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 June 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 June 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 August 11 , 1997
------------------- -------------------------------
Common Stock, No Par Value 5,445,507
1
<PAGE>
WILLIS LEASE FINANCE CORPORATION
INDEX
PART 1. FINANCIAL INFORMATION Page No.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
As of June 30, 1997 and December 31, 1996 3
Consolidated Statements of Income
Three months and six months ended June 30, 1997 and 1996 4
Consolidated Statements of Shareholders' Equity
Year ended December 31, 1996 and six months ended June 30, 1997 5
Consolidated Statements of Cash Flows
Six months ended June 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 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
2
<PAGE>
<TABLE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 14,883,674 $ 6,573,241
Deposits 11,426,388 13,600,204
Aircraft engines, less accumulated depreciation of $17,635,156
at June 30, 1997 and $16,372,418 at December 31, 1996 104,070,591 93,131,972
Aircraft engines on capital lease, less accumulated depreciation
of $44,407 at June 30, 1997 and $0 at December 31, 1996 2,916,050 2,960,457
Net investment in direct finance lease 10,095,000 --
Property, equipment and furnishings, less accumulated depreciation
of $209,954 at June 30, 1997 and $160,407 at December 31, 1996 465,336 458,780
Spare parts inventory 6,859,736 4,057,648
Maintenance billings receivable 724,072 1,107,283
Operating lease rentals receivable 150,608 405,601
Receivables from spare parts sales 3,279,076 854,566
Other receivables 161,198 829,522
Other assets 1,300,727 953,419
------------ ------------
Total assets $156,332,456 $124,932,693
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 13,991,829 $ 2,753,641
Salaries and commissions payable 743,990 538,658
Deferred income taxes 8,766,043 5,949,676
Deferred gain 196,526 209,774
Notes payable and accrued interest 82,472,816 73,185,657
Capital lease obligation 2,872,560 2,960,457
Residual share payable 1,570,745 1,199,279
Maintenance deposits 14,813,588 11,680,525
Security deposits 2,032,996 1,978,505
Unearned lease revenue 1,271,785 1,274,269
------------ ------------
Total liabilities $128,732,878 $101,730,441
Shareholders' equity:
Common stock, no par value. Authorized 20,000,000 shares;
5,438,361 and 5,426,793 issued and outstanding at June 30, 1997
and December 31,1996, respectively 16,163,946 16,055,689
Retained earnings 11,435,632 7,146,563
------------ ------------
Total shareholders' equity 27,599,578 23,202,252
------------ ------------
Total liabilities and shareholders' equity $156,332,456 $124,932,693
============ ============
<FN>
See accompanying notes to the consolidated financial statements
</FN>
</TABLE>
3
<PAGE>
<TABLE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Operating lease revenue $ 4,428,749 $ 3,381,175 $ 8,543,826 $ 6,834,902
Gain on sale of leased engines -- -- 397,379 --
Spare part sales 3,655,983 1,148,138 5,877,663 2,434,355
Sale of equipment acquired for resale 7,600,000 4,613,660 10,147,840 6,824,300
Interest and other income 201,315 46,494 452,839 46,815
------------ ------------ ------------ ------------
Total revenue $ 15,886,047 $ 9,189,467 $ 25,419,547 $ 16,140,372
EXPENSES
Interest expense 1,673,278 1,123,640 3,137,758 2,270,711
Depreciation expense 978,969 677,751 1,854,429 1,777,925
Residual share 180,914 152,019 371,466 373,982
Cost of spare part sales 2,402,830 861,408 3,706,982 1,385,960
Cost of equipment acquired for resale 6,385,464 3,933,604 8,637,981 5,533,604
General and administrative 2,156,920 1,191,275 3,942,835 2,101,386
------------ ------------ ------------ ------------
Total expenses $ 13,778,375 $ 7,939,697 $ 21,651,451 $ 13,443,568
------------ ------------ ------------ ------------
Income before income taxes, minority
interest and extraordinary item 2,107,672 1,249,770 3,768,096 2,696,804
Income taxes (841,674) (511,055) (1,486,956) (1,094,539)
------------ ------------ ------------ ------------
Income before minority interest and extraordinary item 1,265,998 738,715 2,281,140 1,602,265
Less: minority interest in net income of subsidiary -- (8,133) -- (34,452)
------------ ------------ ------------ ------------
Income before extraordinary item 1,265,998 730,582 2,281,140 1,567,813
Extraordinary item less applicable income taxes -- -- 2,007,929 --
------------ ------------ ------------ ------------
Net Income $ 1,265,998 $ 730,582 $ 4,289,069 $ 1,567,813
============ ============ ============ ============
Earnings per common share:
Income before extraordinary item 0.23 0.23 0.41 0.50
Extraordinary item -- -- 0.36 --
------------ ------------ ------------ ------------
Net Income 0.23 0.23 0.77 0.50
============ ============ ============ ============
Weighted average number of shares outstanding 5,556,324 3,110,657 5,553,920 3,110,657
============ ============ ============ ============
<FN>
See accompanying notes to the consolidated financial statements
</FN>
</TABLE>
4
<PAGE>
<TABLE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Year Ended December 31, 1996 and Six Months Ended June 30, 1997
<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 11,568 108,257 -- -- 108,257
Net income -- -- 4,289,069 -- 4,289,069
------------ ------------ ------------ ------------ ------------
Balances at June 30, 1997 (unaudited) 5,438,361 $ 16,163,946 $ 11,435,632 -- $ 27,599,578
============ ============ ============ ============ ============
<FN>
See accompanying notes to the consolidated financial statements
</FN>
</TABLE>
5
<PAGE>
<TABLE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended June 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,289,069 $ 1,567,813
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation of aircraft engines held for lease 1,794,646 1,744,116
Depreciation of property, equipment and furnishings 59,783 33,809
(Gain) loss on sale of property, equipment and furnishings (37,309) 5,700
(Gain) on sale of leased engines (397,379) --
Increase in residual share payable 371,466 373,982
Minority interest in net income of subsidiary -- 34,452
Changes in assets and liabilities:
Decrease in deposits 2,173,816 143,176
(Increase) in spare parts inventory (2,802,088) (132,208)
(Increase) in receivables (1,117,982) (182,068)
(Increase) in other assets (347,308) (341,580)
Increase in accounts payable and accrued expenses 1,143,188 1,296,649
Increase in salaries and commission payable 205,332 57,955
Increase in deferred income taxes 2,816,367 1,050,735
(Decrease) in deferred gain on sale of aircraft engine (13,248) --
(Decrease) increase in accrued interest (493,316) 51,629
Increase in maintenance deposits 3,133,063 1,318,507
Increase in security deposits 54,491 198,792
(Decrease) in unearned lease revenue (2,484) (211,285)
------------ ------------
Net cash provided by operating activities 10,830,107 7,010,174
Cash flows from investing activities:
Proceeds from sale of aircraft engines (net of selling expenses) 1,000,000 --
Proceeds from sale of property, equipment and furnishings 80,500 28,200
Purchase of aircraft engines held for operating lease (13,291,479) (1,211,804)
Purchase of property, equipment and furnishings (109,530) (198,559)
------------ ------------
Net cash used in investing activities (12,320,509) (1,382,163)
Cash flows from financing activities:
Advances to shareholder, net -- (261,942)
Proceeds from issuance of notes payable 66,888,374 7,000
Proceeds from issuance of common stock 108,257 --
Principal payments on notes payable (57,107,899) (5,565,196)
Principal payments on capital lease obligation (87,897) --
------------ ------------
Net cash provided by (used in) financing activities 9,800,835 (5,820,138)
Increase (decrease) in cash and cash equivalents 8,310,433 (192,127)
Cash and cash equivalents at beginning of period 6,573,241 815,649
------------ ------------
Cash and cash equivalents at end of period $ 14,883,674 $ 623,522
============ ============
<FN>
Supplemental schedule of non-cash investing activities:
In conjunction with the purchase of the engine on direct finance lease,
liabilities were assumed as follows:
Purchase of aircraft engines on direct finance lease of $10,095,000.
See accompanying notes to the consolidated financial statements
</FN>
</TABLE>
6
<PAGE>
WILLIS LEASE FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation
Consolidated Financial Statements
The accompanying unaudited consolidated financial statements of Willis Lease
Finance Corporation (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 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 Stockholders
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 June 30, 1997 and December 31, 1996 and the results of its operations for
the three month and six month periods ended June 30, 1997 and 1996 and its cash
flows for the six month periods ended June 30, 1997 and 1996. The results of
operations and cash flows for the six month period ended June 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.
3. Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted by
the Board of Directors on June 21, 1996 and filed with the Securities and
Exchange Commission on November 1, 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 six month period ended June 30, 1997, the Company
issued 4,068 shares of Common Stock as a result of employee stock purchases
under the plan.
7
<PAGE>
4. Financing
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 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.
5. Subsequent event
In July 1997, the Company increased its $15 million revolving credit facility to
$30 million.
6. Pro Forma Net Income Per Share
Net income per share has been computed by dividing net income by the number of
shares of Willis Lease Finance Corporation common stock issued to the original
shareholder (3,110,657 shares), plus common stock issued in connection with the
Initial Public Offering (2,316,136 shares), warrants and options (400,000
shares) and shares issued in the six months ended June 30, 1997 (11,568 shares)
diluted on a weighted average basis for the period. This calculation results in
a weighted average number of shares outstanding of 5,553,920 and 3,110,657 for
the six months ended June 30, 1997 and June 30, 1996, respectively.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company's primary businesses are the leasing of spare replacement aircraft
engines, spare parts packages and the strategic acquisition and resale of
aircraft engines and parts to the worldwide commercial airline aftermarket. The
Company commenced leasing operations in 1988 and established Willis Aeronautical
Services, Inc., ("WASI") to conduct its spare parts resale operation in October
1994. Revenue consists primarily of operating lease revenue, income from the
sale of leased engines, sales of spare parts and components and equipment sales.
Summary of Financial Results for the Quarter Ended June 30, 1997. Total revenues
for the quarter ending June 30, 1997 were $15.9 million, compared to $9.2
million in the corresponding quarter of 1996. This increase resulted from
increased revenue due to a higher asset base, higher spare parts sales and an
increase in sale of equipment acquired for resale. Net income for the quarter
ending June 30, 1997, was $1.3 million, compared to $0.7 million in the
corresponding quarter of 1996.
Results of Operations
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Revenue is summarized as follows:
Three Months Ended June 30,
1997 1996
Amount % Amount %
------ - ------ -
(dollars in thousands)
Revenue:
Operating lease revenue 4,429 27.9% 3,381 36.8%
Gain on sale of leased engines -- -- -- --
Spare parts sales 3,656 23.0% 1,148 12.5%
Sale of equipment for resale 7,600 47.8% 4,614 50.2%
Interest and other income 201 1.3% 46 0.5%
-------------------------------------
Total 15,886 100.0% 9,189 100.0%
=====================================
Lease Portfolio. During the quarter ended June 30, 1997, six engines were added
to the Company's operating and direct finance lease portfolios at a total cost
of $18.7 million. One engine with a net book value of $3.2 million was
transferred from the lease portfolio into the equipment acquired for resale
portfolio and subsequently sold for $3.6 million.
Operating Leases. Operating lease revenue for the three months ended June 30,
1997 increased 31% to $4.4 million from $3.4 million from the comparable period
in 1996. This increase reflects lease revenues from additional engines and spare
parts packages acquired after June 30, 1996 ($1.3 million), one engine off-lease
during the quarter ended June 30, 1996 but on lease during the quarter ended
June 30, 1997 ($0.1 million) and net increases in effective lease rates on the
existing portfolio ($0.2 million). Offsetting this increase is a decrease of
lease revenue of $0.6 million from engines on lease during the quarter ended
June 30, 1996 and sold or otherwise disposed of prior to April 1, 1997.
Net income is not materially affected in the short term by lease volume. In the
early years of a lease, much of the lease revenue is offset by the higher
interest expense. Accordingly, the timing of new lease volume does not have a
material effect on the near-term quarterly net income.
9
<PAGE>
Expenses directly related to operating lease activity increased 45% to $2.7
million for the three months ended June 30, 1997 from the comparable period in
1996. Interest expense increased 50% to $1.6 million for the three months ended
June 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
bearing a higher interest rate in the first quarter of 1997. Residual sharing
expenses increased 19% to $181,000 from the comparable period in 1996 due to
changes in the Company's portfolio of engines subject to such agreements.
Depreciation expense increased 43% to $930,000 for the three months ended June
30, 1997 from the comparable period in 1996, due to the larger asset base,
offset by accelerated depreciation on one engine in 1996; this engine is not
depreciated on an accelerated basis in 1997.
Spare Parts Sales. Revenues from spare parts sales increased 218% to $3.7
million and the gross margin increased to 34% for the three months ended June
30, 1997 from 25% in the corresponding period in 1996, due to higher volume of
spare parts sales.
Equipment Sales. During the three months ended June 30, 1997, the Company sold 4
engines for $7.6 million which resulted in a gain of $1.2 million, compared to
the three months ended June 30, 1996, during which the Company sold 2 engines
for $4.6 million resulting in a gain of $0.7 million.
Interest and Other Income. Interest and other income for the three months ended
June 30, 1997 increased to $201,000 from $46,000 for the three months ended June
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 81% to $2.2 million for the three months ended June 30, 1997 from the
comparable period in 1996. This increase reflects additional compensation and
related benefits, telephone and travel costs due to staff additions, increased
rent due to the expansion of the WASI facility and an increase in professional
fees incurred by the Company and public company costs incurred in 1997. In the
past twelve months, the Company has increased its staff to 32 full-time
employees and 2 part-time employees, up from 24 full-time employees and 1
part-time employee a year ago as a result of its growth in assets and increase
in transactions under consideration.
10
<PAGE>
Results of Operations
Six months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenue is summarized as follows:
Six Months Ended June 30,
1997 1996
Amount % Amount %
------ - ------ -
(dollars in thousands)
Revenue:
Operating lease revenue 8,544 33.6% 6,835 42.3%
Gain on sale of leased engines 397 1.6% -- --
Spare parts sales 5,878 23.1% 2,434 15.1%
Sale of equipment for resale 10,148 39.9% 6,824 42.3%
Interest and other income 453 1.8% 47 0.3%
---------------------------------------
Total 25,420 100.0% 16,140 100.0%
=======================================
Lease Portfolio. During the first six months of 1997, eight engines and three
spare parts packages (primarily avionics) were added to the Company's lease
portfolio at a total cost of $25.8 million. One engine with a net book value of
$603,000 was sold from the portfolio, resulting in a gain of $397,000. In
addition, one engine with a net book value of $3.2 million was transferred from
the lease portfolio into the equipment acquired for resale portfolio and
subsequently sold for $3.6 million.
Operating Leases. Operating lease revenue for the six months ended June 30, 1997
increased 25% to $8.5 million from $6.8 million from the comparable period in
1996. This increase reflects lease revenues from additional engines and spare
parts packages acquired after June 30, 1996 ($2.2 million), one engine off-lease
during the six months ended June 30, 1996 but on lease during the six months
ended June 30, 1997 ($0.3 million) and an increase of one engine that was
partially on lease during the six months ended June 30, 1996 but was on lease
for the entire six months ended June 30, 1997 ($0.2 million). Offsetting this
increase is a decrease in lease revenue of $0.5 million from engines on lease
during the six months ended June 30, 1996 and sold or otherwise disposed of
prior to January 1, 1997. In addition, there was a decrease in lease revenue of
$0.5 million on three engines due to lower lease rates in 1997, when compared
with the six months ended June 30, 1996.
Net income is not materially affected in the short term by lease volume. In the
early years of a lease, much of the lease revenue is offset by the higher
interest expense. Accordingly, the timing of new lease volume does not have a
material effect on the near-term quarterly net income.
11
<PAGE>
Expenses directly related to operating lease activity increased 21% to $5.2
million for the six months ended June 30, 1997 from the comparable period in
1996. Interest expense increased 39% to $3.1 million for the six months ended
June 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
bearing a higher interest rate in 1997. Depreciation expense increased 2% to
$1.8 million for the six months ended June 30, 1997 from comparable period in
1996, due to the larger asset base, offset by accelerated depreciation on one
engine in 1996, no longer applicable in 1997.
Spare Parts Sales. Revenues from spare parts sales increased 41% to $5.9 million
and the gross margin decreased to 37% in 1997 from 43% in the corresponding
period in 1996, due to changes in the inventory mix of parts sold.
Equipment Sales. During the six months ended June 30, 1997, the Company sold 5
engines for $10.1 million which resulted in a gain of $1.5 million, compared to
the six months ended June 30, 1996, during which the Company sold 3 engines for
$6.8 million resulting in a gain of $1.3 million.
Interest and Other Income. Interest and other income for the six months ended
June 30, 1997 increased to $453,000 from $47,000 for the six months ended June
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 88% to $3.9 million for the six months ended June 30, 1997 from the
comparable period in 1996. This increase reflects additional compensation and
related benefits, telephone and travel costs due to 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.
12
<PAGE>
Liquidity and Capital Resources
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.
This facility, which expires on February 28, 1998, bears interest at prime plus
75 basis points and may be renewed annually. In July 1997, the Company increased
its $15 million revolving credit facility to $30 million.
At June 30, 1997, $56 million of the Company's borrowings were on a variable
rate basis, substantially all of which bears interest at LIBOR plus 2.5%. The
Company's engine leases are generally structured at fixed rental rates for
specific terms. To date, this variable rate borrowing has resulted in lower
interest expense for the Company. In September 1996, the Company purchased an
interest rate cap from an investment grade financial institution for $460,000 to
limit its exposure to increases in interest rates on a portion of its variable
rate borrowings. The cap has a notional principal amount of $39.0 million and
caps the Company's exposure to interest rate increases for a period of four
years to a maximum fixed interest rate of 8.66%. The cost of the cap is being
amortized over four years. The Company will be exposed to credit risk in the
event of non-performance by the counterparty to the cap.
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 interest rate that the Company pays under its borrowings. In the
future, the Company does not expect to enter into any variable rate loans except
in those instances where it obtains a variable rate lease from its customers and
anticipates reducing its remaining variable rate borrowings during the next
three years, after which the Company will re-evaluate its exposure to interest
rate variations.
As of June 30, 1997, the Company has four engines and three spare parts packages
which have not been financed. Until such permanent financing is in place, two of
the engines and the three spare parts packages have interest rate risk if
interest rates increase, since the underlying lease revenue is fixed. The
Company will seek permanent financing for the engines, although no assurance can
be given that permanent financing will be available on favorable terms, if at
all.
The Company believes that its current and anticipated credit facilities,
internally generated funds and the net proceeds of the Initial Public Offering
("the Offering"), should be sufficient to fund the Company's anticipated
operations until the first quarter of 1998. Thereafter, the Company may seek
additional equity capital to fund projected growth. The Company has received a
letter of commitment from a financial institution to provide an $80 million
securitized warehouse facility for the financing of jet aircraft engines. This
transaction's structure is indented to facilitate future public or private
securitized note issuances. The facility will become available immediately upon
completion of definitive agreements. The warehouse facility requires the Company
to hedge 50% of the floating rate facility. The Company's ability to
successfully execute its business strategy, and to sustain its operations, is
dependent in part on its ability to obtain debt capital and to raise equity
capital. There can be no assurance that the necessary amount of such 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 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.
13
<PAGE>
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 engines primarily under operating
leases. Operating leases require the Company to re-lease or sell aircraft
engines 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 engine. 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 an
aircraft engine 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 aircraft engines 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 engine 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 aircraft engines will be realized. If
the Company is unable to re-lease or resell aircraft engines on favorable terms,
its business, financial condition, cash flow, ability to service debt and
results of operations could be adversely affected.
The Company also engages in the short-term trading of commercial aircraft
engines in the aftermarket. Although it is the Company's general policy not to
purchase engines on speculation, the Company has and, if it deems appropriate,
may in the future purchase engines without having a commitment for the engines'
resale. If the Company were to purchase an engine without having a firm
commitment for its resale or if a firm commitment for resale were to exist but
not be consummated for whatever reason, the Company would be subject to all the
risks of ownership of the engine as described above.
The Company also engages in the purchase and resale of aftermarket airframes,
airframe rotable parts, engine parts, engines and modules. Before parts may be
installed in an aircraft, they must meet certain standards of condition
established by the Federal Aviation Administration ("FAA") and/or the equivalent
regulatory agencies in other countries. Parts must also be traceable to sources
deemed acceptable by such agencies. 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.
The Company would be affected by downturns in the air transportation industry in
general. 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 large dollar engine lease or to repossess engines 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 stayed automatically 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 engines.
Specifically, the airline has 60 days from the date the lessor makes its claim
to agree to perform its obligations and to cure any defaults. If it does not do
so, the lessor may repossess the aircraft engine. 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.
14
<PAGE>
In 1996, approximately 61% 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 Section 1110 does not apply to lessees
located outside of the United States and applicable foreign laws may not provide
comparable protection. 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.
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 a 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 volume of transactions, 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.
The Company has recently experienced significant growth in revenues. Such growth
has placed, and is expected to continue to place, a significant strain on its
managerial, operational and financial resources. Due to the Company's rapid pace
of growth over the past year, the Company has recently added to its management
team. On June 17, 1997, Rae A. Capps, formerly Vice President, General Counsel
and Corporate Secretary for Hawaiian Airlines, joined the Company as Senior Vice
President and General Counsel. On July 30, 1997, Donald A. Nunemaker, formerly
President and CEO of LeasePartners, Inc., joined the Company as Chief
Administrative Officer and Executive Vice President. 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. Any inability to effectively
manage growth could have a material adverse effect on the Company's business,
financial condition and results of operations.
15
<PAGE>
Part 2. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of the stockholders of Willis Lease Finance
Corporation on May 14, 1997, the following matters were voted upon:
Description Votes
----------- -----
1. Election of Board of Directors
Ross K. Anderson 3,791,964 For
1,700 Withheld
William M. LeRoy 3,791,964 For
1,700 Withheld
William L. McElfresh 3,791,964 For
1,700 Withheld
Willard H. Smith, Jr. 3,791,964 For
1,700 Withheld
Charles F. Willis, IV 3,791,964 For
1,700 Withheld
2. Appointment of Independent Public Accountants
KPMG Peat Marwick LLP 3,790,364 For
1,700 Against
1,600 Abstain
16
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit Number Description
-------------- -----------
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 Loan Agreement dated June 12, 1997, together with related
documents, for a $15 million revolving credit facility.
10.20 Amendment dated July 28, 1997, to loan agreement dated June
12, 1997, for the increasing of the revolving credit facility
to $30 million from $15 million.
11.1 Statement regarding computation of per share earnings.
27.1 Financial Data Schedule
17
<PAGE>
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: August 13, 1997
By: /s/ Elliot M. Fischer
-----------------------------------
Elliot M. Fischer
Chief Financial Officer, Controller
18
[LOGO]
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
$15,000,000
between
WILLIS LEASE FINANCE CORPORATION
and
CORESTATES BANK, N.A.
dated
June 12, 1997
- --------------------------------------------------------------------------------
<PAGE>
Table of Contents
1. Certain Definitions........................................................1
1.1. Definitions.................................................1
1.2. Accounting Terms............................................8
2. The Credit.................................................................9
2.1. The Loans...................................................9
2.2. Standby Letters of Credit..................................10
2.3. The Revolving Credit Note..................................10
2.4. Funding Procedures.........................................11
(a) Requests for Advance................................11
(b) Irrevocability......................................11
(c) Availability of Funds...............................11
2.5. Interest...................................................11
2.6. Fees.......................................................11
(a) Structuring and Arranging Fee.......................11
(b) Revolving Loan Commitment Fee.......................11
2.7. Reduction or Termination of Commitments....................11
(a) Voluntary...........................................11
(b) Revolving Loan Commitment Termination...............12
2.8. Voluntary Prepayments......................................12
2.9. Payments...................................................12
(a) Accrued Interest....................................12
(b) Form of Payments, Application of Payments,
Payment Administration, Etc.......................12
(c) Demand Deposit Account..............................12
(d) Net Payments........................................12
3. Representations and Warranties..........................................13
3.1. Organization, Standing.....................................13
3.2. Corporate Authority, Validity, Etc.........................13
3.3. Litigation.................................................13
3.4. ERISA......................................................13
3.5. Financial Statements.......................................14
3.6. Not in Default, Judgments, Etc.............................14
3.7. Taxes......................................................14
3.8. Permits, Licenses, Etc.....................................14
3.9. No Materially Adverse Contracts, Etc.......................14
3.10. Compliance with Laws, Etc..................................15
(a) Compliance Generally................................15
(b) Hazardous Wastes, Substances and Petroleum
Products..........................................15
3.11. Solvency...................................................15
3.12. Subsidiaries, Etc..........................................15
3.13. Title to Properties, Leases................................15
3.14. Public Utility Holding Company; Investment Company.........15
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<PAGE>
3.15. Margin Stock...............................................16
3.16. Use of Proceeds............................................16
3.17. Depreciation Policies......................................16
3.18. Disclosure Generally.......................................16
4. Conditions Precedent....................................................16
4.1. All Loans..................................................16
(a) Request For Advance.................................16
(b) Borrowing Base Certificate..........................16
(c) Covenants; Representations..........................16
(d) Defaults............................................16
(e) Material Adverse Change.............................16
4.2. Conditions to First Loan...................................16
(a) Articles, Bylaws....................................17
(b) Evidence of Authorization...........................17
(c) Legal Opinions......................................17
(d) Incumbency..........................................17
(e) Note................................................17
(f) Documents...........................................17
(g) Consents............................................17
(h) Other Agreements....................................17
(i) Fees, Expenses......................................17
5. Affirmative Covenants...................................................17
5.1. Financial Statements and Reports...........................18
(a) Annual Statements...................................18
(b) Quarterly Statements................................18
(c) No Default..........................................18
(d) ERISA...............................................19
(e) Material Changes....................................19
(f) Other Information...................................19
(g) Borrowing Base Certificates.........................19
(h) Monthly Lease Portfolio and Receivables Report......19
(i) Maintenance of Current Depreciation Policies........19
(j) Monthly Lease Receipts Report.......................19
5.2. Corporate Existence........................................19
5.3. ERISA......................................................19
5.4. Compliance with Regulations................................20
5.5. Conduct of Business; Permits and Approvals,
Compliance with Laws.....................................20
5.6. Maintenance of Properties..................................20
5.7. Ownership..................................................20
5.8. Maintenance of Insurance...................................20
5.9. Payment of Debt; Payment of Taxes, Etc.....................20
5.10. Notice of Events...........................................21
5.11. Inspection Rights..........................................21
5.12. Generally Accepted Accounting Principles...................21
5.13. Compliance with Material Contracts.........................21
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<PAGE>
5.14. Use of Proceeds............................................22
5.15. Further Assurances.........................................22
6. Negative Covenants......................................................22
6.1. Consolidation and Merger...................................22
6.2. Liens......................................................22
6.3. Guarantees.................................................22
6.4. Margin Stock...............................................22
6.5. Acquisitions and Investments...............................22
6.6. Transfer of Assets; Nature of Business.....................23
6.7. Accounting Change..........................................23
6.8. Transactions with Affiliates...............................23
6.9. Restriction on Amendment of This Agreement.................23
7. Financial Covenants.....................................................23
7.1. No losses..................................................23
7.3. Debt to Tangible Net Worth.................................23
7.4. Minimum Interest Expense Coverage..........................23
7.5. Borrowing Base.............................................24
8. Default.................................................................24
8.1. Events of Default..........................................24
(a) Payments............................................24
(b) Covenants...........................................24
(c) Representations, Warranties.........................24
(d) Bankruptcy..........................................24
(e) Certain Other Defaults..............................24
(f) Judgments...........................................25
(g) Attachments.........................................25
(h) Change in Control...................................25
(i) Security Interests..................................25
9. Collateral..............................................................25
9.1. Collateral.................................................25
9.2. Security Agreement.........................................26
9.3. Prepayments and Release of Collateral......................26
(a) Category A Equipment Held For Sale or
Subject To Lease..................................26
(b) Category A Equipment Not Subject to Lease;
Held for Greater Than Nine Months.................26
(c) Category B(1) Equipment.............................26
(d) Category B(2) Equipment.............................26
(e) Event of Default or Potential Default...............26
10. Miscellaneous...........................................................26
10.1. Waiver.....................................................26
10.2. Amendments.................................................27
10.3. Governing Law..............................................27
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<PAGE>
10.4. Participations and Assignments.............................27
10.5. Captions...................................................27
10.6. Notices....................................................27
10.7. Expenses; Indemnification..................................28
10.8. Survival of Warranties and Certain Agreements..............28
10.9. Severability...............................................28
10.10. No Fiduciary Relationship..................................28
10.11. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.............28
10.12. WAIVER OF JURY TRIAL.......................................29
10.13. Counterparts; Effectiveness................................29
10.14. Use of Defined Terms.......................................29
10.15. Offsets....................................................29
10.16. Entire Agreement...........................................29
- -----------------------------------------------------
EXHIBIT A NOTE
EXHIBIT B BORROWING BASE CERTIFICATE
EXHIBIT C MORTGAGE AND SECURITY AGREEMENT
EXHIBIT D COMPLIANCE CERTIFICATE
EXHIBIT E DEPRECIATION POLICIES
SCHEDULE 1 MISCELLANEOUS INFORMATION
-iv-
<PAGE>
Credit Agreement
This Credit Agreement, dated June 12, 1997 (the "Agreement"), is
entered into by and between WILLIS LEASE FINANCE CORPORATION, a California
corporation ("Willis") and CORESTATES BANK, N.A., a national banking association
("CoreStates", "CoreStates Bank" or the "Bank").
Preliminary Statement
WHEREAS, Willis desires to have available to it a revolving credit
facility which will be used for the purchase of Equipment (as defined herein)
most of which will be held for sale or for lease to unaffiliated persons, said
Equipment and related leases to constitute part of the Collateral (as defined
herein).
WHEREAS, CoreStates Bank is willing to establish such revolving credit
facility and make loans to Willis under the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises and promises
hereinafter set forth and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Certain Definitions
1.1. Definitions
"Affiliate" shall mean any Person: (1) which directly or indirectly
controls, or is controlled by, or is under common control with Willis;
(2) which directly or indirectly beneficially owns or holds ten percent
(10%) or more of any class of voting stock of Willis; or (3) ten
percent (10%) or more of whose voting stock of which is directly or
indirectly beneficially owned or held by Willis. 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" shall mean this Credit Agreement, as amended, supplemented,
modified, replaced, substituted for or restated from time to time and
all exhibits and schedules attached hereto.
"Borrowing Base" shall mean 85% of Willis's acquisition cost of
Equipment included in the Collateral, provided, however, that on June
30 and December 31 of each year a review of the Collateral shall be
made to determine whether the net book value of each piece of Equipment
has declined by more than 3% from the acquisition cost. In each such
case where the net book value has decreased by more than 3% from the
acquisition cost, the Borrowing Base shall mean 85% of the net book
value of such Equipment. No item of Category A Equipment shall be
included in the Borrowing Base unless either (1) it shall be the
subject of an Eligible Lease which is also included in the Collateral
or (2) it was purchased by Willis for the purpose of sale or lease to
an unaffiliated
Dated
Credit Agreement - 1 - June 12, 1997
<PAGE>
Person and the purchase date is not later than nine months previous. No
item of Category B(1) Equipment shall be included in the Borrowing Base
if it was purchased by Willis more than nine months prior to the date
of determination of the Borrowing Base. No item of Category B(2)
Equipment shall be included in the Borrowing Base unless it shall be
the subject of an Eligible Lease which is also included in the
Collateral.
"Borrowing Base Certificate" shall mean a certificate in substantially
the form attached hereto as Exhibit B hereto which shall be signed by
the chief financial officer or chief executive officer of Willis.
"Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks in Philadelphia or San Francisco
are authorized or required to close under the laws of the Commonwealth
of Pennsylvania.
"Capitalized Lease" shall mean all lease obligations of any Person for
any property (whether real, personal or mixed) which have been or
should be capitalized on the books of the lessee in accordance with
General Accepted Accounting Principles.
"Capitalized Lease Obligations" with respect to any Person, shall mean
the aggregate amount which, in accordance with GAAP, is required to be
reported as a liability on the balance sheet of such Person at such
time in respect of such Person's interest as lessee under a Capital
Lease.
"Category A Equipment" shall mean equipment purchased by Willis from
unaffiliated Persons and which is either (1) the subject of an Eligible
Lease or (2) held for sale or lease to unaffiliated Persons. Category A
Equipment shall be composed of Stage III compliant jet engines which
are less than 15 years from the date of manufacture and are suitable
for use in major aircraft manufactured by The Boeing Co., McDonnell
Douglas Corp. or Airbus Industrie.
"Category B Equipment" shall mean equipment purchased by Willis from
unaffiliated Persons which is either (1) Stage II or III aircraft
acquired for the purpose of salvaging and/or retrofitting the engines
from such aircraft (such aircraft shall cease to be eligible for
inclusion in this Category B(1) upon removal of one or more of its jet
engines), or (2) traceable spare parts the purchase price of which was
in excess of $3,000 in each case, are the subject of Eligible Leases
and have discrete serial and part numbers or other identifying numbers
acceptable to the Bank.
"Closing Date" shall mean the date closing shall occur.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and all rules and regulations with respect thereto in
effect from time to time.
"Collateral" shall have the meaning set forth in ss.9.1.
"Compliance Certificate" shall mean a certificate in substantially the
form attached hereto as Exhibit D which shall be signed by the chief
financial officer, treasurer or controller of Willis.
Dated
Credit Agreement - 2 - June 12, 1997
<PAGE>
"Debt" shall mean, as of any date of determination with respect to
Willis, without duplication, (i) all items which in accordance with
GAAP would be included in determining total liabilities as shown on the
liability side of a balance sheet of Willis as of the date on which
Debt is to be determined, (ii) all indebtedness of others with respect
to which Willis has become liable by way of a guarantee or endorsement
(other than for collection or deposit in the ordinary course of
business), (iii) all contingent liabilities of Willis, and (iv) lease
obligations that, in conformity with GAAP, have been capitalized on
Willis's balance sheet.
"Debt Service" shall mean actual payments of principal on Debt and
Capitalized Lease Obligations (including any Debt or Capital Lease
Obligations paid from the sale of equipment during the period), plus
interest expense incurred during the period.
"Default Rate" on any Loan shall mean 2% per annum above the Prime
Rate.
"Dollars" shall mean the lawful currency of the United States of
America.
"EBIT" shall mean the sum of (i) Net Income, plus (ii) amounts deducted
for interest and taxes.
"Eligible Lease" shall mean a lease for Equipment to an unaffiliated
Person in which (i) Willis or its trustee is the sole lessor (ii) the
lease arose in the ordinary course of business of Willis, (iii) the
Equipment has been delivered to the lessee and is currently subject to
the lease, (iv) neither the lease nor the Equipment is subject to any
currently outstanding assignment, claim, lien, security interest or
other limitation on the absolute title of Willis or its trustee
thereto, (v) the lease payments are not more than 90 days past due with
respect to any payment required thereby (based on the original
contractual term and not including any amendment or modification
thereof, unless the Bank has specifically consented thereto in
writing), (vi) the lease is freely assignable (with any notices or
consents required in connection therewith having been previously
obtained), (vii) the lease is dated and has been in effect for not more
than 45 days prior to the date the lease was assigned to the Bank and
included in the Collateral in the case of leases entered into
subsequent to the Closing Date; or the lease was assigned to the Bank
and included in the Collateral within 45 days immediately following the
Closing Date, in the case of leases existing at the Closing Date
without regard to the date of the lease; or the lease was assigned to
the Bank and included in the Collateral within 45 days immediately
following the date of acquisition of said lease by Willis, in the case
of leases purchased from unaffiliated persons, (viii) the lease has not
been included in the Collateral for a period of more than twenty-four
months, (ix) the lease and the Equipment being leased constitute
Collateral, (x) the remaining lease term at the time of assignment to
the Bank is for a period of ten years or less in the case of Category A
Equipment and Category B(2) Equipment, (xi) the lease is a
noncancellable, triple net lease in which the lessee may not assert, as
an offset, any defenses or claims against the lessor arising from the
condition or the intended use of the subject matter), except in the
case of leases with terms of less than 6 months in which Willis may be
responsible for maintenance and (xii) the lessee is not a resident of,
and the Equipment will not be used in any, foreign jurisdiction in
which, in the sole determination of the Bank, the ability of the Bank
to perfect a first priority security interest in the Equipment is
unsatisfactory or the ability of the Bank to foreclose upon the
Equipment and receive possession to or sell said Equipment is
unsatisfactory.
Dated
Credit Agreement - 3 - June 12, 1997
<PAGE>
"Environmental Control Statutes" shall mean each and every applicable
federal, state, county or municipal environmental statute, ordinance,
rule, regulation, order, directive or requirement, together with all
successor statutes, ordinances, rules, regulations, orders, directives
or requirements, of any Governmental Authority, including without
limitation laws in any way related to Hazardous Substances.
"Equipment" shall mean Category A Equipment and Category B Equipment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as it may be amended from time to time.
"ERISA Affiliate" shall mean any corporation which is a member of the
same controlled group of corporations as Willis within the meaning of
ss.414(b) of the Code, or any trade or business which is under common
control with Willis within the meaning of ss.414(c) of the Code.
"Event of Default" shall have the meaning set forth in ss.8.1.
"Fiscal Quarter" shall mean a fiscal quarter of Willis, which shall be
any quarterly period ending on March 31, June 30, September 30 or
December 31 of any year.
"Fiscal Year" shall mean a fiscal year of Willis, which shall end on
the last day of December.
"Generally Accepted Accounting Principles" or "GAAP" shall mean
generally accepted accounting principles as in effect from time to time
in the United States, consistently applied.
"Governmental Authority" shall mean the federal, state, county or
municipal government, or any department, agency, bureau or other
similar type body obtaining authority therefrom or created pursuant to
any laws, including without limitation Environmental Control Statutes.
"Hazardous Substances" shall mean without limitation, any regulated
substance, toxic substance, hazardous substance, hazardous waste,
pollution, pollutant or contaminant, as defined or referred to in the
Resource Conservation and Recovery Act, as amended, 15 U.S.C., ss.2601
et seg.; the Comprehensive Environmental Response, Compensation and
Liability Act, 33 U.S.C. ss.1251 et seg.; the federal underground
storage tank law, Subtitle I of the Resource Conservation and Recovery
Act, as amended, P.L. 98-616, 42 U.S.C. ss.6901 et seg.; together with
any amendments thereto, regulations promulgated thereunder and all
substitutions thereof, as well as words of similar purport or meaning
referred to in any other federal, state, county or municipal
environmental statute, ordinance, rule or regulation.
"Indebtedness for Borrowed Money" shall mean (i) all indebtedness,
liabilities, and obligations, now existing or hereafter arising, for
money borrowed by Willis, whether or not evidenced by any note,
indenture, or agreement (including, without limitation, the Note and
any indebtedness for money borrowed from an Affiliate) and (ii) all
indebtedness of others for money borrowed (including indebtedness of an
Affiliate) with respect to which Willis has become liable by way of a
guarantee or indemnity.
Dated
Credit Agreement - 4 - June 12, 1997
<PAGE>
"Intangible Assets" shall mean all assets which would be classed as
intangible assets under GAAP consistently applied, including, without
limitation, goodwill (whether representing the excess of cost over book
value of assets acquired or otherwise), patents, trademarks, trade
names, copyrights, franchises, and deferred charges (including, without
limitation, unamortized debt discount and expense, organization costs,
and research and development costs). For purposes of this definition,
prepayments of taxes, license fees and other expenses shall not be
deemed Intangible Assets.
"Investment" in any Person shall mean (a) the acquisition (whether for
cash, property, services or securities or otherwise) of capital stock,
bonds, notes, debentures, partnership or other ownership interests or
other securities of such Person; (b) any deposit with, or advance, loan
or other extension of credit to, such Person (other than any such
deposit, advance, loan or extension of credit having a term not
exceeding 90 days in the case of unaffiliated Persons and 120 days in
the case of Affiliates representing the purchase price of inventory or
supplies purchased in the ordinary course of business) or guarantee or
assumption of, or other contingent obligation with respect to,
Indebtedness for Borrowed Money or other liability of such Person; and
(c) (without duplication of the amounts included in (a) and (b)) any
amount that may, pursuant to the terms of such investment, be required
to be paid, deposited, advanced, lent or extended to or guaranteed or
assumed on behalf of such Person.
"Lien" shall mean any lien, mortgage, security interest, chattel
mortgage, pledge or other encumbrance (statutory or otherwise) of any
kind securing satisfaction of an Obligation, including any agreement to
give any of the foregoing, any conditional sales or other title
retention agreement, any lease in the nature thereof, and the filing of
or the agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction or similar evidence of any
encumbrance, whether within or outside the United States.
"Loan" or "Loans" shall mean a Revolving Credit Loan or Loans.
"Loan Documents" shall mean this Agreement, the Note, the Security
Agreement, and all other documents directly related or incidental to
said documents, the Loans or the Collateral.
"Material Adverse Change" shall mean any event or condition which, in
the reasonable determination of the Bank, could result in a material
adverse change in the financial condition, business, properties or
profits of Willis or which gives reasonable grounds to conclude that
Willis, may not or will not be able to perform or observe (in the
normal course) its obligations under the Loan Documents to which it is
a party, including but not limited to the Note.
"Material Adverse Effect" shall mean a material adverse effect (i) on
the financial condition, business, properties, or profits of Willis,
(ii) the ability of Willis to perform its obligations under this
Agreement, the Note and the other Loan Documents, or (iii) the
legality, validity or enforceability of this Agreement or the Note or
the rights and remedies of the holders of the Loans.
"Monthly Lease Portfolio and Receivables Report" shall mean a report in
summary form of the status of accounts receivable in respect of all
leases which are part of the Collateral in form and substance
reasonably satisfactory to the Bank.
Dated
Credit Agreement - 5 - June 12, 1997
<PAGE>
"Multiemployer Plan" shall mean a multiemployer plan as defined in
ERISA ss.4001(a)(3), which covers employees of Willis or any ERISA
Affiliate.
"Net Income" shall mean net income after income taxes as shown on the
balance sheet.
"Net Worth" shall mean the sum of capital stock, plus paid-in capital,
plus retained earnings, minus treasury stock.
"Note" shall mean the Revolving Credit Note.
"Obligations" shall mean all now existing or hereafter arising debts,
obligations, covenants, and duties of payment or performance of every
kind, matured or unmatured, direct or contingent, owing, arising, due,
or payable to the Bank by or from Willis arising out of this Agreement
or any other Loan Document, including, without limitation, all
obligations to repay principal of and interest on the Loans, and to pay
interest, fees, costs, charges, expenses, professional fees, and all
sums chargeable to Willis or for which Willis is liable as indemnitor
under the Loan Documents, whether or not evidenced by any note or other
instrument.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
successor thereto.
"Pension Plan" shall mean, at any time, any Plan (including a
Multiemployer Plan), the funding requirements of which (under ERISA
ss.302 or Code ss.412) are, or at any time within the six years
immediately preceding the time in question, were in whole or in part,
the responsibility of Willis or any ERISA Affiliate.
"Permitted Liens" shall mean (a) any Liens for current taxes,
assessments and other governmental charges not yet due and payable or
being contested in good faith by Willis by appropriate proceedings and
for which adequate reserves have been established by Willis as
reflected in Willis's financial statements; (b) any mechanic's,
materialman's, carrier's, warehousemen's or similar Liens for sums not
yet due or being contested in good faith by Willis by appropriate
proceedings and for which adequate reserves have been established by
Willis as reflected in Willis's financial statements; (c) easements,
rights-of-way, restrictions and other similar encumbrances on the real
property or fixtures of Willis incurred in the ordinary course of
business which individually or in the aggregate are not substantial in
amount and which do not in any case materially detract from the value
or marketability of the property subject thereto or interfere with the
ordinary conduct of the business of Willis; (d) Liens (other than Liens
imposed on any property of Willis pursuant to ERISA or ss.412 of the
Code) incurred or deposits made in the ordinary course of business,
including Liens in connection with workers' compensation, unemployment
insurance and other types of social security and Liens to secure
performance of tenders, statutory obligations, surety and appeal bonds
(in the case of appeal bonds such Lien shall not secure any
reimbursement or indemnity obligation in an amount greater than
$2,500,000), bids, leases that are not Capitalized Leases, performance
bonds, sales contracts and other similar obligations, in each case, not
incurred in connection with the obtaining of credit or the payment of a
deferred purchase price, and which do not, in the aggregate, result in
a Material Adverse Effect; and (e) Liens, if any, existing on the date
hereof and listed in Schedule 1 hereto other than Liens of the
character referred to in clause (f); (f) Liens on specific assets
purchased whether before or after the date hereof and any revenue
Dated
Credit Agreement - 6 - June 12, 1997
<PAGE>
stream directly attributable thereto provided that such liens are
limited to the Equipment so purchased and the revenue stream generated
therefrom.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, company, business trust or entity, or other
entity of whatever nature.
"Plan" shall mean an employee benefit plan as defined in ss.3(3) of
ERISA, other than a Multiemployer Plan, whether formal or informal and
whether legally binding or not.
"Potential Default" shall mean an event, condition or circumstance that
with the giving of notice or lapse of time or both would become an
Event of Default.
"Prime Rate" shall mean, for any day, the prime commercial lending rate
of CoreStates Bank, N.A., as announced from time to time at its head
office, calculated on the basis of 30 day months and a year of 360
days.
"Prohibited Transaction" shall mean a transaction that is prohibited
under Code ss.4975 or ERISA ss.406 and not exempt under Code ss.4975 or
ERISA ss.408.
"Regulation" shall mean any statute, law, ordinance, regulation, order
or rule of any United States or foreign, federal, state, local or other
government or governmental body, including, without limitation, those
covering or related to banking, financial transactions, securities,
public utilities, environmental control, energy, safety, health,
transportation, bribery, record keeping, zoning, antidiscrimination,
antitrust, wages and hours, employee benefits, and price and wage
control matters.
"Release" shall mean without limitation, the presence, leaking,
leaching, pouring, emptying, discharging, spilling, using, generating,
manufacturing, refining, transporting, treating, or storing of
Hazardous Substances at, into, onto, from or about the property or the
threat thereof, regardless of whether the result of an intentional or
unintentional action or omission, and which is in violation of
applicable law.
"Reportable Event" shall mean, with respect to a Pension Plan: (a) Any
of the events set forth in ERISA Sections 4043(b) (other than a
reportable event as to which the provision of 30 days' notice to the
PBGC is waived under applicable regulations) or 4063(a) or the
regulations thereunder, (b) an event requiring any Willis or any ERISA
Affiliate to provide security to a Pension Plan under Code
ss.401(a)(29) and (c) any failure by any Willis or any ERISA Affiliate
to make payments required by Code ss.412(m).
"Revolver Termination Date" shall meaning set forth in ss.2.1.
"Revolving Credit Loan" shall have the meaning set forth in ss.2.1.
"Revolving Credit Note" shall have the meaning set for in ss.2.2.
"Revolving Loan Commitment" shall have the meaning set forth in ss.2.1.
Dated
Credit Agreement - 7 - June 12, 1997
<PAGE>
"Revolving Loan Commitment Fee" shall have the meaning set forth in
ss.2.5.(b).
"Security Agreement" shall mean the Mortgage and Security Agreement in
the form and substance attached hereto as Exhibit C.
"Solvent" shall mean, with respect to any Person, that the aggregate
present fair saleable value of such Person's assets is in excess of the
total amount of its probable liabilities on its existing debts as they
become absolute and matured, such Person has not incurred debts beyond
its foreseeable ability to pay such debts as they mature, and such
Person has capital adequate to conduct the business it is presently
engaged in or is about to engage in.
"Standby Letter of Credit" shall mean only those standby letters of
credit issued pursuant to a completed application on the form of letter
of credit application required by the Bank at the time of the request
for each Standby Letter of Credit.
"Subsidiary" shall mean a corporation or other entity the shares of
stock or other equity interests of which having ordinary voting power
(other than stock or other equity interests having such power only by
reason of the happening of a contingency) to elect a majority of the
board of directors or other managers of such corporation are at the
time owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries or both, by
Willis.
"Tangible Net Worth" shall mean Net Worth, minus Intangible Assets.
"Termination Event" shall mean, with respect to a Pension Plan: (a) a
Reportable Event, (b) the termination of a Pension Plan, or the filing
of a notice of intent to terminate a Pension Plan, or the treatment of
a Pension Plan amendment as a termination under ERISA ss.4041(c), (c)
the institution of proceedings to terminate a Pension Plan under ERISA
ss.4042 or (d) the appointment of a trustee to administer any Pension
Plan under ERISA ss.4042.
"Unfunded Pension Liabilities" shall mean, with respect to any Pension
Plan at any time, the amount determined by taking the accumulated
benefit obligation, as disclosed in accordance with Statement of
Accounting Standards No. 87, over the fair market value of Pension Plan
assets.
"Unrecognized Retiree Welfare Liability" shall mean, with respect to
any Plan that provides post-retirement benefits other than pension
benefits, the amount of the accumulated post-retirement benefit
obligation, as determined in accordance with Statement of Financial
Accounting Standards No. 106, as of the most recent valuation date.
Prior to the date such statement is applicable to any Willis, such
amount of the obligation shall be based on an estimate made in good
faith.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with Generally Accepted Accounting
Principles consistent with those applied in the preparation of the financial
statements referred to in ss.3.5, and all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such principles.
Dated
Credit Agreement - 8 - June 12, 1997
<PAGE>
2. The Credit
2.1. The Loans. Subject to the terms and conditions herein set forth
and in reliance upon the representations, warranties and covenants contained
herein, CoreStates Bank agrees to make revolving credit loans ("Revolving Credit
Loans") to Willis upon receipt of loan requests therefor in amounts not to
exceed at any time outstanding, in the aggregate, $15,000,000 (such amount, as
the same may be reduced pursuant to ss.2.7 hereof being hereinafter called the
"Revolving Loan Commitment"). For purposes of determining the amount of
Revolving Credit Loans outstanding, the Standby Letters of Credit issued
pursuant to ss.2.2 hereof shall be deemed Revolving Credit Loans and shall be
added to the Revolving Credit Loans outstanding to determine the aggregate
Revolving Credit Loans outstanding. As provided below, Revolving Credit Loans
may be requested by Willis, and made from time to time prior to the Revolver
Termination Date. All Loans shall be made to Willis at the main office of the
Bank, Broad and Chestnut Streets, Philadelphia, Pennsylvania 19101.
Revolving Credit Loans may be made from time to time during the period
beginning on the date hereof and ending on June 12, 1998 or on the earlier date
of termination in full, pursuant to ss.2.7 or ss.8.1 hereof, of the obligations
of the Bank under this ss.2.1 (June 12, 1998 or such earlier date of termination
being herein called the "Revolver Termination Date"). Revolving Credit Loans at
the occasion of each borrowing shall be in aggregate principal amounts at least
equal to $150,000 or, if less, the remaining unused amount of the Revolving Loan
Commitment. Willis shall not be entitled to any Revolving Credit Loan if, after
giving effect to such Loan, the unpaid amount of the then outstanding Revolving
Credit Loans would exceed the then current Borrowing Base. Prior to the Revolver
Termination Date and within the limits of the Revolving Loan Commitment and the
Borrowing Base, Willis may borrow, prepay and reborrow Revolving Credit Loans.
All Revolving Credit Loans shall mature and be due and payable as set forth in
the next paragraph of this ss.2.1 unless the maturity of said Loans is
accelerated as provided in ss.2.7 or ss.8.1 hereof.
At the end of each Agreement Year, Willis may request that the Revolver
Termination Date be extended for one full year by notifying CoreStates Bank in
writing not more than 90 days nor less than 60 days prior to the end of the
existing Agreement Year that it desires an extension of the Revolver Termination
Date. If CoreStates Bank in its sole discretion shall elect to extend the
Revolver Termination Date for one full year, it shall notify Willis in writing
prior to the end of the existing Agreement Year that it is willing to extend the
Revolver Termination Date on the terms and conditions set forth herein. If
CoreStates Bank shall not issue such written notice, the Revolver Termination
Date shall not be deemed extended. In the Event that the Revolver Termination
Date is not extended and provided that the maturity date of the Revolving Credit
Loans has not been accelerated as provided in ss.2.7 or ss.8.1 hereof, the
outstanding principal balance of the Note shall be repaid in 23 monthly
installments, each in the amount of the greater of (i) 1.75% of the Revolving
Credit Loans outstanding at the Revolver Termination Date or (ii) 90% of the
aggregate lease payments received in respect of items of Collateral which are
subject to lease during the specified month and a final installment in the
amount of the unpaid balance of the Revolving Credit Loans outstanding at the
end of the 24th month following the Revolver Termination Date. In addition to
the monthly payments described above, if any payment is required to be made in
order to remain in compliance with the Borrowing Base covenant in ss.7.5 herein,
such additional payment shall reduce the final installment only and shall not
have any effect on the 23 monthly installments. The term "Agreement Year" shall
mean a one year period ending on the same month and day as the Revolver
Dated
Credit Agreement - 9 - June 12, 1997
<PAGE>
Termination Date. The first Agreement Year will expire on the first anniversary
of the date of this Agreement.
Willis may have Revolving Credit Loans outstanding at any time and from
time to time in an aggregate amount up to, but not exceeding $5,000,000 for the
acquisition of Category B Equipment. Any item of Category B Equipment which is a
Stage III jet engine shall be deducted from Category B Equipment and become part
of Category A Equipment upon the physical removal of that engine from its
airframe, provided that such Equipment otherwise qualifies as Category A
Equipment.
2.2. Standby Letters of Credit. The Bank, under the terms and subject
to the conditions of this Agreement, agrees to provide Standby Letters of Credit
to Willis, from time to time prior to the Revolver Termination Date, as
requested by Willis, provided that (A) the aggregate amount of Standby Letters
of Credit outstanding at any one time shall not exceed $2,000,000 or such lesser
amount, if any, as will, when added to the amount of the Revolving Credit Loans
then outstanding, aggregate $15,000,000 (or such lesser amount as Willis is
entitled to borrow hereunder at such time by reason of the limitation of the
Borrowing Base or otherwise), and (B) no Standby Letter of Credit shall be for a
term longer than one year.
Willis shall request a Standby Letter of Credit by delivering a
completed letter of credit application to the Bank on such form as may be
specified by the Bank not less than three Business Days prior to the date
specified by Willis as the date the Standby Letter of Credit is to be issued.
The standard form of CoreStates' letter of credit application as currently in
effect shall be used.
Standby Letters of Credit shall not bear interest until drawn upon but
shall each be subject to an annual charge, payable in advance, as such may exist
from time to time, provided, however, that at no time shall the annual charge
for any Standby Letter of Credit exceed 2.75%.
Any obligation of Willis to pay money in connection with any Standby
Letter of Credit or the application therefor shall be deemed secured as if made
as a Loan hereunder. In the event Willis shall terminate the Commitment as
provided in ss.2.6 and shall pay the outstanding principal amount of the
Revolving Credit Loans in full and with interest or the Revolver Termination
Date shall occur at a time when one or more Standby Letters of Credit remain
outstanding, then Willis shall furnish to the Bank within two Business Days such
amount of cash, to be held as cash collateral and invested in certificates of
deposit of the Bank with interest payable to Willis, as will pay the maximum
amount which may be drawn by beneficiaries of Standby Letters of Credit
outstanding at the date of such termination or the Revolver Termination Date, as
applicable.
2.3. The Revolving Credit Note. The Revolving Credit Loans made by the
Bank shall be evidenced by a single promissory note of Willis (such promissory
note as it may be amended, extended, modified, restated, replaced, substituted
for or renewed, the "Revolving Credit Note") in principal face amount equal to
the Bank's Revolving Loan Commitment, payable to the order of the Bank and
otherwise in the form attached hereto as Exhibit A. The Revolving Credit Note
shall be dated the Closing Date, shall bear interest at the rate per annum and
be payable as to principal and interest in accordance with the terms hereof.
Each outstanding Revolving Credit Loan shall be and payable as set forth in
ss.2.1 hereof unless the maturity of said Loans is accelerated as provided in
ss.2.7 or ss.8.1 hereof. The Bank shall maintain records of all Loans evidenced
by the Revolving Credit Notes and of all payments thereon, which records shall
be conclusive absent manifest error
Dated
Credit Agreement - 10 - June 12, 1997
<PAGE>
2.4. Funding Procedures
(a) Requests for Advance. Each request for a Loan shall be made not
later than 2:00 p.m. on a Business Day by delivery to the Bank of a written
request signed by Willis or in the alternative a telephone request followed
promptly by written confirmation of the request, specifying the date, amount and
type of the Loan to be made. Each request shall be received not less than one
Business Day prior to the date of the proposed borrowing. No request shall be
effective until actually received in writing by the Bank. Willis may not request
more than three advances per week.
(b) Irrevocability. Upon receipt of a request for a Loan and if the
conditions precedent provided herein shall be satisfied at the time of such
request, the request for a Loan shall not be revocable by Willis.
(c) Availability of Funds. In the case of a borrowing, the Bank will
make funds immediately available to Willis on the date of each Loan by a credit
to the account of Willis at the Bank's address set forth opposite its name on
the signature page hereof.
2.5. Interest. Each Loan shall bear interest on the principal amount
thereof from the date made until such Loan is paid in full, at a rate per annum
equal to the Prime Rate plus 1/2 of 1%.
2.6. Fees.
(a) Structuring and Arranging Fee. Willis agrees to pay to the Bank a
structuring and arranging fee (the "Fee") in the amount of 1/2 of 1% of the
Revolving Loan Commitment at the time this Agreement is executed and delivered
by both parties. The $10,000 deposit paid to the Bank by Willis in March, 1997
shall be credited in full to the amount due with respect to the Closing Fee.
(b) Revolving Loan Commitment Fee. Willis agrees to pay to the Bank as
compensation for the Revolving Loan Commitment, a fee (the "Revolving Loan
Commitment Fee") computed as follows: (1) when the average daily balance of the
aggregate Loans outstanding under the Revolving Credit Note (measured over the
previous calendar quarter or portion thereof, as applicable) is less than 50% of
the Revolving Loan Commitment, Willis shall pay a Revolving Loan Commitment Fee
equal to 3/8 of 1% of the unused portion of the Revolving Loan Commitment, and
(2) when the average daily balance of the aggregate Loans outstanding under the
Revolving Credit Note (measured over the previous calendar quarter or portion
thereof, as applicable) is at least 50% of the Revolving Loan Commitment, Willis
shall pay a Revolving Loan Commitment Fee equal to 1/4 of 1% of the unused
portion of the Revolving Loan Commitment. The Revolving Loan Commitment Fee
shall be payable in arrears on the first day of each January, April, July and
October, commencing July 1, 1997 (for the three month period or portion thereof
ended on the preceding day), and ending on the Revolver Termination Date. The
Revolving Loan Commitment Fee shall be calculated on the basis of a 360 day
year.
2.7. Reduction or Termination of Commitments.
(a) Voluntary. Willis may at any time, on not less than one Business
Days' written notice, terminate or permanently reduce the Revolving Loan
Commitment, provided that any reduction shall be
Dated
Credit Agreement - 11 - June 12, 1997
<PAGE>
in the minimum amount of $150,000 or a multiple thereof and that no such
reduction shall cause the principal amount of Loans outstanding to exceed the
reduced Revolving Loan Commitment.
(b) Revolving Loan Commitment Termination. In the event the Revolving
Loan Commitment is terminated, the Revolver Termination Date shall be
accelerated to the date of such termination and Willis shall, simultaneously
with such termination, repay the Revolving Credit Loans in accordance with
ss.2.9.
2.8 Voluntary Prepayments. On one Business Day's notice to the Bank,
Willis may, without penalty, at its option, prepay any Loan in whole at any time
or in part from time to time, provided that each partial prepayment shall be in
the minimum principal amount of $150,000 or, if greater, then in multiples
thereof and, if less than $150,000 shall be outstanding, in principal amount
equal to amount remaining outstanding. Notwithstanding the foregoing,
prepayments may be made in connection with the release of collateral as provided
in ss.9.3, which prepayments shall not be subject to the requirements of the
previous sentence.
2.9. Payments.
(a) Accured Interest. Accrued interest on all Loans shall be due and
payable on the first Business Day of each calendar month and upon the Revolver
Termination Date.
(b) Form of Payments, Application of Payments, Payment Administration,
Ect. All payments of principal, interest, fees, or other amounts payable by
Willis hereunder shall be remitted to the Bank at the address set forth opposite
its name on the signature page hereof or at such office or account as the Bank
shall specify to Willis, in immediately available funds not later than 2:00 p.m.
on the day when due. Whenever any payment is stated as due on a day which is not
a Business Day, the maturity of such payment shall be extended to the next
succeeding Business Day and interest and commitment fees shall continue to
accrue during such extension. Willis authorizes the Bank to deduct from any
account of Willis maintained at the Bank or over which the Bank has control any
amount payable under this Agreement, the Note or any other Loan Document which
is not paid in a timely manner. The Bank's failure to deliver any bill,
statement or invoice with respect to amounts due under this Section or under any
Loan Document shall not affect Willis's obligation to pay any installment of
principal, interest or any other amount under this Agreement when due and
payable.
(c) Demand Deposit Account. Willis shall maintain at least one demand
deposit account with the Bank for purposes of this Agreement. Willis authorizes
the Bank to deposit into said account all amounts to be advanced to Willis
hereunder. Further, Willis authorizes the Bank (but the Bank shall not be
obligated) to deduct from said account, or any other account maintained by
Willis at the Bank, any amount payable hereunder on or after the date upon which
it is due and payable. Such authorization shall include but not be limited to
amounts payable with respect to principal, interest, fees and expenses.
(d) Net Payments. All payments made to the Bank by Willis hereunder,
under any Note or under any other Loan Document will be made without set off,
counterclaim or other defense.
Dated
Credit Agreement - 12 - June 12, 1997
<PAGE>
3. Representations and Warranties
Willis represents and warrants to the Bank that:
3.1. Organization, Standing. It (i) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) has the corporate power and authority necessary to own its
assets, carry on its business and enter into and perform its obligations
hereunder, and under each Loan Document to which it is a party, and (iii) is
qualified to do business and is in good standing in each jurisdiction where the
nature of its business or the ownership of its properties requires such
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect.
3.2. Corporate Authority, Validity, Etc. The making and performance of
the Loan Documents to which it is a party are within its power and authority and
have been duly authorized by all necessary corporate action. The making and
performance of the Loan Documents do not and under present law will not require
any consent or approval not obtained of any of Willis's shareholders, or any
other person, do not and under present law will not violate any law, rule,
regulation order, writ, judgment, injunction, decree, determination or award, do
not violate any provision of its charter or by-laws, do not and will not result
in any breach of any material agreement, lease or instrument to which it is a
party, by which it is bound or to which any of its assets are or may be subject,
and do not and will not give rise to any Lien upon any of its assets. The number
of shares and classes of the capital stock of Willis and the ownership thereof
are accurately set forth on Schedule 1 attached hereto; all such shares are
validly issued, fully paid and non-assessable, and the issuance and sale thereof
are in compliance with all applicable federal and state securities and other
applicable laws. Further, Willis is not in default under any such agreement,
lease or instrument except to the extent such default reasonably could not have
a Material Adverse Effect. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency are necessary for the execution, delivery or performance by Willis of any
Loan Document to which it is a party or for the validity or enforceability
thereof, except any filings or registrations expressly contemplated by the Loan
Documents. Each Loan Document, when executed and delivered, will be the legal,
valid and binding obligation of Willis, enforceable against it in accordance
with its terms.
3.3. Litigation. Except as disclosed on Schedule 1, there are no
actions, suits or proceedings pending or, to Willis's knowledge, threatened
against or affecting Willis or any of its assets before any court, government
agency, or other tribunal which if adversely determined reasonably could have a
Material Adverse Effect or upon the ability of Willis to perform under the Loan
Documents. If there is any disclosure on Schedule 1, the status (including the
tribunal, the nature of the claim and the amount in controversy) of each such
litigation matter as of the date of this Agreement is set forth in Schedule 1.
3.4. ERISA. (a) Willis and each ERISA Affiliate are in compliance in all
material respects with all applicable provisions of ERISA and the regulations
promulgated thereunder; and, neither Willis, nor any ERISA Affiliate maintains
or contributes to or has maintained or contributed to any multiemployer plan (as
defined in ss.4001 of ERISA) under which Willis or any ERISA Affiliate could
have any withdrawal liability; (b) neither Willis nor any ERISA Affiliate,
sponsors or maintains any Plan under which there is an accumulated funding
deficiency within the meaning of ss.412 of the Code, whether or not waived; (c)
the aggregate liability for accrued benefits and other ancillary benefits under
each Plan that is or will be sponsored or maintained by Willis or any ERISA
Affiliate (determined on the basis of the actuarial
Dated
Credit Agreement - 13 - June 12, 1997
<PAGE>
assumptions prescribed for valuing benefits under terminating single-employer
defined benefit plans under Title IV of ERISA) does not exceed the aggregate
fair market value of the assets under each such defined benefit pension Plan;
(d) the aggregate liability of Willis and each ERISA Affiliate arising out of or
relating to a failure of any Plan to comply with the provisions of ERISA or the
Code, will not have a Material Adverse Effect; and (e) there does not exist any
unfunded liability (determined on the basis of actuarial assumptions utilized by
the actuary for the plan in preparing the most recent Annual Report) of Willis
or any ERISA Affiliate under any plan, program or arrangement providing
post-retirement life or health benefits.
3.5. Financial Statements. The consolidated financial statements of
Willis as of and for the Fiscal Years ending December 31, 1996 and December 31,
1995, consisting of a balance sheet, a statement of operations, a statement of
shareholders' equity, a statement of cash flows and accompanying footnotes, and
the interim consolidated and consolidating financial statements of Willis as of
March 31, 1997 furnished to the Bank in connection herewith, present fairly, in
all material respects, the financial position, results of operations and
operating statistics Willis as of the dates and for the periods referred to, in
conformity with GAAP. Except as set forth on Schedule 1 hereto, there are no
liabilities, fixed or contingent, which are not reflected in such financial
statements, other than liabilities which are not required to be reflected in
such balance sheets.
3.6. Not in Default, Judgments, Etc. No Event of Default or Potential
Default under any Loan Document has occurred and is continuing. Willis has
satisfied all judgments and is not in default with respect to any judgment,
writ, injunction, decree, rule, or regulation of any court, arbitrator, or
federal, state, municipal, or other governmental authority, commission, board
bureau, agency, or instrumentality, domestic or foreign.
3.7 Taxes. Willis has filed all federal, state, local and foreign tax
returns and reports which it is required by law to file and as to which its
failure to file would have a Material Adverse Effect, and has paid all taxes,
including wage taxes, assessments, withholdings and other governmental charges
which are presently due and payable, other than those being contested in good
faith by appropriate proceedings, if any, and disclosed on Schedule 1. The tax
charges, accruals and reserves on the books of Willis are adequate to pay all
such taxes that have accrued but are not presently due and payable.
3.8. Permits, Licenses, Etc. Willis possesses all permits, licenses,
franchises, trademarks, trade names, copyrights and patents necessary to the
conduct of its business as presently conducted or as presently proposed to be
conducted, except where the failure to possess the same would not have a
Material Adverse Effect.
3.9. No Materially Adverse Contracts, Etc. To the best of its knowledge,
Willis is not subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of its
directors or officers has or is expected in the future to have a materially
adverse effect on its operations, business, assets, liabilities or upon its
ability to perform under the Loan Documents. Willis is not a party to any
contract or agreement which in the judgment of its directors or officers has or
is expected to have any materially adverse effect on its business, except as
otherwise reflected in adequate reserves.
Dated
Credit Agreement - 14 - June 12, 1997
<PAGE>
3.10. Compliance with Laws, Etc.
(a) Compliance Generally. Willis is in compliance in all material
respects with all Regulations applicable to its business (including obtaining
all authorizations, consents, approvals, orders, licenses, exemptions from, and
making all filings or registrations or qualifications with, any court or
governmental department, public body or authority, commission, board, bureau,
agency, or instrumentality), the noncompliance with which reasonably could have
a Material Adverse Effect.
(b) Hazardous Wastes, Substances and Petroleum Products. Willis
received all permits and filed all notifications necessary to carry on its
business; and is in compliance in all respects with all Environmental Control
Statutes. Willis has not given any written or oral notice, nor has it failed to
give required notice, to the Environmental Protection Agency ("EPA") or any
state or local agency with regard to any actual or imminently threatened Release
of Hazardous Substances on properties owned, leased or operated by it or used in
connection with the conduct of its business and operations. Willis has not
received notice that it is potentially responsible for costs of clean-up or
remediation of any actual or imminently threatened Release of Hazardous
Substances pursuant to any Environmental Control Statute. No real property owned
or leased by it is in violation of any Environmental Laws and no Hazardous
Substances are present on said real property in violation of applicable law.
Willis has not been identified in any litigation, administrative proceedings or
investigation as a potentially responsible party for any liability under any
Environmental Laws.
3.11. Solvency. Willis is, and after giving effect to the transactions
contemplated hereby, will be, Solvent.
3.12. Subsidiaries, Etc. Willis does not have any Subsidiaries, except
as set forth In Schedule 1 hereto. Set forth in Schedule 1 hereto is a complete
and correct list, as of the date of this Agreement, of all Investments held by
Willis in any joint venture or other Person.
3.13. Title to Properties, Leases. Willis has good and marketable title
to all assets and properties reflected as being owned by it in its financial
statements as well as to all assets and properties acquired since said date
(except property disposed of since said date in the ordinary course of
business). Except for the Liens set forth in Schedule 1 hereto and any other
Permitted Liens, there are no Liens on any of such assets or properties. It has
the right to, and does, enjoy peaceful and undisturbed possession under all
material leases under which it is leasing property as a lessee. All such leases
are valid, subsisting and in full force and effect, and none of such leases is
in default, except where such default, either individually or in the aggregate,
could not have a Material Adverse Effect.
3.14. Public Utility Holding Company; Investment Company. Willis is not
a "public utility company" or a "holding company", or a "subsidiary company" of
a "holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended; or a "public utility"
within the meaning of the Federal Power Act, as amended. Further, it is not an
"investment company" or an "affiliated person" of an "investment company" or a
company "controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
Dated
Credit Agreement - 15 - June 12, 1997
<PAGE>
3.15. Margin Stock. Willis is not and will not be engaged principally or
as one of its important activities in the business of extending credit for the
purpose of purchasing or carrying or trading in any margin stocks or margin
securities (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System as amended from time to time). Neither will it use or
permit any proceeds of the Loans to be used, either directly or indirectly, for
the purpose, whether immediate, incidental or ultimate, of buying or carrying
margin stocks or margin securities.
3.16. Use of Proceeds. Willis will use the proceeds of any Loan to be
made pursuant hereto for the purchase of Equipment as contemplated herein.
3.17. Depreciation Policies. Willis's depreciation policies are as set
forth on Exhibit E. These policies have been in effect without change since
January 1, 1997.
3.18. Disclosure Generally. The representations and statements made by
Willis or on its behalf in connection with this credit facility and the Loans,
including representations and statements in each of the Loan Documents, do not
and will not contain any untrue statement of a material fact or omit to state a
material fact or any fact necessary to make the representations made not
materially misleading. No written information, exhibit, report, brochure or
financial statement furnished by Willis to the Bank in connection with this
credit facility, the Loans, or any Loan Document contains or will contain any
material misstatement of fact or omit to state a material fact or any fact
necessary to make the statements contained therein not misleading.
4. Conditions Precedent
4.1. All Loans. The obligation of the Bank to make any Loan is
conditioned upon the following:
(a) Request For Advance. Willis shall have delivered and the Bank shall
have received a Request for Advance in such form as the Bank may request from
time to time.
(b) Borrowing Base Certificate. Willis shall have delivered and the
Bank shall have received a Borrowing Base Certificate dated the date of the Loan
Requested under this Agreement.
(c) Covenants; Representation. Willis shall be in compliance with all
covenants, agreements and conditions in each Loan Document and each
representation and warranty contained in each Loan Document shall be true with
the same effect as if such representation or warranty had been made on the date
such Loan is made or issued.
(d) Defaults. Immediately prior to and after giving effect to such
transaction, no Event of Default or Potential Default shall exist.
(e) Material Adverse Change. Since March 31, 1997, there shall not have
been any Material Adverse Change with respect to Willis.
4.2. Conditions to First Loan. In addition to the conditions to all
Loans as provided in ss.4.1, the obligation of the Bank to make the first Loan
is conditioned upon the following:
Dated
Credit Agreement - 16 - June 12, 1997
<PAGE>
(a) Articles, Bylaws. The Bank shall have received copies of the
Articles or Certificate of Incorporation and Bylaws of Willis certified by its
Secretary or Assistant Secretary; together with Certificate of Good Standing
from any jurisdiction where the nature of its business or the ownership of its
properties requires such qualification except where the failure to be so
qualified would not have a Material Adverse Effect.
(b) Evidence of Authorization. The Bank shall have received copies
certified by the Secretary or Assistant Secretary of Willis or other appropriate
official (in the case of a Person other than Willis) of all corporate or other
action taken by each Person other than the Bank who is a party to any Loan
Document to authorize its execution and delivery and performance of the Loan
Documents and to authorize the Loans, together with such other related papers as
the Bank shall reasonably require.
(c) Legal Opinions. The Bank shall have received a favorable written
opinions in form and substance satisfactory to the Bank from John Votruba,
Counsel of Willis, and McAfee & Taft, P.C., or other reasonably acceptable
counsel which shall be addressed to the Bank and be dated the date of the first
Loan.
(d) Incumbency. The Bank shall have received a certificate signed by
the secretary or assistant secretary of Willis, together with the true signature
of the officer or officers authorized to execute and deliver the Loan Documents
and certificates thereunder, upon which the Bank shall be entitled to rely
conclusively until it shall have received a further certificate of the secretary
or assistant secretary of Willis amending the prior certificate and submitting
the signature of the officer or officers named in the new certificate as being
authorized to execute and deliver Loan Documents and certificates thereunder.
(e) Note. The Bank shall have received the Revolving Credit Note duly
executed, completed and issued in accordance herewith.
(f) Documents. The Bank shall have received all certificates,
instruments and other documents then required to be delivered pursuant to any
Loan Documents, in each instance in form and substance reasonably satisfactory
to it.
(g) Consents. Willis shall have provided to the Bank evidence
satisfactory to it that all governmental, shareholder and third party consents
and approvals necessary in connection with the transactions contemplated hereby
have been obtained and remain in effect.
(h) Other Agreements. Willis shall have executed and delivered each
other Loan Document required hereunder.
(i) Fees, Expenses. Willis shall simultaneously pay or shall have paid
all fees and expenses due hereunder or any other Loan Document.
5. Affirmative Covenants
Willis covenants and agrees that, without the prior written consent of
the Bank, from and after the date hereof and so long as any Obligation remains
unpaid or outstanding, it will:
Dated
Credit Agreement - 17 - June 12, 1997
<PAGE>
5.1. Financial Statements and Reports. Furnish to the Bank the following
financial information:
(a) Annual Statements. No later than one hundred and twenty (120) days
after the end of each Fiscal Year, the consolidated and consolidating balance
sheet of Willis as of the end of such year and the prior year in comparative
form, and related statements of operations, shareholders' equity, and cash flows
for the Fiscal Year and the prior Fiscal Year in comparative form. The financial
statements shall be in reasonable detail with appropriate notes and be prepared
in accordance with GAAP. The consolidated annual financial statements shall be
certified (without any qualification or exception) by KPMG Peat Marwick LLP or
other independent public accountants reasonably acceptable to the Bank. Such
financial statements shall be accompanied by a report of such independent
certified public accountants stating that, in the opinion of such accountants,
such financial statements present fairly, in all material respects, the
financial position, and the results of operations and the cash flows of Willis
for the period then ended in conformity with GAAP, except for inconsistencies
resulting from changes in accounting principles and methods agreed to by such
accountants and specified in such report, and that, in the case of such
financial statements, the examination by such accountants of such financial
statements has been made in accordance with generally accepted auditing
standards and accordingly included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and assessing
the accounting principles used and significant estimates made, as well as
evaluating the overall financial statement presentation. Each financial
statement provided under this subsection (a) shall be accompanied by a
certificate signed by such accountants either stating that during the course of
their examination nothing came to their attention which would cause them to
believe that any event has occurred and is continuing which constitutes an Event
of Default or Potential Default, or describing each such event. In addition to
the annual financial statements, Willis shall, promptly upon receipt thereof,
furnish to the Bank a copy of each other report submitted to its board of
directors by its independent accountants in connection with any annual, interim
or special audit made by them of the financial records of Willis.
(b) Quarterly Statements. No later than forty-five (45) calendar days
after the end of each Fiscal Quarter of each Fiscal Year, the consolidated and
consolidating balance sheet and related statements of operations, shareholders'
equity and cash flows of Willis for such quarterly period and for the period
from the beginning of such fiscal year to the end of such Fiscal Quarter and a
corresponding financial statement for the same periods in the preceding Fiscal
Year certified by the chief financial officer of Willis as having been prepared
in accordance with GAAP (subject to changes resulting from audits and year-end
adjustments); provided, however, that if the independent certified public
accountants issue a review report on the quarterly financial statements of
Willis, the financial statements required by this subsection (b) shall be
accompanied by a certificate signed by such accountants either stating that
during the course of their examination nothing came to their attention which
would cause them to believe that any event has occurred and is continuing which
constitutes an Event of Default or Potential Default, or describing each such
event and the remedial steps being taken by Willis. Such quarterly statement
shall be accompanied by a Compliance Certificate in the form attached hereto as
Exhibit D or such other form as the Bank shall reasonably request.
(c) No Default. Within forty-five (45) calendar days after the end of
each of the first three Fiscal Quarters of each Fiscal Year and within one
hundred and twenty (120) calendar days after the end of each Fiscal Year, a
certificate signed by the chief financial officer of Willis certifying that, to
the best of such officer's knowledge, after due inquiry, (i) Willis each has
complied with all covenants, agreements and conditions in each Loan Document and
that each representation and warranty contained in each Loan
Dated
Credit Agreement - 18 - June 12, 1997
<PAGE>
Document is true and correct with the same effect as though each such
representation and warranty had been made on the date of such certificate
(except to the extent such representation or warranty related to a specific
prior date), and (ii) no event has occurred and is continuing which constitutes
an Event of Default or Potential Default, or describing each such event and the
remedial steps being taken by Willis, as applicable.
(d) ERISA. All reports and forms filed with respect to all Plans,
except as filed in the normal course of business and that would not result in an
adverse action to be taken under ERISA, and details of related information of a
Reportable Event, promptly following each filing.
(e) Material Changes. Notification to the Bank of any litigation,
administrative proceeding, investigation, business development, or change in
financial condition which could reasonably have a Material Adverse Effect,
promptly following its discovery.
(f) Other Information. Promptly, upon request by the Bank from time to
time (which may be on a monthly or other basis), Willis shall provide such other
information and reports regarding its operations, business affairs, prospects
and financial condition as the Bank may reasonably request.
(g) Borrowing Base Certificates. In the event Willis shall not have
delivered a Borrowing Base Certificate to the Bank during an calendar month, it
will deliver to the Bank, no later than 15 days after the end of such calendar
month as of the last day of the preceding calendar month, a Borrowing Base
Certificate signed by the chief financial officer, treasurer or controller of
Willis.
(h) Monthly Lease Portfolio and Receivables Report. As soon as
practicable and in any event within 15 days after the end of each calendar
month, Willis will deliver to the Bank a lease portfolio listing and lease
receivables aging report (in form and substance reasonably satisfactory to
CoreStates).
(i) Maintenance of Current Depreciation Policies. Willis shall maintain
its method of depreciating its assets substantially consistent with past
practices as set forth in Exhibit E and will promptly notify the Bank of any
deviation from such practices.
(j) Monthly Lease Receipts Report. Within 15 days after the end of each
calendar month following the Revolver Termination Date and until the Note is
paid in full, Willis shall deliver to the Bank a report setting forth the items
of Collateral on lease and amounts received with respect to each such item of
Collateral.
5.2. Corporate Existence. Preserve its corporate existence and all
material franchises, licenses, patents, copyrights, trademarks and trade names
consistent with good business practice; and maintain, keep, and preserve all of
its properties (tangible and intangible) necessary or useful in the conduct of
its business in good working order and condition, ordinary wear and tear
expected.
5.3. ERISA. Comply in all material respects with the provisions of ERISA
to the extent applicable to any Plan maintained for the employees of Willis or
any ERISA Affiliate; do or cause to be done all such acts and things that are
required to maintain the qualified status of each Plan and tax exempt status of
each trust forming part of such Plan; not incur any material accumulated funding
deficiency (within the meaning of ERISA and the regulations promulgated
thereunder), or any material liability to the PBGC (as
Dated
Credit Agreement - 19 - June 12, 1997
<PAGE>
established by ERISA); not permit any event to occur as described in ss.4042 of
ERISA or which may result in the imposition of a lien on its properties or
assets; notify the Bank in writing promptly after it has come to the attention
of senior management of Willis of the assertion or threat of any "reportable
event" or other event described in ss.4042 of ERISA (relating to the soundness
of a Plan) or the PBGC's ability to assert a material liability against it or
impose a lien on its, or any ERISA Affiliates', properties or assets; and
refrain from engaging in any Prohibited Transactions or actions causing possible
liability under ss.5.02 of ERISA.
5.4. Compliance with Regulations. Comply in all material respects with
all Regulations applicable to its business, the noncompliance with which
reasonably could have a Material Adverse Effect.
5.5. Conduct of Business; Permits and Approvals, Compliance with Laws.
Continue to engage in an efficient and economical manner in a business of the
same general type as conducted by it on the date of this Agreement; maintain in
full force and effect, its franchises, and all licenses, patents, trademarks,
trade names, contracts, permits, approvals and other rights necessary to the
profitable conduct of its business.
5.6. Maintenance of Properties. Willis will maintain or cause to be
maintained in good repair, working order and condition all properties used or
useful in its business and make all reasonable and necessary renewals,
replacements, additions, betterments and improvements thereof and thereto, so
that the business carried on in connection therewith may be conducted in the
ordinary course at all times.
5.7. Ownership; Management. At least 50.1% of the common stock of Willis
shall continue to be owned of record and beneficially by Charles F. Willis or
CFW Partners, L.P., a limited partnership. Further, Charles F. Willis shall
continue to be Chief Executive Officer of Willis and Steven D. Oldenburg shall
continue to be Senior Vice President of Capital Markets of Willis.
5.8. Maintenance of Insurance. Maintain insurance with financially sound
and reputable insurance companies or associations in such amounts and covering
such risks as are usually carried by companies engaged in the same or a similar
business and similarly situated, which insurance may provide for reasonable
deductibility from coverage thereof.
5.9. Payment of Debt; Payment of Taxes, Etc. Where the amount involved
exceeds $250,000 or where the non-payment or non-discharge would otherwise have
a Material Adverse Effect on Willis or any of its assets: promptly pay and
discharge (a) all of its Debt in accordance with the terms thereof; (b) all
taxes, assessments, and governmental charges or levies imposed upon it or upon
its income and profits, upon any of its property, real, personal or mixed, or
upon any part thereof, before the same shall become in default; (c) all lawful
claims for labor, materials and supplies or otherwise, which, if unpaid, might
become a lien or charge upon such property or any part thereof; provided,
however, that so long as Willis first notifies the Bank of its intention to do
so, Willis shall not be required to pay and discharge any such Debt, tax,
assessment, charge, levy or claim so long as the failure to so pay or discharge
does not constitute or result in an Event of Default or a Potential Default
hereunder and so long as no foreclosure or other similar proceedings shall have
been commenced against such property or any part thereof and so long as the
validity thereof shall be contested in good faith by appropriate proceedings
diligently pursued and it shall have set aside on its books adequate reserves
with respect thereto.
Dated
Credit Agreement - 20 - June 12, 1997
<PAGE>
5.10. Notice of Events. Promptly upon discovery of any of the following
events, Willis shall provide telephone notice to the Bank (confirmed within
three (3) calendar days by written notice), describing the event and all action
Willis proposes to take with respect thereto:
(a) an Event of Default or Potential Default under this Agreement or
any other Loan Document;
(b) any default or event of default under a contract or contracts and
the default or event of default involves payments by Willis in an aggregate
amount equal to or in excess of $250,000;
(c) a default or event of default under or as defined in any evidence
of or agreements for Indebtedness for Borrowed Money under which Willis's
liability is equal to or in excess of $250,000, singularly or in the aggregate,
whether or not an event of default thereunder has been declared by any party to
such agreement or any event which, upon the lapse of time or the giving of
notice or both, would become an event of default under any such agreement or
instrument or would permit any party to any such instrument agreement to
terminate or suspend any commitment to lend to Willis or to declare or to cause
any such indebtedness to be accelerated or payable before it would otherwise be
due;
(d) the institution of, any material adverse determination in, or the
entry of any default judgment or order or stipulated judgment or order in, any
suit, action, arbitration, administrative proceeding, criminal prosecution or
governmental investigation against Willis in which the amount in controversy is
in excess of $250,000, singularly or in the aggregate; or
(e) any change in any Regulation, including, without limitation,
changes in tax laws and regulations, which would have a Material Adverse Effect.
5.11. Inspection Rights. At any time during the existence of an Event of
Default or Potential Default, during regular business hours and then as often as
requested of Willis by the Bank, permit the Bank, or any authorized officer,
employee, agent, or representative of the Bank to examine and make abstracts
from the records and books of account of Willis, wherever located, and to visit
the properties of Willis; and to discuss the affairs, finances, and accounts of
Willis with its Chairman, President, any executive vice president, it chief
financial officer, treasurer, controller or independent accountants. If no Event
of Default or Potential Default shall be in existence, the Bank shall limit such
examination to once each calendar year. Willis shall reimburse the Bank up to
$5,000 promptly following the completion of each such examination. In the
inspection shall be made during the continuance of a Potential Default or an
Event of Default, Willis shall reimburse the Bank for the Bank's reasonable
out-of-pocket expense of such inspection. At all times, it is understood and
agreed by Willis that all expenses in connection with any such inspection which
may be incurred by Willis, any officers and employees thereof and the attorneys
and independent certified public accountants therefor shall be expenses payable
by Willis and shall not be expenses of the Bank.
5.12. Generally Accepted Accounting Principles. Maintain books and
records at all times in accordance with Generally Accepted Accounting
Principles.
5.13. Compliance with Material Contracts. Willis will comply in all
material respects with all obligations, terms, conditions and covenants, as
applicable, in all Debt of Willis and all instruments and agreements related
thereto, and all other instruments and agreements to which it is a party or by
which it
Dated
Credit Agreement - 21 - June 12, 1997
<PAGE>
is bound or any of its properties is affected and in respect of which the
failure to comply reasonably could have a Material Adverse Effect.
5.14. Use of Proceeds. Willis will use the proceeds of any Loan made
pursuant hereto for the purchase of Equipment as provided herein.
5.15. Further Assurances. Do such further acts and things and execute
and deliver to the Bank such additional assignments, agreements, powers and
instruments, as the Bank may reasonably require or reasonably deem advisable to
carry into effect the purposes of this Agreement or to better assure and confirm
unto the Bank its rights, powers and remedies hereunder.
6. Negative Covenants
Willis covenants and agrees that, without the prior written consent of
the Bank, from and after the date hereof and so long as Obligation remains
unpaid or outstanding, it will not:
6.1. Consolidation and Merger. Merge or consolidate with or into any
corporation except, if (1) no Potential Default or Event of Default shall have
occurred and be continuing either immediately prior to or upon the consummation
of such transaction, and (2) Willis is the surviving entity.
6.2. Liens. Create, assume or permit to exist any Lien on any of its
property or assets, whether now owned or hereafter acquired, or upon any income
or profits therefrom, except Permitted Liens.
6.3. Guarantees. Guarantee or otherwise in any way become or be
responsible for indebtedness or obligations (including working capital
maintenance, take-or-pay contracts) of any unconsolidated Person, contingently
or otherwise. Notwithstanding the preceding sentence, Willis may guarantee
indebtedness or obligations of unconsolidated Affiliates in amounts not to
exceed $15,000,000 in the aggregate, in the ordinary course of business with the
prior written consent of the Bank, which consent not to be unreasonably
withheld.
6.4. Margin Stock. Use or permit any proceeds of the Loans to be used,
either directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of buying or carrying margin stock within the meaning of Regulation U
of The Board of Governors of the Federal Reserve System, as amended from time to
time.
6.5. Acquisitions and Investments. If an Event of Default or a Potential
Default exists or would exist immediately thereafter: purchase or otherwise
acquire (including without limitation by way of share exchange) any part or
amount of the capital stock or assets of, or make any Investments in any other
Person; or enter into any new business activities or ventures not directly
related to its present business; or create any Subsidiary, except (a) it may
acquire and hold stock, obligations or securities received in settlement of
debts (created in the ordinary course of business) owing to it, and (b) it may
make and own (i) Investments in certificates of deposit or time deposits having
maturities in each case not exceeding one year from the date of issuance thereof
and issued by Bank, or any FDIC-insured commercial bank incorporated in the
United States or any state thereof having a combined capital and surplus of not
less than $150,000,000, (ii) Investments in marketable direct obligations issued
or unconditionally guaranteed by the United States
Dated
Credit Agreement - 22 - June 12, 1997
<PAGE>
of America, any agency thereof, or backed by the full faith and credit of the
United States of America, in each case maturing within one year from the date of
issuance or acquisition thereof, (iii) Investments in commercial paper issued by
a corporation incorporated in the United States or any State thereof maturing no
more than one year from the date of issuance thereof and, at the time of
acquisition, having a rating of A-1 (or better) by Standard & Poor's Corporation
or P-1 (or better) by Moody's Investors Service, Inc., and (iv) Investments in
money market mutual funds all of the assets of which are invested in cash or
investments described in the immediately preceding clauses (i), (ii) and (iii).
6.6. Transfer of Assets; Nature of Business. Willis may not sell,
transfer, lease or dispose of assets constituting more than twenty percent (20%)
of its assets during any twelve month period without the written consent of
CoreStates, such consent not to be unreasonably withheld. Notwithstanding the
above, (1) Willis may sell, transfer, pledge, assign, re-lease or otherwise
dispose of any equipment coming off lease if such sale or disposition is in the
ordinary course of its business, (2) Willis may sell individual or small groups
of leases and related equipment from time to time and sell groups of leases in
securitization transactions and (3) Willis may engage in the nonrecourse or
partial recourse financing of leases. Willis may not discontinue, liquidate or
change in any material respect any substantial part of its operations or
business.
6.7. Accounting Change. Without the prior written approval of
CoreStates, make or permit any material change in financial accounting policies
or financial reporting practices, except as required by Generally Accepted
Accounting Principles or regulations of the Securities and Exchange Commission,
if applicable.
6.8 Transactions with Affilates. Enter into any material transaction
(including, without limitation, the purchase, sale or exchange of property, the
rendering of any services or the payment of management fees) with any Affiliate,
except transactions in the ordinary course of, and pursuant to the reasonable
requirements of, its business, and in good faith and upon commercially
reasonable terms.
6.9. Restriction on Amendment of This Agreement. Enter into or otherwise
become subject to or suffer to exist any agreement which would require it to
obtain the consent of any other person as a condition to the ability of
CoreStates and Willis to amend or otherwise modify this Agreement.
7. Financial Covenants
7.1. No losses. From and after April 1, 1997, Willis shall not at any
time suffer a net loss for the four (4) most - recently ended consecutive Fiscal
Quarters.
7.2. Minimum Tangible Net Worth. Tangible Net Worth will not at any time
be less than $19,000,000.
7.3. Debt to Tangible Net Worth. From and after April 1, 1997, the ratio
of Debt (including, without limitation, Debt represented by the Note) to
Tangible Net Worth will not exceed 6.00:1 as at the end of any fiscal quarter.
7.4. Minimum Interest Expense Coverage. From and after April 1, 1997,
the ratio of EBIT to interest for the four (4) most recently ended consecutive
Fiscal Quarters will not be less than 1.25:1.
Dated
Credit Agreement - 23 - June 12, 1997
<PAGE>
7.5. Borrowing Base. The aggregate principal amount of Loans outstanding
shall not at any time exceed the Borrowing Base or the Revolving Loan
Commitment, whichever is less; provided, however, that this covenant shall not
be deemed breached if, at the time such aggregate amount exceeds said level,
within four Business Days after the earlier of the date Willis first has
knowledge of such excess or the date of the next Borrowing Base Certificate
disclosing the existence of such excess, a prepayment of Loans shall be made in
an amount sufficient to assure continued compliance with this covenant in the
future.
8. Default
8.1. Events of Default. Willis shall be in default if any one or more of
the following events (each an "Event of Default") occurs:
(a) Payments. Willis fails to pay any principal of or interest on the
Revolving Credit Note when due and payable within five Business Days of
the due date (whether at maturity, by notice of intention to prepay, or
otherwise) or fails to pay when it is due and payable any other amount
payable under any Loan Document and such failure shall continue for a
period of five Business Days or more.
(b) Covenants. Willis fails to observe or perform (1) within fifteen
days after receiving written notice from the Bank, any term, condition
or covenant set forth in ss.ss.5.1(a), 5.1(b), 5.1(c), 5.1(g), 5.1(h) or
5.1(i) herein, (2) any term, condition or covenant set forth in ss.5.2 ,
ss.ss.6.1 through 6.9 or ss.8.1(a) herein, as and when required or (3)
any term, condition or covenant contained in this Agreement or any other
Loan Document other than as set forth in (1) and (2) above, as and when
required and such failure shall continue for a period of 10 Business
Days or more.
(c) Representations, Warranties. Any representation or warranty made or
deemed to be made by Willis, as applicable, herein or in any Loan
Document or in any exhibit, schedule, report or certificate delivered
pursuant hereto or thereto shall prove to have been false, misleading or
incorrect in any material respect when made or deemed to have been made.
(d) Bankrupcy. Willis is dissolved or liquidated, makes an assignment
for the benefit of creditors, files a petition in bankruptcy, is
adjudicated insolvent or bankrupt, petitions or applies to any tribunal
for any receiver or trustee, commences any proceeding relating to itself
under any bankruptcy, reorganization, readjustment of debt, dissolution
or liquidation law or statute of any jurisdiction, has commenced against
it any such proceeding which remains undismissed for a period of thirty
(60) days, or indicates its consent to, approval of or acquiescence in
any such proceeding, or any receiver of or trustee for Willis or any
substantial part of the property of Willis is appointed, or if any such
receivership or trusteeship to continues undischarged for a period of
thirty (60) days.
(e) Certian Other Defaults. Willis shall fail to pay when due any
Indebtedness for Borrowed Money which singularly or in the aggregate
exceeds $5,000,000, and such failure shall continue beyond any
applicable cure period, or Willis shall suffer to exist any default or
event of default in the performance or observance, subject to any
applicable grace period, of any agreement, term,
Dated
Credit Agreement - 24 - June 12, 1997
<PAGE>
condition or covenant with respect to any agreement or document relating
to Indebtedness for Borrowed Money if the effect of such default is to
permit, with the giving of notice or passage of time or both, the
holders thereof, or any trustee or agent for said holders, to terminate
or suspend any commitment (which is equal to or in excess of $5,000,000)
to lend money or to cause or declare any portion of any borrowings
thereunder to become due and payable prior to the date on which it would
otherwise be due and payable, provided that during any applicable cure
period the Bank's obligations hereunder to make further Loans shall be
suspended.
(f) Judgments. Any judgments against Willis or against its assets or
property for amounts in excess of $5,000,000 in the aggregate remain
unpaid, unstayed on appeal, undischarged, unbonded and undismissed for a
period of thirty (30) days.
(g) Attachments. Any assets of Willis shall be subject to attachments,
levies, or garnishments for amounts in excess of $250,000 in the
aggregate which have not been dissolved or satisfied within twenty (20)
days after service of notice thereof to Willis.
(h) Change in Control. Charles F. Willis or the CFW Partners, L.P.
limited partnership, shall cease to be the record and beneficial owner
of at least 50.1% of the issued and outstanding voting and capital stock
of Willis.
(i) Security Interests. Any security interest created pursuant to any
Loan Document shall cease to be in full force and effect, or shall cease
in any material respect to give the Bank, the Liens, rights, powers and
privileges purported to be created thereby (including, without
limitation, a perfected security interest in, and Lien on, all of the
Collateral), superior to and prior to the rights of all third Persons,
and subject to no other Liens (except as permitted by ss.6.2).
THEN and in every such event other than that specified in ss.8.1.(d), the Bank
may immediately terminate the Revolving Loan Commitment by notice in writing to
Willis and immediately declare the Revolving Credit Note, including without
limitation accrued interest, to be, and they shall thereupon forthwith become
due and payable without presentment, demand, or notice of any kind, all of which
are hereby expressly waived by Willis. Upon the occurrence of any event
specified in ss.8.1.(d), the Revolving Loan Commitment shall automatically
terminate and the Revolving Credit Note, including without limitation accrued
interest, shall immediately be due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived by
Willis. Any date on which the Loans and such other Obligations are declared due
and payable pursuant to this ss.8.1, shall be the Revolver Termination Date for
purposes of this Agreement. From and after the date an Event of Default shall
have occurred and for so long as an Event of Default shall be continuing, the
Loans shall bear interest at the Default Rate.
Dated
Credit Agreement - 25 - June 12, 1997
<PAGE>
9. Collateral
9.1. Collateral. Except as otherwise specifically set forth herein or in
any other Loan Document, any Loans made and outstanding and their repayment at
all times shall (i) in the case of Collateral (as defined in the Security
Agreement, hereinafter referred to as the "Collateral") located in the United
States, be secured by a first priority perfected security interest and (ii) in
the case of Collateral located in jurisdictions outside the United States, be
secured by a security interest, which in the determination of the Bank,
adequately protects the first priority security interest in favor of the Bank.
9.2. Security Agreement. As security for the punctual payment in full of
all Loans (including all payments of principal, and interest and other costs
contemplated hereby), Willis at or prior to the funding of the first Loan
hereunder shall execute and deliver to CoreStates the Security Agreement and
such other documents as may be necessary to constitute and evidence a security
interest in the Collateral.
9.3. Prepayments and Release of Collateral.
(a) Category A Equipment Held For Sale or Subject To Lease. In the event
Willis wishes to sell, or otherwise remove from the Borrowing Base any item of
Equipment it shall pay to CoreStates an amount equal to 85% of the acquisition
cost of the Equipment (or 85% of the net book value of the Equipment, as
applicable) as shown on the books and records of Willis, in which case
CoreStates shall release its Lien in said Equipment and any related lease.
(b) Category A Equipment Not Subject to Lease; Held for Greater Than
Nine Months. In the event any item of Category A Equipment shall have been
purchased and held for greater than nine months, Willis shall pay to CoreStates
an amount equal to 85% of the acquisition cost of the Equipment (or 85% of the
net book value, as applicable), as shown on the books and records of Willis, in
which case CoreStates shall release its Lien in said Equipment.
(c) Category B(1) Equipment. In the event any item of Category B(1)
Equipment shall have been purchased and held for greater than nine months or any
engine shall be removed from such item of Category B(1) Equipment, Willis shall
pay to CoreStates an amount equal to 85% of the acquisition cost of the
Equipment (or 85% of the net book value of the Equipment, as applicable), as
shown on the books and records of Willis, in which case CoreStates shall release
its Lien in said Equipment.
(d) Category B(2) Equipment. In the event any item of Category B(2)
Equipment shall cease to be the subject of an Eligible Lease, Willis shall pay
to CoreStates an amount equal to 85% of the acquisition cost of the Equipment
(or 85% of the net book value of the Equipment, as applicable), as shown on the
books and records of Willis, in which case CoreStates shall release its Lien in
said Equipment and in the related lease.
(e) Event of Default or Potential Default. Notwithstanding the above, if
at the time of such sale or removal of such Equipment from the Borrowing Base
pursuant to subsections (a) through (d) of this section, there is then existing
an Event of Default or Potential Default, Willis shall pay to CoreStates (1) in
the event Willis has sold any item of Equipment as described in this ss.9.3, all
proceeds from such sale, or (2) in the event such Equipment has otherwise been
removed from the Borrowing Base as described in
Dated
Credit Agreement - 26 - June 12, 1997
<PAGE>
this ss.9.3, 100% of the acquisition cost of the Equipment (or 100% of the net
book value of the Equipment, as applicable).
10. Miscellaneous
10.1. Waiver. No failure or delay on the part of the Bank or any holder
of the Note in exercising any right, power or remedy under any Loan Document
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy under any Loan Document. The
remedies provided under the Loan Documents are cumulative and not exclusive of
any remedies provided by law.
10.2. Amendments. No amendment, modification, termination or waiver of
any Loan Document or any provision thereof nor any consent to any departure by
Willis therefrom shall be effective unless the same shall have been approved in
writing by the Bank, be in writing and be signed by the Bank and Willis and then
any such waiver or consent shall be effective only in the instance and for the
specific purpose for which given. No notice to or demand on the Willis shall
entitle Willis to any other or further notice or demand in similar or other
circumstances.
10.3. Governing Law. The Loan Documents and all rights and obligations
of the parties thereunder shall be governed by and be construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania without regard to
Pennsylvania or federal principles of conflict of laws.
10.4. Participations and Assignments. Willis hereby acknowledges and
agrees that CoreStates may at any time, with the consent of Willis (which
consent shall not be unreasonably withheld): (a) grant participations in all or
any portion of its Revolving Loan Commitment or any portion of the Note or of
its right, title and interest therein or in or to this Agreement (collectively,
"Participations") to any other lending office of the CoreStates or to any other
bank, lending institution or other entity which has the requisite sophistication
to evaluate the merits and risks of investments in Participations
("Participants"); provided, however, that: (i) all amounts payable by Willis
hereunder shall be determined as if CoreStates had not granted such
Participation; (ii) CoreStates shall act as agent for all Participants; and
(iii) any agreement pursuant to which CoreStates may grant a Participation: (x)
shall provide that CoreStates shall retain the sole right and responsibility to
enforce the obligations of Willis hereunder including, without limitation, the
right to approve any amendment, modification or waiver of any provisions of this
Agreement; (y) such participation agreement may provide that CoreStates will not
agree to any modification, amendment or waiver of this Agreement without the
consent of the Participant if such modification, amendment or waiver would
reduce the principal of or rate of interest on any Loan or postpone the date
fixed for any payment of principal of or interest on any Loan; and (z) shall not
relieve CoreStates from its obligations, which shall remain absolute, to make
Loans hereunder; and (b) assign any of its Loans and its Revolving Loan
Commitment. Upon execution and delivery by the assignee to Willis of an
instrument in writing pursuant to which such assignee agrees to become a "Bank"
hereunder having the Revolving Loan Commitment and Loans specified in such
instrument, and upon consent thereto by Willis, to the extent required above,
the assignee shall have, to the extent of such assignment (unless otherwise
provided in such assignment with the consent of the Willis), the obligations,
rights and benefits of a Bank hereunder holding the Revolving Loan Commitment
and Loans (or portions thereof) assigned to it, and CoreStates Bank shall, to
the extent of such assignment, be released from the Commitment (or portion(s)
thereof) so assigned.
Dated
Credit Agreement - 27 - June 12, 1997
<PAGE>
10.5. Captions. Captions in the Loan Documents are included for
convenience of reference only and shall not constitute a part of any Loan
Document for any other purpose.
10.6. Notices. All notices, requests, demands, directions, declarations
and other communications between the Bank and the Willis provided for in any
Loan Document shall, except as otherwise expressly provided, be mailed by
registered or certified mail, return receipt requested, or telegraphed, or
faxed, or delivered in hand to the applicable party at its address indicated
opposite its name on the signature pages hereto. The foregoing shall be
effective and deemed received three days after being deposited in the mails,
postage prepaid, addressed as aforesaid and shall whenever sent by telegram,
telegraph or fax or delivered in hand be effective when received. Any party may
change its address by a communication in accordance herewith.
10.7. Expenses; Indemnification. Willis will from time to time reimburse
the Bank promptly following demand for all reasonable out-of-pocket expenses
(including the reasonable fees and expenses of legal counsel) in connection with
(i) the preparation of the Loan Documents (subject to a maximum amount of
$25,000 in the case of fees of legal counsel, (ii) the making of any Loans and
(iii) the administration of the Loan Documents; and reimburse the Bank for all
out-of-pocket expenses (including reasonable fees and expenses of legal counsel)
in connection with the enforcement of the Loan Documents. In addition to the
payment of the foregoing expenses, Willis hereby agrees to indemnify, protect
and hold the Bank and any holder of the Note and the officers, directors,
employees, agents, affiliates and attorneys of the Bank and such holder
(collectively, the "Indemnitees") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind or nature, including reasonable
fees and expenses of legal counsel, which may be imposed on, incurred by, or
asserted against such Indemnitee by Willis or other third parties and arise out
of or relate to this Agreement or the other Loan Documents or any other matter
whatsoever related to the transactions contemplated by or referred to in this
Agreement or the other Loan Documents; provided, however, that Willis shall have
no obligation to an Indemnitee hereunder to the extent that the liability
incurred by such Indemnitee has been determined by a court of competent
jurisdiction to be the result of gross negligence or willful misconduct of such
Indemnitee.
10.8. Survival of Warranties and Certain Agreements. All agreements,
representations and warranties expressly made herein shall survive the execution
and delivery of this Agreement, the making of the Loans hereunder and the
execution and delivery of the Note. Notwithstanding anything in this Agreement
or implied by law to the contrary, the agreements of Willis set forth in ss.10.7
shall survive the payment of the Loans and the termination of this Agreement.
This Agreement shall remain in full force and effect until the repayment in full
of all amounts owed by Willis under the Note or any other Loan Document.
10.9. Severability. The invalidity, illegality or unenforceability in
any jurisdiction of any provision in or obligation under this Agreement, the
Note or other Loan Documents shall not affect or impair the validity, legality
or enforceability of the remaining provisions or obligations under this
Agreement, the Note or other Loan Documents or of such provision or obligation
in any other jurisdiction.
10.10. No Fiduciary Relationship. No provision in this Agreement or in
any of the other Loan Documents and no course of dealing between the parties
shall be deemed to create any fiduciary duty by the Bank to Willis.
Dated
Credit Agreement - 28 - June 12, 1997
<PAGE>
10.11. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. WILLIS AND
CORESTATES EACH HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED WITHIN THE EASTERN DISTRICT OF PENNSYLVANIA AND IRREVOCABLY AGREES
THAT, ANY ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THE NOTE, THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS MAYBE LITIGATED IN SUCH COURTS. EACH PARTY
TO THIS AGREEMENT ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENT, AND IRREVOCABLY AGREES TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, ANY
NOTE, OR SUCH OTHER LOAN DOCUMENT.
10.12. WAIVER OF JURY TRIAL. WILLIS AND CORESTATES EACH HEREBY WAIVES
ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE
LENDER/BORROWER RELATIONSHIP ESTABLISHED HEREBY. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY
COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING
WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW AND STATUTORY CLAIMS. WILLIS AND CORESTATES EACH ACKNOWLEDGES
THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO THE TRANSACTION, THAT EACH HAS
ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL
CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. WILLIS AND
CORESTATES EACH FURTHER WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS
WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES
ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS, MODIFICATIONS, REPLACEMENTS OR RESTATEMENTS TO THIS AGREEMENT, THE
LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS.
IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO
A TRIAL BY THE COURT.
10.13. Counterparts; Effectiveness. This Agreement and any amendment
hereto or waiver hereof may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement and any amendments
hereto or waivers hereof shall become effective when the Bank shall have
received signed counterparts or notice by fax of the signature page that the
counterpart has been signed and is being delivered to it or facsimile that such
counterparts have been signed by all the parties hereto or thereto.
10.14. Use of Defined Terms. All words used herein in the singular or
plural shall be deemed to have been used in the plural or singular where the
context or construction so requires. Any defined term used in the singular
preceded by "any" shall be taken to indicate any number of the members of the
relevant class.
Dated
Credit Agreement - 29 - June 12, 1997
<PAGE>
10.15. Offsets. Nothing in this Agreement shall be deemed a waiver or
prohibition of the Bank's right of banker's lien or offset.
10.16 Entire Agreement. This Agreement, the Note issued hereunder and
the other Loan Documents constitute the entire understanding of the parties
hereto as of the date hereof with respect to the subject matter hereof and
thereof and supersede any prior agreements, written or oral, with respect hereto
or thereto.
Dated
Credit Agreement - 30 - June 12, 1997
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement
to be duly executed by their duly authorized representatives as of the date
first above written.
WILLIS LEASE FINANCE CORPORATION
By /s/ Charles F. Willis
-----------------------------
Name: Charles F. Willis
Title: President / CFO
Notices To:
Steven D. Oldenburg
Senior Vice President-Capital Markets
180 Harbor Drive
Suite 200
Sausilito, CA 94965
CORESTATES BANK, N.A.
By /s/ Hugh Connelly
-----------------------------
Name: Hugh W. Connelly
Title: Vice President
Notices To:
Hugh W. Connelly
Vice President
CoreStates Bank, N.A.
Transportation and Leasing Division
FC 1-8-11-24
1339 Chestnut Street
Philadelphia, PA 19107
FAX No. (215) 786-7704
Dated
Credit Agreement - 31 - June 12, 1997
<PAGE>
Reference Table of Definitions
definition page defined
Affiliate......................................................................1
Agreement......................................................................1
Agreement Year.................................................................9
Bank...........................................................................1
Borrowing Base.................................................................1
Borrowing Base Certificate.....................................................2
Business Day...................................................................2
Capitalized Lease..............................................................2
Capitalized Lease Obligations..................................................2
Category A Equipment...........................................................2
Category B Equipment...........................................................2
Closing Date...................................................................2
Closing Fee...................................................................11
Code...........................................................................2
Collateral.....................................................................2
Compliance Certificate.........................................................2
CoreStates.....................................................................1
CoreStates Bank................................................................1
Debt...........................................................................3
Debt Service...................................................................3
Default Rate...................................................................3
Dollars........................................................................3
EBIT...........................................................................3
Eligible Lease Receivables.....................................................3
Environmental Control Statutes.................................................4
Equipment......................................................................4
ERISA..........................................................................4
ERISA Affiliate................................................................4
Event of Default...............................................................4
Fiscal Quarter.................................................................4
Fiscal Year....................................................................4
GAAP...........................................................................4
Generally Accepted Accounting Principles.......................................4
Governmental Authority.........................................................4
Hazardous Substances...........................................................4
Indebtedness for Borrowed Money................................................4
Indemnitees...................................................................28
Intangible Assets..............................................................5
Investment.....................................................................5
Lien...........................................................................5
Loan...........................................................................5
Dated
Credit Agreement - 32 - June 12, 1997
<PAGE>
Loan Documents.................................................................5
Loans..........................................................................5
Material Adverse Change........................................................5
Material Adverse Effect........................................................5
Maximum Loan Amount............................................................9
Monthly Lease Portfolio........................................................5
Multiemployer Plan.............................................................6
Net Income.....................................................................6
Net Worth......................................................................6
Note...........................................................................6
Obligations....................................................................6
Participants..................................................................27
Participations................................................................27
PBGC...........................................................................6
Pension Plan...................................................................6
Permitted Liens................................................................6
Person.........................................................................7
Plan...........................................................................7
Potential Default..............................................................7
Prime Rate.....................................................................7
Prohibited Transaction.........................................................7
Receivables Report.............................................................5
Regulation.....................................................................7
Release........................................................................7
Reportable Event...............................................................7
Revolver Termination Date......................................................7
Revolving Credit Loan..........................................................7
Revolving Credit Note..........................................................7
Revolving Loan Commitment......................................................7
Revolving Loan Commitment Fee..................................................8
Security Agreement.............................................................8
Solvent........................................................................8
Standby Letter of Credit.......................................................8
Subsidiary.....................................................................8
Tangible Net Worth.............................................................8
Termination Event..............................................................8
Unfunded Pension Liabilities...................................................8
Unrecognized Retiree Welfare Liability.........................................8
Willis.........................................................................1
Dated
Credit Agreement - 33 - June 12, 1997
<PAGE>
EXHIBIT A
[LOGO] Revolving Credit Note
$15,000,000 Philadelphia, PA
June 12, 1997
For Value Received, WILLIS LEASE FINANCE CORPORATION, a California corporation
("Willis"), hereby promises to pay to the order of CORESTATES BANK, N.A. (the
"Bank"), in lawful currency of the United States of America in immediately
available funds at the Bank's offices located at Broad and Chestnut Streets,
Philadelphia, Pennsylvania, on the Revolver Termination Date, or on such earlier
date or dates as provided in the Credit Agreement described below, the principal
sum of FIFTEEN MILLION DOLLARS ($15,000,000) or, if less, the then unpaid
principal amount of all Revolving Credit Loans made by the Bank pursuant to the
Credit Agreement.
Willis promises also to pay interest on the unpaid principal amount hereof in
like money at such office from the date hereof until paid at the rates and at
the times provided in the Credit Agreement.
This Note is Revolving Credit Note referred to in, is entitled to the benefits
of and is secured by security interests referred to in the Credit Agreement,
dated as of June 12, 1997 by and between Willis and the Bank (as such may be
amended, modified, supplemented, restated or replaced from time to time, the
"Credit Agreement"). This Note is subject to voluntary prepayment and mandatory
repayment prior to the Revolver Termination Date, in whole or in part, as
provided in the Credit Agreement.
In case an Event of Default shall occur and be continuing, the principal of and
the accrued interest on this Note may be declared to be due and payable in the
manner and with the effect provided in the Credit Agreement.
Willis hereby waives presentment, demand, protest or notice of any kind in
connection with this Note.
Notwithstanding the face amount of this Note, the undersigned's liability
hereunder shall be limited at all times to the actual aggregate outstanding
indebtedness to the Bank relating to such Bank's Revolving Credit Loans,
including all principal and interest, together with all fees and expenses as
provided in the Credit Agreement, as established by the Bank's books and records
which shall be conclusive absent manifest error.
Capitalized terms used but not defined herein shall have the respective meanings
assigned to them in the Credit Agreement.
Note -1-
<PAGE>
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF
THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO PENNSYLVANIA OR FEDERAL
PRINCIPLES OF CONFLICT OF LAWS.
WILLIS LEASE FINANCE CORPORATION
BY /s/ Charles F. Willis
--------------------------------
Name: Charles F. Willis
Title: Chief Executive Officer
-2-
<PAGE>
EXHIBIT B
Borrowing Base Certificate
Date of Certificate: _________________________
Date of Information: _________________________
To: CoreStates Bank, N.A.
Gentlemen:
This Borrowing Base Certificate is delivered to you pursuant to the terms of
ss.5.1 of the Credit Agreement, dated as of June 12, 1997, as currently in
effect. Capitalized terms used without definition below have the same meanings
as they have in the Credit Agreement.
We hereby certify that:
1. No Potential Default or Event of Default has occurred and is continuing
as of the date of this Borrowing Base Certificate.
2. There has been no Material Adverse Change since [insert the date of the
most recent financial statements delivered to the Bank pursuant to the
terms of ss.5.1 of the Credit Agreement], except as disclosed on the
attached schedules.
3. The information set forth on the attached schedules is true, current
and complete as of the date of this Borrowing Base Certificate.
Willis Lease Finance Corporation
By _____________________________
Name: Elliot M. Fischer
Title: CFO & Controller
Borrowing Base Certificate -1- Date: ___________
<PAGE>
Willis Lease Finance Corporation
Computation of Borrowing Base Availability
____________________,_________
Collateral Loan Value
1. Equipment (from Schedule A, $_______________
attached hereto)
Maximum Loans
2. Maximum Loans: $15,000,000 $ 15,000,000.00
Credit Usage
3. Aggregate Loan Balance (principal) at date of certificate $_______________
Loan Availability
4. Line 1 minus Line 3 $_______________
5. Line 2 minus Line 3 $_______________
6. Availability (Line 4 or Line 5 whichever is less) $_______________
7. Amount of Loan Requested This Date (if any) $_______________
(Not to exceed line 6)
Certification: Willis Lease Finance Corporation
Date: ____________________________ By: ___________________________
Name: Elliot M. Fischer
Title: CFO & Controller
Borrowing Base Certificate -2- Date: ___________
<PAGE>
Willis Lease Finance Corporation
New Collateral Information Schedule
for Borrowing on
_______________,_________
Willis Lease Finance Corporation has requested this date that a Loan be made to
it by CoreStates Bank, N.A. The following table sets forth information with
respect to items being added to the Collateral with this Request for Loan.
Willis Lease Finance Corporation has delivered the original counterpart of each
lease to CoreStates Bank, N.A. and it represents and warrants hereby that all
other copies of each lease are clearly marked to indicate that each is not the
lessor's original counterpart of that lease.
Customer Contract Monthly Lease Remaining Gross Equipment
Name Number Payment Term(1) Term(2) Remaining(3) Cost(4)
- --------- --------- -------- ------- --------- ------------ ---------
---------- ---------
Totals
Willis Lease Finance Corporation
By ______________________________
Name: Elliot M. Fischer
Title: CFO & Controller
1 This is the original term of months of the lease.
2 This is the number of months remaining on the lease at the date of this
Schedule.
3 This is the gross amount remaining payable in respect of the lease minus
the unearned finance charge.
4 This is the purchase price of the equipment to Willis Corporation as shown
on the invoice of the manufacturer or distributor of the equipment.
AMENDMENT NO. 1
to
Credit Agreement
Amendment No. 1, dated July 28, 1997, (the "Amendment") to Credit Agreement,
dated June 12, 1997, (the "Agreement") by and between WIILLIS LEASE FINANCE
CORPORATION, a California corporation ("Willis") and CORESTATES BANK, N.A., a
national banking association ("CoreStates Bank", "CoreStates" or the "Bank").
All capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Agreement.
Preliminary Statement
WHEREAS, Willis has requested that CoreStates Bank increase the Revolving Loan
Commitrnent from $15,000,000 to $30,000,000.
WHEREAS, CoreStates Bank is willing to agree to such request on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and promises hereinafter set
forth and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Section 2.1 of the Agreement. The dollar amount of the Revolving Loan
Commitment set forth in the first paragraph of ss.2.1 of the Agreement as
"$15,000,000" is hereby deleted and shall be and is hereby replaced by the
dollar amount of "$30,000,000".
2. Section 2.2 of the Agreement. The dollar amount set forth in the first
paragraph of ss.2.2 of the Agreement as "$15,000,000" is hereby deleted and
shall be and is hereby replaced by the dollar amount of "$30,000,000".
3. Section 6.6 of the Agreement. Subsection (2) of ss.6.6 of the Agreement
is hereby amended to read "Willis may sell individual or small groups of leases
and related equipment from time to time and sell groups of leases and related
equipment in securitization transactions and".
4. Exhibit A to the Credit Agreement. Exhibit A to the Agreement shall be
and is hereby amended and restated in its entirety to be as set forth in Exhibit
A attached hereto. Upon delivery of the $30,000,000 Revolving Credit Note, dated
July 28, 1997, to the Bank, the Bank shall mark the
<PAGE>
$15,000,000 Revolving Credit Note, dated June 12, 1997, "canceled and replaced
by $30,000,000 Revolving Credit Note, dated July 28, 1997."
5. Exhibit B to the Credit Agreement. Exhibit B to the Agreement shall be
and is hereby amended and restated in its entirety to be as set forth in Exhibit
B attached hereto.
6. Representations and Warranties. Willis hereby restates the
representations and warranties made in the Agreement, including but not limited
to Article 3 thereof, on and as of the date hereof as if originally given on
this date.
7. Covenants. Willis hereby represents and warrants that it is in
compliance and has complied with each and every covenant set forth in the
Agreement, including but not limited to Articles 5 and 6 thereof, on and as of
the date hereof.
8. Corporate Authorization and Delivery of Documents. CoreStates shall have
received copies, certified as of the date hereof, of all action taken by Willis
and any other necessary Person to authorize this Amendment and such other papers
as CoreStates shall require.
9. Affirmation. Willis hereby affirms its absolute and unconditional
promise to pay to CoreStates Bank the Loans and all other amounts due under the
Agreement and any other Loan Document on the maturity date(s) provided in the
Agreement or any other Loan Document, as such documents may be amended hereby.
10. Effect of Amendment. This Amendment amends the Agreement only to the
extent and in the manner herein set forth, and in all other respects the
Agreement is ratified and confirmed.
11. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have each caused this Amendment to be
duly executed by their duly authorized representatives as of the date first
above written.
WILLIS LEASE FINANCE CORPORATION
By: /s/ Charles F. Willis
--------------------------------------
Name: Charles F. Willis
Title: Chief Executive Officer
CORESTATES BANK, N.A.
By: /s/ Hugh W. Connelly
--------------------------------------
Name: Hugh W. Connelly
Title: Vice President
EXHIBIT XI
Computation of Earnings
<TABLE>
Willis Lease Finance Corporation
Computation of Earnings Per Share
<CAPTION>
Three months ended Six months ended
June 30, June 30,
Income before extraordinary item 1997 1996 1997 1996
-----------------------------------
<S> <C> <C> <C> <C>
Primary
Earnings:
Income to common shares before extraordinary item $1,266 $ 731 $2,281 $1,568
Shares:
Weighted average number of common shares outstanding 5,556 3,111 5,554 3,111
===================================
Primary earnings per common share before extraordinary item $ 0.23 $ 0.23 $ 0.41 $ 0.50
Assuming Full Dilution
Earnings:
Income before extraordinary item $1,266 $ 731 $2,281 $1,568
===================================
Shares:
Weighted average number of common shares
outstanding and common stock equivalents 5,556 3,111 5,554 3,111
===================================
Earnings per common share assuming full dilution $ 0.23 $ 0.23 $ 0.41 $ 0.50
===================================
Net income
Primary
Earnings:
Net income to common shares: $1,266 $ 731 $4,289 $1,568
===================================
Shares:
Weighted average number of common shares outstanding 5,556 3,111 5,554 3,111
===================================
Primary earnings per common share $ 0.23 $ 0.23 $ 0.77 $ 0.50
Assuming Full Dilution
Earnings:
Net income $1,266 $ 731 $4,289 $1,568
===================================
Shares:
Weighted average number of common shares
outstanding and common stock equivalents 5,556 3,111 5,554 3,111
===================================
Earnings per common share assuming full dilution $ 0.23 $ 0.23 $ 0.77 $ 0.50
===================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 26,310,062
<SECURITIES> 0
<RECEIVABLES> 4,314,954
<ALLOWANCES> 0
<INVENTORY> 6,859,736
<CURRENT-ASSETS> 0
<PP&E> 117,546,977
<DEPRECIATION> 17,889,517
<TOTAL-ASSETS> 156,332,456
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 16,163,946
<OTHER-SE> 11,435,632
<TOTAL-LIABILITY-AND-EQUITY> 156,332,456
<SALES> 11,255,983
<TOTAL-REVENUES> 15,886,047
<CGS> 8,788,294
<TOTAL-COSTS> 11,621,455
<OTHER-EXPENSES> 2,156,920
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,107,672
<INCOME-TAX> 841,674
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,265,998
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
