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 March 31, 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 March 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 ___No X
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 May 13, 1997
------------------- ---------------------------
Common Stock, No Par Value 5,430,861
1
<PAGE>
WILLIS LEASE FINANCE CORPORATION
<TABLE>
INDEX
<CAPTION>
PART 1. FINANCIAL INFORMATION Page No.
--------
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
As of March 31, 1997 and December 31, 1996 3
Consolidated Statements of Income
Three months ended March 31, 1997 and 1996 4
Consolidated Statements of Shareholders' Equity
Year Ended December 31, 1996 and three Months Ended March 31, 1997 5
Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 9
And Results of Operations
PART 2. OTHER INFORMATION 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE>
<TABLE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
March 31, December 31,
1997 1996
----------------------- --------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $7,803,582 $6,573,241
Deposits
13,217,831 13,600,204
Aircraft engines, less accumulated depreciation of $16,712,210
at March 31, 1997 and $16,372,418 at December 31, 1996
98,971,723 93,131,972
Aircraft engines on capital lease, less accumulated depreciation
of $22,203 at March 31, 1997 and $0 at December 31, 1996
2,938,254 2,960,457
Property, equipment and furnishings, less accumulated depreciation
of $181,957 at March 31, 1997 and $160,407 at December 31, 1996
481,072 458,780
Spare parts inventory
4,571,288 4,057,648
Maintenance billings receivable
891,502 1,107,283
Operating lease rentals receivable
325,570 405,601
Receivables from spare parts sales
1,440,310 854,566
Other receivables
1,443,706 829,522
Other assets
1,368,814 953,419
----------------------- ---------------------
Total assets $133,453,652 $124,932,693
======================= =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $2,255,599 $2,753,641
Salaries and commissions payable
587,212 538,658
Deferred income taxes
7,924,369 5,949,676
Deferred gain
203,150 209,774
Notes payable and accrued interest
75,045,065 73,185,657
Capital lease obligation
2,906,704 2,960,457
Residual share payable
1,389,831 1,199,279
Maintenance deposits
13,610,084 11,680,525
Security deposits
2,168,400 1,978,505
Unearned lease revenue
1,089,659 1,274,269
----------------------- ---------------------
Total liabilities $107,180,073 $101,730,441
Shareholders' equity:
Common stock, no par value. Authorized 20,000,000 shares;
5,430,861 and 5,426,793 issued and outstanding at March 31, 1997
and December 31,1996, respectively
16,103,946 16,055,689
Retained earnings
10,169,633 7,146,563
----------------------- ---------------------
Total shareholders' equity
26,273,579 23,202,252
----------------------- ---------------------
=====================
Total liabilities and shareholders' equity $133,453,652 $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
March 31,
------------------------------------------
1997 1996
-------------------- --------------------
<S> <C> <C>
REVENUE
Operating lease revenue $4,115,077 $3,453,727
Gain on sale of leased engines
397,379 -
Spare part sales
2,221,680 1,286,217
Sale of equipment acquired for resale
2,547,840 2,210,640
Interest and other income
251,525 321
-------------------- --------------------
Total revenue $9,533,501 $6,950,905
EXPENSES
Interest expense
1,464,480 1,147,071
Depreciation expense
875,460 1,100,174
Residual share
190,552 221,963
Cost of spare part sales
1,304,152 524,552
Cost of equipment acquired for resale
2,252,517 1,600,000
General and administrative
1,785,915 910,111
-------------------- --------------------
Total expenses $7,873,076 $5,503,871
-------------------- --------------------
Income before income taxes, minority interest and extraordinary item
1,660,425 1,447,034
Income taxes
(645,284) (583,484)
-------------------- --------------------
Income before minority interest and extraordinary item
1,015,141 863,550
Less: minority interest in net income of subsidiary
- (26,319)
-------------------- --------------------
Income before extraordinary item
1,015,141 837,231
Extraordinary item less applicable income taxes
2,007,929 -
-------------------- --------------------
Net Income $3,023,070 $837,231
==================== ====================
Earnings per common share:
Income before extraordinary item
0.18 0.27
Extraordinary item
0.36 -
-------------------- --------------------
Net Income
0.54 0.27
==================== ====================
Weighted average number of shares outstanding
5,577,377 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 Three Months Ended March 31, 1997
<CAPTION>
Issued and Total
outstanding Advances shareholders'
shares of Common Retained to equity
common stock stock earnings shareholders (deficit)
------------ ------ -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 1,500 $ 500 $ 5,293,566 ($ 481,789) $ 4,812,277
1,500
Common stock issue 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 4,068 48,257 -- -- 48,257
Dividends -- -- -- -- --
Net income -- -- 3,023,070 -- 3,023,070
----------- ------------ ------------ ------------ ------------
Balances at March 31, 1997 (unaudited) 5,430,861 $ 16,103,946 $ 10,169,633 $ 26,273,579 --
=========== ============ ============ ============ ============
<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>
Three Months Ended March 31,
----------------------------------------
1997 1996
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $3,023,070 $837,231
Adjustments to reconcile income to net cash
provided by (used in) operating activities:
Depreciation of aircraft engines held for lease
849,494 1,087,573
Depreciation of property, equipment and furnishings
25,966 12,601
Loss on sale of property, equipment and furnishings
885 4,556
(Gain) on sale of leased engines
(397,379) -
Increase in residual share payable
190,552 221,963
Minority interest in net income of subsidiary
- 26,319
Changes in assets and liabilities:
Decrease in deposits
382,373 674,765
(Increase) in spare parts inventory
(513,640) (176,657)
(Increase) in receivables
(904,116) (1,896,690)
(Increase) decrease in other assets
(415,395) 4,202
(Decrease) increase in accounts payable and accrued expenses
(498,042) 987,424
Increase in salaries and commission payable
48,554 19,017
Increase in deferred income taxes
1,974,693 561,961
(Decrease) in deferred gain on sale of aircraft engine
(6,624) -
(Decrease) increase in accrued interest
(378,470) 13,089
Increase in maintenance deposits
1,929,559 569,466
Increase in security deposits
189,895 222,396
(Decrease) in unearned lease revenue
(184,610) (146,885)
------------------- -------------------
Net cash provided by operating activities
5,316,765 3,022,331
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
3,500 22,200
Purchase of aircraft engines held for operating lease
(7,269,663) (505,820)
Purchase of property, equipment and furnishings
(52,643) (106,544)
------------------- -------------------
Net cash used in investing activities
(6,318,806) (590,164)
Cash flows from financing activities:
Advances to shareholder, net
- (98,756)
Proceeds from issuance of notes payable
56,838,374 7,000
Proceeds from issuance of common stock
48,257 -
Principal payments on notes payable
(54,600,496) (2,545,258)
Principal payments on capital lease obligation
(53,753) -
------------------- -------------------
Net cash provided (used in) by financing activities
2,232,382 (2,637,014)
Increase (decrease) in cash and cash equivalents
1,230,341 (204,847)
Cash and cash equivalents at beginning of period
6,573,241 815,649
------------------- -------------------
Cash and cash equivalents at end of period $7,803,582 $610,802
=================== ===================
<FN>
See accompanying notes to the consolidated financial statements
</FN>
</TABLE>
6
<PAGE>
WILLIS LEASE FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Statements
In the opinion of Management, the accompanying unaudited consolidated financial
statements of Willis Lease Finance Corporation ("The Company") contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of the Company as of March 31, 1997 and
the results of its operations for the three month periods ended March 31, 1997
and 1996 and cash flows for the three month periods ended March 31, 1997 and
1996. The results of operations and cash flows for the three month periods ended
March 31, 1997 and 1996 are not necessarily indicative of the results of
operations or cash flows which may be reported for the remainder of 1997.
The accompanying unaudited interim financial statements 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.
2. Management Estimates
These financial statements have been prepared on the accrual basis of accounting
in accordance with generally accepted accounting principles. This 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 1, 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. A reserve of 75,000 shares of common stock
has been established for this purpose. During the three month period ended March
31, 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.
In February 1997, an $8,742,376 bridge loan obtained to acquire two engines, two
auxiliary power units and a spare parts package was replaced with a term loan in
the amount of $11,010,875 at an interest rate of 10.23% for five years.
5. Subsequent event
On April 18, 1997, Target Airways, Ltd., dba Great American Airways (the
Debtor), filed a voluntary petition under Chapter 11 in the U.S. Bankruptcy
Court in the District of Nevada. Willis has two engines under lease to the
Debtor. The engines have a combined net book value of $5.4 million and a
combined rental rate of $86,000 per month. The Company has prepaid rent, a
letter of credit and security deposits totaling $288,000 relating to these
engines. It is not known at this time what the effect of the bankruptcy will be,
if any, on the Company's financial position or results of operations.
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 three months ended March 31, 1997 (4,068
shares) diluted on a weighted average basis for the period. This calculation
results in a weighted average number of shares outstanding of 5,577,377 and
3,110,657 for the three months ended March 31, 1997 and March 31, 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 March 31, 1997. Total
revenues for the quarter ending March 31, 1997 were $9.5 million, compared to
$7.0 million in the corresponding quarter of 1996. This increase resulted from
increased revenue due to a higher asset base, a higher volume of spare parts
sales and a modest increase in sale of equipment acquired for resale. Net income
for the quarter ending March 31, 1997, excluding extraordinary item, was $1.0
million, compared to $0.8 million in the corresponding quarter of 1996. This
increase resulted from higher operating lease revenue less related expenses,
higher gross profit margins from sale of spare parts offset by lower gain on
equipment acquired for resale.
Results of Operations
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Revenue is summarized as follows:
- --------------------------------------------------------------------------------
Three Months Ended March 31,
--------------------------------------
Amount % Amount %
------ -- ------ --
(dollars in thousands)
Revenue
Operating lease revenue $4,115 43.2% $3,454 49.7%
Gain on sale of leased engines 397 4.2% -- --
Spare parts sales 2,222 23.2% 1,286 18.5%
Sale of equipment acquired for resale 2,548 26.7% 2,211 31.8%
Interest and other income 252 2.6% -- --
------ ------ ------ ------
Total $9,534 100.0% $6,951 100.0%
- --------------------------------------------------------------------------------
Lease Portfolio. During the quarter ended March 31, 1997, two engines and three
parts packages (primarily avionics) were added to the Company's lease portfolio
at a total cost of $7.1 million. One engine with a net book value of $603,000
was sold from the portfolio, resulting in a gain of $397,000.
Operating Leases. Operating lease revenue for the three months ended March 31,
1997 increased 19% to $4.1 million from $3.5 million from the comparable period
in 1996. This increase reflects lease revenues from engines acquired after March
31, 1996 ($0.9 million), one engine off-lease during the quarter ended March 31,
1996 but on lease during the quarter ended March 31, 1997 ($0.2 million) and net
increases in effective lease rates on the existing portfolio ($0.1 million).
Offsetting this increase is a decrease of lease revenue of $0.5 million from
engines on lease during the quarter ended March 31, 1996 and sold or otherwise
disposed of prior to January 1, 1997.
Lease revenue 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 1% to $2.5
million for the three months ended March 31, 1997 from the comparable period in
1996. Interest expense increased 26% to $1.4 million for the three months ended
March 31, 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 decreased 14% to $191,000 from the comparable period in 1996 due to
changes in the Company's portfolio of engines subject to such agreements.
Depreciation expense decreased 22% to $849,000 for the three months ended March
31, 1997 from comparable period in 1996, due to accelerated depreciation on one
engine in 1996, no longer applicable in 1997, offset by increased depreciation
due to the larger asset base.
Spare Parts Sales. Revenues from spare parts sales increased 73% to $2.2 million
and the gross margin decreased to 40% in 1997 from 59% in the corresponding
period in 1996. The increase in revenues resulted from increased acquisition of
inventory in the prior quarter. The change in margins resulted from a higher
percentage of parts sold in the current quarter which had a higher acquisition
cost.
Equipment Sales. During the three months ended March 31, 1997, the Company sold
one engine for $2.5 million which resulted in a gain of $0.3 million, compared
to the three months ended March 31, 1996, during which the Company sold one
engine for $2.2 million resulting in a gain of $0.6 million.
Interest and Other Income. Interest and other income for the three months ended
March 31, 1997 increased to $252,000 from zero for the three months ended March
31, 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 96% to $1.8 million for the three months ended March 31, 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, an increase in professional fees
and insurance incurred by the Company and public company costs incurred in 1997.
In the past twelve months, the Company has increased its staff to 30 employees
from 18 employees a year ago to manage its growth in assets and increase in
transactions under consideration.
10
<PAGE>
Liquidity and Capital Resources
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.
In February 1997, an $8,742,376 bridge loan obtained to acquire two engines, two
auxiliary power units and a spare parts package was replaced with a term loan in
the amount of $11,010,875 at an interest rate of 10.23% for five years.
At March 31, 1997, $48.0 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. The Company purchased an interest rate cap
from an investment grade financial institution in September, 1996, 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 $40.8
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 significantly reducing its remaining variable rate borrowings during
the next four years, after which the Company will re-evaluate its exposure to
interest rate variations.
As of March 31, 1997, the Company has two engines and three spare parts packages
which have not been financed. Until such permanent financing is in place, the
Company has 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"), will be sufficient to fund the Company's anticipated
operations until the first quarter of 1998, at which time, additional equity
capital is anticipated to be required to fund projected growth. The Company is
also exploring a possible securitization of its lease portfolio. 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 or securitization 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.
11
<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 rather than finance 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 occasionally 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 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.
On April 18, 1997, Target Airways, Ltd., dba Great American Airways (the
Debtor), filed a voluntary petition under Chapter 11 in the U.S. Bankruptcy
Court in the District of Nevada. Willis has two engines under lease to the
Debtor. The engines have a combined net book value of $5.4 million and a
combined rental rate of $86,000 per month. The Company has prepaid rent, a
letter of credit and security deposits totaling $288,000 relating to these
engines. It is not known at this time what the effect of the bankruptcy will be,
if any, on the Company's financial position or results of operations.
12
<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. 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, if
any, could have a material adverse effect on the Company's business, financial
condition and results of operations. On February 6, 1997, William McElfresh,
formerly Executive Vice President-Marketing was named of Executive President of
Strategic Development. At the same time, Allan W. Nilsen, formerly President of
Airmotive, Inc., joined the Company as Senior Vice President of Sales and
Marketing. On April 25, 1997, John F. Votruba, General Counsel, resigned from
the Company effective June 9, 1997.
13
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Part 2. Other Information
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.
4.1 Specimen of Common Stock Certificate. Incorporated by
reference to Exhibit 4.1 to Registration Statement No.
333-5126-LA filed on June 21, 1996.
10.5 Lease dated February 4, 1997, between Atlas Metal Spinning
Company and Willis Aeronautical Services, Inc., for an office
and a warehouse facility located in South San Francisco.
Incorporated by reference to Exhibit 10.5 of the Company's
report on Form 10K for the year ended December 31, 1996.
10.16 Loan Agreement dated January 28, 1997, together with related
documents. Incorporated by reference to Exhibit 10.16 of the
Company's report on Form 10K for the year ended December 31,
1996.
10.18 Loan agreement dated February 2, 1997 between the Company and
Finova Capital Corporation.
11.1 Statement regarding computation of per share earnings.
27.1 Financial Data Schedule
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<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: March 14, 1997
By: /s/ Elliot M. Fischer
..........................................
Elliot M. Fischer
Chief Financial Officer, Controller
15
SECURED LOAN AGREEMENT
THIS SECURED LOAN AGREEMENT, made as of the 6th day of February, 1997
by and among FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), and
T-10, INC., a California corporation ("Borrower"),
W I T N E S S E T H:
WHEREAS, Lender has agreed to loan to Borrower up to eleven million ten
thousand eight hundred seventy-five Dollars ($11,010,875), in order to permit
Borrower to acquire a certain pool of equipment consisting of two jet aircraft
engines, two auxiliary power units, and a spare parts package, all as provided
herein,
NOW, THEREFORE, in consideration of the foregoing and the terms and
conditions hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Borrower and Lender
hereby agree as follows:
1. DEFINITIONS.
1.1 Definitions. Capitalized terms defined elsewhere in this Agreement
shall have the meanings there ascribed to them, and the following words and
expressions shall have the following meanings and shall be equally applicable to
both the singular and plural forms of the terms so defined:
"Advances" shall mean, collectively, the AL Engine Advance,
the AL Spare Parts Advance, the AM Engine Advance, and the KLM APU Advance.
"Advance Fee" shall mean, with respect to each Advance, a fee,
in the amount of one percent (1%) of such Advance, payable by Borrower to Lender
on the date such Advance is made, in order to induce Lender to make such
Advance.
"Affirmation of Pledge Agreement" shall mean the Affirmation
and Amendment of the Pledge Agreement and Irrevocable Proxy, in form and
substance satisfactory to Lender, pursuant to which Guarantor affirms the
Existing Pledge Agreement and Guarantor and Lender amend the Existing Pledge
Agreement as set forth therein.
"Agreement" shall mean this Secured Loan Agreement.
"AL APU" shall mean that certain Garrett auxiliary power unit
bearing manufacturer's serial number 194 for an Airbus A330-300 aircraft, as
such auxiliary power unit is more particularly described in the Equipment
Purchase Agreement (referred to therein as the "APU").
<PAGE>
"AL Engine" shall mean that certain General Electric model
CF6-80E-1 jet aircraft engine bearing manufacturer's serial number 811116, with
QEC kit, as more particularly described in the Equipment Purchase Agreement
(referred to therein as the "AL Engine").
"AL Engine Advance" shall mean the advance of funds to
Borrower by Lender in the aggregate amount of $5,100,000, the proceeds of which
shall be applied: (a) to repay principal and interest outstanding under the ILFC
Bridge Loan and to refund to Borrower a portion of Borrower's cash equity paid
by Borrower in connection with Borrower's purchase of the AL Engine under the
Equipment Purchase Agreement, and (b) to pay Documented Closing Costs.
"AL Engine Lease" shall mean, collectively (a) that certain
Spare Engine Lease Agreement dated as of August 24, 1994 between Aer Lingus
Limited, an Irish corporation ("Aer Lingus"), as lessee, and ILFC, as lessor,
with respect to the lease of the AL Engine and (b) the Equipment Purchase
Agreement pursuant to which, among other things (i) ILFC sells to Borrower the
equipment referred to in such Spare Engine Lease Agreement and (ii) ILFC assigns
to Borrower and Borrower assumes, all of the right, title and obligations of
ILFC under the lease under such Spare Engine Lease Agreement;
"AL Engine Note" shall mean the Promissory Note, dated the
date of the AL Engine Advance, in form and substance satisfactory to Lender and
in substantively the form attached hereto as Exhibit C, in the original
principal amount of $5,100,000.
"AL Spare Parts" shall mean those certain spare parts for an
Airbus A330-300 aircraft and General Electric model CF-6-80E-1 jet aircraft
engine, as more particularly described in the Equipment Purchase Agreement
(referred to therein as the "Spare Parts").
"AL Spare Parts Advance" shall mean the advance of funds to
Borrower by Lender in the aggregate amount of $2,337,500, the proceeds of which
shall be applied: (a) to repay principal and interest outstanding under the ILFC
Bridge Loan and to refund to Borrower a portion of Borrower's cash equity paid
by Borrower in connection with Borrower's purchase of the AL Spare Parts and Al
APU, and (b) to pay Documented Closing Costs.
"AL Spare Parts Lease" shall mean, collectively, (a) that
certain Spare Parts Lease Agreement dated as of July 27, 1994 between Aer Lingus
Limited, an Irish corporation, as lessee, and ILFC, as lessor, with respect to
the lease of the AL Spare Parts and the AL APU and (b) the Equipment Purchase
Agreement pursuant to which, among other things (i) ILFC sells to Borrower the
AL Spare Parts and the AL APU and (ii) ILFC assigns to Borrower and Borrower
assumes, all of the right, title and obligations of ILFC under such Spare Parts
Lease Agreement.
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"AL Spare Parts Note" shall mean the Promissory Note, dated
the date of the AL Spare Parts Advance, in form and substance satisfactory to
Lender and in substantively the form attached hereto as Exhibit C, in the
original principal amount of $2,337,500.
"AM Engine" shall mean that certain Pratt and Whitney model
PW2037 jet aircraft engine bearing manufacturer's serial number P716407, as more
particularly described in the Equipment Purchase Agreement (referred to therein
as the "AM Engine").
"AM Engine Advance" shall mean the advance of funds to
Borrower by Lender in the aggregate amount of $3,148,375, the proceeds of which
shall be applied: (a) to repay principal and interest outstanding under the ILFC
Bridge Loan and to refund to Borrower a portion of Borrower's cash equity paid
by Borrower in connection with Borrower's purchase of the AM Engine under the
Equipment Purchase Agreement, and (b) to pay Documented Closing Costs.
"AM Engine Lease" shall mean, collectively, (a) that certain
Spare Engine Lease Agreement dated as of April 14, 1994, between Aerovias De
Mexico, S.A. De C.V., a Mexican corporation ("Aero Mexico"), as lessee, and
ILFC, as lessor, with respect to the lease of the AM Engine as amended by that
certain Letter Agreement No. 1 to Spare Engine Lease Agreement dated April 14,
1994 between ILFC and Aero Mexico and (b) the Equipment Purchase Agreement
pursuant to which, among other things (i) ILFC sells to Borrower the AM Engine
and (ii) ILFC assigns to Borrower and Borrower assumes, all of the right, title
and obligations of ILFC under the lease under such Spare Engine Lease Agreement.
"AM Engine Note" shall mean the Promissory Note, dated the
date of the AM Engine Advance, in form and substance satisfactory to Lender and
in substantively the form attached hereto as Exhibit C, in the original
principal amount of $3,148,375.
"APU Purchase Agreement" shall mean the Assignment and
Assumption of Lease and Purchase and Sale of APU dated as of December 27, 1996
between Borrower and IAI, pursuant to which Borrower (a) acquires the KLM APU
from IAI, which is presently on lease pursuant to the KLM APU Lease and (b)
Borrower assumes, and IAI assigns to Borrower, all of IAI's right, title, and
obligation under the KLM APU Lease.
"Basic Interest" shall mean interest payable under any Note at
the Interest Rate applicable to such Note, and interest payable pursuant to this
Agreement or any of the other Loan Documents (other than any Note) at the
Interest Rate in effect on the date the first Advance is made hereunder.
"Business Day" shall mean any day on which national banks are
open for business in Phoenix, Arizona.
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"BWIA Lease Extension Documents" shall mean those documents
identified on Exhibit A attached hereto in form and substance satisfactory to
Lender.
"Chief Financial Officer" shall mean, with respect to any
corporation, the principal financial officer of such corporation, who shall be a
duly elected officer of such corporation at the time acting as such.
"Closing Date" shall mean February 7, 1997.
"Collateral" shall have the meaning ascribed to such term in
Section 4.1 hereof.
"Cross-Default Documents" shall mean those documents
identified on Exhibit B attached hereto in form and substance satisfactory to
Lender.
"Default" shall mean an event which, with the passage of time,
or giving of notice, or both, would constitute an Event of Default.
"Default Rate" shall have the meaning ascribed to such term in
Section 12.3 hereof.
"Deficiency Guaranty" shall mean, with respect to any Advance
(a) the Guaranty and Subordination Agreement, in form and substance satisfactory
to Lender, dated as of the date of the Note evidencing such Advance, pursuant to
which Guarantor agrees that in the event of any exercise by Lender of its
remedies under such Note and the Security Agreement executed and delivered by
Borrower in connection with such Note, Guarantor shall pay to Lender an amount
equal to thirty percent (30%) of any deficiency suffered by Lender following
such exercise, based upon the amount of principal of, and accrued and
outstanding interest under, such Note as of the date Lender exercises such
remedies, and the amount of Lender's expenses in exercising such remedies or (b)
such other Guaranty or other document which is in form and substance
satisfactory to Lender and accepted by Lender.
"Documented Closing Costs" shall mean, with respect to any
Advances (a) the Advance Fee payable by Borrower with respect to such Advance
and (b) reasonable out-of-pocket costs, fees and expenses incurred by Borrower
in connection with such Advance, any other Advances, or the Loan Documents, as
to which Borrower has presented to Lender documentation evidencing such costs,
fees, and expenses.
"Dollars" or "($)" shall mean the legal currency, at the
relevant time, of the United States of America.
"Eligible Equipment" shall mean, collectively (a) the AL APU,
(b) the AL
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Engine, (c) the AL Spare Parts, (d) the AM Engine, and (e) the KLM APU.
"Engine" shall mean, generally, any one of the following: (a)
the AL Engine; or (b) the AM Engine.
"Equipment" shall mean the Eligible Equipment in respect of
which Lender has made an Advance in accordance with the terms of this Agreement.
"Equipment Purchase Agreement" shall mean the Assignment and
Assumption of Leases and Purchase and Sale of Equipment dated as of December 27,
1996 between Borrower and ILFC as amended by the ILFC Lease Payment Guaranty and
that certain Side Letter No. 2 to Equipment Purchase Agreement, dated December
27, 1996, between ILFC and Borrower, pursuant to which Borrower has agreed to
purchase (a) the AL APU, (b) the AL Engine, (c) the AL Spare Parts, and (d) the
AM Engine from ILFC and ILFC has agreed to sell the same to Borrower.
"Existing Loan Agreement" shall mean that certain Secured Loan
Agreement dated as of December 29, 1995 between Borrower and Lender, as amended
by (a) that certain First Amendment to Secured Loan Agreement dated as of
December 30, 1996 between Borrower and Lender, and (b) that certain Second
Amendment to Secured Loan Agreement dated as of February 6, 1997 between
Borrower and Lender (as such Secured Loan Agreement, as so amended, may be from
time to time further amended, modified or restated).
"Existing Loan Documents" shall mean, collectively, the
Existing Loan Agreement and the "Loan Documents" as defined therein.
"Existing Pledge Agreement" shall mean that certain Stock
Pledge Agreement and Irrevocable Proxy dated as of December 29, 1995 between
Guarantor and Lender.
"FAA" shall mean the Federal Aviation Administration provided
for in the Department of Transportation Act of 1966, as in effect on the date of
this Agreement and as modified or amended hereafter, or any successor or
substituted governmental authority at the time having jurisdiction over the
Mortgaged Property.
"Full Recourse Advance" shall mean that portion of the
Advances which is applied to acquire the AM Engine and the AL Spare Parts and
the AL APU pursuant to the Equipment Purchase Agreement.
"Full Recourse Guaranty" shall mean, with respect to a Full
Recourse Advance, the Guaranty and Subordination Agreement, in form and
substance satisfactory to Lender, dated as of the date of the Note evidencing
such Full Recourse Advance,
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<PAGE>
pursuant to which Guarantor guaranties Borrower's payment of all principal and
interest of such Full Recourse Advance.
"Guarantor" shall mean Willis Lease Finance Corporation, a
California corporation formerly known as Charles F. Willis Company.
"IAI" shall mean International Aircraft Investors, a
California corporation.
"ILFC" shall mean International Lease Finance Corporation, a
California corporation.
"ILFC Bridge Loan" shall mean that certain seller carryback
loan in the original principal amount of $8,742,376 made by ILFC to Borrower to
pay a portion of the purchase price payable by Borrower under the applicable
Purchase Agreement for (a) the AL APU, (b) the AL Engine, (c) the AL Spare
Parts, and (d) the AM Engine, which seller carryback loan (i) is made pursuant
to the terms and conditions of the ILFC Bridge Loan Documents and (ii) shall be
repaid from the AL Engine Advance, the AL Spare Parts Advance, and the AM Engine
Advance.
"ILFC Bridge Loan Documents" shall mean collectively, (i) the
Bridge Loan Agreement dated December 27, 1996 between Borrower and ILFC, and
(ii) the Promissory Note in the amount of $8,742,376 dated December 27, 1996
from Borrower in favor of ILFC, delivered by Borrower in accordance with the
terms and conditions of the Bridge Loan Agreement.
"ILFC Lease Payment Guaranty" shall mean that certain Side
Letter No. 1 to Equipment Purchase Agreement, dated December 27, 1996, between
ILFC and Borrower in form and substance acceptable to Lender pursuant to which,
among other things, ILFC guaranties (a) the payment of rent in the amount of
$57,500 per month until May 15, 2001 under the AL Engine Lease, notwithstanding
the lessee's exercise of an early termination right under such lease or the
expiration of such lease, and (b) the payment of rent in the amount of $35,788
per month until May 15, 2001 under the AL Spare Parts Lease, notwithstanding the
lessee's exercise of an early termination right under such lease or the
expiration of such lease.
"Interest Rate" shall mean, with respect to any Advance, a
fixed rate of interest equal to the sum of (a) four and eight one-hundredths
percentage points (4.08%) plus (b) either (i) the yield, published in The Wall
Street Journal two (2) days prior to the making of such Advance, of the United
States Treasury Notes maturing sixty months from the date of such publication or
(ii) in the event that no United States Treasury Notes mature sixty months from
the date of such publication, then the yield, published in The Wall Street
Journal two (2) days prior to the making of such Advance, of the sixty-month
United States Treasury Notes next maturing after the date which is sixty months
following the date
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<PAGE>
of such publication.
"KLM APU" shall mean that certain Garrett model GTCP 331-200ER
auxiliary power unit bearing manufacturer's serial number P2280 as further
described in the APU Purchase Agreement (referred to therein as the "APU").
"KLM APU Advance" shall mean the advance of funds to Borrower
by Lender in the aggregate amount of $425,000, the proceeds of which shall be
applied: (a) to pay to IAI the purchase price for the KLM APU under the APU
Purchase Agreement, (b) to refund to Borrower a portion of Borrower's cash
equity paid by Borrower in connection with Borrower's purchase of the AL,
Engine, the AL Spare Parts, the AL APU, and the AM Engine under the Equipment
Purchase Agreement, and (c) to pay Documented Closing Costs.
"KLM APU Note" shall mean the Promissory Note, dated the date
of the KLM APU Advance, in form and substance satisfactory to Lender and in
substantively the form attached hereto as Exhibit C, in the original principal
amount of $425,000.
"KLM APU Lease" shall mean, collectively, (a) that certain
Spare APU Lease Agreement dated as of July 24, 1994 between Koninklyke
Luchtvaart Maatschappy N.V. (KLM Royal Dutch Airlines), a Dutch corporation, as
lessee, and ILFC, as lessor, with respect to the lease of the KLM APU, (b) that
certain Assignment and Assumption of Lease dated as of January 26, 1996 between
ILFC and IAI, pursuant to which ILFC assigned to IAI and IAI assumed, all of the
right, title and obligations of ILFC under such Spare APU Lease Agreement, and
(c) the APU Purchase Agreement pursuant to which (i) IAI sells to Borrower the
KLM APU, and (ii) IAI assigns to Borrower and Borrower assumes, all of the
right, title and obligations of IAI under such Spare APU Lease Agreement.
"Lease" shall mean generally any one of the following: (a) AL
Engine Lease, (b) AL Spare Parts Lease, (c) AM Engine Lease, and (d) KLM APU
Lease.
"Lease Assignment" shall mean a Collateral Assignment of
Lease, in form and substance satisfactory to Lender, dated the date of an
Advance, between Borrower, as assignor, and Lender, as assignee, and
acknowledged by the lessee under the Lease referred to therein, pursuant to
which Borrower assigns to Lender all of Borrower's right, title and interest in
such Lease, as security for all of the Obligations.
"Lease Default" shall mean the occurrence of (a) an "Event of
Default" under, and as such term is defined in, any of the Leases, or (b) any
event (including the giving of any notice or the lapse of any time, as
applicable) which would permit the Borrower or any of the lessees under any of
the Leases to terminate such Lease or exercise any other remedy for breach of
the terms of such Lease.
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"Lease Default Period" shall have the meaning ascribed to such
term in Section 10.2 hereof.
"Lien" shall mean any mortgage, pledge, lien, charge,
encumbrance, option, security interest or lease (including any conditional sale
agreement, equipment trust agreement, or other title retention agreement) or
right or claim of any person, whether voluntary or involuntary in nature.
"Loan" shall mean all principal, interest and other amounts
outstanding from time to time and due Lender pursuant to this Agreement, the
Notes and the other Loan Documents.
"Loan Documents" shall mean, collectively, this Agreement, the
Notes, the Security Agreements, any Deficiency Guaranty, the Full Recourse
Guaranty, the Pledge Agreement, the Lease Assignments, and all other documents
executed in connection with any of the foregoing agreements or contemplated
thereby or the transactions related thereto.
"Maturity Date" shall mean, for each Note, the fifth
anniversary of the Closing Date.
"Mortgaged Property" shall mean, collectively, the "Mortgaged
Property" under, and as defined in, each of the Security Agreements.
"Notes" shall mean, collectively, the AL Engine Note, the AL
Spare Parts Note, the AM Engine Note, and the KLM APU Note.
"Obligations" shall have the meaning ascribed to such term in
Section 4.1 hereof.
"Permitted Liens" shall mean: (a) Liens for Taxes either not
yet due or being contested in good faith by appropriate proceedings (so long as
adequate reserves are maintained with respect to such Liens from and after the
date the Taxes, as to which such Liens relate, became due and so long as none of
the Collateral is in material danger of being lost, sold, confiscated, forfeited
or seized as a result of such Lien); (b) materialmen's, mechanics', workmen's,
repairmen's, employees' or other like Liens arising in the ordinary course of
business of Borrower and not delinquent for more than sixty (60) days or being
contested in good faith (so long as adequate reserves are maintained with
respect to such Liens from and after the date the claim, as to which such Liens
relate, became due and so long as none of the Collateral is in material danger
of being lost, sold, confiscated, forfeited or seized as a result of such Lien);
(c) Liens arising out of any judgment or award unless the judgment secured shall
not, within thirty (30) days of the entry thereof, have been discharged or
vacated or execution thereof stayed pending appeal or bonded in a manner
satisfactory to Lender; (d) the Lien of the Security Agreements and of each
other Loan Document granting a Lien in favor of Lender as security for the
payment and performance
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of the Obligations; (e) with respect to particular Equipment, the rights of any
lessee under a Lease, with respect to such Equipment, (f) with respect to
particular Equipment, Liens permitted under a Lease with respect to such
Equipment, (g) the subordinated lien of ILFC with respect to the indebtedness
evidenced by the Subordinated Note, and (h) Liens which constitute "Permitted
Liens" (as defined in the Existing Loan Agreement).
"Pledge Agreement" shall mean the Existing Pledge Agreement,
as amended by the Affirmation and Amendment of Pledge Agreement, pursuant to
which Guarantor pledges to Lender all of the issued and outstanding capital
stock of Borrower as security for the payment and performance by Borrower of the
Obligations.
"Purchase Agreements" shall mean, collectively, (a) the
Equipment Purchase Agreement, and (b) the APU Purchase Agreement.
"Replacement Lease" shall have the meaning ascribed to such
term in Section 10.2 hereof.
"Retention Account" shall mean an interest bearing deposit
account in the name of Lender, in which the proceeds of all maintenance
reserves, security deposits and similar amounts which are payable pursuant to
the terms of any Lease are paid directly to Lender, retained and disbursed, in
accordance with Section 4.2 hereof.
"Security Agreement" shall mean a First Priority Chattel
Mortgage and Security Agreement between Borrower and Lender, dated as of the
date of an Advance, as from time to time amended and supplemented, with respect
to the Equipment which is acquired by Borrower with the proceeds of such
Advance.
"Subordinated Note" shall mean the promissory note in the
original principal amount of $1,830,538, issued by Borrower to ILFC on the
Closing Date in payment of the outstanding balance of the "Purchase Price" as
defined in the Purchase Agreements.
"Suspended Principal Payments" shall have the meaning ascribed
to such term in Section 10.2 hereof.
"Taxes" shall have the meaning ascribed to such term in
Section 11.3.
1.2 Terms Defined in Security Agreements. Capitalized terms used herein
which are defined in the Security Agreements, unless otherwise defined herein,
shall have the respective meanings ascribed to them in the Security Agreements.
1.3 Satisfaction or Acceptability to Lender. As used in this Agreement,
the terms "satisfactory to Lender" or "acceptable to Lender" or which refer to
the satisfaction
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of Lender or the acceptance by Lender shall refer to the matters which are
satisfactory to Lender, or acceptable to Lender, or as to which Lender
determines it is satisfied or which Lender finds acceptable, in each case in the
sole and absolute discretion of Lender.
2. ADVANCES.
2.1 Advances. (a) Subject in each case to the terms and conditions of
this Agreement, Lender hereby agrees with Borrower that on the Closing Date,
provided that there does not then exist any Default or Event of Default, Lender
shall make Advances for the benefit of Borrower in order to permit Borrower to
acquire the Eligible Equipment. In no event shall the aggregate amount of all
Advances made to Borrower by Lender at any time outstanding hereunder exceed
eleven million ten thousand eight hundred seventy-five Dollars ($11,010,875).
The Loan contemplated hereby is a non-revolving, closed-end loan, and amounts
repaid hereunder shall not be available for re-advance to Borrower. Lender shall
have no obligation to make more than four (4) Advances hereunder.
(b) Each Advance hereunder shall be in an amount not to exceed the
lesser of (a) eighty-four percent (84%) of the cost of the Eligible Equipment
acquired with such Advance, as set forth in the Purchase Agreement for such
Eligible Equipment, or (b) eighty-four percent (84%) of the fair market value of
the Eligible Equipment acquired with such Advance, as such fair market value is
determined in the appraisal provided to Lender prior to the making of such
Advance pursuant to Section 5.1.
(c) The proceeds of each Advance shall be applied as follows:
(i) subject to the limitations set forth in Section
2.1(a) 2.1(b) and 2.1(d) hereof, the AL Engine Advance shall
be applied to (A) repayment of principal and interest of the
ILFC Bridge Loan and payment of Documented Closing Costs (in
the aggregate amount of approximately $4,251,990) and (B) to
refund to Borrower approximately $848,010 of Borrower's cash
equity paid by Borrower in connection with Borrower's purchase
of the AL Engine under the Equipment Purchase Agreement;
(ii) subject to the limitations set forth in Section
2.1(a) 2.1(b) and 2.1(d) hereof, the AL Spare Parts Advance
shall be applied to (A) repayment of principal and interest of
the ILFC Bridge Loan and Documented Closing Costs (in the
aggregate amount of approximately $1,950,365) and (B) to
refund to Borrower approximately $387,135 of Borrower's cash
equity paid by Borrower in connection with Borrower's purchase
of the AL Spare Parts and the AL APU under the Equipment
Purchase Agreement;
(iii) subject to the limitations set forth in Section
2.1(a) 2.1(b) and
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2.1(d) hereof, the AM Engine Advance shall be applied to (A)
repayment of principal and interest of the ILFC Bridge Loan
and Documented Closing Costs (in the aggregate amount of
approximately $2,590,021) and (B) to refund to Borrower
approximately $558,354 of Borrower's cash equity paid by
Borrower in connection with Borrower's purchase of the AM
Engine under the Equipment Purchase Agreement; and
(iv) subject to the limitations set forth in Section
2.1(a) 2.1(b) and 2.1(d) hereof, the KLM APU Advance shall be
applied to (A) payment of $375,000 to IAI, representing
payment of the purchase price for the KLM APU pursuant to the
APU Purchase Agreement, and (B) payment of $50,000 to refund
to Borrower a portion of its cash equity paid by Borrower in
connection with Borrower's purchase of the AL Engine, the AL
APU, the AL Spare Parts, and the AM Engine and Documented
Closing Costs.
(d) In no event shall the Advances include amounts paid to Borrower in
respect of Documented Closing Costs in excess of $218,000.
2.2 Obligation to Advance Not Absoulte. The obligation of Lender to
make the Advances to Borrower under this Agreement shall be expressly subject to
the terms of this Agreement in general and in particular to the fulfillment by
Borrower of all of the conditions set forth in Section 5 hereof (except to the
extent that such fulfillment is waived by Lender) not later than at the time or
times therein specified. Lender shall have no obligation in respect of the
Advances or the Loan except as expressly set forth in this Agreement.
2.3 Final Advance Date; Advance Simultaneous. Notwithstanding anything
to the contrary set forth herein, Lender shall have no obligation to make any
Advance to Borrower under this Agreement from and after February 14, 1997.
Unless otherwise agreed by Lender, all of the Advances shall be made on the same
date.
2.4 Each Advance Evidenced by Note. Each Advance shall be evidenced by
a Note, in the original principal amount of such Advance, and dated as of the
date of such Advance. Each Note shall (a) provide for Basic Interest at the
Interest Rate, as determined in accordance with the definition of Interest Rate
set forth above, (b) provide for monthly payments of accrued Basic Interest, in
arrears, on each rent payment date under the Lease for the Equipment with
respect to which such Advance is made, (c) provide for monthly payments of
principal, over a term of sixty months, on each rent payment date under the
Lease for the Equipment with respect to which such Advance is made, equal to the
greater of (i) the amount of such rental payment, or (ii) an amount sufficient
to amortize at least thirty-eight percent (38%) of the principal of such Note,
(d) provide that all principal of such Note, and all accrued and unpaid interest
thereunder, shall be due and payable on the sixty-month anniversary of the
Advance evidenced by such Note, (e) provide that the
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maturity thereof may be accelerated upon, among other things, the occurrence of
an Event of Default hereunder, and (f) in all other respects, be in form and
substance satisfactory to Lender and in substantially the form attached hereto
as Exhibit C.
3. LOAN; NOTICE OF PROPOSED ADVANCE; FAILURE TO ADVANCE.
3.1 Form of Advances. The Advances shall be made available to Borrower
in Dollars via wire transfer, subject to the terms of this Agreement.
3.2 Notice of Proposed Advances. Unless otherwise agreed by Borrower
and Lender, Borrower shall deliver a notice to Lender at least three (3)
Business Days prior to the date of a proposed Advance, specifying the date of
such proposed Advance. Such notice may not be rescinded by Borrower once
received by Lender. Such notice shall:
(a) be in writing and be signed on behalf of Borrower;
(b) be effective on receipt by Lender; and
(c) specify (i) the Eligible Equipment to be acquired with the
proceeds of such Advance (ii) the amount, if any, included in such
Advance in respect of Documented Closing Costs, together with the
aggregate amount included in prior Advances in respect of Documented
Closing Costs, and (iii) the account or accounts to which the proceeds
of the proposed Advance are to be made available (subject always to
Lender's agreement and the provisions hereof).
Notwithstanding anything to the contrary set forth herein, Borrower shall not
provide any notice to Lender under this Section unless each condition precedent
to the Advance sought by the notice so provided to Lender has been fulfilled or
waived, or will be fulfilled or waived by the date of the proposed Advance, as
set forth in such notice.
3.3 Failure to Advance; Indemnity. In the event that Borrower shall
have sent a notice specified in Section 3.2 and the Advances are not made on the
date specified in such notice for any reason other than the willful misconduct
or negligence of Lender, Borrower shall and hereby does indemnify Lender for,
and hold Lender harmless from and against, any and all interest expense incurred
by Lender in connection with funds borrowed by Lender to fund the Advances or
any portion thereof in reliance upon Borrower's notice to Lender pursuant to
Section 3.2.
4. DESCRIPTION OF SECURITY.
4.1 Description of Collateral. (a) As collateral security for (i) the
prompt and complete payment and performance of Borrower's obligations hereunder
and under the
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Notes and other Loan Documents, (ii) the prompt and complete payment and
performance of the "Obligations" (as such term is used in the Existing Loan
Agreement), and (iii) the payment of any sum advanced or subsequently advanced
or obligation incurred pursuant to any provision of the Loan Documents or the
Existing Loan Documents (the obligations referred to in clauses (i) through
(iii) of this sentence are herein collectively referred to as the
"Obligations"), Borrower shall grant to Lender a first priority perfected Lien
upon and security interest in all right, title and interest of Borrower in all
of the following items and types of property, whether now owned or hereafter
acquired by Borrower, and wheresoever located (collectively, the "Collateral"):
(1) the Mortgaged Property, including, without limitation, all Equipment
referred to in each of the Security Agreements; (2) each of the Purchase
Agreements; (3) each of the Leases, including, without limitation, all rights to
payment thereunder (other than "Excluded Amounts" as such term is defined in the
Security Agreement executed and delivered by Borrower with respect to the
Equipment referred to in such Lease); (4) the Retention Account; and (5) all
proceeds and products thereof.
(b) Until all of the Obligations have been fully paid and
discharged, Lender shall retain a continuous first priority Lien and security
interest in all of the Collateral.
(c) In addition to the Collateral, the (i) Guaranty shall
secure the payment and performance of certain of the Obligations, in accordance
with the terms, and subject to the conditions and limitations, thereof and (ii)
the Pledge Agreement, and all of the "Pledged Collateral" (as defined in the
Pledge Agreement), shall secure the payment and performance of the Obligations,
subject to the conditions and limitations thereof.
(d) Nothing herein, or in any of the other Loan Documents,
shall be deemed to provide that the Collateral shall secure any obligation of
Borrower to Lender other than the Obligations, it being expressly understood and
agreed, without limiting the generality of the foregoing, that nothing set forth
in this Agreement or the other Loan Documents shall cause the Collateral to
secure any of the "Obligations" as such term is defined in the Existing Loan
Agreement.
4.2 Retention Account. (a) On the Closing Date, Lender shall open an
interest bearing deposit account in the name of Lender, at a bank or other
financial institution selected by Lender, in which the proceeds of all
maintenance reserves, security deposits (in the amount of not less than
$289,000) and similar amounts which are payable to Borrower pursuant to the
terms of any Lease shall be transferred by either ILFC, to the extent ILFC is
holding the same, or the lessee under such Lease, and in which such amounts
shall be retained and disbursed in accordance with the terms of this Agreement
and such Lease. Lender agrees that no funds other than such maintenance reserves
and deposits and similar amounts, and accrued interest thereon, shall be
deposited or held in the Retention Account. Subject to Lender's right to apply
all amounts on deposit in the Retention Account to
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payment of the Obligations pursuant to Section 4.2(b), all interest earned on
amounts on deposit in the Retention Account shall be for the account of
Borrower; provided, however, that such interest shall be disbursed to Borrower
no more frequently than quarterly and provided, further, that no disbursement of
interest from the Retention Account shall be made following the occurrence of an
Event of Default except pursuant to Section 4.2(b).
(b) In the event that, prior to disbursement by Lender of amounts on
deposit in the Retention Account, there shall occur an Event of Default, then,
subject to any contrary provision of any applicable Lease, Lender may, in its
discretion, without notice to Borrower, at any time and from time to time
thereafter, apply all or any part of the amounts on deposit in the Retention
Account (including all accrued interest then held in the Retention Account), to
payment of the Obligations then outstanding, whether or not such Obligations are
at the time due. Such application shall be in addition to, and not in lieu of,
any other rights and remedies available to Lender under this Agreement, the
other Loan Documents, and applicable law.
(c) Lender shall have no obligation to disburse any principal amount
(representing maintenance reserves, security deposits or similar amounts under a
Lease) from the Retention Account (except in accordance with Section 4.2(b))
unless and until Lender has received evidence satisfactory to Lender that such
disbursement is required in accordance with the terms of the applicable Lease,
together with copies of all documentation required under the terms of such Lease
in order for such amount to be disbursed in accordance with the terms of such
Lease.
5. CONDITIONS PRECEDENT.
5.1 Conditions Precedent to Advances. Lender's obligation to make any
Advance hereunder is conditional upon the satisfaction of each of the conditions
set forth on Exhibit D hereto, all of which shall take place, occur or be
delivered to Lender, as applicable, not later than the date such Advance is
made.
5.2 Waiver of Conditions Precedent. In the event that Lender, in its
sole and absolute discretion, waives satisfaction of any condition set forth in
Exhibit D, such waiver shall constitute a waiver only as to the time for
satisfaction of such condition, and Borrower shall be obligated to comply with
such condition as soon as practicable after the Advance as to which such
condition related, and in any case within thirty (30) days after the date of
such Advance.
6. BASIC INTEREST.
Basic Interest hereunder shall: (a) accrue from the date of each
Advance, on the principal amount of the Note evidencing such Advance, as such
principal amount is from time to time outstanding, at a fixed per annum rate
equal to the Interest Rate which is
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determined with respect to such Advance in accordance with the definition of the
term "Interest Rate" set forth above; and (b) be calculated on the basis of a
year of 360 days for the actual days elapsed.
7. REPAYMENT.
7.1 Repayment. In addition to any other sums which may become payable
hereunder or under any other Loan Document, Borrower shall repay the principal
of each Advance in the amounts, and on the dates, set forth in the Note which
evidences such Advance.
7.2 Application of Payments. The amount of all payments in respect of
any Note shall first be applied to the prepayment fee payable pursuant to
Section 8.4, if any, and any other amount (other than (i) principal and (ii)
Basic Interest at the Interest Rate or the Default Rate, as applicable which is
applicable to such Note) which is payable by Borrower to Lender pursuant to this
Agreement, next to payment of accrued Basic Interest on the Loan, at the
Interest Rate or the Default Rate, as applicable, which is applicable to such
Note, and next to principal of the Loan. All prepayments of principal of any
Note shall be applied in inverse order of the scheduled maturity of such
principal.
8. MANDATORY PREPAYMENTS.
8.1 Upon Event of Default. Immediately upon (a) the occurrence of an
Event of Default under Sections 13(f) or 13(g) hereof, or (b) Lender's
declaration that the Loan is due and payable in full pursuant to Section 13, in
the case of any Event of Default other than under Sections 13(f) or 13(g)
hereof, the Loan and all accrued but unpaid interest on the Loan and any and all
other fees and sums which may be or become payable hereunder and under the Note,
the Security Agreements, and any other Loan Document shall become immediately
due and payable. Payments on the Loan pursuant to this Section shall be subject
to the prepayment premium described in Section 8.4 below.
8.2 Insurance Proceeds; Other Amounts in Respect of Casualty. In the
event that any proceeds of insurance, with respect to any portion of the
Mortgaged Property, are payable to Lender pursuant to any Security Agreement or
in the event that Borrower is obligated to pay any amount to Lender pursuant to
the Security Agreement, upon the occurrence of an Event of Loss or other loss of
or damage or casualty to any portion of the Mortgaged Property, Borrower shall
pay such proceeds of insurance or other amount in accordance with the
requirements of the applicable Security Agreements. Payments on the Loan
pursuant to this Section shall not be subject to the prepayment premium
described in Section 8.4 below.
8.3 Upon Sale of Equipment or Refinanicng. Except to the extent
expressly provided in any Note, in the event that any Equipment is sold,
transferred or otherwise
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disposed of by Borrower or the Note associated with such Equipment is repaid in
full with the proceeds of borrowed money which has been borrowed by Borrower for
the purpose of repaying such Note, and which borrowed money is secured by a Lien
on such Equipment, then simultaneously with the consummation of such sale,
transfer or other disposition or refinancing, Borrower shall make a prepayment
of principal of the Note associated with such Equipment, in an amount equal to
the outstanding principal amount of the Note as of the date of such sale,
transfer or other disposition, together with all accrued and unpaid Basic
Interest, all Additional Interest payable by Borrower as a result of such sale,
and the prepayment fee referred to in Section 8.4 in respect of such prepayment.
Upon payment to Lender of such amounts, provided that there does not then exist
an Event of Default, Lender shall release its Lien on such Equipment. Payments
on a Note pursuant to this Section shall be subject to the prepayment premium
described in Section 8.4.
8.4 Prepayment Premium. Any prepayment of a Note, which prepayment is
effected with proceeds of a sale, transfer or other disposition of the Equipment
associated with such Note or refinancing thereof, shall be made together with:
(a) accrued and unpaid Basic Interest on such Note through the
date of such prepayment;
(b) except to the extent expressly provided in any Note, a
prepayment fee equal to (i) four percent (4.0%) of the principal
balance of the Note so prepaid, if such prepayment occurs on or before
the first anniversary of the date of the Advance evidenced by such
Note; (ii) three percent (3.0%) of the principal balance of the Note so
prepaid, if such prepayment occurs after the first anniversary of the
date of the Advance evidenced by such Note, but on or before the second
anniversary of the date of such Advance; (iii) two percent (2.0%) of
the principal balance of the Note so prepaid, if such prepayment occurs
after the second anniversary of the date of the Advance evidenced by
such Note, but on or before the third anniversary of the date of such
Advance; and (iv) one percent (1.0%) of the principal balance of the
Note so prepaid, if such prepayment occurs after the third anniversary
of the date of the Advance evidenced by such Note, but on or before the
fourth anniversary of the date of such Advance;
(c) all other sums then due and owing under the Note so
prepaid; and
(d) to the extent that Borrower requests that any Equipment be
released from the lien of a Security Agreement in connection with such
prepayment of a Note, in addition to the prepayment fee required under
Section 8.4(b) above, Borrower shall pay such sums as are required, if
any, such that the loan to value ratios set forth on Exhibit E attached
hereto are maintained in the aggregate notwithstanding the release of
such Equipment from the lien of the Security Agreement.
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8.5 Other Prepayments Prohibited. The Notes shall not be prepayable in
whole or in part except (a) upon the occurrence of an Event of Default, in
accordance with Section 8.1 above, (b) from the proceeds of insurance insuring
the Mortgaged Property, in accordance with Section 8.2 above and (c) upon the
sale or other disposition of the respective Equipment associated with such Note,
or a refinancing of such Note, in each case in accordance with Section 8.3
above.
8.6 Replacement Lessee. Subject to Lender's prior written consent,
Borrower may lease the Equipment pursuant to a replacement lease following the
expiration or earlier termination of a Lease with respect to such Equipment. Any
such replacement lease shall conform to the criteria for a Replacement Lease set
forth in Section 10.2(b)(1) hereof.
9. REPRESENTATIONS AND WARRANTIES.
9.1 Representations and Warranties of Borrower. Borrower hereby
represents and warrants to Lender that, as of the date hereof:
(a) Borrower is duly formed, validly existing and in good standing as a
California corporation, qualified to do business in all jurisdictions in which
the nature of its business or its properties requires it to be qualified,
maintains its principal place of business and chief executive office in
Sausalito, California, and has full power to carry on its business as it is now
being conducted and to enter into, legally bind itself by, and perform its
obligations under this Agreement and all of the other Loan Documents to which it
is a party, and Borrower has complied with all material statutory and other
requirements relative to the business carried on by it;
(b) All consents, resolutions and authorizations necessary or advisable
in order for Borrower to enter into this Agreement and all of the other Loan
Documents to which it is a party and to borrow and repay the Loan in accordance
with the terms and conditions hereof have been obtained, no further consents or
authorizations are necessary for the service and repayment of the Loan pursuant
to the provisions hereof and of the Note and for the performance by Borrower of
all of its obligations pursuant to the provisions of all of the Loan Documents
to which it is a party;
(c) This Agreement and the other Loan Documents (i) constitute valid
and binding obligations of the respective parties thereto (other than Lender, as
to which Borrower makes no representation or warranty), enforceable in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency or other laws affecting creditors' rights in
general, and (ii) are in full force and effect;
(d) The execution and delivery of, and the performance of the
provisions of, this Agreement and the Loan Documents, and of the transactions
contemplated thereby and
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hereby, do not, to the best of Borrower's knowledge, contravene in any material
respect any applicable law, regulation, decree, order, permit or contractual or
other restriction now existing and binding on Borrower or on any of the
properties of Borrower (including any of the Mortgaged Property), and the
performance of the provisions of this Agreement and the Loan Documents all as in
effect on the Closing Date, and of the transactions contemplated thereby and
hereby will not, to the best of Borrower's knowledge, contravene in any material
respect any applicable law, regulation, decree, order or permit currently in
effect or contractual or other restriction now existing and binding on Borrower
or on any of the properties of Borrower (including any of the Mortgaged
Property);
(e) There are no outstanding judgments against Borrower and, to the
knowledge of Borrower, no action, claim, suit or proceeding is pending or
threatened (including, but not limited to, tax liens or tax actions) against or
affecting Borrower or any of the property of Borrower before any court, board of
arbitration or administrative agency which would likely result in any material
adverse change in the business or condition (financial or otherwise) of
Borrower;
(f) Borrower is not in default under any agreement to which it is a
party or by which it may be bound, nor in default of any kind in respect of any
financial commitment or obligation (including obligations under guarantees)
which could have a material adverse effect on the ability of Borrower to perform
its obligations under this Agreement or any other Loan Document, nor upon due
inquiry is Borrower aware of a fact which by giving of notice or by lapse of
time or otherwise might constitute such default by Borrower;
(g) To the best of Borrower's knowledge, none of this Agreement, any
other Loan Document, any other document executed in connection with the
foregoing documents or contemplated thereby nor any filing required or permitted
hereunder or thereunder is subject to any registration tax, any stamp duty or
similar tax and to the extent the same is due then the same shall be paid by
Borrower when due;
(h) No security agreement, financing statement, equivalent security or
lien instrument or continuation statement or other Lien, whether voluntary or
involuntary, covering all or any part of the Collateral is on file or of record
with any governmental agency or bureau or any political subdivision thereof or
is otherwise in effect with respect to any of the Collateral, except such as may
have been filed in connection with the Lien of Lender arising pursuant to the
Security Agreements and such as may be satisfied, discharged and removed of
record in connection with the funding of the Advances;
(i) Borrower has furnished Lender with unaudited financial statements
of Guarantor as of September 30, 1996;
(j) No written information given by Borrower in relation to this
Agreement or any other Loan Document contains any misstatement of fact or omits
to state a fact which
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would be adverse to the interest of Lender or which would be necessary to make
any statement or representation or warranty contained herein or therein not
misleading;
(k) There has occurred no event which, with the giving of notice or
lapse of time or both, would constitute an Event of Default or Default hereunder
or under any of the Loan Documents;
(l) Borrower maintains its principal place of business and chief
executive office, and the place where Borrower maintains records relating to the
Collateral, at the address set out in Section 15 hereof;
(m) Borrower does not do business under any assumed or trade name;
(n) On the Closing Date and until the Loan is paid in full, Borrower
will have good and marketable title to, and will be the sole legal owner of, all
property in which Borrower has granted, or purported to have granted, to Lender
a security interest pursuant to the Security Agreements, free and clear of all
liens, pledges, options, mortgages, claims, charges, encumbrances, security
interests and use restrictions which materially and adversely affect the value
and utility of the Collateral, except for Permitted Liens;
(o) Borrower's United States taxpayer identification number is
correctly set forth beneath Borrower's signature below;
(p) The capital stock of Borrower consists of common stock of which 500
shares have been issued and are presently outstanding, all of which are held of
record by Guarantor; and
(q) Borrower owns no asset or property other than the Collateral
purported to be owned by Borrower, owes no debt other than the Obligations and
the indebtedness of Borrower under the Purchase Agreements in effect on the
Closing Date with ILFC, in a maximum principal amount of $1,830,538, and
conducts no business other than the ownership of the Collateral and matters
incidental thereto.
10. UNDERTAKINGS.
10.1 Undertakings of Borrower.
Borrower hereby undertakes, during the period commencing with the
Closing Date and ending with the date on which the Loan is paid in full, as
follows:
(a) To cause to be furnished to Lender sufficient copies of the annual
report or annual financial statements, as the case may be, of Guarantor,
prepared in accordance with generally accepted accounting principles
consistently applied and audited by recognized,
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independent certified public accountants reasonably satisfactory to Lender,
together with comparable figures from the previous fiscal year of Guarantor, in
comparative form, as soon as practicable, and in any event within 120 days after
the end of the fiscal year of Guarantor, as well as quarterly unaudited
financial statements, certified by the Chief Financial Officer of Guarantor,
within 45 days following the close of each of the fiscal quarters of Guarantor,
together with comparable figures from the corresponding period of the preceding
fiscal year of Guarantor, in comparative form, and such further information as
Lender reasonably deems necessary to assess the financial position from time to
time of Guarantor;
(b) To furnish Lender with proof satisfactory to Lender that all
insurance required under the Security Agreements is in full force and effect at
each renewal (but no less frequently than once a year) of any such contract or
policy of insurance or upon Lender's request;
(c) To at all times preserve and keep in full force and effect its
corporate existence, its rights and franchises material to its it performance
under this Agreement and the other Loan Documents;
(d) To at all times be in good standing as a California corporation and
qualified to do business in all jurisdictions where the nature of its business
or properties requires it to be so qualified;
(e) Not to merge with or into or consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to any entity, except to the extent expressly
permitted by the terms of this Agreement or the other Loan Documents;
(f) To cause to be furnished to Lender within forty-five (45) days of
the last day of each calendar quarter, and at any other time upon Lender's
request to Borrower therefor, a statement, prepared and certified by the Chief
Financial Officer of Guarantor, stating that, as of the date thereof (i) no
condition or event which constitutes an Event of Default or Default has occurred
and is continuing or if an Event of Default or Default has occurred and is
continuing or exists, specifying in detail the nature and period of existence
thereof and any action taken or contemplated to be taken with respect thereto,
and stating that the signer has personally reviewed this Agreement and that such
certificate is based on an examination sufficient to assure that such
certificate is accurate and (ii) that Borrower continues to function as a
limited purpose corporation in accordance with the limitations set forth in
Section 10.1(p) hereof;
(g) To cause to be furnished to Lender within forty-five (45) days of
the last day of each calendar quarter, and at any other time upon Lender's
request to Borrower therefor,
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a statement, prepared and certified by the Chief Financial Officer of Borrower,
stating that, as of the date thereof (i) no condition or event which constitutes
an Event of Default or Default has occurred and is continuing or if an Event of
Default or Default has occurred and is continuing or exists, specifying in
detail the nature and period of existence thereof and any action taken or
contemplated to be taken with respect thereto, and stating that the signer has
personally reviewed this Agreement and that such certificate is based on an
examination sufficient to assure that such certificate is accurate and (ii) that
Borrower continues to function as a limited purpose corporation in accordance
with the limitations set forth in Section 10.1(p) hereof;
(h) To inform Lender no later than thirty (30) days before Borrower
changes its principal place of business or chief executive office or promptly
upon its knowledge of the occurrence of any Event of Default, and to use its
best efforts to inform Lender, promptly upon Borrower's obtaining actual
knowledge thereof, of any event which, in its reasonable opinion, might
materially adversely affect its ability fully to perform its obligations under
this Agreement or any other Loan Document to which it is a party;
(i) To provide Lender with the following information regarding each of
the Engines and Borrower, as applicable: (i) within thirty (30) days following
the last day of each fiscal quarter of Borrower, and (ii) at any time and from
time to time after the occurrence of an Event of Default:
(i) a listing of the current location of the Engine, including
information identifying the aircraft on which such Equipment is
installed, if installed, and such other information as is reasonably
requested by Lender regarding the location of such Engine;
(ii) the total number of hours and cycles with respect to each
of the Engines;
(iii) the number of engine cycles remaining with respect to
each Engine prior to the next scheduled removal for maintenance of such
Engine from the aircraft on which such Engine is installed, if any;
(iv) whether (A) the FAA, any other agency or authority with
jurisdiction over Borrower, any of the Engines or any lessee of any of
the Engines, has during the fiscal quarter then ended conducted any
inspection of any facility or records of Borrower or taken any action
with respect to any facility or procedure of Borrower, and, if so, the
nature and results and resolution of such inspection or action
(including, without limitation, any fines and settlements in connection
therewith), or (B) to the knowledge of Borrower, the FAA, any other
agency or authority with jurisdiction over Borrower, any of the Engines
or any lessee of any of the Engines, has during the fiscal quarter then
ended conducted any inspection of any facility or records of any lessee
under any Lease of any Engine, or taken any action with
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respect to any facility or procedure of any such lessee, and, if so,
the nature and results and resolution of such inspection or action
(including, without limitation, any fines and settlements in connection
therewith).
(j) To provide Lender once each calendar year, and at any time and from
time to time after the occurrence of an Event of Default, the results of a
representative sampling audit of the AL Spare Parts and to correct any
deviations to Lender's satisfaction, within 60 days of the completion of such
audit, between the results of any such sampling audit and the AL Spare Parts
pledged to Lender on the Closing Date;
(k) Not to (i) grant or permit to remain outstanding with respect to
any of the Collateral any Lien other than Permitted Liens, nor to (i) incur any
indebtedness other than (x) such sums as may be permitted under the Existing
Loan Agreement, (y) the Loan, and (z) trade indebtedness (including professional
fees) incurred in the ordinary course of business of Borrower;
(l) Not to enter into any lease or sublease arrangement, contract for
hire or other agreement providing for the operation of the Equipment by another
(other than the Lease with respect to such Equipment which is in effect on the
date the Advance is made with which Borrower has acquired such Equipment), or
terminate or acquiesce in the termination of any Lease, without the prior
written consent of Lender if Borrower's consent is required for any such action
under such Lease;
(m) Not to pay any dividend, or make any distribution of property or
assets to Guarantor, except that Borrower may distribute to Guarantor the
aggregate amount of Lease Payment Remainders as such term is defined in the
Existing Loan Agreement, and as such payment is contemplated by, and in
accordance with the terms and provisions of, the Existing Loan Agreement,
subject, however, to Lender's right after the occurrence of an Event of Default
to cause the full amount of each monthly rent payments under each Lease (as
defined in the Existing Loan Agreement) to be paid directly to Lender;
(n) Not to issue any capital stock of Borrower to any Person;
(o) To promptly provide Lender with a written summary of any inspection
of any Collateral which is conducted by Borrower;
(p) Not to conduct any business other than the ownership of the
Equipment and ownership of the Engines (as such term is defined in the Existing
Loan Agreement), the entry into Leases with respect thereto, the solicitation of
purchasers and lessees of such Equipment, the payment and performance of the
Obligations, and such matters as may be incident thereto;
(q) Not to agree to, or acquiesce in, any actual or purported amendment
of the
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Subordinated Note;
(r) To maintain the loan to value ratios set forth on Exhibit E, both
in the aggregate, with respect to the value of all Equipment in relation to the
outstanding Loan balance, which value shall be determined by mutually acceptable
third-party appraisers, and with respect to the value of a specific piece of
Equipment and the outstanding balance of the Advance applied by Borrower to
acquire such Equipment, notwithstanding an event of loss, sale, or release of
such Equipment; and
(s) To maintain on deposit with Lender adequate security deposits under
the Leases to pay at least three (3) months of interest expense on the then
outstanding balance of the Loan.
10.2 Undertaking of Borrower with Respect to Lease Defaults. (a) Upon
the occurrence of a Lease Default under any Lease, a period (the "Lease Default
Period") shall commence, which shall continue until the earlier of:
(i) the date on which a "Replacement Lease" (as hereinafter
defined) becomes a portion of the Collateral hereunder; or
(ii) the date which is six (6) months (or such later period as
is applicable upon application of the provisions set forth in Section
10.2(d) (i) below) following the date on which the Lease Default Period
commenced.
(b) As used herein, the term "Replacement Lease" shall mean a lease
which conforms to the following criteria:
(1) such lease is effective with respect to that portion of
the Eligible Equipment which was subject to the Lease as to which such
Lease Default has occurred;
(A) Such lease shall be with a lessee which is
satisfactory to Lender in its sole discretion;
(B) Such lease shall contain insurance provisions
which are satisfactory to Lender in its sole discretion;
(C) Such lease shall provide for monthly rental
payments in advance of not less than the monthly rental
payments which were payable under the Lease as to which such
Lease Default has occurred;
(D) Such lease shall contain such other commercial
conditions (including, without limitation, payment of
maintenance reserves, restrictions
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on operation outside the United States of America, requirement
that the aircraft to which such Eligible Equipment is attached
be registered in the United States of America or another
jurisdiction, maintenance requirement, delivery condition and
return condition) as are reasonably satisfactory to Lender; or
(2) such lease is effective with respect to replacement
Eligible Equipment which is reasonably satisfactory to Lender, and such
lease conforms to the criteria set forth in Section 10.2(b)(1) above.
Any such Replacement Lease shall constitute a Lease for purposes hereof upon
Lender's determination that such lease constitutes a Replacement Lease.
(c) During any Lease Default Period, principal payments under the Note
associated with the Eligible Equipment which is associated with the Lease as to
which such Lease Default has occurred shall be suspended ("Suspended Principal
Payments"); provided, that the amount of such Suspended Principal Payments shall
be payable as follows:
(i) if as of the end of the Lease Default Period, a
Replacement Lease is in effect with respect to the affected Eligible
Equipment, the amount of such Suspended Principal Payments shall be
capitalized by adding such amount to the outstanding principal balance
of such Note (Borrower hereby agreeing to execute an amended and
restated version of such Note to the extent Lender determines necessary
or appropriate to effect such capitalization); and
(ii) if as of the end of the Lease Default Period, no
Replacement Lease is in effect with respect to such Eligible Equipment,
the amount of such Suspended Principal Payments shall be due and
payable in full as of the last day of such Lease Default Period.
(d) The foregoing Sections 10.2(a), 10.2(b) and 10.2(c) shall be
subject to the following limitations:
(i) for each Lease, not more than eighteen (18) months in the
aggregate shall be available pursuant to this Section 10.2 during the
period commencing with the date the Advance evidenced by the Note
associated with such Lease is made and ending on the Maturity Date of
such Note;
(ii) in any period of twelve consecutive months during which
any of the Obligations are outstanding and unpaid, Borrower shall cure
no more than two (2) Lease Defaults by the entry into Replacement
Leases.
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(e) The occurrence of a Lease Default shall not constitute an Event of
Default hereunder; provided, however, that an Event of Default hereunder shall
be deemed to have occurred upon the expiration of a Lease Default Period with
respect to any Lease without a Replacement Lease becoming effective with respect
to such Lease or the Eligible Equipment subject thereto, and either (i) the
amount of the associated Suspended Principal Payments is not paid as of the
first day following such Lease Default Period or (ii) following such Lease
Default Period, any default in payment under the Note associated with the
applicable Lease shall occur (it being understood that Borrower or Guarantor may
make such payment in their discretion in the event that the lessee under such
Lease is not making the same).
11. FORCE MAJEURE, CHANGE IN LAW, INCREASED COSTS.
11.1 Loss for Which Lender Not Responsible. Lender shall not be held
responsible for any loss or damage, to any of the Mortgaged Property or
Borrower, arising out of any commercially reasonable action taken or omitted by
Lender, or to which Lender becomes subject, resulting from a legal enactment or
any measure of a public authority, or war, strike, boycott, blockade or any
other cause beyond its control, except for any such loss or damage which is the
direct result of the gross negligence or wilful misconduct of Lender or its
agents.
11.2 Unlawfulness of Transaction. In the event that in the reasonable
judgment of Lender, the making or maintaining of the Loan by Lender or the
performance by Borrower of any obligation to be performed by Borrower hereunder
or under any other Loan Document to which Borrower is party, has become unlawful
by reason of any change after the date of this Agreement in any applicable law
or governmental regulation or order, or in the interpretation of any of the
same, with respect to this Agreement, any other Loan Document to which Borrower
is party or the Loan, then Lender shall notify Borrower thereof immediately and
to the extent that the Advances have not been made, the obligation pursuant to
Section 2 of Lender to make the Advances available shall terminate, and in the
event that the Advances have been made, Borrower shall, within thirty (30) days
after receipt of such notice or any later date permitted by applicable law or
governmental regulation or order, either (a) repay the Loan and pay interest
accrued thereon and all other sums payable hereunder (except for the prepayment
fee set forth in Section 8.4 hereof) and under the other Loan Documents, and all
actual, reasonable, out+of+pocket expenses incurred by Lender in complying with
any such changed law, governmental regulation or order prior to the date on
which Borrower repays the Loan, together with interest thereon, or (b) have
taken steps satisfactory to Lender to cure or remedy the matters giving rise to
such unlawfulness.
11.3 Increased Expense. Should Lender become subject to levies,
imposts, duties, fees, or sales, use, excise, gross receipts, value added,
personal property, stamp or
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documentary taxes, ad valorem taxes, license fees, registration fees,
assessments, fines, penalties or similar charges imposed on the Equipment, or
any portion of the Equipment, or to any other taxes of whatsoever kind imposed
upon Lender with respect to the Equipment, or any portion of the Equipment, or
this Agreement, any other Loan Document, the transactions contemplated by any of
the aforesaid documents or any documents executed in connection therewith or
contemplated thereby, or the payments to be made pursuant to this Agreement, the
Note and any other payments of whatsoever kind required to be paid by Borrower
to Lender pursuant to the terms of this Agreement, other than taxes which are
payable by Lender and which are measured by the income of Lender or which are in
the nature of franchise taxes (collectively, "Taxes"), which will increase
Lender's total cost with respect to the Loan, then, in such event, Borrower
shall at the request of Lender pay to Lender an amount which will compensate
Lender for such increased costs (after taking into account any tax benefits
realized by Lender as a result of the payment or accrual of such Taxes).
11.4 Prepayment in Respect of Increased Expenses. In the event that
Lender exercises its rights pursuant to Section 11.3 hereof, Borrower may prepay
the Loan in accordance with the provisions of this Agreement. In such case,
Borrower shall repay to Lender the Loan plus interest accrued thereon and all
other sums payable hereunder then due and payable and excluding any prepayment
fee under Section 8.4 hereof.
12. PAYMENTS.
12.1 Direction of Payments. All payments required to be made to Lender
hereunder or under the Note or the other Loan Documents shall be made in Dollars
by wire transfer in good, immediately available funds to:
Bank: Citibank, N.A.
New York, New York
For the Account Of: FINOVA Capital Corporation
Account No.: 4068-0522
ABA No.: 021000089
Reference: T-10 Inc.
Other Banking Information: ZQX34830ZQX
or to such other account as Lender may designate by written notice sent pursuant
to Section 15 hereof.
12.2 Non Business Day. All payments falling due on a non+Business Day
shall be paid on the next succeeding Business Day.
12.3 Default Interest. Should Borrower fail to pay any amount under
this
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Agreement, any Note or any of the other Loan Documents, on the due date for
payment thereof (whether by acceleration, prepayment or otherwise), then in
addition to any other sum or fees which may become payable hereunder or under
the Note or the other Loan Documents, Borrower shall pay interest on such amount
from the due date up to and including the date of actual payment at a per annum
interest rate (the "Default Rate") equal to (a) in the case of any payment which
is due under any Note, the Interest Rate under such Note plus two percentage
points (2%), (b) in the case of any payment which is due under any Security
Agreement or Lease Assignment, the Interest Rate under the Note which evidences
the Advance whereby the Equipment referred to in such Security Agreement or
Lease Assignment has been acquired by Borrower, plus two percentage points (2%)
and (c) in all other cases, the Interest Rate in effect on the date the first
Advance is made hereunder plus two percentage points (2%).
12.4 No Offset. All payments by Borrower under this Agreement shall be
made without deduction by reason of any defense, setoff or counterclaim of any
kind, nature or description whatever (subject to the provisions of Section 12.5
hereof).
12.5 No Deduction for Taxes. All payments under this Agreement shall be
made free and clear of, and without deduction for, any Taxes, now or hereafter
imposed by or within any governmental authority or pursuant to any governmental
rule or regulation or any administrative subdivision or taxing authority thereof
or therein, respectively, unless Borrower is compelled by law to deduct or
withhold such Taxes, in which event Borrower shall pay to Lender such additional
amounts (such amounts are herein referred to as the "Gross Up Amounts") as shall
result in the effective receipt by Lender of the gross amount of all sums due
Lender hereunder and under the Note had no such deduction or withholding been
made; provided, however, that Borrower shall have no obligation to pay any
additional amount with respect to United States withholding taxes imposed as a
result of any transfer, assignment or grant of a participation in Lender's
rights hereunder to a foreign party and provided, further, that in the event
that Borrower shall pay to Lender any Gross Up Amounts, Lender shall prepare and
assist Borrower in preparing such applications and other documents as may be
reasonably necessary in order for Borrower or Lender to obtain a refund of such
Gross Up Amounts, or any part thereof which is available for refund, and to the
extent that any Gross Up Amounts are refunded to Lender, Lender shall in turn
refund same to Borrower.
13. EVENTS OF DEFAULT.
13.1 Events of Default. Upon the occurrence of any of the following,
each of which is referred to herein as an "Event of Default":
(a) Failure of Borrower to pay within forty-five (45) days of the date
due and payable, any principal of the Loan, Basic Interest, Additional Interest
or any other sum with
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respect to the Loan, the Notes or Security Agreements or other sums which may
become due hereunder or under any Loan Document, whether by reason of stated
maturity or due date, notice of prepayment, cancellation, acceleration or
otherwise;
(b) Any failure by Borrower to (i) perform or cause to be performed its
obligations as set forth in any of the Loan Documents providing for (x) the
preparation or recordation of any document or instrument required by Lender for
the maintenance or perfection of any lien on the Mortgaged Property or any of
the other Collateral, or (y) maintenance of any part of the Mortgaged Property
or any of the other Collateral, within ten (10) Business Days after notice
thereof from Lender or (ii) fulfill any other covenant or to perform any other
obligation of Borrower under this Agreement or any other Loan Document to which
Borrower is party and such failure is not cured within thirty (30) days after
such failure shall have first occurred, or (iii) if Borrower shall amend, or
purport to amend, or acquiesce in the amendment of, the Subordinated Note;
(c) If any representation or warranty made by Borrower in this
Agreement, or any other Loan Document or any financial statement shall prove to
have been untrue, inaccurate or incomplete in any material respect at the time
when made or when effective and such party fails to do that which shall be
necessary in order that said representation or warranty shall be true, accurate
or complete within thirty (30) days after the earlier of actual knowledge
thereof or of receipt of notice thereof;
(d) Any indebtedness of Borrower or Guarantor to:
(i) Lender or any affiliate or subsidiary of Lender (other
than the Obligations) shall become due and payable prior to the stated
maturity thereof resulting from a default thereunder, or if such
indebtedness shall not be paid at the maturity thereof or any guaranty
or similar obligation of Borrower or Guarantor is not discharged at
maturity or when due and called or if Borrower or Guarantor shall
otherwise be in breach or default under any agreement pursuant to which
such indebtedness was incurred, and Borrower or Guarantor, as
applicable, fails to cure such default within (x) thirty (30) days
after written notice thereof, or (y) any cure period provided for under
the agreement pursuant to which the default occurred, whichever is
less, and the aggregate amount of all such indebtedness at the time
exceeds one hundred thousand Dollars ($100,000); or
(ii) the holder of the Subordinated Note, under the
Subordinated Note;
(iii) any Person (other than (x) Lender or any affiliate or
subsidiary of Lender or (y) the holder of the Subordinated Note), shall
become due and payable prior to the stated maturity thereof resulting
from a default thereunder, or if such indebtedness shall not be paid at
the maturity thereof or any guaranty or similar
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obligation of Borrower or Guarantor is not discharged at maturity or
when due and called or if Borrower or Guarantor shall otherwise be in
breach or default under any agreement pursuant to which such
indebtedness was incurred, and Borrower or Guarantor, as applicable,
fails to cure such default within (x) thirty (30) days after written
notice thereof, or (y) any cure period provided for under the agreement
pursuant to which the default occurred, whichever is less, and the
aggregate amount of all such indebtedness at the time exceeds the
greater of (A) one million Dollars ($1,000,000) or (B) five percent
(5%) of the aggregate principal amount of all of Borrower's
indebtedness for borrowed money then outstanding;
(e) Any approval of any governmental or regulatory authority having or
asserting jurisdiction over Borrower, Guarantor or any of the Collateral,
required or to be issued to Borrower or Guarantor in connection with the
business of Borrower or Guarantor, respectively, this Agreement or under any
other Loan Document or the transactions contemplated herein or therein, shall be
revoked, rescinded, suspended or otherwise limited in effect and same shall not
have been reinstated within thirty (30) days after the first effective date of
such revocation, rescission, suspension or limitation, or Borrower or Guarantor
shall cease or suspend its business operations or a material portion thereof;
(f) If Borrower or Guarantor files a voluntary petition in bankruptcy,
or a voluntary petition or an answer seeking readjustment of its debts, or for
any other relief under any bankruptcy, insolvency, or other similar act or law
of any jurisdiction, domestic or foreign, now or hereafter existing, or Borrower
or Guarantor takes any action indicating its consent to, approval of, or
acquiescence in or failure to oppose, any such petition or proceeding; or if
Borrower or Guarantor applies for, or sustains the appointment (by consent or
acquiescence) of, a receiver or trustee for Borrower or Guarantor or for all or
a substantial part of its property; or if Borrower or Guarantor makes an
assignment for the benefit of its creditors; or if Borrower or Guarantor fails
to pay or becomes unable to pay its debts as they mature;
(g) If there is filed an involuntary petition against Borrower or
Guarantor in bankruptcy or seeking readjustment of its debts or for any other
relief under any bankruptcy, insolvency, or other similar act or law of any
jurisdiction, domestic or foreign, now or hereafter existing, or a receiver or
trustee is involuntarily appointed for Borrower or Guarantor or for all or a
substantial part of the property or assets of Borrower or Guarantor or there is
served on Borrower or Guarantor a warrant of attachment, execution or similar
process against any substantial part of the property of Borrower or Guarantor
and any of such events continues for sixty (60) days undismissed, unbonded or
undischarged;
(h) If this Agreement or any other Loan Document shall at any time
after its respective execution and delivery and for any reason cease to be in
full force and effect or any certificate, instrument or documents issued and
executed pursuant hereto or thereto
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shall for any reason cease to be effective to constitute a valid and perfected
first priority Lien and security interest in and to the Collateral, except for
Permitted Liens;
(i) If any portion of the Equipment shall be sold, transferred,
assigned, leased or otherwise disposed of by Borrower without Lender's prior
written consent, except (i) for Permitted Liens or (ii) as otherwise permitted
herein;
(j) If material damage, destruction, or loss to any of the Collateral
shall occur, and (i) the insurer thereof does not (x) acknowledge that such loss
is covered under the applicable insurance policy within a reasonable period (not
to exceed one hundred twenty (120) days) which is customary in the commercial
aviation industry under the circumstances of the damage, destruction or loss
involved, or (y) make payment in respect thereof within seven (7) Business Days
thereafter, or (ii) Borrower fails to diligently pursue collection of the
proceeds of any insurance policy covering such damage, destruction or loss;
(k) If any governmental or judicial authority shall condemn, seize or
appropriate all or a material part of the Collateral or all or substantially all
of the assets of Borrower or Guarantor;
(l) If there shall occur an Event of Default under, and as defined in,
any of the other Loan Documents;
(m) If there shall occur any lapse of, or failure to maintain,
insurance coverage on the Mortgaged Property required to be maintained under any
one or more of the Security Agreements;
(n) If Guarantor shall fail to fulfill any covenant or to perform any
obligation of Guarantor under any Loan Document to which Guarantor is party and
such failure is not cured within fifteen (15) days after such failure shall have
first occurred, or if Guarantor shall at any time cease to own all of the issued
and outstanding capital stock of Borrower, or if any of the issued and
outstanding capital stock of Borrower is not subject to the Pledge Agreement, or
if Guarantor ceases to manage Borrower and its business and operations;
then, in any such event (other than upon the occurrence of an Event of
Default specified in clause (f) or (g) of this Section), Lender may, at the
option of Lender, declare the principal of, and accrued interest on, the Loan,
the Note and this Agreement and any and all other sums payable by Borrower to
Lender under this Agreement, the Note or any other Loan Document including any
penalties or other amounts to be, and the Loan, the Note and all such other
amounts shall thereupon become, due and payable. Upon the occurrence of an Event
of Default specified in clause (f) or (g) of this Section,
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automatically and without any notice to Borrower, the principal of, and accrued
interest on, the Loan, the Note and this Agreement and any and all other sums
payable by Borrower to Lender under this Agreement, the Note or any other Loan
Document including penalties and all other amounts shall be due and payable. In
any such case, such amounts shall be paid without presentment, demand, protest
or other notice of any kind, all of which are hereby expressly waived, anything
contained herein or in the Note or any other Loan Document to the contrary
notwithstanding, and Lender may exercise any and all rights and remedies of a
secured party under the Arizona Uniform Commercial Code and under the applicable
Loan Document, or under any governing law;
(o) There shall occur any event which constitutes an "Event of Default"
under the Existing Loan Agreement; or
(p) The occurrence of an Event of Default as described in Section
10.2(e) hereof.
13.2 When Cure Period Commences. In the event that Lender shall be
prevented by operation of the automatic stay under 11 U.S.C. ss.362 from sending
any notice permitted or required to commence a period during which Borrower may
cure any Event of Default hereunder, then, in the event that the automatic stay
is lifted as to Lender, or in the event that Borrower's bankruptcy proceeding is
dismissed, the period during which Borrower may cure such Event of Default shall
be deemed to have commenced, without further notice, on the first date on which
Lender would have been entitled to give such notice pursuant to the terms hereof
or of the other Loan Documents, as applicable, but for the operation of the
automatic stay.
13.3 Remedies not Prejudiced. Borrower and Lender hereby agree that, to
the extent permitted by law, the rights and remedies of Lender in relation to
any misrepresentation or breach of warranty on the part of Borrower shall not be
prejudiced by any lack of investigation by or on behalf of Lender into the
affairs of Borrower.
14. FEES AND EXPENSES.
14.1 Fees and Expenses Through Closing Date. Borrower shall on the
Closing Date (or at any time thereafter at the election of Lender) reimburse
Lender for all reasonable out+of+pocket expenses of Lender incurred in
connection with this Agreement and each other Loan Documents and the
transactions contemplated hereby and thereby, including, without limitation, all
recordation fees and legal fees and disbursements of Lender's counsel, including
special FAA counsel, and in connection with all professional services rendered
and disbursements incurred by said counsel with respect to all transactions
relevant to the subject matter hereof including, without limitation, the
preparation and negotiation of this Agreement and any other Loan Document and
the
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review and negotiation of all other agreements and instruments contemplated by
this Agreement and the other Loan Documents, and any other instruments or
documents to be reviewed, prepared or to be executed in connection with the
transactions contemplated hereby and thereby. Borrower agrees that the
obligations of Borrower pursuant to the provisions of this Section 14.1 shall
arise irrespective of whether or not Lender makes the Advances, except in the
event of Lender's wilful failure to make the Advances after the conditions
precedent to the making of the Advances have been fulfilled by Borrower.
14.2 Fees and Expenses of Enforcement. Borrower shall pay to Lender, on
demand, any expenses or other costs (including, without limitation, reasonable
attorneys' fees and disbursements, expert witness fees, and all travel, hotel,
telephone, postage, copying, appraisal, inspection, and consulting expenses)
incurred by Lender in connection with (a) the enforcement and collection against
Borrower or any other party (other than Lender) to any of the Loan Documents of
any provision thereof or the indebtedness contemplated hereby, or (b) any actual
or threatened litigation, investigation or proceeding relating to the Loan
Documents, whether or not suit is instituted, relating to any of the Loan
Documents or the indebtedness contemplated thereby, (c) any proceeding or
enforcement in any state or federal bankruptcy or reorganization proceeding, and
(d) any actual or proposed amendment of the Loan Documents or any of them or
modification of the indebtedness contemplated thereby. Notwithstanding the
foregoing, Borrower shall be entitled to recover from Lender the reasonable
attorneys' fees and costs incurred by Borrower in successfully bringing a claim
against Lender or defending a claim brought by Lender, under or in connection
with this Agreement or the other Loan Documents.
14.3 Obligations Secured. The obligations of Borrower under this
Section 14 shall at all times constitute a portion of the Obligations secured by
the Collateral.
15. NOTICES.
Except as otherwise specifically provided to the contrary herein or in
the Security Agreements:
(a) Every notice or demand under this Agreement shall be in writing and
may be given or made by registered mail, return receipt requested or by
internationally recognized overnight courier service.
(b) Every notice or demand shall be sent, in the case of overnight
courier or registered mail, to Lender or to Borrower, at the following address,
or to such other address as Borrower or Lender may designate for itself by
notice to the other conforming to the requirements for notice set forth in this
Section:
If to Borrower: T-10 Inc.
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180 Harbor Drive, Suite 200
Sausalito, California 94965
Attention: President
and
If to Lender: FINOVA Capital Corporation
1850 North Central Avenue
Phoenix, Arizona 85077
Attention: Vice President+Law
Transportation
Finance
and
FINOVA Capital Corporation
1850 North Central Avenue
Phoenix, Arizona 85077
Attention: Vice President+
Operations Management
(c) Every notice or demand shall, except so far as otherwise expressly
provided by this Agreement, be deemed to have been received in the case of an
internationally recognized overnight courier service or registered mail, upon
acknowledgment of receipt or as of the date on which receipt of such notice
delivered by overnight courier or registered mail is refused or such courier or
the U.S. Postal Service advises that such letter is not deliverable at the
address set out in paragraph (b) of this Section 15.
(d) A copy of all notices sent to Lender shall be sent to Herriot,
Coti, Sugrue & Simbro, 3200 North Central Avenue, Suite 1910, Phoenix, Arizona
85012, Attention: Mark R. Herriot, Esq., telefax number 602/222+9725.
16. ENTIRE AGREEMENT; AMENDMENTS.
This Agreement embodies the entire agreement and understanding between
Borrower and Lender relating to the subject matter hereof and supersedes all
prior agreements and understandings relating hereto and none of the parties
hereto shall be bound by or charged with any oral or written agreements,
representations, warranties, statements, promises or understandings not
specifically set forth herein or therein. This Agreement may not be changed and
no right granted or obligation imposed hereunder may be waived, except pursuant
to an instrument in writing signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
17. GOVERNING LAW: JURISDICTION AND VENUE; WAIVER OF JURY TRIAL.
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(A) Governing Law. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
NEGOTIATED AND MADE IN, AND SHALL BE GOVERNED AND INTERPRETED UNDER THE LAWS OF,
THE STATE OF ARIZONA APPLICABLE TO AGREEMENTS MADE BY RESIDENTS THEREOF TO BE
WHOLLY PERFORMED THEREIN.
(B) Jurisdiction and Venue. BORROWER AND LENDER HEREBY AGREE THAT ALL
ACTIONS OR PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY
OUT OF THIS LOAN AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED
EXCLUSIVELY IN THE SUPERIOR COURT OF ARIZONA, MARICOPA COUNTY, OR THE UNITED
STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA AND ANY ACTION OR PROCEEDING
INITIATED BY LENDER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS LOAN
AGREEMENT OR THE OTHER LOAN DOCUMENTS MAY BE LITIGATED IN EITHER SUCH
JURISDICTION OR IN ANY OTHER JURISDICTION IN WHICH ANY OF THE PARTIES OR ANY OF
THEIR ASSETS MAY BE LOCATED, AT LENDER'S DISCRETION. BORROWER AND LENDER HEREBY
EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION AND VENUE IN ANY OF
SUCH COURTS, AGREE THAT JURISDICTION AND VENUE IS PROPER IN SUCH COURTS, AND
HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT OR OTHER PROCESS OR
PAPERS ISSUED THEREIN, AND AGREE THAT SUCH SERVICE OF THE SUMMONS AND COMPLAINT
OR OTHER PAPERS MAY BE MADE BY REGISTERED MAIL, RETURN RECEIPT REQUESTED,
ADDRESSED TO BORROWER OR LENDER, AS THE CASE MAY BE, AT THE ADDRESS TO WHICH
NOTICES ARE TO BE SENT PURSUANT TO SECTION 15 HEREOF. BORROWER HEREBY WAIVES ANY
CLAIM THAT PHOENIX, ARIZONA OR THE DISTRICT OF ARIZONA IS AN INCONVENIENT FORUM
OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD BORROWER OR LENDER, AS THE
CASE MAY BE, AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS,
COMPLAINT, PROCESS OR PAPER SO SERVED WITHIN THIRTY (30) DAYS AFTER THE MAILING
THEREOF, BORROWER AND LENDER ACKNOWLEDGE THAT AN ORDER AND/OR JUDGMENT MAY BE
ENTERED BY THE OTHER AGAINST IT AS DEMANDED OR PLEADED FOR IN SUCH SUMMONS,
COMPLAINT, PROCESS OR PAPERS. THE CHOICE OF FORUM SET FORTH IN THIS SECTION
SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER OR BORROWER, AS THE
CASE MAY BE, OF ANY JUDGMENT OBTAINED IN ANY OTHER APPROPRIATE JURISDICTION.
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(C) Waiver of Jury. BORROWER AND LENDER EACH HEREBY WAIVES THE RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR ARISING OUT OF, OR IN
ANY WAY RELATING TO: (a) THIS AGREEMENT; (b) THE OTHER LOAN DOCUMENTS; (c) ANY
OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN BORROWER AND LENDER; OR
(d) ANY CONDUCT, ACTS OR OMISSIONS OF BORROWER OR LENDER OR ANY OF THEIR
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER
PERSONS AFFILIATED WITH LENDER OR BORROWER; IN EACH OF THE FOREGOING, WHETHER
SOUNDING IN TORT OR CONTRACT OR OTHERWISE.
18. CONTRACTED FOR RATE OF INTEREST UNDER ARIZONA LAW.
(a) For purposes of determining compliance with Arizona law
regulating the payment of interest, the "contracted for rate of interest," as
such term is defined under the laws of the State of Arizona, of the Loan
contemplated hereby, without limitation, shall consist of the following:
(i) The Interest Rate, calculated and applied to the
principal balances of the Notes in accordance with the provisions of this
Agreement and the Notes, and the Interest Rate in effect on the date the first
Advance is made hereunder, applied in accordance with the terms hereof;
(ii) All interest at the Default Rate, as provided
for in Section 12.3 hereof;
(iii) All Advance Fees payable pursuant to the terms
hereof; and
(iv) All Additional Sums (as hereinafter defined), if
any.
Borrower agrees to pay an effective contracted for rate of interest which is the
sum of the Interest Rate plus any additional rate of interest resulting from the
payment of interest at the Default Rate and payment of the Advance Fees and the
Additional Sums, if any, as contemplated by the foregoing clauses (i) through
(iv), respectively.
(b) For purposes of determining compliance with Arizona law
regulating the payment of interest, all fees, charges, goods, things in action
or any other sums or things of value (other than interest resulting from the
payment by Borrower of the amounts referred to in clauses (i) through (iv) of
Section 18(a) above) paid or payable by Borrower (collectively, the "Additional
Sums"), whether pursuant to this Agreement, the
-35-
<PAGE>
other Loan Documents or any other document or instrument in any way pertaining
to this lending transaction, or otherwise with respect to this lending
transaction, that, under the applicable law may be deemed to be interest with
respect to this lending transaction, for the purpose of any applicable law that
may limit the maximum amount of interest to be charged with respect to this
lending transaction, shall be payable by Borrower as, and shall be deemed to be,
additional interest, and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the Additional Sums.
(c) If any interest or other charges in connection with this
lending transaction are ever determined to exceed the maximum amount permitted
by law, then Borrower agrees that (i) the amount of interest or charges payable
pursuant to this lending transaction shall be reduced to the maximum amount
permitted by law and (ii) any excess amount previously collected from Borrower
in connection with this lending transaction that exceeded the maximum amount
permitted by law, shall be credited to the principal balance of the Loan then
outstanding. If the outstanding principal balance hereunder has been paid in
full, the excess amount paid shall be refunded to Borrower.
19. NO BROKER.
Borrower and Lender each hereby represent and warrant to the other that
no broker brought about the transactions contemplated hereby and each party
hereby agrees to indemnify and hold the other party harmless from, any and all
liabilities and costs (including without limitation, costs of counsel) to any
person or entity claiming brokerage commissions or finder's fees on account of
this Agreement.
20. SURVIVAL.
Each of the representations, warranties and covenants of Borrower
contained herein shall survive the closing of the Loan.
21. INDEMNIFICATION.
In addition to Borrower's obligations and Lender's remedies provided
elsewhere in this Agreement: (a) Borrower hereby indemnifies Lender and agrees
to hold Lender harmless for, from and against any and all liabilities, damages,
losses, claims, reasonable costs or expenses whatsoever, and to reimburse Lender
for any reasonable legal or other fees or expenses (including but not limited to
the fees and expenses of expert witnesses, consultants and appraisers) incurred
by it in connection with any claim or defending or prosecuting any action or
proceeding relating to this Agreement (including, but not limited to, the
disbursement of the Advances), the Note and any Loan Document to which Borrower
is a party; and (b) Borrower hereby indemnifies Lender and agrees to hold Lender
harmless for, from and against any and all liabilities, damages, losses, claims,
costs
-36-
<PAGE>
or expenses whatsoever and to reimburse Lender for any legal or other fees or
expenses incurred by it in connection with or arising out of or resulting from
any breach of warranty or material misrepresentation by Borrower, or the
non+performance of any covenant or obligation to be performed on the part of
Borrower, under this Agreement, the Note or any Loan Document, or arising out of
or resulting from any misrepresentation or omission from any certificate,
instrument or paper delivered or to be delivered by Borrower to Lender pursuant
to this Agreement or any Loan Document or in connection with the transactions
contemplated herein or therein.
22. ASSIGNMENT, SUCCESSORS AND ASSIGNS.
Lender may assign or obtain participations with other Lenders in regard
to its rights hereunder and under the Note and any other Loan Document and in
respect of the Loan, provided that no such assignment or participation shall
impose any greater obligation on Borrower than set forth herein or therein and
provided, further, that Lender shall not effect an assignment of all of its
rights under this Agreement to an entity (other than an affiliate or subsidiary
of Lender) which is in the business of acquiring jet aircraft engines (for
commercial aircraft) and re-selling or leasing same. Borrower shall not assign
any rights under this Agreement nor shall any of Borrower's duties hereunder or
under the Note or Security Agreements be assigned or delegable without the prior
written consent of Lender. Nothing contained in this Agreement, express or
implied, is intended to confer upon any person or entity, other than the parties
hereto and their permitted successors in interest and permitted assigns, any
rights or remedies under or by reason of this Agreement unless expressly herein
stated to the contrary. All covenants, representations, warranties and
agreements of the parties contained herein shall, subject to the provisions of
the preceding sentence, be binding upon and inure to the benefit of their
respective successors and permitted assigns.
23. CAPTIONS AND SECTION HEADINGS; CONSTRUCTION.
Captions and paragraph headings used herein are for convenience only
and are not a part of this Agreement and shall not be used in construing it.
This Agreement and all documents executed in connection herewith shall be
construed without regard to the identity of the party which prepared the same,
and no presumption shall arise as a result thereof.
24. SEVERABILITY.
In the event that any one or more of the provisions of this Agreement,
any Loan Document, or the Note shall be invalid, illegal or unenforceable in any
respect or in any jurisdiction, the validity, legality and enforceability of the
remaining provisions contained herein and therein or of the same provisions in
any other jurisdiction shall not in any way be affected or impaired thereby.
-37-
<PAGE>
25. TIME OF THE ESSENCE.
Time is of the essence with respect to all of the payment and
performance obligations of Borrower hereunder.
26. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall constitute an original and, when taken together, all of which shall
constitute one and the same Agreement.
27. FURTHER ASSURANCES.
Borrower agrees to execute such agreements, instruments and documents,
and take such actions, without cost to Lender, as Lender may reasonably
determine are necessary or appropriate in order to effect the transactions
contemplated by this Agreement and the other Loan Documents, or to preserve,
protect and perfect the Lien of Lender in the Collateral.
28. PAYMENTS BY LENDER ON BEHALF OF BORROWER.
In the event that at any time Borrower shall fail to do or perform any
act, or pay any amount, or take any action (including, without limitation,
failure to maintain insurance coverage on the Mortgaged Property in accordance
with the requirements of the Security Agreements), when such performance,
payment or action is required under this Agreement or the other Loan Documents
(and, if applicable, following lapse of any grace or compliance period in which
such payment, performance or action may be taken or made by Borrower under the
applicable Loan Document), then Lender may, but shall not be obligated to, make
such payment or cause such performance or action to be taken, and all expenses
incurred by Lender in connection therewith, together with the amount of any such
payment, shall (i) be immediately due and payable by Borrower to Lender, (ii)
constitute a portion of the Obligations hereunder, (iii) at all times be secured
by the Collateral, and (iv) bear interest at the Default Rate from the date paid
or incurred by Lender, as applicable, through the date paid to Lender.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-38-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers as of the day and year first
above written.
LENDER:
FINOVA CAPITAL CORPORATION, a Delaware
corporation
By:
---------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
BORROWER:
T-10 INC., a California corporation
By:
---------------------------------------------
Name: Charles F. Willis
-------------------------------------------
Title: President
------------------------------------------
Taxpayer Identification No.: 68-0370687
--------------------
LNAG
<PAGE>
EXHIBIT A
to
SECURED LOAN AGREEMENT
- --------------------------------------------------------------------------------
BWIA LEASE EXTENSION DOCUMENTS
- --------------------------------------------------------------------------------
1. Acknowledgment and Agreement of Borrower;
2 Supplemental Agreement (BWIA Lease Assignment); and
3 Acknowledgment and Agreement of Willis Lease Finance
Corporation, formerly known as The Charles F. Willis Company
(with respect to the Guaranties and Pledge Agreement)
<PAGE>
EXHIBIT B
to
SECURED LOAN AGREEMENT
- --------------------------------------------------------------------------------
CROSS-DEFAULT DOCUMENTS
- --------------------------------------------------------------------------------
1. Second Amendment to Secured Loan Agreement; and
2. Acknowledgment and Agreement (from Willis Lease Finance
Corporation)
<PAGE>
EXHIBIT C
to
SECURED LOAN AGREEMENT
- --------------------------------------------------------------------------------
FORM OF PROMISSORY NOTE
- --------------------------------------------------------------------------------
P R O M I S S O R Y N O T E
U.S.$__________ _____________1997
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned T-10 INC., a California
corporation ("Maker"), hereby promises to pay to the order of FINOVA CAPITAL
CORPORATION, a Delaware corporation ("Lender"), the principal sum of
______________________________________________ no one hundredths Dollars
($________________), or so much thereof as may from time to time be advanced by
Lender to Maker (and as such principal amount may be adjusted pursuant to
Section 3 hereof), together with interest thereon and such other amounts as may
be payable by Maker to Lender pursuant to the terms and conditions of this Note,
as follows:
1. Loan Agreement. This Note is executed by Maker in
accordance with the terms of that certain Secured Loan Agreement dated as
February _____, 1997 between Maker and Lender (collectively, the "Loan
Agreement"). This Note is the "__________ Note," as defined in the Loan
Agreement, and evidences the "_________________ Advance" as defined in the Loan
Agreement. All capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in the Loan Agreement. The Advance evidenced by
this Note is to be applied by Maker in order to acquire a certain
_________________________ (_______________), which is, as of the date hereof, on
lease to ________________________________ ("_______"), pursuant to the
_________________ Lease Agreement dated ____________________, 1997, between
__________________, as lessee, and __________________________, a _____________,
as lessor, and that certain, and as thereafter assigned by ____________________
pursuant to that certain _________________________________, dated as of even
date herewith between_________ and Maker, pursuant to which _____________
assigns to Maker and
<PAGE>
Maker assumes, all of the right, title and obligations of ________________ under
such ________________________Lease Agreement.
2. Interest. (a) Principal of this Note shall bear Basic
Interest, from the date of disbursement until paid. Basic Interest shall: (i)
accrue from the date of each Advance, on the principal amount of the Loan from
time to time outstanding, at a per annum rate equal to the "Interest Rate," as
set forth in Section 2(b) below (except to the extent Basic Interest is payable
at the Default Rate in accordance with the terms of the Loan Agreement), (ii) be
paid by Borrower, in arrears, on each Repayment Date and whenever else a payment
of principal is due and payable hereunder; and (iii) be calculated on the basis
of a year of 360 days for the actual days elapsed.
(b) The Interest Rate hereunder shall be equal to
_______________ one-hundredths percent (________%) per annum.
3. Payments of Principal and Interest; Maturity Date. (a)
Subject to the provisions of (i) Section 6 hereof regarding prepayment of
principal of this Note, (ii) Section 9 hereof regarding the rights and remedies
of Lender upon the occurrence of an Event of Default, and (iii) Section 10.2 of
the Loan Agreement, which provides for payment of interest only hereon following
the occurrence of a "Lease Default" (as defined in the Loan Agreement) under
certain circumstances, principal of, and interest on, this Note shall be paid in
sixty (60) consecutive monthly installments ("Installments"), payable on the
last Banking Day (as defined in the Loan Agreement) of each month, commencing
with the _______________ (_______st) day of _____________ 1997. Each Installment
hereunder shall be in the amount of __________________________ and
one-hundredths Dollars ($_____________); provided, however, that notwithstanding
anything to the contrary set forth herein, the sixtieth (60th) Installment shall
be due and payable on the Maturity Date in the amount of all principal of this
Note, all accrued and unpaid interest hereunder, and all other amounts
outstanding and unpaid, pursuant to this Note, the Loan Agreement or the other
Loan Documents as of the Maturity Date.
(b) The principal amount hereof is subject to increase under
certain circumstances pursuant to Section 10.2(c) of the Loan Agreement.
4. Final Maturity. Notwithstanding any other provision of this
Note, the Loan Agreement or any other of the Loan Documents, the entire
principal balance of this Note, together with all accrued interest and all other
amounts due Lender under this Note, the Loan Agreement or any of the other Loan
Documents, shall be due and payable in full on ________________________ (the
"Maturity Date").
5. Application of Payments. Any payment in respect of the Loan
shall
<PAGE>
be applied as follows:
(a) first, to payment of (i) the prepayment fee, if any,
payable pursuant to Section 6 below, and (ii) any other amount (other
than principal hereof and interest at the Interest Rate and the Default
Rate) which is payable by Maker to Lender in accordance with the terms
of this Note, the Loan Agreement, or the other Loan Documents;
(b) the remainder, if any, to payment of outstanding and
unpaid interest at the Interest Rate and the Default Rate, as
applicable; and
(c) the remainder, if any, to payment of principal hereof.
All prepayments of principal hereof shall be applied in inverse order of the
scheduled maturity of such principal.
6. Prepayments. This Note shall be prepayable only in
accordance with the provisions of the Loan Agreement, including, without
limitation, Section 8.4 thereof regarding payment of a premium in the event of
prepayments under certain circumstances.
7. Contracted For Rate of Interest under Arizona Law. (a) For
purposes of determining compliance with Arizona law regulating the payment of
interest, the "contracted for rate of interest," as such term is defined under
the laws of the State of Arizona, of the Loan contemplated hereby, without
limitation, shall consist of the following:
(i) The Interest Rate, calculated and applied to the
principal balance of the Loan in accordance with the provisions of this Note;
(ii) All interest at the Default Rate, as provided
for in Section 12.3 of the Loan Agreement;
(iii) The Loan Fee, which is payable by Borrower to
Lender in accordance with the terms of the Loan Agreement; and
(iv) All Additional Sums (as hereinafter defined), if
any.
Maker agrees to pay an effective contracted for rate of interest which is the
sum of the Interest Rate plus any additional rate of interest resulting from the
payment of interest at the Default Rate and payment of the Loan Fee and the
Additional Sums, if any, as
<PAGE>
contemplated by the foregoing clauses (i) through (iv), respectively.
(b) For purposes of determining compliance with Arizona law
regulating the payment of interest, all fees, charges, goods, things in action
or any other sums or things of value (other than interest resulting from the
payment by Maker of the amounts referred to in clauses (i) through (iv) of
Section 7(a) above) paid or payable by Maker (collectively, the "Additional
Sums"), whether pursuant to this Note, the other Loan Documents or any other
document or instrument in any way pertaining to this lending transaction, or
otherwise with respect to this lending transaction, that, under the applicable
law may be deemed to be interest with respect to this lending transaction, for
the purpose of any applicable law that may limit the maximum amount of interest
to be charged with respect to this lending transaction, shall be payable by
Maker as, and shall be deemed to be, additional interest, and for such purposes
only, the agreed upon and "contracted for rate of interest" of this lending
transaction shall be deemed to be increased by the rate of interest resulting
from the Additional Sums.
(c) If any interest or other charges in connection with this
lending transaction are ever determined in a final judgment by a court of
competent jurisdiction to exceed the maximum amount permitted by law, then Maker
agrees that (i) the amount of interest or charges payable pursuant to this
lending transaction shall be reduced to the maximum amount permitted by law and
(ii) any excess amount previously collected from Maker in connection with this
lending transaction that exceeded the maximum amount permitted by law, will be
credited against the principal balance of the Loan then outstanding. If the
outstanding principal balance hereunder has been paid in full, the excess amount
paid will be refunded to Maker.
8. Form of Payments. All payments required to be made to
Lender hereunder or under the Note shall be made in Dollars by wire transfer in
good, immediately available funds to such account of Lender as is designated in
the Loan Agreement, or to such other account as Lender may designate by written
notice sent pursuant to the provisions hereof regarding notices.
9. Event of Default; Acceleration. Upon the occurrence of an
Event of Default, the principal of this Note, together with accrued and unpaid
interest thereon and all other amounts outstanding under this Note, the Loan
Agreement and the other Loan Documents shall, at the option of Lender, be
immediately due and payable.
10. Time of Essence. Time is of the essence of this Note and
each provision hereof.
11. Waiver by Lender. No delay on the part of Lender in
exercising
<PAGE>
any right, power or privilege hereunder shall operate as a waiver thereof, and
no single or partial exercise of any right, power or privilege hereunder shall
preclude other or further exercise thereof, or be deemed to establish a custom
or course of dealing or performance between the parties hereto, or preclude the
exercise of any other right, power or privilege.
12. Costs of Enforcement. Maker agrees to pay to Lender on
demand all reasonable expenses incurred by Lender in connection with the
enforcement of the provisions of this Note or any of the other Loan Documents or
the transactions contemplated hereby, including, without limitation:
(a) All expenses, disbursements and attorneys' fees
(including, without limitation, charges for required lien searches,
reproduction of documents, long distance telephone calls and overnight
express carriers) of special counsel and other counsel retained by
Lender in connection with any amendments, modifications or waivers
hereto or thereto (whether or not the same become effective); and
(b) Any expenses or other costs, including attorneys' fees and
expert witness fees, incurred by Lender in connection with the
enforcement or collection against Maker of any obligation hereunder or
against Maker or any other obligor hereunder of any provision of any of
the Loan Documents, and in connection with or arising out of any
litigation, investigation or proceeding instituted by any governmental
body or any other person or entity with respect to any of the Loan
Documents, whether or not suit is instituted, including, but not
limited to, such costs or expenses arising from the enforcement or
collection against any obligor hereunder of any provision of any of the
Loan Documents in any state or federal bankruptcy or reorganization
proceeding.
Notwithstanding the foregoing, Maker shall be entitled to recover from Lender
the reasonable attorneys' fees and costs incurred by Maker in successfully
bringing a claim against Lender or defending a claim brought by Lender, under or
in connection with this Note, the Loan Agreement or the other Loan Documents.
13. Waivers of Maker. Maker (for itself and its successors and
assigns), and any endorsers and guarantors hereof, by virtue of such endorsement
or guaranty, respectively, hereby waives presentment for payment, protest and
demand, notice of protest, demand and of dishonor and nonpayment of this Note,
and expressly agrees that this Note, or any payment hereunder, may be extended
from time to time before, at, or after maturity of the obligations evidenced
hereby, without in any way affecting the liability of Maker hereunder, or the
validity of any mortgage, pledge, lien or security interest given to secure
payment hereof.
<PAGE>
14. Governing Law. THIS NOTE SHALL BE DEEMED TO HAVE BEEN
NEGOTIATED AND MADE IN, AND SHALL BE GOVERNED AND INTERPRETED UNDER THE LAWS OF,
THE STATE OF ARIZONA APPLICABLE TO AGREEMENTS MADE BY RESIDENTS THEREOF TO BE
WHOLLY PERFORMED THEREIN.
15. Jurisdiction and Venue. MAKER HEREBY AGREES THAT ALL
ACTIONS OR PROCEEDINGS INITIATED BY MAKER AND ARISING DIRECTLY OR INDIRECTLY OUT
OF THIS NOTE OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED EXCLUSIVELY IN THE
SUPERIOR COURT OF ARIZONA, MARICOPA COUNTY, OR THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA AND ANY ACTION OR PROCEEDING INITIATED BY LENDER AND
ARISING DIRECTLY OR INDIRECTLY OUT OF THIS NOTE OR THE OTHER LOAN DOCUMENTS MAY
BE LITIGATED IN EITHER SUCH JURISDICTION OR IN ANY OTHER JURISDICTION IN WHICH
ANY OF THE PARTIES OR ANY OF THEIR ASSETS MAY BE LOCATED, AT LENDER'S
DISCRETION. MAKER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION AND VENUE IN ANY OF SUCH COURTS, AGREES THAT JURISDICTION AND VENUE
IS PROPER IN SUCH COURTS, AND HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND
COMPLAINT OR OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREES THAT SUCH
SERVICE OF THE SUMMONS AND COMPLAINT OR OTHER PAPERS MAY BE MADE BY REGISTERED
MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO MAKER AT THE ADDRESS TO WHICH
NOTICES ARE TO BE SENT PURSUANT TO THE LOAN AGREEMENT. MAKER HEREBY WAIVES ANY
CLAIM THAT PHOENIX, ARIZONA OR THE DISTRICT OF ARIZONA IS AN INCONVENIENT FORUM
OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD MAKER, AFTER BEING SO
SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPER SO
SERVED WITHIN THIRTY (30) DAYS AFTER THE MAILING THEREOF, MAKER ACKNOWLEDGES
THAT AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY LENDER AGAINST MAKER AS DEMANDED
OR PLEADED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE CHOICE OF
FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT,
BY LENDER OF ANY JUDGMENT OBTAINED IN ANY OTHER APPROPRIATE JURISDICTION.
16. Waiver of Jury. MAKER HEREBY WAIVES THE RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR ARISING OUT OF, OR IN ANY WAY
RELATING TO: (a) THIS NOTE; (b) THE
<PAGE>
OTHER LOAN DOCUMENTS; (c) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT
BETWEEN MAKER AND LENDER; OR (d) ANY CONDUCT, ACTS OR OMISSIONS OF MAKER OR
LENDER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR MAKER; IN EACH OF THE
FOREGOING, WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE.
17. Successors and Assigns. This Note shall be binding upon
the successors and assigns of Maker and shall inure to the benefit of the
successors, assigns and participants of Lender.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Promissory Note as
of the date first above written.
T-10 INC., a California corporation
By:_____________________________________________
Its:____________________________________________
_______PN
<PAGE>
EXHIBIT D
to
SECURED LOAN AGREEMENT
- --------------------------------------------------------------------------------
CONDITIONS PRECEDENT
- --------------------------------------------------------------------------------
I. Conditions Precedent to Any Advance. Lender's obligation to make any
Advance is conditional upon the following, all of which shall take place, occur,
or be delivered to Lender, as applicable, not later than the date the first
Advance is made:
(b) Borrower shall have executed and delivered to Lender this
Agreement;
(c) Guarantor shall have (i) executed and delivered to Lender
the Affirmation of Pledge Agreement and (ii) confirmed that Lender is
in possession of all certificates evidencing all of the issued and
outstanding capital stock of Borrower, together with a stock power,
endorsed in blank by Guarantor, with respect to each such certificate;
(d) Borrower shall have performed all of its agreements and,
subject to the making of the Advances, paid all sums, to be performed
or paid hereunder (including sums payable under Section 14.1) on or
prior to the Closing Date and the representations and warranties of
Borrower contained herein and in each Loan Document to which Borrower
is a party shall be true and correct as of the Closing Date as if made
on and as of the Closing Date and Borrower shall have so certified to
Lender;
(e) No Event of Default or Default under this Agreement or any
other Loan Document shall have occurred and be continuing;
(f) Borrower shall have caused to be delivered to Lender, and
Lender shall have reviewed and found satisfactory (i) a copy of the
Articles of Incorporation of Borrower, certified by the secretary of
state of the state of incorporation of Borrower and (ii) a copy of the
by+laws of Borrower, certified as being true, complete and accurate by
a duly authorized corporate officer of
<PAGE>
Borrower;
(g) Borrower shall have caused to be delivered to Lender, and
Lender shall have reviewed and found satisfactory, copies of
resolutions adopted by the Board of Directors of Borrower, certified by
the corporate secretary or an executive officer of Borrower as being
true, accurate and complete, authorizing the entry into and performance
by Borrower of its obligations under this Agreement, each other Loan
Document to which Borrower is a party, and all transactions
contemplated herein and therein;
(h) Borrower shall have caused to be delivered to Lender, and
Lender shall have reviewed and found satisfactory, a certificate of the
corporate secretary or an executive officer of Borrower as being true,
accurate and complete, evidencing the signing authority of the officers
of Borrower who sign this Agreement, each Loan Document to which
Borrower is a party, and all documents and instruments executed by
Borrower in connection herewith or therewith;
(i) all reasonable sums due and owing to Lender's counsel on
account of legal services rendered and disbursements incurred in
connection with this transaction shall have been paid in accordance
with invoices to be provided by Lender's counsel;
(j) Lender shall have conducted, and found satisfactory the
results of, a reference check and UCC-1 Financing Statement, tax lien
and litigation searches with respect to Guarantor and Borrower;
(k) Lender shall have reviewed and found satisfactory the
terms of the Subordinated Note, and Lender and ILFC shall have entered
into an intercreditor agreement in form and substance satisfactory to
Lender with respect thereto;
(l) Borrower shall have caused to be delivered to Lender the
Cross-Default Documents duly authorized and validly executed and
delivered to Lender in form and substance satisfactory to Lender;
(m) Borrower shall have caused to be delivered to Lender the
BWIA Lease Extension Documents duly authorized and validly executed and
delivered to Lender in form and substance satisfactory to Lender; and
(n) Borrower shall have caused to be delivered to Lender the
ILFC Lease Payment Guaranty.
<PAGE>
II. Conditions Precedent to Each Advance. Lender's obligation to make a
particular Advance is conditional upon the following, all of which shall take
place, occur, or be delivered to Lender, as applicable, no later than the date
such Advance is made:
(b) Borrower shall have caused to be delivered to Lender a
certificate as to Borrower, certified by an authorized officer of
Borrower, certifying that no Event of Default or, to the knowledge of
such officer, no Default has occurred and is continuing;
(c) Borrower shall have caused to be delivered to Lender a
favorable opinion, dated as of the Closing Date, in form and substance,
and with assumptions, limitations and qualifications, and reliance upon
other opinions, and issued by such counsel, as are satisfactory to
Lender, opining, among other things, that under California law
(assuming for this purpose that Arizona law (which is by the terms of
the Loan Documents to govern the interpretation and enforcement
thereof) is substantively identical to California law): (A) the Loan
Documents executed by Borrower and delivered to Lender on the Closing
Date are legal, valid and binding obligations of Borrower, including
(x) that the provisions of the Loan Documents which are executed and
delivered by Borrower as of the Closing Date with respect to choice of
law to govern the interpretation and enforcement of such Loan Documents
and consent to jurisdiction and choice of forum in connection with such
interpretation and enforcement are legal, valid and binding and (y)
that the Loan Documents executed and delivered by Borrower as of the
Closing Date do not violate any law relating to the charging,
contracting for, or payment or collection of interest or the like; (B)
Borrower is duly organized and validly existing in its jurisdiction of
incorporation; (C) Borrower has the requisite power and authority to
conduct its businesses, own its properties, and carry out the terms of
the Loan Documents to which it is a party; (D) except to the extent
disclosed in such opinion, such counsel has no knowledge of any
litigation affecting Borrower; (E) the execution, delivery and
performance by Borrower of the Loan Documents to which it is a party
will not violate the Articles of Incorporation or by+laws of Borrower
or any law, rule, judgment, order, decree, agreement or instrument to
which Borrower is a party or by which Borrower is bound; (F) no consent
to the execution, delivery or performance by Borrower of the Loan
Documents to which it is a party is required of any governmental
authority (or if required, has been obtained); (G) the Pledge Agreement
is the legal, valid and binding obligation of Guarantor, including that
the provisions of the Pledge Agreement with respect to choice of law to
govern the interpretation and enforcement thereof and consent to
jurisdiction and choice of forum in connection with such interpretation
and enforcement are legal, valid and binding; (H) Guarantor is duly
organized and validly existing in its jurisdiction of incorporation;
(I) Guarantor has the requisite power and authority to
<PAGE>
conduct its businesses, own its properties, and carry out the terms of
the Pledge Agreement and the Deficiency Guaranties and Full Recourse
Guaranties (referred to herein as the "Guaranties"); (J) except to the
extent disclosed in such opinion, such counsel has no knowledge of any
litigation affecting Guarantor; (K) the execution, delivery and
performance by Guarantor of the Pledge Agreement and Guaranties will
not violate the Articles of Incorporation or by+laws of Guarantor or
any law, rule, judgment, order, decree, agreement or instrument to
which Guarantor is a party or by which Guarantor is bound; (L) no
consent to the execution, delivery or performance by Guarantor of the
Pledge Agreement or Guaranties is required of any governmental
authority (or if required, has been obtained); (M) the issued and
outstanding capital stock of Borrower consists of 500 shares, all of
which are held of record by Guarantor; (N) the Guaranties associated
with such Advance, are the legal, valid and binding obligations of
Guarantor, including that the provisions of such Guaranty with respect
to choice of law to govern the interpretation and enforcement thereof
and consent to jurisdiction and choice of forum in connection with such
interpretation and enforcement are legal, valid and binding; and (O)
Lender will have, upon filing of the applicable UCC financing
statements or the equivalent and the taking of the actions required
pursuant to the Security Agreement executed by Borrower in connection
with each Advance, a perfected, first priority security interest in and
to the Mortgaged Property referred to therein, provided, that to the
extent special FAA counsel or the equivalent provides an opinion as to
such matters, the opinion of counsel to Borrower need not address such
matters;
(d) No event shall have occurred which has a material adverse
effect on the business, operations or prospects of Guarantor since
September 30, 1996 (the date that the most recent financial statements
of Guarantor were delivered to Lender);
(e) all reasonable sums due and owing to Lender's counsel on
account of legal services rendered and disbursements incurred in
connection with this transaction shall have been paid in accordance
with invoices to be provided by Lender's counsel;
(f) Borrower shall have executed and delivered to Lender the
Note evidencing each Advance, together with a Security Agreement with
respect to the Equipment to be acquired with the proceeds of such
Advance, and Lender shall be satisfied that such Security Agreement is
sufficient to convey to Lender a valid Lien on the items and types of
property referred to therein, which Lien is effective under the laws of
the United States of America or, if effective under the laws of another
jurisdiction, provides for effective rights and remedies in favor of
Lender which are
<PAGE>
comparable to those which would inure to Lender's benefit under the
laws of the United States of America;
(g) Lender shall have reviewed, and found to be satisfactory,
the terms and conditions of the Lease relating to the Equipment as to
which such Advance is made;
(h) Borrower and the lessee under the Lease to which the
Equipment to be acquired with the proceeds of such Advance is subject,
shall have executed and delivered to Lender a Lease Assignment with
respect to such Lease, and (i) Lender shall be satisfied that such
Lease Assignment is sufficient to convey to Lender a valid Lien on the
items and types of property referred to therein, which Lien is
effective under the laws of the United States of America or, if
effective under the laws of another jurisdiction, provides for
effective rights and remedies in favor of Lender which are comparable
to those which would inure to Lender's benefit under the laws of the
United States of America, or which is otherwise satisfactory to Lender,
and (ii) such Lease Assignment shall provide for direct payment by such
lessee to Lender of (x) all security deposits, maintenance reserves and
similar amounts, which shall be held by Lender in the Retention Account
in accordance with the terms hereof and subject to the terms of such
Lease and this Agreement and (y) all monthly rental amounts under such
Lease (which must be sufficient to pay interest at the Interest Rate
under the Note which will be issued to evidence the proposed Advance
and amortize at thirty-eight percent (38%) of the principal of such
Note through the "Maturity Date" as such term is defined in such Note)
shall be retained by Lender for application to the Obligations, and
(iii) the lessees under each of the Leases shall have acknowledged the
physical existence and lessee's possession of the Equipment that is the
subject of such Lease.
(i) Guarantor shall have executed and delivered to Lender a
Full Recourse Guaranty with respect to the AM Engine Advance and the AL
Spare Parts Advance, and a Deficiency Guaranty with respect to the AL
Engine Advance and the KLM APU Advance;
(j) the Equipment to be acquired with the proceeds of such
Advance shall be Eligible Equipment as of the date of such Advance, and
Lender shall have confirmed same to Lender's satisfaction;
(k) Borrower shall have paid to Lender the Advance Fee with
respect to such Advance;
(l) Borrower shall have provided Lender with third-party
appraisals of
<PAGE>
the Equipment to be acquired with the proceeds of such Advance, which
shall be satisfactory to Lender in form and substance and the values of
such shall not be materially less than those determined internally by
Lender;
(m) A physical inspection, of the Equipment to be acquired
with the proceeds of such Advance, shall have been conducted by Lender
or an agent, employee or designee of Lender (specifically, with respect
to the AL Spare Parts, a representative sample will be inventoried),
and Lender, its agent, employee or designee shall have prepared a
satisfactory appraisal report with respect to such Equipment, which
appraisal report shall confirm, without limitation, that the
loan-to-value requirements of Section 2.1(b) and Exhibit E hereof would
be satisfied with the making of the proposed Advance; provided, that
Lender shall not require such Equipment to be removed from the aircraft
on which it is installed in order to conduct such physical inspection
unless Lender shall determine that such removal is necessary and
Borrower shall agree in advance to such removal;
(n) Lender shall have prepared (with the assistance of
Borrower, to the extent requested by Lender), and found satisfactory,
an analysis of (i) the Equipment to be acquired with the proceeds of
such Advance, including market data and specifications with respect to
the Equipment to be acquired with the proceeds of such Advance , (ii)
the operations, creditworthiness and financial performance of the
lessee under the Lease which affects the Equipment to be acquired with
the proceeds of such Advance, and (iii) the intended use by such lessee
of such Equipment;
(o) No material adverse change shall have occurred in the
finances, operations or business of (i) Borrower since the date of the
most recent financial statements of Borrower which were delivered to
Lender prior to the date of the proposed Advance and (ii) Guarantor
since the date of the most recent financial statements of Guarantor
which were delivered to Lender prior to the date of the proposed
Advance;
(p) Borrower shall have performed all of its agreements and,
subject to the making of such Advance, paid all sums, to be performed
or paid hereunder (including sums payable under Section 14.2) on or
prior to the date of such proposed Advance, and the representations and
warranties of Borrower contained herein and in each Loan Document to
which Borrower is a party shall be true and correct as of such date, as
if made on and as of such date, and Borrower shall have so certified to
Lender;
(q) Borrower shall have duly executed and delivered to Lender
and
<PAGE>
Lender shall have approved and accepted (i) all UCC+1 financing
statements and assignments or other similar documents reasonably deemed
necessary by Lender to perfect, maintain and preserve the Liens in and
to, and the security interest in, that portion of the Collateral in
which Lender will acquire a Lien upon the making of an Advance, and
(ii) such documents as Lender may require in connection with the
termination of any and all liens, claims or encumbrances affecting any
of the Mortgaged Property including, without limitation, all releases,
consents, and/or terminations required by Lender in respect of the ILFC
Bridge Loan Documents or the Subordinated Note;
(r) The Security Agreement with respect to the Equipment to be
acquired with the proceeds of such Advance, and all such financing
statements, assignments, releases or other similar documents shall be
suitable for filing in all public offices reasonably deemed necessary
by Lender to perfect the security interests granted to Lender under the
Security Agreement;
(s) No Event of Default or Default under this Agreement or any
other Loan Document or existing Loan Documents shall have occurred and
be continuing;
(t) All documents, instruments and certificates relating to
the making of the Advances and all proceedings in connection with the
transactions contemplated by this Agreement or any other Loan Document
shall be satisfactory in form and substance to Lender, and Lender shall
have received copies of all such instruments, certificates, and other
evidence as Lender may reasonably request with respect to such
transactions in form and substance satisfactory to Lender and its
counsel;
(u) Lender shall be satisfied that following the making of
such Advance, the Equipment to be acquired with the proceeds thereof
shall be free of all Liens other than Permitted Liens, and Borrower
shall be the holder of good and marketable title thereto, and the Lien
of Lender on such Equipment shall be a first priority perfected
purchase money Lien;
(v) All documents, instruments and certificates relating to
the making of such Advance shall be satisfactory in form and substance
to Lender, and Lender shall have received copies of all such
instruments, certificates, and other evidence as Lender may reasonably
request with respect to such transactions in form satisfactory to
Lender and its counsel, including, without limitation, at least three
(3) Business Days prior to the date an Advance is to be made, one or
more Certificates of Insurance, satisfactory in all respects to Lender,
evidencing that insurance conforming to all of the requirements of the
Security Agreement with respect to the
<PAGE>
Equipment to be acquired with the proceeds of such Advance, is in force
with respect to the Mortgaged Property thereunder and a written opinion
of each insurance broker issuing such Insurance Certificate confirming
that the insurance coverage described in such Insurance Certificate
complies with the requirements of such Security Agreement;
(w) Borrower shall have caused to be delivered to Lender a
favorable opinion, dated the Closing Date, in form and substance
satisfactory to Lender, of (i) FAA counsel, if the Lien of Lender will
be perfected by filing with the FAA, and (ii) the equivalent counsel,
to the extent applicable, under the laws of another applicable
jurisdiction, in which the Security Agreement will become of record,
which shall include, without limitation, the opinion of such counsel
that (A) Borrower has title to the Equipment to be acquired with the
proceeds of such Advance and that there are no outstanding liens,
mortgages, charges, options, interests or encumbrances on or security
interests therein or thereon or of record with respect thereto,
including tax liens or assessments (other than Permitted Liens) and (B)
Lender will, upon such filing of the Security Agreement or its becoming
of record under the laws of such jurisdiction, as applicable, have a
perfected, first priority security interest in and to the Mortgaged
Property described therein, and Lender shall have received confirmation
from such counsel that Borrower has delivered executed copies of the
Security Agreement to such counsel, who shall have approved same as
being in appropriate form for recordation with the FAA or such other
appropriate authority, and shall have delivered to such counsel a
letter, in form and substance satisfactory to Lender, authorizing and
directing such counsel to file the Security Agreement, which letter
shall provide that such authorization and direction may not be revoked
or revised without the prior written consent of Lender;
(x) Borrower shall have provided to Lender evidence
satisfactory to Lender that (i) upon the making of such Advance (i)
Borrower shall have sufficient funds in order to acquire the Equipment
to be acquired with the proceeds of such Advance, and (ii) Borrower
shall acquire good and marketable title to such Equipment, subject to
no Liens other than Permitted Liens, and Lender shall acquire a valid
first priority purchase money security interest on such Equipment; and
(y) Borrower shall have caused to be delivered to Lender the
chattel paper counterpart, if any, of the Lease as to which such
Advance relates, and Lender shall be satisfied that Lender has a valid
first priority security interest on the interest of Borrower as lessor
under such Lease.
<PAGE>
EXHIBIT E
to
SECURED LOAN AGREEMENT
- --------------------------------------------------------------------------------
<TABLE>
REQUIRED LOAN TO VALUE RATIOS
- --------------------------------------------------------------------------------
<CAPTION>
--------------------------- -------------------------- -------------------------- --------------------------
Period (End Of) FINOVA Loan FINOVA FINOVA
Balance Collateral on LTV%
Fair Market Value
Basis
--------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Initial Funding $11,010,875 $13,250,000 83.1%
--------------------------- -------------------------- -------------------------- --------------------------
12 Months $10,298,851 12,642,855 81.5%
--------------------------- -------------------------- -------------------------- --------------------------
24 Months $9,508,410 $12,035,710 79.0%
--------------------------- -------------------------- -------------------------- --------------------------
36 Months $8,630,913 $11,428,566 75.5%
--------------------------- -------------------------- -------------------------- --------------------------
48 Months $7,659,459 10,821,421 70.8%
--------------------------- -------------------------- -------------------------- --------------------------
60 Months $6,671,044 10,214,276 65.3%
--------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
Assumptions:
a. The Fair Market Value of the Eligible Equipment declines over
the Loan term on a straight line basis.
b. Security Deposits are not included in the above calculation of
Loan to Value ratios.
<TABLE>
Willis Lease Finance Corporation
Computation of Earnings Per Share
Quarters Ended March 31, 1997
<CAPTION>
1997 1996
--------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Income before extraordinary item
Primary
Earnings
Income to common shares before extraordinary item: $1,015 $ 837
Shares:
Weighted average number of common shares 5,577 3,111
outstanding
====== ======
Primary earnings per common share before extraordinary item $ 0.18 $ 0.27
Assuming Full Dilution
Earnings:
Income before extraordinary item $1,015 $ 837
====== ======
Shares:
Weighted average number of common shares
outstanding and common stock equivalents 5,577 3,111
====== ======
Earnings per common share assuming full dilution $ 0.18 $ 0.27
====== ======
Net income
Primary
Earnings:
Net income to common shares: $3,023 $ 837
====== ======
Shares:
Weighted average number of common shares 5,577 3,111
outstanding
====== ======
Primary earnings per common share $ 0.54 $ 0.27
Assuming Full Dilution
Earnings:
Net income $3,023 $ 837
====== ======
Shares:
Weighted average number of common shares
outstanding and common stock equivalents 5,577 3,111
====== ======
Earnings per common share assuming full dilution $ 0.54 $ 0.27
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 21,021,413
<SECURITIES> 0
<RECEIVABLES> 4,101,088
<ALLOWANCES> 0
<INVENTORY> 4,571,288
<CURRENT-ASSETS> 0
<PP&E> 102,391,049
<DEPRECIATION> 16,916,370
<TOTAL-ASSETS> 133,453,652
<CURRENT-LIABILITIES> 0
<BONDS> 0
16,103,946
0
<COMMON> 0
<OTHER-SE> 10,169,633
<TOTAL-LIABILITY-AND-EQUITY> 133,453,652
<SALES> 4,769,520
<TOTAL-REVENUES> 9,533,501
<CGS> 3,556,669
<TOTAL-COSTS> 6,087,161
<OTHER-EXPENSES> 1,785,915
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,660,425
<INCOME-TAX> 645,284
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 2,007,929
<CHANGES> 0
<NET-INCOME> 3,023,070
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
</TABLE>
