<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
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:
<TABLE>
<CAPTION>
Title of Each Class Outstanding at April 30, 1999
------------------- -----------------------------
<S> <C>
Common Stock, $0.01 Par Value 7,370,645
</TABLE>
1
<PAGE>
WILLIS LEASE FINANCE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
As of March 31, 1999 and December 31, 1998 3
Consolidated Statements of Income 4
Three months ended March 31, 1999 and 1998
Consolidated Statements of Shareholders' Equity 5
Year ended December 31, 1998 and
three months ended March 31, 1999
Consolidated Statements of Cash Flows 6
Three months ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 11
and Results of Operations
Item 2A. Quantitative and Qualitative Disclosures About Market Risk 17
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
2
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $4,301 $10,305
Restricted cash 13,090 13,738
Equipment held for operating lease, less accumulated depreciation
of $16,696 at March 31, 1999 and $15,456 at December 31, 1998 280,654 274,618
Net investment in direct finance lease 9,114 9,249
Property, equipment and furnishings, less accumulated depreciation
of $739 at March 31, 1999 and $577 at December 31, 1998 3,333 2,480
Spare parts inventory 34,649 35,858
Operating lease related receivables 3,560 2,492
Trade receivables, net 7,404 5,310
Notes receivable 9,042 -
Other receivables 1,723 757
Other assets 4,890 5,198
----------------- ----------------
Total assets $371,760 $360,005
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $4,752 $9,619
Salaries and commissions payable 635 977
Deferred income taxes 12,227 11,684
Deferred gain 606 157
Notes payable and accrued interest 257,403 245,581
Capital lease obligation 2,613 2,652
Residual shares payable 2,830 2,618
Maintenance reserves 14,315 13,273
Security deposits 4,533 4,561
Unearned lease revenue 3,091 3,041
----------------- ----------------
Total liabilities $303,005 $294,163
----------------- ----------------
Shareholders' equity:
Preferred stock ($0.01 par value, 5,000,000 shares authorized; none
outstanding) - -
Common stock, ($0.01 par value, 20,000,000 shares authorized,
7,370,645 and 7,360,813 shares issued and outstanding
as of March 31, 1999 and December 31, 1998, respectively) 74 74
Paid-in capital in excess of par 42,161 42,033
Retained earnings 26,520 23,735
----------------- ----------------
Total shareholders' equity 68,755 65,842
----------------- ----------------
Total liabilities and shareholders' equity $371,760 $360,005
================= ================
</TABLE>
See accompanying notes to the consolidated financial statements
3
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
------------------ ----------------
<S> <C> <C>
REVENUE
Lease revenue $10,569 $6,436
Gain on sale of leased equipment 3,411 3,108
Spare part sales 8,971 3,016
Sale of equipment acquired for resale 5,775 -
Interest and other income 220 185
------------------ ----------------
Total revenue $28,946 $12,745
EXPENSES
Interest expense 4,893 2,602
Depreciation expense 3,115 1,417
Residual share 211 233
Cost of spare part sales 6,630 2,055
Cost of equipment acquired for resale 4,784 -
General and administrative 4,668 3,184
------------------ ----------------
Total expenses $24,301 $9,491
------------------ ----------------
Income before income taxes and extraordinary item 4,645 3,254
Income taxes (1,860) (1,305)
------------------ ----------------
Income before extraordinary item 2,785 1,949
Extraordinary item less applicable income taxes - (200)
------------------ ----------------
Net income $2,785 $1,749
================== ================
Basic earnings per common share:
Income before extraordinary item $0.38 $0.27
Extraordinary item - (0.03)
------------------ ----------------
Net income $0.38 $0.24
================== ================
Diluted earnings per common share:
Income before extraordinary item $0.37 $0.26
Extraordinary item - (0.03)
------------------ ----------------
Net income $0.37 $0.23
================== ================
Average common shares outstanding 7,363 7,192
Diluted average common shares outstanding 7,450 7,440
</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, 1998 AND THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<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, 1997 7,177,320 $40,117 $ - $14,484 $54,601
Shares issued 183,493 587 737 - 1,324
Tax benefit from disqualified
dispositions of qualified shares - - 666 - 666
Conversion to par value stock - (40,630) 40,630 - -
Net income - - - 9,251 9,251
---------------- -------------- -------------- ------------- -------------
Balances at December 31, 1998 7,360,813 74 42,033 23,735 65,842
Shares issued 9,832 - 98 - 98
Tax benefit from disqualified
dispositions of qualified shares - - 30 - 30
Net income - - - 2,785 2,785
---------------- -------------- -------------- ------------- -------------
Balances at March 31, 1999 (unaudited) 7,370,645 $74 $42,161 $26,520 $68,755
================ ============== ============== ============= =============
</TABLE>
See accompanying notes to the consolidated financial statements
5
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,785 $1,749
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of equipment held for lease 2,932 1,382
Depreciation of property, equipment and furnishings 183 35
Gain on sale of property, equipment and furnishings (1) (9)
Gain on sale of leased equipment (3,411) (3,108)
Increase (decrease) in residual share payable 212 (45)
Changes in assets and liabilities:
Restricted Cash 648 (790)
Spare parts inventory 1,209 (1,410)
Receivables (4,128) 1,321
Other assets (173) 181
Accounts payable and accrued expenses (4,867) (1,785)
Salaries and commission payable (342) (571)
Deferred income taxes (543) 442
Deferred gain 449 (7)
Accrued interest 1,304 130
Maintenance reserves 1,042 1,052
Security deposits (28) 753
Unearned lease revenue 50 (137)
----------------- -----------------
Net cash (used in) provided by operating activities (1,593) (817)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment held for operating lease (net
of selling expenses) 8,318 6,456
Proceeds from sale of property, equipment and furnishings 1 15
Purchase of equipment held for operating lease (22,917) (50,342)
Deposits made in connection with inventory purchases 481 (6,560)
Purchase of property, equipment and furnishings (1,037) (18)
Principal payments received on direct finance lease 135 142
----------------- -----------------
Net cash used in investing activities (15,019) (50,307)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under notes payable 30,907 49,395
Proceeds from issuance of common stock 128 73
Principal payments on notes payable (20,388) (8,007)
Principal payments on capital lease obligation (39) (36)
----------------- -----------------
Net cash provided by financing activities 10,608 41,425
(Decrease) in cash and cash equivalents (6,004) (9,697)
Cash and cash equivalents at beginning of period 10,305 13,095
----------------- -----------------
Cash and cash equivalents at end of period $4,301 $3,398
================= =================
Supplemental information:
Net cash paid for: Interest $3,590 $2,472
----------------- -----------------
Income Taxes $ 3 $2,249
----------------- -----------------
Non-cash investing activity:
Short-term loans related to sale of equipment
held for operating lease $7,000 $ -
----------------- -----------------
Installment loan related to sale of equipment held for
operating lease $2,042 $ -
----------------- -----------------
</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 Form 10-K for the fiscal year ended December 31, 1998.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal and
recurring adjustments) necessary to present fairly the financial position of the
Company as of March 31, 1999, and December 31, 1998, and the results of its
operations for the three month periods ended March 31, 1999 and 1998 and its
cash flows for the three month periods ended March 31, 1999 and 1998. The
results of operations and cash flows for the period ended March 31, 1999 are not
necessarily indicative of the results of operations or cash flows which may be
reported for the remainder of 1999.
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
Authorized capital shares of the Company include 5,000,000 shares of
preferred stock and 20,000,000 shares of common stock with a par value of $0.01
per share. As of March 31, 1999 and December 31, 1998, 7,370,645 and 7,360,813
shares, respectively, of common stock were issued and outstanding. No preferred
stock was issued or outstanding as of March 31, 1999 or December 31, 1998.
The rights and preferences of preferred stock are established by the
Company's Board of Directors upon issuance.
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
7
<PAGE>
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
calendar year. Each January 31 and July 31, shares of common stock are purchased
with the employees' payroll deductions over the immediately preceding six months
at a price per share of 85% of the lesser of the market price of the common
stock on the purchase date or the market price on the date of entry into an
offering period. During the three month period ended March 31, 1999, the Company
issued 4,382 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 three month period
ended March 31, 1999, 7,500 options were exercised. In connection with the
exercise of a portion of these options, the Company recognized a tax benefit
of approximately $30,000.
In conjunction with its initial public offering, the Company sold
five-year purchase warrants for $0.01 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 became exercisable in December
1997. 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 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
The Company has three leases for its office and warehouse space. The
annual lease rental commitments are $309,481, $420,000, and $25,814 and the
leases expire on May 31, 2003, December 31, 2010 and July 31, 1999,
respectively.
The Company has committed to purchase during 1999, additional used
aircraft and new and used 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 $31.1 million.
6. OPERATING SEGMENTS
The Company operates in two business segments: (i) Leasing and Related
Operations which involves acquiring and leasing, primarily pursuant to
operating leases, commercial aircraft, aircraft spare engines and other
aircraft equipment and the selective purchase and resale of commercial
aircraft engines and other aircraft equipment and (ii) Spare Parts Sales
which involves the purchase and resale of after-market engine and airframe
parts, whole engines, engine modules and rotable aircraft components and
leasing of engines destined for disassembly and sale of parts.
In 1998, the Company formed Pacific Gas Turbine Center, Incorporated
("PGTC") to engage in engine disassembly and maintenance, repair and overhaul
services. During the three months ended March 31, 1999, the majority of
PGTC's revenue was derived from services provided to WASI. Revenue from third
parties during this period was not material. Accordingly, for the three
months ended March 31, 1999, the operations of PGTC are included in the Spare
Parts Sales segment. PGTC was not in operation during the three months ended
March 31, 1998.
8
<PAGE>
The Company evaluates the performance of each of the segments based on
profit or loss after general and administrative expenses and inter-company
allocation of interest expense. While the Company believes there are synergies
between the two business segments, the segments are managed separately because
each requires different business strategies.
The following tables present a summary of the operating segments (in
thousands):
<TABLE>
<CAPTION>
Spare
Parts
For the quarter ended March 31, 1999 Leasing Sales Total
- ------------------------------------ ------------------------------------------
<S> <C> <C> <C>
Revenue
Lease revenue $10,065 $504 $10,569
Gain on sale of leased equipment 3,411 - 3,411
Spare parts sales - 8,971 8,971
Sale of equipment acquired for resale 5,775 - 5,775
Other 219 1 220
----------------------------------------
Total revenue 19,470 9,476 28,946
Expenses
Interest expense 4,216 677 4,893
Depreciation expense 2,836 279 3,115
Residual share 211 - 211
Cost of spare parts - 6,630 6,630
Cost of equipment acquired for resale 4,784 - 4,784
General and administrative 2,557 2,111 4,668
----------------------------------------
Total expenses 14,604 9,697 24,301
----------------------------------------
Income (loss) before income tax and
extraordinary item $4,866 ($221)(1) $4,645
========================================
Total assets as of March 31, 1999 $321,812 $49,948 $371,760
========================================
</TABLE>
- ------------------------------------------------
(1) The Company estimates that income before income tax and extraordinary
item would have been $0.4 million if the effect of PGTC's operations,
after intercompany eliminations, were eliminated from the results of the
Spare Parts Sales segment.
9
<PAGE>
<TABLE>
<CAPTION>
Spare
Parts
For the quarter ended March 31, 1998 Leasing Sales Total
- ------------------------------------ ------------------------------------------
<S> <C> <C> <C>
Revenue
Lease revenue $6,436 $ - $6,436
Gain on sale of leased equipment 3,108 - 3,108
Spare parts sales - 3,016 3,016
Sale of equipment acquired for resale - - -
Other 177 8 185
----------------------------------------
Total revenue 9,721 3,024 12,745
Expenses
Interest expense 2,484 118 2,602
Depreciation expense 1,402 15 1,417
Residual share 233 - 233
Cost of spare parts - 2,055 2,055
Cost of equipment acquired for resale - - -
General and administrative 2,379 805 3,184
----------------------------------------
Total expenses 6,498 2,993 9,491
----------------------------------------
Income before income tax and
extraordinary item $3,223 $31 $3,254
========================================
Total assets as of March 31, 1998 $234,245 $7,193 $241,438
========================================
</TABLE>
10
<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"). PGTC provides engine disassembly and
maintenance, repair and overhaul 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.
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 MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1998:
Revenue is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------
1999 1998
------- -------
Amount % Amount %
------------ ------------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Lease revenue $10,569 36% $ 6,436 51%
Gain on sale of leased equipment 3,411 12 3,108 24
Spare parts sales 8,971 31 3,016 24
Sale of equipment acquired for resale 5,775 20 -- --
Interest and other income 220 1 185 1
------- ------- ------- -------
Total $28,946 100% $12,745 100%
======= ======= ======= =======
</TABLE>
LEASING RELATED ACTIVITIES. Lease related revenue for the quarter ended
March 31, 1999, increased 64% to $10.6 million from $6.4 million for the
comparable period in 1998. This increase reflects lease related revenues from
additional engines, aircraft and spare parts packages. The aggregate of net
book value of leased equipment and net investment in direct finance lease at
March 31, 1999 and 1998 was $289.8 million and $193.8 million, respectively,
an increase of 50%.
During the quarter ended March 31, 1999, 6 engines were added to the
Company's lease portfolio at a total cost of $20.1 million. Eight engines
from the lease portfolio were sold or transferred to inventory for sale. The
engines sold from the lease portfolio had a total net book value of $11.2
million and were sold for a gain of $3.4 million.
During the quarter ended March 31, 1998, the Company sold one engine from
the lease portfolio. The engine had a net book value of $2.2 million and was
sold for a gain of $3.1 million.
During the quarter ended March 31, 1999, the Company sold two engines
acquired for resale for $5.8 million which resulted in a gain of $1.0
million. The Company had no such sales during the comparable 1998 period.
SPARE PARTS SALES. Revenues from spare parts sales increased 197% to $9.0
million as compared to $3.0 million in the quarter ended March 31, 1998. The
gross margin decreased to 26% from 32% in the corresponding period in 1998.
This decrease was due to a change in the mix of parts being sold during the
past twelve months.
11
<PAGE>
INTEREST AND OTHER INCOME. Interest and other income for the quarters
ended March 31, 1999 and 1998, were $0.2 million. This is a result of
interest earned on cash and deposits held.
INTEREST EXPENSE AND RESIDUAL SHARING Interest expense related to all
activities increased 88% to $4.9 million for the quarter ended March 31,
1999, from the comparable period in 1998, due to an increase in average debt
outstanding during the period. This increase in debt was primarily related to
debt associated with the increase in lease portfolio assets and to a lesser
extent an increase in spare parts inventories. Residual sharing expense
decreased 10% to $211,560 for the quarter ended March 31, 1999 from $232,512
for the comparable period in 1998. The decline was due to the repayment, in
March 1998, of one of the Company's loans which had residual sharing
provisions. Residual sharing arrangements apply to three of the Company's
engines as of March 31, 1999. The Company accrues for its residual sharing
obligations using net book value as a proxy for residual proceeds.
DEPRECIATION EXPENSE. Depreciation expense increased 120% to $3.1 million
for the quarter ended March 31, 1999, from the comparable period in 1998, due
primarily to the increase in lease portfolio assets.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 47% to $4.7 million for the quarter ended March 31, 1999, from the
comparable period in 1998. This increase reflects expenses, in all business
segments, associated with staff additions, increased rent due to the
expansion of the facilities, as well as an increase in professional fees and
insurance expense.
INCOME TAXES. Income taxes, exclusive of tax on extraordinary items, for
the quarter ended March 31, 1999, increased to $1.9 million from $1.3 million
for the comparable period in 1998. This increase reflects an increase in the
Company's pre-tax earnings. The effective tax rate for the quarters ended
March 31, 1999 and 1998 were 40%.
EXTRAORDINARY ITEM. In March 1998, the Company repaid a loan that had
residual sharing provisions and an interest rate of 10%. The repayment
resulted in an extraordinary expense of $0.2 million, net of tax. The Company
had no such transactions during the comparable 1999 period.
ACCOUNTING PRONOUNCEMENTS
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 $30.9 million
and $49.4 million, in the three month periods ended March 31, 1999 and 1998,
respectively, was derived from this activity. In these same time periods
$20.4 million and $8.0 million, respectively, was used to pay down related
debt. Cash flow from operating activities used approximately $1.6 million and
$0.8 million in the three month periods ended March 31, 1999 and 1998,
respectively. The deficit cash flow from operations was primarily
attributable to repayment of an account payable related to the purchase of an
engine and an increase in WASI's accounts receivable due to increased sales.
The Company's primary use of funds is for the purchase of equipment for
lease. Approximately $23.0 million and $50.3 million of funds were used for
this purpose in the three month periods ended March 31, 1999 and 1998,
respectively.
At March 31, 1999, 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. As
of March 31, 1999,
12
<PAGE>
$9.3 million was available under this facility, subject to the Company
providing sufficient collateral. The facility has a two-year revolving period
followed by a four-year term-out period. The facility is renewable annually.
At March 31, 1999, the Company had an $80.0 million debt warehouse
facility, to a wholly-owned special purpose finance subsidiary of the
Company, WLFC Funding Corporation, 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. The Company has guaranteed the obligations under the facility
on a limited basis, up to an amount equal to the greater of (i) the lesser of
$5 million and 20% of the outstanding obligations or (ii) 10% of the
outstanding obligations. Assuming compliance with the facility's terms,
including sufficiency of collateral, as of March 31, 1999, $15.0 million was
available under this facility.
Approximately $10.1 million of the Company's debt is repayable during
1999. Such repayments consist of scheduled installments due under term loans.
The Company believes that its current equity base, internally generated
funds and existing and contemplated debt facilities are sufficient to fund
the Company's anticipated operations into the third quarter of 1999, at which
time additional capital will be required to fund projected growth. The
Company is currently discussing, with its commercial and investment banks,
additions to its debt and equity capital bases.
As of March 31, 1999, the Company had two 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 1999, additional used
aircraft and used and new engines for its operations. Certain deposits were
made, in 1998, in connection with a portion of these commitments. As of March
31, 1999, the Company's current commitment to such purchases is not more than
$31.1 million, which includes $1.4 million of deposits in other assets.
13
<PAGE>
MANAGEMENT OF INTEREST RATE EXPOSURE
At March 31, 1999, $207.7 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. 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 March 31, 1999, 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. To further mitigate exposure to
interest rate changes, the Company entered into an interest rate swap
agreement in December 1998, which has a notional outstanding amount of $15.0
million, a duration of two years and a fixed rate of 4.95%. Under its
borrowing agreement, WLFC Funding Corporation is required to hedge a certain
portion of its $80 million warehouse facility against changes in interest
rates. WLFC has entered into interest rate swap agreements in order to meet
such hedging requirements and to manage the variable interest rate risk
related to its debt. As of March 31, 1999, such swap agreements had notional
outstanding amounts of $40 million, a weighted average remaining duration of
36 months and a weighted average fixed rate of 5.88%.
The Company will be exposed to 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 Form 10-K for the year ended
December 31, 1998. 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 businesses in which the Company is engaged are capital intensive
businesses. Accordingly, the Company's ability to successfully execute its
business strategy and to sustain its operations is dependent, in 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 is not successful in
obtaining sufficient capital, the Company's ability to: (i) add new aircraft
engines, aircraft and spare parts packages to its portfolio, (ii) add
inventory to support its spare parts sales, (iii) fund its working capital
needs, (iv) develop the business of PGTC, and (v) finance possible future
acquisitions, would be impaired. The Company's inability to obtain sufficient
capital would have a material adverse effect on the Company's business,
financial condition and/or results of operations.
The Company retains title to the aircraft engines, aircraft and parts
packages that it leases to third parties. Upon termination of a lease, the
Company will seek to re-lease or sell the aircraft equipment or will
dismantle the equipment and will sell the parts. The Company also engages in
the selective purchase and resale of commercial aircraft engines and engine
components. On occasion, the Company purchases engines or components without
having a firm commitment for their sale. Numerous factors, many of which are
beyond the Company's control, may have an impact on the Company's ability to
re-lease or sell aircraft equipment on a timely basis, including the
following: (i) general market conditions, (ii) the condition of the aircraft
equipment upon termination of the lease, (iii) the maintenance services
performed during the lease term and, as applicable, the number of hours
remaining until the next major maintenance is required, (iv) regulatory
changes (particularly those imposing environmental, maintenance and other
requirements on the operation of aircraft engines), (v) changes in the supply
or cost of aircraft engines, and (vi) technological developments. There is no
14
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assurance that the Company will be able to re-lease or sell aircraft
equipment on a timely basis or on favorable terms. The failure to re-lease or
sell aircraft equipment on a timely basis or on favorable terms re-lease or
sell aircraft equipment on a timely basis or on favorable terms could have a
material adverse effect on the Company's business, financial condition and/or
results of operations.
The Company experiences fluctuations in its operating results. Such
fluctuations may be due to a number of factors, including: (i) general
economic conditions, (ii) the timing of sales of engines and spare parts,
(iii) financial difficulties experienced by airlines, (iv) interest rates,
(v) fuel costs, (vi) downturns in the air transportation industry, (vii)
increased fare competition, (viii) decreases in growth of air traffic, (ix)
unanticipated early lease termination or a default by a lessee, (x) the
timing of engine acquisitions, (xi) engine marketing activities, (xii)
fluctuations in market prices for the Company's assets. The Company
anticipates that fluctuations from period to period will continue in the
future. As a result, the Company believes that comparisons to results of
operations for preceding periods are not necessarily meaningful and that
results of prior periods should not be relied upon as an indication of future
performance.
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 and/or results of
operations. Various airlines have experienced financial difficulties in the
past, 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, creditors
are automatically stayed from enforcing their rights. In the case of United
States certified airlines, Section 1110 of the Bankruptcy Code provides
certain relief to lessors of aircraft equipment. The scope of Section 1110
has been the subject of significant litigation and there is 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. Leases of spare parts may involve additional risks. For example,
it is likely to be more difficult to recover parts in the event of a lessee
default and the residual value of parts may be less ascertainable than an
engine.
The Company's leases are generally structured at fixed rental rates for
specified terms while many of the Company's borrowings 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 the Company pays under its borrowings,
and have a material adverse effect on the Company's business, financial
condition and/or results of operations.
During the three month period ended March 31, 1999, 76% of the Company's
lease revenue was generated by leases to foreign customers, including 7% from
Asian customers and 18% from South American 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. 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. Furthermore, many foreign
countries have currency and exchange laws regulating the international
transfer of currencies.
The Company generates a portion of its revenue from sale of leased
assets. The inability to execute transactions for gain on sale or a change in
the accounting guidelines related to such sales could have a material impact
on the Company's business, financial condition and/or results of operations.
The Company has recently experienced significant growth in revenues. The
Company's growth has placed, and is expected to continue to place, a
significant strain on the Company's managerial, operational and financial
resources. There is 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,
in which event the Company's business, financial condition and/or results of
operations could be adversely affected. The Company may also acquire
businesses that would complement or expand the Company's existing businesses.
Any acquisition or expansion made by the Company may result in one or more of
the following events: (i) the incurrence of additional debt, (ii) future
15
<PAGE>
charges to earnings related to the amortization of goodwill and other
intangible assets, (iii) difficulties in the assimilation of operations,
services, products and personnel, (iv) an inability to sustain or improve
historical revenue levels, (v) diversion of management's attention from
ongoing business operations, and (vi) potential loss of key employees. Any of
the foregoing factors could have a material adverse effect on the Company's
business, financial condition and/or results of operations.
The markets for the Company's products and services are extremely
competitive, and the Company faces competition from a number of sources.
These include aircraft and aircraft part manufacturers, aircraft and aircraft
engine lessors, airline and aircraft service companies and aircraft spare
parts redistributors. 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,
equipment manufacturers, aircraft maintenance providers, FAA certified repair
facilities and other aviation aftermarket suppliers may vertically integrate
into the markets that the Company serves, thereby significantly increasing
industry competition. There can be no assurance that competitive pressures
will not materially and adversely affect the Company's business, financial
condition and/or results of operations.
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 or affect the Company's recognition of revenue or expense
would have a material impact on the Company's business, financial condition
and/or results of operations.
Before parts may be installed in an aircraft, they must meet certain
standards of condition established by the FAA and/or the equivalent
regulatory agencies in other countries. Specific regulations vary from
country to country, although regulatory requirements in other countries are
generally satisfied by compliance with FAA requirements. Parts must also be
traceable to sources deemed acceptable by the FAA or such equivalent
regulatory agencies. Such standards may change in the future, requiring
engine components already contained in the Company's inventory to be scrapped
or modified. In all such cases, to the extent the Company has such engine
components in its inventory, their value may be reduced and the Company's
business, financial condition and/or results of operations could be adversely
affected
The Company obtains a substantial portion of its inventories of
aircraft, engines and engine parts from airlines, overhaul facilities and
other suppliers. There is no organized market for aircraft, engines and
engine parts, and the Company must rely on field representatives and
personnel, advertisements and its reputation as a buyer of surplus inventory
in order to generate opportunities to purchase such equipment. The market for
bulk sales of surplus aircraft, engines and engine parts is highly
competitive, in some instances involving a bidding process. While the Company
has been able to purchase surplus inventory in this manner successfully in
the past, there is no assurance that surplus aircraft, engines and engine
parts of the type required by the Company's customers will be available on
acceptable terms when needed in the future or that the Company will continue
to compete effectively in the purchase of such surplus equipment.
A change in the market for aircraft and engine parts could result in the
Company's inventory being overvalued and could require the Company to
write-down its inventory valuations in order to bring them into line with the
revised fair market value. Furthermore, when the Company purchases and
dismantles used aircraft, engines and parts, the Company assigns a value to
the parts based on market price. Airline manufacturers may also develop new
parts to be used in lieu of parts already contained in the Company's
inventory. There is no assurance that a write-down would not adversely affect
the Company's business, operating results or financial condition.
The Company uses computer systems in many areas of its operations. In
addition, various third parties that are important to the Company's business
(including lessees, customers, vendors and financial institutions) use
computer systems in their areas of operations. Should the Company or certain
of such third parties not be "Year 2000 compliant," certain of the Company's
operations could be disrupted for an indeterminate period of time,
potentially having a material adverse impact on the Company's results,
business, financial condition and/or of operations. As is the case with most
companies, the Year 2000 computer problem creates risks for the Company.
16
<PAGE>
The Company has assessed the Year 2000 computer problem as it affects
the Company's computer systems and information technology. As a result of the
Company's assessment, the Company does not expect any material interruption
of internal operations arising from the Company's computer systems and
information technology not being Year 2000 compliant. The mission critical
systems of the Company identified during the assessment are all off the shelf
software packages with unmodified source codes which have been certified by
the manufacturer as Year 2000 compliant. The Company is not aware of any
significant Year 2000 issues with respect to the airworthiness of the
Company's 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.
Significant uncertainties remain about the effect on the Company's
operations of third parties that may not be Year 2000 compliant and with whom
the Company does business (including lessees, customers, vendors and
financial institutions). The Company is in the process of assessing Year 2000
issues relating to such third parties and certain of the Company's officers
have oversight of these assessments. The Company has circulated to
significant third parties with whom the Company does business a written
request for their plans and progress in addressing the Year 2000 issue. The
Company intends to evaluate the responses and develop contingency plans to
address risks of non-compliance by such third parties. The Company expects to
complete this process by July 1999. The costs associated with assessing the
Year 2000 issue, including developing and implementing the above plan, are
expected to be nominal. 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.
A reasonable 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 will be 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. However, 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 third parties. The Company cannot assure you that it would be able
to re-lease such assets at favorable terms or at all. Similarly, the Company
would attempt to find compliant customers for the Company's spare parts
sales. If a significant number of leased assets could not be re-leased on
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/or results of operations would be adversely affected.
Providers of casualty and liability insurance to the aviation industry
have indicated that they may exclude coverage for Year 2000 related risks
and/or may require aviation equipment operators to answer, to the insurance
provider's satisfaction, a questionnaire regarding the Year 2000 preparedness
of aviation equipment operators, in order to provide coverage for Year 2000
risks. The inability of a lessee to obtain or maintain coverage for Year 2000
related losses and/or the Company's inability to obtain or maintain any
contingent insurance for Year 2000 related risks would expose the Company to
material risk of loss. The Company is in the process of informing its lessees
of Year 2000 related insurance issues and will be monitoring its lessees'
ability to obtain insurance coverage for Year 2000 related risks.
ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is that of interest rate
risk. A change in the U.S. prime interest rate, LIBOR rate, or cost of funds
based on commercial paper market rates, would affect the rate at which the
Company could borrow funds under its various borrowing facilities. Increases
in interest rates to the Company, which may cause the Company to raise the
implicit rates charged to its customers, could result in a reduction in
demand for the Company's leases. Certain of the Company's warehouse credit
facilities are variable rate debt. The Company estimates a one percent
increase or decrease in the Company's variable rate debt would result in an
increase or decrease, respectively, in interest expense of $1.4 million per
annum. The Company estimates a two percent increase or decrease in the
Company's variable rate debt would result in an increase or decrease,
respectively, in interest expense of $2.9 million per annum. The foregoing
effect of interest rate changes, net of interest rate hedges, on per annum
interest expense is estimated as constant due to the terms of the Company's
variable rate borrowings, which generally provide for the maintenance of
borrowing levels given adequacy of collateral and compliance with other loan
conditions.
17
<PAGE>
The Company hedges a portion of its borrowings, effectively fixing the
rate of these borrowings. The Company is currently required to hedge a
portion of debt of the WLFC Funding Corporation Facility. Such hedging
activities may limit the Company's ability to participate in the benefits of
any decrease in interest rates, but may also protect the Company from
increases in interest rates. A portion of the Company's leases provide that
lease payments be adjusted based on changes in interest rates. Furthermore,
since lease rates tend to vary with interest rate levels, it is likely that
the Company can adjust lease rates for the effect of change in interest rates
at the termination of leases. Other financial assets and liabilities are at
fixed rates.
The Company is also exposed to currency devaluation risk. During the
three month period ended March 31, 1999, 76% of the Company's total lease
revenues came from non-United States domiciled lessees. All of the leases
require payment in United States (U.S.) currency. If these lessees' currency
devalues against the U.S. dollar, the lessees could potentially encounter
difficulty in making the U.S. dollar denominated lease payments.
18
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER
<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 Note Purchase Agreement (Series 1997-1 Notes) dated February 11, 1999.
10.2* Amended and Restated Series 1997-1 Supplement dated February 11, 1999
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 and the redacted material has been filed separately
with the Commission.
(b) Reports on Form 8-K
None
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: May 17, 1999
Willis Lease Finance Corporation
By: /s/ James D. McBride
---------------------------------
James D. McBride
Chief Financial Officer
20
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- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SERIES 1997-1 NOTES
NOTE PURCHASE AGREEMENT
Dated as of February 11, 1999
Among
WLFC FUNDING CORPORATION
AS ISSUER
WILLIS LEASE FINANCE CORPORATION
AS SERVICER
VARIABLE FUNDING CAPITAL CORPORATION
AS A PURCHASER
the INVESTORS
NAMED HEREIN
FIRST UNION CAPITAL MARKETS CORP.
AS DEAL AGENT
FIRST UNION NATIONAL BANK
AS LIQUIDITY AGENT
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
WLFC Funding Corporation
Class A Notes, Series 1997-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Certain Defined Terms.. . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Terms.. . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.3 Computation of Time Periods.. . . . . . . . . . . . . . . . . 4
ARTICLE II PURCHASE OF THE CLASS A NOTE . . . . . . . . . . . . . . . . . . . 4
Section 2.1 Sale and Delivery of the Class A Note.. . . . . . . . . . . . 4
Section 2.2 Acceptance and Custody of Series 1997-1 Class A Notes.. . . . 4
Section 2.3 Fundings of Loans.. . . . . . . . . . . . . . . . . . . . . . 4
Section 2.4 The Initial Funding, Subsequent Fundings and Incremental
Fundings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.5 Reduction of the Class A Note Commitment. . . . . . . . . . . 5
Section 2.6 Determination of Interest.. . . . . . . . . . . . . . . . . . 6
Section 2.7 Payments, Computations, Etc.. . . . . . . . . . . . . . . . . 6
Section 2.8 Increased Costs; Capital Adequacy; Illegality.. . . . . . . . 7
Section 2.9 Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.10 Assignment of the Contribution and Sale Agreement. . . . . .10
ARTICLE III CONDITIONS OF PURCHASES . . . . . . . . . . . . . . . . . . . . .11
Section 3.1 Conditions Precedent to Initial Purchase. . . . . . . . . . .11
Section 3.2 Conditions Precedent to All Fundings. . . . . . . . . . . . .11
ARTICLE IV REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . .12
Section 4.1 Representations and Warranties of the Issuer. . . . . . . . .12
Section 4.2 Representations and Warranties and Agreements of WLFC.. . . .15
ARTICLE V GENERAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . .16
Section 5.1 General Covenants of the Issuer and the Servicer. . . . . . .16
ARTICLE VI INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . .17
Section 6.1 Indemnities by the Issuer.. . . . . . . . . . . . . . . . . .17
ARTICLE VII THE DEAL AGENT. . . . . . . . . . . . . . . . . . . . . . . . . .17
Section 7.1 Authorization and Action of the Deal Agent. . . . . . . . . .17
Section 7.2 Delegation of Duties. . . . . . . . . . . . . . . . . . . . .18
Section 7.3 Exculpatory Provisions. . . . . . . . . . . . . . . . . . . .18
Section 7.4 Reliance. . . . . . . . . . . . . . . . . . . . . . . . . . .18
Section 7.5 Non-Reliance on Deal Agent and Other Purchasers.. . . . . . .19
Section 7.6 Deal Agent in its Individual Capacity.. . . . . . . . . . . .19
Section 7.7 Successor Deal Agent. . . . . . . . . . . . . . . . . . . . .19
<PAGE>
ARTICLE VIII ASSIGNMENTS; PARTICIPATIONS. . . . . . . . . . . . . . . . . . .20
Section 8.1 Assignments and Participations.. . . . . . . . . . . . . . .20
ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . .23
Section 9.1 Amendments and Waivers. . . . . . . . . . . . . . . . . . . .23
Section 9.2 Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . .24
Section 9.3 No Waiver; Remedies.. . . . . . . . . . . . . . . . . . . . .24
Section 9.4 No Proceedings. . . . . . . . . . . . . . . . . . . . . . . .24
Section 9.5 Recourse Against Certain Parties. . . . . . . . . . . . . . .25
Section 9.6 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . .25
Section 9.7 Term of this Agreement. . . . . . . . . . . . . . . . . . . .26
Section 9.8 GOVERNING LAW.. . . . . . . . . . . . . . . . . . . . . . . .26
Section 9.9 WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION.. . . . . . . .26
Section 9.10 Costs, Expenses and Taxes. . . . . . . . . . . . . . . . . .27
Section 9.11 Ratable Payments.. . . . . . . . . . . . . . . . . . . . . .28
Section 9.12 Confidentiality. . . . . . . . . . . . . . . . . . . . . . .28
Section 9.13 Execution in Counterparts; Severability; Integration.. . . .28
</TABLE>
<PAGE>
NOTE PURCHASE AGREEMENT (the "AGREEMENT"), dated as of February 11,
1999, by and among:
(1) WLFC FUNDING CORPORATION, a Delaware corporation (the "ISSUER");
(2) WILLIS LEASE FINANCE CORPORATION, a Delaware corporation (the
"SERVICER");
(3) VARIABLE FUNDING CAPITAL CORPORATION, a Delaware corporation
(together with its successors and assigns, "VFCC");
(4) The Investors set forth on the signature pages herein;
(5) FIRST UNION CAPITAL MARKETS CORP. ("FCM"), as deal agent (the
"DEAL AGENT"); and
(6) FIRST UNION NATIONAL BANK, as Liquidity Agent.
IT IS AGREED as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 CERTAIN DEFINED TERMS.
(a) Certain capitalized terms used throughout this Agreement are
defined above or in this Section 1.1. In addition, capitalized terms used
but not defined herein have the meanings given to such terms in the Indenture
(the "BASE"), dated as of September 1, 1997, by and between the Issuer and
The Bank of New York, as trustee (the "INDENTURE TRUSTEE"), as supplemented
by the Amended and Restated Series 1997-1 Supplement (the "SUPPLEMENT"),
dated as of February 11, 1999, by and between the Issuer and the Indenture
Trustee. The Base and the Supplement, as amended and supplemented from time
to time, are collectively referred to as the "INDENTURE."
(b) As used in this Agreement and its exhibits, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined).
ACT: The Securities Act of 1933, as amended.
AFFECTED PARTY: As defined in Section 2.8(a).
<PAGE>
AGENT'S ACCOUNT: A special account (account number 01 41 96 47) in the name
of the Deal Agent or, so long as VFCC is the sole beneficial owner of the
Class A Note hereunder, in the name of VFCC maintained at Bankers Trust
Company.
COLLECTION DATE: The date following the Termination Date on which the
aggregate outstanding Class A Note Principal Balance has been reduced to
zero, the Purchasers have received all Interest and other amounts due to the
Purchasers in connection with this Agreement and the Deal Agent has received
all amounts due to it in connection with this Agreement.
COMMERCIAL PAPER: On any day, any commercial paper note issued by a
Purchaser for the purpose of financing or maintaining its investment in the
Class A Note, including all such commercial paper notes so issued to
re-finance matured commercial paper notes issued by such Purchaser that were
originally issued to finance such Purchaser's investment in the Class A Note.
COMMITMENT TERMINATION DATE: February 9, 2000 or such later date to which
the Commitment Termination Date may be extended (if extended) in the sole
discretion of the Purchasers in accordance with the terms of Section 2.3(b).
DEAL DOCUMENTS: The Series 1997-1 Transaction Documents and each other
document, agreement, certificate, schedule or other writing entered into or
delivered in connection with the foregoing, as the same may be amended,
supplemented, restated, replaced or otherwise modified from time to time.
ELIGIBLE ASSIGNEE: (a) A Person whose short-term rating is at least A-1 from
Standard & Poor's Rating Services, a division of the McGraw-Hill Companies,
Inc. and P-1 from Moody's Investors Service, Inc., or whose obligations under
this Agreement are guaranteed by a Person whose short-term rating is at least
A-1 from Standard & Poor's Rating Services, a division of the McGraw-Hill
Companies, Inc. and P-1 from Moody's Investors Service, Inc., or (b) such
other Person satisfactory to VFCC, the Deal Agent and each of the Rating
Agencies rating the Commercial Paper.
FUNDING: A funding by a Purchaser of a Loan to the Issuer pursuant to
Article II, including without limitation, the remittance by the Servicer to
the Issuer of collections pursuant to the Supplement.
FUNDING DATE: The Business Day that is one (1) Business Day after the
Closing Date, and as to any Incremental Funding, any Business Day that is (i)
at least one (1) calendar week following the immediately preceding Funding
Date and (ii) two (2) Business Days immediately following the receipt by the
Deal Agent of a written request by the Issuer to obtain a Loan, such notice
to be in the form of EXHIBIT A hereto and to conform to requirements of
Section 3.2 hereof.
INCREASED COSTS: As defined in Section 2.8 hereof.
INCREMENTAL FUNDING: Any Funding that increases the aggregate outstanding
Class A Note Principal Balance.
2
<PAGE>
INDEMNIFIED AMOUNTS: As defined in Section 6.1 hereof.
ISSUER DOCUMENTS: As defined in Section 4.1(ii).
LIQUIDITY PURCHASE AGREEMENT: The Liquidity Purchase Agreement, dated as of
February 11, 1999, by and among VFCC, as seller thereunder, the Investors
named therein, FCM, as Deal Agent and as Documentation Agent, and First Union
National Bank, as Liquidity Agent.
LOAN REQUEST: Any request by the Issuer pursuant to Section 2.4(b) and in
the form of Exhibit A.
PURCHASE: The initial purchase by the Purchasers of the Class A Note from
the Issuer.
PURCHASERS: Collectively, VFCC, the Investors and their respective
successors and permitted assigns.
RATING AGENCIES: Each of Standard & Poor's Rating Services, a division of
the McGraw-Hill Companies, Inc., Moody's Investors Service, Inc. and any
other rating agency that has been requested to issue a rating with respect to
the Commercial Paper issued by a Purchaser.
TAXES: Any present or future taxes, levies, imposts, duties, charges,
assessments or fees of any nature (including interest, penalties, and
additions thereto) that are imposed by any government or other taxing
authority.
TERMINATION DATE: The earliest of (a) the date of the occurrence of an Early
Amortization Event and (b) the Commitment Termination Date.
UCC: The Uniform Commercial Code as in effect in the applicable jurisdiction.
UNITED STATES: The United States of America.
VFCC ADMINISTRATION AGREEMENT: That certain Amended and Restated
Administration Agreement, dated as of July 1, 1998, executed between VFCC
and First Union, as the same may be amended, supplemented, or otherwise
modified from time to time.
WLFC DOCUMENTS: As defined in Section 4.2(i).
SECTION 1.2 OTHER TERMS.
All accounting terms not specifically defined herein shall be construed
in accordance with GAAP. All terms used in the UCC in effect in the State of
New York and not specifically defined herein are used herein as defined
therein.
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SECTION 1.3 COMPUTATION OF TIME PERIODS.
Unless otherwise stated in this Agreement, in the computation of a
period of time from a specified date to a later specified date, the word
"from" means "from and including" and the words "to" and "until" each mean
"to but excluding."
ARTICLE II
PURCHASE OF THE CLASS A NOTE
SECTION 2.1 SALE AND DELIVERY OF THE CLASS A NOTE.
On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Issuer agrees to deliver to the
Deal Agent on behalf of the Purchasers, on the Closing Date, the Class A Note
with a maximum principal amount of $80,000,000, which Class A Note shall be
duly executed by the Issuer, duly authenticated by the Indenture Trustee and
registered in the name of the Deal Agent on behalf of the Purchasers. The
actual outstanding principal balance of the Class A Note will be increased
and decreased from time to time in accordance with the terms hereof and of
the Supplement. The Class A Note will be delivered to the Deal Agent against
payment of the purchase price.
SECTION 2.2 ACCEPTANCE AND CUSTODY OF SERIES 1997-1 CLASS A NOTES.
On the Closing Date, the Deal Agent shall take delivery of the Class A
Notes and maintain custody thereof on behalf of the Purchasers.
SECTION 2.3 FUNDINGS OF LOANS.
(a) On the terms and conditions hereinafter set forth, the Issuer may,
at its option, request Loans from the Purchasers. The Deal Agent may act on
behalf of and for the benefit of the Purchasers in this regard. VFCC may, in
its sole discretion, fund, or if VFCC shall decline to fund, the Liquidity
Agent shall fund on behalf of the Investors, Loans from time to time during
the period from the date hereof to but not including the Termination Date.
Under no circumstances shall any Purchaser fund any Loan if, after giving
effect to such Funding or Incremental Funding, the aggregate Class A Note
Principal Balance outstanding hereunder would exceed the lesser of (i) the
Class A Note Commitment or (ii) the Asset Base.
(b) The Issuer may, within 60 days, but no later than 45 days, prior
to the then existing Commitment Termination Date, by written notice to the
Deal Agent, make written request for VFCC and the Investors to extend the
Commitment Termination Date for an additional period of 364 days. The Deal
Agent will give prompt notice to VFCC and each of the Investors of its
receipt of such request for extension of the Commitment Termination Date.
VFCC and each Investor shall make a determination, in their sole discretion
and after a full credit review, not less than 15 days prior to the then
applicable Commitment Termination Date as to
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whether or not it will agree to extend the Commitment Termination Date;
PROVIDED, HOWEVER, that the failure of VFCC or any Investor to make a timely
response to the Issuer's request for extension of the Commitment Termination
Date shall be deemed to constitute a refusal by VFCC or the Investor, as the
case may be, to extend the Commitment Termination Date. The Commitment
Termination Date shall only be extended upon the consent of both (i) VFCC and
(ii) 100% of the Investors.
SECTION 2.4 THE INITIAL FUNDING, SUBSEQUENT FUNDINGS AND INCREMENTAL
FUNDINGS.
(a) Subject to the conditions described in Section 2.3, the initial
Funding and each Incremental Funding shall be made in accordance with the
procedures described in Section 2.4(b).
(b) The initial Funding and each Incremental Funding shall be made,
after receipt by the Purchasers of a Loan Request delivered by the Issuer to
the Deal Agent at least two Business Days prior to such proposed Funding Date
and each such notice shall specify (i) the aggregate amount of such initial
Funding or Incremental Funding which amount must satisfy the applicable
minimum requirement set forth in the following sentence and (ii) the date of
such Funding or Incremental Funding. The Issuer shall deliver no more than
two such notices in any calendar month, and each amount specified in any such
notice must satisfy the following minimum requirements, as applicable, as a
condition to the related Funding: (i) the initial Funding shall be in an
amount equal to $5,000,000 or an integral multiple of $10,000 in excess
thereof; (ii) each Incremental Funding hereunder shall be in an amount
equal to $1,000,000 or an integral multiple of $10,000 in excess thereof;
PROVIDED, HOWEVER, that if such Incremental Funding is to be made hereunder
at a time when there is no outstanding Commercial Paper issued in respect of
a Funding of $5,000,000 or an integral multiple of $10,000 in excess thereof,
then such Incremental Funding shall be in an amount equal to $5,000,000 or an
integral multiple of $10,000 in excess thereof. Each notice delivered by the
Issuer pursuant to this Section 2.4 shall be irrevocable. Following receipt
of such notice, the Deal Agent will consult with VFCC in order to assist VFCC
in determining whether or not to make the purchase. If VFCC declines to make
a proposed purchase, the initial Funding or Incremental Funding will be made
by the Investors. On the date of such Funding or Incremental Funding, as the
case may be, VFCC or each Investor shall, upon satisfaction of the applicable
conditions set forth in Article III, make available to the Issuer in same day
funds, at such bank or other location reasonably designated by Issuer in its
Loan Request given pursuant to this Section 2.4(b), an amount equal to (i)
the amount of such Loan related to such initial Funding or Incremental
Funding, as the case may be, in the case of a Funding by VFCC or (ii) such
Investor's pro rata share of the amount of such Loan, in the case of a
purchase by the Investors.
SECTION 2.5 REDUCTION OF THE CLASS A NOTE COMMITMENT.
The Issuer may, upon at least five Business Days' notice to the Deal
Agent, terminate in whole or reduce in part the portion of the Class A Note
Commitment that exceeds the sum of the aggregate Class A Note Principal
Balance and interest accrued and to accrue thereon through the date of
payment, and the Commitments of the Purchasers shall be reduced
proportionately;
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PROVIDED, HOWEVER, that each partial reduction of the Class A Note Commitment
shall be in an aggregate amount equal to $1,000,000 or an integral multiple
thereof. Each notice of reduction or termination pursuant to this Section
2.5 shall be irrevocable.
SECTION 2.6 DETERMINATION OF INTEREST.
The Deal Agent shall determine the Interest (including unpaid Interest,
if any, due and payable on a prior Payment Date) to be paid on each Payment
Date for the applicable Interest Accrual Period and shall advise the Issuer
and the Indenture Trustee thereof on the related Determination Date.
SECTION 2.7 PAYMENTS, COMPUTATIONS, ETC.
(a) Unless otherwise expressly provided herein, all amounts to be paid
or deposited by the Issuer or the Servicer hereunder shall be paid or
deposited in accordance with the terms hereof no later than 11:00 A.M.
(Charlotte, North Carolina time) on the day when due in lawful money of the
United States in immediately available funds to the Agent's Account. The
Issuer shall, to the extent permitted by law, pay to the Purchasers interest
on all amounts not paid or deposited when due hereunder at 1% per annum above
the Base Rate, payable on demand; PROVIDED, HOWEVER, that such interest rate
shall not at any time exceed the maximum rate permitted by applicable law.
Such interest shall be retained by the Deal Agent except to the extent that
such failure to make a timely payment or deposit has continued beyond the
date for distribution by the Deal Agent of such overdue amount to the
Purchasers, in which case such interest accruing after such date shall be for
the account of, and distributed by the Deal Agent to the Purchasers. All
computations of interest and other fees hereunder shall be made on the basis
of a year of 360 days for the actual number of days (including the first but
excluding the last day) elapsed.
(b) Whenever any payment hereunder shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in
the computation of payment of Interest or any fee payable hereunder, as the
case may be.
(c) If any Funding or Incremental Funding requested by the Issuer and
approved by a Purchaser and the Deal Agent pursuant to Section 2.4, is not,
for any reason whatsoever related to a default or nonperformance by the
Issuer, made or effectuated, as the case may be, on the date specified
therefor, the Issuer shall indemnify such Purchaser against any reasonable
loss, cost or expense incurred by such Purchaser, including, without
limitation, any loss (excluding loss of anticipated profits, net of
anticipated profits in the reemployment of such funds in the manner
determined by such Purchaser), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such
Purchaser to fund or maintain such Funding or Incremental Funding, as the
case may be, during such Interest Accrual Period.
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SECTION 2.8 INCREASED COSTS; CAPITAL ADEQUACY; ILLEGALITY.
(a) If either (i) the introduction of or any change (including,
without limitation, any change by way of imposition or increase of reserve
requirements) in or in the interpretation of any law or regulation after the
date of this Agreement or (ii) the compliance by a Purchaser or any Affiliate
thereof (each of which, an "Affected Party") with any guideline or request
from any central bank or other governmental agency or authority (whether or
not having the force of law), (A) shall subject an Affected Party to any Tax
(except for Taxes on the overall net income of such Affected Party), duty or
other charge with respect to an Asset Interest, a Loan, or a Funding or any
right to make Fundings hereunder, or on any payment made hereunder or under
the Supplement or (B) shall impose, modify or deem applicable any reserve
requirement (including, without limitation, any reserve requirement imposed
by the Federal Reserve Board, but excluding any reserve requirement, if any,
included in the determination of Interest), special deposit or similar
requirement against assets of, deposits with or for the amount of, or credit
extended by, any Affected Party or (C) shall impose any other condition
affecting an Asset Interest, a Loan or a Purchaser's rights hereunder, the
result of which is to increase the cost to any Affected Party or to reduce
the amount of any sum received or receivable by an Affected Party under this
Agreement or the Supplement (any such costs being referred to herein as
"Increased Costs"), then within ten days after demand by such Affected Party
(which demand shall be accompanied by a statement setting forth the basis for
such demand), the Issuer shall pay directly to such Affected Party such
additional amount or amounts as will compensate such Affected Party for such
additional or increased cost incurred or such reduction suffered.
(b) If either (i) the introduction of or any change in or in the
interpretation of any law, guideline, rule, regulation, directive or request
after the date of this Agreement or (ii) compliance by any Affected Party
with any law, guideline, rule, regulation, directive or request from any
central bank or other governmental authority or agency (whether or not having
the force of law), including, without limitation, compliance by an Affected
Party with any request or directive regarding capital adequacy, has or would
have the effect of reducing the rate of return on the capital of any Affected
Party as a consequence of its obligations hereunder or arising in connection
herewith to a level below that which any such Affected Party could have
achieved but for such introduction, change or compliance (taking into
consideration the policies of such Affected Party with respect to capital
adequacy) by an amount deemed by such Affected Party to be material, then
from time to time, within ten days after demand by such Affected Party (which
demand shall be accompanied by a statement setting forth the basis for such
demand), the Issuer shall pay directly to such Affected Party such additional
amount or amounts as will compensate such Affected Party for such reduction.
(c) If as a result of any event or circumstance similar to those
described in clauses (a) or (b) of this Section 2.8, any Affected Party is
required to compensate a bank or other financial institution providing
liquidity support, credit enhancement or other similar support to such
Affected Party in connection with this Agreement or the funding or
maintenance of Fundings hereunder, then within ten days after demand by such
Affected Party, the Issuer shall pay to such Affected Party such additional
amount or amounts as may be necessary to reimburse such Affected Party for
any amounts paid by it.
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(d) In determining any amount provided for in this Section 2.8, the
Affected Party may use any reasonable averaging and attribution methods. Any
Affected Party making a claim under this section shall submit to the Issuer a
certificate setting forth in reasonable detail as to such additional or
increased cost or reduction, which certificate shall be conclusive absent
demonstrable error.
(e) If a Purchaser shall notify the Deal Agent that a Eurodollar
Disruption Event as described in clause (a) of the definition of "Eurodollar
Disruption Event" has occurred, the Deal Agent shall in turn so notify the
Issuer, whereupon all Loans in respect of which Interest accrues at the
Adjusted Eurodollar Rate shall immediately be converted into Loans in respect
of which Interest accrues at the Base Rate.
SECTION 2.9 TAXES.
(a) All payments made by a Lessee in respect of a Lease Agreement and
all payments made by the Issuer or the Servicer under this Agreement or the
Supplement will be made free and clear of and without deduction or
withholding for or on account of any Taxes, unless such withholding or
deduction is required by law. In such event, the Lessee, Issuer, or Servicer
(as the case may be) shall pay to the appropriate taxing authority any such
Taxes required to be deducted or withheld (subject to compliance by each
Purchaser with Section 2.9(d)) and the amount payable to each Purchaser or
the Deal Agent (as the case may be) will be increased (such increase, the
"Additional Amount") such that every net payment made under this Agreement
after deduction or withholding for or on account of any Taxes (including,
without limitation, any Taxes on such increase) is not less than the amount
that would have been paid had no such deduction or withholding been deducted
or withheld. The foregoing obligation to pay Additional Amounts, however,
will not apply with respect to net income or franchise taxes imposed on a
Purchaser or the Deal Agent, respectively, with respect to payments required
to be made by the Issuer or Servicer under this Agreement, by a taxing
jurisdiction in which such Purchaser or Deal Agent is organized, conducts
business or is paying taxes as of the date such tax obligation is incurred
(as the case may be). If a Purchaser or the Deal Agent pays any Taxes in
respect of which the Issuer is obligated to pay Additional Amounts under this
Section 2.9(a), the Issuer shall promptly reimburse such Purchaser or Deal
Agent in full.
(b) The Issuer will indemnify each Purchaser and the Deal Agent for
the full amount of Taxes in respect of which the Issuer is required to pay
Additional Amounts (including, without limitation, any Taxes imposed by any
jurisdiction on such Additional Amounts) paid by such Purchaser or the Deal
Agent (as the case may be) and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto; PROVIDED, HOWEVER,
that such Purchaser or the Deal Agent, as appropriate, making a demand for
indemnity payment shall provide the Issuer, at its address set forth under
its name on the signature pages hereof, with a certificate from the relevant
taxing authority or from a responsible officer of such Purchaser or the Deal
Agent stating or otherwise evidencing that response such Purchaser or the
Deal Agent has made payment of such Taxes and will provide a copy of or
extract from documentation, if available, furnished by such taxing authority
evidencing assertion or payment of such Taxes.
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This indemnification shall be made within ten days from the date a Purchaser
or the Deal Agent (as the case may be) makes written demand therefor.
(c) Within 30 days after the date of any payment by the Issuer of any
Taxes, the Issuer will furnish to the Deal Agent, at its address set forth
under its name on the signature pages hereof, appropriate evidence of payment
thereof.
(d) If a Purchaser is not created or organized under the laws of the
United States or a political subdivision thereof, such Purchaser shall, to
the extent that it may then do so under applicable laws and regulations,
deliver to the Issuer with a copy to the Deal Agent (i) within 15 days after
the date hereof, or, if later, the date on which such Purchaser becomes a
Purchaser hereof two (or such other number as may from time to time be
prescribed by applicable laws or regulations) duly completed copies of IRS
Form 4224 or Form 1001 (or any successor forms or other certificates or
statements which may be required from time to time by the relevant United
States taxing authorities or applicable laws or regulations), as appropriate,
to permit the Issuer to make payments hereunder for the account of such
Purchaser, as the case may be, without deduction or withholding of United
States federal income or similar Taxes and (ii) upon the obsolescence of or
after the occurrence of any event requiring a change in, any form or
certificate previously delivered pursuant to this Section 2.9(d), copies (in
such numbers as may from time to time be prescribed by applicable laws or
regulations) of such additional, amended or successor forms, certificates or
statements as may be required under applicable laws or regulations to permit
the Issuer to make payments hereunder for the account of such Purchaser,
without deduction or withholding of United States federal income or similar
Taxes.
(e) For any period with respect to which a Purchaser or the Deal Agent
has failed to provide the Issuer with the appropriate form, certificate or
statement described in Section 2.9(d) (other than if such failure is due to a
change in law occurring after the date of this Agreement), the Deal Agent or
such Purchaser, as the case may be, shall not be entitled to indemnification
under clauses (a) or (b) of this Section 2.9 with respect to any Taxes.
(f) Within 30 days of the written request of the Issuer therefor, the
Deal Agent and the Purchasers, as appropriate, shall execute and deliver to
the Issuer such certificates, forms or other documents which can be furnished
consistent with the facts and which are reasonably necessary to assist the
Issuer in applying for refunds of Taxes remitted hereunder; PROVIDED,
HOWEVER, that the Deal Agent and the Purchasers shall not be required to
deliver such certificates forms or other documents if in their respective
sole discretion it is determined that the deliverance of such certificate,
form or other document would have a material adverse effect on the Deal Agent
or Purchasers and PROVIDED FURTHER, HOWEVER, that the Issuer shall reimburse
the Deal Agent or Purchaser for any reasonable expenses incurred in the
delivery of such certificate, form or other document.
(g) If, in connection with an agreement or other document providing
liquidity support, credit enhancement or other similar support to the
Purchasers in connection with this Agreement or the funding or maintenance of
Fundings hereunder, the Purchasers are required to compensate a bank or other
financial institution in respect of Taxes under circumstances similar
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to those described in this section then within ten days after demand by the
Purchasers, the Issuer shall pay to the Purchasers such additional amount or
amounts as may be necessary to reimburse the Purchasers for any amounts paid
by them.
(h) Without prejudice to the survival of any other agreement of the
Issuer hereunder, the agreements and obligations of the Issuer contained in
this Section 2.9 shall survive the termination of this Agreement.
SECTION 2.10 ASSIGNMENT OF THE CONTRIBUTION AND SALE AGREEMENT.
The Issuer hereby grants, assigns and pledges to the Deal Agent, for the
ratable benefit of the Purchasers hereunder, all of the Issuer's right, and
title to and interest in the Contribution and Sale Agreement. The Issuer
confirms that following an Event of Default the Deal Agent shall have the
sole right to enforce the Issuer's rights and remedies under the Contribution
and Sale Agreement for the benefit of the Purchasers, but without any
obligation on the part of the Deal Agent, the Purchasers or any of their
respective Affiliates, to perform any of the obligations of the Issuer under
the Contribution and Sale Agreement. The Issuer further confirms and agrees
that such assignment to the Deal Agent shall terminate upon the Collection
Date; PROVIDED, HOWEVER, that the rights of the Deal Agent and the Purchasers
pursuant to such assignment with respect to rights and remedies in connection
with any indemnities and any breach of any representation, warranty or
covenants made by the Seller pursuant to the Contribution and Sale Agreement,
which rights and remedies survive the termination of the Contribution and
Sale Agreement, shall be continuing and shall survive any termination of such
assignment.
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ARTICLE III
CONDITIONS OF PURCHASES
SECTION 3.1 CONDITIONS PRECEDENT TO INITIAL PURCHASE.
The initial Purchase hereunder is subject to the condition precedent
that the Deal Agent shall have received on or before the date of such
purchase the items listed in SCHEDULE I, each (unless otherwise indicated)
dated such date, in form and substance satisfactory to the Deal Agent and the
Purchasers.
SECTION 3.2 CONDITIONS PRECEDENT TO ALL FUNDINGS.
Each Funding (including the Initial Funding) by a Purchaser, the right
of the Servicer to remit collections to the Issuer and each Incremental
Funding (each, a "TRANSACTION") shall be subject to the further conditions
precedent that (a) with respect to any Funding (including the Initial
Funding) or Incremental Funding, the Servicer shall have delivered to the
Deal Agent, on or prior to the date of such Funding or Incremental Funding in
form and substance satisfactory to the Deal Agent, a Loan Request EXHIBIT A,
and containing such additional information as may be reasonably requested by
the Deal Agent; (b) on the date of such Transaction the following statements
shall be true and the Issuer shall be deemed to have certified that:
(i) The representations and warranties contained in Sections 4.1
and 4.2 are true and correct on and as of such day as though made on and
as of such date;
(ii) No event has occurred and is continuing, or would result
from such Transaction which constitutes an Early Amortization Event;
(iii) On and as of such day, after giving effect to such
Transaction, the outstanding Class A Note Principal Balance does not exceed
the lesser of (x) the Class A Note Commitment, or (y) the Asset Base;
(iv) On and as of such day, the Issuer and the Servicer each has
performed all of the agreements contained in this Agreement to be performed
by such person at or prior to such day;
(v) No law or regulation shall prohibit, and no order, judgment
or decree of any federal, state or local court or governmental body, agency
or instrumentality shall prohibit or enjoin, the making of such Loan,
remittance of collections or Incremental Funding by the Purchaser in
accordance with the provisions hereof; and
(vi) on the date of such Transaction, the Deal Agent shall have
received such other approvals, opinions or documents as the Deal Agent may
reasonably require.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF THE ISSUER.
The Issuer represents (as of the Effective Date and as of each date on
which a Loan is made by a Class A Noteholder pursuant to the Supplement,
unless otherwise indicated) and warrants to, and agrees with, the Purchaser
that:
(i) The Issuer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, with its chief
executive office located at 2320 Marinship Way, Suite 300, Sausalito,
California 94965, and has the power to own its assets and to engage in the
activities in which it is presently engaged and is duly qualified and in good
standing under the laws of each jurisdiction where its ownership of property
or the conduct of its activities requires such qualification, if the failure
to so qualify would have a material adverse effect on the financial condition
of the Issuer or on the enforceability of the Class A Note or the ability of
the Issuer to perform its obligations under this Agreement and the other
Related Documents to which it is a party. One hundred percent of the
beneficial ownership of the Issuer is owned by Willis Lease Finance
Corporation ("WLFC"). The Issuer has no subsidiaries;
(ii) The Issuer has the power, authority and legal right to
execute, deliver and perform its obligations under this Agreement and the
other Related Documents to which it is a party (collectively, the "Issuer
Documents"); the execution, delivery, and performance of the Issuer Documents
by the Issuer have been duly authorized by the Issuer by all necessary
action, the Issuer Documents, other than the Class A Note, have been duly
executed and delivered by the Issuer, and the Class A Note, when issued in
accordance with the terms hereof and of the Indenture and the Supplement,
will have been duly executed and delivered;
(iii) Each of the Issuer Documents (other than the Class A
Note), assuming due authorization, execution and delivery by the other
parties thereto, constitutes, and the Class A Note, when issued and
authenticated in accordance with the terms of the Indenture and the
Supplement, will constitute, a legal, valid and binding obligation of the
Issuer, enforceable against the Issuer in accordance with its terms, except
that such enforcement may be limited by (A) bankruptcy, insolvency,
reorganization, moratorium or other similar laws (whether statutory,
regulatory or decisional) now or hereafter in effect relating to creditors'
rights generally and (B) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law);
(iv) The consummation of the transactions contemplated by the
Issuer Documents and the fulfillment of the terms therein will not conflict
with or result in any breach of any of the terms and provisions of or
constitute (with or without notice, lapse of time or both) a default under
the certificate of incorporation or by-laws of the Issuer, or any indenture,
agreement, mortgage, deed of trust, commitment letter or funding arrangement
with any lending institution or investment bank or other instrument to which
the Issuer is a party or by which it is
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bound, or result in the creation or imposition of any lien, claim or
encumbrance upon any of its properties pursuant to the terms of such
indenture, agreement, mortgage, deed of trust, commitment letter or funding
arrangement with any lending institution or investment bank or other such
instrument, other than as created pursuant to the Indenture and the
Supplement, or violate any law or, any order, rule or regulation applicable
to the Issuer of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Issuer or any of its properties and there are no legal
or governmental proceedings pending or, to the best knowledge of the Issuer,
threatened or contemplated that would result in a material modification or
revocation thereof;
(v) There are no litigation, proceedings or investigations to
which the Issuer, or any Affiliate of the Issuer, is a party pending, or, to
the knowledge of Issuer, threatened, before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality (A)
asserting the invalidity of the Class A Note or the other Issuer Documents,
(B) seeking to prevent the issuance of the Class A Note or the consummation
of any of the transactions contemplated by the other Issuer Documents, or (C)
seeking any determination or ruling that would materially and adversely
affect the performance by the Issuer of its obligations under, or the
validity or enforceability of, the Class A Note or the other Issuer Documents;
(vi) All approvals, authorizations, consents, orders or other
actions of any person, corporation or other organization, or of any court,
governmental agency or body or official, required in connection with the
execution and delivery of the Issuer Documents by the Issuer and with the
valid and proper authorization, issuance and sale of the Class A Note
pursuant to this Agreement, have been or will be taken or obtained on or
prior to the Effective Date;
(vii) No written materials delivered to the Purchaser by or on
behalf of the Issuer in connection with the sale of the Class A Note contain
any untrue statement of a material fact or omit a material fact necessary to
make the statements contained therein or herein not misleading. There is no
fact peculiar to the Issuer or any Affiliate of the Issuer or, to the
knowledge of the Issuer, any Lease Agreement, Lessee or Engine which the
Issuer has not disclosed to the Deal Agent in writing which materially
adversely affects or, so far as the Issuer can now reasonably foresee, will
materially adversely affect the ability of the Issuer to perform the
transactions contemplated hereby and by the other Related Documents;
(viii) The List of Engines to be created as of the Closing Date
and each supplement thereto will be available to the Deal Agent by the Issuer
and will be complete as of the date thereof and will include an accurate (in
all material respects) description of the Engines;
(ix) The representations and warranties made by the Issuer in
the Issuer Documents are true and correct in all material respects and the
Purchaser shall be entitled to rely on such representations and warranties;
(x) Any taxes, fees and other governmental charges payable by
the Issuer in connection with the execution and delivery of the Issuer
Documents, the pledge of the Collateral
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to the Indenture Trustee, and the execution, delivery and sale of the Class A
Note, have been paid;
(xi) To the extent the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), may be deemed to apply to the Class A Note and
the Loans, none of the transactions contemplated in the Issuer Documents
(including, without limitation thereof, the use of the proceeds from the sale
of the Class A Note) will violate or result in a violation of Section 7 of
the Exchange Act, or any regulations issued pursuant thereto;
(xii) Concurrently with the execution and delivery of this
Agreement, the Issuer is executing no other note purchase agreement with
respect to the Class A Note;
(xiii) The Issuer is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended;
(xiv) For so long as the Series 1997-1 Class A Notes are the
only Notes outstanding under the Indenture, each of the Indenture and the
Supplement need not be qualified as an "indenture" pursuant to the terms of
the Trust Indenture Act of 1939, as amended;
(xv) The Issuer has not taken and will not take, directly or
indirectly, any action prohibited by Rules 101 and 102 under Regulation M of
the Securities and Exchange Commission in connection with the offering of the
Class A Note;
(xvi) To the extent that the Securities Act may be deemed to
apply to the Class A Note and the Loans, neither the Issuer nor any affiliate
(as defined in Rule 501(b) of Regulation D under the Securities Act
("Regulation D")) of the Issuer has directly, or through any agent,
including, without limitation, FUNB, (i) sold, offered for sale, solicited
offers to buy or otherwise negotiated in respect of, any security (as defined
in the Securities Act) which is or will be integrated with the sale of the
Class A Note in a manner that would render the issuance and sale of the Class
A Note a violation of the Securities Act or require the registration of the
Class A Note under the Securities Act or (ii) engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with the offering of the Class A Note.
(xvii) To the extent that the Securities Act may be deemed to
apply to the Class A Note and the Loans, it is not necessary in connection
with the offer, sale and delivery of the Class A Note in the manner
contemplated by this Agreement to register the Class A Note under the
Securities Act assuming that the Purchaser is an "accredited investor" as
defined in Regulation D under the Securities Act;
(xviii) No event has occurred and is continuing that constitutes,
or with the passage of time or the giving of notice or both would constitute,
an Early Amortization Event under, and as defined in, the Indenture. The
Issuer is not in violation of any agreement, charter instrument, by-law or
other instrument to which they are a party or by which they are or may be
bound;
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(xix) The aggregate amount of Scheduled Payments payable by the
Lessees under the Lease Agreements during each Collection Period is
sufficient to pay the monthly Servicing Fee, and the principal and interest
on the Class A Note, as such payments become due and payable, in accordance
with the Indenture and the Supplement;
(xx) The Issuer agrees that it will not directly or
indirectly, sell or offer to sell the Class A Note or similar security in a
manner that would render the issuance and sale of the Class A Note pursuant
to this Agreement a violation of Section 5 of the Securities Act.
SECTION 4.2 REPRESENTATIONS AND WARRANTIES AND AGREEMENTS OF WLFC.
WLFC hereby represents (as of the Effective Date and as of each date on
which a Loan is made by a Class A Noteholder pursuant to the Supplement,
unless otherwise indicated) and warrants to, and agrees with, the Purchaser
that:
(i) The representations and warranties made by WLFC in this
Note Purchase Agreement, the Guaranty, the Contribution and Sale Agreement,
the Servicing Agreement and any other Related Document to which it is a party
(collectively, the "WLFC Documents") are true and correct in all material
respects and the Purchaser shall be entitled to rely on such representations
and warranties;
(ii) No written materials delivered to the Purchaser by or on
behalf of WLFC in connection with the sale of the Class A Note contain any
untrue statement of a material fact or omit a material fact necessary to make
the statements contained therein or herein not misleading. There is no fact
peculiar to WLFC or any Affiliate of WLFC or, to the knowledge of WLFC, any
Lease Agreement, Lessee or Engine which WLFC had not disclosed to the Deal
Agent in writing which materially affects adversely or, so far as WLFC can
now reasonably foresee, will materially affect adversely the ability of WLFC
to perform the transactions contemplated hereby and by the Indenture, the
Supplement, the Servicing Agreement and the Class A Note;
(iii) Any taxes, fees and other governmental charges payable by
WLFC on or prior to the Effective Date in connection with the execution and
delivery of the WLFC Documents, have been, or will be, paid on or prior to
the Effective Date;
(iv) To the extent that the Exchange Act may be deemed to
apply to the Class A Note and the Loans, none of the transactions
contemplated herein (including, without limitation thereof, the use of the
proceeds from the sale of the Class A Note) will violate or result in a
violation of Section 7 of the Exchange Act or any regulations issued pursuant
thereto including, without limitation, Regulations T, U and X of the Federal
Reserve Board, 12 C.F.R., Chapter II. WLFC will not use any distribution
from the Issuer of proceeds received by the Issuer from the sale of the Class
A Note to purchase or carry, directly or indirectly, margin stock;
(v) No event has occurred and is continuing that constitutes,
or with the passage of time or the giving of notice or both would constitute
an Early Amortization Event
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under, and as defined in, the Servicing Agreement or the Indenture and the
Supplement, respectively. WLFC is not in violation in any material respect
of any term of any agreement, charter instrument, by-law or other instrument
to which it is a party or by which it is or may be bound;
(vi) The aggregate amount of Scheduled Payments payable by the
Lessees under the Lease Agreements during each Collection Period is
sufficient to cover the monthly Servicing Fee, and pay the principal and
interest on the Class A Note, as such payments become due and payable, in
accordance with the Indenture and the Supplement; and
(vii) To the extent that the Securities Act may be deemed to
apply to the Class A Note and the Loans, neither WLFC nor any affiliate (as
defined in Rule 501(b) of Regulation D) of WLFC has directly, or through any
agent, including, without limitation, First Union, (i) sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of, any
security (as defined in the Securities Act) which is or will be integrated
with the sale of the Class A Note in a manner that would render the issuance
and sale of the Class A Note a violation of the Securities Act or require the
registration of the Class A Note under the Securities Act or (ii) engaged in
any form of general solicitation or general advertising (within the meaning
of Regulation D) in connection with the offering of the Class A Note. It is
not necessary in connection with the offer, sale and delivery of the Class A
Note to register the Class A Note under the Securities Act.
ARTICLE V
GENERAL COVENANTS
SECTION 5.1 GENERAL COVENANTS OF THE ISSUER AND THE SERVICER.
(a) The Issuer hereby agrees to notify the Deal Agent, as soon as
possible, and in any event within five (5) days after notice to the Issuer,
of (i) the occurrence of any Event of Default, (ii) the occurrence of any
Early Amortization Event, (iii) any fact, condition or event which, with the
giving of notice or the passage of time or both, would become an Event of
Default, (iv) any fact, condition or event which, with the giving of notice
or the passage of time or both, would become an Early Amortization Event, (v)
the failure of the Issuer to observe any of its material undertakings under
the Deal Documents or (vi) any change in the status or condition of the
Issuer or the Servicer that would reasonably be expected to adversely affect
the Issuer's or the Servicer's ability to perform its obligations under the
Deal Documents.
(b) The Issuer agrees not to sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in the
Securities Act) that would be integrated with the sale of the Class A Note in
a manner that would require the registration under the Securities Act of the
sale to the Purchasers of the Class A Note.
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(c) YEAR 2000 COMPATIBILITY. The Servicer shall take all action
necessary to assure that, prior to January 1, 2000, the Servicer's computer
system is able to operate and effectively process data including dates on and
after January 1, 2000. At the request of the Deal Agent, the Servicer shall
provide assurance acceptable to the Deal Agent of the Servicer's year 2000
compatibility.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 INDEMNITIES BY THE ISSUER.
Without limiting any other rights which the Deal Agent, the Purchasers
or any of their respective Affiliates may have hereunder or under applicable
law, the Issuer hereby agrees to indemnify each of the Deal Agent, the
Purchasers and each of their respective Affiliates, together with their
respective successors and permitted assigns (each of the foregoing Persons
being individually called an "Indemnified Party") from and against any and
all damages, losses, claims, liabilities and related costs and expenses,
including reasonable attorneys' fees and disbursements (all of the foregoing
being collectively referred to as "Indemnified Amounts") awarded against or
incurred by any of them arising out of, or resulting from the breach by the
Issuer or the Servicer of any representation, warranty, covenant or
obligation of the Issuer or the Servicer of, this Agreement, any Deal
Document or the Class A Note, excluding, however, Indemnified Amounts to the
extent resulting from gross negligence or willful misconduct on the part of
such Indemnified Party.
Any amounts subject to the indemnification provisions of this Section
6.1 shall be paid by the Issuer to the Deal Agent within ten (10) Business
Days following the Deal Agent's demand therefor. Notwithstanding anything to
the contrary, the Issuer's obligations to make payments under this Section
6.1 shall be limited solely to funds available from time to time for such
purpose pursuant to Section 3.2 of the Supplement and to the extent they are
not so paid, such obligations shall not constitute a claim against the Issuer
or the Collateral.
ARTICLE VII
THE DEAL AGENT
SECTION 7.1 AUTHORIZATION AND ACTION OF THE DEAL AGENT.
Each Purchaser hereby designates and appoints FCM as Deal Agent
hereunder, and authorizes the Deal Agent to take such actions as agent on its
behalf and to exercise such powers as are delegated to the Deal Agent by the
terms of this Agreement together with such powers as are reasonably
incidental thereto. The Deal Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Purchaser, and no
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implied covenants, functions, responsibilities, duties, obligations or
liabilities on the part of the Deal Agent shall be read into this Agreement
or otherwise exist for the Deal Agent. In performing its functions and
duties hereunder, the Deal Agent shall act solely as agent for the Purchasers
and does not assume nor shall be deemed to have assumed any obligation or
relationship of trust or agency with or for the Issuer or any of its
successors or assigns. The Deal Agent shall not be required to take any
action which exposes the Deal Agent to personal liability or which is
contrary to this Agreement, any other agreement by which the Deal Agent is
bound or applicable law. The appointment and authority of the Deal Agent
hereunder shall terminate on the Collection Date.
SECTION 7.2 DELEGATION OF DUTIES.
The Deal Agent may execute any of its duties under this Agreement by or
through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Deal Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
SECTION 7.3 EXCULPATORY PROVISIONS.
Neither the Deal Agent nor any of its directors, officers, agents or
employees shall be (i) liable for any action lawfully taken or omitted to be
taken by it or them under or in connection with this Agreement (except for
its, their or such Person's own gross negligence or willful misconduct) or
(ii) responsible in any manner to any of the Purchasers for any recitals,
statements, representations or warranties made by the Issuer contained in
this Agreement or in any certificate, report, statement or other document
referred to or provided for in, or received under or in connection with, this
Agreement or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other document
furnished in connection herewith, or for any failure of the Issuer to perform
its obligations hereunder, or for the satisfaction of any condition specified
in Article III. The Deal Agent shall not be under any obligation to any
Purchaser to ascertain or to inquire as to the observance or performance of
any of the agreements or covenants contained in, or conditions of, this
Agreement, or to inspect the properties, books or records of the Issuer. The
Deal Agent shall not be deemed to have knowledge of any Event of Default or
Early Amortization Event unless the Deal Agent has received written notice
from the Issuer, the Indenture Trustee or a Purchaser.
SECTION 7.4 RELIANCE.
The Deal Agent shall in all cases be entitled to rely, and shall be
fully protected in relying, upon any document or conversation believed by it
to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Issuer), independent accountants and other
experts selected by the Deal Agent. The Deal Agent shall in all cases be
fully justified in failing or refusing to take any action under this
Agreement or any other document furnished in connection herewith unless it
shall first receive such advice or concurrence of VFCC or all of the
Purchasers, as applicable, as it deems appropriate or it shall first be
indemnified to its satisfaction
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by the Purchasers, PROVIDED that unless and until the Deal Agent shall have
received such advice, the Deal Agent may take or refrain from taking any
action, as the Deal Agent shall deem advisable and in the best interests of
the Purchasers. The Deal Agent shall in all cases be fully protected in
acting, or in refraining from acting, in accordance with a request of VFCC or
all of the Purchasers, as applicable, and such request and any action taken
or failure to act pursuant thereto shall be binding upon all the Purchasers.
SECTION 7.5 NON-RELIANCE ON DEAL AGENT AND OTHER PURCHASERS.
Each Purchaser expressly acknowledges that none of the Deal Agent or any
of their respective officers, directors, employees, agents, attorneys-in-fact
or affiliates has made any representations or warranties to it and that no
act by the Deal Agent hereafter taken, including, without limitation, any
review of the affairs of the Issuer, shall be deemed to constitute any
representation or warranty by the Deal Agent. Each Purchaser represents and
warrants to the Deal Agent that it has made and will make, independently and
without reliance upon the Deal Agent or any other Purchaser and based on such
documents and information as it has deemed appropriate, its own appraisal of
and investigation into the business, operations, property, prospects,
financial and other conditions and creditworthiness of the Issuer and made
its own decision to enter into this Agreement.
SECTION 7.6 DEAL AGENT IN ITS INDIVIDUAL CAPACITY.
Any of the Deal Agent and its Affiliates may make loans to, accept
deposits from and generally engage in any kind of business with the Issuer or
any Affiliate of the Issuer as though the Deal Agent were not the Deal Agent
hereunder. With respect to the acquisition of the Class A Note pursuant to
this Agreement, each of the Deal Agent and its Affiliates shall have the same
rights and powers under this Agreement as any Purchaser and may exercise the
same as though it were not the Deal Agent and the terms "Purchaser" and
"Purchasers" shall include the Deal Agent in its individual capacity, if the
Deal Agent shall become a Purchaser hereunder.
SECTION 7.7 SUCCESSOR DEAL AGENT.
The Deal Agent may, upon 5 days' notice to the Issuer and the
Purchasers, and the Deal Agent will, upon the direction of all of the
Purchasers (other than the Deal Agent, in its individual capacity), resign as
Deal Agent. If the Deal Agent shall resign, then VFCC during such 5-day
period shall appoint from among the Purchasers a successor agent. If for any
reason no successor Deal Agent is appointed by VFCC during such 5-day period,
then effective upon the termination of such 5-day period, the Purchasers
shall perform all of the duties of the Deal Agent hereunder and the Issuer
shall for all purposes deal directly with the Purchasers. After any retiring
Deal Agent's resignation hereunder as Deal Agent, the provisions of this
Article VII and Article VI shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Deal Agent under this Agreement.
The retiring Deal Agent shall provide prompt written notice of its
resignation hereunder to each Rating Agency.
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ARTICLE VIII
ASSIGNMENTS; PARTICIPATIONS
SECTION 8.1 ASSIGNMENTS AND PARTICIPATIONS.
(a) Each Investor may upon at least 30 days' notice to VFCC, the Deal
Agent, the Liquidity Agent and Standard & Poor's Rating Services, a division
of the McGraw-Hill Companies, Inc. and Moody's Investors Service, Inc.,
assign to one or more banks or other entities all or a portion of its rights
and obligations under this Agreement; PROVIDED, HOWEVER, that (i) each such
assignment shall be of a constant, and not a varying percentage of all of the
assigning Investor's rights and obligations under this Agreement, (ii) the
amount of the Commitment of the assigning Investor being assigned pursuant to
each such assignment (determined as of the date of the Assignment and
Acceptance with respect to such assignment) shall in no event be less than
the lesser of (A) $10,000,000 or an integral multiple of $1,000,000 in excess
of that amount and (B) the full amount of the assigning Investor's
Commitment, (iii) each such assignment shall be to an Eligible Assignee, (iv)
the parties to each such assignment shall execute and deliver to the Deal
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance, together with a processing and recordation fee of $3,500 or such
lesser amount as shall be approved by the Deal Agent, (v) the parties to each
such assignment shall have agreed to reimburse the Deal Agent, the Liquidity
Agent and VFCC for all fees, costs and expenses (including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for
each of the Deal Agent, the Liquidity Agent and VFCC) incurred by the Deal
Agent, the Liquidity Agent and VFCC, respectively, in connection with such
assignment, (vi) there shall be no Increased Costs, expenses or Taxes
incurred by the Deal Agent, the Liquidity Agent or VFCC upon such assignment
or participation and (vii) the Issuer shall have consented to such assignee,
such consent not to be unreasonably withheld, and PROVIDED FURTHER that upon
the effective date of such assignment the provisions of Section 3.03(f) of
the VFCC Administration Agreement shall be satisfied. Upon such execution,
delivery and acceptance by the Deal Agent and the Liquidity Agent and the
recording by the Deal Agent, from and after the effective date specified in
each Assignment and Acceptance, which effective date shall be the date of
acceptance thereof by the Deal Agent and the Liquidity Agent, unless a later
date is specified therein, (i) the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights
and obligations of an Investor hereunder and (ii) the Investor assignor
thereunder shall, to the extent that rights and obligations hereunder have
been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights and be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Investor's rights and obligations under this
Agreement, such Investor shall cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the
Investor assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Investor makes no
representation or warranty and assumes no responsibility with respect to any
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statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such assigning Investor makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of VFCC or the performance or observance by VFCC of any
of its obligations under this Agreement or any other instrument or document
furnished pursuant hereto; (iii) such assignee confirms that it has received
a copy of this Agreement, together with copies of such financial statements
and other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and
Acceptance; (iv) such assignee will, independently and without reliance upon
the Deal Agent or the Liquidity Agent, such assigning Investor or any other
Investor and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking
or not taking action under this Agreement; (v) such assigning Investor and
such assignee confirm that such assignee is an Eligible Assignee; (vi) such
assignee appoints and authorizes each of the Deal Agent and the Liquidity
Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement as are delegated to such agent by the terms hereof,
together with such powers as are reasonably incidental thereto; and (vii)
such assignee agrees that it will perform in accordance with their terms all
of the obligations which by the terms of this Agreement are required to be
performed by it as an Investor.
(c) The Deal Agent shall maintain at its address referred to herein a
copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Investors and
the Commitment of, and the Capital of, each Asset interest owned by each
investor from time to time (the "REGISTER"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and
VFCC, the Seller and the Investors may treat each Person whose name is
recorded in the Register as an Investor hereunder for all purposes of this
Agreement. The Register shall be available for inspection by VFCC, the
Liquidity Agent or any Investor at any reasonable time and from time to time
upon reasonable prior notice.
(d) Subject to the provisions of Section 8.1(a), upon its receipt of
an Assignment and Acceptance executed by an assigning Investor and an
assignee, the Deal Agent and the Liquidity Agent shall each, if such
Assignment and Acceptance has been completed and is in substantially the form
of Exhibit B hereto, accept such Assignment and Acceptance, and the Deal
Agent shall then (i) record the information contained therein in the Register
and (ii) give prompt notice thereof to VFCC.
(e) Each Investor may sell participations to one or more banks or
other entities in or to all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment and each Asset Interest owned by it); PROVIDED, HOWEVER, that (i)
such Investor's obligations under this Agreement (including, without
limitation, its Commitment hereunder) shall remain unchanged, (ii) such
Investor shall remain solely responsible to the other parties hereto for the
performance of such obligations and (iii) the Deal Agent and the other
Investors shall continue to deal solely and directly with such Investor in
connection with such Investor's rights and obligations under this Agreement,
and PROVIDED
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FURTHER that the Deal Agent shall have confirmed that upon the effective date
of such participation the provisions of Section 3.03(f) of the VFCC
Administration Agreement shall be satisfied. Notwithstanding anything herein
to the contrary, each participant shall have the rights of an Investor
(including any right to receive payment) under Sections 2.8 and 2.9;
PROVIDED, HOWEVER, that no participant shall be entitled to receive payment
under either such Section in excess of the amount that would have been
payable under such Section by the Seller to the Investor granting its
participation had such participation not been granted, and no Investor
granting a participation shall be entitled to receive payment under either
such Section in an amount which exceeds the sum of (i) the amount to which
such Investor is entitled under such Section with respect to any portion of
any Asset Interest owned by such Investor which is not subject to any
participation PLUS (ii) the aggregate amount to which its participants are
entitled under such Sections with respect to the amounts of their respective
participations. With respect to any participation described in this Section
8.1, the participant's rights as set forth in the agreement between such
participant and the applicable Investor to agree to or to restrict such
Investor's ability to agree to any modification, waiver or release of any of
the terms of this Agreement or to exercise or refrain from exercising any
powers or rights which such Investor may have under or in respect of this
Agreement shall be limited to the right to consent to any of the matters set
forth in Section 9.1 of this Agreement.
(f) Each Investor may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section 8.1, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Seller or VFCC furnished to such
Investor by or on behalf of the Seller or VFCC.
(g) In the event (i) an Investor ceases to qualify as an Eligible
Assignee, or (ii) an Investor makes demand for compensation pursuant to
Section 2.8 or Section 2.9, VFCC may, and, upon the direction of the Seller
and prior to the occurrence of an Early Amortization Event, shall, in any
such case, notwithstanding any provision to the contrary herein, replace such
Investor with an Eligible Assignee by giving three Business Days' prior
written notice to such Investor. In the event of the replacement of an
Investor, such Investor agrees (i) to assign all of its rights and
obligations hereunder to an Eligible Assignee selected by VFCC upon payment
to such Investor of the amount of such Investor's Asset Interests together
with any accrued and unpaid Yield thereon, all accrued and unpaid commitment
fees owing to such Investor and all other amounts owing to such Investor
hereunder and (ii) to execute and deliver an Assignment and Acceptance and
such other documents evidencing such assignment as shall be necessary or
reasonably requested by VFCC or the Deal Agent. In the event that any
Investor ceases to qualify as an Eligible Assignee, such affected Investor
agrees (1) to give the Deal Agent, the Seller and VFCC prompt written notice
thereof and (2) subject to the following proviso, to reimburse the Deal
Agent, the Liquidity Agent, the Seller, VFCC and the relevant assignee for
all fees, costs and expenses (including, without limitation, the reasonable
fees and out-of-pocket expenses of counsel for each of the Deal Agent, the
Liquidity Agent, the Seller and VFCC and such assignee) incurred by the Deal
Agent, the Liquidity Agent, the Seller, VFCC and such assignee, respectively,
in connection with any assignment made pursuant to this Section 8.1(g) by
such affected Investor; PROVIDED, HOWEVER, that such affected Investor's
liability for such
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costs, fees and expenses shall be limited to the amount of any up-front fees
paid to such affected Investor at the time that it became a party to this
Agreement.
(h) Nothing herein shall prohibit any Investor from pledging or
assigning as collateral any of its rights under this Agreement to any Federal
Reserve Bank in accordance with applicable law and any such pledge or
collateral assignment may be made without compliance with Section 8.1(a) or
Section 8.1(b).
(i) In the event any Investor causes Increased Costs, expenses or
Taxes to be incurred by the Deal Agent, Liquidity Agent or VFCC in connection
with the assignment or participation of such Investor's rights and
obligations under this Agreement to an Eligible Assignee then such Investor
agrees that it will make reasonable efforts to assign such Increased Costs,
expenses or Taxes to such Eligible Assignee in accordance with the provisions
of this Agreement.
(j) VFCC may at any time assign, or a security interest in or sell a
participation interest in, any Asset Interest (or portion thereof) to any
Person. The parties to any such assignment, or sale of participation
interest, shall execute and deliver to the Deal Agent, for its acceptance and
recording in its books and records, such agreement or document as may be
satisfactory to such parties and the Deal Agent.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 AMENDMENTS AND WAIVERS.
(a) No provision of this Agreement may be amended, supplemented,
modified or waived except in writing in accordance with the provisions of
this Section 9.1(a). VFCC, the Issuer and the Deal Agent may enter into
written amendments, modifications or waivers of any provisions of this
Agreement, PROVIDED, HOWEVER, that no such amendment, modification or waiver
shall:
(i) without the consent of each affected Purchaser, (A) reduce
the interest rate (or change any component thereof, including without
limit, the period for which such interest rate is calculated) or any fee
payable to the Deal Agent for the benefit of the Purchasers, (B) consent to
or permit the assignment or transfer by the Issuer of any of its rights and
obligations under this Agreement or the Indenture, (C) consent to the
amendment, modification or waiver of, or otherwise agree to amend, modify
or waive, any provision of the Indenture requiring consent of the holder of
the Class A Note or (D) amend or modify any defined term (or any defined
term used directly or indirectly in such defined term) used in clauses (A)
through (C) above in a manner which would circumvent the intention of the
restrictions set forth in such clauses; or
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(ii) without the written consent of the then Deal Agent, amend,
modify or waive any provision of this Agreement if the effect thereof is to
affect the rights or duties of such Deal Agent.
Notwithstanding the foregoing, without the consents of any of the other
parties hereto, the Deal Agent, the Issuer and each of the Purchasers may
amend this Agreement solely to add additional Persons as Purchasers
hereunder. Any modification or waiver shall apply to each of the Purchasers
equally and shall be binding upon the Issuer, the Purchasers and the Deal
Agent.
(b) The Deal Agent shall provide prior written notice of the nature of
each amendment to this Agreement, and shall, simultaneously with the
execution thereof, deliver a copy of such amendment to each Rating Agency.
SECTION 9.2 NOTICES, ETC.
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including telex communication
and communication by facsimile copy) and mailed, telexed, transmitted or
delivered, as to each party hereto, at its address set forth under its name
on the signature pages hereof or at such other address as shall be designated
by such party in a written notice to the other parties hereto. All such
notices and communications shall be effective, upon receipt, or in the case
of (a) notice by mail, upon receipt, (b) notice by telex, when telexed
against receipt of answerback or (c) notice by facsimile copy, when verbal
communication of receipt is obtained, except that notices and communications
pursuant to Article II shall not be effective until received with respect to
any notice sent by mail or telex.
SECTION 9.3 NO WAIVER; REMEDIES.
No failure on the part of the Deal Agent or a Purchaser to exercise, and
no delay in exercising, any right hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 9.4 NO PROCEEDINGS.
Each of the Issuer, the Deal Agent, the Liquidity Agent, the
Servicer and the Purchasers hereby agrees that it will not institute against,
or join any other Person in instituting against VFCC any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
similar proceedings under the laws of the United States or any state of the
United States until one year and one day shall have elapsed since the last
day on which any Commercial Paper remained outstanding.
24
<PAGE>
SECTION 9.5 RECOURSE AGAINST CERTAIN PARTIES.
(a) No recourse under or with respect to any obligation, covenant or
agreement (including, without limitation, the payment of any fees or any
other obligations) of any of the Issuer, the Servicer, VFCC, any Purchaser or
the Deal Agent as contained in the Deal Documents or any other agreement,
instrument or document entered into by it pursuant hereto or in connection
herewith shall be had against any administrator of such party or any
incorporator, affiliate, stockholder, officer, employee or director of such
party or of any such administrator, as such, by the enforcement of any
assessment or by any legal or equitable proceeding, by virtue of any statute
or otherwise; IT BEING EXPRESSLY AGREED AND UNDERSTOOD that the agreements of
such party contained in the Deal Documents and all of the other agreements,
instruments and documents entered into by it pursuant hereto or in connection
herewith are, in each case, solely the corporate obligations of such party,
PROVIDED THAT, in the case of VFCC, such liabilities shall be paid only after
the repayment in full of all Commercial Paper and all other liabilities
contemplated in the program documents with respect to VFCC, and that no
personal liability whatsoever shall attach to or be incurred by any
administrator of such party or any incorporator, stockholder, affiliate,
officer, employee or director of such party or of any such administrator, as
such, or any of them, under or by reason of any of the obligations, covenants
or agreements of such Purchaser contained in the Deal Documents or in any
other such instrument, document or agreement, or which are implied therefrom,
and that any and all personal liability of every such administrator of such
party and each incorporator, stockholder, affiliate, officer, employee or
director of such party or of any such administrator, or any of them, for
breaches by such party of any such obligations, covenants or agreements,
which liability may arise either at common law or in equity, by statute or
constitution, or otherwise, is hereby expressly waived as a condition of, and
in consideration for, the execution of the Deal Documents.
(b) Notwithstanding anything contained in this Agreement or any other
Series 1997-1 Transaction Document, VFCC shall have no obligation to pay any
amount required to be paid by it hereunder or in excess of any amount
available to VFCC after paying or making provision for the payment of its
Commercial Paper. All payment obligations of VFCC hereunder thereunder are
contingent upon the availability of funds in excess of the amounts necessary
to pay Commercial Paper; and each of the Issuer, the Deal Agent, the
Liquidity Agent, the Servicer and each Investor agrees that they shall not
have a claim under Section 101(5) of the United States Bankruptcy Code if and
to the extent that any such payment obligation exceeds the amount available
to VFCC to pay such amounts after paying or making provision for the payment
of its Commercial Paper.
(c) The provisions of this Section 9.5 shall survive the termination
of this Agreement.
SECTION 9.6 BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
Issuer, the Servicer, the Deal Agent, the Purchasers and their respective
successors and permitted assigns.
25
<PAGE>
SECTION 9.7 TERM OF THIS AGREEMENT.
This Agreement, including, without limitation, the Issuer's obligations
to observe its covenants and agreements set forth herein, shall remain in
full force and effect until the Collection Date; PROVIDED, HOWEVER, that the
obligations of the Issuer under Section 5.1, the indemnification and payment
provisions of Article VI and the provisions of Section 9.9 and Section 9.10
and the agreements of the parties contained in Sections 9.6, 9.7, 9.8 and
9.12 shall be continuing and shall survive any termination of this Agreement.
SECTION 9.8 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES).
SECTION 9.9 WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION.
(a) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PURCHASERS,
THE ISSUER AND THE DEAL AGENT WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE
BETWEEN THE PARTIES HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP BETWEEN ANY OF THEM IN CONNECTION WITH THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. INSTEAD, ANY SUCH DISPUTE
RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
(b) THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE NONEXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT LOCATED IN THE
COUNTY OF NEW YORK, SOLELY FOR THE PURPOSES OF ANY ACTION, SUIT OR PROCEEDING
BROUGHT AGAINST IT AND TO OR IN CONNECTION WITH THIS AGREEMENT ANY OF THE
DEAL DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREUNDER OR FOR RECOGNITION
OR ENFORCEMENT OF ANY JUDGMENT, AND THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD OR DETERMINED IN ANY SUCH COURT. IN THE EVENT THAT
ANY ACTION, SUIT OR PROCEEDING IS BROUGHT IN A STATE COURT, THE PARTIES WILL
SEEK ASSIGNMENT TO THE COMMERCIAL PART OF SAID COURT. THE PARTIES HERETO
AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT
OR IN ANY OTHER MANNER PROVIDED BY LAW. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT BY
WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH
26
<PAGE>
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO
THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS
BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR
PROCEEDING IS IMPROPER OR THAT THE RELATED DOCUMENTS OR THE SUBJECT MATTER
THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS.
(c) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO
SHALL NOT SEEK AND HEREBY WAIVE THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF
ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE
CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT.
SECTION 9.10 COSTS, EXPENSES AND TAXES.
In addition to the rights of indemnification granted to the Deal Agent,
the Purchasers and their respective Affiliates under Article VI hereof, the
Issuer agrees to pay on demand all costs and expenses incurred by a Purchaser
or the Deal Agent, and their respective Affiliates, successors or assigns,
with respect to enforcing their respective rights and remedies as against the
Issuer under this Agreement, the Indenture, any Class A Note, any other Deal
Document and the other documents to be delivered hereunder or in connection
herewith; PROVIDED, however, that none of the Deal Agent, any Purchaser or
any affiliate thereof shall be entitled to any such payment (and shall
reimburse the Issuer for any such payments previously received) if such
person has been determined by a court of competent jurisdiction to not be
entitled to receive indemnification pursuant to Article VI hereof in
connection with such enforcement. The Issuer also agrees to pay on demand
all costs and expenses of the Purchasers and the Deal Agent, and their
respective Affiliates, successors or assigns, if any (including reasonable
counsel fees and expenses), incurred in connection with the negotiation,
execution, and delivery of this Agreement and the transactions contemplated
hereby and/or the enforcement, administration (including periodic auditing),
amendment or modification of, or any waiver or consent issued in connection
with, this Agreement, the Indenture, the Class A Note, any other Deal
Document and the other documents to be delivered hereunder or thereunder, or
in connection herewith or therewith. The Issuer also agrees to pay on demand
all reasonable out-of-pocket costs and expenses incurred by a Purchaser or
the Deal Agent in connection with the administration (including periodic
auditing, rating agency requirements, modification and amendment) of this
Agreement, the Deal Documents and the other documents to be delivered
hereunder, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for Purchaser and the Deal Agent with
respect thereto and with respect to advising the Purchaser and the Deal Agent
as to their rights and remedies under this Agreement, the Deal Documents and
the other agreements executed pursuant hereto. Any amounts subject to the
provisions of this Section 9.10 shall be paid by the Issuer to the Deal Agent
within ten (10) Business Days following the Deal Agent's written demand
therefor. Notwithstanding anything to the contrary, the Issuer's obligations
to make payments under this Section 9.10 shall be limited solely to funds
available from time to time for such purpose pursuant to Section 3.2 of the
Supplement and to the extent they are not so paid, such obligations shall not
constitute a claim against the Issuer or the Collateral.
27
<PAGE>
SECTION 9.11 RATABLE PAYMENTS.
If any Purchaser, whether by setoff or otherwise, has payment made to it
with respect to any portion of any amount of the principal amount of the
Class A Note or other amount owing to such Purchaser (other than payments
received pursuant to Article VI) in a greater proportion than that received
by any other Purchaser, such Purchaser agrees, promptly upon demand, to pay
to the Deal Agent, for distribution ratably to all other Purchasers, the
amount of such excess such that all Purchasers shall receive their ratable
portion of such payment.
SECTION 9.12 CONFIDENTIALITY.
(a) Each of the Deal Agent, the Purchasers and the Issuer shall
maintain and shall cause each of its employees and officers to maintain the
confidentiality of this Agreement and the other confidential proprietary
information with respect to the other parties hereto and their respective
businesses obtained by it or them in connection with the structuring,
negotiating and execution of the transactions contemplated herein, except
that each such party and its officers and employees may (i) disclose such
information to its external accountants and attorneys and as required by
applicable law, applicable accounting requirements or order of any judicial
or administrative proceeding and (ii) disclose the existence of this
Agreement, but not the financial terms thereof.
(b) Anything herein to the contrary notwithstanding, the Issuer hereby
consents to the disclosure of any nonpublic information with respect to it
(i) to the Deal Agent, the Liquidity Agent, the Investors, prospective
Investors or a Purchaser by each other, (ii) by the Deal Agent or the
Purchasers to any prospective or actual assignee or participant of any of
them or (iii) by the Deal Agent to any rating agency that provides a rating
for the Commercial Paper, Commercial Paper dealer or placement agent or
provider of a surety, guaranty or credit or liquidity enhancement to a
Purchaser and to any officers, directors, employees, outside accountants and
attorneys of any of the foregoing, provided each such Person is informed of
the confidential nature of such information and agrees to keep such
information confidential pursuant to the terms of this Section 8.10. In
addition, the Purchasers, the Liquidity Agent, the Investors and the Deal
Agent may disclose any such nonpublic information pursuant to any law, rule,
regulation, direction, request or order of any judicial, administrative or
regulatory authority or proceedings (whether or not having the force or
effect of law). As used herein, the terms "Investors" and the "Liquidity
Agent" shall have their respective meanings as set forth in the Liquidity
Purchase Agreement.
SECTION 9.13 EXECUTION IN COUNTERPARTS; SEVERABILITY; INTEGRATION.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken
together shall constitute one and the same agreement. In case any provision
in or obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability
of the remaining
28
<PAGE>
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby. This
Agreement contains the final and complete integration of all prior
expressions by the parties hereto with respect to the subject matter hereof
and shall constitute the entire agreement among the parties hereto with
respect to the subject matter hereof, superseding all prior oral or written
understandings.
[Signatures to Follow]
29
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the
date first above written.
THE ISSUER: WLFC FUNDING CORPORATION
By James D. McBride
Title Chief Financial Officer
THE SERVICER: WILLIS LEASE FINANCE CORPORATION
By /s/ Charles F. Willis
Title Chief Executive Officer
THE INVESTOR: FIRST UNION NATIONAL BANK
By /s/ Bill A. Shirley
Title Senior Vice President
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention:
Facsimile No.:
Confirmation No:
VFCC: VARIABLE FUNDING CAPITAL
CORPORATION
By First Union Capital Markets Corp., as
attorney-in-fact
By /s/ Paul Zajac
Title Vice President
Variable Funding Capital Corporation
c/o First Union Capital Markets Corp.
One First Union Center, TW-9
Attention: Conduit Administration
Facsimile No.: (704) 383-6036
Confirmation No.: (704) 383-9343
<PAGE>
With a copy to:
Lord Securities Corp.
2 Wall Street, 19th Floor
New York, New York
Attention: Vice President
Facsimile No.: (212) 346-9012
Confirmation No.: (212) 346-9008
THE DEAL AGENT: FIRST UNION CAPITAL MARKETS CORP.
By /s/ Russel D. Morrison
Title Vice President
First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: Conduit Administration
Facsimile No.: (704) 383-6036
Telephone No.: (704) 383-9343
THE LIQUIDITY AGENT: FIRST UNION NATIONAL BANK
By /s/ Bill A. Shirley
Title Senior Vice President
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention:
Facsimile No.:
Telephone No.:
<PAGE>
SCHEDULE I
CONDITIONS OF THE PURCHASERS' OBLIGATION. (I) CONDITIONS TO
INITIAL LOAN. The Purchasers' obligation to make the initial Loan shall be
subject to the accuracy in all material respects of the representations and
warranties of the Issuer and WLFC in each of the Series 1997-1 Transaction
Documents, to the performance in all material respects by WLFC and the Issuer
of their respective obligations thereunder, to the satisfaction of all of the
conditions precedent set forth in Sections 5.1 and 5.2 of the Series 1997-1
Supplement and to the following additional conditions:
(a) All of the respective representations and warranties of the
Issuer under the Issuer Documents and of WLFC under the WLFC Documents shall
be true and correct in all material respects as of the date made, and no
event shall have occurred which, with notice or the passage of time, would
constitute an Event of Default under the Indenture or an Early Amortization
Event under the Indenture and each of such Issuer Documents and WLFC
Documents shall have been duly authorized, executed and delivered and shall
be in full force and effect;
(b) [Reserved];
(c) In-house counsel of WLFC shall have delivered to the Deal
Agent its written opinion, dated the Closing Date, which shall state that it
may be relied upon by subsequent Class A Noteholders, in form and substance
satisfactory to the Deal Agent and the Purchasers, with respect to the
enforceability of the Deal Documents;
(d) Gibson, Dunn & Crutcher LLP, counsel to the Issuer, shall
have furnished to the Deal Agent its reliance letters, dated the Closing
Date, in form and substance satisfactory to the Deal Agent and the Purchasers;
(e) Gibson, Dunn & Crutcher LLP, counsel for WLFC and the
Issuer, shall have delivered to the Deal Agent its reliance letters, dated
the Closing Date, in form and substance satisfactory to the Deal Agent and
the Purchasers;
(f) Emmet, Marvin & Marvin, counsel to the Indenture Trustee,
shall have furnished to the Deal Agent and to the Issuer its reliance letter,
dated the Closing Date, in form and substance satisfactory to the Deal Agent
and the Purchasers;
(g) The Issuer shall have furnished to the Deal Agent on the
Closing Date a certificate, dated the Closing Date, signed by an authorized
officer, to the effect that:
(i) The representations and warranties made by the Issuer
in the Issuer Documents are true and correct in all material respects on
the Closing Date;
<PAGE>
(ii) The Issuer has complied with all of the agreements and
satisfied all the conditions on its part to be performed or satisfied on or
prior to the Closing Date pursuant to the terms of the Issuer Documents;
and
(iii) The written information supplied by the Issuer to the
Purchasers (other than projections and other estimates) did not contain any
untrue statement of a material fact, and any estimates or projections so
supplied to the Purchasers were based on assumptions which the Issuer
believed to be reasonable (except as otherwise disclosed therein).
(h) WLFC shall have furnished to the Deal Agent on the Closing
Date a certificate, dated the closing Date, signed by an authorized officer,
to the effect that:
(i) The representations and warranties made by WLFC in the
WLFC Documents are true and correct in all material respects on the Closing
Date;
(ii) WLFC has complied with all of the agreements and
satisfied all the conditions on its part to be performed or satisfied on or
prior to the Closing Date pursuant to the terms of the WLFC Documents; and
(iii) The written factual information supplied by WLFC to the
Purchasers (other than projections and other estimates) did not contain any
untrue statement of a material fact in light of the circumstances under
which they were made, and any estimates or projections so supplied to the
Purchasers were based on assumptions which WLFC believed to be reasonable
(except as otherwise disclosed therein);
(i) Any taxes, fees and other governmental charges which are
due and payable prior to the Effective Date and the Closing Date by WLFC or
the Issuer in connection with the execution, delivery and performance of the
Issuer Documents and WLFC Documents shall have been paid at or prior to the
Effective Date or the Closing Date, as the case may be;
(j) As of the related Transfer Date, the Issuer has good title
to, and is the sole owner of, the Collateral, free and clear from any Lien
except for the rights of the Lessees under the Lease Agreements and the Lien
of the Indenture Trustee and shall not have assigned to any Person other than
the Indenture Trustee any of its right, title or interest in the Lease
Agreements, the Engines or any other Transferred Assets;
(k) The Indenture Trustee or its agent shall have received, to
be held in trust pursuant to the Indenture and the Series 1997-1 Supplement,
the Transferred Assets including the Lease Agreements and all documents,
instruments and other assets required by the Indenture and the Series 1997-1
Supplement to be delivered to the Indenture Trustee with respect thereto as
of the Closing Date and as of each related Transfer Date, as applicable;
(l) No fact or condition shall exist under applicable law or
applicable regulations thereunder or interpretations thereof by any
regulatory authority which in the
<PAGE>
Purchaser's reasonable opinion would make it illegal for the Issuer to issue
and sell the Class A Note or for the Issuer or any of the other parties
thereto to perform their respective obligations under any Related Document;
(m) The Asset Base as of the Closing Date shall be not less
than the Outstanding Obligations;
(n) The Issuer, WLFC, the Purchasers and the Indenture Trustee
shall each have received a fully executed counterpart original and any
required conformed copies of all Related Documents delivered at or prior to
the Closing Date;
(o) All corporate, trust and other proceedings in connection
with the sale of the Class A Note and the transactions contemplated hereby
and all documents and certificates incident thereto shall be satisfactory in
form and substance to the Purchasers and its counsel, and the Purchaser shall
have received such other documents and certificates incident to such
transaction as the Purchasers or such counsel shall reasonably request;
(p) WLFC shall have furnished to the Purchasers or to the Deal
Agent (a) a consolidated statement of income of WLFC for the fiscal year
ended December 31, 1997 and a consolidated balance sheet of WLFC dated as of
September 30, 1998, each of which shall be in form and substance satisfactory
to the Purchasers and the Deal Agent, and (b) from the independent accounting
firm which regularly audits WLFC's financial statements, a consolidated
statement of income of WLFC for the fiscal year ended December 31, 1997 and a
consolidated balance sheet of WLFC dated as of September 30, 1998, each of
which shall be in form and substance satisfactory to the Purchasers and the
Deal Agent and be certified by such accounting firm to fairly present the
financial condition of WLFC, to have been prepared in accordance with
Generally Accepted Accounting Principles applied on a basis consistent with
that of the preceding fiscal year and to have been based upon an audit by
such accounting firm made in accordance with generally accepted auditing
standards;
(q) The Purchasers or the Deal Agent shall have received the
following, in each case in form and substance satisfactory to them and their
special counsel:
(i) a copy of resolutions of the Board of Directors of the
Issuer, certified by the Secretary or an Assistant Secretary of the Issuer
as of the Effective Date, duly authorizing the issuance, sale and delivery
of the Class A Note by the Issuer and the execution, delivery and
performance by the Issuer of the Issuer Documents and any other Related
Documents to which it is a party and any other documents executed by or on
behalf of the Issuer in connection with the transactions contemplated
hereby; and an incumbency certificate of the Issuer as to the person or
persons executing and delivering each such document;
(ii) a copy of resolutions of the Board of Directors of
WLFC, certified by the Secretary or an Assistant Secretary of WLFC as of
the Effective Date, duly authorizing the execution, delivery and
performance by WLFC of the WLFC Documents
<PAGE>
and any other Related Documents to which it is a party and any other
documents executed by or on behalf of WLFC in connection with the
transactions contemplated hereby; and an incumbency certificate of
WLFC as to the person or persons executing and delivering each such
document; and
(iii) such other documents and evidence with respect to WLFC,
the Issuer and the Indenture Trustee as the Purchasers may reasonably
request in order to establish the corporate existence and good standing of
each thereof, the proper taking of all appropriate corporate proceedings in
connection with the transactions contemplated hereby and the compliance
with the conditions set forth herein; and
(r) The Purchasers shall receive on or before the Closing Date
and each Transfer Date, as the case may be, evidence that UCC-1 financing
statements and FAA recordations set forth in Section 2.03 of the Contribution
and Sale Agreement have been filed in the appropriate filing offices,
reflecting the interest of the Issuer and the Indenture Trustee in the
Collateral;
(s) [Reserved];
(t) No action or proceeding shall have been instituted nor
shall any governmental action be threatened before any court or government
agency nor shall any order, judgment or decree have been issued or proposed
to be issued by any court or governmental agency to set aside, restrain,
enjoin or prevent the performance of the Contribution and Sale Agreement, the
Indenture, the other Related Documents or any of the other agreements or the
transactions contemplated hereby;
(u) [Reserved];
(v) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained by or from any Federal, state or
other governmental authority or agency, or by or from any trustee or holder
of any indebtedness or obligation of WLFC or the Issuer, or that are
necessary or, in the opinion of the Purchasers special counsel, advisable in
connection with the transactions contemplated herein shall have been
delivered to the Purchasers.
<PAGE>
- ------------------------------------------------------------------------------
WLFC FUNDING CORPORATION
Issuer
and
THE BANK OF NEW YORK
Indenture Trustee
------------------------------
AMENDED AND RESTATED SERIES 1997-1 SUPPLEMENT (*)
Dated as of February 11, 1999
to
INDENTURE
Dated as of September 1, 1997
------------------------------
SERIES 1997-1 NOTES
- ------------------------------------------------------------------------------
- -------------------------
(*) Portions of the material in this Exhibit have been redacted pursuant to
a request for confidential treatment and the redacted material has been
filed separately with the Commission. An asterisk has been placed in
the precise places in this Agreement where we have redacted information
and the asterisk is keyed to a legend which states that the material
has been omitted pursuant to a request for confidential treatment.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS; CALCULATION GUIDELINES . . . . . . . . . . . . . . . . 1
Section 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Calculation Guidelines . . . . . . . . . . . . . . . . . .12
ARTICLE II CREATION OF THE SERIES 1997-1 NOTES. . . . . . . . . . . . . . . .12
Section 2.1. Designation; General Terms and Conditions. . . . . . . . .12
Section 2.2. Interest Payments on the Series 1997-1 Notes.. . . . . . .13
Section 2.3. Principal Payments on the Series 1997-1 Notes. . . . . . .14
Section 2.4. Amounts and Terms of Series 1997-1 Noteholder Commitments.14
Section 2.5. Increased Costs; Capital Adequacy; Illegality. . . . . . .15
Section 2.6. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .15
Section 2.7. Payments, Computations, Etc. . . . . . . . . . . . . . . .15
ARTICLE III SERIES 1997-1 SERIES ACCOUNT AND ALLOCATION AND
APPLICATION OF AMOUNTS THEREIN. . . . . . . . . . . . . . . . . . . . . . .16
Section 3.1. Series 1997-1 Series Account.. . . . . . . . . . . . . . .16
Section 3.2. Distributions from Series 1997-1 Series Account on each
Payment Date . . . . . . . . . . . . . . . . . . . . . . .16
Section 3.3. Allocation of Excess Cash Available for Distribution.. . .19
Section 3.4. Series 1997-1 Restricted Cash Account. . . . . . . . . . .20
Section 3.5. Series 1997-1 Engine Reserve Account.. . . . . . . . . . .20
Section 3.6. Series 1997-1 Security Deposit Account.. . . . . . . . . .21
Section 3.7. Securities Accounts. . . . . . . . . . . . . . . . . . . .21
ARTICLE IV ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . .22
Section 4.1. Additional Series. . . . . . . . . . . . . . . . . . . . .22
Section 4.2. Control Party. . . . . . . . . . . . . . . . . . . . . . .22
Section 4.3. Inspections. . . . . . . . . . . . . . . . . . . . . . . .22
Section 4.4. Reserved.. . . . . . . . . . . . . . . . . . . . . . . . .22
Section 4.5. Interest Rate Hedge Agreements.. . . . . . . . . . . . . .22
Section 4.6. Insurance. . . . . . . . . . . . . . . . . . . . . . . . .23
Section 4.7. Lessee Acknowledgment. . . . . . . . . . . . . . . . . . .23
Section 4.8. Opinions of Foreign Local Counsel. . . . . . . . . . . . .23
ARTICLE V CONDITIONS OF EFFECTIVENESS AND FUTURE LENDING. . . . . . . . . . .24
Section 5.1. Effectiveness of Supplement. . . . . . . . . . . . . . . .24
Section 5.2. Advances on Class A Notes. . . . . . . . . . . . . . . . .25
i
<PAGE>
ARTICLE VI REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . .28
Section 6.1. Existence. . . . . . . . . . . . . . . . . . . . . . . . .28
Section 6.2. Authorization. . . . . . . . . . . . . . . . . . . . . . .28
Section 6.3. No Conflict; Legal Compliance. . . . . . . . . . . . . . .29
Section 6.4. Validity and Binding Effect. . . . . . . . . . . . . . . .29
Section 6.5. Financial Statements.. . . . . . . . . . . . . . . . . . .29
Section 6.6. Executive Offices. . . . . . . . . . . . . . . . . . . . .29
Section 6.7. No Agreements or Contracts.. . . . . . . . . . . . . . . .29
Section 6.8. Consents and Approvals.. . . . . . . . . . . . . . . . . .30
Section 6.9. Margin Regulations.. . . . . . . . . . . . . . . . . . . .30
Section 6.10. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .30
Section 6.11. Other Regulations. . . . . . . . . . . . . . . . . . . . .30
Section 6.12. Solvency and Separateness. . . . . . . . . . . . . . . . .31
Section 6.13. No Proceedings.. . . . . . . . . . . . . . . . . . . . . .32
Section 6.14. Recourse Against Certain Parties.. . . . . . . . . . . . .33
Section 6.15. Survival of Representations and Warranties.. . . . . . . .34
Section 6.16. No Event of Default or Early Amortization Event. . . . . .34
Section 6.17. Litigation and Contingent Liabilities. . . . . . . . . . .34
Section 6.18. Title; Liens.. . . . . . . . . . . . . . . . . . . . . . .34
Section 6.19. Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . .34
Section 6.20. No Partnership.. . . . . . . . . . . . . . . . . . . . . .34
Section 6.21. Pension and Welfare Plans. . . . . . . . . . . . . . . . .34
Section 6.22. Ownership of Issuer. . . . . . . . . . . . . . . . . . . .35
Section 6.23. Security Interest. . . . . . . . . . . . . . . . . . . . .35
Section 6.24. Eligible Lease Agreements; Eligible Engines. . . . . . . .35
ARTICLE VII EARLY AMORTIZATION EVENT. . . . . . . . . . . . . . . . . . . . .35
Section 7.1. Early Amortization Event.. . . . . . . . . . . . . . . . .35
ARTICLE VIII MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . .37
Section 8.1. Ratification of Indenture. . . . . . . . . . . . . . . . .37
Section 8.2. Counterparts.. . . . . . . . . . . . . . . . . . . . . . .37
Section 8.3. Governing Law. . . . . . . . . . . . . . . . . . . . . . .37
</TABLE>
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AMENDED AND RESTATED SERIES 1997-1 SUPPLEMENT, dated as of February 11,
1999 (the "Supplement" or the "Series 1997-1 Supplement"), between WLFC
Funding Corporation, a corporation organized and existing under the laws of
the State of Delaware (the "Issuer"), and The Bank of New York, a New York
banking corporation, as Indenture Trustee (the "Indenture Trustee").
Pursuant to the Indenture, dated as of September 1, 1997 (as amended and
supplemented, the "Indenture"), between the Issuer and the Indenture Trustee,
the Issuer may from time to time direct the Indenture Trustee to authenticate
one or more new Series of Notes. The Principal Terms of any new Series are to
be set forth in a Supplement to the Indenture.
Pursuant to this Supplement, the Issuer and the Indenture Trustee have
created the Series 1997-1 Notes and specified the Principal Terms thereof.
Pursuant to this Supplement, the Issuer and the Indenture Trustee wish
to, INTER ALIA, (i) exchange the promissory note, dated December 19, 1997
issued to First Union National Bank for a new promissory note issued to the
Class A Noteholders, (ii) modify the terms of payment of principal and
interest on the Series 1997-1 Notes, and (iii) pursuant to an Assignment
dated as of February 11, 1999 (the "Assignment"), to accommodate the
assignment of all right, title and interest of First Union National Bank
under the Series 1997-1 Transaction Documents to the Deal Agent for the
benefit of the Class A Noteholders.
The parties hereto have agreed to enter into such transactions but only
upon the terms and conditions hereinafter set forth and in reliance on the
representations and warranties of the Issuer set forth herein.
NOW THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; CALCULATION GUIDELINES
SECTION 1.1. DEFINITIONS.
(a) Capitalized terms used in this Supplement but not defined herein
shall have the meaning assigned to such terms in the Indenture. Whenever
used in this Supplement, the following words and phrases shall have the
following meanings, and the definitions of such terms are applicable to the
singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
"ADJUSTED EURODOLLAR RATE" means on any day, an interest rate per annum
equal to the quotient, expressed as a percentage and rounded upwards (if
necessary) to the nearest 1/100 of
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1%, obtained by dividing (i) the LIBOR Rate on such day by (ii) the decimal
equivalent of 100% minus the Eurodollar Reserve Percentage on such day.
"ADMINISTRATIVE AGENT FEE" means the fee payable by the Issuer to the
Administrative Agent pursuant to Section 2.4(e) hereof.
"AGENT'S ACCOUNT" means a special account (account number 01 41 96 47)
in the name of the Deal Agent or, so long as VFCC is the sole beneficial
owner of the Class A Note hereunder, in the name of VFCC, at Bankers Trust
Company.
"ALTERNATIVE RATE" means on any day, an interest rate per annum equal to
the Adjusted Eurodollar Rate; PROVIDED, HOWEVER, that the Alternative Rate
for the outstanding principal amount of any Loan allocated to a Interest
Accrual Period shall be the Base Rate if (a) on or before the first day of
such Interest Accrual Period, a Purchaser shall have notified the Deal Agent
that a Eurodollar Disruption Event has occurred, (b) such Interest Accrual
Period is a period of less than one month, or (c) such outstanding principal
amount of such Loan is less than $5,000,000.
"APPLICABLE PERCENTAGE" has the meaning set forth in Schedule 1.
"BASE RATE" means on any date, a fluctuating rate of interest per annum
equal to the higher of (a) the Prime Rate and (b) the Federal Funds Rate PLUS
0.50% per annum.
"BREAKAGE COSTS" means any amount or amounts as shall compensate a
Purchaser for any loss, cost or expense incurred by such Purchaser in
connection with funding obtained by it with respect to a Loan (as reasonably
determined by the Deal Agent in its sole discretion on behalf of the
Purchaser) as a result of a prepayment by the Issuer of principal or Interest
pursuant to the terms hereof.
"CLASS A NOTE" means any one of the Class A Notes of Series 1997-1
issued pursuant to the terms of this Supplement, substantially in the form of
EXHIBIT A to this Supplement.
"CLASS A NOTE COMMITMENT" has the meaning set forth in Schedule 1.
"CLASS A NOTE INTEREST ARREARAGE" means, for any Payment Date, an amount
equal to the excess, if any, of (a) the Class A Note Interest Payment for
such Payment Date and any outstanding Class A Note Interest Arrearage from
the immediately preceding Payment Date plus interest on any outstanding Class
A Note Interest Arrearage, to the extent permitted by law, at the Overdue
Rate over (b) the amount of Class A Note Interest Payment and Class A Note
Interest Arrearage actually distributed to the Purchasers on such Payment
Date.
"CLASS A NOTE INTEREST PAYMENT" means, as of any Payment Date, the
amount of any accrued and unpaid interest as of the end of the immediately
preceding Interest Accrual Period.
"CLASS A NOTE PRINCIPAL BALANCE" means an amount equal to the excess of
(x) the sum of (A) the outstanding principal balance of the Class A Notes on
the Closing Date plus (B) the
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principal balance of all Loans made subsequent to the Closing Date, over (y)
all amounts paid to the Purchasers representing the sum of the following, to
the extent actually received by the Purchasers: (i) Class A Note Principal
Payments, (ii) Prepayments paid to the Purchasers, and (iii) repayments of
the Class A Note Principal Balance made pursuant to Section 2.4(c) hereof.
"CLASS A NOTE PRINCIPAL PAYMENT" means, for any Payment Date, one of the
amounts set forth in (A) or (B):
(A) (i) Prior to the Conversion Date if no Early Amortization
Event has occurred or is continuing on such Payment Date, an amount equal
to the excess, if any, of (1) the Class A Note Principal Balance over (2)
the Asset Base; and
(ii) On or after the Conversion Date if no Early
Amortization Event has occurred or is continuing on such Payment Date, an
amount equal to the excess, if any, of (1) the sum of (A) the product of
(i) ninety percent (90%) and (ii) all Engine Revenues actually received by,
or on behalf of, the Issuer during the related Collection Period with
respect to the Series 1997-1 Engines and (B) the product of (x) a fraction,
expressed as a percentage, the numerator of which shall equal the Class A
Note Principal Balance (prior to giving effect to any payments of principal
on such Payment Date) and the denominator of which shall equal the sum of
the Net Book Values of all Series 1997-1 Engines (calculated as of the last
day of the immediately preceding month) and (y) the greater of (i) the sum
of the Net Book Values of all Series 1997-1 Engines sold during the related
Collection Period (which Net Book Values will be determined as of the last
day of the month immediately preceding such sale), and (ii) the aggregate
Sales Proceeds of all Series 1997-1 Engines sold during the related
Collection Period, over (2) the amount paid pursuant to clauses (A) through
(H) inclusive, of Section 3.2(II) hereof; or
(B) If an Early Amortization Event is continuing, all remaining
amounts on deposit in the Series 1997-1 Series Account after payment of the
amounts set forth in clauses (A) through (G), inclusive, of Section 3.2(II)
of this Supplement, until the Class A Note Principal Balance is reduced to
zero.
"CLASS A NOTE PURCHASE AGREEMENT" means the Class A Note Purchase
Agreement, dated as of February 11, 1999, among the Issuer, the Servicer,
FCM, the Investors named therein, VFCC and First Union National Bank.
"CLASS A NOTEHOLDER(S)" means, at any time of determination for the
Series 1997-1 Notes, any person in whose name a Class A Note is registered in
the Note Register and each other person for whose benefit the Class A Note is
held by such Person (including, without limitation, the "Purchasers" under
(and as defined in) the Class A Note Purchase Agreement).
"CLOSING" means the time at which each of the conditions precedent set
forth in Section 5.2 of this Supplement (with respect to the initial Loan
made hereunder by VFCC) shall have been duly fulfilled or satisfied.
"CLOSING DATE" means the date on which Closing occurs.
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"COMMERCIAL PAPER" means commercial paper issued by VFCC.
"CONTROL PARTY" shall be determined in accordance with Section 4.2 of
this Supplement.
"CONVERSION DATE" means the Payment Date occurring on the first annual
anniversary of the initial Payment Date; PROVIDED, HOWEVER, that such
Conversion Date may be extended annually by the Issuer for one year periods
if approved by all of the Holders of the Class A Notes.
"CP RATE" means on any day, the per annum rate equivalent to the
weighted average of the per annum rates paid or payable by VFCC from time to
time as interest or otherwise (by means of interest rate hedges or otherwise)
in respect of the promissory notes issued by VFCC that are allocated, in
whole or in part, by the Deal Agent (on behalf of VFCC) to fund or maintain
the Loans during the related Interest Accrual Period, as determined by the
Deal Agent (on behalf of VFCC) and reported to the Issuer and the Servicer,
which rates shall reflect and give effect to the commissions of placement
agents and dealers in respect of such Commercial Paper, to the extent such
commissions are allocated, in whole or in part, to such promissory notes by
the Deal Agent (on behalf of VFCC); PROVIDED, HOWEVER, that if any component
of such rate is a discount rate, in calculating the "CP Rate" the Deal Agent
shall for such component use the rate resulting from converting such discount
rate to an interest bearing equivalent rate per annum.
"DEAL AGENT" means First Union Capital Markets Corp.
"DEFAULT INTEREST" is defined in Section 2.2(b) of this Supplement.
"DETERMINATION DATE" means the third Business Day prior to any Payment
Date.
"DOLLARS" and the sign "$" means lawful money of the United States of
America.
"EARLY AMORTIZATION EVENT" is defined in Section 7.1 of this Supplement.
"EFFECTIVE DATE" means the date on which each of the conditions
precedent set forth in Section 5.1 of this Supplement shall have been duly
fulfilled or satisfied.
"ELIGIBLE ENGINE" means any Engine which, individually or when
considered with all Eligible Engines then owned by Issuer, as applicable,
shall comply with each of the following requirements, unless any of such
requirements is waived in writing by the Deal Agent:
(1) ELIGIBLE LEASE. Each Engine is subject to an Eligible Lease
on the related Transfer Date; and
(2) ENGINE REPRESENTATIONS AND WARRANTIES. Each Engine complies
with the Engine Representations and Warranties on the related Transfer Date,
including without limitation, that representation and warranty of the Seller
set forth in Section 3.1(o) of the Contribution and Sale Agreement; and
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(3) CASUALTY LOSS. No Casualty Loss shall have been suffered by
the related Engine; and
(4) DEPRECIATION POLICY. The depreciation method utilized in
calculating the Net Book Value of such Engine as of such Transfer Date is the
Depreciation Policy.
"ELIGIBLE LEASE" means each Lease Agreement that encumbers an Engine on
any Transfer Date or that encumbers an Eligible Engine on any date thereafter
that complies with all of the following requirements unless any of such
requirements is waived in writing by the Deal Agent:
(1) DELINQUENCIES. No Scheduled Payment on such Lease Agreement
is delinquent for more than 30 days as of the related Transfer Date;
(2) VALID CONTRACT. Each Lease Agreement is a legal, valid and
binding full recourse payment obligation of the related Lessee, is
enforceable in accordance with its terms (except as may be limited by
applicable insolvency, bankruptcy, moratorium, reorganization, or other
similar laws affecting enforceability of creditors' rights generally and the
availability of equitable remedies) and is in full force and effect and such
Lease Agreement has not been satisfied, subordinated or rescinded;
(3) HELL-OR-HIGH WATER OBLIGATION. The Lessee's obligations under
each Lease Agreement are non-cancelable and unconditional and not subject to
any right of set-off, counterclaim, reduction or recoupment;
(5) NET LEASE. Each Lease Agreement contains provisions requiring
the related Lessee to pay all sales, use, excise, rental, property or similar
taxes imposed on or with respect to the Engine and to assume all risk of loss
or malfunction of the related Engine; each Lease Agreement requires the
Lessee to maintain the Engine in good and workable order and as are necessary
to maintain the Engine's serviceability standards pursuant to FAA
requirements or requirements of other appropriate Governmental Authorities;
(6) LEGAL CAPACITY. The Lessee had the legal capacity to execute
such Lease Agreement and the Seller had the legal capacity to execute such
Lease Agreement or the related acquisition documentation, as the case may be;
(7) U.S. DOLLARS. All payments under each Lease Agreement are
required to be made in Dollars;
(8) NO CONSENT. No Lease Agreement requires the prior written
consent of a Lessee or contains another restriction relating to the transfer
or assignment of such Lease Agreement by Seller or the Issuer (except such
consent as have been obtained or restrictions satisfied on or prior to the
related Transfer Date);
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(9) SCHEDULED PAYMENTS. Each Lease Agreement provides for
the payment of Scheduled Payments on a basis no less frequently than
quarterly;
(10) PREPAYMENT. As of the Transfer Date, no Scheduled
Payment under any Lease Agreement has been prepaid;
(11) CUSTOMARY PRACTICES. The Lease Agreement was originated
or acquired by the Seller in the ordinary course of its business;
(12) BANKRUPT LESSEE. On the Transfer Date, the related Engine
is not subject to a Lease Agreement with a Lessee that is subject to an
Insolvency Proceeding;
(13) INSURANCE. The Lease Agreement requires the Lessee to
provide liability insurance, all risk ground and flight hull and engine
coverage for damage/loss of engine, war risk, and where requested by the Deal
Agent, governmental confiscation and expropriation insurance coverage with
acceptable deductibles, all of which shall name the Indenture Trustee as
additional insured and first loss payee;
(14) GEOGRAPHIC OPERATING RESTRICTIONS. In the related Lease
Agreement the Lessee agrees not to operate the aircraft and not to be based
in any jurisdiction excluded from the insurance coverage referred to in item
(13) above; and
(15) CHATTEL PAPER. Any original counterpart of each Lease
Agreement (other than the one held by the Lessee or filed with any relevant
Governmental Authority) that constitutes "chattel paper" for purposes of the
UCC as in effect in the jurisdiction whose law governs the Lease Agreement
has been delivered to the Indenture Trustee.
"ENGINE TYPE EXCESS CONCENTRATION AMOUNT" means at any date of
determination, the dollar amount, if any, by which the sum of the Net Book
Values of all Eligible Engines (relating to Loans hereunder) of the same
engine type exceeds the applicable concentration limits set forth in Section
5.2(o) hereof.
"EURODOLLAR DISRUPTION EVENT" means with respect to all Loans allocated
to any Interest Accrual Period, any of the following: (a) a determination by
a Purchaser that it would be contrary to law or to the directive of any
central bank or other governmental authority (whether or not having the force
of law) to obtain Dollars in the London interbank market to make, fund or
maintain any Loan for such Interest Accrual Period, (b) a determination by a
Purchaser that the rate at which deposits of Dollars are being offered to
such lender in the London interbank market does not accurately reflect the
cost to such Purchaser of making, funding or maintaining any Loan for such
Interest Accrual Period or (c) the inability of a Purchaser to obtain Dollars
in the London interbank market to make, fund or maintain any Loan for such
Interest Accrual Period.
"EURODOLLAR RESERVE PERCENTAGE" means for any day in any Interest
Accrual Period, the reserve percentage applicable on such day under
regulations issued from time to time by the Federal Reserve Board (or any
successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
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<PAGE>
requirement) for FUNB with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (as defined in Regulation D of the Federal
Reserve Board, as in effect from time to time) and having a term equal to
such Interest Accrual Period.
"EXCESS CONCENTRATION AMOUNT" means, at any date of determination, an
amount equal to the highest of the Engine Type Excess Concentration Amount,
the Single Lessee Excess Concentration Amount, the Three Lessee Excess
Concentration Amount, the Geographic Region Excess Concentration Amount and
the Wide Body Aircraft Excess Concentration Amount.
"EXISTING AND POSSIBLE LOANS" means Loans outstanding hereunder and
Loans proposed to be made on any Transfer Date.
"FACILITY FEE" has the meaning set forth in the Issuer Fee Letter.
"FEDERAL FUNDS RATE" means for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of
the federal funds rates and confirmed in Federal Reserve Board Statistical
Release H.15 (519) or any successor or substitute publication selected by
FUNB (or, if such day is not a Business Day, for the next preceding Business
Day), or, if, for any reason, such rate is not available on any day, the rate
determined, in the sole opinion of FUNB, to be the rate at which federal
funds are being offered for sale in the national federal funds market at 9:00
a.m. (New York City time).
"FEDERAL RESERVE BOARD" means the Board of Governors of the Federal
Reserve System or any successor thereto.
"FINAL PAYMENT DATE" means, with respect to Series 1997-1 Notes, the
date which is the seventh annual anniversary of the Conversion Date, or if
such date is not a Business Day, the Business Day immediately succeeding such
date.
"FCM" means First Union Capital Markets Corp.
"FUNB" means First Union National Bank.
"GEOGRAPHIC REGION EXCESS CONCENTRATION AMOUNT" means at any date of
determination, the dollar amount, if any, by which the sum of the Net Book
Values of all Eligible Engines (relating to Loans hereunder) subject to a
Lease Agreement with Lessees having corporate headquarters located in the
geographic areas set forth in Section 5.2(r) hereof exceeds the applicable
concentration limits set forth in Section 5.2(r) hereof.
"GUARANTOR" means Willis Lease Finance Corporation and its successors
and permitted assigns.
"GUARANTY" means that certain Amended and Restated Guaranty, dated as of
February 11, 1999 made by the Guarantor in favor of FUNB, together with its
successors and assigns.
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"INCREASED COSTS" shall have the meaning set forth in the Class A Note
Purchase Agreement.
"INDENTURE COMPLIANCE CERTIFICATE" means the certificate of the Issuer
given pursuant to Section 5.2(c) hereof.
"INTEREST" means for each Interest Accrual Period and for each Loan
outstanding, the sum of the products (for each such day during such Interest
Accrual Period) of :
IR x P x 1/360
where:
IR = the Interest Rate applicable on such day; and
P = the Loans outstanding on such day.
PROVIDED, HOWEVER, that (i) no provision of this Supplement shall require the
payment or permit the collection of Interest in excess of the maximum
permitted by applicable law and (ii) Interest shall not be considered paid
by any distribution if such distribution is rescinded or must otherwise be
returned for any reason.
"INTEREST ACCRUAL PERIOD" means for any Payment Date, the period
beginning with and including the day next following the end of the preceding
Interest Accrual Period and ending on and including the 15th day of the
following month; except that, in the case of the first Interest Accrual
Period, the period beginning with and including the Effective Date and ending
on and including the 15th day of the month next following the month in which
the Effective Date occurs. If such period is associated with LIBOR Rate
fundings the Interest Accrual Period shall be at the Deal Agent's discretion;
PROVIDED, HOWEVER, that such period shall end on no later than either the
15th day of the following month or the 15th day of the second succeeding
month. When switching from LIBOR Rate to CP Rate or Base Rate funding, the
first such Interest Accrual Period shall be at the Deal Agent's discretion.
"INTEREST RATE" means for any Loans on any day:
(a) to the extent the relevant Purchaser will be funding such
Loans through the issuance of Commercial Paper, a rate equal to the CP Rate
on such day, or
(b) to the extent the relevant Purchaser will not be funding
such Loans through the issuance of Commercial Paper, a rate equal to the
Alternative Rate on such day.
"ISSUER FEE LETTER" means the Issuer Fee Letter, dated as of February
11, 1999, between the Issuer and the Deal Agent, as may be amended from time
to time.
"LEASE AGREEMENT" means any lease agreement entered into from time to
time by the Issuer, either directly or pursuant to an assignment, pursuant to
which the Issuer leases one or more Eligible Engines, as identified on
Schedule 2 hereto, and any additions, substitutions and
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replacements therefor made in accordance with the Series 1997-1 Transaction
Documents and reflected in an amendment to such Schedule 2.
"LIBOR RATE" means for any Interest Accrual Period, an interest rate per
annum equal to the average per annum rate of interest determined by FUNB on
the basis of the offered rates for deposits in dollars for a term equal to
the Interest Accrual Period; and commencing on the first day of such Interest
Accrual Period, appearing on Telerate Page 3750 (or, if, for any reason,
Telerate Page 3750 is not available, the Reuters Screen LIBO Page) as of
11:00 A.M. (London time) on the Business Day which is the second Business Day
immediately preceding the first day of the applicable Interest Accrual
Period. If neither Telerate Page 3750 nor the Reuters Screen LIBO Page is
available, then the LIBOR Rate shall be the rate determined by FUNB at its
principal office in Charlotte, North Carolina as its LIBOR Rate (each such
determination, absent manifest error, to be conclusive and binding on all
parties hereto and their assignees) as of two Business Days prior to the
applicable Interest Accrual Period as the rate at which deposits in
immediately available funds in U.S. dollars are being, have been, or would be
offered or quoted by FUNB to major banks in the applicable interbank market
for Eurodollar deposits at or about 11:00 A.M. (Charlotte, North Carolina
time) on the Business Day which is the second Business Day immediately
preceding the first day of the applicable Interest Accrual Period for
delivery on the first day of such Interest Accrual Period for a term equal to
such Interest Accrual Period.
"LOAN" means an extension of credit made by the Purchasers pursuant to
Section 2.4 hereof.
"MAJORITY OF HOLDERS" means, with respect to the Series 1997-1 Notes,
Purchasers representing more than fifty percent (50%) of the unpaid principal
balance of the Class A Notes then Outstanding.
"ON-LEASE PERCENTAGE" means, a fraction, expressed as a percentage, the
numerator of which is equal to the Net Book Value of all Eligible Engines
(relating to Loans hereunder) subject to a Lease Agreement and the
denominator of which is equal to the sum of the Net Book Values of all
Engines (relating to Loans hereunder).
"OTHER TAXES" shall have the meaning set forth in Section 2.5(b) of this
Supplement.
"OVERDUE RATE" means, with respect to any Notes, an interest rate per
annum equal to the sum of (i) the interest rate per annum that would have
otherwise been in effect with respect to such Loan plus (ii) two percent (2%).
"PAYMENT DATE" means, with respect to the Series 1997-1 Notes, the
twentieth day of each month, or, if such day is not a Business Day, the
immediately following Business Day; PROVIDED, HOWEVER, that the initial
Payment Date shall be the twentieth day of the second month immediately
succeeding the Closing Date, or if such day is not a Business Day, the
immediately following Business Day.
"PREPAYMENT" means any mandatory or optional prepayment of principal of
Notes including, without limitation, any Prepayment pursuant to Section 702
of the Indenture.
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"PRIME RATE" means the rate announced by FUNB from time to time as its
prime rate in the United States, such rate to change as and when such
designated rate changes. The Prime Rate is not intended to be the lowest
rate of interest charged by FUNB in connection with extensions of credit to
debtors.
"PROGRAM FEE" has the meaning set forth in the Issuer Fee Letter.
"PURCHASERS" shall have the meaning set forth in the Class A Note
Purchase Agreement.
"SECURITIES ACCOUNTS" means the Series 1997-1 Series Account and the
Series 1997-1 Restricted Cash Account.
"SECURITIES INTERMEDIARY" means The Bank of New York, a New York banking
corporation, as securities intermediary (as such term is defined under UCC
Section 8-102(a)(14)) with respect to the Securities Accounts.
"SERIES COLLATERAL" shall have the meaning set forth in Section 2.1
hereof.
"SERIES 1997-1" shall mean the Series of Notes the terms of which are
specified in this Supplement.
"SERIES 1997-1 ENGINES" shall mean the Engines identified on Schedule 2
hereto, and any additions, substitutions and replacements therefor made in
accordance with the Series 1997-1 Transaction Documents and reflected in an
amendment to such Schedule 2.
"SERIES 1997-1 ENGINE RESERVE ACCOUNT" means the subaccount established
by the Issuer with the Indenture Trustee into which Maintenance Reserve
Payments are deposited pursuant to Section 308 of the Indenture and Section
3.05 hereof.
"SERIES 1997-1 NOTEHOLDER" shall mean the Person in whose name a Series
1997-1 Note is registered in the Note Register.
"SERIES 1997-1 NOTES" means the Class A Notes, and shall include any and
all replacements, extensions, substitutions or renewals of such notes.
"SERIES 1997-1 RESTRICTED CASH ACCOUNT" means the subaccount (designated
as such) of the account established pursuant to Section 3.7 of the Indenture.
"SERIES 1997-1 RESTRICTED CASH AMOUNT" means the amount required to be
deposited or maintained in the Series 1997-1 Restricted Cash Account, which
on the date on which the initial Loan is made and on any Payment Date
thereafter shall be equal to the product of (x) two percent (2%) and (y) the
Class A Note Principal Balance on such date on which the initial Loan is made
or on such Payment Date, as the case may be (after giving effect to all Loans
made on such date on which the initial Loan is made or on such Payment Date
and all Class A Note
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Principal Payments actually paid on such date on which the initial Loan is
made or on such Payment Date).
"SERIES 1997-1 SECURITY DEPOSIT ACCOUNT" means the subaccount
established by the Issuer with the Indenture Trustee into which Security
Deposits are deposited pursuant to Section 309 of the Indenture and Section
3.6 hereof.
"SERIES 1997-1 SERIES ACCOUNT" means the account established by the
Issuer with the Indenture Trustee into which funds are deposited from the
Trust Account pursuant to Section 303 of the Indenture.
"SERIES 1997-1 TRANSACTION DOCUMENTS" means any and all of the
Indenture, this Supplement, the Series 1997-1 Notes, the Servicing Agreement,
the Contribution and Sale Agreement, the Class A Note Purchase Agreement, the
Administration Agreement and any and all other agreements, documents and
instruments executed and delivered by or on behalf or in support of Issuer
with respect to the issuance and sale of the Series 1997-1 Notes, as any of
the foregoing may from time to time be amended, modified, supplemented or
renewed.
"SERVICER ADVANCE" means all extraordinary out of pocket payments
payable pursuant to Section 3.04 of the Servicing Agreement and made by the
Servicer which have been authorized by the Deal Agent.
"SERVICER REPORT" means, with respect to Series 1997-1, the monthly
report prepared by the Servicer in the form set forth in Exhibit A to the
Servicing Agreement.
"SERVICING FEE" has the meaning set forth in Schedule 1.
"SINGLE LESSEE EXCESS CONCENTRATION AMOUNT" means at any date of
determination, the dollar amount, if any, by which the aggregate of the sum
of the Net Book Values of all Eligible Engines (relating to Loans hereunder)
that are subject to a Lease Agreement with any single Lessee (including
Affiliates thereof) exceeds the applicable concentration limits set forth in
Section 5.2(p) hereof.
"SINGLE LESSEE PERCENTAGE" has the meaning set forth in Schedule 1.
"TARGET EBIT RATIO" has the meaning set forth in Schedule 1.
"TARGET ONE YEAR LEASE EXPIRY CONCENTRATION PERCENTAGE" has the meaning
set forth in Schedule 1.
"TARGET TWO YEAR LEASE EXPIRY CONCENTRATION PERCENTAGE" has the meaning
set forth in Schedule 1.
"TAXES" means any present or future taxes, levies, imposes, duties,
charges, assessment or fees of any nature (including interest, penalties and
additions thereto) that are imposed by any government or other taxing
authority.
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"THREE LESSEE EXCESS CONCENTRATION AMOUNT" means at any date of
determination, the dollar amount, if any, by which the sum of the Net Book
Values of all Eligible Engines (relating to Loans hereunder) that are subject
to a Lease Agreement with the three (3) largest Lessees with respect to
aggregate Net Book Values (including Affiliates thereof) exceeds the
applicable concentration limits set forth in Section 5.2(q) hereof.
"THREE LESSEE PERCENTAGE" has the meaning set forth in Schedule 1.
"VFCC" means Variable Funding Capital Corporation, the initial purchaser
of the Class A Notes.
"WEIGHTED AVERAGE LEASE RATE PERCENTAGE" has the meaning set forth in
Schedule 1.
"WIDE BODY AIRCRAFT EXCESS CONCENTRATION AMOUNT" means, at any date of
determination, the dollar amount, if any, by which the sum of the Net Book
Values of all Eligible Engines (relating to Loans hereunder) designed to
power Wide Body Aircraft exceeds the applicable concentration limits set
forth in Section 5.2(s) hereof.
"WIDE BODY AIRCRAFT PERCENTAGE" has the meaning set forth in Schedule 1.
SECTION 1.2. CALCULATION GUIDELINES
For purposes of calculating the Class A Note Interest Payment, the Class
A Note Principal Balance shall at all times be equal to the sum of all Loans
then outstanding.
ARTICLE II
CREATION OF THE SERIES 1997-1 NOTES
SECTION 2.1. DESIGNATION; GENERAL TERMS AND CONDITIONS.
(a) There is hereby created a Series of Notes to be issued in one
Class pursuant to the Indenture and this Supplement to be known respectively
as the "WLFC Funding Corporation Secured Notes, Series 1997-1, Class A". The
Series 1997-1 Notes shall not be rated by any Rating Agency as of the
Effective Date.
(b) The Payment Date with respect to the Series 1997-1 Notes shall be
the twentieth day of each month, or, if such day is not a Business Day, the
immediately following Business Day.
(c) The Class A Notes shall be issued in definitive form substantially
in the form of EXHIBIT A hereto.
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(d) Payments of principal and interest on the Series 1997-1 Notes
shall be payable solely from funds on deposit in the Series 1997-1 Series
Account or otherwise at the times and in the amounts set forth in Article III
of this Supplement.
(e) In furtherance of, and in addition to the property identified in,
the Granting Clause set forth in the Indenture, as it relates to this
Supplement, the Issuer hereby grants to the Indenture Trustee, for the
benefit of the Series 1997-1 Noteholders, a security interest in all of
Issuer's right, title and interest in and to (i) each of the Series 1997-1
Engines, (ii) the Lease Agreements that encumber the Series 1997-1 Engines on
the Closing Date or on any date thereafter, (iii) the Series 1997-1 Series
Account, the Series 1997-1 Engine Reserve Account, the Series 1997-1 Security
Deposit Account and the Series 1997-1 Restricted Cash Account and all amounts
and Eligible Investments from time to time on deposit therein and (iv) all
income, payments and proceeds of the foregoing (all such property identified
in this Section 2.1(e), collectively, the "Series Collateral"). Such Series
Collateral (except as set forth in Section 401(d) of the Indenture with
respect to Excess Cash Available for Distribution) shall not be available to
pay any other Aggregate Outstanding Obligations until all Outstanding
Obligations under this Supplement have been paid in full.
(f) In the event that any term or provision contained herein shall
conflict with or be inconsistent with any term or provision contained in the
Indenture, the terms and provisions of this Supplement shall govern.
(g) The Series 1997-1 Notes created hereunder are not securities under
federal or state securities laws, but evidence the Issuer's obligation in
accordance with the terms hereof, to repay an extension of credit
constituting the Loans made to the Issuer by the Series 1997-1 Noteholders.
SECTION 2.2. INTEREST PAYMENTS ON THE SERIES 1997-1 NOTES.
(a) INTEREST ON SERIES 1997-1 NOTES. Each Loan shall bear interest on
the outstanding principal amount thereof from the date when made, continued
or converted until paid in full at a rate per annum equal to the applicable
Interest Rate. Such interest shall be payable on each Payment Date from
amounts on deposit in the Series 1997-1 Series Account in accordance with
Section 302 of the Indenture and Section 3.2 of this Supplement.
(b) DEFAULT INTEREST. Upon the occurrence of an Event of Default with
respect to the Series 1997-1 Notes, the Issuer shall, pursuant to Section 3.2
hereof, from time to time pay interest ("Default Interest") in accordance
with the terms of the Indenture, at a rate per annum equal to the Overdue
Rate, for the period during which such amounts shall remain unpaid.
(c) DETERMINATION OF INTEREST. The Deal Agent shall determine the
Interest pursuant to Section 2.6 of the Class A Note Purchase Agreement.
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SECTION 2.3. PRINCIPAL PAYMENTS ON THE SERIES 1997-1 NOTES.
Principal of the Series 1997-1 Notes shall be payable on each Payment
Date in the amount of the Class A Note Principal Payment from amounts on
deposit in the Series 1997-1 Series Account (and on the Final Payment Date,
from amounts on deposit in the Series 1997-1 Restricted Cash Account) in
accordance with Section 3.2 of this Supplement. The unpaid principal amount
of the Series 1997-1 Notes shall be due and payable in full on the Final
Payment Date, together with all unpaid interest, fees, expenses, costs and
other amounts payable by the Issuer pursuant to the terms of the Indenture
and this Supplement.
SECTION 2.4. AMOUNTS AND TERMS OF SERIES 1997-1 NOTEHOLDER COMMITMENTS.
(a) Subject to the terms and conditions of this Supplement and the
Class A Note Purchase Agreement, the Class A Note Commitment shall be
available to the Issuer on and after the Closing Date until the Conversion
Date.
(b) Prior to the Conversion Date, the Class A Note shall be a
revolving note with a maximum principal amount equal to the Class A Note
Commitment then in effect; PROVIDED, HOWEVER, that at no time shall the Class
A Note Principal Balance exceed the Asset Base for this Series 1997-1. The
Deal Agent shall maintain a record of all Loans and repayments made on the
Class A Note and absent manifest error such records shall be conclusive. On
any date requested by the Issuer, after the Issuer shall have satisfied all
applicable conditions precedent set forth in Article V hereof, each Purchaser
shall, at the Issuer's request for a Loan as specified in a notice given to
the Deal Agent in accordance with the terms of the Class A Note Purchase
Agreement, make payment thereof (in proportion to its respective commitment)
in an amount equal to (i) the Applicable Percentage of the Net Purchase Price
for the Eligible Engines pledged as collateral for such Loan and, with
respect to any Capital Improvements, (ii) the Applicable Percentage of the
value of Capital Improvements made to the Eligible Engines pledged as
collateral for such Loan, as determined in accordance with GAAP, and in
accordance with the written direction of the Issuer by wire transfer in same
day funds provided, that each request for an advance of principal of the
Class A Note shall, subject to the Class A Note Commitment then in effect, be
in a minimum aggregate amount as set forth in Section 2.4(b) of the Class A
Note Purchase Agreement. The Issuer shall pay interest on the Class A Notes
at the rates and in the manner set forth in Section 2.2 hereof. The unpaid
principal amount of the Class A Notes and all unpaid interest accrued
thereon, together with any unpaid Program Fee, Facility Fee and all other
fees, expenses, costs and other sums chargeable to the Issuer incurred in
connection therewith, shall be due and payable on the Final Payment Date.
Each request for a Loan shall constitute a reaffirmation by the Issuer
that (1) no Event of Default or Early Amortization Event has occurred and is
continuing and (2) the representations and warranties contained in the Series
1997-1 Transaction Documents are true, correct and complete in all material
respects to the same extent as though made on and as of the date of the
request, except to the extent such representations and warranties
specifically relate to an earlier date, in which event they shall be true,
correct and complete in all material respects as of such earlier date.
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(c) The Issuer may, on any Payment Date or on the maturity date of any
Loan, repay all or any portion of the Class A Note Principal Balance after
the Issuer specifies in a notice given to the Deal Agent at least 30 days
(and not more than 90 days) before such Payment Date and in accordance with
the terms of this Supplement, by making a wire transfer to the Deal Agent;
PROVIDED, HOWEVER, that the Issuer may not make such repayment from funds in
the Series 1997-1 Restricted Cash Account unless the Issuer is repaying all
of the Class A Note Principal Balance. Such repayment shall be accompanied
by instructions to apply such cash to the reduction of principal and accrued
Interest through the date of such payment. If the Issuer does not notify
each Purchaser and the Deal Agent of any such principal reduction at least 30
days prior to such principal reduction, the Issuer shall pay all costs
related to the reduction of outstanding principal, including Breakage Costs
and all costs associated with the outstanding Commercial Paper related to
such principal reduction. The Issuer understands (i) that Commercial Paper
issued in connection with such principal may not be prepaid, (ii) that the
amount of cash proceeds received by each Purchaser may not match the amount
of maturing Commercial Paper on the desired repayment date and (iii) that
each Purchaser shall use its reasonable best efforts to minimize any such
Breakage Costs.
(d) The Issuer may terminate or reduce the Class A Note Commitment
pursuant to Section 2.5 of the Class A Note Purchase Agreement.
(e) The Issuer shall pay on each quarterly Payment Date, beginning
with the third Payment Date, an Administrative Agent Fee to the
Administrative Agent as set forth in Schedule 1.
(f) The Issuer shall pay on each Payment Date a Program Fee to the
Deal Agent as set forth in the Issuer Fee Letter.
(g) The Issuer shall pay on each Payment Date the Facility Fee to the
Deal Agent as set forth in the Issuer Fee Letter.
SECTION 2.5. INCREASED COSTS; CAPITAL ADEQUACY; ILLEGALITY.
The provisions regarding Increased Costs, Capital Adequacy and
Illegality as set forth in Section 2.8 of the Class A Note Purchase Agreement
are incorporated herein.
SECTION 2.6. TAXES.
The provisions regarding Taxes as set forth in Section 2.9 of the Class
A Note Purchase Agreement are incorporated herein.
SECTION 2.7. PAYMENTS, COMPUTATIONS, ETC.
(a) Unless otherwise expressly provided herein, all amounts to be paid
or deposited by the Issuer or the Servicer hereunder shall be paid or
deposited in accordance with the terms hereof no later than 11:00 A.M.
(Charlotte, North Carolina time) on the day when due in lawful money of the
United States in immediately available funds to the Agent's Account. The
Issuer
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shall, to the extent permitted by law, pay to the Purchasers interest on all
amounts not paid or deposited when due hereunder at 1% per annum above the
Base Rate, payable on demand; PROVIDED, HOWEVER, that such interest rate
shall not at any time exceed the maximum rate permitted by applicable law.
Such interest shall be retained by the Deal Agent except to the extent that
such failure to make a timely payment or deposit has continued beyond the
date for distribution by the Deal Agent of such overdue amount to the
Purchasers, in which case such interest accruing after such date shall be for
the account of, and distributed by the Deal Agent to the Purchasers. All
computations of interest and other fees hereunder shall be made on the basis
of a year of 360 days for the actual number of days (including the first but
excluding the last day) elapsed.
(b) Whenever any payment hereunder shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in
the computation of payment of Interest or any fee payable hereunder, as the
case may be.
(c) If any Loan requested by the Issuer and approved by a Purchaser
and the Deal Agent pursuant to Section 2.2 is not, for any reason whatsoever
related to a default or nonperformance by the Issuer, made or effectuated, as
the case may be, on the date specified therefor, the Issuer shall indemnify
such Purchaser against any reasonable loss, cost or expense incurred by such
Purchaser, including, without limitation, any loss (including loss of
anticipated profits, net of anticipated profits in the reemployment of such
funds in the manner determined by such Purchaser), cost or expense incurred
by reason of the liquidation or reemployment of deposits or other funds
acquired by such Purchaser to fund or maintain such Loan, as the case may be,
during such Interest Accrual Period.
ARTICLE III
SERIES 1997-1 SERIES ACCOUNT AND
ALLOCATION AND APPLICATION OF AMOUNTS THEREIN
SECTION 3.1. SERIES 1997-1 SERIES ACCOUNT.
The Issuer shall establish on the Effective Date and maintain, so long
as any Series 1997-1 Note is Outstanding, an Eligible Account with the
Indenture Trustee which shall be designated as the Series 1997-1 Series
Account, which account is hereby pledged to the Indenture Trustee for the
benefit of the Series 1997-1 Noteholders pursuant to the Indenture and this
Supplement. All deposits of funds by or for the benefit of the Series 1997-1
Noteholders from the Trust Account and the Series 1997-1 Restricted Cash
Account shall be accumulated in, and withdrawn from, the Series 1997-1 Series
Account in accordance with the provisions of the Indenture and this
Supplement.
SECTION 3.2. DISTRIBUTIONS FROM SERIES 1997-1 SERIES ACCOUNT ON EACH
PAYMENT DATE.
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On each Payment Date, the Indenture Trustee shall, in accordance with
the Servicer Report, distribute funds then on deposit in the Series 1997-1
Series Account to the following Persons and in the following order of
priority:
(I) If an Early Amortization Event shall not then be continuing:
(A) To the Indenture Trustee by wire transfer of
immediately available funds, all Indenture Trustee's Fees then due and
payable for Series 1997-1 to the extent not paid by the Servicer;
(B) (i) If the Indenture Trustee has received the Servicer
Report for the related Collection Period, to the Servicer by wire transfer of
immediately available funds, an amount equal to the sum of any (x) Servicing
Fee Arrearage and (y) Servicing Fee then due and payable and (ii) to the
Servicer by wire transfer of immediately available funds, an amount equal to
the Servicer Advance then due and payable;
(C) To the Administrative Agent, any fees and expenses
then payable to the Administrative Agent approved by the Requisite Global
Majority pursuant to Section 405(b) of the Indenture;
(D) To an Interest Rate Hedge Provider, any payments owing
under an Interest Rate Hedge Agreement other than termination payments;
(E) To each Holder of a Class A Note on the immediately
preceding Determination Date, an amount equal to its PRO RATA portion of
FIRST, any Class A Note Interest Arrearage, and SECOND, the Class A Note
Interest Payment for such Payment Date;
(F) To the Series 1997-1 Restricted Cash Account, an
amount sufficient so that the total amount on deposit therein is equal to the
Series 1997-1 Restricted Cash Amount for such Payment Date;
(G) (i) To the Deal Agent an amount equal to the sum of
(x) the Facility Fee and the Program Fee then due and payable and (y) any
unpaid Facility Fee and Program Fee from all prior Payment Dates and (ii) to
the Administrative Agent an amount equal to the sum of (x) the Administrative
Agent Fee then due and payable and (y) any unpaid Administrative Agent Fee
from all prior Payment Dates;
(H) To each Holder of a Class A Note on the immediately
preceding Determination Date, an amount equal to its PRO RATA portion of
prepayments deposited in the Series 1997-1 Series Account for the related
Collection Period;
(I) To each Holder of a Class A Note on the immediately
preceding Determination Date, an amount equal to its PRO RATA portion of the
Class A Note Principal Payment;
(J) [RESERVED];
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(K) To each Holder of a Class A Note on the immediately
preceding Determination Date, PRO RATA, any Default Interest then due and
payable;
(L) To each Holder of a Class A Note on the immediately
preceding Determination Date, PRO RATA, an amount equal to Taxes, Other
Taxes, Increased Costs and amounts due pursuant to Sections 2.5, 2.6 and 2.7
hereof, if any, then due and payable with respect to such Class A Note and
any other costs, expenses, taxes and indemnities payable by the Issuer
pursuant to the Class A Note Purchase Agreement;
(M) To an Interest Rate Hedge Provider any termination
payments owing under any Interest Rate Hedge Agreement;
(N) To the Indenture Trustee for distribution pursuant to
Section 401(d) of the Indenture, as Excess Cash Available for Distribution,
to the extent that any Deficient Series is Outstanding on such Payment Date;
(O) To the Issuer by wire transfer of immediately
available funds, any remaining amount on deposit in the Series 1997-1 Series
Account on such Payment Date.
Notwithstanding the foregoing, the amounts set forth in clause (P)
shall be payable only at such times as no Deficient Series then exists.
(II) If an Early Amortization Event shall then be continuing:
(A) To the Indenture Trustee by wire transfer of
immediately available funds, all Indenture Trustee's Fees then due and
payable for Series 1997-1 to the extent not paid by the Servicer;
(B) (i) If the Indenture Trustee has received the Servicer
Report for the related Collection Period, to the Servicer by wire transfer of
immediately available funds, an amount equal to the sum of any (x) Servicer
Fee Arrearage and (y) Servicer Fee then due and payable and (ii) to the
Servicer by wire transfer of immediately available funds, an amount equal to
the Servicer Advance then due and payable;
(C) To the Administrative Agent, any fees and expenses
then payable to the Administrative Agent approved by the Requisite Global
Majority pursuant to Section 405(b) of the Indenture;
(D) To an Interest Rate Hedge Provider, any payments owing
under an Interest Rate Hedge Agreement other than termination payments;
(E) To each Holder of a Class A Note on the immediately
preceding Determination Date, an amount equal to its PRO RATA portion of
FIRST, any Class A Note Interest Arrearage and SECOND, the Class A Note
Interest Payment for such Payment Date;
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(F) (i) to the Deal Agent, an amount equal to the sum of
(x) the Facility Fee and Program Fee then due and payable and (y) any unpaid
Facility Fee and Program Fee from all prior Payment Dates and (ii) to the
Administrative Agent an amount equal to the sum of (x) the Administrative
Agent Fee then due and payable and (y) any unpaid Administrative Agent Fee
from all prior Payment Dates;
(G) To each Holder of a Class A Note on the immediately
preceding Determination Date, an amount equal to its PRO RATA portion of
prepayments deposited in the Series 1997-1 Series Account for the related
Collection Period;
(H) To each Holder of a Class A Note on the immediately
preceding Determination Date, an amount equal to its PRO RATA portion of the
Class A Note Principal Payment;
(I) To each Holder of a Class A Note on the immediately
preceding Determination Date, PRO RATA, any Default Interest then due and
payable;
(J) To each Holder of a Class A Note on the immediately
preceding Determination Date, PRO RATA, an amount equal to Taxes, Other
Taxes, Increased Costs and amounts due pursuant to Sections 2.5, 2.6 and 2.7
hereof, if any, then due and payable with respect to such Class A Note and
any other costs, expenses, taxes and indemnities payable by the Issuer
pursuant to the Class A Note Purchase Agreement;
(K) To an Interest Rate Hedge Provider any termination
payments owing under any Interest Rate Hedge Agreement;
(L) To the Indenture Trustee for distribution pursuant to
Section 401(d) of the Indenture, as Excess Cash Available for Distribution,
to the extent that any Deficient Series is Outstanding on such Payment Date;
(M) To the Issuer by wire transfer of immediately
available funds, any remaining amount on deposit in the Series 1997-1 Series
Account on such Payment Date.
Notwithstanding the foregoing, if an Event of Default has occurred and
the Indenture Trustee has sold or otherwise liquidated any Series Collateral
or any other asset of the Issuer, then solely with respect to funds realized
by the Indenture Trustee from such sale or liquidation, the amounts set forth
in clause (K) shall be payable pari passu with the amounts set forth in
clause (H) in proportion to the amounts due under clauses (K) and (H),
respectively.
Any amounts payable to a Purchaser shall be made by wire transfer of
immediately available funds to the account that such Noteholder has
designated to the Indenture Trustee in writing on or prior to the Business
Day immediately preceding the Payment Date.
SECTION 3.3. ALLOCATION OF EXCESS CASH AVAILABLE FOR DISTRIBUTION.
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On each Payment Date, the Indenture Trustee shall distribute any Excess
Cash Available for Distribution deposited into the Series 1997-1 Series
Account in accordance with Section 401 of the Indenture in payment of the
amounts and in the order of priority set forth in Section 3.2(I) or (II)
hereof, as the case may be.
SECTION 3.4. SERIES 1997-1 RESTRICTED CASH ACCOUNT.
(a) The Issuer shall establish on the Effective Date and maintain so
long as any Series 1997-1 Note is Outstanding an Eligible Account with the
Indenture Trustee which shall be designated as the Series 1997-1 Restricted
Cash Account, which account is hereby pledged to the Indenture Trustee
pursuant to the Indenture and this Supplement. On the date on which the
initial Loan is made, the Issuer will deposit the Series 1997-1 Restricted
Cash Amount in the Series 1997-1 Restricted Cash Account from the proceeds of
issuance of the Series 1997-1 Notes and thereafter amounts shall be deposited
in the Series 1997-1 Restricted Cash Account in accordance with Section 3.2
of this Supplement. Any and all moneys remitted by the Indenture Trustee to
the Series 1997-1 Restricted Cash Account shall be invested in Eligible
Investments in accordance with the Indenture and shall be distributed in
accordance with this Section 3.4.
(b) No later than 10:00 a.m. North Carolina time on the Business Day
prior to each Payment Date, the Indenture Trustee shall, in accordance with
the written instructions from the Deal Agent, make a draw on the Series
1997-1 Restricted Cash Account in an amount equal to the extent by which
amounts on deposit in the Series 1997-1 Series Account will be insufficient
to pay those amounts payable pursuant to Section 3.2(I)(E) or Section
3.2(II)(E), as the case may be, on such Payment Date (after giving effect to
any distributions to be made on such Payment Date prior to the payment of
such amounts) and the amount of any such draw shall be deposited in the
Series 1997-1 Series Account.
(c) On each Payment Date, the Indenture Trustee shall, in accordance
with the Servicer Report or pursuant to written instructions from the Deal
Agent, deposit in the Series 1997-1 Series Account the excess, if any, of (A)
amounts then on deposit in the Restricted Cash Account (after giving effect
to any withdrawals therefrom on such Payment Date) over (B) the Series 1997-1
Restricted Cash Amount. On the Final Payment Date, any remaining funds in
the Series 1997-1 Restricted Cash Account shall be deposited in the Series
1997-1 Series Account and distributed in accordance with Section 3.2 of this
Supplement.
SECTION 3.5. SERIES 1997-1 ENGINE RESERVE ACCOUNT.
(a) The Issuer shall establish on the Effective Date and maintain an
Eligible Account with the Indenture Trustee which shall be designated as the
Series 1997-1 Engine Reserve Account, which account is hereby pledged to the
Indenture Trustee pursuant to the Indenture and this Supplement. The Issuer,
or Servicer on its behalf, shall cause the Lessees to remit the Maintenance
Reserve Payments to the Trust Account, and the Servicer, pursuant to the
Servicing Agreement, shall, by not later than each Determination Date,
specifically identify those Maintenance Reserve Payments to a particular
Eligible Engine and instruct the Indenture Trustee to allocate all
Maintenance Reserve Payments on deposit in the Trust Account which relate to
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any Engine pledged as collateral for the Series 1997-1 Notes, to the Series
1997-1 Engine Reserve Account.
(b) The Issuer shall maintain (or shall cause the Servicer to
maintain) records that will identify amounts on deposit in the Series 1997-1
Engine Reserve Account to a specific Eligible Engine. The Servicer shall be
entitled to withdraw funds from the Series 1997-1 Engine Reserve Account for
the payment of maintenance expenses with respect to the related Eligible
Engine, at the times and subject to the further conditions set forth in the
Servicing Agreement; PROVIDED, HOWEVER, that so long as a Servicer Default is
then in effect, the Servicer shall not be entitled to make such withdrawal
except upon presentation of supporting documentation reasonably determined by
the Deal Agent to comply with the terms of the applicable Lease Agreement
(which shall evidence its determination by written instrument delivered to
the Indenture Trustee).
SECTION 3.6. SERIES 1997-1 SECURITY DEPOSIT ACCOUNT.
(a) The Issuer shall establish on the Effective Date and maintain an
Eligible Account with the Indenture Trustee which shall be designated as the
Series 1997-1 Security Deposit Account, which account is hereby pledged to
the Indenture Trustee pursuant to the Indenture and this Supplement. The
Issuer, or Servicer on its behalf, shall cause the Lessees to remit the
Security Deposits to the Trust Account, and the Servicer, pursuant to the
Servicing Agreement, shall, by not later than each Determination Date,
specifically identify those Security Deposits to a particular Eligible Engine
and instruct the Indenture Trustee to allocate all Security Deposits on
deposit in the Trust Account which relate to any Engine pledged as collateral
for the Series 1997-1 Notes, to the Series 1997-1 Security Deposit Account.
(b) The Issuer shall maintain (or shall cause the Servicer to
maintain) records that will identify amounts on deposit in the Series 1997-1
Security Deposit Account to a specific Eligible Engine. The Servicer shall
be entitled to withdraw funds from the Series 1997-1 Security Deposit Account
for the refund to the Lessee of the Security Deposit with respect to the
related Eligible Engine, at the times and subject to the further conditions
set forth in the Servicing Agreement; PROVIDED, HOWEVER, that so long as a
Servicer Default is then in effect, the Servicer shall not be entitled to
make such withdrawal except upon presentation of supporting documentation
reasonably determined by the Deal Agent to comply with the terms of the
applicable Lease Agreement (which shall evidence its determination by written
instrument delivered to the Indenture Trustee).
SECTION 3.7. SECURITIES ACCOUNTS.
(a) Notwithstanding any other provision of this Supplement or the
Indenture, with respect to each of the Securities Accounts, the Securities
Intermediary hereby agrees that it will comply with entitlement orders (as
such term is defined under the UCC) originated by the Indenture Trustee
without further consent by the Issuer.
(b) Each of the Issuer, the Securities Intermediary and the Indenture
Trustee intends that the provisions of Section 3.7(a) will give the Indenture
Trustee "control" over the Securities
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Accounts (as the term "control" is defined under the UCC), without prejudice
to any other provision of the UCC that also would be deemed to give the
Indenture Trustee such control.
ARTICLE IV
ADDITIONAL COVENANTS
In addition to the covenants set forth in Article VI of the Indenture,
the Issuer hereby makes the following additional covenants for the benefit of
the Series 1997-1 Noteholders:
SECTION 4.1. ADDITIONAL SERIES.
The Issuer shall not issue any additional Series of Notes on or after
the Effective Date without (a) the prior written consent of the Deal Agent,
(b) confirmation in writing that the Outstanding Obligations of each Series
of Notes (calculated after giving effect to such proposed issues) shall not
exceed the Asset Base for such Series of Notes as evidenced by the related
Asset Base Certificate most recently received by the Indenture Trustee (but
not earlier than the preceding Payment Date) and (c) confirmation in writing
that no Early Amortization Event or Event of Default has occurred and is then
continuing, and as a result of the issuance of such new Series no Early
Amortization Event or Event of Default will exist.
SECTION 4.2. CONTROL PARTY.
For purposes of determining a Requisite Global Majority pursuant to
Section 503 of the Indenture, the Control Party of Series 1997-1 shall mean
the Majority of Holders of the Outstanding Class A Notes.
SECTION 4.3. INSPECTIONS.
The Issuer agrees that any Person designated in writing by the Deal
Agent may consult with the proper officials of the Issuer (including, without
limitation, officials of any Affiliate of the Issuer in charge of servicing
the Lease Agreements) at such times during normal business hours and as often
as the Deal Agent may reasonably request regarding the information required
to be furnished pursuant to the Servicing Agreement or regarding the
performance of its respective covenants and agreements contained in any of
this Supplement or any of the Related Documents to which it is a party;
SECTION 4.4. RESERVED.
SECTION 4.5. INTEREST RATE HEDGE AGREEMENTS.
(a) The Issuer shall enter into Interest Rate Hedge Agreements in
order to protect the Issuer, to the extent commercially practicable, from
fluctuations in interest rates which would increase the interest payments of
the Issuer on Notes issued under this Supplement; provided that all Interest
Rate Hedge Agreements shall be in the amount specified in Schedule 1 and in
form
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and substance acceptable to the Deal Agent and be with an Interest Rate Hedge
Provider acceptable to the Deal Agent; PROVIDED, HOWEVER, that following any
Servicer Default the Deal Agent shall have the right, in its sole discretion
but after consultation with the initial Servicer if the initial Servicer is
still an operating entity, to direct the Indenture Trustee to enter into
Interest Rate Hedge Agreements on the Issuer's or the Indenture Trustee's
behalf. On or prior to the effective date of each such Interest Rate Hedge
Agreement which is not solely a cap agreement, the Interest Rate Hedge
Providers thereunder shall agree, for the period of one year after all
Indebtedness under this Supplement shall have been paid in full, not to
commence any case, proceeding or other action under any existing or future
Insolvency Law seeking to have an order for relief entered with respect to
the Issuer. In addition, long term senior unsecured indebtedness of the
related Interest Rate Hedge Provider shall be rated not less than A by
Standard & Poor's Rating Services, a division of the McGraw-Hill Companies,
Inc. and A2 by Moody's Ratings Services.
(b) Each Interest Rate Hedge Agreement shall provide that all payments
made pursuant thereto shall be paid directly to the Series 1997-1 Series
Account or shall be assigned to the Issuer with directions from the Issuer to
deposit such payments in the Series 1997-1 Series Account, and all payments
received from an Interest Rate Hedge Provider shall be deposited by the
Issuer or the Indenture Trustee directly into the Series 1997-1 Series
Account.
SECTION 4.6. INSURANCE.
The Issuer shall deliver to the Deal Agent and the Indenture Trustee,
within 90 days of the Closing Date or the Transfer Date related to the
transfer of any additional Transferred Assets, as the case may be,
certificates evidencing the Issuer's insurance coverage (in addition to any
insurance coverage required under the Servicing Agreement), which shall be
satisfactory to the Deal Agent, and shall name the Indenture Trustee on
behalf of the Series 1997-1 Noteholders as additional loss payee, in the case
of casualty insurance, and as additional insured in the case of liability
insurance.
SECTION 4.7. LESSEE ACKNOWLEDGMENT.
Within 90 days of the Closing Date or the Transfer Date related to each
Lease Agreement that is the subject of a Loan, as the case may be, the Lessee
under each Lease Agreement that is the subject of a Loan made on such date
shall have executed and delivered to the Deal Agent a written certificate,
substantially in the form attached hereto as Exhibit C, in which the Lessee
confirms (i) its remaining obligations under such Lease Agreement, (ii) that
no event of default (as defined in the Lease Agreements), or condition or
event which with the giving of notice or the passage of time or both would
constitute an event of default, exists under any related Lease Agreement and
(iii) that it will name the Indenture Trustee as additional loss payee, in
the case of casualty insurance, and as additional insured in the case of
liability insurance.
SECTION 4.8. OPINIONS OF FOREIGN LOCAL COUNSEL.
Within 120 days of the Closing Date or the Transfer Date related to each
Engine and related Lease Agreement, as the case may be, the Issuer shall
cause the delivery to the Series
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1997-1 Noteholders of Opinions of Counsel, other than counsel employed by the
Issuer, the Seller or the Servicer for purposes other than solely with
respect to the issuance of such opinions, in form and substance satisfactory
to the Series 1997-1 Noteholders, as to the perfection and priority (to the
extent applicable in such jurisdiction) of the Indenture Trustee's security
interest in each Engine and related Lease Agreement, which are subject to the
applicable laws of any jurisdiction other than the United States.
ARTICLE V
CONDITIONS OF EFFECTIVENESS AND FUTURE LENDING
SECTION 5.1. EFFECTIVENESS OF SUPPLEMENT.
The effectiveness of this Supplement is subject to the condition
precedent that the Indenture Trustee shall have received all of the
following, each duly executed and dated as of the Effective Date, in form and
substance satisfactory to all of the initial Series 1997-1 Noteholders and
each (except for the Series 1997-1 Notes, of which only the originals shall
be signed) in sufficient number of signed counterparts to provide one for
each Series 1997-1 Noteholder:
(a) SERIES 1997-1 NOTES. Separate Series 1997-1 Notes executed by the
Issuer, and duly authenticated by the Indenture Trustee, in favor of each
Series 1997-1 Noteholder in the stated principal amount of such Series 1997-1
Notes that such Series 1997-1 Noteholder has agreed to purchase.
(b) CERTIFICATE(S) OF SECRETARY OR ASSISTANT SECRETARY. Separate
certificates executed by the corporate secretary or assistant secretary of
each of Seller (as Seller and Servicer), the Servicer, the Guarantor and the
Issuer, dated the Effective Date, certifying (i) that the respective company
has the authority to execute and deliver, and perform its respective
obligations under each of the Series 1997-1 Transaction Documents to which it
is a party, and (ii) that attached are true, correct and complete copies of
the Certificate of Incorporation, by-laws, board resolutions and incumbency
certificates in form and substance satisfactory to all of the initial Series
1997-1 Noteholders, as to such matters as they shall require.
(c) SECURITY DOCUMENTS. The Indenture and this Supplement, in form and
substance satisfactory to all of the initial Series 1997-1 Noteholders, shall
have been executed and delivered by Issuer, and all other parties thereto,
together with other documents reasonably requested by Series 1997-1
Noteholders.
(d) OPINIONS OF COUNSEL. Opinions of Counsel to the Issuer, the
Seller, the Guarantor, the Servicer and the Indenture Trustee, in form and in
substance satisfactory to the initial Series 1997-1 Noteholder as to such
matters as it shall require.
(e) SERIES 1997-1 TRANSACTION DOCUMENTS. Each of the Amendment to the
Servicing Agreement, the Contribution and Sale Agreement, the Structuring Fee
Letter Agreement, the Administration Agreement, the Indenture, the
Assignment, the Class A Note Purchase
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Agreement, this Supplement and the Issuer Fee Letter shall have been duly
executed and delivered.
(f) GOOD STANDING CERTIFICATES. Good Standing Certificates in the
state(s) of formation and location for each of the Seller (as Seller and
Servicer), the Guarantor and the Issuer.
(g) ESTABLISHMENT OF ACCOUNTS. Each of the Trust Account, the Series
1997-1 Series Account, the Restricted Cash Account, the Series 1997-1
Restricted Cash Account, the Engine Reserve Account, the Series 1997-1 Engine
Reserve Account, the Security Deposit Account and the Series 1997-1 Security
Deposit Account shall have been established with the Indenture Trustee as
evidenced by a certificate of an authorized officer of the Indenture Trustee.
(h) GUARANTY. The Guarantor shall have duly executed and delivered
the Guaranty.
(i) LEGAL FEES. The Issuer shall have paid to Thacher Proffitt & Wood
and to Kilpatrick Stockton LLP, their fees and expenses as counsel for the
Deal Agent and the Purchasers.
Purchase of the Series 1997-1 Notes by the Series 1997-1 Noteholders
shall be conclusive evidence, upon which the Indenture Trustee may rely that
the Series 1997-1 Noteholders have determined that the conditions precedent
to the effectiveness of the Series 1997-1 Supplement set forth in (a) through
(i) above, have been complied with to their satisfaction.
SECTION 5.2. ADVANCES ON CLASS A NOTES.
The obligation of a Purchaser to make any Loans pursuant to its Class A
Note Commitment under this Supplement and the Class A Note Purchase Agreement
is subject to the following further conditions precedent; PROVIDED, HOWEVER,
that the Deal Agent may waive in writing those conditions precedent set forth
in subdivisions (o), (r), (s), (v) and (w) of this Section 5.2:
(a) DEFAULT. Before and after giving effect to such advance, no Event
of Default shall have occurred and be continuing.
(b) EARLY AMORTIZATION EVENT. Before and after giving effect to such
advance, no Early Amortization Event shall have occurred and be continuing
unless each of the Requisite Global Majority and Holders representing one
hundred percent (100%) of the Class A Note Principal Balance have approved
such advance.
(c) CERTIFICATION. Issuer shall have delivered to the Purchasers a
compliance certificate, signed by an officer of Issuer, as to the matters set
out in Article V and in Article VI of this Supplement.
(d) ASSET BASE CERTIFICATE. Issuer shall have delivered to the
Purchasers a duly completed and executed Asset Base Certificate, as of a date
not earlier than thirty (30) days prior
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to the date of such proposed advance of principal of the Class A Note, which
states that the Class A Note Principal Balance (after giving effect to such
proposed advance of principal of the Class A Note) will not exceed the Asset
Base for Series 1997-1 and complies with the requirements therefor set forth
in the Indenture and this Supplement.
(e) CONVERSION DATE. The Conversion Date shall not have occurred.
(f) SECURITY DOCUMENTS. All UCC financing statements, documents of
similar import in other jurisdictions, and other documents reasonably
requested by Series 1997-1 Noteholders shall have been delivered to the Deal
Agent.
(g) CERTIFICATE AS TO ENGINES. A certificate from the Servicer
certifying that it is managing all of the Contributed Engines in accordance
with the Servicing Agreement.
(h) OPINIONS OF COUNSEL. Opinions of Counsel to the Issuer, other
than counsel employed by the Issuer, the Seller or the Servicer, as to
perfection and priority of the Indenture Trustee's security interest in the
Collateral, in form and substance satisfactory to the Series 1997-1
Noteholder as to such matters as it shall require.
(i) PERFECTED SECURITY INTEREST. The Deal Agent shall have received
evidence to its satisfaction that the Indenture Trustee has (or upon funding,
will have) a first priority security in each Engine, and related Lease
Agreements that will be the subject of such Loan; PROVIDED, HOWEVER, that if
the applicable laws of any jurisdiction in which an Engine is required to be
registered does not provide for a means to obtain such first priority
security, then the Issuer shall provide additional assurances satisfactory to
the Purchasers. Such evidence shall, if requested by the Deal Agent, include
any Opinion of Counsel, other than counsel employed by the Issuer, the Seller
or the Servicer, as to the perfection of such security interest including,
without limitation, a written opinion from outside counsel for the Issuer,
regarding FAA matters.
(j) APPRAISAL. The Deal Agent shall have received an Appraisal in
form, scope and for a value satisfactory to the Deal Agent with respect to
each Engine that will be the subject of such Loan.
(k) CHATTEL PAPER. Any original counterpart of each Lease Agreement
(other than the one held by the Lessee or filed with any relevant
Governmental Authority) that will be the subject of a Loan that constitutes
"chattel paper" for purposes of the UCC as in effect in the jurisdiction
whose law governs the Lease Agreement has been delivered to the Indenture
Trustee.
(l) REMITTANCE TO TRUST ACCOUNT. The Lessee under each Lease
Agreement that will be the subject of a Loan shall have been directed to
remit to the Trust Account all Scheduled Payments and other amounts owing
pursuant to such Lease Agreement.
(m) LESSEE ACKNOWLEDGMENT. The Lessee under each Lease Agreement that
will be the subject of a Loan shall have received a written certificate, in
substantially the form attached hereto as Exhibit C, in which the Lessee will
confirm (i) its remaining obligations under such Lease Agreement, (ii) no
event of default (as defined in the Lease Agreements), or condition or
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event which with the giving of notice or the passage of time or both would
constitute an event of default, exist under any such Lease Agreement and
(iii) that it will name the Indenture Trustee as additional loss payee, in
the case of casualty insurance, and as additional insured in the case of
liability insurance.
(n) DEAL AGENT APPROVAL. The Deal Agent shall have approved each
Lease Agreement which is proposed as collateral for a Loan hereunder (the
Deal Agent shall communicate, within five Business Days of receipt of all
information from the Issuer reasonably requested by the Deal Agent, its
approval or disapproval of each Lease Agreement which is proposed as
collateral for a Loan hereunder).
(o) MAXIMUM CONCENTRATION BY ENGINE TYPES. Each Engine shall have
been manufactured by one of the manufacturers set forth under the column
titled "Manufacturer" on Exhibit B hereto and shall be one of the engine
types set forth opposite the name of such manufacturer under the column
titled "Engine Type" on Exhibit B hereto. After giving effect to the
transfer of Engines on any Transfer Date, the sum of the Net Book Values of
all Eligible Engines (relating to Existing and Possible Loans) of the same
engine type shall not exceed an amount equal to the product of (i) the
percentage set forth opposite such engine type in the column entitled
"Maximum Concentration" on Exhibit B hereto and (ii) the Aggregate Net Book
Value (relating to Existing and Possible Loans) on such Transfer Date.
(p) MAXIMUM CONCENTRATION FOR SINGLE LESSEE. After giving effect to
the transfer of Engines and the related Lease Agreements on any Transfer
Date, the sum of the Net Book Values of all Eligible Engines (relating to
Existing and Possible Loans) that are or would be subject to a Lease
Agreement with a single Lessee (including Affiliates thereof) shall not
exceed an amount equal to the product of (i) the Single Lessee Percentage and
(ii) the Aggregate Net Book Value (relating to Existing and Possible Loans).
(q) MAXIMUM CONCENTRATION FOR ANY THREE LESSEES. After giving effect
to the transfer of Engines and the related Lease Agreements on any Transfer
Date, the sum of the Net Book Values of all Eligible Engines (relating to
Existing and Possible Loans) that are or would be subject to a Lease
Agreement with the three (3) largest Lessees with respect to aggregate Net
Book Values (including Affiliates thereof) shall not exceed an amount equal
to the product of (i) the Three Lessee Percentage and (ii) the Aggregate Net
Book Value (relating to Existing and Possible Loans).
(r) MAXIMUM CONCENTRATION BY GEOGRAPHIC REGION. After giving effect
to the transfer of Engines and the related Lease Agreements on any Transfer
Date, the sum of the Net Book Values of all Engines (relating to Existing and
Possible Loans) that are or would be subject to a Lease Agreement with
Lessees having corporate headquarters located in the geographic areas set
forth below shall not exceed an amount equal to the product of (i) the
percentage set forth opposite such geographic region under the column
entitled "Maximum Geographic Percentage" in the Geographic Concentration
Table in Schedule 1 and (ii) the Aggregate Net Book Value (relating to
Existing and Possible Loans).
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(s) CONCENTRATION OF ENGINES FOR WIDE BODY AIRCRAFT. After giving
effect to the transfer of Engines on any Transfer Date, the sum of the Net
Book Values of all Eligible Engines (relating to Existing and Possible Loans)
designed to power Wide Body Aircraft shall not exceed an amount equal to the
product of (i) the Wide Body Aircraft Percentage and (ii) Aggregate Net Book
Value (relating to Existing and Possible Loans).
(t) ON-LEASE PERCENTAGE. After giving effect to the transfer of
Engines on any Transfer Date, the On-Lease Percentage of all Eligible Engines
(relating to Existing and Possible Loans) as of such Transfer Date shall not
be less than the Applicable Percentage.
(u) WEIGHTED AVERAGE LEASE RATE FACTOR. After giving effect to the
transfer of Engines on any Transfer Date, the Weighted Average Lease Rate
Factor for all Eligible Engines (relating to Existing and Possible Loans)
shall not be less than the Weighted Average Lease Rate Percentage.
(v) ONE YEAR LEASE EXPIRY CONCENTRATION PERCENTAGE. After giving
effect to the transfer of Engines on any Transfer Date, the One Year Lease
Expiry Concentration Percentage for Eligible Engines (relating to Existing
and Possible Loans) on such Transfer Date shall not exceed the Target One
Year Lease Expiry Concentration Percentage.
(w) TWO YEAR LEASE EXPIRY CONCENTRATION PERCENTAGE. After giving
effect to the transfer of Engines on any Transfer Date, the Two Year Lease
Expiry Concentration Percentage for Eligible Engines (relating to Existing
and Possible Loans) on such Transfer Date shall not exceed the Target Two
Year Lease Expiry Concentration Percentage.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
To induce the Series 1997-1 Noteholders to purchase the Series 1997-1
Notes hereunder, the Issuer hereby represents and warrants to the Series
1997-1 Noteholders as of the Effective Date, the Closing Date and each date
on which a Loan is made (to the extent applicable to the Issuer generally and
to the assets added to the Collateral on such date on which a Loan is made,
unless otherwise specified) that:
SECTION 6.1. EXISTENCE.
Issuer is a corporation duly organized, validly existing and in
compliance under the laws of the State of Delaware. Issuer is in good
standing and is duly qualified to do business in each jurisdiction where the
failure to do so would have a material adverse effect upon the Issuer.
SECTION 6.2. AUTHORIZATION.
Issuer has the power and is duly authorized to execute and deliver this
Supplement and the other Series 1997-1 Transaction Documents to which it is a
party; Issuer is and will continue
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to be duly authorized to borrow monies hereunder; and Issuer is and will
continue to be authorized to perform its obligations under this Supplement
and under the other Series 1997-1 Transaction Documents. The execution,
delivery and performance by Issuer of this Supplement and the other Series
1997-1 Transaction Documents to which it is a party and the borrowings
hereunder do not and will not require any consent or approval of any
Governmental Authority, stockholder or any other Person which has not already
been obtained.
SECTION 6.3. NO CONFLICT; LEGAL COMPLIANCE.
The execution, delivery and performance of this Supplement and each of
the other Series 1997-1 Transaction Documents and the execution, delivery and
payment of the Series 1997-1 Notes will not: (a) contravene any provision of
Issuer's charter documents or bylaws or other organizational documents; (b)
contravene, conflict with or violate any applicable law or regulation, or any
order, writ, judgment, injunction, decree, determination or award of any
Governmental Authority; or (c) materially violate or result in the breach of,
or constitute a default under any indenture or other loan or credit
agreement, or other agreement or instrument to which Issuer is a party or by
which Issuer, or its property and assets may be bound or affected. Issuer is
not in material violation or breach of or default under any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
or any contract, agreement, lease, license, indenture or other instrument to
which it is a party.
SECTION 6.4. VALIDITY AND BINDING EFFECT.
This Supplement is, and each Series 1997-1 Transaction Document to which
Issuer is a party, when duly executed and delivered, will be, legal, valid
and binding obligations of Issuer, enforceable against Issuer in accordance
with their respective terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws of general application affecting
the enforcement of creditors' rights or by general principles of equity
limiting the availability of equitable remedies.
SECTION 6.5. FINANCIAL STATEMENTS.
Since September 30, 1998, there has been no Material Adverse Change in
the financial condition of the Seller or the Servicer.
SECTION 6.6. EXECUTIVE OFFICES.
The current location of Issuer's chief executive office and principal
place of business is located at 2320 Marinship Way, Suite 300, Sausalito,
California 94965. The Issuer does not have trade names or doing business
names.
SECTION 6.7. NO AGREEMENTS OR CONTRACTS.
The Issuer has not transacted any business on or prior to the Effective
Date. The Issuer is not now and has not been a party to any contract or
agreement (whether written or oral), other than the Series 1997-1 Transaction
Documents and contracts or agreements incidental thereto.
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SECTION 6.8. CONSENTS AND APPROVALS.
No approval, authorization or consent of any trustee or holder of any
Indebtedness or obligation of Issuer or of any other Person under any
material agreement, contract, lease or license or similar document or
instrument to which Issuer is a party or by which Issuer is bound, is
required to be obtained by Issuer in order to make or consummate the
transactions contemplated under the Series 1997-1 Transaction Documents. All
consents and approvals of, filings and registrations with, and other actions
in respect of, all Governmental Authorities required to be obtained by Issuer
in order to make or consummate the transactions contemplated under the Series
1997-1 Transaction Documents have been, or prior to the time when required
will have been, obtained, given, filed or taken and are or will be in full
force and effect.
SECTION 6.9. MARGIN REGULATIONS.
Issuer does not own any "margin security", as that term is defined in
Regulations G and U of the Federal Reserve Board, and the proceeds of the
Series 1997-1 Notes issued under this Supplement will be used only for the
purposes contemplated hereunder. None of such proceeds will be used, directly
or indirectly, for the purpose of purchasing or carrying any margin security,
for the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose
which might cause any of the loans under this Supplement to be considered a
"purpose credit" within the meaning of Regulations T, U and X. Issuer will
not take or permit any agent acting on its behalf to take any action which
might cause this Supplement or any document or instrument delivered pursuant
hereto to violate any regulation of the Federal Reserve Board.
SECTION 6.10. TAXES.
All federal, state, local and foreign tax returns, reports and
statements required to be filed by Issuer have been filed with the
appropriate Governmental Authorities, and all Taxes, Other Taxes and other
impositions shown thereon to be due and payable by Issuer have been paid
prior to the date on which any fine, penalty, interest or late charge may be
added thereto for nonpayment thereof, or any such fine, penalty, interest,
late charge or loss has been paid, or Issuer is contesting its liability
therefor in good faith and has fully reserved all such amounts according to
GAAP in the financial statements provided to the Noteholders pursuant to
Section 626 of the Indenture. Issuer has paid when due and payable all
material charges upon the books of Issuer and no Government Authority has
asserted any Lien against Issuer with respect to unpaid Taxes or Other Taxes.
Proper and accurate amounts have been withheld by Issuer and its Subsidiaries
from its employees for all periods in full and complete compliance with the
tax, social security and unemployment withholding provisions of applicable
federal, state, local and foreign law and such withholdings have been timely
paid to the respective Governmental Authorities.
SECTION 6.11. OTHER REGULATIONS.
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Issuer is not: (a) a "public utility company" or a "holding company,"
or an "affiliate" or a "Subsidiary company" of a "holding company," or an
"affiliate" of such a "Subsidiary company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or (b) an "investment
company," or an "affiliated person" of, or a "promoter" or "principal
underwriter" for, an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended. The issuance of the Notes
hereunder and the application of the proceeds and repayment thereof by Issuer
and the performance of the transactions contemplated by this Supplement and
the other Series 1997-1 Transaction Documents will not violate any provision
of the Investment Company Act of 1940, as amended, or the Public Utility
Holding Company Act of 1935, as amended, or any rule, regulation or order
issued by the Securities and Exchange Commission thereunder.
SECTION 6.12. SOLVENCY AND SEPARATENESS.
The Issuer represents, warrants and covenants to take the following
actions to maintain its existence separate and apart from any other Person:
(i) maintain books of account in accordance with GAAP and
maintain its accounts, books and records separate from any other person or
entity:
(ii) not commingle its funds or assets with those of any
other entity;
(iii) hold its assets in its own name;
(iv) conduct its business solely in its own name;
(v) pay its own liabilities out of its own funds and assets;
(vi) observe all corporate formalities;
(vii) maintain an arms-length relationship with its
affiliates;
(viii) not assume or guarantee or become obligated for the
debts of any other entity or hold out its credit as being available to
satisfy the obligation of any other entity, and will not permit any other
person to assume or guarantee or become obligated for its debts or hold out
its credit as being available to satisfy the Issuer's obligations, except
with respect to obligations in connection with the Guaranty and the Seller
also may be required from time to time, as parent corporation of the
Issuer, to guaranty the Issuer's obligations, if any, as lessor under
certain Lease Agreements sold by the Seller to the Issuer.
(ix) not acquire obligations or securities of its
stockholders;
(x) allocate fairly and reasonably overhead or other
expenses that are properly shared with any other person or entity,
including without limitation, shared office space, and use separate
stationery, invoices and checks;
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(xi) identify and hold itself out as a separate and distinct
entity under its own name and not as a division or part of any other person
or entity;
(xii) correct any known misunderstanding regarding its
separate identity;
(xiii) not make loans to any person or entity;
(xiv) not identify its stockholders, or any affiliates of any
of them, as a division or part of itself;
(xv) not enter into, or be a party to, any transaction with
its stockholders or their affiliates, except in the ordinary course of its
business and on terms which are intrinsically fair and are no less
favorable to it than would be obtained in a comparable arms-length
transaction with an unrelated third party;
(xvi) pay the salaries of its own employees, if any, from its
own funds;
(xvii) maintain capital that is adequate for the business and
undertakings of the Issuer;
(xviii) have one director who shall not have been, at the time
of his or her appointment or at any time in the preceding five (5) years:
(a) a direct or indirect legal or beneficial stockholder of the Issuer or
any of its affiliates; (b) a creditor, supplier, employee, officer,
director, manager or contractor of the Issuer or any of its affiliates; (c)
a person who controls the Issuer or any of its affiliates; or (d) a member
of the immediate family of a person defined in (a), (b) or (c) immediately
above;
(xix) is not insolvent under the Insolvency Law and will not
be rendered insolvent by the transactions contemplated by the Series 1997-1
Transaction Documents and after giving effect to such transactions, the
Issuer will not be left with an unreasonably small amount of capital with
which to engage in its business nor will the Issuer have intended to incur,
or believed that it has incurred, debts beyond its ability to pay such
debts as they mature. The Issuer does not contemplate the commencement of
insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, trustee or similar person in respect
of the Issuer or any of its assets.
SECTION 6.13. NO PROCEEDINGS.
Each of the Issuer and the Indenture Trustee hereby agrees that it will
not institute against, or join any other Person in instituting against VFCC
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceedings under the laws of the United States
or any other state of the United States, so long as any commercial paper
issued by VFCC shall be outstanding and there shall not have elapsed one year
and one day since the last day on which any such commercial paper shall have
been outstanding.
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SECTION 6.14. RECOURSE AGAINST CERTAIN PARTIES.
(a) No recourse under or with respect to any obligation, covenant or
agreement (including, without limitation, the payment of any fees or any
other obligations) of any of the Issuer, the Servicer, VFCC, any Purchaser or
the Deal Agent as contained in the Deal Documents or any other agreement,
instrument or document entered into by it pursuant hereto or in connection
herewith shall be had against any administrator of such party or any
incorporator, affiliate, stockholder, officer, employee or director of such
party or of any such administrator, as such, by the enforcement of any
assessment or by any legal or equitable proceeding, by virtue of any statute
or otherwise; IT BEING EXPRESSLY AGREED AND UNDERSTOOD that the agreements of
such party contained in the Deal Documents and all of the other agreements,
instruments and documents entered into by it pursuant hereto or in connection
herewith are, in each case, solely the corporate obligations of such party,
PROVIDED THAT, in the case of VFCC, such liabilities shall be paid only after
the repayment in full of all Commercial Paper and all other liabilities
contemplated in the program documents with respect to VFCC, and that no
personal liability whatsoever shall attach to or be incurred by any
administrator of such party or any incorporator, stockholder, affiliate,
officer, employee or director of such party or of any such administrator, as
such, or any of them, under or by reason of any of the obligations, covenants
or agreements of such Purchaser contained in the Deal Documents or in any
other such instrument, document or agreement, or which are implied therefrom,
and that any and all personal liability of every such administrator of such
party and each incorporator, stockholder, affiliate, officer, employee or
director of such party or of any such administrator, or any of them, for
breaches by such party of any such obligations, covenants or agreements,
which liability may arise either at common law or in equity, by statute or
constitution, or otherwise, is hereby expressly waived as a condition of, and
in consideration for, the execution of the Deal Documents.
(b) Notwithstanding anything contained in this Agreement or any other
Series 1997-1 Transaction Document, VFCC shall have no obligation to pay any
amount required to be paid by it hereunder or in excess of any amount
available to VFCC after paying or making provision for the payment of its
Commercial Paper. All payment obligations of VFCC hereunder thereunder are
contingent upon the availability of funds in excess of the amounts necessary
to pay Commercial Paper; and each of the Issuer, the Deal Agent, the
Liquidity Agent, the Servicer and each Investor agrees that they shall not
have a claim under Section 101(5) of the United States Bankruptcy Code if and
to the extent that any such payment obligation exceeds the amount available
to VFCC to pay such amounts after paying or making provision for the payment
of its Commercial Paper.
(c) The provisions of this Section 6.14 shall survive the termination
of this Agreement.
33
<PAGE>
SECTION 6.15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
So long as any of the Notes shall be Outstanding and until payment and
performance in full of the Outstanding Obligations, the representations and
warranties contained herein shall have a continuing effect as having been
true when made.
SECTION 6.16. NO EVENT OF DEFAULT OR EARLY AMORTIZATION EVENT.
No Event of Default or Early Amortization Event has occurred and is
continuing.
SECTION 6.17. LITIGATION AND CONTINGENT LIABILITIES.
No claims, litigation, arbitration proceedings or governmental
proceedings by any Governmental Authority are pending or threatened against
or are affecting Issuer or any of its Subsidiaries the results of which might
interfere with the consummation of any of the transactions contemplated by
this Supplement or any document issued or delivered in connection herewith.
Section 6.18. TITLE; LIENS.
THE Issuer has good, legal and marketable title to its assets including
the Collateral, and none of such assets is subject to any Lien, except for
the Lien created pursuant to the Indenture. The Issuer has not assigned,
conveyed, pledged or otherwise transferred to any other Person any of its
right, title or interest in the Collateral.
SECTION 6.19. SUBSIDIARIES.
At all times on or prior to the Effective Date, the Issuer has had no
subsidiaries.
SECTION 6.20. NO PARTNERSHIP.
The Issuer is not a partner or joint venturer in any partnership or
joint venture.
SECTION 6.21. PENSION AND WELFARE PLANS.
No accumulated funding deficiency (as defined in Section 412 of the Code
or Section 302 of ERISA) or reportable event (within the meaning of section
4043 of ERISA), has occurred with respect to any Plan. The present value of
all benefit liabilities under all Plans subject to Title IV of ERISA, as
defined in Section 4001(a)(16) of ERISA, exceeds the fair market value of all
assets of Plans subject to Title IV of ERISA (determined as of the most
recent valuation date for such Plan on the basis of assumptions prescribed by
the Pension Benefit Guaranty Corporation for the purpose of Section 4044 of
ERISA), by no more than $1.9 million. Neither Issuer nor any ERISA Affiliate
is subject to any present or potential withdrawal liability pursuant to Title
IV of ERISA and no multiemployer plan (within the meaning of section
4001(a)(3) of ERISA) to which the Issuer or any ERISA Affiliate has an
obligation to contribute or any liability, is or is likely to be disqualified
for tax purposes, in reorganization within the meaning of Section 4241
34
<PAGE>
of ERISA or Section 418 of the Code) or is insolvent (as defined in Section
4245 of ERISA). No liability (other than liability to make periodic
contributions to fund benefits) with respect to any Plan of Issuer, or Plan
subject to Title IV of ERISA of any ERISA Affiliate, has been, or is expected
to be, incurred by Issuer or an ERISA Affiliate, either directly or
indirectly. All Plans of Issuer are in material compliance with ERISA and
the Code. No lien under Section 412 of the Code or 302(f) of ERISA or
requirement to provide security under the Code or ERISA has been or is
reasonably expected by Issuer to be imposed on its assets. The Issuer does
not have any obligation under any collective bargaining agreement. As of the
Effective Date, the Issuer is not an employee benefit plan within the meaning
of ERISA or a "plan" within the meaning of section 4975 of the Code and
assets of the Issuer do not constitute "plan assets" within the meaning of
section 2510.3-101 of the regulations of the Department of Labor.
SECTION 6.22. OWNERSHIP OF ISSUER.
On the Effective Date, all of the issued and outstanding common shares
of the Issuer are owned by Willis Lease Finance Corporation.
SECTION 6.23. SECURITY INTEREST.
The security interest in the Collateral created pursuant to the
Indenture and this Supplement has been validly created, and no other action
is required to be taken by any person in order for the full benefit of the
security interest created thereby to vest in the Indenture Trustee in order
to insure the first priority perfected security interest of the Indenture
Trustee (for the benefit of the Series 1997-1 Noteholders) in the Collateral.
Each Lease Agreement is "chattel paper" (under the UCC, if the UCC is in
effect in the jurisdiction whose law governs the Lease Agreement). All
executed counterparts of each Lease Agreement (other than the one held by the
related Lessee or filed with any relevant Governmental Authority) that
constitutes "chattel paper" are in the possession of the Indenture Trustee.
SECTION 6.24. ELIGIBLE LEASE AGREEMENTS; ELIGIBLE ENGINES.
Each of the Lease Agreements is an Eligible Lease and each Engine is an
Eligible Engine.
ARTICLE VII
EARLY AMORTIZATION EVENT
SECTION 7.1. EARLY AMORTIZATION EVENT.
With respect to the Series 1997-1 Notes, as of any date of
determination, the existence of any one of the following events or conditions
shall constitute an Early Amortization Event:
(1) An "event of default" under any Related Document (including an
Event of Default) shall have occurred and then be continuing;
(2) A Servicer Default shall have occurred and then be continuing;
35
<PAGE>
(3) The amount of any scheduled payment of interest or principal
then due and owing on the Series 1997-1 Notes is not paid in
full;
(4) The EBIT Ratio of Issuer shall be less than the Target EBIT
Ratio;
(5) The Asset Base shall be less than or equal to $25,000,000;
(6) The notational balances of all Interest Rate Hedge Agreements
exceeds the Class A Note Principal Balance for a period of
more than thirty (30) consecutive calendar days;
(7) The occurrence of any other Early Amortization Event as
specified in the Indenture.
36
<PAGE>
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1. RATIFICATION OF INDENTURE.
As supplemented by this Supplement, the Indenture is in all respects
ratified and confirmed and the Indenture as so supplemented by this
Supplement shall be read, taken and construed as one and the same instrument.
SECTION 8.2. COUNTERPARTS.
This Supplement may be executed in two or more counterparts, and by
different parties on separate counterparts, each of which shall be an
original, but all of which shall constitute one and the same instrument.
SECTION 8.3. GOVERNING LAW.
THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICTS OF LAW PROVISIONS, AND
THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
[Remainder of Page Intentionally Left Blank]
37
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Supplement to be duly executed and delivered by their respective
officers thereunto duly authorized, all as of the day and year first above
written.
WLFC FUNDING CORPORATION
By: /s/ James D. McBride
Name: JAMES D. MCBRIDE
Title: CHIEF FINANCIAL OFFICER
THE BANK OF NEW YORK,
as indenture trustee
By: /s/ Cheryl L. Laser
Name: CHERYL L. LASER
Title: ASSISTANT VICE PRESIDENT
THE BANK OF NEW YORK,
as securities intermediary
By: /s/ Cheryl L. Laser
Name: CHERYL L. LASER
Title: ASSISTANT VICE PRESIDENT
38
<PAGE>
SCHEDULE 1
SECTION 1: DEFINITIONS
"APPLICABLE PERCENTAGE" means _______________ percent (___%).(*)
"CLASS A NOTE COMMITMENT" means an amount not to exceed
$80,000,000, subject to the terms and conditions set forth herein 100% of
which to be allocated between VFCC and the Investors (as defined in the Class
A Note Purchase Agreement) as determined at any time by the Deal Agent in its
sole discretion; PROVIDED, HOWEVER, that at no time shall the Class A Note
Principal Balance exceed the Asset Base for this Series 1997-1.
"SERVICING FEE" means for any Payment Date an amount equal to the
product of (x) five percent (5%) and (y) the aggregate amount of Engine
Revenues with respect to the Series 1997-1 Engines during the immediately
preceding Collection Period.
"SINGLE LESSEE PERCENTAGE" means _______________ percent (___%).*
"TARGET EBIT RATIO" means 1.20:1.0.
"TARGET ONE YEAR LEASE EXPIRY CONCENTRATION PERCENTAGE" means
_______________ percent (___%).*
"TARGET TWO YEAR LEASE EXPIRY CONCENTRATION PERCENTAGE" means
_______________ percent (___%).*
"THREE LESSEE PERCENTAGE" means _______________ percent (___%).*
"WEIGHTED AVERAGE LEASE RATE PERCENTAGE" means one percent (1.0%).
"WIDE BODY AIRCRAFT PERCENTAGE" means _______________ percent
(___%).*
SECTION 2: CERTAIN ADDITIONAL TERMS
ADMINISTRATIVE AGENT FEE. The Issuer shall pay on each quarterly
Payment Date, beginning with the third Payment Date, an Administrative Agent
Fee to the Deal Agent an amount equal to the product of (x) .075%, (y)
one-fourth and (2) the Class A Note Principal Balance. Such Administrative
Agent Fee shall be payable on each quarterly Payment Date from amounts then
on deposit in the Series 1997-1 Series Account in accordance with Section
3.02 of the Supplement.
- ------------------------
(*) The redacted material has been omitted pursuant to a request for
confidential treatment and the redacted material has been filed
separately with the Commission.
1
<PAGE>
INTEREST RATE HEDGE AGREEMENTS. Beginning on March 31, 1999, the
Issuer at all times shall have Interest Rate Hedge Agreements in effect, each
of which has an aggregate notional amount of not less than 50% of the
Outstanding Obligations of the Series 1997-1 Notes.
SECTION 3: GEOGRAPHIC CONCENTRATION TABLE (*)
<TABLE>
<CAPTION>
--------------------------------------------------------------
GEOGRAPHIC REGION MAXIMUM GEOGRAPHIC
PERCENTAGE
--------------------------------------------------------------
<S> <C>
Africa ___%
--------------------------------------------------------------
Asia (including China) ___%
--------------------------------------------------------------
China ___%
--------------------------------------------------------------
Australia and New Zealand ___%
--------------------------------------------------------------
Western Europe ___%
--------------------------------------------------------------
Middle East ___%
--------------------------------------------------------------
North America ___%
--------------------------------------------------------------
Latin America ___%
--------------------------------------------------------------
</TABLE>
- -----------------------
(*) The redacted material has been omitted pursuant to a request for
confidential treatment and the redacted material has been filed
separately with the Commission.
2
<PAGE>
Exhibit 11.1
Computation of Earnings EXHIBIT XI
WILLIS LEASE FINANCE CORPORATION
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended March 31
-----------------------------
Income before extraordinary item 1999 1998
--------------- ------------
(in thousands, except per share data)
<S> <C> <C>
Basic
Earnings:
Income before extraordinary item $2,785 $1,949
Shares:
Weighted average number of common shares outstanding 7,363 7,192
--------------- ------------
Basic earnings per common share before extraordinary item $0.38 $0.27
Assuming Full Dilution
Earnings:
Income before extraordinary item $2,785 $1,949
--------------- ------------
Shares:
Weighted average number of common shares
outstanding and common stock equivalents 7,450 7,440
--------------- ------------
Earnings per common share assuming full dilution, $0.37 $0.26
before extraordinary item --------------- ------------
Net income
Basic
Earnings:
Net income $2,785 $1,749
--------------- ------------
Shares:
Weighted average number of common shares outstanding 7,363 7,192
--------------- ------------
Basic earnings per common share $0.38 $0.24
Assuming Full Dilution
Earnings:
Net income $2,785 $1,749
--------------- ------------
Shares:
Weighted average number of common shares
outstanding and common stock equivalents 7,450 7,440
--------------- ------------
Earnings per common share assuming full dilution $0.37 $0.23
=============== ============
</TABLE>
Supplemental information:
Difference between weighted average number of common shares outstanding to
calculate basic and assuming full dilution is due to options outstanding
under the 1996 Stock Options/Stock Issuance Plan
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 17,391
<SECURITIES> 0
<RECEIVABLES> 21,729
<ALLOWANCES> 0
<INVENTORY> 34,649
<CURRENT-ASSETS> 0
<PP&E> 283,987
<DEPRECIATION> 17,435
<TOTAL-ASSETS> 371,760
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 68,681
<TOTAL-LIABILITY-AND-EQUITY> 371,760
<SALES> 8,971
<TOTAL-REVENUES> 28,946
<CGS> 6,630
<TOTAL-COSTS> 24,301
<OTHER-EXPENSES> 4,668
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,893
<INCOME-PRETAX> 4,645
<INCOME-TAX> 1,860
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,785
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.37
</TABLE>
