<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 September 30, 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)
Delaware 68-0070656
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2320 Marinship Way, Suite 300, Sausalito, CA 94965
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 331-5281
_________________
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 October 31, 1998
------------------- -------------------------------
Common Stock, $0.01 Par Value 7,285,813
1
<PAGE>
WILLIS LEASE FINANCE CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
As of September 30, 1998 and December 31, 1997 3
Consolidated Statements of Income 4
Three and nine months ended September 30, 1998 and 1997
Consolidated Statements of Shareholders' Equity 5
Year ended December 31, 1997 and
nine months ended September 30, 1998
Consolidated Statements of Cash Flows 6
Nine months ended September 30, 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 17
</TABLE>
2
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $2,926,597 $13,095,303
Deposits 16,701,061 18,461,456
Equipment held for operating lease, less accumulated depreciation
of $14,197,951 at September 30, 1998 and $15,267,683 at December 31, 1997 246,312,602 138,535,643
Net investment in direct finance lease 9,391,351 9,821,854
Property, equipment and furnishings, less accumulated depreciation
of $436,585 at September 30, 1998 and $275,109 at December 31, 1997 2,274,450 540,856
Spare parts inventory 29,150,797 10,334,113
Maintenance billings receivable 888,898 1,547,765
Operating lease rentals receivable 642,645 520,466
Receivables from spare parts sales 4,865,594 2,908,175
Other receivables 331,721 375,878
Other assets 7,963,459 2,288,547
------------- -------------
Total assets $321,449,175 $198,430,056
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $6,270,112 $4,010,976
Salaries and commissions payable 461,319 1,070,051
Deferred income taxes 11,525,590 8,476,040
Deferred gain 163,406 183,278
Notes payable and accrued interest 214,861,837 101,433,200
Capital lease obligation 2,690,852 2,802,119
Residual share payable 2,402,410 2,092,140
Maintenance reserves 14,360,602 20,018,195
Security deposits 4,176,006 2,435,987
Unearned lease revenue 2,497,213 1,306,613
------------- -------------
Total liabilities $259,409,347 $143,828,599
------------- -------------
Shareholders' equity:
Common stock, ($0.01 par value and no par value as of
September 30, 1998 and December 31, 1997, respectively.
20,000,000 shares authorized; 7,285,813 and 7,177,320
shares issued and outstanding as of September 30, 1998
and December 31,1997, respectively) 72,858 -
Paid-in capital in excess of par 41,100,934 40,117,223
Retained earnings 20,866,036 14,484,234
------------- -------------
Total shareholders' equity 62,039,828 54,601,457
------------- -------------
Total liabilities and shareholders' equity $321,449,175 $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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE
Lease revenue $9,077,536 $5,159,969 $22,642,709 $13,703,795
Gain on sale of leased equipment 3,639,707 936,069 9,178,785 1,333,448
Spare part sales 7,229,672 5,581,648 16,828,866 11,459,311
Sale of equipment acquired for resale - 2,600,000 4,093,641 12,747,840
Interest and other income 133,644 90,821 752,876 543,660
----------- ----------- ----------- -----------
Total revenue $20,080,559 $14,368,507 $53,496,877 $39,788,054
EXPENSES
Interest expense 4,214,800 2,068,997 10,416,850 5,225,603
Depreciation expense 2,179,989 1,140,692 5,325,324 2,995,121
Residual share 187,128 226,659 587,387 598,125
Cost of spare part sales 5,037,298 4,044,196 11,923,306 7,751,179
Cost of equipment acquired for resale - 2,033,687 3,573,499 10,671,668
General and administrative 4,325,601 2,434,013 10,693,763 6,358,000
----------- ----------- ----------- -----------
Total expenses $15,944,816 $11,948,244 $42,520,129 $33,599,696
----------- ----------- ----------- -----------
Income before income taxes and extraordinary item 4,135,743 2,420,263 10,976,748 6,188,358
Income taxes (1,651,834) (969,327) (4,394,462) (2,456,283)
----------- ----------- ----------- -----------
Income before extraordinary item 2,483,909 1,450,936 6,582,286 3,732,075
Extraordinary item less applicable income taxes - - (200,480) 2,007,929
----------- ----------- ----------- -----------
Net income $2,483,909 $1,450,936 $6,381,806 $5,740,004
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per common share:
Income before extraordinary item $0.34 $0.27 $0.91 $0.69
Extraordinary item - - (0.03) 0.37
----------- ----------- ----------- -----------
Net income $0.34 $0.27 $0.88 $1.05
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per common share:
Income before extraordinary item $0.33 $0.26 $0.88 $0.67
Extraordinary item - - (0.03) 0.36
----------- ----------- ----------- -----------
Net income $0.33 $0.26 $0.85 $1.03
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Average common shares outstanding 7,280,130 5,447,117 7,245,404 5,441,292
Diluted average common shares outstanding 7,495,491 5,658,184 7,466,062 5,592,223
</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 NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Issued and
outstanding Paid-in Total
shares of Common Capital in Retained shareholders'
common stock Stock Excess of Par earnings equity
------------ ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balances 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 - - - 7,337,667 7,337,667
--------- ----------- ----------- ----------- -----------
Balances at December 31, 1997 7,177,320 $40,117,223 $ - $14,484,230 $54,601,453
Shares issued 108,493 586,490 137,848 - 724,338
Tax benefit from disqualified
dispositions of qualified shares - - 332,231 - 332,231
Conversion to par value stock - (40,630,855) 40,630,855 - -
Net income - - - 6,381,806 6,381,806
--------- ----------- ----------- ----------- -----------
Balances at September 30, 1998 (unaudited) 7,285,813 $72,858 $41,100,934 $20,866,036 $62,039,828
--------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements
5
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1998 1997
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,381,806 $ 5,740,004
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of equipment held for lease 5,155,698 2,905,016
Depreciation of property, equipment and furnishings 169,626 90,105
Loss on sale of property, equipment and furnishings 15,536 (45,122)
Gain on sale of leased equipment (9,178,785) (1,333,448)
Increase in residual share payable 310,270 598,125
Changes in assets and liabilities:
Deposits 1,760,395 (620,199)
Spare parts inventory (18,816,684) (5,511,768)
Receivables (1,376,574) (1,414,577)
Other assets (2,300,171) (667,171)
Accounts payable and accrued expenses 2,259,136 (608,914)
Salaries and commission payable (608,732) 371,324
Deferred income taxes 3,049,550 3,030,693
Deferred gain (19,872) (19,872)
Accrued interest (172,694) (364,270)
Maintenance deposits (5,657,593) 6,244,630
Security deposits 1,740,019 501,887
Unearned lease revenue 1,190,600 90,410
------------ ------------
Net cash (used in) provided by operating activities (16,098,469) 8,986,853
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment held for
operating lease (net of selling expenses) 28,676,239 12,083,807
Proceeds from sale of property,
equipment and furnishings 16,300 80,500
Purchase of equipment held for operating lease (132,430,111) (53,582,728)
Deposits made in connection with inventory purchases (3,374,741) -
Purchase of property, equipment and furnishings (1,935,060) (174,341)
Principal payments received on direct finance lease 430,503 133,967
------------ ------------
Net cash used in investing activities (108,616,870) (41,458,795)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 157,685,170 104,038,706
Proceeds from issuance of common stock 1,056,569 221,244
Principal payments on notes payable (44,083,839) (71,635,450)
Principal payments on capital lease obligation (111,267) (122,754)
------------ ------------
Net cash provided by financing activities 114,546,633 32,501,746
(Decrease) increase in cash and cash equivalents (10,168,706) 29,804
Cash and cash equivalents at beginning of period 13,095,303 6,573,241
------------ ------------
Cash and cash equivalents at end of period $ 2,926,597 $ 6,603,045
------------- ------------
------------- ------------
Supplemental information:
Net cash paid for: Interest 10,589,544 5,589,873
------------- ------------
Income Taxes 3,013,122 188,600
------------- ------------
Non-cash financing activities:
Disqualified disposition of qualified shares
resulted in a $332,231 tax benefit.
</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 September 30, 1998, and December 31, 1997, and the results of its
operations for the three and nine month periods ended September 30, 1998 and
1997 and its cash flows for the nine month periods ended September 30, 1998 and
1997. The results of operations and cash flows for the periods ended September
30, 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. SHAREHOLDERS' EQUITY
The Company changed its state of incorporation from California to Delaware
through a merger of Willis Lease Finance Corporation into its wholly-owned
Delaware subsidiary. The reincorporation, approved by the Company's
shareholders at the May 12, 1998 Annual Meeting of Shareholders, results in a
change only of the Company's legal domicile. It does not result in any change
in the Company's name, operations, locations, management, reporting obligations,
NASDAQ National Market trading symbol or assets and liabilities. In connection
with this reincorporation, the Company converted no par value common stock to
$0.01 par value common stock.
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 became 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 nine
month
7
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
period ended September 30, 1998, the Company issued 15,755 shares of Common
Stock as a result of employee stock purchases under the Purchase Plan.
Under the 1996 Stock Option/Stock Issuance Plan, as amended and restated
February 24, 1998, 1,025,000 shares of the Company's shares have been set aside
to provide eligible persons with the opportunity to acquire a proprietary
interest in the Company. The plan includes a Discretionary Option Grant
Program, a Stock Issuance Program, and an Automatic Option Grant Program for
eligible nonemployee Board Members. During the nine month period ended
September 30, 1998, 67,500 options were exercised. In connection with the
exercise of a portion of these options, the Company recognized a $332,231 tax
benefit.
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 common
stock offering in December 1997 constituted such a registration. The warrants'
exercise price and the number of shares of Common Stock are subject to
adjustment to protect the warrant holders against dilution in certain events.
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 September 1998, the Company amended and restated its revolving credit
facility, increasing the facility to $150 million. This credit facility is
available to finance the acquisition of aircraft engines, aircraft and
high-value spare parts for sale or lease as well as for general working capital
purposes. At September 30, 1998, the interest rate on this facility was LIBOR
plus 1.75%. This facility has a two-year revolving period followed by a
four-year term-out period. The facility is renewable annually.
In March 1998, the Company repaid a loan that had residual sharing
provisions. The repayment resulted in an extraordinary expense of $0.2 million,
net of tax.
5. COMMITMENTS
In June 1998, the Company commenced a new lease of office space for its
Sausalito operations. The initial term of this lease is five years and the
annual rental commitments under the lease are approximately $0.3 million. In
April 1998, the Company commenced lease of a warehouse and office facility for
Willis Aeronautical Services, Inc. ("WASI") in San Diego, California. WASI
moved its South San Francisco operations into this facility in June 1998. The
initial term of this lease is six years and the annual rental commitments under
the lease are approximately $0.4 million.
The Company has committed to purchase, during 1998 and 1999, additional
used aircraft and engines for its operations. Certain deposits were made in
connection with these commitments. The Company's current, remaining commitment
to such purchases is not more than $28.6 million. A portion of these purchases
will take place in 1998 and the remainder in 1999.
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 July 1998, the Company formed Pacific Gas Turbine Center,
Incorporated ("PGTC"). Currently, PGTC provides engine disassembly services to
WASI and third parties from the Company's San Diego location. In addition, the
Company engages in the selective purchase and resale of commercial aircraft
engines.
The Company changed its state of incorporation from California to Delaware
through a merger of Willis Lease Finance Corporation into its wholly-owned
Delaware subsidiary. The reincorporation, approved by the Company's
shareholders at the May 12, 1998 Annual Meeting of Shareholders, resulted in a
change only of the Company's legal domicile. It did not result in any change in
the Company's name, operations, locations, management, reporting obligations,
NASDAQ National Market trading symbol or assets and liabilities.
Revenue consists primarily of 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 SEPTEMBER 30, 1998 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1997:
Revenue is summarized as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------
1998 1997
---- -----
Amount % Amount %
-------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Lease revenue. . . . . . . . . . . . . . . . 9,077 45% 5,160 36%
Gain on sale of leased equipment . . . . . . 3,640 18 936 6
Spare parts sales. . . . . . . . . . . . . . 7,230 36 5,582 39
Sale of equipment acquired for resale. . . . -- -- 2,600 18
Interest and other income. . . . . . . . . . 133 1 91 1
-------------------------------------
Total. . . . . . . . . . . . . . . . . . . . 20,080 100% 14,369 100%
-------------------------------------
-------------------------------------
</TABLE>
LEASE PORTFOLIO. During the quarter ended September 30, 1998, seven
engines, and additional spare parts were added to the Company's lease portfolio
at a total cost of $31.0 million. Four engines were sold from the lease
portfolio.
LEASING ACTIVITIES. Lease revenue for the quarter ended September 30, 1998
increased 76% to $9.1 million from $5.2 million for the comparable period in
1997. This increase reflects lease revenues from additional engines, aircraft
and spare parts packages.
GAIN ON SALE OF LEASED EQUIPMENT. During the quarter ended September 30,
1998, the Company sold four engines from the lease portfolio which resulted in a
gain of $3.6 million. During the quarter ended September 30, 1997 the Company
sold two engines from the lease portfolio which resulted in a gain of $0.9
million.
9
<PAGE>
SPARE PARTS SALES. Revenues from spare parts sales in the quarter ended
September 30, 1998 increased 29% to $7.2 million from $5.6 million in the
comparable 1997 period. The gross margin was 30% in the third quarter of 1998,
and 28% in the corresponding period in 1997.
SALE OF EQUIPMENT ACQUIRED FOR RESALE. During the quarter ended September
30, 1997, the Company sold five engines for $2.6 million resulting in a gain of
$0.6 million. The Company had no such sales during the comparable 1998 period.
INTEREST AND OTHER INCOME. Interest and other income for the quarter ended
September 30, 1998 was $0.1 million compared to $0.1 million for the quarter
ended September 30, 1997.
INTEREST EXPENSE AND RESIDUAL SHARING. Interest expense related to all
activities increased 104% to $4.2 million for the quarter ended September 30,
1998, from the comparable period in 1997, due to an increase in average debt
outstanding during the period. Residual sharing expense decreased 17% to
$187,128 for the quarter ended September 30, 1998 from $226,659 for the
comparable period in 1997. The decline was due to the repayment, in March 1998,
of one of the Company's loans which had residual sharing provisions. 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.
DEPRECIATION EXPENSE. Depreciation expense increased 91% to $2.2 million
for the quarter ended September 30, 1998, from the comparable period in 1997,
due to the larger average asset base in the third quarter of 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 78% to $4.3 million for the quarter ended September 30, 1998 from $2.4
million in the comparable period in 1997. This increase reflects expenses
associated with staff additions, relocation of facilities, increased rent due to
the expansion of the Company's office and warehouse facilities, expenses
associated with Pacific Gas Turbine Center, 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 September 30, 1998, increased to $1.7 million from $1.0
million for the comparable period in 1997. This increase reflects an increase
in the Company's pre-tax earnings.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1997:
Revenue is summarized as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------
1998 1997
---- ----
Amount % Amount %
-------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Lease revenue. . . . . . . . . . . . . . . . 22,643 42% 13,704 35%
Gain on sale of leased equipment . . . . . . 9,179 17 1,333 3
Spare parts sales. . . . . . . . . . . . . . 16,829 32 11,459 29
Sale of equipment acquired for resale. . . . 4,093 8 12,748 32
Interest and other income. . . . . . . . . . 753 1 544 1
-------------------------------------
Total. . . . . . . . . . . . . . . . . . . . 53,497 100% 39,788 100%
-------------------------------------
-------------------------------------
</TABLE>
10
<PAGE>
LEASE PORTFOLIO. During the period ended September 30, 1998, twenty-eight
engines, one spare parts package and two aircraft were added to the Company's
lease portfolio at a total cost of $132.5 million. Eight engines and one spare
parts package were sold or transferred from the lease portfolio.
LEASING ACTIVITIES. Lease revenue for the period ended September 30, 1998
increased 65% to $22.6 million from $13.7 million for the comparable period in
1997. This increase reflects lease revenues from additional engines, aircraft
and spare parts packages.
GAIN ON SALE OF LEASED EQUIPMENT. During the period ended September 30,
1998, the Company sold eight engines from the lease portfolio which resulted in
a gain of $9.2 million. This compares with gains in the period ended September
30, 1997 of $1.3 million from sales of three engines.
SPARE PARTS SALES. Revenues from spare parts sales in the period ended
September 30, 1998 increased 47% to $16.8 million from $11.5 million in the
comparable 1997 period. The gross margin decreased to 29% in the first nine
months of 1998, from 32% in the corresponding period in 1997. The decrease in
margin was primarily the result of the Company's decision to sell, shortly after
their acquisition, certain of the engines acquired under its agreement with
United Airlines to acquire used aircraft. In doing so, the Company avoided
disassembly, inventory and financing costs that would have been incurred had the
Company disassembled, inventoried and sold, over a period of time, the engines
in a piece part matter.
SALE OF EQUIPMENT ACQUIRED FOR RESALE. During the period ended September
30, 1998, the Company sold one engine for $4.1 million resulting in a gain of
$0.5 million. During the period ended September 30, 1997, the Company sold ten
engines for $12.7 million which resulted in gains of $2.1 million.
INTEREST AND OTHER INCOME. Interest and other income for the period ended
September 30, 1998 was $0.7 million compared to $0.5 million for the period
ended September 30, 1997.
INTEREST EXPENSE AND RESIDUAL SHARING. Interest expense related to all
activities increased 99% to $10.4 million for the period ended September 30,
1998, from the comparable period in 1997, due to an increase in average debt
outstanding during the period. Residual sharing expense decreased 2% to
$587,387 for the period ended September 30, 1998 from the $598,125 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).
DEPRECIATION EXPENSE. Depreciation expense increased 78% to $5.3 million
for the period ended September 30, 1998, from the comparable period in 1997, due
to the larger average asset base in the first nine months of 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 68% to $10.7 million for the period ended September 30, 1998 from $6.4
million in the comparable period in 1997. This increase reflects expenses
associated with staff additions, relocation of facilities, increased rent due to
the expansion of the Company's office and warehouse facilities, expenses
associated with Pacific Gas Turbine Center, 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 period ended September 30, 1998, increased to $4.4 million from $2.5 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. 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.
11
<PAGE>
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. This statement is
effective for the Company's fiscal year ended December 31, 1998, with earlier
application permitted. The effect of adoption of the statement 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.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. The Company is reviewing
the effect this standard will have on the Company's consolidated financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its growth through borrowings
secured by its equipment lease portfolio. Cash of approximately $157.7 million
and $104.0 million, in the nine month periods ended September 30, 1998 and 1997,
respectively, was derived from this activity. In these same time periods $44.1
million and $71.6 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. In September 1996, net proceeds from
the initial public offering were approximately $15.9 million. Cash flow from
operating activities used approximately $16.1 million in the nine month period
ended September 30, 1998 and cash flows from operating activities generated $9.0
million in the nine month period ended September 30, 1997. The deficit cash
flow from operations was primarily attributable to the acquisition of used
aircraft for WASI's inventory and deposits made in connection with future,
committed inventory purchases. Such deposits are carried as other assets on the
Company's consolidated balance sheet.
The Company's primary use of funds is for the purchase of equipment for
lease. Approximately $132.4 million and $53.6 million of funds were used for
this purpose in the nine month periods ended September 30, 1998 and 1997,
respectively.
At September 30, 1998, the Company had a $150.0 million revolving credit
facility to finance the acquisition of aircraft engines, aircraft and spare
parts for sale or lease as well as for general working capital purposes.
Assuming compliance with the facility's terms, including sufficiency of
collateral, at September 30, 1998, $47.5 million was available under this
facility, respectively. The facility has a two-year revolving period followed by
a four-year term-out period. The facility is renewable annually.
The Company has an $80.0 million debt warehouse facility (the "WLFC
Funding Corp. Facility"), to a fully-owned special purpose finance subsidiary
of the Company, for the financing of jet aircraft engines transferred by the
Company to such finance subsidiary. This transaction's structure facilitates
future public or private securitized note issuances by the special purpose
finance subsidiary. The subsidiary is consolidated for financial statement
presentation purposes. The facility has an eight-year initial term and is
partially guaranteed by the Company. This facility requires the issuer to
hedge a certain portion of the facility against interest rate changes. In
May 1998, a three year $15 million interest rate swap was executed to hedge a
portion of the interest expense under this facility. Additionally, in August
1998, a five year $10.0 million interest rate swap was executed. Assuming
compliance with the facility's terms, including sufficiency of collateral, as
of September 30, 1998, $20.3 million was available under this facility.
Approximately $2.5 million of the Company's debt is repayable during the
remainder of 1998. Such repayments consist of scheduled installments due under
term loans.
12
<PAGE>
The Company believes that its current equity base, internally generated
funds and debt facilities are sufficient to fund the Company's anticipated
operations for the remainder of 1998 and into early 1999, at which time
additional capital will be required to fund projected growth.
As of September 30, 1998, the Company had four engines and four spare parts
packages which had not been financed. The Company may seek financing for this
equipment, although no assurance can be given that such financing will be
available on favorable terms, if at all. In addition, certain of the Company's
engines have been financed under floating rate facilities. Until fixed rate
financing for these assets is in place, the Company is subject to interest rate
risk, since the underlying lease revenue is fixed. See "Management - Interest
Rate Exposure" below.
The Company has committed to purchase, during 1998 and 1999, additional
used aircraft and engines for its operations. Certain deposits were made in
connection with these commitments. The Company's current, remaining commitment
to such purchases is not more than $28.6 million. A portion of these purchases
will take place in 1998 and the remainder in 1999.
MANAGEMENT OF INTEREST RATE EXPOSURE
At September 30, 1998, $165.4 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.
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 September 30, 1998, the notional
principal amount of the cap was $34.3 million which 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. WLFC-Funding Corp. purchased a three year $15
million interest rate swap in May 1998 and purchased a five year $10 million
interest rate swap in August 1998. The weighted average fixed rate under these
swaps is 5.88%. The Company will be exposed to credit risk in the event of
non-performance of the interest rate hedge counter parties. The Company
anticipates that it will hedge additional amounts of its floating rate debt
during the next several months.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Except for historical information contained herein, the discussion in this
report contains forward-looking statements that involve risks and uncertainties,
such as statements of the Company's plans, objectives, expectations and
intentions. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include those discussed below as well as those discussed elsewhere herein and in
the Company's report on Forms 10-K and 10-KA for the year ended December 31,
1997. 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 or in other written or oral statements by the Company.
The Company leases its portfolio of aircraft engines, aircraft and spare
parts packages primarily under operating leases as opposed to finance leases.
Operating leases require the Company to re-lease or sell aircraft equipment in
its portfolio in a timely manner upon termination of the lease in order to
minimize off-lease time and recover its investment in the aircraft equipment.
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. Numerous factors, many of which are beyond the control of the Company,
may have an impact on the Company's ability to re-lease or sell aircraft
equipment on a timely basis. Among the factors are general market conditions,
regulatory changes (particularly those imposing environmental, maintenance and
other requirements on the operation of aircraft engines), changes in the supply
or cost of the aircraft equipment and technological developments. Further, the
value of a particular used aircraft engine or aircraft varies greatly depending
upon its condition, the number of hours remaining until the next major
maintenance of the aircraft equipment is required and
13
<PAGE>
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. 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.
A lessee may default in performance of its lease obligations and the
Company may be unable to enforce its remedies under a lease. The Company's
inability to collect receivables due under a lease or to repossess aircraft
equipment in the event of a default by a lessee could have a material adverse
effect on the Company's business, financial condition or results of operations.
A number of airlines have experienced financial difficulties, certain airlines
have filed for bankruptcy and a number of such airlines have ceased operations.
In most cases where a debtor seeks protection under Chapter 11 of Title 11 of
the United States Code (the "Bankruptcy Code"), creditors are automatically
stayed from enforcing their rights. 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,
aircraft engines or parts 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.
A substantial portion of the Company's lease revenue was generated by
leases to foreign customers worldwide, including but not limited 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 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 risk of expropriation of
the Company's leased engines.
The operating lease business is a capital intensive business.
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 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. Furthermore, a portion of the Company's debt
facilities are repayable during the current calendar year. Should the Company
be unable to meet the terms of repayment of these facilities, and/or
refinance or extend these facilities, it would have a material adverse effect
on the Company's financial condition and its ability to conduct business.
Factors that could cause equity or 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, equity market and debt market conditions.
The Company's equipment leases are generally structured at fixed rental
rates for specified terms while many of the Company's borrowing arrangements are
at a floating rate. 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.
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. Parts must also
be traceable to sources deemed acceptable by the FAA. Parts owned by the
Company may not meet applicable standards or standards may change, causing parts
which are already in the Company's inventory to be scrapped or modified. Engine
manufacturers may also develop new parts to be used in lieu of parts already
contained in the Company's inventory. In all such cases, to the extent the
Company has such parts in its inventory, their value may be reduced. In
addition, if the Company does not sell airframe and engine
14
<PAGE>
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.
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/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 the competitive pressures will not have a material adverse effect
on the Company's business, financial condition or results of operations.
The Company has recently experienced significant growth in assets and
revenues. Such growth has placed, and is expected to continue to place, a
significant strain on the Company's managerial, operational and financial
resources. There can be no assurance that the Company will be able to
effectively manage the expansion of its operations, or that the Company's
systems, procedures or controls will be adequate to support the Company's
operations. An inability to effectively manage growth could have a material
adverse effect on the Company's business, financial condition or results of
operations.
With the new millennium approaching, many institutions around the world
are reviewing and modifying their computer systems (IT systems) to ensure
that they are Year 2000 compliant. The issue, in general terms, is that many
existing computer systems and microprocessors with data functions, including
those in non-information technology equipment and systems (non-IT systems),
use only two digits to identify a year in the date field with the assumption
that the first two digits of the year are always "19". Consequently, on
January 2000, computers that are not Year 2000 compliant may read the year as
1900. This could result in a failure of IT systems and non-IT systems in
the year 2000, causing disruption of operation of the Company, its lessees,
customers, vendors, or business partners.
The Company has assessed the Year 2000 issue as it affects the Company's
internal IT and non-IT systems. As a result of its assessment, the Company
expects to have no interruption of operations as a result of internal IT and
non-IT systems. The Company is in the process of assessing Year 2000 issues
relating to third parties on which the Company's operations depend. Certain
of the Company's officers have oversight of these assessments. Significant
uncertainties remain about the affect of third parties who may not be Year
2000 compliant and on which the Company depends. The Company plans to
circulate to significant third parties on which the Company depends
(including lessees, customers, vendors and financial institutions) a written
request for their plans and progress in addressing the Year 2000 issue;
evaluate the responses; and develop contingency plans to address risks of
non-compliance by such third parties. The Company intends to complete this
process by June 1999. The costs associated with assessing the Year 2000
issue, including developing and implementing the above plan are expected to
be nominal. The Company has not and does not expect to incur any significant
costs relating to internal IT and non-IT systems as a result of the Year 2000
issue.
The Company is not aware of any significant Year 2000 systems issues with
respect to the airworthiness of its aircraft, aircraft engines or spare parts;
however, should such issues result in Airworthiness Directives or other
manufacturer recommended maintenance for leased assets, the implementation and
the majority of the cost of such implementation would generally be the
responsibility of the lessee. Any resulting costs to the Company cannot be
estimated at this time.
Non-compliance on the part of a third party could result in lost revenue
and an inability to make lease or other payments to the Company. Non-compliance
by the third party's financial institution could also affect the ability to
process payments. The Company will attempt to mitigate such risks by inquiring
of each third party about its Year 2000 plans, including whether they have
addressed the issue with their financial institution. A worst case scenario
would be that a large number of third parties (including lessees and spare parts
customers) will be unable to operate and generate revenues and as a result
unable to make lease payments or purchase parts. The Company is unable to
estimate the likelihood or the magnitude of the resulting lost revenue at this
time. Should this occur, the Company would attempt to repossess leased engines,
aircraft and spare parts from non-compliant third parties and place such assets
with compliant
15
<PAGE>
third parties. No assurances can be given that the Company would be able to
re-lease such assets at favorable terms or at all. Similarly, the Company
would attempt to find compliant customers for its spare parts sales. If a
significant number of leased assets could not be released at favorable terms
or at all, or their re-lease is delayed, or if compliant customers for spare
parts sales were unavailable, the Company's business, financial condition and
results of operations would be adversely affected.
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
The Company may experience fluctuations in its quarterly operating
results. 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. 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.
As a result, the Company believes that comparisons to 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.
16
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
3.1 Certificate of Incorporation, filed on March 12, 1998 together with
Certificate of Amendment of Certificate of Incorporation filed on
May 6, 1998. Incorporated by reference to Exhibits 4.01 and 4.02
of the Company's report on Form 8-K filed on June 23, 1998.
3.2 Bylaws. Incorporated by reference to Exhibit 4.03 of the Company's
report on Form 8-K filed on June 23, 1998.
4.1 Specimen of Common Stock Certificate. Incorporated by reference to
Exhibit 4.1 of the Company's report on form 10-Q for the quarter
ended June 30, 1998.
10.1* Amended and Restated Credit Agreement dated September 30, 1998.
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
None
17
<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: November 13, 1998
Willis Lease Finance Corporation
By: /s/ James D. McBride
----------------------------
James D. McBride
Chief Financial Officer
18
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
AMONG
WILLIS LEASE FINANCE CORPORATION
WILLIS AERONAUTICAL SERVICES, INC.
AND
CERTAIN BANKING INSTITUTIONS NAMED HEREIN
WITH
FIRST UNION NATIONAL BANK
(successor by merger to CoreStates Bank, N.A.)
AS CO-ARRANGER AND ADMINISTRATIVE AGENT
NATIONSBANC MONTGOMERY SECURITIES LLC
AS CO-ARRANGER AND SYNDICATION AGENT
AND
NATIONSBANK, N.A.
AS APPRAISAL AGENT
AS OF SEPTEMBER 30, 1998
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
This Amended and Restated Credit Agreement, dated as of September 30, 1998
(the "AGREEMENT"), is entered into by and among WILLIS LEASE FINANCE
CORPORATION, a Delaware corporation (successor by merger to Willis Lease Finance
Corporation, a California corporation) ("WILLIS"), WILLIS AERONAUTICAL SERVICES,
INC., a California corporation ("WASI" and, together with Willis, the
"BORROWERS" and each individually a "BORROWER"), the banking institutions
signatories hereto and named in Exhibit A attached hereto and such other
institutions that hereafter become a "Bank" pursuant to Section 11.4 hereof
(collectively the "BANKS" and individually a "BANK"), FIRST UNION NATIONAL BANK,
a national banking association, as Co-Arranger and as Administrative Agent for
the Banks under this Agreement ("FIRST UNION," which shall mean in its capacity
as administrative agent unless specifically stated otherwise), NATIONSBANC
MONTGOMERY SECURITIES LLC, as Co-Arranger and as Syndication Agent ("NMS"), and
NATIONSBANK, N.A., a national banking association, as Appraisal Agent
("NATIONSBANK"). The Administrative Agent, the Syndication Agent and the
Appraisal Agent are collectively the "Agents" and each is individually an
"Agent." This Agreement amends and restates in its entirety the Amended and
Restated Credit Agreement, dated June 2, 1998, between Willis and CoreStates
Bank, N.A. (now First Union National Bank by reason of the merger of CoreStates
Bank, N.A. with and into First Union National Bank on May 15, 1998), as amended
through the date hereof.
Preliminary Statement
WHEREAS, the Borrowers desire to have available to them a revolving credit
facility (the "CREDIT FACILITY") which will be used for the purchase or
refinance of Equipment (defined below), the majority of which will be held for
sale or for lease to unaffiliated persons, said Equipment and related Leases
(defined hereafter) to constitute part of the Collateral (defined hereafter) and
for working capital and general corporate purposes.
WHEREAS, the Banks are willing to establish such Credit Facility and make
loans to the Borrowers under the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and promises hereinafter
set forth and intending to be legally bound hereby, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS
1.1. DEFINITIONS.
"ACCEPTABLE MANUFACTURER" shall mean: (i) in the case of Engines, CFM
International, General Electric, Pratt & Whitney, Rolls Royce, and
International Aero; (ii) in the case of commercial Aircraft, Boeing,
McDonnell Douglas, and Airbus; and (iii) in the case of turbo prop
Aircraft, de Havilland.
1
<PAGE>
"ADJUSTED LIBO RATE" shall mean, for any Interest Period, the rate per
annum (rounded upwards, if necessary to the next 1/16 of 1%)
determined pursuant to the following formula:
Adjusted LIBO Rate = LIBO Rate
--------------------
1-Reserve Percentage
"ADJUSTED TANGIBLE NET WORTH" shall mean Tangible Net Worth of the
Willis Companies, less any stockholder's equity in any Unrestricted
Subsidiaries.
"ADMINISTRATIVE AGENT" shall have the meaning set forth in the
Preamble to this Agreement, and shall also mean and include any
successor Administrative Agent appointed pursuant to Section 10.6
hereto.
"ADVANCE RATE" shall mean that percentage of the Net Book Value of an
item of Eligible Equipment determined by reference to the type of
Equipment as described below:
<TABLE>
<CAPTION>
Eligible Equipment Advance Rate*
---------------------------------------------
<S> <C>
Engines - Stage III Jet __%
Parts Packages __%
Parts __%
Aircraft - Stage III Jet and Turbo Prop __%
Engines - Stage III Turbo Prop __%
Engines - Stage II Jet __%
Aircraft - Stage II Jet __%
</TABLE>
The applicable Advance Rate for Eligible Engines or Eligible Parts
Packages will decrease by ___ percentage points if such Eligible
Engines or Eligible Parts Packages are not subject to a Lease when
acquired, and the applicable Advance Rate for Eligible Engines,
Eligible Parts Packages and Eligible Aircraft will be reduced by _____
percentage points if such Equipment has been not subject to a Lease
for 120 consecutive days; PROVIDED, however, that the Advance Rates
listed above will be reinstated if any such Eligible Engine, Eligible
Parts Package or Eligible Aircraft is leased or re-leased, as
applicable.(*)
Eligible Engines, Eligible Parts Packages, and Eligible Aircraft which
have been not subject to a Lease for 180 consecutive days will be
excluded from the Borrowing Base; PROVIDED, however, that the Advance
Rates listed above will be reinstated if any such Eligible Engine,
Eligible Parts Package or Eligible Aircraft is leased or re-leased, as
applicable.
- --------------------
* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
2
<PAGE>
The Advance Rate applicable to Eligible Parts will decrease by _____
percentage points one year after such Parts were acquired by a
Borrower. Two years after Eligible Parts were acquired by a Borrower,
such Eligible Parts will be excluded from the Borrowing Base.(*)
"AFFILIATE" shall mean any Person: (i) which directly or indirectly
controls, or is controlled by, or is under common control with either
Borrower; (ii) which directly or indirectly beneficially owns or holds
ten percent (10%) or more of any class of voting stock of either
Borrower; or (iii) ten percent (10%) or more of whose voting stock of
which is directly or indirectly beneficially owned or held by either
Borrower. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of
voting securities, by contract, or otherwise.
"AGGREGATE REVOLVING LOAN COMMITMENT" shall have the meaning set forth
in Section 2.1(a).
"AGREEMENT" shall mean this Amended and Restated Credit Agreement, as
amended, supplemented, modified, replaced, substituted for or restated
from time to time and all exhibits and schedules attached hereto.
"AIRCRAFT" shall mean a vessel owned by a Borrower designed for
controlled travel through the air under its own power. Aircraft shall
not include helicopters.
"AMENDMENT NO. 3 TO MORTGAGE" shall mean that certain Amendment No. 3
to Mortgage and Security Agreement which is executed and delivered by
the Borrowers in connection with the execution of this Agreement, and
pursuant to which the Mortgage will be modified to reflect the making
of this Agreement including, without limitation, the addition of WASI
as a Borrower.
"APPLICABLE MARGIN." With respect to Base Rate Loans and LIBO Rate
Loans, the term "Applicable Margin" shall have the meaning set forth
on Exhibit B hereto.
"APPRAISAL AGENT" shall have the meaning set forth in the Preamble to
this Agreement, and shall also mean and include any successor
Appraisal Agent appointed pursuant to Section 10.6 hereto.
"BASE RATE" shall mean the higher of (i) the rate of interest for
commercial loans established and publicly announced by the
Administrative Agent from time to time as its Prime Rate, and (ii) the
Federal Funds Rate plus __%(*) 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.
- --------------------
* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
3
<PAGE>
"BASE RATE LOAN" shall mean a Loan, or any portion thereof, made at
the Base Rate pursuant to a request for advance made under Section 2.4
herein or as otherwise provided in Section 2.10 or in any other
provision hereof or in any other Loan Document.
"BORROWING BASE" shall mean the amount derived by multiplying the Net
Book Value of each category of Eligible Equipment by its applicable
Advance Rate. If an item of Eligible Equipment is subject to a Lease,
the item of Equipment will only be included in the Borrowing Base if
the Lease is an Eligible Lease. The Borrowing Base shall also be
subject to the following concentration limits (excluding Eligible
Parts):
(i) No more than __% of the Net Book Value of the Eligible
Engines, Eligible Parts Packages and Eligible Aircraft
subject to Leases included in the Borrowing Base shall
involve Leases which mature within any 12 month period;*
(ii) No more than __% of the Net Book Value of the Eligible
Engines, Eligible Parts Packages and Eligible Aircraft
included in the Borrowing Base shall either (a) not be
the subject of a Lease or (b) be the subject of a Lease
with respect to which an event of default (as defined in
such Lease) shall exist;*
(iii) No more than the lesser of (a) $__________; or (b) __% of the
Net Book Value, of the Eligible Engines, Eligible Parts
Packages and Eligible Aircraft included in the Borrowing Base
shall be to a single lessee;*
(iv) No more than __% of the Net Book Value of the Eligible
Engines, Eligible Parts Packages and Eligible Aircraft
included in the Borrowing Base shall be represented by a
single Eligible Engine, Eligible Parts Package or Eligible
Aircraft;*
(v) No more than __% of the Net Book Value of the Eligible
Engines, Eligible Parts Packages and Eligible Aircraft
included in the Borrowing Base shall be used on or be
composed of turbo prop Aircraft;*
(vi) No more than __% of the Net Book Value of the Eligible
Engines, Eligible Parts Packages and Eligible Aircraft
included in the Borrowing Base shall be used on Stage II
Aircraft or be Stage II in nature;*
- --------------------
* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
4
<PAGE>
(vii) No more than $________ of Revolving Loans outstanding at any
time and from time to time can be supported by Eligible
Aircraft included in the Borrowing Base;*
(viii) No more than $________ of Revolving Loans outstanding at any
time and from time to time can be supported by Eligible Parts
purchased for resale that are included in the Borrowing
Base; and*
(ix) No more than $________ of Revolving Loans outstanding at
any time and from time to time can be supported by Eligible
Parts Packages included in the Borrowing Base.*
Notwithstanding the foregoing, if (a) any item of Equipment or any
Lease of any item of Equipment shall fail to fully meet the
Eligibility Criteria for inclusion in the Borrowing Base or (b) the
Administrative Agent shall not receive a perfected, first priority
security interest in an item of Equipment (as contemplated in Section
9.1 or subsection (viii) of the definition of "Eligible Lease")
subject to Permitted Liens, the Administrative Agent, in its sole
discretion, may nevertheless include such Equipment or Lease in the
Borrowing Base, provided that at no time will the aggregate amount of
the Borrowing Base comprised of such non-eligible Equipment,
non-eligible Leases and such Equipment regarding which the security
interest is not fully perfected exceed $__________. Promptly
following a determination by the Administrative Agent to include in
the Borrowing Base such non-eligible Equipment, non-eligible Leases or
such Equipment regarding which the security interest is not fully
perfected (which determination may be made prospectively), the
Administrative Agent will notify the Banks of its decision and the
basis therefor. If the Majority Banks confirm such determination in
writing, such Equipment or Lease shall be deemed to be "Eligible
Equipment" or an "Eligible Lease" and will no longer count towards the
$__________ limit for non-eligible Equipment, non-eligible Leases and
Equipment regarding which the security interest is not fully
perfected. If Banks sufficient to constitute the Majority Banks do
not expressly approve such determination in writing within ten days
from delivery of the notice, such determination by the Administrative
Agent will be deemed NOT approved by the Majority Banks, unless or
until otherwise approved by the Majority Banks in
writing.(*)
"BORROWING BASE CERTIFICATE" shall mean a certificate in substantially
the form attached hereto as Exhibit E hereto which shall be signed by
the chief financial officer, chief administrative officer, chief
executive officer, treasurer or controller of the Borrowers.
- --------------------
* This redacted material has been omitted pursuant to a request
for confidential treatment and the material has been filed separately.
5
<PAGE>
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks in Philadelphia or San Francisco
are authorized or required to close under the laws of either the
Commonwealth of Pennsylvania or the State of California and, if the
applicable day relates to a LIBO Rate Loan, or notice with respect to
a LIBO Rate Loan, a day on which dealings in Dollar deposits are also
carried on in the London interbank market and banks are open for
business in London ("London Business Day").
"CAPITALIZED LEASE" shall mean all lease obligations of any Person for
any property (whether real, personal or mixed) which have been or
should be capitalized on the books of the lessee in accordance with
Generally Accepted Accounting Principles.
"CAPITALIZED LEASE OBLIGATIONS" with respect to any Person, shall mean
the aggregate amount which, in accordance with GAAP, is required to be
reported as a liability on the balance sheet of such Person at such
time in respect of such Person's interest as lessee under a
Capitalized Lease.
"CHANGE OF CONTROL" shall mean, with respect to any Borrower, any
action shall occur or set of circumstances exist that would result in
any Person or group (other than Charles F. Willis IV, his trusts,
family limited partnerships or heirs) beneficially owning (as defined
in Rule 13(d)-3 of the Securities and Exchange Act of 1934, as
amended), directly or indirectly, an amount of the outstanding capital
stock of such Borrower entitling such Person or group to 30% or more
of the voting power of all the outstanding capital stock of such
Borrower. The percentage of voting power shall be determined based on
the number of votes a holder of capital stock can cast in the election
of directors, compared to the total number of votes that all
shareholders can cast in such election.
"CLOSING" shall mean the consummation of all requirements set forth in
this Agreement such that the Borrowers shall be entitled to request
and receive Loans hereunder.
"CLOSING DATE" shall mean the date on which the Closing shall occur
and this Agreement shall become effective.
"CLOSING FEE" A fee payable by the Borrowers to the Administrative
Agent on the Closing Date in an amount previously agreed between the
Borrowers and the Administrative Agent.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and all rules and regulations with respect thereto in
effect from time to time.
"COLLATERAL" shall have the meaning set forth in Section 9.1, which
Collateral shall be deemed to include, without limitation, all
Equipment and Leases.
6
<PAGE>
"COMPLIANCE CERTIFICATE" shall mean a certificate in substantially the
form attached hereto as Exhibit G which shall be signed by the chief
financial officer, chief administrative officer, chief executive
officer, treasurer or controller of Willis.
"CONVERSION DATE" shall mean, with respect to any Term Loan, the date
on which it was converted from a Revolving Loan to a Term Loan, which
date may not be later than the Revolving Loan Termination Date.
"DEBT" shall mean, as to any Person at any time (without duplication)
and, for the Borrowers, determined on a consolidated basis: (i) all
obligations of such Person for borrowed money; (ii) all obligations of
such Person evidenced by bonds, notes, debentures, or other similar
instruments; (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable
of such Person arising in the ordinary course of business which are
not past due by more than ninety days unless such trade accounts
payable are being contested in good faith by appropriate proceedings;
(iv) all Capitalized Lease Obligations of such Person; (v) all
obligations of such Person under guaranties, letters of credit,
endorsements (other than for collection or deposit in the ordinary
course of business), assumptions or other contingent obligations, in
respect of, or to purchase or otherwise acquire, any obligation or
indebtedness of any other Person, or any other obligation, contingent
or otherwise, of such Person directly or indirectly protecting the
holder of any obligation or indebtedness of any other Person,
contingent or otherwise, against loss (whether by partnership
arrangements, agreements to keep-well, to purchase assets, goods,
securities, or services, to take-or-pay or otherwise); (vi) all
obligations secured by a Lien existing on property owned by such
Person, whether or not the obligations secured thereby have been
assumed by such Person or are non-recourse to the credit of such
Person; (vii) all reimbursement obligations of such Person (whether
contingent or otherwise) in respect of letters of credit, bankers'
acceptances, surety or other bonds and similar instruments; (viii) the
net present value of Operating Leases for Engines, Aircraft and Parts
Packages, using a 10% discount rate; and (ix) all obligations with
respect to deposits or maintenance reserves to the extent not
supported by cash reserved specifically therefor.
"DEBT SERVICE" shall mean actual payments of principal on Debt and
Capitalized Lease Obligations (including any Debt or Capitalized Lease
Obligations paid from the sale of Equipment during the period), plus
interest expense incurred during the period.
"DEFAULT RATE" on any Loan shall mean two percent (2.0%) per annum
above the interest rate then applicable to each Loan or portion
thereof.
"DOLLARS" shall mean the lawful currency of the United States of
America.
7
<PAGE>
"EBIT" shall mean the sum of (i) Net Income less any extraordinary
gain or loss included in the calculation thereof, plus (ii) amounts
deducted for interest expense and income taxes.
"ELIGIBILITY CRITERIA" shall mean the applicable criteria set forth
below to be used to determine whether Equipment and Leases are
eligible for inclusion in the Borrowing Base.
The Eligibility Criteria for Aircraft are as follows:
_______________.*
The Eligibility Criteria for Engines are as follows:
_______________.*
The Eligibility Criteria for Parts are as follows:
_______________.*
The Eligibility Criteria for Parts Packages are as follows:
_______________.*
The Eligibility Criteria for Leases are as follows:
_______________.*
"ELIGIBLE AIRCRAFT" shall mean Aircraft which meet all of the
Eligibility Criteria for Aircraft.
"ELIGIBLE ENGINES" shall mean Engines which meet all of the
Eligibility Criteria for Engines.
"ELIGIBLE EQUIPMENT" shall mean Equipment which meet all of the
applicable Eligibility Criteria applicable thereto.
"ELIGIBLE LEASE" shall mean a Lease of Equipment to an unaffiliated
Person in which: ___________.*
"ELIGIBLE PARTS" shall mean Parts held by a Borrower for resale which
meet all of the Eligibility Criteria for Parts.
"ELIGIBLE PARTS PACKAGES" shall mean Parts Packages which meet all of
the Eligibility Criteria for Parts Packages.
"ENGINE" shall mean any engine owned by a Borrower designed or
suitable for use to propel an Aircraft.
"ENGINE AND AIRCRAFT ADVANCE AMOUNT" shall mean that amount of the
Borrowing Base composed of Eligible Aircraft, Eligible Engines, and
Eligible Parts Packages, calculated as of the Conversion Date;
provided, however, that no
- --------------------
* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
8
<PAGE>
Aircraft, Engines or Parts owned by WASI and held for resale shall
be included in the calculation of the Engine and Aircraft Advance
Amount.
"ENVIRONMENTAL CONTROL STATUTES" shall mean each and every applicable
federal, state, county or municipal environmental statute, ordinance,
rule, regulation, order, directive or requirement, together with all
successor statutes, ordinances, rules, regulations, orders, directives
or requirements, of any Governmental Authority, including without
limitation laws in any way related to Hazardous Substances.
"EQUIPMENT" shall mean all Engines, Aircraft, Parts and Parts Packages
owned by any Borrower, whether or not such items are subject to a
Lease.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as it may be amended from time to time.
"ERISA AFFILIATE" shall mean any corporation which is a member of the
same controlled group of corporations as either Borrower within the
meaning of Section 414(b) of the Code, or any trade or business which
is under common control with either Borrower within the meaning of
Section 414(c) of the Code.
"EVENT OF DEFAULT" shall have the meaning set forth in Section 8.1.
"EXCEPTED COLLATERAL" shall have the meaning set forth in Section
8.1(i).
"EXISTING DEBT" shall mean the existing Debt (excluding guarantees) of
the Borrowers or any of their Restricted Subsidiaries to certain
Persons described on Schedule 1 to this Agreement.
"FACILITY TERMINATION DATE" shall mean the date upon which the
Borrowers have repaid all principal, interest, fees and other expenses
related to all Revolving Loans and all, if any, Term Loans, and all
other Obligations have been satisfied in full.
"FAIR MARKET VALUE" shall mean the fair market value of Equipment as
determined by an appraisal made by an appraiser arranged by the
Appraisal Agent under the terms of this Agreement.
"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 the
Administrative Agent on such day.
"FISCAL QUARTER" shall mean a fiscal quarter of the Borrowers, which
shall be any quarterly period ending on March 31, June 30, September
30 or December 31 of any year.
9
<PAGE>
"FISCAL YEAR" shall mean a fiscal year of the Borrowers, which shall
end on the last day of December.
"FRONTING BANK" shall mean the Administrative Agent.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" OR "GAAP" shall mean
generally accepted accounting principles as in effect from time to
time in the United States, consistently applied.
"GOVERNMENTAL AUTHORITY" shall mean the federal, state, county or
municipal government, or any department, agency, bureau or other
similar type body obtaining authority therefrom or created pursuant to
any laws, including without limitation Environmental Control Statutes.
"GUARANTORS" shall mean all present and future Restricted
Subsidiaries.
"GUARANTY" shall mean the Guaranty in the form and substance attached
hereto as Exhibit J, to be executed by each Guarantor.
"HAZARDOUS SUBSTANCES" shall mean without limitation, any regulated
substance, toxic substance, hazardous substance, hazardous waste,
pollution, pollutant or contaminant, as defined or referred to in the
Resource Conservation and Recovery Act, as amended, 15 U.S.C., Section
2601 ET SEQ.; the Comprehensive Environmental Response, Compensation
and Liability Act, 33 U.S.C. Section 1251 ET SEQ.; the federal
underground storage tank law, Subtitle I of the Resource Conservation
and Recovery Act, as amended, P.L. 98-616, 42 U.S.C. Section 6901 ET
SEQ.; together with any amendments thereto, regulations promulgated
thereunder and all substitutions thereof, as well as words of similar
purport or meaning referred to in any other federal, state, county or
municipal environmental statute, ordinance, rule or regulation.
"INDEBTEDNESS FOR BORROWED MONEY" shall mean (i) all indebtedness,
liabilities, and obligations, now existing or hereafter arising, for
money borrowed by the Borrowers or their Restricted Subsidiaries,
whether or not evidenced by any note, indenture, or agreement
(including, without limitation, the Notes and any indebtedness for
money borrowed from an Affiliate) and (ii) all indebtedness of others
for money borrowed (including indebtedness of an Affiliate) with
respect to which the Borrowers or their Restricted Subsidiaries have
become liable by way of a guarantee or indemnity.
"INTANGIBLE ASSETS" shall mean all assets which would be classified as
intangible assets under GAAP consistently applied, including, without
limitation, goodwill (whether representing the excess of cost over
book value of assets acquired or otherwise), patents, trademarks,
trade names, copyrights, franchises, and deferred charges (including,
without limitation, unamortized debt discount and expense,
organization costs, and research and development costs). For purposes
of this
10
<PAGE>
definition, prepayments of taxes, license fees and other expenses shall
not be deemed Intangible Assets.
"INTEREST COVERAGE RATIO" shall mean the ratio of EBIT of the Willis
Companies plus rent expenses of the Willis Companies to interest
expense of the Willis Companies plus rent expenses of the Willis
Companies.
"INTEREST PERIOD" shall mean a period commencing on the date of a LIBO
Rate Loan or with respect to a Loan being renewed, the last day of the
next preceding Interest Period and ending one, two, three or six
months thereafter, as requested by the Borrowers at the time of their
Request for Advance; provided also that (i) an Interest Period which
would otherwise expire on a day which is not a London Business Day
shall be extended to the next succeeding London Business Day unless
such London Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding London
Business Day, (ii) any Interest Period which begins on the last London
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to the next succeeding clause, end on
the last London Business Day of a calendar month; and (iii) no
Interest Period shall end later than the Revolving Loan Termination
Date, PROVIDED, however, that (a) to the extent Term Loans are then in
existence, the Interest Period with respect to any Term Loan shall end
no later than the applicable Term Loan Maturity Date; and (b) to the
extent Revolving Loans are being converted into Term Loans on the
Revolving Loan Termination Date, any Term Loans so created may, at the
Borrowers' option, continue to utilize the existing Interest Period of
the Revolving Loan so converted.
"INVESTMENT" in any Person shall mean, without duplication, (i) the
acquisition (whether for cash, property, services or securities or
otherwise) of capital stock, bonds, notes, debentures, partnership or
other ownership interests or other securities of such Person; (ii) any
deposit with, or advance, loan or other extension of credit to, such
Person (other than any such deposit, advance, loan or extension of
credit having a term not exceeding 90 days in the case of unaffiliated
Persons and 120 days in the case of Affiliates representing the
purchase price of inventory or supplies purchased in the ordinary
course of business) or guarantee or assumption of, or other contingent
obligation with respect to, Indebtedness for Borrowed Money or other
liability of such Person; (iii) any transfer or contribution of assets
to an Unrestricted Subsidiary to the extent that the net book value of
such assets is not paid in full at the time of transfer; and (iv) any
amount that may, pursuant to the terms of such investment, be required
to be paid, deposited, advanced, lent or extended to or guaranteed or
assumed on behalf of such Person.
"LEASE" shall mean a written operating lease agreement entered into
between one of the Borrowers, as lessor, and a third party, as lessee,
pursuant to which a
11
<PAGE>
Borrower leases to the third party for a fixed period of time one or
more items of Equipment.
"LEVERAGE RATIO" shall mean the ratio of the Debt of the Willis
Companies (less any nonrecourse debt of the Unrestricted Subsidiaries)
to their Adjusted Tangible Net Worth calculated based on the most
recent financial statements furnished to the Banks in accordance
herewith.
"LIBO RATE" shall mean the arithmetic average of the rates of interest
per annum (rounded upwards, if necessary to the next 1/16 of 1%) at
which the Administrative Agent, individually, is offered deposits of
United States Dollars by leading banks in the interbank eurodollar or
eurocurrency market on or about eleven o'clock (11:00) a.m. London
time two London Business Days prior to the commencement of the
requested Interest Period in an amount substantially equal to the
outstanding principal amount of the LIBO Rate Loan requested for a
maturity of comparable duration to the Interest Period.
"LIBO RATE LOAN" shall mean a Loan made at Adjusted LIBO Rate plus the
Applicable Margin, pursuant to a request for advance made under
Section 2.4 herein.
"LIEN" shall mean any lien, mortgage, security interest, chattel
mortgage, pledge or other encumbrance (statutory or otherwise) of any
kind securing satisfaction of an obligation, including any agreement
to give any of the foregoing, any conditional sales or other title
retention agreement, any lease in the nature thereof, and the filing
of or the agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction or similar evidence of any
encumbrance, whether within or outside the United States.
"LOAN" or "LOANS" shall mean LIBO Rate or Base Rate Revolving Loan or
Loans or LIBO Rate or Base Rate Term Loan or Loans.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes, the Mortgage
(as amended by Amendment No. 3 to Mortgage), the Security Agreement,
the Guaranty, and all other documents directly related or incidental
to said documents, the Loans or the Collateral.
"MAJORITY BANKS" shall mean the Banks holding Loans and Revolving Loan
Commitments representing more than 50% of the aggregate amount of
Loans and Revolving Loan Commitments under this Credit Facility.
"MATERIAL ADVERSE CHANGE" shall mean any event or condition which, in
the reasonable determination of the Majority Banks, would result in a
material adverse change in the financial condition, business,
properties or profits of the Borrowers on a combined basis or which
gives reasonable grounds to conclude that the Borrowers on a combined
basis would likely not be able to perform or
12
<PAGE>
observe (in the normal course) their obligations under the Loan
Documents to which they are a party, including but not limited to the
Notes.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect (i) on
the financial condition, business, properties, or profits of the
Borrowers on a combined basis, (ii) the ability of either Willis or
WASI to perform its obligations under this Agreement, the Notes and
the other Loan Documents, or (iii) the legality, validity or
enforceability of this Agreement or the Notes or the rights and
remedies of the holders of the Loans. Each Borrower acknowledges that
it has, and throughout the term of this Credit Facility will have,
financial information concerning the other, such as will be sufficient
to allow it to properly evaluate a Material Adverse Effect.
"MONTHLY LEASE PORTFOLIO AND RECEIVABLES REPORT" shall mean a report
in summary form of the status of accounts receivable in respect of all
Leases which are part of the Collateral in form and substance
reasonably satisfactory to the Administrative Agent.
"MORTGAGE" shall mean that certain Mortgage and Security Agreement
made by Willis in favor of CoreStates Bank, N.A. (predecessor in
interest to the Administrative Agent) dated as of June 27, 1997,
recorded by the United States Federal Aviation Administration on July
9, 1997 and assigned Conveyance No. H90651, as amended pursuant to (i)
Amendment No. 1 to Mortgage and Security Agreement, dated November 18,
1997, recorded by the United States Federal Aviation Administration on
January 13, 1998 and assigned Conveyance No. P13938; and (ii)
Amendment No. 2 to Mortgage and Security Agreement, dated June 5,
1998, filed with the United States Federal Aviation Administration on
June 5, 1998 but not yet recorded. The Mortgage also includes a
series of Mortgage Supplements heretofore made by Willis and recorded
with the United States Federal Aviation Administration.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan as defined in
ERISA Section 4001(a)(3), which covers employees of the Borrowers or
any ERISA Affiliate.
"NET BOOK VALUE" of an item of Equipment shall be calculated as the
lesser of: (i) the cost to Borrower of the Equipment; or (ii) Fair
Market Value. In any event, the Net Book Value will be reduced
utilizing depreciation methods consistent with current practice and
Generally Accepted Accounting Principles.
"NET INCOME" shall mean net income of the Willis Companies after
taxes.
"NET WORTH" shall mean, at any particular time, all amounts, in
conformity with GAAP, that would be included as stockholder's equity
on a consolidated balance sheet of the Willis Companies.
"NOTE" or "NOTES" shall mean Revolving Note or Notes or Term Note or
Notes.
13
<PAGE>
"OBLIGATIONS" shall mean all now existing or hereafter arising debts,
obligations, covenants, and duties of payment or performance of every
kind, matured or unmatured, direct or contingent, owing, arising, due,
or payable to the Banks or the Administrative Agent by either Borrower
arising out of this Agreement or any other Loan Document, including,
without limitation, all obligations to repay principal of and interest
on the Loans, all obligations related to Standby Letters of Credit,
and all obligations related to any interest rate swap agreement,
interest rate cap agreement, interest collar agreement, interest rate
hedging agreement, interest rate floor agreement or other similar
agreement or arrangement related to the foregoing, and to pay
interest, fees, costs, charges, expenses, professional fees, and all
sums chargeable to either Borrower or for which either Borrower is
liable as indemnitor under the Loan Documents, whether or not
evidenced by any note or other instrument.
"OPERATING LEASE" shall mean, with respect to any Person, the
aggregate amount which, in accordance with GAAP, is not required to be
reported as a liability on the balance sheet of such Person at such
time in respect of such Person's interest as lessee under an Operating
Lease.
"OTHER INDEBTEDNESS" shall mean Indebtedness for Borrowed Money (i)
created for the purpose of refinancing Loans or Standby Letters of
Credit outstanding under this Credit Facility or the Existing Debt;
(ii) with a final maturity not less than the final maturity of this
Credit Facility; (iii) with an average life no less than the remaining
average life of this Credit Facility; (iv) with terms, covenants and
conditions no more restrictive than those in this Agreement; and (v)
with respect to which the initial advance rates on the assets financed
with such Indebtedness for Borrowed Money are not less than those
under this Credit Facility.
"PARTS" shall mean components of an Aircraft, an Engine or any systems
within an Aircraft or Engine owned by a Borrower that have either been
removed from the Aircraft or Engine or have not yet been incorporated
into an Aircraft or Engine.
"PARTS PACKAGES" shall mean a grouping of Parts owned by a Borrower
which are to be sold or leased by a Borrower to a third party.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
successor thereto.
"PENSION PLAN" shall mean, at any time, any Plan (including a
Multiemployer Plan), the funding requirements of which (under ERISA
Section 302 or Code Section 412) are, or at any time within the six
years immediately preceding the time in question, were in whole or in
part, the responsibility of Willis or WASI or any ERISA Affiliate of
Willis or WASI.
"PERMITTED LIENS" shall mean (i) any Liens for current taxes,
assessments and other governmental charges not yet due and payable or
being contested in good
14
<PAGE>
faith by Borrowers (or by a lessee) by appropriate proceedings and
for which adequate reserves have been established by Borrowers as
reflected in Borrowers' financial statements; (ii) any mechanic's,
materialman's, carrier's, warehousemen's or similar Liens for sums
not yet due or being contested in good faith by Borrowers (or by a
lessee) by appropriate proceedings and for which adequate reserves
have been established by Borrowers as reflected in Borrowers'
financial statements; (iii) easements, rights-of-way, restrictions
and other similar encumbrances on the real property or fixtures of
Borrowers incurred in the ordinary course of business which
individually or in the aggregate are not substantial in amount and
which do not in any case materially detract from the value or
marketability of the property subject thereto or interfere with the
ordinary conduct of the business of Borrowers; (iv) Liens (other
than Liens imposed on any property of Borrowers pursuant to ERISA
or Section 412 of the Code) incurred or deposits made in the
ordinary course of business, including Liens in connection with
workers' compensation, unemployment insurance and other types of
social security and Liens to secure performance of tenders,
statutory obligations, surety and appeal bonds (in the case of
appeal bonds such Lien shall not secure any reimbursement or
indemnity obligation in an amount greater than $2,500,000), bids,
leases that are not Capitalized Leases, performance bonds, sales
contracts and other similar obligations, in each case, not incurred
in connection with the obtaining of credit or the payment of a
deferred purchase price, and which do not, in the aggregate, result
in a Material Adverse Effect; (v) Liens, if any, existing on the
date hereof and listed in Schedule 1 hereto; (vi) Liens in favor of
First Union, as Administrative Agent, in the Collateral as
contemplated by this Agreement and the other Loan Documents; (vii)
the rights of a lessee to utilize the Collateral pursuant to the
terms of a Lease; (viii) Liens securing Other Indebtedness (but
such Liens shall be limited to the assets of the Borrower being
refinanced with the proceeds of such Other Indebtedness); (ix)
purchase money Liens securing Debt not to exceed $500,000 in the
aggregate, as permitted under Section 6.9(c) hereto; and (x) Liens
against the Shares (as defined in the Security Agreement) and
records relating to the Shares of Unrestricted Subsidiaries as
contemplated by Section 6.9(h) hereto.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, association, company, business trust or entity, or other
entity of whatever nature.
"PLAN" shall mean an employee benefit plan as defined in Section 3(3)
of ERISA, other than a Multiemployer Plan, whether formal or informal
and whether legally binding or not.
"POTENTIAL DEFAULT" shall mean an event, condition or circumstance
that with the giving of notice or lapse of time or both would become
an Event of Default.
"PRIME RATE" shall mean, for any day, the prime commercial lending
rate of the Administrative Agent, as announced from time to time at
its head office.
15
<PAGE>
"PROHIBITED TRANSACTION" shall mean a transaction that is prohibited
under Code Section 4975 or ERISA Section 406 and not exempt under Code
Section 4975 or ERISA Section 408.
"REGULATION" shall mean any statute, law, ordinance, regulation, order
or rule of any United States or foreign, federal, state, local or
other government or governmental body, including, without limitation,
those covering or related to banking, financial transactions,
securities, public utilities, environmental control, energy, safety,
health, transportation, bribery, record keeping, zoning,
antidiscrimination, antitrust, wages and hours, employee benefits, and
price and wage control matters.
"REGULATION D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System, as it may be amended from time to time.
"REGULATORY CHANGE" shall mean any change after the date of this
Agreement in any Regulation (including Regulation D) or the adoption
or making after such date of any interpretations, directives or
requests of or under any Regulation (whether or not having the force
of law) by any court or governmental or monetary authority charged
with the interpretation or administration thereof applying to a class
of banks including any one of the Banks but excluding any foreign
office of any Bank.
"RELEASE" shall mean without limitation, the presence, leaking,
leaching, pouring, emptying, discharging, spilling, using, generating,
manufacturing, refining, transporting, treating, or storing of
Hazardous Substances at, into, onto, from or about the property or the
threat thereof, regardless of whether the result of an intentional or
unintentional action or omission, and which is in violation of
applicable law.
"REPORTABLE EVENT" shall mean, with respect to a Pension Plan: (i) Any
of the events set forth in ERISA Sections 4043(b) (other than a
reportable event as to which the provision of 30 days' notice to the
PBGC is waived under applicable regulations) or 4063(a) or the
regulations thereunder, (ii) an event requiring either Borrower or any
ERISA Affiliate to provide security to a Pension Plan under Code
Section 401(a)(29) and (iii) any failure by either Borrower or any
ERISA Affiliate to make payments required by Code Section 412(m).
"REQUEST FOR ADVANCE" shall have the meaning set forth in Section 2.4.
"REQUIRED BANKS" shall mean the Banks holding Loans and Revolving Loan
Commitments representing at least two-thirds ( ) of the aggregate
amount of Loans and Revolving Loan Commitments under this Credit
Facility.
"RESERVE PERCENTAGE" shall mean, for any LIBO Rate Loan for any
Interest Period, the daily average of the stated maximum rate
(expressed as a decimal) at which reserves (including any marginal,
supplemental, or emergency reserves) are
16
<PAGE>
required to be maintained during such Interest Period under Regulation
D by the Bank against "Eurocurrency liabilities" (as such term is used
in Regulation D) but without benefit of credit proration, exemptions, or
offsets that might otherwise be available to the Bank from time to time
under Regulation D. Without limiting the effect of the foregoing, the
Reserve Percentage shall reflect any other reserves required to be
maintained by the Bank against (i) any category of liabilities which
includes deposits by reference to which the rate for LIBO Rate Loans is
to be determined; or (ii) any category of extension of credit or other
assets which include LIBO Rate Loans. The Adjusted LIBO Rate shall be
adjusted on and as of the effective day of any change in the Reserve
Percentage.
"RESTRICTED SUBSIDIARY" shall mean any Subsidiary, direct or indirect,
of either of the Borrowers that is not an Unrestricted Subsidiary.
"REVOLVING LOAN" shall have the meaning set forth in Section 2.1.
"REVOLVING LOAN COMMITMENT" shall have the meaning set forth in
Section 2.1.
"REVOLVING LOAN COMMITMENT FEE" shall have the meaning set forth in
Section 2.5.
"REVOLVING LOAN COMMITMENT PERCENTAGE" shall mean with respect to each
Bank the percentage set forth opposite its name in Exhibit A hereto.
"REVOLVING LOAN TERMINATION DATE" shall have the meaning set forth in
Section 2.1.
"REVOLVING CREDIT NOTE" or "REVOLVING CREDIT NOTES" shall have the
meaning set forth in Section 2.2.
"SECURITY AGREEMENT" shall mean the Security Agreement in form and
substance attached hereto as Exhibit F.
"SENIOR DEBT" shall mean Debt of the Willis Companies, less (i) any
Debt that is expressly subordinated in writing (to the satisfaction of
the Majority Banks) to the Borrower's obligations under the Credit
Facility, (ii) unsecured guarantees of the debt of Unrestricted
Subsidiaries, and (iii) any nonrecourse Debt of any Unrestricted
Subsidiaries.
"SOLVENT" shall mean, with respect to any Person, that the aggregate
present fair saleable value of such Person's assets is in excess of
the total amount of its probable liabilities on its existing debts as
they become absolute and matured, such Person has not incurred debts
beyond its foreseeable ability to pay such debts as they mature, and
such Person has capital adequate to conduct the business it is
presently engaged in or is about to engage in.
"STANDBY LETTER OF CREDIT" shall mean only those standby letters of
credit issued pursuant to a completed application on the form of
letter of credit application
17
<PAGE>
required by the Administrative Agent at the time of the request for each
Standby Letter of Credit.
"SUBSIDIARY" shall mean a corporation or other entity the shares of
stock or other equity interests of which having ordinary voting power
(other than stock or other equity interests having such power only by
reason of the happening of a contingency) to elect a majority of the
board of directors or other managers of such corporation are at the
time owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries or both, by
either Borrower.
"SYNDICATION AGENT" shall have the meaning set forth in the Preamble
to this Agreement, and shall also mean and include any successor
Syndication Agent appointed pursuant to Section 10.6 hereto.
"TANGIBLE NET WORTH" shall mean Net Worth, minus Intangible Assets.
"TERM LOAN" or "TERM LOANS" shall have the meaning set forth in
Section 2.8.
"TERM LOAN MATURITY DATE" shall mean, with respect to any Term Loan,
four years from its Conversion Date.
"TERM NOTE" or "TERM NOTES" shall have the meaning set forth in
Section 2.8.
"TERMINATION EVENT" shall mean, with respect to a Pension Plan: (i) a
Reportable Event, (ii) the termination of a Pension Plan, or the
filing of a notice of intent to terminate a Pension Plan, or the
treatment of a Pension Plan amendment as a termination under ERISA
Section 4041(c), (iii) the institution of proceedings to terminate a
Pension Plan under ERISA Section 4042 or (iv) the appointment of a
trustee to administer any Pension Plan under ERISA Section 4042.
"UNFUNDED PENSION LIABILITIES" shall mean, with respect to any Pension
Plan at any time, the amount determined by taking the accumulated
benefit obligation, as disclosed in accordance with Statement of
Accounting Standards No. 87, over the fair market value of Pension
Plan assets.
"UNRECOGNIZED RETIREE WELFARE LIABILITY" shall mean, with respect to
any Plan that provides post-retirement benefits other than pension
benefits, the amount of the accumulated post-retirement benefit
obligation, as determined in accordance with Statement of Financial
Accounting Standards No. 106, as of the most recent valuation date.
Prior to the date such statement is applicable to either Borrower,
such amount of the obligation shall be based on an estimate made in
good faith.
"UNRESTRICTED SUBSIDIARY" shall mean any Subsidiary of either Borrower
designated as an unrestricted subsidiary by the Borrowers. In no
event shall WASI be designated as an Unrestricted Subsidiary.
18
<PAGE>
"WILLIS COMPANIES" shall mean Willis and its consolidated
Subsidiaries, including, without limitation, WASI.
1.2. ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with Generally Accepted Accounting
Principles consistent with those applied in the preparation of the financial
statements referred to in Section 3.6, and all financial data submitted pursuant
to this Agreement shall be prepared in accordance with such principles.
2. THE CREDIT
2.1. THE REVOLVING LOANS.
(a) REVOLVING LOANS; REVOLVING LOAN COMMITMENT. Subject to the terms
and conditions herein set forth and in reliance upon the representations,
warranties and covenants contained herein, each Bank agrees, severally and not
jointly, to make revolving credit loans (collectively, the "REVOLVING LOANS" and
individually a "REVOLVING LOAN") to the Borrowers during the period beginning on
the date hereof and ending on September 30, 2000 or on the earlier date of
termination in full, pursuant to Section 2.6, Section 2.7 or Section 8.1 hereof,
of the obligations of such Bank under this Section 2.1 (September 30, 2000 or
such earlier date of termination being herein called the "REVOLVING LOAN
TERMINATION DATE") in amounts not to exceed at any time outstanding, in the
aggregate, the commitment amount set forth opposite the name of such Bank on
Exhibit A hereto (each such amount, as the same may be reduced pursuant to
Section 2.6 hereof being hereinafter called such Bank's "REVOLVING LOAN
COMMITMENT"). The Banks' collective commitment to make Revolving Loans under
this Credit Facility shall be the "AGGREGATE REVOLVING LOAN COMMITMENT," and
shall include a $3,000,000 sublimit for Standby Letters of Credit. All
Revolving Loans shall be made by the Banks simultaneously and PRO RATA in
accordance with their respective Revolving Loan Commitments. All Revolving Loans
shall be made to the Borrowers at the primary office of the Administrative Agent
in Philadelphia located at Broad and Chestnut Streets, Philadelphia,
Pennsylvania 19101. The Revolving Loan Commitment may be renewed annually at
the Borrowers' request and the sole discretion of the Banks.
(b) INTEREST RATE OPTIONS. Revolving Loans shall bear interest at (i)
the Base Rate plus the Applicable Margin for Revolving Loans, or (ii) Adjusted
LIBO Rate plus the Applicable Margin for Revolving Loans, provided that, in the
case of LIBO Rate Loans, (a) not more than five such Loans may be outstanding at
any one time, and (b) no LIBO Rate Loan may have an Interest Period extending
beyond the Revolving Loan Termination Date unless it is converted to a Term Loan
pursuant to the provisions of this Agreement.
(c) MAXIMUM LOANS OUTSTANDING. The Borrowers shall not be entitled to
any new Revolving Loan if, after giving effect to such Loan, the unpaid amount
of the then outstanding Loans would exceed the lesser of (i) the Aggregate
Revolving Loan Commitment or (ii) the then current Borrowing Base, as stated in
the most recent Borrowing Base Certificate furnished to the Banks as provided
herein. For purposes of determining the amount of Revolving Loans outstanding,
the Standby Letters of Credit issued pursuant to Section 2.3 hereof shall be
deemed
19
<PAGE>
Revolving Loans and shall be added to the Revolving Loans outstanding to
determine the aggregate Revolving Loans outstanding.
(d) MINIMUM LOAN AMOUNT. Except for Loans which exhaust the full
remaining amount of the Aggregate Revolving Loan Commitment and conversions
which result in the conversion of all Loans subject to a particular interest
rate option, each of which may be in lesser amounts, (i) each LIBO Rate Loan
when made (and each conversion of Base Rate Loans into LIBO Rate Loans) shall be
in an amount at least equal to $3,000,000 or, if greater, then in such minimum
amount plus $100,000 multiples, and (ii) each Base Rate Loan when made (and each
conversion of LIBO Rate Loans into Base Rate Loans) shall be in an amount at
least equal to $150,000.
(e) PREPAYMENT AND REBORROWING. Prior to the Revolving Loan Termination
Date and within the limits of the Aggregate Revolving Loan Commitment and the
Borrowing Base, the Borrowers may borrow, prepay and reborrow Revolving Loans.
All Revolving Loans shall mature and be due and payable on the Revolving
Loan Termination Date unless they are converted to Term Loans pursuant to
Section 2.8.
(f) REVOLVING LOAN COMMITMENT PERCENTAGES. The obligation of each Bank
to make a Revolving Loan to any Borrower at any time shall be limited to its
percentage (the "REVOLVING LOAN COMMITMENT PERCENTAGE") as set forth opposite
its name on Exhibit A hereto multiplied by the aggregate principal amount of the
Revolving Loan requested. The principal amounts of the respective Revolving
Loans made by the Banks on the occasion of each Borrowing shall be pro rata in
accordance with their respective Revolving Loan Commitment Percentages. No Bank
shall be required or permitted to make any Loan if, immediately after giving
effect to such Loan, and the application of the proceeds of a Loan to the extent
applied to the repayment of the Loans, the sum of such Bank's Loans outstanding
would exceed such Bank's Revolving Loan Commitment.
(g) SEVERAL OBLIGATIONS. The failure of any one or more Banks to make
Revolving Loans in accordance with its or their obligations shall not relieve
the other Banks of their several obligations hereunder, but in no event shall
the aggregate amount at any one time outstanding which any Bank shall be
required to lend hereunder exceed its Revolving Loan Commitment.
2.2. THE REVOLVING NOTES. The Revolving Loans made by each Bank shall be
evidenced by a single promissory note of the Borrowers under which they shall be
jointly and severally liable (each such promissory note as it may be amended,
extended, modified or renewed a "REVOLVING CREDIT NOTE" and together the
"REVOLVING CREDIT NOTES") in principal face amount equal to such Bank's
Revolving Loan Commitment, payable to the order of such Bank and otherwise in
the form attached hereto as Exhibit C. The Revolving Credit Notes shall be
dated the date of issuance, shall bear interest at the rate per annum and be
payable as to principal and interest in accordance with the terms hereof. Each
outstanding Revolving Loan shall be due and payable as set forth in Section
hereof unless the maturity of said Loans is accelerated as provided in
Section 2.6 or Section 8.1 hereof or converted as provided in Sections 2.8 or
2.7 hereof. Notwithstanding the stated amount of any Revolving Credit Note, the
liability of the Borrowers under each Revolving Credit Note shall be limited
at all times to the outstanding principal amount of the Revolving Loans by
20
<PAGE>
each Bank evidenced thereby, plus all interest accrued thereon and the amount of
all costs and expenses then payable hereunder, as established by each such
Bank's books and records, which books and records shall be conclusive absent
manifest error.
2.3. STANDBY LETTERS OF CREDIT. The Administrative Agent, under the
terms and subject to the conditions of this Agreement, on behalf of itself and
each other Bank in the same proportions as each Bank's Revolving Loan Commitment
bears to the Aggregate Revolving Loan Commitment, shall provide Standby Letters
of Credit to the Borrowers, from time to time prior to the Revolving Loan
Termination Date, as requested by the Borrowers, provided that (i) the aggregate
amount of Standby Letters of Credit outstanding at any one time shall not exceed
$3,000,000 or such lesser amount, if any, as will, when added to the amount of
the Revolving Loans then outstanding, aggregate more than the Aggregate
Revolving Loan Commitment (or such lesser amount as the Borrowers are entitled
to borrow hereunder at such time by reason of the limitation of the Borrowing
Base or otherwise); (ii) no Standby Letter of Credit shall be for a term longer
than one year; and (iii) no Standby Letters of Credit shall be required to be
issued when any Event of Default or Potential Default exists.
The Borrowers shall request a Standby Letter of Credit by delivering a
completed letter of credit application to the Administrative Agent on such form
as may be specified by the Administrative Agent not less than three Business
Days prior to the date specified by the Borrowers as the date the Standby Letter
of Credit is to be issued. The standard form of the Administrative Agent's
letter of credit application as currently in effect shall be used. The
Administrative Agent shall notify the Banks promptly after the issuance of any
Standby Letter of Credit and will provide the Banks copies of the periodic
Borrowing Base Certificates showing the current balance of outstanding Standby
Letters of Credit, as delivered by the Borrowers to the Administrative Agent.
Standby Letters of Credit fees will be equal to the Applicable Margin for
LIBO Rate Loans on an annual basis, calculated on the basis of the days actually
elapsed in a year of 360 days (paid to the Administrative Agent for distribution
to the Banks) plus a Fronting Fee of 0.125% per year to be paid to the Fronting
Bank for its own account. Such Fees will be calculated based on the aggregate
stated amount for each Letter of Credit, and will be due quarterly in arrears,
commencing on the last Business Day of the calendar quarter in which the Standby
Letter of Credit is issued.
If any obligation of the Borrowers to pay money in connection with any
Standby Letter of Credit is not met when requested by the Administrative
Agent as permitted by the applicable letter of credit application and the
reimbursement agreement contained therein, the amount due shall be funded
automatically by a Revolving Loan which Loan shall be made without regard to
any minimum borrowing requirement, condition precedent herein, or Event of
Default hereunder which would otherwise entitle any Bank or the Banks not to
provide such Revolving Loan, and each Bank shall make its proportionate share
of such Revolving Loan. Any obligation of the Borrowers to pay money in
connection with any Standby Letter of Credit or the application therefor
shall be deemed secured as if made as a Loan hereunder. In the event the
Borrowers shall terminate the Aggregate Revolving Loan Commitment as provided
in Section and shall pay the outstanding principal amount of the Revolving
Loans in full and with interest or the Revolving
21
<PAGE>
Loan Termination Date shall occur at a time when one or more Standby Letters
of Credit remain outstanding, then the Borrowers shall furnish to the
Administrative Agent within two Business Days such amount of cash, to be held
as cash collateral and invested in certificates of deposit of the
Administrative Agent with interest payable to the Borrowers, as will pay the
maximum amount which may be drawn by beneficiaries of Standby Letters of
Credit outstanding at the date of such termination or the Revolving Loan
Termination Date, as applicable.
2.4. FUNDING PROCEDURES.
(a) REQUEST FOR ADVANCE. Each request for a Revolving Loan or the
conversion or renewal of an interest rate with respect to a Loan shall be made
not later than 2:00 p.m. eastern prevailing time on a Business Day by delivery
to the Administrative Agent of a written request signed by the Borrowers or, in
the alternative, a telephone request followed promptly by written confirmation
of the request (a "REQUEST FOR ADVANCE"), specifying the date and amount of the
Loan to be made, converted or renewed, selecting the interest rate option
applicable thereto, and in the case of LIBO Rate Loans, specifying the Interest
Period applicable to such Loans. The form of request to be used in connection
with the making, conversion or renewal of Loans shall be that form provided to
the Borrowers by the Administrative Agent. Each request shall be received not
less than one Business Day prior to the date of the proposed borrowing,
conversion or renewal in the case of Base Rate Loans, and three London Business
Days prior to the date of the proposed borrowing, conversion or renewal in the
case of LIBO Rate Loans. No request shall be effective until actually received
in writing by the Administrative Agent. The Borrowers may not request more than
three advances per week. Each request for advance shall be for Loans at a
single interest rate option.
(b) ACTIONS BY THE ADMINISTRATIVE AGENT. Upon receipt of a Request for
Advance and if the conditions precedent provided herein shall be satisfied at
the time of such request, the Administrative Agent promptly shall notify each
Bank of such request and of such Bank's ratable share of such Loan. Upon
receipt by the Administrative Agent of a Request for Advance, the request shall
not be revocable by the Borrowers.
(c) AVAILABILITY OF FUNDS. Not later than 1:00 p.m. eastern prevailing
time on the date of each Loan, each Bank shall make available (except as
provided in clause (d) below) its ratable share of such Loan, in immediately
available funds, to the Administrative Agent at the address set forth opposite
its name on the signature page hereof or at such account in London as the
Administrative Agent shall specify to the Borrowers and the Banks. Unless the
Administrative Agent knows that any applicable condition specified herein has
not been satisfied, it will make the funds so received from the Banks
immediately available to the Borrowers on the date of each Loan by a credit to
the account of the Borrowers at the Administrative Agent's aforesaid address.
(d) FUNDING ASSUMPTIONS. Unless the Administrative Agent shall have
been notified by any Bank at least one Business Day prior to the date of the
making, conversion or renewal of any LIBO Rate Loan, or by 3:00 p.m. eastern
prevailing time on the date a Base Rate Loan is requested, that such Bank does
not intend to make available to the Administrative Agent, such Bank's portion of
the total amount of the Loan to be made, converted or renewed on such date,
22
<PAGE>
the Administrative Agent may assume that such Bank has made such amount
available to the Administrative Agent on the date of the Loan and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrowers a corresponding amount. If and to the extent such Bank shall
not have so made such funds available to the Administrative Agent, such Bank
agrees to repay the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the
date such amount is made available to the Borrowers until the date such
amount is repaid to the Administrative Agent, at the Federal Funds Rate plus
50 basis points for three Business Days, and thereafter at the Base Rate. If
such Bank shall repay to the Administrative Agent such corresponding amount,
such amounts so repaid shall constitute such Bank's Loan for purposes of this
Agreement. If such Bank does not repay such corresponding amount forthwith
upon the Administrative Agent's demand therefor, the Administrative Agent
shall promptly notify the Borrowers, and the Borrowers shall immediately pay
such corresponding amount to the Administrative Agent, without any prepayment
penalty or premium, but with interest on the amount repaid, for each day from
the date such amount is made available to the Borrowers until the date such
amount is repaid to the Administrative Agent, at the rate of interest
applicable at the time to such Loan. Nothing herein shall be deemed to
relieve any Bank of its obligation to fulfill its Revolving Loan Commitment
hereunder or to prejudice any rights which the Borrowers may have against any
Bank as a result of any default by such Bank hereunder.
(e) PROCEEDS OF LOAN BEING REPAID. If the Banks make a Loan on a day on
which all or any part of an outstanding Loan from the Banks is to be repaid,
each Bank shall apply the proceeds of its new Loan to make such repayment and
only an amount equal to the difference (if any) between the amount being
borrowed and the amount being repaid shall be made available by such Bank to the
Administrative Agent as provided in clause (c).
2.5. REVOLVING LOAN COMMITMENT FEE. The Borrowers agree to pay to the
Administrative Agent for the account of each Bank as compensation for the
Aggregate Revolving Loan Commitment, a fee based on the average daily unused
committed amount of the Revolving Credit Facility (the "REVOLVING LOAN
COMMITMENT FEE") computed as indicated on the chart set forth on Exhibit D
hereto, based on the then applicable Leverage Ratio of the Borrowers. The
Revolving Loan Commitment Fee shall be payable quarterly in arrears on the first
day of each January, April, July and October, commencing October 1, 1998 (for
the three month period or portion thereof ended on the preceding day), and on
the Revolving Loan Termination Date. The Revolving Loan Commitment Fee shall be
calculated on the basis of the actual number of days elapsed in a 360-day year.
2.6. REDUCTION OR TERMINATION OF REVOLVING LOAN COMMITMENTS.
(a) VOLUNTARY. The Borrowers may at any time, on not less than
one Business Days' written notice, terminate or permanently reduce the Aggregate
Revolving Loan Commitment pro rata among the Banks, provided that any reduction
shall be in the minimum amount of $1,000,000 or a multiple thereof and that no
such reduction shall cause the principal amount of Loans and Standby Letters of
Credit outstanding to exceed the reduced Aggregate Revolving Loan Commitment or
the Borrowing Base, whichever is less.
23
<PAGE>
(b) REVOLVING LOAN COMMITMENT TERMINATION. In the event the
Aggregate Revolving Loan Commitment is terminated, the Revolving Loan
Termination Date shall be accelerated to the date of such termination and
Borrowers shall, simultaneously with such termination, repay the Revolving
Loans in accordance with Section 2.12.
2.7. MANDATORY PREPAYMENTS; CONVERSION TO TERM LOANS. If the aggregate
principal amount of advances and the face amount of Standby Letters of Credit
outstanding under this Credit Facility at any time exceeds the total
Borrowing Base, the Borrowers shall make immediate prepayments to reduce such
outstanding advances under the Loans, plus the face amount of such Standby
Letters of Credit to an amount not to exceed the Borrowing Base; provided,
however, that if (i) this mandatory prepayment is required by a reduction to
the Borrowing Base necessitated by the results of an appraisal of the
Equipment, and (ii) the amount of the required mandatory prepayment would not
exceed 15% of all advances then outstanding under the Credit Facility, the
Borrowers may elect to convert all outstanding advances under the Credit
Facility to Term Loans pursuant to Section 2.8(b). Such conversion will
immediately cause the Revolving Loan Termination Date to accelerate and the
Banks will have no further obligation to make any Revolving Credit Loans
under this Agreement.
2.8. TERM LOANS.
(a) CONVERSION ON REVOLVING LOAN TERMINATION DATE. On the Revolving Loan
Termination Date, all or a portion of the Revolving Loans then outstanding
may at Borrowers' option be converted to term loans in accordance with the
provisions of this Section 2.8 (individually, a "TERM LOAN" and collectively,
the "TERM LOANS"). All Term Loans so created shall mature on the applicable
Term Loan Maturity Date. Any and all amounts not so converted shall be due
and payable on the Revolving Loan Termination Date.
(b) CONVERSION PRIOR TO REVOLVING LOAN TERMINATION DATE; TERMINATION OF
REVOLVING CREDIT FACILITY. If the Borrowers have the option of converting
their Revolving Loans to Term Loans pursuant to Section 2.7, such conversion
will immediately terminate the Revolving Credit Facility.
(c) INTEREST RATE OPTIONS. Term Loans shall bear interest at (i) the Base
Rate plus the Applicable Margin for Term Loans, or (ii) the Adjusted LIBO
Rate plus the Applicable Margin for Term Loans, provided that in the case of
LIBO Rate Term Loans, (a) not more than five such Loans may be outstanding at
any one time, (b) any Term Loan may, at the Borrowers' option, continue the
Interest Period assigned to the Revolving Loan from which it was converted,
if such Interest Period would expire after the Conversion Date, and (c) no
LIBO Rate Term Loan may have an Interest Period extending beyond the Term
Loan Maturity Date.
(d) THE TERM NOTES. Each Term Loan created at the Revolving Facility
Termination Date or any Conversion Date shall be evidenced by a separate
promissory note of the Borrowers, under which they shall be jointly and
severally liable, substantially in the form of Exhibit I hereto (each such
promissory note as it may be amended, extended, modified or renewed a "TERM
NOTE" and together the "TERM NOTES.")
24
<PAGE>
(e) AMORTIZATION OF TERM LOANS. Each Term Loan shall require quarterly
principal payments every three months (commencing three months from the
Conversion Date) based upon the amortization schedules set forth in
Subsections 2.8(e)(i) and (ii) below, with the final payment of all amounts
outstanding, plus accrued interest, coming due four years from such Term
Loan's Conversion Date (such date with respect to a Term Loan being the "TERM
LOAN MATURITY DATE").
(i) To the extent the aggregate outstanding balance of the
Revolving Loans on the Conversion Date is equal to or less than the Engine and
Aircraft Advance Amount calculated as of the Conversion Date, such principal
balance, when converted into Term Loans, shall be amortized as follows: During
the period from the Conversion Date to the day before the first anniversary of
the Conversion Date, 14.4% of the aggregate principal balance existing on the
Conversion Date shall be repaid in four equal quarterly installments; during the
period from the first anniversary of the Conversion Date to the day before the
second anniversary of the Conversion Date, 15.6% of the aggregate principal
balance existing on the Conversion Date shall be repaid in four equal quarterly
installments; during the period from the second anniversary of the Conversion
Date to the day before the third anniversary of the Conversion Date, 16.8% of
the aggregate principal balance existing on the Conversion Date shall be repaid
in four equal quarterly installments; during the period from the third
anniversary of the Conversion Date to the day before the fourth anniversary of
the Conversion Date, 18.0% of the aggregate principal balance existing on the
Conversion Date shall be repaid in four equal quarterly installments; and on the
fourth anniversary of the Conversion Date, the entire remaining principal
balance (35.2% of the aggregate principal balance existing on the Conversion
Date) shall be repaid in full.
(ii) To the extent that the aggregate outstanding balance of the
Revolving Loans on the Conversion Date exceeds the Engine and Aircraft
Advance Amount calculated as of the Conversion Date, such excess principal
balance, when converted into Term Loans, shall be amortized as follows:
during each successive one-year period following the Conversion Date, 25.0%
of the aggregate excess principal balance existing on the Conversion Date
shall be repaid in four equal quarterly installments.
2.9. PAYMENT OF ADDITIONAL AMOUNT. If any principal of a LIBO Rate Loan
shall be repaid (whether upon mandatory or voluntary prepayment, reduction of
the Aggregate Revolving Loan Commitment after acceleration or for any other
reason) or converted to a Base Rate Loan prior to the last day of the Interest
Period applicable to such LIBO Rate Loan or if the Borrowers fail for any
reason to borrow a LIBO Rate Loan after giving irrevocable notice pursuant to
Section 2.4, they shall pay to each Bank, in addition to the principal and
interest then to be paid, such additional amounts as may be necessary to
compensate each Bank for all direct and indirect costs and losses (including
losses resulting from redeployment of prepaid or unborrowed funds at rates
lower than the cost of such funds to such Bank, and including lost profits
incurred or sustained by such Bank) as a result of such repayment or failure
to borrow (the "ADDITIONAL AMOUNT"). The Additional Amount (which each Bank
shall take reasonable measures to minimize) shall be specified in a written
notice or certificate delivered to the Borrowers by the Administrative Agent
in the form provided by each Bank sustaining such costs or losses. Such notice
or certificate shall contain a calculation in reasonable detail of the
Additional Amount to be compensated and shall be conclusive as to the facts and
the amounts stated therein, absent manifest error.
25
<PAGE>
2.10. INTEREST.
(a) BASE RATE LOANS. Each Base Rate Loan shall bear interest on the
unpaid principal balance thereof from day to day at a rate per annum which at
all times shall be equal to the Base Rate plus the Applicable Margin. Interest
on Base Rate Loans shall be computed on the basis of a year of 365 or 366 days,
as applicable, for the actual days elapsed, if the Base Rate is equal to the
prime rate of the Administrative Agent. Interest on Base Rate 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 __% per annum.*
(b) LIBO RATE LOANS. Each LIBO Rate Loan shall bear interest from its
effective date on the unpaid principal amount thereof at Adjusted LIBO Rate plus
the Applicable Margin. Interest on LIBO Rate Loans shall be computed on the
basis of a year of 360 days, for the actual days elapsed, and shall be payable
on the last day of the applicable Interest Period, or quarterly, whichever is
earlier. If a LIBO Rate Loan is for a period of three months or more, it shall
be payable quarterly.
(c) CONVERSION TO BASE RATE. Unless the Borrowers shall have elected in
accordance with the provisions of Section 2.4 or this Section 2.10 that LIBO
Rate apply to the one, two, three or six-month period immediately succeeding a
particular Interest Period, upon the termination of such Interest Period the
applicable Loan shall bear interest at the Base Rate plus the Applicable Margin
until such time as the Borrowers elect to request a new LIBO Rate Loan for a
subsequent Interest Period.
(d) RENEWALS AND CONVERSIONS. The Borrowers shall have the right to
convert Base Rate Loans into LIBO Rate Loans, and vice versa, and to renew LIBO
Rate Loans from time to time, provided that: (i) the Borrowers shall give the
Administrative Agent notice of each permitted conversion or renewal; (ii) LIBO
Rate Loans may be converted or renewed only as of the last day of the applicable
Interest Period for such Loans; (iii) without the consent of the Majority Banks,
no Base Rate Loan may be converted into a LIBO Rate Loan, and no Interest Period
may be renewed if on the proposed date of conversion an Event of Default, or
Potential Default exists or would thereby occur. The Administrative Agent shall
use its best efforts to notify the Borrowers and the Banks of the effectiveness
of such conversion or renewal, and the new interest rate to which the converted
or renewed Loan is subject, as soon as practicable after the conversion;
provided, however, that any failure to give such notice shall not affect the
Borrowers' obligations or the Banks' rights and remedies hereunder in any way
whatsoever.
(e) INTERIM PAYMENTS AT BASE RATE. If at any time the Borrowers request
that Adjusted LIBO Rate plus the Applicable Margin be applicable to a Loan for a
particular Interest Period and a payment of principal is due within such period
(other than on the last day of such Interest Period), only that portion of that
Loan equal to the outstanding principal amount of the Loan less the principal
installment due during such period shall bear interest at Adjusted LIBO
- -------------------------
* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
26
<PAGE>
Rate plus the Applicable Margin for such Interest Period. The portion of
that Loan equal to the principal installment due during such period shall
bear interest at the Base Rate plus the Applicable Margin.
(f) REINSTATEMENTS. The liability of the Borrowers under this Section
2.10 shall continue to be effective or be automatically reinstated, as the case
may be, if at any time payment, in whole or in part, of any of the payments to
the Banks is rescinded or must otherwise be restored or returned upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Borrowers or any other Person, or upon or as a result of the appointment of a
custodian, receiver, trustee or other officer with similar powers with respect
to the Borrowers or any other Person or any substantial part of its property, or
otherwise, all as though such payment had not been made.
2.11. VOLUNTARY PREPAYMENTS.
(a) BASE RATE LOANS. On one Business Day's notice to the Administrative
Agent, the Borrowers may, without penalty, at their option, prepay any Base Rate
Loan in whole at any time or in part from time to time, provided that each
partial prepayment shall be in the minimum principal amount of $150,000 or, if
greater, then in multiples thereof and, if less than $150,000 shall be
outstanding, in principal amount equal to amount remaining outstanding.
Notwithstanding the foregoing, prepayments may be made in connection with the
release of collateral as provided in Section 9.3, which prepayments shall not be
subject to the requirements of the previous sentence.
(b) LIBO RATE LOANS. On three London Business Days' notice to the
Administrative Agent, the Borrowers may, without penalty, at their option,
prepay any LIBO Rate Loan in whole at any time or in part from time to time,
provided that each partial prepayment shall be in the minimum principal amount
of $1,000,000 or, if greater, then in multiples of $100,000 and, if less than
$1,000,000 shall be outstanding, in principal amount equal to the amount
remaining outstanding provided that if they shall prepay a LIBO Rate Loan prior
to the last day of the applicable Interest Period, or shall fail to borrow any
LIBO Rate Loan on the date such Loan is to be made, they shall pay to each Bank,
in addition to the principal and interest then to be paid in the case of a
prepayment, on such date of prepayment, the Additional Amount incurred or
sustained by such Bank as a result of such prepayment or failure to borrow as
provided in Section 2.9.
2.12. PAYMENTS.
(a) ACCRUED INTEREST. Accrued interest on all Base Rate Loans shall be
due and payable in arrears on the first Business Day of each calendar month.
Interest on LIBO Rate Loans shall be payable in arrears on the last day of the
applicable Interest Period or quarterly, whichever is earlier. Each Revolving
Loan shall mature as provided in Section 2.1.
(b) FORM OF PAYMENTS, APPLICATION OF PAYMENTS, PAYMENT ADMINISTRATION,
ETC. Subject to the provisions of Section 11.7(b) hereto, all payments of
principal, interest, fees, or other amounts payable by the Borrowers
hereunder shall be applied to the Loans in such order and to such extent as
shall be specified by the Borrowers by written notice to the Administrative
27
<PAGE>
Agent at the time of such payment or prepayment. Such payments shall be
remitted in United States dollars to the Administrative Agent on behalf of the
Banks at the address set forth opposite its name on the signature page hereof or
at such office or account as the Administrative Agent shall specify to the
Borrowers, in immediately available funds not later than 2:00 p.m. eastern
prevailing time on the day when due. Whenever any payment is stated as due on a
day which is not a Business Day, the maturity of such payment shall, except as
otherwise provided in the definition of "Interest Period," be extended to the
next succeeding Business Day and interest and commitment fees shall continue to
accrue during such extension. The Borrowers authorize the Administrative Agent
to deduct from any account of the Borrowers maintained at the Administrative
Agent or over which the Administrative Agent has control any amount payable
under this Agreement, the Notes or any other Loan Document which is not paid in
a timely manner. The Administrative Agent's failure to deliver any bill,
statement or invoice with respect to amounts due under this Section or under any
Loan Document shall not affect the Borrowers' joint and several obligation to
pay any installment of principal, interest or any other amount under this
Agreement when due and payable.
(c) DEMAND DEPOSIT ACCOUNT. The Borrowers shall maintain at least one
demand deposit account with the Administrative Agent for purposes of this
Agreement. The Borrowers authorize the Administrative Agent to deposit into
said account all amounts to be advanced to the Borrowers hereunder. Further,
the Borrowers authorize the Administrative Agent (but the Administrative Agent
shall not be obligated) to deduct from said account, or any other account
maintained by the Borrowers at the Administrative Agent, any amount payable
hereunder on or after the date upon which it is due and payable. Such
authorization shall include but not be limited to amounts payable with respect
to principal, interest, fees and expenses.
(d) NET PAYMENTS. All payments made to the Banks by the Borrowers
hereunder, under any Note or under any other Loan Document will be made without
set off, counterclaim or other defense.
2.13. CHANGE IN CIRCUMSTANCES, YIELD PROTECTION.
(a) CERTAIN REGULATORY CHANGES. If any Regulatory Change or compliance
by any Bank with any request made after the date of this Agreement by the Board
of Governors of the Federal Reserve System or by any Federal Reserve Bank or
other central bank or fiscal, monetary or similar authority (in each case
whether or not having the force of law) shall (i) impose, modify or make
applicable any reserve, special deposit, Federal Deposit Insurance Corporation
premium or similar requirement or imposition against assets held by, or deposits
in or for the account of, or loans made by, or any other acquisition of funds
for loans or advances by, any Bank; (ii) impose on any Bank any other condition
regarding the Notes; (iii) subject any Bank to, or cause the withdrawal or
termination of any previously granted exemption with respect to, any tax
(including any withholding tax but not including any income tax not currently
causing any Bank to be subject to withholding) or any other levy, impost, duty,
charge, fee or deduction on or from any payments due from the Borrowers; or (iv)
change the basis of taxation of payments from the Borrowers to any Bank (other
than by reason of a change in the method of taxation of any Bank's net income);
and the result of any of the foregoing events is to increase the cost to any
Bank of making or maintaining any Loan or to reduce the amount of principal,
interest or fees to be
28
<PAGE>
received by any Bank hereunder in respect of any Loan, the Administrative
Agent will immediately so notify the Borrowers. If any Bank determines in
good faith that the effects of the change resulting in such increased cost or
reduced amount cannot reasonably be avoided or the cost thereof mitigated,
then upon notice by the Administrative Agent to the Borrowers, the Borrowers
shall pay to such Bank on each interest payment date of the Loan, such
additional amount as shall be necessary to compensate that Bank for such
increased cost or reduced amount.
(b) CAPITAL ADEQUACY. If any Bank shall determine that any Regulation
regarding capital adequacy or the adoption of any Regulation regarding capital
adequacy, which Regulation is applicable to banks (or their holding companies)
generally and not such Bank (or its holding company) specifically, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by such Bank (or its
holding company) with any such request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has the effect of reducing the rate of return on such Bank's
capital as a consequence of its obligations hereunder to a level below that
which such Bank could have achieved but for such adoption, change or compliance
(taking into consideration such Bank's policies with respect to capital
adequacy) by an amount deemed by such Bank to be material, the Borrowers shall
promptly pay to the Administrative Agent for the account of such Bank, upon the
demand of such Bank, such additional amount or amounts as will compensate such
Bank for such reduction.
(c) ABILITY TO DETERMINE LIBO RATE. If the Administrative Agent shall
determine (which determination will be made after consultation with any Bank
requesting same and shall be, in the absence of fraud or manifest error,
conclusive and binding upon all parties hereto) that by reason of abnormal
circumstances affecting the interbank eurodollar or applicable eurocurrency
market adequate and reasonable means do not exist for ascertaining the LIBO Rate
to be applicable to the requested LIBO Rate Loan or that eurodollar or
eurocurrency funds in amounts sufficient to fund all the LIBO Rate Loans are not
obtainable on reasonable terms, the Administrative Agent shall give notice of
such inability or determination by telephone to the Borrowers and to each Bank
at least two Business Days prior to the date of the proposed Loan and thereupon
the obligations of the Banks to make, convert other Loans to, or renew such LIBO
Rate Loan shall be excused, subject, however, to the right of the Borrowers at
any time thereafter to submit another request.
(d) YIELD PROTECTION. Determination by a Bank for purposes hereof of
the effect of any Regulatory Change or other change or circumstance referred to
in this Section 2.13 on its costs of making or maintaining Loans or on amounts
receivable by it in respect of the Loans and of the additional amounts required
to compensate such Bank in respect of any additional costs, shall be made in
good faith and shall be evidenced by a certificate, signed by an officer of such
Bank and delivered to the Borrowers, as to the fact and amount of the increased
cost incurred by or the reduced amount accruing to such Bank owing to such event
or events. Such certificate shall be prepared in reasonable detail and shall be
conclusive as to the facts and amounts stated therein, absent manifest error.
The Borrowers shall pay such Bank the amount shown as due at the times required
herein.
29
<PAGE>
(e) SYNDICATION COSTS. If, within 180 days from the Closing Date, any
Agent incurs any breakage costs, charges or fees with respect to LIBO Rate Loans
on account of the syndication of this Credit Facility, the Borrowers shall
immediately reimburse such Agent for any such costs, charges or fees. Such
right of reimbursement is in addition to, and not in limitation of, any other
provisions of this Agreement. The Borrowers shall pay such Agent the amount
shown as due on such notice within 10 days after its receipt of the same.
(f) NOTICE OF EVENTS. The affected Bank will notify the Borrowers of
any event occurring after the date of this Agreement that will entitle such Bank
to compensation pursuant to this Section as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation. Said
notice shall be in writing, shall specify the applicable Section or Sections of
this Agreement to which it relates and shall set forth the amount or amounts
then payable pursuant to this Section.
2.14. ILLEGALITY. Notwithstanding any other provision in this Agreement,
if the adoption of any applicable Regulation, or any change therein, or any
change in the interpretation or administration thereof by any governmental
authority, central bank, or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank with any request or directive
(whether or not having the force of law) of any such authority, central bank, or
comparable agency shall make it unlawful or impossible for any Bank to (a)
maintain its Revolving Loan Commitment, then upon notice to the Borrowers by the
Administrative Agent, its Revolving Loan Commitment shall terminate; or (b)
maintain or fund its LIBO Rate Loans, then upon notice to the Borrowers of such
event, the Borrowers' outstanding LIBO Rate Loans shall be converted into Base
Rate Loans.
2.15. DISCRETION OF EACH BANK AS TO MANNER OF FUNDING. Notwithstanding
any provision of this Agreement to the contrary, each Bank shall be entitled to
fund and maintain its funding of all or any part of its Loans in any manner it
sees fit, it being understood, however, that for the purposes of this Agreement
all determinations hereunder shall be made as if each Bank had actually funded
and maintained each LIBO Rate Loan during each Interest Period for such Loan
through the purchase of deposits in the relevant interbank market having a
maturity corresponding to such Interest Period and bearing an interest rate
equal to the LIBO Rate, for such Interest Period.
2.16. APPRAISALS. Within 20 days following the receipt by the Banks of
the Borrowing Base Certificate covering the last month of a Fiscal Quarter, the
Majority Banks may request that an appraisal be conducted with respect to
Eligible Engines added to the Borrowing Base during the Fiscal Quarter just
ended. The appraisal shall be a "desktop appraisal" (unless a Potential Default
or an Event of Default then exists) and shall be conducted by an appraiser
retained by the Appraisal Agent on behalf of the Banks, and the cost of each
such appraisal will be paid by the Borrowers. In addition to paying the costs of
the appraisals as aforesaid, for each year (measured from the Closing Date), or
part thereof, that this Agreement remains in effect or that this Credit Facility
remains available to the Borrowers, the Borrowers shall also pay the Appraisal
Agent an Appraisal Agent fee in consideration for the Appraisal Agent's services
under this Agreement. The Appraisal Agent fee shall be paid in advance on the
first day of each such year, with the initial Appraisal Agent fee payable on the
Closing Date.
30
<PAGE>
3. Representations and Warranties
Each of the Borrowers represents and warrants to the Banks that:
3.1. ORGANIZATION, STANDING. It (a) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, (b) has the corporate power and authority necessary to own its
assets, carry on its business and enter into and perform its obligations
hereunder, and under each Loan Document to which it is a party, and (c) is
qualified to do business and is in good standing in each jurisdiction where the
nature of its business or the ownership of its properties requires such
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect.
3.2. CORPORATE AUTHORITY, VALIDITY, ETC. The making and performance of
the Loan Documents to which it is a party are within its power and authority and
have been duly authorized by all necessary corporate action. The making and
performance of the Loan Documents do not and under present law will not require
any consent or approval not obtained of any of its shareholders, or any other
person, do not and under present law will not violate any law, rule, regulation
order, writ, judgment, injunction, decree, determination or award, do not
violate any provision of its charter or by-laws, do not and will not result in
any breach of any material agreement, lease or instrument to which it is a
party, by which it is bound or to which any of its assets are or may be subject,
and do not and will not give rise to any Lien upon any of its assets except the
Lien in favor of the Administrative Agent contemplated hereby. The number of
shares and classes of the capital stock of each Borrower and the ownership
thereof are accurately set forth on Schedule 1 attached hereto; all such shares
are validly issued, fully paid and non-assessable, and the issuance and sale
thereof are in compliance with all applicable federal and state securities and
other applicable laws. Further, neither Borrower is in default under any such
agreement, lease or instrument except to the extent such default reasonably
could not have a Material Adverse Effect. No authorizations, approvals or
consents of, and no filings or registrations with, any governmental or
regulatory authority or agency are necessary for the execution, delivery or
performance by the Borrowers of any Loan Document to which it is a party or for
the validity or enforceability thereof, except any filings or registrations
expressly contemplated by the Loan Documents.
3.3. VALIDITY OF LOAN DOCUMENTS. The Loan Documents, when executed and
delivered, will be legal, valid, and binding obligations of the Borrowers,
enforceable in accordance with their respective terms.
3.4. LITIGATION. Except as disclosed on Schedule 1, there are no actions,
suits or proceedings pending or, to the Borrowers' knowledge, threatened against
or affecting the Borrowers or any of their assets before any court, government
agency, or other tribunal which if adversely determined reasonably could have a
Material Adverse Effect. If there is any disclosure on Schedule 1, the status
(including the tribunal, the nature of the claim and the amount in controversy)
of each such litigation matter as of the date of this Agreement is set forth in
Schedule 1.
31
<PAGE>
3.5. ERISA. (a) The Borrowers and each ERISA Affiliate are in compliance
in all material respects with all applicable provisions of ERISA and the
regulations promulgated thereunder; and, neither either Borrower, nor any ERISA
Affiliate maintains or contributes to or has maintained or contributed to any
multiemployer plan (as defined in Section 4001 of ERISA) under which the
Borrowers or any ERISA Affiliate could have any withdrawal liability; (b)
neither the Borrowers nor any ERISA Affiliate, sponsors or maintains any Plan
under which there is an accumulated funding deficiency within the meaning of
Section 412 of the Code, whether or not waived; (c) the aggregate liability for
accrued benefits and other ancillary benefits under each Plan that is or will be
sponsored or maintained by the Borrowers or any ERISA Affiliate (determined on
the basis of the actuarial assumptions prescribed for valuing benefits under
terminating single-employer defined benefit plans under Title IV of ERISA) does
not exceed the aggregate fair market value of the assets under each such defined
benefit pension Plan; (d) the aggregate liability of the Borrowers and each
ERISA Affiliate arising out of or relating to a failure of any Plan to comply
with the provisions of ERISA or the Code, will not have a Material Adverse
Effect; and (e) there does not exist any unfunded liability (determined on the
basis of actuarial assumptions utilized by the actuary for the plan in preparing
the most recent Annual Report) of the Borrowers or any ERISA Affiliate under any
plan, program or arrangement providing post-retirement life or health benefits.
3.6. FINANCIAL STATEMENTS. The consolidated financial statements of
Willis as of and for the Fiscal Years ending December 31, 1997 and December 31,
1996, consisting of a balance sheet, a statement of operations, a statement of
shareholders' equity, a statement of cash flows and accompanying footnotes, and
the interim consolidated and consolidating financial statements of Willis as of
June 30, 1998 furnished to the Banks in connection herewith, present fairly, in
all material respects, the financial position, results of operations and
operating statistics of the Borrowers as of the dates and for the periods
referred to, in conformity with GAAP. Except as set forth on Schedule 1 hereto,
there are no liabilities, fixed or contingent, which are not reflected in such
financial statements, other than liabilities which are not required to be
reflected in such balance sheets.
3.7. NO MATERIAL ADVERSE CHANGE. Since December 31, 1997, there has been
no Material Adverse Change.
3.8. NOT IN DEFAULT, JUDGMENTS, ETC. No Event of Default or Potential
Default under any Loan Document has occurred and is continuing. The Borrowers
have satisfied all judgments (other than judgments which do not constitute an
Event of Default under Section 8.1(f)), and are not in default under any order,
writ, injunction, or decree of any court, arbitrator, or federal, state,
municipal, or other governmental authority, commission, board bureau, agency, or
instrumentality, domestic or foreign.
3.9. TAXES. The Borrowers have filed all federal, state, local and
foreign tax returns and reports which they are required by law to file and as to
which their failure to file would have a Material Adverse Effect, and have paid
all taxes, including wage taxes, assessments, withholdings and other
governmental charges which are presently due and payable, other than those being
contested in good faith by appropriate proceedings, if any, and disclosed on
Schedule
32
<PAGE>
1. The tax charges, accruals and reserves on the books of the Borrowers are
adequate to pay all such taxes that have accrued but are not presently due
and payable.
3.10. PERMITS, LICENSES, ETC. The Borrowers possess all permits,
licenses, franchises, trademarks, trade names, copyrights and patents necessary
to the conduct of their businesses as presently conducted or as presently
proposed to be conducted, except where the failure to possess the same would not
have a Material Adverse Effect.
3.11. NO MATERIALLY ADVERSE CONTRACTS, ETC. To the best of their
knowledge, the Borrowers are not subject to any charter, corporate or other
legal restriction, or any judgment, decree, order, rule or regulation which in
the judgment of their directors or officers has or is expected in the future to
have a Material Adverse Effect. The Borrowers are not a party to any contract
or agreement which in the judgment of their directors or officers has or is
expected to have any Material Adverse Effect, except as otherwise reflected in
adequate reserves.
3.12. COMPLIANCE WITH LAWS, ETC.
(a) COMPLIANCE GENERALLY. The Borrowers are in compliance in all
material respects with all Regulations applicable to their business (including
obtaining all authorizations, consents, approvals, orders, licenses, exemptions
from, and making all filings or registrations or qualifications with, any court
or governmental department, public body or authority, commission, board, bureau,
agency, or instrumentality), the noncompliance with which reasonably would
likely have a Material Adverse Effect.
(b) HAZARDOUS WASTES, SUBSTANCES AND PETROLEUM PRODUCTS. The Borrowers
received all permits and filed all notifications necessary to carry on their
business; and are in compliance in all material respects with all Environmental
Control Statutes. The Borrowers have not given any written or oral notice, nor
have they failed to give required notice, to the Environmental Protection Agency
("EPA") or any state or local agency with regard to any actual or imminently
threatened Release of Hazardous Substances on properties owned, leased or
operated by them or used in connection with the conduct of their business and
operations. The Borrowers have not received notice that they are potentially
responsible for costs of clean-up or remediation of any actual or imminently
threatened Release of Hazardous Substances pursuant to any Environmental Control
Statute. To the best of the Borrowers' knowledge, no real property owned or
leased by them is in violation of any Environmental Laws and no Hazardous
Substances are present on said real property in violation of applicable law.
The Borrowers have not received any notice to the effect that they have been
identified in any litigation, administrative proceedings or investigation as a
potentially responsible party for any liability under any Environmental Laws.
In the event that any Borrower becomes aware of any information indicating that
either (i) any real property owned or leased by any Borrower is in violation of
any Environmental Laws or any Hazardous Substances are present on said real
property in violation of applicable law, or (ii) any Borrower has been
identified in any litigation, administrative proceedings or investigation as a
potentially responsible party for liability under any Environmental Laws, then
the Borrowers shall update their representations, in accordance with the
requirements of Section 3.20, and the Banks shall not be required to make
further Loans or Standby Letters of Credit under this Credit Facility until the
Borrowers establish adequate
33
<PAGE>
reserves (in the reasonable judgment of the Majority Banks) for any liability
(including cleanup costs) and deliver revised financial statements to the
Banks showing such reserves; provided, however, that no reserve shall be
required for any such liabilities to the extent that they aggregate to less
than $1,000,000.
3.13. SOLVENCY. The Borrowers are, and after giving effect to the
transactions contemplated hereby, will be, Solvent.
3.14. SUBSIDIARIES, ETC. The Borrowers do not have any Subsidiaries,
except as set forth in Schedule 1 hereto. Set forth in Schedule 1 hereto is a
complete and correct list, as of the date of this Agreement, of all Investments
held by the Borrowers in any joint venture or other Person.
3.15. TITLE TO PROPERTIES, LEASES. The Borrowers have good and marketable
title to all assets and properties reflected as being owned by them in their
financial statements as well as to all assets and properties acquired since said
date (except property disposed of since said date in the ordinary course of
business). Except for the Liens set forth in Schedule 1 hereto and any other
Permitted Liens, there are no Liens on any of such assets or properties. They
have the right to, and do, enjoy peaceful and undisturbed possession under all
material leases under which they are leasing property as a lessee. All such
leases are valid, subsisting and in full force and effect, and none of such
leases is in default, except where such default, either individually or in the
aggregate, could not have a Material Adverse Effect.
3.16. PUBLIC UTILITY HOLDING COMPANY; INVESTMENT COMPANY. Neither Willis
nor WASI is a "public utility company" or a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended; or a "public utility"
within the meaning of the Federal Power Act, as amended. Further, neither
Willis nor WASI is an "investment company" or an "affiliated person" of an
"investment company" or a company "controlled" by an "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended.
3.17. MARGIN STOCK. The Borrowers are not and will not be engaged
principally or as one of their important activities in the business of extending
credit for the purpose of purchasing or carrying or trading in any margin stocks
or margin securities (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System as amended from time to time). Neither
will they use or permit any proceeds of the Loans or Standby Letters of Credit
to be used, either directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of buying or carrying margin stocks or margin
securities.
3.18. USE OF PROCEEDS. The Borrowers will use the proceeds of any Loan or
Standby Letter of Credit to be made pursuant hereto for the purchase and
refinancing of Equipment as contemplated herein, as well as for working capital
and general corporate purposes.
3.19. DEPRECIATION POLICIES. The Borrowers' depreciation policies with
respect to the Equipment are as set forth on Exhibit H. These policies have
been in effect substantially without change since January 1, 1997.
34
<PAGE>
3.20. DISCLOSURE GENERALLY. The representations and statements made by
the Borrowers or on their behalf in connection with this Credit Facility and the
Loans, including representations and statements in each of the Loan Documents,
do not and will not contain any untrue statement of a material fact or omit to
state a material fact or any fact necessary to make the representations made not
materially misleading. No written information, exhibit, report, brochure or
financial statement furnished by the Borrowers to the Banks in connection with
this Credit Facility, the Loans, or any Loan Document contains or will contain
any material misstatement of fact or omit to state a material fact or any fact
necessary to make the statements contained therein not misleading.
Notwithstanding anything to the contrary in this Agreement, the Disclosure
Schedule (Schedule 1) to this Agreement shall be promptly updated by the
Borrowers whenever necessary to reflect events that have occurred which would
make the latest Disclosure Schedule delivered by the Borrowers to the Banks
inaccurate or misleading; provided, however, that no updating of the Disclosure
Schedule shall operate to: (i) cure a breach of a representation or warranty
previously made by any Borrower or Guarantor; (ii) modify any of the covenants
or obligations of any Borrower or Guarantor under this Agreement or any other
Loan Document (including any affirmative covenants, negative covenants or
financial covenants); (iii) prevent the occurrence of the disclosed event from
constituting a Potential Default or Event of Default if the occurrence of such
event otherwise constitutes a Potential Default or Event of Default under this
Agreement or any other Loan Document; or (iv) expand the definitions of
"Existing Debt" or "Permitted Liens" allowed under this Agreement.
3.21. YEAR 2000. The Borrowers have taken all action reasonably necessary
to assess the risk that the computer applications they use in their business may
be unable to properly perform date sensitive functions on or after December 31,
1999. The Borrowers have taken all remedial action reasonably necessary to
avoid such risk.
4. CONDITIONS PRECEDENT
4.1. ALL LOANS. The obligation of each Bank to make any Loan or the
Administrative Agent to issue any Standby Letter of Credit, is conditioned upon
the following:
(a) REQUEST FOR ADVANCE. The Borrowers shall have delivered and the
Administrative Agent shall have received a Request for Advance in such form as
the Administrative Agent may request from time to time.
(b) BORROWING BASE CERTIFICATE. The Borrowers shall have delivered and
the Banks shall have received a Borrowing Base Certificate dated the date of the
Loan or Standby Letter of Credit requested under this Agreement.
(c) GUARANTY. Each Restricted Subsidiary shall have duly authorized,
executed and delivered a Guaranty in the form of Exhibit J hereto, and such
Guaranty shall be in full force and effect.
(d) COVENANTS; REPRESENTATIONS. The Borrowers shall be in compliance
with all covenants, agreements and conditions in each Loan Document and each
representation and warranty contained in each Loan Document shall be true with
the same effect as if such
35
<PAGE>
representation or warranty had been made on the date such Loan or Standby
Letter of Credit, as applicable, is made or issued, except to the extent such
representation or warranty relates to a specific prior date.
(e) DEFAULTS. Immediately prior to and after giving effect to such
transaction, no Event of Default or Potential Default shall exist.
(f) MATERIAL ADVERSE CHANGE. Since December 31, 1997, there shall not
have been any Material Adverse Change.
4.2. CONDITIONS TO FIRST LOAN. In addition to the conditions to all
Loans and Standby Letters of Credit as provided in Section , the obligation of
each Bank to make its first Loan is conditioned upon the following:
(a) ARTICLES, BYLAWS. The Administrative Agent shall have received
copies of the Articles or Certificate of Incorporation and Bylaws of each
Borrower certified by its Corporate Secretary or Secretary; together with
Certificate of Good Standing from any jurisdiction where the nature of its
business or the ownership of its properties requires such qualification except
where the failure to be so qualified would not have a Material Adverse Effect.
(b) EVIDENCE OF AUTHORIZATION. The Administrative Agent shall have
received copies certified by the Secretary or Assistant Secretary of each
Borrower or any other appropriate official (in the case of a Person other than a
Borrower) of all corporate or other action taken by each Person other than the
Banks who is a party to any Loan Document to authorize its execution and
delivery and performance of the Loan Documents and to authorize the Loans,
together with such other related papers as the Administrative Agent shall
reasonably require.
(c) LEGAL OPINIONS. The Administrative Agent shall have received a
favorable written opinion in form and substance satisfactory, and from counsel
reasonably acceptable, to the Banks which shall be addressed to the Banks.
(d) INCUMBENCY. The Administrative Agent shall have received a
certificate signed by the secretary or assistant secretary of each Borrower,
together with the true signature of the officer or officers authorized to
execute and deliver the Loan Documents and certificates thereunder, upon which
the Banks shall be entitled to rely conclusively until they shall have received
a further certificate of the secretary or assistant secretary of each Borrower
amending the prior certificate and submitting the signature of the officer or
officers named in the new certificate as being authorized to execute and deliver
Loan Documents and certificates thereunder.
(e) NOTES. Each Bank shall have received its Revolving Credit Note duly
executed, completed and issued in accordance herewith.
(f) DOCUMENTS. The Administrative Agent shall have received all
certificates, instruments and other documents then required to be delivered
pursuant to any Loan Documents, in each instance in form and substance
reasonably satisfactory to it.
36
<PAGE>
(g) CONSENTS. Each Borrower shall have provided to each Bank evidence
satisfactory to the Banks that all governmental, shareholder and third party
consents and approvals necessary in connection with the transactions
contemplated hereby have been obtained and remain in effect.
(h) OTHER AGREEMENTS. The Borrowers shall have executed and delivered
each other Loan Document required hereunder including, without limitation, the
Security Agreement and Amendment No. 3 to Mortgage.
(i) SECURITY INTEREST. The Borrowers shall furnish evidence
satisfactory to the Banks, that the Administrative Agent holds a perfected,
first-priority lien against all Collateral, except for Collateral specifically
listed on Schedule 2 hereto.
(j) APPRAISALS. The Agents shall have received asset appraisals
regarding the Equipment portfolio, in form and substance reasonably satisfactory
to the Agents.
(k) FINANCIAL STATEMENTS. The Agents shall have received (i) the
consolidated financial statements of the Willis Companies for the Fiscal Years
ended December 31, 1996 and December 31, 1997, including balance sheets, income
and cash-flow statements, audited by independent public accountants of
recognized national standing, and prepared in conformity with GAAP; and (ii)
interim quarterly financial statements for the period ending June 30, 1998.
(l) LITIGATION. There shall be no actions, suits, investigations or
proceedings pending or threatened in any court or before any arbitrator or
governmental authority that could have a Material Adverse Effect.
(m) SYNDICATION. There shall have been no adverse disruption or change
in the financial or capital markets which the Agents, in their sole reasonable
discretion, shall deem to be material in connection with the syndication of this
Credit Facility.
(n) CLOSING FEE. The Borrowers shall have paid to the Administrative
Agent the Closing Fee. Promptly after receipt of the Closing Fee, the
Administrative Agent shall distribute to the Banks their respective share of the
Closing Fee based upon the Banks' respective Revolving Loan Commitment
Percentages.
(o) FEES, EXPENSES. The Borrowers shall simultaneously pay or shall
have paid all fees and expenses, if any, due hereunder or any other Loan
Document.
(p) OTHER DOCUMENTS AND INFORMATION. The Agents and the Banks shall
have received copies of all other documents and information as they shall have
reasonably requested, each in form and substance satisfactory to the Agents and
the Banks.
5. AFFIRMATIVE COVENANTS
The Borrowers covenant and agree, individually and collectively, that,
without the prior written consent of Majority Banks, from and after the date
hereof and so long as the Revolving Loan Commitments or any Term Loans are in
effect or any Obligation remains unpaid or outstanding, they and each of them
will:
37
<PAGE>
5.1. FINANCIAL STATEMENTS AND REPORTS. Furnish to the Banks the
following financial information:
(a) ANNUAL STATEMENTS. No later than one hundred and twenty (120) days
after the end of each Fiscal Year, the consolidated and consolidating balance
sheet of the Willis Companies as of the end of such year and the prior year in
comparative form, and related statements of operations, shareholders' equity,
and cash flows for the Fiscal Year and the prior Fiscal Year in comparative
form. The financial statements shall be in reasonable detail with appropriate
notes, and shall be prepared in accordance with GAAP. The consolidated annual
financial statements shall be certified (without any qualification or exception)
by KPMG Peat Marwick LLP or other independent public accountants reasonably
acceptable to the Majority Banks. Such financial statements shall be
accompanied by a report of such independent certified public accountants stating
that, in the opinion of such accountants, such financial statements present
fairly, in all material respects, the financial position, and the results of
operations and the cash flows of the Willis Companies for the period then ended
in conformity with GAAP, except for inconsistencies resulting from changes in
accounting principles and methods agreed to by such accountants and specified in
such report, and that, in the case of such financial statements, the examination
by such accountants of such financial statements has been made in accordance
with generally accepted auditing standards and accordingly included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements and assessing the accounting principles used and
significant estimates made, as well as evaluating the overall financial
statement presentation. Each financial statement provided under this subsection
(a) shall be accompanied by a certificate signed by such accountants either
stating that during the course of their examination nothing came to their
attention which would cause them to believe that any event has occurred and is
continuing which constitutes an Event of Default or Potential Default, or
describing each such event. In addition to the annual financial statements, the
Borrowers shall, promptly upon receipt thereof, furnish to the Banks a copy of
the portion of each other report or management letter submitted to its board of
directors by its independent accountants in connection with any annual, interim
or special audit made by them of the financial records of the Borrowers in which
the Borrowers' accountants give any comment critical of the valuation of, or
controls or procedures related to, the Collateral.
(b) QUARTERLY STATEMENTS. No later than forty-five (45) calendar days
after the end of each Fiscal Quarter of each Fiscal Year, the consolidated and
consolidating balance sheet and related statements of operations, shareholders'
equity and cash flows of the Willis Companies for such quarterly period and for
the period from the beginning of such fiscal year to the end of such Fiscal
Quarter and a corresponding financial statement for the same periods in the
preceding Fiscal Year certified by the chief financial officer, chief
administrative officer, chief executive officer, treasurer or controller of the
Willis Companies as having been prepared in accordance with GAAP (subject to
changes resulting from audits, year-end adjustments, and the absence of
footnotes); provided, however, that if the independent certified public
accountants issue a review report on the quarterly financial statements of the
Willis Companies, the financial statements required by this subsection (b) shall
be accompanied by a certificate signed by such accountants either stating that
during the course of their examination nothing came to their attention which
would cause them to believe that any event has occurred and is continuing which
constitutes an Event of Default or Potential Default, or describing each such
event and the remedial steps being
38
<PAGE>
taken by the Borrowers. Such quarterly statement shall be accompanied by a
Compliance Certificate in the form attached hereto as Exhibit G or such other
form as the Administrative Agent shall reasonably request.
(c) NO DEFAULT. Within forty-five (45) calendar days after the end of
each of the first three Fiscal Quarters of each Fiscal Year and within one
hundred and twenty (120) calendar days after the end of each Fiscal Year, a
certificate signed by the chief financial officer, chief administrative officer,
chief executive officer, treasurer or controller of the Willis Companies
certifying that, to the best of such officer's knowledge, after due inquiry,
(i) each Borrower has complied with all covenants, agreements and conditions in
each Loan Document and that each representation and warranty contained in each
Loan Document is true and correct with the same effect as though each such
representation and warranty had been made on the date of such certificate
(except (A) to the extent such representation or warranty relates to a specific
prior date, in which case the representation shall be updated by the Borrower to
reflect any changes occurring since that prior date, or (B) to the extent that
any events have occurred that require a change to the Disclosure Schedule, in
which case an updated Disclosure Schedule will be delivered by the Borrowers in
accordance with the requirements of Section 3.20 hereof), and (ii) no event has
occurred and is continuing which constitutes an Event of Default or Potential
Default, or describing each such event and the remedial steps being taken by the
Borrowers, as applicable.
(d) ERISA. All reports and forms filed with respect to all Plans,
except as filed in the normal course of business and that would not result in an
adverse action to be taken under ERISA, and details of related information of a
Reportable Event, promptly following each filing.
(e) MATERIAL CHANGES. Notification to the Administrative Agent and each
other Bank, of any litigation, administrative proceeding, investigation,
business development, or change in financial condition which could reasonably
have a Material Adverse Effect, promptly following its discovery.
(f) OTHER INFORMATION. Promptly, upon request by the Administrative
Agent and each other Bank, from time to time (which may be on a monthly or other
basis), the Borrowers shall provide such other information and reports regarding
its operations, business affairs, prospects and financial condition as the
Administrative Agent or any Bank may reasonably request.
(g) BORROWING BASE CERTIFICATES; MONTHLY LEASE REPORT. In the event the
Borrowers shall not have delivered a Borrowing Base Certificate to the Banks
during any calendar month, they will deliver to the Banks, no later than 15 days
after the end of such calendar month as of the last day of such calendar month,
a Borrowing Base Certificate. As part of the Borrowing Base Certificate, the
Borrowers shall deliver to the Banks a report setting forth the items of
Collateral that are subject to a Lease. The Borrowing Base Certificate shall
also include a list of all Engines acquired by the Borrowers since the date of
the last Borrowing Base Certificate delivered to the Banks. The Borrowing Base
Certificate shall also include any changes to the information contained in
Section 1 of Schedule 1 to the Security Agreement.
39
<PAGE>
(h) MONTHLY LEASE PORTFOLIO AND RECEIVABLES REPORT. As soon as
practicable and in any event within 15 days after the end of each calendar
month, the Borrowers will deliver to the Banks a Lease portfolio listing and
Lease receivables aging report (in form and substance reasonably satisfactory to
the Administrative Agent).
(i) MAINTENANCE OF CURRENT DEPRECIATION POLICIES. The Borrowers shall
maintain its method of depreciating its assets substantially consistent with
past practices as set forth in Exhibit H and will promptly notify the Banks of
any deviation from such practices.
5.2. CORPORATE EXISTENCE. Preserve their corporate existence and all
material franchises, licenses, patents, copyrights, trademarks and trade names
consistent with good business practice; and maintain, keep, and preserve all of
their properties (tangible and intangible) necessary or useful in the conduct of
their business in good working order and condition, ordinary wear and tear
excepted.
5.3. ERISA. Comply in all material respects with the provisions of ERISA
to the extent applicable to any Plan maintained for the employees of the
Borrowers or any ERISA Affiliate; do or cause to be done all such acts and
things that are required to maintain the qualified status of each Plan and tax
exempt status of each trust forming part of such Plan; not incur any material
accumulated funding deficiency (within the meaning of ERISA and the regulations
promulgated thereunder), or any material liability to the PBGC (as established
by ERISA); not permit any event to occur as described in Section 4042 of ERISA
or which may result in the imposition of a lien on their properties or assets;
notify the Banks in writing promptly after it has come to the attention of
senior management of either Borrower of the assertion or threat of any
Reportable Event or other event described in Section 4042 of ERISA (relating to
the soundness of a Plan) or the PBGC's ability to assert a material liability
against either Borrower or impose a lien on their, or any ERISA Affiliates',
properties or assets; and refrain from engaging in any Prohibited Transactions
or actions causing possible liability under Section 5.02 of ERISA.
5.4. COMPLIANCE WITH REGULATIONS. Comply in all material respects with
all Regulations applicable to their business, the noncompliance with which
reasonably could have a Material Adverse Effect.
5.5. CONDUCT OF BUSINESS; PERMITS AND APPROVALS, COMPLIANCE WITH LAWS.
Continue to engage in an efficient and economical manner in a business of the
same general type as conducted by them on the date of this Agreement; maintain
in full force and effect, their franchises, and all licenses, patents,
trademarks, trade names, contracts, permits, approvals and other rights
necessary to the profitable conduct of their business.
5.6. MAINTENANCE OF PROPERTIES. The Borrowers will maintain or cause to
be maintained in good repair, working order and condition all properties used or
useful in their business and make all reasonable and necessary renewals,
replacements, additions, betterments and improvements thereof and thereto, so
that the business carried on in connection therewith may be conducted in the
ordinary course at all times.
40
<PAGE>
5.7. MAINTENANCE OF INSURANCE. Maintain insurance with financially sound
and reputable insurance companies or associations in such amounts and covering
such risks as are usually carried by companies engaged in the same or a similar
business and similarly situated, which insurance may provide for reasonable
deductibility from coverage thereof.
5.8. PAYMENT OF TAXES, ETC. Promptly pay and discharge (a) all taxes,
assessments, and governmental charges or levies imposed upon them or upon their
income and profits, upon any of their property, real, personal or mixed, or upon
any part thereof, before the same shall become in default; and (b) all lawful
claims for labor, materials and supplies or otherwise, which, if unpaid, might
become a lien or charge upon such property or any part thereof; provided,
however, that so long as the Borrowers first notify the Administrative Agent of
their intention to do so, they shall not be required to pay and discharge any
such Debt, tax, assessment, charge, levy or claim so long as the failure to so
pay or discharge does not constitute or result in an Event of Default or a
Potential Default hereunder and so long as no foreclosure or other similar
proceedings shall have been commenced against such property or any part thereof
and so long as the validity thereof shall be contested in good faith by
appropriate proceedings diligently pursued and they shall have set aside on
their books adequate reserves with respect thereto.
5.9. NOTICE OF EVENTS. Promptly upon discovery of any of the following
events, the Borrowers shall provide telephone notice to the Administrative Agent
(confirmed within three (3) calendar days by written notice from the Borrowers
to each Bank), describing the event and all action the Borrowers propose to take
with respect thereto:
(a) an Event of Default or Potential Default under this Agreement or any
other Loan Document;
(b) any default or event of default under a contract or contracts and
the default or event of default involves payments by the Borrowers in an
aggregate amount equal to or in excess of $1,000,000;
(c) a default or event of default under or as defined in any evidence of
or agreements for Indebtedness for Borrowed Money under which the Borrowers'
liability is equal to or in excess of $1,000,000, singularly or in the
aggregate, whether or not an event of default thereunder has been declared by
any party to such agreement or any event which, upon the lapse of time or the
giving of notice or both, would become an event of default under any such
agreement or instrument or would permit any party to any such instrument or
agreement to terminate or suspend any commitment to lend to the Borrowers or to
declare or to cause any such indebtedness to be accelerated or payable before it
would otherwise be due;
(d) the institution of, any material adverse determination in, or the
entry of any default judgment or order or stipulated judgment or order in, any
suit, action, arbitration, administrative proceeding, criminal prosecution or
governmental investigation against either Borrower in which the amount in
controversy is in excess of $1,000,000, singularly or in the aggregate; or
(e) any change in any Regulation, including, without limitation, changes
in tax laws and regulations, which would have a Material Adverse Effect.
41
<PAGE>
5.10. INSPECTION RIGHTS. At any time during the existence of an Event of
Default or Potential Default, during regular business hours and then as often as
requested of the Borrowers, permit the Administrative Agent or any authorized
officer, employee, agent, or representative of the Administrative Agent to
examine and make abstracts from the records and books of account of such
Borrower, wherever located, and to visit the properties of the Borrowers; and to
discuss the affairs, finances, and accounts of each Borrower with its Chairman,
President, any executive vice president, its chief financial officer, treasurer,
controller or independent accountants. If no Event of Default or Potential
Default shall be in existence, the Administrative Agent shall limit such
examination to once each calendar year. If the inspection shall be made during
the continuance of a Potential Default or an Event of Default, the Borrowers
shall reimburse the Administrative Agent for its reasonable out-of-pocket
expense of such inspection; otherwise, such expenses shall be chargeable pro
rata to each Bank, in accordance with its respective Revolving Loan Commitment.
At all times, it is understood and agreed by the Borrowers that all expenses in
connection with any such inspection which may be incurred by the Borrowers, any
officers and employees thereof and the attorneys and independent certified
public accountants therefor shall be expenses payable by the Borrowers and shall
not be expenses of the Banks or any of them.
5.11. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Maintain books and
records at all times in accordance with Generally Accepted Accounting
Principles.
5.12. COMPLIANCE WITH MATERIAL CONTRACTS. The Borrowers will comply in
all material respects with all obligations, terms, conditions and covenants, as
applicable, in all instruments and agreements, other than those related to Debt
(which are addressed, instead, in Section 5.8), to which they are a party or by
which they are bound or any of their properties is affected and in respect of
which the failure to comply reasonably could have a Material Adverse Effect.
5.13. USE OF PROCEEDS. The Borrowers will use the proceeds of any Loan to
be made pursuant hereto for the purchase or refinancing of Equipment as
contemplated herein, as well as for working capital and general corporate
purposes.
5.14. FURTHER ASSURANCES. Do such further acts and things and execute and
deliver to the Banks such additional assignments, agreements, powers and
instruments, as any Bank may reasonably require or reasonably deem advisable to
carry into effect the purposes of this Agreement or to better assure and confirm
unto each Bank its rights, powers and remedies hereunder.
5.15. RESTRICTED SUBSIDIARIES. Upon the creation of any Restricted
Subsidiary, or the redesignation of any Unrestricted Subsidiary as a Restricted
Subsidiary, such Restricted Subsidiary shall duly authorize, execute and deliver
a Guaranty in the form of Exhibit J hereto.
6. NEGATIVE COVENANTS
The Borrowers covenant and agree, individually and collectively, that,
without the prior written consent of the Majority Banks, from and after the date
hereof and so long as any
42
<PAGE>
Revolving Loan Commitments or Term Loans are in effect or any Obligation
remains unpaid or outstanding, they and each of them will not:
6.1. CONSOLIDATION AND MERGER. Merge or consolidate with or into any
corporation except, if (a) no Potential Default or Event of Default shall have
occurred and be continuing either immediately prior to or upon the consummation
of such transaction, and (b) a Borrower is the surviving entity. The Borrowers
will promptly notify the Banks of any merger or consolidation involving any
Borrower.
6.2. LIENS. Create, assume or permit to exist any Lien on any of its
property or assets, whether now owned or hereafter acquired, or upon any income
or profits therefrom, except Permitted Liens.
6.3. GUARANTEES. Guarantee or otherwise in any way become or be
responsible for indebtedness or obligations (including working capital
maintenance, take-or-pay contracts) of any unconsolidated Person, contingently
or otherwise. Notwithstanding the preceding sentence, the Borrowers may
guarantee indebtedness or obligations of unconsolidated Affiliates in amounts
not to exceed $15,000,000 in the aggregate, in the ordinary course of business
with the prior written consent of the Majority Banks, such consent not to be
unreasonably withheld.
6.4. MARGIN STOCK. Use or permit any proceeds of the Loans or Standby
Letters of Credit to be used, either directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of buying or carrying margin stock
within the meaning of Regulation U of The Board of Governors of the Federal
Reserve System, as amended from time to time.
6.5. ACQUISITIONS AND INVESTMENTS. If an Event of Default or a Potential
Default exists or would exist immediately thereafter: purchase or otherwise
acquire (including without limitation by way of share exchange) any part or
amount of the capital stock or assets of, or make any Investments in any other
Person; or enter into any new business activities or ventures not directly
related to its present business; or create any Subsidiary, except (a) they may
acquire and hold stock, obligations or securities received in settlement of
debts owing to them created in the ordinary course of business, and (b) they may
make and own (i) Investments in certificates of deposit or time deposits having
maturities in each case not exceeding one year from the date of issuance thereof
and issued by any Bank, or any FDIC-insured commercial bank incorporated in the
United States or any state thereof having a combined capital and surplus of not
less than $150,000,000, (ii) Investments in marketable direct obligations issued
or unconditionally guaranteed by the United States of America, any agency
thereof, or backed by the full faith and credit of the United States of America,
in each case maturing within one year from the date of issuance or acquisition
thereof, (iii) Investments in commercial paper issued by a corporation
incorporated in the United States or any State thereof maturing no more than one
year from the date of issuance thereof and, at the time of acquisition, having a
rating of A-1 (or better) by Standard & Poor's Corporation or P-1 (or better) by
Moody's Investors Service, Inc., and (iv) Investments in money market mutual
funds all of the assets of which are invested in cash or investments described
in the immediately preceding clauses (i), (ii) and (iii).
43
<PAGE>
6.6. TRANSFER OF ASSETS; NATURE OF BUSINESS. The Borrowers and their
Restricted Subsidiaries may not sell, transfer, lease or dispose of assets
constituting in the aggregate more than twenty percent (20%) of the net book
value of their combined assets during any twelve month period without the
written consent of the Majority Banks, such consent not to be unreasonably
withheld. Notwithstanding the above, but in accordance with the provisions
of Section 5(a) of the Security Agreement: (a) the Borrowers may lease
Equipment in the ordinary course of business, (b) the Borrowers may sell,
transfer or otherwise dispose of Equipment subject to a Lease in the ordinary
course of business, for its then fair market value; (c) the Borrowers may
sell, transfer or otherwise dispose of Equipment that is declared a total
loss or destroyed or that suffers damage that is not economically repairable,
for its then fair market value; (d) the Borrowers may sell, transfer, pledge,
assign, lease, re-lease or otherwise dispose of any Equipment with respect to
which the relevant Lease has expired or is expiring if such sale or
disposition is in the ordinary course of its business, for its then fair
market value; (e) the Borrowers may sell Leases and related Equipment for not
less than their net book value at the time of the transfer in securitization
transactions; (f) the Borrowers may engage in the nonrecourse or partial
recourse financing of Leases; and (g) the Borrowers may sell Parts to
non-affiliates in the ordinary course of business. The Borrowers may not
discontinue, liquidate or change in any material respect any substantial part
of their operations or business.
6.7. ACCOUNTING CHANGE. Without the prior written approval of the
Majority Banks, make or permit any material change in financial accounting
policies or financial reporting practices, except as required by Generally
Accepted Accounting Principles or regulations of the Securities and Exchange
Commission, if applicable. Notwithstanding the foregoing, without the prior
written approval of all of the Banks, the Borrowers shall not make or permit any
material change in financial accounting policies or financial reporting
practices as they relate to, or in connection with, any current or future
securitizations, except as required by GAAP or regulations of the Securities and
Exchange Commission, if applicable (and in such case, the Borrowers shall
promptly notify the Administrative Agent of the need for such change).
6.8. TRANSACTIONS WITH AFFILIATES. Enter into any material transaction
(including, without limitation, the purchase, sale or exchange of property, the
rendering of any services or the payment of management fees) with any Affiliate,
except transactions in the ordinary course of, and pursuant to the reasonable
requirements of, its business, and in good faith and upon commercially
reasonable terms.
6.9. INDEBTEDNESS. Unless approved in writing by the Majority Banks, the
Borrowers shall not, and shall not permit their Restricted Subsidiaries to,
create, enter into, or allow to exist any Debt other than (a) obligations
incurred under this Credit Facility; (b) Existing Debt, not to exceed in the
aggregate $65,000,000, provided that there shall be no extensions, renewals or
further advances under any Existing Debt unless they are consistent with this
Section 6.9, part (e); (c) Debt, not to exceed $500,000 in the aggregate, in
connection with the purchase of miscellaneous assets and secured solely by the
assets so acquired; (d) unsecured Debt, not to exceed $1,000,000 in the
aggregate; (e) Other Indebtedness; (f) guarantees permitted under Section 6.3;
(g) Operating Leases; and (h) unsecured (except for a pledge of Shares (as
defined in the Security Agreement) and records related to such Shares of any
Unrestricted Subsidiary) guaranties of the obligations of Restricted and
Unrestricted Subsidiaries.
44
<PAGE>
6.10. RESTRICTED PAYMENTS.
(a) Make or pay any redemptions, repurchases, dividends or distributions
of any kind with respect to the capital stock of Willis.
(b) Redeem or prepay any Debt other than under this Credit Facility
PROVIDED, however, that the Borrowers shall be permitted to redeem, prepay, or
refinance existing Debt if such redemption, prepayment, or refinancing (i) is in
the ordinary course of the Borrowers' business, and (ii) no Potential Default or
Event of Default exists prior to or after such refinancing.
6.11. RESTRICTION ON AMENDMENT OF THIS AGREEMENT. Enter into or otherwise
become subject to or suffer to exist any agreement which would require them to
obtain the consent of any other person as a condition to the ability of the
Banks and the Borrowers to amend or otherwise modify this Agreement.
6.12. INVESTMENTS IN UNRESTRICTED SUBSIDIARIES. Except for Borrowers'
investment in WLFC Funding Corporation, make or maintain any Investments in
Unrestricted Subsidiaries which exceed in the aggregate 15% of Net Worth of the
Borrowers.
7. FINANCIAL COVENANTS.
The Borrowers covenant and agree, individually and collectively that,
without the prior written consent of the Majority Banks, from and after the date
hereof and so long as any Revolving Loan Commitments or Term Loans are in effect
or any Obligation remains unpaid or outstanding, that:
7.1. NO LOSSES. From and after the Closing Date, the Willis Companies
shall not at any time suffer a net loss for the then two (2) most recently ended
consecutive Fiscal Quarters.
7.2. MINIMUM TANGIBLE NET WORTH. Tangible Net Worth of the Willis
Companies will not at any time be less than the sum of: __% of Tangible Net
Worth calculated as of the Closing Date; plus __% of the cumulative Net Income
of the Willis Companies earned from and after the Closing Date (without any
deduction for net losses); plus __% of net proceeds of new equity issues
completed by Willis from and after the Closing Date.
7.3. LEVERAGE RATIO. From and after the Closing Date, the Leverage Ratio
will not exceed ___ as of the end of any Fiscal Quarter.*
7.4. SENIOR DEBT TO ADJUSTED TANGIBLE NET WORTH. From and after the
Closing Date, the ratio of Senior Debt to Adjusted Tangible Net Worth will not
exceed ___, as of the end of any Fiscal Quarter.*
- -----------------------
* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
45
<PAGE>
7.5. MINIMUM INTEREST COVERAGE RATIO. From and after the Closing Date,
the Interest Coverage Ratio of the Willis Companies (measured at the end of each
Fiscal Quarter on a rolling four-quarter basis) will not be less than ___. *
7.6. BORROWING BASE. The aggregate principal amount of Loans and Standby
Letters of Credit outstanding shall not at any time exceed the Borrowing Base or
the Aggregate Revolving Loan Commitment, whichever is less; provided, however,
that this covenant shall not be deemed breached if, at the time such aggregate
amount exceeds said level, within four Business Days after the earlier of the
date the Borrowers first have knowledge of such excess or the date of the next
Borrowing Base Certificate disclosing the existence of such excess, a prepayment
of Loans (and, if necessary, a cash collateralization of outstanding Standby
Letters of Credit) shall be made. The Borrowers shall not be entitled to
utilize this mechanism to avoid a breach of this covenant more than two (2)
times during any twelve-month period.
8. DEFAULT
8.1. EVENTS OF DEFAULT. The Borrowers shall be in default if any one or
more of the following events (each an "EVENT OF DEFAULT") occurs:
(a) PAYMENTS. Either Borrower fails to pay the principal due on any
Note when due and payable (whether at maturity, by notice of intention to
prepay, or otherwise); or fails to pay interest or any other amount payable
hereunder or under any other Loan Document within three Business Days after the
date such interest or other amount is due and payable.
(b) COVENANTS. Either Borrower fails to observe or perform: (i) any
term, condition or covenant set forth in Sections 5.1(a), 5.1(b), 5.1(c),
5.1(g), 5.1(h) or 5.1(i), Section 5.2, Section 5.7, Section 5.9, Section
5.10, Section 5.14, Sections 6.1 through 6.12 or Sections 7.1 through 7.6
herein, as and when required; or (ii) any term, condition or covenant contained
in this Agreement or any other Loan Document, other than any Event of Default
set forth in any other subsection of this Section 8.1, and other than as set
forth in (i) above, as and when required and such failure shall continue
unremedied for a period of 10 Business Days after the earlier of (1) actual
knowledge of any executive officer of the Borrowers or (2) written notice
thereof by the Administrative Agent to the Borrowers.
(c) REPRESENTATIONS, WARRANTIES. Any representation or warranty made or
deemed to be made by the Borrowers, as applicable, herein or in any Loan
Document or in any exhibit, schedule, report or certificate delivered pursuant
hereto or thereto shall prove to have been false, misleading or incorrect in any
material respect when made or deemed to have been made.
(d) BANKRUPTCY. Either Borrower is dissolved or liquidated, makes an
assignment for the benefit of creditors, files a petition in bankruptcy, is
adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any
receiver or trustee, commences any proceeding relating to itself under any
bankruptcy, reorganization, readjustment of debt, dissolution or liquidation
- ----------------------
* This redacted material has been omitted pursuant to a request for
confidential treatment and the material has been filed separately.
46
<PAGE>
law or statute of any jurisdiction, has commenced against it any such
proceeding which remains undismissed for a period of sixty (60) days, or
indicates its consent to, approval of or acquiescence in any such proceeding,
or any receiver of or trustee for either Borrower or any substantial part of
its property is appointed, or if any such receivership or trusteeship to
continues undischarged for a period of sixty (60) days.
(e) CERTAIN OTHER DEFAULTS. The Borrowers shall fail to pay when due
any Indebtedness for Borrowed Money which singularly or in the aggregate exceeds
$1,000,000, and such failure shall continue beyond any applicable cure period,
or either Borrower shall suffer to exist any default or event of default in the
performance or observance, subject to any applicable grace period, of any
agreement, term, condition or covenant with respect to any agreement or document
relating to Indebtedness for Borrowed Money if the effect of such default is to
permit, with the giving of notice or passage of time or both, the holders
thereof, or any trustee or agent for said holders, to terminate or suspend any
commitment (which is equal to or in excess of $1,000,000) to lend money or to
cause or declare any portion of any borrowings thereunder to become due and
payable prior to the date on which it would otherwise be due and payable,
provided that during any applicable cure period the Bank's obligations hereunder
to make further Loans shall be suspended.
(f) JUDGMENTS. Any judgments against either Borrower or against their
assets or property for amounts in excess of $1,000,000 in the aggregate remain
unpaid, unstayed on appeal, undischarged, unbonded and undismissed for a period
of thirty (30) days.
(g) ATTACHMENTS. Any assets of either Borrower shall be subject to
attachments, levies, or garnishments for amounts in excess of $1,000,000 in the
aggregate which have not been dissolved or satisfied within twenty (20) days
after service of notice thereof to such Borrower.
(h) CHANGE IN CONTROL OF EITHER BORROWER. Any Change of Control of
either Borrower should occur.
(i) SECURITY INTERESTS. Except for security interests (a) in Collateral
listed on Schedule 2 hereto; (b) in Equipment which the Administrative Agent
determines to include in the Borrowing Base as part of the $10,000,000 basket
for unperfected Collateral or which is specifically approved in writing by the
Majority Banks notwithstanding that the Administrative Agent will not receive a
perfected first priority security interest therein; (c) in Collateral as to
which the Administrative Agent fails to file a UCC continuation statement; and
(d) in Collateral (other than Equipment) as to which perfection is effected by
any means other than by filing a UCC-1 financing statement (the Collateral
described in (a), (b), and (d) above is hereinafter referred to as the "Excepted
Collateral"), any security interest created pursuant to any Loan Document shall
cease to be in full force and effect, or shall cease in any material respect to
give the Administrative Agent the Liens, rights, powers and privileges purported
to be created thereby (including, without limitation, a perfected security
interest in, and Lien on, all of the Collateral), superior to and prior to the
rights of all third Persons, and subject to no other Liens (except as permitted
by Section 6.2).
47
<PAGE>
THEN and in every such event other than that specified in Section 8.1(d), the
Administrative Agent may, or at the written request of the Majority Banks shall
immediately terminate the Aggregate Revolving Loan Commitment by notice in
writing to the Borrowers and immediately declare any and all Notes, including
without limitation accrued interest, to be, and they shall thereupon forthwith
become due and payable without presentment, demand, or notice of any kind, all
of which are hereby expressly waived by the Borrowers. Upon the occurrence of
any event specified in Section 8.1(d), the Aggregate Revolving Loan Commitment
shall automatically terminate, the face amount of all outstanding Standby
Letters of Credit shall be paid in cash to the Administrative Agent as
additional Collateral for the Obligations, and the Notes, including without
limitation accrued interest, shall immediately be due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrowers. Any date on which the Notes and such
other Obligations are declared due and payable pursuant to this Section 8.1,
shall be the Facility Termination Date for purposes of this Agreement. From and
after the date an Event of Default shall have occurred and for so long as an
Event of Default shall be continuing, the Loans shall bear interest at the
Default Rate.
9. COLLATERAL
9.1. COLLATERAL. Except as otherwise specifically set forth herein
(including but not limited to the exceptions contained in Section 8.1(i)) or in
any other Loan Document, any Obligations made and outstanding and their
repayment at all times shall (a) in the case of Collateral (as defined in the
Security Agreement, hereinafter referred to as the "COLLATERAL") located in the
United States, be secured by a first priority perfected security interest; and
(b) in the case of Collateral located in jurisdictions outside the United
States, be secured by a security interest which adequately protects the first
priority security interest in favor of the Administrative Agent.
9.2. SECURITY DOCUMENTS. As security for the punctual payment in full of
all Notes (including all payments of principal, and interest and other costs
contemplated hereby) and Standby Letters of Credit, the Borrowers shall execute
and deliver to the Administrative Agent the Security Agreement, Amendment No. 3
to Mortgage and such other documents as may be necessary to constitute and
evidence and perfect a security interest in the Collateral (other than the
Excepted Collateral); PROVIDED, however, that if a Potential Default or Event of
Default exists, the Administrative Agent may require the Borrowers to take all
action possible to further legally perfect the security interest in all assets
of the Borrowers, except as otherwise provided in the Loan Documents, but
INCLUDING Excepted Collateral.
9.3. RELEASE OF COLLATERAL. The Borrowers shall be entitled to remove and
request the Administrative Agent to release certain items of Collateral in
accordance with the provisions of Section 5(a) of the Security Agreement. The
Administrative Agent will cooperate with the Borrowers in effecting any such
release.
10. THE AGENTS
10.1. APPOINTMENT AND AUTHORIZATION. Each Bank hereby irrevocably
appoints and authorizes First Union as the Administrative Agent, NMS as the
Syndication Agent and NationsBank as the Appraisal Agent to take such action on
each Bank's behalf and to exercise
48
<PAGE>
such powers under this Agreement and the Loan Documents as are specifically
delegated to the Agents by the terms hereof or thereof, together with such
other powers as are reasonably incidental thereto. No other agents or
co-agents of the Banks under this Credit Facility may be appointed without
the prior written consent of First Union and NationsBank. The relationship
between each Agent and each Bank has no fiduciary aspects, and each Agent's
duties hereunder are acknowledged to be only ministerial and not involving
the exercise of discretion on its part. Nothing in this Agreement or any
Loan Document shall be construed to impose on any Agent any duties or
responsibilities other than those for which express provision is made herein
or therein. In performing their duties and functions under this Article 10,
the Agents do not assume and shall not be deemed to have assumed, and hereby
expressly disclaim, any obligation with or for the Borrowers. As to matters
not expressly provided for in this Agreement or any Loan Document, the Agents
shall not be required to exercise any discretion or to take any action or
communicate any notice, but shall be fully protected in so acting or
refraining from acting upon the instructions of the Majority Banks and their
respective successors and assigns; provided, however, that in no event shall
any Agent be required to take any action which exposes it to personal
liability or which is contrary to this Agreement, any Loan Document or
applicable law, and each Agent shall be fully justified in failing or
refusing to take any action hereunder unless it shall first be specifically
indemnified to its satisfaction by the Banks against any and all liability
and expense which may be incurred by it by reason of taking or omitting to
take any such action. If an indemnity furnished to any Agents for any
purpose shall, in its reasonable opinion, be insufficient or become impaired,
such Agent may call for additional indemnity from the Banks and not commence
or cease to do the acts for which such indemnity is requested until such
additional indemnity is furnished.
10.2. DUTIES AND OBLIGATIONS. In performing its functions and duties
hereunder on behalf of the Banks, each Agent shall exercise the same care and
skill as it would exercise in dealing with loans for its own account. Neither
Agent, nor any of its directors, officers, employees or other agents shall be
liable for any action taken or omitted to be taken by it or them under or in
connection with this Agreement or any Loan Document except for its or their own
gross negligence or willful misconduct. Without limiting the generality of the
foregoing, each Agent (a) may consult with legal counsel and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken by it in good faith and in accordance with the advice of such experts; (b)
makes no representation or warranty to any Bank as to, and shall not be
responsible to any Bank for, any recital, statement, representation or warranty
made in or in connection with this Agreement, any Loan Document or in any
written or oral statement (including a financial or other such statement),
instrument or other document delivered in connection herewith or therewith or
furnished to any Bank by or on behalf of the Borrowers; (c) shall have no duty
to ascertain or inquire into the Borrowers' performance or observance of any of
the covenants or conditions contained herein or to inspect any of the property
(including the books and records) of the Borrowers or inquire into the use of
the proceeds of the Revolving Loans or Term Loans or (unless the officers of the
Agent active in their capacity as officers of such Agent on the Borrowers'
account have actual knowledge thereof or have been notified in writing thereof)
to inquire into the existence or possible existence of any Event of Default or
Potential Default; (d) shall not be responsible to any Bank for the due
execution, legality, validity, enforceability, effectiveness, genuineness,
sufficiency, collectibility or value of this Agreement or any other
49
<PAGE>
Loan Document or any instrument or document executed or issued pursuant
hereto or in connection herewith, except to the extent that such may be
dependent on the due authorization and execution by the Agent itself; (e)
except as expressly provided herein in respect of information and data
furnished to any Agent for distribution to the Banks, shall have no duty or
responsibility, either initially or on a continuing basis, to provide to any
Bank any credit or other information with respect to the Borrowers, whether
coming into its possession before the making of the Loans or at any time or
times thereafter; and (f) shall incur no liability under or in respect of
this Agreement or any other Loan Document for, and shall be entitled to rely
and act upon, any notice, consent, certificate or other instrument or writing
(which may be by facsimile (telecopier), telegram, cable, or other electronic
means) believed by it to be genuine and correct and to have been signed or
sent by the proper party or parties.
10.3. THE AGENTS AS BANKS. With respect to its Revolving Loan Commitment
and the Loans made and to be made by it, each Agent shall have the same rights
and powers under this Agreement and all other Loan Documents as the other Banks
and may exercise the same as if it were not an Agent. The terms "Bank" and
"Banks" as used herein shall, unless otherwise expressly indicated, include
First Union and NationsBank in their individual capacity. First Union and any
successor Administrative Agent, and NationsBank and any successor Appraisal
Agent, which is a commercial bank, and their respective affiliates, may accept
deposits from, lend money to, act as trustee under indentures of and generally
engage in any kind of business with, the Borrowers and their affiliates from
time to time, all as if such entity were not the Administrative Agent or
Appraisal Agent hereunder and without any duty to account therefor to any Bank.
10.4. INDEPENDENT CREDIT DECISIONS. Each Bank acknowledges to the Agents
that it has, independently and without reliance upon the Agents or any other
Bank, and based upon such documents and information as it has deemed
appropriate, made its own independent credit analysis and decision to enter into
this Agreement. Each Bank also acknowledges that it will, independently or
through other advisers and representatives but without reliance upon the Agents
or any other Bank, and based upon such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or refraining from taking any action under this Agreement or any Loan
Document.
10.5. INDEMNIFICATION. The Banks agree to indemnify each Agent (to the
extent not previously reimbursed by the Borrowers), ratably in proportion to
each Bank's Revolving Loan Commitment Percentage, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against First Union in its capacity as
Administrative Agent, or against NationsBank in its capacity as Appraisal Agent,
in any way relating to or arising out of this Agreement or any Loan Document or
any action taken or omitted to be taken by First Union in its capacity as
Administrative Agent, or NationsBank in its capacity as Appraisal Agent,
hereunder or under any Loan Document; provided that none of the Banks shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from any Agent's gross negligence or willful misconduct. Without limiting the
generality of the foregoing, each Bank agrees to reimburse the Agents, promptly
on demand, for such Bank's ratable share (based upon the
50
<PAGE>
aforesaid apportionment) of any out-of-pocket expenses (including counsel
fees and disbursements) incurred by such Agent in connection with the
preparation, execution, administration or enforcement of, or the preservation
of any rights under, this Agreement and the Loan Documents to the extent that
such Agent is not reimbursed for such expenses by the Borrowers.
10.6. SUCCESSOR AGENTS. The Syndication Agent or the Appraisal Agent may
resign upon 30 days written notice to the Borrowers and the Administrative
Agent. Any Agent may resign at any time by giving written notice of such
resignation to the Banks and the Borrowers, such resignation to be effective
only upon the appointment of a successor Agent as hereinafter provided. Upon
any such notice of resignation, the Banks shall jointly appoint a successor
Agent upon written notice to the Borrowers and the withdrawing Agent, and
provided that no Potential Default or Event of Default exists, the Borrowers
shall have the right to consent to such appointment (which consent shall not be
unreasonably withheld or delayed). If no successor Agent shall have been
jointly appointed by such Banks (and, if required, consented to by the
Borrowers) and shall have accepted such appointment within thirty (30) days
after the withdrawing Agent shall have given notice of resignation, the
Administrative Agent may, upon notice to the Borrowers and the Banks, appoint a
successor Agent. Upon its acceptance of any appointment as Agent hereunder, the
successor Agent shall succeed to and become vested with all the rights, powers,
privileges and duties of its predecessor, and the withdrawing Agent shall be
discharged from its duties and obligations as Agent under this Agreement and the
Loan Documents. After an Agent's resignation hereunder, the provisions hereof
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was the Agent under this Agreement and the Loan Documents.
10.7. ALLOCATIONS MADE BY THE ADMINISTRATIVE AGENT. As between the
Administrative Agent and the Banks, unless a Bank objecting to a determination
or allocation made by the Administrative Agent pursuant to this Agreement
delivers to the Administrative Agent written notice of such objection within one
hundred twenty (120) days after the date any distribution was made by the
Administrative Agent, such determination or allocation shall be conclusive on
such one hundred twentieth day and only those items expressly objected to in
such notice shall be deemed disputed by such Bank. The Administrative Agent
shall not have any duty to inquire as to the application by the Banks of any
amounts distributed to them.
11. MISCELLANEOUS
11.1. WAIVER. No failure or delay on the part of any Agent or any Bank or
any holder of any Note in exercising any right, power or remedy under any Loan
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under any
Loan Document. The remedies provided under the Loan Documents are cumulative
and not exclusive of any remedies provided by law.
11.2. AMENDMENTS. No amendment, modification, termination, renewal or
waiver of any Loan Document or any provision thereof nor any consent to any
departure by the Borrowers therefrom shall be effective unless the same shall
have been approved by the Majority Banks, be
51
<PAGE>
in writing and be signed by First Union, as Administrative Agent on behalf of
the Banks, and then any such waiver or consent shall be effective only in the
instance and for the specific purpose for which given, provided, however,
that unanimous written consent of all of the Banks shall be required for:
(a) any increase in the amount of the Aggregate Revolving Loan Commitment;
(b) any reduction in principal, interest, or fees payable by Borrowers under
this Credit Facility; (c) any extension of the Revolving Loan Termination
Date or the maturity dates of any Term Loans; (d) any extension of the due
date for payment of any principal, interest or fees to be collected on behalf
of the Banks; (e) any release of all or substantially all of the Collateral
(PROVIDED, however, that the Administrative Agent, acting alone, shall be
entitled to release less than all or substantially all of the Collateral
pursuant to Section 9.3); or (f) the release of any Guarantor. In addition
to the foregoing, no modification to the definition of "Borrowing Base" shall
be made without the written consent of the Required Banks, and none of the
voting rights established under this Section 11.2 shall be modified without
the written consent of that number of Banks which would have been required to
take the action to which such voting rights apply. No notice to or demand on
the Borrowers shall entitle the Borrowers to any other or further notice or
demand in similar or other circumstances. No amendment or modification
affecting the role of any Agent or Agents shall be effective unless it has
been approved in writing by such Agent or Agents, as applicable.
11.3. GOVERNING LAW. The Loan Documents and all rights and obligations of
the parties thereunder shall be governed by and be construed and enforced in
accordance with the laws of the State of California without regard to California
or federal principles of conflict of laws.
11.4. PARTICIPATIONS AND ASSIGNMENTS. The Borrowers hereby acknowledge and
agree that so long as a Bank is not in default of its obligations under this
Agreement, such Bank may at any time, with the consent (which consent shall not
be unreasonably withheld) of the Borrowers and the Administrative Agent and the
Appraisal Agent: (a) grant participations in all or any portion of its Revolving
Loan Commitment or any portion of its Note(s) or of its right, title and
interest therein or in or to this Agreement (collectively, "PARTICIPATIONS") to
any other lending office of such Bank or to any other bank, lending institution
or other entity which has the requisite sophistication to evaluate the merits
and risks of investments in Participations ("PARTICIPANTS"); provided, however,
that: (i) all amounts payable by the Borrowers hereunder shall be determined as
if such Bank had not granted such Participation; (ii) such Bank shall act as
agent for all Participants; and (iii) any agreement pursuant to which such Bank
may grant a Participation: (x) shall provide that such Bank shall retain the
sole right and responsibility to enforce the obligations of the Borrowers
hereunder including, without limitation, the right to approve any amendment,
modification or waiver of any provisions of this Agreement; (y) such
participation agreement may provide that such Bank will not agree to any
modification, amendment or waiver of this Agreement without the consent of the
Participant if such modification, amendment or waiver would reduce the principal
of or rate of interest on any Loan or postpone the date fixed for any payment of
principal of or interest on any Loan; and (z) shall not relieve such Bank from
its obligations, which shall remain absolute, to make Loans hereunder; and (b)
assign any of its Loans and its Revolving Loan Commitment. Upon execution and
delivery by the assignee to the Borrowers of an instrument in writing pursuant
to which such assignee agrees to become a "Bank" hereunder having the Revolving
Loan Commitment and Loans specified in such instrument, and upon consent thereto
by the Borrowers and the Administrative Agent and the
52
<PAGE>
Appraisal Agent, to the extent required above, the assignee shall have, to
the extent of such assignment (unless otherwise provided in such assignment
with the consent of the Borrowers), the obligations, rights and benefits of a
Bank hereunder holding the Revolving Loan Commitment and Loans (or portions
thereof) assigned to it, and such Bank shall, to the extent of such
assignment, be released from the Revolving Loan Commitment (or portion(s)
thereof) so assigned. An Assignment Fee of $3,500 shall be paid by the
assigning Bank to the Administrative Agent upon consummation of any
assignment, including an assignment from one Bank to another Bank. No
assignments will be permitted by a Bank at a time when such Bank is in
default of its obligations under this Agreement. Notwithstanding anything to
the contrary in this Section 11.4, the Borrowers shall not have the right to
approve any assignment or Participation by a Bank if a Potential Default or
an Event of Default then exists.
11.5. CAPTIONS. Captions in the Loan Documents are included for
convenience of reference only and shall not constitute a part of any Loan
Document for any other purpose.
11.6. NOTICES. All notices, requests, demands, directions, declarations
and other communications between the Banks and the Borrowers provided for in any
Loan Document shall, except as otherwise expressly provided, be mailed by
registered or certified mail, return receipt requested, or telegraphed, or
faxed, or delivered in hand or by a nationally recognized overnight courier to
the applicable party at its address indicated opposite its name on the signature
pages hereto. The foregoing shall be effective and deemed received three days
after being deposited in the mails, postage prepaid, addressed as aforesaid and
shall whenever sent by telegram, telegraph or facsimile (provided the
transmitting facsimile machine provides written confirmation that the
transmission was successfully completed) or delivered in hand or by a nationally
recognized overnight courier be effective when received. Any party may change
its address by a communication in accordance herewith.
11.7. SHARING OF COLLECTIONS, PROCEEDS AND SET-OFFS: APPLICATION OF PAYMENTS.
(a) If any Bank, by exercising any right of set-off, counterclaim or
foreclosure, receives payment of principal or interest or other amount due on
any Note which is greater than the percentage share of such Bank (determined as
set forth below), the Bank receiving such proportionately greater payment shall
purchase such participations in the Loans held by the other Banks, and such
other adjustments shall be made as may be required, so that all such payments
shall be shared by the Banks on the basis of their percentage shares; provided
that if all or any portion of such proportionately greater payment of such
indebtedness is thereafter recovered from, or must otherwise be restored by,
such purchasing Bank, the purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest being paid by such
purchasing Bank. The percentage share of each Bank shall be based on the
portion of the outstanding Loans of such Bank (prior to receiving any payment
for which an adjustment must be made under this Section) in relation to the
aggregate outstanding Loans of all the Banks. The Borrowers agree, to the
fullest extent they may effectively do so under applicable law, that any holder
of a participation in a Loan or reimbursement obligation, whether or not
acquired pursuant to the foregoing arrangements, may exercise rights of set-off
or counterclaim and other rights with respect to such participation as fully as
if such holder of a participation were a direct creditor of the Borrowers in the
amount of such participation. If under any applicable
53
<PAGE>
bankruptcy, insolvency or other similar law, any Bank receives a secured
claim in lieu of a set-off to which this Section would apply, such Bank
shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Banks entitled
under this Section to share in the benefits of any recovery on such secured
claim.
(b) If an Event of Default or Potential Default shall have occurred and
be continuing the Agents, each Bank and the Borrowers agree that all payments on
account of the Obligations shall be applied by the Administrative Agent and the
Banks as follows:
FIRST, to First Union, as Administrative Agent, for any Administrative
Agent fees then due and payable under this Agreement until such fees are paid in
full;
SECOND, to any Agent, for any fees, costs or expenses (including expenses
described in Section 11.8) incurred by such Agent, under any of the Loan
Documents or this Agreement, then due and payable and not reimbursed by the
Borrowers or the Banks until such fees, costs and expenses are paid in full;
THIRD, to the Banks for their percentage shares of the Revolving Loan
Commitment Fee then due and payable under this Agreement until such fee is paid
in full;
FOURTH, to the Banks for their respective shares of all costs, expenses and
fees, including Standby Letter of Credit fees, then due and payable from the
Borrowers until such costs, expenses and fees are paid in full;
FIFTH, to the Banks for their percentage shares of all interest then due
and payable from the Borrowers until such interest is paid in full, which
percentage shares shall be calculated by determining each Bank's percentage
share of the amounts allocated in (a) above determined as set forth in said
clause (a); and
SIXTH, to the Banks for their percentage shares of the principal amount of
the Obligations then due and payable from the Borrowers until such principal is
paid in full, which percentage shares shall be calculated by determining each
Bank's percentage share of the amounts allocated in (a) above determined as set
forth in said clause (a).
11.8. EXPENSES; INDEMNIFICATION. The Borrowers will from time to time
reimburse the Agents promptly following demand for all reasonable out-of-pocket
expenses (including the reasonable fees and expenses of their legal counsel) in
connection with (a) the preparation of the Loan Documents, (b) the making of any
Loans, (c) the administration of the Loan Documents, and (d) the syndication of
this Credit Facility. The Borrowers also will from to time reimburse the Agents
and each Bank for all out-of-pocket expenses (including reasonable fees and
expenses of their legal counsel) in connection with the enforcement of the Loan
Documents. In addition to the payment of the foregoing expenses, the Borrowers
hereby agree to indemnify, defend, protect and hold First Union, as
Administrative Agent, NationsBank, as Appraisal Agent, and NMS, as Syndication
Agent, each Bank and any holder of any Note and the officers, directors,
employees, agents, affiliates and attorneys of the Agents, each Bank and such
holder (collectively, the "INDEMNITEES") harmless from and against any and all
liabilities, obligations, losses, damages,
54
<PAGE>
penalties, actions, judgments, suits, costs, expenses and disbursements of
any kind or nature, including reasonable fees and expenses of legal counsel,
which may be imposed on, incurred by, or asserted against such Indemnitee by
the Borrowers or other third parties and arise out of or relate to this
Agreement or the other Loan Documents or any other matter whatsoever related
to the transactions contemplated by or referred to in this Agreement or the
other Loan Documents; provided, however, that the Borrowers shall have no
obligation to an Indemnitee hereunder to the extent that the liability
incurred by such Indemnitee has been determined by a court of competent
jurisdiction to be the result of gross negligence or willful misconduct of
such Indemnitee.
11.9. SURVIVAL OF WARRANTIES AND CERTAIN AGREEMENTS. All agreements,
representations and warranties expressly made herein shall survive the execution
and delivery of this Agreement, the making of the Loans hereunder and the
execution and delivery of the Notes. Notwithstanding anything in this Agreement
or implied by law to the contrary, the agreements of the Borrowers set forth in
Section 11.8 shall survive the payment of the Loans and the termination of this
Agreement. This Agreement shall remain in full force and effect until the
repayment in full of all amounts owed by the Borrowers under the Notes or any
other Loan Document.
11.10. SEVERABILITY. The invalidity, illegality or unenforceability in any
jurisdiction of any provision in or obligation under this Agreement, any Note or
other Loan Document shall not affect or impair the validity, legality or
enforceability of the remaining provisions or obligations under this Agreement,
the Notes or other Loan Documents or of such provision or obligation in any
other jurisdiction.
11.11. BANKS' OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF BANKS' RIGHTS. The
obligation of each Bank hereunder is several and not joint and no Bank shall be
the agent of any other (except to the extent any Agent is authorized to act as
such hereunder). No Bank shall be responsible for the obligation or commitment
of any other Bank hereunder. In the event that any Bank at any time should fail
to make a Loan as herein provided, the other Banks, or any of them as may then
be agreed upon, at their sole option, may make the Loan that was to have been
made by the Bank so failing to make such Loan. Nothing contained in any Loan
Document and no action taken by any Agent or any Bank pursuant hereto or thereto
shall be deemed to constitute the Banks to be a partnership, an association, a
joint venture or any other kind of entity. The amounts payable at any time
hereunder to each Bank shall be a separate and independent debt, and, subject to
the terms of this Agreement, each Bank shall be entitled to protect and enforce
its rights arising out of this Agreement and it shall not be necessary for any
other Bank to be joined as an additional party in any proceeding for such
purpose.
11.12. NO FIDUCIARY RELATIONSHIP. No provision in this Agreement or in any
of the other Loan Documents and no course of dealing between the parties shall
be deemed to create any fiduciary duty by any Bank to the Borrowers.
11.13. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. THE BORROWERS, THE
AGENTS, AND THE BANKS, EACH HEREBY CONSENT TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED WITHIN THE EASTERN DISTRICT OF PENNSYLVANIA AND
IRREVOCABLY AGREES THAT, ANY ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING
TO THE NOTE, THIS
55
<PAGE>
AGREEMENT OR THE OTHER LOAN DOCUMENTS MAY BE LITIGATED IN SUCH COURTS. EACH
PARTY TO THIS AGREEMENT ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF
THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENT, AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS AGREEMENT, ANY NOTE, OR SUCH OTHER LOAN DOCUMENT.
11.14. WAIVER OF JURY TRIAL. THE BORROWERS, THE AGENTS, AND THE BANKS,
EACH HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE LOAN
DOCUMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS
AGREEMENT AND THE LENDER/BORROWER RELATIONSHIP ESTABLISHED HEREBY. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY
BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION,
INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE BORROWERS, THE
AGENTS, AND THE BANKS, EACH ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO THE TRANSACTION, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN
ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER
IN THEIR RELATED FUTURE DEALINGS. THE BORROWERS, THE AGENTS, AND THE BANKS EACH
FURTHER WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH ITS
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS,
MODIFICATIONS, REPLACEMENTS OR RESTATEMENTS TO THIS AGREEMENT, THE LOAN
DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS. IN
THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
11.15. COUNTERPARTS; EFFECTIVENESS. This Agreement and any amendment
hereto or waiver hereof may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement and any amendments
hereto or waivers hereof shall become effective when the Administrative Agent
shall have received signed counterparts or notice by fax of the signature page
that the counterpart has been signed and is being delivered to it or facsimile
that such counterparts have been signed by all the parties hereto or thereto.
11.16. USE OF DEFINED TERMS. All words used herein in the singular or
plural shall be deemed to have been used in the plural or singular where the
context or construction so requires. Any defined term used in the singular
preceded by "any" shall be taken to indicate any number of the members of the
relevant class.
56
<PAGE>
11.17. OFFSETS. Nothing in this Agreement shall be deemed a waiver or
prohibition of any Bank's right of banker's lien or offset.
11.18. ENTIRE AGREEMENT. This Agreement, the Notes issued hereunder and
the other Loan Documents constitute the entire understanding of the parties
hereto as of the date hereof with respect to the subject matter hereof and
thereof and supersede any prior agreements, written or oral, with respect hereto
or thereto.
11.19. CONFIDENTIALITY. In handling any written information specifically
marked "confidential" prior to its delivery to any Bank by the Borrowers, each
of the Agents and the Banks shall exercise the same degree of care that it
exercises with respect to its own proprietary information of the same type to
maintain the confidentiality of any non-public information thereby received or
received pursuant to this Agreement or any other Loan Documents except that
disclosure of such information may be made (a) to the agents, employees,
subsidiaries or affiliates of such Person in connection with this Agreement or
any other Loan Document, (b) to prospective participants or assignees of the
Loans, provided that they have agreed to be bound by the provisions of this
Section 11.19, (c) as required by law, regulation, rule or order, subpoena,
judicial order or similar order, and (d) as may be required in connection with
the examination, audit or similar investigation of such Person. Confidential
information shall not include information that either (x) is in the public
domain, or becomes a part of the public domain after disclosure to such Person
through no fault of such Person or (y) is disclosed to such Person by a third
party, provided such Person does not have knowledge that such third party is
prohibited from disclosing such information.
57
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to
be duly executed by their duly authorized representatives as of the date first
above written.
WILLIS LEASE FINANCE CORPORATION
By: /s/ James D. McBride
---------------------------
Name: James D. McBride
Title: Executive Vice President and
Chief Financial Officer
Notices To:
2320 Marinship Way
Suite 300
Sausalito, CA 94965
FAX No. (415) 331-5167
ATT: General Counsel
WILLIS AERONAUTICAL SERVICES, INC.
By: /s/ James D. McBride
---------------------------
Name: James D. McBride
Title: Executive Vice President and
Chief Financial Officer
Notices To:
2320 Marinship Way
Suite 300
Sausalito, CA 94965
FAX No. (415) 331-5167
ATT: General Counsel
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
58
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
FIRST UNION NATIONAL BANK
By: /s/ Hugh W. Connelly
-------------------------
Name: Hugh W. Connelly
Title: Vice President
Notices To:
Hugh W. Connelly
Vice President
First Union National Bank
1339 Chestnut Street, Mail Code: PA 4827
Philadelphia, PA 19107
Fax: 215-786-7704
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
59
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
NATIONSBANK, N.A.
By: /s/ Chas A. McDonnell
-------------------------
Name: Chas A. McDonell
Title: Vice President
Notices To:
Chas A. McDonell
Vice President
NationsBank, N.A.
444 South Flower Street, Suite 4100
Los Angeles, CA 90071
Fax: 213-624-5812
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
60
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ Jeff Susman
----------------------------
Name: Jeff Susman
Title: Principal
Notices To:
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
61
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
EUROPEAN AMERICAN BANK
By: /s/ Christopher M. Czaja
------------------------------
Name: Christopher M. Czaja
Title: Vice President
Notices To:
Christopher M. Czaja
Vice President
European American Bank
400 Oak Street
Garden City, NY 11530
Fax: 516-357-1784
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
62
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ William A. Artz
-----------------------
Name: William A. Artz
Title: Vice President
Notices To:
Richard Wilson
Vice President
The First National Bank of Chicago
One First National Plaza, Suite 0084
Chicago, IL 60670
Fax: 312-732-6222
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
63
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
FLEET BANK, N.A.
By: /s/ Charles M. Sabino
-----------------------------
Name: Charles M. Sabino
Title: Senior Vice President
Notices To:
Charles Sabino
Vice President
Fleet Bank, N.A.
1185 6th Avenue
New York, NY 10036
Fax: 212-819-6211
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
64
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HARRIS TRUST AND SAVINGS BANK
By: /s/ Michael Camel
--------------------------
Name: Michael Camel
Title: Vice President
Notices To:
Robert Bomben
Vice President
Harris Trust and Savings Bank
111 W. Monroe, 5 East
Chicago, IL 60690
Fax: 312-765-8382
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
65
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
MEESPIERSON N.V.
By: /s/ R.R.G. Zaman and
------------------------------
A. van Laarhoven-ten Hoonte
------------------------------
Name: R.R.G. Zaman and
A. van Laarhoven-ten Hoonte
Title: Head of Aviation
Notices To:
Maarten H. Schipper
MeesPierson N.V.
Coolsingel 93
3012 AE Rotterdam
P.O. Box 749
3000 AS Rotterdam
Fax: 011-31-10-401-9529
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
66
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Susan D. Biba
---------------------------
Name: Susan D. Biba
Title: Vice President
Notices To:
Susan D. Biba
Vice President
Union Bank of California, N.A.
350 California Street, 6th Floor
San Francisco, CA 94104
Fax: 415-705-5093
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
67
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
BANK LEUMI USA
By: /s/ Del Lorimer
---------------------------
Name: Del Lorimer
Title: Vice President
Notices To:
Del Lorimer
Vice President, Corporate Finance
Bank Leumi USA
8383 Wilshire Blvd., Suite 400
Beverly Hills, CA 90211
Fax: 323-655-5933
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
68
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
BANCO POPULAR DE PUERTO RICO
By: /s/ Karen Hamilton
----------------------------
Name: Karen Hamilton
Title: Vice President
Notices To:
Andrew H. Melville
Assistant Vice President
Banco Popular De Puerto Rico
7 W. 51st St.
New York, NY 10019
Fax: 212-586-3537
[END OF SIGNATURES]
69
<PAGE>
EX-11.1
Computation of Earnings
EXHIBIT XI
WILLIS LEASE FINANCE CORPORATION
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1998 1997 1998 1997
------ ------ ------ ------
(in thousands, except (in thousands, except
per share data) per share data)
<S> <C> <C> <C> <C>
Income before extraordinary item
Basic
Earnings:
Income before extraordinary item $2,484 $1,451 $6,582 $3,732
Shares:
Weighted average number of common shares outstanding 7,280 5,447 7,245 5,441
------ ------ ------ ------
Basic earnings per common share before extraordinary item $0.34 $0.27 $0.91 $0.69
Assuming Full Dilution
Earnings:
Income before extraordinary item $2,484 $1,451 $6,582 $3,732
------ ------ ------ ------
Shares:
Weighted average number of common shares
outstanding and common stock equivalents 7,495 5,658 7,466 5,592
------ ------ ------ ------
Earnings per common share assuming full dilution, $0.33 $0.26 $0.88 $0.67
------ ------ ------ ------
before extraordinary item
Net income
Basic
Earnings:
Net income $2,484 $1,451 $6,382 $5,740
------ ------ ------ ------
Shares:
Weighted average number of common shares outstanding 7,280 5,447 7,245 5,441
------ ------ ------ ------
Basic earnings per common share $0.34 $0.27 $0.88 $1.05
Assuming Full Dilution
Earnings:
Net income $2,484 $1,451 $6,382 $5,740
------ ------ ------ ------
Shares:
Weighted average number of common shares
outstanding and common stock equivalents 7,495 5,658 7,466 5,592
------ ------ ------ ------
Earnings per common share assuming full dilution $0.33 $0.26 $0.85 $1.03
------ ------ ------ ------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 19,627,658
<SECURITIES> 0
<RECEIVABLES> 6,728,858
<ALLOWANCES> 0
<INVENTORY> 29,150,797
<CURRENT-ASSETS> 0
<PP&E> 248,587,052
<DEPRECIATION> 14,634,636
<TOTAL-ASSETS> 321,449,175
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 72,858
<OTHER-SE> 61,966,970
<TOTAL-LIABILITY-AND-EQUITY> 321,449,175
<SALES> 7,229,672
<TOTAL-REVENUES> 20,080,559
<CGS> 5,037,298
<TOTAL-COSTS> 11,619,215
<OTHER-EXPENSES> 4,325,601
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,135,743
<INCOME-TAX> 1,651,834
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,483,909
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.33
</TABLE>
