<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-28774
-----------------
WILLIS LEASE FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
California 68-0070656
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
180 Harbor Drive, Suite 200, Sausalito, CA 94965
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (415) 331-5281
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
-----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Title of Each Class Outstanding at April 30, 1998
------------------- -----------------------------
Common Stock, No Par Value 7,258,098
1
<PAGE>
WILLIS LEASE FINANCE CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
<C> <S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
As of March 31, 1998 and December 31, 1997
Consolidated Statements of Income 4
Three months ended March 31, 1998 and 1997
Consolidated Statements of Shareholders' Equity 5
Year ended December 31, 1997 and
three months ended March 31, 1998
Consolidated Statements of Cash Flows 6
Three months ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 9
And Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
2
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $3,398,420 $13,095,303
Deposits 19,251,659 18,461,456
Equipment held for operating lease, less accumulated depreciation
of $16,568,638 at March 31, 1998 and $15,267,683 at December 31, 1997 184,147,534 138,535,643
Net investment in direct finance lease 9,679,970 9,821,854
Property, equipment and furnishings, less accumulated depreciation
of $306,376 at March 31, 1998 and $275,109 at December 31, 1997 517,220 540,856
Spare parts inventory 11,743,827 10,334,113
Maintenance billings receivable 1,329,024 1,547,765
Operating lease rentals receivable 522,687 520,466
Receivables from spare parts sales 1,791,244 2,908,175
Other receivables 388,770 375,878
Other assets 8,667,340 2,288,547
------------- -------------
Total assets $241,437,695 $198,430,056
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $2,226,216 $4,010,976
Salaries and commissions payable 498,894 1,070,051
Deferred income taxes 8,917,784 8,476,040
Deferred gain 176,654 183,278
Notes payable and accrued interest 142,951,917 101,433,200
Capital lease obligation 2,765,793 2,802,119
Residual share payable 2,047,535 2,092,140
Maintenance deposits 21,070,666 20,018,195
Security deposits 3,188,651 2,435,987
Unearned lease revenue 1,169,696 1,306,613
------------- -------------
Total liabilities $185,013,806 $143,828,599
Shareholders' equity:
Common stock, no par value. Authorized 20,000,000 shares;
7,210,598 and 7,177,320 issued and outstanding at March 31, 1998
and December 31,1997, respectively 40,190,299 40,117,223
Retained earnings 16,233,590 14,484,234
------------- -------------
Total shareholders' equity 56,423,889 54,601,457
------------- -------------
Total liabilities and shareholders' equity $241,437,695 $198,430,056
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to the consolidated financial statements
3
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1998 1997
------------- -----------
<S> <C> <C>
REVENUE
Lease revenue $6,436,248 $4,115,077
Gain on sale of leased equipment 3,107,852 397,379
Spare part sales 3,015,927 2,221,680
Sale of equipment acquired for resale - 2,547,840
Interest and other income 185,387 251,525
----------- ----------
Total revenue $12,745,414 $9,533,501
EXPENSES
Interest expense 2,602,350 1,471,943
Depreciation expense 1,417,509 875,460
Residual share 232,512 190,552
Cost of spare part sales 2,054,544 1,304,152
Cost of equipment acquired for resale - 2,252,517
General and administrative 3,183,837 1,778,452
----------- ----------
Total expenses $9,490,752 $7,873,076
Income before income taxes
----------- ----------
and extraordinary item 3,254,662 1,660,425
Income taxes (1,304,826) (645,284)
----------- ----------
Income before extraordinary item 1,949,836 1,015,141
Extraordinary item less applicable income taxes (200,480) 2,007,929
----------- ----------
Net income $1,749,356 $3,023,070
----------- ----------
----------- ----------
Basic earnings per common share:
Income before extraordinary item $0.27 $0.19
Extraordinary item (0.03) 0.37
----------- ----------
Net income $0.24 $0.56
----------- ----------
Diluted earnings per common share:
Income before extraordinary item $0.26 $0.18
Extraordinary item (0.03) 0.36
----------- ----------
Net income $0.23 $0.54
----------- ----------
Average common shares outstanding 7,191,844 5,430,046
Diluted average common shares outstanding 7,440,049 5,577,377
</TABLE>
See accompanying notes to the consolidated financial statements
4
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997 AND THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Issued and
outstanding Total
shares of Common Retained shareholders'
common stock stock earnings equity
------------ ----- -------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 5,426,793 $16,055,689 $7,146,563 $23,202,252
Shares issued 25,527 221,244 221,244
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
Shares issued 33,278 73,076 73,076
Net income 1,749,356 1,749,356
--------- ----------- ----------- -----------
Balances at March 31, 1998 (unaudited) 7,210,598 $40,190,299 $16,233,590 $56,423,889
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements
5
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------
1998 1997
---------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,749,356 $3,023,070
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of equipment held for lease 1,382,180 849,494
Depreciation of property, equipment and furnishings 35,329 25,966
(Gain) loss on sale of property, equipment and furnishings (9,177) 885
(Gain) on sale of leased equipment (3,107,852) (397,379)
Increase in residual share payable (44,605) 190,552
Changes in assets and liabilities:
Deposits (790,203) 382,373
Spare parts inventory (1,409,714) (513,640)
Receivables 1,320,559 (904,116)
Other assets 181,207 (415,395)
Accounts payable and accrued expenses (1,784,760) (498,042)
Salaries and commission payable (571,157) 48,554
Deferred income taxes 441,744 1,974,693
Deferred gain (6,624) (6,624)
Accrued interest 129,925 (378,470)
Maintenance deposits 1,052,471 1,929,559
Security deposits 752,664 189,895
Unearned lease revenue (136,917) (184,610)
------------ ------------
Net cash (used in) provided by operating activities (815,574) 5,316,765
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment held for operating lease (net
of selling expenses) 6,456,215 1,000,000
Proceeds from sale of property, equipment and furnishings 15,000 3,500
Purchase of equipment held for operating lease (50,342,434) (7,269,663)
Deposits made in connection with inventory purchases (6,560,000) -
Purchase of property, equipment and furnishings (17,516) (52,643)
Principal payments received on direct finance lease 141,884 -
------------ ------------
Net cash used in investing activities (50,306,851) (6,318,806)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 49,395,416 56,838,374
Proceeds from issuance of common stock 73,076 48,257
Principal payments on notes payable (8,006,624) (54,600,496)
Principal payments on capital lease obligation (36,326) (53,753)
------------ ------------
Net cash provided by financing activities 41,425,542 2,232,382
(Decrease) increase in cash and cash equivalents (9,696,883) 1,230,341
Cash and cash equivalents at beginning of period 13,095,303 6,573,241
------------ ------------
Cash and cash equivalents at end of period $3,398,420 $7,803,582
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to the consolidated financial statements
6
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Willis
Lease Finance Corporation and its subsidiaries (the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for reporting on Form 10-Q. Pursuant to such rules and
regulations, certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The accompanying
unaudited interim financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto, together with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, contained in the Company's Annual Report to Shareholders
incorporated by reference in the Company's Annual Report on Forms 10-K and
10-KA for the fiscal year ended December 31, 1997.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal and
recurring adjustments) necessary to present fairly the financial position of
the Company as of March 31, 1998, and December 31, 1997, and the results of
its operations for the three month periods ended March 31, 1998 and 1997 and
its cash flows for the three month periods ended March 31, 1998 and 1997.
The results of operations and cash flows for the three month period ended
March 31, 1998, are not necessarily indicative of the results of operations
or cash flows which may be reported for the remainder of 1998.
2. MANAGEMENT ESTIMATES
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
3. SHARES ISSUED
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. During the three month period ended
March 31, 1998, the Company issued 8,040 shares of Common Stock as a result
of employee stock purchases under the Purchase Plan.
In conjunction with its 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 initial public 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 follow-on offering in December 1997
constituted such a
7
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. In February, 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.
4. FINANCING
In February 1998, the Company increased the committed amount of its
revolving credit facility to $45 million and, subsequently, in April 1998, to
$65 million. This credit facility is available to finance the acquisition of
aircraft engines, aircraft and high-value spare parts for sale or lease.
This facility expires on June 30, 1998, bears interest at prime less 0.25%
and may be renewed annually.
In March 1998, the Company repaid a loan that had residual sharing
provisions and an interest rate of 10%. The repayment resulted in an
extraordinary expense of $0.2 million, net of tax.
5. COMMITMENTS
In February 1998, the Company signed a lease for office space into which
it plans to move 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. The Company has also signed a lease for a warehouse and office
facility to be used by Willis Aeronautical Services, Inc. ("WASI") in San
Diego, California into which it will move substantially all of WASI's South
San Francisco operations. This lease commenced in April 1998. The initial
term of this lease is 6 years and the annual rental commitments under the
lease are approximately $0.4 million. 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.
In March 1998, the Company committed to purchase, during 1998 and 1999,
certain used aircraft and engines for its WASI parts operation. Certain
deposits were made in connection with this commitment. In April 1998, the
Company took delivery of certain of the aircraft and the total, remaining
commitment to purchase over the course of 1998 and 1999 is not more than
$33.0 million.
8
<PAGE>
Item 2. 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, aircraft 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
sale of spare parts and components and income from the sale of engines and
equipment.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1997:
Revenue is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------------
1998 1997
---- ----
Amount % Amount %
-------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Lease revenue . . . . . . . . . . . . . . $6,436 50.5% $4,115 43.2%
Gain on sale of leased equipment. . . . . 3,108 24.4 397 4.2
Spare parts sales . . . . . . . . . . . . 3,016 23.7 2,222 23.3
Sale of equipment acquired for resale . . --- --- 2,548 26.7
Interest and other income . . . . . . . . 185 1.4 252 2.6
-----------------------------------------------------
Total $12,745 100.0% $9,534 100.0%
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
LEASE PORTFOLIO. During the quarter ended March 31, 1998, 10 engines and
1 aircraft were added to the Company's lease portfolio at a total cost of
$47.3 million. One engine was sold from the lease portfolio.
LEASING ACTIVITIES. Lease revenue for the quarter ended March 31, 1998
increased 56% to $6.4 million from $4.1 million for the comparable period in
1997. This increase reflects operating and finance lease revenues from
additional engines, aircraft and spare parts packages.
Expenses directly related to operating lease activity increased 65% to
$4.1 million. Interest expense related to all leasing activities increased
72% to $2.5 million for the quarter ended March 31, 1998, from the comparable
period in 1997, due to an increase in average debt outstanding during the
period. Depreciation expense increased 63% to $1.4 million for the quarter
ended March 31, 1998, from the comparable period in 1997, due to the larger
average asset base in the first quarter of 1998. Residual sharing expense
increased 22% to $232,512 for the quarter ended March 31, 1998 from the
$190,552 for the comparable period in 1997. This expense is calculated by
comparing the net book value of the engines subject to such agreements to
their related debt balances and adjusting the residual share payable to the
appropriate amount representing the sharing percentage of any excess of the
net book value over the corresponding debt balance for such engines. In
March 1998, the Company repaid one of its loans which had residual sharing
provisions. (see "Extraordinary Items" below)
9
<PAGE>
GAIN ON SALE OF LEASED EQUIPMENT. During the quarter ended March 31,
1998, the Company sold one engine from the lease portfolio which resulted in
a gain of $3.1 million. This compares with gains in the quarter ended March
31, 1997 of $0.4 million.
SPARE PARTS SALES. Revenues from spare parts sales in the quarter ended
March 31, 1998 increased 36% to $3.0 million from $2.2 million in the
comparable 1997 period. The gross margin decreased to 32% in the first
quarter of 1998, from 41% in the corresponding period in 1997. The Company
does not believe that the relatively high margin experienced in the first
quarter of 1997 is indicative of future results.
SALE OF EQUIPMENT ACQUIRED FOR RESALE. During the quarter ended March
31, 1997, the Company sold one engine for $2.5 million which resulted in a
gain of $0.3 million. The Company had no such sales during the comparable
1998 period.
INTEREST AND OTHER INCOME. Interest and other income for the quarter
ended March 31, 1998 was $0.2 million compared to $0.3 million for the
quarter ended March 31, 1997 due to lower cash balances held in the first
quarter of 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 79% to $3.2 million for the quarter ended March 31, 1998 from $1.8
million in the comparable period in 1997. This increase reflects expenses
associated with staff additions, recruiting costs related thereto, increased
rent due to the expansion of the WASI facility, as well as increases in
professional fees, insurance expense and expenses related to promotional and
marketing activities.
INCOME TAXES. Income taxes, exclusive of tax on extraordinary items, for
the quarter ended March 31, 1998, increased to $1.3 million from $0.6 million
for the comparable period in 1997. This increase reflects an increase in the
Company's pre-tax earnings.
EXTRAORDINARY ITEMS. In March 1998, the Company repaid a loan that had
residual sharing provisions and an interest rate of 10%. The repayment
resulted in an extraordinary expense of $0.2 million, net of tax. 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 $2.0 million, net of tax.
ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial Accounting
Standards Board issued a new statement: 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.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its growth through borrowings
secured by its equipment 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 $49.4 million and $56.8 million, in the quarters ended March
31, 1998 and 1997, respectively, was derived from this activity. In these
same time periods $8.0 million and $54.7 million, respectively, was used to
pay down related debt or the capital lease. In December 1997, net proceeds
from a follow-on common stock offering were approximately $23.8 million, as
discussed below. In September 1996, net proceeds from the initial public
offering were approximately $15.9 million, as discussed below. Cash flows
from operating activities generated approximately $(0.8) million and $5.3
million in the quarters ended March 31, 1998 and 1997 respectively.
The Company's primary use of funds is for the purchase of equipment for
lease. Approximately $50.3 million and $7.3 million of funds were used for
this purpose in the quarters ended March 31, 1998 and 1997 respectively.
Additional funds were used in these periods to finance the growth of
inventories to support spare parts sales.
10
<PAGE>
The follow-on 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. The balance of the proceeds, together with debt financing, were
primarily used to acquire additional assets for lease and sale and for
working capital and other general corporate purposes.
At March 31, 1998, the Company had a $45.0 million revolving credit
facility to finance the acquisition of aircraft engines, aircraft and spare
parts for sale or lease. In April 1998, this facility was increased to $65
million. Assuming compliance with the facility's terms, including
sufficiency of collateral, at March 31, 1998 and April 30, 1998, $7.1 million
and $9.6 million was available under this facility, respectively. The
facility expires on June 30, 1998. The facility bears interest at prime less
0.25% and may be renewed annually.
The Company has an $80.0 million warehouse facility (the "WLFC Funding
Corp. 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 "WLFC Funding Corp. Facility"). This
transaction's structure facilitates future public or private securitized note
issuances by the special purpose finance subsidiary. The facility has an
eight year term, bears interest at LIBOR plus 2.25% and is partially
guaranteed by the Company. This facility requires the issuer to hedge 50% of
the facility against interest rate changes no later than May 31, 1998.
Assuming compliance with the facility's terms, including sufficiency of
collateral, as of March 31, 1998 and April 30, 1998, $34.1 million and $31.0
million was available under this facility, respectively.
WASI has a $3.0 million secured working capital facility for the
acquisition of aircraft 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 is in the process of being extended to June
30, 1998. The Company directly guarantees WASI's obligations under this
facility. Assuming compliance with the facility's terms, including
sufficiency of collateral, as of March 31, 1998 and April 30, 1998,
approximately $1.3 million was available under this facility.
Approximately $57.4 million of the Company's debt is repayable during
the remainder of 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. The Company
anticipates that it will refinance the balloon payment maturities during the
remainder of 1998.
The Company believes that its current equity base and internally
generated funds are sufficient to fund the Company's anticipated equity
requirements and operations for the remainder of 1998, at which time
additional equity may be required to fund projected growth. 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
highly dependent 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 aircraft
engines, aircraft and spare parts packages to its portfolio, add inventory to
support its spare parts sales 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 March 31, 1998, the Company had 8 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
11
<PAGE>
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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Interest Rate Risks" below.
Between March 31, 1998 and April 30, 1998, the Company and WASI
purchased and exchanged engines for the lease portfolio and aircraft for the
parts operation. The total cost of these purchases and the exchange was
approximately $21.7 million. These purchases were funded with cash from
operations, and borrowings under the Company's revolving line of credit and
the WLFC Funding Corp. Facility.
The Company has committed to purchase, during 1998 and 1999, additional
used aircraft and engines for its WASI parts operation. Certain deposits
were made in connection with this commitment. In April 1998, the Company
took delivery of certain of the aircraft and the total, remaining commitment
to purchase over the course of 1998 and 1999 is not more than $33.0 million.
MANAGEMENT OF INTEREST RATE EXPOSURE
At March 31, 1998, $96.5 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 March 31, 1998, the
notional principal amount of the cap was $35.3 million and said amount will
decline to $26.0 million at the end of its term. The cost of the cap is
being amortized as an expense over its remaining term. The Company will be
exposed to credit risk in the event of non-performance of the interest rate
cap counter party. The Company anticipates that it will hedge additional
amounts of its floating rate debt in the second quarter of 1998.
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
12
<PAGE>
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 equipment is required and general conditions in the airline
industry. In addition, the success of an operating lease depends in part
upon having the aircraft equipment returned by the lessee in marketable
condition as required by the lease. Consequently, there can be no assurance
that the Company's estimated residual value for the aircraft equipment will
be realized. As of March 31, 1998, the Company had 51 engines, 4 aircraft and
7 parts packages under lease to 36 customers in 22 countries (2 additional
engines and one spare parts package were off lease). On April 30, 1998, the
Company purchased additional engines for its lease portfolio, some of which
have yet to be placed on lease. These engines, together with the engines
undergoing maintenance that were returned by Western Pacific Airlines, Inc.
("West Pac") (see "Customer Credit risks" below) and other engines undergoing
maintenance, give the company eight engines either currently or shortly
available for lease. If the Company is unable to lease, 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, acquires aviation equipment such as whole
aircraft 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 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
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<PAGE>
Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"),
creditors are automatically stayed from enforcing their rights. In the case
of United States certified airlines, Section 1110 of the Bankruptcy Code
provides certain relief to lessors of the aircraft equipment. Specifically,
the 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.
On October 5, 1997, West Pac, a domestic lessee of three of the
Company's engines, 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 were returned to the Company.
These engines are currently undergoing maintenance. Upon completion of such
maintenance, the Company expects to re-lease or sell the engines. In February
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 it lawfully terminated the Pan Am Lease prior to the bankruptcy.
The Company has possession of the majority of the spare parts in the Pan Am
Lease in value terms and has reserved for possible costs associated with
termination of the Pan Am Lease. 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, fluctuation in aircraft equipment marketing
activities, fluctuation of margins on such activities, unanticipated early
lease terminations, the timing of aircraft equipment 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 the quarter ended March 31, 1998, approximately 66% of the Company's
lease revenue was generated by leases to foreign customers. Eight percent of
lease revenue 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, 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.
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<PAGE>
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
and the net proceeds of equity offerings. 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 a large 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.
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 equipment leases are generally structured at fixed rental
rates for specified terms. As of March 31, 1998, borrowings subject to
interest rate risk totaled $96.5 million or 66% 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 $35.3 million as
of March 31, 1998, 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. The Company anticipates that it will hedge additional
amounts of its floating rate debt in the second quarter of 1998.
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 International. 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 and a joint venture with The AGES Group ("AGES"), 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 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 AAR Corp., AGES Group, The Memphis Group, Aviation Sales Company,
Kellstrom Industries and AVTEAM, Inc. Certain of
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<PAGE>
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
Corp., 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). In April 1998, the Company hired a new
President to supplement WASI's existing management. 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 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
16
<PAGE>
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, aircraft 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.
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 founder and Executive Vice 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
17
<PAGE>
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 March 31,
1998, 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.
18
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER 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 filed on June
21, 1996.
10.1* Aircraft Purchase and Sale Agreement dated as of March 24, 1998
between the Company and United Air Lines, Inc.
10.2 Amendment No. 3 dated February 27, 1998 to Credit Agreement for
purposes of increasing the time during which the amount of the
revolving credit facility will be $45 million.
10.3 Amendment No. 4 dated March 26, 1998 to Credit Agreement for
purposes of adding certain aircraft and aircraft engines to be
financed pursuant to revolving credit facility.
11.1 Statement regarding computation of per share earnings.
27.1 Financial Data Schedule
</TABLE>
--------------------
*Portions of this exhibit have been omitted pursuant to a request
for confidential treatment.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the first quarter of 1998.
19
<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.
Date: , 1998
-------------
Willis Lease Finance Corporation
By: /s/ James D. McBride
---------------------------
James D. McBride
Chief Financial Officer
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<PAGE>
B747-100 AIRCRAFT PURCHASE AND SALE AGREEMENT
Dated as of March 24, 1998
Between
WILLIS LEASE FINANCE CORPORATION
as Buyer
and
UNITED AIR LINES, INC.,
as Seller
<PAGE>
B747-100 AIRCRAFT PURCHASE AND SALE AGREEMENT
THIS B747-100 AIRCRAFT PURCHASE AND SALE AGREEMENT (this "AGREEMENT")
is made and entered into as of this 24th day of March, 1998, by and between
United Air Lines, Inc., a Delaware corporation ("SELLER"), and Willis Lease
Finance Corporation, a California corporation ("BUYER").
WHEREAS, Seller desires to sell the Aircraft (as hereinafter defined) to
Buyer and Buyer desires to purchase the Aircraft;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and other good and valuable consideration, the parties
hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF AIRCRAFT
1.1. AIRCRAFT SALE. Pursuant to the terms and subject to the conditions
contained in this Agreement, Seller hereby agrees to sell and deliver (or
cause the delivery) to Buyer, and Buyer hereby agrees to purchase and accept
(or cause the purchase and acceptance) from Seller, twelve (12) used Boeing
model B747-100 aircraft (each, individually, an "AIRCRAFT" and,
collectively, the "AIRCRAFT", and each airframe thereon an "AIRFRAME"
and, collectively, the "AIRFRAMES") bearing, respectively, U.S.
registration numbers N4732U, N4735U, N4720U, N4719U, N4729U, N4723U, N155UA,
N4728U, N157UA, N153UA, N154UA and N156UA, and manufacturer's serial numbers
19927, 19928, 19981, 19880, 19926, 19882, 20104, 19925, 20106, 20102, 20103
and 20105, all as set forth on Exhibit B hereto. Each such Aircraft shall
include therein (i) one (1) used model 660 auxiliary power unit ("APU"),
(ii) four (4) used Pratt & Whitney model JT9D-7A engines together with the
engine quick engine change components ("QEC") (each, individually, an
"Engine" and, collectively, the "Engines"), (iii) all of the components,
equipment, instruments, appliances, accessories, furnishings, seats, avionic
components, and parts (including the QEC's) normally installed on, attached
to or appurtenant to each airframe and engine in Seller's fleet of Boeing
B747-100 aircraft, excluding entirely any and all Excluded Items (as
hereinafter defined)) ("PARTS") and (iv) the aircraft documentation set
forth in Exhibit A hereto (the "AIRCRAFT DOCUMENTATION"); PROVIDED,
HOWEVER, Buyer expressly agrees and covenants that all of the restrictions on
the use and operation of each of the Aircraft and Airframes will be fully
complied with by Buyer (and by any subsequent owner or transferee).
1.2. ITEMS EXCLUDED FROM THE AIRCRAFT SALE. The following items shall
not be a part of the Aircraft nor be subject to this sale (collectively, the
"EXCLUDED ITEMS"):
<PAGE>
__________________________________________________________________________
__________________________________________________________________________:*
A. ____________________________________________________
______________________________________________________________________;*
B. ____________________________________________________
______________________________________________________________________.*
1.3. ASSUMPTION OF LEASE.
____________________________________________________
____________________________________________________.*
1.4. JOINT OBLIGATIONS. Buyer and Seller each shall timely and
promptly make all filings which may be required by each of them in connection
with the consummation of the transactions contemplated hereby under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the
"Hart-Scott Act"). Each party shall furnish to each other such necessary
information and assistance as the other party may reasonably request in
connection with the preparation of any necessary filings or submissions by it
to any U.S. or foreign governmental agency, including, without limitation,
any filings necessary under the provisions of the Hart-Scott Act. Each party
shall provide the other party the opportunity to make copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof) between such party or its representatives, on the one
hand, and the Federal Trade Commission (the "FTC"), the Antitrust Division
of the United States Department of Justice (the "Antitrust Division") or
any similar foreign governmental agency or members of their respective
staffs, on
- ---------------
* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
2
<PAGE>
the other hand, with respect to this Agreement or the transactions
contemplated hereby. If the transactions contemplated by this Agreement have
not been approved under the Hart-Scott Act within ninety (90) days from the
filing under the Hart-Scott Act, and this Agreement is thereby terminated,
Seller shall refund any and all Downpayments received from Buyer within five
(5) business days after termination. Seller shall pay the filing fee for
Hart-Scott.
1.5. SELLER'S OPTIONS TO RETAIN AND SELL AIRCRAFT.
(a) SELLER'S OPTION TO RETAIN AIRCRAFT.
____________________________________________________
____________________________________________________.*
(b) SELLER'S OPTION TO SELL RETAINED AIRCRAFT.
(1) Seller shall have the option, upon written notice to
Buyer at any time until December 31, 2001 but in no event later than two (2)
months prior to Seller's designated sale date for such Put Aircraft, as
specified in such notice, to sell to Buyer any of the Retained Aircraft
("PUT AIRCRAFT") for the purchase price set forth below.
(2) In the event Seller exercises its option to sell the Put
Aircraft, if the Seller's designated sale date is:
(i) in 1998, then the Purchase Price for each such Put
Aircraft shall be $_________;*
(ii) in 1999, then the Purchase Price for each such Put
Aircraft shall be $_________;*
(iii) in 2000, then the Purchase Price for each such Put
Aircraft shall be $_________;*
(iv) after December 31, 2000, but before January 1, 2002,
then the Purchase Price of $_________ shall be adjusted by an amount of
$______, in each successive
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* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
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quarter of such year with such adjustment subtracted from the base $_________
Purchase Price for each such Put Aircraft until December 31, 2001; and*
(v) after December 31, 2001, the parties shall attempt
in good faith to mutually agree on the Purchase Price of the Put Aircraft,
but in the absence of mutual agreement on the Purchase Price for such Put
Aircraft by the end of ninety (90) days after Seller sends written notice to
Buyer of Seller's exercise of its option to sell such Put Aircraft to Buyer,
then Seller may sell any such Put Aircraft to any third party.
Notwithstanding the foregoing, until January 1, 2002, under no circumstances
shall any Put Aircraft be sold to any other entity whose acquisition is for
the purpose of cannibalization of the Put Aircraft.
1.6. SELLER'S OPTIONS TO SELL ADDITIONAL ENGINES.
(a)
____________________________________________________
____________________________________________________.*
(b) In the event Seller exercises its option to sell the Put
Additional Engines, if the condition of such Engine is:
(i) serviceable, then the price for such Put Additional
Engine shall be $_______;*
(ii) unserviceable, then the price for such Put
Additional Engine shall be $_______;* and
(iii) either serviceable or unserviceable, but
missing a QEC, the amount of $______ shall be deducted from the price as
stated in either (i) or (ii) above.*
1.7. FIRST RIGHT TO PURCHASE OTHER ADDITIONAL ENGINES.
____________________________________________________
____________________________________________________.*
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* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
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ARTICLE II
AIRCRAFT AND AIRFRAME PRICE
AND PAYMENT; DOWNPAYMENTS
2.1. AIRCRAFT PURCHASE PRICE. Subject to application of the allocated
share of the Downpayments (as hereinafter defined), Buyer shall pay and
deliver to Seller: (a) for each of the first seven (7) Aircraft to be sold
hereunder (as set forth on Exhibit B hereto) the purchase price of
_________________________________ United States Dollars (US$_________); and
(b) for each of the remaining Aircraft to be sold hereunder the purchase
price of _________________________________ United States Dollars
(US$_________) with the Downpayments payable as described below and the
balance of the purchase price payable on delivery of each of the Aircraft
(such purchase price sum, before application of the Downpayments provided
herein, the "AIRCRAFT PURCHASE PRICE"). The Aircraft Purchase Price shall
be paid by Buyer pursuant to the terms of Section 2.3 hereof concurrent with
the Delivery (as hereinafter defined) of the Aircraft in immediately
available funds. Notwithstanding the foregoing, with respect to Aircraft
bearing U.S. registration number N154UA, which Buyer is purchasing subject to
a lease to Boeing (as described below), the Aircraft Purchase Price shall be
_________________________________________ United States Dollars
(US$_________) (of which __________________________________ United States
Dollars (US$_________) is for the Purchase Price of the Aircraft and
______________________________________ United States Dollars (US$_________)
is for the Purchase Price of the Lease). In the event the Lease is not
consummated between Seller and Boeing, Buyer shall nevertheless purchase the
subject Aircraft for a Purchase Price of _________________________________
United States Dollars (US $_________) on the date described in Exhibit B.*
2.2. A. FIRST DOWNPAYMENT. A first downpayment of ___________ United
States Dollars (US$_________) (THE "FIRST DOWNPAYMENT") has been paid by
Buyer to Seller. Fifty percent (50%) of the First Downpayment shall be
non-refundable to Buyer and the other fifty percent (50%) of the First Down
Payment shall be refundable until execution of this Agreement, and then be
non-refundable, unless otherwise expressly stated herein. The First
Downpayment shall be applied against the Aircraft Purchase Price of the
twelve Aircraft as follows: $_______
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* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
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for each of the first six (6) delivered Aircraft, $______ for the seventh
(7th) delivered Aircraft and $______ for each of the five (5) remaining
delivered Aircraft.*
B. SECOND DOWNPAYMENT. A second downpayment of
________________________________________ United States Dollars (US$_________)
(THE "SECOND DOWNPAYMENT") shall be due on March 25, 1998. The Second
Downpayment shall be non-refundable (unless otherwise expressly stated
herein) to Buyer and shall be applied against the Aircraft Purchase Price of
the twelve Aircraft as follows: $_______ for each of the first six (6)
delivered Aircraft, $_______ for the seventh (7th) delivered Aircraft and
$_______ for each of the five (5) remaining delivered Aircraft. For purposes
of this Agreement, "BUSINESS DAY" shall mean any day upon which banks in
Chicago, Illinois and San Francisco, California are open for business.*
C. THIRD DOWNPAYMENT. A third downpayment of
________________________________ United States Dollars (US $_______) (the
"Third Downpayment") shall be due on September 30, 1998. The Third
Downpayment shall be non-refundable (unless otherwise expressly stated
herein) to Buyer and shall be applied against the Aircraft Purchase Price of
the Aircraft as follows: $_______ for the seventh (7th) delivered Aircraft
and $_______ for each of the five (5) remaining delivered Aircraft.*
2.3. PAYMENT INSTRUCTIONS. All payments due hereunder to Seller,
including the balance of each respective Aircraft Purchase Price, shall be
made (unless Seller shall otherwise direct Buyer in writing) by wire transfer
of immediately available funds in United States Dollars to Seller's account
at The First National Bank of Chicago, N.A., Chicago, Illinois, Attn:
Transportation Group, with instructions to credit United Air Lines, Special
Account No. 51-67795, and with the request that said bank advise Seller's
Vice President and Treasurer of Seller's receipt of such funds.
2.4. REFUND INSTRUCTIONS. All refunds due hereunder to Buyer shall be
made (unless Buyer shall otherwise direct Seller in writing) by wire transfer
of immediately available funds in United States Dollars to Buyer's account at
Wells Fargo Bank, San Francisco, California with instructions to credit
Willis Lease Finance Corporation Account No. 4518 101 423, and with the
request that said bank advise Buyer's Chief Financial Officer of Buyer's
receipt of such funds.
2.5. NO ADJUSTMENTS. Except as otherwise expressly stated herein, no
adjustments will be made to any amount owing hereunder based on the
maintenance status or condition of the Aircraft, the Airframe, the Engines,
the APU, the Parts, or the Aircraft Documentation, or based on any other
fact, circumstance or situation whatsoever, whether contemplated or
unforeseeable.
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* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
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2.6. REFUND FOR REJECTED ENGINES.
____________________________________________________
____________________________________________________.*
ARTICLE III
AIRCRAFT DELIVERY; TITLE AND RISK OF LOSS
3.1. AIRCRAFT DELIVERY DATE. The scheduled delivery date with respect
to each Aircraft is the date set forth opposite such Aircraft's FAA
Registration Number under the heading "Scheduled Delivery Date" in Exhibit
B hereto (each such date being referred to individually as a "SCHEDULED
DELIVERY DATE" and, collectively, the "SCHEDULED DELIVERY DATES") and,
subject to the terms hereof, Seller will deliver such Aircraft to Buyer, and
Buyer will accept delivery of the Aircraft from Seller, on such date. Seller
agrees to use its best efforts to deliver each Aircraft on its Scheduled
Delivery Date; PROVIDED, Buyer and Seller agree that each Scheduled Delivery
Date is subject to change by Seller for any operational, logistical or other
good faith reason without penalty to Seller (as long as Seller is exercising
reasonable good faith efforts to deliver the Aircraft as soon as
practicable), but in no such event will Delivery of any Aircraft be adjusted
pursuant to this first proviso of Section 3.1 to a date later than thirty
(30) calendar days beyond its Scheduled Delivery Date, as adjusted pursuant
to the provisions hereof, and in no event earlier than the Aircraft's
retirement date set forth on Exhibit B (the Scheduled Delivery Date, as
adjusted pursuant to the provisions hereof, being referred to individually as
a "DELIVERY DATE" and collectively, the "DELIVERY DATES").
Notwithstanding anything to the contrary contained herein, if Seller revises
the Delivery Date of any Aircraft as set forth in Exhibit B for the sole
purpose of utilizing said Aircraft in its own passenger operations
("ADJUSTED AIRCRAFT"), Buyer agrees to accept the extension of the
Scheduled Delivery Date resulting from such revised Delivery Date at no cost
to Seller.
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* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
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<PAGE>
____________________________________________________.*
3.2. PLACE OF DELIVERY OF AIRCRAFT. Each Aircraft will be delivered to
Buyer in Marana or Phoenix, Arizona or such other location as mutually agreed
(the "DELIVERY LOCATION"). Seller shall be responsible for the crew costs
for the ferry flight of each Aircraft to the Delivery Location (the
"DELIVERY"). Buyer shall be responsible for all other costs associated with
the Delivery of each Aircraft, including, but not limited to, any landing
fees, fuel expenses, hotel costs, meal expenses and any other incidental
costs associated with the Deliveries. Buyer shall be responsible for any
sales or transfer taxes or other taxes, duties, charges or fees resulting
from the Delivery Location.
3.3. DELIVERY. For purposes of this Agreement, "DELIVERY" shall mean,
with respect to each Aircraft being delivered hereunder, the delivery of
possession of such Aircraft being delivered hereunder to Buyer and the
transfer by Seller to Buyer of its right, title and interest in and to such
Aircraft and the delivery by Seller to Buyer of a Bill of Sale, substantially
in the form of Exhibit C hereto (each, a "WARRANTY BILL OF SALE"), in each
case covering such Aircraft.
3.4. BUYER'S ACCEPTANCE. Prior to the Delivery of each Aircraft, Buyer
shall deliver to Seller a completed and executed technical acceptance
certificate in the form set out as Exhibit D hereto (a "TECHNICAL ACCEPTANCE
CERTIFICATE") in regard to such Aircraft in accordance with Section 4.1.D
hereof. Upon conclusion of the Delivery (but subject to the provisions of
Section 4.6 through 4.9 hereof), Buyer shall deliver to Seller a completed
and executed final acceptance certificate in the form set out as Exhibit D-1
hereto (a "FINAL ACCEPTANCE CERTIFICATE") in regard to such Aircraft in
accordance with Section 4.1.D hereof, and no other acknowledgment or receipt
of such Aircraft shall be required by Seller (such Final Acceptance
Certificate being conclusive evidence of Buyer's satisfaction or waiver of
each of the conditions precedent set forth in Section 4.2 hereof).
3.5. TITLE AND RISK OF LOSS. Except as otherwise provided herein, upon
Delivery of an Aircraft to Buyer at the applicable Delivery Location, title
to and risk of loss or damage to such Aircraft, from any cause whatsoever,
and exclusive care, custody and control thereof, will pass to Buyer.
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* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
8
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ARTICLE IV
CONDITIONS PRECEDENT; DELIVERY CONDITIONS
4.1. SELLER'S CONDITIONS PRECEDENT. Seller's obligation to tender each
Aircraft for Delivery to Buyer shall be subject to the satisfaction of each
of the following conditions precedent:
A. On or before the first Delivery Date, Buyer shall have duly
authorized, executed, and delivered this Agreement;
B. On or before each Delivery Date, Buyer will provide Seller a
written opinion of its counsel addressed to Seller stating that
Buyer is validly organized and existing and in good standing
under the laws of the State of its incorporation, that this
Agreement and any other documents and certificates delivered by
Buyer in connection with such Delivery (the "BUYER AGREEMENTS")
have been validly executed by Buyer and that Buyer's obligations
under the Buyer Agreements are binding, valid and enforceable in
accordance with their respective terms; that neither this
Agreement nor any other Buyer Agreement nor performance by Buyer
of any of its obligations hereunder or thereunder violate any
provisions of existing law, the Amended and Restated Articles of
Incorporation or the Certificate of Incorporation of Buyer or any
agreement, indenture, note or other instrument which is binding
upon Buyer of which such counsel has knowledge; and that no
action by any governmental bureau, agency or commission is
requisite to the validity or enforceability, in regard to Buyer,
of the Buyer Agreements. It is understood that any such opinions
of such counsel may (x) state that the enforceability of any
obligation referred to therein is subject to and may be limited
by (i) applicable bankruptcy, insolvency, fraudulent conveyance,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally, (ii) general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law) and (iii) public policy
considerations and (y) express no opinion as to the
enforceability of Article XI hereof;
C. On or before each Delivery Date, Seller shall have received the
certificate of insurance and the report of Buyer's independent
insurance broker evidencing the coverage required under
Article IX hereof with respect to the Aircraft to be delivered on
such Delivery Date, in form and substance reasonably satisfactory
to Seller;
D. On or before each Delivery Date, Buyer shall have accepted the
Aircraft to be delivered on such Delivery Date, as evidenced by
delivery by Buyer to Seller of a completed and executed Technical
Acceptance Certificate and Final Acceptance Certificate;
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E. On or before each Delivery Date, Seller shall have received
Buyer's payment of the Aircraft Purchase Price for the Aircraft
to be delivered on such Delivery Date, in accordance with the
terms hereof;
F. Buyer shall not be in default in any material respect in the
performance or observance of any term or obligation set forth
herein; and
G. All required consents shall have been obtained, and the
applicable waiting periods specified under the Hart-Scott Act
with respect to the transactions contemplated by this Agreement
shall have lapsed or been terminated.
4.2. BUYER'S CONDITIONS PRECEDENT. Buyer's obligation to accept Delivery
of the Aircraft shall be subject to the satisfaction of the following conditions
precedent:
A. On or before the first Delivery Date, Seller shall have duly
authorized, executed, and delivered this Agreement;
B. On or before each Delivery Date, Seller will provide to Buyer a
written opinion of its counsel (which may be Seller's in-house
counsel) addressed to Buyer stating that Seller is validly
organized and existing and in good standing under the laws of the
State of Delaware; that this Agreement, the Warranty Bill of Sale
with respect to the Aircraft and any other documents and
certificates delivered by Seller in connection with such Delivery
(the "SELLER AGREEMENTS") have been validly executed by Seller
and that Seller's obligations under the Seller Agreements are
binding, valid and enforceable in accordance with their terms;
that neither the Seller Agreements, nor performance by Seller of
any of its obligations hereunder or thereunder violate any
provisions of existing law, the Certificate of Incorporation of
Seller as amended, or its By-Laws or any agreement, indenture,
note or other instrument which is binding upon Seller of which
such counsel has knowledge; and that no action by any
governmental bureau, agency or commission is requisite to the
validity or enforceability, in regard to Seller, of the Seller
Agreements. It is understood that any such opinions of such
counsel may state that the enforceability of any obligation
referred to therein is subject to and may be limited by (i)
applicable bankruptcy, insolvency, fraudulent conveyance,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally, (ii) general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law) and (iii) public policy
considerations;
C. On or before each Delivery Date, Seller will tender the Aircraft
to be delivered on such Delivery Date for Delivery to Buyer, in
the condition set forth in Section 4.4 hereof, together with the
Aircraft Documentation as described in Exhibit A and A-1 hereto
with respect to such Aircraft, and
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pursuant to the inspection and Delivery terms and conditions set
forth in Sections 4.4 and 4.6, respectively;
D. On or before each Delivery Date, Seller will tender to Buyer
legal and beneficial title to the Aircraft and Engines to be
delivered on such Delivery Date, free and clear of any mortgages,
pledges, security interests, liens, claims, encumbrances or other
charges or rights of others of any kind (hereinafter,
collectively "LIENS"), other than Liens arising as a result of or
attributable to (a) Buyer, or (b) Seller's retention of the data
plates for each of the Airframes of the Aircraft, or (c) the
restrictions on use and transfer of the Aircraft pursuant to
Article XI hereof;
E. On or before each Delivery Date, Seller will deliver to Buyer a
Warranty Bill of Sale for the Aircraft (including, without
limitation, each Engine installed thereon), to be delivered on
such Delivery Date;
F. On or before each Delivery Date, Seller will provide to Buyer a
written opinion of its FAA counsel, the law firm of Lytle Soule &
Curlee of Oklahoma City, Oklahoma, or any other law firm as
Seller may designate, addressed to Buyer stating that Seller is
the FAA-registered owner of the Aircraft to be delivered on such
Delivery Date and that such Aircraft (and/or any Engine or
Engines) is free and clear of all Liens filed with the FAA, other
than Liens arising as a result of or attributable to (a) Buyer,
or (b) Seller's retention of the data plates for each of the
Airframes, or (c) the restrictions on use and transfer of the
Aircraft pursuant to Article XI hereof;
G. Seller shall not be in default in any material respect in the
performance or observance of any term or obligation set forth
herein; and
H. The applicable waiting period specified under the Hart-Scott Act
with respect to the transactions contemplated by this Agreement
shall have lapsed or been terminated.
4.3. [INTENTIONALLY NOT USED].
4.4. DELIVERY CONDITIONS.
A. Except as specifically set forth in this Section 4.4, each of
the Aircraft (including each Airframe, Engine, APU, Landing Gear, and Part
installed thereon, and any of the Aircraft Documentation applicable thereto)
will be delivered to Buyer in "AS-IS" condition; PROVIDED, HOWEVER, BUYER
EXPRESSLY AGREES TO THE SPECIAL COVENANTS AND RESTRICTIONS ON USE SET FORTH
IN SECTIONS 1.1 AND 11 HEREOF. Each Aircraft will have been in compliance
with all applicable Airworthiness Directives (AD) in accordance with Seller's
FAA approved maintenance program, and will have had a valid Certificate of
Airworthiness, at the time of retirement of each Aircraft from Seller's
revenue passenger operations.
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B. RECORDS. On or prior to the Delivery Date or as otherwise
provided in Exhibits A and A-1 hereto for each Aircraft, Seller shall provide
to Buyer the Aircraft Documentation listed in Exhibit A hereto in respect of
such Aircraft.
C. ENGINES. Each Engine installed upon or accompanied with an
Aircraft at Delivery will be delivered in an "AS IS" condition. Engines
may be Delivered in unserviceable condition and shall have no minimum number
of hours and cycles remaining on their most limiting life limited internal
engine components. No borescope inspections shall be permitted.
D. APU'S. Each APU installed upon or accompanied with an Aircraft
at Delivery will be delivered in "AS-IS" condition. APU's may be Delivered
in unserviceable condition and shall have no minimum number of hours and
cycles remaining on their most limiting life limited internal APU components.
No borescope inspections will be permitted.
4.5. [INTENTIONALLY NOT USED]
4.6. INSPECTION.
A. Upon retirement and prior to Delivery, Buyer shall inspect the
Aircraft. Seller shall (i) provide Buyer with reasonably sufficient access
to the Aircraft Documentation listed in Exhibit A in respect of each of the
Aircraft and (ii) permit Buyer, at Buyer's expense, to conduct an inspection
("INSPECTION") of each of the Aircraft (including, without limitation, the
related Engines, Landing Gear, APU and Parts).
B. The Inspection of each of the Aircraft shall permit Buyer to
confirm the compliance of the Aircraft Documentation with respect to each
such Aircraft with the requirements of Exhibit A hereto and perform the
inspections with respect to each such Aircraft set forth in Exhibit E hereto.
Promptly following the Inspection, Buyer shall indicate in writing any
reasonable discrepancies which cause any Aircraft and/or its Aircraft
Documentation not to meet the delivery conditions specified in Section 4.4
and, as a condition precedent to Buyer's obligations to accept the Delivery
of that Aircraft, such discrepancies shall be corrected, or caused to be
corrected, by Seller pursuant to or in accordance with Seller's FAA-approved
maintenance program as soon as possible, at Seller's sole cost and expense.
C. There will be no acceptance or delivery flight for any of the
Aircraft.
D. Promptly following the Inspection, the representatives of Buyer
shall indicate in writing any reasonable discrepancies that cause the
Aircraft and/or the Aircraft Documents not to meet the delivery conditions
specified in Section 4.4, and, as a condition precedent to Buyer's
obligations to accept the Delivery of the Aircraft, such discrepancies shall
be corrected, or caused to be corrected, by Seller pursuant to or in
accordance with the Seller's FAA-approved maintenance program as soon as
possible, at Seller's sole cost and expense.
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4.7. DELAYS DUE TO CORRECTIONS.
A. Any reasonable delay in Delivery of any Aircraft (an "AFFECTED
AIRCRAFT") caused by Seller's correction (or its causing the correction) of
discrepancies discovered and noted by Buyer during the Inspection will be
deemed to not be a breach of this Agreement by Seller, so long as Seller is
exercising reasonable good faith efforts to correct such discrepancies as
soon as reasonably practicable, and therefore will not excuse any failure by
Buyer to accept Seller's tender of such Aircraft for Delivery upon correction
of such discrepancies.
B. However, in the event that such delays cause the Delivery of
such Affected Aircraft to be more than sixty (60) calendar days beyond its
Scheduled Delivery Date (as such date may be adjusted pursuant to Section
3.1, Section 4.9 and Article VII hereof, but subject to the limitations of
the final proviso of Section 3.1 hereof), then:
(i) Buyer may elect to terminate this Agreement at any time
after such sixtieth (60th) day, with respect to such Affected Aircraft (and
only with respect to such Affected Aircraft), by giving written notice to the
Seller, and
(ii) Seller may elect to terminate this Agreement at any time at
least ninety (90) calendar days after such sixtieth (60th) day, with respect
to such Affected Aircraft (and only with respect to such Affected Aircraft),
by giving written notice to the Buyer.
C. If such election to terminate is made, then termination under
this Section with respect to such Affected Aircraft shall terminate and
discharge all obligations and liabilities of Buyer and Seller hereunder with
respect to such Aircraft and all undelivered items and services to be
furnished hereunder which are related thereto. Seller shall then return to
Buyer the prorata portion of the unapplied First and Second (and third, if
applicable) Downpayments with respect to such Affected Aircraft within five
(5) business days. If, following such sixty-day period or ninety-day period,
as the case may be, with respect to a delay under this Section 4.7, this
Agreement is not terminated with respect to the Affected Aircraft in
accordance with the provisions of this Section 4.7, then the time of delivery
otherwise required hereunder shall be extended unless and until terminated in
accordance with this Section 4.7.
D. The termination provisions set forth in this Section 4.7 are in
substitution for any other rights of termination or contract lapse arising by
operation of law by virtue of such delay.
4.8. BUYER'S ACCEPTANCE. Promptly upon tender of the Aircraft and
Delivery (but subject to Seller's correction of discrepancies described in
Section 4.7 hereof, if applicable) of each Aircraft, Buyer shall give written
notice to Seller of either its acceptance or rejection of such Aircraft. If
such Aircraft is accepted by Buyer, then Buyer shall deliver to Seller a
completed and executed Final Acceptance Certificate, and no other
acknowledgment or receipt of such Aircraft or its condition shall be required
by Seller or Buyer (such Final Acceptance Certificate being conclusive
evidence of Seller's satisfaction, or Buyer's waiver, of each of the
conditions precedent to Buyer's obligations set forth in this Section).
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4.9. BUYER'S REJECTION.
A. If an Aircraft is rejected by Buyer (a "REJECTED AIRCRAFT"),
Buyer shall in such written notice state the reasons for its rejection,
specifying in what respects such Aircraft fails to comply with the terms of
this Agreement.
B. In the event of rejection of such Aircraft by Buyer, Seller
shall promptly notify Buyer as to Seller's concurrence or non-concurrence
(and the extent of such non-concurrence) with Buyer's reasons for rejection.
If Seller concurs with Buyer's reasons for rejection, then, as a condition
precedent to Buyer's obligations to accept the Delivery of such Aircraft,
Seller will promptly proceed to correct the conditions which were specified
as the basis for rejection by Buyer and with which Seller concurred. If,
after such correction and tender for inspection by Buyer, such Aircraft is
not rejected as hereinabove provided, Seller shall proceed with and Buyer
will accept Delivery thereof by completing and executing a Final Acceptance
Certificate with respect to such Aircraft.
C. In the event that Seller shall not, within sixty (60) days after
the Scheduled Delivery Date (as such date may be adjusted pursuant to Section
3.1, Section 4.7 or Article VII hereof, but subject to the limitations of the
final proviso of Section 3.1 hereof) with respect to a Rejected Aircraft,
have corrected or caused the correction of all conditions which were
specified as a basis for rejection of such Aircraft by Buyer and with which
Seller concurred, then Buyer shall have the option, by providing written
notice to Seller, of terminating this Agreement in full as to such Rejected
Aircraft, whereupon all obligations of the parties hereunder as to such
Rejected Aircraft shall be terminated.
D. If such election to terminate is made by Buyer, then termination
under this Section 4.9 with respect to such Rejected Aircraft shall terminate
and discharge all obligations and liabilities of Buyer and Seller hereunder
with respect to the Rejected Aircraft and all undelivered items and services
to be furnished hereunder which are related thereto and Seller shall then
return to Buyer the prorata portion of the unapplied First and Second (and
third, if applicable) Downpayments with respect to such Rejected Aircraft
within five (5) business days.
ARTICLE V
SELLER'S WARRANTIES AND DISCLOSURES
5.1. SELLER'S DISCLAIMERS OF WARRANTIES. EXCEPT AS PROVIDED IN SECTION
5.3 BELOW, EACH OF THE AIRCRAFT (INCLUDING BUT NOT LIMITED TO EACH AIRFRAME,
ENGINE, APU, LANDING GEAR AND PART INSTALLED THEREON, AND ANY OF THE AIRCRAFT
DOCUMENTATION APPLICABLE TO THE AIRCRAFT) ARE SOLD ON AN "AS IS" BASIS,
WITH ALL FAULTS AND WITHOUT RECOURSE TO SELLER, AND WITHOUT THE DATAPLATES
FOR ANY OF THE AIRFRAMES. THE WARRANTY SET FORTH IN SECTION 5.3 BELOW AND
THE OBLIGATIONS AND LIABILITIES OF SELLER THEREUNDER ARE EXPRESSLY IN LIEU
OF, AND SELLER WILL NOT BE DEEMED TO HAVE MADE, AND BUYER HEREBY WAIVES, ANY
AND ALL OTHER REPRESENTATIONS, WARRANTIES,
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DUTIES, AND GUARANTEES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, STATUTORY
OR OTHERWISE, CONCERNING ANY OF THE AIRCRAFT OR THE AIRWORTHINESS THEREOF
(INCLUDING BUT NOT LIMITED TO ANY AIRFRAME, ENGINE, APU, LANDING GEAR AND
PART INSTALLED THEREON, AND ANY OF THE AIRCRAFT DOCUMENTATION APPLICABLE TO
ANY SUCH AIRCRAFT), OR THE VALUE, CONDITION, DESIGN, OPERATION, DURABILITY OR
COMPLIANCE WITH SPECIFICATION OF ANY AIRCRAFT (INCLUDING BUT NOT LIMITED TO
ANY AIRFRAME, ENGINE, APU, LANDING GEAR AND PART INSTALLED THEREON, AND ANY
OF THE AIRCRAFT DOCUMENTATION APPLICABLE TO ANY SUCH AIRCRAFT), INCLUDING,
BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE, AND BUYER HEREBY WAIVES ANY AND ALL RIGHTS AND REMEDIES
IT MAY HAVE AGAINST SELLER RELATING TO ANY OF THE FOREGOING AND ARISING BY
LAW OR OTHERWISE INCLUDING BUT NOT LIMITED TO ANY OBLIGATION ARISING FROM THE
NEGLIGENCE (WHETHER ACTIVE, PASSIVE OR ANY OTHER TYPE) OF SELLER, ANY
AFFILIATE OF SELLER, OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, AGENTS
OR EMPLOYEES OR WITH RESPECT TO LOSS OF USE, REVENUE OR PROFIT, THE EXISTENCE
OF ANY LATENT, INHERENT OR ANY OTHER DEFECT (WHETHER OR NOT DISCOVERABLE), OR
AS TO THE INFRINGEMENT OF ANY PATENT, COPYRIGHT, DESIGN OR OTHER PROPRIETARY
RIGHT, OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES.
5.2. SELLER'S DISCLAIMERS OF PRIOR REPRESENTATIONS AND STATEMENTS. ANY
PRIOR REPRESENTATIONS OR STATEMENTS, WHETHER ORAL OR WRITTEN, MADE BY SELLER
(OR ANY AFFILIATE THEREOF) AS TO THE CONDITION OR FITNESS OF ANY OF THE
AIRCRAFT (INCLUDING BUT NOT LIMITED TO ANY AIRFRAME, ENGINE, APU, LANDING
GEAR AND PART INSTALLED THEREON, AND ANY OF THE AIRCRAFT DOCUMENTATION
APPLICABLE TO SUCH AIRCRAFT), OR THEIR CAPABILITY OR CAPACITY, ARE SUPERSEDED
HEREBY AND ANY SUCH REPRESENTATIONS OR STATEMENTS NOT SPECIFICALLY SET FORTH
IN THIS AGREEMENT ARE HEREBY WITHDRAWN BY SELLER (ON ITS OWN BEHALF AND ON
BEHALF OF ANY OF ITS AFFILIATES WHICH MAY HAVE MADE ANY SUCH REPRESENTATION
OR STATEMENT), SHALL NOT BE APPLICABLE TO THE TRANSACTIONS CONTEMPLATED
HEREBY AND ARE OF NO FURTHER FORCE AND EFFECT, AND BUYER ACKNOWLEDGES THAT
BUYER HAS NOT RELIED AND IS NOT RELYING ON ANY SUCH REPRESENTATION OR
STATEMENT.
5.3. EXCEPTIONS TO SELLER'S DISCLAIMERS; SELLER'S WARRANTIES. Seller
hereby represents and warrants to Buyer that on the Delivery Date of each
respective Aircraft: (a) Seller will have all legal and beneficial title to
such Aircraft, (b) title thereto will be transferred to Buyer in full, free
and clear of any and all Liens, other than Liens arising as a result of or
attributable to (1) Buyer, or (2) Seller's retention of the data plates for
the Airframe of such Aircraft, or (3) the restrictions on use and transfer of
the Aircraft pursuant to Article XI hereof, and (d) with respect to Aircraft
N4723(8823), such Aircraft was involved in an incident on or about December
27, 1997 in which the Aircraft experienced damage to the Aircraft cabin and
was retired from service.
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5.4. BUYER'S ACKNOWLEDGMENT. BUYER EXPRESSLY AGREES AND ACKNOWLEDGES
THAT NONE OF THE SELLER, NOR ANY AFFILIATE THEREOF IS THE MANUFACTURER OF ANY
OF THE AIRCRAFT (INCLUDING BUT NOT LIMITED TO ANY AIRFRAME AND ANY ENGINE,
APU, LANDING GEAR, COMPONENT, EQUIPMENT AND PART INSTALLED THEREON, AND ANY
OF THE AIRCRAFT DOCUMENTATION APPLICABLE TO THE AIRCRAFT, AND ANY OTHER PART,
EQUIPMENT, DATA OR INFORMATION SOLD HEREUNDER), AND THAT THE AIRCRAFT
(INCLUDING BUT NOT LIMITED TO THE AIRFRAME AND EACH ENGINE, APU, LANDING GEAR
AND PART INSTALLED THEREON, AND THE AIRCRAFT DOCUMENTATION APPLICABLE TO SUCH
AIRCRAFT) IS OF A MAKE, SIZE, DESIGN AND CAPACITY DESIRED BY BUYER FOR THE
PURPOSES INTENDED BY BUYER AND EACH IS A USED AIRCRAFT (INCLUDING BUT NOT
LIMITED TO EACH USED AIRFRAME, USED ENGINE, USED APU, USED LANDING GEAR AND
USED PART INSTALLED THEREON), AND, SUBJECT TO SECTION 5.3, BUYER CONFIRMS
THAT IT HAS NOT, IN ENTERING INTO THIS AGREEMENT, RELIED ON ANY CONDITION,
WARRANTY OR REPRESENTATION BY SELLER, OR ANY AFFILIATE THEREOF, EXPRESS OR
IMPLIED, WHETHER ARISING BY APPLICABLE LAW OR OTHERWISE IN RELATION TO ANY OF
THE AIRCRAFT (INCLUDING BUT NOT LIMITED TO ANY AIRFRAME OR ANY ENGINE, APU,
LANDING GEAR AND PART INSTALLED THEREON, AND THE AIRCRAFT DOCUMENTATION
APPLICABLE TO THE AIRCRAFT), INCLUDING, WITHOUT LIMITATION, WARRANTIES OR
REPRESENTATIONS AS TO THE DESCRIPTION, QUALITY, DURABILITY, AIRWORTHINESS,
MERCHANTABILITY, FITNESS FOR ANY USE OR PURPOSE, VALUE, CONDITION, DESIGN OR
OPERATION OF ANY KIND OR NATURE OF ANY OF THE AIRCRAFT (INCLUDING BUT NOT
LIMITED TO ANY AIRFRAME AND ANY ENGINE, APU, LANDING GEAR AND PART INSTALLED
THEREON APPLICABLE TO SUCH AIRCRAFT), AS TO THE ABSENCE OF ANY LATENT,
INHERENT OR ANY OTHER DEFECTS (WHETHER OR NOT DISCOVERABLE), OR AS TO THE
INFRINGEMENT OF ANY PATENT, COPYRIGHT, DESIGN OR OTHER PROPRIETARY RIGHT; AND
THE BENEFIT OF ANY SUCH CONDITION, WARRANTY OR REPRESENTATION BY BUYER, OR
ANY AFFILIATE OF ANY THEREOF, IS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVED BY BUYER.
5.5. ASSIGNMENT OF MANUFACTURERS' WARRANTIES. Seller hereby assigns,
effective as of the Delivery Date of each respective Aircraft, to Buyer any
and all existing assignable warranties, service life policies, indemnities
and patent indemnities of or other rights, remedies or claims against
manufacturers and maintenance and overhaul agencies to or for Seller, of or
for such Aircraft (in the case of rights, remedies or claims, only with
respect to rights, remedies or claims arising, or based on events,
occurrences and circumstances occurring, on or after the Delivery of such
Aircraft); PROVIDED, THIS DOES NOT APPLY TO THE PYLONS INSTALLED ON ANY OF
THE AIRCRAFT. To the extent that such rights are not assignable, Buyer is
hereby subrogated to all such rights of Seller. Seller makes no
representation or warranty as to the existence or assignability of any such
rights or as to the validity or scope of any such subrogation.
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ARTICLE VI
TAXES AND DUTIES
6.1. TAX INDEMNITY. Buyer will pay upon demand, and agrees to
indemnify, on an after-tax basis as described in Section 6.3, Seller and any
affiliate thereof (each, a "TAX INDEMNITEE") against and hold each Tax
Indemnitee harmless from any and all taxes (including without limitation,
sales, use, and value added taxes), assessments, charges, fees or duties of
any nature whatsoever (hereinafter, collectively, "TAXES") imposed by any
United States federal, state or local government jurisdiction or taxing
authority or any foreign government or taxing authority (each, a "TAXING
AUTHORITY"), together with any penalties, fines or interest thereon required
to be paid by a Tax Indemnitee or Buyer (reduced by any tax credits or tax
savings as a result of tax deductions available to the Tax Indemnitees as a
result of such Taxes, penalties, fines or interest) as a result of the sale,
use, delivery or transfer of any Aircraft, the Airframe, any Engine, or any
Part under this Agreement, other than Taxes imposed on or measured by the
income (other than gross income) or gains of any Tax Indemnitee.
6.2. CLAIM PROCEDURE. If a claim is made against a Tax Indemnitee for
any Taxes for which Buyer has agreed to indemnify Seller under this Article
VI, or for any penalty, fine or interest thereon, such Tax Indemnitee, upon
receiving notice of such claim, will promptly notify Buyer. Failure by the
Tax Indemnitee to so notify the Buyer shall not relieve Buyer of its
obligations to indemnify hereunder except to the extent Buyer is materially
prejudiced by such failure. Buyer shall have the right to control, at its
expense, any administrative or judicial proceedings (including the resolution
thereof) with respect to such Taxes. If requested by Buyer in writing, such
Tax Indemnitee will, at Buyer's expense, take such action as Buyer may
reasonably direct with respect to such claim. Any payment by a Tax
Indemnitee of such Taxes or any penalty, fine or interest thereon, will be
made under protest if so directed by Buyer. If payment is made, such Tax
Indemnitee will, at Buyer's expense, take such action as Buyer may reasonably
direct to recover such payment. If all or any part of any such Taxes
together with any penalty, fine or interest thereon, is refunded, such Tax
Indemnitee will repay Buyer such part thereof as Buyer will have paid
including any interest received thereon. Buyer will pay such Tax Indemnitee
upon demand for all reasonable expenses (including without limitation, all
costs, expenses, losses, reasonable legal and accountants' fees and
disbursements, penalties and interest) incurred by such Tax Indemnitee in
making payment, protesting payment, endeavoring to obtain a refund of any
such Taxes, or enforcing such Tax Indemnitee's rights against Buyer under
this Article VI.
6.3. NO SET-OFF, ETC.
(a) All payments by one party to the other party under or in
connection with this Agreement will be made without set-off or counterclaim,
free and clear of and without deduction for or on account of any Taxes.
(b) If a party is compelled by law to make payment subject to any
Tax for which such party is required to indemnify the receiving party and as
a consequence the receiving party does not actually receive for its own
benefit on the due date a net amount equal to the full
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amount provided for under this Agreement, the party making that payment will
pay all necessary additional amounts to ensure receipt by the other party of
the full amount so provided for.
(c) The amount which Buyer will be required to pay with respect to
this Article will be an amount sufficient to restore such Tax Indemnitee to
the same position such Tax Indemnitee would have been had the liability for
Taxes subject to indemnity pursuant to Section 6.1 not been incurred.
6.4. EXEMPTIONS. Seller understands that Buyer is providing the
Aircraft and other assets hereunder for resale, and agrees to cooperate in
obtaining any exemption from Taxes reasonably determined by Buyer to be
applicable to the purchase of the Aircraft and other assets hereunder.
6.5. SURVIVAL. Notwithstanding any other provision of this Agreement,
the obligations of Buyer and each Tax Indemnitee under this Article VI will
survive the consummation, completion or termination (or any combination of
any thereof) of this Agreement.
ARTICLE VII
DELAY IN PERFORMANCE; LOSS OR DESTRUCTION OF AIRCRAFT
7.1. EXCUSABLE DELAY. Seller will not be responsible nor deemed to be
in default of its obligation hereunder on account of any delay in the
Delivery of any of the Aircraft hereunder due to causes reasonably beyond
Seller's control and not occasioned by its intentional acts or gross
negligence including, by way of illustration and not of limitation, acts of
God, acts of terrorism, acts of public enemies or hostilities, war, warlike
operations, insurrection, riots, fires, floods, explosions, earthquakes,
epidemics or quarantine restrictions, civil disturbance, any act of
government, governmental priorities, allocation regulations or orders
affecting materials, facilities or aircraft, strikes or labor troubles
causing cessation, slow-down or interruption of work, delay in
transportation, or due to any other cause to the extent it is reasonably
beyond Seller's control or not occasioned by Seller's intentional acts or
gross negligence. Delays resulting from any of the foregoing causes are
referred to as "EXCUSABLE DELAYS."
7.2. TERMINATION FOR EXCUSABLE DELAY. If, due to an Excusable Delay,
delivery of any Aircraft is delayed for a period of more than sixty (60) days
after the Scheduled Delivery Date for such Aircraft (as such date may be
adjusted pursuant to Section 3.1, Section 4.7 and 4.9 hereof, but subject to
Section 3.1 hereof), then Buyer may or, at any time at least ninety (90) days
after such sixtieth (60th) day, Seller may terminate this Agreement with
respect to such Aircraft so delayed by giving written notice to the other at
any time after the expiration of such applicable period, and if such election
to terminate is made then termination under this Section shall terminate and
discharge all obligations and liabilities of Buyer and Seller hereunder. If,
following such sixty-day period or one hundred fifty day period, as the case
may be, with respect to an Excusable Delay, this Agreement is not terminated
with respect to such delayed Aircraft in accordance with the provisions of
this Section 7.2, then the time of delivery otherwise required hereunder
shall be extended unless and until terminated in accordance with this Section
7.2. The termination provisions set forth in this Section 7.2 are in
substitution for any other rights of
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termination or contract lapse arising by operation of law by virtue of an
Excusable Delay. Should Buyer terminate this Agreement with respect to such
Aircraft, Seller shall then return to Buyer the prorata portion of the
unapplied First and Second (and third, if applicable) Downpayments with
respect to such Aircraft so delayed within five (5) business days.
7.3. LOSS OR DESTRUCTION OF AIRCRAFT. If prior to the Delivery thereof,
any Aircraft shall suffer a Casualty Occurrence (as defined in Section 7.4
below), then neither party hereto will have any obligation to the other party
with respect to the lost or damaged Aircraft pursuant to this Agreement. In
the event that any Aircraft suffers a Casualty Occurrence prior to the
Delivery of such Aircraft, then, following Seller's notice of such Casualty
Occurrence pursuant to Section 7.4 hereof, Seller (unless Buyer elects to
purchase such Aircraft pursuant to this Section 7.3) will return to Buyer the
PRORATA portion of the unapplied First and Second (and third, if applicable)
Downpayments for such undelivered Aircraft within five (5) business days, and
neither party hereto shall have any further obligation to the other party
with respect to such undelivered Aircraft pursuant to this Agreement. In the
event that any Engine suffers a Casualty Occurrence prior to the Delivery of
such Engine, then Seller will substitute an alternate engine within ninety
(90) days for the Engine that suffered a Casualty Occurrence as provided in
Section 7.4. Upon such substitution, each alternate engine so substituted
shall become an "Engine" for all purposes of this Agreement.
7.4. CASUALTY OCCURRENCE DEFINED. For purposes of this Agreement,
"CASUALTY OCCURRENCE" shall mean any total or partial destruction of any
Aircraft or any Engine, the severity of which (i) materially affects the
operation and utility of the Aircraft or such Engine or (ii)makes the repair
of such Aircraft or such Engine uneconomical, as determined by Seller.
Seller agrees to provide written notice of any total or partial destruction
of any Aircraft or any Engine promptly after Seller becomes aware of such
destruction and determines that such destruction constitutes a Casualty
Occurrence pursuant to the provisions hereof.
7.5. EVENTS OF DEFAULT.
(a) BUYER EVENTS OF DEFAULT. Each of the following events shall
constitute a "BUYER EVENT OF DEFAULT" (whether any such event shall be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court
or any order, rule or regulation of any administrative or governmental body):
(i) Buyer shall not have made (x) any payment of Aircraft
Purchase Price within one (1) Business Day after the same shall have become
due and payable or (y) any other amount payable hereunder within three (3)
Business Days after receipt of written notice that the same shall have become
due and payable; or
(ii) In the event that the Aircraft which has been tendered for
Delivery by Seller is in compliance with the provisions specified for
Delivery pursuant to Section 4.4 hereof, but Buyer shall have rejected such
Aircraft and such rejection shall have continued for a period of five (5)
Business Days after Seller's written demand to Buyer for Buyer to accept such
Aircraft; or
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(iii) Buyer shall have failed to observe and perform any of its
covenants in Article XI hereof; or
(iv) Buyer shall have failed to perform or observe (or caused
to be performed and observed) any other covenant or agreement to be performed
or observed by it hereunder or under the other Buyer Agreements, and such
failure shall continue unremedied for a period of 30 days after written
notice thereof from Seller; or
(v) any representation or warranty made by Buyer herein or in
any other Buyer Agreement shall prove to have been incorrect in any material
respect at the time made and shall continue to be material and unremedied for
a period of 30 days after written notice thereof from Seller; or
(vi) the filing of a petition against Buyer under any
applicable bankruptcy, insolvency or other similar laws in the United States,
as now or hereafter amended, and the lack of the withdrawal or dismissal of
such proceeding within 60 days thereafter; or the entry of a decree or order
for relief by a court having jurisdiction in the premises in respect of Buyer
in an involuntary case under any such laws, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of Buyer or for all or a substantial part of its property, or
ordering the winding-up or liquidation of its affairs and, in the case of any
such decree or order, the continuance of such decree or order unstayed and in
effect for a period of 60 consecutive days; or
(vii) the commencement by Buyer of a voluntary case under the
bankruptcy, insolvency or other similar law in the United States, as now
constituted or hereafter amended, or the filing by Buyer of any answer in any
proceeding under any such laws seeking relief or reorganization whereby Buyer
admits the material allegations of any petition filed against Buyer in any
such proceeding, or the consent by Buyer to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of Buyer or for all or a substantial
part of its property, or the making by Buyer of any general assignment for
the benefit of creditors.
(b) SELLER EVENTS OF DEFAULT. Each of the following events shall
constitute a "SELLER EVENT OF DEFAULT" (whether any such event shall be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court
or any order, rule or regulation of any administrative or governmental body):
(i) Seller shall have failed to perform (or observe or caused
to be performed and observed) any covenant or agreement to be performed or
observed by it hereunder and such failure shall continue unremedied for a
period of thirty (30) days after written notice thereof from Buyer; or
(ii) any representation or warranty made by Seller herein or
in any other Seller Agreement shall prove to have been incorrect in any
material respect at the time made
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and shall continue unremedied for a period of thirty (30) days after written
notice thereof from Buyer; or
(iii) the filing of a petition against Seller under the Federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
Federal or state bankruptcy, insolvency or other similar law in the United
States, and the lack of the withdrawal or dismissal of such proceeding within
60 days thereafter; or the entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of Seller in an involuntary
case under the Federal bankruptcy laws, as now or hereafter constituted, or
any other applicable Federal or state bankruptcy, insolvency or other similar
law in the United States, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of Seller or for
all or a substantial part of its property, or ordering the winding-up or
liquidation of its affairs and, in the case of any such decree or order, the
continuance of such decree or order unstayed and in effect for a period of 60
consecutive days;
(iv) the commencement by Seller of a voluntary case under the
Federal bankruptcy laws, as now constituted or hereafter amended, or any
other applicable Federal or state bankruptcy, insolvency or other similar law
in the United States or the filing by Seller of any answer in any proceeding
under any such laws seeking relief or reorganization whereby Seller admits
the material allegations of any petition filed against Seller in any such
proceeding, or the consent by Seller to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of Seller or for all or a
substantial part of its property, or the making by Seller of any general
assignment for the benefit of creditors; or
(v) Seller shall not have made any required refund payment
within three (3) Business Days after receipt of written notice that the same
shall have become due and payable.
7.6. REMEDIES.
(a) GENERALLY. Subject to the final sentence of this Section
7.6(a), upon the occurrence of any Buyer Event of Default or Seller Event of
Default and at any time thereafter so long as the same shall be continuing,
the non-defaulting party may, at its option, declare by written notice to the
defaulting party this Agreement to be in default (without the necessity of
such written declaration upon the occurrence of any Buyer Event of Default
described in paragraph (iv) or (v) of Section 7.5(a) hereof or any Seller
Event of Default described in paragraph (iii) or (iv) of Section 7.5(b)
hereof) and at any time thereafter, so long as such outstanding Buyer Event
of Default or Seller Event of Default, as the case may be, shall not have
been remedied, the non-defaulting party may (i) rescind or terminate this
Agreement with respect to the affected Aircraft or Engines, and/or (ii)
exercise any other right or remedy that may be available to it under
applicable law or proceed by appropriate court action to enforce the terms
hereof or to recover damages for the breach hereof; provided, however, that,
in the event of a Seller Event of Default under Section 7.5(b)(i) hereof
relating to Seller's failure to deliver an Aircraft and Aircraft
Documentation that complies with the provisions specified for Delivery
pursuant to Section 4.4 hereof, so long as Seller shall have used reasonable
good faith efforts to cause delivery of such an Aircraft and/or Aircraft
Documentation, Buyer's exclusive remedy shall be as provided in Section 4.9D
hereof.
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(b) NO WAIVER. No delay on the part of either party in exercising
any of its rights, powers or privileges under this Agreement shall operate as
a waiver thereof nor shall any single or partial exercise of any right, power
or privilege preclude any other or further exercise thereof, or the exercise
of any other right, power or privilege.
(c) REMEDIES CUMULATIVE. The rights and remedies herein and
therein provided are cumulative and not exclusive of any rights or remedies
provided by law.
ARTICLE VIII
INDEMNIFICATION
8.1. GENERAL INDEMNITY.
(a) With respect to each Aircraft, Buyer will be responsible for
and shall indemnify, defend and hold harmless Seller and any affiliate
thereof, and each of their respective officers, directors, agents and
employees (each, a "SELLER INDEMNITEE"), on an after-tax basis, from and
against any and all claims, damages, losses, liabilities, obligations,
penalties and judgments of every kind and nature, including all costs and
expenses, including reasonable attorneys' fees and expenses, incident
thereto, but excluding Taxes (hereinafter, collectively, "CLAIMS"), which
occur on or after the respective Delivery Date of such Aircraft (including,
but not limited to, the Airframe and any Engine, APU, Landing Gear,
component, equipment and part installed thereon, any of the Aircraft
Documentation applicable to such Aircraft, and any other part, equipment,
data or information sold hereunder) and which directly or indirectly arises
in any manner out of or in connection with (a)the ownership by Buyer or by
any third person on or after the Delivery Date of such Aircraft (including
but not limited to the Airframe and any Engine, APU, Landing Gear, component,
equipment and part installed thereon, any of the Aircraft Documentation
applicable to such Aircraft, and any other equipment, part, data or
information sold hereunder), or (b)the use, possession, dispossession,
re-possession, control, operation, location, landing, departure, condition,
acceptance, rejection, delivery, non-delivery, re-delivery, registration,
de-registration, re-registration, sale, leasing, wet leasing, chartering,
subleasing, importation, exportation, transfer of title or other disposition
of title, abandonment, storage, maintenance, service, repair, overhaul,
testing, design, modification, dismantling, disassembly or re-assembly by
Buyer or by any third person on or after the Delivery Date of such Aircraft
(including but not limited to the Airframe and any Engine, APU, Landing Gear,
component, equipment and part installed thereon, any of the Aircraft
Documentation applicable to such Aircraft, and any other part, equipment,
data or information sold hereunder), or (c)any condition of, or defect in,
such Aircraft (including but not limited to the Airframe and any Engine,
Landing Gear, component, equipment and part installed thereon, any of the
Aircraft Documentation applicable to such Aircraft, and any other part,
equipment, data or information sold hereunder), or any Claim for patent,
trademark or copyright infringement, regardless of whether such condition
came into existence, or was discovered or reported, on, before or after the
respective Delivery Date of such Aircraft, or was caused by any Seller
Indemnitee's acts or omissions on or prior to the relevant Delivery Date.
The foregoing indemnity shall apply to all Claims, regardless of whether any
such Claim arises in tort (including, without limitation, strict liability).
Buyer will pay a Seller Indemnitee upon demand for all reasonable expenses
(including without limitation, all
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reasonable legal and accountants' fees and disbursements, and interest)
incurred by such Seller Indemnitee in enforcing such Seller Indemnitee's
rights against Buyer under this Section 8.1. Neither the consummation of the
sale pursuant to this Agreement nor any subsequent lease, sale or other
transfer of the any of the Aircraft shall release Buyer from its obligations
pursuant to this Section 8.1(a).
(b) If any Claim is made by a Seller Indemnitee, such Seller
Indemnitee, upon receiving notice of such Claim, will promptly notify Buyer;
provided however that failure by the Seller Indemnitee to so notify the Buyer
shall not relieve Buyer of its obligations to indemnify hereunder except to
the extent Buyer is materially prejudiced by such failure.
8.2. SURVIVAL. Notwithstanding any other provision of this Agreement,
the obligations of the parties under this Article VIII will survive the
consummation, completion, or termination (or any combination of any thereof)
of this Agreement.
ARTICLE IX
INSURANCE
9.1. INSURANCE REQUIREMENTS. Effective upon the Delivery of each
Aircraft to Buyer, and for a period of three (3) years thereafter, Buyer will
at its expense maintain, or shall cause each subsequent operator of each such
Aircraft (whether as owner, lessee or such other capacity in which such
operator has possession of the Aircraft) to maintain, with respect to such
Aircraft and Parts (including, without limitation, Parts that have been sold)
with insurance carriers of recognized responsibility, aviation products
liability and contractual liability insurance in an amount not less than
___________________________ United States Dollars (US$_____________) per
occurrence, and in the annual aggregate, combined single limit bodily injury
and property damage. Such liability insurance shall be endorsed: (a)to name
all Seller Indemnities, as the case may be, as additional insureds
("ADDITIONAL INSUREDS") thereunder; (b)to expressly provide cross-liability
clauses; (c)to expressly provide that all of the provisions thereof, except
the limits of liability, shall operate in the same manner as if there were a
separate policy covering each insured and shall waive, any right of
subrogation of the insurers against each Additional Insured; (d)to expressly
provide that, in respect of the respective interests of each Additional
Insured in such policies, the insurance shall not be invalidated by any
action or inaction of Buyer or such other operator or any affiliate thereof
(or any director, officer, agent or employee thereof) or any other third
party (other than the Additional Insureds) and shall insure the respective
interests of the Additional Insureds, as they appear, regardless of any
breach or violation of any warranty, declaration or condition contained in
such policies by Buyer or such other operator or any affiliate thereof (or
any director, officer, agent or employee thereof) or any other third party
(other than the Additional Insureds); (e)to expressly provide that such
insurance shall be primary without any right of contribution from any other
insurance which is carried by any Additional Insured; (f)to expressly waive
any right of the insurers to set-off or counterclaim or any other deduction,
whether by attachment or otherwise, in respect of any liability of any
Additional Insured; (g)to expressly cover the contractual liability to each
of the Additional Insureds assumed by in Section 8.1 hereof but only to the
extent of the contractual liability assumed by in Section 8.1 hereof.
- ---------------
* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
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9.2. BROKER'S CERTIFICATES. Buyer will furnish to Seller, not less than
five (5) business days prior to the scheduled Delivery Date of each Aircraft
(and upon any renewal of such insurance contracts), broker's certificates
certifying that such policies of insurance, endorsed as required herein, are
in full force and effect (together with the waivers of subrogation as
described in Section 9.1), and stating the opinion of such firm that
insurance complies with the terms hereof, that all premiums in connection
with such insurance then due have been paid, and that the respective
Additional Insureds will be given (30) days prior written notice by the
insurers in the event of either cancellation or material change in such
coverage or in said waivers, except that with respect to war risk coverage,
seven (7) days prior written notice will be given or, if seven (7) days
notice is not available, such lesser period of time as is generally being
made available by insurers. Buyer acknowledges that the failure to provide
such report to Seller shall have the same effect hereunder as the failure to
maintain the insurance otherwise required by this Article IX.
9.3. SURVIVAL. Notwithstanding any other provision of this Agreement,
the obligations of the parties under this Article IX will survive the
consummation, completion, or termination (or combination of any thereof) of
this Agreement.
ARTICLE X
REPRESENTATIONS
10.1. SELLER'S REPRESENTATIONS.
(a) STATUS. Seller is a corporation duly incorporated and validly
existing under the laws of the State of Delaware and has the power to own its
property and assets and carry on its business as it is now being conducted.
(b) POWER AND AUTHORITY. Seller has, or will on or prior to the
first Delivery Date, the power to enter into and perform, and has, or will on
or prior to the first Delivery Date, taken all necessary action to authorize
its entry into and performance of, this Agreement and the transactions
contemplated hereby.
(c) LEGAL VALIDITY. This Agreement constitutes the legal, valid
and binding obligation of Seller enforceable in accordance with its terms.
(d) NON-CONFLICT WITH LAWS. So far as concerns Seller, the entry
into and performance of this Agreement and the transactions contemplated
hereby do not and will not conflict with:
(i) any law or regulation or any official or judicial order
applicable to Seller;
(ii) the constitutional documents of Seller; or
(iii) any agreement or document to which the Seller is a party
or which is binding upon Seller or its assets.
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(e) CONSENTS. All authorizations, approvals, consents, licenses,
exemptions, filings, registrations, notarizations and other matters official
or otherwise applicable to Seller which are required or advisable in
connection with the entry into, performance, validity and enforceability of
this Agreement, delivery of the Aircraft hereunder or any of the transactions
contemplated hereby shall be obtained by Seller prior to the date upon which
they are required or it is advisable that they be obtained.
10.2. BUYER'S REPRESENTATIONS.
(a) STATUS. Buyer is a company duly incorporated and validly
existing under the laws of the State of California and has the power to own
its property and assets and carry on its business as it is now being
conducted.
(b) POWER AND AUTHORITY. Buyer has the power to enter into and
perform and has taken all necessary action to authorize the entry into,
performance and delivery of this Agreement and each of the other Buyer
Agreements and the transactions contemplated hereby and thereby.
(c) LEGAL VALIDITY. This Agreement and each other Buyer Agreement
constitute the legal, valid and binding obligations of Buyer enforceable in
accordance with their respective terms.
(d) NON-CONFLICT WITH LAWS. The entry into and performance of
this Agreement and the other Buyer Agreements and the transactions
contemplated hereby and thereby do not and will not conflict with:
(i) any law or regulation or any official or judicial order
applicable to Buyer; or
(ii) the constitutional documents of Buyer; or
(iii) any agreement or document to which Buyer is a party or
which is binding upon Buyer or any of its assets.
(e) CONSENTS. All authorizations, approvals, consents, licenses,
exemptions, filings, registrations, notarizations and other matters, official
or otherwise applicable to Buyer which are required or advisable in
connection with the entry into, performance, validity and enforceability of
this Agreement and the other Buyer Agreements, purchase and acceptance of the
Aircraft hereunder or any of the transactions contemplated hereby shall be
obtained by Buyer prior to the date upon which they are required or it is
advisable that they be obtained.
ARTICLE XI
RESTRICTIONS ON USE AND TRANSFER OF THE AIRCRAFT
Buyer expressly agrees and covenants that:
25
<PAGE>
A. ____________________________________________________
______________________________________________________________________;*
B. ____________________________________________________
______________________________________________________________________;*
C. ____________________________________________________
______________________________________________________________________;*
D. ____________________________________________________
______________________________________________________________________;*
_________________________________________________________________
_________________________________________________________.*
_________________________________________________________________
_________________________________________________________.*
_________________________________________________________________
_________________________________________________________.*
E. ____________________________________________________
______________________________________________________________________.*
ARTICLE XII
MISCELLANEOUS
12.1. TRANSFERABILITY. No assignment or transfer may be made by either
party of all or any of its rights in respect of this Agreement without the
prior written consent of the other party, such consent not to be unreasonably
withheld. For the avoidance of doubt, Seller and Buyer agree that Buyer
shall not be entitled to assign any of its rights (other than the right to
purchase as expressly provided in the immediately preceding sentence) or any
of its obligations under this Agreement without the prior written consent of
Seller, such consent not to be unreasonably withheld. Notwithstanding the
above, Buyer may transfer its interest in the Aircraft to its subsidiaries,
provided that such transfer takes place after Delivery of any Aircraft.
12.2. FURTHER ASSURANCES. Each party agrees from time to time to do and
perform such other and further acts and execute and deliver any and all such
other instruments as may be required by law or reasonably requested by the
other party at the other party's expense to
- ---------------
* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
26
<PAGE>
establish, maintain and protect the rights and remedies of the other party
and carry out and effect the intent and purpose of this Agreement.
12.3. NOTICES.
(a) All notices under this Agreement shall be given to the
intended recipient at the address or facsimile number set out on the
execution pages of this Agreement (or such other address or facsimile number
as either party may specify to the other in writing from time to time).
(b) Any communication from one party to the other under this
Agreement shall be effective when actually received and in the case of a
communication by facsimile only if a transmission report is produced by the
machine from which the facsimile was sent indicating that the facsimile was
sent in its entirety to the facsimile number of the recipient notified for
the purposes of this clause, provided that if any communications are
received after 5:00 p.m. (local time for recipient) on any day, the same
shall only be effective at the commencement of business on the next working
day.
12.4. VARIATION. The provisions of this Agreement shall not be varied
otherwise than by an instrument in writing executed by or on behalf of both
parties.
12.5. CONFIDENTIALITY. Except to the extent that any of the following
is available in the public domain (other than by reason of an act of either
party in violation of this Agreement), each party shall keep the terms of
this Agreement and the transactions contemplated hereby and the Maintenance
Program Documents strictly confidential, provided that it may disclose this
Agreement and the transactions hereby contemplated if required to do so:
(i) for the purpose of legal proceedings, administrative or
regulatory requirements or as otherwise required by law;
(ii) to effect any registrations, filings or recordations
required by or pursuant to this Agreement;
(iii) for the purpose of disclosure to its auditors or to its
legal or other professional advisers; or
(iv) for the purpose of advising any potential financier or Other
Owner of any of the Aircraft.
12.6. SEVERABILITY OF PROVISIONS. If any provision of this Agreement is
prohibited or unenforceable in any jurisdiction, such prohibition or
unenforceability shall not invalidate the remaining provisions hereof or
affect the validity or enforceability of such provisions in any other
jurisdiction.
12.7. TIME OF ESSENCE. The time stipulated in this Agreement for all
payments payable by the Buyer to the Seller or from the Seller to the Buyer
and for the performance of the parties' other obligations under this
Agreement will be of the essence of this Agreement.
27
<PAGE>
12.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
12.9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO THE
CONFLICTS OF LAWS PRINCIPLES THEREUNDER.
12.10. SUBMISSION TO JURISDICTION. Each party to this Agreement
irrevocably agrees that any legal suit, action or proceeding brought by the
other party, which arises out of or relates to this Agreement or any document
or agreement referred to herein, or any of the transactions contemplated
hereby or thereby, may be instituted in the Circuit Court of the State of
Illinois, Cook County, or the United District Court for the Northern District
of Illinois. The agreement set forth in this Section 12.10 is given solely
for the benefit of the parties to this Agreement and such agreement is not
intended and shall not inure to the benefit of any other person.
12.11. BROKER FEES. Each party agrees to indemnify and hold the other
party harmless from and against any and all claims, suits, damages, costs and
expenses (including, but not limited to, reasonable attorney's fees) asserted
by agents, brokers or other third parties, representing or allegedly
representing such party, for any commission or compensation of any nature
whatsoever based upon the sale or transfer between Seller and Buyer of any of
the Aircraft. Seller represents to Buyer that Seller has not retained or
hired any agents, brokers or other third party, for any commission or
compensation of any nature whatsoever based upon the sale or transfer between
Seller and Buyer of any of the Aircraft. Buyer represents to Seller that
Buyer has not retained or hired any other agents, brokers or other third
party, for any commission or compensation of any nature whatsoever based upon
the sale or transfer between Seller and Buyer of any of the Aircraft.
12.12. COSTS AND EXPENSES. Except as otherwise expressly provided
herein, each party will pay its own expenses incurred in connection with this
Agreement and the transactions contemplated hereby, including, without
limitation, attorney's fees, filing fees, inspection and other consulting
fees.
* * *
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Aircraft
Purchase and Sale Agreement to be executed and delivered as of the date first
above written.
UNITED AIR LINES, INC.,
SELLER
By: /s/ Andrew P. Studdert
Its: Senior Vice President,
Fleet Opns.
Address for Notices:
UAL Services, a Division of
United Air Lines, Inc.
1611 Adrian Road
Burlingame, CA 94010
Attention: Director, Asset Management
Telephone: (650) 876-4347
Facsimile: (650) 876-3544
WILLIS LEASE FINANCE CORPORATION
BUYER
By: /s/ Charles F. Willis
Its: President
Address for Notices:
Willis Lease Finance Corporation
180 Harbor Drive, Suite 200
Sausalito, CA 94965
Attn: General Counsel
Telephone: (415) 331-5281
Facsimile: (415) 331-5167
29
<PAGE>
[LETTERHEAD]
- --------------------------------------------------------------------------------
AMENDMENT NO. 3
TO
CREDIT AGREEMENT
Amendment No. 3, dated February 27, 1998, (the "AMENDMENT") to Credit
Agreement, dated June 12, 1997 as amended prior to this date, (the "AGREEMENT")
by and between WILLIS LEASE FINANCE CORPORATION, a California corporation
("WILLIS") and CORESTATES BANK, N.A., a national banking association ("CORE
STATES BANK", "CORESTATES" or the "BANK"). All capitalized terms used herein
and not otherwise defined shall have the respective meanings ascribed to them
in the Agreement.
PRELIMINARY STATEMENT
WHEREAS, by prior amendment, CoreStates Bank agreed to temporarily
increase the Revolving Loan Commitment from $30,000,000 to $45,000,000;
WHEREAS, Willis has requested that CoreStates Bank extend such increase in
the Revolving Loan Commitment and make certain other modifications to the
Agreement.
WHEREAS, CoreStates Bank is willing to agree to such request on the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and promises hereinafter
set forth and intending to be legally bound hereby, the parties hereto agree as
follows:
1. SECTION 1.1 OF THE AGREEMENT.
(a) The following definitions are hereby inserted and shall read as
follows:
"BASE RATE" shall mean (i) the rate of interest for commercial loans
established and publicly announced by CoreStates from time to time as its
prime rate, or, if higher, (ii) the Federal
Amendment No. 3 to
Credit Agreement -1- February 27, 1998
<PAGE>
Funds Rate plus 1/2 of 1% per annum. Any change in such interest rate due
to a change in the Base Rate shall be effective on the date of such change.
Interest on Loans shall be computed on the basis of a year of 365 or 366
days, as applicable, if the Base Rate is equal to the prime rate of
CoreStates. Interest on Loans shall be computed on the basis of a year of
360 days, for the actual days elapsed, if the Base Rate is equal to the
Federal Funds Rate plus 1/2 of 1% per annum.
"FEDERAL FUNDS RATE" shall mean the daily rate of interest announced from
time to time by the Board of Governors of the Federal Reserve System in
publication H. 15 as the "Federal Funds Rate," or if such publication is
unavailable, such rate as is available to CoreStates on such day.
(b) The following definition is hereby amended and restated in its
entirety to read as follows:
"DEFAULT RATE" on any Loan shall mean 2% per annum above the Base Rate.
2. SECTION 2.1 OF THE AGREEMENT.
(a) The first paragraph of Section 2.1 of the Agreement is hereby amended
and restated in its entirety to read as follows:
"Subject to the terms and conditions herein set forth and in reliance
upon the representations, warranties and covenants contained herein,
CoreStates Bank agrees to make revolving credit loans ("REVOLVING
CREDIT LOANS") to Willis upon receipt of loan requests therefor in
amounts not to exceed at any time outstanding, in the aggregate,
$45,000,000 through May 31, 1998 and $30,000,000 thereafter (such
amount, as the same may be reduced pursuant to Section 2.7 hereof
being hereinafter called the "REVOLVING LOAN COMMITMENT"). For
purposes of determining the amount of Revolving Credit Loans
outstanding, the Standby Letters of Credit issued pursuant to
Section 2.2 hereof shall be deemed Revolving Credit Loans and shall
be added to the Revolving Credit Loans outstanding to determine the
aggregate Revolving Credit Loans outstanding. As provided below,
Revolving Credit Loans may be requested by Willis, and made from time
to time prior to the Revolver Termination Date. All Loans shall be
made to Willis at the main office of the Bank, Broad and Chestnut
Streets, Philadelphia, Pennsylvania 19101."
(b) The fourth paragraph of Section 2.1 of the Agreement is hereby
amended and restated in its entirety to read as follows:
"Willis may have Revolving Credit Loans outstanding at any time and
from time to time in an aggregate amount up to, but not exceeding
$10,000,000 for the acquisition of Category B Equipment. Any item of
Category B Equipment which is a Stage III jet engine shall be
deducted from Category B Equipment and become part of Category A
Equipment upon the physical removal of that engine from its airframe,
provided that such Equipment otherwise qualifies as Category A
Equipment."
Amendment No. 3 to
Credit Agreement -2- February 27, 1998
<PAGE>
3. SECTION 2.5 OF THE AGREEMENT. Section 2.5 of the Agreement is hereby
amended and restated in its entirety to read as follows:
"Each Loan shall bear interest on the principal amount thereof from the
date made until such Loan is paid in full, at a rate per annum equal to
the Base Rate minus 1/4 of 1%."
4. REPRESENTATIONS AND WARRANTIES. Willis hereby restates the
representations and warranties made in the Agreement, including but not limited
to Article 3 thereof, on and as of the date hereof as if originally given on
this date.
5. COVENANTS. Willis hereby represents and warrants that it is in
compliance and has complied with each and every covenant set forth in the
Agreement, including but not limited to Articles 5 and 6 thereof, on and as of
the date hereof.
6. CORPORATE AUTHORIZATION AND DELIVERY OF DOCUMENTS. CoreStates shall
have received copies, certified as of the date hereof, of all action taken by
Willis and any other necessary Person to authorize this Amendment and such
other papers as CoreStates shall require.
7. AFFIRMATION. Willis hereby affirms its absolute and unconditional
promise to pay to CoreStates Bank the Loans and all other amounts due under the
Agreement and any other Loan Document on the maturity date(s) provided in the
Agreement or any other Loan Document, as such documents may be amended hereby.
8. EFFECT OF AMENDMENT. This Amendment amends the Agreement only to the
extent and in the manner herein set forth, and in all other respects the
Agreement is ratified and confirmed.
9. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures hereto were upon the same instrument.
[Signatures appear on the following page]
Amendment No. 3 to
Credit Agreement -3- February 27, 1998
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this Amendment to
be duly executed by their duly authorized representatives as of the date first
above written.
WILLIS LEASE FINANCE CORPORATION
By /s/ James D. McBride
----------------------------
Name: James D. McBride
Title: Chief Financial Officer
CORESTATES BANK, N.A.
By /s/ Hugh W. Connelly
----------------------------
Hugh W. Connelly
Vice President
<PAGE>
[LOGO]
- -------------------------------------------------------------------------------
AMENDMENT NO. 4
TO
CREDIT AGREEMENT
Amendment No. 4, dated March 26, 1998, (the "AMENDMENT") to Credit
Agreement, dated June 12, 1997 as amended prior to this date, (the
"AGREEMENT") by and between WILLIS LEASE FINANCE CORPORATION, a California
corporation ("WILLIS") and CORESTATES BANK, N.A., a national banking
association ("CORESTATES BANK", "CORESTATES" or the "BANK"). All capitalized
terms used herein and not otherwise defined shall have the respective
meanings ascribed to them in the Agreement.
PRELIMINARY STATEMENT
WHEREAS, Willis has requested that CoreStates Bank agree to finance
certain de Havilland aircraft along with the engines and propellers attached
thereto,
WHEREAS, CoreStates Bank is willing to agree to such request on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and promises
hereinafter set forth and intending to be legally bound hereby, the parties
hereto agree as follows:
1. SECTION 1.1 OF THE AGREEMENT. The definition "Category A
Equipment" is hereby amended and restated in its entirety to read as
follows:
"CATEGORY A EQUIPMENT" shall mean equipment purchased
by Willis from unaffiliated Persons and which is either
(1) the subject of an Eligible Lease or (2) held for
sale or lease to unaffiliated Persons. Category A
Equipment shall be composed of Stage III compliant jet
engines which are less than 15 years from the date of
manufacture and are suitable for use in major aircraft
manufactured by The Boeing Co., McDonnell Douglas Corp.
or Airbus Industrie. Category A Equipment also shall
include (i) three de Havilland DHC-8-102 turbo prop
aircraft, six Pratt & Whitney Model PW120A aircraft
engines, six Hamilton Standard Model 14SF four-blade
propellers and three Pratt & Whitney Model PW120A spare
engines, each as more fully described in Exhibit F
attached hereto, which will be purchased from FINOVA
Capital Corporation and which are subject to existing
leases to Horizon Air Industries, Inc. and (ii) two de
Havilland Dash 8-103 turbo prop aircraft, four Pratt &
Whitney
Amendment No. 4 to
Credit Agreement -1- March 26, 1998
<PAGE>
Model PW121 engines and four Hamilton Standard
Model 14 SF-7 propellers, each as more fully described
in Exhibit F attached hereto which will be purchased
from de Havilland Corporation and leased to Aloha
Islandair, Inc."
2. REPRESENTATIONS AND WARRANTIES. Willis hereby restates the
representations and warranties made in the Agreement, including but not
limited to Article 3 thereof, on and as of the date hereof as if originally
given on this date.
3. COVENANTS. Willis hereby represents and warrants that it is in
compliance and has complied with each and every covenant set forth in the
Agreement, including but not limited to Articles 5 and 6 thereof, on and as
of the date hereof.
4. CORPORATE AUTHORIZATION AND DELIVERY OF DOCUMENTS. CoreStates
shall have received copies, certified as of the date hereof, of all
action taken by Willis and any other necessary Person to authorize this
Amendment and such other papers as CoreStates shall require.
5. AFFIRMATION. Willis hereby affirms its absolute and
unconditional promise to pay to CoreStates Bank the Loans and all other
amounts due under the Agreement and any other Loan Document on the maturity
date(s) provided in the Agreement or any other Loan Document, as such
documents may be amended hereby.
6. EFFECT OF AMENDMENT. This Amendment amends the Agreement only to
the extent and in the manner herein set forth, and in all other respects the
Agreement is ratified and confirmed.
7. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as
if the signatures hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have each caused this Amendment
to be duly executed by their duly authorized representatives as of the date
first above written.
WILLIS LEASE FINANCE CORPORATION
By /s/ James D. McBride
------------------------------
Name: James D. McBride
Title: Chief Financial Officer
CORESTATES BANK, N.A.
By /s/ Hugh W. Connelly
------------------------------
Hugh W. Connelly
Vice President
Amendment No. 4 to
Credit Agreement -2- March 26, 1998
<PAGE>
EX-11.1
Computation of Earnings EXHIBIT XI
WILLIS LEASE FINANCE CORPORATION
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
1998 1997
----------------- --------------
(in thousands, except per share data)
<S> <C> <C>
Income before extraordinary item
Primary
Earnings:
Income before extraordinary item $1,950 $1,015
Shares:
Weighted average number of common shares outstanding 7,192 5,430
------------- ----------
Primary earnings per common share before extraordinary item $0.27 $0.19
Assuming Full Dilution
Earnings:
Income before extraordinary item $1,950 $1,015
------------- ----------
Shares:
Weighted average number of common shares
outstanding and common stock equivalents 7,440 5,577
------------- ----------
Earnings per common share assuming full dilution, $0.26 $0.18
------------- ----------
before extraordinary item
Net income
Primary
Earnings:
Net income $1,749 $3,023
------------- ----------
Shares:
Weighted average number of common shares outstanding 7,192 5,430
------------- ----------
Primary earnings per common share $0.24 $0.56
Assuming Full Dilution
Earnings:
Net income $1,749 $3,023
------------- ----------
Shares:
Weighted average number of common shares
outstanding and common stock equivalents 7,440 5,577
------------- ----------
Earnings per common share assuming full dilution $0.23 $0.54
------------- ----------
</TABLE>
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 22,650,079
<SECURITIES> 0
<RECEIVABLES> 4,031,725
<ALLOWANCES> 0
<INVENTORY> 11,743,827
<CURRENT-ASSETS> 0
<PP&E> 184,664,754
<DEPRECIATION> 16,875,014
<TOTAL-ASSETS> 241,437,695
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 40,190,299
<OTHER-SE> 16,233,590
<TOTAL-LIABILITY-AND-EQUITY> 241,437,695
<SALES> 3,015,927
<TOTAL-REVENUES> 12,745,414
<CGS> 2,054,544
<TOTAL-COSTS> 6,306,915
<OTHER-EXPENSES> 3,183,837
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,254,662
<INCOME-TAX> 1,304,826
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 200,480
<CHANGES> 0
<NET-INCOME> 1,749,356
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.23
</TABLE>
