
relating to such filings and recordings shall have been paid by Debtor.
(m) Representations. (i) The representations and warranties contained in
this Agreement shall be true and correct in all respects on and as of the date
of the making of the Loan with the same effect as if made on and as of such
date; (ii) no Event of Default, or event which with notice, with lapse of time
and/or with any other condition, event or act would constitute an Event of
Default, shall be in existence on the date of the making of the Loan or shall
occur as a result of the Loan; and (iii) the acceptance by Debtor of the Loan
shall constitute a representation by Debtor that the statements contained in
clauses (i) and (ii) above are true and correct on the date of such Loan.
(n) No Material Adverse Change. In the sole judgment of Lender, no
material adverse change shall have occurred in the business, operations, or
financial condition of Debtor or of the Guarantor from the date of the most
recent financial information furnished to Lender by either such party.
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(o) Good Standing Certificates. Lender shall have received certificates
of good standing from the states of the Debtor's and Guarantor's incorporation
and where the Debtor's and Guarantor's chief executive offices and principal
place of business are respectively located.
(p) Release. A duly executed release of any Lien on the Engine.
(q) Guaranty. Lender shall have received a Guaranty ("Guaranty") in
favor of Lender, duly executed by Guarantor, and in form and substance
satisfactory in all respects to Lender, unconditionally guaranteeing, among
other things, the payment and performance by Debtor of the Obligations;
provided, however, that the Guarantor's personal liability for any payment
obligations under the Guaranty shall be limited to 30% of the outstanding
indebtedness due or payable under the Note, this Agreement or any other
agreement, document or instrument evidencing any other Obligations (plus any and
all costs and expenses incurred by the Lender in enforcing its rights or
remedies under the Guaranty) pursuant to the terms of the Guaranty; provided
further, however, that in the event the Debtor or the Guarantor fail to maintain
the Engine (and any material Part related thereto) pursuant to the terms of this
Agreement or the Lease and the Guarantor does not cure any such failure to
maintain the Engine within thirty (30) consecutive days after the Guarantor has
received notice from the Lender of any such failure to maintain the Engine
pursuant to the terms of the Guaranty, the Guarantor shall be liable for 100% of
the outstanding indebtedness due or payable under the Note, this Agreement or
any other agreement, document or instrument evidencing any Obligations relating
solely to the Note or this Agreement (plus any and all costs and expenses
incurred by the Lender in enforcing its rights or remedies under the Guaranty)
pursuant to the terms of the Guaranty; provided further, however, that nothing
contained in the foregoing provisos shall be deemed to limit or impair the
enforcement of the Pledged Stock or any other collateral or property described
in or covered by the Pledge Agreement or any other property or collateral which
may from time to time may be given for security for performance of the
Guarantor's obligations under the Guaranty, the Pledge Agreement or otherwise or
the payment and performance by the Debtor of the Obligations.
(r) Pledge Agreement. Lender shall have received a Pledge Agreement
("Pledge Agreement") in favor of Lender, duly executed by Guarantor, and in form
and substance satisfactory in all respects to Lender and Lessor's counsel,
unconditionally pledging all stock of the Debtor owned or held by the Guarantor,
including, without limitation, all stock certificates, options or rights of any
kind whatsoever (collectively, the "Pledged Stock") in order to secure the
Guarantor's obligations under the Guaranty and the payment and performance by
Debtor of the Obligations.
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(s) Stock Certificates and Stock Powers. Lender shall have received all
stock certificates evidencing the Pledged Stock and appropriate stock powers
duly executed in blank by the Guarantor (collectively, the "Stock Powers"),
which stock certificates and Stock Powers shall be in form and substance
satisfactory in all respects to the Lender and Lender's counsel.
(t) Certificates of Incumbency of Guarantor. Lender shall have received
certificates of incumbency of Guarantor signed by the Secretary or Assistant
Secretary of the Guarantor, which certificate shall certify the names of the
officers of the Guarantor authorized to execute any documents hereunder or under
any other related documents on behalf of the Guarantor, together with specimen
signatures of such officers and Lender may conclusively rely on such certificate
until receipt of a further certificate of the Secretary or Assistant Secretary
of Guarantor canceling or amending the prior certificate and submitting the
signatures of the officers named in such further certificate.
(u) Resolutions, Organizational Documents of Guarantor. Lender shall
have received certified copies of all corporate proceedings of Guarantor
evidencing that all action required to be taken in connection with the
authorization, execution, delivery and performance of the Guaranty, the Pledge
Agreement and the Stock Powers and the transactions contemplated thereby has
been duly taken. Lender shall receive copies of the organizational documents of
Guarantor certified by the appropriate governmental authorities.
(v) Legal Matters. All legal matters with respect to the transactions
contemplated by this Agreement shall be satisfactory to counsel for Lender and
to special FAA counsel for Lender.
(w) Appraisal. Lender shall have received a current appraisal of the
Engine prepared by an appraiser, which appraisal and appraiser shall be
satisfactory in all respects to the Lender.
(x) Inspection. Lender shall have received a current inspection report
with regard to the Engine prepared by an inspector, which inspection report and
inspector shall be satisfactory in all respects to the Lender.
(y) Originals of Lease. Lender shall have received the only executed
counterpart of the Lease marked "Counterpart No. 1 of 4 Serially Numbered
Counterparts" in its possession (and all other executed counterparts of the same
in its possession) and the only executed counterpart of each schedule, rider,
amendment and addendum thereto marked "Counterpart No. 1 of 4 Serially Numbered
Counterparts" in its possession (and all other executed counterparts of the same
in its possession). The Debtor shall have duly marked, and legended, the Lease
and any documentation relating thereto, with the following statement:
Counterpart No. __ of __ serially numbered, manually executed Counterparts. To
the extent, if any, that this Lease constitutes chattel paper
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under the UCC, no security interest in this Lease may be created through the
transfer and possession of any Counterpart other than Counterpart No. 1.
(z) Payment of Fees. Debtor shall pay all reasonable costs and expenses
of the Lender incurred in connection with this Agreement including, without
limitation, all reasonable fees and expenses of Lender's counsel and Lender's
special FAA counsel.
(aa) Other Documents. Lender shall have received such other consents,
documents, agreements, or certificates (or copies thereof) related to the
transaction contemplated hereby, as it may reasonably request.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
In order to induce Lender to enter into this Agreement and to make the
Loan herein provided for, Debtor represents and warrants to Lender that:
4.1 Organization of Debtor. Debtor is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
has the necessary authority and power to own and operate the Engine and its
other assets and to transact the business in which it is engaged, and is duly
qualified to do business in each jurisdiction in which the conduct of its
business or the ownership or operation of its assets requires such
qualification.
4.2 Citizenship of Debtor. [This section intentionally deleted].
4.3 Power and Authority of Debtor. Debtor has full power, authority and
legal right to execute and deliver this Agreement, the Note, the Schedule, the
Collateral Assignment, the Lessee Notice and Acknowledgment and all other
instruments to be executed and delivered hereunder, to perform its obligations
hereunder and thereunder, to borrow hereunder and to grant the security interest
created by this Agreement.
4.4 Consents and Permits of Debtor. No consent or approval of, or giving
of notice to, any other party or Person (including any stockholders, trustees or
holders of indebtedness), and no consent, license, permit, approval or
authorization of, exemption by, or registration or declaration with, any
governmental body, authority, bureau or agency is required in connection with
the execution, delivery or performance by Debtor of this Agreement, the Note,
the Schedule, the Collateral Assignment, the Lessee Notice and Acknowledgment or
all other instruments to be executed and delivered hereunder, or the validity or
enforceability of this Agreement or the Note, except recordation of this
Agreement with the FAA and the filing of UCC financing statements in the
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appropriate recording offices, which shall have been duly effected as of the
Closing Date.
4.5 No Legal Bar re Debtor. The execution, delivery and performance by
Debtor of each of this Agreement, the Note, the Schedule, the Collateral
Assignment, the Lessee Notice and Acknowledgment and all other instruments to be
executed and delivered hereunder does not and shall not violate any provision of
any applicable law or regulation or of any judgment, award, order, writ or
decree of any court or governmental instrumentality, will not violate any
provision of the charter or by-laws of Debtor and will not violate any provision
of or cause a default under any mortgage, indenture, contract, agreement or
other undertaking to which Debtor is a party or which purports to be binding
upon Debtor or upon any of its assets, and will not result in the creation or
imposition of any Lien on any of the assets of Debtor other than the security
interests intended to be created hereby.
4.6 Enforceability re Debtor. This Agreement, the Collateral Assignment,
the Lessee Notice and Acknowledgment and all other instruments to be executed
and delivered hereunder have been duly authorized, executed and delivered by
Debtor and constitute legal, valid and binding obligations of Debtor enforceable
in accordance with their respective terms. When executed and delivered, the Note
and the Schedule shall have been duly authorized, executed and delivered by
Debtor and shall constitute legal, valid and binding obligations of Debtor
enforceable in accordance with their respective terms.
4.7 No Litigation re Debtor. There is no action, suit, investigation or
proceeding (whether or not purportedly on behalf of Debtor) pending or
threatened against or affecting Debtor or any of its assets (a) which involves
the Collateral or any of the transactions contemplated by this Agreement; or (b)
which, if adversely determined, could have an adverse effect upon the
transactions contemplated by this Agreement or a material adverse effect on the
business, operations or financial condition of Debtor.
4.8 Title to Collateral. On the Closing Date Debtor shall be the owner
of the Collateral and shall have good and marketable title to the Collateral
subject to no Liens except the security interest created hereby in favor of
Lender and the interest of the Lessee in the Engine under the Lease.
4.9 Lender's Security Interest. On the Closing Date Lender shall have a
legal, valid and continuing first and only priority security interest in the
Collateral, free and clear of all other Liens, and all filings, recordings or
other actions necessary or desirable in order to establish, protect and perfect
such security interest in favor of Lender as a perfected first and only priority
security interest in the Collateral will have been duly effected, and all taxes,
fees and other charges in connection therewith
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shall have been duly paid.
4.10 No Defaults re Debtor. Debtor is not in default, and no event or
condition exists which after the giving of notice or lapse of time or both would
constitute an event of default, under any mortgage, indenture, contract,
agreement, judgment or other undertaking to which Debtor is a party or which
purports to be binding upon Debtor or upon any of its assets.
4.11 Financial Condition of Guarantor. All financial statements of
Guarantor, copies of which have been heretofore delivered to Lender, are
complete and correct, have been prepared in accordance with GAAP, and present
fairly the financial position of Guarantor as at the date thereof and the
results of their respective operations for the period ended on said date and
there has been no material adverse change in the financial condition, business
or operations of Guarantor since said date.
4.12 Taxes. Debtor and/or Guarantor have filed all Federal, state and
local income tax returns that are required to be filed by each such party, and
have paid all taxes as shown on said returns and all assessments received by
each such party to the extent that such taxes and assessments have become due,
and Debtor and/or Guarantor does not have any knowledge of any actual or
proposed material deficiency or additional assessment in connection therewith.
The material charges, accruals and reserves on the respective books of Debtor
and the Guarantor in respect of Federal, state and local taxes for all open
years, and for the current fiscal year, make adequate provision for all unpaid
tax liabilities for such periods.
4.13 Engine. The Engine is greater than 750 rated take-off horsepower or
its equivalent.
4.14 Exempt Transaction. The issuance and delivery of the Note and any
other documents or instruments in connection with this Agreement under the
circumstances contemplated by the Note and this Agreement is an exempt
transaction under the Securities Act of 1933, as amended, and does not under
existing law require the registration of the Note (or any other document or
agreement) under the Securities Act of 1933, as amended or the qualification of
an indenture in respect thereof under the Trust Indenture Act of 1939, as
amended. Debtor is not an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
4.15 Security Interest. The Debtor has the right to grant a security
interest in, and has validly granted a security interest in and to, the
Collateral to the Lender.
4.16 No Adverse Mortgages. No mortgage, deed of trust, or other Lien
which now covers or affects, or which may hereafter cover or affect, any
property or interest therein of Debtor, now attaches or hereafter will attach to
any Collateral or in any
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manner affects or will affect adversely Lender's security interest therein.
4.17 Claims. Debtor has no pending claims, and does not have knowledge
of any facts upon which a future claim may be based, against any prior owner,
the manufacturer or supplier of the Engine or of the Engine or Part thereof for
breach of warranty or otherwise.
4.18 Organization of Guarantor. Guarantor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, has the necessary authority and power to own its assets and to
transact the business in which it is engaged, and is duly qualified to do
business in each jurisdiction in which its failure to do so would adversely
affect the Guarantor's business, operations or financial condition or its
ability to perform its obligations under the Guaranty, the Pledge Agreement, the
Stock Powers and all other instruments to be executed and delivered pursuant
thereto.
4.19 Power and Authority of Guarantor. Guarantor has full power,
authority and legal right to execute and deliver the Guaranty, the Pledge
Agreement, the Stock Powers and all other instruments to be executed and
delivered therewith, to perform its obligations thereunder, and to guaranty
thereunder the Obligations.
4.20 Consents and Permits of Guarantor. No consent or approval of, or
giving of notice to, any other party or Person (including any stockholders,
trustees or holders of indebtedness), and no consent, license, permit, approval
or authorization of, exemption by, or registration or declaration with, any
governmental body, authority, bureau or agency is required in connection with
the execution, delivery or performance by Guarantor of the Guaranty, the Pledge
Agreement, the Stock Powers and all other instruments to be executed and
delivered therewith, or the validity or enforceability of the Guaranty.
4.21 No Legal Bar re Guarantor. The execution, delivery and performance
by Guarantor of the Guaranty, the Pledge Agreement, the Stock Powers and all
other instruments to be executed and delivered thereunder does not and shall not
violate any provision of any applicable law or regulation or of any judgment,
award, order, writ or decree of any court or governmental instrumentality, will
not violate any provision of the charter or by-laws of Guarantor and will not
violate any provision of or cause a default under any mortgage, indenture,
contract, agreement or other undertaking to which Guarantor is a party or which
purports to be binding upon Guarantor or upon any of its assets, and will not
result in the creation or imposition of any Lien on any of the assets of
Guarantor.
4.22 Enforceability re Guarantor. When executed and delivered, the
Guaranty, the Pledge Agreement, the Stock Powers
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and all other instruments to be executed and delivered therewith shall have been
duly authorized, executed and delivered by Guarantor and shall constitute legal,
valid and binding obligations of Guarantor enforceable in accordance with their
respective terms.
4.23 No Litigation re Guarantor. There is no action, suit, investigation
or proceeding (whether or not purportedly on behalf of Guarantor) pending or
threatened against or affecting Guarantor or any of its assets (a) which
involves the Guaranty, the Pledge Agreement, the Pledged Stock, the Stock Powers
or the Collateral or any of the transactions contemplated by this Agreement, the
Guaranty or the Pledge Agreement; or (b) which, if adversely determined, could
have an adverse effect upon the transactions contemplated by this Agreement, the
Guaranty or the Pledge Agreement or a material adverse effect on the business,
operations or financial condition of Guarantor.
4.24 No Defaults re Guarantor. Guarantor is not in default, and no event
or condition exists which after the giving of notice or lapse of time or both
would constitute an event of default, under any mortgage, indenture, contract,
agreement, judgment or other undertaking to which Guarantor is a party or which
purports to be binding upon Guarantor or upon any of its assets which could have
a materially adverse effect on the business, operations or financial condition
of the Guarantor.
4.25 Delivery of Further Financial Statements re Guarantor. The
Guarantor will furnish Lender (i) as soon as available, and in any event within
one hundred twenty (120) days after the last day of each fiscal year of
Guarantor, a copy of the consolidated balance sheet of Guarantor and its
consolidated subsidiaries as of the end of such fiscal year, and related
consolidated statements of income, cash flow and retained earnings of Guarantor
and its consolidated subsidiaries for such fiscal year, all in reasonable detail
prepared in accordance with generally accepted accounting principles
consistently applied and certified by an independent certified public accounting
firm of recognized national standing, each on a comparative basis with
corresponding statements for the prior fiscal year; (ii) within sixty (60) days
after the last day of each fiscal quarter of Guarantor (except the last fiscal
quarter of any fiscal year), a copy of the consolidated balance sheet of
Guarantor and its consolidated subsidiaries as of the end of each such quarter,
and consolidated statements of income, cash flow and retained earnings covering
the fiscal year to date of Guarantor and its consolidated subsidiaries, each on
a comparative basis with the corresponding period of the prior year, all in
reasonable detail; and (iii) within thirty (30) days after the date on which
they are filed, all SEC Form 10-K, SEC Form 10-Q and SEC Form 8-K reports, made
by Guarantor with the Securities and Exchange Commission ("SEC") or any filings
or reports made by the Debtor or the Guarantor in respect of the Engine, this
Agreement or the Lease with the FAA. All credit, financial and other information
provided by the Debtor
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or the Guarantor or at any such party's direction is, and all such information
hereafter furnished will be, true, correct and complete in all material
respects.
4.26 Single Purpose. Debtor has engaged in no business or transaction
and has not incurred any Indebtedness, liabilities or obligations except in
connection with (i) the transaction contemplated by the Lease, the General Terms
Agreement, this Agreement, the Note, the Collateral Assignment and the Lessee
Consent and Acknowledgment, and/or (ii) any other leasing or assignment
transactions which are the subject of any financing arrangements between the
Debtor and the Lender.
4.27 Subsidiary of Guarantor. Debtor is a wholly-owned Subsidiary of the
Guarantor and itself has no Subsidiaries, and Debtor shall remain a wholly-owned
Subsidiary of the Guarantor at all times throughout the term of this Agreement.
4.28 Margin Securities. None of the advances of the Loan will be used,
directly or indirectly, for the purpose of purchasing or carrying any margin
security, as that term is defined in Regulations G and U of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), or for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security, or for any other purpose
which might cause any of such advances and other financial actions under this
Agreement to be considered a "purpose credit" within the meaning of Regulation
G, T, U, or X of the Federal Reserve Board. None of the Debtor's assets and none
of the Collateral constitute margin securities. The Debtor will neither take,
nor permit any agent acting on its behalf to take, any action which might cause
any transaction or obligation, or right created by this Agreement, or any
document or instrument delivered pursuant hereto, to violate any regulation of
the Federal Reserve Board. None of the transactions contemplated under this
Agreement, including, without limitation, the Note or the collateral assignment
hereunder will violate or result in a violation of the Securities Exchange Act
of 1934, as amended or any regulation issued pursuant thereto.
4.29 Lease and Lease Receivables. With respect to the Lease and/or the
Lease Receivables, as the case may be, Debtor warrants and represents to Lender
that, unless otherwise indicated in writing by Debtor: (A) they are genuine, are
in all respects what they purport to be, are not evidenced by a judgment and are
only evidenced by one, if any, executed Counterpart No. 1 of any applicable
instrument, agreement, contract or document; (B) they represent undisputed, bona
fide transactions completed in accordance with the terms and provisions
contained in any documents related thereto; (C) the amounts of the face value
shown on the Lease or schedules thereto or schedule of accounts or accounts
receivable report delivered or provided to
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Lender, and all invoices, statements and reports delivered or provided to
Lender, with respect to the Lease and/or any Lease Receivables are actually and
absolutely owing to Debtor and are not contingent for any reason; (D) to the
best of the Debtor's knowledge, there are no setoffs, counterclaims or disputes
existing or asserted with respect thereto and Debtor has not made any agreement
with the Lessee for any deduction therefrom; (E) to the best of the Debtor's
knowledge, there are no facts, events or occurrences which in any way impair the
validity or enforcement thereof or tend to reduce the amount payable thereunder
from the amount due under the Lease and/or any Lease Receivables, and on all
contracts, reports, invoices and statements delivered or provided to Lender with
respect thereto; (F) to the best of the Debtor's knowledge, the Lessee (i) had
the capacity to contract at the time of the Lease or contract or other document
giving rise to the Lease Receivable was executed, (ii) is solvent, and (iii) is
not the subject of a bankruptcy or insolvency proceeding of any kind; (G) the
Lease Receivables, the Engine and the Lease are not subject to any Liens or
claim or encumbrance, except those of Lender, those removed or terminated prior
to the date hereof and those subordinate to Lender's security interest (unless
otherwise agreed by the Lender in its sole discretion); (H) Debtor has no
knowledge of any fact or circumstance which would impair the validity or
collectibility thereof; (I) to the best of Debtor's knowledge and belief, there
are no proceedings or actions which are threatened or pending against the Lessee
which might result in any material adverse change in said party's financial
condition; (J) they have not been pledged, assigned or transferred to any Person
other than to the Lender; (K) to the best of the Debtor's knowledge, the Lease
and any guarantees or undertakings of any kind whatsoever regarding the same
constitutes legal, valid and binding agreements enforceable against the Lessee
and any guarantors in accordance with their respective terms, except to the
extent that such enforcement may be limited by applicable bankruptcy, insolvency
and other similar laws affecting creditors' rights generally; (L) Debtor is the
sole and absolute owner of (or has a perfected, first priority lien and security
interest in) all the Lease, Lease Receivables and the Engine (subject only to
the Liens of the Lender hereunder or the interest of the Lessee in the Engine
under the Lease); (M) to the best of the Debtor's knowledge, the Engine shall
have been delivered and/or installed, shall be in good working order and shall
have been fully and duly accepted by the Lessee; (N) it has been originated by
the Debtor; (O) to the best of the Debtor's knowledge, the Debtor has not
permitted the prepayment of any monthly rentals, or other amounts or monies due
or payable under the Lease except as otherwise specifically described to the
Lender in writing prior to the execution of this Agreement, (P) to the best of
the Debtor's knowledge, the Lease has not been terminated or amended as of the
date of this Agreement, and (Q) there are no verbal, written or implied
agreements or representations between the Debtor and the Lessee regarding the
Lease Receivables, the Lease and/or the Engine other than the written agreements
or documents either delivered to and held by the Lender pursuant to the terms of
this Agreement.
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4.30 Originals of Lease. Lender shall have received the only executed
counterpart of the Lease marked "Counterpart No. 1 of 4 Serially Numbered
Counterparts" in its possession (and all other executed counterparts of the same
in its possession) and the only executed counterpart of each schedule, rider,
amendment and addendum thereto marked "Counterpart No. 1 of 4 Serially Numbered
Counterparts" in its possession (and all other executed counterparts of the same
in its possession). The Debtor shall have duly marked, and legended, the Lease
and any documentation relating thereto, with the following statement:
Counterpart No. __ of __ serially numbered, manually executed Counterparts. To
the extent, if any, that this Lease constitutes chattel paper under the UCC, no
security interest in this Lease may be created through the transfer and
possession of any Counterpart other than Counterpart No. 1.
4.31 Solvency. The Debtor is solvent as determined under GAAP as of the
date of this Agreement.
SECTION 5. COVENANTS.
Debtor covenants and agrees that from and after the date hereof and so
long as the Commitment or the Note or any other Obligations are outstanding:
5.1 Notices. Debtor shall promptly give written notice to Lender of (i)
the occurrence of any Event of Default or any event which with notice, with
lapse of time and/or with any further condition, event or act would constitute
an Event of Default; (ii) the occurrence of any Event of Loss; (iii) the
commencement or threat of any material litigation or proceedings affecting
Debtor or any material litigation or proceedings affecting the Engine; and (iv)
any dispute between Debtor and any governmental regulatory body or other party
that involves the Engine or that might materially interfere with the normal
business operations of Debtor.
5.2 Laws; Obligations. Debtor shall (i) duly observe and conform to all
requirements of any governmental authorities relating to the conduct of its
business, the Engine, and/or to its properties or assets; (ii) maintain its
existence as a legal entity and obtain and keep in full force and effect all
rights, franchises, licenses and permits which are necessary to the proper
conduct of its business; (iii) remain a citizen of the United States within the
meaning of Subtitle VII of Title 49 of the United States Code, as amended and
recodified; (iv) obtain or cause to be obtained as promptly as possible any
governmental, administrative or agency approval and make any filing or
registration therewith which at the time shall be required with respect to the
performance of its obligations under this Agreement and the operation of the
Engine and its business; and (v) pay and
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perform all of its obligations and liabilities when due, including, without
limitation, all fees, taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or upon the Engine or any other
property belonging to it.
5.3 Inspection. So long as no Event of Default has occurred and is
continuing hereunder, Debtor shall permit and allow Lender or its authorized
representative at any reasonable time or times to inspect the Collateral, the
Records and the books and records of the Debtor after having received five (5)
days prior notice, provided, however, so long as no Event of Default (as defined
in the Lease) has occurred and is continuing under the Lease, the Lender shall
comply with Section 13 of the General Terms Agreement as to the Lender's right
of inspection regarding the Engine; provided further, however, that nothing
contained in the foregoing proviso shall be deemed to limit, impair or adversely
affect in any way whatsoever the Lender's rights under the Collateral
Assignment, this Agreement or any other agreements, documents or instruments to
enforce the rights and remedies of the Debtor under such Section 13 of the
General Terms Agreement or any other applicable section of the Lease.
Notwithstanding the foregoing, in the event that any Event of Default has
occurred and is continuing hereunder, Debtor shall permit and allow Lender or
its authorized representative at any time or times to inspect the Collateral,
the Records and the books and records of the Debtor without any notice;
provided, however, that in the event the Engine is in the possession of the
Lessee at the time an Event of Default has occurred and is continuing hereunder,
the Debtor shall permit and allow Lender or its authorized representative at any
time or times to inspect the Collateral, the Records and the books and records
of the Debtor after having received one (1) day prior notice, provided further,
however, so long as no Event of Default (as defined in the Lease) has occurred
and is continuing under the Lease, the Lender shall comply with Section 13 of
the General Terms Agreement as to the Lender's right of inspection regarding the
Engine; provided further, however, that nothing contained in the foregoing
provisos shall be deemed to limit, impair or adversely affect in any way
whatsoever the Lender's rights under the Collateral Assignment, this Agreement
or any other agreements, documents or instruments to enforce the rights and
remedies of the Debtor under such Section 13 of the General Terms Agreement or
any other applicable section of the Lease.
5.4 Books. Debtor shall keep proper books of record and account in which
full, true and correct entries in accordance with generally accepted accounting
principles will be made of all dealings or transactions in relation to its
business and activities.
5.5 Financial Information. Debtor agrees to furnish Lender or to cause
the Guarantor to furnish Lender (i) as soon as available, and in any event
within one hundred twenty (120) days after the last day of each fiscal year of
Guarantor, a copy of
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the consolidated balance sheet of Guarantor and its consolidated subsidiaries as
of the end of such fiscal year, and related consolidated statements of income,
cash flow and retained earnings of Guarantor and its consolidated subsidiaries
for such fiscal year, all in reasonable detail prepared in accordance with
generally accepted accounting principles consistently applied and certified by
an independent certified public accounting firm of recognized national standing,
each on a comparative basis with corresponding statements for the prior fiscal
year; (ii) within sixty (60) days after the last day of each fiscal quarter of
Guarantor (except the last fiscal quarter of any fiscal year), a copy of the
consolidated balance sheet of Guarantor and its consolidated subsidiaries as of
the end of each such quarter, and consolidated statements of income, cash flow
and retained earnings covering the fiscal year to date of Guarantor and its
consolidated subsidiaries, each on a comparative basis with the corresponding
period of the prior year, all in reasonable detail; and (iii) within thirty (30)
days after the date on which they are filed, all SEC Form 10-K, SEC Form 10-Q
and SEC Form 8-K reports, made by Guarantor or Debtor with the SEC or any
filings or reports made by the Guarantor or Debtor in respect of the Engine,
this Agreement or the Lease with the FAA.
5.6. Further Assurances. Debtor shall promptly, at any time and from
time to time, at its sole expense, execute and deliver to Lender such further
instruments and documents, and take such further action, as Lender may from time
to time reasonably request in order to further carry out the intent and purpose
of this Agreement and to establish and protect the rights, interests and
remedies created, or intended to be created, in favor of Lender hereby,
including, without limitation, the execution, delivery, recordation and filing
of UCC financing statements and continuation statements. Debtor shall pay, or
reimburse Lender for, any and all reasonable fees, costs and expenses of
whatever kind or nature incurred in connection with the creation, preservation
and protection of Lender's security interest in the Collateral, including,
without limitation, all fees and taxes in connection with the recording or
filing of instruments and documents in public offices, payments or discharges of
any taxes or Liens upon or in respect of the Collateral, premiums for insurance
with respect to the Collateral and all other fees, costs and expenses in
connection with protecting, maintaining or preserving the Collateral and
Lender's interest therein, whether through judicial proceedings or otherwise, or
in defending or prosecuting any actions, suits or proceedings arising out of or
related to the Collateral, and all such amounts that are paid by Lender shall,
until reimbursed by Debtor, constitute Obligations of Debtor secured by the
Collateral.
5.7 No Disposition of Assets. Debtor shall not sell, convey, transfer,
dispose, assign, sublease, pledge, mortgage, exchange, lease or otherwise
relinquish possession or dispose of any of its now owned or hereafter acquired
property or assets, including, without limitation, any Collateral (or Lender's
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security interest in the Collateral), except (i) for the Lease and the leasing
of the Engine to the Lessee under said Lease, (ii) for the subleasing of the
Engine by the Lessee to any permitted sublessee from time to time pursuant to
the express terms of the Lease, (iii) for any Liens expressly permitted in
Section 5.8 of this Agreement, and (iv) as otherwise expressly permitted in
Section 2.3(c) and Section 5.14 of this Agreement.
5.8 No Liens. Debtor shall not create, incur, assume, or suffer to exist
any Lien upon or with respect to any of its properties, including, without
limitation, any Collateral, now owned or hereafter acquired, except:
(a) Liens in favor of the Lender;
(b) Liens for taxes or assessments or other government charges or
levies not yet due and payable or, if due and payable, Liens for
taxes being diligently contested in good faith by appropriate
proceedings and for which appropriate cash reserves are
maintained, and where in the Lender's sole judgment, there is no
danger of the sale, forfeiture or loss of any of the Collateral,
and if requested by the Lender, adequate assurance of payment
and/or security have, in Lender's sole judgment have been
provided to Lender;
(c) Liens imposed by law, such as mechanics, material men's,
landlords', warehousemen's, and carriers' Liens, and other
similar Liens, securing obligations incurred in the ordinary
course of business which do not exceed in the aggregate
$100,000.00 and which are not past due for more than thirty (30)
days, unless such Liens are being diligently contested in good
faith by appropriate proceedings and appropriate cash reserves
have been established therefor, and where in the Lender's sole
judgment, there is no danger of the sale, forfeiture or loss of
any of the Collateral, and if requested by the Lender, adequate
assurance of payment and/or security have, in Lender's sole
judgment have been provided to Lender; and
(d) Liens expressly permitted pursuant to the terms of the Lease.
5.9 Debtor's Title; Lender's Security Interest. Debtor shall warrant and
defend its good and marketable title to the Engine and Lender's first perfected
security interest in the Collateral, against all claims and demands whatsoever.
If at any time any Person shall claim any right or interest in the Collateral,
Debtor shall, at its expense, cause such claim to be waived in writing or
otherwise eliminated to Lender's satisfaction within sixty (60) days after such
claim shall have first become known to Debtor.
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5.10 No Changes in Debtor and/or Guarantor. Each of the Debtor and/or
Guarantor shall not (a) enter into any transaction of merger or consolidation,
or become the subject of, or engage in, a leveraged buyout; or (b) liquidate or
dissolve; or (c) sell or otherwise dispose of all or any substantial portion of
its assets; or (d) change its name or the form of organization of its business;
or (e) without thirty (30) days prior written notice to Lender, change its chief
place of business, provided, however, that the Guarantor may consolidate,
reorganize or merge with or into any other corporation or become the subject of,
or engage in, a leveraged buy out or any other form of corporate reorganization
(each individually or all collectively, the "Reorganization") without the prior
written consent of the Lender if immediately subsequent to such proposed
Reorganization (i) the surviving entity of any such proposed Reorganization
shall be the Guarantor, and (ii) no person or group (as defined in Rules 13d-3
and 13-5 under the Securities Act), becomes the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Securities Act) of a larger number of shares
of common stock of the Guarantor than the number of shares of which CHARLES F.
WILLIS, IV and members of his family (including children, brothers and sisters)
is the beneficial owner (as defined in Rules 13d-3 sand 13d-5 under the
Securities Act).
5.11 Maintenance and Operation; Compliance and Use; Replacement Parts;
Additions, Modifications; Identification; Event of Loss re Engine.
(a) Maintenance and Operation. Debtor, at its own cost and expense,
shall (or shall cause the Lessee to) (i) maintain, inspect, service, repair,
overhaul and test the Engine in accordance with the manufacturer's maintenance
program and (w) an FAA approved Part 121 maintenance program, (x) all
maintenance manuals initially furnished with the Engine, if any, including any
subsequent amendments or supplements to such manuals issued by the applicable
manufacturer from time to time, (y) all "mandatory", "alert" and (to the extent
applicable to Debtor, or its operations) "highly recommended" or other service
bulletins, modification kits, and similar notices and components issued,
supplied, or available by or through the manufacturer and/or the manufacturer(s)
of the Engine or Part with respect to the Engine and (z) all "airworthiness
alerts" and "Airworthiness" or other "Directives", "Service Letters",
"Circulars" and "Operator Bulletins" and all other applicable service,
maintenance, repair and overhaul regulations issued by the FAA or similar
regulatory agency having jurisdictional authority, and whenever possible causing
compliance to the foregoing to be completed through corrective modification in
lieu of operating manual restrictions; (ii) maintain all Records and all other
records, logs, and other materials required by the FAA to be maintained in
respect of the Engine, or by the manufacturer thereof for enforcement of any
warranties. Without limiting the generality of the foregoing, Debtor shall (or
shall cause the Lessee to) maintain, inspect, service, repair, overhaul and test
the Engine, and furnish all
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parts, replacements, mechanisms, devices and servicing required therefor, so
that the value, condition and operating efficiency of the Engine shall at all
times be maintained and preserved at a level which is the higher of, (x) its
value, condition and operating efficiency when delivered to Debtor, fair wear
and tear excepted, or (y) the level required by any governmental authority
having jurisdiction with respect thereto, or as shall be required by any and all
applicable "airworthiness alerts" and "Airworthiness" or other "Directives",
"Service Letters", "Circulars" and "Operator Bulletins". All maintenance
procedures required under this Section 5.11(a) or any other provision of this
Agreement shall be undertaken and completed in accordance with all FAA standards
and procedures and all manufacturer recommended procedures, as well as the
procedures established by Debtor for similar engines which it owns or leases,
and only by properly trained, licensed, and certified maintenance sources and
maintenance personnel, so as to keep the Engine in good operating condition,
ordinary wear and tear alone excepted. Debtor shall not (and shall cause the
Lessee not to) permit the Engine to be serviced, repaired, maintained, used or
operated in any manner contrary to directives of the FAA or the manufacturer's
operating manuals or instructions, or in violation of the manufacturer's
specifications, service bulletins or other requirements, including, without
limitation, such of the manufacturer's requirements as may be applicable to keep
in full force and effect each warranty, product or performance guaranty, service
life policy or the like. Notwithstanding anything contained in this Section
5.11(a) to the contrary, so long as the Debtor shall (or cause the Lessee to)
maintain, inspect, service, repair, overhaul and test the Engine (and maintain
and keep any Records) at a level which fully satisfies in all respects the terms
and conditions of the Lease, the Debtor shall be deemed to have complied in all
respects to the terms and conditions of this Section 5.11(a).
(b) Compliance and Use. The Engine shall be maintained, used and
operated by Debtor (or the Debtor shall cause the Lessee to) maintain, use and
operate the Engine, in compliance with any and all statutes, laws, ordinances,
regulations and mandatory standards, letters, circulars, bulletins, instructions
or directives issued by any governmental agency applicable to the maintenance,
use or operation thereof, in compliance with any certificate, license or
registration relating to the Engine issued by any agency, and in a manner that
does not modify or impair any existing warranties on the Engine or any part
thereof. Debtor shall also (or shall cause the Lessee to) operate the Engine
solely in the conduct of its business and/or for commercial purposes, and Debtor
shall not (and shall cause the Lessee not to) operate or permit the Engine to be
operated at any time or in any geographic area when or where insurance required
by the provisions of Section 5.12 hereof shall not be in effect or excluded from
coverage, or in any recognized or threatened area of hostilities unless fully
covered to Lender's satisfaction by hull, war, and political risk insurance, or
any area in which Lender's first lien on the Engine may be jeopardized or not
recognized, as determined
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in Lender's sole judgment, or in a manner, for any time period, such that, any
third party shall be deemed to have "operational control" of the Engine, except
for the Lessee pursuant to the terms of the Lease. Notwithstanding anything
contained in this Section 5.11(b) to the contrary, so long as the Debtor shall
(or cause the Lessee to) use, operate, maintain, inspect, service, repair,
overhaul and test the Engine (and maintain and keep any Records) at a level
which fully satisfies in all respects the terms and conditions of the Lease, the
Debtor shall be deemed to have complied in all respects to the terms and
conditions of this Section 5.11(b).
(c) Identification. If requested by Lender in writing, Debtor shall, at
its own cost and expense (or the Debtor shall cause the Lessee, at the Lessee's
own cost and expense to), attach to the Engine a data plate satisfactory to
Lender disclosing Lender's security interest in the Engine.
(d) Replacement Parts. Debtor, at its own cost and expense, will
promptly (or will cause the Lessee to promptly) replace all Parts which may from
time to time become worn out, lost, stolen, taken, destroyed, seized,
confiscated, requisitioned, damaged beyond repair or permanently rendered or
declared unfit for use for any reason whatsoever (such substituted Parts
hereinafter called "Replacement Parts"). In addition, in the ordinary course of
maintenance, service, repair, overhaul or testing, Debtor may, at its own cost
and expense, (or may cause the Lessee to promptly) remove serviceable Parts,
provided that Debtor shall, at its own cost and expense (or Debtor shall cause
the Lessee, at the Lessee's own cost and expense to), replace such serviceable
Parts as promptly as practicable. All Replacement Parts (i) shall be owned by
Debtor or Lessee free and clear of all Liens (other than the Lien of the Lender
hereunder), (ii) shall be in an airworthy condition and of at least equivalent
model and modification status and/or service bulletin accomplishment status,
shall be fully interchangeable as to form, fit and function and shall be in a
good operating condition as, and shall have a value and utility at least equal
to, the Parts replaced assuming such replaced Parts were in the condition and
repair required to be maintained by the terms hereof, (iii) shall have a current
"serviceable tag" of the manufacturer or maintenance facility providing such
items to Debtor or Lessee, indicating that such Parts are new, serviceable or
overhauled, (iv) if serviceable, shall have all maintenance records from the
last overhaul thereof and the maintenance history since the last overhaul
thereof, (v) if overhauled, have all overhaul records, and (vi) if a life
limited Part, have continuous records since the date of manufacture or the date
of the last overhaul. All Parts at any time removed from the Engine shall remain
part of the Collateral, no matter where located, until such time as such Parts
shall be replaced by Parts which have been incorporated or installed in or
attached to the Engine and which meet the requirements for Replacement Parts
specified above. Without limiting the generality of any term of this Agreement,
immediately upon any Replacement Part becoming incorporated or
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installed in or attached to the Engine as above provided, without further act,
such Replacement Part shall become subject to this Agreement including, without
limitation, the lien and security interest of this Agreement, and shall be
deemed part of the Collateral and shall be deemed part of the Engine, as the
case may be, for all purposes hereof to the same extent as the Parts originally
incorporated or installed in or attached to the Engine, and the Lender's lien
and security interest with respect to the Part being replaced by the Replacement
Part shall automatically thereafter be deemed to be released and shall no longer
be subject to the terms of this Agreement. Notwithstanding anything contained in
this Section 5.11(d) to the contrary, so long as the Debtor shall (or cause the
Lessee to) use, operate, maintain, inspect, service, repair, overhaul and test
the Engine and replace any Parts (and maintain and keep any Records) at a level
which fully satisfies in all respects the terms and conditions of the Lease, the
Debtor shall be deemed to have complied in all respects to the terms and
conditions of this Section 5.11(d).
(e) Additions; Modifications. Debtor (or the Lessee) shall be entitled
from time to time during the term of this Agreement to, at Debtor's or Lessee's
sole cost and expense, make such alterations, modifications, additions to or
removals from any Engine or Engine as may be reasonable in the proper conduct by
Debtor (or the Lessee, as applicable) of its business; provided, that in no
event shall any such alteration, modification, addition or removal (i) impair
the originally intended function or use of the Engine or diminish the use,
condition or value of the same, assuming the Engine was in the condition and
repair then required to be maintained by the terms hereof, and/or (ii) as to any
Additional Parts (as such term is defined below), the removal of any such
Additional Parts can be readily removed without causing material damage to the
Engine. All Parts incorporated or installed in or attached to the
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Engine as the result of such alteration, modification or addition shall be
collectively referred to as the "Additional Parts". Debtor shall (or shall cause
the Lessee to) repair all damage to the Engine resulting from any installation
and/or removal of any Additional Parts so as to restore the Engine to its
condition prior to installation, normal wear and tear excepted assuming the
Engine was in the condition and repair then required to be maintained by the
terms hereof. Any alterations or modifications with respect to the Engine that
may at any time during the term of this Agreement be required to comply with
applicable law or any governmental rule or regulation shall be made at the sole
cost and expense of Debtor or Lessee, as applicable. Without limiting the
generality of any term of this Agreement, immediately upon any Additional Parts
becoming incorporated or installed in or attached to the Engine as above
provided, without further act, such Additional Parts shall become subject to
this Agreement including, without limitation, the lien and security interest of
this Agreement, and shall be deemed part of the Collateral and shall be deemed
part of the Engine, as the case may be, for all purposes hereof to the same
extent as the Parts originally incorporated or installed in or attached to the
Engine; provided, that if such Additional Part was in addition to, and not a
replacement of or substitution for, any Part incorporated or installed in or
attached or added to the Engine on the date the Engine became subject to the
terms of this Agreement (a "Debtor Additional Part"), Debtor may (or may cause
the Lessee to) at any time remove such Debtor Additional Part from the Engine so
long as the removal of such Debtor Additional Part (i) does not impair the
originally intended function or use of the Engine or diminish the use, condition
or value of the same, assuming the Engine was in the condition and repair then
required to be maintained by the terms hereof, and/or (ii) can be readily
removed without causing material damage to the Engine, and upon removal of such
Debtor Additional Part, Lender's lien and security interest with respect to such
Debtor Additional Part shall automatically be deemed to be released and shall no
longer be subject to the terms of this Agreement. Notwithstanding anything
contained in this Section 5.11(e) to the contrary, so long as the Debtor shall
(or cause the Lessee to) use, operate, maintain, inspect, service, repair,
overhaul and test the Engine and make additions or modifications to the Engine
or any Parts (and maintain and keep any Records) at a level which fully
satisfies in all respects the terms and conditions of the Lease, the Debtor
shall be deemed to have complied in all respects to the terms and conditions of
this Section 5.11(e).
5.12 Insurance.
(a) Engine Liability and Property Damage Insurance. Debtor represents
and warrants that it will (or will cause the Lessee to) maintain at all times,
at its own cost and expense (or at the Lessee's own cost and expense), with
insurers of recognized responsibility, (i) comprehensive aircraft and general
public liability insurance against bodily injury and property damage claims in
an amount not less than $300,000,000.00 for each single occurrence and (ii) such
other property damage insurance (exclusive of manufacturer's product liability
insurance) with respect to the Engine as is of the type and in the amounts
usually carried by companies engaged in the same or a similar business as Debtor
(or Lessee), similarly situated with Debtor (or Lessee), and owning or operating
similar aircraft and engines, and which covers risks of the kind customarily
insured against by such companies.
(b) Insurance Against Loss or Damage to the Engine. Debtor represents
and warrants that it will (or will cause the Lessee to) maintain in effect at
all times, at its own cost and expense (or at the Lessee's own cost and
expense), with insurers of recognized responsibility, all-risk ground and flight
aircraft hull insurance covering the Engine, provided that such insurance shall
at all times be not less than the greater of (i) the full replacement value of
the Engine, which replacement value shall be the express amount provided for
each twelve (12) month period set forth on Exhibit C attached hereto, (ii) the
aggregate unpaid
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principal amount of the Note or (iii) the amount which would be paid pursuant to
Section 2.3 hereof upon the occurrence of an Event of Loss (each such amount
determined as of each anniversary of the Closing Date for the next succeeding
year throughout the term of this Agreement). Debtor shall (or shall cause the
Lessee to), at its (or the Lessee's) own cost and expense, additionally maintain
in effect with an insurer of recognized responsibility reasonably satisfactory
to Lender, hijacking (air piracy) insurance with respect to the Engine in a face
amount of not less than the greater of (i) the full replacement value of the
Engine, which replacement value shall be the express amount provided for each
twelve (12) month period set forth on Exhibit C attached hereto, (ii) the
aggregate unpaid principal amount of the Note or (iii) the amount which would be
paid pursuant to Section 2.3 hereof upon the occurrence of an Event of Loss
(each such amount determined as of each anniversary of the Closing Date for the
next succeeding year throughout the term of this Agreement), which shall be in
full force and effect throughout any geographical areas at any time traversed by
the Engine. Such insurance shall also include governmental confiscation and
expropriation and related insurance, if and to the extent the same is maintained
by Debtor (or Lessee, as applicable) with respect to other aircraft owned or
operated by Debtor (or Lessee, as applicable) on the same routes as the Engine
or where the custom in the United States airline industry is to carry such
insurance with respect to aircraft and engines operated on the same routes as
the Engine.
(c) Lender as Additional Insured; Notice. Any policies of insurance
carried in accordance with this Section and any policies taken out in
substitution or replacement or any such policies (i) shall be amended to name
Lender as the additional insured as its interests may appear, (ii) with respect
to insurance carried in accordance with paragraph (b) of this Section 5.12
covering the Engine, shall provide that any amount(s) payable thereunder which
exceed $200,000.00 in the aggregate shall be paid directly to Lender as sole
loss payee and not to Lender and Debtor jointly (and, so long as no Event of
Default has occurred, such amounts shall be disbursed by Lender to Debtor or
other appropriate persons for payment of the costs actually incurred with
respect to repairs made to the Engine so as to restore it to the operating
condition required hereunder, or shall be disbursed by Lender as otherwise
required by this Agreement), and that any amount(s) of less than $200,000.00 in
the aggregate shall be paid to Debtor (and such amounts shall be applied by
Debtor to pay the costs of such repairs) provided, however, that if an Event of
Default has occurred, any and all such proceeds or amounts shall be paid
directly to Lender to be applied pursuant to the applicable terms of this
Agreement, (iii) shall provide that if any insurer cancels such insurance for
any reason whatever, or any substantial change is made in any of the coverage
required hereunder, or the same is allowed to lapse for nonpayment of premium or
such insurance coverage is reduced, such cancellation, change, lapse or
reduction shall not be effective as to Lender for thirty (30) days following
receipt by Lender of written notice, and (iv) shall provide that
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in respect of the interests of Lender in such policies, the insurance shall not
be invalidated by any action or inaction of Debtor or any other Person (other
than Lender). Each insurance policy and its respective cover amount(s) obtained
in accordance with the requirements set forth in paragraphs (a) and (b) of this
Section 5.12 shall (i) be primary insurance, not subject to any co-insurance
clause and shall be without right of contribution from any other insurance, and
(ii) expressly provide that all of the provisions thereof, except the limits of
liability, shall operate in the same manner as if there were a separate policy
covering each insured or loss payee, and shall waive any right of such insurer
to any setoff, counterclaim or other deduction, by attachment or otherwise, in
respect of Lender or Debtor. Debtor shall arrange for appropriate certification
as to the satisfaction of the requirements set forth above in this Section 5.12
to be delivered to Lender not later than the Closing Date.
(d) Reports, etc. Upon the request of the Lender, Debtor shall furnish
to Lender a report describing in reasonable detail the insurance then carried
and maintained on the Engine and certifying that such insurance complies with
the terms hereof and such other evidence of insurance coverage that the Lender
reasonably requests. In the event Debtor shall fail to maintain insurance as
herein provided, Lender may, at its option, provide such insurance, and Debtor
shall, upon demand, reimburse Lender for the cost thereof, together with
interest at the Late Charge Rate from the date of payment through the date of
reimbursement.
(e) Agreed Value. Anything herein to the contrary notwithstanding, at
all times while the Engine is subject to this Agreement, the insurance required
by Section 5.12 of this Agreement shall be for an amount on an "agreed value"
basis not less than the greater of (i) the full replacement value of the Engine,
which replacement value shall be the express amount provided for each twelve
(12) month period set forth on Exhibit C attached hereto, (ii) the aggregate
unpaid principal amount of the Note or (iii) the amount which would be paid
pursuant to Section 2.3 hereof upon the occurrence of an Event of Loss (each
such amount determined as of each anniversary of the Closing Date for the next
succeeding year throughout the term of this Agreement).
5.13 Indebtedness. Debtor shall not create, incur, assume, or suffer to
exist any recourse or nonrecourse Indebtedness, except:
(a) Indebtedness of the Debtor under this Agreement or under any
other agreement, instrument or document with or in favor of the
Lender; and
(b) Accounts payable to trade creditors for goods or services and
current operating liabilities (other than for borrowed money),
in each case incurred in the ordinary course of business and
paid within the required time, unless diligently contested by
the
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Debtor in good faith and by appropriate proceedings.
5.14 Leases. Debtor shall not create, incur, assume, or suffer to exist
any obligation as lessee for the rental or hire of any real or personal
property, except: (a) leases existing on the date of this Agreement and any
extensions or renewals thereof; and (b) leases that do not in the aggregate
require the Debtor to make payments (including taxes, insurance, maintenance,
and similar expense which the Debtor is required to pay under the terms of any
lease) in any fiscal year of the Debtor in excess in the aggregate amount of
$20,000.
5.15 Sale and Leaseback. Debtor shall not sell, transfer, or otherwise
dispose of any real or personal property to any Person and thereafter directly
or indirectly lease back the same or similar property.
5.16 Dividends; New Stock. Debtor shall not declare or pay any
dividends; or purchase, redeem, retire, or otherwise acquire for value any of
its capital stock now or hereafter outstanding or any interests therein; or make
any distribution of assets to its shareholders as such whether in cash, assets,
or obligations of the Debtor; or alleviate or otherwise set apart any sum for
the payment of any dividend or distribution on, or for the purchase, redemption,
or retirement of, any shares of its capital stock or any interests therein; or
issue or permit to be outstanding any new or additional shares of its stock of
any kind whatsoever; or designate, establish or create any new or additional
series of its stock (other than the stock that exists as of the date of this
Agreement) so long as any Obligations are outstanding.
5.17 Investments. Debtor shall not make, directly or indirectly, any
loan or advance of any kind whatsoever to any Person, or purchase or otherwise
acquire any capital stock, assets, obligations, or other securities of, make any
capital contribution to, or lend or advance any property or assets of any kind
whatsoever of the Debtor to any Person, or otherwise invest in or acquire any
interest in any Person except: (a) direct obligations of the United States or
any agency thereof with maturities of one year or less from the date of
acquisition; (b) commercial paper of a domestic issuer rated at least "A-I" by
Standard & Poor's Ratings Group or "PI" by Moody's Investors Service, Inc.; (c)
certificates of deposit with maturities of one year or less from the date of
acquisition issued by the Lender; or (d) for stock, obligations, or securities
received in settlement of debts (created in the ordinary course of business)
owing to the Debtor.
5.19 Guaranties, Etc. Debtor shall not assume, guaranty, endorse, or
otherwise be or become directly or contingently responsible or liable
(including, but not limited to, an agreement to purchase any obligation, stock,
assets, goods, or services, or to supply or advance any funds, assets, goods, or
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services, or to maintain or cause such Person to maintain a minimum working
capital or net worth, or otherwise to assure the creditors of any Person against
loss) for obligations of any Person, except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business.
5.20 Transactions With Affiliates. Debtor shall not enter into any
transaction, including, without limitation, the purchase, sale, or exchange of
property or the rendering of any service, with any Affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of the Debtor's
business and upon fair and reasonable terms no less favorable to the Debtor than
it would obtain in a comparable arm's length transaction with a Person not an
Affiliate.
5.21 Subsidiaries. Debtor shall not create or otherwise acquire an
interest in any Subsidiary or Person.
5.22 Single Purpose. Debtor shall not engage in any business,
transaction or incur any obligations or liabilities except as expressly
contemplated (i) in the Lease, the General Terms Agreement, this Agreement, the
Note, the Collateral Assignment and the Lessee Consent and Acknowledgment,
and/or (ii) in any other leasing or assignment transactions which are the
subject of any financing arrangements between the Debtor and the Lender.
5.23 Subsidiary of Guarantor. Debtor shall remain a wholly-owned
Subsidiary of the Guarantor at all times throughout the term of this Agreement.
5.24 Fiscal Year. Debtor shall not change its fiscal year end from
December 31.
5.25 Accounting Methods. Debtor shall not make or consent to a material
change in the ownership or structure of the Debtor or in the manner in which the
business of the Debtor is conducted or in its method of accounting or in its
election to be taxed under the Internal Revenue Code, as applicable.
5.26 Account. Debtor shall maintain the Account at all times with the
Lender pursuant to the terms of this Agreement.
5.27 Collection of Payments; Payments to Lender. Effective as of the
date of this Agreement, the Debtor shall direct the Lessee to make all payments
under the Lease directly to the Lender in accordance with the Lender's
instructions and in accordance with Section 9.1 of this Agreement.
Notwithstanding the foregoing, in the event the Debtor and/or Guarantor still
receives and/or collects any payments and/or monies of any kind whatsoever due
under, in connection with, or relating to, the Collateral (any and all such
payments and/or monies collectively the "Payments"), Debtor and/or Guarantor
shall receive and/or
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collect any such Payments as agent for the Lender and shall still hold the same
in trust as trustee of an express trust for the Lender, and Debtor and/or
Guarantor shall immediately upon their respective receipt and/or collection of
same turnover and deliver all of such Payments to the Lender.
5.28 No Waiver or Modification; No Action Under the Lease.
Notwithstanding anything to the contrary contained herein or otherwise, Debtor
shall not waive any provisions of, or modify or amend, the Lease or the General
Terms Agreement in any way whatsoever, nor shall Debtor have authority to
exercise any rights or remedies of any kind whatsoever in connection with any
Collateral (including, without limitation, declaring an Event of Default, as
such term is defined in the General Terms Agreement, under the General Terms
Agreement, terminating the General Terms Agreement or the Lease, accelerating
any amounts due under the General Terms Agreement or the Lease or repossessing
the Engine), without the prior written consent of the Lender.
5.29 Debtor Obligations Under the Lease. Debtor shall fulfill (at its
sole cost and expense) all of its obligations as a lessor/owner under the Lease
and the General Terms Agreement except as may otherwise be expressly limited by
Sections 5.27 and/or 5.28 of this Agreement or any other applicable section of
this Agreement.
5.30 Administrator of Lease. Debtor shall (at its sole cost and expense)
administer the Lease and the General Terms Agreement, which administration shall
include, but not be limited to:
(a) billing Lessee for amounts payable under the General Terms Agreement
and the Lease;
(b) tracking the maintenance status of the Engine and ensuring that the
Lessee corrects any maintenance deficiencies that the Debtor is aware of;
(c) providing Lender with evidence that all insurance coverage required
under the General Terms Agreement and the Lease has been obtained and/or renewed
by the Lessee;
(d) using its best efforts, upon the request of the Lender in its sole
discretion, to remarket, lease or sell (in the sole discretion of the Lender)
the Engine upon any Event of Default under this Agreement (other than any Event
of Default based on any Lessee Event of Default under the Lease);
(e) using its best efforts to remarket, lease or sell the Engine upon
any Lessee Event of Default under the Lease so long as no Event of Default has
occurred under this Agreement (other than any Event of Default based on any
Lessee Event of Default under the Lease), provided, however, that any bona fide
and arm's length lease or sale of the Engine proposed by the Debtor to any
Person
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that is not an Affiliate shall be subject to the prior written consent of
the Lender, which consent shall not be unreasonably withheld, provided further,
however, that any lease or sale of the Engine proposed by the Debtor to any
Affiliate or to any other Person which is not a bona fide and arm's length
transaction shall be subject to the prior written consent of the Lender, which
consent shall be in the sole discretion of the Lender; provided further,
however, that the first proviso and any rights of the Debtor under this Section
5.30(e) to remarket, lease or sell the Engine shall terminate and have no
further force or effect upon the occurrence of any Event of Default under this
Agreement (other than any Event of Default based on any Lessee Event of Default
under the Lease), and upon any such occurrence of such Event of Default under
this Agreement the Debtor shall remarket, lease or sell the Engine only pursuant
to the terms of Section 5.30(d) of this Agreement; and
(f) such other matters as are incidental to the normal administration of
an equipment lease or are reasonably requested by the Lender.
Nothing contained in this Section 5.30 or otherwise shall permit the
Debtor to take any actions expressly prohibited by Sections 5.27 and/or 5.28 of
this Agreement or any other applicable sections of this Agreement.
5.31 Solvency. The Debtor shall be solvent as determined under GAAP at
the time of the making of the Loan and at all times throughout the term of this
Agreement.
5.32 Engine Status Reports and Certification. As promptly as possible
after the end of each month during the term of the Note and this Agreement, and
in no event more than twenty (20) days thereafter, the Debtor shall provide the
Lender with monthly status reports regarding the Engine, which monthly status
reports (and all related documents and information) shall be reasonably
satisfactory to the Lender and shall include (i) the amount of the hours and
cycles flown by the Engine for the applicable month, (ii) notice of any repairs,
overhauls, servicing and all other maintenance procedures or services performed
or required with regard to the Engine for the applicable month as a result of
any "Airworthiness Directives" which have required the Engine to be out of
service for more than ten (10) days of said applicable month, and (iii) copies
of all reports regarding the Engine which are provided by the Lessee to the
Debtor pursuant to the terms of the Lease and copies of any reports or other
information regarding any damage to the Engine.
5.33 Furnishing of Additional Information. Debtor agrees that it shall
furnish to Lender from time to time such information relating to the Collateral,
the Debtor or the Guarantor (or their respective Subsidiaries and/or
Affiliates), financial or otherwise, as Lender shall reasonably request;
provided, however, with regard to any additional information concerning the
Engine,
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the Lender shall be entitled to (i) any additional information concerning the
Engine which the Lessee is required to provide the Debtor (or the Lender) under
the terms of the Lease, and (ii) any additional information concerning the
Engine which may be in the Debtor's possession or control.
SECTION 6. SECURITY INTEREST.
6.1 Grant of Security Interest. As collateral security for the prompt
and complete payment and performance when due of all of the Obligations and in
order to induce Lender to enter into this Agreement and make the Loan to Debtor
in accordance with the terms hereof and to extend other credit from time to time
to Debtor, whether under this Agreement, the Note or otherwise, Debtor hereby
assigns, conveys, mortgages, pledges, hypothecates and transfers to Lender, and
hereby grants to Lender a present and continuing first priority security
interest in and lien on all of Debtor's right, title and interest in, to and
under the Collateral; but none of Debtor's (and/or any other party's of any kind
whatsoever) obligations, liabilities and/or duties of any kind whatsoever under,
or with respect to the Collateral. Notwithstanding anything to the contrary
contained herewith or otherwise, the Lender does not by virtue of this
Agreement, the Collateral Assignment or otherwise assume any obligations,
liabilities and/or duties of any kind whatsoever of the Debtor (and/or of any
other party of any kind whatsoever) under, or with respect to, the Collateral
and the Lender shall not be responsible in any way whatsoever for the
performance by the Debtor (and/or by any other party of any kind whatsoever) in
connection with, relating to, or arising under, the Collateral.
The security interest granted herein shall attach to each item of
Collateral at the time Debtor has any interest of any kind whatsoever in such
Collateral without any further action of any kind whatsoever.
6.2 Lender Appointed as Attorney-in-Fact.
(a) Debtor hereby irrevocably constitutes and appoints Lender and any
other officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Debtor and in the name of Debtor or in its own name, from time to
time in Lender's discretion, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Agreement. Debtor hereby ratifies all that said attorney shall
lawfully do or cause to be done by virtue hereof. To the extent permitted by
law, this power of attorney is a power coupled with an interest and shall be
irrevocable. Without limiting the generality of the foregoing, pursuant to such
appointment, the Lender shall have authority (i) to endorse Debtor's name on any
checks, notes, drafts or any other payments or instrument relating
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to the Collateral which come into the Lender's possession or control, (ii) to
execute, sign, file and record UCC financing statements, UCC amendments and
other lien recordation documents with respect to any Collateral, and (iii) to
settle insurance claims with the applicable insurer and/or to collect any
insurance proceeds from the applicable insurer in connection with any casualty
occurrence or Event of Loss.
(b) The powers conferred on Lender hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise any
such powers. Lender shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and neither it nor any of
its officers, directors, employees or agents shall be responsible to Debtor for
any act or failure to act.
SECTION 7. EVENTS OF DEFAULT.
The term "Event of Default", wherever used herein, shall mean any of the
following events or circumstances (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary, or come about or be effected
by operation of law, or be pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation or any
administrative or governmental body):
(a) Debtor shall fail to pay any Obligation within ten (10) days after
the same shall become due and payable (whether at the stated maturity, by
acceleration or otherwise); or
(b) Debtor shall fail (or shall fail to cause the Lessee) to keep in
full force and effect any of the insurance required under this Agreement, or
shall (or the Lessee shall) operate or permit the operation of the Engine at a
time when, or at a place in which, such insurance shall not be in effect; or
(c) Debtor shall fail (or shall fail to cause the Lessee) to maintain
the Engine in accordance and in compliance with Section 5.11 hereof; or
(d) either Debtor or Guarantor shall default in the payment of any
indebtedness to Lender, any parent, affiliate or subsidiary of Lender under any
note, security agreement, equipment lease, title retention, aircraft lease or
conditional sales agreement or any other instrument or agreement evidencing such
indebtedness with Lender or any parent, affiliate or subsidiary of Lender; or
either Debtor or Guarantor shall default in the performance of, or compliance
with, any term contained in any agreement or instrument evidencing or relating
to such indebtedness with Lender or any parent, affiliate or subsidiary of
Lender, if the effect of such default is to cause or permit such indebtedness to
become due prior to its stated maturity, or if any such indebtedness is not
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paid at maturity; or Debtor shall otherwise be in default of any of its
Obligations; or
(e) Debtor shall or shall attempt to remove, sell, transfer, charter,
convey, pledge, mortgage, encumber, part with possession of, assign or sublet
the Engine or any part thereof, use the Engine for an illegal purpose, or permit
the same to occur (except as expressly permitted by Section 5.7 and/or Section
5.8 of this Agreement); or
(f) either Debtor or Guarantor shall fail to perform or observe any
covenant, condition or agreement (other than those covenants, conditions or
agreements and such default provisions related thereto specifically referred to
elsewhere in this Section 7) required to be performed or observed by the Debtor
and/or the Guarantor under this Agreement, the Collateral Assignment, the
Guaranty or any agreement, document or certificate delivered by Debtor or the
Guarantor in connection herewith, and such failure shall continue for fifteen
(15) days after written notice thereof from Lender to Debtor and/or Guarantor;
or
(g) any representation or warranty made by Debtor in this Agreement or
any agreement, document or certificate delivered by Debtor in connection
herewith or pursuant hereto shall prove to have been incorrect, misleading, or
inaccurate in any material respect when such representation or warranty was made
or given (or, if a continuing representation or warranty, at any material time);
or
(h) any representation or warranty made by Guarantor in the Guaranty,
the Pledge Agreement or any agreement, document or certificate delivered by
Guarantor in connection therewith or pursuant hereto shall prove to have been
incorrect, misleading, or inaccurate in any material respect when such
representation or warranty was made or given (or, if a continuing representation
or warranty, at any material time); or
(i) either Debtor or Guarantor shall generally fail to pay its debts as
they became due and such failure shall continue for ten (10) Business Days after
written notice by Lender, admit its inability to pay its debts or obligations
generally as they fall due, or shall file a voluntary petition in bankruptcy or
a voluntary petition or an answer seeking reorganization in a proceeding under
any bankruptcy laws (as now or hereafter in effect) or an answer admitting the
material allegations of such a petition filed against Debtor and/or the
Guarantor in any such proceeding; or Debtor and/or the Guarantor shall, by
voluntary petition, answer or consent, seek relief under the provisions of any
other now existing or future bankruptcy or other insolvency or similar law
(other than a law which does not provide for or permit the readjustment or
alteration of Debtor's and/or the Guarantor's obligations hereunder or under the
Guaranty, as the case may be) providing for the reorganization or liquidation of
corporations, or providing for an assignment for the benefit of creditors, or
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providing for an agreement, composition, extension or adjustment with their
respective creditors; or
(j) a petition against Debtor and/or Guarantor in a proceeding under
applicable bankruptcy laws or other insolvency laws (other than any law which
does not provide for or permit any readjustment or alteration of Debtor's and/or
the Guarantor's obligations hereunder or under the Guaranty, as the case may
be), as now or hereafter in effect, shall be filed and shall not be withdrawn or
dismissed within sixty (60) days thereafter, or if, under the provisions of any
law (other than any law which does not provide for or permit the readjustment or
alteration of Debtor's and/or the Guarantor's obligations hereunder or under the
Guaranty, as the case may be) providing for reorganization or liquidation of
corporations which may apply to Debtor and/or the Guarantor, any court of
competent jurisdiction shall assume jurisdiction, custody or control of Debtor
and/or the Guarantor or of any substantial part of their respective property and
such jurisdiction, custody or control shall remain in force unrelinquished,
unstayed or unterminated for a period of sixty (60) days; or
(k) either Debtor or Guarantor shall default in any payment,
indebtedness or other obligation to any Person (other than to the Lender or any
parent, affiliate or subsidiary of Lender) regarding any loan, lease, deferred
purchase price agreement, advancement of credit or any other financing or credit
arrangement or facility of any kind whatsoever (other than those transactions,
conditions, covenants, agreements or matters and such default provisions related
thereto specifically referred to elsewhere in this Section 7), if the aggregate
amount of such respective payment, indebtedness or obligation regarding any such
loan, lease, deferred purchase price agreement, advancement of credit or any
other financing or credit arrangement or facility of any kind whatsoever, or if
the aggregate amount of the underlying agreement, indebtedness or obligation
regarding any such default of any such loan, lease, deferred purchase price
agreement, advancement of credit or any other financing or credit arrangement or
facility of any kind whatsoever, is in excess of $250,000.00 and such default
results in the acceleration of (or the request for) any such payment, agreement,
indebtedness or obligation of any such loan, lease, deferred purchase price
agreement, advancement of credit or any other financing or credit arrangement or
facility of any kind whatsoever; or
(l) either Debtor or Guarantor shall default in any payment,
indebtedness or other obligation to any Person (other than to the Lender or any
parent, affiliate or subsidiary of Lender or other than any payment,
indebtedness or other obligation concerning any loan, lease, deferred purchase
price agreement, advancement of credit or any other financing or credit
arrangement or facility of any kind whatsoever or any other transaction,
condition, covenant, agreement or matter and such default provisions related
thereto specifically referred to elsewhere in
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this Section 7), if the aggregate amount of such respective payment,
indebtedness or obligation, or if the aggregate amount of the underlying
agreement, indebtedness or obligation regarding any such default, is in excess
of $250,000.00 and such default results in the acceleration of (or the request
for) any such payment, agreement, indebtedness or obligation unless such default
or acceleration is subject to a bona fide dispute between the Debtor or the
Guarantor and such other party and said dispute is being diligently contested by
the Debtor or the Guarantor in good faith and by appropriate proceedings,
provided, however, any such bona fide dispute and default shall be resolved and
cured within two hundred seventy (270) days after the occurrence of such
default; or
(m) any judgment, attachment or garnishment against Debtor and/or the
Guarantor with respect to aggregate claims in excess of $250,000.00 shall remain
unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period
of thirty (30) days; or
(n) either Debtor or Guarantor sells, transfers, or disposes of all or
substantially all of its stock, assets or property, or merges or consolidates
with or into any other entity or engages in any form of corporate
reorganization, or becomes the subject of, or engages in, a leveraged buy-out,
or either Debtor or Guarantor shall terminate its existence by merger,
consolidation, or sale of substantially all of its assets or otherwise (except
as otherwise expressly permitted with regard to the Guarantor in Section 5.10 of
this Agreement); or
(o) if the Guarantor shall no longer continue to control one hundred
percent (100%) of Debtor's issued and outstanding stock at all times; or
(p) if any person or group (as defined in Rules 13d-3 and 13-5 under the
Securities Act), becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Securities Act) of a larger number of shares of common stock of
the Guarantor than the number of shares of which CHARLES F. WILLIS, IV and
members of his family (including children, brothers and sisters) is the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Securities Act);
or
(q) if either Debtor or Guarantor is a publicly held corporation, there
shall be a change in the ownership of the Debtor's or the Guarantor's, as the
case may be, stock such that the Debtor or Guarantor, as the case may be, is no
longer subject to the reporting requirements of the Securities Exchange Act of
1934, or no longer has a class of equity securities registered under Section 12
of the Securities Act of 1933; or
(r) if a Lessee Event of Default has occurred under the Lease; or
(s) if the Debtor ceases to be a wholly-owned Subsidiary of
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the Guarantor.
Notwithstanding Subsection (r) of this Section 7, Debtor shall have the
right, within ten (10) days after the Debtor has been given notice that a Lessee
Event of Default has occurred under the Lease, to cure, at its sole cost and
expense, any Lessee Event of Default under the Lease relating solely to the
Lessee's failure to pay any Monthly Rent, Maintenance Fees and other payments
expressly due the Debtor by the Lessee thereunder (each a "Lessee Payment
Default") by paying the Lender the applicable Monthly Rent, Maintenance Fees and
such other payments or amounts expressly due the Debtor by the Lessee under the
Lease (any such Monthly Rent, Maintenance Fees and other payments or amounts
hereinafter collectively, the "Lessee Cure Payment") within such ten (10) day
period; provided, however, that the Debtor shall only have the right to cure
three (3) non-consecutive Lessee Payment Defaults during the term of the Lease;
provided further, however, the Debtor shall not have the right to cure any
consecutive Lessee Payment Defaults for any reason whatsoever. The Debtor shall
not, as a result of exercising the right to cure any such Lessee Payment
Default, obtain any Lien on any of the Collateral (including any Monthly Rent,
Maintenance Fees or any other amounts payable under the Lease) for or on account
of any costs or expenses incurred in connection with the exercise of such right,
nor shall any claim of the Debtor against the Lessee or any other party for the
repayment of such costs or expenses impair the prior right and security interest
of the Lender in the Collateral (including any Monthly Rent, Maintenance Fees or
any other amounts payable under the Lease). Upon the receipt by the Lender of
the Debtor's payment of the applicable Lessee Cure Payment (in immediately
available funds), the Lender shall credit and apply any such payment to the
applicable outstanding Obligations, Maintenance Fees, Security Deposits and/or
other amounts required under this Agreement, as the case may be, as provided in
Section 9.1, Section 10.13 or any other applicable section of this Agreement.
SECTION 8. REMEDIES.
8.1 Termination of Commitment. If an Event of Default specified in
subsections 7 (i) or (j) above shall occur, then, and in any such event, the
Commitment shall immediately terminate and the principal amount of the Note,
together with accrued interest thereon and all other amounts owing under or with
respect to this Agreement (including, without limitation, any prepayment premium
or fee calculated as of the date of the Event of Default which premium or fee
shall also be due and payable) shall become immediately due and payable without
any notice or other action by Lender, and if any other Event of Default shall
occur and be continuing, then, and in any such event, Lender may (a) terminate
forthwith the Commitment and/or (b) declare the Note to be forthwith due and
payable, whereupon the remaining principal amount of the Note, together with
accrued interest thereon and all other amounts owing under or with respect to
this Agreement
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(including, without limitation, any prepayment premium or fee calculated as of
the date of the Event of Default which premium or fee shall also be due and
payable), shall become immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived,
anything contained herein or in the Note to the contrary notwithstanding. During
the continuance of any Event of Default hereunder, Lender shall have the right
to pursue and enforce any of its rights and remedies under Section 8,
Subsections 8.2 through 8.4, inclusive, hereof.
8.2 Additional Remedies. Upon the occurrence of any Event of Default,
Lender may, at its sole option and discretion, in addition to any other rights
or remedies granted to it under this Agreement, at law or in equity or under any
other instrument or agreement securing, evidencing or relating to the
Obligations, exercise one or more of the following remedies with respect to any
or all of the Collateral: (a) cause Debtor to, at Debtor's expense, promptly
return such Collateral (or any portion thereof requested by Lender) to such
location as Lender may from time to time reasonably designate, or Lender, at its
option, may enter upon the premises where the Collateral (or any portion thereof
requested by Lender) is located and take immediate possession of and remove the
same by self-help (to the extent permitted by law), or summary proceedings or
otherwise all without liability to Lender for or by reason of damage to property
or such entry or taking possession; provided, however, that the Lender shall not
remove any Collateral in the possession of the Lessee under the Lease so long as
no default or event of default exists under the Lease; (b) sell any or all of
the Collateral at public or private sale or otherwise dispose of, hold, use,
operate, lease to others or keep idle the Collateral (or any portion thereof),
all as Lender in its sole discretion may determine and all free and clear of any
rights of Debtor; (c) remedy such default, including making repairs or
modifications to any Collateral, for the account of and the expense of Debtor
and Debtor agrees to reimburse Lender for all of Lender's reasonable costs and
expenses; (d) apply any security deposit or other cash collateral or sale or
remarketing proceeds of any Collateral at any time as it sees fit to reduce any
amounts due to Lender (other than any payments or amounts held in the Account
which are solely Maintenance Fees or Security Deposits which payments or amounts
shall be disbursed pursuant to the terms of Sections 9.1(b), 9.1(c) and/or 10.13
of this Agreement); and (e) exercise any other right or remedy which may be
available to it under applicable law and the UCC or proceed by appropriate court
action to enforce the terms hereof or to recover damages for the breach hereof.
In addition to the foregoing, Debtor shall continue to be liable for all
indemnities under this Agreement and the Note and for all legal fees and other
costs and expenses resulting from any Event of Default or the exercise of
Lender's remedies. Without limiting the generality of the foregoing, Lender
shall (i) have the right upon any public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales to purchase the whole or
any part of the Collateral
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so sold, free of any right or equity of redemption in Debtor, which right or
equity is hereby expressly released, and/or (ii) apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale (after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care, safekeeping or otherwise of any or all of the Collateral
or in any way relating to the rights of Lender hereunder, including attorney's
fees and legal expenses) to the payment in whole or in part of the Obligations,
in such order as Lender may elect and only after so applying such net proceeds
and after the payment by Lender of any other amount required by any provision of
law (including Section 9-504(1)(c) of the UCC), need Lender account for the
surplus, if any, to Debtor. To the extent permitted by applicable law, Debtor
waives all claims, damages, and demands against Lender arising out of the
repossession, retention or sale of the Collateral. Debtor agrees that Lender
need not give more than ten (10) days' notice (which notification shall be
deemed given when mailed, postage prepaid, addressed to Debtor at its address
set forth in Section 10.2. hereof or delivered by overnight delivery service to
the Debtor at such address) of the time and place of any public sale or of the
time after which a private sale may take place and that such notice is
reasonable notification of such matters. Debtor shall be liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Lender is entitled.
8.3 Costs of Collection. Debtor shall be liable for, and also agrees to
pay, all costs, charges and expenses of Lender, including reasonable attorneys'
fees and disbursements, incurred by or on behalf of Lender with respect to (i)
any Event of Default, (ii) the collection of any of the Obligations, (iii) the
enforcement of any of its respective rights under this Agreement, at law or in
equity or otherwise and/or (iv) the exercise of any of Lender's rights or
remedies under this Agreement, at law or in equity or otherwise.
8.4 Waivers. Without limiting the generality of any other terms of this
Agreement, Debtor hereby waives presentment, demand, protest or any notice,
except as expressly provided herein, (to the extent permitted by applicable law)
of any kind in connection with this Agreement or any Collateral.
SECTION 9. ACCOUNT
9.1 Account.
(a) All proceeds of checks, notes, cash and other proceeds of the Lease
Receivables as well as all proceeds from the sale of the Engine, any securities
(other than securities issued by Debtor) and any other Collateral and other cash
receipts of every kind and nature (other than the proceeds of any other
borrowing or amount expressly permitted by this Agreement) shall be collected
into any account required by the Lender in its sole
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discretion (the "Account") commencing on the date of this Agreement and at all
times hereafter pursuant to the terms of this Section 9.1. The Lender shall
maintain the Account at all times until the Loan and any and all other
Obligations of the Debtor due or owing to the Lender under this Agreement, the
Note, the Collateral Assignment or any agreement, instrument or document
evidencing any other Obligations have been paid in full. Simultaneously with the
Debtor's execution of this Agreement, the Debtor shall direct the Lessee to make
all payments under the Lease directly to the Lender and into the Account. The
Debtor shall hold in trust for Lender and immediately remit to Lender by
depositing the same into the Account all checks, notes, cash and other proceeds
of the Lease Receivables as well as all proceeds from the sale of the Engine,
any securities (other than securities issued by Debtor) and any other Collateral
and other cash receipts of every kind and nature (other than the proceeds of
other borrowing or amount expressly permitted by this Agreement). The Debtor
agrees that all payments or amounts received in the Account will be the sole and
exclusive property of Lender. The Lender shall, on the second (2nd) Business Day
after which any payment or amount is received into the Account, and on a
provisional basis until the final receipt of good funds, (i) credit and apply
all payments or amounts held in the Account which are Monthly Rent to the
applicable monthly principal and interest installment due under the Note and any
other outstanding amounts due or payable under the Note and this Agreement, (ii)
so long as no Lessee Event of Default exists under the Lease, hold all payments
or amounts held in the Account which are solely Maintenance Fees and/or Security
Deposits pursuant to the terms of this Section 9 and/or Section 10.13 of this
Agreement, and (iii) so long as no Event of Default exists under this Agreement,
the Note, the Collateral Assignment or any agreement, instrument or document
evidencing any other Obligations, disburse the remaining amounts held in the
Account (after application to the payments or amounts due or payable under the
Note and this Agreement as provided in subclause (i) above) which are not
Maintenance Fees or Security Deposits expressly due or payable under the Lease
(or are not accrued interest on any Maintenance Fees or Security Deposits) to
the Debtor by wire transfer to Wells Fargo Bank, San Francisco, CA 94163, ABA
No. 121 000 248, Account No. 4518-101423 or to such other address or bank
account requested by the Debtor pursuant to the notice provisions of Section
10.2 of this Agreement. Upon the occurrence of an Event of Default under this
Agreement, the Note, the Collateral Assignment or any agreement, instrument or
document evidencing any other Obligations, the Lender shall, on the second (2nd)
Business Day after which any payment or amount is received into the Account
(other than any payments or amounts held in the Account which are solely
Maintenance Fees or Security Deposits which payments or amounts shall be
disbursed pursuant to the terms of Sections 9.1(b), 9.1(c) and/or 10.13 hereof),
and on a provisional basis until the final receipt of good funds, credit and
apply all such payments or amounts (including, without limitation, any accrued
interest on any amounts contained in the
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Account) first, to any amounts due or outstanding under the Note (including,
without limitation, all principal, accrued interest or any prepayment premium or
fee calculated as of the date of the Event of Default which premium or fee shall
also be due and payable), second, the remainder of any such payments or amounts,
if any (or in the event there are no amounts due or outstanding under the Note,
all such payments or amounts shall be applied), to any other amounts due or
payable under this Agreement, the Collateral Assignment, or any amounts due or
outstanding under any agreement, instrument or document evidencing any other
Obligations, and third, the remainder of any such payments or amounts, if any,
to a cash collateral account under the sole dominion and control of Lender until
such Event of Default is cured by Debtor pursuant to the applicable terms of
this Agreement or any other applicable agreement or waived by Lender in its sole
discretion. Any provisional credit hereunder is subject to reversal if the final
collection of a payment is not received by the Lender within five (5) Business
Days following the initial receipt of such payment and will thereafter be
credited when such payment is actually received in good funds. The Debtor agrees
that it shall promptly pay to the Lender $85.00 per month for the Lender's
administration of the Account, together with, if any, all other reasonable fees
charged, and all reasonable expenses incurred, by the Lender in connection with
the administration of the Account. The Lender shall send the Debtor monthly
invoices regarding the $85.00 monthly payment and any other reasonable fees or
expenses charged or incurred in connection with the Lender's administration of
the Account. Without in any way whatsoever limiting the generality of the terms
of this Agreement, the Note, the Collateral Assignment or any other terms and
conditions of any other agreement, instrument or document evidencing any other
Obligations, Debtor hereby irrevocably appoints Lender its attorney-in-fact to
endorse Debtor's name on any checks, notes, drafts or any other payments or
instruments relating to such items (and/or any Collateral) which come into the
Lender's possession or control pursuant to the Account and to take any other
action of any kind whatsoever that the Lender deems necessary or desirable in
its sole discretion regarding the same and/or the Account, including, without
limitation, inserting missing dates on checks, notes, drafts or any other
payments or instruments and/or rejecting and/or returning checks, notes, drafts
or any other payments or instruments, without being liable in any way whatsoever
for wrongful dishonor or any other thing or matter of any kind whatsoever. To
the extent appropriate or permissible under the applicable law, such power is
coupled with an interest and shall be irrevocable. In addition, such power shall
terminate only upon the Debtor's payment and/or performance, as the case may be,
in full of all of the indebtedness and/or obligations of any kind whatsoever
owing or due to the Lender by the Debtor. Neither the Lender nor its counsel
will be liable for any acts or omissions nor error of judgment or mistake of
fact or law in connection with the exercise and/or enforcement of its rights
under this Section 9. Nothing contained in this Agreement, the Collateral
Assignment or any other agreement, instrument or document evidencing any other
Obligations or otherwise or any acts or omissions of the Lender or its counsel
shall be deemed, or construed, in any way whatsoever as the Lender being in
control of the management and/or affairs of the Debtor (other than to exercise
the rights granted to the Lender under this Agreement, the Collateral
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Assignment or any other agreement, instrument or document evidencing any other
Obligations to, among other things, protect its interest in the Collateral). The
Debtor further agrees that the terms of this Section 9 are in addition to, and
do not in any way whatsoever limit, the terms of this Agreement or any related
cash management or lockbox agreements or documents executed and/or delivered in
connection herewith. However, in the event of a conflict between the terms and
provisions of this Section 9 and any related cash management or lockbox
agreements or documents executed and/or delivered in connection herewith, the
applicable terms and provisions of this Section 9 shall control for all
purposes. Notwithstanding anything to the contrary contained in this Section 9
or otherwise, all payments, funds or amounts received into the Account
(including, without limitation, all Monthly Rent, Maintenance Fees and Security
Deposits) may also be commingled with the Lender's other funds and no trust
relationship of any kind whatsoever shall exist between the Lender and the
Debtor as to any such payments, funds or amounts so deposited. No interest shall
be payable with regard to any payments, funds or amounts deposited into the
Account except as otherwise expressly provided in Section 9.1(b) hereof.
(b) The amount of all existing Maintenance Fees and Security Deposits
only held in the Account shall bear interest at a variable rate equal to the
Libor Rate for each Interest Period. Any interest accrued on the Maintenance
Fees and/or the Security Deposits pursuant to the immediately preceding sentence
for any Interest Period shall be credited into the Account on the first day of
each calendar month immediately following said Interest Period or on the first
Business Day of such calendar month (said first day or first Business Day of
each calendar month hereinafter the "Interest Credit Day") so long as any such
Maintenance Fees and/or Security Deposits are required to be maintained in the
Account pursuant to the terms of this Section 9. The Maintenance Fees and/or the
Security Deposits (including, without limitation, any accrued interest thereon),
shall not be released
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and/or disbursed to the Debtor (or any other party) until any and all
obligations outstanding under the Note, the Collateral Assignment and this
Agreement (other than any obligations relating solely to any other agreement,
instrument or document between the Debtor and the Lender) have been fully paid
and/or performed, as the case may be, except as otherwise expressly provided in
Section 9.1(c) hereof, provided, however, that upon the occurrence of any Event
of Default under this Agreement, the Note, the Collateral Assignment or any
agreement, instrument or document evidencing any other Obligations, the
Maintenance Fees and the Security Deposits (including, without limitation, any
accrued interest thereon), shall not be released and/or disbursed to the Debtor
until any and all Obligations outstanding by the Debtor under this Agreement,
the Note, the Collateral Assignment or any other agreement, instrument or
document between the Debtor and the Lender have been fully paid and/or
performed, as the case may be, except as otherwise expressly provided in Section
9.1(c) hereof; provided further, however, that nothing contained in the
foregoing proviso shall be deemed to limit, impair or adversely affect in any
way whatsoever the Lender's rights under this Agreement, the Collateral
Assignment or any other agreements, documents or instruments to set off, debit
or apply any Maintenance Fees, Security Deposits or any other amounts as
provided in Section 9.1(c) or Section 10.13 of this Agreement or any other
applicable section of this Agreement.
(c) So long as no Lessee Event of Default exists under the Lease, upon
three (3) Business Days prior written notice by the Debtor to the Lender for the
release of any Maintenance Fees which are being held in the Account, and receipt
by the Lender from the Debtor of such documents (including, without limitation,
such documents required to be supplied by the Lessee under the Lease or the
General Terms Agreement relating to any such amounts) as the Lender shall
reasonably request to document the Lessee's right to such Maintenance Fees, the
Lender shall disburse directly to the Lessee (or the applicable vendor, supplier
or maintenance company performing the applicable maintenance work or to the
Debtor if the Debtor has already paid for any such maintenance work) on behalf
of the Debtor the amount of any Maintenance Fees which the Lender expressly
agrees shall be released from the Account (which approval or agreement shall be
in the reasonable determination of the Lender). Upon and after the occurrence of
a Lessee Event of Default under the Lease (but without limiting any rights of
the Lender to debit, apply or set off any amounts in the Account which are not
Maintenance Fees or Security Deposits, including, without limitation, all
Monthly Rent and accrued interest in the Account), the Lender shall have the
absolute right to immediately debit the Account for any Maintenance Fees and
Security Deposits (and the amounts in the Account relating to Maintenance Fees
and Security Deposits shall be immediately released accordingly), and apply the
proceeds thereof first, to any amounts due or outstanding under the Note
(including, without limitation, all principal, accrued interest or any
prepayment premium or fee calculated as of the date of the Event of Default
which premium or fee shall also be due and payable), second, the remainder of
any such amounts, if any, to any other amounts due or payable under this
Agreement, the Collateral Assignment, or any amounts due or outstanding under
any agreement, instrument or document evidencing any other Obligations, and
third, the remainder of any such amounts, if any, to a cash collateral account
under the sole dominion and control of Lender until such Event of Default is
cured by Debtor pursuant to the applicable terms of this Agreement or any other
applicable agreement or waived by Lender in its sole discretion; provided,
however, that in the event the Debtor exercises its
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right to cure three (3) non-consecutive Lessee Payment Defaults and pays the
Lender the applicable Lessee Cure Payment pursuant to the terms of the last
paragraph of Section 7 of this Agreement, upon the receipt by the Lender of the
Debtor's payment of the applicable Lessee Cure Payment (in immediately available
funds), the Lender shall credit any amounts into the Account which the Lender
has set off or debited against Maintenance Fees or Security Deposits only with a
corresponding amount from the Debtor's payment of the applicable Lessee Cure
Payment, and effective as of any such credit such amounts shall be deemed
Maintenance Fees and/or Security Deposits, as the case may be, and, if
applicable, the Lender shall also credit or apply any remaining amounts of such
payment as provided in Section 9.1(a), Section 9.1(b) or Section 10.13 of this
Agreement or any other applicable section of this Agreement.
SECTION 10. MISCELLANEOUS.
10.1 No Waiver; Cumulative Remedies. No failure or delay on the part of
Lender in exercising any right, power or privilege hereunder or under the Note
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
No right or remedy in this Agreement is intended to be exclusive but each shall
be cumulative and in addition any other remedy referred to herein or otherwise
available to Lender at law or in equity; and the exercise by Lender of any one
or more of such remedies shall not preclude the simultaneous or later exercise
by Lender of any or all such other remedies. No express or implied waiver by
Lender of an Event of Default shall in any way be, or be construed to be, a
waiver of any future or subsequent Event of Default. After the occurrence of any
Event of Default, the acceptance by Lender of any installment of principal and
interest or of any other sum owing hereunder or under the Note shall not
constitute a waiver of such Event of Default, regardless of Lender's knowledge
or lack of knowledge thereof at the time of acceptance of any such payment, and
shall not constitute a reinstatement of this Agreement and/or the Note if Lender
has sent Debtor a notice of default, unless Lender shall have agreed in writing
to reinstate this Agreement and/or the Note and waive the Event of Default. To
the extent permitted by law, Debtor waives any rights now or hereafter conferred
by statute or otherwise which limit or modify any of Lender's rights or remedies
under this Agreement and/or the Note.
10.2 Notices. All notices, requests and demands to or upon any party
hereto shall be deemed to have been duly given or made when received by
overnight delivery service to the address indicated below or when deposited in
the United States mail, return receipt requested first class postage prepaid,
addressed to such party as follows, or to such other address as may be
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hereafter designated in writing by such party to the other party hereto:
DEBTOR: T-12 Inc.
180 Harbor Drive, Suite200
Sausalito, California 94965
Attention: General Counsel
LENDER: Fleet Capital Corporation
50 Kennedy Plaza
Fifth Floor
Providence, Rhode Island 02903
Attention: Customer Service
10.3 Payment of Expenses and Taxes; Performance by Lender of Debtor's
Obligations.
(a) Without limiting the generality of any other terms of this
Agreement, Debtor agrees, whether or not the transactions contemplated by this
Agreement shall be consummated, to pay (i) all reasonable costs and expenses of
Lender in connection with the negotiation, preparation, execution and delivery
of this Agreement, and other documents relating hereto, including, without
limitation, the fees and disbursements of counsel to Lender; (ii) all fees and
taxes in connection with the recording of this Agreement or any other document
or instrument required hereby; and (iii) all costs and expenses of Lender in
connection with the enforcement of this Agreement and the Note, including all
legal fees and disbursements arising in connection therewith. Debtor also agrees
to pay, and to indemnify and save Lender harmless from any delay in paying, all
taxes, including without limitation, sales, use, stamp and personal property
taxes (other than any corporate income, capital, franchise or similar taxes
payable by Lender with respect to the payments made to Lender hereunder or
thereunder) and all license, filing, and registration fees and assessments and
other charges, if any, which may be payable or determined to be payable in
connection with the execution, delivery and performance of this Agreement or the
Note or any modification thereof.
(b) Debtor hereby further agrees, whether or not the transactions
contemplated by this Agreement shall be consummated, to assume liability for,
and hereby agrees to indemnify, protect, save, defend and keep harmless Lender
and its agents, employees, officers, directors, shareholders, subsidiaries,
affiliates, successors, and assigns (sometimes hereafter collectively, the
"Indemnified Parties"), on a net after-tax basis, from and against any and all
liabilities, obligations, losses, damages, penalties, claims (including, without
limitation, claims involving or alleging product liability or strict or absolute
liability in tort), actions, suits, demands, costs, expenses and disbursements
(including, without limitation, legal fees and expenses) of any kind and nature
whatsoever (the foregoing being collectively referred to as the "Indemnified
Liabilities") which may be imposed
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on, incurred by or asserted against any Indemnified Parties, whether or not any
such Indemnified Parties shall also be indemnified as to any such Indemnified
Liabilities by any other Person, in any way relating to or arising out of this
Agreement or any documents contemplated hereby, or the performance or
enforcement of any of the terms hereof or thereof, or in any way relating to or
arising out of the manufacture, inspection, construction, purchase, acceptance,
rejection, ownership, titling or re-titling, delivery, lease, sublease,
possession, use, operation, maintenance, condition, registration or
re-registration, sale, return, removal, repossession, storage or other
disposition of the Engine or any part thereof or any accident in connection
therewith (including, without limitation, latent and other defects, whether or
not discoverable, and any Indemnified Liabilities for patent, trademark or
copyright infringement, provided, however, that Debtor shall have no obligations
thereunder with respect to Indemnified Liabilities arising from the gross
negligence or willful misconduct of Lender.
(c) If Debtor fails to perform or comply with any of its agreements
contained herein and Lender shall itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the reasonable expenses of
Lender incurred in connection with such performance of compliance, together with
interest thereon at the rate provided for in the Note shall be payable by Debtor
to Lender on demand and until such payment shall constitute Obligations secured
hereby.
10.4 Entire Agreement. This Agreement, together with the Note, the
Collateral Assignment and any other documents and instruments executed or
delivered in connection therewith, as applicable, constitutes the entire
agreement between the parties hereto, and supersedes all prior or
contemporaneous agreements, communications and understandings, both written or
oral, including, without limitation, any other prior or contemporaneous letters,
term sheets or proposal letters from the Debtor and/or the Guarantor to the
Lender or from the Lender to the Debtor and/or the Guarantor, as the case may
be, with respect to the subject matter of this Agreement. This section shall not
be construed to apply to any other existing financing arrangements between the
Lender and the Debtor and/or the Guarantor, as the case may be, if any, which
are not the subject of this Agreement.
10.5 Survival of Representations and Warranties. All representations and
warranties made in this Agreement and any certificates delivered pursuant hereto
or thereto shall survive the execution and delivery of this Agreement and the
making of the Loan hereunder, and the agreements contained in Section 10.3
hereof shall survive payment of the Note.
10.6 Amendments. Neither this Agreement, nor any terms hereof, may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of a change, waiver,
discharge or termination is
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sought.
10.7 Counterparts. This Agreement may be executed by the parties hereto
on any number of separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
10.8 Headings. The headings of the Sections and paragraphs are for
convenience only, are not part of this Agreement and shall not be deemed to
effect the meaning or construction of any of the provisions hereof.
10.9 Successors or Assigns. This Agreement shall be binding upon and
inure to the benefit of Debtor and Lender and their respective heirs, executors,
administrators, successors and assigns, except that Debtor may not assign or
transfer its rights hereunder or any interest herein without the prior written
consent of Lender.
10.10 Authorization. Lender, its agents, representatives and employees
are hereby irrevocably and unconditionally authorized to amend and/or otherwise
fill in any and all blank spaces contained herein or in the Schedules or other
documents executed by the Debtor relative to the transactions set forth herein.
10.11 Governing Law; Construction. This Agreement and the Note shall be
governed by, and construed and interpreted in accordance with the substantive
laws, but not the choice of law rules, of the State of Rhode Island. This
Agreement shall be delivered for closing purposes in the Lender's Rhode Island
Office at 50 Kennedy Plaza, Providence, Rhode Island. Unless the context
otherwise requires, singular nouns and pronouns, when used herein, shall be
deemed to include the plural and vice versa, and impersonal pronouns shall be
deemed to include the personal pronoun of the appropriate gender.
10.12 Additional Waivers. Without limiting the generality of any other
terms of this Agreement, and to the extent permitted by law, the Debtor hereby
expressly waives presentment, demand, dishonor, protest, diligence in
collection, notice of protest, notice of non-payment, notice of acceptance,
notice of maturity, notice of default, notice of demand, notice of dishonor, and
notice of any renewals, extensions or modifications of this Agreement, the Note
or any Obligations or in connection with any Collateral, and any other notice or
action otherwise required to be given under the law in connection with the
delivery, acceptance, performance, default, enforcement or collection of this
Agreement, the Note or any Obligations, and expressly agrees that this
Agreement, the Note or any Obligations, or any payment hereunder or thereunder,
may be extended, modified or subordinated (by forbearance or otherwise), or the
terms hereof or thereof, as the case may be, may be modified or amended with the
Debtor, from
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time to time, without in any way affecting in any way the obligations or the
liability of the Debtor or any endorser or guarantor of Debtor or otherwise. The
Debtor hereby further consents and agrees that the Lender or any other party may
release or surrender, exchange or substitute any property or other collateral
security of any kind whatsoever (or any portion thereof) now held or which may
hereafter be held as security for this Agreement, the payment of the Note and/or
any Obligations, or may add any property as security, or may release any party
liable hereunder or under any applicable loan documents or otherwise, all
without releasing in any way the obligations or the liability of the Debtor or
any endorser or guarantor of Debtor or otherwise. The Debtor hereby further
expressly waives any right to require the Lender or any other party to marshal
any property or other collateral security of any kind whatsoever (or any portion
thereof) now held or which may hereafter be held as security for this Agreement,
the payment of the Note and/or any Obligations or otherwise to compel the Lender
or any other party to seek recourse against or satisfaction of the indebtedness
owed to it from one source before seeking recourse or satisfaction from another
source.
10.13 Right of Set Off. Upon the occurrence of an Event of Default under
this Agreement, the Lender is hereby authorized at any time and from time to
time without notice to the Debtor or any other party (any such notice being
expressly waived by the Debtor), to set off and apply any and all deposits
(general or special, time or demand, provisional or final) of any kind
whatsoever at any time held, including, without limitation, any amounts or
proceeds (including, without limitation, any accrued interest) contained in the
Account (other than any Maintenance Fees or Security Deposits as expressly
provided below), and other indebtedness at any time owing by the Lender to or
for the credit or the account of the Debtor against any and all of the
obligations of the Debtor now or hereafter existing under this Agreement, the
Note, the Collateral Assignment or any agreement, document or instrument
evidencing any other Obligations, irrespective of whether or not the Lender
shall have made any demand under this Agreement, the Note, the Collateral
Assignment or any agreement, document or instrument evidencing any other
Obligations, and although such obligations may be unmatured; provided, however,
that the Lender shall not be authorized to set off any amounts in the Account
which are solely Maintenance Fees and/or Security Deposits without notice to the
Debtor or any other party until after the occurrence a Lessee Event of Default
under the Lease, and upon the occurrence of any such Lessee Event of Default,
the Lender shall have the right to set off and apply any and all Maintenance
Fees and/or Security Deposits without notice to the Debtor as provided in this
Section 10.13; provided further, however, that in the event the Debtor exercises
its right to cure three (3) non-consecutive Lessee Payment Defaults and pays the
Lender the applicable Lessee Cure Payment pursuant to the terms of the last
paragraph of Section 7 of this Agreement, upon the receipt by the Lender of the
Debtor's payment
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of the applicable Lessee Cure Payment (in immediately available funds), the
Lender shall credit any amounts into the Account which the Lender has set off or
debited against Maintenance Fees or Security Deposits only with a corresponding
amount from the Debtor's payment of the applicable Lessee Cure Payment, and
effective as of any such credit such amounts shall be deemed Maintenance Fees
and/or Security Deposits, as the case may be, and, if applicable, the Lender
shall also credit or apply any remaining amounts of such payment as provided in
this Section 10.13 or in Section 9.1(a) or Section 9.1(b) of this Agreement or
any other applicable section of this Agreement. The Lender agrees promptly to
notify the Debtor after any such set off and application, provided that the
failure to give such notice shall not affect the validity of such setoff and
application. The rights of the Lender under this Section 10.13 are in addition
to any other rights and remedies of any kind whatsoever (including, without
limitation, other rights of setoff) which the Lender may have.
10.14 Primary Obligations. Notwithstanding anything to the contrary
contained herein or otherwise, the Debtor shall be, and remain, primarily and
fully liable and obligated for any and all Obligations and the performance of
all terms and conditions hereunder notwithstanding the Lease and the Lessee's
obligations thereunder.
10.15 Assignment By Lender. Lender, may at any time, without notice to
Debtor, mortgage, grant a security interest in or otherwise transfer, sell or
assign all or any part of its interest in this Agreement, the Note, the
Collateral Assignment, the Guaranty, the Pledge Agreement, the Pledged Stock,
the Stock Powers, the Obligations, or the Engine or any payments or other sums
due or to become due hereunder or under the Note, this Agreement, the Guaranty
or any other documents or agreements or under the Obligations and Debtor shall
perform all of its obligations under this Agreement, the Note and the
Obligations for the benefit of such assignee, lender, creditor, mortgagee,
transferee or Person of Lender except that the interest of any such assignee,
lender, creditor, mortgagee, transferee or Person of Lender shall be subject to
Debtor's rights of use and possession, so long as no Default or Event of Default
has occurred and is continuing hereunder; provided, however, that any transfer,
sale or assignment of all or any part of the Lender's interest in this
Agreement, the Note, the Collateral Assignment, the Guaranty, the Pledge
Agreement, the Pledged Stock, the Stock Powers, the Obligations, or the Engine
or any payments or other sums due or to become due hereunder or under the Note,
this Agreement, the Guaranty or any other documents or agreements or under the
Obligations to any Competitor of the Debtor or the Guarantor or to any
Designated Lender of a Competitor of the Debtor or the Guarantor shall be
subject to the prior written consent of the Debtor and the Guarantor, which
consent by the Debtor and the Guarantor shall not be unreasonably withheld or
conditioned and shall be given or denied by the Debtor and the Guarantor within
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ten (10) Business Days after receipt by the Debtor and the Guarantor of any
request by the Lender for such consent, and in the event that the Debtor or the
Guarantor do not object in writing to any such request by the Lender within in
such ten (10) Business Day period any such failure to so object shall be deemed
(without any further action of any kind whatsoever) an absolute waiver of the
Debtor's and the Guarantor's rights to object to any such assignment, sale or
transfer; provided further, however, that no consent of any kind of the Debtor
or the Guarantor shall be required for any merger or consolidation between the
Lender or any parent, affiliate or subsidiary of the Lender and any Competitor
of the Debtor or the Guarantor or any Designated Lender of a Competitor of the
Debtor or the Guarantor (or any parent, affiliate or subsidiary of any such
Competitor or Designated Lender). Debtor agrees that the rights hereunder of any
such assignee, lender, creditor, mortgagee, transferee or Person of Lender shall
not be subject to any defense, setoff, recoupment, abatement, reduction, claim
or counterclaim (collectively the "Defenses") that Debtor has or may at any time
have against Lender and/or its agents, employees, officers, directors,
shareholders, subsidiaries, affiliates, successors, and assigns for any reason
whatsoever; and Debtor hereby waives any right to assert at any time any of the
foregoing Defenses against any such assignee, lender, creditor, mortgagee,
transferee or Person of Lender. Debtor further agrees, if so directed in
writing, to, among other things, pay all sums due or to become due hereunder or
under the Note and/or the Obligations directly to the assignee, lender,
creditor, mortgagee, transferee or Person of Lender or any other party
designated in writing by Lender or any such assignee, lender, creditor,
mortgagee, transferee or Person of Lender. Upon the written request of Lender or
any assignee, lender, creditor, mortgagee, transferee or Person of Lender,
Debtor also agrees (i) to promptly execute and deliver to Lender or to such
assignee, lender, creditor, mortgagee, transferee or Person of Lender an
acknowledgment of assignment in form and substance satisfactory to
the requesting party which, among other things, reaffirms the basic terms and
conditions of this Agreement, the Note and/or the Obligations, and (ii) to
comply with the reasonable demands of any such assignee, lender, creditor,
mortgagee, transferee or Person of Lender in order to perfect any such
assignment or transfer, at Lender's sole expense.
10.16 Jurisdiction. Debtor hereby irrevocably consents and agrees that
any legal action, suit, or proceeding arising out of or in any way in connection
with this Agreement may be instituted or brought in the courts of the State of
Rhode Island or the United States Courts for the District of Rhode Island, as
Lender may elect or in any other state or Federal Court as Lender shall deem
appropriate, and by execution and delivery of this Agreement, Debtor hereby
irrevocably accepts and submits to, for itself and in respect of its property,
generally and unconditionally, the non-exclusive jurisdiction of any such court,
and to all proceedings in such courts. Debtor irrevocably consents to service of
any summons and/or legal process by registered or
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certified United States air mail, postage prepaid, to Debtor at the address set
forth in Section 10.2 hereof, such method of service to constitute, in every
respect, sufficient and effective service of process in any such legal action or
proceeding. Nothing in this Agreement shall affect the right to service of
process in any other manner permitted by law or limit the right of Lender to
bring actions, suits or proceedings in the courts of any other jurisdiction.
Debtor further agrees that final judgment against it in any such legal action,
suit or proceeding shall be conclusive and may be enforced in any other
jurisdiction, within or outside the United States of America, by suit on the
judgment, a certified or exemplified copy of which shall be conclusive evidence
of the fact and the amount of the liability.
10.17 Jury Waiver. THE DEBTOR HEREBY KNOWINGLY AND FREELY WAIVES ITS
RIGHTS TO A JURY TRIAL IN ANY ACTION, SUIT OR PROCEEDING RELATING TO, ARISING
UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE NOTE, THE OBLIGATIONS OR ANY
OTHER AGREEMENT OR DOCUMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH.
[This space intentionally left blank]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered personally or by their proper and duly authorized
officers as of the day and year first above written.
FLEET CAPITAL CORPORATION
By: _________________________
Title:_______________________
T-12 INC.
By:___________________________
Title:________________________
<PAGE> 61
Exhibit B To Engine Loan and Security Agreement
SCHEDULE
This Schedule is executed and delivered by T-12 Inc. ("Debtor") pursuant
to the terms of a Engine Loan and Security Agreement ("Agreement") dated as of
September 17, 1997 between Debtor and Fleet Capital Corporation ("Lender). Terms
defined in the Agreement shall have the respective meanings given to them in the
Agreement unless otherwise defined herein or unless the context otherwise
requires.
1. Debtor hereby confirms that the proceeds of the Loan made this date
shall be used to refinance the acquisition of the property (collectively the
"Engine") described below:
that certain one (1) General Electric Company aircraft engine, Model
CF6-80C2A2 bearing manufacturer's serial number 695357 (which engine has
750 or more rated takeoff horsepower or the equivalent of such
horsepower) wherever located and whether or not such aircraft engine
shall be installed in or attached to any airframe, together with one (1)
Engine Stand P/N AM-1928-155 base bearing serial number 401 and P/N
AM-1928-156 Cradle with A310 Bootstrap Adapters bearing serial number
418 wherever located and whether or not such engine stand shall be
installed in or attached to any airframe, and any and all additions,
accessions, accessories, alterations, modifications, parts, repairs and
attachments to the Engine or the Engine Stand now existing or hereafter
arising or now owned or hereafter acquired and now existing or hereafter
arising or now owned or hereafter acquired all replacements and
substitutions for the Engine or the Engine Stand or any parts or other
items or equipment related thereto so long as such parts or other items
or equipment remain subject to the security interest granted to Lender
in accordance with the applicable terms of this Agreement after removal
from the Engine or the Engine Stand.
2. Debtor hereby represents and warrants that the above described Engine
has been delivered to it, duly assembled and in good working order and is under
lease to GE Engine Services, Inc. pursuant to the Lease.
3. Debtor hereby affirms that the representations and warranties set
forth in Section 4 of the Agreement are true and correct as of the date hereof.
4. Debtor hereby affirms that Lender has made a Loan to it
1
<PAGE> 62
for the refinancing of the acquisition of the above described Engine, which Loan
is evidenced by a Note, in the principal amount of U.S. $4,276,884.82 dated
September 17, 1997.
5. Debtor hereby affirms that Lender has a first and only perfected
priority security interest in the Engine described above and as set forth in
Section 6.1 of the Agreement.
6. Debtor hereby represents and warrants that the invoiced purchase
price paid by the Debtor for the above described Engine was $_________________.
DEBTOR:
T-12 Inc.
By:___________________________
Title:________________________
2
<PAGE> 63
Exhibit C to Engine Loan and Security Agreement
Replacement Value of the Engine
<TABLE>
<S> <C>
September 1, 1997 through August 31, 1998 - $4,387,913.96
September 1, 1998 through August 31, 1999 - $4,280,667.03
September 1, 1999 through August 31, 2000 - $4,163,487.61
September 1, 2000 through August 31, 2001 - $4,035,455.83
September 1, 2001 through August 31, 2002 - $3,895,566.59
</TABLE>
1
<PAGE> 64
Exhibit D to Engine Loan and Security Agreement
September __, 1997
Fleet Capital Corporation
50 Kennedy Plaza
Fifth Floor
Providence, Rhode Island 02903
Re: Engine Loan and Security Agreement
Gentlemen:
We have acted as general counsel for T-12 Inc., a California corporation
("Debtor"), and Willis Lease Finance Corporation, a California Corporation
("Guarantor") in connection with the execution of the Engine Loan and Security
Agreement of even date (the "Agreement"), between Debtor and Fleet Capital
Corporation ("Lender") and the related transactions contemplated thereby. Terms
not otherwise defined herein shall have the defined meanings set forth in the
Agreement.
We are familiar with the Debtor and the Guarantor, their respective
affairs, and their respective charter, by-laws, and corporate records. We have
examined originals or copies, certified or otherwise identified to our
satisfaction, or such records, instruments, decisions, certificates, and
documents, have made such inquiries as to questions of fact of officers and
representatives of Debtor and the Guarantor and have made such examinations of
laws, rules, regulations, orders, decrees, writs, judgments, awards,
injunctions, and the like, as are necessary and appropriate for purposes of
giving the opinions hereinafter expressed.
Based upon the foregoing, it is our opinion:
1. Debtor is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, has the
necessary authority and power to own the Engine and its other
assets and to transact the business in which it is engaged, and
is duly qualified to do business in each jurisdiction in which
the conduct of its business or the ownership or operation of its
assets requires such qualification.
2. Debtor is a citizen of the United States within
1
<PAGE> 65
the meaning of Subtitle VII of Title 49 of the United States
Code, as amended and recodified.
3. Debtor has full power, authority and legal right to execute and
deliver the Agreement, the Note, the Collateral Assignment and
all other instruments to be executed and delivered pursuant to
the Agreement, to perform its obligations thereunder, to borrow
thereunder and to grant the security interest created by the
Agreement and the Collateral Assignment.
4. No consent of any other party (including any partners,
stockholders, trustees or holders of indebtedness), and no
consent, license, approval or authorization of, exemption by, or
registration or declaration with, any governmental body,
authority, bureau or agency is required in connection with the
execution, delivery or performance by Debtor of the Agreement,
the Note, the Collateral Assignment and any other instruments to
be executed and delivered pursuant to the Agreement, or the
validity or enforceability of the Agreement, the Note, the
Collateral Assignment and any other instruments to be executed
and delivered pursuant to the Agreement, except recordation of
the Agreement with the FAA, which shall have been duly effected
as of the Closing Date.
5. The execution, delivery and performance by Debtor of each of the
Agreement, the Note, the Collateral Assignment and any other
instruments to be executed and delivered pursuant to the
Agreement does not and shall not violate any provision of any
applicable law or regulation or of any judgment, award, order,
writ or decree of any court or governmental instrumentality,
will not violate any provision of the charter or by-laws of
Debtor and will not violate any provision of or cause a default
under any mortgage, indenture, contract, agreement or other
undertaking to which Debtor is a party or which purports to be
binding upon Debtor or upon any of its assets, and will not
result in the creation or imposition of any Lien on any of the
assets of Debtor other than the security interest intended to be
created by the Agreement and the Collateral Assignment.
6. The Agreement, the Collateral Assignment and any other
instruments to be executed and delivered pursuant to the
Agreement have been duly
2
<PAGE> 66
authorized, executed and delivered by Debtor and constitutes
legal, valid and binding obligations of Debtor enforceable in
accordance with their respective terms. The Note and the
Schedule have been duly authorized, executed and delivered by
Debtor and constitutes legal, valid and binding obligations of
Debtor enforceable in accordance with their respective terms.
7. To the best of Debtor's actual knowledge, there is no action,
suit, investigation or proceeding (whether or not purportedly on
behalf of Debtor) pending or threatened against or affecting
Debtor or any of its assets (a) which involves the Engine or any
of the transactions contemplated by the Agreement, the Note, the
Collateral Assignment and any other instruments to be executed
and delivered pursuant to the Agreement; or (b) which, if
adversely determined, could have an adverse effect upon the
transactions contemplated by the Agreement, the Note, the
Collateral Assignment and any other instruments to be executed
and delivered pursuant to the Agreement or a material adverse
effect on the business, operations or financial condition of
Debtor.
8. On the Closing Date Debtor shall have good and marketable title
to the Engine subject to no Liens except the security interest
in favor of Lender and the interest of the Lessee in the Engine
pursuant to the Lease.
9. On the Closing Date Lender shall have a legal, valid and
continuing first and only priority security interest in the
Collateral, free and clear of all other Liens except for the
interest of the Lessee in the Engine pursuant to the Lease, and
all filings, recordings or other actions necessary or desirable
in order to establish, protect and perfect such security
interest in favor of Lender as a perfected first and only
priority security interest in the Collateral will have been duly
effected, and all taxes, fees and other charges in connection
therewith shall have been duly paid.
10. Debtor is not in default, and no event or condition exists which
after the giving of notice or lapse of time or both would
constitute an event of default, under any mortgage, indenture,
contract, agreement, judgment or other undertaking to which
Debtor is a party or which purports to be
3
<PAGE> 67
binding upon Debtor or upon any of its assets, except for any
such default, event or condition which, individually or in the
aggregate, would not affect Debtor's ability to perform its
obligations under the Agreement or any such mortgage, indenture,
contract, agreement, judgment or other undertaking.
11. Guarantor is a corporation duly organized, validly existing and
in good standing under the laws of the State of California, has
the necessary authority and power to own and operate its assets
and to transact the business in which it is engaged, and is duly
qualified to do business in each jurisdiction where its failure
to do so would adversely affect its business, operations or
financial condition or its ability to perform under the
Guaranty, the Pledge Agreement, the Stock Powers and all other
instruments to be executed and delivered pursuant thereto and to
perform its obligations thereunder.
12. Guarantor has full power, authority and legal right to execute
and deliver the Guaranty, the Pledge Agreement, the Stock Powers
and all other instruments to be executed and delivered pursuant
thereto and to perform its obligations thereunder.
13. No consent of any other party (including any partners,
stockholders, trustees or holders of indebtedness), and no
consent, license, approval or authorization of, exemption by, or
registration or declaration with, any governmental body,
authority, bureau or agency is required in connection with the
execution, delivery or performance by Guarantor of the Guaranty,
the Pledge Agreement, the Stock Powers and all other instruments
to be executed and delivered pursuant thereto, or the validity
or enforceability of the Guaranty, the Pledge Agreement, the
Stock Powers and all other instruments to be executed and
delivered pursuant thereto.
14. The execution, delivery and performance by Guarantor of each of
the Guaranty, the Pledge Agreement, the Stock Powers and all
other instruments to be executed and delivered pursuant thereto
does not and shall not violate any provision of any applicable
law or regulation or of any judgment, award, order, writ or
decree of any court or governmental instrumentality, will not
violate any provision of the charter or
4
<PAGE> 68
by-laws of Guarantor and will not violate any provision of or
cause a default under any mortgage, indenture, contract,
agreement or other undertaking to which Guarantor is a party or
which purports to be binding upon Guarantor or upon any of its
assets, and will not result in the creation or imposition of any
Lien on any of the assets of Guarantor other than the security
interest intended to be created by the Pledge Agreement.
15. The Guaranty, the Pledge Agreement, the Stock Powers and all
other instruments to be executed and delivered pursuant thereto
have been duly authorized, executed and delivered by Guarantor
and constitute legal, valid and binding obligations of Guarantor
enforceable in accordance with their respective terms.
16. There is no action, suit, investigation or proceeding (whether
or not purportedly on behalf of Guarantor) pending or threatened
against or affecting Guarantor or any of its assets (a) which
involves the Collateral or the Pledge Stock or any of the
transactions contemplated by the Agreement, the Guaranty, the
Pledge Agreement, the Stock Powers and all other instruments to
be executed and delivered pursuant thereto; or (b) which, if
adversely determined, could have an adverse effect upon the
transactions contemplated by the Agreement or a material adverse
effect on the business, operations or financial condition of
Guarantor.
17. On the Closing Date Guarantor shall have good and marketable
title to the Pledged Stock subject to no Liens except the
security interest created by the Pledge Agreement in favor of
Lender.
18. On the Closing Date Lender shall have a legal, valid and
continuing first and only priority security interest in the
Pledged Stock, free and clear of all other Liens, and all
filings, recordings or other actions necessary or desirable in
order to establish, protect and perfect such security interest
in favor of Lender as a perfected first and only priority
security interest in the Pledged Stock will have been duly
effected, and all taxes, fees and other charges in connection
therewith shall have been duly paid.
19. Guarantor is not in default, and no event or condition exists
which after the giving of notice
5
<PAGE> 69
or lapse of time or both would constitute an event of default,
under any mortgage, indenture, contract, agreement, judgment or
other undertaking to which Guarantor is a party or which
purports to be binding upon Guarantor or upon any of its assets,
except for any such default, event or condition which,
individually or in the aggregate, would have no material adverse
affect on the Guarantor's ability to perform its obligations
under the Guaranty, the Pledge Agreement, the Stock Powers or
all other instruments to be executed and delivered pursuant
thereto and to perform its obligations thereunder
Very truly yours,
----------------------------------
6
<PAGE> 70
Exhibit E to Engine Loan and Security Agreement
Description of Lease
Aircraft Engine Lease Agreement dated July 31, 1997 between Willis Lease
Finance Corporation, as lessor, and GE Engine Services, Inc., as lessee,
together with the General Terms Engine Lease Agreement, Contract Number 01 dated
as of July 25, 1997 by such parties, all of which were recorded as one document
by the Federal Aviation Administration on August 20, 1997 and assigned
Conveyance No. M32718.
<PAGE> 71
Exhibit F to Engine Loan and Security Agreement
Designated Lender of a Competitor
1. Bank of Tokyo and its affiliates
2. General Electric Company and its affiliates
3. United Technologies and its affiliates.
<PAGE> 1
EXHIBIT 11.1
Computation of Earnings
WILLIS LEASE FINANCE CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
Income before extraordinary item 1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary
Earnings:
Income to common shares before extraordinary item $ 1,451 $ 434 $ 3,732 $ 2,001
Shares:
Weighted average number of common shares outstanding 5,741 3,425 5,709 3,215
========== ========== ========== ==========
Primary earnings per common share before extraordinary item $ 0.25 $ 0.13 $ 0.65 $ 0.62
Assuming Full Dilution
Earnings:
Income before extraordinary item $ 1,451 $ 434 $ 3,732 $ 2,001
========== ========== ========== ==========
Shares:
Weighted average number of common shares
outstanding and common stock equivalents 5,741 3,425 5,709 3,215
========== ========== ========== ==========
Earnings per common share assuming full dilution $ 0.25 $ 0.13 $ 0.65 $ 0.62
========== ========== ========== ==========
Net income
Primary
Earnings:
Net income to common shares: $ 1,451 $ 434 $ 5,740 $ 2,001
========== ========== ========== ==========
Shares:
Weighted average number of common shares outstanding 5,741 3,425 5,709 3,215
========== ========== ========== ==========
Primary earnings per common share $ 0.25 $ 0.13 $ 1.01 $ 0.62
Assuming Full Dilution
Earnings:
Net income: $ 1,451 $ 434 $ 5,740 $ 2,001
========== ========== ========== ==========
Shares:
Weighted average number of common shares
outstanding and common stock equivalents 5,741 3,425 5,709 3,215
========== ========== ========== ==========
Earnings per common share assuming full dilution $ 0.25 $ 0.13 $ 1.01 $ 0.62
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 20,823,448
<SECURITIES> 0
<RECEIVABLES> 14,572,582
<ALLOWANCES> 0
<INVENTORY> 9,569,416
<CURRENT-ASSETS> 0
<PP&E> 126,432,420
<DEPRECIATION> 17,328,284
<TOTAL-ASSETS> 173,018,456
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 16,276,933
<OTHER-SE> 12,886,567
<TOTAL-LIABILITY-AND-EQUITY> 173,018,456
<SALES> 8,181,648
<TOTAL-REVENUES> 14,368,507
<CGS> 6,077,883
<TOTAL-COSTS> 9,514,231
<OTHER-EXPENSES> 2,434,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,420,263
<INCOME-TAX> 969,327
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,450,936
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
