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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number:
WILLIS LEASE FINANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 68-0070656
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
180 HARBOR DRIVE, 94965
SUITE 200, SAUSALITO, CA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
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Registrant's telephone number, including area code (415) 331-5281
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock NASDAQ
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Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Registration S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. / /
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 9, 1998 was approximately $60,099,041 million (based on a
closing sale price of $21.125 per share as reported on the NASDAQ National
Market). Shares of Common Stock held by each executive officer and director and
by each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
The number of shares of the registrant's Common Stock outstanding as of
March 9, 1996 was 7,210,598.
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WILLIS LEASE FINANCE CORPORATION
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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Item 1. Business.......................................................................................
Item 2. Properties.....................................................................................
Item 3. Legal Proceedings..............................................................................
Item 4. Submission of Matters to a Vote of Security Holders............................................
PART II
Item 5. Market for Registrant's Common Equity and related Stockholder Matters..........................
Item 6. Selected Financial Data........................................................................
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..........
Item 8. Financial Statements and Supplementary Data....................................................
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........
PART III
Item 10. Directors and Executives Officers of the Registrant............................................
Item 11. Executive Compensation.........................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions.................................................
PART IV
Item 14. Exhibits, Financial Schedules and Reports on Form 8-K..........................................
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PART I
ITEM 1. BUSINESS
Willis Lease Finance Corporation and its subsidiaries (the "Company") is a
provider of operating leases of aircraft equipment and aircraft parts worldwide.
The Company's core business is acquiring and leasing commercial aircraft spare
engines and other aircraft equipment to domestic and international airlines,
manufacturers and overhaul/repair facilities pursuant to operating leases. As a
significant corollary to its core business, the Company through its wholly owned
subsidiary Willis Aeronautical Services, Inc. ("WASI"), acquires engine parts
and other aviation equipment, such as whole engines and aircraft, which can be
dismantled and sold as parts. In addition, the Company engages in the selective
purchase and resale of commercial aircraft engines and engine components in the
aftermarket.
The Company is a California corporation which commenced its leasing business
in 1988. Its executive offices are located at 180 Harbor Drive, Suite 200,
Sausalito, California 94965. The Company transacts business directly and through
its subsidiaries unless otherwise indicated.
INDUSTRY BACKGROUND
Commercial airlines typically maintain a number of spare aircraft engines to
ensure that their aircraft are not grounded when engines or parts are removed
for normal maintenance or as a result of failure. Industry analysts estimate
that the worldwide fleet of approximately 11,500 commercial aircraft utilizes
approximately 30,000 engines, including approximately 5,000 spare engines valued
at over $11 billion. The Boeing 1997 Current Market Outlook (the "Boeing
Report") estimates 16,160 new commercial aircraft will be added over the next 20
years, resulting in a projected worldwide fleet of approximately 23,600
commercial aircraft in 2016, net of retired aircraft. These 16,160 new
deliveries, which represent a mixture of two-, three- and four-engined aircraft,
will require approximately 35,000 installed engines and, assuming a ratio of
approximately 15% spare engines to installed engines, approximately 5,300
additional spare engine acquisitions over the next 20 years. The Boeing Report,
and the foregoing numbers, do not address the additional number of aircraft and
engines which will be required to service the commuter or corporate markets.
Airlines have increasingly turned to operating leases as an alternative to
traditional financing of their aircraft, engines and spare parts. Aviation Week
and Space Technology ("Aviation Week") reports that leasing will be the primary
means by which the global air transport industry acquires new aircraft between
now and 1999, and probably beyond. Aviation Week, based upon data provided by GE
Capital Aviation Services, states that in 1986, 41% of the world's airlines
owned all of their equipment, 15% leased all of their equipment and 44% used a
mix of the two (with 80% owned and 20% leased). By contrast, in 1996, only 16%
owned all of their equipment, while 42% leased all of their equipment and 42%
used a mix of the two (with 40% owned and 60% leased).
Advantages to airlines of leasing include greater flexibility in fleet
management, off-balance sheet treatment of operating leases, the ability to
employ funds without affecting debt-to-equity ratios, and the shifting of
residual value risk to a third party. The Company believes that airlines are
increasingly considering their spare aircraft engines and spare parts as
significant capital assets suitable for lease. Due to the increasing cost of
newer aircraft equipment, the anticipated modernization of the worldwide
aircraft fleet and the significant cost associated therewith, and the emergence
of new niche-focused airlines which generally use leasing for capital asset
acquisitions, the Company believes this trend toward operating leases will
continue.
STRATEGY
The Company's strategy for its leasing business is to focus primarily on
operating leases of commercial aircraft engines and aircraft parts worldwide
while maximizing residual values. The Company purchases
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primarily aftermarket commercial aircraft equipment for lease and resale. The
Company focuses on noise compliant Stage III commercial jet aircraft engines for
its lease portfolio. As of December 31, 1997, all of the Company's engines were
Stage III engines and were generally suitable for use on one or more commonly
used aircraft.
Additionally, the Company has made a selective investment in aircraft for
lease and may make further such investments in the future. This investment,
which occurred in late 1997, involved the purchase of three commuter aircraft
for the lease portfolio.
Through the spare parts and component sales operations of its WASI
subsidiary, the Company sells aircraft spare parts to commercial passenger
airlines, air cargo carriers, overhaul/repair facilities and other spare parts
distributors. WASI can provide some parts for maintenance and overhaul of the
Company's engines at prices lower than the Company could obtain from third
parties. As engines in the Company's leasing portfolio age and reach the point
at which they are more valuable as component parts, the Company expects that
WASI will be able to sell engine components from such engines.
AIRCRAFT EQUIPMENT LEASING
Most of the Company's current leases to air carriers, manufacturers and
overhaul/repair facilities are operating leases as opposed to finance leases.
Under an operating lease, the Company retains title to the aircraft equipment
thereby retaining the benefit and assuming the risk of the residual value of the
aircraft equipment. Operating leases allow airlines greater fleet and financial
flexibility due to their shorter-term nature and the relatively small initial
capital outlay necessary to obtain use of the aircraft equipment. Operating
lease rates are generally priced higher than finance lease rates, in part
because of the risks associated with the residual value. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Ownership Risks."
The Company primarily targets the medium-term lease market, which generally
consists of leases with three to ten year lease terms. Airlines, manufacturers
and overhaul/repair facilities leasing for this term generally do so when their
projected utilization of specific equipment is deemed to be less than its useful
life, or when they seek to manage their cash flow more efficiently while
strengthening their balance sheets. All of the Company's lease transactions with
three to ten year lease terms are triple-net leases. A triple-net lease requires
the lessee to make the full lease payment and pay any other expenses associated
with the use of the equipment, such as maintenance, casualty and liability
insurance, sales or use taxes and personal property taxes. The leases contain
detailed provisions specifying maintenance standards and the required condition
of the aircraft equipment upon return at the end of the lease. During the term
of the lease, the Company generally requires the lessee to maintain the aircraft
engine in accordance with an approved maintenance program designed to ensure
that the aircraft engine meets applicable regulatory requirements in the
jurisdictions in which the lessee operates. Under short-term leases and certain
medium-term leases, the Company may undertake a portion of the maintenance and
regulatory compliance risk. To date, the Company has attempted to minimize its
currency and exchange risks by negotiating all of its lease transactions in U.S.
Dollars. In addition, to date, all guarantees obtained to support various lease
agreements are denominated and payable in U.S. Dollars. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--International Risks."
The Company recently made its first investment in the aircraft leasing
market by purchasing three turbo-prop commuter aircraft and three spare engines
which are leased to a domestic commuter airline. Generally, the same benefits,
issues and risks that apply to aircraft engine leasing apply to the lease of
aircraft. The Company anticipates that it may invest in additional aircraft for
lease in the future.
In addition to the benefits, issues and risks that apply to the leasing of
aircraft equipment generally, leases of spare parts may involve additional
risks. For example, it is likely to be more difficult to recover parts in the
event of a lessee default and the residual value of parts may be less
ascertainable than an engine.
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The Company typically collects maintenance reserves and security deposits
from engine lessees and security deposits from its aircraft lessee and its parts
lessees. Generally, the Company collects, in advance, a security deposit equal
to at least one month's lease payment, together with one month's estimated
maintenance reserve. The security deposit is returned to the lessee after all
return conditions have been met. Maintenance reserves are accumulated in
accounts maintained by the Company or its lenders and are used when normal
repair associated with engine use or maintenance is required. In many cases, to
the extent that cumulative maintenance reserves are inadequate to fund normal
repairs required prior to return of the engine to the Company, the lessee is
obligated to cover the shortfall. Parts leases generally require that the parts
be returned in the condition they were in at lease inception.
The Company makes an independent analysis of the credit risk associated with
each lessee before entering into a lease transaction. The Company's credit
analysis generally consists of evaluating the prospective lessee's financial
standing utilizing financial statements, trade references and/or banking
references. In certain circumstances, where the Company or its lenders believe
necessary, the Company may require its lessees to obtain a partial letter of
credit or a guarantee. The Company also evaluates insurance and expropriation
risk and evaluates and monitors the political and legal climate of the country
in which a particular lessee is located in order to determine its ability to
repossess its collateral should the need arise. While the Company has
experienced some collection problems, including delay in lease rental payments,
to date the Company has not experienced material losses attributable to such
problems; however, there can be no assurance that the Company will not
experience collection problems or significant losses in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Customer Credit Risks."
During a given lease period, the Company's leases require that the leased
equipment undergo maintenance and inspection at qualified maintenance facilities
certified by the FAA or its foreign equivalent. In addition, when equipment
comes off-lease, it undergoes thorough inspection to verify compliance with
lease return conditions. Maintenance, overhaul and thorough inspections during
and after the lease term help ensure that the Company's leased equipment
maintains its residual value. While there can be no assurance that the Company's
maintenance and inspection requirements will result in a realized return to the
Company upon termination of a lease, the Company believes that its emphasis on
maintenance and inspection generally helps it to recover its investment in
leased equipment.
Upon termination of a lease, the Company will re-lease or sell the aircraft
equipment or will dismantle or have equipment dismantled and will sell the
parts. The demand for aftermarket aircraft equipment for either sale or re-lease
may be affected by a number of variables including general market conditions,
regulatory changes (particularly those imposing environmental, maintenance and
other requirements on the operation of aircraft engines), changes in the supply
and cost of aircraft equipment and technological developments. In addition, the
value of a particular used aircraft, spare parts or aircraft engines varies
greatly depending upon their condition, the maintenance services performed
during the lease term and as applicable the number of hours remaining until the
next major maintenance is required. If the Company is unable to re-lease or sell
aircraft equipment on favorable terms, its ability to service debt may be
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Ownership Risks" and "Business--Aircraft
Equipment Portfolio."
AIRCRAFT EQUIPMENT LESSEES
As of December 31, 1997, the Company had 42 engines under leases to 28
customers in 17 countries, 3 aircraft on lease to one customer and 8 spare parts
packages on lease to 7 customers in 7 countries.
The following table displays the regional profile of the Company's operating
lease customer base by revenue for the years ended December 31, 1996 and
December 31, 1997. No single country other than the
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United States accounted for more than 13% and 14% of the Company's lease revenue
for the years ended December 31, 1997 and December 31, 1996 respectively.
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YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
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OPERATING LEASE OPERATING LEASE
REVENUE PERCENTAGE REVENUE PERCENTAGE
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(DOLLARS IN THOUSANDS)
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United States.......................................... $ 6,718 35% $ 5,295 39%
Europe................................................. 5,432 29% 2,840 21%
Mexico................................................. 2,479 13% 1,865 14%
Canada................................................. 1,521 8% 1,291 9%
Australia/New Zealand.................................. 1,027 6% 1,030 7%
Asia................................................... 807 4% 889 6%
South America.......................................... 778 4% 530 4%
Middle East............................................ 251 1% -- --
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Total.................................................. $ 19,013 100% $ 13,740 100%
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For the years ended 1997 and 1996, Aerovias de Mexico, S.A. de C.V., a
lessee customer of the Company, contributed approximately 13% and 14%
respectively of operating lease revenue.
As of December 31, 1997, the Company had 2 engines under finance lease to
one Asia based lessee which generated $0.4 million of revenue in 1997. The
Company had no such leases in 1996.
AIRCRAFT EQUIPMENT PORTFOLIO
The Company's management frequently reviews opportunities to acquire
suitable aircraft engines based on market demand, customer airline requirements
and in accordance with the Company's engine portfolio mix criteria and planning
strategies for leasing. Before committing to purchase specific engines, the
Company generally takes into consideration such factors as estimates of future
values, potential for remarketing, trends in supply and demand for the
particular make, model and configuration of the engines and their anticipated
obsolescence. As a result, certain types and configurations of engines do not
necessarily fit the profile for inclusion in the Company's portfolio of engines
owned and used in its leasing operation. The Company focuses particularly on the
noise compliant Stage III aircraft engines. As of December 31, 1997, all of the
engines in the Company's lease portfolio were Stage III engines and were
generally suitable for use on one or more commonly used aircraft. The Company
purchases a majority of its engines in the aftermarket, primarily from airlines
or other leasing companies. The Company applies the same general review process
it uses for acquisition of aircraft engines to possible acquisitions of aircraft
and parts for lease. The Company's investment in aircraft in late 1997 involved
the purchase of three de Havilland DHC-8 commuter aircraft. These aircraft are
Stage III compliant. The Company's parts packages consist of rotable parts for
use on commercial aircraft or the engines appurtenant to such aircraft.
The Company's commercial aircraft engine portfolio consists of aircraft
engines manufactured by CFM International ("CFM"), General Electric ("CF"),
Pratt & Whitney ("JT" and "PW") and Rolls Royce ("RB").
AIRCRAFT EQUIPMENT HELD FOR LEASE
At December 31, 1997, the Company had 44 aircraft engines and related
equipment, 8 spare parts packages and 3 aircraft with an aggregate original cost
of $163.9 million in its lease portfolio. At December 31, 1996, the Company had
32 aircraft engines with an aggregate original cost of $112.5 million, 3 spare
parts packages and no aircraft in its lease portfolio.
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As of December 31, 1997, minimum future rentals under the noncancelable
leases of these aircraft assets was as follows:
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(IN
YEAR THOUSANDS)
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1998........................................................................... $ 20,230
1999........................................................................... 16,182
2000........................................................................... 11,817
2001........................................................................... 8,560
2002........................................................................... 5,957
Thereafter..................................................................... 7,018
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$ 69,764
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AIRCRAFT EQUIPMENT FINANCING/SOURCE OF FUNDS
The Company typically acquires the engines it leases with a combination of
equity capital and funds borrowed from financial institutions. The Company can
typically borrow 80% to 100% of the engine purchase price on a recourse,
non-recourse or partial recourse basis. Under most of the Company's term loans,
the lender is entitled to receive most of the lease payments associated with the
financed engines to apply to debt service. Under the Company's warehouse
facilities, the lender is paid interest only until such time as loans under the
facilities become due. Generally, lenders take a security interest in the
engines. The Company retains ownership of the engines, subject to such security
interest. Loan interest rates often reflect the financial condition of the
underlying lessees, the terms of the lease and percentage of purchase price
advanced, and for full or partial recourse loans, the financial condition of the
Company. The Company obtains the balance of the purchase price of the engine,
the "equity" portion, from internally generated funds, cash-on-hand, and the net
proceeds of prior common stock offerings.
The loans available to the Company under recourse arrangements are secured
by the financed engines and the assignment of lease payments due under the
related leases. Upon default under a loan covering equipment financed through
recourse borrowings, the lender providing the financing can foreclose on the
equipment, repossess and sell such equipment and seek any balance due on such
financing from the Company to the extent of the recourse.
The credit standing of certain of the Company's customers and the long
operating life of aircraft engines allows the Company to finance some of its
equipment on a non-recourse or partial recourse basis. Certain of the Company's
engines are owned in wholly-owned subsidiaries set up for financing purposes.
Non-recourse loans represent loans to the Company's subsidiaries which own only
the assets securing the loan and as to which the Company has not guaranteed the
loan. The Company and its subsidiaries at December 31, 1997 had borrowings of
$7.1 million of non-recourse loans and $93.7 million of full or partial recourse
loans. The Company is not liable for the repayment of the non-recourse loans
unless the Company breaches certain limited representations and warranties under
the applicable pledge agreement. The lender assumes the credit risk of each such
lease, and its only recourse, upon a default under a lease, is against the
lessee and the leased engine.
The Company has negotiated a sharing of residual proceeds with certain
lenders in exchange for a higher percentage financing of certain aircraft
engines. Residual sharing arrangements apply to 5 of the Company's engines as of
December 31, 1997. The Company accrues for its residual sharing obligations
using net book value as a proxy for residual proceeds.
Generally, the Company has borrowed to finance the acquisition of aircraft
and parts packages on terms similar to those for engines. Such borrowings have
generally been on a recourse basis.
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Additionally, the Company and WASI have borrowed to finance the acquisition
of spare parts for resale. The advance rates on such financing range from 70% to
85%. To date, such borrowings have been on a recourse basis or in the case of
borrowings by WASI, guaranteed by the Company.
SPARE PARTS SALES
The Company, through WASI, specializes in the purchase and resale of
aftermarket engine parts, engines, modules and rotable components. WASI
purchases individual engine parts from airlines and others in the aftermarket or
acquires whole airframes or engines and contracts to have the airframes or
engines dismantled into their component parts for resale by WASI. Some of the
acquired component parts are overhauled for WASI by FAA-authorized repair
agencies and then offered for sale to airlines, maintenance and repair
facilities, and distributors. To date, WASI has targeted primarily General
Electric CF6-50, Pratt & Whitney JT9D, PW 4000 and JT8D aircraft engines and
components. These engines are the most widely used aircraft engines in the
world, powering the Boeing 747, 727 and 737, McDonnell Douglas DC10 and DC9 and
Airbus A-300 series of aircraft. WASI has begun to expand into engine components
for the CFM-56, an engine used on the Boeing 737.
WASI's operations have afforded the Company additional contacts and
opportunities in the aircraft engine market. WASI can provide some parts for
maintenance and overhaul of the Company's engines at prices lower than the
Company could obtain from third parties. As engines in the Company's leasing
portfolio age and reach the point at which they are more valuable as component
parts, the Company expects that WASI will be able to have them dismantled,
salvage valuable components and thereby maximize the residual value of the
engines.
WASI has strict guidelines regulating how parts are procured and overhauled.
After the completion of an extensive facilities audit and numerous meetings with
the Company's management, the Airline Suppliers Association, an FAA recognized
independent quality assurance organization, accredited WASI as an aftermarket
parts supplier. When procuring aircraft parts, great emphasis is placed on
source and traceability. At December 31, 1997, at least 95% of WASI's inventory
on hand was acquired from a certified commercial air carrier or others operating
under recognized regulatory agencies accepted by the FAA. Less than 5% of the
inventory was acquired from trading companies and in all such cases the parts
are certified by the seller as to origin. WASI does not trade in consumable
parts such as hardware/ fasteners. Hardware/fasteners are the most difficult to
identify as unapproved material and in many cases are impossible to identify as
unapproved material without conducting detailed analysis. WASI's trades in
life-limited parts are restricted to parts that have complete traceability back
to the OEM or in few cases traceability from a commercial air carrier back to
the OEM. See, "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Government Regulation."
WASI advertises its aircraft engine parts availability on the Inventory
Locator Service ("ILS") electronic database. Users of ILS can access the
database and determine which companies have the desired inventory. The Company
also advertises in industry publications and receives customers through
referrals.
WASI may from time to time enter into consignment agreements with airlines
or related companies to acquire surplus inventories for the purpose of marketing
and selling such consigned parts. Consignment allows WASI to access inventory
for sale without the cost and risk of ownership.
EQUIPMENT ACQUIRED FOR RESALE
The Company engages in the selective purchase and resale of commercial
aircraft engines and engine components in the aftermarket to complement its
engine and parts leasing business. It is the Company's general policy to
minimize risk by not purchasing engines or components on speculation; however,
on occasion, the Company purchases engines and components without having a
commitment for their sale. The Company normally makes a contractual commitment
to purchase specific engines or components for its own account only after, or
concurrently with, obtaining a firm customer purchase commitment.
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Although the Company usually has purchase commitments at delivery, it would have
financial exposure if it purchased an engine or components which could not
immediately be resold. The Company assesses the supply and demand of target
engines and components through its sales force and relies, to a lesser extent,
on referrals and advertising in industry publications. The Company also
subscribes to a data package that provides it with access to lists composed of
operators and their specific engine inventories and engines on order. The
Company does not refurbish or perform other maintenance on the engines or
components it sells; however, from time to time, the Company has hired third
party contractors to refurbish or repair such engines and components.
COMPETITION
In the medium-term engine lease market segment, which is the Company's
target market, the Company principally competes with Shannon Engine Services,
headquartered in Shannon, Ireland, which is owned by CFM, a joint venture
between General Electric and SNECMA. The Company also competes with Rolls Royce
Capital ("Rolls Royce"). Rolls Royce limits its leasing activities to products
of its parent company and related parties. The Bank of Tokyo-Mitsubishi, through
its affiliate Engine Lease Finance in Shannon, Ireland, also competes with the
Company. Some of these competitors are substantially larger and each has greater
financial resources than the Company which may permit, among other things,
greater access to capital markets at more favorable terms. In addition, certain
major aircraft lessors, including International Lease Finance Corporation and
General Electric Capital Aviation Services ("GECAS"), compete with the Company
to the extent that they include spare engine leases with their aircraft leases
or may compete on transactions involving numerous engines.
With respect to engine marketing and spare parts and component sales, the
Company competes with airlines, engine manufacturers, aircraft, engine and parts
brokers, and parts distributors. The Company's major competitors include the
Allen Aircraft division of AAR Corp. ("AAR"), The AGES Group ("AGES"), The
Memphis Group, Aviation Sales Company, Kellstrom Industries and AVTEAM, Inc.
Certain of these competitors may have, or may have access to, financial
resources substantially greater than the Company. Significant increases in
competition encountered by the Company in the future may limit the Company's
ability to expand its business, which would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Competition."
The Company believes that the primary competitive factors in the aircraft
engine leasing industry are flexibility in leasing terms, including price,
return conditions and term of lease, and availability of engines. The Company
believes that it is able to compete favorably in leasing commercial aircraft
engines and parts due to its experience in the industry and reputation and
expertise in acquiring commercial aircraft engines which allows the Company to
re-lease or sell such engines and parts at a competitive price.
In the spare parts package leasing market, the Company competes with AAR,
AGES, Aviation Sales Company, Kellstrom Industries and others. In the commuter
aircraft leasing market, the Company competes with The Ages Group, GECAS, the
leasing arms of certain commuter aircraft manufacturers and others.
INSURANCE
The Company requires its lessees to carry the types of insurance customary
in the air transportation industry, including comprehensive liability insurance
and casualty insurance. In addition to requiring full indemnification under the
terms of the lease, the Company is named as an additional insured on liability
insurance policies carried by lessees, with the Company or its lenders normally
identified as the payee for loss and damage to the equipment. All policies
contain a breach of warranty endorsement or severability of interest clause so
that the Company continues to be protected even if the operator/lessee violates
one or
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more of the warranties or conditions of the insurance policy. The Company
monitors compliance with the insurance provisions of the leases. The Company
also carries contingency and product liability insurance.
GOVERNMENT REGULATION
The Company's customers are generally subject to a high degree of regulation
in the various jurisdictions in which they operate. Such regulations also
indirectly affect the Company's business operations. Under the provisions of the
Transportation Act, as amended, the FAA exercises regulatory authority over the
air transportation industry. The FAA regulates the manufacture, repair and
operation of all aircraft and their components in the United States. Its
regulations are designed to insure that all aircraft and aviation equipment are
continuously maintained in proper condition to ensure safe operation of the
aircraft. Similar rules apply in other countries. All aircraft must be
maintained under a continuous condition monitoring program and must periodically
undergo thorough inspection and maintenance. The inspection, maintenance and
repair procedures for the various types of commercial aircraft equipment are
prescribed by regulatory authorities and can be performed only by certified
repair facilities utilizing certified technicians. Certification and conformance
is required prior to installation of a part on an aircraft. Presently, whenever
necessary, with respect to a particular engine or engine component, the Company
utilizes FAA and/or Joint Aviation Authority certified repair stations to repair
and certify engines and components to ensure worldwide marketability. The FAA
can suspend or revoke the authority of air carriers or their licensed personnel
for failure to comply with regulations and ground aircraft if their
airworthiness is in question. In addition, by the year 2000, federal regulations
will stipulate that most commercial aircraft that fly in the United States and
the engines appurtenant thereto hold, or be capable of holding, a noise
certificate issued under Chapter 3 of Volume 1, Part II of Annex 16 of the
Chicago Convention, or have been shown to comply with Stage III noise levels set
out in Section 36.5 of Appendix C of Part 36 of the Federal Aviation Regulations
of the United States. As of December 31, 1997, all of the engines and aircraft
in the Company's lease portfolio were Stage III engines.
EMPLOYEES
As of December 31, 1997, the Company had 45 full-time employees and 2
part-time employees (excluding consultants), including 24 employees in equipment
leasing and trading and 23 employees in airframe and engine component sales.
None of the Company's employees is covered by a collective bargaining agreement
and the Company believes its employee relations are good.
ITEM 2. PROPERTIES
The Company's principal offices are located at 180 Harbor Drive, Suite 200,
Sausalito, California 94965. The Company occupies space in Sausalito under a
lease that covers approximately 5,500 square feet of office space and expires on
March 14, 1999. Aircraft asset leasing, financing, sales, trading and general
administrative activities are conducted from the Sausalito location. In February
1998, the company signed a lease for approximately 9,300 square feet of office
space into which it anticipates moving its Sausalito operations in the second
quarter of 1998. The Company also leases approximately 16,600 square feet of
office and warehouse space for WASI's operations at 291 Harbor Way, South San
Francisco, California. This lease expires on May 31, 1998. WASI leases
approximately 6,000 square feet of warehouse space at a second South San
Francisco location. This lease is a month-to-month lease. In addition, the
Company leases approximately 10,730 square feet of space at 1769 West University
Drive, Suite 177, Tempe, Arizona 85821, which is used for parts storage and
distribution. This lease expires on July 31, 1999. See Note 10 to the Audited
Financial Statements. In March 1998, the Company contingently agreed to lease
approximately 125,000 square feet of warehouse and office space for WASI in San
Diego, California. The initial term of the lease is 6 years. WASI intends to
move substantially all of its South San Francisco operations into this facility.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth
quarter of the fiscal year 1997.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The following information relates to the Company's Common Stock, which is
listed on the NASDAQ National Market under the symbol WLFC. As of March 9, 1998,
there were 1,239 stockholders of record of the Company's Common Stock. The
foregoing number does not include beneficial holders of the Company's common
stock.
The high and low sales price of the Common Stock for each quarter of 1997,
as reported by NASDAQ, are set forth below:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
--------- --------- --------- ---------
First Quarter.................................................................... 14.50 12.25 n/a n/a
Second Quarter................................................................... 12.63 10.31 n/a n/a
Third Quarter.................................................................... 23.50 12.25 10.00 8.50
Fourth Quarter................................................................... 24.13 15.25 12.88 8.75
</TABLE>
The Company did not declare any dividends during the years ended December
31, 1997 and December 31, 1996.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected consolidated financial data and
operating information of the Company. The selected consolidated financial data
should be read in conjunction with the Consolidated Financial Statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
---------- ---------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue:
Operating lease revenue............................... $ 19,013 $ 13,740 $ 13,771 $ 13,636 $ 10,323
Gain (loss) on sale of leased engines................. 4,165 2 (483) 633 (281)
Spare parts sales..................................... 14,110 5,843 3,859 795 --
Sale of equipment acquired for resale................. 12,748 12,105 5,472 2,184 --
Interest income in direct finance lease............... 443 -- -- -- --
Interest and other income............................. 728 618 119 542 938
---------- ---------- --------- --------- ---------
$ 51,207 $ 32,308 $ 22,738 $ 17,790 $ 10,980
Expenses:
Cost of spare parts sales............................. $ 9,469 $ 3,308 $ 2,546 $ 659 --
Cost of equipment acquired for resale................. 10,678 10,789 2,742 1,863 --
All other expenses.................................... 22,245 13,351 14,168 13,295 9,857
Gain on modification of credit facility............... -- -- 2,203 -- --
---------- ---------- --------- --------- ---------
Income before income taxes and minority interest...... $ 8,815 $ 4,860 $ 5,485 $ 1,973 $ 1,123
Net income............................................ $ 7,338 $ 2,804 $ 3,216 $ 1,172 $ 669
Balance Sheet Data:
Total assets.......................................... $ 198,430 $ 124,933 $ 91,437 $ 83,542 $ 68,632
Debt (includes capital lease obligation).............. 104,235 76,146 69,911 69,456 59,840
Shareholders' equity.................................. 54,601 23,202 4,812 1,959 1,151
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Lease Portfolio:
Engine portfolio at the end of the period............. 44 32 31 26 25
Spare parts package portfolio at the
end of the period................................... 8 3 -- -- --
Aircraft portfolio at the end of the period........... 3 -- -- -- --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's core business is acquiring and leasing, primarily pursuant to
operating leases, commercial aircraft spare engines and other aircraft
equipment. The Company, through WASI, also specializes in the purchase and
resale of aftermarket airframe and engine parts, engines, modules and rotable
components. In addition, the Company engages in the selective purchase and
resale of commercial aircraft engines.
Revenue consists primarily of operating lease revenue, income from the
leasing and sale of spare parts and components and income from the sale of
engines and equipment.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Revenue is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C> <C>
1997 1996
-------------------- --------------------
<CAPTION>
AMOUNT % AMOUNT %
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating lease revenue............................................... $ 19,013 37.1% $ 13,740 42.5%
Gain on sale of leased equipment...................................... 4,165 8.1% 2 0.0%
Spare parts sales..................................................... 14,110 27.6% 5,843 18.1%
Sale of equipment acquired for resale................................. 12,748 24.9% 12,105 37.5%
Finance lease revenue................................................. 443 0.9% -- --
Interest and other income............................................. 728 1.4% 618 1.9%
--------- --------- --------- ---------
Total................................................................. $ 51,207 100.0% $ 32,308 100.0%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
LEASE PORTFOLIO. During 1997, 21 engines, 3 aircraft, and 5 spare parts
packages were added to the Company's lease portfolio at a total cost of $68.1
million. Nine engines were sold or transferred from the portfolio.
LEASING ACTIVITIES. Operating lease revenue for the year ended December 31,
1997, increased 38% to $19.0 million from $13.7 million for the comparable
period in 1996. This increase reflects lease revenues from additional engines
and spare parts packages. In late June 1997, the Company entered into two
finance leases. Finance lease income generated from these transactions totaled
$442,542 for the period ended December 31, 1997. There were no comparable
transactions for the year ended December 31, 1996.
Expenses directly related to operating lease activity increased 48% to $12.5
million. Interest expense related to all leasing activities increased 72% to
$7.5 million for the year ended December 31, 1997, from the comparable period in
1996, due primarily to an increased loan base and the replacement of an existing
facility with a new loan agreement in the first quarter of 1997 bearing a higher
interest rate. Depreciation expense increased 32% to $4.1 million for the year
ended December 31, 1997, from the comparable period
13
<PAGE>
in 1996, due to the larger asset base in 1997. Residual sharing expense
increased 24% to $0.9 million for the year ended December 31, 1997, from the
$0.7 million for the comparable period in 1996. This expense is calculated by
comparing the net book value of the engines subject to such agreements to their
related debt balances and adjusting the residual share payable to the
appropriate amount representing the sharing percentage of any excess of the net
book value over the corresponding debt balance for the engines subject to
residual sharing.
GAIN ON SALE OF LEASED ENGINES. During the year ended December 31, 1997,
the Company sold 6 engines from the lease portfolio. These engines had a net
book value of $11.5 million and they were sold for a gain of $4.2 million.
SPARE PARTS SALES. Revenues from spare parts sales increased 142% to $14.1
million. The gross margin, decreased to 33% in 1997, from 43% in the
corresponding period in 1996.
SALE OF EQUIPMENT ACQUIRED FOR RESALE. During the year ended December 31,
1997, the Company sold 10 engines for $12.7 million which resulted in a gain of
$2.1 million, compared to the year ended December 31, 1996, during which the
Company sold 4 engines for $12.1 million resulting in a gain of $1.3 million.
Included in the 1997 sales was one transaction involving the sale of four
engines acquired at a cost of $600,000 and sold for a gain of $100,000.
Equipment sales opportunities and profitability may vary materially from period
to period.
INTEREST AND OTHER INCOME. Interest and other income for the year ended
December 31, 1997, increased to $0.7 million from $0.6 million for the year
ended December 31, 1996. This is a result of interest earned on deposits held,
primarily the proceeds from the Initial Public Offering.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 82% to $9.3 million for the year ended December 31, 1997, from the
comparable period in 1996. This increase reflects expenses associated with staff
additions, increased rent due to the expansion of the WASI facility, as well as
an increase in professional fees, insurance expense and public company costs.
INCOME TAXES. Income taxes, exclusive of tax on extraordinary items, for
the year ended December 31, 1997, increased to $3.5 million from $2.0 million
for the comparable period in 1996. This increase reflects an increase in the
Company's pre-tax earnings.
EXTRAORDINARY ITEM. In February 1997, the Company obtained a new loan
agreement for $41.5 million to replace an existing loan of $44.2 million. The
transaction resulted in an extraordinary gain of $2 million, net of tax.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenue is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C> <C>
1996 1995
-------------------- --------------------
<CAPTION>
AMOUNT % AMOUNT %
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Leasing activities................................................. $ 13,740 42.5% $ 13,771 60.6 %
Gain (Loss) on sale of leased equipment............................ 2 0.0% (483) (2.1)%
Spare parts sales.................................................. 5,843 18.1% 3,859 17.0 %
Sale of equipment acquired for resale.............................. 12,105 37.5% 5,472 24.0 %
Interest and other income.......................................... 618 1.9% 119 0.5 %
--------- --------- --------- ---------
Total.............................................................. $ 32,308 100.0% $ 22,738 100.0 %
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
14
<PAGE>
LEASE PORTFOLIO. At December 31, 1995, the Company had 31 engines in its
operating lease portfolio. During 1996, four engines were either transferred or
sold from the lease portfolio. One of the four engines was transferred at its
net book value to WASI and dismantled for spare parts sales. The remaining three
engines were sold to third parties. In addition, another engine from the lease
portfolio was sold under a sale and leaseback agreement and is now reflected on
the Company's balance sheet as an engine on capital lease. In the third quarter
of 1996, the Company acquired one engine for $2.8 million and in the fourth
quarter of 1996, the Company acquired four engines for a total cost of
approximately $16.3 million, as well as two auxiliary power units (APU's) and a
spare parts package for a total cost of approximately $3.2 million. At December
31, 1996, the Company held 32 engines and 3 spare parts packages in its lease
portfolio.
OPERATING LEASES. Operating lease revenue for the year ended December 31,
1996 decreased to $13.7 million from $13.8 million for the corresponding period
in 1995. This decrease is primarily due to a decrease in revenue from one engine
which was off-lease and in a repair facility for eight months in 1996 and two
engines which were sold in 1996, offset slightly by five engines purchased and
leased late in 1996.
In 1996, expenses directly related to operating lease activity dropped 23%
to $8.1 million from $10.6 million in 1995. The reduction in expenses in 1996
was due to a reduction in depreciation expenses of $1.6 million (33%) as a
result of two engines in 1995 that were fully depreciated and the sale of two
engines in the third quarter of 1996. Interest expense dropped $1.2 million
(22%) in 1996 from 1995, due primarily to the modification of the then-existing
term loan with Marine Midland Bank (the "Midland Loan") in June 1995 resulting
in more favorable interest rates. Residual sharing expenses, however, increased
77% to $723,000 in 1996 from the corresponding period in 1995 due to changes in
the Company's portfolio of engines subject to such agreements. This expense is
calculated by comparing the net book value of these engines to their related
debt balances and adjusting the residual share payable to the appropriate amount
representing the sharing percentage of any excess of the net book value over the
corresponding debt balance for the six engines subject to residual sharing.
GAIN (LOSS) ON SALE OF LEASED ENGINES. The loss in 1995 was attributable to
unanticipated overhaul expenses of $373,000 required in order to prepare an
engine for resale and a $110,000 loss on the sale of the engine.
SPARE PARTS SALES. Revenues from spare parts sales increased 51% to $5.8
million primarily due to increased volume. Gross margin rose to 43% in 1996 from
34% in the corresponding period in 1995, primarily due to a change in the mix of
parts sold and the gross margins related thereto.
SALE OF EQUIPMENT ACQUIRED FOR RESALE. During the year ended December 31,
1996, the Company sold four engines for proceeds of $12.1 million, generating
gains of $1.3 million. In 1995, the Company sold three engines for $4.8 million,
a fuselage and miscellaneous components it acquired in connection with an
aircraft purchase for $572,000 and other components for $100,000. The aggregate
cost of the equipment sold was $10.8 million and $2.7 million in 1996 and 1995,
respectively.
INTEREST AND OTHER INCOME. Interest and other income for 1996 increased to
$617,000 from $119,000 in 1995, an increase of 418%. This increase was due
primarily to increased marketing/brokerage fee income earned on one engine,
nonrecurring credits due the Company regarding excessive engine overhaul costs
and an increase in interest earned on the net proceeds from the Initial Public
Offering, as well as interest earned on certain engine security deposits.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 53% to $5.1 million in 1996, up from $3.3 million in 1995. This
increase reflects additional compensation due to an increased workforce and
increased bonus payments; increased telephone and travel costs due to increased
marketing personnel and activity; increased rent due to the expansion of the
WASI facility and an increase in professional fees and insurance as a result of
the Initial Public Offering.
15
<PAGE>
GAIN ON MODIFICATION OF CREDIT FACILITY. In 1995, the Company modified the
terms of the Midland Loan. The gain of $2.2 million in 1995 on the modification
of credit facility reflects a gain from the removal of residual sharing
provisions of $2.4 million and a $199,000 loss on the sale of two engines to the
lender.
INCOME TAXES. Income taxes decreased to $2 million in 1996 from $2.2
million in 1995. The Company's effective tax rates for Federal and state taxes
was approximately 41% and 40% in 1996 and 1995, respectively. Therefore, the
decrease in tax expense was due to the decrease in the Company's income before
taxes and minority interest offset by a slight increase in the effective tax
rate.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its growth through borrowings secured
by its lease portfolio. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" above and "Business--Aircraft Equipment
Financing/Source of Funds." Cash of approximately $165.6 million, $16.1 million,
and $15.7 million in the years ended December 31, 1997, 1996 and 1995,
respectively, was derived from this activity. In these same time periods, $137.1
million, $13.5 million and $9.3 million, respectively, was used to pay down
related debt. In December 1997, net proceeds from a secondary common stock
offering were approximately $23.8 million, as discussed below. In 1996, net
proceeds from the Initial Public Offering were approximately $15.9 million, as
discussed below. Cash flows from operating activities generated approximately
$6.5 million, $9.6 million and $0.5 million in the years ended December 31,
1997, 1996 and 1995, respectively.
The Company's primary use of funds is for the purchase of equipment for
operating and finance lease. Approximately $68.1 million, $25.3 million, and
$9.3 million of funds were used for this purpose in the years ended December 31,
1997, 1996 and 1995, respectively. Additional funds were used in these periods
to finance the growth of inventories to support parts sales.
The secondary offering which occurred in December 1997 was for 1,725,000
shares of Common Stock at $15.00 per share. The proceeds to the Company, net of
all expenses, were $23.8 million. The primary use of these proceeds was
repayment of amounts outstanding under the Company's revolving credit facility.
The Initial Public Offering which occurred in September 1996 was for
2,300,000 shares of Common Stock at $8.00 per share. The proceeds to the
Company, net of all expenses, were $15.9 million. These proceeds were used to
prepay $1.3 million of indebtedness under an existing term facility, and to
purchase an amortizing interest rate cap to hedge a portion of the Company's
exposure to increases in interest rates on its variable rate borrowings for a
cost of $469,000. The balance of the proceeds, together with debt financing,
were used to acquire additional engines for lease, to acquire engine and
airframe component inventory, and for working capital and other general
corporate purposes.
Until February 1997, the Company's primary lender was Marine Midland Bank
("Midland"). Prior to June 1995, the Midland loan provided, among other things,
for interest payable at LIBOR plus 3.5% to 5%, required a specified percentage
of lease payments to be applied to debt service but required final payment only
upon the sale of the subject engine, and provided to the lender a share of the
residual value of financed engines. In June 1995, the Company modified the
Midland loan. As part of the modification, the Midland loan was converted to a
ten-year, full payout loan, the existing residual sharing arrangement with the
lender was terminated, the interest rate was reduced to LIBOR plus 1%, and the
lender acquired two engines from the Company with a net book value of $5.7
million. This modification resulted in a gain to the Company of $2.2 million. In
February, 1997, the Company repaid the Midland loan at a discount which resulted
in an extraordinary book gain, net of tax and related costs, of approximately
$2.0 million. The transaction was financed through a loan of $41.5 million from
a financial institution at an interest rate of LIBOR plus 2.5%. In December
1997, a substantial portion of this loan was repaid from proceeds of the Funding
Corp. Facility defined below. The remainder of the loan was to mature in
February 1998 but has been extended to June 1998. As of December 31, 1997, $13.4
million was outstanding under this facility.
16
<PAGE>
The Company has a revolving credit facility to finance the acquisition of
engines and high-value spare parts for sale or lease. Assuming compliance with
the facility's terms, including sufficiency of collateral, at December 31, 1997
and March 17, 1998, $45 million and $18.1 million was available under this
facility, respectively. Fifteen million of this facility matures on May 31, 1998
and the remainder of the facility expires on June 12, 1998. The facility bore
interest at prime plus .25% on December 31, 1997 and may be renewed annually.
The Company has an $80 million warehouse facility, available to a special
purpose finance subsidiary of the Company, for the financing of jet aircraft
engines transferred by the Company to such finance subsidiary (the "Funding
Corp. Facility"). This transaction's structure facilitates future public or
private securitized note issuances by the special purpose finance subsidiary.
This facility has an eight year term and bears interest at LIBOR plus 2.25%.
This facility requires the issuer to hedge 50% of the facility against interest
rate changes no later than April 30, 1998. Assuming compliance with the
facilities terms, including sufficiency of collateral, as of December 31, 1997
and March 17, 1998, $45.6 million and $34.2 million was available under this
facility, respectively.
WASI has a $3 million secured working capital facility for the acquisition
of engines to be dismantled and sold for parts through WASI. This facility
provides for advances against the purchase price of parts for resale and bears
interest at prime plus 1%. This facility requires interest-only payments for the
first five months with the principal balance due six months after drawdown and
expires on April 30, 1998. The Company directly guarantees WASI's obligations
under this facility. Assuming compliance with the facilities terms, including
sufficiency of collateral, as of December 31, 1997 and March 17, 1998,
approximately $0.4 million and $1.3 million was available under this facility
respectively.
Approximately $27.3 million of the Company's debt is repayable during 1998.
The majority of such repayments consist of scheduled balloon payment maturities
on term loans. The balance of the repayments consist of scheduled installments
due under term loans. A portion of the balloon payment maturities was refinanced
subsequent to year-end 1997 under the Company's $80 million warehouse facility.
The Company anticipates that it will refinance the remaining balloon payment
maturities during the course of 1998.
The Company believes that its current equity base and internally generated
funds are sufficient to fund the Company's anticipated equity requirements
operations for at least 12 months, at which time additional equity may be
required to fund projected growth. The Company believes its current credit
facilities are sufficient to fund the Company's debt capital needs into the
second quarter of 1998. The Company is seeking to expand its existing revolving
credit facility and make other borrowing arrangements to fund future growth.
The Company's ability to successfully execute its business strategy is
dependent in part on its ability to raise equity capital and to obtain debt
capital. There can be no assurance that the necessary amount of such equity or
debt capital will continue to be available to the Company on favorable terms, or
at all. If the Company were unable to continue to obtain required financing on
favorable terms, the Company's ability to add new engines and parts packages to
its portfolio or to conduct profitable operations with its existing asset base
would be impaired, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
As of December 31, 1997, the Company had 3 engines and 5 spare parts
packages which had not been financed. The Company will likely seek financing for
this equipment, although no assurance can be given that such financing will be
available on favorable terms, if at all. In addition, certain of the Company's
engines have been financed under floating rate facilities. Until fixed rate
financing for these assets is in place, the Company is subject to interest rate
risk, since the underlying lease revenue is fixed. See "Managements Discussion
and Analysis of Financial Condition and Results of Operations--Interest Rate
Risks" below.
17
<PAGE>
Between December 31, 1997 and March 17, 1998, the Company and WASI purchased
nine engines for the lease portfolio and one engine for the parts operation. The
total cost of these purchases was approximately $39.2 million. These purchases
were funded with cash and borrowings under the Company's revolving line of
credit and the Funding Corp. Facility. Additionally, the Company committed,
subject to documentation, to purchase, during 1998 and 1999, certain used
aircraft for its WASI parts operation. Certain deposits have and will be made in
connection with this commitment and the total commitment to purchase over the
course of 1998 and 1999 is not more than $38 million.
MANAGEMENT OF INTEREST RATE EXPOSURE
At December 31, 1997, $53.5 million of the Company's borrowings were on a
variable rate basis at various interest rates tied to either LIBOR or the prime
rate. The Company's equipment leases are generally structured at fixed rental
rates for specified terms. To date, this variable rate borrowing has resulted in
lower interest expense for the Company. 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. See "Risk Factors--Interest Rate Risks."
In September 1996, the Company purchased an amortizing interest rate cap in
order to limit its exposure to increases in interest rates on a portion of its
variable rate borrowings. Pursuant to this cap, the Counter Party will make
payments to the Company, based on the notional amount of the cap, if the three
month LIBOR RATE is in excess of 7.66%. As of December 31, 1997, the notional
principal amount of the cap was 36.2 million and said amount will decline to $26
million at the end of its term. The cost of the cap is being amortized as an
expense over a four-year period. The company will be exposed to credit risk in
the event of non-performance of the interest rate cap counter party.
RISK FACTORS
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 discussions in this Report contain 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.
OWNERSHIP RISKS
The Company leases its portfolio of aircraft engines, aircraft and spare
parts packages primarily under operating leases as opposed to finance leases.
Under an operating lease, the Company retains title to the aircraft equipment
and assumes the risk of not recovering its entire investment in the aircraft
equipment through the re-leasing and remarketing process. Operating leases
require the Company to re-lease or sell aircraft equipment in its portfolio in a
timely manner upon termination of the lease in order to minimize off-lease time
and recover its investment in the aircraft equipment. Numerous factors, many of
which are beyond the control of the Company, may have an impact on the Company's
ability to re-lease or sell aircraft equipment on a timely basis. Among the
factors are general market conditions, regulatory changes (particularly those
imposing environmental, maintenance and other requirements on the operation of
aircraft engines), changes in the supply or cost of the aircraft equipment and
technological developments. Further, the value of a particular used aircraft
engine or aircraft varies greatly depending upon its condition, the number of
hours remaining until the next major maintenance of the aircraft engine aircraft
part or aircraft is required and general conditions in the airline industry. In
addition, the success of an operating lease depends in part upon having the
aircraft equipment returned by the lessee in marketable
18
<PAGE>
condition as required by the lease. Consequently, there can be no assurance that
the Company's estimated residual value for the aircraft equipment will be
realized. As of December 31, 1997, the Company had 42 engines, 3 aircraft and 8
parts packages under lease to 33 customers in 20 countries (2 additional engines
were off lease, one of which was leased in January 1997.) If the Company is
unable to re-lease or sell the aircraft equipment on favorable terms, its
business, financial condition, cash flow, ability to service debt and results of
operations could be adversely affected.
The Company, through WASI, also acquires aviation equipment such as whole
engines and aircraft which can be dismantled and sold as parts. Before parts may
be installed in an aircraft, they must meet certain standards of condition
established by the Federal Aviation Administration. See "Government Regulations"
below. Parts must also be traceable to sources deemed acceptable by the FAA. See
"Business--Spare Parts Sales." Parts owned by the Company may not meet
applicable standards or standards may change, causing parts which are already in
the Company's inventory to be scrapped or modified. Engine manufacturers may
also develop new parts to be used in lieu of parts already contained in the
Company's inventory. In all such cases, to the extent the Company has such parts
in its inventory, their value may be reduced. In addition, if the Company does
not sell airframe and engine component parts that it purchases in the time frame
contemplated at acquisition, the Company may be subject to unanticipated
inventory financing costs as well as all the risks of ownership described above.
The Company also engages in the selective purchase and resale of commercial
aircraft engines and engine components in the aftermarket. On occasion, the
Company purchases engines or components without having a commitment for their
sale. If the Company were to purchase an engine or component without having a
firm commitment for its sale or if a firm commitment for sale were to exist but
not be consummated for whatever reason, the Company would be subject to all the
risks of ownership described above.
INDUSTRY RISKS
Downturns in the air transportation industry affect each of the three
components of the Company's business. In particular, substantial increases in
fuel costs or interest rates, increased 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.
While the Company believes that its lease terms protect its aircraft
equipment and the Company's investment in such aircraft equipment, there can be
no assurance that the financial difficulties experienced by a number of airlines
will not have an adverse effect on the Company's business, financial condition
or results of operations. In recent years and as discussed in "Customer Credit
Risks" below, a number of commercial airlines have experienced financial
difficulties, in some cases resulting in bankruptcy proceedings.
CUSTOMER CREDIT RISKS
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 existing and
prospective customers include smaller domestic and foreign passenger airlines,
freight and package carriers and charter airlines, which, together with major
passenger airlines, may suffer from the factors which have historically affected
the airline industry. As a result, certain of these customers may pose credit
risks to the Company. The Company's inability to collect receivables due under a
lease or to repossess aircraft equipment in the event of a default by a lessee
could have a material adverse effect on the Company's business, financial
condition or results of operations. A number of airlines have experienced
financial difficulties, certain airlines have filed for bankruptcy and a number
of such airlines have ceased operations. In most cases where a debtor seeks
protection under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code"), creditors are
19
<PAGE>
automatically stayed from enforcing their rights. In the case of United States
certified airlines, Section 1110 of the Bankruptcy Code provides certain relief
to lessors of the aircraft equipment. Specifically, the debtor airline has 60
days from the date the airline seeks protection under Chapter 11 of the
Bankruptcy Code to agree to perform its obligations and to cure any defaults. If
it does not do so, the lessor may repossess the aircraft equipment. The scope of
Section 1110 has been the subject of significant litigation and there can be no
assurance that the provisions of Section 1110 will protect the Company's
investment in an aircraft engine in the event of a lessee's bankruptcy. In
addition, Section 1110 does not apply to lessees located outside of the United
States and applicable foreign laws may not provide comparable protection.
During the three years ended December 31, 1997, four lessees of the Company
filed for bankruptcy protection or otherwise became insolvent or ceased
operations. In two of these cases the Company's engines were returned and
re-leased. In the third case, the lessee was acquired by another airline and the
lease continues. On October 5, 1997, Western Pacific Airlines, Inc., ("West
Pac") a domestic lessee of three of the Company's engines with a combined net
book value of $8.7 million, filed a petition under Chapter 11 of the Bankruptcy
Code in the District of Colorado. In that case, West Pac cured all defaults
under its leases with the Company. In March 1998, West Pac and the Company
entered into a stipulation wherein the three engines have been returned to the
Company. The Company believes it will not have a problem re-leasing these
engines. On February 26, 1998, Pan American Airways Corporation, a domestic
lessee with one spare parts package with a book value of $0.3 million (the "Pan
Am Lease"), filed a petition under Chapter 11 the Bankruptcy Code in Florida.
The Company believes its lawfully terminated the Pan Am lease prior to the
bankruptcy. It has possession of the majority of the spare parts in the Pan Am
lease in value terms and believes it should obtain possession of most of the
remaining spare parts. The Company intends to re-lease or sell these spare
parts.
FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced fluctuations in its quarterly operating results
and anticipates that these fluctuations may continue. Such fluctuations may be
due to a number of factors, including the timing of sales of engines and spare
parts and engine marketing activities fluctuation of and activities margins on
such, unanticipated early lease terminations, the timing of engine acquisitions
or a default by a lessee. Given the possibility of such fluctuations, the
Company believes that comparisons of the results of its operations for preceding
quarters are not necessarily meaningful and that results for any prior quarter
should not be relied upon as an indication of future performance. In the event
the Company's revenues or earnings for any quarter are less than the level
expected by securities analysts or the market in general, such shortfall could
have an immediate and significant adverse impact on the market price of the
Company's Common Stock.
INTERNATIONAL RISKS
In 1997, approximately 65% of the Company's lease revenue was generated by
leases to foreign customers of which 6% of lease revenue which was generated by
leases to Asian customers. Such international 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. The Company attempts to
minimize its currency and exchange risks by negotiating all of its lease
transactions in U.S. Dollars and all guarantees obtained to support various
lease agreements are denominated for payment in U.S. Dollars. To date, the
Company has experienced some collection problems under certain leases with
foreign airlines, and there can be no assurance that the Company will not
experience such collection problems in the future. The Company may also
experience collection problems related to the enforcement of its lease
agreements under foreign local laws and the attendant remedies in such locales.
Consequently, the Company is subject to the timing and access to courts and the
remedies local laws impose in order to collect its lease payments and recover
its assets. In addition,
20
<PAGE>
political instability abroad and changes in international policy also present
risks associated with expropriation of the Company's leased engines. To date,
the Company has experienced limited problems in reacquiring assets; however,
there can be no assurance that the Company will not experience more serious
problems in the future.
Certain countries have no registration or other recording system with which
to locally establish the Company's or its lender's interest in the engines and
related leases, potentially making it more difficult for the Company to prove
its interest in an engine in the event that it needs to recover an engine
located in such a country.
The Company's engines and the aircraft on which they are installed can be
subject to certain foreign taxes and airport fees. Consequently, unexpected
liens on an engine or the aircraft on which it is installed could be imposed in
favor of a foreign entity, such as Eurocontrol or the airports of the United
Kingdom.
DEPENDENCE UPON AVAILABILITY OF FINANCING
The operating lease business is a capital intensive business. The Company's
typical operating lease transaction requires a cash investment by the Company of
approximately 15% to 25% of the aircraft equipment purchase price, commonly
known as an "equity investment." The Company's equity investments have
historically been financed from internally generated cash, the net proceeds of
the Company's initial public offering which was completed on September 18, 1996
at a price of $8.00 per share (the "Initial Public Offering"), and the net
proceeds of the secondary offering which was completed on December 19, 1997 at a
price of $15 per share. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." The
balance of the purchase price is typically financed with the proceeds of secured
borrowings. Accordingly, the Company's ability to successfully execute its
business strategy and to sustain its operations is dependent, in part, on the
availability of debt and equity capital. There can be no assurance that the
necessary amount of such capital will continue to be available to the Company on
favorable terms, or at all. If the Company were unable to continue to obtain
required financing on favorable terms, the Company's ability to add new leases
to its portfolio and parts inventory would be limited, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company typically acquires the engines it leases with a combination of
equity capital and funds borrowed from financial institutions. In some
circumstances, the Company acquires assets before it has obtained debt
financing. There can be no assurance that debt financing will be available after
the asset has been acquired or, if available, at attractive rates or terms.
Factors that could cause debt financing to be more expensive or unavailable
include changes in interest rates, financial conditions of the lessee or the
Company, prospects for the airline industry or the asset type as well as general
economic conditions. If debt financing is not available, a like amount of the
Company's equity capital would be unavailable for use to acquire additional
assets, which could have a material adverse effect on the Company's business,
financial condition or results of operations.
INTEREST RATE RISKS
The Company's engine leases are generally structured at fixed rental rates
for specified terms. As of December 31, 1997, borrowings subject to interest
rate risk totaled $53.5 million or 53% of the Company's total borrowings.
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 lines of credit or loans.
In 1996, the Company purchased an amortizing interest rate cap which had a
notional principal amount of $36.2 million as of December 31, 1997, to reduce
its interest rate exposure; however, there can be no assurance that the
Company's business, operating results or financial condition will not be
adversely affected during any period of increases in interest rates.
21
<PAGE>
COMPETITION
In the medium-term engine lease market segment, which is the Company's
target market, the Company principally competes with Shannon Engine Services,
headquartered in Shannon, Ireland, which is owned by CFM. The Company also
competes with Rolls Royce. Rolls Royce limits its leasing activities to products
of its parent company and related parties. The Bank of Tokyo-Mitsubishi, through
its affiliate Engine Lease Finance in Shannon, Ireland, also competes with the
Company. Each of these competitors is substantially larger and has greater
financial resources than the Company which may permit, among other things,
greater access to capital markets at more favorable terms. In addition, certain
major aircraft lessors, including International Lease Finance Corporation and
GECAS, compete with the Company to the extent that they include spare engine
leases with their aircraft leases or may compete on transactions involving
numerous engines.
With respect to engine marketing and spare parts and component sales, the
Company competes with airlines, engine manufacturers, aircraft, engine and parts
brokers, and parts distributors. The Company's major competitors include AAR,
AGES, The Memphis Group, Aviation Sales Company, Kellstrom Industries and
AVTEAM, Inc. Certain of these competitors may have, or may have access to,
financial resources substantially greater than the Company. Significant
increases in competition encountered by the Company in the future may limit the
Company's ability to expand its business, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
In the spare parts package leasing market, the Company competes with AAR,
AGES, Aviation Sales Company, Kellstrom Industries and others. In the commuter
aircraft leasing market, the Company competes with AGES, GECAS, the leasing arms
of certain commuter aircraft manufacturers and others.
Certain of the Company's competitors have substantially greater resources
than the Company, including greater name recognition, larger inventories, a
broader range of material, complementary lines of business and greater
financial, marketing and other resources. In addition, original equipment
manufacturers ("OEMs"), aircraft maintenance providers, FAA certified repair
facilities and other aviation aftermarket suppliers may vertically integrate
into the aircraft engine leasing or aircraft engine/spare parts sales industry,
thereby significantly increasing industry competition. A variety of potential
actions by any of the Company's competitors, including a reduction of product
prices or the establishment by competitors of long-term relationships with new
or existing customers, could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will continue to compete effectively against present
and future competitors or that competitive pressures will not have a material
adverse effect on the Company's business, financial condition or results of
operations.
MANAGEMENT OF GROWTH
The Company has recently experienced significant growth in revenues. Such
growth has placed, and is expected to continue to place, a significant strain on
the Company's managerial, operational and financial resources. Due to the
Company's rapid pace of growth during 1997, the Company hired three new officers
(an Executive Vice President and Chief Administrative Officer, an Executive Vice
President and Chief Financial Officer and a Senior Vice President and General
Counsel). There can be no assurance that the Company will be able to effectively
manage the expansion of its operations, or that the Company's systems,
procedures or controls will be adequate to support the Company's operations. An
inability to effectively manage growth could have a material adverse effect on
the Company's business, financial condition or results of operations.
YEAR 2000
The Company's operations are not highly dependent on systems technology and
management believes the Company's exposure to loss as a result of year 2000
issues is minimal. The Company does not believe
22
<PAGE>
that the Year 2000 issue will have a bearing on lessees' ability to adhere to
the terms of their lease agreements with the Company. However, it has been
reported in the general press that airlines and the FAA may have material Year
2000 issues, which could effect their operations. Such an effect could impact
future dealings with lessees and other customers.
ACQUISITION AND EXPANSION RISKS
One of the components of the Company's growth strategy is the possible
select acquisition of businesses complementary to the Company's existing
businesses and possible expansion into new aviation-related activities. The
inability of the Company to identify suitable acquisition candidates or to
complete acquisitions or expansions on reasonable terms could adversely affect
the Company's ability to grow. In addition, any acquisition or expansion made by
the Company may result in potentially dilutive issuances of equity securities,
the incurrence of additional debt and future charges to earnings related to the
amortization of goodwill and other intangible assets. The Company also may
experience difficulties in the assimilation of operations, services, products
and personnel, an inability to sustain or improve historical revenue levels, the
diversion of management's attention from ongoing business operations and the
potential loss of key employees. Any of the foregoing could have a material
adverse effect on the Company's business, financial condition or results of
operations. The acquisition of other equipment leasing companies or portfolios
creates certain additional risks. For example, because acquired leases have been
originated by other companies, they are not subject to the Company's
underwriting policies and procedures and, therefore, may be subject to greater
risks of payment delinquencies and charge-offs. In addition, acquired leases may
consist of products not currently offered by the Company, or offered only on a
limited basis. Acquired leases may also increase the concentration of the
Company's portfolio of leases serviced in certain geographical regions or change
the relative concentration of such portfolio among geographical regions.
Acquired leases may not contain the same indemnification provisions, maintenance
provisions, equipment residual value assumptions and other material terms as the
Company's current leases. Finally, the provisions of acquired leases may not
adequately protect the Company from claims arising out of the lessee's use of
the acquired lease equipment.
PRODUCT LIABILITY RISKS
The Company is exposed to product liability claims in the event that the use
of its aircraft engines or parts is alleged to have resulted in bodily injury or
property damage. In addition to requiring indemnification under the terms of the
lease, the Company requires its lessees to carry the types of insurance
customary in the air transportation industry, including comprehensive liability
insurance and casualty insurance. The Company and, if applicable its lenders,
are named as an additional insured on liability insurance policies carried by
lessees, with the Company or its lenders normally identified as the payee for
loss and damage to the equipment. The Company monitors compliance with the
insurance provisions of the leases. To date, the Company has not experienced any
significant uninsured or insured aviation-related claims and has not experienced
any product liability claims related to its aircraft engines or parts. However,
an uninsured or partially insured claim, or claim for which third-party
indemnification is not available, could have a material adverse effect upon the
Company's business, financial condition or results of operations.
RISK OF CHANGES IN TAX LAWS OR ACCOUNTING PRINCIPLES
The Company's leasing activities generate significant depreciation
allowances that provide the Company with substantial tax benefits on an ongoing
basis. In addition, the Company's lessees currently enjoy favorable accounting
and tax treatment by entering into operating leases. Any change to current tax
laws or accounting principles that make operating lease financing less
attractive could adversely affect the Company's business, financial condition or
results of operations.
23
<PAGE>
DEPENDENCE ON KEY MANAGEMENT
The Company's business operations are dependent in part upon the expertise
of certain key employees. Loss of the services of such employees, particularly
Charles F. Willis, IV, President and Chief Executive Officer or Edwin F. Dibble,
the President of WASI, would have a material adverse effect on the Company's
business. The Company has entered into an employment agreement with Mr. Dibble
and the Company maintains key man life insurance of $2.5 million on Mr. Willis
and $1.5 million on Mr. Dibble.
GOVERNMENT REGULATION
The Company's customers are generally subject to a high degree of regulation
in the various jurisdictions in which they operate. Such regulations also
indirectly affect the Company's business operations. Under the provisions of the
Transportation Act, as amended, the FAA exercises regulatory authority over the
air transportation industry. The FAA regulates the manufacture, repair and
operation of all aircraft engines operated in the United States. Its regulations
are designed to insure that all aircraft and aviation equipment are continuously
maintained in proper condition to ensure safe operation of the aircraft. Similar
rules apply in other countries. All aircraft must be maintained under a
continuous condition monitoring program and must periodically undergo thorough
inspection and maintenance. The inspection, maintenance and repair procedures
for the various types of commercial aircraft equipment are prescribed by
regulatory authorities and can be performed only by certified repair facilities
utilizing certified technicians. Certification and conformance is required prior
to installation of a part on an aircraft. Presently, whenever necessary with
respect to a particular engine or engine component, the Company utilizes FAA
and/or Joint Aviation Authority certified repair stations to repair and certify
engines and components to ensure worldwide marketability. The FAA can suspend or
revoke the authority of air carriers or their licensed personnel for failure to
comply with regulations and ground aircraft if their airworthiness is in
question. In addition, by the year 2000, federal regulations will stipulate that
most commercial aircraft that fly in the United States and the engines
appurtenant thereto hold, or be capable of holding, a noise certificate issued
under Chapter 3 of Volume 1, Part II of Annex 16 of the Chicago Convention, or
have been shown to comply with Stage III noise levels set out in Section 36.5 of
Appendix C of Part 36 of the Federal Aviation Regulations of the United States.
As of December 31, 1997, all of the engines in the Company's lease portfolio
were Stage III engines. See "Business--Government Regulation."
CONTROL BY PRINCIPAL SHAREHOLDER
The Company's principal shareholder, Mr. Willis, beneficially owns
approximately 42% of the outstanding shares of Common Stock of the Company and
therefore effectively controls the Company. Accordingly, Mr. Willis will have
the power to contest the outcome of substantially all matters, including the
election of the Board of Directors of the Company, submitted to the shareholders
for approval. In addition, future sales by the Company's principal shareholder
of substantial amounts of Common Stock, or the potential for such sales, could
adversely affect the prevailing market price of the Common Stock.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock could be subject to
significant fluctuations in response to operating results of the Company,
changes in general conditions in the economy, the financial markets, the airline
industry, changes in accounting principles or tax laws applicable to the Company
or its lessees, or other developments affecting the Company, its customers or
its competitors, some of which may be unrelated to the Company's performance,
and changes in earnings estimates or recommendations by securities analysts.
24
<PAGE>
ANTI-TAKEOVER PROVISIONS
Certain provisions of law, and the Company's Amended and Restated Articles
of Incorporation (the "Articles of Incorporation") and Bylaws could make more
difficult the acquisition of the Company by means of a tender offer, a proxy
contest or otherwise, and the removal of incumbent officers and directors. These
provisions include authorization of the issuance of up to 5,000,000 shares of
Preferred Stock, with such characteristics that may render it more difficult or
tend to discourage a merger, tender offer or proxy contest. The Articles of
Incorporation also provide that, for as long as the Company has a class of stock
registered pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), shareholder action can be taken only at an annual or special
meeting of shareholders and may not be taken by written consent. The Company's
Bylaws also limit the ability of shareholders to raise matters at a meeting of
shareholders without giving advance notice. In addition, the Company has
qualified as a "listed corporation" as defined in Section 301.5(d) of the
California Corporation Code and cumulative voting has been eliminated. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids, and to encourage persons seeking to
acquire control of the Company to negotiate first with the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is submitted as a separate section of
this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2): Financial Statements and Financial Schedules: The response
to this portion of Item 14 is submitted as a separate section of this report
beginning on page 29.
(a) (3) and (c): Exhibits: The response to this portion of Item 14 is
submitted as a separate section of this report beginning on page 26.
(b) Reports on Form 8-K: The Company filed no reports on Form 8-K during the
last quarter of 1997.
25
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
3.1 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. Incorporated
by reference to Exhibit 3.2 of the Company's report on Form 10-K for the year ended December 31, 1996.
3.2 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.
10.1 1996 Stock Option/Stock Issuance Plan and form of agreement thereunder. Incorporated by reference to
Exhibit 10.1 to Registration Statement No. 333-5126-LA filed on June 21, 1996.
10.2 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 10.2 to Registration Statement No.
333-5126-LA filed on June 21, 1996.
10.3 Form of Indemnification Agreement entered into between the Company and its directors and officers.
Incorporated by reference to Exhibit 10.3 to Registration Statement No. 333-5126-LA filed on June 21,
1996.
10.4 Lease dated May 23, 1995 for facilities located in South San Francisco, California, together with
amendment thereto dated March 18, 1996. Incorporated by reference to Exhibit 10.4 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 10-K for the year ended December 31, 1996.
10.6 Lease dated March 16, 1992 for facilities located in Sausalito, California, together with amendments
thereto. Incorporated by reference to Exhibit 10.6 of the Company's report on Form 10-K for the year
ended December 31, 1996.
10.7 Employment Agreement between the Company and William McElfresh. Incorporated by reference to Exhibit 10.5
to Registration Statement No. 333-5126-LA filed on June 21, 1996.
10.8 Employment Agreement between the Company and Steven Oldenburg. Incorporated by reference to Exhibit 10.6
to Registration Statement No. 333-5126-LA filed on June 21, 1996.
10.9 Employment Agreement between the Company and Edwin Dibble. Incorporated by reference to Exhibit 10.9 to
Registration Statement No. 333-39865 filed on December 11, 1997.
10.10 Employment Agreement between the Company and Donald Nunemaker dated July 16, 1997.
10.11 Loan Agreement dated June 12, 1997 with CoreStates Bank, together with related documents for a $15
million revolving credit facility. Incorporated by reference to Exhibit 10.19 to the Company's Report
on Form 10-Q for the period ended June 30, 1997.
10.12 Amendment dated July 28, 1997, to loan agreement dated June 12, 1997, for the increasing of the revolving
credit facility to $30 million from $15 million. Incorporated by reference to Exhibit 10.20 to the
Company's Report on Form 10-Q for the period ended June 30, 1997.
10.13 Amendment dated November 18, 1997, to loan agreement dated June 12, 1997, for the increasing of the
revolving credit facility to $45 million from $30 million. Incorporated by reference to Exhibit 10.21
to Registration Statement No. 333-39865 filed on December 11, 1997.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.14 Engine Sales Agreement dated August 14, 1997, together with related documents, for a $25 million purchase
from Pratt & Whitney for nine bare Pratt & Whitney 4056 engines. Incorporated by reference to Exhibit
10.19 to the Company's Report on Form 10-Q for the period ended September 30, 1997.
10.15 Aircraft Sale Agreement dated as of November 17, 1997, between Finova Capital Corporation as seller and
Willis Lease Finance Corporation as buyer. Incorporated by reference to Exhibit 10.25 to Registration
Statement No. 333-39865 filed on December 11, 1997.
10.16* Indenture dated as of September 1, 1997, between WLFC Funding Corporation and The Bank of New York, as
Indenture Trustee.
10.17* Series 1997-1 Supplement dated as of September 1, 1997 between WLFC Funding Corporation and the Bank of
New York, as Indenture Trustee.
10.18 Class A Note Purchase Agreement dated as of September 1, 1997 between the Company, WLFC Funding
Corporation and First Union National Bank of North Carolina.
10.19* Administration Agreement dated as of September 1, 1997 between WLFC Funding Corporation, the Company,
First Union Capital Markets Corp. and The Bank of New York.
11.1 Statement regarding computation of per share earnings.
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Portions of these exhibits have been omitted pursuant to a request for
confidential treatment.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
March 20, 1998
Willis Lease Finance Corporation
By: /s/ CHARLES F. WILLIS, IV
---------------------------------
Charles F. Willis, IV
Chairman of the Board, President,
and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the followings persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
DATE TITLE SIGNATURE
- ---------------------- ----------------------------------------- -----------------------------------------
<S> <C> <C>
Date: Chief Executive Officer /s/ CHARLES F. WILLIS, IV
(Principal Executive Officer) --------------------------------
Charles F. Willis, IV
Date: Executive Vice President and /s/ WILLIAM L. MCELFRESH
Director --------------------------------
William L. McElfresh
Date: Chief Financial Officer /s/ JAMES D. MCBRIDE
(Principal Financial and --------------------------------
Accounting Officer) James D. McBride
Date: Director /s/ ROSS K. ANDERSON
--------------------------------
Ross K. Anderson
Date: Director /s/ WILLIAM M. LEROY
--------------------------------
William M. LeRoy
Date: Director /s/ WILLARD H. SMITH, JR
--------------------------------
Willard H. Smith, Jr.
</TABLE>
28
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants......................................................... Page 30
Consolidated Balance Sheets as of December 31, 1997 and December 31, 1996................. Page 31
Consolidated Statements of Income for the years ended December 31, 1997,
December 31, 1996 and December 31, 1995................................................. Page 32
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997,
December 31, 1996 and December 31, 1995................................................. Page 33
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
December 31, 1996 and December 31, 1995................................................. Page 34
Notes to Consolidated Financial Statements................................................ Page 35
</TABLE>
All other financial statement schedules have been omitted as the required
information is not pertinent to the Registrant or is not material or because the
information required is included in the financial statements and notes thereto.
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Willis Lease Finance Corporation and Subsidiaries:
We have audited the accompanying consolidated financial statements of Willis
Lease Finance Corporation (formerly The Charles F. Willis Company) and
subsidiaries (the "Company") as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Willis Lease
Finance Corporation (formerly The Charles F. Willis Company) and subsidiaries as
of December 31, 1997 and 1996, and the results of their operations and their
cash flows for each years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Francisco, California
February 16, 1998
30
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................................ $ 13,095,303 $ 6,573,241
Deposits......................................................................... 18,461,456 13,600,204
Equipment held for lease, less accumulated depreciation of $15,193,313 at
December 31, 1997 and $16,372,418 at December 31, 1996......................... 128,119,683 96,092,429
Aircraft held for lease, less accumulated depreciation of $74,370 at December 31,
1997 and $0 at December 31, 1996............................................... 10,415,960 --
Net investment in direct finance lease........................................... 9,821,854 --
Property, equipment and furnishings, less accumulated depreciation of $275,109 at
December 31, 1997 and $160,407 at December 31, 1996............................ 540,856 458,780
Spare parts inventory............................................................ 10,334,113 4,057,648
Maintenance billings receivable.................................................. 1,547,765 1,107,283
Operating lease rentals receivable............................................... 520,466 405,601
Receivables from spare parts sales............................................... 2,908,175 854,566
Other receivables................................................................ 375,878 829,522
Other assets..................................................................... 2,288,547 953,419
-------------- --------------
Total assets..................................................................... $ 198,430,056 $ 124,932,693
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses.......................................... $ 4,010,976 $ 2,753,641
Salaries and commissions payable............................................... 1,070,051 538,658
Deferred income taxes.......................................................... 8,476,040 5,949,676
Deferred gain.................................................................. 183,278 209,774
Notes payable and accrued interest............................................. 101,433,200 73,185,657
Capital lease obligation....................................................... 2,802,119 2,960,457
Residual share payable......................................................... 2,092,140 1,199,279
Maintenance deposits........................................................... 20,018,195 11,680,525
Security deposits.............................................................. 2,435,987 1,978,505
Unearned lease revenue......................................................... 1,306,613 1,274,269
-------------- --------------
Total liabilities................................................................ $ 143,828,599 $ 101,730,441
Shareholders' equity:
Common stock, no par value. Authorized 20,000,000 shares; 7,177,320 and
5,426,793 issued and outstanding at December 31, 1997 and December 31, 1996,
respectively................................................................. 40,117,223 16,055,689
Retained earnings.............................................................. 14,484,234 7,146,563
-------------- --------------
Total shareholders' equity....................................................... 54,601,457 23,202,252
-------------- --------------
Total liabilities and shareholders' equity....................................... $ 198,430,056 $ 124,932,693
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to the consolidated financial statements
31
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------- ------------- -------------
REVENUE
Operating lease revenue............................................. $ 19,012,822 $ 13,740,438 $ 13,770,730
Finance lease revenue............................................... 442,542 -- --
Gain/loss on sale of leased engines................................. 4,165,443 2,208 (482,894)
Spare part sales.................................................... 14,110,102 5,842,607 3,858,610
Sale of equipment acquired for resale............................... 12,747,840 12,105,315 5,472,362
Interest and other income........................................... 727,995 617,144 119,188
------------- ------------- -------------
Total revenue....................................................... 51,206,744 32,307,712 22,737,996
EXPENSES
Interest expense.................................................... 7,797,446 4,323,276 5,721,811
Depreciation expense................................................ 4,223,286 3,181,216 4,703,487
Residual share...................................................... 892,861 722,753 407,684
Cost of spare part sales............................................ 9,468,953 3,307,928 2,545,872
Cost of equipment acquired for resale............................... 10,677,716 10,788,730 2,742,262
General and administrative.......................................... 9,331,972 5,123,813 3,334,768
------------- ------------- -------------
Total expenses...................................................... 42,392,234 27,447,716 19,455,884
Gain on modification of credit facility............................. -- -- 2,202,928
------------- ------------- -------------
Income before income taxes, minority interest and extraordinary
item.............................................................. 8,814,510 4,859,996 5,485,040
Income taxes........................................................ (3,484,768) (1,976,471) (2,212,280)
------------- ------------- -------------
Income before minority interest and extraordinary item.............. 5,329,742 2,883,525 3,272,760
Less: minority interest in net income of subsidiary................. -- (79,053) (56,343)
------------- ------------- -------------
Income before extraordinary item.................................... 5,329,742 2,804,472 3,216,417
Extraordinary item net of applicable income taxes................... 2,007,929 -- --
------------- ------------- -------------
Net Income.......................................................... $ 7,337,671 $ 2,804,472 $ 3,216,417
------------- ------------- -------------
------------- ------------- -------------
BASIC EARNINGS PER SHARE
Net income before extraordinary item................................ $ 0.97 $ 0.75 $ 1.03
Extraordinary item.................................................. 0.36 -- --
------------- ------------- -------------
Basic earnings per share............................................ $ 1.33 $ 0.75 $ 1.03
------------- ------------- -------------
------------- ------------- -------------
FULLY DILUTED EARNINGS PER SHARE
Net income before extraordinary item................................ $ 0.94 $ 0.74 $ 1.03
Extraordinary item.................................................. 0.35 -- --
------------- ------------- -------------
Fully diluted earnings per share.................................... $ 1.29 $ 0.74 $ 1.03
------------- ------------- -------------
------------- ------------- -------------
Basic average shares outstanding.................................... 5,497,358 3,756,040 3,110,657
Fully diluted average shares outstanding............................ 5,673,425 3,787,788 3,110,657
</TABLE>
See accompanying notes to the consolidated financial statements
32
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
ISSUED AND
OUTSTANDING TOTAL
SHARES OF ADVANCES TO SHAREHOLDERS'
COMMON STOCK COMMON STOCK RETAINED EARNINGS SHAREHOLDERS EQUITY
-------------- -------------- ----------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995.... 1,500 $ 500 $ 5,293,566 $ (481,789) $ 4,812,277
Common stock issued and proceeds
from IPO, net.................. 5,425,293 16,055,189 -- -- 16,055,189
Repayments to
shareholders, net.............. -- -- -- 481,789 481,789
Dividends........................ -- -- (951,475) -- (951,475)
Net income....................... -- -- 2,804,472 -- 2,804,472
-------------- -------------- ----------------- ------------ -------------
Balance at December 31, 1996..... 5,426,793 16,055,689 7,146,563 -- 23,202,252
Shares issued under Employee
Stock Purchase Plan............ 25,527 221,244 -- -- 221,244
Common stock issued and proceeds
from secondary offering, net... 1,725,000 23,840,290 23,840,290
Net income....................... -- -- 7,337,671 -- 7,337,671
-------------- -------------- ----------------- ------------ -------------
Balances at December 31, 1997.... 7,177,320 $ 40,117,223 $ 14,484,234 -- $ 54,601,457
-------------- -------------- ----------------- ------------ -------------
-------------- -------------- ----------------- ------------ -------------
</TABLE>
See accompanying notes to the consolidated financial statements
33
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 7,337,671 $ 2,804,472 $ 3,216,417
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of equipment and aircaft held for lease.......... 4,098,348 3,103,601 4,663,949
Depreciation of property, equipment and furnishings........... 124,938 77,615 39,538
Gain on modification on credit facility....................... -- -- (2,202,928)
(Gain) loss on sale of property, equipment and furnishings.... (45,122) 5,701 (5,536)
(Gain) loss on sale of leased equipment....................... (4,165,443) (2,208) 482,894
Increase in residual share payable............................ 892,861 722,753 407,684
Minority interest in net income of subsidiary................. -- 79,053 56,343
Changes in assets and liabilities:
Increase in deposits.......................................... (4,861,252) (2,279,587) (11,061,221)
Increase in spare parts inventory............................. (6,276,465) (1,176,384) (940,494)
Increase in receivables....................................... (2,155,312) (1,931,905) (359,173)
(Increase) decrease in other assets........................... (1,335,128) (745,525) 54,785
(Decrease) increase in accounts payable and accrued
expenses.................................................... 1,257,335 1,701,186 606,656
Increase in salaries and commission payable................... 531,393 374,697 77,201
Increase in deferred income taxes............................. 2,526,364 1,857,351 2,179,381
(Decrease) increase in deferred gain.......................... (26,496) 209,774 --
(Decrease) increase in accrued interest....................... (247,821) 666,571 (341,379)
Increase in maintenance deposits.............................. 8,337,670 2,963,355 3,294,179
Increase in security deposits................................. 457,482 708,484 124,444
Increase in unearned lease revenue............................ 32,344 417,182 243,726
--------------- -------------- --------------
Net cash provided by operating activities..................... 6,483,367 9,556,186 536,466
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment held for operating lease (net of
selling expenses)............................................. 15,672,655 3,748,035 2,600,000
Proceeds from sale of property, equipment and furnishings....... 80,500 28,198 38,500
Purchase of equipment held for lease............................ (68,143,774) (25,277,021) (9,258,379)
Purchase of property, equipment and furnishings................. (242,392) (362,510) (194,403)
Principal payments received on direct finance lease............. 273,146 -- --
--------------- -------------- --------------
Net cash used in investing activities........................... (52,359,865) (21,863,298) (6,814,282)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments from (advances to) shareholder, net.................. -- 481,789 (107,944)
Proceeds from issuance of notes payable......................... 165,590,908 16,086,621 15,730,277
Proceeds from issuance of common stock.......................... 24,061,534 15,926,101 --
Principal payments on notes payable............................. (137,095,544) (13,478,332) (9,337,852)
Principal payments on capital lease obligation.................. (158,338) -- --
Cash dividends paid on common stock............................. -- (951,475) (255,000)
--------------- -------------- --------------
Net cash provided by financing activities....................... 52,398,560 18,064,704 6,029,481
Increase (decrease) in cash and cash equivalents................ 6,522,062 5,757,592 (248,335)
Cash and cash equivalents at beginning of period................ 6,573,241 815,649 1,063,984
--------------- -------------- --------------
Cash and cash equivalents at end of period...................... $ 13,095,303 $ 6,573,241 $ 815,649
--------------- -------------- --------------
--------------- -------------- --------------
</TABLE>
See accompanying notes to the consolidated financial statements
34
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
Willis Lease Finance Corporation (formerly The Charles F. Willis Company)
("Willis") provides operating leases of commercial aircraft engines, certain
aircraft and aircraft equipment and sells aircraft engines and parts to air
carriers, manufacturers and overhaul/repair facilities worldwide. Willis' core
business is acquiring and leasing, primarily pursuant to operating leases,
commercial aircraft spare engines and other aircraft equipment. Willis also,
through its wholly-owned subsidiary Willis Aeronautical Services, Inc. ("WASI")
purchases and resells aftermarket airframe and engine parts, engines, modules
and rotable components. Willis also engages in the selective purchase and resale
of commercial aircraft engines.
Terandon Leasing Corporation (Terandon), T-2 Inc. (T-2), T-4 Inc. (T-4), T-5
Inc. (T-5), T-7 Inc. (T-7), T-8 Inc. (T-8), T-10 Inc. (T-10), T-11 (T-11), and
T-12 (T-12) are wholly-owned subsidiaries of Willis. They are all California
corporations and were established to purchase and lease and resell commercial
aircraft engines and parts.
Willis Aeronautical Services, Inc. (WASI) is a wholly-owned subsidiary of
Willis. WASI is a California corporation established in 1994 for the purpose of
commercial aircraft, airframe and powerplant component marketing and sales.
WLFC Funding Corporation ("WLFC-FC") is a wholly-owned subsidiary of Willis.
WLFC-FC is a Delaware corporation and was established in 1997 for the purpose of
financing aircraft engines. WLFC Engine Pooling Company ("WLFC--Pooling") is a
wholly-owned subsidiary of Willis. WLFC-Pooling is a California Corporation and
was established in 1997 for the purpose of acquiring and leasing aircraft
engines.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Willis,
Terandon, T-2, T-4, T-5, T-7, T-8, T-10, T-11, T-12, WASI, WLFC-FC and
WLFC--Pooling (together, the Company). All significant intercompany balances and
transactions have been eliminated in consolidation.
(C) REVENUE RECOGNITION
Revenue from leasing of aircraft assets is recognized as operating lease or
finance lease revenue over the terms of the applicable lease agreements. The
Company includes in operating lease revenue non-refundable maintenance payments
received from lessees to the extent that, in the Company's opinion, it would not
be economically advantageous to overhaul the engine the next time the
life-limited parts need to be replaced. In this circumstance, the engines are
normally dismantled and sold as parts.
The Company records an allowance for estimated returns of spare parts based
on recent experience. Such returns occur in the ordinary course of the Company's
business.
35
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) EQUIPMENT HELD FOR OPERATING LEASE
Aircraft assets held for operating lease are stated at cost, less
accumulated depreciation. Certain professional fees incurred in connection with
the acquisition and leasing of aircraft assets are capitalized as part of the
cost of such assets.
The Company generally depreciates engines on a straight line basis over a 15
year period from the acquisition date to a 55% residual value. The Company
believes that this methodology accurately reflects the Company's typical holding
period for the assets and, further, that the residual value assumption
reasonably approximates the selling price of the assets in 15 years from date of
acquisition.
Engines that in the Company's opinion would not be economically advantageous
to overhaul the next time the life-limited parts need to be replaced, are
depreciated over the remaining life using component depreciation based on usage
as reported monthly by the lessees.
The spare parts packages owned by the Company are depreciated on a
straight-line basis over an estimated useful life of 15 years to a 25% residual
value.
The aircraft owned by the Company are depreciated on a straight line basis
over an estimated useful life of 13 years to a 17% residual value.
In March of 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," (SFAS 121). SFAS
121 requires that (i) long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable and (ii) long-lived assets and certain identifiable intangibles
to be disposed of generally be reported at the lower of carrying amount or fair
value less cost to sell. The Company adopted SFAS 121 in 1995 and reviewed the
carrying value of its equipment considering residual values and release rates.
This review resulted in a loss on revaluation related to one engine of $300,000
in 1995, which has been included in depreciation expense. There were no
write-downs required during 1996 or 1997.
(E) SPARE PARTS INVENTORY
The Company, through one or more of its subsidiaries, buys used aircraft
spare parts for resale. This inventory is valued at the lower of cost or market
value. Costs of such sales are specifically identified based on actual purchase
price or allocated cost of parts purchased in a pool or from dismantled engine
based on relative projected sales price.
(F) LOAN COMMITMENT AND RELATED FEES
To the extent that the Company is required to pay loan commitment fees in
order to secure debt, such fees are amortized over the life of the related loan
on a straight-line basis.
36
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) MAINTENANCE COSTS
Maintenance costs under the Company's long-term leases are generally the
responsibility of the lessees. Maintenance deposits in the accompanying balance
sheet include refundable maintenance payments and certain non-refundable
maintenance payments received from the lessees. If in the Company's opinion, it
would not be economically advantageous to overhaul the engine the next time the
life-limited parts need to be replaced, the maintenance fees are included in
operating lease revenue. Major overhauls paid for by the Company are capitalized
and depreciated over the estimated remaining useful life of the engine.
(H) INTEREST RATE CAP
In 1996, the Company purchased an interest rate cap in order to mitigate its
exposure to increases in interest rates on a portion of its variable rate
borrowings. The instrument minimizes the Company's exposure to interest rate
fluctuations for a period of four years. The cost of this instrument is
amortized on a straight-line basis over the four year period.
(I) INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities. The effect on deferred taxes of a change in the tax rates is
recognized in income in the period that includes the enactment date.
(J) PROPERTY, EQUIPMENT AND FURNISHINGS
Property, equipment and furnishings are recorded at cost and depreciated by
the straight-line method over the estimated useful lives of the related assets,
which range from three to seven years.
(K) ADVANCES TO SHAREHOLDER
The advances to the sole shareholder are non-interest bearing (except for a
$10,000 interest bearing note). All such notes were repaid in 1996. Advances are
accounted for through a reduction of shareholders' equity.
(L) RESIDUAL SHARING WITH LENDERS
Certain of the Company's credit agreements require the Company to share
"residual proceeds" as defined in the agreements with the lenders upon sale of
engines held for operating lease. The Company provides for its residual sharing
obligation with respect to each engine by a charge or credit to income or
expense, each period, sufficient to adjust the residual share payable at the
balance sheet date to the amount that would be payable at that date if all
engines under said agreements were sold on the balance sheet date at their net
book values.
37
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Residual share payable totaled $2.1 million and $1.2 million as of December
31, 1997 and 1996, respectively. As of December 31, 1997 and 1996, a total of
five and six engines, respectively, with a net book value of $15.3 million and
$16.5 million, respectively, were subject to residual sharing arrangements
(notes 4 and 5).
(M) EQUIPMENT ACQUIRED FOR RESALE
The Company periodically engages in transactions involving the purchase and
immediate resale of aircraft engines. Generally, the Company makes a contractual
commitment to purchase specific assets for its own account for resale only after
or concurrently with obtaining a firm order from a customer. All aircraft
engines purchased by the Company for such transactions during 1997 and 1996 were
sold in the year acquired.
(N) CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments readily convertible into
known amounts of cash, with original maturities of 90 days or less, as cash
equivalents.
(O) RECLASSIFICATIONS
Certain items in the consolidated financial statements of prior years have
been reclassified to conform to the current year's presentation.
(P) 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.
(Q) PER SHARE INFORMATION
In February 1997, the Financial Accounting Standards Board Issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," which
required the Company to replace its presentation of primary earnings per share
with a presentation of basic and fully diluted earnings per share on the face of
the income statement, effective December 15, 1997. The principal difference
between primary earnings per share and basic earnings per share under the new
statement is that basic earnings per share does not consider common stock
equivalents such as stock options and warrants. Basic earnings per common share
is computed by dividing net income to common shares by weighted-average number
of shares outstanding during the period. The computation of fully diluted
earnings per share is similar to the computation of basic earnings per share,
except for the inclusion of all potentially dilutive common shares.
38
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The statement required restatement of all prior periods presented. Basic and
fully diluted earnings per share are presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
<CAPTION>
(IN THOUSANDS OF DOLLARS,
EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C>
Basic:
Net Income................................................................... $ 7,338 $ 2,804 $ 3,216
Basic earnings per common share.............................................. $ 1.33 $ 0.75 $ 1.03
Fully diluted:
Net income................................................................... $ 7,338 $ 2,804 $ 3,216
Shares:
Weighted-average number of common shares outstanding......................... 5,497 3,756 3,111
Potentially dilutive common shares........................................... 176 32 --
--------- --------- ---------
Total Shares............................................................... 5,673 3,788 3,111
Fully diluted earnings per weighted-average common share..................... $ 1.29 $ 0.74 $ 1.03
</TABLE>
(R) ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in equity
from non-owner sources; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the Company's fiscal year ended December 31,
1998, with earlier application permitted. The effect of adoption of these
statements will be limited to the form and content of the Company's disclosures
and will not impact the company's results of operations, cash flow, or financial
position.
(2) EQUIPMENT HELD FOR LEASE
At December 31, 1997, the Company had 44 aircraft engines and related
equipment with an aggregate original cost of $146.3 million, 8 spare parts
packages with an aggregate original cost of $7.1 million and 3 commuter aircraft
with an aggregate original cost of $10.5 million in its lease portfolio. At
December 31, 1996, the Company owned 32 aircraft engines and 3 spare parts
packages with an aggregate original cost of $112.5 million. The Company owned no
aircraft at December 31, 1996.
Certain of the Company's aircraft equipment is leased and operated
internationally. All leases relating to this equipment are denominated and
payable in U.S. dollars.
39
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) EQUIPMENT HELD FOR LEASE (CONTINUED)
The Company leases its aircraft equipment to lessees domiciled in eight
geographic regions: The tables below set forth geographic information about the
Company's operating leased aircraft equipment grouped by domicile of the lessee:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
REGION 1997 1996 1995
- -------------------------------------------------------------------- ------------- ------------- -------------
Operating lease revenue:
United States..................................................... $ 6,718,408 $ 5,295,084 $ 4,560,472
Canada............................................................ 1,521,278 1,291,000 1,080,000
Mexico............................................................ 2,478,620 1,865,118 1,900,699
Australia/New Zealand............................................. 1,027,026 1,029,600 1,339,433
Europe............................................................ 5,431,681 2,840,428 3,858,792
South America..................................................... 777,849 530,000 308,316
Asia.............................................................. 806,627 889,208 723,018
Middle East....................................................... 251,333 -- --
------------- ------------- -------------
Totals.............................................................. $ 19,012,822 $ 13,740,438 $ 13,770,730
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
REGION 1997 1996 1995
- -------------------------------------------------------------------- ------------- ------------- -------------
Operating lease revenue less applicable depreciation, interest and
residual share:
United States..................................................... $2,750,911 $2,405,061 $463,336
Canada............................................................ 580,203 548,769 301,039
Mexico............................................................ 553,981 306,007 348,900
Australia/New Zealand............................................. 402,446 471,293 271,355
Europe............................................................ 2,076,342 1,409,631 1,521,563
South America..................................................... 266,947 185,297 77,569
Asia.............................................................. 123,329 339,545 185,196
Middle East....................................................... 100,223 -- --
Off-lease and other............................................... (69,942) (60,711) (231,210)
------------- ------------- -------------
Totals.............................................................. $6,784,440 $5,604,892 $2,937,748
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
40
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) EQUIPMENT HELD FOR LEASE (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
<S> <C> <C> <C>
REGION 1997 1996 1995
- ------------------------------------------------------------------- -------------- ------------- -------------
Net book value of operating leased assets:
United States.................................................... $ 46,852,525 $ 31,332,388 $ 24,138,266
Canada........................................................... 11,167,483 7,115,984 7,356,011
Mexico........................................................... 13,031,662 13,441,445 9,255,029
Australia/New Zealand............................................ 5,311,730 5,509,070 5,706,410
Europe........................................................... 35,963,753 30,051,738 19,056,190
South America.................................................... 11,205,328 2,033,831 1,951,012
Asia............................................................. 7,436,879 4,109,446 4,243,830
Middle East...................................................... 4,832,970 -- --
Off-lease........................................................ 2,733,313 2,498,527 2,997,631
-------------- ------------- -------------
Totals............................................................. $ 138,535,643 $ 96,092,429 $ 74,704,379
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
Finance leased assets, the lessee of which is domiciled in Asia, generated
$442,542 of revenue in 1997. After interest expense such assets generated
$171,684. The net investment in direct finance leases on December 31, 1997 was
as follows:
<TABLE>
<S> <C>
Minimum payments receivable................................ $ 9,280
Estimated residual value of leased assets.................. 4,950
Unearned income............................................ (4,408)
---------
Net investment in finance lease............................ $ 9,822
---------
---------
</TABLE>
As of December 31, 1997, minimum future payments under noncancelable leases
were as follows:
<TABLE>
<CAPTION>
YEAR OPERATING FINANCE
- --------------------------------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
(IN THOUSANDS)
1998......................................................................................... $ 18,773 $ 1,458
1999......................................................................................... 14,724 1,458
2000......................................................................................... 10,359 1,458
2001......................................................................................... 7,102 1,458
2002......................................................................................... 4,498 1,458
Thereafter................................................................................... 4,831 2,187
----------- ---------
$ 60,287 $ 9,477
----------- ---------
----------- ---------
</TABLE>
41
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) PROPERTY, EQUIPMENT AND FURNISHINGS
Property, equipment and furnishings consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
<S> <C> <C>
1997 1996
----------- -----------
Automobiles......................................................... $ 155,636 $ 140,297
Computer equipment.................................................. 259,418 186,272
Furniture and equipment............................................. 400,911 292,618
----------- -----------
815,965 619,187
Accumulated depreciation............................................ (275,109) (160,407)
----------- -----------
Net book value...................................................... $ 540,856 $ 458,780
----------- -----------
----------- -----------
</TABLE>
(4) EXTRAORDINARY GAIN AND GAIN ON MODIFICATION OF CREDIT FACILITY
In February 1997, the Company obtained a new loan agreement for $41.5
million to replace an existing loan of $44.2 million. The transaction resulted
in an extraordinary gain of $2 million net of tax.
In June 1995, the Company's primary credit facility was modified into a 10
year full payout loan. As part of this transaction, the residual sharing
agreement was terminated. Furthermore, the lender agreed to acquire two engines
from the portfolio, with a net book value of $5.7 million as payment in full for
the respective outstanding loan balance on each of the engines. The modification
resulted in a gain of $2.2 million.
(5) NOTES PAYABLE AND ACCRUED INTEREST
Notes payable consisted of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------
<S> <C> <C>
1997 1996
-------------- -------------
Note payable at a floating interest rate of LIBOR plus 1%. Secured by aircaft
engines and the proceeds thereof. This note was repaid in 1997.................... -- $ 44,221,306
Notes payable at fixed interest of 8.05% and 10%. Secured by aircraft engines and
the proceeds thereof. The notes mature in May 2003 and November 1998.............. $ 5,263,108 5,982,236
Note payable at a floating interest rate of LIBOR plus 5%. Secured by aircraft
engines and the proceeds thereof. The note matures in 2001 or upon sale of such
engines........................................................................... 3,015,642 5,189,286
Note payable at a floating interest rate of LIBOR plus 2.25% secured by engines,
the proceeds thereof and certain deposits. This facility has committed amount of
$80 million. Assuming compliance with the facility's terms, including sufficiency
of collateral, $45.6 million was available under this facility at December 31,
1997. The facility matures in
February 2006..................................................................... 34,400,000 --
</TABLE>
42
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) NOTES PAYABLE AND ACCRUED INTEREST (CONTINUED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Note payable at a floating rate of interest of Prime Rate plus 0.25%. Secured by
engines, parts and the proceeds thereof. This facility has a committed amount of
$45 million. Assuming compliance with the facility's terms, including sufficiency
of collateral, $45 million was available under this facility at December 31, 1997.
Fifteen million of this facility matures on May 31, 1998 and the remainder on June
12, 1998.......................................................................... -- --
Note payable at a floating interest rate of LIBOR plus 2.5%. Secured by aircraft
engines and the proceeds thereof. The note matures in
June 1998......................................................................... 13,433,039 --
Notes payable at fixed interest rates ranging from 10.23% to 10.77%. Secured by
aircraft engines and parts and the proceeds thereof. The notes mature between
December 2001 and February 2002................................................... 18,747,851 --
Notes payable at fixed interest rates of 11.03%. Secured by aircraft engines and
the proceeds thereof. The notes mature on
December 2000..................................................................... 2,892,846 3,128,943
Note payable at a fixed interest rate of 11.68%. Secured by an aircraft engine and
the proceeds thereof. The note matures on December 2001........................... 2,189,465 2,368,242
Note payable at a fixed interest rate of 8.18% secured by aircraft and the
proceeds thereof. The note matures January 2003................................... 10,500,000 --
Notes payable at fixed interest rates of 10% and 8.89%. Secured by aircraft
engines and the proceeds thereof. The notes mature May 1998 and August 2002....... 6,178,807 --
Note payable at a floating interest rate of LIBOR plus 1.5%. Secured by an engine
and the proceeds thereof. The note was repaid in 1997............................. -- 325,000
Notes payable under a line of credit in the amount of $3,000,000. Interest is
variable at prime plus 1%. The loan is secured by the assets of WASI. This
facility expires on April 30, 1998................................................ 2,627,000 661,000
Note payable at a fixed interest rate of 7%. Secured by aircraft engines, spare
parts and the proceeds thereof. The note was repaid in 1997....................... -- 8,632,313
Subordinated note payable at a fixed interest rate of 7%. Secured by aircraft
engines, spare parts and the proceeds thereof. The note matures in June 2004...... 1,586,470 1,830,538
-------------- -------------
$ 100,834,228 $ 72,338,864
-------------- -------------
-------------- -------------
</TABLE>
43
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) NOTES PAYABLE AND ACCRUED INTEREST (CONTINUED)
The fair value of the Company's long-term debt is estimated based on quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities. The fair value of the
Company's debt is estimated by the Company to be $102.2 million at December 31,
1997.
The fair value of the interest rate cap as estimated by the financial
institution providing the instrument is $(38,805) at December 31, 1997.
In accordance with three of the loan agreements, the Company must maintain
certain net worth levels and, additionally, with respect to one of these loans,
must maintain a certain current ratio and certain earnings levels. In addition,
the Company must prepay loan amounts in the event a collateral engine is sold or
otherwise disposed of. A substantial amount of operating lease revenue is
applied to the repayment of principal and interest. Principal outstanding at
December 31, 1997 is repayable as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
YEAR THOUSANDS)
- ------------------------------------------------------------------------
<S> <C>
1998.................................................................... $ 27,328
1999.................................................................... 7,308
2000.................................................................... 8,332
2001.................................................................... 12,882
2002.................................................................... 20,312
Thereafter.............................................................. 24,671
--------
$ 100,834
--------
--------
</TABLE>
As of December 31, 1997 and 1996, accrued interest in the amounts of
$598,972 and $846,793, respectively, is included in notes payable and accrued
interest. At December 31, 1997 and 1996, the Company held deposits in the amount
of $18,461,456 and $13,600,204, respectively, consisting of bank accounts that
are subject to withdrawal restrictions as per lease or loan agreements. Certain
lease agreements require prepayments to the Company for periodic engine
maintenance. These accounts also include security deposits held. Substantially
all of the deposits bear interest for the Company's benefit.
(6) INCOME TAXES
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
------------ ---------- ------------
<S> <C> <C> <C>
December 31, 1997
Current................................................................. $ 1,683,474 $ 604,338 $ 2,287,812
Deferred................................................................ 2,252,159 274,205 2,526,364
------------ ---------- ------------
$ 3,935,633 $ 878,543 $ 4,814,176
------------ ---------- ------------
------------ ---------- ------------
December 31, 1996
Current................................................................. $ 93,864 $ 25,256 $ 119,120
Deferred................................................................ 1,580,360 276,991 1,857,351
------------ ---------- ------------
$ 1,674,224 $ 302,247 $ 1,976,471
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
44
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
------------ ---------- ------------
<S> <C> <C> <C>
December 31, 1995
Current................................................................. $ 25,833 $ 7,066 $ 32,899
Deferred................................................................ 1,670,220 509,161 2,179,381
------------ ---------- ------------
$ 1,696,053 $ 516,227 $ 2,212,280
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
The following is a reconciliation of the statutory federal income tax
expense to the effective income tax expense:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------ ------------ ------------
Statutory federal income tax expense.................................... $ 4,131,628 $ 1,652,397 $ 1,864,914
State taxes, net of federal benefit..................................... 709,806 298,307 340,710
Other................................................................... (27,258) 25,767 6,656
------------ ------------ ------------
Effective income tax expense............................................ $ 4,814,176 $ 1,976,471 $ 2,212,280
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------
<S> <C> <C>
1997 1996
-------------- --------------
Deferred tax assets:
Prepaid rent.................................................................... $ 520,476 $ 511,466
Residual sharing expenses....................................................... 833,383 481,367
Uniform capitalization expenses................................................. 94,539 48,166
State Taxes..................................................................... 201,470 7,462
Reserves........................................................................ 76,313 --
Alternative minimum tax credit.................................................. 1,440,762 --
Passive activity loss carryforwards............................................. 2,439,582 6,185,615
-------------- --------------
Total gross deferred tax assets............................................... 5,606,525 7,234,076
Less valuation allowances..................................................... -- --
-------------- --------------
Net deferred tax assets....................................................... 5,606,525 7,234,076
Deferred tax liabilities:
Depreciation on aircraft engines................................................ (14,082,565) (13,183,752)
-------------- --------------
Net deferred tax liability.................................................... $ (8,476,040) $ (5,949,676)
-------------- --------------
-------------- --------------
</TABLE>
As of December 31, 1997 the Company had passive activity loss carryforwards
totaling $7,175,240 for federal income tax purposes which have no expiration
date and will be available to offset future passive and active revenue.
Management believes that no valuation allowance is required on deferred tax
assets as all amounts are recoverable through future operations.
45
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
During the years ended December 31, 1997, 1996 and 1995, the Company paid
interest totaling $7,951,352, $3,656,707, and $6,063,190 respectively. Income
taxes paid were $104,850, $31,552 and $13,218 for the years ended December 31,
1997, 1996, and 1995 respectively.
(8) DIVIDENDS AND ADVANCES TO SHAREHOLDERS
During the years ended December 31, 1997, 1996, and 1995 the Company paid
dividends totaling $0, $951,475 and $255,000 to Company shareholder(s),
respectively.
During the years ended December 31, 1997, 1996 and 1995, the Company made
loans of, $0, $265,478 and $165,635 to a Company shareholder. Repayments on such
loans and loans made in prior periods, for the years ended December 31, 1997,
1996 and 1995 were, $0, $747,267, and $57,691 respectively. The outstanding
balances of such loans, as of December 31, 1997 and 1996, were $0 and $0,
respectively.
(9) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash deposits and
receivables.
The Company places its cash deposits with financial institutions and other
creditworthy issuers and limits the amount of credit exposure to any one party.
Concentrations of credit risk with respect to lease receivables are limited due
to the large number of customers comprising the Company's customer base, and
their dispersion across different geographic areas.
As of December 31, 1997 and 1996, management believes the Company had no
significant concentrations of credit risk.
For the year ended December 31, 1997, the Company had one significant
customer, Aerovias Mexico, S.A. de C.V., which accounted for approximately 13%
of lease revenue. The Company does not believe that the loss of this customer
would have a material impact on its operations.
(10) COMMITMENTS
The Company has four leases for its office and warehouse space. The annual
lease rental commitments are $125,640, $97,872, $72,372 and $25,200 and the
leases expire on March 14, 1999, May 31, 1998, and July 31, 1999 respectively.
The last lease is on a month to month basis.
In February 1998, the Company signed a lease for office space into which it
anticipates moving its Sausalito operations. The initial term of this lease is 5
years and the annual rental commitments under the lease are approximately $0.3
million. In March 1998, the Company contingently agreed to lease warehouse and
office space for WASI in San Diego, California into which it anticipates moving
substantially all of WASI's South San Francisco operations. The initial term of
this lease is 6 years and the annual rental commitments under the lease are
approximately $0.4 million. These new leases will replace the leases associated
with the $125,640, $97,872 and $25,200 annual lease rental commitments noted
above. To the extent that the Company has obligations remaining under its
current leases after the relocations described above, the Company expects that
it can sublease to cover such obligations.
46
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) COMMITMENTS (CONTINUED)
The Company finances one of its engines under a capital lease. The
Maturities of capital lease obligation as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 376,536
1999............................................................ 376,536
2000............................................................ 376,536
2001............................................................ 376,536
2002............................................................ 376,536
Thereafter...................................................... $2,192,305
----------
Net Minimum Lease Payment....................................... $4,074,985
Less: Amount Representing Interest.............................. $(1,272,866)
----------
Present Value of Net Minimum Lease Payment...................... $2,802,119
----------
</TABLE>
In March 1998, the Company committed, subject to documentation, to purchase,
during 1998 and 1999, certain aircraft for its WASI parts operation. Certain
deposits have and will be made in connection with this commitment and the total
commitment to purchase over the course of 1998 and 1999 is not more than $38
million.
47
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) RELATED PARTY TRANSACTION
During 1996, the Company had a note payable to two employees of the Company,
who were minority shareholders of a subsidiary of the Company. This note payable
was repaid in September of 1996.
(12) EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK PURCHASE PLAN
The Company has a 1996 Employee Stock Purchase Plan (the "Purchase Plan")
under which 75,000 shares of common stock have been reserved for issuance. This
plan was effective in September 1996. Eligible employees may designate not more
than 10% of their cash compensation to be deducted each pay period for the
purchase of common stock under the Purchase Plan, and participants may purchase
not more than $25,000 of common stock in any one calendar year. Each January 31
and July 31 shares of common stock are purchased with the employees' payroll
deductions over the immediately preceding six months at a price per share of 85%
of the lesser of the market price of the common stock on the purchase date or
the market price on the date of entry into an offering period. In fiscal 1997,
10,527 shares were issued under the Purchase Plan.
The weighted average per share fair value of the employee's purchase rights
under the Purchase Plan for the rights granted in 1997 and 1996 were $3.47 and
$3.08 respectively.
1996 STOCK OPTION/STOCK ISSUANCE PLAN
Under the 1996 Stock Option/Stock Issuance Plan, 525,000 shares of the
Company's shares have been set aside to provide eligible persons with the
opportunity to acquire a proprietary interest in the Company. The plan includes
a Discretionary Option Grant Program, a Stock issuance Program, and an Automatic
Option Grant Program for eligible nonemployee Board members.
A summary of the activity under the plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------
<S> <C> <C> <C> <C>
WEIGHTED
OPTIONS AVERAGE WEIGHTED
AVAILABLE EXERCISE AVERAGE
FOR GRANT OPTIONS PRICE FAIR VALUE
---------- --------- ------------- -----------
Balances at June 21, 1996 (Inception)........................... 525,000 -- --
Options Granted............................................... (315,000) 315,000 $ 8.00 $ 4.19
Options Exercised............................................. -- --
Options Canceled.............................................. -- --
---------- --------- ------ -----
Balances at December 31, 1996................................... 210,000 315,000 $ 8.00
Options Granted............................................... (191,000) 191,000 $ 13.99 $ 5.83
Options Exercised............................................. (15,000) $ 8.00
Options Canceled.............................................. 52,500 (52,500) $ 10.86
---------- --------- ------ -----
Balances at December 31, 1997................................... 71,500 438,500 $ 10.27
---------- --------- ------
---------- --------- ------
</TABLE>
48
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) EMPLOYEE BENEFIT PLANS (CONTINUED)
A summary of the outstanding, exercisable options and their weighted average
exercise prices is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
------------- ---------------
<S> <C> <C>
At December 31, 1996............................................ 90,000.00 $ 8.00
At December 31, 1997............................................ 192,500.00 $ 9.33
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE OUTSTANDING PRICE
- ----------------------------------------- ----------- ------------------- ------------- ----------- -------------
$8.00.................................... 277,500 8.7 $ 8.00 150,000 $ 8.00
$10.63 to $14.75......................... 128,000 8.4 $ 12.81 34,250 $ 12.71
$19.50................................... 33,000 9.7 $ 19.50 8,250 $ 19.50
--
----------- ------ ----------- ------
$8.00 to $19.50.......................... 438,500 8.7 $ 10.27 192,500 $ 9.33
</TABLE>
WARRANTS
In conjunction with the initial public offering, the Company sold five-year
purchase warrants for $.01 per warrant covering an aggregate of 100,000 shares
of Common Stock exercisable at a price equal to 130% of the initial public
offering price. The warrants are exercisable commencing 24 months after the
effective date of the Offering or earlier, but not earlier than 12 months after
the initial public offering, if and when the Company files a registration
statement for the sale by the Company of shares of Common Stock or securities
exercisable for, convertible into or exchangeable for shares of Common Stock
(other than pursuant to a stock option or other employee benefit or similar
plan, or in connection with a merger or an acquisition). The secondary offering
in December 1997 constituted such a registration. The warrants' exercise price
and the number of shares of Common Stock are subject to adjustment to protect
the warrant holders against dilution in certain events. On February 26, 1998, a
holder of 50,000 of the warrants exercised the warrants under the net issuance
rights of the warrants. Based on the closing price on such date, the exercise
resulted in the issuance of 25,238 shares to the holder of the warrants.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation (SFAS 123). SFAS 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans. SFAS 123 encourages all
entities to adopt a fair value based method of accounting for stock based
compensation plans in which compensation cost is measured at the date the award
is granted based on the value of the award and is recognized over the employee
service period. However, SFAS 123 allows an entity to continue to use the method
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25), with pro forma disclosures of net income and
earnings per share as if the fair value based method had been applied. APB 25
requires compensation expense to be recognized over the employee service period
based on the excess, if any, of the quoted market price of the stock at the date
the
49
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) EMPLOYEE BENEFIT PLANS (CONTINUED)
award is granted or other measurement date, as applicable, over an amount an
employee must pay to acquire the stock. SFAS 123 is effective for financial
statements for fiscal years beginning after December 15, 1995.
At December 31, 1997 and 1996, the Company had two stock-based compensation
plans, as described above. The Company applies APB 25 in accounting for its
plans. Accordingly, no compensation cost has been recognized for its fixed stock
option plans and its stock purchase plan. Had compensation cost for the
Company's two stock-based compensation plans and warrants been determined
consistent with SFAS 123, the Company's net income and earnings per share would
have been as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net Income as reported............................................ $ 7,337,671 $ 2,804,472
Net Income pro forma.............................................. $ 6,900,477 $ 2,393,485
Net Income per Common Share as reported........................... $ 1.29 $ 0.74
Net Income per Common Share pro forma............................. $ 1.22 $ 0.63
</TABLE>
The fair value of the purchase rights under the Purchase Plan, the options
and the warrants is estimated using the Black-Scholes option pricing model with
the following weighted average assumptions:
The assumptions underlying the estimates derived using the Black Scholes
model are as follows:
<TABLE>
<CAPTION>
1996 STOCK OPTION/ EMPLOYEE STOCK
STOCK ISSUANCE PLAN PURCHASE PLAN
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
--------- --------- --------- ---------
Expected Dividend Yield............................ 0% 0% 0% 0%
Risk-free Interest Rate............................ 6.05% 6.22% 5.12% 5.96%
Expected Volatility................................ 54% 84% 54% 84%
Expected Life (in Years)........................... 3.0 2.4 0.5-2.0 1.3
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable single measure
of the fair value of the Company's options.
EMPLOYEE 401(K) PLAN
The Company adopted The Willis 401(k) Plan (the "Plan") effective as of
January 1997. The Plan provides for deferred compensation as described in
Section 401(k) of the Internal Revenue Code. The Plan is a contributory plan
available to essentially all full-time and part-time employees of the Company in
the United States. In 1997, employees who participated in the Plan could elect
to defer and contribute to the Plan up to 20% of pretax salary or wages up to
$9,600.
50
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
3.1 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. Incorporated by reference to Exhibit 3.2 of the Company's report on
Form 10-K for the year ended December 31, 1996...........................................
3.2 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 filed on June 21, 1996...............................
10.1 1996 Stock Option/Stock Issuance Plan and form of agreement thereunder. Incorporated by
reference to Exhibit 10.1 to Registration Statement No. 333-5126 filed on June 21,
1996.....................................................................................
10.2 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 10.2 to Registration
Statement No. 333-5126-LA filed on June 21, 1996.........................................
10.3 Form of Indemnification Agreement entered into between the Company and its directors and
officers. Incorporated by reference to Exhibit 10.3 to Registration Statement No.
333-5126-LA filed on June 21, 1996.......................................................
10.4 Lease dated May 23, 1995 for facilities located in South San Francisco, California,
together with amendment thereto dated March 18, 1996. Incorporated by reference to
Exhibit 10.4 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 warehouse facility located in South San Francisco.
Incorporated by reference to Exhibit 10.5 of the Company's report on Form 10-K for the
year ended December 31, 1996.............................................................
10.6 Lease dated March 16, 1992 for facilities located in Sausalito, California, together with
amendment thereto. Incorporated by reference to Exhibit 10.6 of the Company's report on
Form 10-K for the year ended December 31, 1996...........................................
10.7 Employment Agreement between the Company and William McElfresh. Incorporated by reference
to Exhibit 10.5 to Registration Statement No. 333-5126 LA filed on June 21, 1996.........
10.8 Employment Agreement between the Company and Steven Oldenburg. Incorporated by reference to
Exhibit 10.6 to Registration Statement No. 333-5126-LA filed on June 21, 1996............
10.9 Employment Agreement between the Company and Edwin Dibble. Incorporated by reference to
Exhibit 10.9 to Registration Statement No. 333-39865 filed on December 11, 1997..........
10.10 Employment Agreement between the Company and Donald Nunemaker dated July 16, 1997..........
10.11 Loan Agreement dated June 12, 1997 with CoreStates Bank, together with related documents
for a $15 million revolving credit facility. Incorporated by reference to Exhibit 10.19
to the Company's Report on Form 10-Q for the period ended June 30, 1997..................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
10.12 Amendment dated July 28, 1997, to loan agreement dated June 12, 1997, for the increasing of
the revolving credit facility to $30 million from $15 million. Incorporated by reference
to Exhibit 10.20 to the Company's Report on Form 10-Q for the period ended June 30,
1997.....................................................................................
10.13 Amendment dated November 18, 1997, to loan agreement dated June 12, 1997, for the
increasing of the revolving credit facility to $45 million from $30 million. Incorporated
by reference to Exhibit 10.21 to Registration Statement No. 333-39865 filed on December
11, 1997.................................................................................
10.14 Engine Sales Agreement dated August 14, 1997, together with related documents, for a $25
million purchase from Pratt & Whitney for nine bare Pratt & Whitney 4056 engines.
Incorporated by reference to Exhibit 10.19 to the Company's Report on Form 10-Q for the
period ended September 30, 1997..........................................................
10.15 Aircraft Sale Agreement dated as of November 17, 1997, between Finova Capital Corporation
as seller and Willis Lease Finance Corporation as buyer. Incorporated by reference to
Exhibit 10.25 to Registration Statement No. 333-39865 filed on December 11, 1997.........
10.16* Indenture dated as of September 1, 1997, between WLFC Funding Corporation and The Bank of
New York, as Indenture Trustee...........................................................
10.17* Series 1997-1 Supplement dated as of September 1, 1997 between WLFC Funding Corporation and
the Bank of New York, as Indenture Trustee...............................................
10.18 Class A Note Purchase Agreement dated as of September 1, 1997 between the Company, WLFC
Funding Corporation and First Union National Bank of North Carolina......................
10.19* Administration Agreement dated as of September 1, 1997 between WLFC Funding Corporation,
the Company, First Union Capital Markets Corp. and The Bank of New York..................
11.1 Statement regarding computation of per share earnings......................................
21.1 Subsidiaries of the Company................................................................
27.1 Financial Data Schedule....................................................................
</TABLE>
- ------------------------
* Portions of these exhibits have been omitted to a request for confidential
treatment.
2
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the
16th day of July, 1997, by and between Willis Lease Finance Corporation
("Employer"), a California corporation, and Donald A. Nunemaker (hereinafter
referred to as "Employee");
WITNESSETH:
WHEREAS, Employer desires to employ Employee, and Employee desires to be
employed by Employer, upon the terms and conditions set forth in this Employment
Agreement; and
WHEREAS, Employee acknowledges that he has had an opportunity to consider
this Agreement and consult with independent advisor(s) of his choosing with
regard to the terms of this Agreement, and enters this Agreement voluntarily and
with a full understanding of its terms;
NOW, THEREFORE, in consideration of the promises and the mutual covenants
hereinafter set forth, Employer and Employee agree as follows:
1. EMPLOYMENT AND TERM. Employer agrees to employ Employee as
Executive Vice President, Chief Administrative Officer for a period of two (2)
years ("Initial Employment Period") commencing on or about July 30, 1997, and
ending on or about July 31, 1999 unless terminated prior thereto in accordance
with Section 4 hereof. Each full twelve month period Employee is employed by
Employer shall be referred to herein as an "Employment Year." The entire
duration of Employee's employment by Employer hereunder shall be referred to
herein as the "Employment Period." Employee shall devote his full time and
attention, with undivided loyalty, to the business and affairs of Employer
during the Employment Period. Employee shall not engage in any other business
or job activity during the Employment Period without Employer's prior written
consent. Employee shall in good faith perform those duties and functions as are
required by his position and as are determined and assigned to him from time to
time by the Board of Directors of Employer of its designate(s). Notwithstanding
the foregoing or any other provision in this Agreement, Employer shall have the
right to modify from time to time the title and duties assigned to Employee.
After the expiration of the Initial Employment Period pursuant to this
Agreement, Employee's employment will automatically renew for a period of one
year, each year, on the same terms and conditions as are set forth herein,
unless either party gives the other notice of nonrenewal at least six(6) months
prior to the end of the last applicable Employment Year. Employer may in its
sole discretion elect to pay Employee the equivalent of six months base salary
in lieu of notice in the event of nonrenewal of this Agreement.
2. COMPENSATION. During the Employment Period, Employee shall receive
compensation from Employer for his services hereunder determined as follows:
<PAGE>
Nunemaker Employment Agreement
Page 2
BASE SALARY. Employer agrees to pay to Employee during the
Employment Period a base salary (hereinafter referred to as the "Base Salary"),
in the amount of One Hundred Fifty Thousand Dollars ($150,000.00) per Employment
Year, to be paid not less frequently than monthly in accordance with Employer's
usual payroll practices. The Board of Directors will review Employee's Base
Salary no less than once annually, and shall have sole discretion to increase or
decrease the Base Salary, so long as the Base Salary is not set below
$150,000.00.
PROFIT INCENTIVE PLAN. Employee will be eligible to participate in
the Willis Lease Profit Incentive Plan under which Employee will be eligible for
an annual bonus. As currently written for the calendar year 1997 Employee would
be entitled to a bonus of 85% of his Base Salary if the Employer meets the
analysts projections as to new lease volume and after-tax profit. Bonuses will
increase if projections are exceeded, and will be reduced if they fall below
projections, with no bonus paid if the actual results are less than 75% of
projections. Because the terms of Employee's Employment Period will commence in
the middle of the calendar year, Employee will be eligible for a pro rata
portion of his bonus based upon that period of the calendar year for which he
has actually been employed. The complete terms and conditions of the Profit
Incentive Plan are set forth in the separate documents governing such plan and
Employee agrees to be bound by the provisions contained therein.
RELOCATION/TRANSITIONAL EXPENSE COMPENSATION. Employer shall pay
to Employee the amount of $24,000.00 to compensate Employee for costs and
expenses associated with relocating to accept employment with Employer.
Employer shall gross up for tax purposes $14,000 of the $24,000 relocation
expense. This relocation expense payment shall be delivered to Employee no
later than twenty (20) days subsequent to the date on which the Employee
commences employment pursuant to this Agreement. Employee shall be required to
reimburse Employer for the full amount of the relocation expense payment in the
event that Employee terminates this Agreement within twelve months of the
commencement of employment hereunder or is terminated for cause. Employee shall
be required to reimburse Employer for one-half the amount of the relocation
expense payment ($12,000.00) in the event that Employee terminates this
Agreement after twelve months, but within twenty four months of the commencement
of employment hereunder, or is terminated for cause.
SIGNING BONUS. Employer shall pay to Employee the amount of
$50,000 as a signing bonus to compensate Employee for money he would have
received as a bonus had he remained employed by this previous employer. The
signing bonus shall be delivered to Employee no later than twenty (20) days
subsequent to the date on which the Employee commences employment pursuant to
this Agreement. Employee shall be required to reimburse Employer for the full
amount of the signing bonus in the event that Employee terminates this Agreement
within twelve months of the commencement of employment hereunder or is
terminated for cause. Employee shall be required to reimburse Employer for
one-half the amount of the signing bonus ($25,000.00) in the event that Employee
terminates this Agreement after twelve months, but within twenty four months of
the commencement of employment hereunder, or is terminated for cause.
3. FRINGE BENEFITS. During the Employment Period, Employer agrees to
provide Employee with the following fringe benefits:
<PAGE>
Nunemaker Employment Agreement
Page 3
(A) BUSINESS EXPENSE REIMBURSEMENT. Employee shall be
authorized to incur reasonable business expenses in performing his duties under
this Agreement, including, but not limited to, expenses for entertainment, long
distance telephone calls, lodging, meals, air fare, transportation and travel.
Employer will reimburse Employee for all such reasonable expenses upon
presentation by Employee, from time to time, of an itemized account or other
appropriate documentation of such expenses.
(B) VACATION. Employee shall be entitled to three (3) weeks of
paid vacation during each Employment Year, provided, however, that Employer and
Employee must mutually agree as to the time during any Employment Year when such
vacation may be taken.
(C) BENEFITS. Employee will be eligible to participate in
benefit plans and policies provided to other Employer employees of similar
status, on the terms and conditions existing, and as may be changed from time to
time, for participation in those plans and policies.
(D) STOCK OPTIONS. Employee will be eligible to participate in
the Employee Stock Option Plan and Employee Stock Purchase Plan subject to the
terms and conditions set forth in detail in the separate Stock Option and Stock
Purchase Plan documents. The terms of vesting applicable to Employee are set
forth in detail in the separate plan documents, and Employee agrees to be bound
by the provisions contained therein, except as otherwise provided in this
Agreement. Pursuant to the Employee Stock Option Plan, Employee shall be
granted 30,000 shares of Willis Lease Finance Corporation stock exercisable at
the market value per share at the close of business on the date that Employee
executes this Employment Agreement. Twenty five (25) per cent of these stock
options shall be vested and exercisable on the grant date, on or about August 4,
1997. The balance of the shares shall be come exercisable in three (3) equal
successive annual installments, so long as Employee continues his employment
with Employer.
4. TERMINATION. Either Employer or Employee may terminate Employee's
employment in accordance with the following provisions:
(A) TERMINATION BY EMPLOYER. The employment of Employee may be
terminated by Employer for any reason or no reason, with or without cause or
justification, subject to the following:
(i) In the event that Employee's employment is terminated by
Employer for cause, or due to death or due to Employee's inability to properly
perform his duties by reason of incapacity for a period of more than ninety (90)
days, Employer's total liability to Employee or his heirs shall be limited to
payment of Employee's Base Salary and benefits through the effective date of
termination, and Employee shall not entitled to any further compensation or
benefits provided under this Agreement.
(a) Cause for termination shall include, but shall not be
limited to: (1) Employee's conviction of or plea of nolo contendere to any
felony or gross misdemeanor charges brought in any Court of competent
jurisdiction; (2) Any fraud, misrepresentation or gross misconduct by Employee
against Employer; (3) Employee's breach of this Agreement.
<PAGE>
Nunemaker Employment Agreement
Page 4
(ii) In the event Employee's employment is terminated by Employer
other than for cause, Employer will provide not less than six (6) months notice
of termination or an amount equal to six (6) months of Employee's Base Salary in
lieu of notice and Employee will be paid his Base Salary and Benefits through
the date of termination. The notice period and/or payments in lieu of notice
provided herein shall be terminated in the event Employee obtains new employment
after receiving notice of termination from Employer.
(B) TERMINATION BY EMPLOYEE. If Employee's employment with
Employer is terminated by Employee for any reason, Employee shall be entitled
only to his Base Salary and benefits through the date of termination and shall
not be entitled to any further compensation or benefits pursuant to this
Agreement. Employee agrees to give Employer at least ninety (90) days prior
written notice of termination of his employment. Employer shall have the right
in its sole discretion to continue to employ Employee for ninety days, or for a
shorter period with pay in lieu of notice to Employee in the amount to which
Employee would have been entitled if employed for the ninety-day notice period.
5. MAINTENANCE OF CONFIDENTIALITY AND DUTY OF LOYALTY. Employee
acknowledges that, pursuant to his employment with Employer, he will necessarily
have access to trade secrets and information that is confidential and
proprietary to Employer in connection with the performance of his duties. In
consideration for the disclosure to Employee of, and the grant to Employee of
access to such valuable and confidential information and in consideration of his
employment, Employee shall comply in all respects with the provisions of this
Section 5.
(A) NONDISCLOSURE. During the Employment Period and thereafter,
Confidential and Proprietary Information of Employer of which Employee gains
knowledge during the Employment Period or prior thereto in connection with his
hiring shall be used by Employee only for the benefit of Employer in connection
with Employee's performance of his employment duties, and Employee shall not,
and shall not allow any other person that gains access to such information in
any manner or form, disclose, communicate, divulge or otherwise make available,
or use, any such information, other than for the immediate benefit of Employer
and without the prior written consent of Employer. For purposes of this
Agreement, the term "Confidential and Proprietary Information" means information
not generally known to the public and which is proprietary to Employer and
relates to Employer's existing or reasonably foreseeable business or operations,
including but not limited to trade secrets, business plans, advertising or
public relations strategies, financial information, budgets, personnel
information, customer information and lists, and information pertaining to
research, development, manufacturing, engineering, processing, product designs
(whether or not patented or patentable), purchasing and licensing, and may be
embodied in reports or other writings or in blue prints or in other tangible
forms such as equipment and models. Employee will refrain from any acts or
omissions that would jeopardize the confidentiality or reduce the value of any
Employer Confidential and Proprietary Information.
(B) COVENANT OF LOYALTY. During the Employment Period and for
any period Employee is receiving compensation from Employer, Employee shall not,
on his own account or as an employee, agent, promoter, consultant, partner,
officer, director, or shareholder of any other person, firm, entity, partnership
or corporation, own operate, lease, franchise, conduct, engage in,
<PAGE>
Nunemaker Employment Agreement
Page 5
be connected with, have any interest in, or assist any person or entity engaged
in any business in the continental United States that is in any way competitive
with or similar to the business that is conducted by Employer or is in the same
general field or industry as Employer.
Without limiting the generality of the foregoing, Employee does hereby covenant
not to, during the Employment Period and for any period that he is receiving
compensation from Employer:
(i) solicit, accept or receive any compensation from any customer of
Employer or any business competitive to that of Employer; or
(ii) contact, solicit or call upon any customer or supplier of Employer
on behalf of any person or entity other than Employer for the
purpose of selling, providing or performing any services of the
type normally provided or performed by Employer; or
(iii) induce or attempt to induce any person or entity to curtail or
cancel any business or contracts which such person or entity had
with Employer; or
(iv) induce or attempt to induce any person or entity to terminate,
cancel or breach any contract which such person or entity has with
Employer, or receive or accept any benefits from such termination,
cancellation or breach.
(C) NO SOLICITATION. During the Employment Period, during any
period Employee is receiving compensation from Employer and for one year
thereafter, Employee agrees not directly or indirectly to solicit, induce or
attempt to solicit or induce any employee of Employer to terminate his or her
employment with Employer in order to become employed by any other person or
entity.
(D) INJUNCTIVE RELIEF. Employee expressly agrees that the
covenants set forth in this Section 5 are reasonable and necessary to protect
Employer and its legitimate business interest, and to prevent the unauthorized
dissemination of Confidential Information to competitors of Employer. Employee
also agrees that Employer will be irreparably harmed and that damages alone
cannot adequately compensate Employer if there is a violation of this Section 5
by Employee, and that injunctive relief against Employee is essential for the
protection of Employer. Therefore, in the event of any such breach, it is
agreed that, in addition to any other remedies available, Employer shall be
entitled as a matter of right to injunctive relief in any court of competent
jurisdiction, plus attorneys' fees actually incurred for the securing of such
relief. Furthermore, Employee agrees that Employer shall not be required to
post a bond or other collateral security with the court if Employer seeks
injunctive relief. To the extent any provision of this Section 5 is deemed
unenforceable by virtue of its scope or limitation, Employee and Employer agree
that the scope and limitation provisions shall nevertheless be enforceable to
the fullest extent permissible under the laws and public policies applied in
such jurisdiction where enforcement is sought.
6. NOTICES. Any notice which either party may wish or be required to
give to the other party pursuant to this Agreement shall be in writing and shall
be either personally served or
<PAGE>
Nunemaker Employment Agreement
Page 6
deposited in the United States mail, registered or certified and with proper
postage prepaid, addressed as follows:
TO EMPLOYER: Willis Lease Finance Corporation
Charles F. Willis, President and CEO
180 Harbor Drive, Suite 200
Sausalito, CA 94965
TO EMPLOYEE: Donald A. Nunemaker
803 Beaumont Drive
Naperville, IL 60540
or to such other address as the parties may designate from time to time by
written notice to the other party given in the above manner. Notice given by
personal service shall be deemed effective upon service. Notice given by
registered or certified mail shall be deemed effective three (3) days after
deposit in the mail.
7. MISCELLANEOUS.
(A) MODIFICATIONS. This agreement supersedes all prior
agreements and understandings between the parties relating to the employment of
Employee by Employer, and it may not be changed or terminated orally. No
modification, termination, or attempted waiver of any other provisions of this
Agreement shall be valid unless in writing signed by the party against whom the
same is sought to be enforced.
(B) ENFORCEABILITY AND SEVERABILITY. If any terms of this
Agreement is deemed void, voidable, invalid or unenforceable for any reason,
such term shall be deemed severable from all other terms of this Agreement,
which shall continue in full force and effect.
(C) PRIOR OBLIGATIONS OF EMPLOYEE. Employee represents and
warrants that by entering this Agreement he is not breaching any contractual
relationship or obligation toward any person or entity. Furthermore, he
understands that Employer is hiring him solely for the purpose of engaging his
skill and expertise and not to acquire trade secrets or confidential information
belonging to any other person or entity. Employee further understands that he
is prohibited from disclosing such trade secrets and proprietary information to
Employer.
(D) ARBITRATION. Any disputes or controversy between the
parties to this Agreement, including allegations of fraud and misrepresentation,
arising from or as a result of this Agreement, the resulting business dealings
between Employer and Employee, Employee's employment or the termination thereof,
including any claims of discrimination or other claims under any federal, state,
or local law or regulation now in existence or hereinafter enacted concerning in
any way the subject of Employee's employment with Employer or its termination,
shall be resolved, after the parties attempt informal resolution, exclusively by
arbitration in accordance with the Rules and Regulations of the American
Arbitration Association. All Arbitration hearings shall be held in San
Francisco County, California within one hundred twenty (120) days from the date
Arbitration is demanded by any of the parties and the Arbitrator shall
<PAGE>
Nunemaker Employment Agreement
Page 7
render his/her written decision within thirty (30) day after the Arbitration
hearing has concluded. The decision of the Arbitrator shall be final and
binding on all parties, and may be entered as a judgment by any party with any
federal or state court of competent jurisdiction. The parties to the
Arbitration hearing shall share any filing fees and Arbitrator's fees which must
be paid in advance of the hearing equally; however, as set forth below the
prevailing party shall be entitled to recover from the losing party all costs
that is has incurred as a result of the Arbitration hearing, including fees paid
to the arbitrator, travel costs and attorneys' fees. This provision shall not
alter the rights of the parties to seek and obtain the provisional equitable
remedies provided under any applicable state or federal law. Employee
represents, by his signature, that he is making a voluntary and knowing waiver
of his right to pursue any and all employment-related claims in court.
(E) SUCCESSORS. This Agreement shall extend to and be binding
upon Employee, his legal representatives, heirs and distributees, and upon
Employer, its successors and assigns.
(F) GOVERNING LAW. This Agreement and all remedies hereunder
shall be construed and enforced in accordance with the laws of the State of
California.
(G) JURISDICTION; VENUE; ATTORNEYS' FEES. The parties do hereby
agree and submit to personal jurisdiction in the State of California for the
purposes of any proceedings brought to enforce or construe the terms of this
Agreement or to resolve any dispute or controversy arising under, as a result
of, or in connection with this Agreement, and do hereby agree and stipulate that
any such proceedings shall be venued and held in San Francisco County,
California. The prevailing party in any such proceeding shall be entitled to
recover from the losing party all costs that it has incurred as a result of such
proceeding including but not limited to all travel costs and attorneys' fee.
(H) EFFECTIVE DATE. This Agreement shall be effective as of the
date first above written.
<PAGE>
Nunemaker Employment Agreement
Page 8
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
effective as of the date first set forth above.
Employer:
WILLIS LEASE FINANCE CORPORATION
By: /s/ Charles F. Willis
-------------------------------------
President and CEO
Employee:
/s/ Donald A. Nunemaker
- ----------------------------------------
DONALD A. NUNEMAKER
<PAGE>
WLFC FUNDING CORPORATION
Issuer
and
THE BANK OF NEW YORK
Indenture Trustee
-----------------------------------
INDENTURE
Dated as of September 1, 1997
-----------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S><C> <C>
ARTICLE IDEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 101. DEFINED TERMS. . . . . . . . . . . . . . . . . . . . . . . 3
Section 102. OTHER DEFINITIONAL PROVISIONS. . . . . . . . . . . . . . .21
Section 103. COMPUTATION OF TIME PERIODS. . . . . . . . . . . . . . . .22
Section 104. DUTIES OF ADMINISTRATIVE AGENT . . . . . . . . . . . . . .22
ARTICLE IITHE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Section 201. AUTHORIZATION OF NOTES . . . . . . . . . . . . . . . . . .23
Section 202. FORM OF NOTES. . . . . . . . . . . . . . . . . . . . . . .23
Section 203. EXECUTION; RECOURSE OBLIGATION . . . . . . . . . . . . . .23
Section 204. CERTIFICATE OF AUTHENTICATION. . . . . . . . . . . . . . .24
Section 205. REGISTRATION; REGISTRATION OF TRANSFER AND
EXCHANGE OF NOTES . . . . . . . . . . . . . . . . . . . . . . .24
Section 206. MUTILATED, DESTROYED, LOST AND STOLEN NOTES. . . . . . . .26
Section 207. DELIVERY, RETENTION AND CANCELLATION OF NOTES. . . . . . .27
ARTICLE IIIPAYMENT OF NOTES; STATEMENTS TO NOTEHOLDERS . . . . . . . . . . . .29
Section 301. PRINCIPAL AND INTEREST . . . . . . . . . . . . . . . . . .29
Section 302. DIRECTION TO LESSEES . . . . . . . . . . . . . . . . . . .29
Section 303. TRUST ACCOUNT. . . . . . . . . . . . . . . . . . . . . . .29
Section 304. INVESTMENT OF MONIES HELD IN THE TRUST ACCOUNT, THE
RESTRICTED CASH ACCOUNT, ENGINE RESERVE ACCOUNT, THE
SECURITY DEPOSIT ACCOUNT AND SERIES ACCOUNTS. . . . . . . . . .30
Section 305. REPORTS TO NOTEHOLDERS . . . . . . . . . . . . . . . . . .31
Section 306. RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . .31
Section 307. RESTRICTED CASH ACCOUNT. . . . . . . . . . . . . . . . . .31
Section 308. ENGINE RESERVE ACCOUNT . . . . . . . . . . . . . . . . . .31
Section 309. SECURITY DEPOSIT ACCOUNT . . . . . . . . . . . . . . . . .31
Section 310. SECURITIES ACCOUNTS. . . . . . . . . . . . . . . . . . . .32
ARTICLE IVCOLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Section 401. COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . .33
Section 402. PRO RATA INTEREST. . . . . . . . . . . . . . . . . . . . .34
Section 403. INDENTURE TRUSTEE'S APPOINTMENT AS ATTORNEY-IN-FACT. . . .34
Section 404. RELEASE OF SECURITY INTEREST . . . . . . . . . . . . . . .35
Section 405. ADMINISTRATION OF COLLATERAL . . . . . . . . . . . . . . .36
Section 406. QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . .38
Section 407. ACKNOWLEDGMENT . . . . . . . . . . . . . . . . . . . . . .38
ARTICLE VRIGHTS OF NOTEHOLDERS; ALLOCATIONAND APPLICATION OF
COLLECTIONS;REQUISITE GLOBAL MAJORITY . . . . . . . . . . . . . . . . . .39
Section 501. RIGHTS OF NOTEHOLDERS. . . . . . . . . . . . . . . . . . .39
Section 502. COLLECTIONS AND ALLOCATIONS. . . . . . . . . . . . . . . .39
<PAGE>
Section 503. DETERMINATION OF REQUISITE GLOBAL MAJORITY . . . . . . . .39
ARTICLE VICOVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
Section 601. PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT OF TAXES. . . .40
Section 602. MAINTENANCE OF OFFICE. . . . . . . . . . . . . . . . . . .40
Section 603. CORPORATE EXISTENCE. . . . . . . . . . . . . . . . . . . .40
Section 604. PROTECTION OF COLLATERAL . . . . . . . . . . . . . . . . .40
Section 605. PERFORMANCE OF OBLIGATIONS . . . . . . . . . . . . . . . .41
Section 606. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . .41
Section 607. NON-CONSOLIDATION OF ISSUER. . . . . . . . . . . . . . . .42
Section 608. NO BANKRUPTCY PETITION . . . . . . . . . . . . . . . . . .42
Section 609. LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . .43
Section 610. OTHER DEBT . . . . . . . . . . . . . . . . . . . . . . . .43
Section 611. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES. . . . .43
Section 612. CONSOLIDATION, MERGER AND SALE OF ASSETS . . . . . . . . .43
Section 613. OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . .43
Section 614. CHARTER DOCUMENTS. . . . . . . . . . . . . . . . . . . . .44
Section 615. CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . .44
Section 616. PERMITTED ACTIVITIES . . . . . . . . . . . . . . . . . . .44
Section 617. INVESTMENT COMPANY ACT . . . . . . . . . . . . . . . . . .44
Section 618. PAYMENTS OF COLLATERAL . . . . . . . . . . . . . . . . . .44
Section 619. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . .44
Section 620. BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . . .45
Section 621. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . .45
Section 622. SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . .45
Section 623. INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . .45
Section 624. USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . .45
Section 625. ASSET BASE CERTIFICATE . . . . . . . . . . . . . . . . . .45
Section 626. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . .45
Section 627. SERVICING REPORT . . . . . . . . . . . . . . . . . . . . .45
Section 628. CASH RECEIPTS REPORT . . . . . . . . . . . . . . . . . . .46
Section 629. RESERVED . . . . . . . . . . . . . . . . . . . . . . . . .46
ARTICLE VIIDISCHARGE OF INDENTURE; PREPAYMENTS . . . . . . . . . . . . . . . .47
Section 701. FULL DISCHARGE . . . . . . . . . . . . . . . . . . . . . .47
Section 702. PREPAYMENT OF NOTES. . . . . . . . . . . . . . . . . . . .47
Section 703. UNCLAIMED FUNDS. . . . . . . . . . . . . . . . . . . . . .48
ARTICLE VIIIDEFAULT PROVISIONS AND REMEDIES. . . . . . . . . . . . . . . . . .49
Section 801. EVENT OF DEFAULT . . . . . . . . . . . . . . . . . . . . .49
Section 802. ACCELERATION OF STATED MATURITY; RESCISSION AND
ANNULMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Section 803. COLLECTION OF INDEBTEDNESS . . . . . . . . . . . . . . . .51
Section 804. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . .51
Section 805. INDENTURE TRUSTEE MAY ENFORCE CLAIMS WITHOUT
POSSESSION OF NOTES . . . . . . . . . . . . . . . . . . . . . .52
Section 806. ALLOCATION OF MONEY COLLECTED. . . . . . . . . . . . . . .52
Section 807. LIMITATION ON SUITS. . . . . . . . . . . . . . . . . . . .53
<PAGE>
Section 808. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL AND INTEREST. . . . . . . . . . . . . . . . . . . . .53
Section 809. RESTORATION OF RIGHTS AND REMEDIES . . . . . . . . . . . .54
Section 810. RIGHTS AND REMEDIES CUMULATIVE . . . . . . . . . . . . . .54
Section 811. DELAY OR OMISSION NOT WAIVER . . . . . . . . . . . . . . .54
Section 812. CONTROL BY THE CONTROL PARTY OF THE AFFECTED SERIES. . . .54
Section 813. WAIVER OF PAST DEFAULTS. . . . . . . . . . . . . . . . . .55
Section 814. UNDERTAKING FOR COSTS. . . . . . . . . . . . . . . . . . .55
Section 815. WAIVER OF STAY OR EXTENSION LAWS . . . . . . . . . . . . .55
Section 816. SALE OF COLLATERAL . . . . . . . . . . . . . . . . . . . .55
Section 817. ACTION ON NOTES. . . . . . . . . . . . . . . . . . . . . .56
ARTICLE IX CONCERNING THE INDENTURE TRUSTEE. . . . . . . . . . . . . . . . . .57
Section 901. DUTIES OF INDENTURE TRUSTEE. . . . . . . . . . . . . . . .57
Section 902. CERTAIN MATTERS AFFECTING THE INDENTURE TRUSTEE. . . . . .58
Section 903. INDENTURE TRUSTEE NOT LIABLE . . . . . . . . . . . . . . .59
Section 904. INDENTURE TRUSTEE MAY OWN NOTES. . . . . . . . . . . . . .60
Section 905. INDENTURE TRUSTEE'S FEES AND EXPENSES. . . . . . . . . . .60
Section 906. ELIGIBILITY REQUIREMENTS FOR INDENTURE TRUSTEE . . . . . .61
Section 907. RESIGNATION AND REMOVAL OF INDENTURE TRUSTEE . . . . . . .61
Section 908. SUCCESSOR INDENTURE TRUSTEE. . . . . . . . . . . . . . . .62
Section 909. MERGER OR CONSOLIDATION OF INDENTURE TRUSTEE . . . . . . .62
Section 910. SEPARATE INDENTURE TRUSTEES, CO-INDENTURE
TRUSTEES AND CUSTODIANS . . . . . . . . . . . . . . . . . . . .62
Section 911. REPRESENTATIONS, WARRANTIES AND COVENANTS. . . . . . . . .64
Section 912. INDENTURE TRUSTEE OFFICES. . . . . . . . . . . . . . . . .65
Section 913. NOTICE OF EVENT OF DEFAULT . . . . . . . . . . . . . . . .65
ARTICLE XSUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . . . . . . . .66
Section 1001. SUPPLEMENTAL INDENTURES NOT CREATING A NEW SERIES
WITHOUT CONSENT OF HOLDERS. . . . . . . . . . . . . . . . . . .66
Section 1002. SUPPLEMENTAL INDENTURES NOT CREATING A NEW
SERIES WITH CONSENT OF HOLDERS. . . . . . . . . . . . . . . . .67
Section 1003. EXECUTION OF SUPPLEMENTAL INDENTURES . . . . . . . . . . .68
Section 1004. EFFECT OF SUPPLEMENTAL INDENTURES. . . . . . . . . . . . .68
Section 1005. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES. . . . . . .68
Section 1006. ISSUANCE OF SERIES OF NOTES. . . . . . . . . . . . . . . .68
ARTICLE XIHOLDERS LISTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .70
Section 1101. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND
ADDRESSES OF HOLDERS. . . . . . . . . . . . . . . . . . . . . .70
Section 1102. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS . .70
ARTICLE XIIEARLY AMORTIZATION EVENT. . . . . . . . . . . . . . . . . . . . . .71
Section 1201. EARLY AMORTIZATION EVENT . . . . . . . . . . . . . . . . .71
ARTICLE XIIIMISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . .72
Section 1301. COMPLIANCE CERTIFICATES AND OPINIONS . . . . . . . . . . .72
Section 1302. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE . . . . .72
<PAGE>
Section 1303. ACTS OF HOLDERS. . . . . . . . . . . . . . . . . . . . . .73
Section 1304. INSPECTION . . . . . . . . . . . . . . . . . . . . . . . .73
Section 1305. LIMITATION OF RIGHTS . . . . . . . . . . . . . . . . . . .74
Section 1306. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . .74
Section 1307. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . .74
Section 1308. CONSENT TO JURISDICTION. . . . . . . . . . . . . . . . . .75
Section 1309. CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . .75
Section 1310. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . .75
Section 1311. NO PETITION. . . . . . . . . . . . . . . . . . . . . . . .75
Section 1312. GENERAL INTERPRETIVE PRINCIPLES. . . . . . . . . . . . . .75
Section 1313. EFFECTIVE DATE OF TRANSACTION. . . . . . . . . . . . . . .76
Section 1314. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . .76
EXHIBIT A - Reserved
EXHIBIT B - Intentionally Omitted
EXHIBIT C - Manufacturers, Engines Types
EXHIBIT D - Transfer Certificate (Rule 144A)
EXHIBIT E - Transfer Certificate (other than Rule 144A)
EXHIBIT F - Form of Non-Recourse Release
SCHEDULE 1 Certain Terms
</TABLE>
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This Indenture, dated as of September 1, 1997 (as amended or
supplemented from time to time as permitted hereby, the "Indenture"), between
WLFC Funding Corporation, a corporation organized and existing under the laws of
the State of Delaware (the "Issuer") and The Bank of New York, a New York
banking corporation, as Indenture Trustee (the "Indenture Trustee").
W I T N E S S E T H :
In consideration of the mutual agreements herein contained, each party agrees as
follows for the benefit of the other parties, the Noteholders and any Series
Enhancer.
GRANTING CLAUSE
To secure the payment of the Outstanding Obligations of each Series and
amounts owing by the Issuer under any Interest Rate Hedge Agreement and the
performance of all of the Issuer's covenants and agreements in this Indenture
and the related Supplement, the Issuer hereby grants, assigns, conveys,
mortgages, pledges, hypothecates and transfers to Indenture Trustee, for the
benefit of Noteholders of such Series, any Series Enhancer and any Interest Rate
Hedge Provider, a security interest in and to all of the Issuer's right, title
and interest in, to and under the following, whether now existing or hereafter
created: (i) the Eligible Engines, related Lease Agreements (other than
indemnification payments) and other Contributed Assets identified in the related
Supplement, (ii) the Trust Account, Restricted Cash Account, Engine Reserve
Account, Security Deposit Account and Series Account and all amounts and
Eligible Investments on deposit from time to time in any such account to the
extent that such amounts (including Excess Cash Available for Distribution) and
Eligible Investments therein are specifically identified or allocated to such
Series in accordance with the terms of this Indenture or the related Supplement,
(iii) the Contribution and Sale Agreement and the Servicing Agreement, the
Administration Agreement, in each case, as such agreements relate to an Eligible
Engine specifically identified or allocated to a particular Series in accordance
with the terms of this Indenture and the related Supplement, (iv) all Excess
Cash Available for Distribution, (v) all income, payments and proceeds of the
foregoing and of the items identified in clause (vi), and (vi) all of the
following which arise out of or in any way relate to (but only to the extent
they relate to) an Eligible Engine identified in the related Supplement:
(a) All Accounts;
(b) All Chattel Paper;
(c) All Contracts;
(d) All Documents;
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(e) All General Intangibles;
(f) All Instruments;
(g) All Inventory;
(h) All property of the Issuer held by the Indenture Trustee
including, without limitation, all property of every description now or
hereafter in the possession or custody of or in transit to the Indenture Trustee
for any purpose, including, without limitation, safekeeping, collection or
pledge, for the account of the Issuer, or as to which the Issuer may have any
right or power;
(i) To the extent not included above and without limiting the
foregoing, all Chattel Paper, all Leases and all schedules, supplements,
amendments, modifications, renewals, extensions, and guarantees thereof in every
case whether now owned or hereafter acquired and all amounts, rentals, proceeds
and other sums of money due and to become due under the Engine Related
Agreements, including (in each case only to the extent related to an Eligible
Engine), without limitation, (i) all rentals, payments and other moneys,
including all insurance payments and claims for losses due and to become due to
the Issuer under, and all claims for damages arising out of the breach of, any
Engine Related Agreement; (ii) the right of the Issuer to terminate, perform
under, or compel performance of the terms of the Engine Related Agreements; and
(iii) any guarantee of the Engine Related Agreements and any rights of the
Issuer in respect of any subleases or assignments permitted under the Engine
Related Agreements;
(j) All insurance proceeds of the Collateral (other than proceeds of
liability insurance), all proceeds of the voluntary or involuntary disposition
of the Collateral or such proceeds;
(k) Any and all payments made or due to the Issuer in connection with
any requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any Governmental Authority and any other cash or
non-cash receipts from the sale, exchange, collection or other disposition of
the Collateral;
(l) To the extent not otherwise included, all income and Proceeds of
each of the foregoing and all accessions to, substitutions and replacements for,
and rents, profits and products of each of the foregoing.
All of the property described in this Granting Clause is herein collectively
called the "Collateral" and as such is security for the Aggregate Outstanding
Obligations.
ARTICLE I
DEFINITIONS
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Section 101. DEFINED TERMS. Capitalized terms used in this
Indenture shall have the following meanings and the definitions of such terms
shall be equally applicable to both the singular and plural forms of such terms:
ACCOUNT DEBTOR: Any "account debtor," as such term is defined in Section
9-105(1)(a) of the UCC.
ACCOUNTS: Any "account," as such term is defined in Section 9-106 of the
UCC, arising out of or in any way related to an Eligible Engine and, in any
event, shall include, without limitation, all accounts receivable, book debts
and other forms of obligations (other than forms of obligations evidenced by
Chattel Paper, Documents or Instruments) now owned or hereafter received or
acquired by or belonging or owing to Issuer (including, without limitation,
under any trade name, style or division thereof) whether arising out of goods
sold or services rendered by Issuer or from any other transaction, whether or
not the same involves the sale of goods or services by Issuer (including,
without limitation, any such obligation which may be characterized as an account
or contract right under the UCC) and all of Issuer's rights in, to and under all
purchase orders or receipts now owned or hereafter acquired by it for goods or
services, and all of Issuer's rights to any goods represented by any of the
foregoing (including, without limitation, unpaid seller's rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned, reclaimed
or repossessed goods), and all monies due or to become due to Issuer under all
purchase orders and contracts for the sale of goods or the performance of
services or both by Issuer (whether or not yet earned by performance on the part
of Issuer or in connection with any other transaction), now in existence or
hereafter occurring, including, without limitation, the right to receive the
proceeds of said purchase orders and contracts, and all collateral security and
guarantees of any kind given by any Person with respect to any of the foregoing.
ADMINISTRATION AGREEMENT: The Administration Agreement, dated as of
September 1, 1997, among the Issuer, the Servicer, the Administrative Agent and
the Indenture Trustee, as such agreement shall be modified or supplemented from
time to time in accordance with its terms.
ADMINISTRATIVE AGENT: First Union Capital Markets Corp. and its permitted
successors and assigns.
AFFILIATE: With respect to any Person, any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such specified Person. For the purposes of this definition, "control",
when used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
AGGREGATE NET BOOK VALUE: As of any date of determination, an amount equal
to the sum of the Net Book Values of all Eligible Engines.
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AGGREGATE OUTSTANDING OBLIGATIONS: As of any date of determination, an
amount equal to the sum of the Outstanding Obligations for all Series of Notes
then Outstanding.
APPLICABLE PERCENTAGE: This term is defined in Schedule 1 hereto ("Schedule
1").
APPRAISAL: An appraisal by one or more widely recognized independent
appraisers selected by the Servicer and acceptable to the Administrative Agent.
APPRAISED VALUE: With respect to an Engine, an amount determined by
Appraisal equal to the value which would be obtained in an arm's-length
transaction between an informed and willing purchaser (other than a purchaser
currently in possession) under no compulsion to purchase and an informed and
willing seller, under no compulsion to sell. In determining such value in the
case of an Engine, it will be assumed that (i) no value will be given to lease
payments made under any related Lease Agreement, (ii) that such Engine appraisal
shall be based upon the condition and overhaul status in which the Engine is
required to be returned, provided, however, that maintenance and repair
provisions shall be considered when evaluating return conditions.
ASSET BASE: With respect to any Series, as of any Payment Date, an amount
equal to (1) the sum of (a) the product of (i) the Applicable Percentage and
(ii) the sum of (x) the Aggregate Net Book Value as of the end of the
immediately preceding Collection Period of all Eligible Engines pledged to such
Series and (y) an amount calculated as of the end of the immediately preceding
Collection Period by applying the Depreciation Policy to Capital Improvements
made to the Eligible Engines pledged to such Series, and (b) the amount on
deposit in the related Restricted Cash Account for such Series on such Payment
Date, after giving effect to all deposits to and withdrawals from such
Restricted Cash Account on such Payment Date, minus (2) the sum of (a) any
Maintenance Reserve Payments and Security Deposits relating to such Eligible
Engines pledged to such Series that are not then on deposit in the related
Engine Reserve Account and the related Security Deposit Account, respectively,
and (b) the Excess Concentration Amount (as defined in a Supplement for a
Series).
ASSET BASE CERTIFICATE: A certificate with appropriate insertions setting
forth the components of the Asset Base as of the last day of the month for which
such certificate is submitted, which certificate shall be substantially in the
form of Exhibit D to the related Supplement and shall be certified by an
Authorized Signatory.
AUTHORIZED SIGNATORY: Any Person designated by written notice delivered to
the Indenture Trustee and any Series Enhancer as authorized to execute documents
and instruments on behalf of a Person.
AVAILABLE AMOUNTS: This term is defined in Section 401 hereof.
BANKRUPTCY CODE: The Bankruptcy Reform Act of 1978, as amended.
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BENEFIT PLAN: This term is defined in Section 205(e) hereof.
BUSINESS DAY: Any day other than a Saturday, a Sunday or a day on which
banking institutions in New York City, Sausalito, California, Charlotte, North
Carolina, or the city in which the Corporate Trust Office of Indenture Trustee
is located, are authorized or are obligated by law, executive order or
governmental decree to be closed.
CAPITAL IMPROVEMENTS: Any capital improvements made to Eligible Engines in
accordance with Section 3.01(f) of the Servicing Agreement.
CASUALTY LOSS: (i) Any of the following events with respect to an Eligible
Engine which is not subject to a Lease Agreement: (a) the actual total loss or
compromised total loss of such Eligible Engine, (b) Issuer's knowledge that such
Eligible Engine has become lost, stolen or destroyed, (c) 60 days following
Issuer's determination that such Eligible Engine is damaged beyond repair or
permanently rendered unfit for use for any reason whatsoever or (d) the seizure,
condemnation or confiscation of such Eligible Engine for a period exceeding
thirty (30) days and (ii) if such Eligible Engine is subject to a Lease
Agreement, such Eligible Engine shall have been deemed under its Lease Agreement
to have suffered a casualty loss as to the entire Eligible Engine.
CASUALTY PROCEEDS: Any payment to, or on behalf of, the Issuer in
connection with a Casualty Loss.
CHANGE OF CONTROL: means (i) (a) any "person" or group (as defined in Rules
13d-3 and 13-5 under the Securities Act), is or becomes the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Securities Act) of a larger
number of shares of common stock of the Seller than the number of shares of
common stock of the Seller of which CHARLES F. WILLIS, IV and members of his
family (including children, brothers and sisters) is the beneficial owner (as
defined in Rules 13d-3 and 13d-5 under the Securities Act) and (b) at any time
during any consecutive two-year period, individuals who at the beginning of such
period constituted the Board of Directors of the Seller (together with any new
directors whose elections by the shareholders of the Seller was approved by a
vote of 66 2/3% of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Seller then in office; or (ii) any "person" or group
(as defined in Rules 13d-3 and 13-5 under the Securities Act) other than Charles
F. Willis IV, and members of his family (including children, brothers and
sisters) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13-5 under the Securities Act) of 50% or more of the shares of common stock of
the Seller.
CHATTEL PAPER: Any lease (including any Lease or any Lease Agreement) or
other "chattel paper," as such term is defined in Section 9-105(1)(b) of the
UCC, arising out of or in any way related to the Eligible Engines and now owned
or hereafter acquired by Issuer.
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CLASS: With respect to any Series, all Notes having the same rights to
payment under the related Supplement.
CLOSING DATE: This term shall have the meaning set forth in the related
Supplement for a Series.
CODE: The Internal Revenue Code of 1986, as amended, or any successor
statute thereto.
COLLATERAL: This term shall have the meaning set forth in the Granting
Clause of this Indenture.
COLLECTION PERIOD: With respect to the first Payment Date, the period
commencing on the Closing Date and ending on the last day of the next succeeding
calendar month and thereafter for any subsequent Payment Date the period from
the first day of the calendar month immediately preceding the month in which
such Payment Date occurs through the last day of such calendar month.
COLLECTIONS: With respect to any Collection Period, all payments actually
received by the Issuer with respect to the Eligible Engines or the other items
of Collateral, including, without limitation, all Engine Revenues, Casualty
Proceeds, Sales Proceeds and Warranty Purchase Amounts. Collections for any
Collection Period shall include any of the foregoing amounts which are received
in any Collection Period but which are deposited in the Trust Account in the
next month within the time required by Section 303(a) hereof.
CONTRACTS: All contracts, undertakings, franchise agreements or other
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments), arising out of or in any way related to an Eligible Engine or to
the related Series of Notes, in or under which Issuer may now or hereafter have
any right, title or interest, including, without limitation, the Servicing
Agreement, the Contribution and Sale Agreement, any Interest Rate Hedge
Agreements and any related agreements, security interests or UCC or other
financing statements and, with respect to an Account, any agreement relating to
the terms of payment or the terms of performance thereof.
CONTRIBUTED ASSETS: This term shall have the meaning set forth in the
Contribution and Sale Agreement.
CONTRIBUTION AND SALE AGREEMENT: The Contribution and Sale Agreement,
dated as of September 1,1997, between the Seller and the Issuer, and all
amendments and supplements thereto.
CONTROL PARTY: With respect to a Series, Noteholders of such Series
representing more than fifty percent (50%) of the then unpaid principal balance
of all Notes Outstanding within such Series, unless otherwise specified in the
Supplement related to such Series.
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CORPORATE TRUST OFFICE: The principal office of the Indenture Trustee at
which at any particular time its corporate trust business shall be administered,
which office shall initially be located at 101 Barclay Street, 12th Floor East,
Asset Backed Finance Unit, New York, New York 10286.
CORPORATE TRUST OFFICER: Any Treasurer, Assistant Treasurer, Assistant
Trust Officer, Trust Officer, Assistant Vice President, Vice President or Senior
Vice President of the Indenture Trustee or any other officer who customarily
performs functions similar to those performed by the Persons who at the time
shall be such officers to whom any corporate trust matter is referred because of
their knowledge of and familiarity with the particular subject.
DEFAULT INTEREST: The interest specified in the related Supplement payable
by the Issuer resulting from the occurrence of an Event of Default.
DEFICIENCY AMOUNT: This term is defined in Section 401 hereof.
DEFICIENT SERIES: This term is defined in Section 401 hereof.
DEPRECIATION EXPENSE: As of any date of determination shall mean the
depreciation expense of the Eligible Engines for the immediately preceding four
(4) fiscal quarters through the most recently completed fiscal quarter, which
depreciation expense shall be calculated in accordance with the Depreciation
Policy.
DEPRECIATION PERCENTAGE: This term is defined in Schedule 1.
DEPRECIATION POLICY: As of the date hereof, (i) with respect to the
Eligible Engines, straight line monthly depreciation over a period of fifteen
years commencing from the date of acquisition of an Engine until the date on
which the value attributable to an Engine is equal to the Depreciation
Percentage of its Net Purchase Price and (ii) with respect to Capital
Improvements made to the Eligible Engines, straight line monthly depreciation
over a period of fifteen years less the number of months transpired from the
date of acquisition of the related Eligible Engine, commencing from the date on
which such Capital Improvement is made to the related Eligible Engine until the
date on which the value attributable to such Capital Improvement is equal to the
Depreciation Percentage of the value of such Capital Improvement (such value, as
determined in accordance with GAAP on the date on which such Capital Improvement
is made). As of any date other than the date hereof, the Issuer may modify the
Depreciation Policy with the prior written consent of the Administrative Agent.
DETERMINATION DATE: The fourth Business Day prior to any Payment Date.
DISPOSITION PROCEEDS: Any payment to the Issuer in connection with any
sale, lease or disposition of an Eligible Engine.
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DOCUMENTS: Any "documents," as such term is defined in Section 9-105(1)(f)
of the UCC, arising out of or in any way related to an Eligible Engine and now
owned or hereafter acquired by the Issuer.
EARLY AMORTIZATION EVENT: The occurrence of any of the events or
conditions set forth in Article XII hereof.
EBIT: For any period, earnings (loss) before Net Interest Expense, taxes,
gains and losses from the sale of plant, property and equipment and foreign
exchange transactions.
EBIT RATIO: For the Issuer, the ratio of (a) EBIT to (b) Net Interest
Expense, in each case for the most recently concluded four (4) fiscal quarters
(except for the first three fiscal quarters of the Issuer following the
Effective Date of the first Series, EBIT and Net Interest Expense through the
end of any quarter under consideration will, for purposes of this calculation,
be calculated on an annualized basis by multiplying actual EBIT or Net Interest
Expense for the fiscal quarters which have been completed since the Effective
Date of the first Series by a fraction, the numerator of which is four (4) and
the denominator of which is the number of full fiscal quarters then completed).
EFFECTIVE DATE: This term shall have the meaning set forth in the related
Supplement for a Series.
ELIGIBLE ACCOUNT: Either (a) a segregated account with an Eligible
Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States or any of the states thereof, including the District of Columbia (or any
domestic branch of a foreign bank), and acting as a trustee for funds deposited
in such account, so long as the senior securities of such depository institution
shall have a credit rating from each Rating Agency in one of its generic credit
rating categories no lower than "A3" or "A-", as the case may be, or (c) any
account held with the Indenture Trustee.
ELIGIBLE ENGINE: This term shall have the meaning set forth in the related
Supplement for a Series.
ELIGIBLE INSTITUTION: Any one or more of the following institutions:
(i) the corporate trust department of the Indenture Trustee, or (ii) a
depositary institution organized under the laws of the United States of America
or any one of the states thereof or the District of Columbia (or any domestic
branch of a foreign bank), (a) which has both (x) a long-term unsecured senior
debt rating of not less than "A" by Standard & Poor's Ratings Group and "A-2" by
Moody's Investors Service, Inc., and (y) a short-term unsecured senior debt
rating rated in the highest rating category by each Rating Agency and (b) whose
deposits are insured by the Federal Deposit Insurance Corporation.
ELIGIBLE INVESTMENTS: One or more of the following:
8
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(i) direct obligations of, and obligations fully guaranteed as to
the timely payment of principal and interest by, the United States or
obligations of any agency or instrumentality thereof when such obligations
are backed by the full faith and credit of the United States;
(ii) certificates of deposit and bankers' acceptances (which shall
each have an original maturity of not more than 365 days) of any United
States depository institution or trust company incorporated under the laws
of the United States or any State and subject to supervision and
examination by federal and/or State authorities, provided that the
long-term unsecured senior debt obligations of such depository institution
or trust company at the date of acquisition thereof have been rated
"A-"/"A3" or better by the Rating Agencies, or the short-term unsecured
senior debt obligations of such depository institution or trust company are
rated by each Rating Agency in its highest rating category;
(iii) commercial paper (having original maturities of not more than
270 days) of any corporation incorporated under the laws of the United
States or any State thereof which on the date of acquisition has been rated
by each Rating Agency in the highest short-term unsecured commercial paper
rating category;
(iv) any money market fund that has been rated by each Rating Agency
in its highest rating category (including any designations of "plus" or
"minus") or that invests solely in Eligible Investments;
(v) eurodollar deposits (which shall each have an original maturity
of not more than 365 days) of any depository institution or trust company,
provided that the long-term unsecured senior debt obligations of such
depository institution or trust company at the date of acquisition thereof
have been rated "A-"/"A3" or better by the Rating Agencies, or the
short-term unsecured senior debt obligations of such depository institution
or trust company are rated by each Rating Agency in its highest rating
category; and
(vi) other obligations or securities that are acceptable to the
related Series Enhancers and each Rating Agency as an Eligible Investment
hereunder and will not result in a reduction or withdrawal in the then
current rating of the Notes as evidenced by a letter to such effect from
each Rating Agency and the related Series Enhancers.
ELIGIBLE LEASE: This term shall have the meaning set forth in the related
Supplement for a Series.
ENGINE: Any aircraft engine manufactured by one of the manufacturers and
constituting one of the engine types set forth in Exhibit C hereto.
ENGINE RELATED AGREEMENT: Any agreement relating to an Eligible Engine or
agreements relating to the use or management of an Eligible Engine whether in
existence on
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any Series Issuance Date or thereafter acquired, including, but not limited to,
all Leases, the Servicing Agreement, the Contribution and Sale Agreement and the
Chattel Paper.
ENGINE REPRESENTATIONS AND WARRANTIES: This term shall have the meaning
set forth in the Contribution and Sale Agreement.
ENGINE RESERVE ACCOUNT: Any deposit, trust, escrow or similar account
maintained for the benefit of the Noteholder of any Series or Class and any
related Series Enhancer in accordance with the provisions of Section 308 hereof.
ENGINE REVENUES: For any Collection Period, all amounts paid to and
received by the Issuer which are attributable to an Eligible Engine, including
but not limited to (i) any Scheduled Payment and other amounts payable by a
Lessee pursuant to the related Lease Agreements; (ii) amounts received from the
manufacturers or sellers of an Eligible Engine for breach of sale warranties
relating thereto or in settlement of any claims, losses, disputes or proceedings
relating to such Eligible Engine; (iii) amounts received from any other Person
in settlement of any claims, losses, disputes or proceedings relating to an
Eligible Engine, including insurance proceeds relating thereto; and (iv) any
insurance premiums relating to an Eligible Engine which have been refunded by
the insurer. Notwithstanding the foregoing, Engine Revenues do not include
Sales Proceeds, Casualty Proceeds, Maintenance Reserve Payments or Security
Deposits (unless, and to the extent that, such Security Deposit is applied
toward payment of any Lessee payment obligation under the related Lease
Agreement).
ENHANCEMENT AGREEMENT: Any agreement, instrument or document governing the
terms of any Series Enhancement or pursuant to which any Series Enhancement is
issued or outstanding.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
ERISA AFFILIATE: With respect to any Person, any other Person meeting the
requirements of Section 414(b), (c), (m) or (o) of the Code.
EVENT OF DEFAULT: With respect to any Series, the occurrence of any of the
events or conditions set forth in Section 801 of the Indenture.
EXCESS CASH AVAILABLE FOR DISTRIBUTION: With respect to any Series on any
Payment Date, the amount of funds remaining in the related Series Account
following distribution on such Payment Date of all payments which, pursuant to
the terms of the related Supplement, have a payment priority greater than the
distribution of funds to the Issuer.
FAA: The Federal Aviation Authority or any successor organization thereto.
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FINAL PAYMENT DATE: With respect to any Series, the date on which the
principal balance of the Outstanding Notes of such Series are payable in full.
The Final Payment Date for a Series shall be set forth in the related
Supplement.
FIRST UNION: First Union Capital Markets Corp., and its permitted
successors and assigns.
GENERAL INTANGIBLES: Any "general intangibles," as such term is defined in
Section 9-106 of the UCC, arising out of or in any way related to an Eligible
Engine and now owned or hereafter acquired by Issuer and, in any event, shall
include, without limitation, all right, title and interest which Issuer may now
or hereafter have in or under any Contract, interests in partnerships, joint
ventures and other business associations, licenses, permits, software, data
bases, data, materials and records, claims in or under insurance policies,
including unearned premiums, uncertificated securities, deposit accounts, rights
to receive tax refunds and other payments and rights of indemnification.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES OR GAAP: With respect to any
Person, those generally accepted accounting principles and practices which are
recognized as such by (i) the American Institute of Certified Public Accountants
acting through its Accounting Principles Board or by the Financial Accounting
Standards Board or through other appropriate boards or committees thereof
consistently applied as to the party in question or (ii) such other equivalent
entit(ies) have authority for promulgatory accounting principles and practices
applicable to such Person.
GOVERNMENTAL AUTHORITY: This term shall mean (a) any federal, state,
county, municipal or foreign government, or political subdivision thereof,
(b) any governmental or quasi-governmental agency, authority, board, bureau,
commission, department, instrumentality or public body, (c) any court or
administrative tribunal or (d) with respect to any Person, any arbitration
tribunal or other non-governmental authority to whose jurisdiction that Person
has consented.
GUARANTY FEE: A fee or premium payable to a Series Enhancer or to another
Person specified in the related Supplement or Enhancement Agreement for
guaranteeing all or a portion of the Notes of a Series (or a Class thereof).
HEDGE ARRANGEMENT: Shall have the meaning with respect to a Series as more
particularly set forth in the related Series Supplement.
HOLDER: See NOTEHOLDER.
INDEBTEDNESS: With respect to any Person means, without duplication,
(a) any obligation of such Person for borrowed money, including, without
limitation, (i) any obligation incurred through the issuance and sale of bonds,
debentures, notes or other similar debt instruments, and (ii) any obligation for
borrowed money which is non-recourse to the
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credit of such Person but which is secured by any asset of such Person, (b) any
obligation of such Person on account of deposits or advances, (c) any obligation
of such Person for the deferred purchase price of any property or services,
except accounts payable arising in the ordinary course of such Person's
business, (d) any obligation of such Person as lessee under a capital lease,
(e) any Indebtedness of another secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person and (f) any
obligation in respect of interest rate or foreign exchange hedging agreements.
INDENTURE: This Indenture, dated as of September 1, 1997, between the
Issuer and the Indenture Trustee and all amendments hereof and supplements
hereto, including, with respect to any Series or Class, the related Supplement.
INDENTURE TRUSTEE: The Person performing the duties of the Indenture
Trustee under this Indenture.
INDENTURE TRUSTEE'S FEES: The amounts payable as fees to the Indenture
Trustee pursuant to the first sentence of Section 905 of this Indenture.
INDEPENDENT ACCOUNTANTS: KPMG Peat Marwick or other independent certified
public accountants of internationally recognized standing selected by Issuer and
acceptable to the Administrative Agent and each Series Enhancer.
INSOLVENCY LAW: The Bankruptcy Code or similar law in any applicable
jurisdiction.
INSOLVENCY PROCEEDING: Any Proceeding under any applicable Insolvency Law.
INSTRUMENTS: Any "instrument," as such term is defined in Section
9-105(1)(i) of the UCC arising out of or in any way related to an Eligible
Engine and now owned or hereafter acquired by Issuer, including, without
limitation, all notes, certificated securities, and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of writings that constitute, Chattel Paper.
INTEREST ARREARAGES: With respect to any Series on any Payment Date, any
amounts that are payable as interest on the Outstanding Notes of such Series
which are not paid from amounts then on deposit in the related Series Account.
INTEREST RATE HEDGE AGREEMENT: Any Interest Rate Swap Agreement, Cap
Agreement or other similar agreement entered into by the Issuer with an Interest
Rate Hedge Provider.
INTEREST RATE HEDGE PROVIDER: Any counterparty to an Interest Rate Hedge
Agreement entered into by the Issuer or the Indenture Trustee that has a
long-term rating of at least A- from Standard & Poor's Ratings Services and A2
from Moody's Investors Service, Inc. and a short-term rating of at least A1 from
Standard & Poor's Ratings Services and P1 from Moody's Investors Service, Inc.
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INVENTORY: Any "inventory," as such term is defined in Section 9-109(4) of
the UCC, wherever located, arising out of or in any way related to an Eligible
Engine and now or hereafter owned or acquired (whether as lessee or otherwise)
by Issuer and, in any event, shall include, without limitation, all inventory,
merchandise, goods and other personal property which are held by or on behalf of
Issuer for sale or lease or are furnished or are to be furnished under a
contract of service or which constitute raw materials, work in process or
materials used or consumed or to be used or consumed in Issuer's business, or
the processing, packaging, promotion, delivery or shipping of the same, and all
furnished goods whether or not such inventory is listed on any schedules,
assignments or reports furnished to Indenture Trustee from time to time and
whether or not the same is in transit or in the constructive, actual or
exclusive occupancy or possession of Issuer or is held by Issuer or by others
for Issuer's account, including, without limitation, all goods covered by
purchase orders and contracts with suppliers and all goods billed and held by
suppliers and all inventory which may be located on premises of Issuer or of any
carriers, forwarding agents, warehousemen, vendors, selling agents or other
persons.
INVESTMENT: When used in connection with any Person, any investment by or
of that Person, whether by means of purchase or other acquisition of securities
of any other Person or by means of loan, advance, capital contribution, guaranty
or other debt or equity participation or interest, or otherwise, in any other
Person, including any partnership and joint venture interests of such Person in
any other Person. The amount of any Investment shall be the original principal
or capital amount thereof less all returns of principal or equity thereon (and
without adjustment by reason of the financial condition of such other Person)
and shall, if made by the transfer or exchange of property other than cash, be
deemed to have been made in an original principal or capital amount equal to the
fair market value of such property.
ISSUER: WLFC Funding Corporation, a corporation organized and existing
under the laws of the State of Delaware.
LEASE: Each and every item of chattel paper, installment sales agreement,
equipment lease or rental agreement (including progress payment authorizations)
to which an Eligible Engine is subject. The term "Lease" includes (a) all
payments to be made thereunder, (b) all rights of Issuer therein, and (c) any
and all amendments, renewals, extensions or guaranties thereof.
LEASE AGREEMENT: This term shall have the meaning set forth in the related
Supplement for a Series.
LESSEE: The obligor under a Lease Agreement (including any guarantor of
the obligations of the user of an Engine).
LIEN: Any security interest, lien, charge, pledge, equity or encumbrance
of any kind.
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MAINTENANCE RESERVE PAYMENTS: With respect to any Lease Agreement, any
amounts paid by the Lessee to Lessor pursuant to the terms of such Lease
Agreement to cover the maintenance, repair or similar payments and expenses for
the related Engine.
MATERIAL ADVERSE CHANGE: Any set of circumstances or events which (a) has
or would reasonably be expected to have any material adverse effect whatsoever
upon the validity or enforceability of any Related Document or the security for
any of the related Notes, (b) is or would reasonably be expected to be material
and adverse to the condition (financial or otherwise) or business operations of
Issuer, Guarantor or Servicer, individually or taken together as a whole,
(c) materially impairs or would reasonably be expected to materially impair the
ability of Issuer, Guarantor or Servicer to perform its obligations under the
Related Documents, or (d) materially impairs or would reasonably be expected to
materially impair the ability of Indenture Trustee or any Series Enhancer to
enforce any of its or their legal rights or remedies pursuant to the Related
Documents.
MINIMUM SERVICING FEE PERCENTAGE: This term is defined in Schedule 1.
NET BOOK VALUE: With respect to an Engine, the amount calculated by
applying the Depreciation Policy to the Net Purchase Price for such Engine.
NET PURCHASE PRICE: With respect to an Engine as of any date of
determination, an amount equal to the lesser of (i) the Appraised Value of such
Engine on the Transfer Date and (ii) the purchase price paid by Seller as
reflected on the invoice or purchase agreement delivered to Seller by its
vendor, provided however, clause (ii) shall not be applicable to those Engines
owned by the Seller or one of its Affiliates on the Closing Date.
NET INTEREST EXPENSE: For any period, the net finance costs as shown for
such period on the statement of operations of the Issuer.
NOTES: Any one of the Notes or other securities executed by the Issuer and
authenticated by or on behalf of the Indenture Trustee, substantially in the
form attached to the related Supplement.
NOTEHOLDER: The person in whose name a Note is registered in the Note
Register, except that, solely for the purposes of giving any consent, waiver,
request or demand, the interest evidenced by any Note registered in the name of
the Seller or the Issuer or any Affiliate of any of them known to be such an
Affiliate by the Indenture Trustee shall not be taken into account in
determining whether the requisite percentage of the aggregate principal balance
of the Outstanding Notes necessary to effect any such consent, waiver, request
or demand is represented unless the Issuer owns 100% of the Notes.
NOTE PURCHASE AGREEMENT: Any underwriting agreement or other agreement for
the Notes of any Series or Class.
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NOTE REGISTER: The register maintained by the Indenture Trustee pursuant
to Section 205 of this Indenture.
OFFICER'S CERTIFICATE: A certificate signed by a duly authorized officer
of the Person who is required to sign such certificate.
ONE YEAR LEASE EXPIRY CONCENTRATION PERCENTAGE: As of any date of
determination a fraction (expressed as a percentage) the numerator of which
shall be the sum of the Net Book Values of all Eligible Engines subject to Lease
Agreements having a remaining lease term that will expire in the immediately
succeeding twelve (12) months and the denominator of which shall be the
Aggregate Net Book Value.
OPINION OF COUNSEL: A written opinion of counsel, who, unless otherwise
specified, may be counsel employed by the Issuer, the Seller or the Servicer, in
each case reasonably acceptable to the Person or Persons to whom such Opinion of
Counsel is to be delivered. The counsel rendering such opinion may rely (i) as
to factual matters on a certificate of a Person whose duties relate to the
matters being certified, and (ii) insofar as the opinion relates to local law
matters, upon opinions of local counsel.
OUTSTANDING: When used with reference to the Notes and as of any
particular date, any Note theretofore and thereupon being authenticated and
delivered except:
(i) any Note cancelled by the Indenture Trustee or proven to the
satisfaction of the Indenture Trustee to have been duly cancelled by the
Issuer at or before said date;
(ii) any Note, or portion thereof, called for payment or redemption
for which monies equal to the principal amount or redemption price thereof,
as the case may be, with interest to the date of maturity or redemption,
shall have theretofore been deposited with the Indenture Trustee (whether
upon or prior to maturity or the redemption date of such Note);
(iii) any Note in lieu of or in substitution for which another Note
shall subsequently have been authenticated and delivered; and
(iv) any Note held by the Issuer, the Seller or any Affiliate of
either the Issuer or the Seller.
Notwithstanding the foregoing, any Note on which any portion of principal
or interest has been paid by a Series Enhancer pursuant to an Enhancement
Agreement, shall be Outstanding until the Series Enhancer has been reimbursed in
full therefor in accordance with the related Series Enhancement Agreement.
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OUTSTANDING OBLIGATIONS: As of any date of determination for any Series of
Notes issued under this Indenture or any Supplement thereto, all accrued
interest payable on, and the then outstanding principal balance of, such Series
of Notes and all other amounts owing to Noteholders of such Series or to any
Person under the Indenture or any Supplement hereto, including without
limitation any amounts owed to any related Series Enhancer.
OVERDUE RATE: The rate of interest specified in the related Supplement
applicable to a Note then earning Default Interest.
PAYMENT DATE: With respect to any Series, this term shall have the meaning
set forth in the related Supplement.
PERMITTED ENCUMBRANCE: With respect to the Collateral, any of the
following: (i) Liens for taxes not yet due or which are being contested in good
faith by appropriate Proceedings and for the payment of which adequate reserves
are provided by the Servicer; (ii) carriers', warehousemen's, mechanics, or
other like Liens arising in the ordinary course of business and relating to
amounts not yet due or which shall not have been overdue for a period of more
than sixty (60) days or which are being contested in good faith by appropriate
proceedings and for the payment of which adequate reserves are provided by the
Servicer; (iii) Lease Agreements entered into in the ordinary course of business
providing for the leasing of Eligible Engines; (iv) Liens created by this
Indenture and (v) any encumbrance permitted under the Lease Agreement which is
commercially acceptable for comparable transactions; PROVIDED HOWEVER, that
Proceedings described in (i) and (ii) above could not reasonably subject any
Series Enhancer, the Indenture Trustee or the Noteholders to any civil or
criminal penalty or liability or involve any risk of material loss, sale or
forfeiture of any of the Collateral.
PERSON: An individual, a partnership, a limited liability company, a
corporation, a joint venture, an unincorporated association, a joint-stock
company, a trust, or other entity or a Governmental Authority.
PLAN: An "employee benefit plan," as such term is defined in ERISA,
established or maintained by Issuer or any ERISA Affiliate or as to which Issuer
or any ERISA Affiliate contributes or is a member or otherwise may have any
liability.
PREPAYMENT: Any mandatory or optional prepayment of principal of any Class
of Notes including without limitation any prepayment pursuant to Section 702 of
this Indenture.
PRINCIPAL ARREARAGES: With respect to any Series on any Payment Date, any
amounts that are payable as principal on the Outstanding Notes of such Series
which are not paid from amounts then on deposit in the related Series Account.
PRINCIPAL TERMS: With respect to any Series, (i) the name or designation
of such Series; (ii) the initial principal amount of the Notes to be issued for
such Series (or method for calculating such amount); (iii) the interest rate to
be paid with respect to each Class of Notes
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for such Series (or method for the determination thereof); (iv) the Payment Date
and the date or dates from which interest shall accrue and principal shall be
paid; (v) the designation of any Series Accounts and the terms governing the
operation of any such Series Accounts; (vi) the terms of any form of Series
Enhancement with respect thereto; (vii) the Final Payment Date for the Series;
(viii) the number of Classes of Notes of the Series and, if the Series consists
of more than one Class, the rights and priorities of each such Class; (ix) the
priority of the Series with respect to any other Series; (x) the Control Party
with respect to such Series; (xi) the Eligible Engines that will serve as
collateral security for the Notes and other obligations of such Series; and
(xii) any other terms of such Series.
PROCEEDING: Any suit in equity, action at law, or other judicial or
administrative proceeding.
PROCEEDS: "Proceeds," as such term is defined in Section 9-306(1) of the
UCC and, in any event, shall include, without limitation, (a) any and all
Accounts, Chattel Paper, Instruments, cash or other proceeds payable to Issuer
from time to time in respect of the Collateral, (b) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to Issuer from time to time
with respect to any of the Collateral, (c) any and all payments (in any form
whatsoever) made or due and payable to Issuer from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral above by any Governmental Authority (or any Person
acting under color of Governmental Authority), and (d) any and all other amounts
from time to time paid or payable under or in connection with any of the
Collateral.
RATED INSTITUTIONAL NOTEHOLDER: An institutional Noteholder whose long
term unsecured debt obligations are then rated BBB- or better by Standard &
Poor's Rating Services and Baa-3 or better by Moody's Investors Service, Inc.
RATING AGENCY OR RATING AGENCIES: With respect to any outstanding Series
or Class, shall mean each statistical rating agency selected by the Issuer (with
the approval of any Series Enhancer for such Series) to rate such Series or
Class and that has an outstanding rating with respect to such Series or Class.
RATING AGENCY CONDITION: With respect to any action shall mean that each
Rating Agency shall have notified the Issuer, the Servicer, the Administrative
Agent, any related Series Enhancer and the Indenture Trustee in writing that
such action will not result in a reduction or withdrawal of any rating at
issuance of any Outstanding Notes with respect to which it is a Rating Agency,
including any underlying rating issued to a Series Enhancer of such Notes as if
such Notes were issued without the benefit of any credit enhancement provided by
such Series Enhancer.
RECORD DATE: With respect to any Payment Date, the last Business Day of
the month preceding the month in which the related Payment Date occurs, except
as otherwise provided with respect to a Series in the related Supplement.
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RELATED DOCUMENTS: With respect to any Series, the Contribution and Sale
Agreement, this Indenture, the related Supplement, the Notes of such Series, the
Servicing Agreement, the Guaranty, the related Series Enhancement Agreement, the
related Note Purchase Agreements and each other document or instrument executed
in connection with the issuance to any Series.
REPORTABLE EVENT: This term shall have the meaning given to such term in
ERISA.
REQUISITE GLOBAL MAJORITY: As of any date of determination, the
determination of whether a Requisite Global Majority exists with respect to a
particular course of action shall be determined in accordance with Section 503
of this Indenture.
RESTRICTED CASH ACCOUNT: This term shall have the meaning set forth in
Section 307 of this Indenture.
RULE 144A: Rule 144A under the Securities Act, as such Rule may be amended
from time to time.
SALE: This term shall have the meaning set forth in Section 816 of this
Indenture.
SALES PROCEEDS: The gross proceeds of the sale or other disposition of an
Eligible Engine or Casualty Proceeds, if any, received by, or on behalf of, the
Issuer in respect of an Eligible Engine, less commissions, administrative fees,
handling charges or other amounts paid or to be paid to third parties in
connection with the sale or other disposition as determined in the sole
discretion of the Servicer.
SCHEDULED PAYMENT: With respect to any Lease Agreement, the monthly,
quarterly or other periodic rent payment scheduled to be paid by the Lessee
pursuant to the terms of such Lease Agreement.
SECURITIES ACCOUNTS: The Restricted Cash Account and Series Accounts.
SECURITIES ACT: The Securities Act of 1933, as amended from time to time.
SECURITY DEPOSIT: Any deposit collected from, or on behalf of, a Lessee as
a security deposit at the time of origination of the Lease Agreement.
SECURITY DEPOSIT ACCOUNT: Any deposit, trust, escrow or similar account
maintained for the benefit of the Noteholders of any Series or Class and any
related Series Enhancer in accordance with Section 309 hereof.
SECURITIES INTERMEDIARY: The Bank of New York, a New York banking
corporation, as securities intermediary (as such terms is defined under UCC
Section 8-102(a)(14)) with respect to the Securities Accounts.
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SELLER: Willis Lease Finance Corporation, a corporation organized and
existing under the laws of the State of California.
SERIES: Any series of Notes established pursuant to a Supplement.
SERIES ACCOUNT: Any deposit, trust, escrow or similar account maintained
for the benefit of the Noteholders of any Series or Class and any related Series
Enhancer as specified in the related Supplement.
SERIES COLLATERAL: This term shall have the meaning set forth in the
related Supplement for a Series.
SERIES ENHANCEMENT AGREEMENT: Any Enhancement Agreement for any Series.
SERIES ENHANCEMENT: The rights and benefits provided to the Noteholders of
any Series or Class pursuant to any letter of credit, surety bond, financial
guaranty insurance policy, insurance agreement, cash collateral or reserve
account, spread account, guaranteed rate agreement, maturity liquidity facility,
tax protection agreement, interest rate swap agreement, interest rate cap
agreement or other similar arrangement. The subordination of any Class to
another Class shall not be deemed to be a Series Enhancement.
SERIES ENHANCER: The Person then providing any Series Enhancement, other
than the Noteholders of any Class which is subordinated to another Class.
SERIES FINAL PAYMENT DATE: With respect to any Series, the final payment
date specified in the related Supplement.
SERIES ISSUANCE DATE: With respect to any Series, the date on which the
Notes of such Series are to be originally issued in accordance with Section 1006
of this Indenture and the related Supplement.
SERIES MAJORITY: Unless otherwise defined in a Supplement for a Series,
shall mean an amount equal to more than 50% of the outstanding obligations of
the Notes of such Series.
SERVICING AGREEMENT: The Servicing Agreement, dated as of September 1,
1997, entered into by and between the Servicer and the Issuer, as such agreement
shall be amended, supplemented or modified from time to time in accordance with
its terms.
SERVICING FEE: For any Collection Period, the amount calculated as set
forth in the related Supplement.
SERVICING FEE ARREARAGE: For any Payment Date, an amount equal to any
unpaid Servicing Fee from all prior Collection Periods.
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SERVICING OFFICER: Any representative of the Servicer involved in, or
responsible for, the management of the day-to-day operations of the Issuer and
the administration and servicing of the Eligible Engines and the other
Collateral whose name appears on a list of managing officers furnished to
Issuer, each Series Enhancer and the Indenture Trustee by the Servicer, as such
list may from time to time be amended.
SERVICER: The Person performing the duties of the Servicer under the
Servicing Agreement; initially, Willis Lease Finance Corporation, a corporation
organized under the laws of the State of California.
SERVICER DEFAULT: The occurrence of any of the events or conditions set
forth in Section 7.01 of the Servicing Agreement.
SERVICER REPORT: A written informational statement in the form attached as
Exhibit A to the Servicing Agreement to be provided by the Servicer in
accordance with the Servicing Agreement and furnished to the Indenture Trustee,
the Administrative Agent and each Series Enhancer.
SERVICER TERMINATION NOTICE: A written notice to be provided to the
Servicer pursuant to Section 405(b) of this Indenture with a copy to each Series
Enhancer.
STATE: Any state of the United States of America and, in addition, the
District of Columbia.
SUBSIDIARY: A subsidiary of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which more than fifty percent (50.0%) of the voting stock or other equity
interests (in the case of Persons other than corporations) is owned or
controlled directly or indirectly by such Person, or one or more of the
Subsidiaries of such Person, or a combination thereof.
SUPPLEMENT: Any supplement to the Indenture executed in accordance with
Article X of this Indenture.
TRANSFER DATE: The date on which an Engine is contributed or sold by the
Seller to the Issuer pursuant to the terms of the Contribution and Sale
Agreement.
TRUST ACCOUNT: The account or accounts established by the Issuer for the
benefit of the Indenture Trustee pursuant to Section 303 hereof.
TWO YEAR LEASE EXPIRY CONCENTRATION PERCENTAGE: As of any date of
determination a fraction (expressed as a percentage) the numerator of which
shall be the sum of the Net Book Values of all Eligible Engines subject to Lease
Agreements having a remaining lease term that
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will expire in the immediately succeeding twenty-four (24) months and the
denominator of which shall be the Aggregate Net Book Value.
UCC: The Uniform Commercial Code as the same may, from time to time, be in
effect in the State of New York; PROVIDED, HOWEVER, in the event that, by reason
of mandatory provisions of law, any or all of the attachment, perfection or
priority of Indenture Trustee's security interest in any Collateral is governed
by the Uniform Commercial Code as in effect in a jurisdiction other than the
State of New York, the term "UCC" shall mean the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such attachment, perfection of priority and for purposes of definitions
related to such provisions.
WARRANTY PURCHASE AMOUNT: This term shall have the meaning set forth in
the Contribution and Sale Agreement.
WEIGHTED AVERAGE LEASE RATE FACTOR: As of any date of determination shall
mean a fraction (expressed as a percentage) the numerator of which shall be
equal to the sum of the Scheduled Payments due in the current month under all
Lease Agreements then in effect with respect to the Eligible Engines and the
denominator of which shall be equal to the Aggregate Net Book Value as of such
date of determination.
WIDE BODY AIRCRAFT: Shall mean aircraft commonly known as Boeing 747 or
777, McDonnell Douglas DC-10, MD-11 or Airbus A300, A310, A330, A340.
Section 102. OTHER DEFINITIONAL PROVISIONS. (a) With respect to
any Series, all terms used herein and not otherwise defined herein shall have
meanings ascribed to them in the related Supplement.
(b) All terms defined in this Indenture shall have the defined
meanings when used in any agreement, certificate or other document made or
delivered pursuant hereto, including any Supplement, unless otherwise defined
therein.
(c) As used in this Indenture and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Indenture or in any such certificate or other document, and
accounting terms partly defined in this Indenture or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under GAAP consistently applied. To the extent that the
definitions of accounting terms in this Indenture or in any such certificate or
other document are inconsistent with the meanings of such terms under GAAP or
regulatory accounting principles, the definitions contained in this Indenture or
in any such certificate or other document shall control.
(d) With respect to any Collection Period, the "related Record Date,"
the "related Determination Date," and the "related Payment Date," shall mean the
Record Date
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occurring on the last Business Day of such Collection Period and the
Determination Date and Payment Date next following the end of such Collection
Period.
(e) With respect to any Series of Notes, the "related Supplement"
shall mean the Supplement pursuant to which such Series of Notes is issued and
the "related Series Enhancer" shall mean the Series Enhancer for such Series of
Notes.
(f) References to the Servicer's financial statements shall mean the
consolidated financial statements of the Servicer and its consolidated
subsidiaries.
(g) With respect to any ratio analysis required to be performed as of
the most recently completed fiscal quarter, the most recently completed fiscal
quarter shall mean the fiscal quarter for which financial statements were
required hereunder to have been delivered.
(h) With respect to the calculations of the ratios set forth in this
Indenture, the components of such calculations are to be determined in
accordance with GAAP, consistently applied, with respect to the Issuer or the
Servicer, as the case may be.
(i) References to (a) the ability of the Administrative Agent to
waive any requirement of the Indenture, any related document or any obligation
imposed on the Issuer, the Seller or the Servicer, or (b) any provision of the
Indenture or any related document that requires the consent or approval of the
Administrative Agent shall be deemed to mean that in determining whether to
grant such waiver, consent or approval, the Administrative Agent, shall be
obligated to act in a timely manner.
Section 103. COMPUTATION OF TIME PERIODS. Unless otherwise stated
in this Indenture or any Supplement issued pursuant to the terms hereof, in the
computation of a period of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding."
Section 104. DUTIES OF ADMINISTRATIVE AGENT. All of the duties and
responsibilities of the Administrative Agent set forth in this Indenture and any
Supplement issued pursuant hereto are subject in all respects to the terms and
conditions of the Administration Agreement. Each of the Issuer, the Indenture
Trustee and, by acceptance of its Notes, each Noteholder hereby acknowledge the
terms of the Administration Agreement and agree to cooperate with the
Administrative Agent in its execution of its duties and responsibilities. Each
Noteholder, by acceptance of its Notes, (i) authorizes and instructs the
Indenture Trustee to enter into the Administration Agreement on its behalf; (ii)
acknowledges and approves the appointment of the Administrative Agent and (iii)
agrees that the Indenture Trustee should have no liability for the acts or
omissions of the Administrative Agent.
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ARTICLE II
THE NOTES
Section 201. AUTHORIZATION OF NOTES. (a) The number of Series or
Classes of Notes which may be created by this Indenture is not limited;
PROVIDED, HOWEVER, that the Outstanding Obligations of each Series (in each case
calculated after giving effect to the issuance of each such Series) shall not
exceed an amount equal to the Asset Base for such Series. The aggregate
principal amount of Notes of each Series which may be issued, authenticated and
delivered under this Indenture is not limited except as shall be set forth in
any Supplement and as restricted by the provisions of this Indenture.
(b) The Notes issuable under this Indenture shall be issued in such
Series, and such Class or Classes within a Series, as may from time to time be
created by Supplement pursuant to this Indenture. Each Series shall be created
by a different Supplement and shall be designated to differentiate the Notes of
such Series from the Notes of any other Series.
(c) Upon satisfaction of and compliance with the requirements and
conditions to closing set forth in the related Supplement, Notes of the Series
to be executed and delivered on a particular Series Issuance Date pursuant to
such related Supplement, may be executed by the Issuer and delivered to the
Indenture Trustee for authentication following the execution and delivery of the
related Supplement creating such Series or from time to time thereafter, and the
Indenture Trustee shall authenticate and deliver Notes upon an Issuer request
set forth in an Officer's Certificate of the Issuer signed by one of its
Authorized Signatories, without further action on the part of the Issuer.
Section 202. FORM OF NOTES. Notes of any Series or Class may be
issued, authenticated and delivered in fully registered form and shall be
substantially in the form of the exhibits attached to the related Supplement.
Notes of each Series shall be dated the date of their authentication and shall
bear interest at such rate, be payable as to principal, premium, if any, and
interest on such date or dates, and shall contain such other terms and
provisions as shall be established in the related Supplement. Except as
otherwise provided in any Supplement, the Notes shall be issued in minimum
denominations of $1,000,000 and in integral multiples of $100,000 in excess
thereof; provided that one Note of each Class may be issued in a nonstandard
denomination.
Section 203. EXECUTION; RECOURSE OBLIGATION. The Notes shall be
executed on behalf of the Issuer by an Authorized Signatory of the Issuer.
In case any Authorized Signatory of the Issuer whose signature shall
appear on the Notes shall cease to be an Authorized Signatory of the Issuer
before the authentication and delivery of such Notes, such signature or
facsimile signature shall nevertheless be valid and sufficient for all purposes.
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All Notes and the interest thereon shall be full recourse obligations
of the Issuer and shall be secured by all of Issuer's right, title and interest
in the Collateral. The Notes shall never constitute obligations of the
Indenture Trustee, the Seller (except to the extent that Seller guarantees the
Notes of a Series) or of any shareholder or any Affiliate of the Seller (other
than the Issuer) or any officers, directors, employees or agents of any thereof,
and no recourse may be had under or upon any obligation, covenant or agreement
of this Indenture, any Supplement or of any Notes, or for any claim based
thereon or otherwise in respect thereof, against any incorporator or against any
past, present, or future owner, partner of an owner or any officer, employee or
director thereof or of any successor entity, or any other Person, either
directly or through the Issuer, whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or penalty or otherwise;
it being expressly agreed that this Indenture and the obligations issued
hereunder are solely obligations of the Issuer, and that no such personal
liability whatever shall attach to, or is or shall be incurred by, any other
Person under or by reason of this Indenture, any Supplement or any Notes or
implied therefrom, or for any claim based thereon or in respect thereof, all
such liability and any and all such claims being hereby expressly waived and
released as a condition of, and as a consideration for, the execution of this
Indenture and the issue of such Notes. Except as provided in any Supplement, no
Person other than the Issuer shall be liable for any obligation of the Issuer
under this Indenture or any Note or any losses incurred by any Noteholder.
Section 204. CERTIFICATE OF AUTHENTICATION. No Notes shall be
secured hereby or entitled to the benefit hereof or shall be or become valid or
obligatory for any purpose unless there shall be endorsed thereon a certificate
of authentication by the Indenture Trustee, substantially in the form set forth
in the form of Note attached to the related Supplement. Such certificate on any
Note issued by the Issuer shall be conclusive evidence and the only competent
evidence that it has been duly authenticated and delivered hereunder.
At the written direction of the Issuer, the Indenture Trustee shall
authenticate and deliver the Notes. It shall not be necessary that the same
Authorized Signatory of the Indenture Trustee execute the certificate of
authentication on each of the Notes.
Section 205. REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE OF
NOTES. (a) The Indenture Trustee shall keep at its Corporate Trust Office
books for the registration and transfer of the Notes (the "Note Register"). The
Issuer hereby appoints the Indenture Trustee as its registrar and transfer agent
to keep such books and make such registrations and transfers as are hereinafter
set forth in this Section 205 and also authorizes and directs the Indenture
Trustee to provide a copy of such registration record to the Administrative
Agent, the Issuer and the Seller upon request. The names and addresses of the
Holders of all Notes and all transfers of, and the names and addresses of the
transferee of, all Notes will be registered in such Note Register. The Person
in whose name any Note is registered shall be deemed and treated as the owner
and Holder thereof for all purposes of this Indenture, and the Indenture
Trustee, the related Series Enhancer and the Issuer shall not be affected by any
notice or knowledge to the contrary. If a Person other than the Indenture
Trustee is appointed by the Issuer to maintain the Note Register, the Issuer
will give the Indenture Trustee and the
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Administrative Agent prompt written notice of such appointment and of the
location, and any change in the location, of the successor note registrar, and
the Indenture Trustee, the Issuer, the Servicer and the related Series Enhancer
shall have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof, and the Indenture Trustee shall have the right to rely
upon a certificate executed on behalf of the note registrar by an officer
thereof as to the names and addresses of the Noteholders and the principal
amounts and number of such Notes.
(b) Payments of principal, premium, if any, and interest on any Note
shall be payable on each Payment Date only to the registered Holder thereof on
the Record Date immediately preceding such Payment Date. The principal of,
premium, if any, and interest on each Note shall be payable at the Corporate
Trust Office of the Indenture Trustee in immediately available funds in such
coin or currency of the United States of America as at the time for payment
shall be legal tender for the payment of public and private debts. Except as
set forth in any Supplement, all interest payable on the Notes shall be computed
on the basis of a 360 day year consisting of twelve months of 30 days each.
Notwithstanding the foregoing or any provision in any Note to the contrary, if
so requested by the registered Holder of any Note by written notice to the
Indenture Trustee received by the Indenture Trustee at least 5 Business Days
prior to the Payment Date, all amounts payable to such registered Holder may be
paid either (i) by crediting the amount to be distributed to such registered
Holder to an account maintained by such registered Holder with the Indenture
Trustee or by transferring such amount by wire to such other bank in the United
States, including a Federal Reserve Bank, as shall have been specified in such
notice, for credit to the account of such registered Holder maintained at such
bank, or (ii) by mailing a check to such address as such Holder shall have
specified in such notice, in either case without any presentment or surrender of
such Note to the Indenture Trustee at the Corporate Trust Office of the
Indenture Trustee.
(c) Except as otherwise set forth in a Supplement, any Note is
transferable only upon the surrender to the Indenture Trustee of such Note
together with (i) an assignment (executed by the existing Holder or its duly
authorized attorney) in form reasonably satisfactory to the Indenture Trustee
and (ii) the documents required pursuant to Sections 205(e) and (f) hereof.
Upon satisfaction of the requirements set forth in the preceding sentence, each
Holder of a Note shall have the right, upon surrender of such Note to the
Indenture Trustee, to require a new Note or Notes of the same Series and Class
to be issued to it or to a prospective Holder, in a minimum denomination of the
lesser of (x) $1,000,000 (or such other amount as shall be set forth in the
related Supplement) or (y) the entire principal balance of the Note being
surrendered, in substitution of the Note being surrendered.
(d) Any service charge made or expense incurred by the Indenture
Trustee for any such registration, discharge from registration or exchange
referred to in this Section 205 shall be paid by the Noteholder. The Indenture
Trustee or the Issuer may require payment by the Holder of a sum sufficient to
cover any tax expense or other governmental charge payable in connection
therewith.
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(e) Each prospective initial Noteholder acquiring a Note, each
prospective owner acquiring a Note and each prospective owner (or transferee
thereof) of a beneficial interest in Notes acquiring such beneficial interest
shall represent and warrant in writing to the Indenture Trustee, the Issuer, the
Servicer and any successor Servicer that one of the following statements is true
and correct: (i) the purchaser is not an "employee benefit plan" within the
meaning of Section 3(3) of ERISA or a "plan" within the meaning of Section
4975(e)(1) of the Code ("Benefit Plan") and it is not directly or indirectly
acquiring the Notes on behalf of, as investment manager of, as named fiduciary
of, as trustee of, or with assets of, a Benefit Plan, (ii) the acquisition will
qualify for a statutory or administrative prohibited transaction exemption under
ERISA and the Code and will not give rise to a non-exempt transaction described
in Section 406 of ERISA or Section 4975(c) of the Code, (iii) the source of
funds (the "Source") to be used by the Purchaser to pay the purchase price of
the Notes is a guaranteed benefit policy within the meaning of Section
401(b)(2)(B) of ERISA, or (iv) the Source to be used by the purchaser to pay the
purchase price of the Notes is an "insurance company general account" within the
meaning of Department of Labor Prohibited Transaction Exemption ("PTE") 95-60
(issued July 12, 1995), and there is no "employee benefit plan" or "plan"
(within the meaning of Section 3(3) of ERISA or Section 4975(e)(1) of the Code
as applicable, and treating as a single plan, all plans maintained by the same
employer (or an affiliate within the meaning of Section V(a)(1) of PTE 95-60) or
employee organization) with respect to which the amount of the reserves and
liabilities for the general account contracts held by or on behalf of such plan,
as defined by the annual statement for life insurance companies approved by the
National Association of Insurance Commissioners (the "NAIC Annual Statement"),
exceed ten percent (10%) of the total reserves and liabilities of such general
account (exclusive of separate account liabilities) plus surplus, as set forth
in the NAIC Annual Statement filed with the purchaser's state of domicile.
(f) No transfer of any Note shall be made unless such transfer is
made in a transaction which does not require registration under the Securities
Act and pursuant to an effective registration or qualification under any State
securities or "Blue Sky" laws, or in a transaction which does not require such
registration or qualification. If such a transfer is to be made in reliance
upon an exemption from the Securities Act other than Rule 144A under the
Securities Act, the prospective owner shall furnish to the Indenture Trustee a
certificate substantially in the form of Exhibit E hereto. If such transfer is
to be made in reliance upon Rule 144A under the Securities Act, the prospective
owner shall furnish to the Indenture Trustee a certificate, substantially in the
form of Exhibit D hereto. The Issuer (or Servicer as agent for the Issuer)
shall promptly furnish to any Holder, or any prospective owners designated by a
Holder, the information required to be delivered to any Holder and prospective
owner in connection with a resale of the Notes to permit compliance with Rule
144A in connection with such resale. No Note may be subdivided (including any
assignment or transfer of a participation or beneficial interest therein) for
resale or other transfer into a unit smaller than a unit the initial offering
price of which would have been $1,000,000 (or such other amount as shall be set
forth in the related Supplement.)
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Section 206. MUTILATED, DESTROYED, LOST AND STOLEN NOTES. (a) If
(i) any mutilated Note is surrendered to the Indenture Trustee, or the Indenture
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Note, and (ii) there is delivered to the Indenture Trustee such security
or indemnity as it and the Issuer may require to hold the Issuer, the Servicer
and the Indenture Trustee harmless (the unsecured indemnity of a Rated
Institutional Noteholder being deemed satisfactory for such purpose unless the
Indenture Trustee provides written notice to the contrary), then the Issuer
shall execute and the Indenture Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a
replacement Note of the same Series and Class and maturity and of like terms as
the mutilated, destroyed, lost or stolen Note; PROVIDED, HOWEVER, that if any
such destroyed, lost or stolen Note, but not a mutilated Note, shall have
become, or within seven days shall be, due and payable, or shall have been
called for redemption, the Issuer may pay such destroyed, lost or stolen Note
when so due or payable instead of issuing a replacement Note.
(b) If, after the delivery of such replacement Note, or payment of a
destroyed, lost or stolen Note pursuant to the proviso to the preceding
sentence, a bona fide purchaser of the original Note in lieu of which such
replacement Note was issued presents for payment such original Note, the Issuer
and the Indenture Trustee shall be entitled to recover upon the security or
indemnity provided therefor to the extent of any loss, damage, cost or expense
incurred by the Issuer or the Indenture Trustee in connection therewith.
(c) The Indenture Trustee and Issuer may, for each new Note
authenticated and delivered under the provisions of this Section 206, require
the advance payment by the Noteholder of the expenses, including counsel fees,
service charges and any tax or governmental charge which may be incurred by the
Indenture Trustee or Issuer. Any Note issued under the provisions of this
Section 206 in lieu of any Note alleged to be destroyed, mutilated, lost or
stolen, shall be equally and proportionately entitled to the benefits of this
Indenture with all other Notes of the same Series and Class. The provisions of
this Section 206 are exclusive and shall preclude (to the extent lawful) all
other rights and remedies with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Notes.
Section 207. DELIVERY, RETENTION AND CANCELLATION OF NOTES. Each
Noteholder is required, and hereby agrees, to return to the Indenture Trustee,
within 30 days after the Final Payment Date, any Note on which the final payment
due thereon has been made. Any such Note as to which the Indenture Trustee has
made or holds the final payment thereon shall be deemed cancelled and shall no
longer be Outstanding or outstanding for any purpose of this Indenture, whether
or not such Note is ever returned to the Indenture Trustee unless any
unreimbursed payment on such Note has been made by a Series Enhancer. Matured
Notes delivered upon final payment to the Indenture Trustee and any Notes
transferred or exchanged for other Notes shall be cancelled and disposed of by
the Indenture Trustee in accordance with its policy of disposal and the
Indenture Trustee shall promptly deliver to the Issuer such cancelled Notes upon
request; PROVIDED, HOWEVER, that the Indenture Trustee shall not be required
to destroy cancelled Notes. If the Indenture Trustee, for its own account,
shall
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acquire any of the Notes, such acquisition shall not operate as a redemption
or satisfaction of the indebtedness represented by such Notes. If the Issuer
shall acquire any of the Notes, such acquisition shall operate as a
redemption or satisfaction of the indebtedness represented by such Notes.
Notes which have been cancelled by the Indenture Trustee shall be deemed paid
and discharged for all purposes under this Indenture.
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ARTICLE III
PAYMENT OF NOTES; STATEMENTS TO NOTEHOLDERS
Section 301. PRINCIPAL AND INTEREST. Distributions of principal and
interest on any Series or Class of Notes shall be made to Noteholders of each
Series and Class as set forth in this Indenture and the related Supplement. The
maximum Overdue Rate for any Note under any Series shall be 2.00% plus the
interest rate for such Note prior to the default. If interest or principal
amounts are paid by a Series Enhancer, then the Overdue Rate shall be applicable
to any Class of Notes only if the related Series Enhancer has failed to make
payment of such amounts in accordance with the terms of any applicable Series
Enhancement Agreement.
Section 302. DIRECTION TO LESSEES. On or prior to each Transfer
Date, the Issuer shall (or shall cause the Servicer to) mail a notice to each
Lessee under the Lease Agreements contributed to the Issuer pursuant to the
Contribution and Sale Agreement on such Transfer Date informing such Lessee that
all payments including, without limitation, all Scheduled Payments, Maintenance
Reserve Payments and Security Deposits, with respect to the related Lease
Agreement should be submitted directly to the Trust Account; PROVIDED, HOWEVER,
that such notice shall provide that any indemnification payments and liability
insurance payments shall not be deposited in the Trust Account but shall be paid
directly to the person entitled to such indemnification or insurance payment.
Section 303. TRUST ACCOUNT. (a) On or prior to the Effective Date
of the first Series, the Issuer shall establish and maintain the Trust Account
into which all Collections (other than amounts received from manufacturers or
sellers of an Eligible Engine for breach of sale warranties or in settlement of
any claims, losses, disputes or proceedings related thereto for which a
corresponding amount has previously been paid by the Issuer, Seller or Servicer
to the Trust Account), Prepayments after an Early Amortization Event,
Prepayments designated by the Issuer to be deposited in the Trust Account prior
to the occurrence of an Early Amortization Event, Warranty Purchase Amounts and
other payments required by this Indenture shall be deposited. Such Trust
Account shall be established and maintained with the Corporate Trust Office of
the Indenture Trustee in trust for the Indenture Trustee, on behalf of the
Noteholders and any Series Enhancer, until the Aggregate Outstanding Obligations
are paid in full. The Trust Account shall be an Eligible Account and shall be
pledged to the Indenture Trustee pursuant to the terms of this Indenture.
Promptly upon receipt thereof (but in no event later than two Business Days
after receipt), the Servicer shall deposit into the Trust Account those amounts
that have been remitted directly to the Servicer that the Servicer ascertains to
be Engine Revenues, Sales Proceeds or Casualty Proceeds in respect of any of the
Eligible Engines; PROVIDED, HOWEVER, that indemnification payments and liability
insurance payments received by the Issuer or the Servicer shall not be deposited
in the Trust Account but shall be paid directly to the Person entitled to such
indemnification or insurance payment. The Issuer shall not establish any
additional Trust Accounts without prior written notice to the Indenture Trustee.
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(b) By not later than each Determination Date, the Servicer, pursuant
to the Servicing Agreement, shall instruct in writing the Indenture Trustee to
allocate all Collections and Prepayments for the related Collection Period then
on deposit in the Trust Account to each Series Account (PROVIDED, HOWEVER, that
the Servicer shall instruct in writing the Indenture Trustee to allocate any
Maintenance Reserve Payments and Security Deposits directly to each Engine
Reserve Account and Security Deposit Account, respectively, for each Series) by
specifically identifying such Collections and Prepayments (and such Maintenance
Reserve Payments and Security Deposits) to a particular Eligible Engine and then
instructing in writing the Indenture Trustee to allocate all of such amounts to
the Series Account, the Engine Reserve Account and the Security Deposit Account
for the Series to which such Eligible Engine is pledged. In addition, the
Servicer shall instruct in writing the Indenture Trustee to allocate any
earnings on Eligible Investments in the Trust Account to the Series Account for
each Series then Outstanding in the same proportion as the ratio of the
Outstanding Obligations of such Series to the Aggregate Outstanding Obligations.
(c) If any Series has more than one Class of Notes then Outstanding,
then the portion of the investment earnings in the Trust Account allocable to
such Series pursuant to Section 303(b) shall be calculated without giving effect
to the payment priorities of the Classes of such Series. Once such Collections
and investment earnings have been allocated to each Series, then that portion of
the Collections allocable to such Series shall be paid to each Class of
Noteholders of such Series in accordance with the priority of payments set forth
in the related Supplement.
Section 304. INVESTMENT OF MONIES HELD IN THE TRUST ACCOUNT, THE
RESTRICTED CASH ACCOUNT, ENGINE RESERVE ACCOUNT, THE SECURITY DEPOSIT ACCOUNT
AND SERIES ACCOUNTS. The Indenture Trustee shall invest any cash deposited in
the Trust Account, the Engine Reserve Account, the Security Account, the
Restricted Cash Account for each Series and each Series Account in such Eligible
Investments as the Servicer shall direct in writing or by telephone, confirmed
in writing. Each Eligible Investment (including reinvestment of the income and
proceeds of Eligible Investments) shall be held to its maturity and shall mature
or shall be payable on demand not later than the Business Day immediately
preceding the next succeeding Payment Date. If the Indenture Trustee has not
received written instructions from the Servicer by 2:30 p.m. (New York time) on
the day such funds are received as to the investment of funds then on deposit in
any of the aforementioned accounts, the Issuer hereby instructs the Indenture
Trustee to invest such funds in overnight investments of the type described in
clause (ii) of the definition of Eligible Investments. Any funds in the Trust
Account, the Engine Reserve Account, the Security Deposit Account, each
Restricted Cash Account and each Series Account not so invested must be fully
insured by the Federal Deposit Insurance Corporation. Eligible Investments
shall be made in the name of the Indenture Trustee for the benefit of the
Noteholders and any Series Enhancer. Any earnings on Eligible Investments in
the Trust Account, the Engine Reserve Account, the Security Deposit Account,
each Restricted Cash Account and each Series Account shall be retained in each
such account and be distributed in accordance with the terms of this Indenture
or any related Supplement.
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The Indenture Trustee shall not be liable or responsible for losses on any
investments made by it pursuant to this Section 303.
Section 305. REPORTS TO NOTEHOLDERS. The Indenture Trustee shall
promptly upon request furnish to each Noteholder and each Series Enhancer a copy
of all reports, financial statements and notices received by the Indenture
Trustee pursuant to the Contribution and Sale Agreement or the Servicing
Agreement.
Section 306. RECORDS. The Indenture Trustee shall cause to be kept
and maintained adequate records pertaining to the Trust Account, each Restricted
Cash Account, each Engine Reserve Account, each Security Deposit Account and
each Series Account and all receipts and disbursements therefrom. The Indenture
Trustee shall deliver at least monthly an accounting thereof in the form of a
trust statement to the Issuer, the Seller and the Servicer and each Series
Enhancer.
Section 307. RESTRICTED CASH ACCOUNT. The Issuer shall establish
and maintain an account with the Corporate Trust Office of the Indenture Trustee
with subaccounts for each Series, as provided in the related Supplement for a
Series, which shall be designated the restricted cash account (the "Restricted
Cash Account") for each such Series and which shall be pledged to the Indenture
Trustee pursuant to this Indenture and the related Supplement. Any and all
moneys remitted by the Issuer, or Servicer on its behalf, to the Restricted Cash
Account from the Trust Account, together with any Eligible Investments in which
such moneys are or will be invested or reinvested, shall be held in the
Restricted Cash Account subaccount for each such Series.
Section 308. ENGINE RESERVE ACCOUNT. (a) The Issuer shall establish
and maintain an account with the Corporate Trust Office of the Indenture Trustee
with subaccounts for each Series, as provided in the related Supplement for a
Series, which shall be designated the engine account (the "Engine Reserve
Account") for each such Series and which shall be pledged to the Indenture
Trustee pursuant to this Indenture and the related Supplement. The Maintenance
Reserve Payments remitted by the Issuer, the Servicer on its behalf or by the
Lessee, as provided in the related Supplement for a Series, to the Engine
Reserve Account from the Trust Account, together with any Eligible Investments
in which such moneys are or will be invested or reinvested, shall be held in the
Engine Reserve Account subaccount for each such Series.
(b) The Issuer shall maintain (or shall cause the Servicer to
maintain) records that will identify amounts on deposit in the Engine Reserve
Account subaccount to a specific Eligible Engine. The Servicer shall be
entitled to withdraw funds from the Engine Reserve Account for the payment of
maintenance expenses with respect to the related Eligible Engine, at the times
and subject to the further conditions set forth in the Servicing Agreement;
provided, however, that so long as a Servicer Default is then in effect, the
Servicer shall not be entitled to make such withdrawal except upon presentation
of supporting documentation reasonably determined by the Administrative Agent to
comply with the terms of the applicable
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Lease Agreement (which shall evidence its determination by written instrument
delivered to the Indenture Trustee).
Section 309. SECURITY DEPOSIT ACCOUNT. (a) The Issuer shall
establish and maintain an account with the Corporate Trust Office of the
Indenture Trustee with subaccounts for each Series, as provided in the related
Supplement for a Series, which shall be designated the security deposit account
(the "Security Deposit Account") for each such Series and which shall be pledged
to the Indenture Trustee pursuant to this Indenture and the related Supplement.
The Security Deposits remitted by the Issuer, the Servicer on its behalf or by
the Lessees, as provided in the related Supplement for a Series, to the Security
Deposit Account from the Trust Account, together with any Eligible Investments
in which such moneys are or will be invested or reinvested, shall be held in the
Security Deposit Account subaccount for each such Series.
(b) The Issuer shall maintain (or shall cause the Servicer to
maintain) records that will identify amounts on deposit in the Security Deposit
Account subaccount to a specific Eligible Engine. The Servicer shall be
entitled to withdraw funds from the Security Deposit Account in accordance with
the terms of the applicable Lease Agreement with respect to the related Eligible
Engine, subject to the further conditions set forth in the Servicing Agreement;
provided, however, that so long as a Servicer Default is then in effect, the
Servicer shall not be entitled to make such withdrawal except upon presentation
of supporting documentation reasonably determined by the Administrative Agent to
comply with the terms of the applicable Lease Agreement (which shall evidence
its determination by written instrument delivered to the Indenture Trustee).
Section 310. SECURITIES ACCOUNTS.
(a) Notwithstanding any other provision of this Indenture or any
Supplement, with respect to each of the Securities Accounts, the Securities
Intermediary hereby agrees that it will comply with entitlement orders (as such
term is defined under UCC Section 8-102(a)(8)) originated by the Indenture
Trustee without further consent by the Issuer.
(b) Each of the Issuer, the Securities Intermediary and the Indenture
Trustee intends that the provisions of Section 310(a) will give the Indenture
Trustee "control" over the Securities Accounts (as the term "control" is defined
under UCC Section 8-106(d)), without prejudice to any other provision of the UCC
that also would be deemed to give the Indenture Trustee such control.
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ARTICLE IV
COLLATERAL
Section 401. COLLATERAL. (a) The Notes and the obligations of the
Issuer hereunder shall be an obligation of the Issuer as provided in Section 203
hereof. The Indenture Trustee, for the benefit of the Noteholders of all
Series, and the Noteholders of a particular Series and the Series Enhancer (if
any) of such Series, all in accordance with the Supplement for such Series,
shall also have the benefit of, and the Notes of such Series shall be secured by
and be payable from, the Issuer's right, title and interest in that portion of
the Collateral allocated or identified to such Series in accordance with the
terms of this Indenture and the Supplement pursuant to which such Notes were
issued.
(b) Notwithstanding anything contained in this Indenture to the
contrary, the Issuer expressly agrees that it shall remain liable under each of
its Contracts to observe and perform all the conditions and obligations to be
observed and performed by it thereunder and that it shall perform all of its
duties and obligations thereunder, all in accordance with and pursuant to the
terms and provisions of each such Contract.
(c) Pursuant to the Servicing Agreement the Issuer shall cause the
Servicer to collect the Accounts in accordance with the Servicer's normal
business practice; PROVIDED, HOWEVER, that the Indenture Trustee, with the
consent of, or at the direction of, the Requisite Global Majority, may, without
notice, limit or terminate such authority upon (i) the occurrence of an Event of
Default described in Section 801(ii) hereof, or (ii) any Sale of the Collateral
pursuant to Section 816 hereof or (iii) the occurrence of a Servicer Default.
Any Proceeds subsequently received in payment of any such Account or in payment
for any of the Eligible Engines or on account of any of its Contracts shall be
promptly deposited by the Issuer in precisely the form received (with all
necessary endorsements) in the Trust Account as hereinafter provided, and until
so turned over shall be deemed to be held in trust by the Issuer for and as
Indenture Trustee's property. Such Proceeds, when deposited, shall continue to
be collateral security for all of the obligations secured by this Indenture and
shall not constitute payment thereof until applied as hereinafter provided.
Upon (i) the occurrence of an Event of Default described in Section 801(ii), or
(ii) any Sale of the Series Collateral pursuant to Section 816 hereof or (iii)
the occurrence of a Servicer Default, the Issuer shall at the request of
Indenture Trustee, with the consent of or at the direction of the Requisite
Global Majority, to the extent practicable, deliver to the Indenture Trustee (or
such other Person as the Indenture Trustee may direct) all original Lease
Agreements and any other documents evidencing, and relating to, the sale, lease
and delivery of the Eligible Engines and the Issuer shall, to the extent
practicable, deliver all original and other documents evidencing and relating
to, the performance of any labor, maintenance, remarketing or other service
which gave rise to such Accounts, including, without limitation, all original
orders, invoices and shipping receipts.
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(d) In order to secure the Outstanding Obligations under each
Supplement to this Indenture, the Issuer hereby pledges, assigns, grants,
transfers and conveys to the Indenture Trustee, on behalf of the Noteholders of
all Series, a lien on and first priority security interest in all Excess Cash
Available for Distribution pursuant to Section 302 of each Supplement (or such
other or additional sections or clauses as may be provided in any particular
Supplement). On each Payment Date under each Supplement for a Series, after
payment of all other amounts then payable to the Indenture Trustee, any
Noteholder or any other Person entitled thereto (except the Issuer), all Excess
Cash Available for Distribution shall be paid to the Indenture Trustee for
payment to the Noteholders under all other Series (each, a "Deficient Series")
of the amount (the "Deficiency Amount") by which the amounts on deposit in the
related Series Account are insufficient for the payment in full of all
Outstanding Obligations then due and payable. Such Excess Cash Available for
Distribution shall be paid to the Indenture Trustee(s) for each such Deficient
Series in the proportion that the Outstanding Obligations for each such
Deficient Series bears to the aggregate amount of Outstanding Obligations for
all such Deficient Series. Only after all Deficiency Amounts existing on such
Payment Date have been paid in full shall any such Excess Cash Available for
Distribution be paid to the Issuer.
Section 402. PRO RATA INTEREST. (a) Each Supplement pursuant to
which a Series of Notes is issued shall identify the Eligible Engines and other
Series Collateral that will be pledged as collateral security for the Notes and
other Obligations for such Series. All Notes of a particular Series shall be
equally and ratably entitled to the benefits of this Indenture without
preference, priority or distinction, except as provided in the related
Supplement. All Notes of a particular Class within a Series are and are to be,
to the extent (including any exceptions) provided in this Indenture and the
related Supplement, equally and ratably secured by this Indenture without
preference, priority or distinction on account of the actual time or times of
the authentication or delivery of the Notes so that all Notes of a particular
Series and Class at any time Outstanding shall have the same right, Lien and
preference under this Indenture and shall all be equally and ratably secured
hereby with like effect as if they had all been executed, authenticated and
delivered simultaneously on the date hereof.
(b) With respect to each Series of Notes, the execution and delivery
of the related Supplement shall be upon the express condition that if the
conditions specified in Section 701 of this Indenture are met with respect to
such Series of Notes, the security interest and all other estate and rights
granted by this Indenture with respect to such Series of Notes shall cease and
become null and void and all of the property, rights, and interest granted as
security for the Notes of such Series shall revert to and revest in the Issuer
without any other act or formality whatsoever.
Section 403. INDENTURE TRUSTEE'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) The Issuer hereby irrevocably constitutes and appoints Indenture Trustee,
and any officer or agent thereof, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of the Issuer and in the name of the Issuer or in its own name,
from time to time at Indenture Trustee's discretion, for the purpose
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of carrying out the terms of this Indenture, to take any and all appropriate
action and to execute and deliver any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Indenture;
PROVIDED, HOWEVER, that the Indenture Trustee has no obligation or duty to
determine whether to perfect, file, record or maintain any perfected, filed or
recorded document or instrument in connection with the grant or security
interest in the Collateral hereunder.
(b) Except upon the occurrence of an Event of Default, the Indenture
Trustee shall not exercise the power of attorney or any rights granted to the
Indenture Trustee pursuant to this Section 403. The Issuer hereby ratifies, to
the extent permitted by law, all that said attorney shall lawfully do or cause
to be done by virtue hereof. The power of attorney granted pursuant to this
Section 403 is a power coupled with an interest and shall be irrevocable until
all Series of Notes are paid and performed in full.
(c) The powers conferred on the Indenture Trustee hereunder are
solely to protect Indenture Trustee's interests in the Collateral and shall not
impose any duty upon it to exercise any such powers except as set forth herein.
The Indenture Trustee shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and neither it nor any of
its officers, directors, employees, agents or representatives shall be
responsible to the Issuer for any act or failure to act, except for its own
negligence or willful misconduct.
(d) The Issuer also authorizes the Indenture Trustee, at any time and
from time to time upon the occurrence of any Event of Default (subject to the
quiet enjoyment rights of any lessee of any Collateral), to (i) communicate in
its own name, or to direct any other Person, including the Servicer or a
replacement Servicer, to communicate with any party to any Contract with regard
to the assignment of the right, title and interest of the Issuer in and under
the Contracts hereunder and other matters relating thereto and (ii) execute, in
connection with the sale of Collateral provided for in Article VIII hereof, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
(e) If the Issuer fails to perform or comply with any of its
agreements contained herein and the Indenture Trustee, with the consent of or at
the direction of the Requisite Global Majority, shall perform or comply, or
otherwise cause performance or compliance, with such agreement, the reasonable
expenses, including attorneys' fees, of Indenture Trustee incurred in connection
with such performance or compliance together with interest thereon at the rate
specified in the related Supplement, shall be payable by the Issuer to the
Indenture Trustee on demand and shall constitute obligations secured hereby.
Section 404. RELEASE OF SECURITY INTEREST. The Indenture Trustee,
at the written direction of the Servicer (which shall be the Administrative
Agent if an Early Amortization Event shall have occurred), shall release from
the security interest created pursuant to the terms of this Indenture, any
Eligible Engine, the related Lease Agreement and any other Related Assets sold
or transferred pursuant to Section 606(a) hereof. In effectuating
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such release, the Indenture Trustee shall be entitled to rely on a certificate
of the Servicer (PROVIDED, HOWEVER, that after the occurrence of an Early
Amortization Event, the Administrative Agent in its sole discretion shall be
entitled to deliver such certification) identifying each Eligible Engine, the
related Lease Agreement or other items to be released from the Lien of this
Indenture in accordance with the provisions of this Section 404 accompanied by
an Asset Base Certificate and stating that such release is in compliance with
Sections 404 and 606(a) hereof.
The Indenture Trustee will, promptly upon receipt of such certificate
from the Servicer or the Administrative Agent and at the Issuer's expense,
execute and deliver to the Issuer, the Seller or the Servicer, as appropriate,
and each Series Enhancer, a non-recourse certificate of release substantially in
the form of Exhibit F hereto and such additional documents and instruments as
that Person may reasonably request (including UCC termination statements and
appropriate filings with the FAA or other Governmental Authority) to evidence
the termination and release from the Lien of this Indenture of such Eligible
Engine, the related Lease Agreement and the other related items of Collateral.
Section 405. ADMINISTRATION OF COLLATERAL. (a) The Indenture
Trustee hereby acknowledges the appointment by the Issuer of the Servicer to
service and administer the Collateral in accordance with the provisions of the
Servicing Agreement and agrees to provide the Servicer with such documentation,
and to take all such actions, as the Servicer may reasonably request in
accordance with the provisions of the Servicing Agreement or as the Issuer may
request.
(b) The Indenture Trustee shall promptly as practicable notify the
Noteholders, each Series Enhancer and the Administrative Agent of any Servicer
Default of which it has prior actual knowledge, and at the direction of the
Requisite Global Majority, shall deliver to the Servicer a Servicer Termination
Notice terminating the Servicer of its responsibilities in accordance with the
terms of the Servicing Agreement. If the Administrative Agent is unable to
locate and qualify a replacement Servicer within sixty (60) days after the date
of delivery of the Servicer Termination Notice, then the Indenture Trustee may
appoint, or petition a court of competent jurisdiction to appoint, a company
acceptable to the Requisite Global Majority, and whose regular business includes
equipment leasing, as the successor to the Servicer of all or any part of the
responsibilities, duties or liabilities of the Servicer under the Servicing
Agreement, for such portion of the Servicing Fee as the Requisite Global
Majority shall determine in its sole discretion. The Servicer shall continue to
fulfill its duties and responsibilities as Servicer until such time as its
replacement is appointed and has assumed such responsibilities. The replaced
Servicer shall not be entitled to receive any compensation for any period after
the effective date of such replacement, but shall be entitled to receive
compensation for services rendered through the effective date of such
replacement except to the extent that it is unable to fulfill such duties
pending the appointment of a replacement Servicer. If the Servicer is unable to
fulfill such duties pending the appointment of a replacement Servicer, the
Administrative Agent may (but shall not be required to) take such actions which
it is reasonably capable of performing and that have been directed by as the
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Requisite Global Majority; PROVIDED, HOWEVER, that as a condition precedent to
taking any such action, the Requisite Global Majority shall provide the
Administrative Agent with (i) indemnification, reasonably satisfactory to the
Administrative Agent, with respect to such actions and (ii) reimbursement of any
out-of-pocket costs incurred by the Administrative Agent in taking such actions
which have been approved by the Requisite Global Majority. In connection with
the appointment of a replacement Servicer, the Indenture Trustee or
Administrative Agent may, with the written consent of the Requisite Global
Majority, make such arrangements for the compensation of such replacement out of
Collections as the Indenture Trustee, the Administrative Agent and such
replacement Servicer shall agree; PROVIDED, HOWEVER, that no such revised
compensation shall be in excess of the Servicing Fees permitted the Servicer
under the Servicing Agreement and the arrangement for reimbursement of expenses
shall be no more favorable than that set forth in the Servicing Agreement unless
(i) the Indenture Trustee (with the prior written consent of the Requisite
Global Majority) shall approve such higher amounts or (ii) the outgoing Servicer
shall agree to pay, out of its own funds, the replacement Servicer any such
excess compensation and reimbursement; PROVIDED, FURTHER, that in no event shall
either the Indenture Trustee or the Administrative Agent be liable to any
replacement Servicer for the Servicing Fees or any additional amounts (including
expenses and indemnifications) payable to such replacement Servicer, either
pursuant to the Servicing Agreement or otherwise. The Indenture Trustee and
such successor shall take such action, consistent with the Servicing Agreement,
as shall be necessary to effectuate any such succession.
(c) The Indenture Trustee may, and shall if directed by the Requisite
Global Majority, at any time, upon the occurrence of any Servicer Default, after
first notifying the Issuer of its intention to do so, notify Account Debtors of
the Issuer, parties to the Contracts of the Issuer, obligors in respect of
Instruments of the Issuer and obligors in respect of Chattel Paper of the Issuer
that the Accounts and the right, title and interest of the Issuer in and under
such Contracts, Instruments, and Chattel Paper (to the extent related to the
Eligible Engines) have been assigned to Indenture Trustee and that payments
shall be made directly to Indenture Trustee; provided that a replacement
Servicer appointed pursuant to this Section 405 shall unless otherwise directed
by the Requisite Global Majority exercise all of the foregoing rights, and that
pending appointment of such replacement Servicer, the then current Servicer
shall unless otherwise directed by the Requisite Global Majority be permitted to
exercise such rights until the replacement Servicer assumes the responsibility
of the Servicer. Upon the request of the Requisite Global Majority, the Issuer
or Servicer shall so notify such Account Debtors, parties to such Contracts,
obligors in respect of such Instruments and obligors in respect of such Chattel
Paper. Upon the occurrence of a Servicer Default, the Indenture Trustee shall
at the direction of the Requisite Global Majority communicate with such Account
Debtors, parties to such Contracts, obligors in respect of such Instruments and
obligors in respect of such Chattel Paper to verify with such parties, to the
Indenture Trustee's satisfaction, the existence, amount and terms of any such
Accounts, Contracts, Instruments or Chattel Paper.
(d) Upon the breach of any Engine Representations and Warranties
giving rise to repurchase or substitution obligations of the Seller pursuant to
Section 2.02 of the
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Contribution and Sale Agreement, the Issuer shall cause the Seller to fully
satisfy such repurchase or substitution obligations and cause to be deposited in
the Trust Account in accordance with the provisions of Section 2.02 of the
Contribution and Sale Agreement, the Warranty Purchase Amounts received from, or
on behalf of, the Seller with respect to such repurchase obligation. Upon
obtaining actual knowledge or the receipt of notice by the Indenture Trustee
that any repurchase or substitution obligations of the Seller under Section 2.02
of the Contribution and Sale Agreement have arisen, the Indenture Trustee shall
notify the Series Enhancer, if any, for the Series to which the Engines to be
repurchased or substituted are pledged, each Rating Agency and all Noteholders
of the Series to which such Engines are pledged of such event and shall enforce
such repurchase or substitution obligations at the direction of the Control
Party for the affected Series.
Section 406. QUIET ENJOYMENT. The security interest hereby granted
to Indenture Trustee by the Issuer is subject to the rights of any lessee under
the related Lease Agreement so long as such lessee is not in default under the
Lease Agreement therefor and the Servicer under the Servicing Agreement (or the
Indenture Trustee, as provided in Section 405(c)) continues to receive all
amounts payable under the related Contract.
Section 407. ACKNOWLEDGMENT. The Indenture Trustee agrees to
execute any and all acknowledgments that the Issuer or the Seller may require
with respect to the Lessee's right to continued quiet enjoyment of the related
Engine.
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ARTICLE V
RIGHTS OF NOTEHOLDERS; ALLOCATION
AND APPLICATION OF COLLECTIONS;
REQUISITE GLOBAL MAJORITY
Section 501. RIGHTS OF NOTEHOLDERS. The Noteholders of each Series
shall have the right to receive, to the extent necessary to make the required
payments with respect to the Notes of such Series at the times and in the
amounts specified in the related Supplement, (i) the portion of Collections
allocable to Noteholders of such Series pursuant to this Indenture and the
related Supplement, (ii) funds on deposit in the Trust Account and any related
Restricted Cash Account, and (iii) funds on deposit in any Series Account for
such Series or Class, or payable with respect to any Series Enhancement for such
Series or Class. Each Noteholder, by acceptance of its Notes, (a) acknowledges
and agrees that (except as expressly provided herein and in a Supplement entered
into in accordance with Section 1006(b) hereof) the Noteholders of a Series or
Class shall not have any interest in any Series Collateral, Series Account or
Series Enhancement for the benefit of any other Series or Class and (b) ratifies
and confirms the terms of this Indenture and the Related Documents executed in
connection with such Series.
Section 502. COLLECTIONS AND ALLOCATIONS. With respect to each
Collection Period, Collections on deposit in the Trust Account will be allocated
to each Series then Outstanding in accordance with Article III of this Indenture
and the Supplements.
Section 503. DETERMINATION OF REQUISITE GLOBAL MAJORITY. A
Requisite Global Majority shall exist with respect to any action proposed to be
taken pursuant to the terms of this Indenture or any Supplement if (a) the
Control Party or Control Parties representing more than fifty percent (50%) of
the Outstanding Obligations of all Series then Outstanding shall approve or
direct such proposed action (in making such a determination, each Control Party
shall be deemed to have voted the entire Outstanding Obligations of the related
Series either in favor of or in opposition to such action, as the case may be)
and (b) each Series Enhancer shall approve or direct such proposed action.
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ARTICLE VI
COVENANTS
As of the Effective Date of the first Series and for so long as any
obligation of the Issuer under this Indenture, any Supplement or any Series of
Notes remains unpaid, the Issuer shall observe each of the following covenants:
Section 601. PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT OF TAXES.
(a) The Issuer will duly and punctually pay the principal of and interest on
the Notes in accordance with the terms of the Notes, this Indenture and the
related Supplement.
(b) The Issuer will take all actions as are necessary to insure that
all taxes and governmental claims, if any, in respect of the Issuer's activities
and assets are promptly paid.
Section 602. MAINTENANCE OF OFFICE. The chief executive office of
the Issuer is located at 180 Harbor Drive, Suite 207, Sausalito, CA 94965. The
Issuer shall not establish a new location for its chief executive office unless
(i) it shall have given to the Indenture Trustee, each Rating Agency, the
Administrative Agent and each Series Enhancer not less than thirty (30) days'
prior written notice of its intention so to do, clearly describing such new
location and providing such other information in connection therewith as the
Indenture Trustee or any Series Enhancer may reasonably request, and (ii) with
respect to such new location, it shall have taken at its own cost all action
necessary so that such change of location does not impair the security interest
of the Indenture Trustee in the Collateral, or the perfection of the sale or
contribution to the Issuer of any Eligible Engine, the related Lease Agreements
or any other Related Asset, and shall have delivered to the Indenture Trustee
and each Series Enhancer copies of all filings required in connection therewith
together with an Opinion of Counsel, satisfactory to the Indenture Trustee and
the Series Enhancers, to the effect that such change of location does not impair
such security interest and perfection.
Section 603. CORPORATE EXISTENCE. The Issuer will keep in full
effect its existence, rights and franchises as a corporation under the laws of
the State of Delaware, and will obtain and preserve its qualification as a
foreign corporation in each jurisdiction in which such qualification is
necessary to protect the validity and enforceability of this Indenture, any
Supplements issued hereunder and the Notes.
Section 604. PROTECTION OF COLLATERAL. The Issuer will from time to
time execute and deliver all amendments hereto and all such financing
statements, continuation statements, instruments of further assurance and other
instruments, and will, upon the reasonable request of the Servicer, the
Indenture Trustee or any Series Enhancer, take such other reasonable action
necessary or advisable to:
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(a) grant more effectively the security interest in all or any
portion of the Collateral;
(b) maintain or preserve the Lien of this Indenture (and the priority
thereof) or carry out more effectively the purposes hereof including executing
and filing such documents as may be required under any international convention
for the perfection of interests in Engines that may be adopted subsequent to the
date of this Indenture;
(c) perfect, publish notice of, or protect the validity of the
security interest in the Collateral created pursuant to this Indenture;
(d) enforce any of the items of the Collateral;
(e) preserve and defend its right, title and interest to the
Collateral and the rights of the Indenture Trustee in such Collateral against
the claims of all Persons (other than the Noteholders or any Person claiming
through the Noteholders);
(f) pay any and all taxes levied or assessed upon all or any part of
the Collateral unless contested in good faith and such contest will not pose any
risk of forfeiture; or
(g) pay any and all fees, taxes and other charges payable in
connection with the registration of this Indenture, any Supplement or any
required financing statements with any applicable Governmental Authority.
Section 605. PERFORMANCE OF OBLIGATIONS. Except as otherwise
permitted by this Indenture, the Servicing Agreement or the Contribution and
Sale Agreement, the Issuer will not take, or fail to take, any action, and will
use its best efforts not to permit any action to be taken by others, which would
release any Person from any of such Person's covenants or obligations under any
agreement or instrument included in the Collateral, or which would result in the
amendment, hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any such agreement or instrument.
Section 606. NEGATIVE COVENANTS. The Issuer will not, without the
consent of the Control Party with respect to a Series:
(a) sell, transfer, exchange or otherwise dispose of any of the
related Series Collateral, except (i) in connection with a sale pursuant to
Section 816 hereof, or (ii) sales in the normal course of business so long as an
Early Amortization Event or Event of Default does not then exist or would not
exist immediately after such sale (with the giving of notice and/or the lapse of
time). The Sales Proceeds of any such sale or other disposition shall not,
unless an Early Amortization Event shall have occurred and be continuing, be
less than the Net Book Value of the subject Eligible Engines;
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(b) claim any credit on, make any deduction from the principal,
premium, if any, or interest payable in respect of the Notes of a Series (other
than amounts properly withheld from such payments under any applicable law) or
assert any claim against any present or former Noteholder of such Series by
reason of the payment of any taxes levied or assessed upon any of the related
Series Collateral;
(c) (i) permit the validity or effectiveness of this Indenture to be
impaired, or (ii) permit the Lien of this Indenture with respect to the Series
Collateral to be subordinated, terminated or discharged, except as permitted in
accordance with Section 404 or Article VII hereof, or (iii) permit any Person to
be released from any covenants or obligations with respect to such Series
Collateral, except as may be expressly permitted by the Servicing Agreement;
(d) permit any Lien (except any Permitted Encumbrance) to be created
on or extend to or otherwise arise upon or burden the Series Collateral or any
part thereof or any interest therein or the proceeds thereof other than the Lien
created pursuant to this Indenture; and
(e) permit the Lien of this Indenture not to constitute a valid first
priority perfected security interest in the Series Collateral.
Section 607. NON-CONSOLIDATION OF ISSUER. The Issuer represents,
warrants and covenants to take the following actions to maintain its existence
separate and apart from any other Person: (i) maintain books of account in
accordance with generally accepted accounting principles and maintain its
accounts, books and records separate from any other person or entity; provided,
that the Issuer's assets and liabilities may be included in a consolidated
financial statement issued by an affiliate of the Issuer; provided, however,
that any such consolidated financial statement will make clear the Issuer's
assets are not available to satisfy the obligations of such affiliate; (ii) not
commingle its funds or assets with those of any other entity; (iii) hold its
assets in its own name; (iv) conduct its business solely in its own name; (v)
pay its own liabilities out of its own funds and assets; (vi) observe all
corporate formalities; (vii) maintain an arms-length relationship with its
affiliates; (viii) not assume or guarantee or become obligated for the debts of
any other entity or hold out its credit as being available to satisfy the
obligation of any other entity, and will not permit any other person to assume
or guarantee or become obligated for its debts or hold out its credit as being
available to satisfy its obligations, except with respect to the Seller's
obligations under the Guaranty; (ix) not acquire obligations or securities of
its stockholders; (x) allocate fairly and reasonably overhead or other expenses
that are properly shared with any other person or entity, including without
limitation, shared office space, and use separate stationery, invoices and
checks; (xi) identify and hold itself out as a separate and distinct entity
under its own name and not as a division or part of any other person or entity;
(xii) correct any known misunderstanding regarding its separate identity, (xiii)
not make loans to any person or entity; (xiv) not identify its stockholders, or
any affiliates of any of them, as a division or part of itself; (xv) not enter
into, or be a party to, any transaction with its stockholders or their
affiliates, except in the ordinary course of its business and on terms which are
intrinsically fair and are no less favorable to it than would
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be obtained in a comparable arms-length transaction with an unrelated third
party; and (xvi) pay the salaries of its own employees, if any, from its own
funds.
Section 608. NO BANKRUPTCY PETITION. The Issuer shall not
(1) commence any Insolvency Proceeding seeking to have an order for relief
entered with respect to it, or seeking reorganization, arrangement, adjustment,
wind-up, liquidation, dissolution, composition or other relief with respect to
it or its debts, (2) seek appointment of a receiver, trustee, custodian or other
similar official for it or any part of its assets, (3) make a general assignment
for the benefit of creditors, or (4) take any action in furtherance of, or
consenting or acquiescing in, any of the foregoing.
Section 609. LIENS. The Issuer shall not contract for, create,
incur, assume or suffer to exist any Lien upon any of its property or assets,
including, without limitation, any Capital Improvements, whether now owned or
hereafter acquired, except for the Lien created pursuant to the terms of this
Indenture.
Section 610. OTHER DEBT. The Issuer shall not contract for, create,
incur, assume or suffer to exist any Indebtedness other than any Notes issued
pursuant to this Indenture or any Supplement issued hereunder and other than
under any Interest Rate Hedge Agreement, except trade payables and expense
accruals incurred in the ordinary course and which are incidental to the
purposes permitted pursuant to the Issuer's charter documents.
Section 611. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES. The
Issuer will not make any loan, advance or credit to, or guarantee (directly or
indirectly or by an instrument having the effect of assuring another's payment
or performance on any obligation or capability of so doing, or otherwise),
endorse (except for the endorsement of checks for collection or deposit) or
otherwise become contingently liable, directly or indirectly, in connection with
the obligations, stock or dividends of, or own, purchase, repurchase or acquire
(or agree contingently to do so) any stock, obligations or securities of, or any
other interest in, or make any capital contribution to, any other Person.
Section 612. CONSOLIDATION, MERGER AND SALE OF ASSETS. (a) The
Issuer shall not consolidate with or merge with or into any other Person or
convey or transfer to any Person all or substantially all of its assets without
the prior written consent of each Control Party for each Series.
(b) The obligations of the Issuer hereunder shall not be assignable
nor shall any Person succeed to the obligations of the Issuer hereunder except
in each case in accordance with the provisions of this Indenture.
Section 613. OTHER AGREEMENTS. The Issuer will not enter into or
become a party to any agreements or instruments other than this Indenture, the
Supplements, the Contribution and Sale Agreement, the Note Purchase Agreements,
or any other agreement(s) or amendments contemplated by this Indenture, any
Supplement or the Contribution and Sale
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Agreement, including, without limitation, any agreement(s) for disposition of
the Contributed Assets permitted by Sections 612, 804 or 816 hereof and any
agreement(s) for the sale or re-lease of a Engine made in accordance with the
provisions of the Contribution and Sale Agreement. In addition, the Issuer will
not amend, modify or waive any provision of the Contribution and Sale Agreement
or give any approval or consent or permission provided for therein without the
prior written consent of the requisite Persons set forth therein.
Section 614. CHARTER DOCUMENTS. The Issuer will not amend or modify
its certificate of incorporation or by-laws without the prior written consent of
the Control Party of each Series and otherwise in accordance with the provisions
of such certificate of incorporation and by-laws.
Section 615. CAPITAL EXPENDITURES. The Issuer will not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(both realty and personalty), except for (i) acquisition of additional Eligible
Engines from the Seller pursuant to the Contribution and Sale Agreement, (ii)
any Capital Improvements and (iii) ordinary course expenditures for office
equipment and similar or other related items.
Section 616. PERMITTED ACTIVITIES. The Issuer will not engage in
any activity or enter into any transaction except as permitted under its charter
documents as in effect on the date on which this Indenture is executed.
Section 617. INVESTMENT COMPANY ACT. The Issuer will conduct its
operation in a manner which will not subject it to registration as an
"investment company" under the Investment Company Act of 1940, as amended.
Section 618. PAYMENTS OF COLLATERAL. If the Issuer shall receive
from any Person any payments with respect to the Collateral (to the extent such
Collateral has not been released from the Lien of this Indenture in accordance
with Section 404 hereof), the Issuer shall receive such payment in trust for the
Indenture Trustee, as secured party hereunder, and subject to the Indenture
Trustee's security interest and shall immediately deposit such payment in the
Trust Account.
Section 619. NOTICES. The Issuer shall notify the Indenture
Trustee, the Administrative Agent, each Rating Agency and each Series Enhancer
in writing of any of the following immediately upon learning of the occurrence
thereof, describing the same and, if applicable, the steps being taken by the
Person(s) affected with respect thereto:
(a) Event of Default. The occurrence of an Event of Default or any
event or condition which, with the giving of notice or the passage of time or
both, would constitute an Event of Default;
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(b) Litigation. The institution of any litigation, arbitration
proceeding or Proceeding before any Governmental Authority which might have or
result in a Material Adverse Change;
(c) Material Adverse Change. The occurrence of a Material Adverse
Change;
(d) Other Events. The occurrence of an Early Amortization Event or
such other events that may, with the giving of notice or the passage of time or
both, constitute an Early Amortization Event.
Section 620. BOOKS AND RECORDS. The Issuer shall maintain complete
and accurate books and records in which full and correct entries in conformity
with GAAP shall be made of all dealings and transactions in relation to its
business and activities.
Section 621. TAXES. The Issuer shall pay when due, all of its
taxes, unless and only to the extent that Issuer is contesting such taxes in
good faith and by appropriate proceedings and Issuer has set aside on its books
such reserves or other appropriate provisions therefor as may be required by
GAAP.
Section 622. SUBSIDIARIES. The Issuer shall not create any
Subsidiaries.
Section 623. INVESTMENTS. The Issuer shall not make or permit to
exist any Investment in any Person except for Investments in Eligible
Investments made in accordance with the terms of this Indenture.
Section 624. USE OF PROCEEDS. The Issuer shall use the proceeds of
the Notes only for the purchase of Eligible Engines and the other Related Assets
and for the payment of related expenses. In addition, Issuer shall not permit
any proceeds of the Notes to be used, either directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of "purchasing or carrying
any margin stock" within the meaning of Regulation U of the Board of Governors
of the Federal Reserve System, as amended from time to time, and shall furnish
to each Holder, upon its request, a statement in conformity with the
requirements of Regulation U.
Section 625. ASSET BASE CERTIFICATE. With respect to each Series,
the Issuer shall prepare (or cause to be prepared) an Asset Base Certificate (if
applicable) and deliver (if applicable) such Asset Base Certificate to the
Indenture Trustee, each Series Enhancer, each Rating Agency and the
Administrative Agent by not later than (i) each Payment Date and (ii) each date
on which any Loan (as defined in a Supplement for a Series), if any, is made.
Section 626. FINANCIAL STATEMENTS. The Issuer shall prepare and
deliver to the Indenture Trustee, each Series Enhancer, each Rating Agency and
the Administrative Agent, or shall cause the Servicer to prepare and deliver
pursuant to the Servicing Agreement,
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promptly upon their becoming available, copies of Forms 8-K, 10-K and 10-Q filed
with the Securities and Exchange Commission relating to the Issuer or the
Servicer; provided, however, that in no event will the Forms 10-K be provided
later than 120 days following the end of the period covered, and in no event
will the Forms 10-Q be provided later than 60 days following the end of the
period covered. All financial statements shall be prepared in accordance with
GAAP.
Section 627. SERVICING REPORT. The Issuer shall cause the Servicer
to prepare and deliver to the Indenture Trustee, each Series Enhancer (if
applicable), each Rating Agency (if applicable) and the Administrative Agent
within 10 days of the end of each month, commencing the month immediately
following the first delivery of Collateral, a Servicing Report (as defined in
the Servicing Agreement).
Section 628. CASH RECEIPTS REPORT. The Issuer shall (or cause the
Servicer to) prepare and deliver to the Indenture Trustee, each Series Enhancer
(if applicable), each Rating Agency (if applicable) and the Administrative Agent
by not later than the 15th day of each month, a report detailing all cash
receipts deposited into the Trust Account during the preceding month, which
report shall also detail the source of such cash deposits and the Series Account
to which such cash receipt was allocated.
Section 629. RESERVED.
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ARTICLE VII
DISCHARGE OF INDENTURE; PREPAYMENTS
Section 701. FULL DISCHARGE. With respect to each Series of Notes,
upon payment in full of the Outstanding Obligations of such Series, the
Indenture Trustee shall, at the request and at the expense of the Issuer,
execute and deliver to the Issuer such deeds or other instruments as shall be
requisite to evidence the satisfaction and discharge of this Indenture and the
security hereby created with respect to such Series, and to release the Issuer
from its covenants contained in this Indenture and the related Supplement with
respect to such Series in connection with the satisfaction and discharge of the
Indenture, the Indenture Trustee shall be entitled to receive an Opinion of
Counsel stating that such satisfaction and discharge is authorized and
permitted. All Eligible Engines supporting a Series for which the Outstanding
Obligations of such Series have been paid in full shall be released from the
lien of this Indenture in accordance with Section 404 hereof.
Section 702. PREPAYMENT OF NOTES. (a) MANDATORY PREPAYMENTS. At
any time that the Outstanding Obligations of a Series exceed the Asset Base for
such Series as evidenced by the related Asset Base Certificate received by the
Indenture Trustee on any Determination Date, the Issuer shall on each Payment
Date, either (i) acquire, free from all Liens except Permitted Encumbrances,
additional Eligible Engines for such Series in an amount which shall increase
the Asset Base for such Series to the required level, or (ii) prepay the
outstanding principal amount, together with accrued interest thereon, of such
Series of Notes in an aggregate amount equal to such excess, which prepayment
shall be applied in accordance with the provisions of the related Supplement.
So long as no Early Amortization Event is continuing, any mandatory Prepayment
of one or more Series of Notes pursuant to this Section 702(a) may be
accomplished by a deposit of funds directly into the related Series Account(s).
(b) OPTIONAL PREPAYMENTS. The Issuer may, from time to time, on any
Payment Date and upon at least four (4) Business Days' prior written notice to
the Indenture Trustee, each Series Enhancer and the affected Noteholders, make
an optional prepayment of principal of the Notes of any Series in whole or in
part without premium or penalty except as may be set forth in any Supplement;
PROVIDED, HOWEVER, that any partial prepayment of principal shall be in a
minimum aggregate amount of One Million Dollars ($1,000,000). The Issuer shall
promptly confirm any telephonic notice of prepayment in writing. Any optional
Prepayment of principal made by the Issuer pursuant to this Section 702(b) shall
also include accrued interest to the date of the prepayment on the amount being
prepaid. So long as no Early Amortization Event is continuing, any optional
prepayment of a Series of Notes pursuant to this Section 702(b) may be
accomplished by a deposit of funds directly into the related Series Account.
(c) After an Early Amortization Event, Prepayments will be deposited
into the Trust Account and will be allocated to each Series based on Outstanding
Obligations at the time of the Early Amortization Event.
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Section 703. UNCLAIMED FUNDS. In the event that any amount due to
any Noteholder remains unclaimed, the Issuer shall, at its expense, cause to be
published once, in the eastern edition of THE WALL STREET JOURNAL, notice that
such money remains unclaimed. Any such unclaimed amounts shall not be invested
by the Indenture Trustee (notwithstanding the provisions of Section 303 hereof)
and no additional interest shall accrue on the related Note subsequent to the
date on which such funds were available for distribution to such Noteholder.
Any such unclaimed amounts shall be held by the Trustee in trust until the
latest of (i) two years after the date of the publication described in the
second preceding sentence, (ii) the date all other registered Noteholders of
such Series shall have received full payment of all principal, interest,
premium, if any, and other sums payable to them on such Notes or the Indenture
Trustee shall hold (and shall have notified the registered Noteholders that it
holds) in trust for that purpose an amount sufficient to make full payment
thereof when due and (iii) the date the Issuer shall have fully performed and
observed all its covenants and obligations contained in this Indenture and the
related Supplement with respect to such Series of Notes. Thereafter any such
unclaimed amounts shall be paid to the Issuer by the Indenture Trustee on
demand; and thereupon the Indenture Trustee shall be released from all further
liability with respect to such monies, and thereafter the registered Noteholders
in respect of which such monies were so paid to the Issuer shall have no rights
in respect thereof except to obtain payment of such monies from the Issuer.
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ARTICLE VIII
DEFAULT PROVISIONS AND REMEDIES
Section 801. EVENT OF DEFAULT. "Event of Default", wherever used
herein with respect to any Series of Notes, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
Governmental Authority):
(i) (A) default in (x) the payment of principal of the Notes of any
Series on the Final Payment Date of such Series, or (y) if the related
Supplement so specifies, the payment of the principal balance of the Notes on a
Payment Date prior to the Final Payment Date for a period of ten calendar days
without having been cured, or (z) the payment when due of any amount payable by
the Issuer under any Series Enhancement; or
(B) default in the payment of Guaranty Fees, if applicable,
Indenture Trustee's Fees, or payment of interest or premium on the Notes of any
Series for more than three (3) Business Days after the same shall have become
due and payable in accordance with the terms of such Notes, this Indenture and
the related Supplement; PROVIDED, HOWEVER, that the three (3) Business Day grace
period set forth above shall be applicable only to the first three payment
defaults pursuant to this clause (B);
(ii) default in any material respect in the performance, or
breach in any material respect, of any covenant of the Issuer in this Indenture
(other than a covenant or agreement a breach of which or default in the
performance of which breach is elsewhere in this Section specifically dealt
with), the related Supplement or if any representation or warranty of the Issuer
made in this Indenture, the related Supplement, or any other Related Documents
or in any certificate or other writing delivered pursuant hereto or thereto or
in connection herewith with respect to or affecting the Notes of such Series
shall prove to be inaccurate in any material respect as of the time when the
same shall have been made, and, except for breaches of any covenants set forth
in Section 406 of any related Supplement for a Series, if such breach or default
or inaccuracy is curable, continuance of such default or breach or inaccuracy
for a period of 60 days after the earlier to occur of (i) actual knowledge of
such default, breach or inaccuracy by the Issuer or (ii) the date on which there
has been given to the Issuer by the Indenture Trustee, or to the Issuer and the
Indenture Trustee by the Series Enhancer or any Noteholder of such Series, a
written notice specifying such default or breach or inaccuracy and requiring it
to be remedied;
(iii) the entry of a decree or order for relief by a court having
jurisdiction in respect of the Issuer or the Seller in any involuntary case
under any applicable Insolvency Law, or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian, trustee, or
sequestrator (or other similar official) for the Issuer or the Seller, as the
case may be, or for any substantial part of their respective properties, or
ordering
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the winding up or liquidation of their respective affairs, and the continuance
of any such decree or order unstayed and in effect for a period of 60
consecutive days;
(iv) the commencement by the Issuer or the Seller of a voluntary
case under any applicable Insolvency Law, or other similar law now or hereafter
in effect, or the consent by the Issuer or the Seller, as the case may be, to
the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee or sequestrator (or other similar official) of the Issuer or
the Seller, as the case may be, or any substantial part of their respective
properties, or the making by the Issuer or the Seller, as the case may be of any
general assignment for the benefit of creditors, or the failure by the Issuer or
the Seller, as the case may be generally to pay its debts as they become due, or
the taking of corporate action by the Issuer in furtherance of any such action;
(v) any of the Related Documents for such Series ceases to be in
full force and effect except to the extent that they are terminated in
accordance with their terms after all payments have been made thereunder;
(vi) the occurrence of a reportable event (within the meaning of
Section 4043 of ERISA) with respect to any Plan, or the occurrence of any event
or condition with respect to a Plan which actually results in the imposition of
a Lien on the Collateral.
The occurrence of an Event of Default with respect to one Series of
Notes (that has not been waived by the related Control Party) shall constitute
an Event of Default with respect to all other Series of Notes then Outstanding
unless the related Supplement with respect to each such other Series of Notes
shall specifically provide to the contrary.
Section 802. ACCELERATION OF STATED MATURITY; RESCISSION AND
ANNULMENT. (a) If an Event of Default under Section 801 occurs and is
continuing, then and in every such case the Control Party for a Series may
declare the Outstanding Obligations for such Series to be due and payable
immediately, by a notice in writing to the Issuer and to the Indenture Trustee
given by such Control Party, and upon any such declaration such Outstanding
Obligations for such Series shall become immediately due and payable.
(b) At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee as hereinafter in this Article provided, such
Control Party, by written notice to the Issuer and the Indenture Trustee, may
rescind and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture Trustee
a sum sufficient to pay:
(A) all of the installments of interest, premium and
principal on all Notes which were overdue prior to the date of
such acceleration;
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(B) to the extent that payment of such interest is lawful,
interest at the applicable Overdue Rate on the amounts set forth
in clause (A) above;
(C) all sums paid or advanced by the Indenture Trustee
hereunder or the Servicer and the reasonable compensation,
out-of-pocket expenses, disbursements and advances of the
Indenture Trustee, its agents and counsel incurred in connection
with the enforcement of this Indenture;
(D) all amounts due to any Series Enhancer (if applicable);
and
(ii) all Events of Default, other than the nonpayment of the
principal of or interest on Notes which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 813 hereof.
No such rescission with respect to any Event of Default shall affect any
subsequent Event of Default or impair any right consequent thereon.
Section 803. COLLECTION OF INDEBTEDNESS. The Issuer covenants that,
if an Event of Default occurs and is continuing and a declaration of
acceleration has been made under Section 802 with respect to a Series and not
rescinded, the Issuer will, upon demand of the Indenture Trustee, pay to the
Indenture Trustee, for the benefit of the Noteholders of such Series then
Outstanding and any Series Enhancers of such Series, an amount equal to the sum
of (i) the Outstanding Obligations of such Series including the costs and
out-of-pocket expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Indenture Trustee, its agents and
counsel incurred in connection with the enforcement of this Indenture and (ii)
to the extent that the payment of such interest is lawful, interest on the
amount set forth in clause (i) at the applicable Overdue Rate.
Section 804. REMEDIES. If an Event of Default shall occur and be
continuing, the Indenture Trustee, by such officer or agent as it may appoint,
shall notify the applicable Rating Agencies, if any, of such Event of Default
and shall, if instructed by the Control Party of a Series:
(i) institute any Proceedings, in its own name and as trustee
of an express trust, for the collection of all amounts
then due and payable on the Notes of such Series or under
this Indenture or the related Supplement with respect
thereto, whether by declaration or otherwise, enforce any
judgment obtained, and collect from the related Series
Collateral and any other assets of the Issuer any monies
adjudged due;
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(ii) subject to the quiet enjoyment rights of any Lessee under
a Lease Agreement, sell, hold or lease the related Series
Collateral or any portion thereof or rights or interest
therein, at one or more public or private transactions
conducted in any manner permitted by law;
(iii) institute any Proceedings from time to time for the
complete or partial foreclosure of the Lien created by
this Indenture and the related Supplement with respect to
the related Series Collateral;
(iv) institute such other appropriate Proceedings to protect
and enforce any other rights, whether for the specific
enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy;
(v) exercise any remedies of a secured party under the
Uniform Commercial Code or any applicable law and take
any other appropriate action to protect and enforce the
rights and remedies of the Indenture Trustee or the
Noteholders of a Series hereunder; and
(v) appoint a receiver or a manager over the Issuer or its
assets.
Section 805. INDENTURE TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION
OF NOTES. (a) In all Proceedings brought by the Indenture Trustee (and also
any Proceedings involving the interpretation of any provision of this Indenture
to which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all of the Noteholders of the affected Series, and it shall
not be necessary to make any affected Noteholder a party to any such
Proceedings.
(b) All rights of action and claims under this Indenture, the related
Supplement or such Notes may be prosecuted and enforced by the Indenture Trustee
without the possession of any of the Notes or the production thereof in any
Proceeding relating thereto, and any such Proceeding instituted by the Indenture
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery whether by judgment, settlement or otherwise shall, after provision for
the payment of the reasonable compensation, expenses, and disbursements incurred
and advances made, by the Indenture Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Notes of the affected Series, subject to
the subordination of payments among Classes of a particular Series as set forth
in the related Supplement.
Section 806. ALLOCATION OF MONEY COLLECTED. If the Notes of a
Series have been declared due and payable following an Event of Default and such
declaration and its
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consequences have not been rescinded or annulled, any money collected by the
Indenture Trustee pursuant to this Article or otherwise and any other monies
that may be held or thereafter received by the Indenture Trustee as security for
the Notes of such Series shall be applied, to the extent permitted by law, in
the following order, at the date or dates fixed by the Indenture Trustee:
FIRST: To the payment of all amounts due the Indenture Trustee
under Section 905 hereof; and
SECOND: To the payment of all management fees or other servicing
fees as more particularly provided in each Supplement and in accordance with the
terms of the related Servicing Agreement; PROVIDED, HOWEVER, that in no event
shall the Servicing Fee then payable pursuant to each Supplement be less than
the Minimum Servicing Fee Percentage of Engine Revenues of the Engines pledged
pursuant to such Supplement.
THIRD: Any remaining amounts shall be distributed in accordance
with Section 302 (II) of each Supplement (or such other or additional related
sections or clauses as may be provided in any particular Supplement) hereof but
without duplication of any amounts specified in Section 302(II) of a Supplement
that is also set forth in Section 806 (First) or (Second) above.
Section 807. LIMITATION ON SUITS. Except to the extent provided in
Section 808 hereof, no Noteholder of a Series shall have the right to institute
any Proceeding, with respect to this Indenture, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless:
(i) such Holder has previously given written notice to the
Indenture Trustee of a continuing Event of Default;
(ii) the Control Party of such Series shall have made
written request to the Indenture Trustee to institute Proceedings in
respect of such Event of Default in its own name as Indenture Trustee
hereunder;
(iii) such Holder or Holders have offered to the Indenture
Trustee reasonable security or indemnity against the costs, expenses
and liabilities to be incurred in compliance with such request (the
unsecured indemnity of a Rated Institutional Noteholder being deemed
satisfactory for such purpose);
(iv) the Indenture Trustee has, for 30 days after its
receipt of such notice, request and offer of security or indemnity,
failed to institute any such Proceeding; and
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(v) no direction inconsistent with such written request has
been given to the Indenture Trustee during such 30 day period by the
Control Party of such Series;
it being understood and intended that no one or more Noteholders shall have any
right in any manner whatsoever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other
Noteholder, or to obtain or to seek to obtain priority or preference over any
other Noteholder (except to the extent provided in the related Supplement) or to
enforce any right under this Indenture, except in the manner herein provided and
for the benefit of all Noteholders of a Series.
Section 808. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL AND
INTEREST. Notwithstanding any other provision of this Indenture, each
Noteholder shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest on such Note as such principal and
interest becomes due and payable and to institute any Proceeding for the
enforcement of such payment, and such rights shall not be impaired without the
consent of such Holder.
Section 809. RESTORATION OF RIGHTS AND REMEDIES. If the Indenture
Trustee, any Series Enhancer or any Holder has instituted any Proceeding to
enforce any right or remedy under this Indenture or the related Supplement and
such Proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Indenture Trustee, any Series Enhancer or to such
Holder, then and in every such case, subject to any determination in such
Proceeding, the Issuer, the Indenture Trustee, such Series Enhancer (if
applicable) and the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Indenture Trustee, such Series Enhancer (if applicable) and the Holders shall
continue as though no such Proceeding had been instituted.
Section 810. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy
conferred upon or reserved to the Indenture Trustee, any Series Enhancer (if
applicable) or to the Holders pursuant to this Indenture or any Supplement is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 811. DELAY OR OMISSION NOT WAIVER. No delay or omission of
the Indenture Trustee, of any Series Enhancer or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Indenture Trustee or to the Holders may be
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exercised from time to time, and as often as may be deemed expedient, by the
Indenture Trustee or by the Holders, as the case may be.
Section 812. CONTROL BY THE CONTROL PARTY OF THE AFFECTED SERIES.
Upon the occurrence of an Event of Default with respect to a Series, the Control
Party of the affected Series shall have the right to direct the time, method and
place of conducting any Proceeding for any remedy available to the Indenture
Trustee or exercising any trust or power conferred on the Indenture Trustee,
provided that (i) such direction shall not be in conflict with any rule of law
or with this Indenture, including, without limitation, Section 804 hereof,
(ii) such Control Party has offered to the Indenture Trustee reasonable
security or indemnity against costs, expenses and liabilities which it might
incur in connection therewith as provided in Section 902(iii) hereof, (iii) the
Indenture Trustee may take any other action deemed proper by the Indenture
Trustee which is not inconsistent with such direction.
Section 813. WAIVER OF PAST DEFAULTS. (a) The Control Party of a
Series may, on behalf of all Noteholders of such Series, waive any past Event of
Default with respect to such Series and its consequences, except an Event of
Default with respect to such Series.
(i) in the payment of (x) the principal balance of any Note on
the Final Payment Date or (y) any required interest payment on any
Note of any Series on any Payment Date, or
(ii) in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of all the Noteholders of all
Series pursuant to Section 1002 of this Indenture.
(b) Upon any such waiver, such Event of Default shall cease to exist
and shall be deemed to have been cured and not to have occurred for every
purpose of this Indenture; PROVIDED, HOWEVER, that no such waiver shall extend
to any subsequent or other Event of Default or impair any right consequent
thereon.
Section 814. UNDERTAKING FOR COSTS. All parties to this Indenture
agree, and each Holder of any Note by acceptance thereof shall be deemed to have
agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; PROVIDED,
HOWEVER, that the provisions of this Section shall not apply (i) to any suit
instituted by the Indenture Trustee or any Holder or group of Holders, holding
in the aggregate more than 10% of the aggregate principal balance of the Notes
of all Series then Outstanding, or (ii) to any suit instituted by any Holder for
the enforcement of (x) the payment of interest or principal on
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any Notes on any Payment Date or (y) the payment of the principal of any Note on
or after the Final Payment Date of such Note.
Section 815. WAIVER OF STAY OR EXTENSION LAWS. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Indenture Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
Section 816. SALE OF COLLATERAL. (a) The power to effect any sale
(a "Sale") of any portion of the Series Collateral pursuant to Section 804
hereof shall not be exhausted by any one or more Sales as to any portion of the
Series Collateral remaining unsold, but shall continue unimpaired until the
entire Series Collateral shall have been sold or the Outstanding Obligations of
the related Series shall have been paid in full. The Indenture Trustee at the
direction of the Control Party of the related Series may from time to time
postpone any Sale by public announcement made at the time and place of such
Sale.
(b) Upon any Sale, whether made under the power of sale hereby given
or under judgment, order or decree in any Proceeding for the foreclosure or
involving the enforcement of this Indenture: (i) the Indenture Trustee, at the
direction of the Control Party of the related Series, may bid for and purchase
the property being sold, and upon compliance with the terms of such Sale may
hold, retain and possess and dispose of such property in accordance with the
terms of this Indenture; and (ii) the receipt of the Indenture Trustee or of any
officer thereof making such Sale shall be a sufficient discharge to the
purchaser or purchasers at such Sale for its or their purchase money, and such
purchaser or purchasers, and its or their assigns or personal representatives,
shall not, after paying such purchase money and receiving such receipt of the
Indenture Trustee or of such officer therefor, be obliged to see to the
application of such purchase money or be in any way answerable for any loss,
misappropriation or non-application thereof.
(c) The Indenture Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion of the
Collateral in connection with a Sale thereof. In addition, the Indenture
Trustee is hereby irrevocably appointed the agent and attorney-in-fact of the
Issuer to transfer and convey its interest (subject to lessee's rights of quiet
enjoyment) in any portion of the Collateral in connection with a Sale thereof,
and to take all action necessary to effect such Sale. No purchaser or
transferee at such a Sale shall be bound to ascertain the Indenture Trustee's
authority, inquire into the satisfaction of any conditions precedent or see to
the application of any monies.
Section 817. ACTION ON NOTES. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture or any Supplement
shall not be affected
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by the seeking, obtaining or application of any other relief under or with
respect to this Indenture or any Supplement. Neither the Lien of this Indenture
nor any rights or remedies of the Indenture Trustee, any Series Enhancer or the
Noteholders shall be impaired by the recovery of any judgment by the Indenture
Trustee against the Issuer or by the levy of any execution under such judgment
upon any portion of the Collateral or upon any of the assets of the Issuer.
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ARTICLE IX
CONCERNING THE INDENTURE TRUSTEE
Section 901. DUTIES OF INDENTURE TRUSTEE. The Indenture Trustee,
prior to the occurrence of an Event of Default with respect to any Series or
after the curing of any Event of Default with respect to any Series which may
have occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture and the related Supplement. If an
Event of Default with respect to any Series has occurred and is continuing, the
Indenture Trustee, at the direction of the Control Party of the related Series,
shall exercise such of the rights and powers vested in it by this Indenture and
the related Supplement, and use the same degree of care and skill in its
exercise as a prudent Person would exercise or use under the circumstances in
the conduct of such Person's own affairs.
The Indenture Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Indenture Trustee which are specifically required to be furnished
pursuant to any provisions of this Indenture and any applicable Supplement,
shall determine whether they are in the form required by this Indenture and any
applicable Supplement; PROVIDED, HOWEVER, that the Indenture Trustee shall not
be responsible for the accuracy or content of any such resolution, certificate,
statement, opinion, report, document, order or other instrument furnished
pursuant to this Indenture and any applicable Supplement.
No provision of this Indenture or any Supplement shall be construed to
relieve the Indenture Trustee from liability for its own negligent action, its
own negligent failure to act or its own willful misconduct; PROVIDED, HOWEVER,
that:
(i) Prior to the occurrence of an Event of Default and after the
curing of any Event of Default which may have occurred, the duties and
obligations of the Indenture Trustee shall be determined solely by the
express provisions of this Indenture and any Supplements issued pursuant to
the terms hereof. The Indenture Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set forth in
this Indenture and any Supplements issued pursuant to the terms hereof, and
no implied covenants or obligations shall be read into this Indenture
against the Indenture Trustee and, in the absence of bad faith on the part
of the Indenture Trustee, the Indenture Trustee may conclusively rely, as
to the truth of the statements and the correctness of the opinions
expressed therein, upon any Opinion of Counsel, certificates, statements,
reports, documents, orders, opinions, appraisals, bonds or other documents
or instruments believed by it to be genuine and to have been signed or
presented by the proper party or parties and conforming to the requirements
of this Indenture and any Supplements issued pursuant to the terms hereof;
(ii) The Indenture Trustee shall not be liable for an error of
judgment made in good faith by a Corporate Trust Officer or Corporate Trust
Officers of the Indenture
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Trustee, unless it shall be proved that the Indenture Trustee was negligent
in ascertaining the pertinent facts; and
(iii) The Indenture Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken by it in good
faith in accordance with the direction of the Control Party of a Series
relating to the time, method and place of conducting any Proceeding for any
remedy available to the Indenture Trustee, or exercising any trust or power
conferred upon the Indenture Trustee, under this Indenture.
No provisions of this Indenture shall require the Indenture Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of such
funds or adequate security or indemnity against such risk or liability is not
reasonably assured to it (the unsecured indemnity of (A) a Rated Institutional
Noteholder being deemed satisfactory for such purpose unless the Indenture
Trustee provides written notice to the contrary, or (B) any Series Enhancer, if
applicable (so long as its claims paying ability is rated "AAA" or "Aaa", as
applicable) being deemed satisfactory for such purpose).
Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Indenture Trustee shall be subject to the provisions of this
Section 901.
Section 902. CERTAIN MATTERS AFFECTING THE INDENTURE TRUSTEE.
Except as otherwise provided in Section 901 hereof:
(i) The Indenture Trustee may consult with counsel of its selection
and any advice of such counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted by it
hereunder in good faith and in accordance in reliance thereof;
(ii) The Indenture Trustee shall be under no obligation to
institute, conduct or defend any litigation or proceeding hereunder or in
relation hereto at the request, order or direction of the Control Party of
a Series, pursuant to the provisions of this Indenture, unless the such
Control Party shall have offered to the Indenture Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may
be incurred therein or thereby (the unsecured indemnity of (A) a Rated
Institutional Noteholder being deemed satisfactory for such purpose, unless
the Indenture Trustee provides written notice to the contrary or (B) any
Series Enhancer if applicable (so long as its claims paying ability is
rated "AAA" or "Aaa", as applicable) being deemed satisfactory for such
purpose);
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(iii) The Indenture Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized
or within the discretion or rights or powers conferred upon it by this
Indenture;
(iv) The Indenture Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, approval, bond or other paper or document, unless requested
in writing to do so by the Control Party of a Series; PROVIDED, HOWEVER,
that the Indenture Trustee may require reasonable security or indemnity
against any cost, expense or liability likely to be incurred in making such
investigation as a condition to so proceeding (the unsecured indemnity of
(A) a Rated Institutional Noteholder being deemed satisfactory for such
purposes unless the Indenture Trustee provides written notice to the
contrary) or (B) any Series Enhancer (so long as its claims paying ability
is rated "AAA" or "Aaa," as applicable,) being deemed satisfactory for such
purpose). The reasonable expense of any such examination shall be paid, on
a pro rata basis, by the Noteholders of the applicable Series requesting
such examination or, if paid by the Indenture Trustee, shall be reimbursed
by such Noteholders upon demand;
(v) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
its agents or attorneys, provided that the Indenture Trustee shall not be
responsible for any misconduct or negligence on the part of any agent or
attorney appointed by it with due care hereunder; and
(vi) The Indenture Trustee shall not be charged with knowledge of
any Default or Event of Default unless either a Trust Officer of the
Indenture Trustee shall have actual knowledge or written notice of such
shall have been given to a Trust Officer of the Indenture Trustee.
The provisions of this Section 902 shall be applicable to the
Indenture Trustee in its capacity as Indenture Trustee under this Indenture.
Section 903. INDENTURE TRUSTEE NOT LIABLE. (a) The recitals
contained herein (other than the representations and warranties contained in
Section 911 hereof), in any Supplement and in the Notes (other than the
certificate of authentication on the Notes) shall be taken as the statements of
the Issuer, and the Indenture Trustee assumes no responsibility for their
correctness. The Indenture Trustee makes no representations as to the validity
or sufficiency of this Indenture, any Supplement, the Notes, the Collateral or
of any related document. The Indenture Trustee shall not be accountable for the
use or application by the Issuer of any of the Notes or of the proceeds thereof,
or for the use or application of any funds paid to the Issuer or the Servicer in
respect of the Collateral. The Indenture Trustee will be deemed to have
appointed First Union Capital Markets Corp. to act as Administrative Agent under
the terms of the Administration Agreement without negligence or willful
misconduct.
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(b) The Indenture Trustee shall have no responsibility or liability
for or with respect to the existence or validity of any Engine, the perfection
of any security interest (whether as of the date hereof or at any future time),
the maintenance of or the taking of any action to maintain such perfection, the
validity of the assignment of any portion of the Collateral to the Indenture
Trustee or of any intervening assignment, the compliance by the Seller or the
Servicer with any covenant or the breach by the Seller or the Servicer of any
warranty or representation made hereunder, in any Supplement or in any related
document or the accuracy of such warranty or representation, any investment of
monies in the Trust Account, the Restricted Cash Account or any Series Account
or any loss resulting therefrom (provided that such investments are made in
accordance with the provisions of Section 303 hereof), the acts or omissions of
the Seller or the Servicer taken in the name of the Indenture Trustee, or the
acts or omissions of the Administrative Agent.
(c) Except as expressly provided herein or in any Supplement, the
Indenture Trustee shall not have any obligation or liability under any Contract
by reason of or arising out of this Indenture or the granting of a security
interest in such Contract hereunder or the receipt by the Indenture Trustee of
any payment relating to any Contract pursuant hereto, nor shall the Indenture
Trustee be required or obligated in any manner to perform or fulfill any of the
obligations of the Issuer, the Seller or the Servicer under or pursuant to any
Contract, or to make any payment, or to make any inquiry as to the nature or the
sufficiency of any payment received by it, or the sufficiency of any performance
by any party, under any Contract.
Section 904. INDENTURE TRUSTEE MAY OWN NOTES. The Indenture Trustee
in its individual or any other capacity may become the owner or pledgee of Notes
with the same rights it would have if it were not Indenture Trustee; provided
that such transaction shall not result in the disqualification of the Indenture
Trustee for purposes of Rule 3a-7 under the Investment Company Act of 1940.
Section 905. INDENTURE TRUSTEE'S FEES AND EXPENSES. The fees of the
Indenture Trustee shall be paid by the Issuer in accordance with Section 302 of
a related Supplement for a Series. The Issuer shall indemnify the Indenture
Trustee and each of its officers, directors and employees for, and hold them
harmless against, any loss, liability, damage claim or expense incurred without
negligence or willful misconduct on their part, arising out of or in connection
with the acceptance or administration of this trust, including the costs and
expenses of defending itself both individually and in its representative
capacity against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder (including, but not limited
to, loss, liability, damage, claim or expense incurred by reason of the
appointment of First Union Capital Markets Corp. to act as Administrative
Agent).
The obligations of the Issuer under this Section 905 to compensate the
Indenture Trustee, to pay or reimburse the Indenture Trustee for expenses,
disbursements and advances and to indemnify and hold harmless, the Indenture
Trustee shall constitute Outstanding
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Obligations hereunder and shall survive the resignation or removal of the
Indenture Trustee and the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 801(iii) or Section 801(iv), the
expenses and the compensation for the services are intended to constitute
expenses of administration under any bankruptcy law.
Section 906. ELIGIBILITY REQUIREMENTS FOR INDENTURE TRUSTEE. The
Indenture Trustee hereunder shall at all times be a national banking association
or a corporation, organized and doing business under the laws of the United
States of America or any State, and authorized under such laws to exercise
corporate trust powers. In addition, the Indenture Trustee or its parent
corporation shall at all times (i) have a combined capital and surplus of at
least $250,000,000, (ii) be subject to supervision or examination by Federal or
state authority and (iii) have a long-term unsecured senior debt rating of "A-2"
or better by Moody's Investors Service, Inc. or a long-term unsecured senior
debt rating of "A" by Standard & Poor's Rating Services and short-term unsecured
senior debt rating of "P-1" or better by Moody's Investors Service, Inc. or a
short-term unsecured senior debt rating of "A-2" by Standard & Poor's Rating
Services. If such corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of such supervising or examining
authority, then, for the purposes of this Section 906, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Indenture Trustee shall cease to be eligible in accordance
with the provisions of this Section, the Indenture Trustee shall resign
immediately in the manner and with the effect specified in Section 907 hereof.
In lieu of the foregoing eligibility requirements for the Indenture Trustee, The
Bank of New York shall be an eligible Indenture Trustee.
Section 907. RESIGNATION AND REMOVAL OF INDENTURE TRUSTEE. The
Indenture Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice thereof to the Issuer, the Servicer,
each Series Enhancer if applicable and the Noteholders. Upon receiving such
notice of resignation, the Issuer shall promptly appoint a successor trustee by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Indenture Trustee each Series Enhancer if applicable,
and one copy to the successor Indenture Trustee. If no successor Indenture
Trustee shall have been so appointed and have accepted appointment within 30
days after the giving of such notice of resignation, the Requisite Global
Majority may appoint a successor trustee or, if it does not do so within 30 days
thereafter, the resigning Indenture Trustee, with the consent of each Series
Enhancer, may petition any court of competent jurisdiction for the appointment
of a successor trustee, which successor trustee shall meet the eligibility
standards set forth in Section 906.
If at any time the Indenture Trustee shall cease to be eligible in
accordance with the provisions of Section 906 hereof and shall fail to resign
after written request therefor by the Issuer, any Series Enhancer if applicable
or the Servicer, or if at any time the Indenture Trustee shall become incapable
of acting, or shall be adjudged a bankrupt or insolvent, or a
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receiver of the Indenture Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Indenture Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Issuer shall remove the Indenture Trustee and appoint a
successor Indenture Trustee by written instrument, in duplicate, one copy of
which instrument shall be delivered to the Indenture Trustee so removed and one
copy to the successor Indenture Trustee.
Any resignation or removal of the Indenture Trustee and appointment of
a successor trustee pursuant to any of the provisions of this Section shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 908 hereof.
Section 908. SUCCESSOR INDENTURE TRUSTEE. Any successor Indenture
Trustee appointed as provided in Section 907 hereof shall execute, acknowledge
and deliver to the Issuer and to its predecessor Indenture Trustee an instrument
accepting such appointment hereunder, and thereupon the resignation or removal
of the predecessor Indenture Trustee shall become effective and such successor
Indenture Trustee, without any further act, deed or conveyance, shall become
fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as Indenture
Trustee herein. The predecessor Indenture Trustee shall deliver to the
successor Indenture Trustee all documents relating to the Collateral, if any,
delivered to it, together with any amount remaining in the Trust Account,
Restricted Cash Account and any other Series Accounts. In addition, the
predecessor Indenture Trustee and, upon request of the successor Indenture
Trustee, the Issuer shall execute and deliver such instruments and do such other
things as may reasonably be required for more fully and certainly vesting and
confirming in the successor Indenture Trustee all such rights, powers, duties
and obligations.
No successor Indenture Trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor Indenture
Trustee shall be eligible under the provisions of Section 906 hereof and shall
be acceptable to the Requisite Global Majority.
Upon acceptance of appointment by a successor Indenture Trustee as
provided in this Section, the Issuer shall mail notice of the succession of such
Indenture Trustee hereunder to all Noteholders at their addresses as shown in
the registration books maintained by the Indenture Trustee. If the Issuer fails
to mail such notice within 10 days after acceptance of appointment by the
successor Indenture Trustee, the successor Indenture Trustee shall cause such
notice to be mailed at the expense of the Issuer.
Section 909. MERGER OR CONSOLIDATION OF INDENTURE TRUSTEE. Any
corporation into which the Indenture Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Indenture Trustee shall be a party, or
any corporation succeeding to the business of the Indenture Trustee, shall be
the successor of the Indenture Trustee hereunder, provided such corporation
shall be eligible under the provisions of Section 906 hereof, without the
execution
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or filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding.
Section 910. SEPARATE INDENTURE TRUSTEES, CO-INDENTURE TRUSTEES AND
CUSTODIANS. If the Indenture Trustee is not capable of acting outside the
United States, it shall have the power from time to time to appoint one or more
Persons or corporations to act either as co-trustees jointly with the Indenture
Trustee, or as separate trustees, or as custodians, for the purpose of holding
title to, foreclosing or otherwise taking action with respect to any of the
Collateral, when such separate trustee or co-trustee is necessary or advisable
under any applicable laws or for the purpose of otherwise conforming to any
legal requirement, restriction or condition in any applicable jurisdiction. The
separate trustees, co-trustees, or custodians so appointed shall be trustees,
co-trustees, or custodians for the benefit of all Noteholders and shall have
such powers, rights and remedies as shall be specified in the instrument of
appointment; PROVIDED, HOWEVER, that no such appointment shall, or shall be
deemed to, constitute the appointee an agent of the Indenture Trustee. The
Issuer shall join in any such appointment, but such joining shall not be
necessary for the effectiveness of such appointment.
Every separate trustee, co-trustee and custodian shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all powers, duties, obligations and rights conferred upon the Indenture
Trustee in respect of the receipt, custody and payment of moneys shall be
exercised solely by the Indenture Trustee;
(ii) all other rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon and
exercised or performed by the Indenture Trustee and such separate trustee,
co-trustee, or custodian jointly, except to the extent that under any law
of any jurisdiction in which any particular act or acts are to be performed
the Indenture Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Collateral or any portion thereof in
any such jurisdiction) shall be exercised and performed by such separate
trustee, co-trustee or custodian;
(iii) no trustee or custodian hereunder shall be personally liable by
reason of any act or omission of any other trustee or custodian hereunder;
and
(iv) the Issuer or the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee, co-trustee or custodian so
appointed by it or them if such resignation or removal does not violate the
other terms of this Indenture.
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Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee, co-trustee, or custodian shall refer to this
Indenture and the conditions of this Article. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Indenture Trustee or separately, as may be provided therein,
subject to all the provisions of this Indenture, specifically including every
provision of this Indenture relating to the conduct of, affecting the liability
of, or affording protection to, the Indenture Trustee. Every such instrument
shall be furnished to the Indenture Trustee and each Series Enhancer.
Any separate trustee, co-trustees, or custodian may, at any time,
constitute the Indenture Trustee, its agent or attorney-in-fact, with full power
and authority, to the extent not prohibited by law, to do any lawful act under
or in respect of this Indenture on its behalf and in its name. If any separate
trustee, co-trustee, or custodian shall die, become incapable of acting, resign
or be removed, all of its estates, properties, rights, remedies and trusts shall
vest in and be exercised by the Indenture Trustee, to the extent permitted by
law, without the appointment of a new or successor trustee or custodian.
No separate trustee, co-trustee or custodian hereunder shall be
required to meet the terms of eligibility as a successor trustee under Section
906 hereof and no notice to Noteholders of the appointment thereof shall be
required under Section 908 hereof.
The Indenture Trustee agrees to instruct the co-trustees, if any, to
the extent necessary to fulfill the Indenture Trustee's obligations hereunder.
Section 911. REPRESENTATIONS, WARRANTIES AND COVENANTS. The
Indenture Trustee hereby represents, warrants and covenants as of the Effective
Date of each Series that:
(a) ORGANIZATION AND GOOD STANDING. The Indenture Trustee is a New
York banking corporation duly organized, validly existing and in good standing
under the laws of the State of New York, and has the power to own its assets and
to transact the business in which it is presently engaged;
(b) AUTHORIZATION. The Indenture Trustee has the power, authority
and legal right to execute, deliver and perform this Indenture and each
Supplement and to authenticate the Notes, and the execution, delivery and
performance of this Indenture and each Supplement and the authentication of the
Notes has been duly authorized by the Indenture Trustee by all necessary
corporate action;
(c) BINDING OBLIGATIONS. This Indenture and each Supplement,
assuming due authorization, execution and delivery by the Issuer, constitutes
the legal, valid and binding obligations of the Indenture Trustee, enforceable
against the Indenture Trustee in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency,
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reorganization, moratorium or other similar laws (whether statutory, regulatory
or decisional) now or hereafter in effect relating to creditors' rights
generally and the rights of trust companies in particular and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought, whether in a proceeding at law or
in equity;
(d) NO VIOLATION. The performance by the Indenture Trustee of its
obligations under this Indenture and each Supplement will not conflict with,
result in any breach of any of the terms and provisions of, or constitute (with
or without notice, lapse of time or both) a default under, the charter documents
or bylaws of the Indenture Trustee;
(e) NO PROCEEDINGS. There are no proceedings or investigations to
which the Indenture Trustee is a party pending, or, to the knowledge of the
Indenture Trustee, threatened, before any court, regulatory body, administrative
agency or other tribunal or Governmental Authority (A) asserting the invalidity
of this Indenture or the Notes, (B) seeking to prevent the issuance of the Notes
or the consummation of any of the transactions contemplated by this Indenture or
(C) seeking any determination or ruling that would materially and adversely
affect the performance by the Indenture Trustee of its obligations under, or the
validity or enforceability of, this Indenture or the Notes; and
(f) APPROVALS. Neither the execution or delivery by the Indenture
Trustee of this Indenture nor the consummation of the transactions by the
Indenture Trustee contemplated hereby requires the consent or approval of, the
giving of notice to, the registration with or the taking of any other action
with respect to any Governmental Authority under any existing federal or State
of New York law governing the banking or trust powers of the Indenture Trustee.
(g) SECURITIES ACCOUNTS. (i) The Indenture Trustee is a bank which
regularly accepts in the ordinary course of its business securities of the same
type as the applicable Collateral as a custodial service for its customers and
maintains in the State of New York deposit accounts and securities accounts for
its customers; (ii) The Indenture Trustee will at all times be acting solely in
the capacity of a Securities Intermediary with respect to items of Collateral
identified on its books and records; (iii) The Indenture Trustee will maintain
its offices and books and records with respect to its securities accounts in the
State of New York; (iv) The Indenture Trustee will at all times maintain an
account with and be a member of The Federal Reserve Bank; and (v) The Indenture
Trustee will act in accordance with, and fulfill its obligations under the terms
of this Indenture and any Supplement hereto, on its part to be performed or
observed, including, without limitation, crediting each Financial Asset (as
defined in Section 8-102(a)(9) of the New York UCC) and any other property it
receives in accordance thereunder to the appropriate Securities Account.
Section 912. INDENTURE TRUSTEE OFFICES. The Indenture Trustee shall
maintain in the State of New York an office or offices or agency or agencies
where Notes may be
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surrendered for registration of transfer or exchange, which office shall
initially be located at 101 Barclay Street, New York, New York 10286, and shall
promptly notify the Issuer, the Servicer and the Noteholders of any change of
such location.
Section 913. NOTICE OF EVENT OF DEFAULT. If the Indenture Trustee
shall have actual knowledge of an Event of Default with respect to any Series,
the Indenture Trustee shall give prompt written notice thereof to the
Noteholders and any Series Enhancer of such Series. For all purposes of this
Indenture, in the absence of actual knowledge by a Corporate Trust Officer of
the Indenture Trustee, the Indenture Trustee shall not be deemed to have actual
knowledge of any Event of Default unless notified in writing thereof by the
Issuer, the Seller, the Servicer, any Series Enhancer or any Noteholder, and
such notice references the applicable Series of Notes generally, the Issuer,
this Indenture or the applicable Supplement.
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ARTICLE X
SUPPLEMENTAL INDENTURES
Section 1001. SUPPLEMENTAL INDENTURES NOT CREATING A NEW SERIES
WITHOUT CONSENT OF HOLDERS. (a) Without the consent of any Holder and based on
an Opinion of Counsel to the effect that such Supplement is for one of the
purposes set forth in clauses (i) through (vii) below, the Issuer and the
Indenture Trustee, at any time and from time to time, may, with the consent of
the Series Enhancers if applicable, enter into one or more Supplements in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to add to the covenants of the Issuer in this Indenture
for the benefit of the Holders of one or more Series then Outstanding
or of one or more Series Enhancers if applicable, or to surrender any
right or power conferred upon the Issuer in this Indenture;
(ii) to cure any ambiguity, to correct or supplement any
provision in this Indenture which may be inconsistent with any other
provision in this Indenture, or to make any other provisions with
respect to matters or questions arising under this Indenture;
(iii) to correct or amplify the description of any property
at any time subject to the Lien of this Indenture, or better to
assure, convey and confirm unto the Indenture Trustee any property
subject or required to be subjected to the Lien of this Indenture, or
to subject additional property to the Lien of this Indenture;
(iv) to add to the conditions, limitations and restrictions
on the authorized amount, terms and purposes of issue, authentication
and delivery of the Notes, as herein set forth, or additional
conditions, limitations and restrictions thereafter to be observed by
the Issuer;
(v) to convey, transfer, assign, mortgage or pledge any
additional property to or with the Indenture Trustee;
(vi) to evidence the succession of the Indenture Trustee
pursuant to Article IX; or
(vii) to add any additional Events of Default.
Prior to the execution of any Supplement issued pursuant to this Section 1001,
the Issuer shall provide written notice to each Rating Agency setting forth in
general terms the substance of any such Supplement.
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(b) Promptly after the execution by the Issuer and the Indenture
Trustee of any Supplement pursuant to this Section, the Indenture Trustee shall
mail to all Noteholders of any affected Class then Outstanding, each Rating
Agency if applicable of an affected Series and each affected Series Enhancer if
applicable a notice setting forth in general terms the substance of such
Supplement, together with a copy of the text of such Supplement. Any failure of
the Issuer to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such Supplement.
Section 1002. SUPPLEMENTAL INDENTURES NOT CREATING A NEW SERIES WITH
CONSENT OF HOLDERS. (a) With the prior written consent of the Control Party of
each affected Series, the Issuer and the Indenture Trustee may enter into a
Supplement hereto for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Indenture or of modifying in
any manner the rights of the Holders under this Indenture; PROVIDED, HOWEVER,
that no such Supplement shall, without the consent of the Holder of each
Outstanding Note affected thereby:
(i) reduce the principal amount of any Note or the rate of
interest thereon, change the priority of any payments required
pursuant to this Indenture or any Supplement, or the date on which, or
the place of payment where, or the coin or currency in which, any Note
or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Final
Payment Date thereof;
(ii) reduce the percentage of Outstanding Notes required for
(a) the consent of any Supplement to this Indenture, (b) the consent
required for any waiver of compliance with certain provisions of this
Indenture or certain Events of Default hereunder and their
consequences as provided for in this Indenture or (c) the consent
required to waive any payment default on the Notes;
(iii) modify any of the provisions of this Section except to
increase any percentage provided herein, or to provide that certain
other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Note affected
thereby;
(iv) modify or alter the definition of the terms
"Outstanding," "Requisite Global Majority", "Control Party", or "Asset
Base" or "Depreciation Policy";
(v) impair or adversely affect the Collateral except as
otherwise permitted herein;
(vi) modify or alter Section 702(a) of this Indenture;
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(vii) permit the creation of any Lien ranking prior to or on
a parity with the Lien of this Indenture with respect to any part of
the Collateral or terminate the Lien of this Indenture on any property
at any time subject hereto or deprive the Holder of any Note of the
security afforded by the Lien of this Indenture; or
(viii) modify any of the provisions of this Indenture in such
a manner as to affect the amount or timing of any payments of interest
or principal due on any Note.
Prior to the execution of any Supplement issued pursuant to this Section 1002,
the Issuer shall provide a written notice to each Rating Agency (if applicable)
setting forth in general terms the substance of any such Supplement.
(b) Promptly after the execution by the Issuer and the Indenture
Trustee of any Supplement pursuant to this Section, the Issuer shall mail to all
Noteholders of any affected Class, each Rating Agency of an Affected Class (if
applicable) and the Series Enhancer (if applicable), a notice setting forth in
general terms the substance of such Supplement, together with a copy of the text
of such Supplement. Any failure of the Issuer to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such Supplement.
Section 1003. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or
accepting the additional trusts created by, a Supplement permitted by this
Article or the modification thereby of the trusts created by this Indenture, the
Indenture Trustee shall be entitled to receive, and shall be fully protected in
relying upon, an Opinion of Counsel stating that the execution of such
Supplement is authorized or permitted by this Indenture. The Indenture Trustee
may, but shall not be obligated to, enter into any such Supplement which affects
the Indenture Trustee's own rights, duties or immunities under this Indenture or
otherwise.
Section 1004. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution
of any Supplement under this Article, this Indenture shall be modified in
accordance therewith, and such Supplement shall form a part of this Indenture
for all purposes, and every Holder of Notes theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.
Section 1005. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES. Notes
authenticated and delivered after the execution of any Supplement pursuant to
this Article may, and shall if required by the Issuer, bear a notation in form
approved by the Indenture Trustee as to any matter provided for in such
Supplement. If the Issuer shall so determine, new Notes so modified as to
conform, in the opinion of the Indenture Trustee, may be prepared and executed
by the Issuer and authenticated and delivered by the Indenture Trustee in
exchange for Outstanding Notes.
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Section 1006. ISSUANCE OF SERIES OF NOTES. (a) The Issuer may from
time to time direct the Indenture Trustee to execute and authenticate one or
more Series of Notes (each, a "Series").
(b) On or before the Series Issuance Date relating to any Series,
the parties hereto will execute and deliver a Supplement which will specify the
Principal Terms of such Series. No Series of Notes shall be subordinated, in
right of payment or otherwise, to any other Series without the prior written
consent of each Noteholder of such Series. The terms of such Supplement may
modify or amend the terms of this Indenture solely as applied to such Series,
and, with the consent of the Control Party for any other Series, may amend this
Indenture as applicable to such other Series, in accordance with Section 1002
hereof. The obligation of the Indenture Trustee to authenticate, execute and
deliver the Notes of such Series and to execute and deliver the related
Supplement is subject to the satisfaction of the following conditions:
(i) on or before the tenth Business Day immediately
preceding the Series Issuance Date (unless the parties to be notified agree to a
shorter notice period), the Issuer shall have given the Indenture Trustee, the
Servicer, each Rating Agency for such Series and any Series Enhancer entitled
thereto pursuant to the relevant Supplement notice of the Series and the Series
Issuance Date;
(ii) the Issuer shall have delivered to the Indenture
Trustee the related Supplement, in form satisfactory to the Indenture Trustee,
executed by each party hereto other than the Indenture Trustee;
(iii) the Issuer shall have delivered to the Indenture
Trustee any related Enhancement Agreement executed by each of the parties
thereto and the Series Enhancer under such Enhancement Agreement shall have
acknowledged in writing the terms of the Administration Agreement;
(iv) if such Series would modify the terms of any other
Series previously issued and then Outstanding, then (i) the Control Party of
each affected Series shall have given its prior written consent, (ii) the terms
and conditions of Section 1002 shall have been complied with and (iii) the
Rating Agency Condition shall have been satisfied with respect to the other
affected Series;
(v) the Issuer shall have delivered to the Indenture
Trustee, each Rating Agency (if applicable), each Series Enhancer (if
applicable) and, if required, any Noteholder, any Opinions of Counsel required
by the related Supplement, including without limitation with respect to true
sale, enforceability, non-consolidation and security interest perfection issues;
and
(vi) such other conditions as shall be specified in the
related Supplement.
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Upon satisfaction of the above conditions, the Indenture Trustee shall execute
the Supplement and authenticate, execute and deliver the Notes of such Series.
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ARTICLE XI
HOLDERS LISTS
Section 1101. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES
OF HOLDERS. Unless otherwise provided in the related Supplement, Issuer will
furnish or cause to be furnished to the Indenture Trustee and each Series
Enhancer (as applicable) (but only with respect to any Series for which such
Series Enhancer (as applicable) has provided enhancement (i) not more than 10
days after receipt of a request from the Indenture Trustee, a list, in such form
as the Indenture Trustee may reasonably require, of the names and addresses and
tax identification numbers of the Holders of Notes as of such Date, and (ii) at
such other times as the Indenture Trustee may request in writing, within 30 days
after the receipt by the Issuer of any such request, a list of similar form and
content as of a date not more than 15 days prior to the time such list is
furnished; PROVIDED, HOWEVER, that so long as the Indenture Trustee maintains
the Note Register, no such lists shall be required to include the names and
addresses received by the Indenture Trustee in such capacity.
Section 1102. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
The Indenture Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Indenture Trustee as provided in Section 1101 and the
names and addresses of Holders received by the Indenture Trustee in its capacity
as note registrar. The Indenture Trustee may destroy any list furnished to it
as provided in Section 1101 upon receipt of a new list so furnished.
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ARTICLE XII
EARLY AMORTIZATION EVENT
Section 1201. EARLY AMORTIZATION EVENT. With respect to any Series,
as of any date of determination, the existence of any one of the following
events or conditions:
(1) The Outstanding Obligations of such Series on any Payment Date
(after giving effect to all payments of principal to be paid on
such Payment Date) exceeds the Asset Base of such Series for a
period of 10 consecutive Business Days without having been
cured; or
(2) The occurrence of an additional Early Amortization Event as
specified in the related Supplement for any Series.
The occurrence of an Early Amortization Event with respect to one
Series of Notes (that has not been waived by the related Control Party) shall
constitute an Early Amortization Event with respect to all other Series of Notes
then Outstanding unless waived by the Control Party for such other Series or
unless the related Supplement with respect to each such other Series of Notes
shall specifically provide to the contrary. If an Early Amortization Event with
respect to any Series exists on any Payment Date, then such Early Amortization
Event shall be deemed to continue until the Business Day on which the related
Control Party waives in writing such Early Amortization Event.
Section 1202. OTHER SERIES. If an Early Amortization Event with
respect to any Series exists on any Payment Date, any Excess Cash Available for
Distribution shall be paid, pro rata in accordance with the Outstanding
Obligations of all other Series, on such Payment Date for application to all
Outstanding Obligations until paid in full.
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ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 1301. COMPLIANCE CERTIFICATES AND OPINIONS. (a) Upon any
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture or any Supplement, the Issuer shall
furnish to the Indenture Trustee a certificate stating that all conditions
precedent, if any, provided for in this Indenture and any relevant Supplement
relating to the proposed action have been complied with and, if deemed
reasonably necessary by the Indenture Trustee or if required pursuant to the
terms of this Indenture, an Opinion of Counsel stating that in the opinion of
such counsel all such conditions precedent, if any, have been complied with,
except that in the case of any such application or request as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.
(b) Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each individual signing such
certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such
individual, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether
such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 1302. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE.
(a) In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
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(b) Any certificate or opinion may be based, insofar as it relates
to legal matters, upon a certificate or opinion of, or representations by,
counsel, unless such officer knows that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous.
(c) Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Section 1303. ACTS OF HOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture or any Supplement to be given or taken by Holders may be
(i) embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Holders in person or by an agent duly appointed in
writing, (ii) evidenced by the written consent or direction of Holders of the
specified percentage of the principal amount of the Notes, or (iii) evidenced by
a combination of such instrument or instruments; and, except as herein otherwise
expressly provided, such action shall become effective when such instrument or
instruments and record are delivered to the Indenture Trustee and, where it is
hereby expressly required, to the Issuer. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and conclusive in favor of the Indenture Trustee and
the Issuer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgements of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Indenture Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Indenture Trustee or the
Issuer in reliance thereon, whether or not notation of such action is made upon
such Note.
Section 1304. INSPECTION. (a) Upon reasonable request, the Issuer
agrees that it shall make available to any representative of the Indenture
Trustee, any Series Enhancer (if applicable) or the Administrative Agent and
their duly authorized representatives, attorneys or
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accountants, for inspection and copying its books of account, records and
reports relating to the Eligible Engines, the related Lease Agreements and the
other items of Collateral, all in the format which the Servicer uses for its own
operations. Such inspections shall be conducted during normal business hours
and shall not unreasonably disrupt the Servicer's business. Any expense
incident to the reasonable exercise by the Indenture Trustee, the Administrative
Agent, each Series Enhancer (if applicable) or any Noteholder of any right under
this Section shall be borne by the Person exercising such right unless an Event
of Default shall have occurred and then be continuing in which case such
expenses shall be borne by the Issuer.
(b) The Issuer also agrees (i) to make available on a
reasonable basis upon reasonable request to the Indenture Trustee,
Administrative Agent, any Series Enhancer (if applicable) or any prospective
owner a Servicing Officer for the purpose of answering reasonable questions
respecting recent developments affecting the Issuer and (ii) to instruct the
Servicer to allow the Indenture Trustee, Administrative Agent, any Series
Enhancer (if applicable) or any prospective owner to inspect the Servicer's
facilities upon reasonable request during normal business hours.
Section 1305. LIMITATION OF RIGHTS. Except as expressly set forth in
this Indenture, this Indenture shall be binding upon the Issuer, the Noteholders
and their respective successors and permitted assigns and shall not inure to the
benefit of any Person other than the parties hereto, the Noteholders and the
Servicer as provided herein. Notwithstanding the previous sentence, the parties
hereto, the Seller and the Servicer acknowledge that any Series Enhancer (if
applicable) for a Series of Notes is an express third party beneficiary hereof
entitled to enforce its rights hereunder as if actually a party hereto.
Section 1306. SEVERABILITY. If any provision of this Indenture is
held to be in conflict with any applicable statute or rule of law or is
otherwise held to be unenforceable for any reason whatsoever, such circumstances
shall not have the effect of rendering the provision in question inoperative or
unenforceable in any other case or circumstance, or of rendering any other
provision or provisions herein contained invalid, inoperative, or unenforceable
to any extent whatsoever.
The invalidity of any one or more phrases, sentences, clauses or
Sections of this Indenture contained, shall not affect the remaining portions of
this Indenture, or any part thereof.
Section 1307. NOTICES. All demands, notices and communications
hereunder shall be in writing, personally delivered, or by facsimile (with
subsequent telephone confirmation of receipt thereof), or sent by
internationally recognized overnight courier service, (a) in the case of the
Indenture Trustee, at the following address: 101 Barclay Street, 12th Floor
East, Asset Backed Finance Unit, New York, New York 10286, (b) in the case of
the Servicer, at the following address: 180 Harbor Drive, Suite 207, Sausalito,
California 94965, (c) in the case of the Issuer, at the following address: 180
Harbor Drive, Sausalito, California 94965, with a copy to the Servicer at the
address set forth in clause (b), (d) in the
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case of each Rating Agency (if applicable), its address set forth in the related
Supplement, in the case of any Series Enhancer (if applicable), at its address
set forth in the related Supplement, or at other such address as shall be
designated by such party in a written notice to the other parties. Any notice
required or permitted to be given to a Noteholder shall be given by certified
first class mail, postage prepaid (return receipt requested), or by courier, or
by facsimile, with subsequent telephone confirmation of receipt thereof, in each
case at the address of such Holder as shown in the Note Register or to the
telephone and fax number furnished by such Noteholder. Notice shall be
effective and deemed received (a) two days after being delivered to the courier
service, if sent by courier, (b) upon receipt of confirmation of transmission,
if sent by telecopy, or (c) when delivered, if delivered by hand. Any rights to
notices conveyed to a Rating Agency (if applicable) pursuant to the terms of
this Indenture with respect to any Series or Class shall terminate immediately
if such Rating Agency (if applicable) no longer has a rating outstanding with
respect to such Series or Class.
Section 1308. CONSENT TO JURISDICTION. Any legal suit, action or
proceeding against the Issuer arising out of or relating to this indenture, or
any transaction contemplated hereby, may be instituted in any federal or state
court in The City of New York, State of New York and the Issuer hereby waives
any objection which it may now or hereafter have to the laying of venue of any
such suit, action or proceeding, and, solely for the purposes of enforcing this
Indenture, the Issuer hereby irrevocably submits to the non-exclusive
jurisdiction of any such court in any such suit, action or proceeding. The
Issuer hereby irrevocably appoints and designates CT Corporation Systems having
an address at 1633 Broadway, New York, New York 10019, its true and lawful
attorney-in-fact and duly authorized agent for the limited purpose of accepting
servicing of legal process and the Issuer agrees that service of process upon
such party shall constitute personal service of such process on such Person.
The Issuer shall maintain the designation and appointment of such authorized
agent until all amounts payable under this Indenture shall have been paid in
full. If such agent shall cease to so act, each of the Agent and the Seller
shall immediately designate and appoint another such agent satisfactory to the
Indenture Trustee and shall promptly deliver to the Indenture Trustee evidence
in writing of such other agent's acceptance of such appointment.
Section 1309. CAPTIONS. The captions or headings in this Indenture
are for convenience only and in no way define, limit or describe the scope or
intent of any provisions or sections of this Indenture.
Section 1310. GOVERNING LAW. This Indenture shall be governed by and
interpreted in accordance with the laws of the State of New York, without giving
effect to the principles of conflicts of law.
Section 1311. NO PETITION. The Indenture Trustee, on its own behalf,
hereby covenants and agrees, and each Noteholder by its acquisition of a Note
shall be deemed to covenant and agree, that it will not institute against the
Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any federal or
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state bankruptcy or similar law, at any time other than on a date which is at
least one year and one day after the last date on which any Note of any Series
was Outstanding.
Section 1312. GENERAL INTERPRETIVE PRINCIPLES. For purposes of this
Indenture except as otherwise expressly provided or unless the context otherwise
requires:
(a) references herein to "Articles", "Sections", "Subsections",
"paragraphs", and other subdivisions without reference to a document are to
designated Articles, Sections, Subsections, paragraphs and other subdivisions of
this Indenture;
(b) a reference to a Subsection without further reference to a
Section is a reference to such Subsection as contained in the same Section in
which the reference appears, and this rule shall also apply to paragraphs and
other subdivisions;
(c) the words "herein", "hereof", "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
provision; and
(d) the term "include" or "including" shall mean without limitation
by reason of enumeration.
Section 1313. EFFECTIVE DATE OF TRANSACTION. Notwithstanding that
this Indenture is dated as of September 1, 1997, the various transfers,
conveyances and transactions set forth in this Indenture, including, without
limitation, the security interests granted pursuant to Section 401 hereof, shall
not be effective until the date on which this Indenture is actually executed by
the parties hereto.
Section 1314. COUNTERPARTS. This Indenture may be executed
simultaneously in any number of counterparts. Each counterpart shall be deemed
to be an original, and all such counterparts shall constitute one and the same
instrument.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Indenture to be duly executed and delivered by their respective officers
thereunto duly authorized, all as of the day and year first above written.
WLFC FUNDING CORPORATION
By: /s/ James D. McBride
Name: JAMES D. McBRIDE
Title: CHIEF FINANCIAL OFFICER
THE BANK OF NEW YORK, as indenture trustee
By: /s/ Cheryl L. Laser
Name: CHERYL L. LASER
Title: ASSISTANT VICE PRESIDENT
THE BANK OF NEW YORK, as securities intermediary
By: /s/ Cheryl L. Laser
Name: CHERYL L. LASER
Title: ASSISTANT VICE PRESIDENT
<PAGE>
SCHEDULE 1
"Applicable Percentage" means ___________ percent (__%).*
"Depreciation Percentage" means ___________ percent (__%).*
"Minimum Servicing Fee Percentage" means __________ percent (__%).*
- --------------------
* The redacted material on this Schedule has been omitted pursuant to a
request for confidential treatment and the material has been filed
separately.
<PAGE>
- --------------------------------------------------------------------------------
WLFC FUNDING CORPORATION
Issuer
and
THE BANK OF NEW YORK
Indenture Trustee
------------------------------
SERIES 1997-1 SUPPLEMENT
Dated as of September 1, 1997
to
INDENTURE
Dated as of September 1, 1997
------------------------------
SERIES 1997-1 NOTES
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I Definitions; Calculation Guidelines. . . . . . . . . . .5
Section 101. Definitions. . . . . . . . . . . . . . . . . . . . . . .5
Section 102. Calculation Guidelines . . . . . . . . . . . . . . . . 15
ARTICLE II Creation of the Series 1997-1 Notes. . . . . . . . . . 16
Section 201. Designation; General Terms and Conditions. . . . . . . 16
Section 202. Interest Payments on the Series 1997-1 Notes;
Selection and Determination of Interest Rates. . . . . 17
(a) Interest on Series 1997-1 Notes. . . . . . . . . . . . 17
(b) Default Interest . . . . . . . . . . . . . . . . . . . 17
(c) Determination of LIBOR . . . . . . . . . . . . . . . . 17
(d) Determination of Prime Period. . . . . . . . . . . . . 18
Section 203. Principal Payments on the Series 1997-1 Notes. . . . . 18
(b) Prepayment Premium . . . . . . . . . . . . . . . . . . 18
Section 204. Amounts and Terms of Series 1997-1 Noteholder
Commitments. . . . . . . . . . . . . . . . . . . . . . 18
Section 205. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 206. Increased Costs. . . . . . . . . . . . . . . . . . . . 21
Section 207. Capital Requirements . . . . . . . . . . . . . . . . . 21
ARTICLE III Series 1997-1 Series Account and Allocation and
Application of Amounts Therein . . . . . . . . . . . . 22
Section 301. Series 1997-1 Series Account . . . . . . . . . . . . . 22
Section 302. Distributions. . . . . . . . . . . . . . . . . . . . . 23
Section 303. Allocation of Excess Cash Available for Distribution . 26
Section 304. Series 1997-1 Restricted Cash Account. . . . . . . . . 26
Section 305. Series 1997-1 Engine Reserve Account . . . . . . . . . 26
<PAGE>
Section 306. Series 1997-1 Security Deposit Account . . . . . . . . 27
Section 307. Securities Accounts. . . . . . . . . . . . . . . . . . 27
ARTICLE IV Additional Covenants . . . . . . . . . . . . . . . . . 28
Section 401. Additional Series. . . . . . . . . . . . . . . . . . . 28
Section 402. Control Party. . . . . . . . . . . . . . . . . . . . . 28
Section 403. Inspections. . . . . . . . . . . . . . . . . . . . . . 28
Section 404. Reserved.. . . . . . . . . . . . . . . . . . . . . . . 28
Section 405. Interest Rate Hedge Agreements . . . . . . . . . . . . 28
Section 406. Insurance. . . . . . . . . . . . . . . . . . . . . . . 29
Section 407. Lessee Acknowledgment. . . . . . . . . . . . . . . . . 29
Section 408. Opinions of Foreign Local Counsel. . . . . . . . . . . 29
ARTICLE V Conditions of Effectiveness and Future Lending . . . . 30
Section 501. Effectiveness of Supplement. . . . . . . . . . . . . . 30
(a) Series 1997-1 Notes . . . . . . . . . . . . . . . . . . . . 30
(b) Certificate(s) of Secretary or Assistant Secretary. . . . . 30
(c) Security Documents. . . . . . . . . . . . . . . . . . . . . 30
(d) Opinions of Counsel.. . . . . . . . . . . . . . . . . . . . 30
(e) Series 1997-1 Transaction Documents.. . . . . . . . . . . . 31
(f) Good Standing Certificates. . . . . . . . . . . . . . . . . 31
(g) Establishment of Accounts . . . . . . . . . . . . . . . . . 31
(h) Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 502. Advances on Class A Notes. . . . . . . . . . . . . . . 31
(f) Security Documents. . . . . . . . . . . . . . . . . . . . . 32
(g) Certificate as to Eligible Engines. . . . . . . . . . . . . 32
ARTICLE VI Representations and Warranties. . . . . . . . . . . . . . . 34
<PAGE>
Section 601. Existence. . . . . . . . . . . . . . . . . . . . . . . 35
Section 602. Authorization. . . . . . . . . . . . . . . . . . . . . 35
Section 603. No Conflict; Legal Compliance. . . . . . . . . . . . . 35
Section 604. Validity and Binding Effect. . . . . . . . . . . . . . 35
Section 605. Financial Statements . . . . . . . . . . . . . . . . . 35
Section 606. Executive Offices. . . . . . . . . . . . . . . . . . . 36
Section 607. No Agreements or Contracts . . . . . . . . . . . . . . 36
Section 608. Consents and Approvals . . . . . . . . . . . . . . . . 36
Section 609. Margin Regulations . . . . . . . . . . . . . . . . . . 36
Section 610. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 611. Other Regulations. . . . . . . . . . . . . . . . . . . 37
Section 612. Solvency and Separateness. . . . . . . . . . . . . . . 37
Section 613. Survival of Representations and Warranties . . . . . . 38
Section 614. No Event of Default or Early Amortization Event. . . . 39
Section 615. Litigation and Contingent Liabilities. . . . . . . . . 39
Section 616. Title; Liens . . . . . . . . . . . . . . . . . . . . . 39
Section 617. Subsidiaries . . . . . . . . . . . . . . . . . . . . . 39
Section 618. No Partnership . . . . . . . . . . . . . . . . . . . . 39
Section 619. Pension and Welfare Plans. . . . . . . . . . . . . . . 39
Section 620. Ownership of Issuer. . . . . . . . . . . . . . . . . . 40
Section 621. Security Interest. . . . . . . . . . . . . . . . . . . 40
Section 622. Eligible Lease Agreements; Eligible Engines. . . . . . 40
ARTICLE VII EARLY AMORTIZATION EVENT . . . . . . . . . . . . . . . 40
Section 701. Early Amortization Event . . . . . . . . . . . . . . . 40
ARTICLE VIII Miscellaneous Provisions . . . . . . . . . . . . . . . 41
<PAGE>
Section 801. Ratification of Indenture. . . . . . . . . . . . . . . 41
Section 802. Counterparts . . . . . . . . . . . . . . . . . . . . . 41
Section 803. Governing Law. . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
<PAGE>
EXHIBITS
EXHIBIT A Form of Class A Note
EXHIBIT B Manufacturer, Engine Type, Concentration Guidelines
EXHIBIT C Lessee Acknowledgment
EXHIBIT D Asset Base Certificate
SCHEDULES
SCHEDULE 1 Certain Terms
SCHEDULE 2 Initial List of Engines and Lease Agreements
SERIES 1997-1 SUPPLEMENT, dated as of September 1, 1997 (the
"Supplement"), between WLFC Funding Corporation, a corporation
organized and existing under the laws of the State of Delaware (the
"Issuer"), and The Bank of New York, a New York banking corporation,
as Indenture Trustee (the "Indenture Trustee").
Pursuant to the Indenture, dated as of September 1, 1997 (as amended
and supplemented, the "Indenture"), between the Issuer and the Indenture
Trustee, the Issuer may from time to time direct the Indenture Trustee to
authenticate one or more new Series of Notes. The Principal Terms of any new
Series are to be set forth in a Supplement to the Indenture.
Pursuant to this Supplement, the Issuer and the Indenture Trustee
shall create a new Series of Notes and specify the Principal Terms thereof.
ARTICLE I
DEFINITIONS; CALCULATION GUIDELINES
Section 101. DEFINITIONS. (a) Capitalized terms used in this
Supplement but not defined herein shall have the meaning assigned to such terms
in the Indenture. Whenever used in this Supplement, the following words and
phrases shall have the following meanings, and the definitions of such terms are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms.
"ADJUSTED LIBOR" means, for each LIBOR Period in respect of LIBOR
Loans, an interest rate per annum (rounded upward to the nearest 1/16th of one
percent (0.0625%)) determined pursuant to the following formula:
Adjusted LIBOR = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
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"ADMINISTRATIVE AGENT FEE" means the fee payable by the Issuer to the
Administrative Agent pursuant to Section 204(e) hereof.
"APPLICABLE MARGIN" has the meaning set forth in Schedule 1.
"APPLICABLE PERCENTAGE" has the meaning set forth in Schedule 1.
"CLASS A NOTE" means any one of the Class A Notes of Series 1997-1
issued pursuant to the terms of this Supplement, substantially in the form of
Exhibit A to this Supplement.
"CLASS A NOTE COMMITMENT" has the meaning set forth in Schedule 1.
"CLASS A NOTE INTEREST ARREARAGE" means, for any Payment Date, an
amount equal to the excess, if any, of (a) the Class A Note Interest Payment for
such Payment Date and any outstanding Class A Note Interest Arrearage from the
immediately preceding Payment Date plus interest on any outstanding Class A Note
Interest Arrearage, to the extent permitted by law, at the Overdue Rate over (b)
the amount of Class A Note Interest Payment and Class A Note Interest Arrearage
actually distributed to the Class A Noteholders on such Payment Date.
"CLASS A NOTE INTEREST PAYMENT" means the amount of interest payable
to the Class A Noteholders pursuant to the provisions of Section 202(a) hereof.
"CLASS A NOTE PRINCIPAL PAYMENT" means, for any Payment Date, one of
the amounts set forth in (A) or (B):
(A) If no Early Amortization Event has occurred or is continuing on
such Payment Date, an amount equal to the excess, if any, of (1) the sum of
(A) the product of (i) ninety percent (90%) and (ii) all Engine Revenues
actually received by, or on behalf of, the Issuer during the related
Collection Period with respect to the Series 1997-1 Eligible Engines and
(B) the product of (x) a fraction, expressed as a percentage, the numerator
of which shall equal the Class A Note Principal Balance (prior to giving
effect to any payments of principal on such Payment Date) and the
denominator of which shall equal the sum of the Net Book Values of all
Series 1997-1 Eligible Engines (calculated as of the last day of the
immediately preceding month); PROVIDED, HOWEVER, that if the Class A Note
Principal Balance is less than $15,000,000, then such percentage shall be
90% and (y) the greater of (i) the sum of the Net Book Values of all Series
1997-1 Eligible Engines sold during the related Collection Period (which
Net Book Values will be determined as of the last day of the month
immediately preceding such sale), and (ii) the aggregate Sales Proceeds of
all Series 1997-1 Eligible Engines sold during the related Collection
Period, over (2) the amount paid pursuant to clauses (A) through (H)
inclusive, of Section 302(I) hereof; or
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(B) If an Early Amortization Event is continuing, all remaining
amounts on deposit in the Series 1997-1 Series Account after payment of the
amounts set forth in clauses (A) through (G), inclusive, of Section 302(II)
of this Supplement, until the Class A Note Principal Balance is reduced to
zero.
"CLASS A NOTE PRINCIPAL BALANCE" means an amount equal to the excess
of (x) the sum of (A) the outstanding principal balance of the Class A Notes on
the Closing Date plus (B) the principal balance of all Loans made subsequent to
the Closing Date, over (y) all amounts paid to the Class A Noteholders
representing the sum of the following, to the extent actually received by the
Class A Noteholders: (i) Class A Note Principal Payments, (ii) Prepayments paid
to the Class A Noteholders, and (iii) repayments of the Class A Note Principal
Balance made pursuant to Section 204(c) hereof.
"CLASS A NOTE PURCHASE AGREEMENT" means the Class A Note Purchase
Agreement, dated as of September 1, 1997, among the Issuer, the Servicer and
FUNB, as the initial Class A Noteholder.
"CLASS A NOTEHOLDER(s)" means, at any time of determination for the
Series 1997-1 Notes, any person in whose name a Class A Note is registered in
the Note Register.
"CLOSING" means the time at which each of the conditions precedent set
forth in Section 502 of this Supplement (with respect to the initial Loan made
hereunder by the Class A Noteholder) shall have been duly fulfilled or
satisfied.
"CLOSING DATE" means the date on which Closing occurs.
"COMMITMENT FEE" means the fee payable by the Issuer to the Class A
Noteholders pursuant to Section 204(d) hereof.
"CONTROL PARTY" shall be determined in accordance with Section 402 of
this Supplement.
"CONVERSION DATE" means the Payment Date occurring on the first annual
anniversary of the initial Payment Date; PROVIDED, HOWEVER, that such Conversion
Date may be extended annually by the Issuer for a one year period if approved by
all of the Holders of the Class A Notes.
"DEFAULT INTEREST" is defined in Section 202(b) of this Supplement.
"DOLLARS" and the sign "$" means lawful money of the United States of
America.
"EFFECTIVE DATE" means the date on which each of the conditions
precedent set forth in Section 501 of this Supplement shall have been duly
fulfilled or satisfied.
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"ELIGIBLE ENGINE" means any Engine which, individually or when
considered with all Eligible Engines then owned by Issuer, as applicable, shall
comply with each of the following requirements, unless any of such requirements
is waived in writing by the Administrative Agent:
(i) ELIGIBLE LEASE. Each Engine is subject to an Eligible
Lease on the related Transfer Date; and
(ii) ENGINE REPRESENTATIONS AND WARRANTIES. Each Engine
complies with the Engine Representations and Warranties on the related Transfer
Date; and
(iii) CASUALTY LOSS. No Casualty Loss shall have been suffered
by the related Engine; and
(iv) DEPRECIATION POLICY. The depreciation method utilized in
calculating the Net Book Value of such Engine as of such Transfer Date is the
Depreciation Policy.
"ELIGIBLE LEASE" means each Lease Agreement that encumbers an Engine
on any Transfer Date or that encumbers an Eligible Engine on any date thereafter
that complies with all of the following requirements unless any of such
requirements is waived in writing by the Administrative Agent:
(i) DELINQUENCIES. No Scheduled Payment on such Lease
Agreement is delinquent for more than 30 days as of the related Transfer Date;
(ii) VALID CONTRACT. Each Lease Agreement is a legal, valid
and binding full recourse payment obligation of the related Lessee, is
enforceable in accordance with its terms (except as may be limited by applicable
insolvency, bankruptcy, moratorium, reorganization, or other similar laws
affecting enforceability of creditors' rights generally and the availability of
equitable remedies) and is in full force and effect and such Lease Agreement has
not been satisfied, subordinated or rescinded;
(iii) HELL-OR-HIGH WATER OBLIGATION. The Lessee's obligations
under each Lease Agreement are non-cancelable and unconditional and not subject
to any right of set-off, counterclaim, reduction or recoupment;
(iv) NET LEASE. Each Lease Agreement contains provisions
requiring the related Lessee to pay all sales, use, excise, rental, property or
similar taxes imposed on or with respect to the Engine and to assume all risk of
loss or malfunction of the related Engine; each Lease Agreement requires the
Lessee to maintain the Engine in good and workable order and as are necessary to
maintain the Engine's serviceability standards pursuant to FAA requirements or
requirements of other appropriate Governmental Authorities;
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(v) LEGAL CAPACITY. The Lessee had the legal capacity to
execute such Lease Agreement and the Seller had the legal capacity to execute
such Lease Agreement or the related acquisition documentation, as the case may
be;
(vi) U.S. DOLLARS. All payments under each Lease Agreement
are required to be made in United States dollars;
(vii) NO CONSENT. No Lease Agreement requires the prior
written consent of a Lessee or contains another restriction relating to the
transfer or assignment of such Lease Agreement by Seller or the Issuer (except
such consent as have been obtained or restrictions satisfied on or prior to the
related Transfer Date);
(viii) SCHEDULED PAYMENTS. Each Lease Agreement provides for
the payment of Scheduled Payments on a basis no less frequently than quarterly;
(ix) PREPAYMENT. As of the Transfer Date, no Scheduled
Payment under any Lease Agreement has been prepaid;
(x) CUSTOMARY PRACTICES. The Lease Agreement was originated
or acquired by the Seller in the ordinary course of its business;
(xi) BANKRUPT LESSEE. On the Transfer Date, the related Engine
is not subject to a Lease Agreement with a Lessee that is subject to an
Insolvency Proceeding;
(xii) INSURANCE. The Lease Agreement requires the Lessee to
provide liability insurance, all risk ground and flight hull and engine coverage
for damage/loss of engine, war risk, and where requested by the Administrative
Agent, governmental confiscation and expropriation insurance coverage with
acceptable deductibles, all of which shall name the Indenture Trustee as
additional insured and first loss payee; and
(xiii) GEOGRAPHIC OPERATING RESTRICTIONS. In the related Lease
Agreement the Lessee agrees not to operate the aircraft and not to be based in
any jurisdiction excluded from the insurance coverage referred to in item (xii)
above.
"ENGINE TYPE EXCESS CONCENTRATION AMOUNT" means at any date of
determination, the dollar amount, if any, by which the sum of the Net Book
Values of all Eligible Engines (relating to Loans hereunder) of the same engine
type exceeds the applicable concentration limits set forth in Section 502(o)
hereof.
"EURODOLLAR RESERVE PERCENTAGE" means the maximum reserve percentage
(expressed as a decimal, rounded upward to the nearest 1/100th of one percent
(0.01%)) in effect from time to time determined (whether or not applicable to
any Class A Noteholder) under regulations issued by the Federal Reserve Board
for determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to Eurocurrency
liabilities having a term comparable to such LIBOR Loan.
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"EXCESS CONCENTRATION AMOUNT" means, at any date of determination, an
amount equal to the highest of the Engine Type Excess Concentration Amount, the
Single Lessee Excess Concentration Amount, the Three Lessee Excess Concentration
Amount, the Geographic Region Excess Concentration Amount and the Wide Body
Aircraft Excess Concentration Amount.
"EXISTING AND POSSIBLE LOANS" means Loans outstanding hereunder and
Loans proposed to be made on any Transfer Date.
"FEDERAL RESERVE BOARD" means the Board of Governors of the Federal
Reserve System or any successor thereto.
"FINAL PAYMENT DATE" means, with respect to Series 1997-1 Notes, the
date which is the seventh annual anniversary of the Conversion Date, or if such
date is not a Business Day, the Business Day immediately succeeding such date.
"FUNB" means First Union National Bank of North Carolina.
"GEOGRAPHIC REGION EXCESS CONCENTRATION AMOUNT" means at any date of
determination, the dollar amount, if any, by which the sum of the Net Book
Values of all Eligible Engines (relating to Loans hereunder) subject to a Lease
Agreement with Lessees having corporate headquarters located in the geographic
areas set forth in Section 502(r) hereof exceeds the applicable concentration
limits set forth in Section 502(r) hereof.
"GUARANTOR" means Willis Lease Finance Corporation and its successors
and permitted assigns.
"GUARANTY" means that certain Guaranty, dated as of September 1, 1997
made by the Guarantor in favor of First Union National Bank of North Carolina,
together with its successors and assigns.
"INCREASED COSTS" means any fee, expense or increased cost charged to
a Class A Noteholder on account of the adoption of any applicable law, rule or
regulation (including any applicable law, rule, or regulation regarding capital
adequacy) or any change therein, or any change in the interpretation or
administration thereof by any Governmental Authority as provided by Sections 206
and 207 of this Supplement.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 205(a)
hereof.
"INDENTURE COMPLIANCE CERTIFICATE" means the certificate of the Issuer
given pursuant to Section 502(c) hereof.
"INTEREST DIFFERENTIAL" means, with respect to any prepayment of a
LIBOR Loan on a day other than a Payment Date, the difference between (a) the
Adjusted LIBOR for
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the LIBOR Loan as of the date of the Prepayment and (b) the Adjusted LIBOR on,
or as near as practicable to, the date of the Prepayment commencing on such date
and ending on the last day of the applicable LIBOR Period. The determination of
the Interest Differential by a Series 1997-1 Noteholder shall be conclusive in
the absence of manifest error.
"INTEREST PERIOD" means any LIBOR Period or any Prime Period, as the
case may be.
"LEASE AGREEMENT" means any lease agreement entered into from time to
time by the Issuer, either directly or pursuant to an assignment, pursuant to
which the Issuer leases one or more Eligible Engines, as identified on Schedule
2 hereto, and any substitutions and replacements therefor made in accordance
with the Series 1997-1 Transaction Documents.
"LIBOR" means an interest rate per annum equal to the London
Inter-Bank Offered Rate (determined in accordance with Section 202(c) of this
Supplement, rounded upward to the nearest 1/16th of one percent (0.0625%).
"LIBOR DETERMINATION DATE" means the third Business Day prior to the
day on which the Class A Noteholders make or continue a LIBOR Loan.
"LIBOR LOAN" means any loan by, or on behalf of, the Class A
Noteholders which utilizes Adjusted LIBOR as a measurement of interest payable
thereon.
"LIBOR PERIOD" means the thirty (30) day, sixty (60) day, ninety (90)
day or one hundred eighty (180) day period selected in accordance with Section
202(c) hereof.
"LOAN" means an extension of credit made by the Class A Noteholders
pursuant to Section 204 hereof and may mean a Prime Loan or a LIBOR Loan
depending on the context.
"MAJORITY OF HOLDERS" means, with respect to the Series 1997-1 Notes,
Class A Noteholders representing more than fifty percent (50%) of the unpaid
principal balance of the Class A Notes then Outstanding.
"ON-LEASE PERCENTAGE" means, a fraction, expressed as a percentage,
the numerator of which is equal to the Net Book Value of all Eligible Engines
(relating to Loans hereunder) subject to a Lease Agreement and the denominator
of which is equal to the sum of the Net Book Values of all Eligible Engines
(relating to Loans hereunder).
"OTHER TAXES" shall have the meaning set forth in Section 205(b) of
this Supplement.
"OVERDUE RATE" means, with respect to any Notes, an interest rate per
annum equal to the sum of (i) the interest rate per annum that would have
otherwise been in effect with respect to such Loan plus (ii) two percent (2%).
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"PAYMENT DATE" means, with respect to the Series 1997-1 Notes, the
fifteenth day of each month, or, if such day is not a Business Day, the
immediately following Business Day; PROVIDED, HOWEVER, that the initial Payment
Date shall be the fifteenth day of the second month immediately succeeding the
Closing Date, or if such day is not a Business Day, the immediately following
Business Day.
"PREPAYMENT" means any mandatory or optional prepayment of principal
of Notes including, without limitation, any Prepayment pursuant to Section 702
of the Indenture.
"PRIME LOAN" means any Loan which utilizes the Prime Rate as a
measurement of interest payable thereon.
"PRIME PERIOD" means a period of less than one month and ending on a
Payment Date as such period is selected in accordance with Section 202(d)
hereof.
"PRIME RATE" means the "prime rate" of interest per annum in effect
from time to time as such rate is publicly announced by FUNB; PROVIDED, HOWEVER,
that for purposes of calculating the Class A Note Interest Payment, for the
period commencing on each Determination Date and ending on (but excluding) the
next succeeding Payment Date, the Prime Rate shall equal the rate in effect on
such Determination Date.
"REFERENCE BANKS" means leading banks in the New York market
designated by the Administrative Agent in accordance with Section 202(c) of this
Supplement.
"SECURITIES ACCOUNTS" means the Series 1997-1 Series Account and the
Series 1997-1 Restricted Cash Account.
"SECURITIES INTERMEDIARY" means The Bank of New York, a New York
banking corporation, as securities intermediary (as such term is defined under
UCC Section 8-102(a)(14)) with respect to the Securities Accounts.
"SERIES COLLATERAL" shall have the meaning set forth in Section 201
hereof.
"SERIES 1997-1" shall mean the Series of Notes the terms of which are
specified in this Supplement.
"SERIES 1997-1 ELIGIBLE ENGINES" shall mean the Eligible Engines
identified on Schedule 2 hereto, and any substitutions and replacements therefor
made in accordance with the Series 1997-1 Transaction Documents.
"SERIES 1997-1 ENGINE RESERVE ACCOUNT" means the subaccount
established by the Issuer with the Indenture Trustee into which Maintenance
Reserve Payments are deposited pursuant to Section 308 of the Indenture and
Section 305 hereof.
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"SERIES 1997-1 NOTEHOLDER" shall mean the Person in whose name a
Series 1997-1 Note is registered in the Note Register.
"SERIES 1997-1 NOTES" means the Class A Notes, and shall include any
and all replacements, extensions, substitutions or renewals of such notes.
"SERIES 1997-1 RESTRICTED CASH ACCOUNT" means the subaccount
(designated as such) of the account established pursuant to Section 307 of the
Indenture.
"SERIES 1997-1 RESTRICTED CASH AMOUNT" means the amount required to be
deposited or maintained in the Series 1997-1 Restricted Cash Account, which on
the date on which the initial Loan is made and on any Payment Date thereafter
shall be equal to the product of (x) two percent (2%) and (y) the Class A Note
Principal Balance on such date on which the initial Loan is made or on such
Payment Date, as the case may be (after giving effect to all Loans made on such
date on which the initial Loan is made or on such Payment Date and all Class A
Note Principal Payments actually paid on such date on which the initial Loan is
made or on such Payment Date).
"SERIES 1997-1 SECURITY DEPOSIT ACCOUNT" means the subaccount
established by the Issuer with the Indenture Trustee into which Security
Deposits are deposited pursuant to Section 309 of the Indenture and Section 306
hereof.
"SERIES 1997-1 SERIES ACCOUNT" means the account established by the
Issuer with the Indenture Trustee into which funds are deposited from the Trust
Account pursuant to Section 303 of the Indenture.
"SERIES 1997-1 TRANSACTION DOCUMENTS" means any and all of the
Indenture, this Supplement, the Series 1997-1 Notes, the Servicing Agreement,
the Contribution and Sale Agreement, the Class A Note Purchase Agreement, the
Administration Agreement and any and all other agreements, documents and
instruments executed and delivered by or on behalf or in support of Issuer with
respect to the issuance and sale of the Series 1997-1 Notes, as any of the
foregoing may from time to time be amended, modified, supplemented or renewed.
"SERVICER ADVANCE" means all extraordinary out of pocket payments
payable pursuant to Section 3.04 of the Servicing Agreement and made by the
Servicer which have been authorized by the Administrative Agent.
"SERVICER REPORT" means, with respect to Series 1997-1, the monthly
report prepared by the Servicer in the form set forth in Exhibit A to the
Servicing Agreement.
"SERVICING FEE" has the meaning set forth in Schedule 1.
"SINGLE LESSEE EXCESS CONCENTRATION AMOUNT" means at any date of
determination, the dollar amount, if any, by which the aggregate of the sum of
the Net Book Values of all Eligible Engines (relating to Loans hereunder) that
are subject to a Lease
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Agreement with any single Lessee (including Affiliates thereof) exceeds the
applicable concentration limits set forth in Section 502(p) hereof.
"SINGLE LESSEE PERCENTAGE" has the meaning set forth in Schedule 1.
"STRUCTURING FEE LETTER AGREEMENT" means that certain letter
agreement, dated as of December 19, 1997 between the Administrative Agent and
the Issuer.
"TARGET EBIT RATIO" has the meaning set forth in Schedule 1.
"TARGET ONE YEAR LEASE EXPIRY CONCENTRATION PERCENTAGE" has the
meaning set forth in Schedule 1.
"TARGET TWO YEAR LEASE EXPIRY CONCENTRATION PERCENTAGE" has the
meaning set forth in Schedule 1.
"TAXES" shall have the meaning set forth in Section 205(a) of this
Supplement.
"THREE LESSEE EXCESS CONCENTRATION AMOUNT" means at any date of
determination, the dollar amount, if any, by which the sum of the Net Book
Values of all Eligible Engines (relating to Loans hereunder) that are subject to
a Lease Agreement with the three (3) largest Lessees with respect to aggregate
Net Book Values (including Affiliates thereof) exceeds the applicable
concentration limits set forth in Section 502(q) hereof.
"THREE LESSEE PERCENTAGE" has the meaning set forth in Schedule 1.
"WEIGHTED AVERAGE LEASE RATE PERCENTAGE" has the meaning set forth in
Schedule 1.
"WIDE BODY AIRCRAFT EXCESS CONCENTRATION AMOUNT" means, at any date of
determination, the dollar amount, if any, by which the sum of the Net Book
Values of all Eligible Engines (relating to Loans hereunder) designed to power
Wide Body Aircraft exceeds the applicable concentration limits set forth in
Section 502(s) hereof.
"WIDE BODY AIRCRAFT PERCENTAGE" has the meaning set forth in Schedule
1.
(b) Capitalized terms used herein and not otherwise defined shall
have the meaning set forth in the Indenture.
Section 102. CALCULATION GUIDELINES. For purposes of calculating
the Class A Note Interest Payment, the following calculation guidelines shall
apply:
(1) The interest calculation for any LIBOR Loan shall be calculated
based on the actual number of days elapsed in a year consisting of 360
days;
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(2) The interest calculation for any Prime Loan shall be based on the
actual number of days elapsed in a year consisting of 365 days or 366 days,
as appropriate; and
(3) The Class A Note Principal Balance shall at all times be equal to
the sum of all Loans then outstanding.
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ARTICLE II
CREATION OF THE SERIES 1997-1 NOTES
Section 201. DESIGNATION; GENERAL TERMS AND CONDITIONS. (a) There
is hereby created a Series of Notes to be issued in one Class pursuant to the
Indenture and this Supplement to be known respectively as the "WLFC Funding
Corporation Secured Notes, Series 1997-1, Class A". The Series 1997-1 Notes
shall not be rated by any Rating Agency as of the Effective Date.
(b) The Payment Date with respect to the Series 1997-1 Notes shall be
the fifteenth day of each month, or, if such day is not a Business Day, the
immediately following Business Day; PROVIDED, HOWEVER, that the initial Payment
Date shall be the fifteenth day of the second month immediately succeeding the
Closing Date, or if such day is not a Business Day, the immediately following
Business Day.
(c) The Class A Notes shall be issued in definitive form
substantially in the form of Exhibit A hereto.
(d) Payments of principal and interest on the Series 1997-1 Notes
shall be payable solely from funds on deposit in the Series 1997-1 Series
Account or otherwise at the times and in the amounts set forth in Article III of
this Supplement.
(e) In furtherance of, and in addition to the property identified in,
the Granting Clause set forth in the Indenture, as it relates to this
Supplement, the Issuer hereby grants to the Indenture Trustee, for the benefit
of the Series 1997-1 Noteholders, a security interest in all of Issuer's right,
title and interest in and to (i) each of the Series 1997-1 Eligible Engines,
(ii) the Lease Agreements that encumber the Series 1997-1 Eligible Engines on
the Closing Date or on any date thereafter, (iii) the Series 1997-1 Series
Account, the Series 1997-1 Engine Reserve Account, the Series 1997-1 Security
Deposit Account and the Series 1997-1 Restricted Cash Account and all amounts
and Eligible Investments from time to time on deposit therein and (iv) all
income, payments and proceeds of the foregoing (all such property identified in
this Section 201(e), collectively, the "Series Collateral"). Such Series
Collateral (except as set forth in Section 401(d) of the Indenture with respect
to Excess Cash Available for Distribution) shall not be available to pay any
other Aggregate Outstanding Obligations until all Outstanding Obligations under
this Supplement have been paid in full.
(f) In the event that any term or provision contained herein shall
conflict with or be inconsistent with any term or provision contained in the
Indenture, the terms and provisions of this Supplement shall govern.
(g) The Series 1997-1 Notes created hereunder are not securities
under federal or state securities laws, but evidence the Issuer's obligation in
accordance with the terms hereof, to repay an extension of credit constituting
the Loans made to the Issuer by the Series 1997-1 Noteholders.
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Section 202. INTEREST PAYMENTS ON THE SERIES 1997-1 NOTES; SELECTION
AND DETERMINATION OF INTEREST RATES.
(a) INTEREST ON SERIES 1997-1 NOTES. Each Loan shall bear interest
on the outstanding principal amount thereof from the date when made, continued
or converted until paid in full at a rate per annum equal to the Prime Rate or
the Adjusted LIBOR, as the case may be, PLUS the Applicable Margin. Any notice
not specifying the type of Loan shall be deemed a request for a Prime Loan.
(b) DEFAULT INTEREST. Upon the occurrence of an Event of Default
with respect to the Series 1997-1 Notes, the Issuer shall, pursuant to Section
302 hereof, from time to time pay interest ("Default Interest") in accordance
with the terms of the Indenture, at a rate per annum equal to the Overdue Rate,
for the period during which such amounts shall remain unpaid.
(c) DETERMINATION OF LIBOR.
(i) On or prior to each LIBOR Determination Date, the Issuer
shall provide written notice to the Administrative Agent indicating whether the
LIBOR Period shall be a thirty (30) day, sixty (60) day, ninety (90) day, or one
hundred eighty (180) day period, and on each LIBOR Determination Date the
Administrative Agent shall determine LIBOR based on (i) such thirty (30) day,
sixty (60) day, ninety (90) day, or one hundred eighty (180) day period, as the
case may be and (ii) the offered LIBOR quotations, appearing on Telerate Page
3750 as of 11:00 a.m., London time, on such LIBOR Determination Date. If such
rate does not appear on Telerate Page 3750, the rate for that day will be
determined on the basis of the rates at which deposits in U.S. dollars are
offered by the Reference Banks at approximately 10:00 a.m., North Carolina time,
on the LIBOR Determination Date to prime banks in the London interbank market
for such period commencing on that day. The Administrative Agent will request
the principal London office of each of the Reference Banks to provide a
quotation of its rate. If at least two such quotations are provided from the
Reference Banks, the rate for that day will be the arithmetic mean of the
quotations provided by the Reference Banks.
(ii) If necessary, on each LIBOR Determination Date, the
Administrative Agent shall designate the banks that shall act as the Reference
Banks for the succeeding LIBOR Period. The Administrative Agent may
conclusively rely and shall be protected in relying upon the offered quotations
(whether electronic, written or oral) of the selected Reference Banks.
(iii) The establishment of LIBOR, and the subsequent
calculation of the interest rate for each LIBOR Loan by the Administrative Agent
in the absence of manifest error, shall be final and binding.
(d) DETERMINATION OF PRIME PERIOD. The Issuer shall be entitled to
select each Prime Period (subject to the limitations set forth in such
definition).
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(e) MAXIMUM NUMBER OF INTEREST PERIODS. There shall be no more than
five different Interest Periods outstanding at any one time.
Section 203. PRINCIPAL PAYMENTS ON THE SERIES 1997-1 NOTES.
(a) SCHEDULED AMORTIZATION OF SERIES 1997-1 NOTES. Principal of the
Series 1997-1 Notes shall be payable on each Payment Date in the amount of the
Class A Note Principal Payment from amounts on deposit in the Series 1997-1
Series Account (and on the Final Payment Date, from amounts on deposit in the
Series 1997-1 Restricted Cash Account) in accordance with Section 302 of this
Supplement. The unpaid principal amount of the Series 1997-1 Notes shall be due
and payable in full on the Final Payment Date, together with all unpaid
interest, fees, expenses, costs and other amounts payable by the Issuer pursuant
to the terms of the Indenture and this Supplement.
(b) PREPAYMENT PREMIUM. In the event that Issuer prepays or is
required to prepay any LIBOR Loan by acceleration or otherwise, Issuer agrees to
reimburse each Series 1997-1 Noteholder for its expenses and loss of anticipated
profits due to such prepayment. Issuer hereby agrees that such expenses and
loss of anticipated profits shall consist of the sum of the following amounts
for each month in which such LIBOR Loan would have been outstanding, calculated
as follows for each such month:
(i) principal amount of such LIBOR Loan TIMES (number of days
between the date of prepayment and the last day in the applicable LIBOR Period
DIVIDED by 360), TIMES the applicable Interest Differential; plus
(ii) all actual out-of-pocket expenses (other than those taken
into account in the calculation of the Interest Differential) incurred by the
Series 1997-1 Noteholders (EXCLUDING allocations of any expense internal to the
Series 1997-1 Noteholders) and reasonably attributable to such prepayment;
PROVIDED that no prepayment fee shall be payable (and no credit or rebate shall
be required) if the product of the foregoing formula is not a positive number.
Section 204. AMOUNTS AND TERMS OF SERIES 1997-1 NOTEHOLDER
COMMITMENTS.
(a) Subject to the terms and conditions of this Supplement and the
Class A Note Purchase Agreement, the Class A Note Commitment shall be available
to the Issuer on and after the Closing Date until the Conversion Date.
(b) Prior to the Conversion Date, the Class A Note shall be a
revolving note with a maximum principal amount equal to the Class A Note
Commitment then in effect; provided, however, that at no time shall the Class A
Note Principal Balance exceed the Asset Base for this Series 1997-1. The
Administrative Agent shall maintain a record of all Loans and repayments made on
the Class A Note and absent manifest error such records shall be conclusive. On
any date requested by the Issuer, after the Issuer shall have satisfied all
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applicable conditions precedent set forth in Article V hereof, each Series
1997-1 Class A Noteholder shall, at the Issuer's request for a Prime Loan or a
LIBOR Loan as specified in a notice given to the Administrative Agent in
accordance with the terms of the Class A Note Purchase Agreement, make payment
thereof (in proportion to its respective commitment) in an amount equal to (i)
the Applicable Percentage of the Net Purchase Price for the Eligible Engines
pledged as collateral for such Loan and, with respect to any Capital
Improvements, (ii) the Applicable Percentage of the value of Capital
Improvements made to the Eligible Engines pledged as collateral for such Loan,
as determined in accordance with GAAP, and in accordance with the written
direction of the Issuer by wire transfer in immediately available funds not
later than 1:00 p.m. North Carolina time; provided, that each request for an
advance of principal of the Class A Note shall, subject to the Class A Note
Commitment then in effect, be in a minimum aggregate amount of One Million
Dollars ($1,000,000); and provided further that one advance may be in an amount
less than One Million Dollars ($1,000,000). The Issuer shall pay interest on
the Class A Notes at the rates and in the manner set forth in Section 202
hereof. The unpaid principal amount of the Class A Notes and all unpaid
interest accrued thereon, together with any unpaid Commitment Fee and all other
fees, expenses, costs and other sums chargeable to the Issuer incurred in
connection therewith, shall be due and payable on the Final Payment Date.
Each request for a Loan shall constitute a reaffirmation by the Issuer
that (1) no Event of Default or Early Amortization Event has occurred and is
continuing and (2) the representations and warranties contained in the Series
1997-1 Transaction Documents are true, correct and complete in all material
respects to the same extent as though made on and as of the date of the request,
except to the extent such representations and warranties specifically relate to
an earlier date, in which event they shall be true, correct and complete in all
material respects as of such earlier date.
(c) The Issuer may, on any Payment Date or on the maturity date of
any LIBOR Loan, repay all or any portion of the Class A Note Principal Balance
after the Issuer specifies in a notice given to the Administrative Agent in
accordance with the terms of this Supplement, by making a wire transfer to the
Series 1997-1 Class A Noteholders, pro rata, in accordance with the outstanding
principal amount thereof; PROVIDED, HOWEVER, that the Issuer may not make such
repayment from funds in the Series 1997-1 Restricted Cash Account unless the
Issuer is repaying all of the Class A Note Principal Balance.
(d) Prior to the Conversion Date, the Issuer shall pay on each
quarterly Payment Date a Commitment Fee to Class A Noteholders as set forth in
Schedule 1.
(e) The Issuer shall pay on each quarterly Payment Date, beginning
with the third Payment Date, an Administrative Agent Fee to the Administrative
Agent as set forth in Schedule 1.
(f) If upon the maturity of any LIBOR Loan, such LIBOR Loan has not
been repaid in full and the Issuer has failed to select a new LIBOR Loan, the
Issuer shall be
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deemed to have renewed such LIBOR Loan as of such maturity date and the LIBOR
Period for such LIBOR Loan shall be thirty (30) days.
(g) Each Loan shall be either a Prime Loan or a LIBOR Loan as shall
be selected by the Issuer, except as otherwise provided herein. During any
period that any Event of Default shall occur and be continuing, the Issuer shall
no longer have the option of electing LIBOR Loans, and all Loans made during
such period shall be Prime Loans only; provided that any outstanding LIBOR Loans
shall remain LIBOR Loans.
Section 205. TAXES.
(a) In addition to payments of principal and interest on the Series
1997-1 Notes when due, the Issuer shall pay, but only in accordance with the
priorities for distributions set forth in Section 302 of this Supplement, any
and all present or future taxes, fees, duties, levies, imposts, or charges, or
any other similar deduction or withholding, whatsoever imposed by any
Governmental Authority, and all liabilities with respect thereto, excluding, in
the case of each Series 1997-1 Noteholder and any Person to whom a Series 1997-1
Noteholder has sold an interest in the Series 1997-1 Note owned by such Series
1997-1 Noteholder (such Series 1997-1 Noteholder and any such Person being an
"Indemnified Party"), such taxes as are imposed on or measured by each
Indemnified Party's income by the jurisdiction under the laws of which such
Indemnified Party, as the case may be, is organized or maintains an office or
otherwise conducts business or any political subdivision thereof (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes").
(b) In addition, the Issuer shall pay, subject to the priorities set
forth in Section 302, any present or future stamp or documentary taxes or any
other excise or property taxes, charges or similar levies which arise from any
payment made hereunder or from the execution, delivery or registration of, or
otherwise with respect to, this Supplement or any other documents related to the
issuance of the Series 1997-1 Notes (hereinafter referred to as "Other Taxes").
(c) If any Taxes or Other Taxes are directly asserted or imposed
against any Indemnified Party, the Issuer shall indemnify and hold harmless such
Indemnified Party, subject to the priorities for distribution set forth in
Section 302, for the full amount of the Taxes or Other Taxes (including any
Taxes or Other Taxes asserted or imposed by any jurisdiction on amounts payable
under this Section 205) paid by the Indemnified Party and any liability
(including penalties, interest, additions to tax and expenses) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted or imposed. If the Issuer fails to pay any Taxes or Other
Taxes when due to the appropriate taxing authority or fails to remit to the
Indemnified Party the required receipts or other required documentary evidence,
the Issuer shall indemnify the Indemnified Party for any incremental Taxes or
Other Taxes, interest or penalties that may become payable by the Indemnified
Party as a result of any such failure. Payment under this indemnification shall
be made in accordance with the priorities for distributions set forth in Section
302 of this
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Supplement after the Indemnified Party makes written demand therefor.
Indemnified Party shall give prompt notice to Issuer of any assertion of Taxes
or Other Taxes so that Issuer may, at its option, contest such assertion.
(d) Within thirty (30) days after the date of any payment by the
Issuer of Taxes or Other Taxes, the Issuer shall furnish to each of the Series
1997-1 Noteholders the original or a certified copy of a receipt evidencing
payment thereof, or other evidence of payment satisfactory to the Series 1997-1
Noteholders.
(e) Tax and Other Taxes shall not constitute a claim against the
Issuer or the Collateral in the event such amounts are not paid in accordance
with Section 302 of this Supplement.
Section 206. INCREASED COSTS. If any Indemnified Party shall
determine that, due to either (a) the introduction of or any change (other than
any change by way of imposition of or increase in reserve requirements included
in the calculation of LIBOR) in or in the interpretation of any law or
requirement of law or (b) the compliance with any guideline or request from any
central bank or other Governmental Authority (whether or not having the force of
law), there shall be any increase in the cost to such Indemnified Party of
agreeing to maintain its investment in any Note at a rate of interest based upon
LIBOR, then the Issuer shall be liable for, and shall from time to time, pay to
such Indemnified Party such additional amounts as are sufficient to compensate
such Indemnified Party for such Increased Costs; PROVIDED, HOWEVER, that such
Indemnified Party shall (i) use reasonable efforts in good faith to mitigate any
such Increased Costs and (ii) provide to Issuer in writing the basis for such
Increased Costs. Payment under this indemnification shall be made in accordance
with the priorities for distributions set forth in Section 302 of this
Supplement after the Indemnified Party makes written demand therefor.
Increased Costs shall not constitute a claim against the Issuer or the
Collateral in the event that such amounts are not paid in accordance with
Section 302 of this Supplement.
Section 207. CAPITAL REQUIREMENTS. If any Indemnified Party shall
determine that any change after the date of this Supplement in any law, rule,
regulation or guideline adopted pursuant to or arising out of the July 1988
report of the Basle Committee on Banking Regulations and Supervisory Practices
entitled "International Convergence of Capital Measurement and Capital
Standards," or the adoption after the date hereof of any other law or
requirement of law regarding capital adequacy, or any change after the date of
this Supplement in any of the foregoing or in the enforcement or interpretation
or administration of any of the foregoing by any Governmental Authority charged
with the enforcement or interpretation or administration thereof, or compliance
by any Indemnified Party (or any business office of the Indemnified Party) or
the Indemnified Party's holding company with any request or directive regarding
capital adequacy of any such Governmental Authority, has or would have the
effect of reducing the rate of return on the Indemnified Party's capital or on
the capital of the Indemnified Party's holding company, if any, as a consequence
of maintaining its commitment to purchase Notes or maintain its investment in a
Note at a rate of interest based upon LIBOR
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or the Prime Rate, as the case may be, under this Supplement to a level below
that which the Indemnified Party or the Indemnified Party's holding company
could have achieved but for such adoption, change or compliance (taking into
consideration the Indemnified Party's policies and the policies of the
Indemnified Party's holding company with respect to capital adequacy) by an
amount reasonably deemed by the Indemnified Party to be material, THEN, upon
written demand by the Indemnified Party, the Issuer shall be liable for such
additional amount or amounts as will compensate the Indemnified Party or the
Indemnified Party's holding company for any such reduction suffered. Payment
under this indemnification shall be made in accordance with the priorities for
distributions set forth in Section 302 of this Supplement after the Indemnified
Party makes written demand therefor. Indemnification amounts shall not
constitute a claim against the Issuer or the Collateral in the event such
amounts are not paid in accordance with Section 302 of this Supplement. Without
affecting its rights under this Section 207 or any other provision of this
Supplement or the Indenture, the Indemnified Party agrees that if there is an
increase in any cost to or reduction in any amount receivable by the Indemnified
Party with respect to which the Issuer would be obligated to compensate the
Indemnified Party pursuant to this Section 207, the Indemnified Party shall use
reasonable efforts to select an alternative business office which would not
result in any such increase in any cost to or reduction in any amount receivable
by the Indemnified Party; PROVIDED, HOWEVER, that the Indemnified Party shall
not be obligated to select an alternative business office if the Indemnified
Party determines that (i) as a result of such selection the Indemnified Party
would be in violation of any applicable law, or would incur material, additional
costs or expenses, or (ii) such selection would be unavailable for regulatory
reasons.
ARTICLE III
SERIES 1997-1 SERIES ACCOUNT AND
ALLOCATION AND APPLICATION OF AMOUNTS THEREIN
Section 301. SERIES 1997-1 SERIES ACCOUNT. The Issuer shall
establish on the Effective Date and maintain, so long as any Series 1997-1 Note
is Outstanding, an Eligible Account with the Indenture Trustee which shall be
designated as the Series 1997-1 Series Account, which account is hereby pledged
to the Indenture Trustee for the benefit of the Series 1997-1 Noteholders
pursuant to the Indenture and this Supplement. All deposits of funds by or for
the benefit of the Series 1997-1 Noteholders from the Trust Account and the
Series 1997-1 Restricted Cash Account shall be accumulated in, and withdrawn
from, the Series 1997-1 Series Account in accordance with the provisions of the
Indenture and this Supplement.
Section 302. DISTRIBUTIONS FROM SERIES 1997-1 SERIES ACCOUNT ON EACH
PAYMENT DATE. On each Payment Date, the Indenture Trustee shall, in accordance
with the Servicer Report, distribute funds then on deposit in the Series 1997-1
Series Account to the following Persons and in the following order of priority:
(I) If an Early Amortization Event shall not then be continuing:
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(A) To the Indenture Trustee by wire transfer of immediately
available funds, all Indenture Trustee's Fees then due and payable for Series
1997-1 to the extent not paid by the Servicer;
(B) (i) If the Indenture Trustee has received the Servicer
Report for the related Collection Period, to the Servicer by wire transfer of
immediately available funds, an amount equal to the sum of any (x) Servicer Fee
Arrearage and (y) Servicer Fee then due and payable and (ii) to the Servicer by
wire transfer of immediately available funds, an amount equal to the Servicer
Advance then due and payable;
(C) To the Administrative Agent, any fees and expenses then
payable to the Administrative Agent approved by the Requisite Global Majority
pursuant to Section 405(b) of the Indenture;
(D) To an Interest Rate Hedge Provider, any payments owing
under an Interest Rate Hedge Agreement other than termination payments;
(E) To each Holder of a Class A Note on the immediately
preceding Determination Date, an amount equal to its PRO RATA portion of FIRST,
any Class A Note Interest Arrearage, and SECOND, the Class A Note Interest
Payment for such Payment Date;
(F) To the Series 1997-1 Restricted Cash Account, an amount
sufficient so that the total amount on deposit therein is equal to the Series
1997-1 Restricted Cash Amount for such Payment Date;
(G) To the Administrative Agent an amount equal to the sum of
(x) the Administrative Agent Fee then due and payable and (y) any unpaid
Administrative Agent Fee from all prior Payment Dates;
(H) To each Holder of a Class A Note on the immediately
preceding Determination Date, an amount equal to its PRO RATA portion of
prepayments deposited in the Series 1997-1 Series Account for the related
Collection Period;
(I) To each Holder of a Class A Note on the immediately
preceding Determination Date, an amount equal to its PRO RATA portion of the
Class A Note Principal Payment;
(J) Prior to the Conversion Date, to each Holder of a Class A
Note, an amount equal to its PRO RATA portion of the sum of (x) the Commitment
Fee then due and payable and (y) any unpaid Commitment Fees from all prior
Payment Dates;
(K) To each Holder of a Class A Note on the immediately
preceding Determination Date, PRO RATA, any Default Interest then due and
payable;
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(L) To each Holder of a Class A Note on the immediately
preceding Determination Date, PRO RATA, an amount equal to Taxes, Other Taxes,
Increased Costs and amounts due pursuant to Sections 205, 206 and 207 hereof, if
any, then due and payable with respect to such Class A Note and any other costs,
expenses, taxes and indemnities payable by the Issuer pursuant to the Class A
Note Purchase Agreement;
(M) To an Interest Rate Hedge Provider any termination
payments owing under any Interest Rate Hedge Agreement;
(N) To the Indenture Trustee for distribution pursuant to
Section 401(d) of the Indenture, as Excess Cash Available for Distribution, to
the extent that any Deficient Series is Outstanding on such Payment Date;
(O) To the Issuer by wire transfer of immediately available
funds, any remaining amount on deposit in the Series 1997-1 Series Account on
such Payment Date.
Notwithstanding the foregoing, the amounts set forth in clause (O)
shall be payable only at such times as no Deficient Series then exists.
(II) If an Early Amortization Event shall then be continuing:
(A) To the Indenture Trustee by wire transfer of immediately
available funds, all Indenture Trustee's Fees then due and payable for Series
1997-1 to the extent not paid by the Servicer;
(B) (i) If the Indenture Trustee has received the Servicer
Report for the related Collection Period, to the Servicer by wire transfer of
immediately available funds, an amount equal to the sum of any (x) Servicer Fee
Arrearage and (y) Servicer Fee then due and payable and (ii) to the Servicer by
wire transfer of immediately available funds, an amount equal to the Servicer
Advance then due and payable;
(C) To the Administrative Agent, any fees and expenses then
payable to the Administrative Agent approved by the Requisite Global Majority
pursuant to Section 405(b) of the Indenture;
(D) To an Interest Rate Hedge Provider, any payments owing
under an Interest Rate Hedge Agreement other than termination payments;
(E) To each Holder of a Class A Note on the immediately
preceding Determination Date, an amount equal to its PRO RATA portion of FIRST,
any Class A Note Interest Arrearage and SECOND, the Class A Note Interest
Payment for such Payment Date;
(F) To the Administrative Agent, an amount equal to the sum
of (x) the Administrative Agent Fee then due and payable and (y) any unpaid
Administrative Agent Fee from all prior Payment Dates;
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(G) To each Holder of a Class A Note on the immediately
preceding Determination Date, an amount equal to its PRO RATA portion of
prepayments deposited in the Series 1997-1 Series Account for the related
Collection Period;
(H) To each Holder of a Class A Note on the immediately
preceding Determination Date, an amount equal to its PRO RATA portion of the
Class A Note Principal Payment;
(I) To each Holder of a Class A Note on the immediately
preceding Determination Date, PRO RATA, any Default Interest then due and
payable;
(J) To each Holder of a Class A Note on the immediately
preceding Determination Date, PRO RATA, an amount equal to Taxes, Other Taxes,
Increased Costs and amounts due pursuant to Sections 205, 206 and 207 hereof, if
any, then due and payable with respect to such Class A Note and any other costs,
expenses, taxes and indemnities payable by the Issuer pursuant to the Class A
Note Purchase Agreement;
(K) To an Interest Rate Hedge Provider any termination
payments owing under any Interest Rate Hedge Agreement;
(L) To the Indenture Trustee for distribution pursuant to
Section 401(d) of the Indenture, as Excess Cash Available for Distribution, to
the extent that any Deficient Series is Outstanding on such Payment Date;
(M) To the Issuer by wire transfer of immediately available
funds, any remaining amount on deposit in the Series 1997-1 Series Account on
such Payment Date.
Any amounts payable to a Class A Noteholder shall be made by wire
transfer of immediately available funds to the account that such Noteholder has
designated to the Indenture Trustee in writing on or prior to the Business Day
immediately preceding the Payment Date.
Section 303. ALLOCATION OF EXCESS CASH AVAILABLE FOR DISTRIBUTION.
On each Payment Date, the Indenture Trustee shall distribute any Excess Cash
Available for Distribution deposited into the Series 1997-1 Series Account in
accordance with Section 401 of the Indenture in payment of the amounts and in
the order of priority set forth in Section 302(I) or (II), as the case may be.
Section 304. SERIES 1997-1 RESTRICTED CASH ACCOUNT. (a) The
Issuer shall establish on the Effective Date and maintain so long as any
Series 1997-1 Note is Outstanding an Eligible Account with the Indenture
Trustee which shall be designated as the Series 1997-1 Restricted Cash
Account, which account is hereby pledged to the Indenture Trustee pursuant to
the Indenture and this Supplement. On the date on which the initial Loan is
made, the Issuer will deposit the Series 1997-1 Restricted Cash Amount in the
Series 1997-1 Restricted Cash
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Account from the proceeds of issuance of the Series 1997-1 Notes and
thereafter amounts shall be deposited in the Series 1997-1 Restricted Cash
Account in accordance with Section 302 of this Supplement. Any and all
moneys remitted by the Indenture Trustee to the Series 1997-1 Restricted Cash
Account shall be invested in Eligible Investments in accordance with the
Indenture and shall be distributed in accordance with this Section 304.
(b) No later than 10:00 a.m. North Carolina time on the Business Day
prior to each Payment Date, the Indenture Trustee shall, in accordance with the
written instructions from the Administrative Agent, make a draw on the Series
1997-1 Restricted Cash Account in an amount equal to the extent by which amounts
on deposit in the Series 1997-1 Series Account will be insufficient to pay those
amounts payable pursuant to Section 302(I)(E) or Section 302(II)(E), as the case
may be, on such Payment Date (after giving effect to any distributions to be
made on such Payment Date prior to the payment of such amounts) and the amount
of any such draw shall be deposited in the Series 1997-1 Series Account.
(c) On each Payment Date, the Indenture Trustee shall, in accordance
with the Servicer Report or pursuant to written instructions from the
Administrative Agent, deposit in the Series 1997-1 Series Account the excess, if
any, of (A) amounts then on deposit in the Restricted Cash Account (after giving
effect to any withdrawals therefrom on such Payment Date) over (B) the Series
1997-1 Restricted Cash Amount. On the Final Payment Date, any remaining funds
in the Series 1997-1 Restricted Cash Account shall be deposited in the Series
1997-1 Series Account and distributed in accordance with Section 302 of this
Supplement.
Section 305. SERIES 1997-1 ENGINE RESERVE ACCOUNT.
(a) The Issuer shall establish on the Effective Date and maintain an
Eligible Account with the Indenture Trustee which shall be designated as the
Series 1997-1 Engine Reserve Account, which account is hereby pledged to the
Indenture Trustee pursuant to the Indenture and this Supplement. The Issuer, or
Servicer on its behalf, shall cause the Lessees to remit the Maintenance Reserve
Payments to the Trust Account, and the Servicer, pursuant to the Servicing
Agreement, shall, by not later than each Determination Date, specifically
identify those Maintenance Reserve Payments to a particular Eligible Engine and
instruct the Indenture Trustee to allocate all Maintenance Reserve Payments on
deposit in the Trust Account which relate to any Engine pledged as collateral
for the Series 1997-1 Notes, to the Series 1997-1 Engine Reserve Account.
(b) The Issuer shall maintain (or shall cause the Servicer to
maintain) records that will identify amounts on deposit in the Series 1997-1
Engine Reserve Account to a specific Eligible Engine. The Servicer shall be
entitled to withdraw funds from the Series 1997-1 Engine Reserve Account for the
payment of maintenance expenses with respect to the related Eligible Engine, at
the times and subject to the further conditions set forth in the Servicing
Agreement; provided, however, that so long as a Servicer Default is then in
effect, the Servicer shall not be entitled to make such withdrawal except upon
presentation of supporting documentation reasonably determined by the
Administrative Agent to comply with
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the terms of the applicable Lease Agreement (which shall evidence its
determination by written instrument delivered to the Indenture Trustee).
Section 306. SERIES 1997-1 SECURITY DEPOSIT ACCOUNT
(a) The Issuer shall establish on the Effective Date and maintain an
Eligible Account with the Indenture Trustee which shall be designated as the
Series 1997-1 Security Deposit Account, which account is hereby pledged to the
Indenture Trustee pursuant to the Indenture and this Supplement. The Issuer, or
Servicer on its behalf, shall cause the Lessees to remit the Security Deposits
to the Trust Account, and the Servicer, pursuant to the Servicing Agreement,
shall, by not later than each Determination Date, specifically identify those
Security Deposits to a particular Eligible Engine and instruct the Indenture
Trustee to allocate all Security Deposits on deposit in the Trust Account which
relate to any Engine pledged as collateral for the Series 1997-1 Notes, to the
Series 1997-1 Security Deposit Account.
(b) The Issuer shall maintain (or shall cause the Servicer to
maintain) records that will identify amounts on deposit in the Series 1997-1
Security Deposit Account to a specific Eligible Engine. The Servicer shall be
entitled to withdraw funds from the Series 1997-1 Security Deposit Account for
the refund to the Lessee of the Security Deposit with respect to the related
Eligible Engine, at the times and subject to the further conditions set forth in
the Servicing Agreement; provided, however, that so long as a Servicer Default
is then in effect, the Servicer shall not be entitled to make such withdrawal
except upon presentation of supporting documentation reasonably determined by
the Administrative Agent to comply with the terms of the applicable Lease
Agreement (which shall evidence its determination by written instrument
delivered to the Indenture Trustee).
Section 307. SECURITIES ACCOUNTS.
(a) Notwithstanding any other provision of this Supplement or the
Indenture, with respect to each of the Securities Accounts, the Securities
Intermediary hereby agrees that it will comply with entitlement orders (as such
term is defined under the UCC originated by the Indenture Trustee without
further consent by the Issuer.
(b) Each of the Issuer, the Securities Intermediary and the Indenture
Trustee intends that the provisions of Section 307(a) will give the Indenture
Trustee "control" over the Securities Accounts (as the term "control" is defined
under the UCC, without prejudice to any other provision of the UCC that also
would be deemed to give the Indenture Trustee such control.
ARTICLE IV
ADDITIONAL COVENANTS
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In addition to the covenants set forth in Article VI of the Indenture,
the Issuer hereby makes the following additional covenants for the benefit of
the Series 1997-1 Noteholders:
Section 401. ADDITIONAL SERIES. The Issuer shall not issue any
additional Series of Notes on or after the Effective Date without (a) the prior
written consent of the Administrative Agent, (b) confirmation in writing that
the Outstanding Obligations of each Series of Notes (calculated after giving
effect to such proposed issues) shall not exceed the Asset Base for such Series
of Notes as evidenced by the related Asset Base Certificate most recently
received by the Indenture Trustee (but not earlier than the preceding Payment
Date) and (c) confirmation in writing that no Early Amortization Event or Event
of Default has occurred and is then continuing; and as a result of the issuance
of such new Series no Early Amortization Event or Event of Default will exist.
Section 402. CONTROL PARTY. For purposes of determining a Requisite
Global Majority pursuant to Section 503 of the Indenture, the Control Party of
Series 1997-1 shall mean the Majority of Holders of the Outstanding Class A
Notes.
Section 403. INSPECTIONS. The Issuer agrees that any Person
designated in writing by the Administrative Agent may consult with the proper
officials of the Issuer (including, without limitation, officials of any
Affiliate of the Issuer in charge of servicing the Lease Agreements) at such
times during normal business hours and as often as the Administrative Agent may
reasonably request regarding the information required to be furnished pursuant
to the Servicing Agreement or regarding the performance of its respective
covenants and agreements contained in any of this Agreement or any of the
Related Documents to which it is a party;
Section 404. RESERVED.
Section 405. INTEREST RATE HEDGE AGREEMENTS. (a) The Issuer shall
enter into Interest Rate Hedge Agreements in order to protect the Issuer, to the
extent commercially practicable, from fluctuations in interest rates which would
increase the interest payments of the Issuer on Notes issued under this
Supplement; provided that all Interest Rate Hedge Agreements shall be in the
amount specified in Schedule 1 and in form and substance acceptable to the
Administrative Agent and be with an Interest Rate Hedge Provider acceptable to
the Administrative Agent PROVIDED, HOWEVER, that following any Servicer Default
the Administrative Agent shall have the right, in its sole discretion but after
consultation with the initial Servicer if the initial Servicer is still an
operating entity, to direct the Indenture Trustee to enter into Interest Rate
Hedge Agreements on the Issuer's or the Indenture Trustee's behalf. On or prior
to the effective date of each such Interest Rate Hedge Agreement which is not
solely a cap agreement, the Interest Rate Hedge Providers thereunder shall
agree, for the period of one year after all Indebtedness under this Supplement
shall have been paid in full, not to commence any case, proceeding or other
action under any existing or future Insolvency Law seeking to have an order for
relief entered with respect to the Issuer. In addition, long
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term senior unsecured indebtedness of the related Interest Rate Hedge Provider
shall be rated not less than A by S&P and A2 by Moody's.
(b) Each Interest Rate Hedge Agreement shall provide that all
payments made pursuant thereto shall be paid directly to the Series 1997-1
Series Account or shall be assigned to the Issuer with directions from the
Issuer to deposit such payments in the Series 1997-1 Series Account, and all
payments received from an Interest Rate Hedge Provider shall be deposited by the
Issuer or the Indenture Trustee directly into the Series 1997-1 Series Account.
Section 406. INSURANCE. The Issuer shall deliver to the
Administrative Agent and the Indenture Trustee, within 90 days of the Closing
Date or the Transfer Date related to the transfer of any additional Transferred
Assets, as the case may be, certificates evidencing the Issuer's insurance
coverage (in addition to any insurance coverage required under the Servicing
Agreement), which shall be satisfactory to the Administrative Agent, and shall
name the Indenture Trustee on behalf of the Series 1997-1 Noteholders as
additional loss payee, in the case of casualty insurance, and as additional
insured in the case of liability insurance.
Section 407. LESSEE ACKNOWLEDGMENT. Within 90 days of the Closing
Date or the Transfer Date related to each Lease Agreement that is the subject of
a Loan, as the case may be, the Lessee under each Lease Agreement that is the
subject of a Loan made on such date shall have executed and delivered to the
Administrative Agent a written certificate, substantially in the form attached
hereto as Exhibit C, in which the Lessee confirms (i) its remaining obligations
under such Lease Agreement, (ii) that no event of default (as defined in the
Lease Agreements), or condition or event which with the giving of notice or the
passage of time or both would constitute an event of default, exists under any
related Lease Agreement and (iii) that it will name the Indenture Trustee as
additional loss payee, in the case of casualty insurance, and as additional
insured in the case of liability insurance.
Section 408. OPINIONS OF FOREIGN LOCAL COUNSEL. Within 120 days of
the Closing Date or the Transfer Date related to each Eligible Engine and
related Lease Agreement, as the case may be, the Issuer shall cause the delivery
to the Series 1997-1 Noteholders of Opinions of Counsel, other than counsel
employed by the Issuer, the Seller or the Servicer for purposes other than
solely with respect to the issuance of such opinions, in form and substance
satisfactory to the Series 1997-1 Noteholders, as to the perfection and priority
(to the extent applicable in such jurisdiction) of the Indenture Trustee's
security interest in each Eligible Engine and related Lease Agreement, which are
subject to the applicable laws of any jurisdiction other than the United States.
ARTICLE V
CONDITIONS OF EFFECTIVENESS AND FUTURE LENDING
Section 501. EFFECTIVENESS OF SUPPLEMENT. The effectiveness of this
Supplement is subject to the condition precedent that the Indenture Trustee
shall have received all of the following, each duly executed and dated as of the
Effective Date, in form and
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substance satisfactory to all of the initial Series 1997-1 Noteholders and each
(except for the Series 1997-1 Notes, of which only the originals shall be
signed) in sufficient number of signed counterparts to provide one for each
Series 1997-1 Noteholder:
(a) SERIES 1997-1 NOTES. Separate Series 1997-1 Notes executed by
the Issuer, and duly authenticated by the Indenture Trustee, in favor of each
Series 1997-1 Noteholder in the stated principal amount of such Series 1997-1
Notes that such Series 1997-1 Noteholder has agreed to purchase.
(b) CERTIFICATE(S) OF SECRETARY OR ASSISTANT SECRETARY. Separate
certificates executed by the corporate secretary or assistant secretary of each
of Seller (as Seller and Servicer), the Servicer, the Guarantor and the Issuer,
dated the Effective Date, certifying (i) that the respective company has the
authority to execute and deliver, and perform its respective obligations under
each of the Series 1997-1 Transaction Documents to which it is a party, and (ii)
that attached are true, correct and complete copies of the Certificate of
Incorporation, by-laws, board resolutions and incumbency certificates in form
and substance satisfactory to all of the initial Series 1997-1 Noteholders, as
to such matters as they shall require.
(c) SECURITY DOCUMENTS. The Indenture and this Supplement, in form
and substance satisfactory to all of the initial Series 1997-1 Noteholders,
shall have been executed and delivered by Issuer, and all other parties thereto,
together with other documents reasonably requested by Series 1997-1 Noteholders.
(d) OPINIONS OF COUNSEL. Opinions of Counsel to the Issuer, the
Seller, the Guarantor, the Servicer and the Indenture Trustee, in form and in
substance satisfactory to the initial Series 1997-1 Noteholder as to such
matters as it shall require.
(e) SERIES 1997-1 TRANSACTION DOCUMENTS. Each of the Servicing
Agreement, the Contribution and Sale Agreement, the Structuring Fee Letter
Agreement, the Administration Agreement, the Indenture and the Class A Note
Purchase Agreement shall have been duly executed and delivered.
(f) GOOD STANDING CERTIFICATES. Good Standing Certificates in the
state(s) of formation and location for each of the Seller (as Seller and
Servicer), the Guarantor and the Issuer.
(g) ESTABLISHMENT OF ACCOUNTS. Each of the Trust Account, the Series
1997-1 Series Account, the Restricted Cash Account, the Series 1997-1 Restricted
Cash Account, the Engine Reserve Account, the Series 1997-1 Engine Reserve
Account, the Security Deposit Account and the Series 1997-1 Security Deposit
Account shall have been established with the Indenture Trustee as evidenced by a
certificate of an authorized officer of the Indenture Trustee.
(h) GUARANTY. The Guarantor shall have duly executed and delivered
the Guaranty.
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(i) STRUCTURING FEE. The Issuer shall have paid (i) to the
Administrative Agent those fees then due and payable as set forth in the
Structuring Fee Letter Agreement and (ii) to Thacher Proffitt & Wood, its fees
and expenses as counsel for the Administrative Agent and the Class A Noteholder.
Purchase of the Series 1997-1 Notes by the Series 1997-1 Noteholders
shall be conclusive evidence, upon which the Indenture Trustee may rely that the
Series 1997-1 Noteholders have determined that the conditions precedent to the
effectiveness of the Series 1997-1 Supplement set forth in (a) through (i)
above, have been complied with to their satisfaction.
Section 502. ADVANCES ON CLASS A NOTES. The obligation of a Class A
Noteholder to make any Loans pursuant to its Class A Note Commitment under this
Supplement and the Class A Note Purchase Agreement is subject to the following
further conditions precedent; provided, however, that the Administrative Agent
may waive in writing those conditions precedent set forth in subdivisions (o),
(r), (s), (v) and (w) of this Section 502:
(a) DEFAULT. Before and after giving effect to such advance, no Event
of Default shall have occurred and be continuing.
(b) EARLY AMORTIZATION EVENT. Before and after giving effect to such
advance, no Early Amortization Event shall have occurred and be continuing
unless each of the Requisite Global Majority and Holders representing one
hundred percent (100%) of the Class A Note Principal Balance have approved such
advance.
(c) CERTIFICATION. Issuer shall have delivered to the Series 1997-1
Class A Noteholders a compliance certificate, signed by an officer of Issuer, as
to the matters set out in Article V and in Article VI of this Supplement.
(d) ASSET BASE CERTIFICATE. Issuer shall have delivered to the Class
A Noteholders a duly completed and executed Asset Base Certificate, as of a date
not earlier than thirty (30) days prior to the date of such proposed advance of
principal of the Class A Note, which states that the Class A Note Principal
Balance (after giving effect to such proposed advance of principal of the Class
A Note) will not exceed the Asset Base for Series 1997-1 and complies with the
requirements therefor set forth in the Indenture and this Supplement.
(e) CONVERSION DATE. The Conversion Date shall not have occurred.
(f) SECURITY DOCUMENTS. All UCC financing statements, documents of
similar import in other jurisdictions, and other documents reasonably requested
by Series 1997-1 Noteholders shall have been delivered to the Administrative
Agent.
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(g) CERTIFICATE AS TO ELIGIBLE ENGINES. A certificate from the
Servicer certifying that it is managing all of the Contributed Engines in
accordance with the Servicing Agreement.
(h) OPINIONS OF COUNSEL. Opinions of Counsel to the Issuer, other
than counsel employed by the Issuer, the Seller or the Servicer, as to
perfection and priority of the Indenture Trustee's security interest in the
Collateral, in form and substance satisfactory to the Series 1997-1 Noteholder
as to such matters as it shall require.
(i) PERFECTED SECURITY INTEREST. The Administrative Agent shall have
received evidence to its satisfaction that the Indenture Trustee has (or upon
funding, will have) a first priority security in each Eligible Engine, and
related Lease Agreements that will be the subject of such Loan; provided,
however, that if the applicable laws of any jurisdiction in which an Eligible
Engine is required to be registered does not provide for a means to obtain such
first priority security, then the Issuer shall provide additional assurances
satisfactory to the Class A Noteholders. Such evidence shall, if requested by
the Administrative Agent, include any Opinion of Counsel, other than counsel
employed by the Issuer, the Seller or the Servicer, as to the perfection of such
security interest including, without limitation, a written opinion from outside
counsel for the Issuer, regarding FAA matters.
(j) APPRAISAL. The Administrative Agent shall have received an
Appraisal in form, scope and for a value satisfactory to the Administrative
Agent with respect to each Eligible Engine that will be the subject of such
Loan.
(k) CHATTEL PAPER. Any original counterpart of each Lease Agreement
(other than the one held by the Lessee or filed with any relevant Governmental
Authority) that will be the subject of a Loan that constitutes "chattel paper"
for purposes of the UCC as in effect in the jurisdiction whose law governs the
Lease Agreement has been delivered to the Indenture Trustee.
(l) REMITTANCE TO TRUST ACCOUNT. The Lessee under each Lease
Agreement that will be the subject of a Loan shall have been directed to remit
to the Trust Account all Scheduled Payments and other amounts owing pursuant to
such Lease Agreement.
(m) LESSEE ACKNOWLEDGMENT. The Lessee under each Lease Agreement
that will be the subject of a Loan shall have received a written certificate, in
substantially the form attached hereto as Exhibit C, in which the Lessee will
confirm (i) its remaining obligations under such Lease Agreement, (ii) no event
of default (as defined in the Lease Agreements), or condition or event which
with the giving of notice or the passage of time or both would constitute an
event of default, exist under any such Lease Agreement and (iii) that it will
name the Indenture Trustee as additional loss payee, in the case of casualty
insurance, and as additional insured in the case of liability insurance.
(n) ADMINISTRATIVE AGENT APPROVAL. The Administrative Agent shall
have approved each Lease Agreement which is proposed as collateral for a Loan
hereunder (the
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Administrative Agent shall communicate, within five Business Days of receipt of
all information from the Issuer reasonably requested by the Administrative
Agent, its approval or disapproval of each Lease Agreement which is proposed as
collateral for a Loan hereunder).
(o) MAXIMUM CONCENTRATION BY ENGINE TYPES. Each Engine shall have
been manufactured by one of the manufacturers set forth under the column titled
"Manufacturer" on Exhibit B hereto and shall be one of the engine types set
forth opposite the name of such manufacturer under the column titled "Engine
Type" on Exhibit B hereto. After giving effect to the transfer of Engines on
any Transfer Date, the sum of the Net Book Values of all Eligible Engines
(relating to Existing and Possible Loans) of the same engine type shall not
exceed an amount equal to the product of (i) the percentage set forth opposite
such engine type in the column entitled "Maximum Concentration" on Exhibit B
hereto and (ii) the Aggregate Net Book Value (relating to Existing and Possible
Loans) on such Transfer Date.
(p) MAXIMUM CONCENTRATION FOR SINGLE LESSEE. After giving effect to
the transfer of Engines and the related Lease Agreements on any Transfer Date,
the sum of the Net Book Values of all Eligible Engines (relating to Existing and
Possible Loans) that are or would be subject to a Lease Agreement with a single
Lessee (including Affiliates thereof) shall not exceed an amount equal to the
product of (i) the Single Lessee Percentage and (ii) the Aggregate Net Book
Value (relating to Existing and Possible Loans).
(q) MAXIMUM CONCENTRATION FOR ANY THREE LESSEES. After giving effect
to the transfer of Engines and the related Lease Agreements on any Transfer
Date, the sum of the Net Book Values of all Eligible Engines (relating to
Existing and Possible Loans) that are or would be subject to a Lease Agreement
with the three (3) largest Lessees with respect to aggregate Net Book Values
(including Affiliates thereof) shall not exceed an amount equal to the product
of (i) the Three Lessee Percentage and (ii) the Aggregate Net Book Value
(relating to Existing and Possible Loans).
(r) MAXIMUM CONCENTRATION BY GEOGRAPHIC REGION. After giving effect
to the transfer of Engines and the related Lease Agreements on any Transfer
Date, the sum of the Net Book Values of all Engines (relating to Existing and
Possible Loans) that are or would be subject to a Lease Agreement with Lessees
having corporate headquarters located in the geographic areas set forth below
shall not exceed an amount equal to the product of (i) the percentage set forth
opposite such geographic region under the column entitled "Maximum Geographic
Percentage" in the Geographic Concentration Table in Schedule 1 and (ii) the
Aggregate Net Book Value (relating to Existing and Possible Loans).
(s) CONCENTRATION OF ENGINES FOR WIDE BODY AIRCRAFT. After giving
effect to the transfer of Engines on any Transfer Date, the sum of the Net Book
Values of all Eligible Engines (relating to Existing and Possible Loans)
designed to power Wide Body Aircraft shall not exceed an amount equal to the
product of (i) the Wide Body Aircraft Percentage and (ii) Aggregate Net Book
Value (relating to Existing and Possible Loans).
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(t) ON-LEASE PERCENTAGE. After giving effect to the transfer of
Engines on any Transfer Date, the On-Lease Percentage of all Eligible Engines
(relating to Existing and Possible Loans) as of such Transfer Date shall not be
less than the Applicable Percentage.
(u) WEIGHTED AVERAGE LEASE RATE FACTOR. After giving effect to the
transfer of Engines on any Transfer Date, the Weighted Average Lease Rate Factor
for all Eligible Engines (relating to Existing and Possible Loans) shall not be
less than the Weighted Average Lease Rate Percentage.
(v) ONE YEAR LEASE EXPIRY CONCENTRATION PERCENTAGE. After giving
effect to the transfer of Engines on any Transfer Date, the One Year Lease
Expiry Concentration Percentage for Eligible Engines (relating to Existing and
Possible Loans) on such Transfer Date shall not exceed the Target One Year Lease
Expiry Concentration Percentage.
(w) TWO YEAR LEASE EXPIRY CONCENTRATION PERCENTAGE. After giving
effect to the transfer of Engines on any Transfer Date, the Two Year Lease
Expiry Concentration Percentage for Eligible Engines (relating to Existing and
Possible Loans) on such Transfer Date shall not exceed the Target Two Year Lease
Expiry Concentration Percentage.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
To induce the Series 1997-1 Noteholders to purchase the Series 1997-1
Notes hereunder, the Issuer hereby represents and warrants to the Series 1997-1
Noteholders as of the Effective Date, the Closing Date and each date on which a
Loan is made (to the extent applicable to the Issuer generally and to the assets
added to the Collateral on such date on which a Loan is made, unless otherwise
specified) that:
Section 601. EXISTENCE. Issuer is a corporation duly organized,
validly existing and in compliance under the laws of the State of Delaware.
Issuer is in good standing and is duly qualified to do business in each
jurisdiction where the failure to do so would have a material adverse effect
upon the Issuer.
Section 602. AUTHORIZATION. Issuer has the power and is duly
authorized to execute and deliver this Supplement and the other Series 1997-1
Transaction Documents to which it is a party; Issuer is and will continue to be
duly authorized to borrow monies hereunder; and Issuer is and will continue to
be authorized to perform its obligations under this Supplement and under the
other Series 1997-1 Transaction Documents. The execution, delivery and
performance by Issuer of this Supplement and the other Series 1997-1 Transaction
Documents to which it is a party and the borrowings hereunder do not and will
not require any consent or approval of any Governmental Authority, stockholder
or any other Person which has not already been obtained.
Section 603. NO CONFLICT; LEGAL COMPLIANCE. The execution, delivery
and performance of this Supplement and each of the other Series 1997-1
Transaction Documents
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and the execution, delivery and payment of the Series 1997-1 Notes will not: (a)
contravene any provision of Issuer's charter documents or bylaws or other
organizational documents; (b) contravene, conflict with or violate any
applicable law or regulation, or any order, writ, judgment, injunction, decree,
determination or award of any Governmental Authority; or (c) materially violate
or result in the breach of, or constitute a default under any indenture or other
loan or credit agreement, or other agreement or instrument to which Issuer is a
party or by which Issuer, or its property and assets may be bound or affected.
Issuer is not in material violation or breach of or default under any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award or
any contract, agreement, lease, license, indenture or other instrument to which
it is a party.
Section 604. VALIDITY AND BINDING EFFECT. This Supplement is, and
each Series 1997-1 Transaction Document to which Issuer is a party, when duly
executed and delivered, will be, legal, valid and binding obligations of Issuer,
enforceable against Issuer in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency or other similar laws of
general application affecting the enforcement of creditors' rights or by general
principles of equity limiting the availability of equitable remedies.
Section 605. FINANCIAL STATEMENTS. Since March 31, 1997, there has
been no Material Adverse Change in the financial condition of the Seller or the
Servicer.
Section 606. EXECUTIVE OFFICES. The current location of Issuer's
chief executive office and principal place of business is located at 180 Harbor
Drive, Suite 207, Sausalito, California 94965, and has been located at such
address since its formation. The Issuer does not have trade names or doing
business names.
Section 607. NO AGREEMENTS OR CONTRACTS. The Issuer has not
transacted any business on or prior to the Effective Date. The Issuer is not now
and has not been a party to any contract or agreement (whether written or oral),
other than the Series 1997-1 Transaction Documents and contracts or agreements
incidental thereto.
Section 608. CONSENTS AND APPROVALS. No approval, authorization or
consent of any trustee or holder of any Indebtedness or obligation of Issuer or
of any other Person under any material agreement, contract, lease or license or
similar document or instrument to which Issuer is a party or by which Issuer is
bound, is required to be obtained by Issuer in order to make or consummate the
transactions contemplated under the Series 1997-1 Transaction Documents. All
consents and approvals of, filings and registrations with, and other actions in
respect of, all Governmental Authorities required to be obtained by Issuer in
order to make or consummate the transactions contemplated under the Series
1997-1 Transaction Documents have been, or prior to the time when required will
have been, obtained, given, filed or taken and are or will be in full force and
effect.
Section 609. MARGIN REGULATIONS. Issuer does not own any "margin
security", as that term is defined in Regulations G and U of the Federal Reserve
Board, and the proceeds of the Series 1997-1 Notes issued under this Supplement
will be used only for the purposes
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contemplated hereunder. None of such proceeds will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security, for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose which
might cause any of the loans under this Supplement to be considered a "purpose
credit" within the meaning of Regulations G, T, U and X. Issuer will not take or
permit any agent acting on its behalf to take any action which might cause this
Supplement or any document or instrument delivered pursuant hereto to violate
any regulation of the Federal Reserve Board.
Section 610. TAXES. All federal, state, local and foreign tax
returns, reports and statements required to be filed by Issuer have been filed
with the appropriate Governmental Authorities, and all Taxes, Other Taxes and
other impositions shown thereon to be due and payable by Issuer have been paid
prior to the date on which any fine, penalty, interest or late charge may be
added thereto for nonpayment thereof, or any such fine, penalty, interest, late
charge or loss has been paid, or Issuer is contesting its liability therefor in
good faith and has fully reserved all such amounts according to GAAP in the
financial statements provided to the Noteholders pursuant to Section 626 of the
Indenture. Issuer has paid when due and payable all material charges upon the
books of Issuer and no Government Authority has asserted any Lien against Issuer
with respect to unpaid Taxes or Other Taxes. Proper and accurate amounts have
been withheld by Issuer and its Subsidiaries from its employees for all periods
in full and complete compliance with the tax, social security and unemployment
withholding provisions of applicable federal, state, local and foreign law and
such withholdings have been timely paid to the respective Governmental
Authorities.
Section 611. OTHER REGULATIONS. Issuer is not: (a) a "public
utility company" or a "holding company," or an "affiliate" or a "Subsidiary
company" of a "holding company," or an "affiliate" of such a "Subsidiary
company," as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, or (b) an "investment company," or an "affiliated person" of,
or a "promoter" or "principal underwriter" for, an "investment company," as such
terms are defined in the Investment Company Act of 1940, as amended. The
issuance of the Notes hereunder and the application of the proceeds and
repayment thereof by Issuer and the performance of the transactions contemplated
by this Supplement and the other Series 1997-1 Transaction Documents will not
violate any provision of the Investment Company Act of 1940, as amended, or the
Public Utility Holding Company Act of 1935, as amended, or any rule, regulation
or order issued by the SEC thereunder.
Section 612. SOLVENCY AND SEPARATENESS.
The Issuer represents, warrants and covenants to take the following
actions to maintain its existence separate and apart from any other Person:
(i) maintain books of account in accordance with generally
accepted accounting principles and maintain its accounts, books and records
separate from any other person or entity:
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(ii) not commingle its funds or assets with those of any other
entity;
(iii) hold its assets in its own name;
(iv) conduct its business solely in its own name;
(v) pay its own liabilities out of its own funds and assets;
(vi) observe all corporate formalities;
(vii) maintain an arms-length relationship with its affiliates;
(viii) not assume or guarantee or become obligated for the debts
of any other entity or hold out its credit as being available to satisfy
the obligation of any other entity, and will not permit any other person to
assume or guarantee or become obligated for its debts or hold out its
credit as being available to satisfy the Issuer's obligations, except with
respect to obligations in connection with the Guaranty;
(ix) not acquire obligations or securities of its
stockholders;
(x) allocate fairly and reasonably overhead or other expenses
that are properly shared with any other person or entity, including without
limitation, shared office space, and use separate stationery, invoices and
checks;
(xi) identify and hold itself out as a separate and distinct
entity under its own name and not as a division or part of any other person
or entity;
(xii) correct any known misunderstanding regarding its separate
identity;
(xiii) not make loans to any person or entity;
(xiv) not identify its stockholders, or any affiliates of any
of them, as a division or part of itself;
(xv) not enter into, or be a party to, any transaction with
its stockholders or their affiliates, except in the ordinary course of its
business and on terms which are intrinsically fair and are no less
favorable to it than would be obtained in a comparable arms-length
transaction with an unrelated third party;
(xvi) pay the salaries of its own employees, if any, from its
own funds;
(xvii) maintain capital that is adequate for the business and
undertakings of the Issuer;
(xviii) have one director who shall not have been, at the time
of his or her appointment or at any time in the preceding five (5) years;
(a) a direct or indirect legal or beneficial stockholder of the Issuer or
any of its affiliates; (b) a creditor, supplier,
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employee, officer, director, manager or contractor of the Issuer or any of
its affiliates; (c) a person who controls the Issuer or any of its
affiliates; or (d) a member of the immediate family of a person defined in
(a), (b) or (c) immediately above;
(xix) is not insolvent under the Insolvency Law and will not be
rendered insolvent by the transactions contemplated by the Series 1997-1
Transaction Documents and after giving effect to such transactions, the
Issuer will not be left with an unreasonably small amount of capital with
which to engage in its business nor will the Issuer have intended to incur,
or believed that it has incurred, debts beyond its ability to pay such
debts as they mature. The Issuer does not contemplate the commencement of
insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, trustee or similar person in respect
of the Issuer or any of its assets.
Section 613. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. So long as
any of the Notes shall be Outstanding and until payment and performance in full
of the Outstanding Obligations, the representations and warranties contained
herein shall have a continuing effect as having been true when made.
Section 614. NO EVENT OF DEFAULT OR EARLY AMORTIZATION EVENT. No
Event of Default or Early Amortization Event has occurred and is continuing.
Section 615. LITIGATION AND CONTINGENT LIABILITIES. No claims,
litigation, arbitration proceedings or governmental proceedings by any
Governmental Authority are pending or threatened against or are affecting Issuer
or any of its Subsidiaries the results of which might interfere with the
consummation of any of the transactions contemplated by this Supplement or any
document issued or delivered in connection herewith.
Section 616. TITLE; LIENS. The Issuer has good, legal and
marketable title to its assets including the Collateral, and none of such assets
is subject to any Lien, except for the Lien created pursuant to the Indenture.
The Issuer has not assigned, conveyed, pledged or otherwise transferred to any
other Person any of its right, title or interest in the Collateral.
Section 617. SUBSIDIARIES. At all times on or prior to the
Effective Date, the Issuer has had no subsidiaries.
Section 618. NO PARTNERSHIP. Issuer is not a partner or joint
venturer in any partnership or joint venture.
Section 619. PENSION AND WELFARE PLANS.
No accumulated funding deficiency (as defined in Section 412 of the
Code or Section 302 of ERISA) or reportable event (within the meaning of section
4043 of ERISA), has occurred with respect to any Plan. The present value of all
benefit liabilities under all Plans subject to Title IV of ERISA, as defined in
Section 4001(a)(16) of ERISA, exceeds the fair market value of all assets of
Plans subject to Title IV of ERISA (determined as of the most
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recent valuation date for such Plan on the basis of assumptions prescribed by
the Pension Benefit Guaranty Corporation for the purpose of Section 4044 of
ERISA), by no more than $1.9 million. Neither Issuer nor any ERISA Affiliate is
subject to any present or potential withdrawal liability pursuant to Title IV of
ERISA and no multiemployer plan (within the meaning of section 4001(a)(3) of
ERISA) to which the Issuer or any ERISA Affiliate has an obligation to
contribute or any liability, is or is likely to be disqualified for tax
purposes, in reorganization within the meaning of Section 4241 of ERISA or
Section 418 of the Code) or is insolvent (as defined in Section 4245 of ERISA).
No liability (other than liability to make periodic contributions to fund
benefits) with respect to any Plan of Issuer, or Plan subject to Title IV of
ERISA of any ERISA Affiliate, has been, or is expected to be, incurred by Issuer
or an ERISA Affiliate, either directly or indirectly. All Plans of Issuer are
in material compliance with ERISA and the Code. No lien under Section 412 of
the Code or 302(f) of ERISA or requirement to provide security under the Code or
ERISA has been or is reasonably expected by Issuer to be imposed on its assets.
The Issuer does not have any obligation under any collective bargaining
agreement. As of the Effective Date, the Issuer is not an employee benefit plan
within the meaning of ERISA or a "plan" within the meaning of section 4975 of
the Code and assets of the Issuer do not constitute "plan assets" within the
meaning of section 2510.3-101 of the regulations of the Department of Labor.
Section 620. OWNERSHIP OF ISSUER. On the Effective Date, all of the
issued and outstanding common shares of the Issuer are owned by Willis Lease
Finance Corporation.
Section 621. SECURITY INTEREST. The security interest in the
Collateral created pursuant to the Indenture and this Supplement has been
validly created, and no other action is required to be taken by any person in
order for the full benefit of the security interest created thereby to vest in
the Indenture Trustee in order to insure the first priority perfected security
interest of the Indenture Trustee (for the benefit of the Series 1997-1
Noteholders) in the Collateral. Each Lease Agreement is "chattel paper" (under
the UCC, if the UCC is in effect in the jurisdiction whose law governs the Lease
Agreement). All executed counterparts of each Lease Agreement (other than the
one held by the related Lessee or filed with any relevant Governmental
Authority) that constitutes "chattel paper" are in the possession of the
Indenture Trustee.
Section 622. ELIGIBLE LEASE AGREEMENTS; ELIGIBLE ENGINES. Each of
the Lease Agreements is an Eligible Lease and each Engine is an Eligible Engine.
ARTICLE VII
EARLY AMORTIZATION EVENT
Section 701. EARLY AMORTIZATION EVENT. With respect to the Series
1997-1 Notes, as of any date of determination, the existence of any one of the
following events or conditions shall constitute an Early Amortization Event:
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(1) An "event of default" under any Related Document (including an
Event of Default) shall have occurred and then be continuing;
(2) A Servicer Default shall have occurred and then be continuing;
(3) The amount of any scheduled payment of interest or principal then
due and owing on the Series 1997-1 Notes is not paid in full;
(4) The EBIT Ratio of Issuer shall be less than the Target EBIT
Ratio;
(5) The occurrence of any other Early Amortization Event as specified
in the Indenture.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 801. RATIFICATION OF INDENTURE. As supplemented by this
Supplement, the Indenture is in all respects ratified and confirmed and the
Indenture as so supplemented by this Supplement shall be read, taken and
construed as one and the same instrument.
Section 802. COUNTERPARTS. This Supplement may be executed in two
or more counterparts, and by different parties on separate counterparts, each of
which shall be an original, but all of which shall constitute one and the same
instrument.
Section 803. GOVERNING LAW. THIS SUPPLEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICTS OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Supplement to be duly executed and delivered by their respective officers
thereunto duly authorized, all as of the day and year first above written.
WLFC FUNDING CORPORATION
By: /s/ James D. McBride
Name: JAMES D. MCBRIDE
Title: CHIEF FINANCIAL OFFICER
THE BANK OF NEW YORK, as indenture trustee
By: /s/ Cheryl L. Laser
Name: CHERYL L. LASER
Title: ASSISTANT VICE PRESIDENT
THE BANK OF NEW YORK,
as securities intermediary
By: /s/ Cheryl L. Laser
Name: CHERYL L. LASER
Title: ASSISTANT VICE PRESIDENT
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SCHEDULE 1
SECTION 1: DEFINITIONS
"APPLICABLE MARGIN" means:
(i) with respect to each LIBOR Loan, 2.25%; PROVIDED, HOWEVER, that
if the Class A Note Principal Balance at any time exceeds $70,000,000, then the
Applicable Margin with respect to such LIBOR Loan during such time shall be
2.0%; or
(ii) with respect to a Prime Loan, 0.50%; PROVIDED, HOWEVER, that if
the Class A Note Principal Balance at any time exceeds $70,000,000, then the
Applicable Margin with respect to such Prime Loan during such time shall be
0.25%.
"APPLICABLE PERCENTAGE" means __________ percent (___%).*
"CLASS A NOTE COMMITMENT" means an amount not to exceed $80,000,000,
subject to the terms and conditions set forth herein; PROVIDED, HOWEVER, that at
no time shall the Class A Note Principal Balance exceed the Asset Base for this
Series 1997-1.
"SERVICING FEE" means for any Payment Date an amount equal to the
product of (x) ____ percent (___%) and (y) the aggregate amount of Engine
Revenues with respect to the Series 1997-1 Eligible Engines during the
immediately preceding Collection Period.*
"SINGLE LESSEE PERCENTAGE" means _______ percent (___%).*
"TARGET EBIT RATIO" means 1.20:1.0.
"TARGET ONE YEAR LEASE EXPIRY CONCENTRATION PERCENTAGE" means _____
percent (___%).*
"TARGET TWO YEAR LEASE EXPIRY CONCENTRATION PERCENTAGE" means _____
percent (___%).*
"THREE LESSEE PERCENTAGE" means _____ percent (___%).*
"WEIGHTED AVERAGE LEASE RATE PERCENTAGE" means one percent (1.0%).
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* The redacted material on this Schedule has been omitted pursuant to a
request for confidential treatment and the material has been filed
separately.
<PAGE>
"WIDE BODY AIRCRAFT PERCENTAGE" means _____ percent (__%).*
SECTION 2: CERTAIN ADDITIONAL TERMS
COMMITMENT FEE. Prior to the Conversion Date, the Issuer shall pay on
each quarterly Payment Date, beginning with the third Payment Date, a Commitment
Fee to Class A Noteholders, PRO RATA in an amount equal to the product of (x)
either (i) for the period commencing on the Closing Date and ending on the
Payment Date occurring in June 1998, ___% or (ii) thereafter, ___%, (y) one
fourth, and (z) the excess, if any of (i) $80,000,000 over (ii) the then unpaid
Class A Note Principal Balance. Such Commitment Fee shall be payable on each
quarterly Payment Date solely from amounts then on deposit in the Series 1997-1
Series Account in accordance with Section 302 of the Supplement.*
ADMINISTRATIVE AGENT FEE. The Issuer shall pay on each quarterly
Payment Date, beginning with the third Payment Date, an Administrative Agent Fee
to the Administrative Agent in an amount equal to the product of (x) ___%, (y)
one fourth, and (z) the Class A Note Principal Balance. Such Administrative
Agent Fee shall be payable on each quarterly Payment Date from amounts then on
deposit in the Series 1997-1 Series Account in accordance with Section 302 of
the Supplement.*
INTEREST RATE HEDGE AGREEMENTS. The Issuer at all times shall have
Interest Rate Hedge Agreements in effect, each of which has an aggregate
notional amount of not less than 50% of the Outstanding Obligations of the
Series 1997-1 Notes.
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* The redacted material on this Schedule has been omitted pursuant to a
request for confidential treatment and the material has been filed
separately.
<PAGE>
SECTION 3: GEOGRAPHIC CONCENTRATION TABLE *
<TABLE>
<CAPTION>
Geographic Region Maximum Geographic
----------------- ------------------
Percentage
----------
<S> <C>
---------------------------------------------
Africa __%
---------------------------------------------
Asia (including China) __%
---------------------------------------------
China __%
---------------------------------------------
Australia and New Zealand __%
---------------------------------------------
Western Europe __%
---------------------------------------------
Middle East __%
---------------------------------------------
North America __%
---------------------------------------------
Latin America __%
---------------------------------------------
</TABLE>
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* The redacted material on this Schedule has been omitted pursuant to a
request for confidential treatment and the material has been filed
separately.
<PAGE>
WLFC FUNDING CORPORATION
Series 1997-1 Class A Note
CLASS A NOTE PURCHASE AGREEMENT
Dated as of: September 1, 1997
First Union National Bank of North Carolina
One First Union Center
Charlotte, North Carolina 28288
Dear Sirs:
WLFC Funding Corporation, a Delaware corporation (the "Issuer"),
proposes, subject to the terms and conditions stated herein, to issue to you
(the "Purchaser") the WLFC Funding Corporation Secured Note, Series 1997-1,
Class A (the "Class A Note") in the maximum principal amount of $80,000,000.
The Class A Note will be issued pursuant to the Series 1997-1 Supplement, dated
as of September 1, 1997, to the Indenture, dated as of September 1, 1997, each
between the Issuer and The Bank of New York, as trustee. The actual outstanding
principal balance of the Class A Note will be increased and decreased from time
to time in accordance with the terms of the Series 1997-1 Supplement.
Forms of the Indenture, the Series 1997-1 Supplement, the Contribution
and Sale Agreement, the Administration Agreement and the Class A Note have been
delivered to you and the Issuer understands that each of the foregoing are in
form and substance acceptable to you. Each such document and each document
attached to any of the foregoing is in substantially the form in which it will
be executed, with such changes as may be approved by you.
Section 1. DEFINITIONS. All capitalized terms not otherwise defined
in this Section or elsewhere in this Class A Note Purchase Agreement shall have
the respective meanings set forth in the Series 1997-1 Supplement or, if not
defined therein, the Indenture.
Section 2. COMMITMENT TO MAKE LOANS. (a) Subject to the terms and
conditions, and in reliance upon the representations and warranties set forth
herein and in the other Related Documents, the Purchaser agrees to make Loans to
the Issuer on the terms and subject to the conditions set forth in the Series
1997-1 Supplement.
(b) The Issuer shall give written notice to the Administrative Agent
(on its own behalf and on behalf of each Class A Noteholder) of a request for
either a Prime Loan or a LIBOR Loan no later than 1:00 p.m. (Charlotte, North
Carolina time) two (2) Business Days prior to the date on which such Loan is
requested to be made by the Class A Noteholder.
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Each such written notice shall be in the form of Exhibit A hereto, shall be
irrevocable and shall specify (i) the date on which the requested Loan is to be
made; (ii) whether the requested Loan shall be a LIBOR Loan or a Prime Loan;
(iii) the full amount of the requested Loan; and (iv) the LIBOR Period or Prime
Period, as the case may be.
Section 3. DELIVERY OF CLASS A NOTE. (a) Delivery of the Class A
Note shall be made at the offices of Thacher Proffitt & Wood, Two World Trade
Center, New York, New York 10048, at 11:00 A.M., New York time, on December 19,
1997 or such later Business Day as may be agreed upon in writing by the Issuer
and you (the "Effective Date").
(b) The Class A Note to be delivered to you hereunder shall be issued
to you in fully registered form only and shall be registered in the name of
First Union National Bank of North Carolina. Such Class A Note shall be dated
December 19, 1997, authenticated by the Indenture Trustee, registered in your
name and issued in the maximum principal amount of $80,000,000. You hereby
authorize Thacher Proffitt & Wood, special counsel to the Purchaser, to receive
on your behalf the Class A Note to be delivered to you on the Closing Date, to
deliver a receipt therefor and to transmit such Class A Note to you.
Section 4. REPRESENTATIONS AND WARRANTIES OF THE ISSUER. (a) The
Issuer represents (as of the Effective Date and as of each date on which a Loan
is made by a Class A Noteholder pursuant to the Series 1997-1 Supplement, unless
otherwise indicated) and warrants to, and agrees with, the Purchaser that:
(i) The Issuer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with
its chief executive office located at 180 Harbor Drive, Suite 207,
Sausalito, California 94965, and has the power to own its assets and to
engage in the activities in which it is presently engaged and is duly
qualified and in good standing under the laws of each jurisdiction where
its ownership of property or the conduct of its activities requires such
qualification, if the failure to so qualify would have a material adverse
effect on the financial condition of the Issuer or on the enforceability of
the Class A Note or the ability of the Issuer to perform its obligations
under this Agreement and the other Related Documents to which it is a
party. One hundred percent of the beneficial ownership of the Issuer is
owned by Willis Lease Finance Corporation ("WLFC"). The Issuer has no
subsidiaries;
(ii) The Issuer has the power, authority and legal right to
execute, deliver and perform its obligations under this Agreement and the
other Related Documents to which it is a party (collectively, the "Issuer
Documents"); the execution, delivery, and performance of the Issuer
Documents by the Issuer have been duly authorized by the Issuer by all
necessary action, the Issuer Documents, other than the Class A Note, have
been duly executed and delivered by the Issuer, and the Class A Note, when
issued in accordance with the terms hereof and of the Indenture and the
Series 1997-1 Supplement, will have been duly executed and delivered;
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(iii) Each of the Issuer Documents (other than the Class A
Note), assuming due authorization, execution and delivery by the other
parties thereto, constitutes, and the Class A Note, when issued and
authenticated in accordance with the terms of the Indenture and the Series
1997-1 Supplement, will constitute, a legal, valid and binding obligation
of the Issuer, enforceable against the Issuer in accordance with its terms,
except that such enforcement may be limited by (A) bankruptcy, insolvency,
reorganization, moratorium or other similar laws (whether statutory,
regulatory or decisional) now or hereafter in effect relating to creditors'
rights generally and (B) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at
law);
(iv) The consummation of the transactions contemplated by
the Issuer Documents and the fulfillment of the terms therein will not
conflict with or result in any breach of any of the terms and provisions of
or constitute (with or without notice, lapse of time or both) a default
under the certificate of incorporation or by-laws of the Issuer, or any
indenture, agreement, mortgage, deed of trust, commitment letter or funding
arrangement with any lending institution or investment bank or other
instrument to which the Issuer is a party or by which it is bound, or
result in the creation or imposition of any lien, claim or encumbrance upon
any of its properties pursuant to the terms of such indenture, agreement,
mortgage, deed of trust, commitment letter or funding arrangement with any
lending institution or investment bank or other such instrument, other than
as created pursuant to the Indenture and the Series 1997-1 Supplement, or
violate any law or, any order, rule or regulation applicable to the Issuer
of any court or of any federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over the
Issuer or any of its properties and there are no legal or governmental
proceedings pending or, to the best knowledge of the Issuer, threatened or
contemplated that would result in a material modification or revocation
thereof;
(v) There are no litigation, proceedings or investigations
to which the Issuer, or any Affiliate of the Issuer, is a party pending,
or, to the knowledge of Issuer, threatened, before any court, regulatory
body, administrative agency or other tribunal or governmental
instrumentality (A) asserting the invalidity of the Class A Note or the
other Issuer Documents, (B) seeking to prevent the issuance of the Class A
Note or the consummation of any of the transactions contemplated by the
other Issuer Documents, or (C) seeking any determination or ruling that
would materially and adversely affect the performance by the Issuer of its
obligations under, or the validity or enforceability of, the Class A Note
or the other Issuer Documents;
(vi) All approvals, authorizations, consents, orders or
other actions of any person, corporation or other organization, or of any
court, governmental agency or body or official, required in connection with
the execution and delivery of the Issuer Documents by the Issuer and with
the valid and proper authorization, issuance and sale of the Class A Note
pursuant to this Agreement, have been or will be taken or obtained on or
prior to the Effective Date;
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(vii) No written materials delivered to the Purchaser by or
on behalf of the Issuer in connection with the sale of the Class A Note
contain any untrue statement of a material fact or omit a material fact
necessary to make the statements contained therein or herein not
misleading. There is no fact peculiar to the Issuer or any Affiliate of
the Issuer or, to the knowledge of the Issuer, any Lease Agreement, Lessee
or Engine which the Issuer has not disclosed to you in writing which
materially adversely affects or, so far as the Issuer can now reasonably
foresee, will materially adversely affect the ability of the Issuer to
perform the transactions contemplated hereby and by the other Related
Documents;
(viii) The List of Engines to be created as of the Closing
Date and each supplement thereto will be available to you by the Issuer and
will be complete as of the date thereof and will include an accurate (in
all material respects) description of the Engines;
(ix) The representations and warranties made by the Issuer
in the Issuer Documents are true and correct in all material respects and
the Purchaser shall be entitled to rely on such representations and
warranties;
(x) Any taxes, fees and other governmental charges payable
by the Issuer in connection with the execution and delivery of the Issuer
Documents, the pledge of the Collateral to the Indenture Trustee, and the
execution, delivery and sale of the Class A Note, have been paid;
(xi) To the extent the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), may be deemed to apply to the Class A Note
and the Loans, none of the transactions contemplated in the Issuer
Documents (including, without limitation thereof, the use of the proceeds
from the sale of the Class A Note) will violate or result in a violation of
Section 7 of the Exchange Act, or any regulations issued pursuant thereto;
(xii) Concurrently with the execution and delivery of this
Agreement, the Issuer is executing no other Note Purchase Agreement with
respect to the Class A Note;
(xiii) The Issuer is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended;
(xiv) For so long as the Series 1997-1 Class A Notes are the
only Notes outstanding under the Indenture, each of the Indenture and the
Series 1997-1 Supplement need not be qualified as an "indenture" pursuant
to the terms of the Trust Indenture Act of 1939, as amended;
(xv) The Issuer has not taken and will not take, directly or
indirectly, any action prohibited by Rules 101 and 102 under Regulation M
of the Securities and Exchange Commission in connection with the offering
of the Class A Note;
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(xvi) To the extent that the Securities Act may be deemed to
apply to the Class A Note and the Loans, neither the Issuer nor any
affiliate (as defined in Rule 501(b) of Regulation D under the Securities
Act ("Regulation D")) of the Issuer has directly, or through any agent,
including, without limitation, First Union, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any security
(as defined in the Securities Act) which is or will be integrated with the
sale of the Class A Note in a manner that would render the issuance and
sale of the Class A Note a violation of the Securities Act or require the
registration of the Class A Note under the Securities Act or (ii) engaged
in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offering of the Class A
Note.
(xvii) To the extent that the Securities Act may be deemed to
apply to the Class A Note and the Loans, assuming compliance by you with
your agreements set forth in Section 6 hereof, it is not necessary in
connection with the offer, sale and delivery of the Class A Note in the
manner contemplated by this Agreement to register the Class A Note under
the Securities Act;
(xviii) No event has occurred and is continuing that
constitutes, or with the passage of time or the giving of notice or both
would constitute, an Early Amortization Event under, and as defined in, the
Indenture. The Issuer is not in violation of any agreement, charter
instrument, by-law or other instrument to which they are a party or by
which they are or may be bound;
(xix) The aggregate amount of Scheduled Payments payable by
the Lessees under the Lease Agreements during each Collection Period is
sufficient to pay the Monthly Servicing Fee, and the principal and interest
on the Class A Note, as such payments become due and payable, in accordance
with the Indenture and the Series 1997-1 Supplement;
(xx) The Issuer agrees that it will not directly or
indirectly, sell or offer to sell the Class A Note or similar security in a
manner that would render the issuance and sale of the Class A Note pursuant
to this Agreement a violation of Section 5 of the Securities Act.
Section 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF WLFC. WLFC
hereby represents (as of the Effective Date and as of each date on which a Loan
is made by a Class A Noteholder pursuant to the Series 1997-1 Supplement, unless
otherwise indicated) and warrants to, and agrees with, the Purchaser that:
(i) The representations and warranties made by WLFC in this
Note Purchase Agreement, the Guaranty, the Contribution and Sale Agreement,
the Servicing Agreement and any other Related Document to which it is a
party (collectively, the "WLFC Documents") are true and correct in all
material respects and the Purchaser shall be entitled to rely on such
representations and warranties;
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(ii) No written materials delivered to the Purchaser by or
on behalf of WLFC in connection with the sale of the Class A Note contain
any untrue statement of a material fact or omit a material fact necessary
to make the statements contained therein or herein not misleading. There
is no fact peculiar to WLFC or any Affiliate of WLFC or, to the knowledge
of WLFC, any Lease Agreement, Lessee or Engine which WLFC had not disclosed
to you in writing which materially affects adversely or, so far as WLFC can
now reasonably foresee, will materially affect adversely the ability of
WLFC to perform the transactions contemplated hereby and by the Indenture,
the Series 1997-1 Supplement, the Servicing Agreement and the Class A Note;
(iii) Any taxes, fees and other governmental charges payable
by WLFC on or prior to the Effective Date in connection with the execution
and delivery of the WLFC Documents, have been, or will be, paid on or prior
to the Effective Date;
(iv) To the extent that the Exchange Act may be deemed to
apply to the Class A Note and the Loans, none of the transactions
contemplated herein (including, without limitation thereof, the use of the
proceeds from the sale of the Class A Note) will violate or result in a
violation of Section 7 of the Exchange Act or any regulations issued
pursuant thereto including, without limitation, Regulations G, T, U and X
of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter
II. WLFC will not use any distribution from the Issuer of proceeds
received by the Issuer from the sale of the Class A Note to purchase or
carry, directly or indirectly, margin stock;
(v) No event has occurred and is continuing that
constitutes, or with the passage of time or the giving of notice or both
would constitute an Early Amortization Event under, and as defined in, the
Servicing Agreement or the Indenture and the Series 1997-1 Supplement,
respectively. WLFC is not in violation in any material respect of any term
of any agreement, charter instrument, by-law or other instrument to which
it is a party or by which it is or may be bound;
(vi) The aggregate amount of Scheduled Payments payable by
the Lessees under the Lease Agreements during each Collection Period is
sufficient to cover the Monthly Servicing Fee, and pay the principal and
interest on the Class A Note, as such payments become due and payable, in
accordance with the Indenture and the Series 1997-1 Supplement; and
(vii) To the extent that the Securities Act may be deemed to
apply to the Class A Note and the Loans, neither WLFC nor any affiliate (as
defined in Rule 501(b) of Regulation D) of WLFC has directly, or through
any agent, including, without limitation, First Union, (i) sold, offered
for sale, solicited offers to buy or otherwise negotiated in respect of,
any security (as defined in the Securities Act) which is or will be
integrated with the sale of the Class A Note in a manner that would render
the issuance and sale of the Class A Note a violation of the Securities Act
or require the registration of the Class A Note under the Securities Act or
(ii) engaged in any form of
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general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offering of the Class A Note. It is
not necessary in connection with the offer, sale and delivery of the Class
A Note to register the Class A Note under the Securities Act.
Section 6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE
PURCHASER. The Purchaser hereby represents (as of the Effective Date) and
warrants to, and agrees with, the Issuer and WLFC that:
(a) The Purchaser understands and acknowledges that the Class A Note
is not a security under federal or state securities laws but evidences the
obligations of the Issuer in accordance with the terms of the Supplement and the
Indenture to repay the Loans extended pursuant to the Indenture and the Series
1997-1 Supplement, and further understands that the Class A Note purchased by it
has not been registered under the Securities Act or the securities laws of any
State and, if the Class A Note is not then registered under applicable federal
and State securities law (which registration the Issuer is not obligated to
effect), it will not offer to sell, transfer or otherwise dispose of the Class A
Note except in a transaction which is exempt from such registration;
(b) The Purchaser is not acquiring its Class A Note with a view to or
for sale or transfer in connection with any distribution of the Class A Note
under the Securities Act, but subject, nevertheless, to any requirement of law
that the disposition of its property shall at all times be within its control;
(c) The Purchaser will not dispose of the Class A Note purchased by
it in violation of any applicable federal or state securities laws;
(d) The Purchaser is an "accredited investor" as defined in
Regulation D under the Securities Act;
(e) The Purchaser (i) is not an "employee benefit plan" within the
meaning of Section 3(3) of ERISA or a "plan" within the meaning of Section
4975(e)(1) of the Code ("Benefit Plan") and it is not directly or indirectly
acquiring the Class A Note on behalf of, as investment manager of, as named
fiduciary of, as trustee of, or with assets of a Benefit Plan, (ii) the
acquisition will qualify for a statutory or administrative prohibited
transaction exemption under ERISA and the Code and will not give rise to a
non-exempt transaction described in Section 406 of ERISA or Section 4975(e)(1)
of the Code, (iii) the source of funds (a "Source") to be used by the purchaser
to pay the purchase price of the Class A Note is a guaranteed benefit policy
within the meaning of Section 401(b)(2) of ERISA, or (iv) the source of funds to
be used by the purchaser to pay the purchase price of the Class A Note is an
"insurance company general account" within the meaning of Department of Labor
Prohibited Transaction Exemption ("PTE") 95-60 (issued July 12, 1995) and there
is no "employee benefit plan" (within the meaning of Section 3(3) of ERISA or
Section 4975(e)(1) of the Code and treating as a single plan, all plans
maintained by the same employer (or an affiliate within the meaning of Section
V(a)(1) of PTE 95-60) or employee organization) with respect to which the amount
of the general account reserves and liabilities for all contracts held by or on
behalf
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of such plan, exceed ten percent (10%) of the total reserves and liabilities of
such general account (exclusive of separate account liabilities) plus surplus,
as set forth in the NAIC Annual Statement filed with the purchaser's state of
domicile;
(f) Neither the Purchaser nor any Person acting on its behalf has
offered to sell the Class A Note by any form of general solicitation or general
advertising. The Class A Note Purchaser has not offered the Class A Note in any
manner that would render the issuance and sale of the Class A Note a violation
of the Securities Act or any state securities laws, or require registration
pursuant thereto, not has it authorized nor will it authorize any Person to act
in such manner;
(g) Purchaser has conducted an independent investigation of the risks
involved in making the Loan and holding the Note and understands those risks.
Purchaser has been provided with all information concerning the Note, the Issuer
and the Servicer that it has requested and has had an opportunity to discuss the
terms of the Note and the Issuer and the Servicer with representatives of the
Issuer and the Servicer; and
(h) By purchasing the Class A Note, the Purchaser has authorized and
instructed the Indenture Trustee to enter into the Administration Agreement on
behalf of the Purchaser and the Purchaser hereby acknowledges that the Indenture
Trustee shall have no liability for the acts or omissions of the Administrative
Agent.
Section 7. CONDITIONS OF THE PURCHASER'S OBLIGATION. (I) CONDITIONS
TO INITIAL LOAN. The Purchaser's obligation to make the initial Loan shall be
subject to the accuracy in all material respects of the representations and
warranties of the Issuer and WLFC in each of the Series 1997-1 Transaction
Documents, to the performance in all material respects by WLFC and the Issuer of
their respective obligations thereunder, to the satisfaction of all of the
conditions precedent set forth in Sections 501 and 502 of the Series 1997-1
Supplement and to the following additional conditions:
(a) All of the respective representations and warranties of the
Issuer under the Issuer Documents and of WLFC under the WLFC Documents shall be
true and correct in all material respects as of the date made, and no event
shall have occurred which, with notice or the passage of time, would constitute
an Event of Default under the Indenture or an Early Amortization Event under the
Indenture; each of such Issuer Documents and WLFC Documents shall have been duly
authorized, executed and delivered and shall be in full force and effect;
(b) All conditions to closing required to be fulfilled pursuant to
Article V of the Contribution and Sale Agreement shall have been fulfilled or
waived, and the Indenture Trustee shall have received originals (constructively
or actually) or copies of all documents required to be so delivered;
(c) Each of Gibson, Dunn & Crutcher LLP, counsel for WLFC, and
in-house counsel of WLFC shall have delivered to you its respective written
opinion, dated the Effective Date, which opinions shall state that they may
be relied upon by subsequent Class A Noteholders, in
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form and substance satisfactory to you, to the effect set forth in paragraphs
(ii) (with respect to the enforceability opinion) and (v) of Exhibit B hereto
with respect to the opinion of Gibson, Dunn & Crutcher LLP, and paragraphs (i),
(ii) (with respect to matters other than enforceability), (iii) and (iv) of
Exhibit B hereto with respect to the opinion of in-house counsel;
(d) Gibson, Dunn & Crutcher LLP, counsel to the Issuer, shall have
furnished to you its written opinion, dated the Effective Date, which opinion
shall state that it may be relied upon by subsequent Class A Noteholders, in
form and substance satisfactory to you, to the effect set forth in Exhibit C
hereto;
(e) Gibson, Dunn & Crutcher LLP, counsel for WLFC and the Issuer,
shall have delivered to you its written opinion, dated the Closing Date, which
opinion shall state that it may be relied upon by subsequent Class A
Noteholders, in form and substance satisfactory to you, to the effect set forth
in Exhibit E hereto;
(f) Emmet, Marvin & Marvin, counsel to the Indenture Trustee, shall
have furnished to you and to the Issuer its written opinion, dated the Effective
Date, which opinion shall state that it may be relied upon by subsequent Class A
Noteholders, in form and substance satisfactory to you, in the form of Exhibit D
hereto;
(g) The Issuer shall have furnished to you on the Closing Date a
certificate, dated the Closing Date, signed by an authorized officer, to the
effect that:
(i) The representations and warranties made by the Issuer
in the Issuer Documents are true and correct in all material respects on
the Closing Date;
(ii) The Issuer has complied with all of the agreements and
satisfied all the conditions on its part to be performed or satisfied on or
prior to the Closing Date pursuant to the terms of the Issuer Documents;
and
(iii) The written information supplied by the Issuer to the
Purchaser (other than projections and other estimates) did not contain any
untrue statement of a material fact, and any estimates or projections so
supplied to the Purchaser were based on assumptions which the Issuer
believed to be reasonable (except as otherwise disclosed therein).
(h) WLFC shall have furnished to you on the Closing Date a
certificate, dated the Closing Date, signed by an authorized officer, to the
effect that:
(i) The representations and warranties made by WLFC in the
WLFC Documents are true and correct in all material respects on the Closing
Date;
(ii) WLFC has complied with all of the agreements and
satisfied all the conditions on its part to be performed or satisfied on or
prior to the Closing Date pursuant to the terms of the WLFC Documents; and
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(iii) The written factual information supplied by WLFC to the
Purchaser (other than projections and other estimates) did not contain any
untrue statement of a material fact in light of the circumstances under
which they were made, and any estimates or projections so supplied to the
Purchaser were based on assumptions which WLFC believed to be reasonable
(except as otherwise disclosed therein);
(i) Any taxes, fees and other governmental charges which are due and
payable prior to the Effective Date and the Closing Date by WLFC or the Issuer
in connection with the execution, delivery and performance of the Issuer
Documents and WLFC Documents shall have been paid at or prior to the Effective
Date or the Closing Date, as the case may be;
(j) As of the related Transfer Date, the Issuer has good title to,
and is the sole owner of, the Collateral, free and clear from any Lien except
for the rights of the Lessees under the Lease Agreements and the Lien of the
Indenture Trustee and shall not have assigned to any Person other than the
Indenture Trustee any of its right, title or interest in the Lease Agreements,
the Engines or any other Transferred Assets;
(k) The Indenture Trustee or its agent shall have received, to be
held in trust pursuant to the Indenture and the Series 1997-1 Supplement, the
Transferred Assets including the Lease Agreements and all documents, instruments
and other assets required by the Indenture and the Series 1997-1 Supplement to
be delivered to the Indenture Trustee with respect thereto as of the Closing
Date and as of each related Transfer Date, as applicable;
(l) No fact or condition shall exist under applicable law or
applicable regulations thereunder or interpretations thereof by any regulatory
authority which in the Purchaser's reasonable opinion would make it illegal for
the Issuer to issue and sell the Class A Note or for the Issuer or any of the
other parties thereto to perform their respective obligations under any Related
Document;
(m) The Asset Base as of the Closing Date shall be not less than the
Outstanding Obligations;
(n) The Issuer, WLFC, the Purchaser and the Indenture Trustee shall
each have received a fully executed counterpart original and any required
conformed copies of all Related Documents delivered at or prior to the Closing
Date;
(o) All corporate, trust and other proceedings in connection with the
sale of the Class A Note and the transactions contemplated hereby and all
documents and certificates incident thereto shall be satisfactory in form and
substance to the Purchaser and its counsel, and the Purchaser shall have
received such other documents and certificates incident to such transaction as
the Purchaser or such counsel shall reasonably request;
(p) WLFC shall have furnished to the Purchaser (a) a consolidated
statement of income of WLFC for the fiscal quarter ended December 31, 1996 and a
consolidated
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balance sheet of WLFC dated as of September 30, 1997, each of which shall be in
form and substance satisfactory to the Purchaser, and (b) from the independent
accounting firm which regularly audits WLFC's financial statements, a
consolidated statement of income of WLFC for the fiscal year ended December 31,
1996 and a consolidated balance sheet of WLFC dated as of December 31, 1996,
each of which shall be in form and substance satisfactory to the Purchaser and
be certified by such accounting firm to fairly present the financial condition
of WLFC, to have been prepared in accordance with Generally Accepted Accounting
Principles applied on a basis consistent with that of the preceding fiscal year
and to have been based upon an audit by such accounting firm made in accordance
with generally accepted auditing standards;
(q) The Purchaser shall have received the following, in each case in
form and substance satisfactory to it and its special counsel:
(i) a copy of resolutions of the Board of Directors of the
Issuer, certified by the Secretary or an Assistant Secretary of the Issuer
as of the Effective Date, duly authorizing the issuance, sale and delivery
of the Class A Note by the Issuer and the execution, delivery and
performance by the Issuer of the Issuer Documents and any other Related
Documents to which it is a party and any other documents executed by or on
behalf of the Issuer in connection with the transactions contemplated
hereby; and an incumbency certificate of the Issuer as to the person or
persons executing and delivering each such document;
(ii) a copy of resolutions of the Board of Directors of
WLFC, certified by the Secretary or an Assistant Secretary of WLFC as of
the Effective Date, duly authorizing the execution, delivery and
performance by WLFC of the WLFC Documents and any other Related Documents
to which it is a party and any other documents executed by or on behalf of
WLFC in connection with the transactions contemplated hereby; and an
incumbency certificate of WLFC as to the person or persons executing and
delivering each such document; and
(iii) such other documents and evidence with respect to WLFC,
the Issuer and the Indenture Trustee as the Purchaser may reasonably
request in order to establish the corporate existence and good standing of
each thereof, the proper taking of all appropriate corporate proceedings in
connection with the transactions contemplated hereby and the compliance
with the conditions set forth herein; and
(r) The Purchaser shall receive on or before the Closing Date and
each Transfer Date, as the case may be, evidence that UCC-1 financing statements
and FAA recordations set forth in Section 2.03 of the Contribution and Sale
Agreement have been filed in the appropriate filing offices, reflecting the
interest of the Issuer and the Indenture Trustee in the Collateral;
(s) Reserved;
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<PAGE>
(t) No action or proceeding shall have been instituted nor shall any
governmental action be threatened before any court or government agency nor
shall any order, judgment or decree have been issued or proposed to be issued by
any court or governmental agency to set aside, restrain, enjoin or prevent the
performance of the Contribution and Sale Agreement, the Indenture, the other
Related Documents or any of the other agreements or the transactions
contemplated hereby;
(u) Reserved;
(v) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained by or from any Federal, State or other governmental
authority or agency, or by or from any trustee or holder of any indebtedness or
obligation of WLFC or the Issuer, or that are necessary or, in the opinion of
the Purchaser's special counsel, advisable in connection with the transactions
contemplated herein shall have been delivered to the Purchaser.
(II) CONDITIONS TO EACH SUBSEQUENT LOAN. In addition to those
conditions precedent set forth in Section 7(I) hereof, the Purchaser's
obligation to make a Loan on each date subsequent to the date on which the
initial Loan is made shall be subject to the satisfaction of each of the
following conditions:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. Before and after
giving effect to such Loan, the representations, warranties and covenants in
Sections 4 and 5, or in any other Related Document given by the Issuer, WLFC or
any officer thereof, shall be true and correct in all material respects as
though made on such date on which the Loan is made.
(b) NOTICE. The Purchaser shall have received timely notice of such
Loan and such other documents required pursuant to the terms of this Agreement
and the Indenture and the Series 1997-1 Supplement with respect to such Loan.
Each request for a Loan shall be deemed to be a certification to the Purchaser
that the conditions set forth in this Section 7(II) have been satisfied.
Section 8. INTENTION OF THE PARTIES. The Indenture, the Series
1997-1 Supplement and the Class A Note have been structured with the intention
that the Class A Note will qualify under applicable tax law as indebtedness, and
the Purchaser by acceptance of its Class A Note (and any Person which is a
beneficial owner of any interest in a Class A Note, by virtue of such person's
acquisition of a beneficial interest therein) agrees to treat the Class A Note
for purposes of federal, state and local income or franchise taxes and any other
tax imposed on or measured by income, as indebtedness.
Section 9. EXPENSES. Whether or not the transactions contemplated
hereby and by the Series 1997-1 Transaction Documents shall be consummated, the
Issuer and WLFC agree, jointly and severally, to pay promptly all reasonable
out-of-pocket expenses incurred by you in connection with such transactions
prior to the Effective Date, prior to the Closing Date, prior to each date on
which a Loan is made by a Class A Noteholder pursuant to the Series 1997-1
Supplement, and in connection with any amendment initiated, directly or
indirectly, by
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<PAGE>
the Issuer and WLFC (whether or not such amendment becomes effective) or waiver
of any such document, including, without limitation, (i) the cost and expenses
of preparing and reproducing the Series 1997-1 Transaction Documents, (ii) the
cost of arranging for delivery or performance of conditions precedent, (iii) the
fees and disbursements of Thacher Proffitt & Wood and (iv) all costs and
expenses incurred in connection with the transfer and delivery of the Collateral
and the issuance of the Class A Note to you, including custodial fees, Indenture
Trustee's fees, fees for financing statement filings and continuations, and the
Issuer's, WLFC's, and the Indenture Trustee's attorney's and accountant's fees.
The Issuer and WLFC further agree that they will pay or cause to be paid,
promptly upon demand, any reasonable expense incurred by the Purchaser in
connection with the making of any amendment to, the enforcement (after the
occurrence of an Event of Default or an Early Amortization Event under the
Indenture or the Series 1997-1 Supplement) of the Purchaser's rights with
respect to, or the giving of any release, consent or waiver in respect of, this
Class A Note Purchase Agreement and any document executed pursuant hereto or
thereto, including the reasonable fees and disbursements of one counsel to
represent the Purchaser in connection therewith, in each case that are related
to or arise out of a request of, or an action taken by, or that are otherwise
required by, a Person other than the Purchaser. The Issuer and WLFC further
agree that they will pay, or reimburse the Purchaser for, promptly upon demand,
all reasonable costs and expenses (including reasonable legal fees and
disbursements of one counsel for all the Class A Noteholders) incident to or in
connection with any proceeding or governmental investigation against or with
respect to the Issuer, WLFC or any subsidiary or affiliate of any of them and
which result solely because of the ownership by the Purchaser of the Class A
Note. The obligations of the Issuer and WLFC under the immediately preceding
sentence shall survive the termination of the Indenture.
Section 10. SURVIVAL. The parties hereto agree that the
representations, warranties and covenants made by each of them in this Class A
Note Purchase Agreement, and in any document, certificate or other instrument
delivered pursuant hereto or thereto shall be deemed to be relied upon by the
other, notwithstanding any investigation heretofore or hereafter made by or on
behalf of such other party. All representations, warranties and covenants made
by any party to this Class A Note Purchase Agreement, or in any such document,
certificate or other instrument shall survive the delivery of and payment for
the Class A Note.
Section 11. NOTICES. (a) All demands, notices and communications
hereunder shall be in writing, sent by courier service, by facsimile (with
subsequent telephone confirmation of receipt thereof) or hand delivery to the
following addresses (or to such other address as the parties may have designated
in writing to the other parties): (a) in the case of the Purchaser, at the
address stated on the signature page of this Agreement, (b) in the case of the
Issuer, at the following address: 180 Harbor Drive, Suite 207, Sausalito,
California 94965 (with a copy to WLFC), (c) in the case of WLFC, at the
following address: 180 Harbor Drive, Suite 200, Sausalito, California 94965; or
with respect to any other Persons, at the respective address set forth in the
Series 1997-1 Supplement. Notice shall be effective and deemed received (a) two
days after being delivered to the courier service, if sent by courier, (b) upon
receipt of confirmation of transmission, if sent by telecopy, or (c) when
delivered, if delivered by hand.
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<PAGE>
(b) The Purchaser hereby agrees to promptly provide the Indenture
Trustee, the Issuer and the Administrative Agent, with a copy of a confirmation
for each LIBOR Period setting forth LIBOR for such LIBOR Period and the
outstanding principal balance of the Loan for such LIBOR Period.
Section 12. SEVERABILITY OF PROVISIONS. Any part, provision,
representation, warranty or covenant of this Class A Note Purchase Agreement
which is prohibited or which is held to be void or unenforceable shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any part, provision,
representation, warranty or covenant of this Class A Note Purchase Agreement
which is prohibited or unenforceable or is held to be void or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by applicable law, the parties
hereto waive any provision of law which prohibits or renders void or
unenforceable any provision hereof.
Section 13. COUNTERPARTS. This Class A Note Purchase Agreement may
be executed simultaneously in any number of counterparts. Each counterpart
shall be deemed to be an original, and all such counterparts shall constitute
one and the same instrument.
Section 14. GOVERNING LAW. This Class A Note Purchase Agreement
shall be construed and enforced in accordance with the internal laws of the
State of New York, without giving effect to the principles of conflicts of law,
and the obligations, rights and remedies of the parties hereunder shall be
determined in accordance with the laws of the State of New York.
Section 15. CONSENT TO JURISDICTION. Any legal suit, action or
proceeding against any of the Issuer, WLFC or the Purchaser arising out of or
relating to this Agreement, or any transaction contemplated hereby, may be
instituted in any federal or state court in New York County, State of New York,
and each of the Issuer, WLFC and the Purchaser hereby waives any objection which
it may now or hereafter have to the laying of venue of any such suit, action or
proceeding, and, solely for the purposes of enforcing this Agreement, each of
the Issuer, WLFC and the Purchaser hereby irrevocably submits to the
non-exclusive jurisdiction of any such court in any such suit, action or
proceeding. Each of the Issuer and WLFC hereby irrevocably appoints and
designates CT Corporation Systems, having an address at 1633 Broadway, New York,
New York 10019, its true and lawful attorney-in-fact and duly authorized agent
for the limited purpose of accepting service of legal process and the Issuer and
WLFC each agree that service of process upon such party shall constitute
personal service of such process on such Person. Each of the Issuer and WLFC
shall maintain the designation and appointment of such authorized agent until
all amounts payable under this Agreement shall have been paid in full. If such
agent shall cease to so act, each of the Issuer and WLFC shall immediately
designate and appoint another such agent satisfactory to the other parties
hereto and shall promptly deliver to the other parties hereto evidence in
writing of such other agent's acceptance of such appointment.
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<PAGE>
Section 16. SUCCESSORS AND ASSIGNS. This Class A Note Purchase
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective permitted successors and assigns. The provisions of this
Class A Note Purchase Agreement are intended to be for the benefit of all
Holders, from time to time, of the Class A Note purchased by you, and shall be
enforceable by any Class A Noteholder, whether or not an express assignment of
rights under this Class A Note Purchase Agreement has been made by you or your
successor or assign. Notwithstanding the foregoing, you shall at all times be
the Holder of record of not less than fifty percent (50%) of the unpaid
principal balance of the Class A Notes then outstanding.
Section 17. WAIVER; PRIOR AGREEMENTS. No term or provision of this
Class A Note Purchase Agreement may be waived or modified unless such waiver or
modification is in writing and signed by the party against whom such waiver or
modification is sought to be enforced. This Class A Note Purchase Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof.
Section 18. FURTHER AGREEMENTS. The Purchaser, the Issuer and WLFC
agree to execute and deliver to the other such additional documents, instruments
or agreements as may be necessary or appropriate to effectuate the purposes of
this Class A Note Purchase Agreement.
Section 19. GENERAL INTERPRETIVE PRINCIPLES. For purposes of this
Class A Note Purchase Agreement except as otherwise expressly provided or unless
the context otherwise requires:
(a) the terms defined in this Class A Note Purchase Agreement have
the meanings assigned to them in this Class A Note Purchase Agreement and
include the plural as well as the singular, and the use of any gender herein
shall be deemed to include the other gender;
(b) accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with Generally Accepted Accounting Principles as
in effect on the date hereof;
(c) references herein to "Articles", "Sections", "Subsections",
"paragraphs", and other subdivisions without reference to a document are to
designated Articles, Sections, Subsections, paragraphs and other subdivisions of
this Class A Note Purchase Agreement;
(d) a reference to a Subsection without further reference to a
Section is a reference to such Subsection as contained in the same Section in
which the reference appears, and this rule shall also apply to paragraphs and
other subdivisions;
(e) the words "herein", "hereof", "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
provision; and
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<PAGE>
(f) the term "include" or "including" shall mean without limitation
by reason of enumeration.
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<PAGE>
IN WITNESS WHEREOF, the Purchaser, WLFC and the Issuer have caused
their names to be signed hereto by their respective authorized representatives
as of the date first above written.
Very truly yours,
WILLIS LEASE FINANCE CORPORATION
By: /s/ Charles F. Willis
Name: CHARLES F. WILLIS
Title: PRESIDENT
WLFC FUNDING CORPORATION
By: /s/ James D. McBride
Name: JAMES D. MCBRIDE
Title: CHIEF FINANCIAL OFFICER
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:/s/ Russell D. Morrison
Name: RUSSELL D. MORRISON
Title: VICE PRESIDENT
Address: One First Union Center
Charlotte, North Carolina 28288
Attention: Milton Anderson
<PAGE>
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ADMINISTRATION AGREEMENT
among
WLFC FUNDING CORPORATION,
as Issuer,
WILLIS LEASE FINANCE CORPORATION,
as Servicer
FIRST UNION CAPITAL MARKETS CORP.,
as Administrative Agent
and
THE BANK OF NEW YORK,
as Indenture Trustee
Dated as of September 1, 1997
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<PAGE>
This ADMINISTRATION AGREEMENT, dated as of September 1, 1997 (the
"Agreement"), among WLFC FUNDING CORPORATION, a Delaware corporation (the
"Issuer"), WILLIS LEASE FINANCE CORPORATION, a California corporation (the
"Servicer"), FIRST UNION CAPITAL MARKETS CORP., a North Carolina corporation
(the "Administrative Agent") and THE BANK OF NEW YORK, a New York banking
corporation, as Indenture Trustee (the "Indenture Trustee").
W I T N E S S E T H :
WHEREAS, the Issuer is issuing its Series 1997-1 Notes (the "Series
1997-1 Notes") pursuant to the Series 1997-1 Supplement, dated as of September
1, 1997 (the "Series 1997-1 Supplement") to the Indenture, dated as of September
1, 1997 (the "Indenture"), each between the Issuer and The Bank of New York, as
trustee (the "Indenture Trustee");
WHEREAS, pursuant to the Indenture and the other Related Documents,
the Administrative Agent is required to perform certain duties referred to
therein; and
WHEREAS, the Administrative Agent has the capacity to provide the
services required thereby and is willing to perform such services on the terms
set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties agree as follows:
SECTION 1. Definitions. Capitalized terms used and not otherwise
defined herein shall have the meanings assigned to such terms in the Series
1997-1 Supplement or, if not defined therein, as defined in the Indenture.
SECTION 2. APPOINTMENT AND AUTHORITY OF ADMINISTRATIVE AGENT.
Subject to the terms and conditions set forth herein, the Indenture Trustee, on
behalf of the Noteholders, hereby appoints the Administrative Agent to perform
all of the activities set forth in Section 3 hereof. By executing this
Agreement, the Administrative Agent hereby accepts such appointment.
SECTION 3. DUTIES OF THE ADMINISTRATIVE AGENT. Subject to the
limitations set forth in this Agreement, the duties of the Administrative Agent
shall be limited to the following:
(a) COORDINATION OF THE ISSUANCE OF ADDITIONAL SERIES. At
the request of the Issuer, the Administrative Agent shall coordinate the
issuance of additional Series pursuant to Section 1006 of the Indenture.
(b) FACILITATION OF TRANSFER TO REPLACEMENT SERVICER. Upon
receipt of a copy of a notice that a Servicer Termination Notice has been issued
pursuant to
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<PAGE>
Section 405(b) of the Indenture, the Administrative Agent shall use reasonable
efforts to locate a qualified replacement Servicer to fulfill the duties of the
then current Servicer in accordance with, and subject to the terms and
conditions set forth in, Section 405(b) of the Indenture. The Administrative
Agent agrees to perform the duties set forth in Section 405(b) of the Indenture.
(c) DETERMINATION OF LIBOR. The Administrative Agent shall
determine LIBOR pursuant to the terms and conditions of Section 202(c) of the
Series 1997-1 Supplement. The Class A Noteholder has agreed, pursuant to
Section 11(b) of the Note Purchase Agreement, to provide the Administrative
Agent, among others, with a copy of confirmation for each LIBOR Period setting
forth LIBOR for such LIBOR Period and the outstanding principal balance of the
Loan for such LIBOR Period.
(d) The Administrative Agent shall take all action required
of it under the Indenture or the Series 1997-1 Supplement, including the
determination of whether to grant any waivers, consents or approvals described
therein, and the implementation thereof. All such obligations of the
Administrative Agent set forth therein are incorporated herein by reference and
failure to take any such action shall constitute a breach of this Agreement.
SECTION 4. STANDARD OF CARE; CONFORMITY WITH APPLICABLE LAW;
LIABILITY OF ADMINISTRATIVE AGENT. (a) The Administrative Agent will perform
its duties hereunder in accordance with the same standard of care exercised by
the Administrative Agent in the conduct of similar affairs for its own account.
(b) The Administrative Agent will not, in performing its
obligations hereunder, take any action that would be in violation of any law,
rule or regulation that may be applicable to the Administrative Agent, its
property or the services to be performed hereunder.
(c) The Administrative Agent shall not (a) be liable for
any action taken or omitted to be taken by it under or in connection with this
Agreement (except for its own gross negligence or willful misconduct), or (b) be
responsible in any manner for any recital, statement, representation or warranty
made by the Issuer, Indenture Trustee or Servicer, or any officer thereof,
contained in this Agreement or in any other Related Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or in any other Related Document, or for the value of any Collateral
or the validity, effectiveness, genuineness, enforceability or sufficiency of
any Related Document, or for any failure of the Issuer or Servicer or any other
party to any Related Document to perform its obligations thereunder except to
the extent set forth therein. The Administrative Agent shall be entitled to
rely, and shall be fully protected in relying, upon any writing, resolution,
notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or
other document reasonably believed by it to be genuine and correct and to have
been signed or sent by the proper Person or Persons, and upon advice and
statements of legal counsel, independent accountants and other experts selected
by the Administrative Agent.
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<PAGE>
SECTION 5. RECORDS. The Administrative Agent shall maintain
appropriate books of account and records relating to services performed
hereunder, which books of account and records shall upon prior written notice to
the Administrative Agent be accessible for inspection at the offices of the
Administrative Agent by the Issuer, the Servicer and the Indenture Trustee, and
the agents of any of them, at such inspecting party's expense during the
Administrative Agent's normal business hours.
SECTION 6. INDEMNIFICATION. (a) The Administrative Agent hereby
agrees to indemnify and hold harmless the Indenture Trustee, each Noteholder and
their respective directors, officers and shareholders (each an "INDEMNIFIED
PARTY") from and against any and all damages, losses, liabilities, costs and
expenses incurred by an Indemnified Party resulting from the gross negligence or
willful misconduct of the Administrative Agent in performing (or failing to
perform) its obligations under this Agreement. An Indemnified Party shall
immediately notify the Administrative Agent of any damages, losses,
liabilities, costs or expenses which an Indemnified Party has determined has
given or would give rise to a right of indemnification hereunder and the
Administrative Agent shall have the exclusive right to compromise or defend any
such liability or claim at its own expense, which decision shall be binding and
conclusive upon an Indemnified Party. Failure to give such notice shall not
relieve the Administrative Agent of its obligations hereunder; PROVIDED,
HOWEVER, that the Administrative Agent shall not be liable or otherwise be held
responsible for any damages, losses, liabilities, costs or expenses resulting
from the failure to give such notice. The Administrative Agent hereby agrees to
indemnify and hold harmless the Issuer from and against any and all damages,
losses, liabilities, costs and expenses incurred by the Issuer resulting from
the gross negligence or willful misconduct of the Administrative Agent in
performing its obligations under Section 3(c) hereof.
(b) The Issuer and the Servicer shall jointly and severally indemnify
upon demand the Administrative Agent from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and disbursements of any kind whatsoever which may at any time
(including at any time following the repayment of any Outstanding Obligations
and the termination or resignation of the related Administrative Agent) be
imposed on, incurred by or asserted against any such Person in any way relating
to or arising out of this Agreement or any document contemplated by or referred
to herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by any such Person under or in connection with any of
the foregoing; PROVIDED, HOWEVER, that neither the Issuer nor the Servicer shall
be liable for the payment to the Administrative Agent of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Administrative
Agent's negligence or willful misconduct.
SECTION 7. COMPENSATION. As compensation for the performance of
the Administrative Agent's obligations under this Agreement, the Servicer agrees
to pay quarterly
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<PAGE>
in arrears, beginning with the third Payment Date, to the Administrative
Agent a fee at the rate of ____% * per annum of the sum of the Aggregate
Outstanding Obligations of all Series then Outstanding on the related
quarterly Payment Date; notwithstanding payment of such fee by the Servicer,
each of the parties hereto acknowledge that the Administrative Agent is the
agent of the Noteholders. If the Servicer fails to pay such fee, the Issuer
shall pay such unpaid amounts from amounts on deposit in the Series 1997-1
Series Account in accordance with the provisions of Section 302 of the Series
1997-1 Supplement. In addition, the Administrative Agent shall also be
entitled to be reimbursed in accordance with Section 302 of the Series 1997-1
Supplement for its expenses incurred in taking any actions required pursuant
to Section 405(b) of the Indenture.
SECTION 8. INDEPENDENCE OF THE ADMINISTRATIVE AGENT. For all
purposes of this Agreement, the Administrative Agent shall be an agent of the
Noteholders and shall not be subject to the supervision of the Issuer, Servicer
or Indenture Trustee with respect to the manner in which it accomplishes the
performance of its obligations hereunder; PROVIDED, HOWEVER, that the
Administrative Agent shall act in accordance with directions from the Requisite
Global Majority when required by the Indenture or the Related Documents.
SECTION 9. NO JOINT VENTURE. Nothing contained in this Agreement
(i) shall constitute the Administrative Agent, the Issuer, the Servicer and the
Indenture Trustee as members of any partnership, joint venture, association,
syndicate, unincorporated business or other separate entity, (ii) shall be
construed to impose any liability as such on any of them or (iii) shall be
deemed to confer on any of them any express, implied or apparent authority to
incur any obligation or liability on behalf of the others.
SECTION 10. OTHER ACTIVITIES OF THE ADMINISTRATIVE AGENT. Nothing
herein shall prevent the Administrative Agent or its Affiliates from engaging in
other businesses or, in its sole discretion, from acting in a similar capacity
as an administrator for any other Person even though such Person may engage in
business activities similar to those of the Issuer and/or the Servicer.
SECTION 11. TERM OF AGREEMENT; RESIGNATION AND REMOVAL OF
ADMINISTRATIVE AGENT. (a) This Agreement shall continue in force until all of
the Outstanding Obligations under the Indenture are paid in full, upon which
event this Agreement shall automatically terminate.
(b) The Administrative Agent may resign its duties
hereunder by providing each of the Issuer, the Servicer and the Indenture
Trustee with at least 60 days' prior written notice.
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* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
4
<PAGE>
(c) The Indenture Trustee, acting at the written direction
of the Requisite Global Majority, or of the Issuer, may remove the
Administrative Agent immediately upon written notice of termination to the
Administrative Agent (with a copy to each of the Issuer and the Servicer) if any
of the following events shall occur:
(i) the Administrative Agent shall default in any
material respect the performance of any of its duties under this Agreement which
failure continues unremedied for a period of fifteen (15) days after the receipt
by the Administrative Agent of written notice thereof specifying with reasonable
detail the default;
(ii) a court having jurisdiction in the premises
shall enter a decree or order for relief, and such decree or order shall not
have been vacated within 60 days, in respect of the Administrative Agent in any
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect or appoint a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for the Administrative
Agent or any substantial part of its property or order the winding-up or
liquidation of its affairs; or
(iii) the Administrative Agent shall commence a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, shall consent to the entry of an order for relief in
an involuntary case under any such law, or shall consent to the appointment of a
receiver, liquidator, assignee, trustee, custodian, sequestrator or similar
official for the Administrative Agent or any substantial part of its property,
shall consent to the taking of possession by any such official of any
substantial part of its property, shall make any general assignment for the
benefit of creditors or shall fail generally to pay its debts as they become
due.
(d) No resignation or removal of the Administrative Agent
pursuant to this Section 11 shall be effective until (i) a successor
Administrative Agent shall have been appointed by the Requisite Global Majority
(which successor shall also be reasonably acceptable to the Issuer) and
(ii) such successor Administrative Agent shall have agreed in writing to be
bound by the terms of this Agreement in the same manner as the Administrative
Agent is bound hereunder or as otherwise approved by the Requisite Global
Majority. A copy of any such appointment and the agreement executed by such
successor Administrative Agent shall be promptly sent to each of the Issuer, the
Servicer and the Indenture Trustee.
SECTION 12. ACTION UPON TERMINATION, RESIGNATION OR REMOVAL.
Promptly upon the effective date of termination of this Agreement pursuant to
Section 11(a) of this Agreement or the resignation or removal of the
Administrative Agent pursuant to Section 11(b) or (c) of this Agreement,
respectively, the Administrative Agent shall be entitled to be paid all fees and
reimbursable expenses accruing to it to the date of such termination,
resignation or removal. In the event of the resignation or removal of the
Administrative Agent pursuant to Section 11(b) or (c) of this Agreement,
respectively, the Administrative Agent shall cooperate with the Indenture
Trustee and take all reasonable steps requested to assist the Requisite Global
5
<PAGE>
Majority and the Indenture Trustee in making an orderly transfer of the duties
of the Administrative Agent.
SECTION 13. NOTICES. Any notice, report or other communication
given hereunder shall be in writing and addressed as follows:
(a) If to the Issuer, to:
WLFC Funding Corporation
180 Harbor Drive, Suite 207
Sausalito, California 94965
Fax: 415/331-0607
with a copy to:
the Servicer and
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071
Attention: Brian Kilb, Esq.
Telephone: 213/229-7236
Fax: 213/229-7520
(b) If to the Administrative Agent, to:
First Union Capital Markets Corp.
One First Union Center
301 South College Street
Charlotte, North Carolina 28288
Attn: Milton Anderson
(c) If to the Indenture Trustee, to:
The Bank of New York
101 Barclay Street
12th Floor, East
Asset Backed Finance Unit
New York, New York 10286
(d) If to the Servicer, to:
Willis Lease Finance Corporation
180 Harbor Drive, Suite 200
Sausalito, California 94965
Attention: General Counsel
Fax: 415/331-0607
6
<PAGE>
with a copy to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071
Attention: Brian Kilb, Esq.
Telephone: 213/229-7236
Fax: 213/229-7520
(e) If to any Noteholder, at the address set forth in the
Note Register.
or to such other address as any party shall have provided to the other parties
in writing. Any notice required to be in writing hereunder shall be deemed
given if such notice is mailed by certified mail, postage prepaid, or
hand-delivered (or, in the case of the Issuer or the Servicer, by
internationally recognized courier service) to the address of such party as
provided above.
SECTION 14. Amendments. This Agreement may be amended from time to
time by the parties hereto, provided that any amendment must be accompanied by
the written consent of the Requisite Global Majority. Prior to the execution of
any amendment to this Agreement, the Issuer will provide notice of any such
amendment to each Rating Agency, if any.
SECTION 15. SUCCESSORS AND ASSIGNS. This Agreement may not be
assigned by the Administrative Agent except to an Affiliate unless (i) such
assignment is previously consented to in writing by the Indenture Trustee
(acting at the direction of the Control Party of each Series), (ii) such
assignee is reasonably acceptable to the Issuer, and (iii) each Rating Agency,
if any, shall have received prior notice of each such assignment.
SECTION 16. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS WITHOUT
REGARD TO CONFLICTS OF LAW PRINCIPLES.
SECTION 17. CONSENT TO JURISDICTION. Any legal suit, action or
proceeding against any of the parties hereto arising out of or relating to this
Agreement, or any transaction contemplated hereby, may be instituted in any
federal or state court in New York County, State of New York, and each of the
parties hereto hereby waives any objection which it may now or hereafter have to
the laying of venue of any such suit, action or proceeding, and, solely for the
purposes of enforcing this Agreement, each of the Issuer and the Servicer hereby
irrevocably submits to the non-exclusive jurisdiction of any such court in any
such suit, action or proceeding. Each of the Issuer and the Servicer hereby
irrevocably appoints and designates CT Corporation Systems, 1633 Broadway,
New York, New York 10019, its true and lawful attorney-in-fact and duly
authorized agent for the limited purpose of accepting
7
<PAGE>
service of legal process and the Issuer agrees that service of process upon such
party shall constitute personal service of such process on such Person. Each of
the Issuer and the Servicer shall maintain the designation and appointment of
such authorized agent until all amounts payable under this Agreement shall have
been paid in full. If such agent shall cease to so act, each of the Issuer and
the Servicer shall immediately designate and appoint another such agent
satisfactory to the Administrative Agent and shall promptly deliver to the
Administrative Agent evidence in writing of such other agent's acceptance of
such appointment.
SECTION 18. HEADINGS. The section headings hereof have been
inserted for convenience of reference only and shall not be construed to affect
the meaning, construction or effect of this Agreement.
SECTION 19. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which when so executed shall together constitute but one
and the same agreement.
SECTION 20. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable under any applicable law, rule or regulation or that
would result in the imposition of any fine or adverse regulatory or other
consequence in any jurisdiction shall be ineffective to the extent thereof
without invalidating the remaining provisions hereof and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 21. AGREEMENT NOT TO FILE PETITION IN BANKRUPTCY. The
Administrative Agent hereby agrees that it shall not institute against, or join
any other person in instituting against, the Issuer any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding, or other
proceeding under any insolvency, bankruptcy or similar law of any jurisdiction,
for one year and a day after the last date on which any Note of any Series was
Outstanding.
SECTION 22. BINDING EFFECT; THIRD-PARTY BENEFICIARIES. This
Agreement will inure to the benefit of and be binding upon the parties hereto.
SECTION 23. MERGER AND INTEGRATION. Except as specifically stated
otherwise herein, this Agreement sets forth the entire understanding of the
parties relating to the subject matter hereof, and all prior understandings,
written or oral, are superseded by this Agreement. This Agreement may not be
modified, amended, waived or supplemented except as provided herein.
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Administration
Agreement to be duly executed and delivered as of the day and year first above
written.
WLFC FUNDING CORPORATION
By: /s/ James D. McBride
Name: JAMES D. McBRIDE
Title: CHIEF FINANCIAL OFFICER
FIRST UNION CAPITAL MARKETS CORP.
By: /s/ Russell D. Morrison
Name: RUSSELL D. MORRISON
Title: VICE PRESIDENT
WILLIS LEASE FINANCE CORPORATION
By: /s/ Charles F. Willis
Name: CHARLES F. WILLIS
Title: PRESIDENT
THE BANK OF NEW YORK, not in its individual
capacity but solely as Indenture Trustee
By: /s/ Cheryl L. Laser
Name: CHERYL L. LASER
Title: ASSISTANT VICE PRESIDENT
<PAGE>
COMPUTATION OF EARNINGS
WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
INCOME BEFORE EXTRAORDINARY ITEM
Primary Earnings:
Income to common shares before extraordinary item................................ $ 5,330 $ 2,804 $ 3,216
Shares:
Weighted average number of common shares outstanding............................. 5,497 3,756 3,111
--------- --------- ---------
Primary earnings per common share before extraordinary item.......................... $ 0.97 $ 0.75 $ 1.03
Assuming Full Dilution
Earnings:
Income before extraordinary item................................................. $ 5,330 $ 2,804 $ 3,216
Shares:
Weighted average number of common shares outstanding and common stock
equivalents.................................................................... 5,673 3,796 3,111
--------- --------- ---------
Earnings per common share assuming full dilution..................................... $ 0.94 $ 0.74 $ 1.03
NET INCOME
Primary Earnings:
Net income to common shares:..................................................... $ 7,338 $ 2,804 $ 3,216
Shares:
Weighted average number of common shares outstanding............................. 5,497 3,756 3,111
--------- --------- ---------
Primary earnings per common share.................................................... $ 1.33 $ 0.75 $ 1.03
Assuming Full Dilution
Earnings:
Net income....................................................................... $ 7,338 $ 2,804 $ 3,216
Shares:............................................................................
Weighted average number of common shares......................................... 5,497 3,756 3,111
Potentially dilutive common shares............................................... 176 32 --
--------- --------- ---------
Total Shares................................................................... 5,673 3,788 3,111
Earnings per common share assuming full dilution..................................... $ 1.29 $ 0.74 $ 1.03
</TABLE>
51
<PAGE>
SUBSIDIARIES OF WILLIS LEASE FINANCE CORPORATION
Willis Aeronautical Services, Inc.
Terandon Leasing Corporation
T-2 Inc.
T-4 Inc.
T-5 Inc.
T-7 Inc.
T-8 Inc.
T-10 Inc.
T-11 Inc.
T-12 Inc.
All the above are California Corporations
WLFC Engine Pooling Company,
A California Corporation
WLFC Funding Corporation,
A Delaware Corporation
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 31,556,759
<SECURITIES> 0
<RECEIVABLES> 5,352,284
<ALLOWANCES> 0
<INVENTORY> 10,334,113
<CURRENT-ASSETS> 0
<PP&E> 139,076,499
<DEPRECIATION> 15,542,792
<TOTAL-ASSETS> 198,430,056
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 40,117,223
<OTHER-SE> 14,484,234
<TOTAL-LIABILITY-AND-EQUITY> 198,430,056
<SALES> 26,857,942
<TOTAL-REVENUES> 51,206,744
<CGS> 20,146,669
<TOTAL-COSTS> 33,060,262
<OTHER-EXPENSES> 9,331,972
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,814,510
<INCOME-TAX> 3,484,768
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 2,007,929
<CHANGES> 0
<NET-INCOME> 7,337,671
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.29
</TABLE>
